HERITAGE BANCORP INC /SC/, 424B1, 1998-02-17

HERITAGE BANCORP INC /SC/
424B1, 1998-02-17
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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FILED PURSUANT TO RULE 424(b)1
FILE NO. 333-41857

[LOGO OF HERITAGE BANCORP, INC. APPEARS HERE]

Heritage Bancorp, Inc.

(Holding Company for Heritage Federal Savings & Loan Association,
to be known as Heritage Federal Bank)
Between 2,975,000 and 4,628,750 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 or
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

<TABLE>
<CAPTION>
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 HBSC.

The subscription offering will terminate at 12:00 Noon, Eastern Time, on March
17, 1998, unless extended for up to 13 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 7.

Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined it 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 (864)984-1211.

TRIDENT SECURITIES, INC.

The date of this prospectus is February 3, 1998

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TABLE OF CONTENTS

Page
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 7
Selected Financial Information............................................ 11
Recent Developments....................................................... 13
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Market for Common Stock................................................... 18
Capitalization............................................................ 19
Historical and Pro Forma Regulatory Capital Compliance.................... 21
Pro Forma Data............................................................ 22
Shares to be Purchased by Management Pursuant to Subscription Rights...... 26
Heritage Federal Savings & Loan Association Statement of Income........... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business of the Holding Company........................................... 38
Business of the Association............................................... 39
Management of the Holding Company......................................... 58
Management of the Association............................................. 59
Regulation................................................................ 67
Taxation.................................................................. 74
The Conversion............................................................ 76
Restrictions on Acquisition of the Holding Company........................ 90
Description of Capital Stock of the Holding Company....................... 95
Registration Requirements................................................. 96
Legal and Tax Opinions.................................................... 96
Experts................................................................... 97
Additional Information.................................................... 97
Index to Financial Statements............................................. 98
Glossary.................................................................. G-1

</TABLE>

[MAP]
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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 (864) 984-1211. Throughout this prospectus,
Heritage Federal Savings & Loan Association in its current and converted form 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

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federally chartered stock savings bank and will issue shares of its common stock
to Heritage Bancorp, Inc. As part 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 March 17, 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 or the 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.

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4. "Other Members" -- the Association's depositors as of January 30, 1998
and borrowers of the Association as of October 21, 1997 whose loans
continue to be outstanding as of January 30, 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 March
17, 1998, unless extended by the Association and the Holding Company for up to
13 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:

. 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.

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. 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 of full payment 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 March 10, 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 conversion. See "SHARES TO BE PURCHASED BY
MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS."

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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. 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. The Holding Company
will recognize additional compensation expense as a result of the adoption of
the ESOP. 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. The Holding Company will recognize
additional compensation expense as a result of the adoption of the MRP. 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 at no cost to the recipient. 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 in 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
compensation during the 12-month period preceding the change in control. If a
change in control had occurred as of September 30, 1997, the total value of the
severance benefits payable to these senior officers under the proposed

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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 HBSC. 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 an 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."

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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 provide 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."

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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 associations 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 associations. 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 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 ACQUISITION 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

Possible Increase in Estimated Valuation 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, without any additional notice, 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)
<S> <C> <C> <C> <C> <C>
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
</TABLE>

Year Ended September 30,
--------------------------------------------------
1997 1996 1995 1994 1993
--- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</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
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>

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
</TABLE>

<TABLE>
<CAPTION>
At or For the
Year Ended September 30,
------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</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>

RECENT DEVELOPMENTS

The following tables sets forth selected financial condition data for the
Association at December 31, 1997 and September 30, 1997, selected operating data
for the Association for the three months ended December 31, 1997 and 1996 and
selected financial ratios for the Association at and for the three months ended
December 31, 1997 and 1996. The selected financial and operating data and
financial ratios at and for the three months ended December 31, 1997 and 1996
are derived from the unaudited financial statements of the Association, which,
in the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation. This information should
be read in conjunction with the Financial Statements and Notes thereto presented
elsewhere in this prospectus.
<TABLE>
<CAPTION>

At At
December 31, September 30,
1997 1997
------------ -------------
(In thousands)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:

Total assets.................. $252,329 $247,499
Investment securities......... 25,598 24,378
Mortgage-backed securities.... 5,105 6,665
Loans receivable, net......... 192,086 192,663
Loans held for sale........... 1,072 1,045
Deposit accounts.............. 219,230 215,412
FHLB advances................. -- --
Total equity.................. 30,054 29,235
</TABLE>

<TABLE>
<CAPTION>
Three Months
Ended December 31,
-----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
SELECTED OPERATING DATA:

Interest income............... $ 4,512 $ 4,431
Interest expense.............. 3,118 3,096
-------- --------
Net interest income........... 1,394 1,335
Provision for loan losses..... -- --
-------- --------
Net interest income after
provision for loan losses.... 1,394 1,335
Other income.................. 48 54
Other operating expenses...... 588 581
-------- --------
Income before income taxes.... 854 808
Provision for income taxes.... 330 310
-------- --------
Net income.................... $ 524 $ 498
======== ========
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
At or For the
Three Months
Ended December 31,
----------------------
1997 1996
--- ------
<S> <C> <C>
SELECTED FINANCIAL RATIOS:

Performance Ratios:(1)
Return on average assets(2)............................ 0.84% 0.81%
Return on average equity(3)............................ 7.00 7.47
Average equity as a percent of average assets.......... 12.01 10.90
Interest rate spread(4)................................ 1.69 1.70
Net interest margin(5)................................. 2.31 2.25
Average interest-earning assets to
average interest-bearing liabilities.................. 1.12 1.11
Other operating expenses as a percent of average total
assets................................................ 0.94 0.95

Capital Ratios:
Tangible............................................... 11.0 10.9
Core................................................... 11.0 10.9
Risk-based............................................. 23.6 22.6

Asset Quality Ratios:
Nonperforming loans as a percent of loans receivable,
net(6)................................................ 0.43 0.43
Nonperforming assets as a percent of total assets(7)... 0.54 0.41
Allowance for loan losses as a percent of gross loans
receivable............................................ 0.43 0.36
Allowance for loan losses as a percent of
nonperforming loans................................... 105.95 85.90
Net charge-offs as a percent of average outstanding
loans................................................. 0.00 0.00
</TABLE>

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

(1) Ratios for the three-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average equity.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(7) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans, but exclude restructured loans.

Comparison of Financial Condition at December 31, 1997 and September 30, 1997

Total assets increased $4.8 million, or 2.0%, during the first quarter of
fiscal 1998 to $252.3 million. Loans receivable decreased $577,000 as low long-
term interest rates led many borrowers to refinance their loans. Mortgage-
backed securities decreased to $5.1 million from $6.7 million as a result of
continued repayments. Investment securities increased to $25.6 million from
$24.4 million. Cash and cash equivalents increased to $20.2 million from $14.7
million as the Association continued to accumulate cash faster than it was able
to originate loans.

Total liabilities increased $4.0 million, or 1.8%, during the first quarter
of fiscal 1998 to $222.3 million. Deposit accounts increased $3.8 million, or
1.8%, to $219.2 million. The Association had no borrowings at December 31,
1997.

14
<PAGE>

Total equity increased $819,000, or 2.8%, to $30.0 million at December 31,
1997 from $29.2 million at September 30, 1997. Retained income increased
$524,000 while unrealized gain on available-for-sale securities increased
$294,000.

Nonperforming Assets

Nonaccrual loans decreased $110,000 to $824,000 at December 31, 1997 from
$934,000 at September 30, 1997. Nonaccrual one- to four-family mortgage loans
and builder construction loans decreased $28,000 and $176,000, respectively,
while nonaccrual home equity loans increased $94,000. At December 31, 1997,
total nonaccrual loans accounted for 0.43% of net loans receivable, compared to
0.48% at September 30, 1997. Real estate owned increased $134,000 to $544,000
at December 31, 1997 from $410,000 at September 30, 1997 as a result of
foreclosures during the quarter. Total nonperforming assets were 0.54% of total
assets at December 31, 1997, which is unchanged from September 30, 1997.

Comparison of Operating Results for the Three Months Ended December 31, 1997 and
1996

General. Net income increased $26,000, or 5.2%, to $524,000 for the three
months ended December 31, 1997 from $498,000 for the three months ended December
31, 1996. The increase in net income was primarily the result of an increase in
interest income, which was partially offset by a small decrease in other income
and small increases in other operating expenses and income taxes.

Net Interest Income. Net interest income increased $59,000, or 4.4%, from
the first quarter of fiscal 1997 to the first quarter of fiscal 1998. Interest
income increased $81,000, or 1.8%, between the periods. Interest income on
loans increased $191,000 as a result of an increase in the average balance of
loans receivable and an increase in the average yield to 8.02% from 7.94%.
Interest income on investment and mortgage-backed securities decreased $110,000
primarily as a result of smaller balances of these investments. The average
yield on total interest-earning assets was 7.46% for the first quarter of fiscal
1998 compared to 7.47% for the first quarter of fiscal 1997. Interest expense
increased $22,000, or 0.7%, between the periods. Interest expense on deposits
increased $103,000, or 3.3%, as a result of an increase in the average balance
of deposits. Interest expense on FHLB deposits was $0 compared with $81,000 in
the first quarter of fiscal 1997. The average rate paid on interest-bearing
liabilities was 5.77% for the first quarter of fiscal 1998, which is unchanged
from the same period in the prior year.

Provision for Loan Losses. There was no provision for loan losses in
either the first quarter of fiscal 1998 or the first quarter of fiscal 1997.
During the three months ended December 31, 1997, the Association had charge-offs
of $1,000 and no recoveries. At December 31, 1997, the Association's allowance
for loan losses totalled $873,000, which equaled 0.43% of total loans.

Other Income. Other income decreased $6,000, or 11.1%, to $48,000 for the
three months ended December 31, 1997 from $54,000 for the three months ended
December 31, 1996. The decrease was primarily due to a decrease in service
charges and fees, which accounts for substantially all of the Association's
other income.

Other Operating Expenses. Other operating expenses increased $6,000, or
1.0%, from the first quarter of fiscal 1997 to the first quarter of fiscal 1998.
Deposit insurance premiums decreased $86,000 as a result of the reduction in
premiums. Employee benefit and compensation expense decreased $13,000.
Expenses for real estate owned were $26,000 in the first quarter of fiscal 1998
compared to income of $77,000 in the first quarter of fiscal 1997. In the three
months ended December 31, 1996, the Association sold real estate owned for a net
gain of $92,000.

Income Taxes. The provision for income taxes was $330,000 in the first
quarter of fiscal 1998 compared to $310,000 in the first quarter of fiscal 1997.
The provision was higher in fiscal 1998 because of higher taxable income.

15
<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

16
<PAGE>

regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "THE CONVERSION -- Restrictions 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 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. 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 1
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 income tax
purposes.

17
<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 HBSC, 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.

18
<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.

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 $89,014
======= ======= ======= ======= =======

</TABLE>

(footnotes on following page)

19
<PAGE>

- --------------------
(1) Does not reflect the possible increase in the 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 accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
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 the
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 sold 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 participants'
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.

20
<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) ...................... $51,518 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.

21
<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 at and for the year ended September
30, 1997, 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. While OTS regulations provide for the use of a
yield representing the arithmetic average of the weighted average yield earned
by the Association on its interest-earning assets and the rates paid on its
deposits, the Holding Company believes that the U.S. Treasury Bill yield
represents a more realistic yield on the investment of the conversion proceeds.
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.

22
<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 $ 89,014
========== ========== ========== ==========
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)

23
<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.

24
<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.

25
<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 as all other subscribers for
the shares for which they subscribe.
<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 1.13% 0.81%
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

John C. Owings, II 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) Does not include any shares to be awarded pursuant to the ESOP and MRP or
options to acquire shares pursuant to the Stock Option Plan.

26
<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, 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.

27
<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 primarily include compensation and benefits, occupancy and equipment
expenses, deposit insurance premiums and data processing expenses. 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.

The conversion will increase the consolidated capital of the Holding
Company by the amount of the net proceeds, after deduction for the shares to be
sold to the ESOP. Funds withdrawn from deposit accounts will decrease interest-
bearing liabilities, and new funds used to purchase shares will increase
interest-earning assets. While the Holding Company expects these changes to
increase its net interest income, the Holding Company also expects that the
adoption of the ESOP and the MRP and the additional costs of operating as a
public company will increase its other operating expenses. For additional
information regarding the effects of this offering, see "PRO FORMA DATA."

28
<PAGE>

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. Early in fiscal
1997, management determined to increase investment in loans and decrease
investment in investment and mortgage-backed securities since loans offered the
Association the opportunity to earn higher yields. Investment securities
decreased to $24.4 million from $37.9 million as a result of maturities, calls
and sales by the Association and mortgage-backed securities decreased to $6.7
million from $9.7 million as a result of prepayments. The Association used the
cash generated by the reduction in its investment and mortgage-backed securities
portfolios to fund loan growth. Cash and cash equivalents increased to $14.7
million from $5.9 million as the Association accumulated cash faster than it was
able to originate loans.

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. The Association used cash generated by the reduction in its investment and
mortgage-backed securities portfolios to repay its FHLB advances.

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

29
<PAGE>

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. In addition,
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 or that actual losses will not exceed the
estimated amounts.

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

30
<PAGE>

receivable was essentially unchanged between fiscal 1995 and 1996. The
remainder of the growth in interest income was 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.

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 10.6%, 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 causes any
material differences in the information presented.

31
<PAGE>

<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- --------------------------- ----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
-------- --------- ------- -------- --------- ------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)........ $189,689 $15,034 7.93% $178,081 $14,038 7.88% $172,133 $13,549 7.87%
Mortgage-backed securities....... 8,401 450 5.36 11,192 626 5.59 13,020 749 5.75
Investment securities (2)........ 32,397 1,856 5.73 35,684 1,815 5.09 31,882 1,580 4.96
FHLB stock....................... 2,042 148 7.25 2,042 147 7.20 2,042 153 7.49
Federal funds sold and
overnight deposits 5,335 285 5.34 6,317 348 5.51 2,202 133 6.04
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets.. 237,864 17,773 7.47 233,316 16,974 7.28 221,279 16,164 7.30
-------- ------- ---- -------- ------- ---- -------- ------- ----
Noninterest-earning assets........ 7,315 7,328 5,632
-------- -------- --------
Total average assets........... $245,179 $240,644 $226,911
======== ======== ========

Interest-bearing liabilities(3):
Passbook accounts................ $ 11,561 340 2.94 $ 12,270 362 2.95 $ 13,343 393 2.95
NOW and money market
accounts........................ 3,751 89 2.37 3,784 92 2.43 3,751 94 2.51
Certificates of deposit 195,853 11,575 5.91 190,572 11,431 6.00 175,431 9,454 5.39
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total deposits................. 211,165 12,004 5.68 206,626 11,885 5.75 192,525 9,941 5.16
FHLB advances 3,082 226 7.33 5,000 327 6.54 7,812 490 6.27
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities................... 214,247 12,230 5.71 211,626 12,212 5.77 200,337 10,431 5.21
-------- ------- ---- -------- ------- ---- -------- ------- ----
Noninterest-bearing liabilities... 2,759 2,570 2,091
-------- -------- --------
Total average liabilities...... 217,006 214,196 202,428
-------- -------- --------

Average equity.................... 28,173 26,448 24,483
-------- -------- --------
Total average liabilities
and equity.................... $245,179 $240,644 $226,911
======== ======== ========

Net interest income............... $ 5,543 $ 4,762 $ 5,733
======= ======= =======

Interest rate spread.............. 1.76% 1.51% 2.09%

Net interest margin............... 2.33% 2.04% 2.59%

Ratio of average interest-earning
assets to average interest-
bearing liabilities.............. 1.11x 1.10x 1.10x
</TABLE>

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

32
<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
Association's interest rate spread and net interest margin.
<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)........................ N/A 2.33 2.04 2.59
</TABLE>

33
<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
---------- ---------- --------- ----------- --------- ---------
(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 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."

34
<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 September 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.
<TABLE>
<CAPTION>

Basis Point ("bp") Estimated Change in
Change in Rates Net Portfolio Value
- -------------------- --------------------
(In thousands)
<S> <C>

+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
</TABLE>

The above table illustrates, for example, that an instantaneous 200 basis
point increase in market interest rates at September 30, 1997 would reduce the
Association's NPV by approximately $6.4 million, or 20%, at that date.

35
<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

36
<PAGE>

provided by a third party service bureau. The Association has contacted its
service bureau and has received assurances that the service bureau will properly
function in the year 2000. In coordination with its service bureau, the
Association has tentatively scheduled testing for the third calendar quarter of
1998. The Association anticipates that if such testing cannot be performed to
its satisfaction, it will commence a search for a new service bureau.
Internally, the Association has determined that certain computer programs must
be revised in advance of the year 2000. The Association does not believe 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

37
<PAGE>

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 beginning
after December 15, 1997. Comparative financial statements are required to be
reclassified to reflect the provisions of this statement.

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 also will 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."

38
<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: in 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 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.

39
<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 1994 1993
------------------ ----------------- ------------------ ------------------ -----------------

Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

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

(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Mortgage loans:
One- to four-family............. $180,609 90.0% $173,925 90.4% $167,092 90.2% $151,238 89.9% $147,968 90.0%

Builder construction............ 2,601 1.3 3,836 2.0 2,735 1.5 2,763 1.6 1,871 1.1
Commercial...................... 8,136 4.0 6,450 3.3 7,573 4.1 7,536 4.5 7,731 4.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage loans.......... 191,346 95.3 184,211 95.7 177,400 95.8 161,537 96.0 157,570 95.8
Savings account loans............ 1,419 0.7 1,146 0.6 1,439 0.8 1,133 0.7 1,444 0.9
Home equity loans................ 8,124 4.0 7,050 3.7 6,429 3.4 5,607 3.3 5,476 3.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans receivable......... 200,889 100.0% 192,407 100.0% 185,268 100.0% 168,277 100.0% 164,490 100.0%

===== ===== ===== ===== =====

Less:
Undisbursed loan funds.......... 6,989 8,375 5,995 7,584 4,980
Deferred loan origination fees.. 363 412 424 389 414
Allowance for loan losses....... 874 670 590 622 560
-------- -------- -------- -------- --------

Loans receivable, net.......... $192,663 $182,950 $178,259 $159,682 $158,536
======== ======== ======== ======== ========
</TABLE>

40
<PAGE>

ONE- TO FOUR-FAMILY REAL ESTATE LOANS. The Association has concentrated its
lending activities on the origination of loans secured by first mortgages 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 -- Mortgage Lending and 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

41
<PAGE>

loans will be sufficient to 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
requires 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. However,
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

42
<PAGE>

loans 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.

43
<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>

44
<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 term 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, tends to 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.

45
<PAGE>

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)
<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.

46
<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.

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

47
<PAGE>

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 borrower 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 $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-

48
<PAGE>

family mortgage loans; 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 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.

49
<PAGE>

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

Years Ended September 30,
----------------------------------------
1997 1996 1995 994 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."

50
<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.

At September 30,
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Category in Category in Category in Category in Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Mortgage loans:
One- to four-family....... $668 90.0% $452 90.4% $540 90.2% $486 89.9% $450 90.0%
Builder construction...... 42 1.3 26 2.0 8 1.5 12 1.6 9 1.1
Commercial................ 138 4.0 175 3.3 19 4.1 111 4.5 89 4.7
Savings account loans...... -- 0.7 -- 0.6 -- 0.8 -- 0.7 -- 0.9
Home equity loans.......... 26 4.0 17 3.7 23 3.4 13 3.3 12 3.3
Unallocated................ -- N/A -- N/A -- N/A -- N/A -- N/A
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
Total allowance for
loan losses............ $874 100.0% $670 100.0% $590 100.0% $622 100.0% $560 100.0%
==== ===== ==== ===== ==== ===== ==== ===== ==== =====
</TABLE>

51
<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, such as those issued by FANNIE MAE and Freddie Mac. 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.

52
<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>

53
<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 competitive rates. 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> <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
<CAPTION>
Certificate Accounts
-----------------------------
<S> <C> <C> <C> <C> <C>
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>

54
<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>

55
<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.

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.

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.

56
<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.

57
<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.

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 John C. Owings, II, 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.

58
<PAGE>

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

John H. Lake 69 Director 1977 1999
John C. Owings, II 45 Director 1998 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>

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>

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.

59
<PAGE>

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.

John C. Owings, II is the 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.

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

60
<PAGE>

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
- --------------------- ---- -------- ------ --------------- ---------------
<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
approximately $151,000 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
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

61
<PAGE>

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 Agreement
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 restricts 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 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 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

62
<PAGE>

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 20-1/2 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."

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 20-1/2 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

63
<PAGE>

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 20% per year, beginning upon the completion of two years of service. 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 members of the Association's Board of Directors will
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 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

64
<PAGE>

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.

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

65
<PAGE>

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.

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.

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

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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).

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

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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 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.

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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%, 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.

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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 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 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.

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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.

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

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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).
A 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.

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.

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

COMMUNITY REINVESTMENT ACT. Savings associations 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 savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association 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

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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. 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

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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 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

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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.

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 March 17, 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
January 30, 1998 and borrowers of the Association with loans outstanding as of
October 21, 1997 which continue to be outstanding as of January 30, 1998).

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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 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

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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 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

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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.

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.

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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.

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
June 30, 1996 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

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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.

Category 4: Other Members. Each depositor of the Association as of the
Voting Record Date (January 30, 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 March 30, 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 (Laurens, Anderson, Greenwood and Greenville Counties,
South Carolina). 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. 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

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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. 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 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.

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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 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, however, 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

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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."

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

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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.

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 (January 30, 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

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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.

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

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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, 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 3.61%, 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.

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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 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

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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.

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

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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 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

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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 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

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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 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

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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.

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

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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.

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 Holding Company and 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 the 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

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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.

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

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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.

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 has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As a result of 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.

96
<PAGE>

ADDITIONAL INFORMATION

The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-41857) 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.

97
<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........... 27

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 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.

98
<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)
- --------------------------------------------------------------------------------

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)
- --------------------------------------------------------------------------------

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, approximately $17,000 of
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, on December 19, 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 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):

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>

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):

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):

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>

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):

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):

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, 1996 and 1995, the
Association serviced loans for others with a total balance outstanding of
$5.4 million, $6.0 million and $6.6 million, respectively, and held
borrowers' escrow balances in the amounts of $41,000, $53,000 and $63,000,
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
<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):

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):

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):

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
Total write-offs (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 ($175,000 at fixed rates ranging from
8.0% to 9.5%). Commitments, which are disbursed subject to certain
limitations, extend over periods of time with the majority of such
commitment disbursed within a 30-day period.

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

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.

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

Exchange Act The Securities Exchange Act of 1934, as
amended.

Expiration Date March 17, 1998.

FASB Financial Accounting Standards Board.

FDIC Federal Deposit Insurance Corporation.

FHLB Federal Home Loan Bank.

Fannie Mae Federal National Mortgage Association.

Freddie Mac Federal Home Loan Mortgage Corporation.

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 January
30, 1998 and borrowers of the Association as
of October 21, 1997 whose loans continue to
be outstanding as of January 30, 1998.

OTS Office of Thrift Supervision of the United
States Department of the Treasury.

G-1
<PAGE>

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, Supplemental Eligible
Account Holders and Other Members.

Supplemental Eligible Account Holders of accounts at the Association
Holders 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
Holding Company and the Association engaged
to advise and assist in marketing the common
stock and conducting the Subscription
Offering and, if any, the Direct Community
Offering and/or Syndicated Community
Offering.

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 APPEARS HERE]

(Proposed Holding Company for
Heritage Federal Savings & Loan Association, to be known
as Heritage Federal Bank)

2,975,000 to 4,628,750 Shares of
Common Stock

PROSPECTUS

TRIDENT SECURITIES, INC.

February 3, 1998

Until the later of March 17, 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>

[LOGO OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION APPEARS HERE]

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Questions and Answers about Heritage Bancorp, Inc.Conversion
and Stock Offering

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Q & A
<PAGE>

HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION

Laurens, South Carolina

QUESTIONS AND ANSWERS
REGARDING THE
SUBSCRIPTION AND DIRECT COMMUNITY OFFERING
AND THE MUTUAL TO STOCK CONVERSION

MUTUAL TO STOCK CONVERSION

The Board of Directors of Heritage Federal Savings & Loan Association has
unanimously voted to convert Heritage Federal from its present mutual form to
a stock institution to be known as Heritage Federal Bank, subject to approval
of the conversion by Heritage Federal's members and regulatory authorities.
Complete details on the conversion, including reasons for the conversion, are
contained in the Prospectus and Proxy Statement. We urge you to read them
carefully.

This brochure is provided to answer basic questions you might have about the
conversion. Remember, the conversion will not affect the rate on any of your
savings accounts, deposit certificates, or loans.

1. Q. WHAT IS A "CONVERSION"?
A. Conversion is a change in the legal form of organization. Heritage Fed-
eral Savings & Loan Association currently operates as a federally-chart-
ered mutual savings institution with no shareholders. Through the conver-
sion, Heritage Federal will form a holding company, Heritage Bancorp,
Inc., which will ultimately own all of the outstanding stock of Heritage
Federal. Heritage Bancorp, Inc. will issue common stock in the conver-
sion, as described below, and will be a publicly-owned company.

2. Q. WHY IS HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION CONVERTING?
A. As a federally-chartered mutual savings institution, Heritage Federal
Savings & Loan Association does not have stock- holders and has no au-
thority to issue stock. By converting to the stock form of organization,
Heritage Federal will be structured in the form used by all commercial
banks, most business entities and a growing number of savings institu-
tions. The conversion will be important to the future growth and perfor-
mance of Heritage Federal by providing a larger capital base from which
it may operate, enhancing future access to capital markets and, if de-
sired, enhancing Heritage Federal's ability to diversify and expand it's
financial service-related activities. Currently, Heritage Federal has no
specific plans, agreements, arrangements or understandings regarding such
diversification.

3. Q. WILL THE CONVERSION HAVE ANY EFFECT ON SAVINGS ACCOUNTS, CERTIFICATES
OF DEPOSIT OR LOANS WITH HERITAGE FEDERAL?
A. No. The conversion will not change the amount, interest rate or
withdrawal rights of any savings and checking accounts or certificates of
deposit. The rights and obligations of borrowers under their loan
agreements will not be affected. However, upon consummation of the
conversion, Heritage Federal's deposit account holders will no longer
have voting rights in Heritage Federal, and will not have voting rights
in Heritage Bancorp, Inc. unless they purchase common stock of Heritage
Bancorp, Inc.

4. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN PERSONNEL OR MANAGEMENT?
A. No. The conversion will not cause any changes in personnel or management.
The normal day-to-day operations will continue as before.

5. Q. DID THE BOARD OF DIRECTORS OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
APPROVE THE CONVERSION?
A. Yes. The Board of Directors unanimously adopted the Plan of Conversion.

THE SUBSCRIPTION AND COMMUNITY OFFERING

6. Q. WHO IS ENTITLED TO SUBSCRIBE FOR HERITAGE BANCORP, INC. COMMON STOCK?
A. Rights to subscribe for common stock have been given in order of priority
to (i) depositors of Heritage Federal Savings & Loan Association with
$50.00 or more on deposit as of June 30, 1996 (the "Eligible Account
Holders"); (ii) Heritage Federal's employee stock ownership plan (the
"ESOP"), a tax qualified employee stock benefit plan; (iii) depositors of
Heritage Federal, who are not Eligible Account Holders, with $50.00 or
more on deposit as of December 31, 1997 (the "Supplemental Eligible
Account Holders"); and (iv) depositors of Heritage Federal as of January
30, 1998, and borrowers of Heritage Federal who had loans outstanding as
of October 21, 1997, which continue to be outstanding as of January 30,
1998 ("Other Members"), subject to the purchase limitations set forth in
the Plan of Conversion.

It is the responsibility of each subscriber qualifying as an Eligible
Account Holder, Supplemental Eligible Account
<PAGE>

Holder or Other Member to list completely all account numbers for
qualifying savings accounts and loans as of the qualifying date on the
stock order form.

Shares that are not subscribed for during the subscription offering, if
any, may be offered to the general public through a direct community
offering with preference given to natural persons and trusts of natural
persons who are permanent residents of the Association's local community.
It is anticipated that any shares not subscribed for in the subscription
and direct community offerings will be offered to certain members of the
general public through a syndicate of registered broker dealers pursuant
to selected dealers agreements in a syndicated community offering.

7. Q. HOW DO I SUBSCRIBE FOR SHARES OF STOCK?
A. Eligible subscribers wishing to exercise their subscription rights must
return the enclosed stock order form to Heritage Federal Savings & Loan
Association. The stock order form must be completed and returned along
with full payment or appropriate instructions authorizing a withdrawal
from a deposit account at Heritage Federal Savings & Loan Association on
or prior to the close of the subscription offering which will be 12:00
noon, Eastern time, on March 17, 1998, unless extended.

8. Q. HOW CAN I PAY FOR MY SUBSCRIPTION STOCK ORDER?
A. First, you may pay for your order in cash (if delivered in person to a
Heritage Federal teller) or by check or money order. Subscription funds
will earn interest at Heritage Federal's passbook rate from the day the
funds are received until the completion or termination of the conversion.

Second, you may authorize us to withdraw funds from your Heritage Federal
Savings & Loan Association savings account or certificate of deposit
without early withdrawal penalty. These funds will continue to earn
interest at the contractual rate for your account until completion of the
offering at which time your funds will be withdrawn for your purchase.
Funds remaining in this account (if any) will continue at the contractual
rate un-less the withdrawal reduces the account balance below the
applicable mini-mum in which case you will receive interest at the
passbook rate. A hold will be placed on your account for the amount you
specify for stock pay-ment. You will not have access to these funds from
the day we receive your order until the completion or termination of the
conversion.

If you want to use funds in your Individual Retirement Account held at
Heritage Federal to subscribe for stock, call our Stock Information
Center at (864) 984-1211 for assistance. There will be no early
withdrawal or IRS penalties incurred by these transactions.

9. Q. WHEN MUST I PLACE MY ORDER FOR SHARES OF STOCK?
A. To exercise subscription rights in the subscription offering, a stock
order form must be received by Heritage Federal Savings & Loan
Association with full payment for all shares subscribed for not later
than 12:00 noon, Eastern time, on March 17, 1998, unless extended.

Non-customers desiring to order shares through the direct community
offering, if any, must order shares before the close of the community
offering, if any, which will be no sooner than 12:00 noon, Eastern time
on March 17, 1998, unless extended.

10. Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED?
A. Heritage Bancorp, Inc. is offering up to 4,628,750 shares of common stock
at a price of $15.00 per share. The number of shares will be determined
by the independent appraiser's final determination of the consolidated
pro forma market value of Heritage Bancorp, Inc. and Heritage Federal
Savings & Loan Association, as converted.

11. Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES THAT I CAN PURCHASE
DURING THE OFFERING PERIOD?
A. The minimum number of shares that may be purchased is 25 shares. The
maximum purchase in the subscription offering for any person is $330,000
of common stock (or 22,000 shares). The maximum purchase for any person,
either alone or together with associates or persons acting in concert, is
1% of the shares issued in the conversion (up to a maximum of 40,250
shares).

12. Q. HOW WAS IT DETERMINED THAT BETWEEN 2,975,000 SHARES AND 4,628,750
SHARES OF STOCK WOULD BE ISSUED AT $15.00 PER SHARE?
A. The share range was determined through an appraisal of Heritage Bancorp,
Inc. and Heritage Federal, as converted, by RP Financial, LC., an
independent appraisal firm specializing in the thrift industry. The Board
of Directors of Heritage Bancorp and Heritage Federal determined the
$15.00 per share price.

13. Q. MUST I PAY A COMMISSION ON THE STOCK FOR WHICH I SUBSCRIBE?
A. No. You will not pay a commission on stock purchased in the subscription
offering, the direct community offering, if any, or syndicated community
offering, if any.
<PAGE>

14. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR STOCK PURCHASES?
A. Yes. Heritage Federal Savings & Loan Association will pay its current
passbook rate from the date funds are received (with a completed stock
order form) during the subscription and direct community offerings until
completion of the conversion.

15. Q. IF I HAVE MISPLACED MY STOCK ORDER FORM, WHAT SHOULD I DO?
A. Contact Heritage Federal's Stock Information Center about obtaining
another stock order form. If you need assistance in obtaining or
completing a stock order form, please call or visit the Stock Information
Center.

16. Q. WILL THERE BE ANY DIVIDENDS PAID ON THE STOCK?
A. Subject to regulatory and other considerations, Heritage Bancorp, Inc.
intends to adopt a policy of paying regular cash dividends at an annual
rate of $0.30 per share (2.0% based on the $15.00 per share initial
offering price). No assurance can be given that any dividends will be
paid on the common stock or that, if paid, such dividends will not be
reduced or eliminated in future periods.

17. Q. HOW MUCH STOCK DO THE DIRECTORS AND OFFICERS OF HERITAGE FEDERAL SAVINGS
& LOAN ASSOCIATION INTEND TO PURCHASE THROUGH THE SUBSCRIPTION OFFERING?
A. Directors and executive officers intend to submit orders to purchase
approximately $2,525,040 of the stock to be offered in the conversion.
The purchase price paid by directors and officers will be the same as
that paid by customers and the general public.

18. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE TO ANOTHER PARTY?
A. No. Pursuant to federal regulations, subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members may be exercised only by the person(s) to whom they are granted.
Any person found to be transferring or selling subscription rights will
be subject to forfeiture of such rights and other penalties. Shares
purchased upon exercise of subscription rights must be purchased for the
account of the person exercising such rights.

19. Q. I CLOSED MY ACCOUNT SEVERAL MONTHS AGO. SOMEONE TOLD ME THAT I AM STILL
ELIGIBLE TO BUY STOCK. IS THAT TRUE?
A. If you were an account holder on the Eligibility Record Date (June 30,
1996), the Supplemental Eligibility Record Date (December 31, 1997) or
the Voting Record Date (January 30, 1998) you are entitled to subscribe
for stock regardless of whether or not you continue to hold your Heritage
Federal Savings & Loan Association account.

20. Q. MAY I OBTAIN A LOAN FROM HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
USING STOCK AS COLLATERAL TO PAY FOR MY SHARES?
A. No. Federal regulations do not allow Heritage Federal Savings & Loan
Association to make loans for this purpose, but another financial
institution may make a loan for this purpose.

21. Q. WILL THE FDIC (FEDERAL DEPOSIT INSURANCE CORPORATION) INSURE THE SHARES
OF STOCK?
A. No. The shares will not be insured by the FDIC. However, the Savings
Association Insurance Fund of the FDIC will continue to insure savings
accounts and certificates of deposit up to the applicable limits allowed
by law.

22. Q. WILL THERE BE A MARKET FOR THE STOCK FOLLOWING THE CONVERSION?
A. Heritage Bancorp, Inc. has never issued stock before, and consequently
there is no established market for its common stock. Heritage Bancorp,
Inc. has received preliminary approval to have the common stock listed on
the Nasdaq National Market under the symbol HBSC. Trident Securities,
Inc. intends to make a market in the common stock. However, purchasers of
common stock should recognize that no assurance can be given that an
active and liquid trading market will develop or, if developed, will be
maintained.

23. Q. CAN I PURCHASE STOCK USING FUNDS IN A HERITAGE FEDERAL SAVINGS & LOAN
ASSOCIATION IRA ACCOUNT?
A. Yes. Contact the Stock Information Center for additional information. It
takes several days to process the necessary IRA forms and, therefore, it
is necessary that you make arrangements by March 10, 1998 to accommodate
your order.

ABOUT VOTING "FOR" THE PLAN OF CONVERSION

24. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE HELD TO
CONSIDER THE PLAN OF CONVERSION?
A. At the Special Meeting of Members to be held on March 17, 1998, you are
eligible to vote if you are one of the "Voting Members," who are holders
of Heritage Federal Savings & Loan Association's deposits or other
authorized accounts as of the Voting Record Date (January 30, 1998) for
the Special Meeting or if you are a borrower of Heritage Federal with a
loan outstanding as of October 21, 1997, which continues to be
outstanding as of the Voting Record Date. However, members of record as
of the close of business on the Voting Record Date who cease to be
depositors prior to the date of
<PAGE>

the Special Meeting are no longer members and will not be entitled to
vote at the Special Meeting. If you are a Voting Member, you should have
re-ceived a proxy statement and proxy card with which to vote.

25. Q. HOW MANY VOTES DO I HAVE AS A VOTING MEMBER?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account. Borrowers of Heritage Federal are
entitled to one vote for each loan outstanding as of October 21, 1997,
which continues to be outstanding as of January 30, 1998. No member may
cast more than 1,000 votes.

26. Q. IF I VOTE "AGAINST" THE PLAN OF CONVERSION AND IT IS APPROVED, WILL I
BE PROHIBITED FROM BUYING STOCK DURING THE SUBSCRIPTION OFFERING?
A. No. Voting against the Plan of Conversion in no way restricts you from
purchasing stock in either the subscription offering or the direct
community offering.

27. Q. WHAT HAPPENS IF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION DOES NOT
GET ENOUGH VOTES TO APPROVE THE PLAN OF CONVERSION?
A. The conversion would not take place and Heritage Federal Savings & Loan
Association would remain a mutual savings institution.

28. Q. AS A QUALIFYING DEPOSITOR OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION,
AM I REQUIRED TO VOTE?
A. No. However, failure to return your proxy card will have the same effect
as a vote "Against" the Plan of Conversion.

29. Q. WHAT IS A PROXY CARD?
A. A proxy card gives you the ability to vote without attending the Special
Meeting in person. However, you may attend the meeting and vote in
person, even if you have previously returned your proxy card.

30. Q. HOW DOES THE CONVERSION AFFECT ME?
A. The conversion is intended, among other things, to assist Heritage
Federal Savings & Loan Association in maintaining and expanding its many
services to Heritage Federal's customers and community. By purchasing
stock, you will also have the opportunity to invest in Heritage Bancorp,
Inc., the proposed holding company for Heritage Federal. However, there
is no obligation to purchase stock. The purchase of stock is strictly
optional.

31. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE STOCK OFFERING?
A. You may call the Stock Information Center, at (864) 984-1211 for further
information or a copy of the Prospectus, stock order form, Proxy
Statement and Proxy Card.

THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. A PROSPECTUS CAN
BE OBTAINED AT A HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION OFFICE OR BY
CALLING THE STOCK INFORMATION CENTER. THERE SHALL BE NO SOLICITATION OF AN OF-
FER OR SALE OF STOCK IN ANY JURISDICTION IN WHICH ANY OFFER, SOLICITATION OF
AN OFFER OR SALE OF STOCK WOULD BE UNLAWFUL.

THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.

FOR YOUR CONVENIENCE

IN ORDER TO ASSIST YOU DURING THE STOCK OFFERING PERIOD, WE HAVE ESTABLISHED A
STOCK INFORMATION CENTER TO ANSWER YOUR QUESTIONS. PLEASE CALL:

(864) 984-1211
<PAGE>

[LETTERHEAD OF TRIDENT SECURITIES, INC. APPEARS HERE]

To Members and Friends of Heritage Federal:

Trident Securities, Inc., a member of the National Association of
Securities Dealers, Inc., is assisting Heritage Federal Savings & Loan
Association in its conversion to a capital stock savings institution and
the concurrent offering of shares of common stock by Heritage Bancorp,
Inc., a Delaware corporation recently formed for the purpose of acquiring
all of the stock of Heritage Federal.

At the request of Heritage Federal, we are enclosing materials explaining
the conversion process and your right to subscribe for common shares of
Heritage Bancorp. Please read the enclosed offering materials carefully
before subscribing for stock.

If you have any questions, please call the Stock Information Center at
(864) 984-1211.

Sincerely,

TRIDENT SECURITIES, INC.

Enclosures

The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency.

This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus. There shall be no sale of stock
in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.

T
<PAGE>

[LOGO OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION APPEARS HERE]

Dear Valued Customer:

Heritage Federal Savings & Loan Association is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally chartered stock savings institution, conditioned upon receipt of
approval by Heritage Federal's members, among other things. This stock
conversion is the most significant event in the history of Heritage Federal in
that it allows customers, community members, directors and employees an
opportunity to subscribe for stock in Heritage Bancorp, Inc., the proposed
holding company for Heritage Federal.

We want to assure you that the conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at
Heritage Federal, or the terms or conditions of any loans to existing
borrowers under their individual contract arrangements with Heritage Federal.
Let us also assure you that the stock conversion will not result in any
changes in the management, personnel or the Board of Directors of Heritage
Federal.

A special meeting of the members of Heritage Federal will be held on March
17, 1998 at 2:00 p.m., Eastern Time, at Heritage Federal's main office to
consider and vote upon Heritage Federal's Plan of Conversion. Enclosed is a
proxy card. Your Board of Directors solicits your vote "FOR" Heritage
Federal's Plan of Conversion. A vote in favor of the Plan of Conversion does
not obligate you to purchase stock. If you do not plan to attend the special
meeting, please sign and return your proxy card promptly. Your vote is
important to us.

As one of our valued members, you have the opportunity to invest in Heritage
Federal's future by purchasing stock in Heritage Bancorp, Inc. during the
Subscription Offering, without paying a sales commission.

If you decide to exercise your subscription rights to purchase shares, you
must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received by Heritage Federal not later
than 12:00 Noon, Eastern Time, on March 17, 1998.

We also have enclosed a Prospectus and Proxy Statement which fully describes
the conversion and provides financial and other information about Heritage
Bancorp, Inc. and Heritage Federal. Please review these materials carefully
before you vote or invest. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock
Information Center at (864) 984-1211.

We look forward to continuing to provide quality financial services to you
in the future.

Sincerely,

/s/ J. Edward Wells
J. Edward Wells
President

Enclosures

The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.

This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus. There shall be no sale of stock in any
state in which any offer, solicitation of an offer or sale of stock would be
unlawful.

M
<PAGE>

[LOGO OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION APPEARS HERE]

Dear Interested Investor:

We want to assure you that the conversion will not result in any changes in
the management, personnel or the Board of Directors of Heritage Federal.

Enclosed is a Prospectus which fully describes Heritage Federal, its
management, board and financial condition. Please review it carefully before
you make an investment decision. If you decide to invest, please return to
Heritage Federal a properly completed stock order form together with full
payment for shares at your earliest convenience. For your convenience we have
established a Stock Information Center. If you have any questions, please call
the Stock Information Center at (864) 984-1211.

Sincerely,

/s/ J. Edward Wells
J. Edward Wells
President

The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.

This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus. There shall be no sale of stock in any
state in which any offer, solicitation of an offer or sale of stock would be
unlawful.

I
<PAGE>

[LOGO OF HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION APPEARS HERE]

Dear Friend:

We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at
Heritage Federal, or the terms or conditions of any loans to existing
borrowers under their individual contract arrangements with Heritage Federal.
Let us also assure you that the Conversion will not result in any changes in
the management, personnel or the Board of Directors of Heritage Federal.

Our records indicate that you were a depositor of Heritage Federal on June
30, 1996. Therefore, under applicable law, you are entitled to subscribe for
Common Stock in Heritage Bancorp's Subscription Offering. Orders submitted by
you and others in the Subscription Offering are contingent upon the current
members of Heritage Federal approving the Plan of Conversion at a special
meeting to be held on March 17, 1998 and upon receipt of all required
regulatory approvals.

If you decide to exercise your subscription rights to purchase shares, you
must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received at Heritage Federal not later
than 12:00 Noon, Eastern Time, on March 17, 1998.

Enclosed is a Prospectus which fully describes Heritage Federal, its
management, board and financial condition. Please review it carefully before
you invest. For your convenience, we have established a Stock Information
Center. If you have any questions, please call the Stock Information Center at
(864) 984-1211.

Sincerely,

/s/ J. Edward Wells
J. Edward Wells
President

Enclosures

The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.

This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus. There shall be no sale of stock in any
state in which any offer, solicitation of an offer or sale of stock would be
unlawful.

F
<PAGE>

[INSERT BACK OF PROXY CARD HERE]

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(Please tear along dotted line)

HERITAGE BANCORP, INC. STOCK ORDER FORM GUIDE
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INDIVIDUAL

Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership
rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.

JOINT TENANTS WITH RIGHT OF SURVIVORSHIP

Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.

TENANTS IN COMMON

Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of
the deceased co-tenant. All parties must agree to the transfer or sale of
shares held by tenants in common.

UNIFORM TRANSFER TO MINORS
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for
Custodian is "CUST", while the Uniform Transfer to Minors Act is "Unif Tran
Min Act". Standard U.S. Postal Service state abbreviations should be used to
describe the appropriate state. For example, stock held by John Doe as
custodian for Susan Doe under the South Carolina Uniform Transfer to Minors
Act will be abbreviated John Doe, CUST Susan Doe Unif Tran Min Act, SC (use
minor's social security number).

FIDUCIARIES

Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:

. The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation, list the corporation's title
before the individual.
. The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
. A copy and description of the document governing the fiduciary
relationship, such as living trust agreement or court order. Without
documentation establishing a fiduciary relationship, your stock may not be
registered in a fiduciary capacity.
. The date of the document governing the relationship, except that the date
of a trust created by a will need not be included in the description.
. The name of the maker, donor or testator and the name of the beneficiary.

An example of fiduciary ownership of stock in the case of a trust is: John
Doe, Trustee Under Agreement Dated 10-1-87 for Susan Doe.

You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Heritage Federal. In
order to purchase stock in the Subscription Offering, your Stock Order Form,
properly completed, and payment in full (or withdrawal authorization) at the
Subscription Price of $15.00 per share must be received by Heritage Federal no
later than 12:00 noon, Eastern Time, on March 17, 1998, unless such date is
extended, or your Stock Order Form will become void. Stock Order Forms shall
be deemed received only upon actual receipt at Heritage Federal.

If you need further assistance, please call the Stock Information Center at
(864) 984-1211. We will be pleased to help you with the completion of your
Stock Order Form or answer any questions you may have.

<PAGE>

[INSERT FRONT OF PROXY CARD HERE]

- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
HERITAGE BANCORP, INC. STOCK ORDER FORM INSTRUCTIONS
================================================================================

ITEMS 1 AND 2--

Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares
purchased by the Subscription Price of $15.00 per share. The minimum purchase
is 25 shares. The maximum purchase by (i) any person or entity (other than
Heritage Federal's Employee Stock Ownership Plan), or (ii) persons or entities
exercising subscription rights through a single account is 22,000 shares. In
addition, no person or entity, either alone or together with associates or
persons acting in concert, may purchase more than 1% of the shares issued in
the Conversion (up to a maximum of 40,250 shares). Any change in the maximum
purchase limitation may occur at any time prior to consummation of the
Conversion. If any maximum purchase limitation is increased, any subscriber or
group of subscribers who has subscribed for the maximum amount, and certain
other large subscribers in the discretion of Heritage Bancorp, Inc., will be
given the opportunity to increase their subscriptions up to the higher maximum
purchase limitation. Heritage Bancorp, Inc. and Heritage Federal reserve the
right to reject any order received in the Direct Community Offering, in whole
or in part.

Heritage Bancorp, Inc. and Heritage Federal also have the right to reject the
order of any subscriber who (i) submits false or misleading information on a
Stock Order Form or otherwise, (ii) attempts to purchase shares in violation
of the Plan of Conversion or applicable law or (iii) fails to cooperate with
attempts to verify information with respect to purchase rights.

ITEM 3--

Check here if you are a director, officer, or employee of Heritage Federal or
a member of such person's immediate family.

ITEM 4--

Payment for shares may be made in cash (only if delivered by you in person to
a teller) or by check, bank draft or money order made payable to Heritage
Bancorp, Inc. Your funds will earn interest at the Heritage Federal current
passbook savings rate until the Conversion is completed or terminated. DO NOT
MAIL CASH TO PURCHASE STOCK! PAYMENT MAY NOT BE MADE BY WIRE TRANSFER. Please
check this box if your method of payment is by cash, check, bank draft or
money order.

ITEM 5--

If you pay for your stock by a withdrawal from a Heritage Federal deposit
account, insert the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. Your order will be rejected if, on the date
your order is received, the accounts designated by you do not contain
sufficient funds to complete your purchase. There will be no penalty assessed
for early withdrawals from certificate accounts used for stock purchases. This
form of payment may not be used if your account is an Individual Retirement
Account. If you wish to use your IRA currently at Heritage Federal, you must
call the Stock Information Center prior to March 10, 1998 and complete all
paperwork required.

ITEM 6--

A. Please check this box if you were a depositor with at least $50 on deposit
at Heritage Federal on June 30, 1996 (the Eligibility Record Date). You must
list the full title and account numbers of all accounts you had on this date
in order to insure proper identification of your purchase rights and
preferences.

B. Please check this box if you were a depositor with at least $50 on deposit
at Heritage Federal on December 31, 1997 (the Supplemental Eligibility Record
Date). You must list the full title and account numbers of all accounts you
had on this date in order to insure proper identification of your purchase
rights and preferences.

C. Please check this box if you are a borrower from Heritage Federal as of
October 21, 1997 whose loan continued to be outstanding on January 30, 1998
(the Voting Record Date) or a depositor at Heritage Federal on the Voting
Record Date and you were not a depositor on June 30, 1996 or December 31,
1997. If you were a borrower from Heritage Federal on the Voting Record Date,
you must list the name of all borrowers on your loan accounts and the loan
account number for all loan accounts that you had at such date in order to
insure proper identification of your purchase rights and preferences. If you
were a depositor at Heritage Federal on the Voting Record Date, you must list
the full title and account numbers of all accounts you had on this date in
order to insure proper identification of your purchase rights and preferences.
D. Please check this box if your permanent residence is in Greenville,
Anderson, Laurens or Greenwood Counties in South Carolina.

ITEMS 7, 8, AND 9--

Please complete items 7, 8, and 9 as fully and accurately as possible, and be
certain to supply your social security number or tax identification number and
your daytime and evening telephone number(s). We may need to call you if we
have questions about your order. If you have any questions or concerns
regarding the registration of your stock, please consult your legal advisor.
Stock ownership must be registered in one of the ways described under "Stock
Ownership Guide."

ITEM 10--

Please check this box if you are a member of the NASD or if this item
otherwise applies to you.

ITEM 11 --

Check here, and complete the reverse side of this form, if you or any
associate (as defined on the reverse side of Stock Order Form) or persons
acting in concert with you have submitted other orders for shares in the
Subscription and/or Direct Community Offerings.

ITEMS 12--

Please sign and date the Stock Order Form where indicated. Review the Stock
Order Form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when
payment is to be made by withdrawal from a deposit account that requires
multiple signatures to withdraw funds. If you have any remaining questions, or
if you would like assistance in completing your Stock Order Form, you may call
the Stock Information Center. The Stock Information Center phone number is
(864) 984-1211.

<PAGE>

ITEM (6)A, B, C--(CONTINUED)

- -------------------------------------- --------------------------------------
Account Title (Names on Account Account Title (Names on Account
Accounts) Number(s) Accounts) Number(s)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------

ITEM (11)--(CONTINUED)

List below all other orders "Associate" is defined as: (i) any
submitted by you or your corporation or organization (other than
Associates (as defined) or by Heritage Bancorp, Inc. or Heritage Federal
persons acting in concert with Savings & Loan Association, or a majority-
you. owned subsidiary of Heritage Bancorp, Inc.
or Heritage Federal Savings & Loan
- -------------------------------- Association) of which such person is an
Number of officer or partner or is, directly or
Name(s) listed on Shares indirectly, the beneficial owner of 10% or
other Stock Order Ordered more of any class of equity securities; (ii)
Forms any trust or other estate in which such
- -------------------------------- person has a substantial beneficial interest
- -------------------------------- or as to which such person serves as a
- -------------------------------- 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 Heritage
Bancorp, Inc. or Heritage Federal Savings &
Loan Association or any subsidiaries
thereof.
================================================================================

TO BE VALID, A STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE
FRONT OF THIS FORM.

FORM OF CERTIFICATION

I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND
IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY HERITAGE BANCORP, INC.,
OR HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION, OR BY THE FEDERAL
GOVERNMENT.

If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I/we should call the Office of Thrift
Supervision Regional Director (Mr. Richard M. Riccobono), Southeast
Regional Office, at (404) 888-0771.

I/We further certify that before purchasing the common stock, par value
$0.01 per share, of Heritage Bancorp, Inc., the holding company for
Heritage Federal Savings & Loan Association, I/we received a Prospectus
that contains disclosure concerning the nature of the security being
offered and describes the risks involved in the investment, including,
among others:

. Reliance on Certificates of Deposit
. Mortgage Lending and Risks Associated with ARM Loans
. Interest Rate Risk
. Below Average Return on Equity After Conversion
. New Expenses Associated with ESOP and MRP
. Possible Dilutive Effect of Benefit Programs
. Possible Voting Control by Management and Employees
. Anti-Takeover Provisions and Statutory Provisions that Could
Discourage Hostile Acquisitions of Control
. Provisions of Employment and Severance Agreements and Severance Plan
. Competition
. Absence of Prior Market for the Common Stock
. Possible Increase in Estimated Valuation Range and Number of Shares Issued
. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
. Financial Institution Regulation and the Future of the Thrift Industry
See "Risk Factors" on pages 7 through 10 of the Prospectus.

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

------------------------------------ -------------------------------------
Name (Please Print) Name (Please Print)
------------------------------------ -------------------------------------

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

<PAGE>

Heritage Bancorp, Inc.
Stock Order Form
- --------------------------------------------------------------------------------
HERITAGE FEDERAL SAVINGS & LOAN EXPIRATION DATE
201 West Main Street for Stock Order Forms:
Laurens, SC 29360 March 17, 1998
(864) 984-4581 12:00 Noon, Eastern Time
- --------------------------------------------------------------------------------
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must
be used to subscribe for common stock. Faxes or copies of this form are not
required to be accepted. Please read the Stock Ownership Guide and Stock
Order Form Instructions as you complete this form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION PRICE (2) TOTAL PAYMENT DUE
---------------------- --------------------------
X $15.00 =
---------------------- --------------------------
(NO PARTIAL SHARES)

The minimum purchase is 25 shares (or $375). The maximum purchase is 22,000
shares (or $330,000) for any individual person or persons ordering through a
single account. No person, either alone or together with associates or persons
acting in concert, may subscribe for more than 40,250 shares (or $603,750). We
may increase the maximum purchase limitation without notifying you. person's
immediate family.
- --------------------------------------------------------------------------------
[_](3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
Check here if you are a director, officer or employee of Heritage Federal or
a member of such Heritage Federal on June 30, 1996.
- --------------------------------------------------------------------------------
[_](4) METHOD OF PAYMENT/CHECK Check Amount
Enclosed is a check, bank draft ----------------------------------
or money order made payable to
Heritage Bancorp, Inc. in ----------------------------------
the amount of:
- --------------------------------------------------------------------------------
[_](5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at
Heritage Federal. There is no penalty for early withdrawal for purposes of
this payment.
-----------------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
-----------------------------------------------------------------------------

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

-----------------------------------------------------------------------------
Total Withdrawal Amount
--------------------------------------

- --------------------------------------------------------------------------------
(6) PURCHASER INFORMATION
a. [_] Eligible Account Holder -- Check here if you were a depositor with at
least $50.00 on deposit at Enter information below for all deposit
accounts that you had at Heritage Federal on June 30, 1996.

b. [_] Supplemental Eligible Account Holder--Check here if you were a depositor
with at least $50.00 on deposit at Heritage Federal on December 31, 1997
but are not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at Heritage Federal on December 31, 1997.

c. [_] Other Member -- Check here if you were a borrower from Heritage Federal
on October 21, 1997 whose loan continued to be outstanding on January
30, 1998 or a depositor of Heritage Federal on January 30, 1998 who did
not have a deposit on June 30, 1996 or December 31, 1997. Enter
information below for all loan and deposit accounts that you had at
Heritage Federal on January 30, 1998.

d. [_] Local Community Resident -- Check here if you are a permanent resident
of Greenville, Anderson, Laurens or Greenwood Counties, South Carolina.
- --------------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT IN THE LOSS OF PART OR
ALL OF YOUR SUBSCRIPTION RIGHTS. IF ADDITIONAL SPACE IS NEEDED, PLEASE UTILIZE
THE BACK OF THIS STOCK ORDER FORM.
- --------------------------------------------------------------------------------
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
[_] Individual [_] Joint Tenants
[_] Individual Retirement Account (IRA) [_] Corporation or Partnership
[_] Uniform Transfer to Minors Act [_] Other _____________________
[_] Tenants in Common [_] Fiduciary (Under Agreement
dated _______________)

(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY)
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
Name(s) continued
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
Street Address City
------------------------------------------------ --------------------------

------------------------------------------------ --------------------------
Social Security # or Tax ID
---------------------------------------------------

---------------------------------------------------
Social Security # or Tax ID
---------------------------------------------------
State Zip Code
--------------- ------------------------

--------------- ------------------------
(9) TELEPHONE INFORMATION Daytime Evening
---------------------------------- ----------------------------
( ) ( )
---------------------------------- ----------------------------
County of Residence
---------------------------------------------------

---------------------------------------------------
- --------------------------------------------------------------------------------
[_](10) NASD AFFILIATION
Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which an
NASD member or person associated with an NASD member has a beneficial
interest. To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD Affiliation box, (i) not to sell,
transfer or hypothecate the stock for a period of 90 days following issuance,
and (ii) to report this subscription in writing to the applicable NASD member
within one day of payment therefor.
- --------------------------------------------------------------------------------
[_](11) ASSOCIATE--ACTING IN CONCERT
Check here, and complete the reverse side of this Form, if you or any
associate (as defined on the reverse side of this form) or persons acting in
concert with you have submitted other orders for shares in the Subscription
and/or Direct Community Offerings.
- --------------------------------------------------------------------------------
(12) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually
received by Heritage Federal no later than 12:00 Noon, Eastern Time, on March
17, 1998, unless extended; otherwise this Stock Order Form and all
subscription rights will be void. Completed Stock Order Forms, together with
the required payment or withdrawal authorization, may be delivered to
Heritage Federal or may be mailed to the Post Office Box indicated on the
enclosed business reply envelope. All rights exercisable hereunder are not
transferable and shares purchased upon exercise of such rights must be
purchased for the account of the person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions of, the Plan of Conversion of
Heritage Federal described in the accompanying Prospectus. If the Plan of
Conversion is not approved by the voting members of Heritage Federal at a
Special Meeting to be held on March 17, 1998 or any adjournment thereof, all
orders will be cancelled and funds received as payment, with accrued
interest, will be returned promptly.
The undersigned agrees that after receipt by Heritage Federal, this Stock
Order Form may not be modified, withdrawn or cancelled (unless the
conversion is not completed within 45 days after the completion of the
Subscription Offering) without Heritage Federal's consent, and if
authorization to withdraw from deposit accounts at Heritage Federal has been
given as payment for shares, the amount authorized for withdrawal shall not
otherwise be available for withdrawal by the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID
Number and the other information provided under number 8 of this Stock Order
Form are true, correct and complete, that I am not subject to back-up
withholding, that I am purchasing for my own account and that there is no
agreement or understanding regarding the transfer of my subscription rights
or the sale or transfer of these shares.
Applicable Federal Regulations prohibit any person from transferring or
entering into any agreement directly or indirectly to transfer, the legal or
beneficial ownership of conversion subscription rights, or the underlying
securities to the account of another. Heritage Federal and Heritage Bancorp,
Inc. may pursue any and all legal and equitable remedies in the event they
become aware of such transfer and will not honor orders known by them to
involve such transfer.
I acknowledge that the common stock offered is not a savings or deposit
account and is not Federally insured, may lose value and is not guaranteed
by Heritage Bancorp, Inc.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE: BELOW AND ON THE
FORM OF CERTIFICATION ON THE REVERSE HEREOF.
SIGNATURE DATE SIGNATURE DATE
----------------------------------- -----------------------------------

----------------------------------- -----------------------------------
A SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER FORMS (SEE
REVERSE SIDE)
- --------------------------------------------------------------------------------
DATE REC'D _______________________________________________________________
CATEGORY _________________________________________________________________
ORDER # _____________________________ BATCH ______________________________
DEPOSIT __________________________________________________________________
- --------------------------------------------------------------------------------