SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

Gaston Federal Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
2

GASTON FEDERAL BANCORP, INC.
245 WEST MAIN AVENUE
P.O. BOX 2249
GASTONIA, NORTH CAROLINA 28053-2249
(704) 868-5200

NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On February 17, 2000

Notice is hereby given that the Annual Meeting of Stockholders ("Annual
Meeting") of Gaston Federal Bancorp, Inc. (the "Company") will be held at the
Gaston County Public Library at 1555 East Garrison Boulevard, Gastonia, North
Carolina 28054-5175, on February 17, 2000, at 10:30 a.m., Eastern Standard Time.

A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.

The Annual Meeting is for the purpose of considering and acting upon:

1. Election of two (2) Directors to the Board of Directors;

2. The ratification of the appointment of Cherry, Bekaert &
Holland, L.L.P. as auditors for the Company for the fiscal
year ending September 30, 2000; and

such other matters as may properly come before the Annual Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Annual Meeting.

Any action may be taken on the foregoing proposals at the Annual
Meeting on the date specified above, or on date or dates to which the Annual
Meeting may be adjourned. Stockholders of record at the close of business on
December 27, 1999, are the stockholders entitled to vote at the Annual Meeting,
and any adjournments thereof.

EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE ANNUAL MEETING,
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL
MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN
ORDER TO VOTE PERSONALLY AT THE ANNUAL MEETING.

By Order of the Board of Directors

Gastonia, North Carolina Paul L. Teem, Jr.
January 13, 2000 Secretary

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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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PROXY STATEMENT

GASTON FEDERAL BANCORP, INC.
245 WEST MAIN AVENUE
P.O. BOX 2249
GASTONIA, NORTH CAROLINA 28053-2249
(704) 868-5200

ANNUAL MEETING OF STOCKHOLDERS
February 17, 2000

This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Gaston Federal Bancorp, Inc.
(the "Company") to be used at the Annual Meeting of Stockholders of the Company
(the "Annual Meeting"), which will be held at the Gaston County Public Library
at 1555 East Garrison Boulevard, Gastonia, North Carolina 28054-5175, on
February 17, 2000, at 10:30 a.m., Eastern Standard Time, and all adjournments of
the Annual Meeting. The accompanying Notice of Annual Meeting of Stockholders
and this Proxy Statement are first being mailed to stockholders on or about
January 13, 2000.

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REVOCATION OF PROXIES
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Stockholders who execute proxies in the form solicited hereby retain
the right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Annual Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. WHERE
NO INSTRUCTIONS ARE INDICATED, VALIDLY EXECUTED PROXIES WILL BE VOTED "FOR" THE
PROPOSALS SET FORTH IN THIS PROXY STATEMENT FOR CONSIDERATION AT THE ANNUAL
MEETING.

Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company, at the address shown above. The presence at the Annual
Meeting of any stockholder who had returned a proxy shall not revoke such proxy
unless the stockholder delivers his or her ballot in person at the Annual
Meeting or delivers a written revocation to the Secretary of the Company prior
to the voting of such proxy.

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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Holders of record of the Company's common stock, par value $1.00 per
share (the "Common Stock") as of the close of business on December 27, 1999 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 4,297,434 shares of Common Stock issued and
outstanding. The presence in person or by proxy of a majority of the outstanding
shares of Common Stock entitled to vote is necessary to constitute a quorum at
the Annual Meeting. Directors are elected by a plurality of votes cast, without
regard to either broker non-votes, or proxies as to which the authority to vote
for the nominees being proposed is withheld. The affirmative vote of holders of
a majority of the total votes present at the Annual Meeting in person or by
proxy is required for approval and ratification of Cherry, Bekaert & Holland,
L.L.P. as the Company's auditors for the fiscal year ended September 30, 2000.
Abstentions and broker non-votes will be counted for purposes of determining
that a quorum is present, but will not affect the vote on Proposal II.

Persons and groups who beneficially own in excess of five percent of
the Common Stock are required to file certain reports with the Securities and
Exchange Commission (the "SEC") regarding such beneficial ownership. The
following table sets forth, as of December 27, 1999, the shares of Common Stock
beneficially owned by executive officers and Directors as a group and by each
person who was the beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock.

AMOUNT OF SHARES
OWNED AND NATURE PERCENT OF SHARES
NAME AND ADDRESS OF OF BENEFICIAL OF COMMON STOCK
BENEFICIAL OWNERS(1) OWNERSHIP(2) OUTSTANDING
-------------------- ---------------- -----------------

Gaston Federal Holdings, MHC 2,383,145 55.46%
245 West Main Avenue
P.O. Box 2249
Gastonia, North Carolina 28053-2249

Gaston Federal Holdings, MHC 2,693,828 62.68%
and all Directors and Executive Officers
as a Group (12 persons)

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(1) The business address of all named persons is 245 West Main Avenue, P.O. Box
2249, Gastonia, North Carolina 28053-2249. Certain of the Company's
executive officers and directors are also executive officers and directors
of Gaston Federal Holdings, MHC (the "Mutual Holding Company").
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner for purposes of this table, of
any shares of Common Stock if he has shared voting or investment power with
respect to such security, or has a right to acquire beneficial ownership at
any time within 60 days from the date as of which beneficial ownership is
being determined. As used herein, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the power to dispose
or direct the disposition of shares, and includes all shares held directly
as well as by spouses and minor children, in trust and other indirect
ownership, over which shares the named individuals effectively exercise
sole or shared voting or investment power.

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PROPOSAL I--ELECTION OF DIRECTORS
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The Company's Board of Directors is currently composed of nine members.
The Company's bylaws have been amended to reduce the number of Directors to
eight effective February 17, 2000. The Company's bylaws provide that
approximately one-third of the Directors are to be elected annually. Directors
of the Company are generally elected to serve for a three-year period or until
their respective successors shall have been elected and shall qualify. Two
Directors will be elected at the Annual Meeting to serve for a three-year period
and until their respective successors shall have been elected and shall qualify.
The Board of Directors has nominated to serve as Directors, Senator David W.
Hoyle and Ben R. Rudisill, II.

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5

The table below sets forth certain information, as of December 27,
1999, regarding members of the Company's Board of Directors, including the terms
of office of Board members. It is intended that the proxies solicited on behalf
of the Board of Directors (other than proxies in which the vote is withheld as
to a nominee) will be voted at the Meeting for the election of the nominees
identified below. If the nominees are unable to serve, the shares represented by
all such proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why the nominees might be unable to serve, if elected. Except as
indicated herein, there are no arrangements or understandings between the
nominees and any other person pursuant to which such nominees were selected.

SHARES
POSITION(S) HELD WITH DIRECTOR CURRENT BENEFICIALLY PERCENT OF
NAME THE COMPANY AGE SINCE(1) TERM EXPIRES OWNED CLASS
- ---------------------- ---------------------- ----------- ----------- ------------ ----------- --------------

NOMINEES

Senator David W. Hoyle Chairman 60 1975 2000 59,107(2) 1.38%
Ben R. Rudisill, II Vice Chairman 56 1977 2000 30,905(2) *

OTHER BOARD MEMBERS

William H. Keith Director 71 1991 2001 18,000(2) *
Eugene R. Matthews, II Director 43 1998 2001 22,432(2) *
Kim S. Price President, Chief Executive 44 1997 2001 25,333(3) *
Officer and Director
Martha B. Beal Director 68 1993 2002 38,752(2) *
James J. Fuller Director 56 1972 2002 17,872(2) *
Charles D. Massey Director 62 1971 2002 29,000(2) *
Robert W. Williams, Sr. Director 72 1975 2000 31,968(2) *

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

Gary F. Hoskins Senior Vice President, Treasurer 36 N/A N/A 13,137(4) *
and Chief Financial Officer

Paul L. Teem, Jr. Executive Vice President, Chief 51 N/A N/A 24,151(5) *
Operations Officer and Secretary

Michael R. Maguire Senior Vice President and 42 N/A N/A 26 *
Chief Credit Officer

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* Less than 1%
(1) Reflects initial appointment to the Board of Directors of Gaston
Federal Bank or its predecessors.
(2) Includes 7,000 shares underlying options awarded pursuant to the Bank's
1999 Stock Option Plan (the "Stock Option Plan").
(3) Includes 6,539 shares underlying options awarded pursuant to the Stock
Option Plan, which have or will be vested within 60 days of December
27, 1999.
(4) Includes 2,284 shares underlying options awarded pursuant to the Stock
Option Plan, which have or will be vested within 60 days of December
27, 1999.
(5) Includes 3,042 shares underlying options awarded pursuant to the Stock
Option Plan, which have or will be vested within 60 days of December
27, 1999.

DIRECTORS

The business experience for the past five years for each of the
Company's directors and executive officers is as follows:

Martha B. Beal was the Vice President, Secretary and Financial Officer
of Chelsea House, Inc., a manufacturer of decorative arts, accessories and
furniture, from 1973 until her retirement in 1998.

James J. Fuller is the President of Mount Holly Furniture Company,
Inc., and has served in that position since 1972.

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6

Charles D. Massey is the Director of Information Services of The Massey
Company, Inc., a wholesale industrial distributor, and has served in various
positions with The Massey Company, Inc. since 1957.

Senator David W. Hoyle is a North Carolina State Senator and has served
in that position since 1993. Prior to that, Senator Hoyle was a self-employed
real estate developer and investor.

Ben R. Rudisill, II is the President of Rudisill Enterprises, Inc., a
wholesale beverage distributor, and has served in that position since 1976.

Robert W. Williams, Sr. served as President and Chief Executive Officer
of Gaston Federal Bank (the "Bank"), formerly Gaston Federal Savings and Loan
Association, from 1975 to August 1997 and served as Vice Chairman of the Board
of Directors from August 1997 to March 31, 1998, when he retired from the Bank.

William H. Keith is retired and was a Senior Vice President and Area
Executive for First Union National Bank of North Carolina from 1959 to 1988.

Eugene R. Matthews, II is a Senior Vice President of Belk, Inc., a
department store chain, and has served in that position since 1980.

Kim S. Price is the President and Chief Executive Officer of the Bank
and has served in that position since August 1997. From 1991 to 1997 Mr. Price
served as Vice President for Loan Production for First National Bank of Shelby.

Gary F. Hoskins has served as Senior Vice President, Treasurer and
Chief Financial Officer of the Bank since August 1997. Prior to that Mr. Hoskins
served as a Senior Vice President, Secretary, Treasurer and Chief Financial
Officer of Cherryville Federal Savings and Loan Association from 1995 to 1997.
From 1986 to 1995, Mr. Hoskins served as a Thrift Examiner for the Office of
Thrift Supervision.

Paul L. Teem, Jr. has served as Executive Vice President, Secretary and
Chief Operations Officer of the Bank since 1983.

Michael R. Maguire has served as Senior Vice President and Chief Credit
Officer of the Bank since May 1999. Prior to that Mr. Maguire served as a Vice
President and in various executive capacities in the commercial banking
functions of First Union National Bank of North Carolina from 1984 to May 1999.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The business of the Company is conducted at regular and special
meetings of the full Board and its standing committees. The standing committees
consist of the Executive and Audit Committees. The full Board of Directors acts
as Nominating Committee for the Company. During the fiscal year ended September
30, 1999, the Board of Directors of the Company met at four regular meetings. No
member of the Board or any committee thereof attended less than 75% of said
meetings.

The Executive Committee consists of Directors Hoyle (who serves as
Chairman), Rudisill, Keith, Williams and Price. The Executive Committee meets as
necessary when the Board is not in session to exercise general control and
supervision in all matters pertaining to the interests of the Company, subject
at all times to the direction of the Board of Directors. The Executive Committee
met 12 times during the fiscal year ended September 30, 1999.

The Audit Committee consists of Directors Massey (who serves as
Chairman), Rudisill, Williams and Beal. The Audit Committee examines and
approves the audit report prepared by the independent auditors of the Bank,
reviews and recommends the independent auditors to be engaged by the Company,
reviews the internal accounting controls of the Company, and reviews and
approves internal audit policies and procedures. The Audit Committee met twice
during the fiscal year ended September 30, 1999.

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EMPLOYMENT AGREEMENT

The Bank has entered into an employment agreement with its President
and Chief Executive Officer, Kim S. Price, which provides for a term of 36
months. On each anniversary date, the agreement may be extended for an
additional 12 months, so that the remaining term shall be 36 months. If the
agreement is not renewed, the agreement will expire 36 months following the
anniversary date. At October 1, 1999, the Base Salary for Mr. Price was
$130,008. The Base Salary may be increased but not decreased. In addition to the
Base Salary, the agreement provides for, among other things, participation in
stock benefit plans and other employee and fringe benefits applicable to
executive personnel. The agreement provides for termination by the Bank for
cause at any time. In the event the Bank terminates the executive's employment
for reasons other than for cause, or in the event of the executive's resignation
from the Bank upon (i) failure to re-elect the executive to his current offices,
(ii) a material change in the executive's functions, duties or responsibilities,
or relocation of his principal place of employment by more than 30 miles, (iii)
liquidation or dissolution of the Bank, or (iv) a breach of the agreement by the
Bank, the executive, or in the event of death, his beneficiary would be entitled
to severance pay in an amount equal to three times the annual rate of Base
Salary (which includes any salary deferred at the election of Mr. Price) at the
time of termination, plus the highest annual cash bonus paid to him during the
prior three years. The Bank would also continue the executive's life, health,
dental and disability coverage for the remaining unexpired term of the
agreement. In the event the payments to the executive would include an "excess
parachute payment" as defined by Internal Revenue Code of 1986, as amended,
Section 280G (relating to payments made in connection with a change in control),
the payments would be reduced in order to avoid having an excess parachute
payment.

The executive's employment may be terminated upon his attainment of
normal retirement age (i.e., age 65) or in accordance with any retirement policy
established by the Bank (with Mr. Price's consent with respect to him). Upon Mr.
Price's retirement, he will be entitled to all benefits available to him under
any retirement or other benefit plan maintained by the Bank. In the event of the
executive's disability for a period of six months, the Bank may terminate the
agreement provided that the Bank will be obligated to pay the executive his Base
Salary for the remaining term of the agreement or one year, whichever is longer,
reduced by any benefits paid to the executive pursuant to any disability
insurance policy or similar arrangement maintained by the Bank. In the event of
the executive's death, the Bank will pay his Base Salary to his named
beneficiaries for one year following his death, and will also continue medical,
dental, and other benefits to his family for one year.

The employment agreement provides that, following termination of
employment, the executive will not compete with the Bank for a period of one
year, provided, however, that in the event of a termination in connection with a
change in control within the meaning of Home Owners' Loan Act, as amended, and
the rules and regulations thereunder, the noncompete provisions will not apply.

COMPENSATION OF DIRECTORS

Fees. During the fiscal year ended September 30, 1999, nonemployee
Directors of the Bank received a retainer fee of $12,000 ($15,600 for the
Chairman), plus a fee of $300 per Board meeting attended, $400 per meeting for
attendance at Executive Committee meetings and $300 per meeting for all other
committee meetings.

Deferred Compensation and Income Continuation Agreement. In May 1986
the Bank entered into nonqualified deferred compensation agreements ("DCA") for
the benefit of certain Directors at that time, including Directors Hoyle,
Williams, Rudisill, Fuller and Massey. The DCAs provide each director with the
opportunity to defer up to $20,000 of their usual compensation into the DCA. In
the event of a director's termination of employment, amounts credited to his
account under the DCA will be paid to him in 120 equal monthly installments
beginning not later than the sixth month following the end of the Bank's year in
which the director reaches age 70. In the event of death, amounts under the DCA
will be paid to the director's designated beneficiaries. The DCA is an unfunded
plan for tax purposes and for purposes of ERISA. All obligations arising under
the DCA are payable from the general assets of the Bank. In October 1998, Mr.
Williams received the first of what will be 120 monthly payments of $1,026 under
the DCA.

Supplemental Executive Retirement Plan. In February 1992 the Bank
entered into nonqualified supplemental retirement agreements ("SRA") for certain
Directors at that time, including Directors Keith, Williams, Massey, Hoyle,

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8

Fuller and Rudisill. The Bank intends to enter into SRAs for directors Beal,
Matthews and Price. The SRAs provide for an annual benefit that ranges from
$1,275 to $15,600. Monthly benefits are provided for designated beneficiaries of
directors who die before or after age 70. Amounts not paid to the director,
beneficiaries or spouse are paid to the estate of the director in a lump sum.
Benefits under the SRA are forfeited if the director's service is terminated for
cause. The SRA is considered an unfunded plan for tax and ERISA purposes. All
obligations arising under the SRA are payable from the general assets of the
Bank. In January 1998, Mr. Williams received the first of what will be 180
monthly payments of $298 under the SRA. In July 1998, Mr. Keith received the
first of what will be 180 monthly payments of $106 under the SRA.

Stock Benefit Plans. During the fiscal year ended September 30, 1999,
the Bank adopted, and the Company's stockholders approved, the Gaston Federal
Bank 1999 Stock Option Plan (the "Stock Option Plan"). Pursuant to the Stock
Option Plan, options to purchase 7,000 shares were granted to non-employee
directors, including Directors Hoyle, Rudisill, Williams, Keith, Matthews, Beal,
Fuller and Massey, at an exercise price of $12.00 per share, the fair market
value of the underlying shares on the date of the award. The term of the options
is ten years from the date of grant, and the shares subject to awards will be
adjusted in the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or exchange of shares
or other change in the corporate structure of the Company. The awards included
an equal number of reload options ("Reload Options"), limited stock appreciation
rights ("Limited Rights") and dividend equivalent rights ("Dividend Equivalent
Rights"). A Limited Right gives the option holder the right, upon a change in
control of the Company or the Bank, to receive the excess of the market value of
the shares represented by the Limited Rights on the date exercised over the
exercise price. The Limited Rights are subject to the same terms and conditions
as the stock options. Payment upon exercise of a Limited Rights will be in cash,
or in the event of a change in control in which pooling accounting treatment is
a condition to the transaction, for shares of stock of the Company, or in the
event of a merger transaction, for shares of the acquiring corporation or its
parent, as applicable. The Dividend Equivalent Rights entitle the option holder
to receive an amount of cash at the time that certain extraordinary dividends
are declared equal to the amount of the extraordinary dividend multiplied by the
number of options that the person holds. For these purposes, an extraordinary
dividend is defined as any dividend where the rate of dividend exceeds the
Bank's weighted average cost of funds on interest-bearing liabilities for the
current and preceding three quarters. The Reload Options entitle the option
holder, who has delivered shares that he or she owns as payment of the exercise
price for option stock, to a new option to acquire additional shares equal in
amount to the shares he or she has traded in. Reload Options may also be granted
to replace option shares retained by the employer for payment of the option
holder's withholding tax. The option price at which additional shares of stock
can be purchased by the option holder through the exercise of a Reload Option is
equal to the market value of the previously owned stock at the time it was
surrendered. The option period during which the Reload Option may be exercised
expires at the same time as that of the original option that the holder has
exercised.

During the fiscal year ended September 30 1999, the Bank adopted, and
the Company's stockholders approved, the Gaston Federal Bank 1999 Recognition
and Retention Plan (the "Recognition Plan"). Pursuant to the Recognition Plan
8,000 shares of stock were awarded to each non-employee director, including
Directors Hoyle, Rudisill, Williams, Keith, Matthews, Beal, Fuller and Massey.

EXECUTIVE COMPENSATION

The following table sets forth for the year ended September 30, 1999,
certain information as to the total remuneration paid to the Chief Executive
Officer of the Company. No other executive officer earned over $100,000 in
salary and bonuses during fiscal 1999.

ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ---------------------------------------------------------------
AWARDS PAYOUTS
------------------------- -----------------------------------
OTHER
YEAR ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND ENDED COMPENSATION STOCK SARS LTIP COMPENSATION
PRINCIPAL POSITION 9/30(1) SALARY(2) BONUS(3) (4) AWARDS (#) PAYOUTS (5)
- ---------------------- -------- ----------- ---------- ------------ ---------- ---------- ------- ------------

Kim S. Price 1999 $ 120,000 $ 25,000 -- $120,000(6) 32,699(7) -- $ 7,581
President, Chief Executive 1998 $ 107,664 $ 25,000 -- -- -- -- $ 1,786
Officer and Director

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(Footnotes on following page)

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9

(1) In accordance with the rules on executive officer and director
compensation disclosure adopted by the SEC, summary compensation
information is excluded for the fiscal year ended September 30, 1997,
as the Company was not a public company during such period.
(2) Includes compensation deferred at the election of executives pursuant
to the 401(k) plan of the Bank.
(3) Includes bonuses deferred at the election of executives pursuant to the
401(k) plan of the Bank.
(4) The Bank provides certain members of senior management with certain
other personal benefits, the aggregate value of which did not exceed
the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each officer. The value of such benefits is not included
in this table.
(5) Includes employer contributions to the Bank's 401(k) Plan on behalf of
Mr. Price.
(6) Includes 10,000 shares of Common Stock awarded pursuant to the
Recognition Plan, which shares vested on April 19, 1999. The value is
based on the last sale price of the Common Stock on the day prior to
the award.
(7) Includes options awarded pursuant to the Stock Option Plan, which
options vest in five equal annual installments commencing on April 19,
1999. The award included an equal number of Reload Options, Limited
Rights and Dividend Equivalent Rights, the terms of which are described
in "--Compensation of Directors--Stock Benefit Plans" and "Stock Option
Plan."

DEFINED BENEFIT PENSION PLAN

The Bank maintains the Financial Institutions Retirement Fund, which is
a qualified, tax-exempt defined benefit plan ("Retirement Plan"). All employees
age 20 or older who have worked at the Bank for a period of five months are
eligible for membership in the Plan for vesting purposes; however, only
employees that have been credited with 1,000 or more hours of service with the
Bank during the year are eligible to accrue benefits under the Retirement Plan.
The Bank annually contributes an amount to the Retirement Plan necessary to
satisfy the actuarially determined minimum funding requirements in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

The regular form of all retirement benefits (normal, early or
disability) is guaranteed for the life of the retiree, but not less than 120
monthly installments. An optional form of benefit may be selected. These
optional forms include various annuity forms as well as a lump sum payment after
age 55. Benefits payable upon death may be made in a lump sum, installments over
10 years, or a lifetime annuity. For a married participant, the normal form of
benefit is a joint and survivor annuity where, upon the participant's death, the
participant's spouse is entitled to receive a benefit equal to 50% of that paid
during the participant's lifetime.

The normal retirement benefit payable at age 65 with 25 years of
service is an amount equal to 45% of a participant's average compensation based
on the average of the five years providing the highest average. A reduced
benefit is payable upon retirement at age 65 with less than 25 years of service
and at or after completion of five years of service.

The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1999, expressed in the form of a single life annuity for the average salary and
benefit service classifications specified below.

Highest Five-Year Years of Service and Benefit Payable at Retirement(1)
Average ------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40
------------ -------- -------- -------- -------- --------- ---------

$50,000 $13,500 $18,000 $22,500 $22,500 $22,500 $22,500
$75,000 $20,300 $27,000 $33,800 $33,800 $33,800 $33,800
$100,000 $27,000 $36,000 $45,000 $45,000 $45,000 $45,000
$125,000 $33,800 $45,000 $56,300 $56,300 $56,300 $56,300
$150,000 $40,500 $54,000 $67,500 $67,500 $67,500 $67,500

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(1) No additional credit is received for years of service in excess of 25,
however, increases in compensation after 25 years will generally cause
an increase in benefits.

As of September 30, 1999, Mr. Price had two years of credited service
(i.e., benefit service), under the plan.

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STOCK OPTION PLAN

The Board of Directors of the Company has established a stock option
plan which provides discretionary awards to its officers and key employees. The
grant of awards to employees under the stock option plan was determined by the
Board of Directors. Set forth in the table that follows is information relating
to options granted under the stock option plan to the Named Executive Officer
during 1999.

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants

Percent of Total
Options Granted
to Employees in Exercise or Expiration Grant Date Present
Name Options Granted FY 1999 Base Price Date Value (1)
- ---- --------------- ---------------- ----------- ---------- ------------------

Kim S. Price (2) 32,699 22.7% $12.00 04/19/2009 $139,625

- ---------------------
(1) The grant date present value was derived using the Black-Scholes option
pricing model with the following assumptions: volatility of 30%; risk free
rate of return of 5.25%; dividend yield of 1.62%; and a seven year option
life.
(2) The exercise price of the options is equal to the fair market value of the
underlying shares on the date of the award. The award included an equal
number of Reload Options, Limited Rights and Dividend Equivalent Rights,
the terms of which are as described above in "--Compensation of
Directors--Stock Benefit Plans."

Set forth below is certain information concerning options outstanding
to the Named Executive Officer at September 30, 1999, and the options exercised
by the Named Executive Officer during 1999.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Year-End Year-End (1)
------------------------- -------------------------
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (#) ($)
---- --------------- -------- ------------------------- -------------------------

Kim S. Price -- $-- 6,539 / 26,160 $3,267 / $13,080

- -------------------------------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on
September 30, 1999, at which date the last trade price of the Common Stock
as quoted on the Nasdaq National Market was $12.50.

OWNERSHIP REPORTS BY OFFICERS AND DIRECTORS

The Common Stock of the Company is registered with the SEC pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act"). The
officers and directors of the Company and beneficial owners of greater than 10%
of the Company's Common Stock ("10% beneficial owners") are required to file
reports on Forms 3, 4 and 5 with the SEC disclosing beneficial ownership and
changes in beneficial ownership of the Common Stock. SEC rules require
disclosure in the Company's Proxy Statement or Annual Report on Form 10-KSB of
the failure of an officer, director or 10% beneficial owner of the Company's
Common Stock to file a Form 3, 4, or 5 on a timely basis. All of the Company's
officers and directors filed these reports on a timely basis.

8
11

Transactions With Certain Related Persons

Federal law and regulation generally requires that all loans or
extensions of credit to executive officers and directors must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with the general public and
must not involve more than the normal risk of repayment or present other
unfavorable features. However, recent regulations now permit executive officers
and directors to receive the same terms through benefit or compensation plans
that are widely available to other employees, as long as the director or
executive officer is not given preferential treatment compared to the other
participating employees. Pursuant to such a program, the Bank has extended loans
to Directors Hoyle, Keith, Matthews, Price, Williams, and Senior Vice President
Hoskins.

Set forth below is certain information as to loans made by the Bank to
certain of its directors and executive officers, or their affiliates, whose
aggregate indebtedness to the Bank exceeded $60,000 at any time since October 1,
1998. Unless otherwise indicated, all of the loans are secured loans and all
loans designated as residential loans are first mortgage loans secured by the
borrower's principal place of residence.

Interest
Highest Balance Rate
Original Balance on on
Date Loan During 1999 September September
Name of Individual Loan Type Originated Amount Fiscal Year 30, 1999 30, 1999
- ------------------ --------- ---------- -------- ----------- --------- ---------

Senator David W. Hoyle Residential (refinance) 2/98 $191,200 $185,703 $175,384 5.75%
Residential (second home) 5/98 $500,000 $492,672 $466,316 6.00%
Home equity line of credit 12/96 $100,000 $ 67,127 $ 87,043 Prime + .5%

William H. Keith Residential 3/96 $ 75,000 $ 60,973 $ 54,397 5.875%
Home equity line of credit 11/97 $ 50,000 $ 19,141 $ 14,101 Prime + .5%

Eugene R. Matthews, II Residential 3/94 $148,000 $140,327 $134,254 5.75%

B. Frank Matthews, II(1) Residential 1/98 $232,000 $228,519 $216,603 5.875%
Residential 4/98 $134,400 $131,716 $124,699 5.875%

Kim S. Price Residential 5/98 $375,000 $375,000 $299,694 5.875%

Robert W. Williams, Sr. Residential 2/90 $ 94,000 $ 48,684 $ 43,675 5.75%
Residential (second home) 2/96 $ 65,000 $ 52,294 $ 47,296 5.75%
Home equity line of credit 5/96 $ 50,313 $ 44,000 $ 7,050 Prime + .5%

John David Williams(2) Residential 1/95 $ 65,000 $ 58,640 $ 55,619 5.875%
Home equity line of credit 1/95 $ 11,000 $ 9,070 $ 7,150 Prime + .5%

Gary F. Hoskins Residential 6/98 $ 97,000 $ 96,268 $ -- N/A
Home equity line of credit 9/99 $ 30,900 $ 3,463 $ 3,463 Prime + .5%

- ---------------------
(1) Borrower is a former Director of the Bank and the father of Director Eugene
R. Matthews, II.
(2) Borrower is an employee of the Bank and the son of Director Robert W.
Williams, Sr.

Other than as described above, all loans the principal balances of
which exceeded $60,000 at any time during the fiscal year ended September 30,
1999, made by the Bank to executive officers, directors, immediate family
members of executive officers and directors, or organizations with which
executive officers and directors are affiliated, were made in the ordinary
course of business, on substantially the same terms including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons.

- --------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------

The Board of Directors of the Company has approved the engagement of
Cherry, Bekaert & Holland, L.L.P. to be the Company's auditors for the 2000
fiscal year, subject to the ratification of the engagement by the Company's
stockholders. At the Annual Meeting, stockholders will consider and vote on the
ratification of the engagement of Cherry, Bekaert & Holland, L.L.P., for the
Company's fiscal year ending September 30, 2000. A representative of

9
12

Cherry, Bekaert & Holland, L.L.P., is expected to attend the Annual Meeting to
respond to appropriate questions and to make a statement if he so desires.

In order to ratify the selection of Cherry, Bekaert & Holland, L.L.P.,
as the auditors for the 2000 fiscal year, the proposal must receive at least a
majority of the votes cast, either in person or by proxy, in favor of such
ratification. The Board of Directors recommends a vote "FOR" the ratification of
Cherry, Bekaert & Holland, L.L.P., as auditors for the 2000 fiscal year.

- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------

In order to be eligible for inclusion in the proxy materials for next
year's Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's executive office, 245 West
Main Avenue, P.O. Box 2249, Gastonia, North Carolina 28053-2249, no later than
September 13, 2000. Any such proposals shall be subject to the requirements of
the proxy rules adopted under the Exchange Act.

Under the Company's Bylaws, certain procedures are provided which a
stockholder must follow to nominate persons for election as directors or to
introduce an item of business at an annual meeting of stockholders. These
procedures provide, generally, that stockholders desiring to make nominations
for directors, or to bring a proper subject of business before the meeting, must
do so by a written notice timely received (generally not later than five days in
advance of such meeting, subject to certain exceptions) by the Secretary of the
Company.

- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------

The Board of Directors is not aware of any business to come before the
Annual Meeting other than the matters described above in the Proxy Statement.
However, if any matters should properly come before the Annual Meeting, it is
intended that holders of the proxies will act as directed by a majority of the
Board of Directors, except for matters related to the conduct of the Annual
Meeting, as to which they shall act in accordance with their best judgment.

- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------

The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1999, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS
AS OF THE RECORD DATE UPON WRITTEN OR TELEPHONIC REQUEST TO PAUL L. TEEM, JR.,
EXECUTIVE VICE PRESIDENT, CHIEF OPERATIONS OFFICER AND SECRETARY, 245 WEST MAIN
AVENUE, P.O. BOX 2249, GASTONIA, NORTH CAROLINA 28053-2249 OR CALL (704)
868-5200.

BY ORDER OF THE BOARD OF DIRECTORS

Paul L. Teem, Jr.
Gastonia, North Carolina Secretary
January 13, 2000

10
13

REVOCABLE PROXY

GASTON FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 17, 2000

The undersigned hereby appoints the official proxy committee consisting
of the Board of Directors with full powers of substitution to act as attorneys
and proxies for the undersigned to vote all shares of Common Stock of the
Company which the undersigned is entitled to vote at the Annual Meeting of
Stockholders ("Annual Meeting") to be held at the Gaston County Public Library
at 1555 East Garrison Boulevard, Gastonia, North Carolina 28054-5175, on
February 17, 2000, at 10:30 a.m. Eastern Standard Time. The official proxy
committee is authorized to cast all votes to which the undersigned is entitled
as follows:

FOR
(except as marked to the VOTE
contrary below) WITHHELD

[ ] [ ]

1. The election as Directors of all nominees
listed below each to serve for a three-year
term:

Senator David W. Hoyle
Ben R. Rudisill, II

INSTRUCTION: To withhold your vote for one or more nominees, write the name of
the nominee(s) on the line(s) below.

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

FOR AGAINST ABSTAIN

2. The ratification of Cherry, Bekaert & [ ] [ ] [ ]
Holland, L.L.P. as the Company's independent
auditors for the fiscal year ending
September 30, 2000.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH ANNUAL MEETING, THIS PROXY WILL BE VOTED AS
DIRECTED BY A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

Should the undersigned be present and elect to vote at the Annual Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Annual Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect. This proxy may also be revoked by sending written
notice to the Secretary of the Company at the address set forth on the Notice of
Annual Meeting of Stockholders, or by the filing of a later proxy prior to a
vote being taken on a particular proposal at the Annual Meeting.

The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of notice of the Annual Meeting, a proxy statement dated January 13,
2000, and audited financial statements.

Dated: [ ] Check Box if You Plan
------------------------- to Attend Annual Meeting

- ------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER

- ------------------------------- -----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER

Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title.

PLEASE COMPLETE AND DATE THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.