                                                                Charter No. 6735

                              FEDERAL STOCK CHARTER
                              ---------------------

                               AF FINANCIAL GROUP


          Section 1. CORPORATE TITLE. The fill corporate title of the Mutual
Holding Company subsidiary holding company is AF Financial Group (the "Stock
Holding Company").

          Section 2. OFFICE. The domicile of the Stock Holding Company shall be
in West Jefferson, in the county of Ashe, State of North Carolina.

          Section 3. DURATION. The duration of the Stock Holding Company is
perpetual.

          Section 4. PURPOSE AND POWERS. The purpose of the Stock Holding
Company is to pursue any or all of the lawful objectives of a federal mutual
holding company chartered under Section 10(o) of the Home Owners' Loan Act, 12
USC 1467a(o), and to exercise all of the express, implied, and incidental powers
conferred thereby and by all acts amendatory thereof and supplemental thereto,
subject to the Constitution and laws of the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations, and orders of the Office of Thrift Supervision
(the "Office").

          Section 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock that the Stock Holding Company has the authority to issue is
6,000,000, of which 5,000,000 shares shall be common stock, par value $.01 per
share, and of which 1,000,000 shares shall be serial preferred stock, no par
value per share. The shares may be issued from time to time as authorized by the
Board of Directors without the approval of the stockholders, except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule, or regulation. The consideration for the issuance of the
shares shall be paid in fill before their issuance and shall not be less than
the par or stated value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the Stock
Holding Company. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted to the Stock Holding Company), labor or services actually performed
for the Stock Holding Company, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the Board of Directors of the Stock Holding
Company, shall be conclusive. Upon payment of such consideration, such shares
shall be deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the retained earnings of the Stock Holding Company which
is transferred to common stock or paid-in capital accounts upon the issuance of
shares as a stock dividend shall be deemed to be the consideration for their
issuance.

          Except for the initial offering of shares of the Stock Holding
Company, no shares of capital stock (including shares issuable upon conversion,
exchange or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons (except for shares
issued to AsheCo, M.H.C., the parent mutual holding company (the "Mutual Holding
Company")) of the Stock Holding Company other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.


<PAGE>

          Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share except as
to the cumulation of votes for the election of directors unless the Charter
provides that there shall be no such cumulative voting; provided, that this
restriction on voting separately by class or series shall not apply:

               (i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some members of the Board
of Directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;

               (ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve the merger or
consolidation of the Stock Holding Company with another corporation or the sale,
lease or conveyance (other than by mortgage or pledge) of properties or business
in exchange for securities of a corporation other than the Stock Holding Company
if the preferred stock is exchanged for securities of such other corporation;
provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the Office, the
Federal Deposit Insurance Corporation, or the Resolution Trust Corporation;

               (iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Section 5 (or
in any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of authorized shares of any
class or series of capital stock, or substitutes the surviving savings bank in a
merger or consolidation for the Stock Holding Company, shall not be considered
to be such an adverse change.

          A description of the different classes and series (if any) of the
Stock Holding Company's capital stock and a statement of the designations, and
the relative rights, preferences and limitations of the shares of each class of
and series (if any) of capital stock are as follows:

          A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections hereto) the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.

          Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to payment of dividends, the fill amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.

          In the event of any liquidation, dissolution, or winding up of the
Stock Holding Company, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Stock Holding Company available for distribution remaining after:
(i) payment or provision for payment of the Stock Holding Company's debts


<PAGE>


and liabilities; (ii) distributions or provisions for distributions in
settlement of any liquidation account and (iii) distributions or provisions for
distributions to holders of any class or series of stock having preference over
the common stock in the liquidation, dissolution, or winding up of the Stock
Holding Company. Each share of common stock shall have the same relative rights
as and be identical in all respects with all the other shares of common stock.

          B. Preferred Stock. The Stock Holding Company may provide in
supplementary sections to its charter for one or more classes of preferred
stock, which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately designated so as
to distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary section
to the charter. All shares of the same class shall be identical except as to the
following relative rights and preferences, as to which there may be variations
between different series:

          (a) The distinctive serial designation and the number of shares
constituting such series;

          (b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;

          (c) The voting powers, full or limited, if any, of shares of such
series;

          (d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such shares may be
redeemed;

          (e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the Stock
Holding Company;

          (f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;

          (g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Stock
Holding Company and, if so, the conversion price(s) or the rate(s) of exchange,
and the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;

          (h) The price or other consideration for which the shares of such
series shall be issued; and

          (i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.

          Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the other
shares of the same series.

          The Board of Directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series and, within the


<PAGE>

limitations set forth in this section and the remainder of this charter, fix and
determine the relative rights and preferences of the shares of any series so
established.

          Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the Board of Directors, the Stock
Holding Company shall file with the Secretary of the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.

          Section 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Stock Holding Company shall not be entitled to preemptive rights with respect to
any shares of the Stock Holding Company which may be issued.

          Section 7. DIRECTORS. The Stock Holding Company shall be under the
direction of a Board of Directors. The authorized number of directors, as stated
in the Stock Holding Company's bylaws, shall not be fewer than five nor more
than fifteen, except when a greater number is approved by the Director of the
Office, or his or her delegate.

          Section 8. BENEFICIAL OWNERSHIP. Limitation. Notwithstanding anything
contained in the Stock Holding Company's charter or bylaws to the contrary, for
a period of five years from the date of the Bank's reorganization into a Mutual
Holding Company no person, other than the Mutual Holding Company, shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10 percent of any class of an equity security of the Stock Holding Company. This
limitation shall not apply to a transaction in which the Stock Holding Company
forms a holding company without change in the respective beneficial ownership
interests of its stockholders other than pursuant to the exercise of any
dissenter and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by a tax-qualified
employee stock benefit plan which is exempt from the approval requirements under
574.3(c)(l)(vii) of the Office's regulations.

          In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote.

          For the purposes of this Section 8, the following definitions apply:

          (1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of the
equity securities of the Stock Holding Company.

          (2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.

          (3) The term "acquire" includes every type of acquisition, whether
affected by purchase, exchange, operation of law or otherwise.

          (4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of


<PAGE>


an issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or otherwise.

          Section 9. CUMULATIVE VOTING. Limitation. Stockholders shall not be
permitted to cumulate their votes for election of directors for a period of five
years from the effective date of the Bank's reorganization into the Mutual
Holding Company.

          Section 10. CALL FOR SPECIAL MEETING. For a period of five years from
the effective date of the Bank's reorganization into the Mutual Holding Company,
special meetings of stockholders relating to changes in control of the Stock
Holding Company or amendments to its charter shall be called only upon direction
of the Board of Directors.

          Section 11. AMENDMENT OF CHARTER. Except as provided in Section 5
hereof, no amendment addition, alteration, change, or repeal of this charter
shall be made, unless such is first proposed by the Board of Directors of the
Mutual Holding Company subsidiary holding company, approved by the stockholders
by a majority of the total votes eligible to be cast at a legal meeting, unless
a higher vote is otherwise required, and approved or preapproved by the Office.

                                        AF FINANCIAL GROUP


Attest:  /s/ Melanie Paisley Miller     By:/s/ James A. Todd
         --------------------------        -------------------------------------
         Melanie Paisley Miller            James A. Todd
         Secretary                         President and Chief Executive Officer


                                        OFFICE OF THRIFT SUPERVISION


Attest:_____________________________    By:_____________________________________

Date:_______________________________


