EXHIBIT 13

                       1997 ANNUAL REPORT TO SHAREHOLDERS

                  [GRAPHICS/PHOTOS OMITTED FROM PAGE 1 THRU 9]

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FINANCIAL HIGHLIGHTS

Community  Savings  Bankshares,  Inc. common stock trades on the Nasdaq National
Market under the symbol "CMSV".

                                                    12/31/97    12/31/96      9/30/96      9/30/95     9/30/94    9/30/93
FOR THE YEAR ENDED (In Thousands)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>          <C>          <C>         <C>        <C>
Interest income                                      $50,316     $45,580      $43,889      $37,720     $34,130    $39,747
Interest expense                                      27,390      23,888       22,859       18,634      15,525     17,639
Net interest income                                   22,926      21,692       21,030       19,086      18,605     22,108
Net income                                             5,356       4,024        3,915        4,574       3,737      5,401

AVERAGE FOR THE YEAR ENDED (In Thousands)
--------------------------------------------------------------------------------------------------------------------------
Assets                                              $693,175    $631,038     $612,004     $544,555    $528,286   $532,222
Loans receivable, net                                411,098     359,414      346,880      321,849     321,721    352,173
Cash and cash equivalents                             42,029      47,532       48,367       53,736      40,946     36,356
Mortgage-backed securities - held to maturity         99,884     106,387       99,959       53,349      28,843     15,428
Investments - held to maturity and securities
   available for sale                                110,986      89,378       87,280      130,094     106,031     92,897
Deposits                                             537,965     494,034      478,955      429,893     452,070    455,816
Borrowed funds                                        61,551      46,076       42,416       29,086      23,657     27,040
Shareholders' equity                                  78,822      75,323       74,638       69,263      36,376     31,734

AT YEAR END (In Thousands)
--------------------------------------------------------------------------------------------------------------------------
Assets                                              $720,133    $655,209     $650,332     $567,006    $560,268   $523,248
Loans receivable, net                                451,709     389,040      376,219      329,442     317,117    328,747
Cash and cash equivalents                             25,954      42,442       44,780       42,497      89,843     35,188
Mortgage-backed securities - held to maturity         46,413      53,405       54,945       77,499      41,281     14,290
Investments - held to maturity                        21,388      22,139       22,293       59,679      52,204     43,789
Securities available for sale                        142,269     123,152      124,287       27,028      26,729     69,459
Real estate owned                                        592       1,455        1,384        1,910       3,686      1,324
Deposits                                             550,708     513,709      498,929      437,376     459,979    450,356
Borrowed funds                                        75,098      53,908       55,867       39,101      19,233     20,113
Shareholders' equity                                  81,259      76,119       75,056       72,848      38,110     34,846

SIGNIFICANT PERFORMANCE RATIOS
----------------------------------------------------------------------------------------------------------------------------
Return on average assets                                0.77%       0.64%        0.64%        0.84%       0.71%      1.01%
Return on average equity                                6.80        5.34         5.25         6.60       10.27      17.02
Interest rate spread                                    3.13        3.24         3.24         3.40        3.69       4.43
Equity to assets                                       11.28       11.62        11.54        12.85        6.80       6.65
Non-interest income to average assets                   0.60        0.58         0.55         0.62        0.63       0.96
Non-interest expense to average assets                  2.68        3.18         3.20         2.74        2.82       2.93
Non-performing loans to total loans                     0.31        0.42         0.22         0.20        0.93       2.05
Non-performing assets to total assets                   0.47        0.47         0.40         0.45        1.25       1.54
Allowance for loan losses to non-performing loans     193.04      155.86       274.58       527.49      114.72      55.65
Allowance for loan losses to net loans receivable       0.59        0.65         0.61         1.06        1.07       1.14
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MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

In the  following  discussion,  references to  "Bankshares"  relate to Community
Savings Bankshares, Inc. together with its subsidiary,  Community Savings, F. A.
(the "Association"). During January 1997, the Board of Directors voted to change
the fiscal year end for all related  entities  from  September  30th to December
31st, effective with the year and the three months ended December 31, 1996.

                       COMMUNITY SAVINGS BANKSHARES, INC.

Bankshares is a federally  chartered mid-tier stock holding company organized in
August 1997. The only  significant  asset of Bankshares is its investment in its
wholly-owned  subsidiary,  the  Association.  Bankshares  is  majority  owned by
ComFed,  M.H.C.  ("ComFed") a federally chartered mutual holding company.  After
the close of business on  September  30,  1997,  Bankshares  acquired all of the
issued and  outstanding  common stock of the  Association in connection with the
Association's  reorganization  into the two-tier form of mutual holding  company
ownership.  At that  time,  each  share of the  Association's  common  stock was
converted  into one share of  Bankshares'  common  stock.  At December 31, 1997,
ComFed owned  2,620,144  shares of  Bankshares'  common stock with the remaining
2,474,776  shares  owned  by the  minority  shareholders.  The  holding  company
reorganization  was accounted for at  historical  cost in a manner  similar to a
pooling of interests.

                            COMMUNITY SAVINGS, F. A.

The  Association,  founded in 1955,  is a federally  chartered  savings and loan
association  headquartered  in North  Palm  Beach,  Florida.  The  Association's
deposits are  federally  insured by the Federal  Deposit  Insurance  Corporation
("FDIC")  through  the  Savings   Association   Insurance  Fund  ("SAIF").   The
Association has been a member of the Federal Home Loan Bank of Atlanta  ("FHLB")
since 1955.  The  Association  is regulated by the Office of Thrift  Supervision
("OTS"). On October 24, 1994, the Association  completed a reorganization into a
federally   chartered   mutual  holding   company,   ComFed.   As  part  of  the
reorganization,  the  Association  organized  a new  federally  chartered  stock
savings  association  and  transferred  substantially  all  of  its  assets  and
liabilities  to the stock savings  association in exchange for a majority of the
common stock of the stock savings association.

The Association is a community-oriented  financial institution engaged primarily
in the business of attracting  deposits  from the general  public and using such
funds, together with other borrowings,  to invest in various consumer-based real
estate loans, mortgage-backed securities ("MBS"), and investment securities. The
Association's  plan  is  to  operate  as  a  well-capitalized,   profitable  and
independent  institution.  The  Association  currently  exceeds  all  regulatory
capital requirements. The Association's profitability is highly dependent on its
net interest  income.  The components that determine net interest income are the
amount of interest-earning  assets and  interest-bearing  liabilities,  together
with the rates earned or paid on such interest rate-sensitive  instruments.  The
Association  is  sensitive  to managing  interest  rate risk  exposure by better
matching asset and liability  maturities and rates.  This is accomplished  while
considering the credit risk of certain assets.  The Association  maintains asset
quality by utilizing  comprehensive  loan underwriting  standards and collection
efforts as well as by primarily  originating or purchasing secured or guaranteed
assets.

LIQUIDITY AND CAPITAL RESOURCES

The Association  adjusts its liquidity  levels in order to meet funding needs of
deposit outflows,  payment of real estate taxes on mortgage loans,  repayment of
borrowings  and loan  commitments.  The  Association  also adjusts  liquidity as
appropriate  to meet its  asset and  liability  management  objectives.  A major
portion of the  Association's  liquidity  consists of cash and cash equivalents,
which are a product of its operating,  investing and financing  activities.  The
Association  is required to maintain  minimum levels of liquid assets as defined
by OTS regulations.  This requirement,  which varies from time to time depending
upon  economic  conditions  and deposit  flows,  is based upon a  percentage  of
deposits and short-term  borrowings.  The required ratio  currently is 5.0%. The
Association's  liquidity  ratio  averaged 15.0% during the month of December 31,
1997 and 14.2% for fiscal 1997.

The  Association's  primary  sources  of funds are  deposits,  amortization  and
prepayment  of loans and MBS,  maturities  of  investment  securities  and other
short-term  investments,  FHLB  advances,  and earnings and funds  provided from
operations.   While  scheduled  principal  repayments  on  loans  and  MBS,  and
maturities of securities are a relatively  predictable source of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic conditions, and competition. The Association manages the pricing of its
deposits to maintain a desired  deposit  balance.  In addition,  the Association
invests  funds in excess of its immediate  needs in short-term  interest-earning
deposits and other assets, which provide liquidity to meet lending requirements.
Short-term  interest-bearing deposits with the FHLB of Atlanta amounted to $13.6
million at December 31, 1997. Other assets qualifying for liquidity  outstanding
at December 31, 1997 amounted to $56.4 million. For additional information about
cash flows from the

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operating,  financing, and investing activities,  see Consolidated Statements of
Cash Flows included in the consolidated financial statements.

Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.   If  funds  are  required  beyond  the  ability  to  generate  them
internally, borrowing agreements exist with the FHLB of Atlanta which provide an
additional  source of funds. FHLB advances totaled $57.3 million at December 31,
1997.  At December  31,  1997,  loan  commitments  totaled  $4.7 million and the
unfunded  portion  of loans in  process  totaled  $24.2  million.  There were no
commitments outstanding to purchase loans.  Certificates of deposit scheduled to
mature in less than one year totaled $260.8 million at December 31, 1997.  Based
on prior  experience,  management  believes that a  significant  portion of such
deposits will remain with the Association.

The  deposits of savings and loan  associations,  such as the  Association,  are
presently  insured by the SAIF. The SAIF and the Bank Insurance Fund ("BIF") are
the two  insurance  funds  administered  by the  FDIC.  On August  8,  1995,  in
recognition of BIF achieving its mandated  reserve  ratio,  the FDIC revised the
premium  schedule  for BIF  members  to  provide  a new range of .04% to .31% of
deposits (as compared to the then existing range of .23% to .31% of deposits for
BIF and  SAIF  insured  institutions).  Subsequent  revisions  in such  schedule
resulted in most  BIF-insured  institutions  paying the statutory annual minimum
premium of $2,000.  As a result,  well  capitalized and healthy BIF members paid
significantly   lower  premiums  than  SAIF-insured   institutions.   Without  a
substantial  increase in premium rates, or the imposition of special assessments
or other significant developments,  such as a merger of SAIF and BIF, it was not
anticipated that SAIF would be adequately  recapitalized until 2002. As a result
of the  disparity in BIF and SAIF premium  rates,  SAIF members were placed at a
significant competitive  disadvantage in relation to BIF members with respect to
pricing of loans and deposits and the ability to lower their operating costs.

On September 30, 1996 Congress  passed,  and the President  signed,  the Deposit
Insurance  Funds Act of 1996 (the "DIF"),  which mandated that all  institutions
which have  deposits  insured by SAIF were  required  to pay a one-time  special
assessment of 65.7 basis points on SAIF-insured  deposits (subject to adjustment
for certain types of banks with SAIF  deposits) that were held at March 31, 1995
payable by November 27, 1996 to recapitalize the SAIF. The assessment  increased
the SAIF's  reserve  ratio to a level  comparable to that of the BIF at 1.25% of
total insured deposits. The FDIC, in connection with the recapitalization,  also
lowered SAIF premiums from $0.23 per $100 to $0.065 per $100 of insured deposits
beginning in January 1997. The  Association's  share of this special  assessment
totaled  $2.8 million and is  reflected  in the  operating  results for the year
ended September 30, 1996.

In August 1996,  Congress passed legislation which repealed  Bankshares' present
method of accounting for bad debts for federal income tax purposes. As discussed
in Note 12 to the consolidated financial statements,  Bankshares previously used
the  percentage of taxable  income method to determine its bad debt deduction in
the computation of its taxable income. Under the new legislation,  Bankshares is
required to use the specific charge-off method,  which may result in a different
deduction for bad debts in determining taxable income than as computed under the
previous method. Additionally, Bankshares is required to recapture its post-1987
additions to its bad debt reserves.  Since  Bankshares  had previously  provided
deferred taxes for the income tax bad debt reserves  established  after 1987, no
additional  income tax  liability  related to the  recapture  occurred.  The new
legislation was effective for taxable years beginning after December 31, 1995.

IMPACT OF INFLATION AND CHANGING PRICES

The  consolidated  financial  statements  of Bankshares  and the notes  thereto,
presented  elsewhere  herein,  have been prepared in accordance  with  generally
accepted  accounting  principles,  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 and
due to inflation.  The impact is reflected in the  increased  cost of Bankshares
operations.  Unlike  most  industrial  companies,  nearly  all  the  assets  and
liabilities  of Bankshares  are  monetary.  As a result,  interest  rates have a
greater impact on Bankshares'  performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.

FINANCIAL CONDITION
DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996

Total assets increased $64.9 million to $720.1 million at December 31, 1997 from
$655.2  million at December 31, 1996. The increase in total assets was primarily
due to a $62.7  million  increase  in the loan  portfolio  and an $11.4  million
increase in the securities  portfolio (which includes  securities  available for
sale,  investment  securities,  and mortgage-backed and related securities).  In
addition,  office  properties  and equipment  increased  $3.8 million  primarily
related to the opening of three new  branches  and the  purchase of new computer
software  and  hardware.  Other  assets  increased  by  $3.2  million  due to an
investment  in an affordable  housing tax credit  partnership.  These  increases
resulted from the implementation of the Association's growth strategy for fiscal
year 1997. This strategy  emphasized  increased loan production funded by retail
deposits,  combined  with the  purchase  of  securities  funded by  public  fund
deposits,  odd-term  certificates of deposit, or FHLB advances.  To increase the
loan portfolio, the Association

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continued  to  emphasize  an  incentive-based  loan  origination  program  which
resulted in new loan  originations  and  purchases of $143.7  million,  of which
$92.4  million were one-to  four-family  residential  loans,  $31.4 million were
commercial  business and real estate  loans,  $14.4  million were land loans and
$5.5 million were other loans.  These  originations and purchases were offset in
part by repayments, sales, and other adjustments totaling $81.0 million.

The  securities  portfolio  had a net  increase  for the year of $11.4  million.
Investment  securities held to maturity  decreased  $751,000 to $21.4 million at
December  31,  1997  from  $22.1   million  at  December   31,   1996,   as  did
mortgage-backed  and related  securities  which  decreased $7.0 million to $46.4
million at December  31, 1997 from $53.4  million at December  31,  1996.  These
decreases  were  due  primarily  to  normal  amortization  and  calls.  However,
securities  available  for sale  increased  $19.1  million to $142.3  million at
December 31, 1997 from $123.2  million at December 31, 1996 due to the purchases
of $46.5 million of securities, which included $45.8 million in U. S. Government
and agency securities and $687,000 in  mortgage-backed  and related  securities.
These purchases were partially  offset by sales,  calls,  repayments,  and other
adjustments of $27.4 million.

Office properties and equipment increased by $3.8 million for the year primarily
due to the  expansion  of  branch  operations  as  well as the  purchase  of new
computer  hardware and software.  Three new branches were opened during the year
ended  December 31, 1997. A new building was  constructed on an outparcel in the
Indian  River Mall in Vero Beach,  and two  leaseholds  were  assumed from other
financial  institutions  in  Hutchinson  Island  and Lake  Worth.  Other  assets
increased $3.2 million to $5.2 million at December 31, 1997 from $2.0 million at
December 31, 1996,  due to the  investment in an  affordable  housing tax credit
partnership.  The Association's  approximately 4% limited  partnership  interest
results in tax benefits in the form of tax deductions from operating  losses and
tax credits.  The  investment in the  partnership  is being  amortized  over the
estimated life of the partnership.

The increase in total assets was funded primarily by a $37.0 million increase in
deposits to $550.7 million at December 31, 1997 as compared to $513.7 million at
December  31, 1996.  The deposit  growth  reflected  increased  retail  deposits
resulting  from  special  promotions  of  odd-term  certificates  combined  with
competitive  pricing intended to maintain the existing deposit customers as well
as to attract new customers in the  Association's  market area.  The increase in
assets also  reflected  the purchase of  securities  in  leveraged  transactions
intended to enhance net interest income which were funded by a $22.5 million net
increase in advances  from the FHLB to $57.3  million at December  31, 1997 from
$34.8 million at December 31, 1996.

Shareholders'  equity increased to $81.3 million or $16.39 per share at December
31, 1997 from $76.1 million or $15.50 per share at December 31, 1996, reflecting
net income for the year of $5.4 million offset  primarily by dividends  totaling
$0.90 per share declared on the common stock held by minority shareholders. As a
result of the  exercise of stock  options  granted  pursuant to the stock option
plan,  4,800  shares of common  stock were issued from  authorized  but unissued
shares  during  the  year  ended  December  31,  1997,  resulting  in  5,094,920
outstanding shares as of December 31, 1997.

RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 1996

GENERAL
Net  income  for the year  ended  December  31,  1997  increased  38.5 % to $5.4
million,  or $1.09 per share,  compared to $3.9 million,  or $0.80 per share for
the year ended September 30, 1996. This increase in net income was primarily due
to the special one time SAIF special pretax assessment of $2.8 million which was
recorded  during  September 1996 and which did not reoccur during the year ended
December 31, 1997. Net interest  income  increased $1.9 million to $22.9 million
for the year  ended  December  31,  1997 from $21.0  million  for the year ended
September 30, 1996.  Other income and the  provision for income taxes  increased
$641,000 and $2.2 million, respectively,  while operating expense decreased $1.2
million during these time periods.

INTEREST INCOME
Interest  income for the year ended December 31, 1997 totaled $50.3 million,  an
increase  of $6.4  million,  or 14.6%,  from  $43.9  million  for the year ended
September 30, 1996 reflecting,  in part, the implementation of the Association's
growth strategy to increase the loan portfolio and securities held for sale. The
increase was due primarily to an increase in average  interest-earning assets of
$77.9 million to $653.8 million for the year ended December 31, 1997 from $575.9
million for the year ended  September  30, 1996,  enhanced by an increase in the
average  yield on  average  interest-earning  assets to 7.70% for the year ended
December 31, 1997 from 7.62% for the year ended  September  30,  1996.  Interest
income on loans increased $5.2 million,  or 18.5%, to $33.5 million for the year
ended  December 31, 1997 compared to $28.3 million for the year ended  September
30, 1996.  Interest  income on real estate loans  increased by $5.0 million,  or
19.0%,  to $31.8 million for the year ended December 31, 1997 from $26.8 million
for the year ended September 30, 1996,  primarily  because of an increase in the
average balance of real estate loans of $61.6 million, or 18.6%, and an increase
in the average yield on real estate loans to 8.11% from 8.09%.  Interest  income
from investment  securities and securities  available for sale increased by $1.7
million,  or 19.5%,  to $10.4 million for the year ended  December 31, 1997 from
$8.7 million for the year ended  September 30, 1996. The increase in income from
investment  securities and securities available for sale was primarily caused by
an increase in the average  balance of $23.7  million to $111.0  million for the
year ended December 31, 1997 from $87.3

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million  for the year ended  September  30,  1996 as well as an  increase in the
average  yield to 6.79% for the year ended  December 31, 1997 from 6.53% for the
year ended  September 30, 1996.  Interest income from other  investments,  which
includes interest-earning deposits and FHLB stock, decreased $537,000, or 21.5%,
to $2.0  million for the year ended  December 31, 1997 from $2.5 million for the
year ended  September 30, 1996. The decrease in interest from other  investments
is primarily  attributable to a $10.0 million, or 23.9%, decrease in the average
balance of other  investments  to $31.8  million  during 1997 from $41.8 million
during  1996,  partially  offset by an increase  in the  average  yield on other
investments  to 6.14% for the year ended  December  31,  1997 from 5.96% for the
year ended September 30, 1996.

INTEREST EXPENSE
Interest expense increased $4.5 million, or 19.8%, to $27.4 million for the year
ended  December  31, 1997 from $22.9  million for the year ended  September  30,
1996.  Interest on deposits  increased $3.4 million,  or 17.7%, to $22.6 million
for the year  ended  December  31,  1997 from $19.2  million  for the year ended
September  30, 1996.  The increase was due  primarily to the increase in average
cost of  deposits  to 4.21% from  4.02%,  as well as an  increase in the average
balance of deposits of $59.0  million,  or 12.3%,  to $538.0 million during 1997
from $479.0  million during 1996. In order to increase its market share of total
deposits during 1997 as well as to maintain its existing deposit customers,  the
Association  placed an increased  emphasis on competitively  pricing its deposit
products,  including  odd-term  certificate  of  deposit  products,  as  well as
existing certificate of deposit products, as part of its asset liability policy.
Certificates  of  deposit  typically  have a higher  interest  rate  cost to the
Association than transaction accounts.  Certificates of deposits and transaction
accounts  increased $19.4 million and $17.6 million,  respectively,  at December
31, 1997 as compared to September 30, 1996.  Interest  expense  attributable  to
borrowed funds  increased $1.1 million,  or 31.2%,  to $4.7 million for the year
ended December 31, 1997 from $3.6 million for the year ended September 30, 1996.
The increase in interest  expense  attributable  to borrowed  funds is due to an
increase in the average  balance of borrowed  funds to $61.6 million during 1997
from $42.4 million during the 1996 period, partially offset by a decrease in the
average  cost of borrowed  funds to 7.70% for the year ended  December  31, 1997
from 8.52% for the 1996 period.  During 1997,  additional advances from the FHLB
were used  primarily to fund the  purchase of  securities  with higher  interest
yields than the interest cost of the FHLB advances.

PROVISION FOR LOAN LOSSES
The  Association  maintains an  allowance  for loan losses based upon a periodic
evaluation of known and inherent risks in the loan portfolio, the past loan loss
experience,  adverse  situations  that may  affect  borrowers'  ability to repay
loans,  the estimated  value of the underlying loan  collateral,  the nature and
volume of its loan  activities,  and current as well as expected future economic
conditions.  Loan loss  provisions are based upon  management's  estimate of the
fair  value  of the  collateral  and  the  actual  loss  experience,  as well as
guidelines  applied by the OTS and the FDIC.  The  provision for loan losses was
$264,000  for the year ended  December  31,  1997 as compared to $98,000 for the
year ended September 30, 1996. The increase in the provision for loan losses for
1997 was  attributable  to  management's  assessment that the allowance for loan
losses needed to be increased to absorb the risk inherent in the loan  portfolio
as the loan  portfolio  was  increased  by $62.7  million  during  this  period.
Management  reviews the  adequacy  of its  allowances  for loan  losses  monthly
through  asset  classification  review.  The  allowance  for  loan  losses  as a
percentage  of net loans  receivable at December 31, 1997 and September 30, 1996
was 0.59% and 0.61%, respectively.

OTHER INCOME
Other income consists of servicing income and fee income,  service charges, gain
or loss on the sale or early maturity of securities  available for sale,  loans,
and other assets as well as income or loss from a real estate venture in which a
subsidiary of the Association was involved.  Other income increased $641,000, or
18.1%,  to $4.2  million for the year ended  December 31, 1997 from $3.5 million
for the year  ended  September  30,  1996.  Net gain on sale of other  assets of
$617,000 in the year ended  December 31, 1997  represented  the sale of stock of
the  Association's  data service  bureau  which did not occur  during  1996.  In
addition,  the year ended  December 31, 1997  reflected a $3,000 net gain on the
sale of loans as compared to a $225,000 net loss for the 1996 period. Fee income
(which includes  servicing income and other loan fees, and NOW account and other
customer  fees)  increased  $310,000 to $3.6 million for the 1997 year from $3.3
million  for the 1996 period as a result of fee  structure  changes put in place
during  1997.   These   increases  were  partially   offset  by  a  decrease  in
miscellaneous  income of $252,000.  This decrease  reflected the amortization of
the affordable  housing tax credit partnership of $147,000 during the year ended
December 31, 1997.

OPERATING EXPENSE
Total  operating  expense  decreased  $1.2 million to $18.6 million for the year
ended  December  31, 1997 from $19.8  million for the year ended  September  30,
1996.  Operating  expense  was higher in the 1996  period  primarily  due to the
one-time $2.8 million special assessment for  recapitalization of the SAIF. This
special assessment was levied against institutions having SAIF-insured  deposits
as of March  31,  1995,  as  mandated  by the DIF.  Due to new  reduced  deposit
insurance  premium levels during 1997, the 1997 regular  premium was $270,000 as
compared to $1.1 million for the 1996 period. Employee compensation and benefits
increased  by $1.2 million to $9.0  million  during the year ended  December 31,
1997 from $7.8 million  during the year ended  September  30, 1996 and occupancy
and  equipment  expense  increased  $478,000 to $5.1  million for the year ended
December 31, 1997,  from $4.6 million for the 1996 period.  These  increases are
primarily  the  result  of  the  opening  of  three  new  branch  offices,   the
implementation of a new

                                       14
<PAGE>

company  wide   computer   network,   and   additional   costs  related  to  the
incentive-based  loan  originators.  These events involved  construction  costs,
increases in staffing,  and depreciation  increases  related to new hardware and
software for the network.

PROVISION FOR INCOME TAXES
Provision for income taxes  increased  $2.2 million to $2.9 million for the year
ended December 31, 1997 from $761,000 for the 1996 period. This increase was the
result of higher  taxable  income  during the year ended  December 31, 1997.  In
addition,  the 1996 period included the reversal of a $1.1 million prior accrued
liability  which in  management's  opinion was no longer  required and which was
reversed with a credit to the 1996 income tax provision.

RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995

GENERAL
Net income for the three months ended December 31, 1996 increased  10.5% to $1.2
million,  or $0.23 per share,  compared to $1.1 million, or $0.22 per share, for
the three months ended  December 31, 1995. The increase in net income was due to
increases  in net  interest  income of $662,000  and in other income of $145,000
offset in part by  increases  of  $213,000  in the  provision  for loan  losses,
$455,000 in operating expense, and $29,000 in the provision for income taxes.

NET INTEREST INCOME
Net interest income increased to $5.5 million for the quarter ended December 31,
1996 from $4.9 million for the three months ended December 31, 1995 primarily as
a result of an $78.0  million  increase  in average  interest-earning  assets to
$616.6  million for the three months ended December 31, 1996 from $538.6 million
for the same period in 1995.  This  increase was offset in large part by a $74.8
million increase in average  interest-bearing  liabilities to $559.8 million for
the three months ended December 31, 1996 from $485.0 million for the same period
in 1995.

PROVISION FOR LOAN LOSSES
The provision  for loan losses was $243,000 for the three months ended  December
31, 1996 as compared to $30,000 for the same period in 1995. The increase in the
provision of $213,000 included a $200,000 transfer to the general loan valuation
allowance from a specific  reserve which had been  maintained with respect to an
interest-earning  deposit which was pledged as  collateral  for the loan made to
the  Association's  Employee  Stock  Ownership  Plan (the  "ESOP") and which was
recovered  during the three months ended  December 31, 1996.  The  allowance for
loan  losses  as a  percentage  of net loans  receivable  was 0.65% and 1.04% at
December 31, 1996 and 1995, respectively.

OTHER INCOME
Other income consists of servicing income and fee income,  service charges, gain
or loss on the sale of securities available for sale and income or loss from the
Association's  subsidiary's real estate venture. Other income increased $145,000
to $1.2 million for the three  months ended  December 31, 1996 from $1.1 million
for the same  period in 1995,  due to the  reversal  of a  specific  reserve  of
$200,000  referenced  above  which  had  been  maintained  with  respect  to  an
interest-earning  deposit which was pledged as collateral  for the ESOP loan and
which was recovered during the 1996 period.

OPERATING EXPENSE
Operating  expense increased  $455,000,  or 10.9%, to $4.6 million for the three
month period ended December 31, 1996,  from $4.2 million from the same period in
1995, primarily due to increases of $135,000 in advertising and promotion due to
increased  advertising  designed to increase the Association's market share, and
$122,000 in employee compensation and benefits as a result of increased staffing
due to both a branch office opening and the expanded loan production  program as
previously discussed.

PROVISION FOR INCOME TAXES
Provision  for income taxes  increased  $29,000 to $696,000 for the three months
ended  December 31, 1996 as compared to $667,000 for the same period in 1995 due
to the increase in net income.

                                       15
<PAGE>

RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995

GENERAL
Net  income  for the year  ended  September  30,  1996  decreased  15.2% to $3.9
million,  or $0.80 per share,  compared to $4.6 million, or $0.94 per share, for
the same  period  last  year due  primarily  to the $2.8  million  special  SAIF
assessment as well as a $1.8 million increase in other operating  expense.  Such
increases  in expenses  were  partially  offset by an  increase in net  interest
income of $1.9 million, a decrease of $142,000 in provision for loan loss, and a
decrease in the provision for income taxes of $2.0 million.

INTEREST INCOME
Interest income for the year ended September 30, 1996 totaled $43.9 million,  an
increase  of $6.2  million,  or 16.4%,  from  $37.7  million  for the year ended
September  30, 1995.  The  increase was due  primarily to an increase in average
interest-earning  assets of $70.6  million to $575.9  million for the year ended
September 30, 1996 from $505.3 million for the same period in 1995,  enhanced by
an increase in the average yield on average interest-earning assets to 7.62% for
the year ended  September  30, 1996 from 7.46% for the year ended  September 30,
1995.  Interest  income on loans  increased  $3.4  million,  or 13.7%,  to $28.3
million for the year ended  September 30, 1996 compared to $24.9 million for the
same period in 1995.  Interest  income on real estate  loans  increased  by $3.1
million,  or 13.1%,  to $26.8 million for the year ended September 30, 1996 from
$23.7 million for the same period in 1995,  primarily  because of an increase in
the average  yield on real estate loans to 8.09% from 7.66%,  and an increase in
the average  balance of real estate loans of $22.4  million,  or 7.3%.  Interest
income on consumer and other loans  increased by $288,000 in 1996 as compared to
1995, principally because of an increase in the average balance of such loans of
$2.6 million to $15.7  million for the year ended  September 30, 1996 from $13.1
million  for  the  year  ended   September   30,   1995.   Interest   income  on
mortgage-backed and related securities  increased by $205,000,  or 4.9%, to $4.4
million.  The  increase in  interest  income  from  mortgage-backed  and related
securities is primarily  attributable  to an increase in the average  balance of
mortgage-backed  and related  securities to $100.0  million from $53.3  million,
partially  offset  by a  decrease  in the  average  yield to 7.43%  from  7.87%.
Interest  income from  investment  securities and securities  available for sale
increased  by $2.8  million,  or  46.7%,  to $8.7  million  for the  year  ended
September 30, 1996 from $5.9 million for the year ended  September 30, 1995. The
increase in income from investment  securities and securities available for sale
was  primarily  caused by an increase in the average  balance of $3.6 million to
$87.3 million for the year ended  September 30, 1996 from $83.7 million,  offset
by a decrease in the  average  yield to 6.53% for the year ended  September  30,
1996 from 7.11% for the year ended  September  30,  1995.  Interest  income from
other  investments  decreased  $226,000,  or 8.3%,  to $2.5 million for the year
ended  September  30, 1996 from $2.7  million for the year ended  September  30,
1995. The decrease in interest from other investments was primarily attributable
to a $4.6 million, or 9.9%, decrease in the average balance of other investments
to $41.8 million during 1996 from $46.4 million during 1995, partially offset by
an  increase  in the average  yield on other  investments  to 5.96% for the year
ended September 30, 1996 from 5.85% for the year ended September 30, 1995.

INTEREST EXPENSE
Interest expense increased $4.2 million, or 22.7%, to $22.9 million for the year
ended  September  30,  1996  from  $18.6  million  for the same  period in 1995.
Interest on deposits increased $3.5 million,  or 22.8%, to $19.2 million for the
year ended  September 30, 1996 from $15.7  million for the year ended  September
30,  1995.  The  increase  was due  primarily to the increase in average cost of
deposits to 4.02% from 3.65%, and to a lesser degree, an increase in the average
balance of deposits of $49.1  million,  or 11.4%,  to $479.0 million during 1996
from $429.9  million  during  1995.  In order to maintain,  and if possible,  to
increase its market share of total deposits,  during fiscal 1996 the Association
placed an increased emphasis on certificate of deposit products, including a new
odd-term  certificate  of deposit  product,  as well as existing  certificate of
deposit products as part of its asset liability policy.  Certificates of deposit
typically have a higher interest rate cost to the Association  than  transaction
accounts. Interest expense attributable to borrowed funds increased $657,000, or
22.2%,  to $3.6 million for the year ended  September 30, 1996 from $3.0 million
for the year  ended  September  30,  1995.  The  increase  in  interest  expense
attributable  to borrowed funds is due to an increase in the average  balance of
borrowed  funds to $42.4 million  during  fiscal 1996 from $29.1 million  during
fiscal  1995,  partially  offset by a decrease in the  average  cost of borrowed
funds to 8.52% for the year ended  September  30,  1996 from 10.16% for the same
period in 1995.  During  fiscal  year  1996,  the  Association  used  additional
advances from the FHLB primarily to fund the purchase of securities  with higher
interest yields than the interest cost of the FHLB advances.

PROVISION FOR LOAN LOSSES
The  Association's  provision  for loan  losses was  $98,000  for the year ended
September  30, 1996 as compared to  $240,000  for the year ended  September  30,
1995.  The  decrease  in the  provision  for loan  losses  for  fiscal  1996 was
attributable to  management's  assessment that the allowance for loan losses was
sufficient to absorb risk inherent in the  Association's  portfolio.  Management
reviews the adequacy of its  allowances  for loan losses  monthly  through asset
classification  review.  The  Association's  allowance  for  loan  losses  as  a
percentage of net loans  receivable at September 30, 1996 and 1995 was 0.61% and
1.06%, respectively.

                                       16
<PAGE>

OTHER INCOME
Other income consisted of servicing income and fee income, service charges, gain
or loss  on the  sale or call of  mortgage-backed  and  related  securities  and
investment  securities  and income or loss from the  Association's  subsidiary's
real estate venture.  Other income increased $150,000,  or 4.4%, to $3.5 million
for the year  ended  September  30,  1996 from $3.4  million  for the year ended
September 30, 1995.  The increase in other income was primarily due increases of
$383,000 in NOW account and other  customer fees  (consisting of fees from money
orders,  transaction  accounts,  safe deposit boxes,  and overdraft  fees) and a
$254,000  gain on the early  maturity of an  investment.  These  increases  were
partially offset by a decrease in miscellaneous  income of $226,000 primarily as
a  result  of  a  $279,000  decrease  in  the  Association's   income  from  its
subsidiary's  real estate venture which reflected the smaller number of closings
on sales of units  during  fiscal 1996 as the real  estate  venture has sold the
majority of the units. In addition,  the Association  recorded a net loss on the
sale of loans of $225,000 during fiscal 1996 which did not occur in fiscal 1995.

OPERATING EXPENSE
Total  operating  expense  increased  $4.7 million to $19.8 million for the year
ended  September  30, 1996 from $14.9  million for the year ended  September 30,
1995. The increase in operating expense was primarily attributable to a one-time
$2.8 million special  assessment for  recapitalization  of the SAIF as discussed
previously.  In  addition,  employee  compensation  and  benefits  increased  by
$492,000  to  $7.8  million   during  1996  from  $7.3   million   during  1995,
miscellaneous  expense  increased by $836,000 to $3.2  million  during 1996 from
$2.3  million  during 1995,  and the net gain on real estate owned  decreased by
$569,000 to $243,000 for 1996 from  $812,000 for 1995.  During fiscal year 1996,
the Association received an additional payment of $470,000  representing a final
settlement of the  Association's  claim with the State of Florida  Department of
Insurance, as Receiver for International Medical Centers, Inc. of Miami ("IMC").
Of this amount,  $260,000 was  classified as net gain on real estate owned while
the remaining  $210,000 was classified as interest  income.  During fiscal 1995,
the Association  received an initial  settlement of this claim of $816,000 which
was classified as net gain on real estate owned. Occupancy and equipment expense
increased  $75,000 to $4.6 million for 1996 from $4.5 million for 1995 primarily
due to the opening of a new office,  and  advertising  and  promotion  increased
$71,000 to $616,000 for 1996 from  $545,000 for 1995  primarily due to increased
advertising for the Association's lending products.

PROVISION FOR INCOME TAXES
Provision for income taxes decreased $2.0 million to $761,000 for the year ended
September  30, 1996 from $2.8 million for the same period in 1995.  The decrease
in income tax expense  reflected  lower pre-tax  income  during the  comparative
periods as well as the reversal of a $1.1 million prior accrued  liability which
in  management's  opinion was no longer  required and which was reversed  with a
credit to the 1996 income tax provision.

IMPACT OF NEW ACCOUNTING STANDARDS

ACCOUNTING FOR COMPREHENSIVE  INCOME AND ENTERPRISE SEGMENTS - In June 1997, the
Financial  Accounting  Standards  Board ("FASB")  issued  Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130") "Reporting  Comprehensive Income",
which requires that an enterprise  report,  by major  components and as a single
total,  the change in its net assets during the period from  non-owner  sources;
and SFAS No. 131  "Disclosures  about  Segments  of an  Enterprise  and  Related
Information",  which establishes  annual and interim reporting  standards for an
enterprise's  operating  segments and related  disclosures  about its  products,
services,  geographic  areas, and major customers.  Adoption of these statements
will  not  impact  Bankshares'  consolidated  financial  position,   results  of
operations,  or cash  flows,  and any  effect  will be  limited  to the form and
content of its  disclosures.  Both  statements  are  effective  for fiscal years
beginning after December 15, 1997, with earlier application permitted.

YEAR 2000 CONSIDERATIONS

In order to be ready for the year 2000 (the "Year 2000 Issue"),  the Association
has developed a Year 2000 Action Plan (the "Action Plan") which was presented to
the Board of Directors during July 1997. The Action Plan was developed using the
guidelines  outlined  in  the  Federal  Financial   Institutions   Examination's
Council's "The Effect of 2000 on Computer Systems". The Association's  Strategic
Planning Committee assigned responsibility for the Action Plan to the Efficiency
Committee  which  reports  to the  Strategic  Planning  Committee  and the Audit
Committee  of  the  Board  of  Directors  on  a  monthly  and  quarterly  basis,
respectively.  The Action  Plan  recognizes  that the  Association's  operating,
processing and accounting  operations are computer reliant and could be affected
by the Year 2000 Issue.  The  Association  is  primarily  reliant on third party
vendors for its computer  output and  processing,  as well as other  significant
functions and services (i.e. securities safekeeping services, securities pricing
information,  et cetera).  The  Efficiency  Committee is currently  working with
these third party  vendors to assess their year 2000  readiness.  Based upon the
initial   assessment,   management   presently   believes   that  with   planned
modifications to existing  software and hardware and planned  conversions to new
software and  hardware,  the  Association's  third party  vendors are taking the
appropriate  steps to  ensure  critical  systems  will  function  properly.  The
Association  currently  expects such  modifications  and conversions and related
testing to be completed by December 31, 1998. However, if such modifications and
conversions are not made, or are not completed on a timely basis,  the Year 2000
Issue could have a material impact on the operations of the Association.

                                       17
<PAGE>

The costs of modifications to the existing software is being primarily  absorbed
by the third party vendors,  however the  Association  recognized  that the need
exists to purchase new hardware and software.  Based upon current estimates, the
Association  has  identified  $1,800,000  in total  costs,  including  hardware,
software,  and other  issues,  for  completing  the Year 2000  project.  Of that
amount,  approximately  $1,226,000  and $39,000 was purchased  during the twelve
months  ended  December  31,  1997 and 1996,  respectively,  with the  remaining
$535,000 budgeted for the year ended December 31, 1998.

FORWARD-LOOKING STATEMENTS

Certain  information  in  this  annual  report  may  constitute  forward-looking
information  that  involves  risks and  uncertainties  that could  cause  actual
results to differ  materially from those  estimated.  Persons are cautioned that
such forward-looking statements are not guarantees of future performance and are
subject to various factors which could cause actual results to differ materially
from those estimated.  These factors include, but are not limited to, changes in
general  economic and market  conditions,  legislative  and regulatory  changes,
monetary  and fiscal  policies  of the federal  government,  demand for loan and
deposit  products  and the  development  of an interest  rate  environment  that
adversely  affects the  interest  rate spread or other  income from  Bankshares'
investments and operations.

AVERAGE BALANCE SHEET

The  following  tables set forth  certain  information  relating to  Bankshares'
average  balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid.  Such yields and costs are  derived by  dividing  income or expense by the
average  balance  of  assets  or  liabilities,  respectively,  for  the  periods
presented.  The use of monthly  average  balances  (except  as noted  otherwise)
instead of daily average balances has not caused any material  difference in the
information presented.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                    For the Year Ended                  For the Three Months Ended
                                                     December 31, 1997                       December 31, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                                         Average                                    Average
                                             Average                     Yield/       Average                       Yield/
                                             Balance     Interest         Cost        Balance       Interest         Cost
---------------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars In Thousands)
                                           --------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>        <C>            <C>             <C>
Interest-earning assets:
     Real estate loans                        $392,782      $31,846        8.11%      $365,269       $ 7,427         8.13%
     Consumer and other loans                   18,316        1,644         8.98        17,989           408         9.07
     Mortgage-backed securities                 99,884        7,330         7.34       107,190         1,992         7.43
     Investment securities                     110,986        7,540         6.79        93,399         1,578         6.76
     Other investments (1)                      31,851        1,956         6.14        32,764           491         5.99
                                              --------      -------                   --------       -------
  Total interest-earning assets                653,819       50,316         7.70       616,611        11,896         7.72
                                                            -------                                  -------
Non-interest-earning assets                     39,356                                  35,425
                                              --------                                --------
       Total assets                           $693,175                                $652,036
                                              ========                                ========

Interest-bearing liabilities:
     Deposits                                 $537,965       22,648         4.21%     $504,738         5,251         4.16%
     Borrowed funds                             61,551        4,742         7.70        55,063         1,127         8.19
                                              --------      -------                   --------       -------
  Total interest-bearing liabilities           599,516       27,390         4.57       559,801         6,378         4.56
                                                            -------                                  -------
Non-interest-bearing liabilities                14,837                                  16,294
                                              --------                                --------
       Total liabilities                       614,353                                 576,095
Shareholders' equity                            78,822                                  75,941
                                              --------                                --------
Total liabilities and shareholders' equity    $693,175                                $652,036
                                              ========                                ========

Net interest income                                         $22,926                                  $ 5,518
                                                            =======                                  =======
Net interest rate spread (2)                                               3.13%                                     3.16%
                                                                         ======                                    ======
Net yield on interest-earning assets (3)                                   3.51%                                     3.58%
                                                                         ======                                    ======
Ratio of average interest- earning
  assets to average interest-bearing
  liabilities                                                            109.06%                                   110.15%
                                                                         ======                                    ======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)    Includes interest-earning deposits and FHLB stock.
(2)    Net interest-rate  spread  represents the difference  between the average
       yield  earned on  interest-earning  assets and the  average  rate paid on
       interest-bearing liabilities.
(3)    Net yield on interest-earning  assets represents net interest income as a
       percentage of average interest-earning assets.

                                       18
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                 For the Years Ended September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                           1996                                     1995
                                           --------------------------------------------------------------------------------
                                                                          Average                                  Average
                                              Average                      Yield/      Average                      Yield/
                                              Balance     Interest         Cost        Balance       Interest        Cost
---------------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars In Thousands)
                                           --------------------------------------------------------------------------------
<S>                                           <C>           <C>             <C>       <C>            <C>             <C>
Interest-earning assets:
     Real estate loans                        $331,134      $26,765         8.09%     $308,793       $23,661         7.66%
     Consumer and other loans                   15,746        1,508         9.48        13,056         1,197         9.17
     Mortgage-backed securities                 99,959        7,423         7.43        53,349         4,198         7.87
     Investment securities                      87,280        5,700         6.53        83,650         5,945         7.11
     Other investments (1)                      41,817        2,493         5.96        46,444         2,719         5.85
                                              --------      -------                   --------       -------
  Total interest-earning assets                575,936       43,889         7.62       505,292        37,720         7.46
                                                            -------                                  -------
Non-interest-earning assets                     36,068                                  39,263
                                              --------                                --------
       Total assets                           $612,004                                $544,555
                                              ========                                ========

Interest-bearing liabilities:
     Deposits                                 $478,955       19,247         4.02%     $429,893        15,679         3.65%
     Borrowed funds                             42,416        3,612         8.52        29,086         2,955        10.16
                                              --------      -------                   --------       -------
  Total interest-bearing liabilities           521,371       22,859         4.38       458,979        18,634         4.06
                                                            -------                                  -------
Non-interest-bearing liabilities                15,995                                  16,313
                                              --------                                --------
       Total liabilities                       537,366                                 475,292
Shareholders' equity                            74,638                                  69,263
                                              --------                                --------
Total liabilities and shareholders' equity    $612,004                                $544,555
                                              ========                                ========

Net interest income                                         $21,030                                  $19,086
                                                            =======                                  =======
Net interest rate spread (2)                                               3.24%                                     3.40%
                                                                         ======                                    ======
Net yield on interest-earning assets (3)                                   3.65%                                     3.78%
                                                                         ======                                    ======
Ratio of average interest- earning assets to
  average interest-bearing liabilities                                   110.47%                                   110.09%
                                                                         ======                                    ======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)    Includes interest-earning deposits and FHLB stock.
(2)    Net interest-rate  spread  represents the difference  between the average
       yield  earned on  interest-earning  assets and the  average  rate paid on
       interest-bearing liabilities.
(3)    Net yield on interest-earning  assets represents net interest income as a
       percentage of average interest-earning assets.

                                       19
<PAGE>

RATE VOLUME ANALYSIS

Net  interest  income can also be  analyzed  in terms of the impact of  changing
interest rates on interest-earning  assets and interest-bearing  liabilities and
changing the volume or amount of these  assets and  liabilities.  The  following
table  represents  the extent to which changes in interest  rates and changes in
the volume of  interest-earning  assets and  interest-bearing  liabilities  have
affected the interest income and interest expense during the periods  indicated.
Information   is  provided  in  each   category  with  respect  to  (i)  changes
attributable  to changes in average volume (change in average volume  multiplied
by prior rate);  (ii) changes  attributable  to changes in rate (changes in rate
multiplied by prior average  volume);  (iii) changes in rate-volume  (changes in
rate multiplied by changes in average volume); and (iv) the net change.
<TABLE>
<CAPTION>

  --------------------------------------------------------------------------------------------------------------------------
                            Year Ended December 31, 1997    Three Months Ended December 31,  Year Ended September 30,
                          vs. Year Ended September 30, 1996         1996 vs. 1995                  1996 vs. 1995
                          --------------------------------------------------------------------------------------------------
                             Increase/(Decrease)             Increase/(Decrease)            Increase/(Decrease)
                                   Due to                           Due to                         Due to
                          ------------------------   Total   --------------------  Total    --------------------    Total
                                             Rate/  Increase               Rate/  Increase                Rate/   Increase
                            Volume  Rate    Volume (Decrease) Volume Rate  Volume (Decrease) Volume Rate  Volume (Decrease)
----------------------------------------------------------------------------------------------------------------------------
                                                                   (In Thousands)
                          --------------------------------------------------------------------------------------------------
<S>                       <C>    <C>        <C>    <C>      <C>     <C>     <C>    <C>     <C>    <C>      <C>    <C>
INTEREST INCOME:
   First mortgage
    loans                 $4,981   $  99    $   1  $5,081  $  947   $175    $ 27   $1,149  $1,711 $1,297   $  96  $ 3,104
   Consumer and other loans  246     (94)     (16)    136      74     (9)     (2)      63     247     54      10      311
   Mortgage-backed
    securities                (6)    (90)       3     (93)    523    (72)    (23)     428   3,668   (235)   (208)   3,225
   Investment securities   1,548     227       65   1,840     171     42       4      217     258   (485)    (18)    (245)
   Interest-earning
    deposits                (594)     75      (18)   (537)   (157)   (12)      3     (166)   (271)    51      (6)    (226)
                          ------    ----    -----  ------  ------   ----    ----   ------  ------ ------   -----  -------
   Total interest-
    earning assets         6,175     217       35   6,427   1,558    124       9    1,691   5,613    682    (126)   6,169
                          ------    ----    -----  ------  ------   ----    ----   ------  ------ ------   -----  -------
INTEREST EXPENSE
   Deposits                2,372     910      119   3,401     588    145      19      752   1,791  1,591     186    3,568
   Borrowed funds          1,630    (348)    (152)  1,130     363    (60)    (26)     277   1,354   (477)   (220)     657
                          ------    ----    -----  ------  ------   ----    ----   ------  ------ ------   -----  -------
   Total interest-
    bearing liabilities    4,002     562      (33)  4,531     951     85      (7)   1,029   3,145  1,114     (34)   4,225
                          ------    ----    -----  ------  ------   ----    ----   ------  ------ ------   -----  -------
Net change in net
 interest income          $2,173   $(345)   $  68  $1,896  $  607   $ 39    $ 16   $  662  $2,468 $ (432)  $ (92)  $1,944
                          ======   =====    =====  ======  ======   ====    ====   ======  ====== ======   =====   ======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

MARKET RISK ANALYSIS

As a holding company for a financial institution,  Bankshares' primary component
of market risk is interest rate volatility.  Fluctuations in interest rates will
ultimately  impact  both the level of income  and  expense  recorded  on a large
portion of the Association's assets and liabilities, and the market value of all
interest-earning  assets,  other than those which have a short term to maturity.
Since Bankshares'  interest-earning assets and interest-bearing  liabilities are
held by the Association,  all of Bankshares' interest rate risk exposure lies at
the  Association  level.  As  a  result,  all  significant  interest  rate  risk
management procedures are performed by management of the Association. Based upon
the nature of the  Association's  operations,  the Association is not subject to
foreign  currency  exchange or  commodity  price risk.  The  Association's  loan
portfolio is concentrated primarily in Palm Beach, Martin, St. Lucie, and Indian
River counties in Florida and is therefore  subject to risks associated with the
local economy.  As of December 31, 1997, the Association did not own any trading
assets,  and does not have any  hedging  transactions  in place such as interest
rate swaps and caps.

The  Association's  interest rate risk management is the  responsibility  of the
Asset/Liability  Management Committee ("ALCO"), which makes quarterly reports to
the Board of Directors.  ALCO establishes policies to monitor and coordinate the
Association's sources, uses, and pricing of funds.

The  Association's  interest rate management  strategy is designed to manage the
volatility  of  its  net  interest  income  by  managing  the   relationship  of
interest-rate  sensitive  assets to  interest-rate  sensitive  liabilities.  The
Association  monitors  interest rate risk through the use of a simulation  model
which  measures  the  sensitivity  of future  net  interest  income  and the net
portfolio  value to changes in interest  rates.  In  addition,  the  Association
monitors  interest rate  sensitivity  through analysis by measuring the terms to
maturity or next repricing date of interest-earning  assets and interest-bearing
liabilities  The  extent to which  assets and  liabilities  are  "interest  rate
sensitive" is measured by an institution's  interest rate sensitivity  "gap". An
asset or liability is said to be interest rate sensitive  within a specific time
period if it will mature or reprice  within that time period.  The interest rate
sensitivity   gap  is  defined  as  the   difference   between   the  amount  of
interest-earning  assets maturing or repricing within a specific time period and
the amount of  interest-bearing  liabilities  maturing or repricing  within that
time  period.  A gap is  considered  positive  when the amount of interest  rate
sensitive  assets exceeds the amount of interest rate sensitive  liabilities.  A
gap  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities exceeds the amount of interest rate sensitive assets.
Based on the model presented in the GAP table on page 22, during a

                                       20
<PAGE>

period  of rising  interest  rates,  a  negative  gap would  tend to result in a
decrease in net interest  income while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates, a negative gap would tend to positively  affect net interest income while
a positive gap would tend to adversely affect net interest  income.  At December
31, 1997, total  interest-earning  liabilities  maturing or repricing within one
year exceeded total  interest-bearing  assets  maturing or repricing in the same
period by $23.0  million,  representing  a  cumulative  one-year  gap ratio of a
negative 3.2% (See GAP table on page 22).

In the  declining  interest  rate  environment  that has  existed  over the past
several years, the Association  invested a substantial  portion of its assets in
short- and medium-term  liquid assets.  While such  investments  typically yield
less than could be obtained in investments in mortgage  loans,  the  Association
believes such investments will allow it to reinvest at higher yields if interest
rates rise. In this regard,  the  Association  has emphasized the origination of
adjustable-rate  mortgage ("ARM") loans and other  adjustable-rate or short-term
loans, as well as purchased short-term and medium-term investments. In addition,
in recent years, the Association has de-emphasized the origination of fixed-rate
residential  loans and has used hybrid loan products which has a  fixed-interest
rate for a stated  period  of  either  five or  seven  years.  At the end of the
fixed-interest rate period, the loan converts to a one year ARM. The Association
retains ARM loans and  fixed-rate  loans with  maturities of 15 years or less in
its portfolio. Based on management's assessment of the current portfolio mix and
Board of Director  established limits,  fixed rate loans with maturities greater
than 15 years are either held in the  portfolio or sold when  originated  in the
secondary  market,  except those originated for special  financing on low income
housing.  The  Association  also invests in United States  Government and agency
securities,  investment  securities,  including  mutual  funds  that  invest  in
adjustable-rate   securities,   and   short-term  and   medium-term   fixed-rate
mortgage-backed and government securities. Of the Association's total investment
in loans,  mortgage-backed  securities and investment securities at December 31,
1997, $334.3 million,  or 50%, had adjustable  interest rates. In addition,  the
Association  does not  solicit  high-rate  certificates  of deposit in excess of
$100,000 or brokered funds.

MARKET VALUE PORTFOLIO EQUITY

Although  interest rate sensitivity gap is a useful  measurement and contributes
toward effective asset and liability management,  it is difficult to predict the
effect of changing  interest rates based solely on that measure.  An alternative
methodology  is to estimate the change in the market  value of portfolio  equity
("MVPE").  The assumptions  used by management to evaluate the  vulnerability of
Bankshares' operations to changes in interest rates in the table below are based
on assumptions  provided by the FHLB of Atlanta and utilized in the GAP table on
page 22. Although  management finds these assumptions  reasonable,  the interest
rate sensitivity the assets and liabilities and the estimated effects of changes
in interest rates on the net interest income and MVPE indicated in the following
table could vary  substantially  if  different  assumptions  were used or actual
experience differs from such assumptions.

The  following  table  presents  Bankshares'  internal  calculations  of MVPE at
December 31, 1997.
<TABLE>
<CAPTION>

                                                   Actual Net Market Value of Portfolio Equity
  Change in Interest Rates in Basis Points        --------------------------------------------
              (Rate Shock)                            Amount         $ Change         % Change
----------------------------------------------------------------------------------------------
                                                              (Dollars in Thousands)
<S>               <C>                               <C>              <C>              <C>
                  400                               $ 64,668         $(33,378)        (34.0)%
                  300                                 72,109          (25,937)        (26.5)%
                  200                                 80,111          (17,935)        (18.3)%
                  100                                 88,734           (9,312)         (9.5)%
                Static                                98,046                -             -
                 (100)                               108,125           10,079          10.3%
                 (200)                               119,058           21,012          21.4%
                 (300)                               130,947           32,901          33.6%
                 (400)                               143,905           45,859          46.8%
</TABLE>

                                       21
<PAGE>

GAP TABLE

The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing  liabilities  outstanding  at  December  31,  1997,  which  are
expected  to  reprice or mature,  based on certain  assumptions,  in each of the
future time periods  shown.  Except as stated  below,  the amounts of assets and
liabilities  shown  that  reprice  or mature  during a  particular  period  were
determined in accordance  with the earlier term of repricing or the  contractual
terms of the asset or liability.
<TABLE>
<CAPTION>

                                                                        Amounts Maturing or Repricing
                                  -------------------------------------------------------------------------------------------------
                                   Less than    3 to 6      6 Months       1 to 3     3 to 5       5 to 10     More than
                                    3 Months    Months      to 1 Year       Years      Years        Years      10 Years      Total
                                  -------------------------------------------------------------------------------------------------
                                                                            (Dollars In Thousands)
                                  -------------------------------------------------------------------------------------------------
<S>                               <C>        <C>           <C>           <C>        <C>          <C>        <C>           <C>
Interest-earning assets:
   Real estate loans:
     Residential one-
      to four-family:
       Market index ARMs          $  69,492  $  13,876     $  77,462     $  16,608  $  15,098    $      --  $      --     $ 192,536
       Fixed-rate                     6,227      7,225        14,149        38,489     27,474       39,610     25,727       158,901
     Commercial and multi-family:
       ARMs                          44,902      1,574        18,478         3,589         --           --         --        68,543
       Fixed-rate                       206      1,714           984         3,164      3,522        2,678      2,687        14,955
  Valuation allowances                   --         --            --            --         --           --     (2,662)       (2,662)
  Yield adjustments                      --         --            --            --         66          140         --           206
  Consumer loans                        971      1,047         1,476         2,922        500           59         --         6,975
  Equity line of credit loans         7,392          1         1,332            --         --           --         --         8,725
  Commercial business loans           3,376         60            94            --         --           --         --         3,530
  Collateralized mortgage
    obligations                       9,711      3,340         9,810        24,094     15,903       12,832      4,308        79,998
  Other mortgage-backed
    securities                        1,093      1,027         1,880         5,371      2,384        1,012         --        12,767
  Investment securities              61,553        289         6,712        19,265     25,981       17,126         --       130,926
  FHLB stock                          3,264         --            --            --         --           --         --         3,264
                                  -------------------------------------------------------------------------------------------------
        Total interest-earning
          assets                    208,187     30,153       132,377       113,502     90,928       73,457     30,060       678,664
                                  -------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
   Passbook accounts                  1,284      1,284         2,568         6,480      3,128        6,243      9,234        30,221
   NOW accounts                       6,462      6,462        12,924        14,904      2,640        5,314     21,156        69,862
   Money market accounts             15,570     15,570        31,140         1,824        776          664     13,288        78,832
   Certificate accounts              76,537    117,585        66,819        58,626     26,285        1,226         --       347,078
   ESOP borrowings                    1,424         --            --            --         --           --         --         1,424
   FHLB advances                     17,124      1,588         3,024        10,896     23,644        1,065         --        57,341
   Other borrowed funds              16,333         --            --            --         --           --         --        16,333
                                  -------------------------------------------------------------------------------------------------
       Total interest-bearing
         liabilities                134,734    142,489       116,475        92,730     56,473       14,512     43,678       601,091
                                  -------------------------------------------------------------------------------------------------
Interest-earning assets less
   interest-bearing liabilities
   ("interest rate
   sensitivity gap")              $  73,453  $(112,336)    $  15,902     $  20,772  $  34,455    $  58,945  $ (13,618)    $  77,573
                                  =================================================================================================
Cumulative excess (deficiency)
   of interest-sensitive assets
   over interest-sensitive
   liabilities                    $  73,453  $ (38,883)    $ (22,981)    $  (2,209) $  32,246    $  91,191  $  77,573
                                  ===================================================================================
Interest sensitivity gap to
  total assets                        10.20%    (15.60)%        2.21%         2.88%      4.78%        8.19%     (1.89)%
Cumulative interest
  sensitivity gap to total assets     10.20%     (5.40)%       (3.19)%       (0.31)%     4.48%       12.66%     10.77%
Ratio of interest-earning
  assets to interest-bearing
  liabilities                        154.52%     21.16%       113.65%       122.40%    161.01%      506.18%     68.82%
Cumulative ratio of
  interest-earning assets to
  interest bearing liabilities       154.52%     85.97%        94.16%        99.55%    105.94%      116.36%    112.91%

Cumulative interest-sensitive
  assets                          $ 208,187  $ 238,340     $ 370,717     $ 484,219  $ 575,147    $ 648,604  $ 678,664
Cumulative interest-bearing
  liabilities                     $ 134,734  $ 277,223     $ 393,698     $ 486,428  $ 542,901    $ 557,413  $ 601,091
</TABLE>

                                                                 22
<PAGE>

In  preparing  the  table  above,  it has  been  assumed,  consistent  with  the
assumptions used by the FHLB of Atlanta,  as of September 1997, in assessing the
interest rate  sensitivity of savings  associations,  that: (i)  adjustable-rate
first  mortgage  loans will  prepay at a rate of 19% per year;  (ii)  fixed-rate
mortgage  loans on one- to four-family  residences  with terms to maturity of 15
years or less will prepay at a rate of 11% per year; (iii) second mortgage loans
on one- to four-family  residences  will prepay at a rate of 15% per year;  (iv)
fixed-rate  first mortgage loans on one- to four-family  residential  properties
with  remaining  terms to  maturity  of over 15 years will  prepay  annually  as
follows:


                      Prepayment Interest Rate           Assumption
      -----------------------------------------------------------------

                          Less than 8%                      11%
                          8 to 8.99%                        13%
                          9 to 9.99%                        18%
                          10 to 10.99%                      25%
                          11 to 11.99%                      25%
                          12 to 13.99%                      25%
                          14% and over                      25%

(v) fixed maturity  deposits will not be withdrawn  prior to maturity;  and (vi)
these  withdrawal  rates as well as loan  prepayment  assumptions  are  based on
certain  assumptions for loan  prepayments and deposit  withdrawals.  Management
believes that these assumptions approximate actual experience and considers them
appropriate and reasonable.  NOW,  passbook and money market accounts will decay
at the following rates:
<TABLE>
<CAPTION>

                                                  Over 1        Over 3        Over 5        Over 10
                                    1 Year        Through       Through       Through       Through       Over 20
                                    or Less       3 Years       5 Years      10 Years      20 Years        Years
                                 ----------------------------------------------------------------------------------

<S>                                   <C>           <C>           <C>           <C>           <C>           <C>
NOW accounts                          37%           34%           9%            20%           20%           20%
Passbook accounts                     17%           26%           17%           40%           40%           40%
Money market deposit accounts         79%           11%           5%            5%            5%            5%
</TABLE>

The above  assumptions  utilized by the FHLB of Atlanta  are annual  percentages
based on  remaining  balances  and should not be regarded as  indicative  of the
actual  prepayments  and  withdrawals  that may be  experienced  by  Bankshares.
Moreover,  certain  shortcomings  are inherent in the analysis  presented by the
foregoing tables. 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,  interest rates on certain types of
assets and  liabilities  may  fluctuate  in advance of or lag behind  changes in
market interest rates.  Additionally,  certain assets,  such as ARM loans,  have
features that restrict  changes in interest rates on a short-term basis and over
the life of the assets.  Moreover,  in the event of a change in interest  rates,
prepayment and early withdrawal levels would likely deviate  significantly  from
those  assumed  in  calculating  the  table.   For  information   regarding  the
contractual  maturities of the loan,  securities,  and deposit  portfolios,  see
Notes to Consolidated Financial Statements.

                                       23
<PAGE>

INDEPENDENT AUDITORS' REPORT



Community Savings Bankshares, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of Community Savings  Bankshares,  Inc.  ("Bankshares") and its subsidiary as of
December  31,  1997  and  1996,  and  the  related  consolidated  statements  of
operations,  changes in  shareholders'  equity and cash flows for the year ended
December 31, 1997,  for the three months ended December 31, 1996 and for each of
the two  years in the  period  ended  September  30,  1996.  These  consolidated
financial  statements  are the  responsibility  of Bankshares'  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  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 consolidated  financial  statements present fairly, in all
material respects, the financial position of Bankshares and its subsidiary as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended  December 31, 1997,  for the three months ended  December 31,
1996 and for each of the two years in the period ended  September  30, 1996,  in
conformity with generally accepted accounting principles.




/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida

February 20, 1998


                                       24
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
---------------------------------------------------------------------------------------------------------------------
                                                                                                    December 31,

                                                                                                1997           1996
---------------------------------------------------------------------------------------------------------------------
                                                                                              (In Thousands)
<S>                                                                                           <C>            <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions                                             $ 12,333       $ 13,547
Interest-bearing deposits (Note 1)                                                              13,621         28,895
                                                                                              --------       --------
   Total cash and cash equivalents                                                              25,954         42,442

Securities available for sale (Approximate cost -
   1997, $142,357; 1996, $124,643)(Notes 1,2,6)                                                142,269        123,152

Investments - held to maturity  (Approximate fair value - 1997,
   $25,585;  1996, $26,266) (Notes 1,3,6,15)                                                    21,388         22,139

Mortgage-backed and related securities - held to maturity
   (Approximate fair value - 1997, $46,938; 1996, $53,880) (Notes 1,4,6)                        46,413         53,405

Loans receivable, net of allowance for loan losses (1997, $2,662; 1996, $2,542)
   (Notes 1,5,6)                                                                               451,709        389,040

Accrued interest receivable (Notes 1,7)                                                          3,162          2,354

Office properties and equipment, net (Notes 1,8)                                                20,206         16,368

Real estate owned, net (Notes 1,9)                                                                 592          1,455

Federal Home Loan Bank stock - at cost (Notes 3,6)                                               3,264          2,864

Other assets (Note 1)                                                                            5,176          1,990
                                                                                              --------       --------
Total assets                                                                                  $720,133       $655,209
                                                                                              ========       ========

LIABILITIES
Deposits (Notes 6,10)                                                                         $550,708       $513,709

Mortgage-backed bond, net (Notes 6,15)                                                          16,333         17,230

Advances from Federal Home Loan Bank (Notes 6, 11)                                              57,341         34,763

Employee Stock Ownership Plan borrowings (Note 14 )                                              1,424          1,915

Advances by borrowers for taxes and insurance                                                      931          1,059

Other liabilities (Note 14)                                                                      9,101          7,753

Deferred income taxes, net (Notes 1,12)                                                          3,036          2,661
                                                                                              --------       --------
Total liabilities                                                                              638,874        579,090
                                                                                              --------       --------

Commitments and contingencies (Note 13)

SHAREHOLDERS' EQUITY
Preferred stock ($1 par value) 10,000,000 authorized shares, no shares issued                       --             --

Common stock ($1 par value) 20,000,000 authorized shares, 1997, 5,094,920;
   1996, 5,090,120 shares issued and outstanding                                                 5,095          5,090

Additional paid-in capital                                                                      30,278         29,920

Retained income - substantially restricted (Notes 13,16)                                        47,887         44,603

Common stock purchased by Employee Stock Ownership Plan                                         (1,424)        (1,818)

Common stock issued to Recognition and Retention Plan                                             (423)          (608)

Unrealized decrease in market value of securities available for sale, net of income taxes         (154)        (1,068)
                                                                                              --------       --------
Total shareholders' equity                                                                      81,259         76,119
                                                                                              --------       --------
Total liabilities and shareholders' equity                                                    $720,133       $655,209
                                                                                              ========       ========
</TABLE>


See notes to consolidated financial statements.

                                       25

<PAGE>
<TABLE>
<CAPTION>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
                                                                         For the      For the Three          For the Years
                                                                        Year Ended    Months Ended               Ended
                                                                        December 31,  December 31,            September 30,
                                                                           1997          1996             1996           1995
-------------------------------------------------------------------------------------------------------------------------------
                                                                                    (Dollars In Thousands)
<S>                                                                     <C>            <C>           <C>            <C>
Interest income:
   Real estate loans (Note 1)                                           $    31,846    $     7,427   $    26,765    $    23,661
   Consumer and commercial business loans                                     1,644            408         1,508          1,197
   Investment  securities and  securities
     available for sale (Notes 2,3)                                          10,422          2,566         8,720          5,945
   Mortgage-backed and related securities (Note 4)                            4,448          1,004         4,403          4,198
   Interest-earning deposits                                                  1,956            491         2,493          2,719
                                                                        -----------    -----------   -----------    -----------
     Total interest income                                                   50,316         11,896        43,889         37,720
                                                                        -----------    -----------   -----------    -----------

Interest expense:
   Deposits (Note 10)                                                        22,648          5,251        19,247         15,679
   Advances from Federal Home Loan Bank
     and other borrowings (Notes 11, 15)                                      4,742          1,127         3,612          2,955
                                                                        -----------    -----------   -----------    -----------
    Total interest expense                                                   27,390          6,378        22,859         18,634
                                                                        -----------    -----------   -----------    -----------

Net interest income                                                          22,926          5,518        21,030         19,086

Provision for loan losses (Notes 1,5)                                           264            243            98            240
                                                                        -----------    -----------   -----------    -----------

Net interest income after provision for loan losses                          22,662          5,275        20,932         18,846
                                                                        -----------    -----------   -----------    -----------

Other income:
   Servicing income and other fees                                              269             33           148            184
   NOW account and other customer fees                                        3,339            820         3,150          2,767
   Net  gain  (loss)  on sale  and  early  maturities  of  securities
     available for sale                                                          (8)            51            --             --
   Gain on early maturity of investment                                          --             --           254             --
   Gain on sale of other assets                                                 617             --            --             --
   Net gain (loss) on sale of loans receivable                                    3              3          (225)            --
   Miscellaneous                                                                (35)           318           217            443
                                                                        -----------    -----------   -----------    -----------
     Total other income                                                       4,185          1,225         3,544          3,394
                                                                        -----------    -----------   -----------    -----------

Operating expense:
   Employee compensation and benefits (Note 14)                               8,989          2,125         7,785          7,293
   Occupancy and equipment (Notes 8, 13)                                      5,059          1,201         4,581          4,506
   Net (gain) loss on real estate owned                                        (112)            37          (243)          (812)
   Advertising and promotion                                                    734            240           616            545
   Federal deposit insurance premium                                            270            288         3,883          1,029
   Miscellaneous                                                              3,621            753         3,178          2,342
                                                                        -----------    -----------   -----------    -----------
     Total operating expense                                                 18,561          4,644        19,800         14,903
                                                                        -----------    -----------   -----------    -----------

Income before provision for income taxes                                      8,286          1,856         4,676          7,337
                                                                        -----------    -----------   -----------    -----------
Provision (benefit) for income taxes: (Notes 1,12)
  Current                                                                     3,042             65         1,817          3,126
  Deferred                                                                     (112)           631        (1,056)          (363)
                                                                        -----------    -----------   -----------    -----------
    Total provision for income taxes                                          2,930            696           761          2,763
                                                                        -----------    -----------   -----------    -----------

Net income                                                              $     5,356    $     1,160   $     3,915    $     4,574
                                                                        ===========    ===========   ===========    ===========
Earnings per share - basic                                              $      1.09    $      0.24   $      0.80    $      0.94
                                                                        ===========    ===========   ===========    ===========
Earnings per share - diluted                                            $      1.06    $      0.23   $      0.79    $      0.94
                                                                        ===========    ===========   ===========    ===========
Weighted average common shares outstanding - basic                        4,929,989      4,902,479     4,869,238      4,845,384
                                                                        ===========    ===========   ===========    ===========
Weighted average common shares outstanding - diluted                      5,054,853      4,951,820     4,936,763      4,882,658
                                                                        ===========    ===========   ===========    ===========

See notes to consolidated financial statements.
</TABLE>
                                                               26
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED  DECEMBER 31, 1997,  THREE MONTHS ENDED DECEMBER 31, 1996 AND
THE YEARS ENDED SEPTEMBER 30, 1996, AND 1995
                                             --------------------------------------------------------------------------------------
                                                                                                           Unrealized
                                                                                                            Increase
                                                                                                           (Decrease) in
                                                                   Retained       Employee   Recognition    Market Value
                                                       Additional   Income-        Stock         and       of Securities
                                             Common     Paid-In   Substantially   Ownership   Retention    Available for
                                              Stock     Capital    Restricted       Plan        Plan            Sale        Total
                                             --------------------------------------------------------------------------------------
                                                                                        (In Thousands)
<S>                                          <C>       <C>         <C>            <C>         <C>            <C>          <C>
Balance - September 30, 1994                 $   --    $     --    $38,583        $    --     $    --        $ (473)      $38,110
Issuance of Common Stock pursuant
 to Reorganization, net of costs
 of issuance of $1,712                        5,000      28,984         --             --          --            --        33,984
Assets distributed to Mutual Holding
 Company pursuant to Reorganization              --          --       (200)            --          --            --          (200)
Purchase of Common Stock by Employee
 Stock Ownership Plan                            --          --         --         (2,753)         --            --        (2,753)
Distribution of Common Stock to
 Recognition and Retention Plan                  89       1,278         --             --      (1,367)           --            --
Net income for the year ended
 September 30, 1995                              --          --      4,574             --          --            --         4,574
Unrealized increase in market value
 of assets available for sale
  (net of income taxes)                          --          --         --             --          --             2             2
Amortization of deferred compensation -
 Employee Stock Ownership Plan and
 Recognition and Retention Plan                  --         (80)        --            297         205            --           422
Dividends declared                               --          --     (1,291)            --          --            --        (1,291)
                                             --------------------------------------------------------------------------------------

Balance - September 30, 1995                  5,089      30,182     41,666         (2,456)     (1,162)         (471)       72,848
Net income for the year ended
 September 30, 1996                              --          --      3,915             --          --            --         3,915
Stock options exercised                           1          12         --             --          --            --            13
Transfer from securities held to
 maturity to securities available
 for sale (net of income taxes)                  --          --         --             --          --           247           247
Unrealized decrease in market value
 of assets available for sale
   (net of income taxes)                                                                                       (974)         (974)
Adjustment to deferred compensation-
   Recognition and Retention Plan                --        (378)        --             --         378            --            --
Amortization of deferred compensation -
 Employee Stock Ownership Plan and
 Recognition and Retention Plan                  --          65         --            491         130            --           686
Dividends declared                               --          --     (1,679)            --          --            --        (1,679)
                                             --------------------------------------------------------------------------------------

Balance - September 30, 1996                  5,090      29,881     43,902         (1,965)       (654)       (1,198)       75,056
Net income for three months ended
 December 31, 1996                               --          --      1,160             --          --            --         1,160
Stock options exercised                          --           4         --             --          --            --             4
Unrealized increase in market value
 of assets available for sale
   (net of income taxes)                         --          --         --             --          --           130           130
Amortization of deferred compensation -
 Employee Stock Ownership Plan and
 Recognition and Retention Plan                  --          35         --            147          46            --           228
Dividends declared                               --          --       (459)            --          --            --          (459)
                                             --------------------------------------------------------------------------------------

Balance - December 31, 1996                   5,090      29,920     44,603         (1,818)       (608)       (1,068)       76,119
Net income for the year ended
 December 31, 1997                               --          --      5,356             --          --            --         5,356
Stock options exercised                           5          45         --             --          --            --            50
Unrealized increase in market value
 of assets available for sale
   (net of income taxes)                         --          --         --             --          --           914           914
Amortization of deferred compensation -
 Employee Stock Ownership Plan and
 Recognition and Retention Plan                  --         313         --            394         185            --           892
Dividends declared                               --          --     (2,072)            --          --            --        (2,072)
                                             --------------------------------------------------------------------------------------

Balance - December 31, 1997                  $5,095     $30,278    $47,887       $ (1,424)    $  (423)       $ (154)      $81,259
                                             --------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       27
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------------------
                                                                    For the Year         For the Three      For the Years Ended
                                                                       Ended             Months Ended            September 30,
                                                                   December 31, 1997   December 31, 1996        1996       1995
----------------------------------------------------------------------------------------------------------------------------------
                                                                                        (In Thousands)
<S>                                                                   <C>               <C>                  <C>         <C>
Cash flows from (for) operating activities:
Net income                                                            $  5,356          $  1,160             $  3,915    $  4,574
Adjustments  to  reconcile  net  income  to net  cash
 provided  by (used  for)  operating activities:
     Depreciation                                                        1,503               329                1,304       1,353
     Employee Stock Ownership Plan and Recognition
      and Retention Plan compensation expense                              892               228                  686         422
     Deferred income tax provision                                        (112)              631               (1,056)       (363)
     Accretion of discounts, amortization of premiums,
      and other deferred yield items                                    (1,915)             (396)              (1,494)     (1,497)
     Provision for losses on other assets                                   --                --                  200          --
     Provision for loan losses                                             264               243                   98         240
     Provision for losses and net (gains) losses on
      sales of real estate owned                                          (173)               --                  (67)       (102)
     Amortization of discount on mortgage-backed bond                      490               123                  496         498
     Net (gain) loss on sale and early maturities of:
                                   Securities available for sale             8               (51)                  --          --
                                   Loans and other assets                  (16)              (10)                 208           4
     Gain on early maturity of investment                                   --                --                 (254)         --
     Increase in accrued interest receivable                              (808)             (146)                 (65)     (1,181)
     (Increase) decrease in other assets                                (3,186)              327                 (609)        473
     Decrease (increase) in loans available for sale                        70               137                  109        (316)
     Increase (decrease)  in other liabilities                           1,347            (3,851)               4,424          85
                                                                      --------          --------             --------    --------
        Net cash provided by (used for) operating activities             3,720            (1,276)               7,895       4,190
                                                                      --------          --------             --------    --------
Cash flows from (for) investing activities:
Loan originations and principal payments on loans - net                (38,694)          (11,257)             (34,182)    (10,825)
Principal payments received on mortgage-backed and
 related securities and securities available for sale                   14,422             2,840               11,454       5,286
Principal payments received on investments - held to maturity            1,825               475                2,671       2,694
Purchases of:           Loans                                          (24,455)           (1,998)             (16,775)     (2,728)
                        Mortgage-backed and related securities              --                --               (6,013)    (41,549)
                        Investments - held to maturity                      --                --                   --     (30,085)
                        Federal Home Loan Bank  stock                     (400)               --                   --          --
                        Securities available for sale                  (46,311)               --              (67,641)         --
                        Office property and equipment                   (5,300)             (344)              (1,481)     (1,805)
Proceeds from sales of: Securities available for sale                    2,435               100                  749          --
                        Federal Home Loan Bank  stock                       --             2,520                2,000          --
                        Office property and equipment                      128               178                  443          25
                        Real estate acquired in settlement of loans      1,551                --                  767       3,130
                        Loans purchased                                     --                --                3,452          --
Proceeds from calls or maturities of investments-held
 to maturity and securities available for sale                          19,300                --               22,012      21,000
Investment in real estate venture                                           --               156                1,305       1,588
Other investing                                                           (351)             (184)                (455)        148
                                                                      --------          --------             --------    --------
   Net cash used for investing activities                              (75,850)           (7,514)             (81,694)    (53,121)
                                                                      --------          --------             --------    --------
Cash flows from (for) financing activities:
 Net increase (decrease) in: NOW accounts, demand deposits,
                             and savings accounts Certificates
                               of deposit                               17,591             3,112               (1,200)    (34,139)
                                                                        19,408            11,668               62,753      41,868
Stock subscriptions applied or returned                                     --                --                   --     (55,716)
Advances from Federal Home Loan Bank                                    30,000                --               22,500      19,000
Repayment of advances from Federal Home Loan Bank                       (7,425)           (1,587)              (4,350)       (800)
Advances by borrowers for taxes and insurance                             (128)           (5,802)                (136)         99
Employee Stock Ownership Plan loan                                        (491)             (149)                (493)      2,557
Purchases of Employee Stock Ownership Plan  shares                          --                --                   --      (2,753)
Sale of common stock-net of issuance costs                                  --                --                   13      33,758
Proceeds from exercise of stock options                                     50                 4                   --          --
Payments made on mortgage-backed bond                                   (1,387)             (346)              (1,387)     (1,387)
Dividends paid                                                          (1,976)             (448)              (1,618)       (902)
                                                                      --------          --------             --------    --------
   Net cash provided by  financing activities                           55,642             6,452               76,082       1,585
                                                                      --------          --------             --------    --------
Net increase (decrease) in cash and cash equivalents                   (16,488)           (2,338)               2,283     (47,346)
Cash and cash equivalents, beginning of period                          42,442            44,780               42,497      89,843
                                                                      --------          --------             --------    --------
Cash and cash equivalents, end of period                              $ 25,954          $ 42,442             $ 44,780    $ 42,497
                                                                      ========          ========             ========    ========
</TABLE>

  See notes to consolidated financial statements.

                                       28
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997, THE THREE MONTHS
ENDED DECEMBER 31, 1996, AND THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995

1.    SIGNIFICANT ACCOUNTING POLICIES

      On  September  30,  1997,  Community  Savings,  F. A. (the  "Association")
      completed  its  reorganization  into the two-tier  form of mutual  holding
      company ownership. Pursuant to the reorganization,  the Association is now
      the wholly  owned  subsidiary  of the  newly-formed,  federally  chartered
      mid-tier  stock  holding  company,  Community  Savings  Bankshares,   Inc.
      ("Bankshares").  Bankshares  is the majority  owned  subsidiary of ComFed,
      M.H.C. ("ComFed").  ComFed,  Bankshares, and the Association are chartered
      and regulated by the Office of Thrift Supervision ("OTS").

      The  reorganization  was accounted for in a manner similar to a pooling of
      interests and did not result in any  significant  accounting  adjustments.
      Bankshares' only significant asset is the common stock of the Association.
      Consequently,  the  majority  of  its  net  income  is  derived  from  the
      Association.

      The accounting and reporting policies of Bankshares, the Association,  and
      the Association's  wholly-owned  subsidiary  conform to generally accepted
      accounting principles and to general practices within the savings and loan
      industry.  The following summarizes the more significant of these policies
      and practices:

      PRINCIPLES  OF  CONSOLIDATION  -  The  consolidated  financial  statements
      include the accounts of Bankshares,  the Association and the Association's
      wholly-owned  subsidiary,  ComFed,  Inc.  ComFed,  Inc. was formed for the
      purpose of owning and operating an insurance agency,  Community  Insurance
      Agency.  Prior to  December  31,  1996,  the  Association  had three other
      wholly-owned  subsidiaries,  ComFed  Development Co., which was engaged in
      real estate development  activities under joint venture  arrangements with
      local  developers,  Select  Florida  Properties,  Inc. and Select  Florida
      Properties  II,  Inc.,  which were formed to acquire  and sell  foreclosed
      assets as well as hold delinquent loans. These subsidiaries were dissolved
      into ComFed, Inc. All significant  intercompany  balances and transactions
      have been eliminated.

      CHANGE IN YEAR END - During January 1997, the Board of Directors  voted to
      change the fiscal year end for all related entities from September 30th to
      December 31st,  effective  with the year and three months ending  December
      31, 1996.

      USE  OF  ESTIMATES  IN  THE  PREPARATION  OF  FINANCIAL  STATEMENTS  - 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 that affect the reported amounts of revenues and
      expenses  during the reporting  periods.  Actual results could differ from
      those estimates.

      CASH AND CASH EQUIVALENTS - For presentation  purposes in the consolidated
      financial  statements,  The  Association  considers all highly liquid debt
      instruments purchased with an original maturity of three months or less to
      be cash equivalents.

      INVESTMENTS  - HELD TO  MATURITY  -  Investments  - held to  maturity  are
      carried at cost,  adjusted for  amortization  of premiums and accretion of
      discounts  using the interest  method.  The Association has the intent and
      ability to hold these securities to maturity.

      SECURITIES  AVAILABLE FOR SALE - Securities available for sale are carried
      at fair value.  In  accordance  with  Statement  of  Financial  Accounting
      Standards No. 115 "Accounting  for Certain  Investments in Debt and Equity
      Securities",  ("SFAS  No.115")  unrealized  gains  or  losses  related  to
      securities available for sale are excluded from earnings and reported as a
      net amount as a separate  component  of  shareholders'  equity.  Gains and
      losses on sales of securities  available  for sale are computed  using the
      specific identification method.

      MORTGAGE-BACKED   AND   RELATED   SECURITIES   -  HELD   TO   MATURITY   -
      Mortgage-backed  and related  securities - held to maturity are carried at
      cost,  adjusted for  amortization  of premiums and  accretion of discounts
      using the interest  method.  The Association has the intent and ability to
      hold these securities to maturity.

      INTEREST RATE RISK - The  Association is engaged  principally in providing
      first mortgage loans  (adjustable-rate,  fixed-rate  and  hybrid-rate)  to
      individuals and commercial enterprises. At December 31, 1997 and 1996, the
      Association's assets consisted primarily of assets that earned interest at
      adjustable  interest  rates.  Those  assets  were  funded  primarily  with
      short-term  liabilities  that have  interest  rates that vary with  market
      rates over time.

                                       29
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      PROVISIONS  FOR  LOSSES  -  Provisions  for  losses,  which  increase  the
      allowances  for loan losses and real estate  losses,  are  established  by
      charges to  income.  Such  allowances  represent  the  amounts  which,  in
      management's judgment, are adequate to absorb charge-offs of both existing
      loans which may become  uncollectable  and for future declines in the fair
      value of real estate owned.  The adequacy of the allowances are determined
      by  management's  monthly  evaluation  of the loan and real  estate  owned
      portfolios in light of past loss experience,  present economic  conditions
      and other factors considered  relevant by management.  Anticipated changes
      in economic  factors which may influence the level of the  allowances  are
      considered  in the  evaluation by  management  when the  likelihood of the
      changes can be reasonably determined.

      On  October 1,  1995,  Bankshares  adopted  SFAS No.  114  "Accounting  by
      Creditors  for  Impairment  of a Loan",  ("SFAS No. 114") and SFAS No. 118
      "Accounting  by  Creditors  for  Impairment  of a Loan -  Recognition  and
      Disclosures",  ("SFAS  No.  118")  an  amendment  of SFAS No.  114.  These
      standards  address the  accounting for impairment of certain loans when it
      is probable that all amounts due pursuant to the contractual  terms of the
      loan will not be  collected.  Adoption  of these  standards  included  the
      identification  of commercial  business and  commercial  real estate loans
      which are considered impaired under the provisions of SFAS No. 114. Groups
      of smaller-balance  homogeneous loans (generally  residential mortgage and
      consumer  installment  and other  loans) are  collectively  evaluated  for
      impairment. Adoption of these statements did not have a material impact on
      Bankshares' financial position or results of operations.

      Under the provisions of these standards, a loan is impaired when, based on
      current  information  and events,  it is probable  that a creditor will be
      unable to collect all amounts due  according to the  contractual  terms of
      the loan agreement.  Individually  identified  impaired loans are measured
      based on the present value of payments expected to be received,  using the
      historical  effective  loan  rates as the  discount  rate.  Alternatively,
      measurement  may also be based on observable  market prices,  or for loans
      that are solely dependent on the collateral for repayment, measurement may
      be  based  on the  fair  value  of the  collateral.  Loans  that are to be
      foreclosed are measured based on the fair value of the collateral.  If the
      recorded  investment  in the  impaired  loan  exceeds  the measure of fair
      value,  a valuation  allowance is required as a component of the allowance
      for loan  losses.  Changes to the  valuation  allowance  are recorded as a
      component of the provision for loan losses.

      UNCOLLECTED  INTEREST  - The  Association  reverses  accrued  interest  on
      mortgage  loans which are more than ninety days past due or if  management
      determines at an earlier date that the loan is not  performing  and ceases
      accruing interest on such loans thereafter.  Any such interest  ultimately
      collected is credited to income in the period of recovery.

      OFFICE  PROPERTIES  AND  EQUIPMENT - Office  properties  and equipment are
      carried at cost less accumulated depreciation. Depreciation is computed on
      the  straight-line  method over the  estimated  useful lives of the assets
      which range from 13 to 50 years for  buildings,  executed  lease terms for
      leasehold  improvements,  and  from  3  to  10  years  for  furniture  and
      equipment.

      LOANS HELD FOR SALE - Mortgage  loans  originated and intended for sale in
      the  secondary  market are carried at the lower of cost or estimated  fair
      value  determined on an aggregate loan basis.  Net  unrealized  losses are
      recognized in a valuation allowance by charges to income.

      REAL  ESTATE  OWNED - Real  estate  owned is recorded at cost which is the
      estimated  fair value of the property at the time the loan is  foreclosed.
      Subsequent to  foreclosure,  these  properties are carried at the lower of
      cost or fair value minus estimated costs to sell. Provisions for losses on
      real estate owned are summarized in Note 9.

      The amounts the  Association  could  ultimately  recover  from real estate
      owned could differ materially from the amounts used in arriving at the net
      carrying  value of the assets  because of future market factors beyond its
      control or changes in its strategy for recovering its investment.

      LIMITED  PARTNERSHIP  INVESTMENT IN QUALIFIED  AFFORDABLE HOUSING PROJECT-
      The Association  has an approximate 4% limited partner  interest in a real
      estate  partnership that operates  qualified  affordable housing projects.
      The Association  receives tax benefits from the partnership in the form of
      tax deductions  from  operating  losses and tax credits.  The  Association
      accounts for its  investment in the  partnership  on the  effective  yield
      method  and  is  amortizing  the  cost  over  the  estimated  life  of the
      partnership  (15 years).  The amortized cost of the investment at December
      31, 1997 is $ 3.0 million  and is included in other  assets.  Amortization
      for the year ended  December  31,  1997 was  $147,000  and is  included in
      miscellaneous  income.  In  addition  to the tax  benefit  related  to the
      amortization,  tax credits of  $197,000  were  recognized  during the year
      ended December 31, 1997 as a reduction of the provision for income taxes.

                                       30
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      LOAN FEES - Loan  origination  fees and certain direct  incremental  costs
      related to such loans are  deferred.  Net deferred loan fees are amortized
      to income using the interest method over the contractual life of the loan.
      Unamortized  net loan fees on loans sold prior to maturity are credited to
      income as an adjustment to the gain or loss at the time of sale.

      PREMIUMS AND DISCOUNTS ON LOANS - Unearned  discounts on home  improvement
      loans and other  installment  loans are amortized to income over the terms
      of the related loans using the interest method.  Premiums and discounts on
      loans purchased are amortized to income using the interest method.

      INCOME  TAXES  -  Bankshares,   the   Association  and  ComFed  Inc.  file
      consolidated  federal  and state  income  tax  returns.  Income  taxes are
      allocated  proportionately  to each entity as though  separate tax returns
      were being filed.

      Deferred  income  taxes are  provided on items  recognized  for  financial
      reporting purposes in periods different than such items are recognized for
      income tax purposes in  accordance  with the  provisions  of SFAS No. 109,
      "Accounting for Income Taxes" ("SFAS No.109").

      EARNINGS PER SHARE - Earnings per share are determined in accordance  with
      the  provisions  of SFAS No. 128  "Earnings  per Share"  ("SFAS No.  128")
      issued in February 1997.  The weighted  average number of shares of common
      stock used in  calculating  basic  earnings  per share was  determined  by
      reducing  outstanding  shares  by  unallocated  Employee  Stock  Ownership
      ("ESOP")  shares and  unvested  Recognition  and  Retention  Plan  ("RRP")
      shares. Diluted earnings per share includes the maximum dilutive effect of
      stock issuable upon exercise of common stock options and unallocated  ESOP
      and RRP shares of common  stock.  The effect of stock  options on weighted
      average shares outstanding are calculated using the treasury stock method.
      All prior period  earnings per share data has been  restated in accordance
      with SFAS No. 128.

      IMPACT OF NEW  ACCOUNTING  ISSUES - In June 1997, the FASB issued SFAS No.
      130 "Reporting Comprehensive Income" ("SFAS No. 130"), which requires that
      an enterprise  report,  by major  components  and as a single  total,  the
      change in its net assets  during the period from  non-owner  sources;  and
      SFAS No. 131  "Disclosures  about  Segments of an  Enterprise  and Related
      Information"  ("SFAS No.  131"),  which  establishes  annual  and  interim
      reporting  standards for an  enterprise's  operating  segments and related
      disclosures  about its products,  services,  geographic  areas,  and major
      customers.  Adoption  of  these  statements  will not  impact  Bankshares'
      consolidated financial position, results of operations, or cash flows, and
      any effect  will be limited  to the form and  content of its  disclosures.
      Both  statements are effective for fiscal years  beginning  after December
      15, 1997, with earlier application permitted.

      RECLASSIFICATIONS  -  Certain  amounts  in the 1996 and 1995  consolidated
      financial statements have been reclassified to conform to the presentation
      for 1997.

                                       31
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.    SECURITIES AVAILABLE FOR SALE

      During the quarter ended  December 31, 1995, the  Association  adopted the
      provisions  of SFAS No. 115  Questions  and Answers  Guide  ("SFAS No. 115
      Q&A") which allowed a one time reclassification of securities from held to
      maturity to available for sale between  November 15, 1995 and December 31,
      1995.  Securities  totaling $49.5 million were  reclassified  from held to
      maturity to available for sale. Such reclassification resulted in a credit
      of $247,000 to shareholders'  equity.  The Association  subsequently  sold
      $749,000 of such securities at no gain or loss.

      Securities available for sale at December 31, 1997 and 1996 are summarized
      as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                      Gross        Gross
                                                         Amortized  Unrealized   Unrealized   Fair
                                                           Cost       Gains        Losses     Value
----------------------------------------------------------------------------------------------------
                                                                  (Dollars In Thousands)
<S>                                                      <C>         <C>        <C>         <C>
      December 31, 1997:
       Equity securities                                 $      7    $     16   $     --    $     23
       United States Government and agency obligations     54,937         258        (20)     55,175
       Mutual funds                                        41,000          58       (337)     40,721
       Collateralized mortgage obligations:
         Government backed                                  3,300          30         --       3,330
         Private issue                                     43,113         245       (338)     43,020
                                                         --------    --------   --------    --------
         Total collateralized mortgage obligations         46,413         275       (338)     46,350
                                                         --------    --------   --------    --------
         Total securities available for sale             $142,357    $    607   $   (695)   $142,269
                                                         ========    ========   ========    ========

      Weighted average interest rate                         6.52%
                                                             ====
      December 31, 1996:
       Equity securities                                 $      7    $      7   $     --    $     14
       United States Government and agency obligations     28,247          55       (205)     28,097
       Mutual funds                                        43,443          29       (405)     43,067
       Collateralized mortgage obligations:
         Government backed                                  3,601          --         (7)      3,594
         Private issue                                     49,345         147     (1,112)     48,380
                                                         --------    --------   --------    --------
         Total collateralized mortgage obligations         52,946         147     (1,119)     51,974
                                                         --------    --------   --------    --------
         Total securities available for sale             $124,643    $    238   $ (1,729)   $123,152
                                                         ========    ========   ========    ========

      Weighted average interest rate                         6.60%
                                                             ====
</TABLE>


      Proceeds from the sale of securities  available for sale were  $2,435,000,
      $100,000  ,$749,000 and $0 during the fiscal year ended December 31, 1997,
      the three months ended  December 31, 1996,  and the years ended  September
      30, 1996 and 1995,  respectively.  For the year ended  December  31, 1997,
      sales  resulted in gross  losses of $ 8,000.  For the three  months  ended
      December 31, 1996, sales resulted in gross gains of $51,000. There were no
      gross realized gains or losses during the fiscal years ended September 30,
      1996 and 1995.

      The fair value of securities  available for sale is based on quoted market
      prices.

                                       32
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.    INVESTMENTS - HELD TO MATURITY

      Investments  - held  to  maturity  at  December  31,  1997  and  1996  are
      summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                 Gross        Gross
                                                  Amortized    Unrealized   Unrealized   Fair
                                                     Cost         Gains       Losses     Value
------------------------------------------------------------------------------------------------
                                                               (Dollars In Thousands)
<S>                                                <C>        <C>          <C>        <C>
December 31, 1997:
 United States Government and agency obligations   $13,039    $ 3,891      $    --    $16,930
 Corporate debt issues:
   Chase Federal mortgage-backed bond                6,856        311           --      7,167
   Auto Bond Receivables Corp.                       1,493         --           (5)     1,488
                                                   -------    -------      -------    -------
     Total corporate debt issues                     8,349        311           (5)     8,655
                                                   -------    -------      -------    -------
     Total investment securities                   $21,388    $ 4,202      $    (5)   $25,585
                                                   =======    =======      =======    =======

Weighted average interest rate                        9.29%
                                                      ====
December 31, 1996:
 United States Government and agency obligations   $11,701    $ 3,807      $    --    $15,508
 Municipal obligations                                 300          1           --        301
 Corporate debt issues:
   Chase Federal mortgage-backed bond                7,236        347           --      7,583
   Auto Bond Receivables Corp.                       2,902          8          (36)     2,874
                                                   -------    -------      -------    -------
     Total corporate debt issues                    10,138        355          (36)    10,457
                                                   -------    -------      -------    -------
     Total investment securities                   $22,139    $ 4,163      $   (36)   $26,266
                                                   =======    =======      =======    =======

Weighted average interest rate                        8.63%
                                                      ====
</TABLE>

      The table below sets forth the  contractual  maturity  distribution of the
      investments - held to maturity at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                              December 31, 1997       December 31, 1996
                                               Carrying    Fair       Carrying   Fair
                                                Value      Value       Value     Value
---------------------------------------------------------------------------------------
                                                            (In Thousands)
<S>                                            <C>       <C>          <C>       <C>
      Due in one year or less                  $ 1,251   $ 1,334      $   300   $   301
      Due after one year through five years      1,493     1,488        4,030     4,131
      Due after five years through ten years    11,283    14,945       10,111    13,675
      Due after ten years                        7,361     7,818        7,698     8,159
                                               -------   -------      -------   -------
      Total                                    $21,388   $25,585      $22,139   $26,266
                                               =======   =======      =======   =======
</TABLE>

      There  were no sales  of  investment  securities  during  the  year  ended
      December 31, 1997,  the three months ended December 31, 1996, or the years
      ended September 30, 1996 and 1995. The fair value of investment securities
      is based on quoted market prices.

      FEDERAL  HOME  LOAN  BANK  STOCK - At  December  31,  1997 and  1996,  the
      Association held $3,264,000 and $2,864,000,  respectively,  of FHLB Stock,
      which  approximates fair value. FHLB Stock is not readily marketable as it
      is not traded on a registered security exchange.

                                       33
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.    MORTGAGE-BACKED AND RELATED SECURITIES - HELD TO MATURITY

      Mortgage-backed  and related securities - held to maturity at December 31,
      1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                                                                                          Gross         Gross
                                                                      Amortized      Unrealized    Unrealized         Fair
                                                                           Cost           Gains        Losses        Value
       --------------------------------------------------------------------------------------------------------------------
                                                                                            (In Thousands)
<S>                                                                     <C>               <C>          <C>         <C>
       December 31, 1997:
         FHLMC                                                          $ 7,465           $ 62         $ (85)      $ 7,442
         GNMA - pass throughs                                             1,751             63            --         1,814
         FNMA - pass throughs                                             3,316             11           (10)        3,317
       --------------------------------------------------------------------------------------------------------------------
         Agency for International
       --------------------------------------------------------------------------------------------------------------------
           Development - pass throughs                                      236             --            --           236
       --------------------------------------------------------------------------------------------------------------------
         Collateralized mortgage obligations:
       --------------------------------------------------------------------------------------------------------------------
           Government-backed                                             10,872            344            --        11,216
           Private issue                                                 22,766            273          (133)       22,906
                                                                        -------           ----         -----       -------
            Total collateralized mortgage obligations                    33,638            617          (133)       34,122
         CMO residual interest bonds                                          7             --            --             7
                                                                        -------           ----         ----- -
            Total mortgage-backed and related securities                $46,413           $753         $(228)      $46,938
                                                                        =======           ====         =====       =======

       December 31, 1996:
         FHLMC                                                          $ 9,673           $ 79         $(143)      $ 9,609
         GNMA - pass throughs                                             2,108             74            --         2,182
         FNMA - pass throughs                                             3,933             --           (13)        3,920
         Agency for International
           Development - pass throughs                                      317             --            --           317
         Collateralized mortgage obligations:
           Government-backed                                             12,229            526            (8)       12,747
           Private issue                                                 25,130            300          (340)       25,090
                                                                        -------           ----         ----
            Total collateralized mortgage obligations                    37,359            826          (348)       37,837
         CMO residual interest bonds                                         15             --            --            15
                                                                        -------           ----         -----       -------
            Total mortgage-backed and related securities                $53,405           $979         $(504)      $53,880
                                                                        =======           ====         =====       =======
</TABLE>


      There were no sales of  mortgage-backed  and related securities during the
      year ended  December 31, 1997,  the three months ended  December 31, 1996,
      and the  years  ended  September  30,  1996 and  1995.  The fair  value of
      mortgage-backed and related securities is based on quoted market prices.

      Mortgage-backed  securities represent  participating  interest in pools of
      long-term first mortgage loans.  Although  mortgage-backed  securities are
      initially  issued with a stated  maturity date,  the  underlying  mortgage
      collateral  may  be  prepaid  by  the  mortgagee  and,   therefore,   such
      certificates may not reach their maturity date.

      The  Association  also  invests  in  mortgage-related  securities  such as
      collateralized mortgage obligations ("CMOs"), CMO residual interest bonds,
      and real estate  investment  conduits  ("REMICs").  These  securities  are
      generally  divided into tranches  whereby  principal  repayments  from the
      underlying  mortgages  are used  sequentially  to  retire  the  securities
      according  to  the  priority  of the  tranches.  The  Association  invests
      primarily in senior sequential tranches of CMOs. Such tranches have stated
      maturities  ranging  from  6.5  years to 30  years;  however,  because  of
      prepayments,  the expected  weighted  average life of these  securities is
      less than the stated maturities. At December 31, 1997, the Association had
      $33,638,000  in such  mortgage-related  securities,  which  were  held for
      investment and had a market value of $34,122,000. The fixed-rate CMOs have
      coupon rates ranging from 6.0% to 12.0%.

                                                           34
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The  variable-rate  CMOs are indexed to the London Interbank  Offered Rate
      ("LIBOR") or the Ten-Year Treasury Index, and the residual tranches do not
      have a stated coupon. The weighted average yield of the CMO securities was
      7.64% at December 31, 1997. The residual  interest is in a CMO in which at
      least  one  class  of  bonds  has  a  variable  interest  rate.  In  these
      investments,  a rise in the  variable-rate  index  reduces  the cash flows
      available  to the  residual  owner.  Conversely,  in a low  interest  rate
      environment,   collateral   prepayments  will  usually   accelerate.   The
      Association's  ability to recover its  investment  in the CMO residuals is
      dependent  on the future  outcome of the above  factors.  At December  31,
      1997, the  Association's  interest in CMO residual bonds was $6,500 with a
      market value of $6,500.

5.    LOANS RECEIVABLE

<TABLE>
<CAPTION>
      Loans receivable consisted of the following:
      -------------------------------------------------------------------------------------------------------------------
                                                                                      December 31,           December 31,
                                                                                          1997                   1996
      -------------------------------------------------------------------------------------------------------------------
                                                                                                  (In Thousands)
<S>                                                                                     <C>                      <C>
       Real estate loans:
         Residential 1-4 family                                                         $339,117                 $293,296
         Residential 1-4 family held for sale
               (at lower of cost or estimated fair value)                                      -                       70
         Residential construction loans                                                   32,828                   33,158
         Nonresidential construction loans                                                 2,022                    2,200
         Land loans                                                                       17,117                   19,426
         Multi-family loans                                                                8,800                    8,096
         Commercial                                                                       59,220                   37,815
                                                                                        --------                 --------
           Total real estate loans                                                       459,104                  394,061
                                                                                        --------                 --------

       Non-real estate loans:
         Consumer loans                                                                   15,694                   16,028
         Commercial business                                                               3,530                    2,458
                                                                                        --------                 --------
           Total non-real estate loans                                                    19,224                   18,486
                                                                                        --------                 --------
           Total loans receivable                                                        478,328                  412,547

       Less:
         Undisbursed loan proceeds                                                        24,163                   20,765
         Unearned discount (premium) and net deferred loan fees (costs)                     (206)                     200
         Allowance for loan losses                                                         2,662                    2,542
                                                                                        --------                 --------
       Total loans receivable, net                                                      $451,709                 $389,040
                                                                                        ========                 ========
</TABLE>

       The Association's  lending market is concentrated in Palm Beach,  Martin,
       St. Lucie, and Indian River Counties in Florida.

<TABLE>
<CAPTION>
       Non accrual loans consisted of the following:

       -------------------------------------------------------------------------------------------------------------------
                                                                         At or for the
                                                       At or for the      Three Months             At or for the
                                                        Year Ended           Ended                  Years Ended
                                                        December 31,      December 31,     September 30,   September 30,
                                                            1997              1996             1996            1995
       -------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>               <C>             <C>
                                                                                 (In Thousands)
       Principal balance of loans not accruing interest    $1,379            $1,631            $842            $662

       Interest not accrued related to above loans             86                65              44              49
</TABLE>

                                                                      35

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       An analysis of the changes in the  allowance for loan losses for the year
       ended December 31, 1997, the three months ended December 31, 1996 and the
       years ended September 30, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------------
                                                          For the Year        For the Three                For the Years Ended
                                                             Ended             Months Ended                   September 30,
                                                       December 31, 1997    December 31, 1996           1996                 1995
       ---------------------------------------------------------------------------------------------------------------------------
                                                                                        (In Thousands)
<S>                                                          <C>                  <C>                  <C>                  <C>
        Balance, beginning of period                         $2,542               $2,312               $3,492               $3,390
        Provision charged to income                             264                  243                   98                  240
        Losses charged to allowance                            (144)                 (13)              (1,278)                (138)
        Recoveries                                                -                    -                    -                    -
                                                             ------               ------              -------               ------
        Balance, end of year                                 $2,662               $2,542              $ 2,312               $3,492
                                                             ======               ======              =======               ======
</TABLE>

       During  the year ended  September  30,  1996,  the  Association  sold its
       interest in a note with a net carrying value of  $3,453,000.  Included in
       the allowance for loan losses for the year ended September 30, 1995 was a
       $1,200,000 specific reserve related to such interest.  In connection with
       the sale, the Association recorded an additional loss of $217,000.

       LOANS HELD FOR SALE - The  Association  originates  both  adjustable- and
       fixed-rate  loans.  The  adjustable-  and fixed-rate  loans with original
       maturities of 15 years or less are held in the  Association's  portfolio.
       Based on  management's  assessment of current  portfolio mix and Board of
       Director  established  limits,  fixed-rate loans with maturities  greater
       than 15 years are either held in the  portfolio or sold when  originated,
       except those  originated  for special  financing  on low income  housing.
       Included in loans  receivable  at  December  31, 1997 and 1996 are $0 and
       $70,000, respectively, of loans held for sale.

       LOANS  SERVICED FOR OTHERS - Mortgage  loans  serviced for others are not
       included  in  the  accompanying   consolidated  statements  of  financial
       condition.  The unpaid  balances of these loans at December  31, 1997 and
       1996 were  $18,967,000 and  $21,761,000,  respectively.  Custodial escrow
       balances  maintained in connection with the foregoing loan servicing were
       $47,000 and $57,000, respectively.

       RATE COMPOSITION OF LOANS - The Association originates and purchases both
       adjustable- and fixed-rate loans. At December 31, 1997,  fixed-rate loans
       totaled $178,630,000 and adjustable-rate loans totaled $273,079,000.  The
       adjustable-rate  loans have interest rate adjustment  limitations and are
       indexed  to the OTS  National  Monthly  Median  Cost of Funds,  the U. S.
       Treasury  Weekly  Average Yield index,  or the prime rate.  Future market
       factors may affect the  correlation of the interest rate  adjustment with
       the rates the Association pays on the short-term  deposits that have been
       primarily utilized to fund those loans.

       COMMERCIAL REAL ESTATE LENDING - The Association originates and purchases
       commercial real estate and construction  loans, which totaled $61,242,000
       and $40,015,000 at December 31, 1997 and 1996, respectively.  These loans
       are  considered  by  management  to  be of a  somewhat  greater  risk  of
       collectibility  due to the  dependency  on  income  production  or future
       development of the real estate. Accordingly, the Association's management
       establishes a greater  provision for  probable,  but not yet  identified,
       losses on these loans than on less risky residential  mortgage loans. The
       composition of commercial real estate loans and its primary collateral at
       December 31, 1997 and 1996 are approximately as follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------------
                                                                                                    December 31,      December 31,
                                                                                                        1997              1996
       ---------------------------------------------------------------------------------------------------------------------------
                                                                                                             (In Thousands)
<S>                                                                                                   <C>                  <C>
       Commercial land                                                                                $ 6,037              $   451
       Office buildings                                                                                 4,614                4,598
       Hotel property                                                                                     210                2,439
       Shopping centers                                                                                 3,124                3,262
       Light industrial and warehouses                                                                  9,243                7,265
       Churches                                                                                         5,733                5,468
       Other commercial                                                                                30,259               14,332
                                                                                                      -------              -------
       Total commercial real estate                                                                    59,220               37,815

       Commercial construction projects                                                                 2,022                2,200
                                                                                                      -------              -------
       Total commercial real estate and construction loans                                            $61,242              $40,015
                                                                                                      =======              =======
</TABLE>

                                                                   36

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Under the Financial Institutions Reform, Recovery, and Enforcement Act of
       1989 ("FIRREA"),  a federally  chartered  savings and loan  association's
       aggregate commercial real estate loans may not exceed 400% of its capital
       as  determined  under the capital  standards  provisions  of FIRREA.  The
       Association is federally chartered and subject to this limitation. FIRREA
       does not  require  divestiture  of any loan that was  lawful  when it was
       originated.  At December  31,  1997,  management  estimates  that,  while
       remaining in compliance with this limitation,  the Association could have
       originated an additional  $218,950,000  of commercial  real estate loans,
       but has no immediate plans to do so.

       LOANS TO ONE-BORROWER  LIMITATION - Under FIRREA, the Association may not
       make real estate loans to one borrower in excess of 15% of its unimpaired
       capital and surplus.  This 15% limitation  results in a dollar limitation
       of approximately  $10,507,000 at December 31, 1997. At December 31, 1997,
       the  Association met the loans to one borrower  limitation  under current
       regulations.

       LOANS TO OFFICERS  AND  DIRECTORS - The  Association  offers loans to its
       employees,  including  directors  and senior  management,  at  prevailing
       market interest rates. For adjustable-rate loans, employees are offered a
       50 basis point  reduction  from the margin.  The  Association  waives the
       points  charged  for  employee  loans.  However,   directors  and  senior
       management  pay points based on current loan terms.  These loans are made
       in the ordinary  course of business and on  substantially  the same terms
       and  collateral   requirements   as  those  of  comparable   transactions
       prevailing at the time. The total loans to such persons did not exceed 5%
       of retained  earnings at December  31, 1997.  At December  31, 1997,  the
       total of loans to directors,  executive officers,  and associates of such
       persons was $433,000.

       TROUBLED DEBT  RESTRUCTURING  - Included in loans  receivable at December
       31, 1997 and 1996 are loans  considered to be troubled debt  restructured
       with an aggregate  recorded  investment  of  $1,044,000  and  $1,071,000,
       respectively.  Included  in  interest  income is  interest on these loans
       which totaled $91,000,  $24,000,  $94,000, and $69,000 for the year ended
       December 31, 1997,  the three  months  ended  December 31, 1996,  and the
       years ended September 30, 1996 and 1995, respectively.

       IMPAIRED  LOANS -  Impaired  loans  owned by the  Association  have  been
       recognized in conformity with SFAS No. 114,  "Accounting by Creditors for
       Impairment  of a  Loan"  as  amended  by SFAS  No.  118,  "Accounting  by
       Creditors for Impairment of a Loan-Income Recognition and Disclosures" as
       of October 1, 1995. A loan is impaired when, based on current information
       and events,  it is probable that a creditor will be unable to collect all
       amounts due according to the contractual  terms of the loan agreement.  A
       loan is not  impaired  during  an  insignificant  delay or  insignificant
       shortfall in the amount of payments.

       An analysis of the recorded investment in impaired loans is as follows:
<TABLE>
<CAPTION>

        -------------------------------------------------------------------------------------------------------------
                                              At or for the       At or for the                  At or for the
                                               Year Ended       Three Months Ended                Years Ended
                                              December 31,         December 31,                  September 30,
                                                  1997                 1996                 1996                1995
        -------------------------------------------------------------------------------------------------------------
                                                                            (In Thousands)

<S>                                              <C>                  <C>                  <C>                 <C>
        Impaired loan balance                    $1,044               $1,071               $1,081              $6,244
        Related allowance                           252                  252                  252               1,452
        Average impaired loan balance             1,057                1,076                4,046               5,597
        Interest income recognized                   91                   24                   94                  69
</TABLE>

       The  Association's  policy on  interest  income on  impaired  loans is to
       reverse all accrued  interest  against  interest income if a loan becomes
       more than 90 days  delinquent or if  management  determines at an earlier
       date  that  the  loan is not  performing  and  ceases  accruing  interest
       thereafter.  Such interest ultimately  collected is credited to income in
       the period of recovery.  Cash receipts for impaired  loans are used first
       to satisfy any  outstanding  interest due, and any amounts  remaining are
       applied to the outstanding principal balance.

                                                              37

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.     PLEDGED ASSETS

       In the normal  course of doing  business the  Association  is required to
       comply with certain collateral requirements.

       The following tables set forth amounts of various asset components, as of
       December 31, 1997 and 1996 which were pledged as collateral.
<TABLE>
<CAPTION>

       ----------------------------------------------------------------------------------------------------------------------
                                                                                           December 31,          December 31,
                                                                                               1997                  1996
       ----------------------------------------------------------------------------------------------------------------------
                                                                                                     (In Thousands)

<S>                                                                                           <C>                   <C>
       Real estate loans (unpaid principal balance)                                           $54,018               $31,847
       FHLB Stock and accrued interest                                                          3,323                 2,916
                                                                                              -------               -------
       Total pledged to the FHLB                                                              $57,341               $34,763
                                                                                              =======               =======

       Other pledged assets:
       Deposits of public funds - State of Florida
         Mortgage-backed and related securities                                               $31,681               $21,681
       Line of credit - Federal Reserve Bank of Atlanta
         United States Government and agency obligations                                        1,800                 1,800
       Treasury tax and loan deposits
         United States Government and agency obligations                                          200                   200
       Mortgage-backed bond
         Unpaid principal balance of loans                                                     31,738                37,395
                                                                                              -------               -------
       Total for other pledged assets                                                         $65,419               $61,076
                                                                                              =======               =======
</TABLE>

       FHLB ADVANCES - The  Association  has a security  agreement with the FHLB
       which includes a blanket  floating lien that requires the  Association to
       maintain as collateral for its advances,  the Association's  FHLB capital
       stock and first mortgage loans equal to 100% of the unpaid amount of FHLB
       advances outstanding.

7.     ACCRUED INTEREST RECEIVABLE

       Accrued  interest  receivable at December 31, 1997 and 1996  consisted of
       the following:

<TABLE>
<CAPTION>
       -----------------------------------------------------------------------------------------------------------------------
                                                                                            December 31,          December 31,
                                                                                                1997                  1996
       -----------------------------------------------------------------------------------------------------------------------
                                                                                                     (In Thousands)

<S>                                                                                            <C>                   <C>
       Loans                                                                                   $1,404                $  711
       Investments                                                                                106                   141
       Securities available for sale                                                            1,372                 1,169
       Mortgage-backed and related securities                                                     280                   333
                                                                                               ------                ------
       Total accrued interest receivable                                                       $3,162                $2,354
                                                                                               ======                ======
</TABLE>

                                                               38

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     OFFICE PROPERTIES AND EQUIPMENT

       Office  properties  and  equipment  at  December  31,  1997  and 1996 are
       summarized as follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                                                                                         December 31,           December 31,
                                                                                             1997                   1996
       ---------------------------------------------------------------------------------------------------------------------
                                                                                                    (In Thousands)

<S>                                                                                        <C>                    <C>
       Land                                                                                $  5,571               $  3,347
       Buildings and improvements                                                            16,431                 15,623
       Furniture and equipment                                                               15,268                 13,052
                                                                                           --------               --------
       Total                                                                                 37,270                 32,022
       Less accumulated depreciation                                                        (17,064)               (15,654)
                                                                                           --------               --------
       Total office properties and equipment - net                                         $ 20,206               $ 16,368
                                                                                           ========               ========
</TABLE>

9.     REAL ESTATE OWNED

       Real  estate  owned  at  December  31,  1997 and  1996  consisted  of the
       following:
<TABLE>
<CAPTION>
       ---------------------------------------------------------------------------------------------------------------------
                                                                                           December 31,         December 31,
                                                                                               1997                1996
       ---------------------------------------------------------------------------------------------------------------------
                                                                                                   (In Thousands)

<S>                                                                                            <C>                  <C>
       Real estate owned                                                                     $633                 $1,547
       Less allowance for loss                                                                 41                     92
                                                                                             ----                 ------
       Total real estate owned                                                               $592                 $1,455
                                                                                             ====                 ======
</TABLE>

       Changes in allowance for losses on real estate owned were as follows:

<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------------------------------------------
                                                                    For the Year   For the Three
                                                                        Ended      Months Ended         For the Years Ended
                                                                     December 31,  December 31,             September 30,
                                                                         1997          1996        1996         1995
       --------------------------------------------------------------------------------------------------------------------
                                                                               (In Thousands)


<S>                                                                      <C>           <C>         <C>         <C>
       Balance, beginning of period                                      $ 92          $ 92        $113        $  80
       Provision charged to income                                          4             -           8          141
       Losses charged to allowance                                        (55)            -         (29)        (108)
                                                                         ----          ----        ----        -----
       Balance, end of period                                            $ 41          $ 92        $ 92        $ 113
                                                                         ====          ====        ====        =====
</TABLE>

                                                              39

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    DEPOSITS

       The weighted-average  interest rates on deposits at December 31, 1997 and
       1996 were 4.21% and 4.05%,  respectively.  Deposit accounts,  by type and
       range of rates at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                                                                                             December 31,      December 31,
                                                                                                 1997              1996
       ---------------------------------------------------------------------------------------------------------------------
                                                                                                     (In Thousands)
<S>                                                                                            <C>              <C>
       Account type and rate:
       Non-interest-earning checking accounts                                                  $ 24,715         $ 18,627
       NOW, Super NOW and funds transfer accounts 1997, 1996, and
        1995, 1.00% through 1.98%                                                                69,862           67,076
       Passbook and statement accounts 1997, 1996, and 1995, 1.73%
         through 1.98%                                                                           30,221           30,821
       Money market accounts 1997, 1996, and 1995, 2.27% through 3.40%                           78,832           69,514
                                                                                               --------         --------
       Total non-certificate accounts                                                           203,630          186,038
                                                                                               --------         --------

       Certificates:
        3.00% or less                                                                             1,436            1,035
        3.01% - 3.99%                                                                                11              598
        4.00% - 4.99%                                                                            35,699           51,484
        5.00% - 5.99%                                                                           262,029          232,313
        6.00% - 6.99%                                                                            39,186           33,568
        7.00% - 7.99%                                                                             8,717            8,673
                                                                                               --------         --------
        Total certificates of deposit                                                           347,078          327,671
                                                                                               --------         --------
        Total deposits                                                                         $550,708         $513,709
                                                                                               ========         ========
</TABLE>

       Individual  deposits  greater than $100,000 at December 31, 1997 and 1996
       aggregated  approximately  $87,257,000,  and  $72,504,000,  respectively.
       Deposits in excess of $100,000 are not insured.

       Scheduled  maturities  of  certificate  accounts at December 31, 1997 and
       1996 were as follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                                                                                             December 31,     December 31,
                                                                                                 1997             1996
       ---------------------------------------------------------------------------------------------------------------------
                                                                                                     (In Thousands)
<S>                                                                                            <C>              <C>
       Maturity
       Less than 1 year                                                                        $260,941         $253,587
       1 year - 2 years                                                                          30,794           29,270
       2 years - 3 years                                                                         27,832           12,146
       3 years - 4 years                                                                         11,220           20,167
       4 years - 5 years                                                                         15,065           11,694
       Thereafter                                                                                 1,226              807
                                                                                               --------         --------
       Total certificates of deposit                                                           $347,078         $327,671
                                                                                               ========         ========
</TABLE>

                                                              40

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Interest  expense on deposits  consisted of the following during the year
       ended December 31, 1997, the three months ended December 31, 1996 and the
       years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                                                                         For the      For the Three
                                                                        Year Ended     Months Ended      For the Years Ended
                                                                       December 31,     December 31,        September 30,
                                                                           1997             1996          1996         1995
       ---------------------------------------------------------------------------------------------------------------------
                                                                                              (In Thousands)

<S>                                                                      <C>               <C>          <C>          <C>
       Passbook accounts                                                 $   522           $  133       $   560      $   625
       NOW accounts                                                          701              201           930        1,002
       Money market accounts                                               2,377              552         2,023        2,143
       Certificate accounts                                               19,048            4,365        15,734       11,909
                                                                         -------           ------       -------      -------
       Total interest expense                                            $22,648           $5,251       $19,247      $15,679
                                                                         =======           ======       =======      =======
</TABLE>

11.    ADVANCES FROM FEDERAL HOME LOAN BANK

       At December 31, 1997 and 1996, outstanding advances from the FHLB totaled
       $ 57,341,00 and $ 34,763,000 respectively.

       Scheduled  maturities  of FHLB  advances  at  December  31,  1997 were as
       follows:
<TABLE>
<CAPTION>

       ---------------------------------------------------------------------------------------------------------------------
                    Years Ending                               Average Interest                                          $
                    December 31,                                     Rate                                          Maturing
       ---------------------------------------------------------------------------------------------------------------------
                                                                                                     (Dollars in Thousands)

<S>                     <C>                                          <C>                                           <C>
                        1998                                         6.80%                                         $ 7,421
                        1999                                         6.83                                            6,734
                        2000                                         6.35                                            8,471
                        2001                                         6.36                                            7,572
                        2002                                         5.93                                           26,071
                        2003                                         6.69                                            1,072
                                                                                                                     -----

                        Total FHLB advances                          6.28%                                         $57,341
                                                                     ====                                          =======
</TABLE>

12.    INCOME TAXES

       In  accordance  with  SFAS  No.  109,  deferred  income  tax  assets  and
       liabilities  are computed  annually  for  differences  between  financial
       statement  and tax basis of assets and  liabilities  that will  result in
       taxable or deductible amounts in the future based on enacted tax laws and
       rates  applicable  to periods in which the  differences  are  expected to
       affect  taxable  income.  Valuation  allowances  are  established,   when
       necessary,  to reduce  deferred  tax assets to the amount  expected to be
       realized.  Income tax  expense is the tax payable or  refundable  for the
       period  adjusted for the change  during the period in deferred tax assets
       and liabilities.

       On May 13, 1997, the  Association  received  permission from the Internal
       Revenue  Service  ("IRS") to change its  accounting  period,  for federal
       income tax purposes,  from  September  30th to December  31st,  effective
       December  31,  1996.  In  order to  comply  with  IRS  requirements,  the
       Association  filed a consolidated tax return for the short period October
       1, 1996 through December 31, 1996.


                                       41

<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Income tax  provision  consists of the following  components  for the year
      ended December 31, 1997, the three months ended December 31, 1996, and the
      years ended September 30, 1996 and 1995:

<TABLE>
<CAPTION>
      --------------------------------------------------------------------------------------------------
                                                       For the Year  For the Three
                                                          Ended       Months Ended   For the Years Ended
                                                       December 31,   December 31,       September 30,
                                                           1997          1996           1996       1995
      --------------------------------------------------------------------------------------------------
                                                                    (In Thousands)

<S>                                                      <C>          <C>             <C>        <C>
      Current - federal                                  $ 2,745      $    49         $ 1,592    $ 2,789
      Current - state                                        297           16             225        337
                                                         -------      -------         -------    -------

      Total current                                        3,042           65           1,817      3,126

      Deferred - federal and state                          (112)         631          (1,056)      (363)
                                                         -------      -------         -------    -------
      Total provision for income taxes                   $ 2,930      $   696         $   761    $ 2,763
                                                         =======      =======         =======    =======
</TABLE>

      Bankshares' provision for income taxes differs from the amounts determined
      by applying the statutory  federal income tax rate to income before income
      taxes for the following reasons:

<TABLE>
<CAPTION>
      ------------------------------------------------------------------------------------------------------------------
                                             For the Year        For the Three
                                                 Ended            Months Ended                     For the Years Ended
                                             December 31,         December 31,                        September 30,
                                                 1997                 1996                 1996            1995
                                          Amount        %      Amount        %     Amount         %     Amount      %
      ------------------------------------------------------------------------------------------------------------------
                                                                           (In Thousands)

<S>                                      <C>          <C>     <C>           <C>    <C>           <C>    <C>       <C>
      Tax at federal tax rate            $ 2,900      35.0%   $  650        35.0%  $ 1,637       35.0%  $ 2,568   35.0%
        State income taxes, net of
          federal income tax                 281       3.3        70         3.8       139        3.0       186    2.5
          benefits
        Reversal of prior year                --        --        --          --    (1,140)     (24.4)       --     --
          liability
        Other                               (168)     (2.0)       (6)       (0.3)      172        3.7        82    1.1
      Benefit of graduated tax rate          (83)     (1.0)      (18)       (1.0)      (47)      (1.0)      (73)  (1.0)
                                         -------      ----    ------        ----   -------       ----   -------   ----
      Total provision for income taxes   $ 2,930      35.3%   $  696        37.5%  $   761       16.3%  $ 2,763   37.6%
                                         =======      ====    ======        ====   =======       ====   =======   ====
</TABLE>


      During the year ended  September  30, 1996 , management  concluded  that a
      liability  accrued in prior years was no longer required and reversed such
      liability  resulting  in a  $1,140,000  credit  to  the  1996  income  tax
      provision.

                                                                 42
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The tax effect of  temporary  differences  that gave rise to deferred  tax
      assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------------------
                                                                     For the
                                                                      Year      For the Three
                                                                     Ended       Months Ended        For the Years Ended
                                                                  December 31,    December 31,          September 30,
                                                                      1997            1996            1996          1995
      -------------------------------------------------------------------------------------------------------------------
                                                                                   (In Thousands)
<S>                                                                 <C>             <C>              <C>           <C>
       Deferred tax liabilities:
         Depreciation                                               $  582          $  627           $  639        $  551
         Loan fee income                                               170             167              188           319
         FHLB stock dividends                                          457             454              868         1,172
         Deferred loan costs                                           467             412              392           208
         Unamortized discount on mortgage-backed bond                2,112           2,302            2,350         2,526
         Book over tax on investments in partnerships                1,003           1,003              937           882
         Other                                                           -              -                 -            17
       Gross deferred tax liabilities                                4,791           4,965            5,374         5,675
                                                                     -----           -----           ------         -----

       Deferred tax assets:
         Excess of book bad debt reserve over tax reserve            1,043             918              907         1,298
         Retirement plans                                              586             802              686           586
         Unrealized loss on decrease in fair value
            of securities available for sale                            33             561              615           182
         Deferred loss on loans held for sale                           43              46               48            60
         Deferred compensation                                         130             115              109           105
         SAIF recapitalization                                           -               -            1,088             -
         Other                                                          19               -               83           117
                                                                    ------           -----           ------         -----
       Gross deferred tax assets                                     1,854           2,442            3,536         2,348
                                                                    ------           -----           ------         -----
       Valuation  allowance on unrealized  loss on decrease
         in fair value of securities available for sale                (99)           (138)            (182)         (182)
                                                                    ------
       Gross deferred tax assets - net of valuation
         allowance                                                   1,755           2,304            3,354         2,166
                                                                    ------
       Net deferred tax liability                                   $3,036          $2,661           $2,020        $3,509
                                                                    ======          ======           ======        ======
</TABLE>

       During  1996,  legislation  was passed that  repealed  Section 593 of the
       Internal  Revenue Code for taxable  years  beginning  after  December 31,
       1995. Section 593 allowed thrift institutions, including the Association,
       to use the  percentage-of-taxable  income bad debt accounting  method, if
       more favorable than the specific  charge-off  method,  for federal income
       tax   purposes.   The   excess   reserves   (deduction   based   on   the
       percentage-of-taxable  income less the  deduction  based on the  specific
       charge-off  method)  accumulated  post- 987 are required to be recaptured
       ratably over a six year period  beginning in 1996. The Association had no
       excess  reserves as of December 31, 1996 and the  recapture has no effect
       on  Bankshares'  statement of  operations  as taxes were  provided for in
       prior years in accordance  with SFAS 109,  "Accounting for Income Taxes."
       The same  legislation  forgave the tax liability on pre-1987  accumulated
       bad debt reserves which would have penalized any thrift choosing to adopt
       a bank  charter  because the tax would have become due and  payable.  The
       unrecorded  potential  liability  that  was  forgiven  approximated  $4.3
       million.


13.    COMMITMENTS AND CONTINGENCIES

       LOAN  COMMITMENTS  - In the normal  course of business,  the  Association
       makes  commitments  to extend  credit.  Commitments  to extend credit are
       agreements  to lend to a customer as long as there is no violation of any
       condition established in the contract.  The interest rates on both fixed-
       and  variable-rate  loans are based on the market  rates in effect on the
       date of closing.

                                       43
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Commitments  generally  have fixed  expiration  dates of 30 to 60 days and
      other termination  clauses.  Since many of the commitments are expected to
      expire  without  being drawn  upon,  the total  commitment  amounts do not
      necessarily   represent   future  cash   requirements.   Each   customer's
      creditworthiness  is  evaluated  on a  case-by-case  basis.  The amount of
      collateral  obtained if deemed necessary by the Association upon extension
      of credit is based on  management's  credit  evaluation  of the  customer.
      Collateral held varies, but may include  single-family  homes,  marketable
      securities and  income-producing  residential  and commercial  properties.
      Credit  losses  may occur  when one of the  parties  fails to  perform  in
      accordance with the terms of the contract.  The Association's  exposure to
      credit risk is represented by the contractual amount of the commitments to
      extend credit.  Commitments to extend credit for mortgage loans, excluding
      undisbursed  portions of loans in process,  were approximately  $4,733,000
      and $5,732,000 at December 31, 1997 and December 31, 1996, respectively.

      At December 31, 1997, the $4,733,000 of loan commitments were comprised of
      approximately  $3,593,000  of  fixed-rate  commitments  and  $1,140.000 of
      variable-rate  commitments.  These  commitments  are at prevailing  market
      rates and terms.  Interest rates on fixed-rate loan  commitments were from
      6.125% to 9.0% and 6.0% to 9.125% at December  31, 1997 and  December  31,
      1996, respectively.  No value is placed on the commitments as the borrower
      is required to close at the market rates in effect on the date of closing.
      No fees are received in connection with such commitments.

      Unused consumer lines of credit were $8,948,000 and $8,219,000 at December
      31, 1997 and 1996, respectively.

      Commercial  lines and  letters of credit and other loan  commitments  were
      $7,369,000  and  $3,172,000  at December 31, 1997 and 1996,  respectively.
      Commitments to sell loans to FNMA were $0 and $70,000 at December 31, 1997
      and 1996, respectively. Commitments to purchase loans were $0 and $171,000
      at December 31, 1997 and 1996, respectively.

      LEASE COMMITMENTS - The Association leases various properties for original
      periods  ranging  from 2 to 25  years.  Rent  expense  for the year  ended
      December 31, 1997, the three months ended December 31, 1996, and the years
      ended September 30, 1996 and 1995, was approximately  $626,000,  $141,000,
      $545,000, and $535,000, respectively. At December 31, 1997, future minimum
      lease payments under these operating leases are as follows:

      --------------------------------------------------------------------------
                             Years Ending
                             December 31,                             Amount
      --------------------------------------------------------------------------
                                                                  (In Thousands)

                                 1998                                $   576
                                 1999                                    514
                                 2000                                    475
                                 2001                                    340
                                 2002                                    208
                              Thereafter                               1,163
                              ----------                             -------
                                Total                                $ 3,276
                                                                     =======

      LINE OF CREDIT - The Association has a $1,800,000 available line of credit
      with the Federal Reserve Bank of Atlanta which is secured by United States
      Government and agency  obligations  (see Note 6). At December 31, 1997 and
      1996, the Association had no outstanding advances.

      CONTINGENCIES  - The  Association  has  completed its  investigation  of a
      previously reported possible employee defalcation which had been occurring
      for several years. The Association  maintains  insurance to cover possible
      defalcation  losses with a claim  deductible of $200,000.  A liability for
      the  amount  of the  deductible  was  established  during  the year  ended
      September 30, 1996. The Association  notified its insurance company of the
      potential  claim and the  insurance  company  acknowledged  coverage.  The
      insurance  company has completed  its due diligence  related to the claim.
      The  Association and the insurance  company are currently  negotiating the
      final settlement of the claim.  Management does not believe that the claim
      will have any material adverse effect on its financial position or results
      of its operations.

                                       44
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.   BENEFIT PLANS

      PENSION PLAN - The Association has a  noncontributory,  qualified  pension
      plan covering substantially all employees.  The plan calls for benefits to
      be paid to eligible  employees at retirement based primarily upon years of
      service with the  Association and  compensation  rates during those years.
      Currently,  the Association's  policy is to fund the qualified  retirement
      plan in an  amount  that is  determined  in  accordance  with the  minimum
      funding  standards of the Employee  Retirement  Income  Security  Act, but
      falls below the tax deductible contribution. Plan assets consist primarily
      of corporate and government agency bonds,  mutual funds, common stock, and
      managed funds.

      Pension expense for the plan amounted to $251,000,  $63,000, $403,000, and
      $578,000  for the year ended  December  31,  1997,  the three months ended
      December  31,  1996,  and the years  ended  September  30,  1996 and 1995,
      respectively, and included the following components:

<TABLE>
<CAPTION>
       ---------------------------------------------------------------------------------------------------------------------
                                                  For the Year         For the Three
                                                     Ended             Months Ended        For the Years ended September 30,
                                               December 31, 1997     December 31, 1996          1996               1995
       ---------------------------------------------------------------------------------------------------------------------
                                                                            (In Thousands)

<S>                                                  <C>                   <C>                 <C>                <C>
       Service cost                                  $  550                $  137              $  551             $  603
       Interest cost                                    447                   112                 453                460
       Actual return on assets                         (626)                 (156)               (533)              (417)
       Net amortization and deferral                   (120)                  (30)                (68)               (68)
                                                     ------                ------              ------             ------
        Net periodic pension cost                    $  251                $   63              $  403             $  578
                                                     ======                ======              ======             ======
</TABLE>

      For the year ended  December 31, 1997, the three months ended December 31,
      1996,  and the years ended  September 30, 1996 and 1995,  pension  expense
      amounts were based upon actuarial computations.

      The  following  sets  forth the  funded  status of the  qualified  plan at
      December 31, 1997 and 1996:

<TABLE>
<CAPTION>
       -----------------------------------------------------------------------------------------------------------------
                                                                                         December 31,       December 31,
                                                                                              1997              1996
       -----------------------------------------------------------------------------------------------------------------
                                                                                                  (In Thousands)
       Actuarial present value of benefit obligations:
<S>                                                                                         <C>              <C>
          Vested benefits                                                                   $ 3,903          $  3,641
          Nonvested benefits                                                                    472               465
                                                                                            -------          --------
          Accumulated benefit obligation                                                      4,375             4,106
       Effect of anticipated future compensation levels and other events                      2,702             2,755
                                                                                            -------          --------
       Projected benefit obligation                                                           7,077             6,861
       Fair value of assets held in the plan (estimated)                                      9,644             7,350
                                                                                            -------          --------
       Plan assets over projected benefit obligation                                        $ 2,567          $    489
                                                                                            =======          ========

       The excess plan assets consist of the following:
       Unamortized net transition asset                                                     $   339          $    411
       Accrued pension cost                                                                    (962)           (1,335)
       Unrecognized net gain due to changes in assumptions                                    3,218             1,444
       Prior service cost                                                                       (28)              (31)
                                                                                            -------          --------
       Total                                                                                $ 2,567          $    489
                                                                                            =======          ========
</TABLE>

      SUPPLEMENTAL RETIREMENT INCOME PLAN - During 1989, the Association's Board
      of Directors  established a nonqualified unfunded defined benefit plan for
      certain  officers.  For the year ended December 31, 1997, the three months
      ended December 31, 1996, and the years ended  September 30, 1996 and 1995,
      the net periodic expense for the officers' plan totaled $54,000,  $13,000,
      $60,000, and $65,000, respectively. The projected benefit obligation as of
      December  31,  1997 and 1996  was  estimated  at  $480,000  and  $388,000,
      respectively.

                                       45
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The actuarial  present value of benefit  obligations  at December 31, 1997
      and 1996 was as follows:

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------------------
                                                                                       December 31,        December 31,
                                                                                           1997                1996
      -----------------------------------------------------------------------------------------------------------------
                                                                                                (In Thousands)

<S>                                                                                      <C>                 <C>
       Projected benefit obligation                                                      $  480              $  388
       Prior service cost                                                                    33                  41
       Unrecognized net gains                                                                40                  86

       Accrued retirement plan cost                                                         553                 515

       Prior years accrual                                                                 (515)               (506)
       Employer contributions                                                                16                   4
                                                                                         ------              ------
       Net periodic retirement plan expense                                              $   54              $   13
                                                                                         ======              ======
</TABLE>

      ACTUARIAL  ASSUMPTIONS  - Actuarial  assumptions  represent  estimates  of
      future experience based on the  characteristics of the particular plan and
      its covered employees.  The actuarial assumptions used in the pension plan
      and retirement plan valuations were as follows:

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------------------
                                                           Year Ended      Three Months Ended                Years Ended
                                                           December 31,        December 31,                 September 30,
                                                              1997                 1996            1996         1995
      -------------------------------------------------------------------------------------------------------------------

<S>                                                           <C>                  <C>             <C>          <C>
         Discount rate                                        7.00%                6.75%           6.50%        6.50%
         Asset rate                                           8.50%                8.50%           8.00%        8.00%
         Salary scale                                         5.00%                5.00%           5.00%        6.00%
</TABLE>

      Bankshares and the Association do not provide any material  postretirement
      or postemployment benefits.

      EMPLOYEE  STOCK  OWNERSHIP  PLAN - As of December 31,  1997,  the Employee
      Stock  Ownership  Plan  ("ESOP")  has  an  outstanding   loan  balance  of
      $1,424,000  related to the  purchase of 190,388  shares of common stock in
      the open market.  Collateral for the loan is the common stock purchased by
      the  ESOP.  Payment  of the loan is  principally  from  the  Association's
      contributions  to the ESOP over a period of up to seven  years,  and bears
      interest  at the monthly  average of Federal  Funds high and low rate plus
      2.35%, which was 7.96% at December 31, 1997.

      Statement of Position  93-6  "Employers'  Accounting  for  Employee  Stock
      Ownership Plan" ("SOP 93-6") requires that the Association  reflect shares
      allocated to  employees  under the ESOP as  compensation  expense at their
      fair value,  rather  than cost.  The  difference  between the cost of such
      shares and their fair value is treated,  net of tax, as an  adjustment  of
      additional  paid-in capital.  During the year ended December 31, 1997, the
      three months ended  December 31, 1996,  and the years ended  September 30,
      1996 and 1995,  compensation  expense  related  to the ESOP was  $707,000,
      $183,000, $556,000, and $272,000, respectively.

      Contributions  to  the  ESOP  will  be in an  amount  proportional  to the
      repayment of the ESOP loan, and will be allocated  among  participants  on
      the  basis of  compensation  in the year of  allocation,  up to an  annual
      adjusted  maximum  level of  compensation.  In accordance  with  generally
      accepted  accounting  principles,  the unallocated shares held by the ESOP
      are shown as a deduction from shareholders' equity.

                                       46
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      RECOGNITION AND RETENTION PLAN - In January 1995, the  shareholders of the
      Association  approved the Recognition and Retention Plan (the "Recognition
      Plan") for certain officers and non-employee directors of the Association.
      Concurrent  with such  approval,  such officers and directors were awarded
      88,900  shares  of  common   stock,   which  vest  in  five  equal  annual
      installments,  starting  January 1996. The fair value of the shares on the
      date of award will be recognized as compensation  expense over the vesting
      period.  To fund this plan,  88,900 shares were issued from authorized but
      unissued  shares of  common  stock in July  1995.  During  the year  ended
      September  30, 1996,  unamortized  deferred  compensation  and  additional
      paid-in  capital were adjusted to correct  amounts  initially  recorded in
      connection with the Recognition Plan. Unamortized deferred compensation of
      $423,000 at December 31, 1997 is reflected as a reduction of shareholders'
      equity. Compensation expense related to the Recognition Plan was $185,000,
      $46,000,  $130,000 and $148,000 for the year ended  December 31, 1997, the
      three months ended  December 31, 1996,  and the years ended  September 30,
      1996 and 1995, respectively.

      STOCK  OPTION  PLAN - The  Association  has a stock  option  plan  for the
      benefit of its directors, officers, and other key employees. The number of
      shares of  Bankshares'  common stock reserved for issuance under the stock
      option  plan was equal to  237,986  shares  or 10% of the total  number of
      common shares issued to persons other than ComFed,  M.H.C. pursuant to the
      Association's  conversion  to the  stock  form of  ownership.  The  option
      exercise price cannot be less than the fair value of the underlying common
      stock as of the date of the  option  grant  and the  maximum  option  term
      cannot  exceed  ten years.  The stock  options  granted to the  directors,
      officers, and employees are exercisable in five equal annual installments.
      The first installment  became  exercisable on January 18, 1996. At January
      18, 1995, there were 237,450 options granted with 536 options reserved for
      future use. Below is a summary of transactions:

<TABLE>
<CAPTION>
        -------------------------------------------------------------------------------------------------------------
                                                                                                  Option Price
                                                                                   ----------------------------------
                                                                       Number of            Average
                                                                        Options            Price Per        Aggregate
                                                                      Outstanding            Share            Price
        -------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>            <C>
        Options Outstanding:
         Balance - September 30, 1995                                   222,950            $ 11.125       $ 2,480,319
           Granted                                                            -                   -                 -
           Exercised                                                     (1,220)           $ 11.125           (13,573)
           Canceled                                                      (4,880)           $ 11.125           (54,290)
                                                                        -------                           -----------
         Balance - September 30, 1996                                   216,850                             2,412,456
           Granted                                                            -                   -                 -
           Exercised                                                          -                   -                 -
           Canceled                                                           -                   -
                                                                        -------                           -----------
         Balance - December 31, 1996                                    216,850                             2,412,456
           Granted                                                        7,500            $ 19.016           142,617
           Exercised                                                     (4,800)           $ 11.125           (53,400)
           Canceled                                                           -                   -                 -
                                                                        -------                           -----------
         Balance - December 31, 1997                                    219,550                           $ 2,501,673
                                                                        =======                           ===========
</TABLE>


      Options  exercisable at December 31, 1997 and 1996, and September 30, 1996
      and 1995 were 84,820,  43,370,  43,370,  and 0,  respectively.  Bankshares
      adopted the  disclosure-only  option under SFAS No. 123,  "Accounting  for
      Stock-based Compensation" as of January 1, 1997. The fair value of options
      granted under the stock option plan during the fiscal year ended  December
      31, 1997 was  estimated  using the Binary  Option  Pricing  Model with the
      following assumptions used:

<TABLE>
<CAPTION>
        ---------------------------------------------------------------------------------------------------------------
                     Number of    Exercise      Fair Value        Risk Free        Expected      Expected      Dividend
        Grant date    Options       Price       of Options      Interest Rate    Life (Years)   Volatility      Yield
        ---------------------------------------------------------------------------------------------------------------
<S>      <C>           <C>         <C>            <C>               <C>                <C>        <C>           <C>
         01/18/97      7,500       $19.016        $5.25             6.37%              5          15.36%        $2.67
</TABLE>

                                       47
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Had  compensation  cost for the stock options been determined based on the
      fair value at the grant date for awards under those plans  consistent with
      the method of SFAS No. 123,  Bankshares' net income and earnings per share
      for the year ended  December  31, 1997 would have been  reduced to the pro
      forma amounts indicated below:

<TABLE>
<CAPTION>
        -----------------------------------------------------------------------------------------------------------------
                                                                                                       For the Year Ended
                                                                                                        December 31, 1997
        -----------------------------------------------------------------------------------------------------------------
<S>                                                                                                          <C>
        Net income
              As reported                                                                                    $  5,356,000
              Pro forma                                                                                      $  5,332,000
        Basic earnings per share
              As reported                                                                                    $       1.09
              Pro forma                                                                                      $       1.08
</TABLE>


15.   MORTGAGE-BACKED BOND

      On September 30, 1983, the  Association  sold two of its branch offices to
      another  financial  institution with the approval of the Federal Home Loan
      Bank Board ("FHLBB"), predecessor to the OTS. Under terms of the sale, the
      Association  issued a  10.94%,  30-year  term  mortgage-backed  bond  (the
      "Bond")  for  approximately  $41,601,000.  The  Bond  issue  has a  stated
      interest  rate which was less than the market  rate  (assumed to have been
      17.53%) for similar debt at the effective  date of the sale.  Accordingly,
      the Association recorded a discount on the Bond which is being accreted on
      the interest method over the life of the Bond.

      The Bond bears an interest rate that is adjustable semi-annually, on April
      1 and October 1, to reflect  changes in the  average of the United  States
      10-year and 30-year  long-term  bond rates.  The Bond's  interest  rate on
      December  31,  1997  and 1996  was  5.62%  and  6.20%,  respectively.  The
      unamortized  discount at December  31,  1997 and 1996 was  $5,439,000  and
      $5,929,000,   respectively.   Principal  and  interest  payments  are  due
      quarterly. During the year ended December 31, 1997, the three months ended
      December  31,  1996,  and the years  ended  September  30,  1996 and 1995,
      approximately $490,000, $123,000, $496,000, and $498,000, respectively, of
      the discount was accreted.

      At December  31,  1997 and 1996,  the  Association  held  $13,039,000  and
      $11,701,000   (net  of  discounts   of   $10,161,000   and   $11,499,000),
      respectively,  of Salomon  Brothers  Certificates  of Accrual on  Treasury
      Securities  ("CATS") which were purchased at the time of issuing the Bond.
      The accrual of interest on the CATS offsets the discount  amortization  of
      the Bond.  The CATS are included in United  States  Government  and agency
      obligations described in Note 3 to the consolidated financial statements.

      The Bond at December 31, 1997 was repayable as follows:

<TABLE>
<CAPTION>
       -------------------------------------------------------------------------------------------------------
                          Years Ending                                                            Amount
                           December 31,                                                       (In Thousands)
       -------------------------------------------------------------------------------------------------------

<S>                             <C>                                                              <C>
                                1998                                                             $ 1,387
                                1999                                                               1,387
                                2000                                                               1,387
                                2001                                                               1,387
                                2002                                                               1,387
                           2003 and after                                                         14,837
                                                                                                 -------
                                Total                                                             21,772

             Less unamortized discount                                                             5,439
                                                                                                 -------
           Total mortgage-backed bond                                                            $16,333
                                                                                                 =======
</TABLE>

                                                         48
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.   REGULATORY   RESTRICTIONS  ON  RETAINED  INCOME  AND  REGULATORY   CAPITAL
      REQUIREMENT

      The  Association  is subject to various  regulatory  capital  requirements
      administered by the OTS. 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  Bankshares'  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 classifications are also
      subject  to  qualitative   judgments  by  regulators   about   components,
      risk-weighting, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require the Association to maintain minimum amounts and ratios of tangible
      capital of not less that 1.5% of adjusted  total assets,  total capital to
      risk-weighted  assets  of not less  that  8.0%,  Tier I  capital  equal to
      adjusted total assets of 3.0%, and Tier I capital to risk-weighted  assets
      of 4.0%  (as  defined  in the  regulations).  Management  believes,  as of
      December  31,  1997,  that the  Association  meets  all  capital  adequacy
      requirements to which it is subject.

      As of  December  31,  1997,  the  most  recent  notification  from the OTS
      categorized the Association as "Well  Capitalized" under the framework for
      prompt  corrective  action. To be considered well capitalized under Prompt
      Corrective  Action   Provisions,   the  Association  must  maintain  total
      risk-based,  Tier I risk-based, and Tier I leverage ratios as set forth in
      the  following  table.  There  are no  conditions  or  events  since  that
      notification  that  management  believes  have  changed the  Association's
      categorization.

      The Association is required to report capital ratios  unconsolidated  with
      Bankshares.  The  Association's  actual  capital  amounts  and  ratios are
      presented in the following tables:

<TABLE>
<CAPTION>
       ------------------------------------------------------------------------------------------------------------------
                                                                                                         To be Considered
                                                                                          For            Well Capitalized
                                                                                    Capital Adequacy        for Prompt
                                                                      Actual             Purposes       Action Provisions
                                                           --------------------------------------------------------------
                                                               Ratio       Amount     Ratio   Amount     Ratio     Amount
       ------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)

       As of December 31, 1997:
<S>                                                             <C>        <C>         <C>   <C>          <C>     <C>
       Total capital ( to Risk-weighted Assets)                 18.4%      $70,048     8.0%  $30,416      10.0%   $38,020
       Core (Tier 1) Capital (to Adjusted Tangible Assets)       9.8        70,681     3.0    21,609       5.0     36,014
       Tangible Capital (to Tangible Assets)                     9.8        70,681     1.5    10,804       N/A        N/A
       Core (Tier 1) Capital (to Risk-weighted Assets)          18.6        70,681     4.0    15,208       6.0     22,812

       As of December 31, 1997, tangible assets, adjusted tangible assets, and
       risk-weighted assets were $720,284,000, $720,284,000, and $380,197,000,
       respectively $720,284,000, and $380,197,000, respectively.

       As of December 31, 1996:
       Total capital ( to Risk-weighted Assets)                 24.7%      $78,845     8.0%  $25,492      10.0%   $31,865
       Core (Tier 1) Capital (to Adjusted Tangible Assets)      11.8        77,187     3.0    19,688       5.0     32,814
       Tangible Capital (to Tangible Assets)                    11.8        77,187     1.5     9,844       N/A        N/A
       Core (Tier 1) Capital (to Risk-weighted Assets)          24.2        77,187     4.0    12,746       6.0     19,119

       As of December 31, 1996,  tangible assets,  adjusted tangible assets, and
       risk-weighted assets were $656,277,000,  $656,277,000,  and $318,649,000,
       respectively.
</TABLE>
                                                              49
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.   SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------------------
                                                                     For the Year   For the Three        For the Years
                                                                        Ended       Months Ended            Ended
                                                                     December 31,    December 31,        September 30,
                                                                        1997            1996           1996        1995
      -------------------------------------------------------------------------------------------------------------------
                                                                                              (In Thousands)

      Supplemental disclosure of cash flow information:
<S>                                                                  <C>              <C>            <C>         <C>
          Cash paid for income taxes                                 $   2,836        $    220       $  1,877    $  3,200
                                                                     =========        ========       ========    ========
          Cash  paid  for   interest  on   deposits   and  other
            borrowings                                               $  27,959        $  6,255       $ 22,146    $ 17,949
                                                                     =========        ========       ========    ========

       Supplemental schedule of noncash investing :
        and financing activities:
         Real estate acquired in settlement of loans                 $     558        $     78       $    400    $  1,394
                                                                     =========        ========       ========    ========

         Distribution of Common Stock to fund the Recognition
          and Retention Plan                                         $       -        $      -       $      -   $     989
                                                                     =========        ========       ========   =========
</TABLE>

18.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      SFAS No. 107, as amended by SFAS No. 119, "Disclosures about Fair Value of
      Financial  Instruments" ("SFAS No. 107"),  requires the estimation of fair
      values of financial instruments, as defined in SFAS No. 107.

      Estimates  of fair value are made at a specific  date,  based upon,  where
      available,  relevant  market  prices and  information  about the financial
      instrument.  For a substantial  portion of the financial  instruments,  no
      quoted market exists.  Therefore,  estimates of fair value are necessarily
      based on a number of significant assumptions (many of which involve events
      outside the control of management).  Such assumptions  include assessments
      of current  economic  conditions,  perceived  risks  associated with these
      financial  instruments  and their  counterparties,  future  expected  loss
      experience and other factors.  Given the  uncertainties  surrounding these
      assumptions,  the  reported  fair  values  represent  estimates  only and,
      therefore,  cannot be compared to the historical  accounting model. Use of
      different   assumptions   or   methodologies   are  likely  to  result  in
      significantly different fair value estimates.

      Although management uses its best judgment in estimating the fair value of
      the  financial   instruments,   there  are  inherent  limitations  in  any
      estimation technique. Therefore, the fair value estimates presented herein
      are not necessarily indicative of the amounts which could be realized in a
      current transaction.

      The estimated fair values presented neither include nor give effect to the
      values associated with the Association's existing customer  relationships,
      extensive branch banking network or property,  or certain tax implications
      related to the realization of unrealized gains or losses.  Also under SFAS
      No.  107,  the  fair  value  of  non-interest-bearing  checking  accounts,
      interest-bearing NOW accounts,  passbook and statement accounts, and money
      market  accounts is equal to the carrying  amount  because these  deposits
      have no stated  maturity.  The approach to estimating  fair value excludes
      the significant benefit that results from the low-cost funding provided by
      such deposit liabilities, as compared to alternative sources of funding.

      The following methods and assumptions were used to estimate the fair value
      of each major classification of financial instruments at December 31, 1997
      and 1996:

      CASH AND CASH EQUIVALENTS - The carrying amounts reported in the Statement
      of Financial  Condition for cash and cash equivalents  approximates  their
      fair value.

      INVESTMENTS  - HELD TO MATURITY AND  SECURITIES  AVAILABLE FOR SALE - Fair
      value is  determined  by  reference to quoted  market  prices or by use of
      broker price estimates.

      LOANS RECEIVABLE - The fair value of loans was estimated by using a method
      which  approximates  the effect of discounting  the estimated  future cash
      flows over the  expected  repayment  periods  using rates  which  consider
      credit risk, servicing costs and other relevant factors.

                                       50
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      MORTGAGE-BACKED  AND  RELATED  SECURITIES  - Fair value is  determined  by
      reference to quoted market prices or by use of broker price estimates.

      DEPOSITS - Current  carrying amounts  approximate  estimated fair value of
      deposits with no stated  maturity,  including  demand  deposits,  interest
      bearing NOW accounts,  passbooks and statement accounts,  and money market
      accounts.  Fair value for fixed maturity  certificate of deposit  accounts
      was estimated by discounting the contractual  cash flow using a rate which
      reflects  the  Association's  cost  of  funds  adjusted  for  the  cost of
      servicing deposit accounts.

      MORTGAGE-BACKED  BOND - The carrying amount of the mortgage-backed bond is
      a reasonable estimate of fair market value.

      ADVANCES  FROM FEDERAL HOME LOAN BANK - Fair value is estimated  using the
      Association's cost of funds adjusted for the cost of operations.

      ESOP LOAN - The carrying amount of the ESOP loan is a reasonable  estimate
      of fair market value.

      COMMITMENTS  TO EXTEND  CREDIT - At December  31, 1997 and 1996,  the fair
      value of commitments to extend credit was considered  insignificant due to
      the short-term nature of the commitments.

      The estimated fair values of the financial instruments were as follows:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------
                                                                   December 31, 1997                  December 31, 1996
                                                               Carrying           Fair            Carrying            Fair
                                                                 Value           Value              Value             Value
      ----------------------------------------------------------------------------------------------------------------------
                                                                                    (In Thousands)
      Financial assets:
<S>                                                            <C>             <C>                 <C>              <C>
      Cash and cash equivalents                                $ 25,954        $ 25,954            $ 42,442         $ 42,442
      Investments - held to maturity                             21,388          25,901              22,139           26,266
      Securities available for sale                             142,269         142,269             123,152          123,152
      Mortgage-backed and related securities                     46,413          46,938              53,405           53,880
      Loans receivable - net                                    451,709         461,650             389,040          397,627

      Financial liabilities:
      Deposits                                                 $550,708        $548,321            $513,709         $511,327
      Mortgage-backed bond                                       16,333          16,333              17,230           17,230
      Advances from FHLB                                         57,341          57,246              34,763           34,875
      ESOP borrowings                                             1,424           1,424               1,915            1,915
</TABLE>

19.   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

      The following  condensed  statements of financial condition as of December
      31,  1997  and  1996,  and the  condensed  statements  of  operations  and
      statements of cash flows for the year ended  December 31, 1997,  the three
      months ended December 31, 1996, and the years ended September 30, 1996 and
      1995  should  be read  in  conjunction  with  the  consolidated  financial
      statements and the related notes. Since the organization of Bankshares was
      accounted  for in a  manner  similar  to a  pooling  of  interests,  these
      statements  have been  presented as if Bankshares was in existence for all
      periods covered by the consolidated financial statements.

                                       51
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
     STATEMENTS OF FINANCIAL CONDITION
     ---------------------------------------------------------------------------------------------------------------------
                                                                                                       At December 31,
                                                                                                     1997           1996
     ---------------------------------------------------------------------------------------------------------------------
                                                                                                       (In Thousands)
       Assets:
<S>                                                                                                <C>             <C>
            Cash and cash equivalents                                                              $11,243         $     -
            Investment in Association                                                               70,527          76,578
                                                                                                   -------         -------
       Total assets                                                                                $81,770         $76,578
                                                                                                   =======         =======

       Liabilities                                                                                 $   511         $   459
       Shareholders' equity                                                                         81,259          76,119
                                                                                                   -------         -------
       Total liabilities and shareholders' equity                                                  $81,770         $76,578
                                                                                                   =======         =======
</TABLE>
<TABLE>
<CAPTION>
     STATEMENTS OF OPERATIONS
     ---------------------------------------------------------------------------------------------------------------------
                                                                 For the         For the Three
                                                                Year Ended        Months Ended       For the Years Ended
                                                               December 31,       December 31,          September 30,
                                                                   1997               1996           1996          1995
      --------------------------------------------------------------------------------------------------------------------
                                                                                     (In Thousands)
<S>                                                              <C>               <C>             <C>             <C>
       Income                                                    $     -           $     -         $     -         $     -
       Expenses                                                       41                 -               -               -
                                                                 -------           -------         -------         -------
       Income before income taxes and equity in earnings                                 -               -               -
            of Association                                           (41)                -               -               -
       Income tax benefit                                             15                 -               -               -
                                                                 -------           -------         -------         -------
       Income before equity in earnings of Association               (26)                -               -               -
       Equity in earnings of Association                           5,382             1,160           3,915           4,574
                                                                 -------           -------         -------         -------
       Net income                                                $ 5,356           $ 1,160         $ 3,915         $ 4,574
                                                                 =======           =======         =======         =======

     STATEMENTS OF CASH FLOWS
     ---------------------------------------------------------------------------------------------------------------------
                                                                  For the      For the Three
                                                                Year Ended      Months Ended        For the Years Ended
                                                                December 31,     December 31,           September 30,
                                                                   1997              1996            1996            1995
     ---------------------------------------------------------------------------------------------------------------------
                                                                                     (In Thousands)
       Cash flows from operating activities:
            Net income                                           $ 5,356           $ 1,160         $ 3,915         $ 4,574
            Adjustments to reconcile net income to net cash
              used for operating activities:
              Equity in earnings of Association                   (5,382)           (1,160)         (3,915)         (4,574)
              Other                                                  (15)                -               -               -
                                                                --------           -------         -------         -------
       Net cash used for operating activities                        (41)                -               -               -
                                                                --------           -------         -------         -------
       Cash flows from investing activities:
            Dividends received from Association                   13,260               448           1,618             902
                                                                --------           -------         -------         -------
       Net cash provided by investing activities                  13,260               448           1,618             902
                                                                --------           -------         -------         -------
       Cash flows from financing activities:
            Dividends paid                                        (1,976)             (448)         (1,618)           (902)
                                                                --------           -------         -------         -------
       Net cash used for financing activities                     (1,976)             (448)         (1,618)           (902)
                                                                --------           -------         -------         -------
       Cash and cash equivalents, beginning of period                  -                 -               -               -
       Cash and cash equivalents, end of period                 $ 11,243           $     -         $     -         $     -
                                                                ========           =======         =======         =======
</TABLE>

      Payment  of  dividends  to  Bankshares  by the  Association  is subject to
      various limitations by bank regulatory agencies. Undistributed earnings of
      the  Association  available  for  distribution  as  dividends  under these
      limitations  were  $30,773,000 and $27,203,000 as of December 31, 1997 and
      1996, respectively.

                                       52
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.   QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      Quarter Ended
      --------------------------------------------------------------------------------------------------------------------
                                                                  March 31,      June 30,      September 30,  December 31,
      --------------------------------------------------------------------------------------------------------------------
                                                                                 (Dollars In Thousands)
       Year ended December 31, 1997:
<S>                                                               <C>            <C>              <C>             <C>
            Interest income                                       $  12,020      $ 12,557         $ 12,894        $ 12,845
            Interest expense                                          6,448         6,813            7,036           7,093
                                                                  ---------      --------         --------        --------
                 Net interest income                                  5,572         5,744            5,858           5,752

            Provision for loan losses                                    30            53              138              43
            Other income                                                891           971            1,522             801
            Operating expense                                         4,293         4,512            4,973           4,783
            Provision for income taxes                                  789           767              720             654
                                                                  ---------      --------         --------        --------
            Net income                                            $   1,351      $  1,383         $  1,549        $  1,073
                                                                  =========      ========         ========        ========
            Basic earnings per share                              $    0.27      $   0.28         $   0.31        $   0.22
                                                                  =========      ========         ========        ========
            Diluted earnings per share                            $    0.27      $   0.27         $   0.31        $   0.21
                                                                  =========      ========         ========        ========


                                                                                    Quarter Ended
       -------------------------------------------------------------------------------------------------------------------
                                              December 31, 1995    March 31,     June 30,       September 30  December 31,
       -------------------------------------------------------------------------------------------------------------------
                                                                         (Dollars In Thousands)
       Year ended December 31, 1996
          and three months ended
          December 31, 1995
            Interest income                        $ 10,205       $  10,748      $ 11,091         $ 11,845     $ 11,896
            Interest expense                          5,349           5,834         5,724            5,952        6,378
                 Net interest income                  4,856           4,914         5,367            5,893        5,518

            Provision for loan losses                    30               2            38               28          243
            Other income                              1,080             967           370              927        1,225
            Operating expense                         4,189           3,992         4,277            7,142        4,644
            Provision (benefit) for
              income taxes                              667             619          (361)            (164)         696
                                                   --------       ---------      --------         --------     --------
            Net income (loss)                      $  1,050       $   1,268      $  1,783         $   (186)    $  1,160
                                                   ========       =========      ========         ========     ========

            Basic earnings (loss) per share        $   0.22       $    0.26      $   0.37         $  (0.04)    $   0.24
                                                   ========       =========      ========         ========     ========
            Diluted  earnings  (loss) per share    $   0.22       $    0.26      $   0.36         $  (0.04)    $   0.23
                                                   ========       =========      ========         ========     ========
</TABLE>

      The quarter ended June 30, 1996 results of operations include a $1,140,000
      credit to the income tax provision  related to the reversal of a liability
      accrued in prior years which management concluded was no longer necessary.

      The quarter  ended  September  30, 1996  results of  operations  include a
      one-time special assessment of $2,800,000 for the  recapitalization of the
      SAIF administered by the FDIC.

                                       53
<PAGE>
<TABLE>
<CAPTION>

                                       COMMUNITY SAVINGS BANKSHARES, INC.
                                            CORPORATE INFORMATION

<S>                 <C>                                                                 <C>
                    CORPORATE HEADQUARTERS                                              AUDITORS
                    660 U.S. Highway One                                          Deloitte & Touche LLP
                 North Palm Beach, FL 33408                            1645 Palm Beach Lakes Boulevard, Suite 900
                  www.communitysavings.com                                      West Palm Beach, FL 33401

                                                                                     SPECIAL COUNSEL
                       ANNUAL MEETING                                     Elias, Matz, Tiernan & Herrick L.L.P.
                  April 22, 1998, 1:30 p.m.                                  734 15th Street, NW, 12th Floor
           Embassy Suites PGA, 4350 PGA Boulevard                                 Washington, DC 20005
                Palm Beach Gardens, FL 33410
                                                                                        FORM 10-K
                 REGISTRAR & TRANSFER AGENT                             A copy of the Company's Annual Report on
          ChaseMellon Shareholder Services, L.L.C.                Form 10-K, as filed with the Securities and Exchange
             Overpeck Centre, 85 Challenger Road                        Commission, is available without charge.
                  Ridgefield Park, NJ 07660
             (800) 526-0801 www.chasemellon.com                                       STOCK LISTING
                                                                 The Common Stock of Community Savings Bankshares, Inc.
                      DIVIDEND  SERVICES                                 is traded on the Nasdaq National Market
             Dividend Reinvestment and Optional                                  under the symbol CMSV.
        Cash Investment Plan - provides shareholders
        a regular way of investing cash dividends in                              SHAREHOLDER RELATIONS
   additional shares and investing optional cash payments               Deborah M. Rousseau, Corporate Secretary
          without payment of brokerage commissions.                 Shana P. Robinson, Assistant Corporate Secretary
                              .
               SHAREHOLDER ACCOUNT ASSISTANCE                                      INVESTOR RELATIONS
          Shareholders who wish to change the name                   James B. Pittard, Jr., Chief Executive Officer
        address or ownership of stock or report lost                  Larry J. Baker, CPA, Chief Financial Officer
          certificates should contact the Registrar
              and Transfer Agent at the address                                      (561) 881-2212
                   or phone number above.                                       (800) 879-0112 (Florida)
</TABLE>

The Association's  Common Stock began trading on October 24, 1994. On October 1,
1997 as a result of the reorganization, Bankshares' common stock was substituted
for that of the  Association.  As of December  31,  1997,  there were  5,094,920
shares of Common Stock outstanding and 931 shareholders of record, not including
the number of persons or  entities  whose  stock is held in nominee or  "street"
name through various  brokerage  firms or banks.  The following table sets forth
quarter ending book value, high, low, and closing trade prices, and dividend per
share information.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                             Book                                   Stock Prices                            Dividend
                                         ------------------------------------------------------------
                             Value                 High                 Low                Close           Per Share
--------------------------------------------------------------------------------------------------------------------
<S>                         <C>                   <C>                  <C>                <C>                 <C>
December 31, 1997           $16.39                $39.75               $32.25             $35.38              $.2250
September 30, 1997          $16.26                $37.25               $21.75             $36.25              $.2250
June 30, 1997               $15.95                $22.50               $19.63             $22.00              $.2250
March 31, 1997              $15.57                $20.63               $18.50             $19.63              $.2250

December 31, 1996           $15.50                $20.75               $16.25             $20.50              $.2000
September 30, 1996          $15.33                $17.00               $15.75             $16.75              $.2000
June 30, 1996               $15.38                $16.00               $14.25             $16.00              $.2000
March 31, 1996              $15.35                $17.00               $15.50             $15.50              $.1750
December 31, 1995           $15.35                $18.38               $16.75             $17.00              $.1750
</TABLE>

                                                              54