SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB
(Mark One)

[ ]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the quarterly period ended December 31, 1998
                               -----------------

|_|  Transition  report  pursuant  to  section 13 or  15(d)  of  the  Securities
     Exchange Act of 1934

For the transition period from                 to                
                               ---------------    ---------------

SEC Fine Number:  000-25009
                  ---------

                              SKIBO FINANCIAL CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                  United States                                 25-1820465   
---------------------------------------------                -------------------
         (State or other jurisdiction of                     (I.R.S. Employer
         incorporation or organization)                      Identification No.)

242 East Main Street, Carnegie, Pennsylvania                      15106      
--------------------------------------------                      -----      
  (Address of principal executive offices)                      (Zip Code)

                                 (412) 276-2424
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


         Check  whether the  registrant:  (1) filed all  reports  required to be
filed by Sections 13 or 15(d) of the Securities  Exchange Act of 1934 subsequent
to the preceding 12 months (or for such shorter  period that the  registrant was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X    No
                                       ---      ---  

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

                  Number of shares outstanding of common stock
                             as of January 31, 1999


$0.10 Par Value Common Stock                       3,444,745 Shares 
----------------------------                    --------------------
             Class                                   Outstanding


         Transitional Small Business Disclosure Format (check one)
                           Yes         No  X   
                               ---        ---





<PAGE>


                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----



PART I.  FINANCIAL INFORMATION
------   ---------------------

Item 1.                    Financial Statements


                  Consolidated Statements of Financial Condition (As of
                  December 31, 1998 (unaudited) and March 31, 1998)............1

                  Consolidated Statements of Operations (For the three and
                  nine months ended December 31, 1998 and 1997 (unaudited))....2

                  Consolidated Statement of Stockholders' Equity (For the
                  nine months ended December 31, 1998 (unaudited)..............3

                  Consolidated Statements of Cash Flows (For the nine
                  months ended December 31, 1998 and 1997 (unaudited)).........4

                  Notes to Consolidated Financial Statements...................6


Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations...............................10



PART 11.  OTHER INFORMATION
-------   -----------------

Item 1.     Legal Proceedings.................................................17
Item 2.     Changes in Securities.............................................17
Item 3.     Defaults Upon Senior Securities...................................17
Item 4.     Submission of Matters to a Vote of Security-Holders...............17
Item 5.     Other Information.................................................17
Item 6.     Exhibits and Reports on Form 8-K..................................17


Signatures

<PAGE>
                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

              (Dollar amounts in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                    December 31,  March 31,
                                                                       1998         1998
                                                                    ------------  ---------
                    ASSETS                                              (Unaudited)
                    ------                                                                
<S>                                                                <C>          <C>      
Cash and amounts due from depository institutions                   $     530    $     523
Interest-bearing deposits with other institutions                         524        2,748
Investment securities:
     Held-to-maturity (market value $25,907 and $15,836)               25,990       15,777
Mortgage-backed securities:
     Held-to-maturity (market value $53,324 and $54,903)               53,028       54,315
Loans receivable, net                                                  62,427       67,884
Real estate owned, net                                                   --             11
Accrued interest receivable:
     Investment securities                                                327          224
     Mortgage-backed securities                                           369          408
     Loans receivable                                                     752          800
Federal Home Loan Bank stock, at cost                                   2,315        2,307
Premises and equipment, net                                               715          759
Prepaid expenses and other assets                                       3,058        2,376
                                                                    ---------    ---------
        Total Assets                                                $ 150,035    $ 148,132
                                                                    =========    =========

               LIABILITIES AND STOCKHOLDERS' EQUITY
               ------------------------------------
Liabilities:
     Savings deposits                                               $  77,408    $  77,226
     Federal Home Loan Bank advances                                   44,300       41,300
     Bonds payable                                                      1,441        1,618
     Other borrowings                                                    --            666
     Advances from borrowers for taxes and insurance                      154          166
     Accrued expenses and other liabilities                             1,845        2,176
                                                                    ---------    ---------

        Total Liabilities                                             125,148      123,152
                                                                    ---------    ---------
Stockholders' Equity:
     Common stock, $0.10 par value; 10,000,000 shares authorized;
     3,449,973 and 2,300,000 shares issued
     3,444,745 and 2,300,000 shares outstanding                           345          230
     Additional paid-in capital                                         9,750        9,800
     Treasury stock, at cost (5,228 shares                                (65)        --
     Unearned employee stock ownership plan (ESOP) shares                (501)        (625)
     Unearned restricted stock plan (RSP) shares                         (440)        --
     Retained earnings, substantially restricted                       15,798       15,575
                                                                    ---------    ---------
        Total Stockholders' Equity                                     24,887       24,980
                                                                    ---------    ---------
        Total Liabilities and Stockholders' Equity                  $ 150,035    $ 148,132
                                                                    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        1

<PAGE>
                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                      Consolidated Statements of Operations

         For the Three and Nine Months Ended December 31, 1998 and 1997

              (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                 Three Months Ended           Nine Months Ended
                                                       December 31,               December 31,
                                                  1998           1997          1998         1997
                                                 -----           ----          ----         ----

                                                       (unaudited)                  (unaudited)
<S>                                          <C>           <C>           <C>           <C>        
Interest income:
     Loans receivable                         $     1,149   $     1,142   $     3,584   $     3,462
     Mortgage-backed securities                       828         1,013         2,551         3,010
     Investment securities                            331           290           848           938
     Other                                             93            62           262           222
                                              -----------   -----------   -----------   -----------
            Total interest income                   2,401         2,507         7,245         7,632

Interest expense:
     Savings deposits                                 865           889         2,616         2,689
     Federal Home Loan Bank advances                  548           587         1,625         1,762
     Bonds payable                                     35            44           113           143
     Other borrowings                                  14            17            42            52
                                                                          -----------   -----------
           Total interest expense                   1,462         1,537         4,396         4,646
                                              -----------   -----------   -----------   -----------
           Net interest income                        939           970         2,849         2,986
Provision for loan losses                               5            15            20            45
                                              -----------   -----------   -----------   -----------
           Net interest income after
              provision for loan losses               934           955         2,829         2,941
Other income:
     Fees and service charges                          14            16            39            43
     Loss on sale of securities                      --            --            --              (8)
     Other                                              3            58            27           192
                                              -----------   -----------   -----------   -----------
           Total other income                          17            74            66           227

Other expenses:
     Compensation and employee benefits               573           621         1,606         1,456
     Premises and occupancy costs                      54            59           166           173
     Federal insurance premiums                        11            12            35            41
     Other operating expenses                          93            77           281           257
                                              -----------   -----------   -----------   -----------
           Total other expenses                       731           769         2,088         1,927
                                              -----------   -----------   -----------   -----------
      Income before income taxes                      220           260           807         1,241

Provision for income taxes                             95           133           335           556
                                              -----------   -----------   -----------   -----------
           Net income                         $       125   $       127   $       472   $       685
                                              ===========   ===========   ===========   ===========

Basic earnings per share                      $       .04   $       .04   $       .14   $       .21
Diluted earnings per share                    $       .04   $       .04   $       .14   $       .21

Weighted average shares outstanding-basic       3,350,617     3,350,115     3,356,716     3,350,115
Weighted average shares outstanding-diluted     3,372,922     3,350,115     3,364,151     3,350,115

</TABLE>


          See accompanying notes to consolidated financial statements.

                                        2

<PAGE>
                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity

             For the Nine Months Ended December 31, 1998 (unaudited)

              (Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
                                               Common Stock      Additional            Unearned  Unearned
                                            Number of              Paid-in   Treas.      ESOP       RSP                   Retained
                                              Shares    Amount    Capital    Stock       Shares    Shares      Earnings     Total
                                       ---------------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>       <C>          <C>      <C>          <C>         <C>    
Balance at March 31, 1998                    2,300,000  $230       $9,800   $   --        $(625)  $    --       $15,575     $24,980

Cash dividends declared net
  ($.45 per share)                                  --    --           --       --           --        --          (249)       (249)

Reduction of equity for restricted
stock plan (RSP) liability                          --    --           --       --           --      (770)           --        (770)

Excess of fair value above cost of
ESOP shares released or                  
committed to be released                            --    --           65       --           --        --            --          65

Amortization of ESOP liability                      --    --           --       --          124        --            --         124

Amortization of RSP liability                       --    --           --       --           --       330            --         330

Treasury stock purchased,                
at cost (5,228 shares)                              --     --          --      (65)          --        --            --         (65)

Reorganization-additional stock issued       1,149,973   115         (115)      --           --        --            --          --

Net income                                          --    --           --       --           --        --           472         472
                                       ---------------------------------------------------------------------------------------------

Balance at December 31, 1998                 3,449,973  $345       $9,750    $ (65)       $(501)   $ (440)      $15,798     $24,887
                                       =============================================================================================
</TABLE>



See accompanying notes to consolidated financial statements.


                                                                     3

<PAGE>



                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

              For the Nine Months Ended December 31, 1998 and 1997

                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                              1998         1997
                                                                              ----         ----
                                                                               (unaudited)
<S>                                                                       <C>         <C>      
Operating activities:
     Net income                                                            $    472    $    685
     Adjustments  to  reconcile  net  income to net cash
        (used in)  provided  by
        operating activities:
           Provision for loan losses                                             20          45
           Depreciation                                                          66          60
           Compensation expense-ESOP and RSP                                    519         280
           Loss on sale of mortgage-backed securities available-for-sale       --             4
           Loss on sale of investment securities available for-sale            --             4
           Net amortization of premiums and discounts                            82         142
           Increase in accrued interest receivable                              (16)        (54)
           Increase in prepaid expenses                                        (682)       (246)
           Decrease in accrued interest payable                                (297)        (71)
           Decrease in accrued income taxes                                    (121)        (15)
           Other, net                                                            60         112
                                                                           --------    --------
               Net cash provided by operating activities                        103         946
                                                                           --------    --------

Investing activities:
     Purchases of premises and equipment                                        (22)        (36)
     Purchases of investment securities held-to maturity                    (17,187)     (5,392)
     Purchases of mortgage-backed securities held-to-maturity               (11,290)    (12,091)
     Proceeds from sale of investment securities available-for-sale            --           721
     Proceeds from sale of mortgage-backed securities available-for-sale       --           519
     Proceeds from maturities/calls and principal repayments of:
        Investment securities held-to-maturity                                6,941       6,594
        Mortgage-backed securities held-to-maturity                          12,658       7,562
        Mortgage-backed securities available-for-sale                          --            33
     Loans purchased                                                         (9,333)     (7,477)
     Net principal repayments on loans                                       14,643       6,467
     Decrease (increase) in Federal Home Loan Bank stock                         (8)        140
                                                                           --------    --------
              Net cash used in investing activities                        $ (3,598)   $ (2,960)
                                                                           --------    --------

</TABLE>

See accompanying notes to consolidated financial statements.         (continued)

                                        4

<PAGE>



                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, continued

              For the Nine Months Ended December 31, 1998 and 1997

                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
                                                                                      1998        1997
                                                                                      ----        ----
                                                                                     (unaudited)
<S>                                                                               <C>         <C>     
Financing activities:
     Decrease of stock subscriptions                                               $   --      $(13,606)
     Net increase (decrease) in savings deposits                                        182     (10,507)
     Proceeds from Federal Home Loan Bank advances                                   23,000      37,600
     Repayment of Federal Home Loan Bank advances                                   (20,000)    (42,400)
     Principal repayment of bonds payable and other borrowings                         (843)       (415)
     Net decrease in mortgage escrow                                                    (12)        (26)
     Common stock acquired by ESOP                                                     --          (828)
     Proceeds from other borrowings                                                    --           828
     Treasury stock purchased                                                           (65)       --
     Common stock acquired for RSP                                                     (770)       --
     Capitalization of SKIBO Bancshares, M.H.C                                         --          (100)
     Cash dividends paid                                                               (214)       (214)
     Net proceeds from sale of common stock                                            --         9,849
                                                                                               --------
        Net cash provided by (used in) financing activities                           1,278     (19,819)
                                                                                   --------    --------

Net decrease in cash and cash equivalents                                            (2,217)    (21,833)
Cash and cash equivalents, beginning of period                                        3,271      22,701
                                                                                   --------    --------
Cash and cash equivalents, end of period                                           $  1,054    $    868
                                                                                   ========    ========

Supplemental  disclosures of cash flow information: 
     Cash paid during the period for:
        Interest                                                                   $  4,694    $  4,498
                                                                                   ========    ========

        Income taxes                                                               $    530    $    603
                                                                                   ========    ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                        5

<PAGE>


                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 1 -  Corporate Reorganization
          ------------------------

On October 29, 1998, First Carnegie Deposit  reorganized into a two-tier holding
company  structure.  First  Carnegie  Deposit  formed a new mid-tier,  federally
chartered,  stock holding company, Skibo Financial Corp. (the "Company"),  which
is 55% owned by Skibo  Bancshares,  M.H.C.  As a result of this  reorganization,
Skibo  Financial Corp.  became the parent company of First Carnegie  Deposit and
owns 100% of First  Carnegie  Deposit's  common stock.  Upon  surrender of First
Carnegie  Deposit  common  stock,  shareholders  of record on October  29,  1998
received,  on a three-for-two  basis,  shares of the new publicly traded entity,
Skibo Financial Corp. Aside from this two-tier holding company  structure giving
the  Company  greater  flexibility  by  maintaining  the  benefits of the mutual
holding company while capitalizing on the additional  opportunities available to
stock holding companies, the operations remain unchanged.

The  reorganization  was  accounted  for in a manner  similar  to a  pooling  of
interests.  Accordingly,  the prior years' consolidated  financial statements of
the  Company  are  identical  to  the  prior  periods'  consolidated   financial
statements of First Carnegie Deposit.

NOTE 2 -  Basis of Presentation and Principles of Consolidation
          -----------------------------------------------------

The  accompanying   unaudited  consolidated  financial  statements  include  the
accounts of Skibo Financial Corp.,  its  wholly-owned  subsidiary First Carnegie
Deposit (the "Bank"), and the Bank's wholly owned subsidiaries, Fedcar, Inc. and
Carnegie  Federal  Funding  Corporation  ("CFFC").  Fedcar,  Inc.  is a  service
corporation  that is currently  inactive.  CFFC is a special purpose  subsidiary
that was formed for the issuance of collateralized mortgage obligations.

These  statements  have been prepared in accordance with  instructions  for Form
10-QSB.  Accordingly,  they do not include all of the  information and footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.   However,  such  information  presented  reflects  all  adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
the  Company's  management,  necessary  for a fair  statement of results for the
interim period. All significant intercompany transactions and balances have been
eliminated in consolidation.

The results of operations  for the three and nine months ended December 31, 1998
are not necessarily indicative of the results to be expected for the year ending
March  31,  1999 or any  other  period.  The  unaudited  consolidated  financial
statements  and notes  thereto  should be read in  conjunction  with the audited
financial statements and notes thereto for the year ended March 31, 1998.

NOTE 3 -  Reclassification of Prior Period's Statements
          ---------------------------------------------

Certain items  previously  reported have been  reclassified  to conform with the
current year's reporting  format.  The number of shares and related earnings per
share have been  restated to reflect the  Company's  reorganized  structure  and
three-for-two exchange of stock in fiscal year 1999.

NOTE 4 -  Dividends on Common Stock
          -------------------------

On December  10, 1998,  the Board of Directors of the Company  declared a $0.075
per share cash  dividend on the  Company's  outstanding  shares of common stock,
payable to  stockholders  of record as of December 31, 1998.  Skibo  Bancshares,
M.H.C.  (the "M.H.C.") waived the receipt of dividends on its 1,897,500  shares.
The cash dividends on the remaining  outstanding shares were paid on January 15,
1999.  There can be no assurance that the Office of Thrift  Supervision  ("OTS")
will permit future dividend waivers,  or of the terms of such permitted waivers.
Furthermore,  any waiver of dividends by the M.H.C.  may result in an adjustment
to the ratio  pursuant to which shares of Company common stock are exchanged for
shares of a stock holding  company should the M.H.C.  convert from the mutual to
stock form of organization. Such an adjustment would have the effect of diluting
the minority stockholders of the Company.

Skibo Financial  Corp.'s common stock is currently listed on the Nasdaq SmallCap
Market,  traded under the symbol of "SKBO" and listed in the Wall Street Journal
as "SkiboFn".



                                        6

<PAGE>


                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 5 -  Earnings Per Share (EPS)
          ------------------------

Basic EPS is computed by dividing net income  applicable  to common stock by the
weighted average number of common shares outstanding during the period,  without
considering any dilutive  items.  Diluted EPS is computed by dividing net income
applicable to common stock by the weighted  average  number of common shares and
common stock  equivalents for items that are dilutive,  net of shares assumed to
be  repurchased  using the treasury  stock method at the average share price for
the Company's  common stock during the period.  Common stock  equivalents  arise
from the assumed  conversion  of  outstanding  stock  options and  unvested  RSP
shares.

As required,  all  previously  reported  primary and fully diluted EPS have been
replaced  with the  presentation  of basic and diluted EPS. The  computation  of
basic and diluted earnings per share is shown in the table below:

                                Three Months Ended      Nine Months Ended
                                ------------------      -----------------
                             December 31, December 31, December 31, December 31,
                                  1998        1997         1998        1997
                                  ----        ----         ----        ----
Basic EPS computation:
 Numerator-Net Income         $  125,000   $  127,000   $  472,000   $  685,000
 Denominator-Wt Avg common
   shares outstanding          3,350,617    3,388,111    3,356,716    3,331,699
Basic EPS                     $      .04   $      .04   $      .14   $      .21
                              ==========   ==========   ==========   ==========

Diluted EPS computation:
 Numerator-Net Income         $  125,000   $  127,000   $  472,000   $  685,000
 Denominator-Wt Avg
   common stock outstanding    3,350,617    3,388,111    3,356,716    3,331,699
  Dilutive Stock Options          21,973         --          7,324         --
  Dilutive Unvested RSP              332         --            111         --
                              ----------   ----------   ----------   ----------
  Weighted avg common
   shares and common stock
   equivalents                 3,372,922    3,388,111    3,364,151    3,331,699
Diluted EPS                   $      .04   $      .04   $      .14   $      .21
                              ==========   ==========   ==========   ==========


Shares  outstanding  for the three and nine months  ended  December 31, 1998 and
1997 do not  include  ESOP  shares  that were  unallocated  in  accordance  with
Statement of Position ("SOP") 93-6,  "Employers'  Accounting for Employees Stock
Ownership  Plans".  Unallocated  ESOP  shares  amounted  to 75,135 and 99,885 at
December 31, 1998 and 1997, respectively.


NOTE 6 -  Employee Stock Ownership Plan ("ESOP")
          --------------------------------------

The ESOP borrowed  $828,000 from an  independent  third party lender to fund the
purchase of 8.0% of the shares the Company sold in the minority stock  offering.
The Bank makes scheduled  discretionary  contributions to the ESOP sufficient to
service  the debt over no more than a ten year  period.  The cost of shares  not
committed  to be released  and  unallocated  (suspense  shares) is reported as a
reduction in stockholders' equity. Dividends on allocated and unallocated shares
are used for debt  service.  Shares  are  released  to  participants  based on a
compensation formula.

On December 31, 1998,  Skibo  Financial  Corp.  granted a loan to First Carnegie
Deposit to refinance  the ESOP loan.  The remaining  term,  maturity  date,  and
payment  schedule  are the same,  however the rate  decreased to a fixed rate of
7.75%.


                                        7

<PAGE>


                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

In connection  with the formation of the ESOP, the Company adopted SOP 93-6. SOP
93-6 requires that (1)  compensation  expense be recognized based on the average
fair  value of the ESOP  shares  committed  to be  released;  (2)  dividends  on
unallocated  shares used to pay debt  service be reported as a reduction of debt
or of accrued interest payable and that dividends on allocated shares be charged
to retained  earnings;  and (3) ESOP shares which have not been  committed to be
released not be considered  outstanding  for purposes of computing  earnings per
share.

Compensation  expense  related to the ESOP  amounted to $61,000 and $228,000 for
the three  months  ended  December  31, 1998 and  December  1997,  respectively.
Compensation expense amounted to $190,000 and $280,000 for the nine months ended
December 31, 1998 and December 1997,  respectively.  At December 31, 1998, there
were 75,135 suspense  shares.  ESOP shares totalling 49,065 were allocated as of
December 31, 1998.  The fair value of unearned  ESOP shares at December 31, 1998
totalled $573,000.

NOTE 7 -  Stock Based Compensation Plans
          ------------------------------

On April 16, 1998, after stockholder approval, the Company implemented the "1998
Stock  Option Plan" (the "Stock  Option  Plan") and the "1998  Restricted  Stock
Plan"(the "Restricted Stock Plan").

The Stock Option Plan  provides for  authorizing  the issuance of an  additional
155,246 shares of common stock by the Company upon the exercise of stock options
awarded to  officers,  directors,  key  employees  and other  persons  providing
services to the Company.  The Company may also purchase  shares through the open
market. There were 155,246 shares of options granted under the Stock Option Plan
and they  constitute  either  Incentive  Stock  Options or  Non-Incentive  Stock
Options and were first exercisable at a rate of 50% on the date of the grant and
50% one year  later.  The Company  uses the  "intrinsic  value based  method" as
prescribed  by APB Opinion 25. Under APB No. 25,  because the exercise  price of
the Company's  stock options equal the market price of the  underlying  stock on
the date of grant, no compensation  expense is recognized.  Accordingly,  common
stock issuable  pursuant to outstanding  options will be considered  outstanding
for purposes of calculating earnings per share, if dilutive.

The  Restricted  Stock Plan provides for the purchase of 62,098 shares of common
stock in the open market.  All of the Common Stock  purchased by the  Restricted
Stock Plan was  purchased  at the fair market value of such stock on the date of
purchase.  Awards under the  Restricted  Stock Plan were made in  recognition of
expected  future  services to the  Company by its  directors,  officers  and key
employees  responsible  for  implementation  of  the  policies  adopted  by  the
Company's  Board of Directors  and as a means of  providing a further  retention
incentive.  Twenty and  thirty-three  percent  of such  awards  were  earned and
non-forfeitable  at the date of the grant and  twenty and  thirty-three  percent
annually  thereafter,  provided the  recipient  remains an  employee.  Executive
officers  earn  awards  at a  rate  of  thirty-three  percent  per  year,  while
directors,  other  officers,  and key employees earn at a rate of twenty percent
per year.

NOTE 8 -  Comprehensive Income
          --------------------

For the three  months  ended  December  31 1998 and 1997,  the  Company's  total
comprehensive  income was  $125,000  and  $127,000,  respectively.  For the nine
months  ended  December 31, 1998 and 1997,  the  Company's  total  comprehensive
income was $472,000 and $685,000,  respectively.  Total comprehensive  income is
comprised of net income and other  comprehensive  income. For both the three and
nine months periods, there was no other comprehensive income.

NOTE 9 -  Recent Accounting, Regulatory and Other Matters
          -----------------------------------------------

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting  Comprehensive
Income",  which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive  income  is  defined  as  "the  change  in  equity  of a  business
enterprise  during a period from transactions and other events and circumstances
from nonowner sources.  It includes all changes in equity during a period except
those resulting from  investments by owners and  distributions  to owners".  The
comprehensive  income and  related  cumulative  equity  impact of  comprehensive
income items will be required to be  disclosed  as a separate  statement or as a
component of the Company's statement of operations. The Company adopted SFAS 130
for the quarter ended June 30, 1998.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  About Segments of an
Enterprise and Related Information". SFAS No. 131 requires an entity to disclose
financial  information in a manner consistent to internally used information and
requires more detailed  disclosures of operating and reporting segments that are
currently in practice.  SFAS No. 131 is  applicable  for years  beginning  after
December 15, 1997; however,  presentation in interim financial statements is not
required for the quarterly reporting period ended December 31, 1998.

                                        8

<PAGE>


                     SKIBO FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)




In February 1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosure  About
Pensions and Other  Post-retirement  Benefits." SFAS No. 132 revises  employers'
disclosures about pension and other  post-retirement  benefit plans. It does not
change the measurement or recognition of those plans. SFAS No. 132 is applicable
for years  beginning  after  December 15, 1997.  The Company plans to adopt this
standard in their 1999 annual report.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities",  which establishes accounting and reporting
standards for derivative  financial  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities.  Management
has not yet determined  the impact,  if any, the adoption of this statement will
have on the Company's consolidated financial condition or results of operations.
SFAS 133 will be  effective  for all fiscal  quarters  beginning  after June 15,
1999.

NOTE 10 - Income Taxes

Income tax expense is recognized after giving effect to special rules applicable
to thrift  institutions.  The Company  joins with its wholly  owned  subsidiary,
First Carnegie Deposit, in filing a consolidated federal income tax return.

The Company accounts for income taxes using the asset and liability method.  The
objective of the asset and liability method is to establish  deferred tax assets
and liabilities for temporary  differences  between the financial  reporting and
tax basis of the  Company's  assets and  liabilities  based on enacted tax rates
expected to be in effect when such amounts are realized or settled.

                                        9

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

General

The Company's  results of operations  are primarily  dependent upon net interest
income,   which  is  the  difference  between  the  interest  income  earned  on
interest-earning  assets,  primarily  loans,   mortgage-backed  securities,  and
investments, and the interest expense on interest-bearing liabilities, primarily
deposits and borrowings.  Net interest income may be affected  significantly  by
general economic and competitive conditions and policies of regulatory agencies,
particularly  those  with  respect  to market  interest  rates.  The  results of
operations  are  also  significantly  influenced  by the  level  of  noninterest
expenses,  such as employee salaries and benefits,  noninterest  income, such as
loan-related  fees  and  fees on  deposit-related  services,  and the  Company's
provision for loan losses.

The  Management  Discussion  and Analysis  section of this Form 10-QSB  contains
certain  forward-looking  statements  (as  defined  in  the  Private  Securities
Litigation  Reform Act of 1995).  These  forward-looking  statements may involve
risks and  uncertainties.  Although  management  believes that the  expectations
reflected in such forward-looking statements are reasonable,  actual results may
differ from the results in these forward-looking statements.

Changes in Financial Condition

The Company's total assets of  $150,035,000  at December 31, 1998,  reflected an
increase of $1,903,000 or 1.3% from $148,132,000 at March 31, 1998. The increase
in total assets was primarily due to an increase in  investment  securities  and
prepaid expenses,  partially offset by decreases in  interest-bearing  deposits,
mortgage-backed securities and loans receivable.

The increase in the  Company's  liabilities  was  primarily  due to increases in
Federal  Home  Loan  Bank  ("FHLB")  advances,  offset  by  decreases  in  other
borrowings  and  other  liabilities.   Changes  in  the  components  of  assets,
liabilities and equity are discussed herein.

Loans  Receivable,  net.  Net loans  receivable  at December  31, 1998  totalled
$62,427,000,  a decrease of $5,457,000 or 8.0%,  as compared to  $67,884,000  at
March 31, 1998. The decrease was primarily due to principal repayments totalling
$15.6 million, offset by originations of $954,000 and purchases of $9.3 million.
The Company  purchased  $3.9  million one -to  four-family  mortgages,  $243,000
multi-family  project loans,  $4.0 million farm mortgages,  $180,000  commercial
non-mortgage   loans,   and  $1.0  million   agricultural   and  Small  Business
Administration (SBA) loans.

Mortgage-backed  Securities.  Mortgage-backed  securities  were  $53,028,000  at
December 31, 1998, a decrease of $1,287,000 or 2.4%, as compared to  $54,315,000
at March 31, 1998.  The decrease was due to principal  repayments and maturities
totalling $12.7 million, offset by purchases of $11.3 million.

Investment  Securities.  Investment  securities totalled $25,990,000 at December
31, 1998, an increase of  $10,213,000  or 64.7%,  as compared to  $15,777,000 at
March 31, 1998.  This was  primarily a result of  purchases of $17.2  million of
U.S.  Agency  securities,  offset by the  proceeds  from  maturities,  calls and
payments totalling $6.9 million.

Cash  and  Cash  Equivalents.  Cash  and  cash  equivalents,  which  consist  of
interest-bearing  and  noninterest-bearing   deposits,  totalled  $1,054,000,  a
decrease  of  $2,217,000  or 67.8% from the prior  quarter.  This  decrease  was
primarily due to decreased interest-bearing deposits at the FHLB.

Deposits. Total deposits, after interest credited,  increased by $182,000 or .2%
to  $77,408,000  at December 31, 1998, as compared to  $77,226,000  at March 31,
1998.  The  increase  was  primarily  due to  increases  in NOW and Money Market
accounts, partially offset by a decrease in passbook accounts.

FHLB Advances.  FHLB advances,  at December 31, 1998, totalled  $44,300,000,  an
increase of $3.0 million or 7.3%, as compared to  $41,300,000 at March 31, 1998.
The Company uses FHLB advances as a funding source to supplement deposits.

Stockholders' Equity.  Stockholders' equity totalled $24,887,000 at December 31,
1998, as compared to  $24,980,000  at March 31, 1998. The decrease of $93,000 or
 .4% was  primarily  due to the Company's  implementation  of a restricted  stock
plan, offset by earnings for the nine months ended December 31, 1998. See Note 7
"Stock Based Compensation Plans".

                                       10
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended December 31, 1998 and 1997

Net Income.  The Company  recorded  net income of $125,000  for the three months
ended  December  31,  1998,  as compared to net income of $127,000 for the three
months ended  December 31, 1997.  The $2,000 or 1.6%  decrease in net income for
the three months ended  December 31, 1998 was  primarily the result of decreases
in net  interest  income  and  other  income,  which  were  partially  offset by
decreases in other expenses,  provision for income taxes, and provision for loan
losses. Changes in the components of income and expense are discussed herein.

Net Interest Income. Net interest income decreased $31,000 or 3.2% for the three
months  ended  December  31,  1998,  as compared to the three month period ended
December  31,  1997.  Although the average  balance of  interest-earning  assets
increased $2.7 million or 1.9%,  the average yield earned  thereon  decreased 43
basis points. The average balance of interest-bearing  liabilities  increased by
$2.5  million or 2.1% with a 36 basis point  decrease  in the average  rate paid
thereon. 

The interest rate spread,  which is the difference  between the yield on average
interest-earning  assets and the cost of average  interest-bearing  liabilities,
declined to 1.84% for the three month period ended  December 31, 1998 from 1.91%
for the three month period ended  December 31, 1997. The decline in the interest
rate spread was primarily the result of purchased one- to four-family  mortgages
at yields  lower  than the  yields in the  existing  loan  portfolio  and a $1.6
million principal reduction in SBA loans with higher yields. The decline is also
attributable  to a  decrease  in the yield of  investments  and  mortgage-backed
securities.

Interest Income.  Interest income  decreased  $106,000 or 4.2% to $2,401,000 for
the three month period ended  December 31, 1998, as compared to  $2,507,000  for
the three month period ended December 31, 1997.

Interest on loans receivable  increased $7,000 or .6% for the three months ended
December  31, 1998,  as compared to the three month  period  ended  December 31,
1997.  This increase was primarily the result of a $2.3 million  increase in the
average  balance of loans  receivable  primarily due to the purchases of one -to
four-family,  multi-family,  farm  mortgages,  and  agricultural  and SBA loans,
offset by a 22 basis point decrease in the average yield earned thereon.

Interest income on  mortgage-backed  securities  decreased $185,000 or 18.3% for
the three months ended  December 31, 1998, as compared to the three months ended
December 31, 1997.  This  decrease  was  primarily  the result of a $7.4 million
decrease in the average balance of such securities and a 45 basis point decrease
in the average yield earned thereon.

Interest income on investment  securities  increased by $41,000 or 14.1% for the
three  months ended  December  31,  1998,  as compared to the three months ended
December 31, 1997. The increase in interest income on investment  securities was
primarily  due to a $6.0  million  higher  average  balance of such  securities,
offset by a decrease in the average yield of 117 basis points.

Interest income on other  interest-earning  assets increased by $31,000 or 50.0%
for the three  months ended  December 31, 1998,  as compared to the three months
ended December 31, 1997. The increase was primarily due a $1.7 million  increase
in the average  interest-earning  deposits at other financial institutions and a
24 basis point increase in the average yield earned thereon.

The average yield on the average  balance of  interest-earning  assets was 6.71%
and  7.14%  for the  three  month  periods  ended  December  31,  1998 and 1997,
respectively.

Interest  Expense.  Interest  expense  totalled  $1,462,000 for the three months
ended  December 31, 1998, as compared to  $1,537,000  for the three months ended
December 31, 1997.  The $75,000 or 4.9%  decrease was primarily due to decreased
average balances in certificates of deposit accounts, passbook savings and other
borrowings,  offset by an increase in FHLB advances. The 36 basis point decrease
in the average rate paid on the total average interest-bearing  liabilities also
contributed to the decrease.

Interest expense on deposits  (including  escrows) decreased $24,000 or 2.7% for
the three months ended  December 31, 1998, as compared to the three months ended
December 31, 1997.  The decrease  was  primarily  due to a $315,000  decrease in
average deposits and a 10 basis point decrease in the average rate paid thereon.

                                       11
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest on FHLB advances  decreased  $39,000 or 6.6% for the three months ended
December 31, 1998, as compared to the three months ended  December 31, 1997. The
decrease  was  primarily  due to an 87 basis  point  decrease  in the rate  paid
thereon,  offset by an  increase  of $3.5  million  in the  average  balance  of
advances. The Company uses FHLB advances as a funding source and has in the past
used borrowings to supplement  deposits,  which are the Company's primary source
of funds.

Interest on bonds payable and other  borrowings,  a less significant  portion of
interest expense, decreased by $12,000 or 19.7%, as the average principal amount
of other borrowings decreased by $703,000 due to the repayment of the ESOP loan.
The average rate paid on bonds payable and other  borrowings  increased 97 basis
points.

Provision for Loan Losses.  During the three month  periods  ended  December 31,
1998 and 1997, the Company established  provisions for loan losses of $5,000 and
$15,000, respectively.  This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.

At December 31, 1998,  the allowance for loan losses  totalled  $570,000 or .91%
and 81.8% of total  loans  and  total  non-performing  loans,  respectively,  as
compared to $549,000 or .81% and 48.6%,  respectively,  at March 31,  1998.  The
Company's  non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue)  totalled  $697,000 and  $1,130,000 at December 31, 1998 and March
31, 1998  respectively,  which  represented 1.1% and 1.7% of the Company's total
loans, respectively. The non-performing loans, however, include two Farm Service
Agency (FSA)  guaranteed loans at December 31, 1998 and three at March 31, 1998,
which  represent 88.3% and 93.2% of the total  non-performing  loans at December
31, 1998 and March 31, 1998, respectively. The Company's ratio of non-performing
loans to total assets was .46% and .76% at December 31, 1998 and March 31, 1998,
respectively.

Other  Income.  During the three  months ended  December 31, 1998,  other income
decreased  $57,000 or 77.0%,  as compared to the three months ended December 31,
1997. Other income recorded in the prior quarter  included a partial  settlement
of a real estate judgement in the amount of $54,000.

Other  Expenses.  Total other  expenses  decreased by $38,000 or 4.9% during the
three  months ended  December  31,  1998,  as compared to the three months ended
December 31, 1997.  The decrease  was  primarily  attributable  to a decrease of
$49,000 in compensation and employee benefits expense and $5,000 in premises and
occupancy costs, offset by a $16,000 increase in other operating  expenses.  The
reduction in compensation  expense was primarily due to a $167,000  reduction in
ESOP  expense,  as  compared  to the prior  year's  quarter,  which  included an
additional  principal  payment  made to the ESOP loan,  an $18,000  decrease  in
compensation  and  employee  benefits  expense,  and a $12,000  decrease  in the
Company's defined benefit plan, Supplemental Employee Retirement Plan (SERP) and
Director's  Retirement Plan (DRP) costs. This decrease was partially offset by a
$148,000  increase  in  Restricted  Stock  Plan  expense,  primarily  due to the
implementation  of the  Restricted  Stock Plan (RSP).  The Company  committed to
release  6,435  shares  of stock in the ESOP in the  December  1998  quarter  as
compared to 18,105 shares in the December 1997 quarter.

Income Tax Expense.  The provision for income tax totalled $95,000 for the three
months ended  December  31,  1998,  as compared to $133,000 for the three months
ended  December  31,  1997.  The  $38,000 or 28.6%  decrease  was due to a lower
effective rate.

Results of Operations for the Nine Months Ended December 31, 1998 and 1997

Net Income.  The  Company  recorded  net income of $472,000  for the nine months
ended  December  31,  1998,  as compared to net income of $685,000  for the nine
months ended December 31, 1997. The $213,000 or 31.1% decrease in net income for
the nine months ended December 31, 1998 was primarily the result of decreases in
net  interest  income  and other  income and an  increase  in  compensation  and
employee benefits expense, partially offset by decreases in provision for income
taxes and  provision  for loan losses.  Changes in the  components of income and
expense are discussed herein.

Net Interest Income. Net interest income decreased $137,000 or 4.6% for the nine
months  ended  December  31,  1998,  as compared to the nine month  period ended
December  31,  1997.  Although the average  balance of  interest-earning  assets
increased  $90,000,  the average yield earned thereon decreased 37 basis points.
The average balance of interest-bearing liabilities decreased by $408,000 with a
26 basis point decrease in the average rate paid thereon.

                                       12
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The  interest  rate  spread  declined to 1.86% for the nine month  period  ended
December 31, 1998 from 1.97% for the nine month period ended  December 31, 1997.
The decline in the interest  rate spread was  primarily  the result of purchased
one- to  four-family  mortgages  at yields lower than the yields in the existing
loan portfolio and a $6.3 million  principal  reduction in SBA loans with higher
yields.  The  decline  is  also  attributable  to a  decrease  in the  yield  of
investment and  mortgage-backed  securities and other interest  earning  assets.
Such purchases will have an ongoing effect on the average yield of the Company's
loan portfolio.

Interest Income.  Interest income  decreased  $387,000 or 5.1% to $7,245,000 for
the nine month period ended December 31, 1998, as compared to $7,632,000 for the
nine month period ended December 31, 1997.

Interest  on loans  receivable  increased  $122,000  or 3.5% for the nine months
ended December 31, 1998, as compared to the nine month period ended December 31,
1997.  This increase was primarily the result of a $4.6 million  increase in the
average  balance of loans  receivable  primarily due to the purchases of one- to
four-family,  multi-family,  farm  mortgages,  and  agricultural  and SBA loans,
offset  by a 27 basis  point  decrease  in the  average  yield  due to the lower
interest rates on such loans.

Interest income on  mortgage-backed  securities  decreased $459,000 or 15.2% for
the nine months ended  December  31, 1998,  as compared to the nine months ended
December 31, 1997.  This  decrease  was  primarily  the result of a $6.9 million
decrease in the average balance of such securities and a 26 basis point decrease
in the average yield earned thereon.

Interest  income on investment  securities  decreased by $90,000 or 9.6% for the
nine months  ended  December  31,  1998,  as  compared to the nine months  ended
December 31, 1997. The decrease in interest income on investment  securities was
primarily due to a decrease in the average  yield of 76 basis  points,  which is
the result of the purchase of US Agency securities at lower yields.

Interest income on other  interest-earning  assets increased by $40,000 or 18.0%
for the nine months  ended  December  31,  1998,  as compared to the nine months
ended December 31, 1997. The increase was primarily due a $2.2 million  increase
in the average interest-earning deposits at other financial institutions, offset
by a 183 basis point decrease in the average yield earned thereon.

The average yield on the average  balance of  interest-earning  assets was 6.82%
and  7.19%  for the nine  month  periods  ended  December  31,  1998  and  1997,
respectively.

Interest Expense. Interest expense totalled $4,396,000 for the nine months ended
December 31, 1998, as compared to $4,646,000  for the nine months ended December
31, 1997.  The $250,000 or 5.4% decrease was primarily due to decreased  average
balances in certificates of deposit accounts and other borrowings,  offset by an
increase in FHLB advances.  The 26 basis point decrease in the average rate paid
on the  total  average  interest-bearing  liabilities  also  contributed  to the
decrease.

Interest expense on deposits  (including  escrows) decreased $73,000 or 2.7% for
the nine months ended  December  31, 1998,  as compared to the nine months ended
December 31, 1997. The decrease was primarily due to a $1.0 million  decrease in
the average balance of deposits and a 7 basis point decrease in the average rate
paid thereon.

Interest on FHLB advances  decreased  $137,000 or 7.8% for the nine months ended
December 31, 1998, as compared to the nine months ended  December 31, 1997.  The
decrease was  primarily  due to a 62 basis  points  decrease in the average rate
paid on advances,  offset by an increase of 1.2 million in the average  balances
of advances.

Interest on bonds payable and other  borrowings,  a less significant  portion of
interest expense, decreased by $40,000 or 20.5%, as the average principal amount
of other  borrowings  decreased  by $633,000,  due to the  repayment of the ESOP
loan. The average rate paid on bonds payable and other  borrowings  increased by
29 basis points.

Provision for Loan Losses. During the nine month periods ended December 31, 1998
and 1997,  the  Company  established  provisions  for loan losses of $20,000 and
$45,000, respectively.  This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.

Other  Income.  During the nine months ended  December  31,  1998,  other income
decreased  $161,000 or 70.9%,  as compared to the nine months ended December 31,
1997.  Other  income  recorded  in the  prior  nine  months  included  a partial
settlement of a real estate judgement in the amount of $175,000.

                                       13
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other  Expenses.  Total other expenses  increased by $161,000 or 8.4% during the
nine months  ended  December  31,  1998,  as  compared to the nine months  ended
December 31,  1997.  The increase  was  primarily  attributable  to increases of
$150,000 in compensation and employee benefits  expense,  a $16,000 loss on sale
of REO  property,  and  $9,000  in  professional  services  rendered,  offset by
decreases  of $6,000 in federal  insurance  premiums  and $8,000 in premises and
occupancy costs. The increase in compensation and employee  benefits expense was
due to the  implementation  of a restricted stock plan of $330,000 (see Note 7),
offset by decreases of $90,000 in the ESOP expense,  $41,000 in compensation and
employee  expenses and $49,000 in defined  benefit plan,  Supplemental  Employee
Pension Plan (SERP) and  Director's  Retirement  Plan (DRP)  costs.  The Company
committed to release 18,645 shares of stock in the ESOP in the current period as
compared to 24,315 shares in the previous period.

Income Tax Expense.  The provision for income tax totalled $335,000 for the nine
months  ended  December  31,  1998,  as compared to $556,000 for the nine months
ended  December  31, 1997.  The $221,000 or 39.7%  decrease was due to decreased
income.

Liquidity and Capital Requirements

The Company's  subsidiary  bank, First Carnegie  Deposit,  is subject to various
requirements  administered by the federal banking agencies. The Bank is required
to hold a prescribed amount of statutorily  defined liquid assets.  The Director
of the OTS may, by regulation, vary the amount of the liquidity requirement, but
only within  pre-established  statutory limits.  The requirement must be no less
than four percent and no greater than ten percent of the Bank's net withdrawable
accounts and borrowings  payable on demand or with  unexpired  maturities of one
year or less. The minimum required liquidity is currently 4%. The Bank's average
liquidity ratio was 118.70% and 77.98%, at December 31, 1998 and March 31, 1998,
respectively.

The Bank is subject to federal  regulations  that impose certain minimum capital
requirements. Quantitative measures, established by regulation to ensure capital
adequacy,  require the Bank to maintain  amounts and ratios of tangible and core
capital  to  adjusted  total  assets  and  of  total   risk-basked   capital  to
risk-weighted  assets. On December 31, 1998, the Bank was in compliance with its
three regulatory capital requirements as follows:

                                              Amount         Percent
                                              ------         -------
                                              (Dollars in thousands)

Tangible capital......................       $23,530           15.68%
Tangible capital requirement..........         2,251            1.50%
                                             -------          ------
Excess over requirement...............       $21,279           14.18%
                                              ======           =====

Core capital..........................       $23,530           15.68%
Core capital requirement..............         4,502            3.00%
                                             -------          ------
Excess over requirement...............       $19,028           12.68%
                                              ======           =====

Risk based capital....................       $24,100           49.76%
Risk based capital requirement........         3,875            8.00%
                                             -------          ------
Excess over requirement...............       $20,225           41.76%
                                              ======           =====

Management  believes that under current  regulations,  the Bank will continue to
meet its minimum capital  requirements in the foreseeable future.  Events beyond
the control of the Bank,  such as increased  interest rates or a downturn in the
economy  in areas in which  the Bank  operates  could  adversely  affect  future
earnings  and as a result,  the  ability of the Bank to meet its future  minimum
capital requirements.

At December 31, 1998,  the most recent  notification  from the OTS, the Bank was
categorized  as "well  capitalized"  under the  regulatory  framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum Tier I (leverage),  Tier I  risk-basked,  and total  risk-based  capital
ratios of 5.0%, 6.0%, and 10.0%, respectively.  At December 31, 1998, the Bank's
Tier I  (leverage),  Tier I risk-based,  and total  risk-basked  capital  ratios
amounted to 15.68%, 48.58%, and 49.76%, respectively. There are no conditions or
events since that notification that management  believes have changed the Bank's
category.

                                       14
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Quantitative and Qualitative Disclosures About Market Risk

Quantitative  and  qualitative  disclosures  about market risk are  presented at
March  31,  1998  in the  Company's  1998  Annual  Report.  See  "Market  Risk &
Asset/Liability  Management".  Management  believes  there have been no material
changes in the Company's market risk since March 31, 1998.

Year 2000 (Y2K) Readiness Disclosure

Rapid and accurate data  processing  is essential to the  Company's  operations.
Many  computer  programs that can only  distinguish  the final two digits of the
year entered (a common programming practice in prior years) are expected to read
entries  for the Y2K as the year  1900 or as zero  and  incorrectly  attempt  to
compute payment, interest, delinquency and other data.

The following  discussion of the implications of the Y2K problem for the Company
contains  numerous  forward  looking  statements  based on inherently  uncertain
information.  The cost of the project is based on  management's  best estimates,
which are derived  utilizing a number of assumptions of future events  including
the  continued  availability  of internal  and external  resources,  third party
modifications and other factors.  However,  there can be no guarantee that these
statements will be achieved and actual results could differ. Moreover,  although
management  believes  it will be able to make  the  necessary  modifications  in
advance,  there can be no guarantee that failure to modify the systems would not
have a material adverse effect on the Company.

The Company utilizes an in-house computer system, with all software applications
being  developed and modified  internally.  The Company first  acknowledged  and
addressed  the  potential  problem  associated  with the Y2K early in 1990.  The
Company  completed  renovation of its in-house data  processing  system prior to
testing in October  1992.  The Company has also  received  vender  certification
confirming  Y2K  compliance  for its hardware  and  operating  system.  With the
exception of on-going testing and additional  contingency  planning,  management
believes nothing more is required with regard to its in-house system. Management
believes that  remaining  efforts  towards Y2K compliance  will require  minimal
expense  and,  therefore,  will  not have a  material  impact  on the  Company's
financial condition or results of operations.

The Company  also places a high degree of reliance on computer  systems of third
parties,  such as customers,  suppliers,  and other  financial and  governmental
institutions.  Although  the Company is assessing  the  readiness of these third
parties and  preparing  contingency  plans,  there can be no guarantee  that the
failure of these third  parties to modify  their  systems in advance of December
31, 1999 would not have a material  adverse  affect on the Company.  The Company
formed a  committee  to  implement  an action  plan  designed to ensure that the
Company's  computer  systems,  software  applications  and  other  date  reliant
equipment would function properly after December 31, 1999. This process involved
identifying all equipment, software and third party providers deemed critical to
the Company's daily operations,  and ascertained that these products and product
providers are Y2K compliant.

The Company has contacted  all other  material  vendors and suppliers  regarding
their Y2K readiness. Each of these third parties has delivered written assurance
to the  Company  that  Y2K  will  not be an  issue  or that  the  issue  will be
satisfactorily  resolved  prior  to the end of  1999.  Appropriate  testing,  if
possible, and any related contingency plans would be performed in the second and
third quarter of 1999. The Company has contacted all  significant  customers and
non-information  technology suppliers (i.e. utility systems,  telephone systems,
etc.)  regarding  their Y2K state of readiness  with  significant  customers and
non-information technology suppliers. Such parties have indicated that they have
established Y2K plans and are in various stages of remediation  and testing.  We
are unable to test the Y2K readiness of our significant  suppliers of utilities.
We are relying on the utility companies' internal testing and representations to
provide  the  required  services  that drive our data  systems.  The  Company is
currently  determining  what recourse it would have from such parties if they do
not resolve the Y2K issues.  Furthermore,  the Company is reviewing  alternative
procedures  and  contingency  plans  for all  mission  critical  systems  in the
unlikely event of their failure at the turn of the century.

The Bank has  contacted by phone its  material  commercial  mortgage  customers.
Commercial  mortgage  customers   represent   approximately  5%  of  the  Bank's
outstanding  loans.  The Bank  reviewed with its  customers  questions  based on
Appendix A of Guidance  Concerning  the Year 2000 Impact on  Customers,  Federal
Financial Institutions Examination Council (FFIEC) Interagency Statement,  March
17, 1998.  The Bank's Y2K Committee  members  reviewed the responses to rate the
customers'  risk levels  based on the type of business  and the type of loan and
collateral.  The Bank  has  received  favorable  responses  from its  borrowers.
Borrowers  have  established  Y2K plans and are testing  software and contacting
vendors and suppliers  and plan to be ready for Y2K. Any customers  with greater
than low risk level will receive  follow-up  attention  in the first  quarter of
calendar 1999.
                                       15
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Approximately  49% of  the  Bank's  loans  represent  farm  and  Small  Business
Administration  (SBA) loans that are serviced by others. The Bank cannot contact
these customers directly;  however it has contacted the agencies servicing these
loans.  Residential  mortgage loan and consumer loan customers,  which represent
approximately 44% of the Bank's loans, were not contacted as a practical matter.
It was deemed to be beyond the scope of our testing  parameters  because most of
these are individuals with adequate collateral on the loans.

Successful  and timely  completion  of the Y2K project is based on  management's
best estimates  derived from various  assumptions  of future  events,  which are
inherently  uncertain,  including  the  progress  and  results  of the  External
Provider,  testing plans, and all vendors, suppliers and customer readiness. The
most  likely  worst case  scenario  is that some areas where the Bank has branch
offices  located will  experience  blackouts if utility  service  companies  are
unable to  provide  necessary  service  to drive  our data  systems  or  provide
sufficient  sanitary  conditions  to our  offices.  In the event that this would
happen,  the Bank would be unable to open the affected  branches,  and customers
would be directed to other branch  locations  and business  would be  transacted
manually.

The Company concluded that despite the best efforts of management to address its
financial exposure to Y2K issues, the vast number of external entities that have
direct and indirect business  relationships  with the Company make it impossible
to assure that a failure to achieve  compliance by one or more of these entities
would not have a material adverse impact on the operations of the Company.

                                       16

<PAGE>
                           PART II - OTHER INFORMATION

Item 1.        Legal Proceedings.
               -----------------
  
               The Company was not engaged in any legal proceeding of a material
               nature at December 31, 1998.  From time to time, the Company is a
               party to routine  legal  proceedings  in the  ordinary  course of
               business,   such  as  claims  to  enforce   liens,   condemnation
               proceedings  on properties  in which the Company  holds  security
               interest,  claims  involving  the  making and  servicing  of real
               property loans,  and other issues incident to the business of the
               Company.   There  were  no  lawsuits   pending  or  known  to  be
               contemplated  against the Company at December 31, 1998 that would
               have  a  material  effect  on the  operations  or  income  of the
               Company.

Item 2.        Changes in Securities.
               ---------------------

               On October 29, 1998, the Bank completed its stock holding company
               reorganization,   whereby  the  Bank  became  the  wholly   owned
               subsidiary of the  Registrant.  Skibo Financial Corp. is majority
               owned by Skibo  Bancshares,  M.H.C.,  a  federal  mutual  holding
               company.

               Pursuant to an agreement and plan of reorganization dated May 14,
               1998,  shares of Bank common stock were  exchanged  for shares of
               common stock of the  Registrant on a  three-for-two  basis.  Upon
               completion of the reorganization,  the Registrant had outstanding
               3,449,973  shares (absent  fractional  share cash outs) of common
               stock.


Item 3.        Defaults Upon Senior Securities.
               -------------------------------

               Not applicable.


Item 4.        Submission of Matters to a Vote of Security-Holders.
               ---------------------------------------------------

               Not applicable.


Item 5.        Other Information.
               -----------------

               Not applicable.


Item 6.        Exhibits and Reports on Form 8-K.
               --------------------------------

               a)   Exhibits

                    Not applicable.

               b)   Reports on Form 8-K

                    On October 30, 1998, the  Registrant  filed a Current Report
                    on Form 8-K with the SEC  announcing  the  completion of the
                    Bank's stock  holding  company  reorganization,  whereby the
                    Bank became the wholly owned subsidiary of the Registrant.

                                       17
<PAGE>
                                   SIGNATURES

          Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


<TABLE>
<CAPTION>
                                       SKIBO FINANCIAL CORP.

<S>                                   <C>
Date: February 16, 1999                By: /s/ Walter G. Kelly                            
                                           -------------------------------------
                                           Walter G. Kelly
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

          Pursuant to the  requirement of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


/s/ Walter G. Kelly                        /s/ Carol A. Gilbert                               
Walter G. Kelly                                Carol A. Gilbert
President and Chief Executive Officer          Chief Financial and Operating Officer and Treasurer
(Duly Authorized Representative)               (Principal Financial and Accounting Officer)

Date: February 16, 1999                    Date: February 16, 1999

</TABLE>
                                       18