SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark  One)  

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

For the quarterly period ended September 30, 1998
                               ------------------

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

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

SEC File 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 November 10, 1998


$0.10 Par Value Common Stock                      3,450,000 Shares 
----------------------------                    --------------------
             Class                                   Outstanding


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





<PAGE>






                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----

PART I.  FINANCIAL INFORMATION
-------  ---------------------
<S>         <C>                                                                                            <C>
Item 1.     Financial Statements


                  Consolidated Statements of Financial Condition (As of
                  September 30, 1998 (unaudited) and March 31, 1998)..........................................1

                  Consolidated Statements of Operations and Comprehensive Income (For
                  the three and six months ended September 30, 1998 and 1997 (unaudited)).....................2

                  Consolidated Statement of Stockholders' Equity (For the
                  six months ended September 30, 1998 (unaudited).............................................3

                  Consolidated Statements of Cash Flows (For the six
                  months ended September 30, 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................................................................................16
Item 2.     Changes in Securities............................................................................16
Item 3.     Defaults Upon Senior Securities..................................................................16
Item 4.     Submission of Matters to a Vote of Security-Holders..............................................16
Item 5.     Other Information................................................................................17
Item 6.     Exhibits and Reports on Form 8-K.................................................................17


Signatures

</TABLE>




<PAGE>

                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

              (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                     September 30,         March 31,
                                                                                          1998               1998
                                                                                     -------------        ----------

                    ASSETS                                                           (Unaudited)
                    ------

<S>                                                                                     <C>               <C>       
Cash and amounts due from depository institutions                                       $     535         $      523
Interest-bearing deposits with other institutions                                           6,367              2,748
Investment securities:                                                                              
     Held-to-maturity (market value $16,354 and $15,836)                                   16,152             15,777
Mortgage-backed securities:                                                                         
     Held-to-maturity (market value $49,362 and $54,903)                                   48,810             54,315
Loans receivable, net                                                                      64,961             67,884
Real estate owned, net                                                                         --                 11
Accrued interest receivable:                                                                        
     Investment securities                                                                    199                224
     Mortgage-backed securities                                                               361                408
     Loans receivable                                                                         802                800
Federal Home Loan Bank stock, at cost                                                       2,307              2,307
Premises and equipment, net                                                                   736                759
Prepaid expenses and other assets                                                           2,707              2,376
                                                                                         --------           --------

        Total Assets                                                                    $ 143,937          $ 148,132
                                                                                          =======            =======

               LIABILITIES AND STOCKHOLDERS' EQUITY                                                 
               ------------------------------------                                                 

Liabilities:                                                                                        
     Savings deposits                                                                   $  75,932          $  77,226
     Federal Home Loan Bank advances                                                       37,800             41,300
     Bonds payable                                                                          1,441              1,618
     Other borrowings                                                                         666                666
     Advances from borrowers for taxes and insurance                                           66                166
     Accrued expenses and other liabilities                                                 3,381              2,176
                                                                                         --------            -------

        Total Liabilities                                                                 119,286            123,152


Stockholders' Equity:                                                                               
     Common stock, $0.10 par value; 10,000,000 shares authorized;
        2,300,000 issued and outstanding at September 30 and March 31                         230                230
     Additional paid-in capital                                                             9,847              9,800
     Unearned employee stock ownership plan (ESOP) shares                                   (544)              (625)
     Unearned restricted stock plan (RSP) shares                                            (662)                 --
     Retained earnings, substantially restricted                                           15,780             15,575
                                                                                          -------            -------

        Total Stockholders' Equity                                                         24,651             24,980
                                                                                          -------            -------

        Total Liabilities and Stockholders' Equity                                      $ 143,937          $ 148,132
                                                                                          =======            =======

</TABLE>




See accompanying notes to consolidated financial statements.

                                        1

<PAGE>

                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

         Consolidated Statements of Operations and Comprehensive Income

         For the Three and Six Months Ended September 30, 1998 and 1997

              (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                           Three Months Ended                 Six Months Ended
                                                                              September 30,                     September 30,
                                                                          1998             1997             1998             1997
                                                                         -----             ----             ----             ----
                                                                              (unaudited)                        (unaudited)
<S>                                                                 <C>               <C>              <C>              <C>      
Interest income:
     Loans receivable                                                  $ 1,198           $ 1,161          $ 2,435          $ 2,320
     Mortgage-backed securities                                            833             1,018            1,724            1,997
     Investment securities                                                 255               295              517              648
     Other                                                                  82                59              169              160
                                                                         -----            ------            -----            -----
            Total interest income                                        2,368             2,533            4,845            5,125

Interest expense:
     Savings deposits                                                      872               903            1,751            1,799
     Federal Home Loan Bank advances                                       501               588            1,077            1,175
     Bonds payable                                                          39                50               78              100
     Other borrowings                                                       14                18               28               35
                                                                                                            -----            -----
           Total interest expense                                        1,426             1,559            2,934            3,109
                                                                         -----             -----            -----            -----

           Net interest income                                             942               974            1,911            2,016

Provision for loan losses                                                   12                15               15               30
                                                                         -----             -----            -----            -----
           Net interest income after                                             
              provision for loan losses                                    930               959            1,896            1,986
Other income:
     Fees and service charges                                               12                11               25               27
     Loss on sale of securities                                             --               (4)               --              (7)
     Other                                                                  14               128               22              134
                                                                           ---               ---             ----            -----
           Total other income                                               26               135               47              154

Other expenses:
     Compensation and employee benefits                                    377               412            1,033              835
     Premises and occupancy costs                                           55                36              111              113
     Federal insurance premiums                                             12                16               24               29
     Other operating expenses                                               81               100              188              181
                                                                                             ---              ---              ---
           Total other expenses                                            525               564            1,356            1,158
                                                                           ---               ---            -----            -----

      Income before income taxes                                           431               530              587              982

Provision for income taxes                                                 180               210              240              423
                                                                          ----               ---              ---              ---
           Net income                                                  $   251           $   320           $  347           $  559
                                                                          ====              ====              ===              ===

Other comprehensive income:
     Unrealized gain on securities available-
        for-sale, net of tax                                                --                 3               --               11
                                                                           ---               ---              ---              ---
           Total comprehensive income                                  $   251           $   323           $  347           $  570
                                                                           ===               ===              ===              ===


Basic earnings per share                                               $   .11           $   .14           $  .15           $  .25
Diluted earnings per share                                             $   .11           $   .14           $  .15           $  .25

Average shares outstanding-basic                                     2,241,529         2,219,945        2,239,855        2,218,948
Average shares outstanding-diluted                                   2,241,529         2,219,945        2,239,855        2,218,948

</TABLE>
      See accompanying notes to consolidated financial statements.

                                        2

<PAGE>

                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity

             For the Six Months Ended September 30, 1998 (unaudited)

              (Dollar amounts in thousands, except per share data)


<TABLE>
<CAPTION>
                                                  Common Stock       Additional    Unearned     Unearned
                                             Number of                 Paid-in       ESOP         RSP       Retained
                                               Shares       Amount     Capital      Shares       Shares     Earnings       Total
                                       --------------------------------------------------------------------------------------------

<S>                                         <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
  ($.15 per share)                                  --          --         --           --           --         (142)         (142)

Reduction of equity for restricted
  stock plan (RSP) liability                        --          --         --           --         (843)          --          (843)

Excess of fair value above cost of
  ESOP shares released or
  committed to be released                          --          --         47           --           --           --            47

Amortization of ESOP liability                      --          --         --           81           --           --            81

Amortization of RSP liability                       --          --         --           --          181           --           181

Net income                                          --          --         --           --           --          347           347
                                       --------------------------------------------------------------------------------------------


Balance at September 30, 1998                2,300,000        $230     $9,847        $(544)     $  (662)     $15,780       $24,651
                                       ============================================================================================

</TABLE>



See accompanying notes to consolidated financial statements.


                                        3

<PAGE>

                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

              For the Six Months Ended September 30, 1998 and 1997

                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                      1998        1997
                                                                                      ----        ----
                                                                                       (unaudited)
<S>                                                                               <C>         <C>     
Operating activities:
     Net income                                                                    $    347    $    559
     Adjustments  to  reconcile  net  income to net cash (used in)  provided  by
        operating activities:
           Provision for loan losses                                                     15          30
           Depreciation                                                                  44          34
           Compensation expense-ESOP and RSP                                            309          52
           Loss on sale of mortgage-backed securities available-for-sale               --             3
           Loss on sale of investment securities available for-sale                    --             4
           Net amortization of premiums and discounts                                   120          86
           Decrease (increase) in accrued interest receivable                            70         (25)
           Decrease (increase) in prepaid expenses                                     (330)        121
           Increase in accrued interest payable                                         316         338
           Decrease (increase) in accrued income taxes                                  (13)         29
           Other, net                                                                    70         141
                                                                                   --------    --------
               Net cash provided by operating activities                                948       1,372
                                                                                   --------    --------

Investing activities:
     Purchases of premises and equipment                                                (21)        (14)
     Purchases of investment securities held-to maturity                             (5,598)     (4,569)
     Purchases of mortgage-backed securities held-to-maturity                        (3,028)    (10,184)
     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                                        5,213       5,055
        Mortgage-backed securities held-to-maturity                                   8,501       4,656
        Mortgage-backed securities available-for-sale                                  --            33
     Loans purchased                                                                 (6,920)     (4,653)
     Net principal repayments on loans                                                9,749       3,849
     Decrease in Federal Home Loan Bank stock                                          --            15
                                                                                   --------    --------
              Net cash provided by (used in) investing activities                  $  7,896    $ (4,572)
                                                                                   --------    --------
</TABLE>










See accompanying notes to consolidated financial statements.         (continued)


                                        4

<PAGE>

                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, continued

              For the Six Months Ended September 30, 1998 and 1997

                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
                                                                                      1998        1997
                                                                                      ----        ----
                                                                                        (unaudited)
<S>                                                                               <C>         <C>      
Financing activities:
     Decrease of stock subscriptions                                               $   --      $(13,606)
     Net decrease in savings deposits                                                (1,294)    (10,796)
     Proceeds from Federal Home Loan Bank advances                                   13,000      29,100
     Repayment of Federal Home Loan Bank advances                                   (16,500)    (30,400)
     Proceeds from other borrowings                                                    --           828
     Principal repayment of bonds payable                                              (177)       (253)
     Net decrease in mortgage escrow                                                   (100)       (126)
     Common stock acquired by ESOP                                                     --          (828)
     Capitalization of SKIBO Bancshares, M.H.C                                         --          (100)
     Cash dividends paid                                                               (142)       (155)
     Net proceeds from sale of common stock                                            --         9,849
                                                                                   --------    --------
        Net cash used in financing activities                                        (5,213)    (16,487)
                                                                                   --------    --------

Net increase (decrease) in cash and cash equivalents                                  3,631     (19,687)
Cash and cash equivalents, beginning of period                                        3,271      22,701
                                                                                   --------    --------
Cash and cash equivalents, end of period                                              6,902       3,014
                                                                                   ========    ========

Supplemental  disclosures of cash flow information:  Cash paid during the period
     for:
        Interest                                                                      2,618       2,581
                                                                                   ========    ========

        Income taxes                                                                    253         380
                                                                                   ========    ========

     Noncash investing activities:
     Transfer of held-to-maturity investment securities
          to available-for-sale                                                        --           650
                                                                                   ========    ========

</TABLE>






See accompanying notes to consolidated financial statements.



                                        5

<PAGE>
                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 1 -  Basis of Presentation
          ---------------------

The accompanying  unaudited  consolidated financial statements of First Carnegie
Deposit and  subsidiaries  (the "Bank") 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 Bank's  management,  necessary  for a fair  statement  of
results  for the interim  period.  As  discussed  in Note 9, the Bank became the
wholly owned subsidiary of Skibo Financial Corp. on October 29, 1998.

The results of operations for the three and six months ended  September 30, 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 2 -  Principles of Consolidation
          ---------------------------

The  accompanying   unaudited  consolidated  financial  statements  include  the
accounts of First Carnegie  Deposit and its 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.  All significant  intercompany  transactions and balances have been
eliminated in consolidation.

NOTE 3 -  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 Bank'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:

<TABLE>
<CAPTION>

                                           Three Months Ended                                     Six Months Ended
                                           ------------------                                     ----------------
                                  September 30,             September 30,              September 30,               September 30,
                                      1998                      1997                       1998                        1997
                                      ----                      ----                       ----                        ----
<S>                              <C>                       <C>                        <C>                         <C>         
Basic EPS computation:
 Numerator-Net Income             $    251,000              $    320,000               $    347,000                $    559,000
 Denominator-Wt Avg common                                                                            
   shares outstanding                2,241,529                 2,219,945                  2,239,855                   2,218,948
Basic EPS                         $        .11              $        .14               $        .15                $        .25
                                   ===========                 =========                ===========                 ===========

Diluted EPS computation:
 Numerator-Net Income                  251,000                   320,000                    347,000                     559,000
 Denominator-Wt Avg
   common stock outstanding          2,241,529                 2,219,945                  2,239,855                   2,218,948
  Dilutive Stock Options                    --                        --                         --                          --
  Dilutive Unvested RSP                     --                        --                         --                          --
                                   -----------               -----------                -----------                 -----------
  Weighted avg common
   shares and common stock
   equivalents                       2,241,529                 2,219,945                  2,239,855                   2,218,948
Diluted EPS                       $        .11              $        .14               $        .15                $        .25
                                   ===========               ===========                ===========                 ===========

</TABLE>


                                        6

<PAGE>
                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)




Options to purchase 51,746 shares of common stock that were  outstanding  during
the three and six months  ended  September  30,  1998,  were not included in the
computation of diluted EPS because the options'  exercise price was greater than
the average market price of the common shares.

Shares  outstanding  for the three and six months ended  September  30, 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 54,380 and 78,660 at
September 30, 1998 and 1997, respectively.

NOTE 4 -  Reclassification of Prior Period's Statements
          ---------------------------------------------

Certain items  previously  reported have been  reclassified  to conform with the
current period's reporting format.

NOTE 5 -  Dividends on Common Stock
          -------------------------

On September 10, 1998,  the Board of Directors of the Bank declared a $0.075 per
share cash dividend on the Bank's outstanding shares of common stock, payable to
stockholders of record as of September 30, 1998. Skibo  Bancshares,  M.H.C. (the
"Company")  waived the receipt of dividends on its  1,265,000  shares.  The cash
dividends on the remaining 1,035,000 outstanding shares were paid on October 15,
1998.  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 Company may result in an adjustment
to the ratio  pursuant to which  shares of Bank common stock are  exchanged  for
shares of a stock holding  company should the Company convert from the mutual to
stock form of organization. Such an adjustment would have the effect of diluting
the minority stockholders of the Bank.

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

The ESOP borrowed  $828,000 from an  independent  third party lender to fund the
purchase of 82,800,  or 8.0%, of the shares the Bank sold in the minority  stock
offering.  The Bank  makes  scheduled  discretionary  contributions  to the ESOP
sufficient  to service the debt over 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.

In  connection  with the formation of the ESOP,  the Bank 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 $88,000 and $31,000 for the
three  months  ended  September  30,  1998  and  September  1997,  respectively.
Compensation  expense  amounted to $129,000 and $52,000 for the six months ended
September  30, 1998 and  September  1997,  respectively.  At September 30, 1998,
there were 12,210  ESOP shares  committed  to be  released  and 54,380  suspense
shares.  ESOP shares  totalling  16,210 were allocated as of September 30, 1998.
The fair value of unearned ESOP shares at September 30, 1998 totalled $605,000.



                                        7

<PAGE>
                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 7 -  Stock Based Compensation Plans
          ------------------------------
On April 16, 1998, after  stockholder  approval,  the Bank 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
103,500  shares of common stock by the Bank upon the  exercise of stock  options
awarded to  officers,  directors,  key  employees  and other  persons  providing
services to the Bank. The Bank may also purchase shares through the open market.
There were  103,500  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 Bank will use the "intrinsic  value based method" as prescribed
by APB Opinion 25.  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 41,400 shares of common
stock  in the open  market.  All of the  Common  Stock  to be  purchased  by the
Restricted  Stock Plan will be  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 Bank by its directors,  officers
and key employees  responsible for implementation of the policies adopted by the
Bank'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 -  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 Bank's  statement of operations.  The Bank adopted SFAS 130 for
the quarter ended June 30, 1998.

For the three  months  ended  September  30,  1998 and 1997,  the  Bank's  total
comprehensive   income  was   $251,000   and   $323,000,   respectively.   Total
comprehensive  income is  comprised  of net income of $251,000  and $320,000 and
other comprehensive income of $0 and $3,000, net of tax,  respectively.  For the
six months ended  September  30, 1998 and 1997,  the Bank's total  comprehensive
income was $347,000 and $570,000,  respectively.  Total comprehensive  income is
comprised of net income of $347,000 and $559,000 and other comprehensive  income
of $0  and  $11,000,  net  of  tax,  respectively.  Other  comprehensive  income
consisted of  unrealized  gains on  investment  securities  and  mortgage-backed
securities available for sale.

Also 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 with 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  September
30, 1998.

In February 1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosure  About
Pensions and Other  Postretirement  Benefits."  SFAS No. 132 revises  employers'
disclosures  about pension and other  postretirement  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.  Management  does not believe the
impact of the adoption will be significant.

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 Bank's  consolidated  financial  condition or results of operations.
SFAS 133 will be  effective  for all fiscal  quarters  beginning  after June 15,
1999.
                                        8
<PAGE>


                     FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)


NOTE 9 -  Subsequent Event - Reorganization to Stock Holding Company Form of 
          Organization
          ----------------------------------------------------------------------

At the Annual Meeting of Stockholders on July 30, 1998, the Bank's  Stockholders
approved   an   Agreement   and   Plan  of   Reorganization   ("the   Plan"   or
"Reorganization"),  providing for the  establishment of a mid-tier stock holding
company. The Plan provided for the establishment of Skibo Financial Corp. (Skibo
Financial) as a stock holding  company  parent of the Bank,  which stock holding
company is majority-owned by Skibo Bancshares, M.H.C., the Bank's mutual holding
company.  The former holders of the common stock of the Bank became stockholders
of Skibo Financial and each  outstanding  share of common stock,  par value $.10
per share, of the Bank will be converted into shares of common stock,  par value
$.10 per share of Skibo Financial on a three-for two basis.  The  Reorganization
was completed on October 29, 1998.  Effective  October 30, 1998, Skibo Financial
replaced the Bank's common stock on the Nasdaq SmallCap Market.  For twenty (20)
trading days following the  reorganization,  the common stock of Skibo Financial
will trade under the symbol  "SKBOD."  Following  the end of the twenty (20) day
period, Skibo Financial will trade under the Bank's old symbol "SKBO."

                                        9

<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



General

The Bank's results of operations  are primarily  dependent upon its net interest
income,  which is the  difference  between  the  interest  income  earned on its
assets, primarily loans,  mortgage-backed  securities, and investments,  and the
interest  expense on its  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 Bank'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 Bank's  total assets of  $143,937,000  at  September  30, 1998,  reflected a
decrease of $4,195,000 or 2.8% from $148,132,000 at March 31, 1998. The decrease
in total assets was primarily due to decreases in mortgage-backed securities and
loans  receivable,  partially  offset by increases in  investments  and interest
bearing deposits at other financial institutions.

The decrease in the Bank's liabilities was primarily due to decreases in savings
deposits and Federal Home Loan Bank ("FHLB") advances. Changes in the components
of assets, liabilities and equity are discussed herein.

Loans  Receivable,  net. Net loans  receivable  at September  30, 1998  totalled
$64,961,000,  a decrease of $2,923,000 or 4.3%,  as compared to  $67,884,000  at
March 31, 1998. The decrease was primarily due to principal repayments totalling
$10.5 million, offset by originations of $766,000 and purchases of $6.9 million.
The Bank purchased $3.9 million one -to four-family  mortgages and $198,000 farm
mortgages in its normal  lending area. The Bank also purchased $1.6 million farm
mortgages and $1.2 million agricultural and Small Business  Administration (SBA)
loans outside its normal lending area, primarily in Pennsylvania.

Mortgage-backed  Securities.  Mortgage-backed  securities  were  $48,810,000  at
September  30,  1998,  a  decrease  of  $5,505,000  or  10.1%,  as  compared  to
$54,315,000 at March 31, 1998. The decrease was due to principal  repayments and
maturities totalling $8.5 million, offset by purchases of $3.0 million.

Investment  Securities.  Investment securities totalled $16,152,000 at September
30, 1998, an increase of $375,000 or 2.4%, as compared to  $15,777,000  at March
31,  1998.  This was  primarily a result of  purchases  of $5.6  million of U.S.
Agency  securities,  offset by the proceeds from maturities,  calls and payments
totalling $5.2 million.

Cash  and  Cash  Equivalents.  Cash  and  cash  equivalents,  which  consist  of
interest-bearing  and  noninterest-bearing  deposits,  totalled  $6,902,000,  an
increase of  $3,631,000  or 111.0% from the prior  quarter.  This  increase  was
primarily due to increased interest-bearing deposits at the FHLB.

Deposits. The Bank's deposits, after interest credited,  decreased by $1,294,000
or 1.7% to  $75,932,000  at September  30, 1998, as compared to  $77,226,000  at
March 31, 1998.  The decrease was primarily due to a decrease in  certificate of
deposit accounts.

FHLB Advances.  FHLB advances,  at September 30, 1998, totalled  $37,800,000,  a
decrease of $3.5 million or 8.5%, as compared to  $41,300,000 at March 31, 1998.
The Bank utilized  funds received  primarily from principal  repayments of loans
and mortgage-backed securities to repay a portion of the advances.

Stockholders'  Equity. The Bank's  stockholders'  equity totalled $24,651,000 at
September 30, 1998, as compared to  $24,980,000  at March 31, 1998. The decrease
of  $329,000  or  1.3%  was  primarily  due to the  Bank's  implementation  of a
restricted  stock plan and  additional  ESOP shares  committed to be released to
participant accounts,  offset by earnings for the six months ended September 30,
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 September 30, 1998 and 1997

Net Income.  The Bank recorded net income of $251,000 for the three months ended
September  30, 1998,  as compared to net income of $320,000 for the three months
ended  September 30, 1997.  The $69,000 or 21.6%  decrease in net income for the
three months ended  September  30, 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 $32,000 or 3.3% for the three
months ended  September  30,  1998,  as compared to the three month period ended
September 30, 1997. The decrease was primarily due to a $3.7 million decrease in
the average interest-earning assets and a 28 basis point decrease in the average
yield  earned  thereon.  The  average  balance of  interest-bearing  liabilities
decreased by $4.5 million or 3.7% with a 26 basis point  decrease in the average
rate  paid  thereon.  Changes  in the  components  of net  interest  income  are
discussed herein.

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 1.88% for the three month period ended September 30, 1998 from 1.90%
for the three month period ended September 30, 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 $2.7
million principal reduction in SBA loans with higher yields. The decline is also
attributable  to a  decrease  in the yield of  investments  and  other  interest
earning assets.  Such purchases will have an ongoing effect on the average yield
of the Bank's loan portfolio.

Interest Income.  Interest income  decreased  $165,000 or 6.5% to $2,368,000 for
the three month period ended  September 30, 1998, as compared to $2,533,000  for
the three month period ended September 30, 1997.

Interest  on loans  receivable  increased  $37,000 or 3.2% for the three  months
ended  September 30, 1998, as compared to the three month period ended September
30, 1997.  This increase was primarily the result of a $4.0 million  increase in
the  average  balance  of  loans  receivable  due to  the  addition  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 18.2% for
the three months ended September 30, 1998, as compared to the three months ended
September  30, 1997.  This  decrease was  primarily the result of a $9.1 million
decrease in the average balance of such securities and a 22 basis point decrease
in the average yield earned thereon.

Interest income on investment  securities  decreased by $40,000 or 13.6% for the
three months  ended  September  30, 1998,  as compared to the three months ended
September 30, 1997. The decrease in interest income on investment securities was
primarily due to a $1.9 million lower average balance of such securities,  and a
decrease in the average yield of 21 basis points.

Interest income on other  interest-earning  assets increased by $23,000 or 39.0%
for the three months ended  September  30, 1998, as compared to the three months
ended September 30, 1997. The increase was primarily due a $3.3 million increase
in the average interest-earning deposits at other financial institutions, offset
by a 190 basis point decrease in the average yield earned thereon.

The average yield on the average  balance of  interest-earning  assets was 6.86%
and  7.14%  for the three  month  periods  ended  September  30,  1998 and 1997,
respectively.

Interest  Expense.  Interest  expense  totalled  $1,426,000 for the three months
ended  September 30, 1998, as compared to $1,559,000  for the three months ended
September 30, 1997. The $133,000 or 8.5% decrease was primarily due to decreased
average  balances in  certificate of deposit  accounts,  FHLB advances and other
borrowings,  and a 26 basis point decrease in the average rate paid on the total
average interest-bearing liabilities.

Interest expense on deposits  (including  escrows) decreased $31,000 or 3.4% for
the three months ended September 30, 1998, as compared to the three months ended
September 30, 1997. The decrease was primarily due to a $1.4 million decrease in
average deposits and a 7 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 $87,000 or 14.8% for the three months ended
September  30, 1998,  as compared to the three months ended  September 30, 1997.
The decrease was primarily due to a $2.4 million decrease in the average balance
of such  advances and a 54 basis point  decrease in the rate paid  thereon.  The
Bank uses FHLB advances as a funding source and has in the past used  borrowings
to supplement deposits, which are the Bank's primary source of funds.

Interest on bonds payable and other  borrowings,  a less significant  portion of
interest expense, decreased by $15,000 or 22.1%, as the average principal amount
of other borrowings decreased by $585,000.

Provision for Loan Losses.  During the three month  periods ended  September 30,
1998 and 1997,  the Bank  established  provisions for loan losses of $12,000 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 September 30, 1998, the allowance for loan losses  totalled  $565,000 or .87%
and 65.0% 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
Bank's  non-performing  loans  (non-accrual  loans and accruing loans 90 days or
more overdue)  totalled  $869,000 and $1,130,000 at September 30, 1998 and March
31,  1998  respectively,  which  represented  1.3% and 1.7% of the Bank's  total
loans,  respectively.  The  non-performing  loans,  however,  include three Farm
Service  Agency (FSA)  guaranteed  loans at September 30, 1998 and four at March
31, 1998, which represent 85.7% and 93.2% of the total  non-performing  loans at
September  30,  1998 and March  31,  1998,  respectively.  The  Bank's  ratio of
non-performing loans to total assets was .60% and .76% at September 30, 1998 and
March 31, 1998, respectively.

Other Income.  During the three months ended  September  30, 1998,  other income
decreased $109,000 or 80.7%, as compared to the three months ended September 30,
1997. Other income recorded in the prior quarter  included a partial  settlement
of a real  estate  judgement  in the  amount of  $120,000.  Other  income in the
current quarter included a final payment of $10,000 from the sale of property in
the same judgement.

Other  Expenses.  Total other  expenses  decreased by $39,000 or 6.9% during the
three months  ended  September  30, 1998,  as compared to the three months ended
September  30, 1997.  The decrease was primarily  attributable  to a decrease in
compensation expense, offset by an increase in premises and occupancy costs. The
reduction in compensation  expense was primarily due to a $73,000  adjustment to
the cost of the  upcoming  purchase  of shares  of stock to fund the  Restricted
Stock  Plan  (RSP)  implemented  in April  1998 and a  reduction  of  employees'
salaries due to two  employees  on  disability  leave,  offset by an increase of
$57,000 in ESOP  expenses.  With the  implementation  of the RSP, the portion of
awards  that were earned and  non-forfeitable  (approximately  one-fourth)  were
expensed  at fair  market  value in the June 1998  quarter in  addition to 2 1/2
months of the  awards  that will vest in April  1999.  The RSP  expense  for the
September  quarter was adjusted  because of the decline in the fair value of the
stock.  Furthermore,  the Bank committed to release 6,070 shares of stock in the
ESOP in the September  1998 quarter as compared to 2,070 shares in the September
1997 quarter, which had a negative effect on earnings.

Income Tax Expense. The provision for income tax totalled $180,000 for the three
months ended  September  30, 1998,  as compared to $210,000 for the three months
ended  September  30, 1997.  The $30,000 or 14.3%  decrease was due to decreased
taxable income.

Results of Operations for the Six Months Ended September 30, 1998 and 1997

Net Income.  The Bank  recorded  net income of $347,000 for the six months ended
September  30,  1998,  as compared to net income of $559,000  for the six months
ended  September 30, 1997.  The $212,000 or 37.9% decrease in net income for the
six months ended September 30, 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 $105,000 or 5.2% for the six
months  ended  September  30,  1998,  as compared to the six month  period ended
September 30, 1997. The decrease was primarily due to a $1.2 million decrease in
the average interest-earning assets and a 34 basis point decrease in the average
yield  earned  thereon.  The  average  balance of  interest-bearing  liabilities
decreased  by $1.9  million  with a 21 basis point  decrease in the average rate
paid thereon.  Changes in the  components  of net interest  income are discussed
herein.



                                       12

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


The  interest  rate  spread  declined  to 1.88% for the six month  period  ended
September 30, 1998 from 2.01% for the six month period ended September 30, 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 $4.7 million  principal  reduction in SBA loans with higher
yields.  The  decline  is  also  attributable  to a  decease  in  the  yield  of
investments  and other  interest  earning  assets.  Such  purchases will have an
ongoing effect on the average yield of the Bank's loan portfolio.

Interest Income.  Interest income  decreased  $280,000 or 5.5% to $4,845,000 for
the six month period ended September 30, 1998, as compared to $5,125,000 for the
six month period ended September 30, 1997.

Interest on loans receivable increased $115,000 or 5.0% for the six months ended
September  30, 1998,  as compared to the six month period  ended  September  30,
1997.  This increase was primarily the result of a $5.7 million  increase in the
average balance of loans  receivable due to the addition of one- to four-family,
multi-family,  farm mortgages,  and agricultural  and SBA loans,  offset by a 29
basis point  decrease in the average  yield due to the lower  interest  rates on
such loans.

Interest income on  mortgage-backed  securities  decreased $273,000 or 13.7% for
the six months ended  September  30,  1998,  as compared to the six months ended
September  30, 1997.  This  decrease was  primarily the result of a $6.7 million
decrease in the average balance of such securities and a 16 basis point decrease
in the average yield earned thereon.

Interest income on investment  securities decreased by $131,000 or 20.2% for the
six months  ended  September  30,  1998,  as  compared  to the six months  ended
September 30, 1997. The decrease in interest income on investment securities was
primarily due to a $2.7 million lower average  balance of such  securities and a
decrease in the average yield of 43 basis points.

Interest income on other interest-earning assets increased by $9,000 or 5.6% for
the six months ended  September  30,  1998,  as compared to the six months ended
September 30, 1997.  The increase was  primarily due a $2.5 million  increase in
the average interest-earning deposits at other financial institutions, offset by
a 283 basis point decrease in the average yield earned thereon.

The average yield on the average  balance of  interest-earning  assets was 6.88%
and  7.22%  for the six  month  periods  ended  September  30,  1998  and  1997,
respectively.

Interest Expense.  Interest expense totalled $2,934,000 for the six months ended
September 30, 1998, as compared to $3,109,000 for the six months ended September
30, 1997.  The $175,000 or 5.6% decrease was primarily due to decreased  average
balances in certificate of deposit accounts,  FHLB advances and other borrowings
and a 21 basis  point  decrease in the  average  rate paid on the total  average
interest-bearing liabilities.

Interest expense on deposits  (including  escrows) decreased $48,000 or 2.7% for
the six months ended  September  30,  1998,  as compared to the six months ended
September 30, 1997. The decrease was primarily due to a $1.3 million decrease in
the average balance of deposits and a 4 basis point decrease in the average rate
paid thereon.

Interest on FHLB  advances  decreased  $98,000 or 8.3% for the six months  ended
September 30, 1998, as compared to the six months ended  September 30, 1997. The
decrease was primarily due to a 50 basis point decrease in the average rate paid
on advances. The average balances of advances increased $17,000.

Interest on bonds payable and other  borrowings,  a less significant  portion of
interest expense, decreased by $29,000 or 21.5%, as the average principal amount
of other  borrowings  decreased  by  $597,000.  The  average  rate paid on bonds
payable and other borrowings remained the same for both six month periods.

Provision for Loan Losses. During the six month periods ended September 30, 1998
and  1997,  the Bank  established  provisions  for loan  losses of  $15,000  and
$30,000, 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 six months ended  September  30,  1998,  other income
decreased  $107,000 or 69.5%,  as compared to the six months ended September 30,
1997.  Other  income  recorded  in the  prior  six  months  included  a  partial
settlement of a real estate judgement in the amount of $120,000. Other income in
the current six months included $15,000,  representing a final settlement in the
same judgement.


                                       13

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


Other Expenses.  Total other expenses  increased by $198,000 or 17.1% during the
six months  ended  September  30,  1998,  as  compared  to the six months  ended
September 30, 1997.  The increase was primarily  attributable  to an increase in
compensation  expense due to the  implementation of a restricted stock plan (see
Note 7) and an increase of $77,000 in the ESOP  expense,  offset by decreases of
$23,000 in salaries  expense and $34,000 in Supplemental  Employee  Pension Plan
(SERP)  and  Director's   Retirement  Plan  (DRP)  insurance  costs.   With  the
implementation  of  the  RSP,  the  portion  of  awards  that  were  earned  and
non-forfeitable (approximately one-fourth) were expensed at fair market value in
addition  to 5 1/2 months of the awards  that will vest in April  1999.  The RSP
expense for the current six month period was $181,000. Future vesting will occur
over a two- to four-year  period.  The Bank committed to release 8,140 shares of
stock in the ESOP in the  current  period  as  compared  to 4,140  shares in the
previous period.

Income Tax Expense.  The provision for income tax totalled  $240,000 for the six
months  ended  September  30,  1998,  as compared to $423,000 for the six months
ended  September 30, 1997.  The $183,000 or 43.3%  decrease was due to decreased
income.

Liquidity and Capital Requirements

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 96.99% and  77.98%,  at
September 30, 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 September 30, 1998, the Bank was in compliance with its
three regulatory capital requirements as follows:

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

Tangible capital........................        $24,651           17.13%
Tangible capital requirement............          2,159            1.50%
                                                -------          ------
Excess over requirement.................        $22,492           15.63%
                                                 ======           =====

Core capital............................        $24,651           17.13%
Core capital requirement................          4,318            3.00%
                                                -------          ------
Excess over requirement.................        $20,333           14.13%
                                                 ======           =====

Risk based capital......................        $25,216           54.05%
Risk based capital requirement..........          3,732            8.00%
                                                -------          ------
Excess over requirement.................        $21,484           46.05%
                                                 ======           =====



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 September 30, 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 September 30, 1998, the Bank's
Tier I  (leverage),  Tier I risk-based,  and total  risk-basked  capital  ratios
amounted to 17.13%, 52.84%, and 54.05%, 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  Bank's  1998  Annual  Report.   See  "Market  Risk  &
Asset/Liability  Management".  Management  believes  there have been no material
changes in the Bank's market risk since March 31, 1998.

Year 2000 Compliance Issues

The Bank formed a committee to  implement an action plan  designed to ensure the
Bank's computer systems,  software applications and other date reliant equipment
would  function   properly  after  December  31,  1999.  This  process  involves
identifying all equipment,  software and third party providers,  deemed critical
to the Bank's daily  operations,  and  ascertaining if these products or product
providers are Year 2000 compliant.  For items or vendors that were not compliant
and had not achieved  significant progress toward compliance by October 1, 1998,
the committee has implemented contingency plans to either replace the product or
vendor, or implement an alternative procedure to mitigate the affected area.

The Bank utilizes an in-house  computer system,  with all software  applications
being  developed  and  modified  internally.  The Bank  first  acknowledged  and
addressed the potential problem associated with the Year 2000 early in 1990. The
Bank  completed  renovation  of its  in-house  data  processing  system prior to
testing in October  1992.  Once testing was complete,  the Bank began  operating
under the year 2000 revisions  that pertain to any date related issues  spanning
the millennium.  The Bank has also received vender certification confirming year
2000 compliance for its hardware and operating system.  Management  continues to
monitor and test all  computerized  applications  of its in-house  system in the
unlikely  event that  something has been  overlooked.  Management  believes that
remaining efforts towards Year 2000 compliance will require minimal expense and,
therefore,  will not have a material impact on the Bank's financial condition or
results of operations.

In addition,  management  believes that substantially all date reliant equipment
and software will be tested and, if needed, upgraded or replaced by December 31,
1998.  Assessments of significant vendors,  service providers and customers will
also be completed.  Management has developed a contingency plan in regard to all
mission-critical vendors, servicers, and applications.  Despite the best efforts
of management to address this issue,  the vast number of external  entities that
have  direct  and  indirect  business  relationships  with  the  Bank,  such  as
customers,  vendors,  payment system providers and other financial institutions,
makes 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 Bank.  Successful and timely completion of Year 2000 issues is
based on management's best estimates derived from various  assumptions of future
events,  which are inherently  uncertain,  including the progress and results of
companies  outside  the control of the Bank,  testing  plans,  and all  vendors,
suppliers, and customer readiness.



                                       15

<PAGE>




                           PART II - OTHER INFORMATION





Item 1. Legal Proceedings.
        ------------------
  
          The Bank was not engaged in any legal  proceeding of a material nature
          at  September  30,  1998.  From  time to time,  the Bank 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 Bank holds security  interest,  claims  involving the making
          and servicing of real property loans, and other issues incident to the
          business of the Bank.  There were no  lawsuits  pending or known to be
          contemplated  against the Bank at September 30, 1998 that would have a
          material effect on the operations or income of the Bank.


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

          Not applicable.


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

          Not applicable.


Item 4. Submission of Matters to a Vote of Security-Holders.
        ----------------------------------------------------
  
          The Annual  Meeting of  Stockholders  of the Bank was held on July 30,
          1998.  There were  outstanding  on the record  date (June 1, 1998) and
          entitled to vote at the meeting  2,300,000  shares of common stock, of
          which 1,265,000 were held by the Mutual Holding Company ("MHC"). There
          were  present  at the  Meeting  in person or by proxy the  holders  of
          2,150,066  shares of Common Stock of the Bank,  representing  93.5% of
          the total votes eligible to be cast,  constituting a majority and more
          than a quorum of the outstanding  shares entitled to vote. The matters
          voted  upon at the  Special  Meeting  and the vote  for  each  were as
          follows:

          1. The  election  of  directors,  Mr.  Layne W.  Craig and Mr. John T.
             Mendenhall, Jr., for 3-year term expiring in 2001.



                                      FOR                      WITHHOLD
                             ----------------------       --------------------
                                         Percentage                 Percentage
                               Number     of Votes         Number    of Votes
                              of Votes      Cast           of Votes    Cast
                              --------      ----           --------    ----

Layne W. Craig                2,137,365     99.4            12,701      .6
John T. Mendenhall, Jr.       2,140,090     99.5             9,976      .5



          Accordingly,   the  proposal  described  above,  having  received  the
          favorable votes of at least a majority of the shares outstanding,  and
          a majority  of the votes cast by  stockholders  other than the MHC was
          declared to be duly adopted by the stockholders of the Bank.

                                       16
<PAGE>




                           PART II - OTHER INFORMATION


     2.   The approval of the  Agreement  and Plan of  Reorganization  to form a
          Mid-Tier Stock Holding Company.



                                      Number        % OF VOTES CAST
                                      ------        ---------------

FOR                                1,887,651              82.1  %

AGAINST                               17,170                .7  %

ABSTAIN                                7,090                .3  %




          Accordingly,   the  proposal  described  above,  having  received  the
          favorable votes of at least a majority of the shares outstanding,  and
          a majority  of the votes cast by  stockholders  other than the MHC was
          declared to be duly adopted by the stockholders of the Bank.


     3.   The  ratification  of the  appointment  of KPMG  Peat  Marwick  LLP as
          auditor for the Bank for the fiscal year ending March 31, 1999.



                                      Number        % OF VOTES CAST
                                      ------        ---------------

FOR                                2,141,365             99.6  %

AGAINST                                7,101               .3  %

ABSTAIN                                1,600               .1  %




          Accordingly,   the  proposal  described  above,  having  received  the
          favorable votes of at least a majority of the shares outstanding,  and
          a majority  of the votes cast by  stockholders  other than the MHC was
          declared to be duly adopted by the stockholders of the Bank.


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

          See Note 9 regarding the completion  the Bank's stock holding  company
          reorganization.


Item 6. Exhibits and Reports on Form 8-K.
        ---------------------------------
  
        a)   2.0 Agreement and Plan of Reorganization
             3.1 Charter of Skibo Financial Corp.
             3.2 Bylaws of Skibo Financial Corp.
             4.0 Form of Stock Certificate of Skibo Financial Corp.
            10.1 Employment Agreement between the Bank and Walter G. Kelly
            10.2 1998 Restricted Stock Plan
            10.3 1998 Stock Option Plan
            11.0 Earnings Per Share  Calculation (see note 3 to the Notes
                 to the Unaudited  Consolidated  Financial  Statements in
                 this Form 10-QSB.
            27.0 Financial Data Schedule (in electronic filing only)

        b)  Not applicable

                                       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.


                                           SKIBO FINANCIAL CORP.


Date: November 10, 1998                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.

<TABLE>
<CAPTION>
<S>                                          <C>
/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: November 10, 1998                      Date: November 10, 1998


</TABLE>

                                       18