SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


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

For Quarter Ended June 30, 1999                  Commission File Number 0-20378

                              CENIT BANCORP, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                  54-1592546
(State or other jurisdiction of                 (I.R.S. Employer Identification
 incorporation or organization)                          Number)

       225 West Olney Road
          Norfolk, Virginia                                23510
(Address of principal executive                          (Zip code)
      office)

     Registrant's telephone number, including area code:    (757) 446-6600

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
     required to be filed by Section 13 or 15(d) of the Securities  Exchange Act
     of 1934 during 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

     Indicate the number of shares  outstanding of each of the issuer's  classes
     of common stock, as of the latest practicable date.


Common Stock $.01 Par Value                               4,813,674
       Title of Class                             Number of Shares Outstanding
                                                  as of   August 9, 1999

<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

                                    Contents
-------------------------------------------------------------------------------


                                                                           Page
PART I - FINANCIAL INFORMATION

Item 1
   Financial Statements

Consolidated Statement of Financial Condition as of June 30, 1999 (Unaudited)
and December 31, 1998....................................................... 1

Unaudited Consolidated Statement of Operations for the Three Months and Six
Months ended June 30, 1999 and June 30, 1998................................ 2

Unaudited Consolidated Statement of Comprehensive Income for the Six
Months Ended June 30, 1999 and June 30, 1998................................ 3

Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Six Months ended June 30, 1999.............................................. 4

Unaudited Consolidated Statement of Cash Flows for the Six Months ended
June 30, 1999 and June 30, 1998............................................. 5

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

Item 2
   Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 6

Item 3
   Quantitative and Qualitative Disclosures About Market Risk.............. 19

PART II - OTHER INFORMATION

Item 1
   Legal Proceedings....................................................... 20

Item 2
   Changes in Securities................................................... 20

Item 3
   Defaults Upon Senior Securities......................................... 20

Item 4
   Submission of Matters to a Vote of Security Holders..................... 20

Item 5
   Other Information....................................................... 20

Item 6
   Exhibits and Reports on Form 8-K........................................ 20

Signatures................................................................. 20

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                       CENIT BANCORP, INC. AND SUBSIDIARY

                  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                  (Dollars in thousands, except per share data)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                            (Unaudited)
                                                                           June 30, 1999        December 31, 1998
                                                                           -------------        -----------------
<S>                                                                           <C>                   <C>
Cash                                                                          $  18,495             $  14,656
Federal funds sold                                                               20,266                42,289
Securities available for sale at fair value (adjusted
   cost of $83,004 and $64,327, respectively)                                    82,862                65,136
Loans, net:
   Held for investment                                                          472,878               484,783
   Held for sale                                                                  3,310                 3,878
Interest receivable                                                               4,037                 3,723
Real estate owned, net                                                              335                   377
Federal Home Loan Bank stock, at cost                                             3,900                 5,066
Property and equipment, net                                                      12,840                13,002
Goodwill and other intangibles, net                                               3,469                 3,647
Other assets                                                                      4,081                 4,499
                                                                              ---------             ---------
                                                                              $ 626,473             $ 641,056
                                                                              =========             =========

                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits:
     Noninterest-bearing                                                      $  76,030             $  78,712
     Interest-bearing                                                           405,122               418,060
                                                                              ---------             ---------
        Total deposits                                                          481,152               496,772
   Advances from the Federal Home Loan Bank                                      75,000                75,000
   Securities sold under agreements to repurchase                                16,822                13,084
   Advance payments by borrowers for taxes and insurance                            742                   599
   Other liabilities                                                              2,572                 5,525
                                                                              ---------             ---------
        Total liabilities                                                       576,288               590,980
                                                                              ---------             ---------
Stockholders' equity:
   Preferred stock, $.01 par value; authorized 3,000,000
     shares; none outstanding                                                         -                     -
   Common stock, $.01 par value; authorized 7,000,000 shares;
     issued and outstanding 4,801,284 and 4,808,806 shares,
     respectively                                                                    48                    48
   Additional paid-in capital                                                    13,922                14,177
   Retained earnings - substantially restricted                                  40,421                39,600
   Common stock acquired by Employee Stock Ownership Plan (ESOP)                 (3,958)               (4,052)
   Common stock acquired by Management Recognition
     Plan (MRP)                                                                    (160)                 (199)
   Accumulated other comprehensive (loss) income,
     net of income taxes                                                            (88)                  502
                                                                              ---------             ---------
     Total stockholders' equity                                                  50,185                50,076
                                                                              ---------             ---------
                                                                              $ 626,473             $ 641,056
                                                                              =========             =========
<FN>

The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>

                                        1
<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

                 UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                Three months                     Six Months
                                                                    Ended                          Ended
                                                                  June 30,                        June 30,
                                                            --------------------              ---------------------
                                                            1999            1998              1999             1998
                                                            ----            ----              ----             ----
<S>                                                     <C>            <C>               <C>              <C>
Interest and fees on loans                              $  9,198       $  10,274         $  18,643        $  20,324
Interest on mortgage-backed certificates                     258           1,022               532            2,505
Interest on investment securities                            809             684             1,579            1,368
Dividends and other interest income                          303             337               541              684
                                                        --------        --------          --------         --------
     Total interest income                                10,568          12,317            21,295           24,881
                                                        --------        --------          --------         --------
Interest on deposits                                       4,170           4,994             8,367           10,097
Interest on borrowings                                     1,154           2,020             2,336            4,094
                                                        --------        --------          --------         --------
     Total interest expense                                5,324           7,014            10,703           14,191
                                                        --------        --------          --------         --------
     Net interest income                                   5,244           5,303            10,592           10,690
Provision for loan losses                                     22             136                36              340
                                                        --------        --------          --------         --------
     Net interest income after provision
                  for loan losses                          5,222           5,167            10,556           10,350
                                                        --------        --------          --------         --------
Other income:
     Deposit fees                                            624             616             1,283            1,220
     Merchant processing fees                                677             537             1,191              930
     Commercial mortgage brokerage fees                       10             183               168              364
     Gains on sales of loans and securities, net             192             287               432              462
     Other                                                   321             246               580              459
                                                        --------        --------          --------         --------
                  Total other income                       1,824           1,869             3,654            3,435
                                                        --------        --------          --------         --------

Other expenses:
     Salaries and employee benefits                        2,134           2,105             4,571            4,193
     Equipment, data processing and supplies                 744             773             1,491            1,478
     Net occupancy expense of premises                       522             455             1,048              928
     Merchant processing                                     553             472               982              832
     Expenses, gains/losses on sales and provision
       for losses on real estate owned, net                   27              11                35               80
     Professional fees                                       217             173               391              367
     Other                                                   643             712             1,197            1,321
                                                        --------        --------          --------         --------
                  Total other expenses                     4,840           4,701             9,715            9,199
                                                        --------        --------          --------         --------

Income before income taxes                                 2,206           2,335             4,495            4,586
Provision for income taxes                                   794             831             1,618            1,624
                                                        --------        --------          --------         --------

     Net income                                         $  1,412       $   1,504         $   2,877        $   2,962
                                                        ========        ========          ========         ========
Earnings per share:
     Basic                                              $    .31       $     .32         $     .63        $     .62
                                                        ========        ========          ========         ========
     Diluted                                            $    .30       $     .31         $     .62        $     .61
                                                        ========        ========          ========         ========

Dividends per common share                              $    .15       $     .10         $     .30        $     .20
                                                        ========        ========          ========         ========

<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>

                                        2
<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

            UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                               Six Months
                                                                                                  Ended
                                                                                                June 30,
                                                                                         1999             1998
                                                                                         ----             ----
<S>                                                                                    <C>               <C>
Net income                                                                             $  2,877          $ 2,962
                                                                                       --------          -------

Other comprehensive income (loss), before income taxes:
   Unrealized gains (losses) on securities available for sale
     Unrealized holding gains (losses) arising during the period                           (952)            (500)
     Less: reclassification adjustment for gains included in net income                       -              (72)
                                                                                       --------          -------

Other comprehensive loss, before income taxes                                              (952)            (572)

Income tax benefit related to items of other comprehensive loss                             362              185
                                                                                       --------          -------

Other comprehensive loss, net of income taxes                                              (590)            (387)
                                                                                       --------          -------

Comprehensive income                                                                   $  2,287          $ 2,575
                                                                                       ========          =======





<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>

                                        3
<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

       UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                         Six Months Ended June 30, 1999
                             (Dollars in thousands)



<TABLE>
<CAPTION>


                                                                                                      Accumulated
                                                                                        Common          Other
                                                                                         Stock      Comprehensive
                                                  Common      Additional                Acquired    Income (Loss),
                                     Common        Stock       Paid-In     Retained     by ESOP      Net of Income
                                  Stock Shares    Amount       Capital     Earnings     and MRP          Taxes          Total
                                  ------------    ------       -------     --------     -------      -------------      -----
<S>                               <C>              <C>         <C>          <C>          <C>             <C>          <C>
Balance, December 31, 1998        4,808,806        $ 48        $14,177      $39,600      $(4,251)        $  502       $ 50,076


Comprehensive income                      -           -              -        2,877            -           (590)         2,287


Cash dividends declared                   -           -              -       (2,056)           -              -         (2,056)


Exercise of stock options and
 related tax benefits                10,808           -             73            -            -              -             73


Stock repurchases                   (18,330)          -           (373)           -            -              -           (373)


Other                                     -           -             45            -          133              -            178
                                  ---------        ----        -------      -------      -------         ------       --------
Balance, June 30, 1999            4,801,284        $ 48        $13,922      $40,421      $(4,118)        $  (88)      $ 50,185
                                  =========        ====        =======      =======      =======         ======       ========




<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>

                                        4
<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

                 UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                            Six months ended June 30,
                                                                            -------------------------
                                                                             1999               1998
                                                                             ----               ----
<S>                                                                       <C>                <C>
Cash flows from operating activities:
   Net income                                                             $  2,877           $  2,962
   Add (deduct) items not affecting cash in the period:
     Provision for loan losses                                                  36                340
     Provision for losses on real estate owned                                  22                 14
     Amortization of loan yield adjustments                                    349                233
     Depreciation, amortization and accretion, net                             855              1,108
     Net (gains) losses on sales/disposals of:
        Securities                                                               -                (72)
        Loans                                                                 (432)              (390)
        Real estate, property and equipment                                    (96)                51
     Proceeds from sales of loans held for sale                             33,430             33,221
     Originations of loans held for sale                                   (32,438)           (36,211)
     Change in assets/liabilities:
        Decrease in interest receivable and other assets                       206                670
         (Decrease) increase in other liabilities                           (3,136)               124
                                                                            ------             ------
        Net cash provided by operating activities                            1,673              2,050
                                                                            ------             ------
Cash flows from investing activities:
   Purchases of securities available for sale                              (31,925)           (37,237)
   Principal repayments on securities available for sale                     3,876             25,720
   Proceeds from maturities of securities available for sale                 9,350             11,000
   Proceeds from sales of securities available for sale                          -             66,660
   Net decrease (increase) in loans held for investment                     11,321            (25,743)
   Net proceeds on sales of real estate owned                                  215                302
   Additions to real estate owned                                                -                (12)
   Purchases of Federal Home Loan Bank stock                                  (400)            (1,650)
   Redemption of Federal Home Loan Bank stock                                1,566              4,511
   Proceeds from sale of property and equipment                                  1                 59
   Purchases of property and equipment                                        (456)            (1,075)
                                                                            ------             ------
     Net cash (used for) provided by investing activities                   (6,452)            42,535
                                                                            ------             ------
Cash flows from financing activities:
   Proceeds from exercise of stock options and warrants                         77                183
   Net decrease in deposits                                                (15,620)            (8,460)
   Proceeds from Federal Home Loan Bank advances                            41,000            508,000
   Repayment of Federal Home Loan Bank advances                            (41,000)          (568,000)
   Repayments of other borrowings                                                -             (1,878)
   Common stock repurchases                                                   (373)                 -
   Net increase in securities sold under agreement
     to repurchase and federal funds purchased                               3,738              1,844
   Cash dividends paid                                                      (1,370)              (948)
   Other, net                                                                  143                402
                                                                            ------             ------
        Net cash used for financing activities                             (13,405)           (68,857)
                                                                            ------             ------
Decrease in cash and cash equivalents                                      (18,184)           (24,272)
Cash and cash equivalents, beginning of period                              56,945             54,111
                                                                            ------             ------
Cash and cash equivalents, end of period                                 $  38,761           $ 29,839
                                                                            ======             ======
Supplemental disclosures of cash flow  information:
   Cash paid during the period for interest                              $   3,244           $  5,583
   Cash paid during the period for income taxes                              1,882              1,205
Schedule of noncash investing and financing activities:
   Real estate acquired in settlement of loans                           $     199           $    210
   Loans to facilitate sale of real estate owned                                 -                470



<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>
                                        5
<PAGE>

                       CENIT BANCORP, INC. AND SUBSIDIARY

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

Note 1 - Basis of Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include  all of  the  disclosures  and  notes  required  by  generally  accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been  included.  The results of  operations  for the three and six month periods
ended June 30, 1999 and 1998 are not necessarily  indicative of results that may
be  expected  for the entire  year or any interim  periods.  Certain  previously
reported amounts have been reclassified to agree with the current  presentation.
The  interim  financial  statements  should  be read  in  conjunction  with  the
December 31,  1998 consolidated financial statements of CENIT Bancorp, Inc. (the
"Company").

Note 2 - Per Share Data

     Basic  earnings  per share is  calculated  using  weighted  average  shares
outstanding.  For the six month  period and three  month  period  ended June 30,
1999,  weighted  average  shares used to compute  basic  earnings per share were
4,570,589 and 4,575,103, respectively. For the six months and three months ended
June 30, 1998,  weighted average shares used to compute basic earnings per share
were 4,739,667 and 4,750,237, respectively.

     Diluted earnings per share is calculated by adding common stock equivalents
to the weighted average shares  outstanding.  For the six month period and three
month  period  ended June 30,  1999,  weighted  average  shares  used to compute
diluted earnings per share were 4,655,412 and 4,656,375,  respectively.  For the
six months and three months ended June 30, 1998, weighted average shares used to
compute diluted earnings per share were 4,873,557 and 4,879,072, respectively.

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

General

     The  Company's  business  currently  consists  of the  business of its sole
subsidiary, CENIT Bank (the "Bank"). The principal business of the Bank consists
of  attracting  retail  deposits  from the  general  public in its market  areas
through a variety of deposit  products and investing  these funds in commercial,
real  estate  and  consumer  loans.  The Bank also  invests  in  mortgage-backed
certificates,  securities  issued  by the  U.S.  Treasury  and  U.S.  Government
agencies,   federal  funds  sold,  Federal  Home  Loan  Bank  stock,  and  other
investments permitted by applicable laws and regulations.

Financial Condition Of The Company

Total Assets

     At June 30, 1999, the Company had total assets of $626.5 million,  compared
to $641.1 million at December 31, 1998.

Securities Available for Sale

     Securities  available  for sale totaled  $82.9 million at June 30, 1999 and
are comprised of U. S. Treasury and other U. S.  Government  agency  securities,
mortgage-backed  certificates,  and other debt  securities.  The net increase of
$17.8  million,  or 27.3% from the December  31, 1998  balance of $65.1  million
resulted  primarily  from  $31.9  million in  purchases  of  available  for sale
securities,  partially offset by $9.4 million in proceeds from  maturities,  and
$3.9 million in principal repayments.

     In July,  1999, the Company  committed to purchase a total of $20.6 million
in  seasoned  10-year  and 15-year  mortgage-backed  securities  with a weighted
average remaining maturity of approximately nine years.


                                        6
<PAGE>

Loans

     The balance of net loans held for investment  decreased from $484.8 million
at December  31, 1998 to $472.9  million at June 30,  1999,  a decrease of $11.9
million or 2.5%. This decrease is primarily due to a decrease in adjustable rate
single-family  mortgages of $24.7 million,  offset by a $7.8 million increase in
fixed  rate   single-family   mortgages.   The  Company's   core  banking  loans
(multi-family,  commercial  real  estate,  construction,  land  acquisition  and
development,  consumer lots,  commercial  business and consumer loans) increased
$4.9  million,  or 2.1%,  from  December 31, 1998 to June 30, 1999.  For the six
months ended June 30, 1999,  loan  originations  totaled $108.7 million and loan
purchases  totaled $23.9  million.  Total  principal  reductions  totaled $147.8
million.


                                        7
<PAGE>

     The following  table sets forth the  composition of the Company's  loans in
dollar  amounts and as a percentage of the Company's  total gross loans held for
investment at the dates indicated.

<TABLE>
<CAPTION>

                                                             June 30, 1999                December 31, 1998
                                                             -------------                -----------------
                                                                       (Dollars in Thousands)
                                                       Amount        Percent              Amount        Percent
                                                       ------        -------              ------        -------
<S>                                                  <C>              <C>               <C>              <C>
Real estate loans:
   Residential permanent 1- to 4-family:
     Adjustable rate                                 $  156,439       30.77%            $  181,104       34.63%
     Fixed rate
       Conventional                                      74,720       14.70                 66,041       12.63
       Guaranteed by VA or insured by FHA                 3,090         .61                  3,972         .76
                                                      ---------       -----              ---------       -----
     Total permanent 1- to 4-family                     234,249       46.08                251,117       48.02
   Residential permanent 5 or more family                 7,357        1.45                  7,874        1.51
                                                      ---------       -----              ---------       -----
     Total permanent residential loans                  241,606       47.53                258,991       49.53
                                                      ---------       -----              ---------       -----
   Commercial real estate loans:
     Hotels                                               9,141        1.80                  9,208        1.76
     Office and warehouse facilities                     38,460        7.57                 36,659        7.01
     Retail facilities                                   21,682        4.26                 22,823        4.37
     Other                                                8,655        1.70                  7,921        1.51
                                                      ---------       -----              ---------       -----
     Total commercial real estate loans                  77,938       15.33                 76,611       14.65
                                                      ---------       -----              ---------       -----
   Construction loans:
     Residential 1- to 4-family                          49,347        9.71                 47,232        9.03
     Residential 5 or more family                        12,485        2.46                 19,621        3.75
     Nonresidential                                       5,401        1.06                  4,101         .79
                                                      ---------       -----              ---------       -----
     Total construction loans                            67,233       13.23                 70,954       13.57
                                                      ---------       -----              ---------       -----

   Land acquisition and development loans:
     Consumer lots                                        3,493         .68                  3,703        0.71
     Acquisition and development                         12,036        2.37                 11,444        2.19
                                                      ---------       -----              ---------       -----
     Total land acquisition and development
       loans                                             15,529        3.05                 15,147        2.90
                                                      ---------       -----              ---------       -----
     Total real estate loans                            402,306       79.14                421,703       80.65
                                                      ---------       -----              ---------       -----
Consumer loans:
   Boats                                                  3,472         .68                  4,275         .82
   Home equity and second mortgage                       54,526       10.72                 52,845       10.11
   Other                                                 11,058        2.18                 10,589        2.02
                                                      ---------       -----              ---------       -----
     Total consumer loans                                69,056       13.58                 67,709       12.95
                                                      ---------       -----              ---------       -----
Commercial business loans                                36,992        7.28                 33,485        6.40
                                                      ---------       -----              ---------       -----
     Total loans                                        508,354      100.00%               522,897      100.00%
                                                      ---------       =====              ---------       =====
Less:
   Allowance for loan losses                              3,889                              4,024
   Loans in process                                      32,920                             35,463
   Unearned discounts, premiums, and loan fees, net      (1,333)                           (1,373)
                                                      ---------                          ---------
                                                         35,476                             38,114
                                                      ---------                          ---------
Total loans, net                                     $  472,878                         $  484,783
                                                      =========                          =========
</TABLE>


                                        8
<PAGE>

     The following table sets forth information about  originations,  purchases,
sales,  and  principal  reductions  for  the  Company's  loans  for  the  period
indicated.

                                                            Six Months Ended
                                                              June 30, 1999
                                                          ---------------------
                                                          (Dollars in Thousands)
Loans originated:
   Real estate:
      Permanent:
         Residential 1- to 4-family                            $   39,820
         Residential 5 or more family                                   -
                                                               ----------
            Total                                                  39,820
                                                               ----------
      Commercial real estate                                        6,651
                                                               ----------
      Construction:
         Residential 1- to 4-family                                 8,320
         Residential 5 or more family                                 800
         Nonresidential                                             1,413
                                                               ----------
            Total                                                  10,533
                                                               ----------
      Land acquisition:
         Consumer lots                                                483
         Acquisition and development                                3,497
                                                               ----------
            Total                                                   3,980
                                                               ----------
            Total real estate loans originated                     60,984
                                                               ----------
   Consumer:
      Home equity and second mortgage                              17,501
      Other                                                         4,870
                                                               ----------
            Total                                                  22,371
                                                               ----------
   Commercial business                                             25,383
                                                               ----------
            Total loans originated                                108,738
   Loans purchased                                                 23,931
                                                               ----------
            Total loans originated and purchased                  132,669
                                                               ----------
Principal reductions:
   Repayments and other principal reductions                      116,171
   Real estate loans sold                                          31,602
                                                               ----------
            Total principal reductions                            147,773
                                                               ----------
Net decrease in total loans                                    $  (15,104)
                                                               ==========

Net decrease in loans held for sale                            $     (561)
Net decrease in gross loans held for investment                   (14,543)
                                                               ----------
                                                               $  (15,104)
                                                               ==========



                                        9
<PAGE>

Deposits

     Total deposits  decreased $15.6 million,  or 3.1%, for the six months ended
June  30,  1999,  as  compared  to  December  31,  1998.   Interest-bearing  and
noninterest-bearing   deposits   decreased   $12.9  million  and  $2.7  million,
respectively.  The decrease in interest-bearing deposits is primarily attributed
to customers  seeking other investment  alternatives  offered in the market as a
result of current economic conditions. The $2.7 million decrease in noninterest-
bearing  deposits is due, in part,  to a decrease  in the  Company's  commercial
customer escrow deposits at June 30, 1999, as compared to December 31, 1998.

Capital

     The Company's and the Bank's capital ratios exceeded applicable  regulatory
requirements at June 30, 1999.

     In July 1999,  the Board of  Directors  of the Company  gave the  Company's
management  the  discretion  to  initiate a  repurchase  of up to 150,000 of the
Company's  shares.  The Company is not obligated to conduct such a repurchase at
all,  and  the  Company's  decision  to do so,  as  well  as the  timing  of any
repurchase, will depend on a variety of factors.

Asset Quality

     Nonperforming Assets.  Nonperforming assets consist of nonperforming loans,
real estate  acquired in  settlement  of loans  ("REO"),  and other  repossessed
assets. Generally the Company does not accrue interest on loans that are 90 days
or more past due,  with the  exception of certain  VA-guaranteed  or FHA insured
one- to four-family  permanent  mortgage loans,  certain credit card loans,  and
matured loans for which the borrowers are still making required monthly payments
of interest,  or principal and  interest,  and with respect to which the Bank is
negotiating extensions or refinancings with the borrowers.


                                       10
<PAGE>

     The   following   table  sets  forth   information   about  the   Company's
nonperforming loans, REO, and other repossessed assets at the dates indicated.

<TABLE>
<CAPTION>

                                                                        June 30,                 December 31,
                                                                          1999                      1998
                                                                         -----                     -----
                                                                               (Dollars in Thousands)
<S>                                                                      <C>                         <C>
Nonperforming loans:
   Real estate loans:
     Permanent residential 1- to 4-family
       Nonaccrual                                                        $  197                      $  359
       Accruing loans 90 days or more past due                              699                         511
                                                                         ------                      ------
       Total                                                                896                         870
                                                                         ------                      ------

   Land acquisition and development loans:
       Accruing loans 90 days or more past due                               48                           -
                                                                         ------                      ------

   Consumer loans:
       Nonaccrual:
         Boats                                                               13                          37
         Home equity and second mortgage                                    122                          57
         Other                                                               42                          46
       Accruing loans 90 days or more past due                                -                           2
                                                                         ------                      ------

       Total                                                                177                         142
                                                                         ------                      ------

   Commercial business loans:
       Nonaccrual                                                            84                          64
                                                                         ------                      ------

Total nonperforming loans:
       Nonaccrual                                                           458                         563
       Accruing loans 90 or more days past due                              747                         513
                                                                         ------                      ------

       Total                                                              1,205                       1,076

Real estate owned, net                                                      335                         377
Other repossessed assets, net                                                 -                          21
                                                                         ------                      ------

   Total nonperforming assets, net                                       $1,540                     $ 1,474
                                                                         ======                      ======

   Total nonperforming assets, net, to total assets                         .25%                        .23%
                                                                         ======                      ======
</TABLE>

                                       11
<PAGE>

     Allowance for Loan Losses.  The following  table sets forth activity of the
allowance for loan losses for the periods indicated.

                                                     Six months ended June 30,
                                                     -------------------------
                                                   1999                    1998
                                                   ----                    ----
                                                      (Dollars in Thousands)

Balance at beginning of period                  $ 4,024                 $ 3,783
Provision for loan losses                            36                     340
Losses charged to allowance                        (195)                   (286)
Recovery of prior losses                             24                      70
                                                -------                 -------
Balance at end of period                        $ 3,889                 $ 3,907
                                                =======                 =======

     The Company's  provision  for loan losses  decreased to $36,000 for the six
months ended June 30,  1999, as compared to $340,000 in the same period in 1998.
The  difference  between the provision for loan losses and net loans charged off
during the first half of 1999 relates  primarily to loan types in which the Bank
is no longer  active and for which  provisions  for loan  losses  have been made
previously  which  management  believes to be adequate.  At June 30,  1999,  the
Company's  coverage ratio was 322.7% based on a total  allowance for loan losses
of $3,889,000 and total  nonperforming  loans of $1,205,000.  This compares to a
coverage ratio of 374.0% at December 31, 1998.

Average Balance Sheets

     The  following  tables set forth,  for the periods  indicated,  information
regarding: (i) the total dollar amounts of interest income from interest-earning
assets  and the  resulting  average  yields;  (ii) the total  dollar  amounts of
interest  expense from  interest-bearing  liabilities and the resulting  average
costs;  (iii) net interest income;  (iv) interest rate spread;  (v) net interest
position;  (vi) the net yield earned on  interest-earning  assets; and (vii) the
ratio of total interest-earning  assets to total  interest-bearing  liabilities.
Average  balances shown in the following tables have been calculated using daily
average balances.


                                       12
<PAGE>

<TABLE>
<CAPTION>

                                                    For the Three Months                 For the Three Months
                                                            Ended                                Ended
                                                        June 30, 1999                        June 30, 1998
                                                ------------------------------      ------------------------------

                                                Average               Yield/         Average               Yield/
                                                Balance   Interest     Cost          Balance   Interest     Cost
                                                -------   --------    ------         -------   --------    ------
                                                                     (Dollars in thousands)
<S>                                          <C>           <C>          <C>        <C>          <C>           <C>

Interest-earning assets:
     Loans (1)                               $  487,072    $ 9,198      7.55%      $  520,626   $ 10,274      7.89%
     Mortgage-backed certificates                14,209        258      7.27           63,591      1,022      6.43
     U.S. Treasury and other U.S.
        Government agency securities             56,312        809      5.75           45,444        684      6.02
     Federal funds sold                          19,456        230      4.73           12,494        173      5.54
     Federal Home Loan Bank and
        Federal Reserve Bank stock                3,882         73      7.52            8,834        164      7.70
                                                -------     ------                    -------     ------
        Total interest-earning assets           580,931     10,568      7.28          650,989     12,317      7.57
                                                -------     ------                    -------     ------

Noninterest-earning assets:
     REO                                            375                                   600
     Other                                       37,488                                45,276
                                                -------                               -------
        Total noninterest-earning assets         37,863                                45,876
                                                -------                               -------
             Total assets                    $  618,794                            $  696,865
                                                =======                               =======

Interest-bearing liabilities:
     Passbook and statement savings          $   35,079        213      2.43%      $   40,937        341      3.33%
     Checking accounts                           40,683        149      1.47           35,512        162      1.82
     Money market deposit accounts               72,802        623      3.42           61,777        587      3.80
     Certificates of deposit                    256,105      3,185      4.97          297,437      3,904      5.25
                                                -------     ------                    -------     ------
        Total interest-bearing deposits         404,669      4,170      4.12          435,663      4,994      4.59
                                                -------     ------                    -------     ------

     Advances from the Federal Home
        Loan Bank                                75,319        973      5.17          135,484      1,857      5.48
     Securities sold under agreements
        to repurchase                            18,314        181      3.95           11,901        138      4.64
     Other borrowings                                 -          -         -            1,311         25      7.63
                                                -------     ------                    -------     ------
        Total borrowings                         93,633      1,154      4.93          148,696      2,020      5.43
                                                -------     ------                    -------     ------
        Total interest-bearing liabilities      498,302      5,324      4.27          584,359      7,014      4.80
                                                -------     ------                    -------     ------

Noninterest-bearing liabilities:
     Deposits                                    65,353                                55,192
     Other liabilities                            5,012                                 6,144
                                                -------                               -------
        Total noninterest-bearing liabilities    70,365                                61,336
                                                -------                               -------
             Total liabilities                  568,667                               645,695
                                                -------                               -------

Stockholders' equity                             50,127                                51,170
                                                -------                               -------
Total liabilities and stockholders' equity   $  618,794                            $  696,865
                                                =======                               =======

Net interest income/interest rate spread                   $ 5,244      3.00%                   $  5,303      2.77%
                                                           =======      ====                     =======      ====

Net interest position/net interest margin    $   82,629                 3.61%      $   66,630                 3.26%
                                                =======                 ====          =======                 ====

Ratio of average interest-earning assets to
     average interest-bearing liabilities        116.58%                               111.40%
                                                =======                               =======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>

                                                     For the Six Months                   For the Six Months
                                                            Ended                                Ended
                                                        June 30, 1999                        June 30, 1998
                                                ------------------------------      ------------------------------

                                                Average               Yield/         Average               Yield/
                                                Balance   Interest     Cost          Balance   Interest     Cost
                                                -------   --------    ------         -------   --------    ------
                                                                     (Dollars in thousands)
<S>                                          <C>          <C>           <C>        <C>         <C>          <C>

Interest-earning assets:
     Loans (1)                               $  493,598   $ 18,643      7.55%      $  512,752  $  20,324    7.93%
     Mortgage-backed certificates                14,390        532      7.39           75,784      2,505    6.61
     U.S. Treasury and other U.S.
        Government agency securities             54,813      1,579      5.76           45,224      1,368    6.05
     Federal funds sold                          15,981        376      4.71           12,830        352    5.48
     Federal Home Loan Bank and
        Federal Reserve Bank stock                4,443        165      7.43            9,115        332    7.50
                                                -------     ------                    -------     ------
        Total interest-earning assets           583,225     21,295      7.30          655,705     24,881    7.59
                                                -------     ------                    -------     ------

Noninterest-earning assets:
     REO                                            381                                   811
     Other                                       37,426                                43,712
                                                -------                               -------
        Total noninterest-earning assets         37,807                                44,523
                                                -------                               -------
             Total assets                    $  621,032                            $  700,228
                                                =======                               =======

Interest-bearing liabilities:
     Passbook and statement savings              35,532        431      2.43%      $   42,038        694    3.30%
     Checking accounts                           39,149        282      1.44           33,711        309    1.83
     Money market deposit accounts               73,796      1,249      3.39           58,743      1,086    3.70
     Certificates of deposit                    257,253      6,405      4.98          306,242      8,008    5.23
                                                -------     ------                    -------     ------
        Total interest-bearing deposits         405,730      8,367      4.12          440,734     10,097    4.58
                                                -------     ------                    -------     ------
     Advances from the Federal Home
        Loan Bank                                78,392      2,010      5.13          138,575      3,781    5.46
     Securities sold under agreements
        to repurchase                            16,770        326      3.89           10,572        243    4.59
     Other borrowings                                 -          -         -            1,865         70    7.51
                                                -------     ------                    -------     ------
        Total borrowings                         95,162      2,336      4.91          151,012      4,094    5.42
                                                -------     ------                    -------     ------
        Total interest-bearing liabilities      500,892     10,703      4.27          591,746     14,191    4.80
                                                -------     ------                    -------     ------

Noninterest-bearing liabilities:
     Deposits                                    64,890                                51,578
     Other liabilities                            5,276                                 6,153
                                                -------                               -------
        Total noninterest-bearing liabilities    70,166                                57,731
                                                -------                               -------
             Total liabilities                  571,058                               649,477
                                                -------                               -------

Stockholders' equity                             49,974                                50,751
                                                -------                               -------
Total liabilities and stockholders' equity   $  621,032                            $  700,228
                                                =======                               =======

Net interest income/interest rate spread                  $ 10,592      3.03%                  $  10,690      2.79%
                                                          ========      ====                    ========      ====

Net interest position/net interest margin    $   82,332                 3.63%      $   63,959                 3.26%
                                                =======                 ====          =======                 ====

Ratio of average interest-earning assets to
     average interest-bearing liabilities        116.44%                               110.81%
                                                =======                                ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
                                       14
<PAGE>

Comparison  of  Operating  Results for the Three  Months Ended June 30, 1999 and
June 30, 1998.

General

     The Company's  pre-tax  income  decreased  slightly to $2.2 million for the
three months ended June 30, 1999 as compared to $2.3 million for the same period
in 1998. An increase in other expenses of $139,000 and decreases in net interest
income  of  $59,000  and other  income of  $45,000  were  partially  offset by a
decrease in the provision for loan losses of $114,000.

     In the third quarter of 1999, the Company's  management expects the Company
to experience increased loan production, particularly in core banking loans, and
continued improvements in fee income. The Company's pipeline of loans in process
is promising, and if management's assumptions are correct, they believe that the
Company's  diluted  earnings per share for the third quarter will meet or exceed
analysts' predictions as compiled by I/B/E/S International.

Net Interest Income

     The  Company's  net interest  income  before the  provision for loan losses
decreased $0.1 million,  or 1.1%, to $5.2 million for the quarter ended June 30,
1999 as compared to $5.3  million for the quarter  ended June 30,  1998.  A $1.8
million decrease in interest income was  substantially  offset by a $1.7 million
decrease in interest  expense for the second  quarter of 1999 as compared to the
same period in 1998. As a result of changes in the interest rate  environment in
1998,  management  used the  proceeds  from the  sale,  maturity  and  principal
repayment of certain  securities,  primarily mortgage- backed  certificates,  to
reduce  advances  from the  Federal  Home Loan Bank  ("FHLB")  rather  than seek
alternative  investment  opportunities.   This  strategy  reduced  both  average
interest  earning  assets and  interest  bearing  liabilities  during the second
quarter of 1999 compared to the second quarter of 1998.  Total  interest-earning
assets  decreased  from an average  balance of $651.0  million during the second
quarter of 1998 to $580.9 million during the second quarter of 1999, while total
interest-bearing  liabilities  decreased  from $584.4  million during the second
quarter of 1998 to $498.3  million  during the same period of 1999. As a result,
the Company's  net interest  margin  increased  from 3.26% for the quarter ended
June 30, 1998 to 3.61% for the quarter ended June 30, 1999.

     Interest on loans decreased $1.1 million, or 10.5%, to $9.2 million for the
second quarter 1999 compared to $10.3 million for the same period in 1998.  This
decrease was  attributable  to both  decreases in average  balances as well as a
decrease in loan yields  associated  with  declining  market rates in 1998.  The
average loan balance for the second quarter of 1999 decreased $33.5 million,  or
6.4%, to $487.1  million at June 30, 1999 compared to $520.6 million at June 30,
1999.  The yield on the loan  portfolio for June 30, 1999 was 7.55%  compared to
7.89% for the same period in 1998, a 4.3% decrease.

     Interest  on  the  Company's  portfolio  of  mortgage-backed   certificates
decreased  $764,000,  or 74.8%,  to $258,000 for the quarter ended June 30, 1999
from $1.0 million for the comparable 1998 period. This decrease was attributable
to a $49.4 million  decrease in the average balance of the portfolio  during the
second  quarter of 1999 compared to the second  quarter of 1998. The decrease in
the portfolio  average balance was primarily due to the sales and prepayments of
mortgage-backed securities as a result of the interest rate declines in 1998.

     Interest on deposits  decreased  $824,000,  or 16.5%, for the quarter ended
June 30, 1999  compared to the quarter  ended June  30,1998.  The  decrease  was
attributed  to  both a  decrease  in the  average  balance  of  interest-bearing
deposits  as well as a  decrease  in the  average  cost of these  deposits.  The
average  balance of  interest-bearing  deposits  and the  average  cost of these
deposits were $404.7 million and 4.12%, respectively,  for the second quarter of
1999 as  compared  to $435.7  million  and 4.59%,  respectively,  for the second
quarter of 1998.

     Interest on borrowings decreased $866,000,  or 42.9%, in the second quarter
of 1999 compared to the same quarter in 1998.  This  decrease was  substantially
due to a $60.2  million,  or 44.4%,  decrease  in the  average  balance  of FHLB
advances to $75.3 million at June 30, 1999 from $135.5 million at June 30, 1998.

Provision for Loan Losses

     The Company's  provision for loan losses decreased  $114,000 to $22,000 for
the three months ended June 30, 1999 as compared to $136,000 for the same period
in 1998. Net loans charged off during the three months ended June 30,

                                       15
<PAGE>

1999 were  $77,000  compared  to $27,000 for the  comparable  1998  period.  The
difference  between  the  provision  for loan  losses and net loans  charged off
during the first  quarter of 1999  relates  primarily to loan types in which the
Bank is no longer active and for which provisions for loan losses have been made
previously which management believes to be adequate.

Other Income

     Total other income remained  substantially  the same for the second quarter
of 1999 compared to the second quarter of 1998. Increases in merchant processing
fees and other income were offset by decreases in commercial  mortgage brokerage
fees and gains on sales of loans and securities.

Other Expenses

     Total other expenses increased  $139,000,  or 3.0%, from the second quarter
of 1999  compared to the second  quarter of 1998.  The increase is primarily the
result of a volume related $81,000 increase in merchant processing expense.


Comparison of Operating  Results for the Six Months Ended June 30, 1999 and
June 30, 1998.

General

     The Company's  pre-tax  income  decreased  $0.1  million,  or 2.0%, to $4.5
million for the six months  ended June 30, 1999 as compared to $4.6  million for
the six months ended June 30, 1998. A $516,000  increase in other  expense and a
$98,000  decrease in net  interest  income were  partially  offset by a $304,000
decrease  in the  provision  for loan  losses and a $219,000  increase  in other
income.

Net Interest Income

     The  Company's  net  interest  income  before  provision  for  loan  losses
decreased $0.1 million, 0.9%, to $10.6 million for the six months ended June 30,
1999 as compared to $10.7 million for the six months ended June 30, 1998. A $3.6
million  decrease  in interest  income was  partially  offset by a $3.5  million
decrease in interest  expense for the first half of 1999 as compared to the same
period in 1998. As a result of changes in the interest rate environment in 1998,
interest income on loans and loan yields decreased. In addition, management used
the  proceeds  from the  sale,  maturity  and  principal  repayment  of  certain
securities,  primarily mortgage-backed certificates, to reduce advances from the
Federal  Home  Loan  Bank  ("FHLB")  rather  than  seek  alternative  investment
opportunities.  This strategy  reduced both interest earning assets and interest
bearing  liabilities during the first half of 1999 compared to the first half of
1998.  Total interest-  earning assets decreased to an average balance of $583.2
million at June 30,  1999 from  $655.7  million at June 30,  1998,  while  total
interest-bearing  liabilities  decreased to $500.9 million at June 30, 1999 from
$591.7 million at June 30, 1998. As a result,  the Company's net interest margin
increased to 3.63% for the six months ended June 30, 1999 from 3.26% for the six
months ended June 30, 1998.

     Interest  on  the  Company's  portfolio  of  mortgage-backed   certificates
decreased $2.0 million , or 78.8%, to $532,000 for the six months ended June 30,
1999  from $2.5  million  for the  comparable  1999  period.  The  decrease  was
attributable to a $61.4 million decrease in the average balance of the portfolio
during the first half of 1999  compared to the first half of 1998.  The decrease
in the portfolio  average balance was attributed to the sales and prepayments of
mortgage-backed securities as a result of the interest rate declines in 1998.

     Interest on loans decreased $1.7 million, or 8.3%, to $18.6 million for the
six months  ended June 30,  1999  compared  to $20.3  million the same period in
1998. This decrease was  attributable  to both decreases in average  balances as
well as a decrease in the loan  portfolio  yield  associated  with the declining
market  rates in 1998.  The  average  loan  balance  for the first  half of 1999
decreased $19.2 million or 3.7% to $493.6 million compared to $512.8 million for
the first half of 1998.  The yield on the loan  portfolio  was 7.55% for the six
months  ended June 30, 1999  compared  to 7.93% for the same  period in 1998,  a
decrease of 4.8%.

     Interest on deposits decreased by $1.7 million, or 17.1%, for first half of
1999 compared to the first half of 1998.  The decrease was  attributed to both a
decrease  in the  average  balance  of  interest-bearing  deposits  as well as a
decrease  in the  average  cost  of  these  deposits.  The  average  balance  of
interest-bearing deposits and the average cost of these

                                       16
<PAGE>

deposits were $405.7 million and 4.12% respectively,  for the first half of 1999
as compared to $440.7 and 4.58%, respectively, for the first half of 1998.

     Interest on borrowings decreased $1.8 million, or 42.9%, for the six months
ended June 30,  1999  compared  to the same period in 1998.  This  decrease  was
substantially  due to a $60.2  million  decrease in the average  balance of FHLB
advances  for the first half of 1999  compared  to the first  half of 1998.  The
decline in the average balance was primarily associated with the use of proceeds
from  the sale of  mortgage-backed  certificates  to  significantly  reduce  the
balance of FHLB advances in 1998.

Provision for Loan Losses

     The Company's  provision for loan losses decreased  $304,000 to $36,000 for
the six months  ended June 30, 1999 as compared to $340,000  for the same period
in 1998.  Net loans  charged off during the six months  ended June 30, 1999 were
$171,000  compared to $216,000 for the  comparable  1998 period.  The difference
between the provision for loan losses and net loans charged off during the first
half of 1999  relates  primarily  to loan  types in which  the Bank is no longer
active and for which  provisions for loan losses have been made previously which
management believes to be adequate.

Other Income

     Total other income  increased  $219,000,  or 6.4%, for the six months ended
June 30, 1999 as compared to the same period in 1998. The increase was primarily
attributed  to increases  of $261,000 in merchant  processing  fees,  $63,000 in
deposit fees, and $121,000 in other income. The increases in merchant processing
fees and deposit fees  resulted  from  increased  volume.  The increase in other
income of $121,000 is primarily the result of a gain recognized from the sale of
the Company's headquarters building.

Other Expenses

     Total other expenses  increased  $516,000,  or 5.6%, from the first half of
1999 compared to the first half of the previous  year. The increase is primarily
the result of a $378,000  increase salaries and employee benefits and a $150,000
increase in merchant processing  expense.  The increase in salaries and employee
benefits is partially  attributed to the  implementation  of the Company's  core
banking  initiatives which required  additional  lenders and retail bankers,  as
well as salary  increases.  The increase in the merchant  processing  expense is
primarily due to increased volume.

Liquidity

     The  principal  sources of funds for the Company  for the six months  ended
June 30, 1999 included  $33.4 million in proceeds from the sale of loans,  $13.2
million in proceeds  from  principal  repayments  and  maturities  of securities
available for sale, an $11.3 million  decrease in loans held for  investment,  a
$3.7 million increase in securities sold under agreement to repurchase, and $1.6
million redemption of Federal Home Loan Bank stock. Funds were used primarily to
originate  loans  held  for  sale of  $32.4  million  and to fund  purchases  of
securities  available for sale of $31.9 million,  as well as to compensate for a
$15.6 million decrease in deposits.

     The Company's  liquidity could be impacted by a decrease in the renewals of
deposits  or general  deposit  runoff.  However,  the Company has the ability to
raise  deposits  by  conducting  deposit  promotions.  In the event the  Company
requires funds beyond its ability to generate them internally, the Company could
obtain  additional  advances from the FHLB.  The Company could also obtain funds
through the sale of investment securities from its available for sale portfolio.

     All savings  institutions,  including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain  percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  The  liquidity  requirement  may vary from time to
time (between 4% and 10%) depending  upon economic  conditions and savings flows
of all  savings  institutions.  At June 30,  1999 and  December  31,  1998,  the
required  liquid asset ratio was 4.0%.  The Bank's  liquid asset ratio  exceeded
regulatory requirements at June 30, 1999 and December 31, 1998.



                                       17
<PAGE>

Impact of the Year 2000 Issue

     The Year 2000 Issue is the result of computer  programs being written using
two digits rather than four to define the  applicable  year.  As a result,  such
computer  programs will not recognize the correct date after  December 31, 1999.
Also,  systems and  equipment  that are not  typically  thought of as  "computer
related"  (referred to as "non-IT")  contain imbedded  hardware or software that
may have a time element.

     In 1997,  the  Company  implemented  a four  phase  project  of  inventory,
assessment,  renovation  and  testing/implementation  to  address  the Year 2000
Issue.  The scope of the project  included:  determining  the  compliance of all
applications,  operating  systems  and  hardware  on the  mainframe,  PC and LAN
systems;  addressing  issues related to non-IT embedded  software and equipment;
and addressing the compliance of the Company's  significant  borrowers and third
party providers.

     All four phases of the Company's Year 2000 project have been  substantially
completed  within  the  guidelines  and time-  frames  set forth by the  Federal
Financial  Institution   Examination  Council.  The  Company  plans  to  conduct
additional  testing  throughout  the  remainder  of the year.  The Company  also
completed  its Year  2000  Contingency  Plan,  designed  to  address  situations
including power shortages,  telephone  communications failure and our customers'
potential Year 2000 problems.  This plan also contains two stand-alone  plans to
address the Company's  expected  year-end cash requirements and an event plan to
monitor  specific  operations  prior to and during the  century  rollover  date.
Successful  contingency  planning is an ongoing  process,  and the plans will be
revised from time to time during the remainder of 1999 as events warrant.

     - The  Company has  determined,  based  primarily  on  communications  with
vendors, that the majority of the Company's non-IT related systems and equipment
are Year 2000 compliant. Testing of critical systems that the Company determined
needed to be  conducted  and  compilation  of  written  documentation  regarding
compliance were substantially completed at the end of the first quarter of 1999.

     - The potential  impact of Year 2000 will depend not only on the corrective
measures the Company  undertook but also on other  entities that provide data to
or receive data from the Company and on those whose  operational  capability  or
financial  conditions  are  important to the  Company.  The Company has received
assurances  from all major  third party  vendors  that they are either Year 2000
compliant or expect to be in compliance  prior to the end of the second  quarter
of 1999.  During the third quarter of 1999,  the Company will confirm with those
vendors that were not yet compliant in the second quarter of 1999 that they have
achieved  compliance.  In addition,  management has reviewed significant lending
and deposit  relationships  and consulted with these  customers as to their Year
2000 readiness.  The plans of such parties are currently being monitored and the
Company is prepared to deal with any fundamental impact on the Company.

     - The Company has  established  an internal  review process to evaluate its
Year 2000 testing  results.  Monthly  progress reports are made to the Company's
senior  management  and Board of Directors.  The Company has also  established a
Customer  Awareness  Program to inform customers of Year 2000 issues and provide
status reports as to the Bank's Year 2000 efforts.

     - The Company  estimates,  based on current  projections  of allocations of
existing  resources and known direct costs, that total costs related to the Year
2000 project  from 1997 to 2000 will be  approximately  $1,150,000.  The Company
estimates  that  approximately  78%  of  these  costs  will  be  related  to the
redeployment  of  existing   personnel  to  address  Year  2000  Issues,   while
approximately  22% of these  costs will  represent  incremental  expenses to the
Company since inception of the Year 2000 project.  Since inception,  the Company
has incurred  approximately  $766,000 of costs related to its Year 2000 project,
of which  approximately  $90,000 represents  incremental  expenses primarily for
software  upgrades  and outside  consultant  fees.  Of the $766,000 of Year 2000
project costs incurred since  inception,  approximately  $160,000,  $340,000 and
$266,000 were incurred in 1997,  1998 and the first half of 1999,  respectively.
The  remaining  estimated  costs to  complete  the  project  include  additional
testing,  monitoring and contingency activities during the remainder of 1999 and
into the year 2000. Some  computer-related  initiatives have been delayed due to
the allocation of resources towards Year 2000 issues.  Management believes these
delays have not had an adverse  impact on the Company's  financial  condition or
day to day operations.

     Based on our testing  program,  it is the  Company's  opinion that critical
systems are Year 2000  compliant.  In the unlikely event that a critical  system
does not  perform as  expected  or if there is  non-compliance  by a major third
party

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<PAGE>

provider,  the above mentioned  contingency plan would be invoked.  This plan is
intended  to guide  the Bank in  responding  to  possible  failure  of  critical
systems.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

     Information  contained  in  the  above  discussion  titled,   "Management's
Discussion and Analysis of Financial Condition and Results of Operations," other
than historical information, may contain forward-looking statements that involve
risks and uncertainties including, but not limited to, management's expectations
regarding  performance  during the third quarter of 1999,  the Company's and its
major vendors' Year 2000 readiness, and the estimated costs related to Year 2000
issues.  These statements are made pursuant to the safe harbor provisions of the
Private  Litigation Reform Act of 1995, and are provided to assist the reader in
understanding anticipated future financial and operational results. Although the
Company believes that the assumptions underlying the forward-looking  statements
contained herein are reasonable, any of these assumptions could ultimately prove
to be inaccurate.  The Company's actual results may differ materially from those
projected in  forward-looking  statements,  particularly if market conditions or
other factors  prevent the Company from achieving or sustaining the increases in
loan  production  of fee  income  that are the  basis  of many of the  Company's
assumptions.


Item 3 - Quantitative and Qualitative Disclosure About Market Risk

Market Risk Management

     The  Company's   primary  market  risk  exposure  is  interest  rate  risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Company's  interest-earning  assets
and  interest-  bearing  liabilities.  There  were no  material  changes  in the
Company's  market risk  management  strategy,  as stated in the  Company's  1998
annual report, during the first six months of 1999.

                                       19

<PAGE>

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings - Inapplicable

Item 2 - Changes in Securities - Inapplicable

Item 3 - Defaults Upon Senior Securities - Inapplicable

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

     At  the  Company's  annual  meeting  held  on May  19,  1999  (the  "Annual
Meeting"),  the Company's stockholders reelected three directors of the Company,
William J.  Davenport,  III,  Michael S. Ives,  and Charles R. Malbon,  Jr.. The
voting results in the election for directors were as follows:

                                              FOR                 AGAINST

         William J. Davenport, III           4,158,605            121,394
         Michael S. Ives                     4,159,491            120,508
         Charles R. Malbon, Jr.              5,159,191            120,808

The  terms of office of each of the other  directors  of the  Company  continued
following the Annual  Meeting.  These  directors are David L. Bernd,  Patrick E.
Corbin,  Thomas J.  Decker,  Jr.,  John F. Harris,  William H. Hodges,  Roger C.
Reinhold, Anne B. Shumadine, and David R. Tynch.

     In  addition,  the  Company's  stockholders  approved  the  proposed  CENIT
Long-term  Incentive  Plan.  The voting results for,  against,  and abstain were
3,747,604, 491,640, and 40,755, respectively.

Item 5 - Other Information - None

Item 6 - Exhibits and Reports on Form 8-K - None

                                                     SIGNATURES

     Pursuant to the  requirements  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.


                                          CENIT BANCORP, INC.


DATE:  August 12, 1999                    /S/Michael S. Ives
                                          -------------------------------------
                                          Michael S. Ives
                                          President and Chief Executive Officer



DATE:  August 12, 1999                    /S/ Winfred O. Stant, Jr.
                                          -------------------------------------
                                          Winfred O. Stant, Jr.
                                          First Vice President and
                                          Chief Accounting Officer


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