<PAGE>

BCSB BANKCORP, INC.



     [LOGO]




                                                            1999 ANNUAL REPORT
<PAGE>

BCSB BANKCORP, INC.
--------------------------------------------------------------------------------

     BCSB Bankcorp, Inc. (the "Company") serves as the holding company for its
wholly owned subsidiary, Baltimore County Savings Bank, F.S.B. (the "Bank").
Baltimore County Savings Bank, M.H.C. (the "MHC"), a federal mutual holding
company, owns 62.0% of the Company's outstanding common stock.  The Company has
no significant assets other than its investment in the Bank.  The Company is
primarily engaged in the business of directing, planning and coordinating the
business activities of the Bank.

     The Bank is a federal mutual savings bank operating through eight banking
offices serving Baltimore and Harford Counties in Maryland.  The Bank's
principal business consists of attracting deposits from the general public and
investing these funds in loans secured by first mortgages on owner-occupied,
single-family residences in the Bank's market area, and, to a lesser extent,
other real estate loans, consisting of construction loans, single-family rental
property loans and commercial real estate loans, and consumer loans,
particularly automobile loans.  The Bank derives its income principally from
interest earned on loans and, to a lesser extent, interest earned on mortgage-
backed securities and investment securities and other income.  Funds for these
activities are provided principally by operating revenues, deposits and
repayments of outstanding loans and investment securities and mortgage-backed
securities.


MARKET INFORMATION
--------------------------------------------------------------------------------

     The Company's common stock began trading under the symbol "BCSB" on the
Nasdaq National Market System on July 9, 1998.  There are currently 6,053,162
shares of the common stock outstanding and approximately 1,213 holders of record
of the common stock.  Following are the high and low bid prices, by fiscal
quarter, as reported on the Nasdaq National Market System during the periods
indicated, as well as dividends paid on the common stock during each quarter.

<TABLE>
<CAPTION>
                        High     Low    Dividends Per Share
                       -------  ------  -------------------
<S>                    <C>      <C>     <C>
     Fiscal 1999
---------------------

     First quarter...  $10.375  $7.750          $  --
     Second quarter..    9.625   7.875             --
     Third quarter...    9.375   8.125           .125
     Fourth quarter..    8.563   6.310           .125

     Fiscal 1998
---------------------
     Fourth quarter..   12.625   10.00             --
</TABLE>

     The stated high and low bid prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.

TABLE OF CONTENTS
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                                      <C>
BCSB Bankcorp, Inc.....................................................................                (i)
Market Information.....................................................................                (i)
Letter to Stockholders.................................................................                  1
Selected Consolidated Financial and Other Data.........................................                  2
Management's Discussion and Analysis of Financial Condition and Results of Operations..                  4
Consolidated Financial Statements......................................................                F-1
Corporate Information..................................................................  Inside Back Cover
</TABLE>
<PAGE>

                      [LETTERHEAD OF BCSB BANKCORP, INC.]




Dear Stockholders, Depositors & Friends,

     This letter marks the second annual report since the Bank converted to the
mutual holding company organization in July 1998.  A lot has happened in a short
period of time.  The plans we made as a result of that reorganization have begun
to be realized.  Those plans include diversification of loan products and growth
through expansion of the Bank's branch network.  In doing this, Baltimore County
Savings Bank has become a full-service, locally owned and operated community
bank.  We provide our customers with a friendly alternative to the "big banks",
and provide you, our stockholders, with long-term growth potential while
continuing to pay a higher-than-industry-average dividend on a regular basis.

     I have heard from many of our deposit and loan customers who have told me
they like doing business with us because questions are promptly answered and
they are treated like a person, not a number.  This tells me our plan is
working.  What's more, the Bank has been an active member of the local
community.  Through the Charitable Foundation and other initiatives, much good
will has been realized.

     In the past year, we opened three new offices, Abingdon and Forest Hill in
Harford County and Essex in Baltimore County.  Hickory in Harford County and
White Marsh in Baltimore County are under construction and are expected to open
in early 2000.  This will double our branch network in one year and will provide
full-service facilities for both existing customers and new customers.  The
three new offices have all grown faster than we anticipated and we fully expect
the growth to continue as others find out why it pays to Come Home to Baltimore
County Savings Bank.

     We have expanded our consumer loan products, by making boat and RV loans
available to our customers.  We will be adding home improvement loans to our
product mix and will be enhancing our home equity loans to be even more
competitive in the future.  The growth expected as a result of these expansion
efforts will provide long-term benefits to us as stockholders.

     What follows is the report on the Company's operations this past year.  As
you go through it, remember that our plans are long-term.  It will take time to
realize their full potential.  Providing our customers with the best loan and
deposit products and to make banking with us easy and convenient is the best
foundation for our investment in BCSB Bankcorp.


                                    Very truly yours,


                                    /s/ Gary C. Loraditch
                                    -------------------------
                                    Gary C. Loraditch
                                    President
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------

Selected Consolidated Financial Condition Data

<TABLE>
<CAPTION>

                                                      At September 30,
                                                    --------------------
                                                       1999       1998
                                                    ----------  --------
                                                        (In thousands)

<S>                                                  <C>        <C>
Total assets......................................    $298,302  $268,840
Loans receivable, net.............................     215,383   181,969
Cash..............................................       5,977     3,572
Interest-bearing deposits in other banks..........       8,651    20,300
Federal funds sold................................         449     9,134

Investment securities:
 Held to maturity.................................      35,232    12,611
Mortgage-backed securities:
 Held to maturity.................................      23,500    34,198
FHLB stock........................................       1,650     1,512
Deposits..........................................     233,365   220,805
FHLB advances.....................................      16,000        --
Stockholders' equity - substantially restricted...      45,280    45,143

</TABLE>

Selected Consolidated Operations Data

<TABLE>
<CAPTION>
                                                  Year Ended September 30,
                                                  ------------------------
                                                      1999         1998
                                                  ------------  ----------
                                                        (In thousands)

<S>                                                 <C>        <C>
Interest income..............................          $19,396   $18,810
Interest expense.............................            9,780     9,867
                                                       -------   -------
Net interest income before
 provision for loan losses...................            9,616     8,943
Provision for loan losses....................              339       119
                                                       -------   -------
Net interest income..........................            9,277     8,824
Other income.................................              547       911
Non-interest expense.........................            7,482     7,013
                                                       -------   -------
Income before income taxes...................            2,342     2,721
Income tax provision.........................              957     1,073
                                                       -------   -------
Net Income...................................          $ 1,384   $ 1,648
                                                       =======   =======
</TABLE>

                                       2
<PAGE>

Key Operating Ratios:

<TABLE>
<CAPTION>
                                                      At or for the Year
                                                      Ended September 30,
                                                     ---------------------
                                                        1999       1998
                                                     ---------  ----------
<S>                                                  <C>        <C>
Performance Ratios:
 Return on average assets (net income
  divided by average total assets)...........            .49%      .63%
 Return on average equity (net income
  divided by average equity).................           3.03      5.71
 Interest rate spread (combined
  weighted average interest rate
  earned less combined weighted
  average interest rate cost)................           2.94      3.10
 Net interest margin (net interest
  income divided by average
  interest-earning assets)...................           3.51      3.53
 Ratio of average interest-earning assets
  to average interest-bearing liabilities....         116.05    110.20
 Ratio of non-interest expense to
  average total assets.......................           2.63      2.67

Asset Quality Ratios:
 Nonperforming assets to total assets at
  end of period..............................            .39       .57
 Nonperforming loans to gross loans at
  end of period..............................            .46       .59
 Allowance for loan losses to gross loans
  at end of period...........................            .57       .54
 Allowance for loan losses to nonperforming
  loans at end of period.....................         124.20     92.99
 Provision for loan losses to gross loans....            .15       .06
 Net charge-offs to average loans
  outstanding................................            .05       .04

Capital Ratios:
 Equity to total assets at end
  of period..................................          15.18     16.79
 Average equity to average
  assets.....................................          16.07     10.97

</TABLE>

                                       3
<PAGE>

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


General

     The Company was formed in June 1998 by the Bank to become the holding
company for the Bank following the Bank's reorganization into the mutual holding
company form of organization (the "Reorganization").  As part of the
Reorganization, the Company became a majority-owned subsidiary of the MHC.  The
Reorganization was consummated on July 8, 1998.  All references to the Company
prior to July 8, 1998, except where otherwise indicated, are to the Bank.

     The Company's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loan, investment
securities and mortgage-backed securities portfolio and interest paid on
interest-bearing liabilities.  Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities.  The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows.  To a lesser extent, the Company's net income also is affected by the
level of other income, which primarily consists of fees and charges, and levels
of non-interest expenses such as salaries and related expenses.

     The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies.  Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds.  Deposit flows and costs of funds
are influenced by prevailing market rates of interest, primarily on competing
investments, account maturities and the levels of personal income and savings in
the Company's market area.

Forward-Looking Statements

     When used in this Annual Report, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.  Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, competition and information provided by third-party
vendors that could cause actual results to differ materially from historical
earnings and those presently anticipated or projected.  The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.  The Company wishes to advise
readers that the factors listed above could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods in any current statements.

     The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

                                       4
<PAGE>

Year 2000 Readiness Disclosure

     The following information constitutes "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act.

     The Company's operations, like those of most financial institutions, are
substantially dependent upon computer systems for lending and deposit
activities. The Company is addressing the potential problems associated with the
possibility that the computers which control its data processing activities,
facilities and networks may not be programmed to read four-digit dates and, upon
the arrival of the year 2000, may recognize the two-digit code "00" as the year
1900 rather than 2000. This could cause systems to fail to function or generate
erroneous information.

     The Company has formed a Year 2000 Committee with senior representatives
from every functional area of the Company.  At the direction of the Board, this
Committee is leading the efforts to ensure that the Company is ready for the
Year 2000.  The Board of Directors has approved the Company's five phase Year
2000 Plan that was developed in accordance with the guidelines set forth by the
Federal Financial Institutions Examination Council.

     The first phase, awareness, was intended to provide on-going information to
employees, directors and customers of the impact of the Year 2000 issue.  The
Company has conducted Year 2000 training for all directors and employees.

     The second phase, assessment, required the review of all systems that are
believed to be potential risks in order to minimize any Year 2000 operating
difficulties. This review included all major computer and non-computer based
systems, such as vaults, security systems and telephone systems. This phase is
complete.

     The third phase, renovation and/or replacement, includes obtaining vendor
certification and/or the necessary upgrades and enhancements to ensure that
existing systems are Year 2000 compliant.  The Company is continuing to follow
up with third party vendors as necessary.  At this time the Company believes
that all mission critical systems are compliant.

     The fourth phase, testing, has been completed. The hardware and software
has been successfully tested. The Company has received representations from
mission critical third party vendors that they are Year 2000 compliant. All
mission critical testing has been completed.

     The last phase, implementation, has been completed.  The Company has
developed contingency plans for processes in the event of system failures.  This
plan is updated as test results are obtained.  The contingency plan sets forth
the procedures that would allow the Company to conduct operations in the event
of one or more system failures, should such a failure occur notwithstanding
prior assurance from third party vendors.

     The Company estimates that the total future cost of Year 2000 compliance,
excluding internal staffing costs, will not exceed $75,000.  The Company
believes that its policies, plans and actions are in compliance with regulatory
guidelines and milestone dates.

     The Bank's customers may also experience Year 2000 problems, which could
adversely affect their ability to comply with their obligations to the Bank.
Management does not believe that the failure of any single customer to be Year
2000 compliant would materially adversely affect the Company's financial
conditions or results of operations.

     The Company believes that the potential effects on internal operations from
Year 2000 issues can and will be addressed prior to the Year 2000. However, as
unforeseen circumstances arise, the Year 2000 issue could disrupt the Company's
normal business operations. The most reasonably likely worst case Year 2000
scenarios foreseeable at this time would include the inability to systematically
process, in some combination, various types of customer transactions,

                                       5
<PAGE>

which could affect the Company's ability to accept deposits or process
withdrawals, originate new loans or accept loan payments in the automated manner
currently utilized.  Depending upon how long this scenario lasted, this could
have a material adverse effect on the Company's operations.  The contingency
plan addresses alternative methods to enable the Company to continue to offer
basic services to the Company's customers.  The costs of the Year 2000 project
and the benchmark dates are based on management's best estimates, which are
based on a number of assumptions including future events.  The Company cannot
guarantee that these estimates will be achieved at the cost disclosed or within
the time frames indicated.

Asset/Liability Management

     The Company strives to achieve consistent net interest income and reduce
its exposure to adverse changes in interest rates by attempting to match the
terms to repricing of its interest-sensitive assets and liabilities.  Factors
beyond the Bank's control, such as market interest rates and competition, may
also have an impact on the Bank's interest income and interest expense.

     In the absence of any other factors, the overall yield or return associated
with the Bank's earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease.  In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.  By
controlling the increases and decreases in its interest income and interest
expense which are brought about by changes in market interest rates, the Bank
can significantly influence its net interest income.

     The three senior officers of the Bank meet on a weekly basis to monitor the
Bank's interest rate risk position and to set prices on loans and deposits to
manage interest rate risk within the parameters set by the Board of Directors.
The President of the Bank reports to the Board of Directors on a regular basis
on interest rate risk and trends, as well as liquidity and capital ratios and
requirements.  The Board of Directors reviews the maturities of the Bank's
assets and liabilities and establishes policies and strategies designed to
regulate the Bank's flow of funds and to coordinate the sources, uses and
pricing of such funds.  The first priority in structuring and pricing the Bank's
assets and liabilities is to maintain an acceptable interest rate spread while
reducing the net effects of changes in interest rates.  The Bank's management is
responsible for administering the policies and determinations of the Board of
Directors with respect to the Bank's asset and liability goals and strategies.

     The Bank's principal strategy in managing interest rate risk has been to
emphasize the acquisition of short- and intermediate-term assets, including
locally originated 15-year fixed-rate mortgage loans and consumer loans,
particularly automobile loans.  In addition, in managing its portfolio of
investment securities and mortgage-backed securities, the Bank in recent periods
has purchased short-term investment securities so as to reduce the Bank's
exposure to increases in interest rates.  The Bank currently retains all loans
originated in its portfolio, although the Bank's loans generally conform to
secondary market requirements.

     In addition to shortening the average repricing period of its assets, the
Bank has sought to lengthen the average maturity of its liabilities by adopting
a tiered pricing program for its certificates of deposit, which provides higher
rates of interest on its longer term certificates in order to encourage
depositors to invest in certificates with longer maturities.

Market Risk

     Management measures the Bank's interest rate risk by computing estimated
changes in the net portfolio value ("NPV") of its cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates.  NPV represents the market value of portfolio
equity and is the difference between incoming and outgoing discounted cash flows
from assets and liabilities, with adjustments made for off-balance sheet items.
These computations estimate the effect on the Bank's NPV of sudden and sustained
1% to 3% increases and decreases in market interest rates.  The Bank's Board of
Directors has adopted an interest rate risk policy which establishes

                                       6
<PAGE>

maximum decreases in the Bank's estimated NPV of 25%, 50% and 75% in the event
of 1%, 2% and 3% increases in market interest rates, respectively, and of 25%,
25% and 25% in the event of 1%, 2% and 3% decreases in market interest rates,
respectively. The following table presents the Bank's projected change in NPV
for the various rate shock levels at September 30, 1999.

<TABLE>
<CAPTION>
                     Net Portfolio Value             NPV as % of PV of Assets
    Change    ------------------------------------  ---------------------------
  in Rates    $ Amount  $ Change (1)  % Change (2)  NPV Ratio (3)  % Change (4)
------------  --------  ------------  ------------  -------------  ------------
              (Dollars in thousands)
<S>           <C>       <C>           <C>           <C>            <C>
+300 bp        $22,572     $(15,487)        (41)%        8.16%        (476) bp
+200 bp         27,780      (10,279)        (27)         9.83         (309) bp
+100 bp         33,067       (4,992)        (13)        11.45         (147) bp
   0 bp         38,059                                  12.92
-100 bp         42,082        4,023          11         14.05          113  bp
-200 bp         45,848        7,789          20         15.08          215  bp
-300 bp         49,652       11,593          30         16.08          315  bp
-------------------
</TABLE>
(1)  Represents the excess (deficiency) of the estimated NPV assuming the
     indicated change in interest rates minus the estimated NPV assuming no
     change in interest rates.
(2)  Calculated as the amount of change in the estimated NPV divided by the
     estimated NPV assuming no change in interest rates.
(3)  Calculated as the estimated NPV divided by average total assets.
(4)  Calculated as the excess (deficiency) of the NPV ratio assuming the
     indicated change in interest rates over the estimated NPV ratio assuming no
     change in interest rates.

***Risk Measures: 200 bp rate shock***

<TABLE>
<CAPTION>
                                                       At              At
                                                 September 30,   September 30,
                                                      1999            1998
                                                 -------------   -------------
<S>                                              <C>             <C>

Pre-Shock NPV Ratio: NPV as % of PV of Assets..      12.92%          14.93%
Exposure Measure: Post Shock NPV Ratio.........       9.83           13.59
Sensitivity Measure: Change in NPV Ratio.......       309 bp         134 bp
</TABLE>

     The above table indicates that at September 30, 1999, in the event of
sudden and sustained increases in prevailing market interest rates, the Bank's
NPV would be expected to decrease, and that in the event of sudden and sustained
decreases in prevailing market interest rates, the Bank's NPV would be expected
to increase.  The Bank's Board of Directors reviews the Bank's NPV position
quarterly, and, if estimated changes in NPV are not within the targets
established by the Board, the Board may direct management to adjust its asset
and liability mix to bring interest rate risk within Board approved targets.  At
September 30, 1999, the Bank's estimated changes in NPV were within the targets
established by the Board of Directors.

     NPV is calculated by the OTS by using information provided by the Bank.
The calculation is based on the net present value of discounted cash flows
utilizing market prepayment assumptions and market rates of interest provided by
Bloomberg quotations and surveys performed during the quarter ended September
30, 1999, with adjustments made to reflect the shift in the Treasury yield curve
between the survey date and the quarter-end date.

     Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results.  Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.

                                       7
<PAGE>

     Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV.  Actual values may differ from those projections set
forth in the table, should market conditions vary from assumptions used in the
preparation of the table.  Additionally, certain assets, such as adjustable-rate
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset.  In addition, the proportion of
adjustable-rate loans in the Bank's portfolio could decrease in future periods
if market interest rates remain at or decrease below current levels due to
refinance activity.  Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in the tables.  Finally, the ability of many borrowers to repay
their adjustable-rate debt may decrease in the event of an interest rate
increase.

                                       8
<PAGE>

Average Balance, Interest and Average Yields and Rates

     The following table sets forth certain information relating to the
Company's average interest-earning assets and interest-bearing liabilities and
reflects the average yield on assets and average cost of liabilities for the
periods and at the date indicated.  Such yields and costs are derived by
dividing income or expense by the average monthly balance of assets or
liabilities, respectively, for the periods presented.  Average balances are
derived from month-end balances.  Management does not believe that the use of
month-end balances instead of daily balances has caused any material difference
in the information presented.

<TABLE>
<CAPTION>
                                                             Year Ended September 30,
                                             ---------------------------------------------------------
                                                         1999                          1998
                                             ---------------------------- ----------------------------
                                                                  Average                      Average
                                             Average              Yield/   Average             Yield/
                                             Balance   Interest    Cost    Balance   Interest   Cost
                                             --------  --------  --------  --------  --------  -------
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>
                                                               (Dollars in thousands)
Interest-earning assets:
 Loans receivable (1)......................  $195,781  $ 14,767     7.54%  $166,612  $ 13,462    8.08%
 Mortgage backed securities................    26,711     1,719     6.44     35,627     2,298    6.45
 Investment securities and FHLB stock......    27,202     1,623     5.97     19,898     1,393    7.00
 Other interest-earning assets.............    24,026     1,287     5.36     31,315     1,657    5.29
                                             --------  --------            --------  --------
  Total interest-earning assets............   273,720    19,396     7.09    253,452    18,810    7.42
Non-interest-earning assets................    10,383                         9,672
                                             --------                      --------
  Total assets.............................  $284,103                      $263,124
                                             ========                      ========

Interest-bearing liabilities:
 Deposits..................................  $230,546     9,614     4.17   $228,356     9,857    4.32
 FHLB advances.............................     3,417       158     4.62         --        --      --
 Other liabilities.........................     1,899         8     0.42      1,640        10     .61
                                             --------  --------            --------  --------
  Total interest-bearing liabilities.......   235,862     9,780     4.15    229,996     9,867    4.29
                                                       --------     ----             --------  ------
Non-interest-bearing liabilities...........     2,573                         4,072
                                             --------                      --------
  Total liabilities........................   238,435                       234,068
Stockholders' equity.......................    45,668                        29,056
                                             --------                      --------
  Total liabilities and retained earnings..  $284,103                      $263,124
                                             ========                      ========
Net interest income........................            $  9,616                      $  8,943
                                                       ========                      ========
Interest rate spread.......................                         2.94%                        3.13%
                                                                    ====                         ====
Net interest margin (2)....................                         3.51%                        3.53%
                                                                    ====                         ====
Ratio of average interest-earning assets
 to average interest-bearing liabilities...                       116.05%                      110.17%
                                                                  ======                       ======
-------------------------
</TABLE>

(1)  Includes nonaccrual loans.
(2)  Represents net interest income divided by the average balance of interest-
     earning assets.

                                       9
<PAGE>

Rate/Volume Analysis

     The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated.  For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rates (change in
rate multiplied by old volume); and (iii) changes in rate/volume (changes in
rate multiplied by the changes in volume).

<TABLE>
<CAPTION>


                                                Year Ended September 30,
                                          ----------------------------------
                                              1999      vs.       1998
                                          ----------------------------------
                                                 Increase (Decrease)
                                                       Due to
                                          ----------------------------------
                                                             Rate/
                                          Volume    Rate    Volume    Total
                                          ------   -------  ------   -------
                                                    (In thousands)
<S>                                       <C>      <C>       <C>     <C>
Interest income:
 Loans receivable................         $2,357   $  (895)  $(157)  $1,305
 Mortgage-backed securities......           (574)       (5)      1     (578)
 Investment securities and
    FHLB Stock...................            511      (206)    (76)     229
 Other interest-earning assets...           (386)       21      (5)    (370)
                                          ------   -------   -----   ------
  Total interest-earning assets..          1,908    (1,085)   (237)     586

Interest expense:
 Deposits........................             94      (335)     (3)    (244)
 FHLB advances...................             --        --     158      158
 Other liabilities...............              2        (3)     --       (1)
                                          ------   -------   -----   ------
   Total interest-bearing
     liabilities.................             96      (338)    155      (87)
                                          ------   -------   -----   ------

Change in net interest income....         $1,812   $  (747)  $(392)  $  673
                                          ======   =======   =====   ======

</TABLE>

Comparison of Financial Condition at September 30, 1999 and 1998

     Total assets increased by $29.5 million, or 11.0%, from $268.8 million at
September 30, 1998 to $298.3 million at September 30, 1999.   The asset increase
during 1999 was due to a $33.4 million, or 18.4%, increase in loans receivable,
net from $182.0 million at September 30, 1999 to $215.4 million at September 30,
1999.

     The increase in the Company's loan portfolio was due primarily to increased
originations of single-family residential mortgage loans as a result of
increased loan demand.  Single-family residential mortgage loans increased by
$20.6 million, or 16.3%, from $126.3 million at September 30, 1998 to $146.9
million at September 30, 1999.  The Company also has emphasized the origination
of automobile loans because of the higher rates and shorter terms to maturity of
those loans.  Automobile loans increased by $13.0 million, or 38.5%, from $33.7
million at September 30, 1998 to $46.8 million at September 30, 1999 and
represented 17.8% and 20.8% of the Bank's gross loan portfolio at September 30,
1999 and 1998, respectively.

     The Company's investment securities increased by $22.6 million, or 179.4%,
from $12.6 million at September 30, 1998 to $35.2 million at September 30, 1999
as the Company invested excess liquidity obtained from its initial public
offering into higher yielding assets.

                                       10
<PAGE>

     The Company's mortgage-backed securities decreased by $10.7 million, or
31.3%, from $34.2 million at September 30, 1998 to $23.5 million at September
30, 1999, as funds from maturing mortgage-backed securities were utilized to
fund increased loan originations.

     The Company's cash, interest-bearing deposits in other banks and federal
funds sold decreased by $17.9 million, or 51.2%, from $33.0 million at September
30, 1998, to $15.1 million at September 30, 1999, as excess liquidity was used
to fund increased loan originations and to purchase investment securities.

     Deposits increased by $12.6 million, or 5.7%, from $220.8 million at
September 30, 1998 to $233.4 million at September 30, 1999, reflecting the
results of increased marketing efforts, the opening of new branches and the
offering of more competitive deposit rates.  The Bank began utilizing FHLB
advances during the years ended September 30, 1999, with $16.0 million of such
advances being outstanding at September 30, 1999.  The Company used FHLB
advances to meet increased loan demand.

Comparison of Operating Results for the Years Ended September 30, 1999 and 1998

     Net Income.  Net income decreased by $264,000, or 16.0%, from $1.6 million
for the year ended September 30, 1998 to $1.4 million for the year ended
September 30, 1999.  The decrease was due to a $364,000 decrease in other income
and a $469,000 increase in non-interest expenses, offset, in part, by a
$673,000, or 7.5%, increase in net interest income.  The Company incurred an
expense and earned income from two transactions that occurred during the fiscal
year ended September 30, 1998.  First, the Company incurred a $457,000 after-tax
expense during the second quarter of calendar year 1998 in connection with the
establishment of the Foundation.  Second, the Company earned a pre-tax gain of
$339,000 from the sale of branch deposits during the year ended September 30,
1998.

     Net Interest Income.  Net interest income was $8.9 million for the year
ended September 30, 1998, as compared to $9.6 million for the year ended
September 30, 1999, representing an increase of $673,000, or 7.5%.  The increase
in net interest income was the result of increases in the volume of interest
earning assets and interest-bearing liabilities.  The increase in the volume of
interest-earning assets and interest-bearing liabilities allowed the Company to
improve net interest income notwithstanding a decrease in the interest rate
spread.   The interest rate spread decreased from 3.31% for the year ended
September 30, 1998 to 2.94% for the year ended September 30, 1999.  The
Company's interest rate spread decreased as the yield on interest-earning
assets, primarily loans receivable, decreased during a decreasing market
interest rate environment while competitive pressures did not permit the Company
to lower deposit rates as quickly.  The Company's ratio of average interest-
earning assets to average interest-bearing liabilities increased from 110.2% for
the year ended September 30, 1998 to 116.1% for the year ended September 30,
1999 primarily due to the investment of the proceeds from the stock issuance
into interest-earning assets for the full 1999 fiscal year.

     Interest Income.  Interest income increased by $586,000, or 3.1%, from
$18.8 million for the year ended September 30, 1998 to $19.4 million for the
year ended September 30, 1999.  This increase was due primarily to an increase
in interest and fees on loans.  The increase in interest on loans was due to an
increase in the average balance of loans, which increased by $29.2 million, or
17.5%, from $166.6 million for the year ended September 30, 1998 to $195.8
million for the year ended September 30, 1999.  The increase in the average
balance of loans was achieved through increases in single-family residential
mortgage loans and automobile loans described above.  The increase in the
average balance of loans more than offset a 54 basis point decrease in the
average yield on loans due to decreases in prevailing market rates of interest.
Interest on investment securities increased by $230,000, or 16.5%, from $1.4
million for the year ended September 30, 1998 to $1.6 million for the year ended
September 30, 1999, due to an increase in the average balance of investment
securities from $19.9 million for the year ended September 30, 1998 to $27.2
million for the year ended September 30, 1999  as the Company invested excess
liquidity obtained from its initial public offering into higher yielding assets.
Interest on mortgage-backed securities decreased by $579,000, or 25.2%, from
$2.3 million for the year ended September 30, 1998 to $1.7 million for the year
ended September 30, 1999, and interest on other interest-earning assets
decreased by $370,000, or 22.3%, from $1.7 million for the year ended September
30, 1998

                                       11
<PAGE>

to $1.3 million for the year ended September 30, 1999, due to decreases in the
average balances of mortgage-backed securities and cash and cash equivalents as
the Company deployed such assets into loans.

     Interest Expense.  Interest expense decreased by $87,000, or 0.9%, from
$9.9 million for the year ended September 30, 1998 to $9.8 million for the year
ended September 30, 1999.  This decrease was due to  a decrease in the average
rate paid on deposits, which comprise the largest component of the Company's
interest-bearing liabilities.  The average cost of deposits decreased by 15
basis points during the year ended September 30, 1999 reflecting decreases in
prevailing market interest rates.  The decrease in the average cost of deposits
more than offset a $2.2 million increase in the average balance of deposits.
Contributing to the Company's interest expense during the year ended September
30, 1999 was interest expense on FHLB advances.  During the year ended September
30, 1999, the Company had an average balance of $3.4 million in FHLB advances,
resulting in interest expense for the year of $158,000.  No FHLB advances were
utilized during the prior year.  FHLB advances aggregated $16.0 million at
September 30, 1999.

     Provision for Loan Losses.  Provisions for loan losses are charged to
earnings to maintain the total allowance for loan losses at a level considered
adequate by management to provide for probable loan losses, based on prior loss
experience, volume and type of lending conducted by the Company, industry
standards and past due loans in the Company's loan portfolio.  The Company
established provisions for loan losses of $339,000 and $119,000 for the years
ended September 30, 1999 and 1998, respectively.  In establishing such
provisions, management considered the increased loan volume and, particularly,
the increase in the volume of consumer loans. In addition, management considered
the level of the Company's non-performing loans, which were $1.0 million and
$1.1 million at September 30, 1999 and 1998, respectively, and the levels of the
Company's net charge-offs, which totaled $100,000 and $63,000 during the years
ended September 30, 1999 and 1998, respectively.

     Other Income.  Total other income decreased by $364,000, or 40.0%, from
$911,000 for the year ended September 30, 1998 to $547,000 for the year ended
September 30, 1999.  The decrease in other income for the year ended September
30, 1998 was attributable to the gain earned by the Bank during the year ended
September 30, 1998 on the sale of branch deposits, as the Bank sold the deposits
of its Severna Park branch in October 1997.  In connection with such sale, the
Bank sold deposits totaling $6.2 million and recognized a gain of $339,000
representing a premium paid by the buyer on the deposits sold.

     Non-interest Expenses.  Total non-interest expenses increased by $469,000,
or 6.7%, from $7.0 million for the year ended September 30, 1998 to $7.5 million
for the year ended September 30, 1999.  The increase was due to an increase of
$532,000, or 15.2%, in salaries and related expenses, and increase of $117,000,
or 18.9% in occupancy expense and an increase of $216,000, or 53.9%, in property
and equipment expense.  The increase in salaries and related expenses was due
primarily to the hiring of new employees in connection with the opening of new
branches and, to a lesser extent, to the implementation during the year ended
September 30, 1999 of the ESOP.  The Company incurred increased occupancy
expense and property expense during the year ended September 30, 1999 as a
result of operating two additional branch offices during the year.  During the
year ended September 30, 1999, the Company also increased its advertising
expense by $164,000, or 50.0%, in an effort to increase market share and to
promote its new branch offices.  During the year ended September 30, 1998, the
Company incurred and expense of $750,000 related to the establishment of the
Foundation.  No comparable expense occurred during the year ended September 30,
1999.

     Income Taxes.  The Company's income tax expense was $957,000 and $1.1
million for the years ended September 30, 1999 and 1998, respectively.  The
Company's effective tax rates were 40.9% and 39.4% for the years ended September
30, 1999 and 1998, respectively.

Liquidity and Capital Resources

     The Company initially has no business other than that of the Bank and
investing the net stock issuance proceeds retained by it.  The Bank is subject
to certain regulatory limitations with respect to the payment of dividends to
the Company.

                                       12
<PAGE>

     At September 30, 1999, the Bank exceeded all regulatory minimum capital
requirements.  For information reconciling the Bank's retained earnings as
reported in its financial statements at September 30, 1999 to its tangible, core
and risk-based capital levels and compares such totals to the regulatory
requirements, see Note 15 of Notes to Consolidated Financial Statements.

     The Company's primary sources of funds are deposits and proceeds from
maturing investment securities and mortgage-backed securities and principal and
interest payments on loans.  While maturities and scheduled amortization of
mortgage-backed securities and loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.

     The primary investing activity of the Company are the origination of loans
and the purchase of investment securities and mortgage-backed securities.
During the years ended September 30, 1999 and 1998, the Bank had $99.6 million
and $76.1 million, respectively, of loan originations.  During the years ended
September 30, 1999 and 1998, the Company purchased investment securities in the
amounts of $33.0 million and $22.4 million, respectively, and mortgage-backed
securities in the amounts of $3.0 million and $9.6 million, respectively.  Other
investing activities include originations of loans and purchases of mortgage-
backed securities.  The primary financing activity of the Company is the
attraction of savings deposits.

     The Company has other sources of liquidity if there is a need for funds.
The Bank has the ability to obtain advances from the FHLB of Atlanta.  In
addition, the Company maintains a portion of its investments in interest-bearing
deposits at other financial institutions that will be available, if needed.

     The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations.  This requirement, which may be changed at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings.  The required minimum ratio is
currently 4.0%. The Bank's average daily liquidity ratio for the month of
September 1999 was approximately 24.6%, which exceeded the required level for
such period.  Management seeks to maintain a relatively high level of liquidity
in order to retain flexibility in terms of investment opportunities and deposit
pricing.  Because liquid assets generally provide for lower rates of return, the
Bank's relatively high liquidity will, to a certain extent, result in lower
rates of return on assets.

     The Company's most liquid assets are cash, interest-bearing deposits in
other banks and federal funds sold, which are short-term, highly liquid
investments with original maturities of less than three months that are readily
convertible to known amounts of cash.  The levels of these assets are dependent
on the Company's operating, financing and investing activities during any given
period.  At September 30, 1999, cash, interest-bearing deposits in other banks
and federal funds sold totaled $6.0 million, $8.7 million and $449,000,
respectively.

     The Company anticipates that it will have sufficient funds available to
meet its current commitments.  Certificates of deposit which are scheduled to
mature in less than one year at September 30, 1999 totaled $110.6 million.
Based on past experience, management believes that a significant portion of such
deposits will remain with the Bank.  The Bank is a party to financial
instruments with off-balance-sheet risk made in the normal course of business to
meet the financing needs of its customers.  These financial instruments are
standby letters of credit, lines of credit and commitments to fund mortgage
loans and involve to varying degrees elements of credit risk in excess of the
amount recognized in the statement of financial position.  The contract amounts
of those instruments express the extent of involvement the Bank has in this
class of financial instruments and represents the Bank's exposure to credit loss
from nonperformance by the other party.

     On August 26, 1999 the Company commenced a stock repurchase program to
acquire up to 320,124 shares, or approximately 5% of the Company's outstanding
shares of common stock as part of its capital management strategy.  As of
November 22, 1999 the Company had repurchased approximately 154,864 shares of
the common stock for, which it paid an aggregate of $1.2 million.  The Company
has, and will utilize, available cash to effect further repurchases.

                                       13
<PAGE>

     In keeping with the Company's stated policy, quarterly dividends were
declared on April 16, July 8, and October 7, 1999 of 12 1/24 each.  In keeping
with Federal regulations, Baltimore County Savings Bank, M.H.C. (the "MHC")
applied for, and elected to waive receipt of, dividends from the Company as to
its shares, which amounted to 3,754,960 shares as of December 22, 1999, or 62.0%
of all outstanding shares of the Company's common stock.  The dividends rate is
based in part on the Bank's strong capital position (see foot note 15) and the
flexibility of the mutual holding company structure whereby the MHC, with
regulatory approval, has waived dividends otherwise payable to it.  This has
enabled the Bank to reward its public shareholders with a strong dividend stream
while retaining sufficient capital to support Company operations, earnings
growth and the Bank's branch expansion business plan.

     The Bank generally requires collateral or other security to support
financial instruments with off-balance-sheet credit risk.  At September 30,
1999, the Bank had commitments under standby letters of credit, lines of credit
and commitments to originate mortgage loans of $1.1 million, $19.3 million and
$3.7 million, respectively.  See Note 3 of Notes to Consolidated Financial
Statements.

Impact of Inflation and Changing Prices

     The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation.  The impact of
inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities of the
Company are monetary in nature.  As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation.  Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.

Impact of New Accounting Standards

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998.  This Statement standardizes the
accounting for derivative instruments including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize these items
as assets or liabilities in the statement of financial position and measure them
at fair value.  This Statement generally provides for matching the timing of
gain or loss recognition on the hedging instrument with the recognition of the
changes in the fair value of the hedged asset or liability that are attributable
to the hedged risk or the earnings effect of the hedged forecasted transaction.
The Statement, which is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000, will not affect the Company's financial position
or its results of operations.

     Statement of Position ("SOP") 98.5, "Reporting on the Costs of Start-Up
Activities."  This Statement provides guidance on the financial reporting of
start-up cost and organization cost.  It requires costs of start-up activities
and organization cost to be expensed as incurred.  The "SOP" also requires the
initial application to be reported as a cumulative effect of a change in
accounting principle.  This "SOP" which is effective for fiscal years beginning
after December 15, 1998 will not affect the Company's financial position or
results of operations.

                                       14
<PAGE>

                                                                      EXHIBIT 13

                   [LETTERHEAD OF ANDERSON ASSOCIATES, LLP]



                         INDEPENDENT AUDITOR'S REPORT
                         ----------------------------


Board of Directors
BCSB Bankcorp, Inc.
Baltimore, Maryland

     We have audited the consolidated statements of financial condition of BCSB
Bankcorp, Inc. and Subsidiaries as of September 30, 1999 and September 30, 1998
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the two years in the two year period ended September 30,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BCSB
Bankcorp, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the two
years in the two year period ended September 30, 1999, in conformity with
generally accepted accounting principles.


/s/ Anderson Associates, LLP
Anderson Associates, LLP


December 2, 1999
Baltimore, Maryland

                                      F-1
<PAGE>

                              BCSB BANKCORP, INC.
                              -------------------
                               AND SUBSIDIARIES
                               ----------------
                              Baltimore, Maryland
                              -------------------

                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                ----------------------------------------------

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                                                  -------------
                                                                               1999           1998
                                                                               ----           ----
<S>                                                                        <C>            <C>
     Assets
     ------
Cash                                                                       $  5,976,961   $  3,572,309
Interest bearing deposits in other banks                                      8,651,267     20,299,970
Federal funds sold                                                              448,945      9,134,202
Investment securities, held to maturity (Note 2)                             35,232,306     12,610,823
Loans receivable, net (Note 3)                                              215,383,087    181,969,226
Mortgage backed securities, held to maturity (Note 4)                        23,499,794     34,197,844
Foreclosed real estate, net (Note 5)                                             89,091        370,690
Investment in real estate development and
 loans to joint ventures (Note 6)                                                 5,287          8,195
Premises and equipment, net (Note 7)                                          4,846,121      2,988,558
Federal Home Loan Bank of Atlanta stock                                       1,650,300      1,511,900
Accrued interest receivable - loans                                             834,424        725,065
      - investments                                                             635,757        528,231
      - mortgage backed securities                                              140,005        196,136
Prepaid and deferred income taxes (Note 16)                                     361,211        175,870
Intangible assets acquired, net                                                       -         24,497
Other assets                                                                    547,171        526,733
                                                                           ------------   ------------

Total assets                                                               $298,301,727   $268,840,249
                                                                           ============   ============
     Liabilities and Stockholders' Equity
     ------------------------------------
Liabilities
-----------
  Deposits (Note 8)                                                        $233,364,564   $220,804,724
  Federal Home Loan Bank of Atlanta advances (Note 9)                        16,000,000              -
  Advance payments by borrowers for
   taxes and insurance                                                        1,101,971        850,397
  Income taxes payable (Note 16)                                                 60,670         60,792
  Deferred income taxes (Note 16)                                                     -        143,929
  Payables to disbursing agents                                                 163,923        249,430
  Dividends payable                                                             294,797              -
  Other liabilities                                                           2,035,343      1,587,929
                                                                           ------------   ------------
Total liabilities                                                           253,021,268    223,697,201

Commitments and contingencies (Notes 3, 7 and 11)

Stockholders' Equity (Notes 12, 13, 14 and 15)
--------------------
  Common stock (Par value $.01 - 13,500,000 authorized,
   6,116,562 shares issued and outstanding)                                      61,166         61,166
  Additional paid-in capital                                                 21,918,472     22,645,088
  Retained earnings (substantially restricted)                               25,788,692     25,221,308
                                                                           ------------   ------------
                                                                             47,768,330     47,927,562
  Employee Stock Ownership Plan                                              (1,509,156)    (1,829,280)
  Stock held by Rabbi Trust                                                    (978,715)      (955,234)
                                                                           ------------   ------------
                                                                             45,280,459     45,143,048
                                                                           ------------   ------------

Total liabilities and stockholders' equity                                 $298,301,727   $268,840,249
                                                                           ============   ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-2
<PAGE>

                     BCSB BANKCORP, INC. AND SUBSIDIARIES
                     ------------------------------------
                              Baltimore, Maryland
                              -------------------

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------

<TABLE>
<CAPTION>
                                                                               For Years Ended
                                                                                 September 30,
                                                                           ---------------------------
                                                                               1999           1998
                                                                               ----           ----
<S>                                                                        <C>            <C>
Interest and fees on loans (Note 3)                                        $ 14,766,745   $ 13,462,636
Interest on mortgage backed securities                                        1,718,785      2,297,838
Interest and dividends on investment securities                               1,622,897      1,393,167
Other interest income                                                         1,287,340      1,656,594
                                                                           ------------   ------------
Total interest income                                                        19,395,767     18,810,235

Interest on deposits (Note 8)                                                 9,614,116      9,856,690
Interest on borrowings - short term                                             157,944              -
Other interest expense                                                            7,753         10,670
                                                                           ------------   ------------
Total interest expense                                                        9,779,813      9,867,360
                                                                           ------------   ------------
Net interest income                                                           9,615,954      8,942,875
Provision for losses on loans (Note 3)                                          339,251        118,995
                                                                           ------------   ------------

Net interest income after provision for losses on loans                       9,276,703      8,823,880

Other Income
------------
  Gain on sale of foreclosed real estate                                         17,437              -
  Servicing fee income                                                            8,223         13,600
  Fees and charges on loans                                                     149,494        179,224
  Fees on transaction accounts                                                  173,419        161,375
  Rental income                                                                 113,253        124,254
  Gain from real estate development and joint venture                             5,352              -
  Gain on sale of branch deposits                                                     -        339,000
  Miscellaneous income                                                           79,885         93,452
                                                                           ------------   ------------
Net other income                                                                547,063        910,905

Non-Interest Expenses
---------------------
  Salaries and related expense                                                4,020,761      3,488,964
  Provision for losses on foreclosed real estate                                      -         33,248
  Occupancy expense                                                             705,016        588,352
  Deposit insurance premiums                                                    184,498        228,419
  Data processing expense                                                       505,928        425,746
  Property and equipment expense                                                616,613        400,655
  Professional fees                                                             263,048        116,703
  Advertising                                                                   491,937        327,907
  Telephone, postage and office supplies                                        350,156        308,441
  Baltimore County Savings Bank Foundation contribution (Note 12)                     -        750,000
  Amortization of excess of cost over fair value of net assets acquired          24,497         26,712
  Other expenses                                                                319,456        318,268
                                                                           ------------   ------------
Total non-interest expenses                                                   7,481,910      7,013,415
                                                                           ------------   ------------

Income before tax provision                                                   2,341,856      2,721,370
Income tax provision (Note 16)                                                  957,467      1,073,088
                                                                           ------------   ------------

Net income                                                                 $  1,384,389   $  1,648,282
                                                                           ============   ============
Net Income Per Share of Common Stock (Note 1)
  Basic                                                                    $        .24
  Diluted                                                                  $        .23
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-3
<PAGE>

                              BCSB BANKCORP, INC.
                              -------------------
                               AND SUBSIDIARIES
                               ----------------
                              Baltimore, Maryland
                              -------------------

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                -----------------------------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
                -----------------------------------------------

<TABLE>
<CAPTION>
                                                                                             Employee
                                                                 Additional                   Stock         Stock        Total
                                                      Common      Paid-In      Retained     Ownership      Held By    Stockholders'
                                                      Stock       Capital      Earnings        Plan      Rabbi Trust     Equity
                                                    ----------  -----------   -----------  ------------  -----------  -------------
<S>                                                 <C>         <C>           <C>          <C>           <C>          <C>
Balance - September 30, 1997                        $        -  $         -   $23,858,449   $         -  $         -  $  23,858,449

Proceeds from stock offering                            61,166   22,645,088             -             -            -     22,706,254
Borrowings for Employee Stock
 Ownership Plan (ESOP)                                       -            -             -    (1,829,280)           -     (1,829,280)
Acquisition of stock by Rabbi Trust                          -            -             -             -     (897,504)      (897,504)
Increase in market value of Rabbi Trust shares               -            -             -             -      (57,730)       (57,730)
Capitalize Baltimore County Savings Bank, M.H.C.             -            -      (285,423)            -            -       (285,423)
Net income                                                   -            -     1,648,282             -            _      1,648,282
                                                    ----------  -----------   -----------  ------------  -----------  -------------

Balance - September 30, 1998                            61,166   22,645,088    25,221,308    (1,829,280)    (955,234)    45,143,048

Compensation under stock based benefit plans                 -      (20,640)            -       320,124            -        299,484
Acquisition of stock for Rabbi Trust                         -            -             -             -      (81,211)       (81,211)
Adjust market value of Rabbi Trust shares to cost            -            -             -             -       57,730         57,730
Refund of duplicate payment from reorganization              -       55,000             -             -            -         55,000
Acquisition of stock for Management Retention Plan           -     (732,073)            -             -            -       (732,073)
Treasury stock purchase                                      -      (28,903)            -             -            -        (28,903)
Cash dividends declared ($.365 per share)                    -            -      (817,005)            -            -       (817,005)
Net income                                                   -            -     1,384,389             -            -      1,384,389
                                                    ----------  -----------   -----------  ------------  -----------  -------------

Balance - September 30, 1999                        $   61,166  $21,918,472   $25,788,692  $ (1,509,156) $  (978,715) $  45,280,459
                                                    ==========  ===========   ===========  ============  ===========  =============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-4
<PAGE>

                     BCSB BANKCORP, INC. AND SUBSIDIARIES
                     ------------------------------------
                              Baltimore, Maryland
                              -------------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

<TABLE>
<CAPTION>
                                                                       For Years Ended
                                                                         September 30,
                                                                    ------------------------
                                                                       1999          1998
                                                                       ----          ----
<S>                                                                 <C>           <C>
Operating Activities
--------------------
  Net income                                                        $1,384,389    $1,648,282
  Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities
   -------------------------------------
     Accretion of discount on investments                                 (254)      (31,341)
     Loans originated for sale                                               -      (133,000)
     Proceeds from loans originated for sale                                 -       133,000
     Loan fees and costs deferred, net                                 (87,312)       84,774
     Amortization of deferred loan fees and costs                     (180,770)     (304,079)
     Provision for losses on loans                                     339,251       118,995
     Non-cash compensation under Stock-Based Benefit Plan              299,484             -
     Amortization of premium on mortgage backed securities              41,459        31,280
     Gain from sale foreclosed real estate                             (17,437)            -
     Gain from real estate development and joint venture                (5,352)            -
     Provision for losses on foreclosed real estate                          -        33,248
     Provision for depreciation                                        405,309       291,980
     (Increase) decrease in accrued interest receivable on loans      (109,359)       13,841
     Increase in accrued interest receivable on investments           (107,526)      (71,544)
     Decrease in accrued interest receivable on
      mortgage backed securities                                        56,131        22,550
     Decrease in prepaid income taxes                                   12,839       138,514
     (Increase) decrease in deferred income tax assets                (342,109)       60,391
     Amortization of excess of cost over fair value of
      net assets acquired                                               24,497        26,712
     Increase in other assets                                          (20,438)     (277,636)
     Gain on sale of branch deposits                                         -      (339,000)
     Increase (decrease) in accrued interest payable on deposits        39,604       (21,399)
     Increase (decrease) in income taxes payable                          (122)       58,883
     Increase (decrease) in other liabilities and payables
      to disbursing agents                                             361,907      (573,616)
                                                                    ----------    ----------
       Net cash provided by operating activities                     2,094,191       910,835
</TABLE>

                                      F-5
<PAGE>

                     BCSB BANKCORP, INC. AND SUBSIDIARIES
                     ------------------------------------
                              Baltimore, Maryland
                              -------------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

<TABLE>
<CAPTION>
                                                                                 For Years Ended
                                                                                  September 30,
                                                                           ---------------------------
                                                                               1999           1998
                                                                               ----           ----
<S>                                                                        <C>            <C>
Cash Flows from Investing Activities
------------------------------------
  Proceeds from maturing interest bearing deposits                         $  2,045,000   $  5,347,000
  Purchase of interest bearing deposits                                      (8,002,000)      (198,000)
  Purchases of investment securities - held to maturity                     (32,981,229)   (22,435,091)
  Proceeds from maturities of investment securities - held to maturity       10,360,000     40,179,069
  Longer term loans originated                                              (52,987,170)   (47,592,118)
  Principal collected on longer term loans                                   33,913,036     27,590,631
  Net increase in short-term loans                                          (14,521,057)    (3,523,739)
  Principal collected on mortgage backed securities                          13,664,157     12,540,919
  Purchase of mortgage backed securities                                     (3,007,566)    (9,580,962)
  Proceeds from sales of foreclosed real estate                                 409,197              -
  Investment in foreclosed real estate                                                -        (71,460)
  Net investment and loans to joint ventures                                      8,260          4,537
  Investment in premises and equipment                                       (2,262,872)      (423,550)
  Purchase of Federal Home Loan Bank of Atlanta stock                          (138,400)       (78,700)
                                                                           ------------   ------------
     Net cash provided (used) by investing activities                       (53,500,644)     1,758,536

Cash Flows from Financing Activities
------------------------------------
  Net increase (decrease) in demand deposits,
   money market, passbook accounts and advances
   by borrowers for taxes and insurance                                       4,937,630     (3,300,013)
  Net increase in certificates of deposit                                     7,834,180      5,759,415
  Increases in Federal Home Loan Bank of Atlanta advances                    16,000,000              -
  Increase in dividends payable                                                 294,797              -
  Proceeds from stock offering                                                        -     22,420,831
  Employee Stock Ownership Plan (ESOP)                                                -     (1,829,280)
  Acquisition of stock for Rabbi Trust                                          (81,211)      (897,504)
  Change in market value of Rabbi Trust stock                                    57,730        (57,730)
  Refund of stock offering expense                                               55,000              -
  Acquisition of stock for Management Retention Plan                           (732,073)             -
  Treasury stock purchase                                                       (28,903)             -
  Dividends on stock                                                           (817,005)             -
  Proceeds from sale of branch deposits                                               -     (5,827,235)
                                                                           ------------   ------------
       Net cash provided by financing activities                             27,520,145     16,268,484
                                                                           ------------   ------------
</TABLE>

                                      F-6
<PAGE>

                     BCSB BANKCORP, INC. AND SUBSIDIARIES
                     ------------------------------------
                              Baltimore, Maryland
                              -------------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

<TABLE>
<CAPTION>

                                                               For Years Ended
                                                                September 30,
                                                          --------------------------
                                                              1999          1998
                                                          -------------  -----------
<S>                                                       <C>            <C>
Increase (decrease) in cash and cash equivalents          $(23,886,308)  $18,937,855
Cash and cash equivalents at beginning of period            31,074,481    12,136,626
                                                          ------------   -----------
Cash and cash equivalents at end of period                $  7,188,173   $31,074,481
                                                          ============   ===========
The following is a summary of cash
 and cash equivalents:
    Cash                                                  $  5,976,961   $ 3,572,309
    Interest bearing deposits in other banks                 8,651,267    20,299,970
    Federal funds sold                                         448,945     9,134,202
                                                          ------------   -----------
    Balance of cash items reflected on Statement of
     Financial Condition                                    15,077,173    33,006,481

         Less - certificate of deposit with a maturity
                      of more than three months              7,889,000     1,932,000
                                                          ------------   -----------

Cash and cash equivalents reflected on the
  Statement of Cash Flows                                 $  7,188,173   $31,074,481
                                                          ============   ===========

Supplemental Disclosures of Cash Flows Information:
   Cash paid during the period for:

      Interest                                            $  9,407,893   $ 9,878,997
                                                          ============   ===========

      Income taxes                                        $  1,284,280   $   815,300
                                                          ============   ===========

   Transfer from loans to real estate acquired
    through foreclosure                                   $    110,161   $   332,478
                                                          ============   ===========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-7
<PAGE>

                     BCSB BANKCORP, INC. AND SUBSIDIARIES
                     ------------------------------------
                              Baltimore, Maryland
                              -------------------

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


Note 1 - Summary of Significant Accounting Policies
         ------------------------------------------

         A.  Principles of Consolidation - BCSB Bankcorp, Inc. (the "Company")
             owns 100% of Baltimore County Savings Bank, F.S.B. (the "Bank").
             The Bank owns 100% of Baltimore County Service Corporation and
             Ebenezer Road, Inc. The accompanying consolidated financial
             statements include the accounts and transactions of these companies
             on a consolidated basis since date of acquisition. All intercompany
             transactions have been eliminated in the consolidated financial
             statements. Ebenezer Road, Inc. sells insurance products. Baltimore
             County Service Corporation has invested in several joint ventures
             formed for the purpose of developing real estate. These investments
             have been accounted for on the equity method and separate summary
             statements are not presented since the data contained therein is
             not material in relation to the consolidated financial statements.

         B.  Business - The Company's primary purpose is ownership of the Bank.
             The Bank's primary business activity is the acceptance of deposits
             from the general public in their market area and using the proceeds
             for investments and loan originations. The Bank is subject to
             competition from other financial institutions. The Bank is subject
             to the regulations of certain federal agencies and undergoes
             periodic examinations by those regulatory authorities.

         C.  Basis of Financial Statement Presentation - The consolidated
             financial statements have been prepared in conformity with
             generally accepted accounting principles. In preparing the
             financial statements, management is required to make estimates and
             assumptions that affect the reported amounts of assets and
             liabilities as of the date of the statement of financial condition
             and revenues and expenses for the period. Actual results could
             differ significantly from those estimates. Material estimates that
             are particularly susceptible to significant change in the near-term
             relate to the determination of the allowance for loan losses and
             the valuation of foreclosed real estate and real estate
             development.

         D.  Federal Funds - Federal funds sold are carried at cost which
             approximates market.

         E.  Investments and Mortgage Backed Securities - Investment securities
             in equity mutual funds may be held for an indefinite period of time
             and are carried at fair value. Investment securities consisting of
             federal agency notes and bonds and all of the mortgage backed
             securities are carried at cost, since management has the ability
             and intention to hold them to maturity. Amortization of related
             premiums and discounts are computed using the level yield method
             over the life of the security. Gains and losses on all investments
             and mortgage backed securities are determined using the specific
             identification method.

                                      F-8
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 1 - Summary of Significant Accounting Policies - Continued
         ------------------------------------------

         F.  Loans Receivable - Loans receivable are stated at unpaid principal
             balances, less undisbursed portion of loans in process, unearned
             interest on consumer loans, deferred loan origination fees and the
             allowance for loan losses, since management has the ability and
             intention to hold them to maturity.

             The Bank services loans for others and pays the participant its
             share of the Bank's collections, net of a stipulated servicing fee.
             Loan servicing fees are credited to income when earned and
             servicing costs are charged to expense as incurred.

             Unearned interest on consumer loans is amortized to income over the
             terms of the related loans on the level yield method.

         G.  Allowance for Loan Losses - An allowance for loan losses is
             provided through charges to income in an amount that management
             believes will be adequate to absorb losses on existing loans that
             may become uncollectible, based on evaluations of the
             collectibility of loans and prior loan loss experience. The
             evaluations take into consideration such factors as changes in the
             nature and volume of the loan portfolio, overall portfolio quality,
             review of specific problem loans, and current economic conditions
             that may affect the borrowers' ability to pay. Management believes
             the allowance for losses on loans is adequate. While management
             uses available information to estimate losses on loans, future
             additions to the allowances may be necessary based on changes in
             economic conditions, particularly in the State of Maryland. In
             addition, various regulatory agencies, as an integral part of their
             examination process, periodically review the Bank's allowances for
             losses on loans. Such agencies may require the Bank to recognize
             additions to the allowances based on their judgments about
             information available to them at the time of their examination.

             Accrual of interest is discontinued on a loan when management
             believes, after considering economic and business conditions and
             collection efforts, that the borrower's financial condition is such
             that collection of interest is doubtful or when payment of
             principal and interest has become ninety days past due unless the
             obligation is well secured and in the process of collection. When a
             payment is received on a loan on non-accrual status, the amount
             received is allocated to principal and interest in accordance with
             the contractual terms of the loan.

                                      F-9
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 1 - Summary of Significant Accounting Policies - Continued
         ------------------------------------------

         G.  Loan origination fees and certain direct loan origination costs are
             deferred and recognized by the interest method over the contractual
             life of the related loan as an adjustment of yield.

         H.  Foreclosed Real Estate - Real estate acquired through foreclosure
             is recorded at the lower of cost or fair value. Management
             periodically evaluates the recoverability of the carrying value of
             the real estate acquired through foreclosure using estimates as
             described above in Allowance for Loan Losses. In the event of a
             subsequent decline, management provides an additional allowance to
             reduce real estate acquired through foreclosure to its fair value
             less estimated disposal cost. Costs relating to holding such real
             estate are charged against income in the current period while costs
             relating to improving such real estate are capitalized until a
             saleable condition is reached.

         I.  Investment in Real Estate Development and Loans to Joint Ventures -
             Land development costs not in excess of net realizable value are
             capitalized and charged to expense as revenue is recognized.
             Revenues are recognized when a sale has been consummated. Indirect
             costs and administrative expenses are charged as incurred to
             periodic income and are not allocated to land development costs.
             The Bank capitalizes interest on land development projects in
             accordance with Statement 34 of the Financial Accounting Standards
             Board. No interest was capitalized for the years ended September
             30, 1999 and 1998.

         J.  Premises and Equipment - Premises and equipment are recorded at
             cost. Depreciation is computed on the straight-line method, based
             on the useful lives of the respective assets.

         K.  Intangible Assets Acquired, Net - On September 16, 1994, Baltimore
             County Savings Bank, F.S.B. purchased the deposits and certain
             assets from the Resolution Trust Corporation, receiver of Second
             National Federal Savings Association. The Bank classified as an
             intangible asset the fair market value assigned to the capacity of
             existing savings accounts acquired to generate future earnings
             ("the Core Deposit Value"). The core deposit value of $133,572 is
             being amortized on a straight-line method over five years, the
             estimated life of the core deposit value. Accumulated amortization
             was $133,572 and $109,075 at September 30, 1999 and 1998,
             respectively.

                                      F-10
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 1 - Summary of Significant Accounting Policies - Continued
         ------------------------------------------

         L.  Income Taxes - Deferred income taxes are recognized for temporary
             differences between the financial reporting basis and income tax
             basis of assets and liabilities based on enacted tax rates expected
             to be in effect when such amounts are realized or settled. Deferred
             tax assets are recognized only to the extent that is more likely
             than not that such amounts will be realized based on consideration
             of available evidence. The effect on deferred tax assets and
             liabilities of a change in tax rates is recognized in income in the
             period that includes the enactment date.

         M.  Earnings Per Share - As required, The Bank adopted Statement of
             Financial Accounting Standards No. 128 during the year ended
             September 30, 1999. This Statement requires dual presentation of
             basic and diluted earnings per share ("ESP") with a reconciliation
             of the numerator and denominator of the EPS computations. Basic per
             share amounts are based on the weighted average shares of common
             stock outstanding. Diluted earnings per share assume the
             conversion, exercise or issuance of all potential common stock
             instruments such as options, warrants and convertible securities,
             unless the effect is to reduce a loss or increase earnings per
             share. No adjustments were made to net income (numerator). Earnings
             per share data is not presented for the year ended September 30,
             1998, since the Bank converted to the stock form in July 1998, and
             such information would not be meaningful. The basic and diluted
             weighted average shares outstanding for the year ended September
             30, 1999 are as follows:

<TABLE>
<CAPTION>
                                                     Income        Shares     Per Share
                                                  (Numerator)  (Denominator)   Amount
                                                  -----------  -------------  ---------
             <S>                                  <C>          <C>            <C>
             Basic EPS
             ---------
              Income available to share holders    $1,384,389      5,859,344   $   0.24
                                                   ==========      =========   ========

             Diluted EPS
             -----------
              Effect of dilutive shares                     -         89,803
                                                   ----------      ---------
              Income available to shareholders
              plus assumed conversions             $1,384,389      5,949,147   $   0.23
                                                   ==========      =========   ========
</TABLE>

         N.  On October 19, 1997, the Bank sold the deposits of one of its
             branches and closed that branch. Deposits sold were approximately
             $6,166,000. A gain of $339,000 was realized on the sale.

                                      F-11
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 1 - Summary of Significant Accounting Policies - Continued
         ------------------------------------------

         O.  Statement of Cash Flows - In the statement of cash flows, cash and
             equivalents include cash, Federal Home Loan Bank of Atlanta
             overnight deposits, federal funds and certificates of deposit and
             Federal Home Loan Bank of Atlanta time deposits with an original
             maturity date less than ninety days.

         P.  Employee Stock Ownership Plan -The Company accounts for its
             Employee Stock Ownership Plan ("ESOP") in accordance with Statement
             of Position 93-6 of the Accounting Standards Division of the
             American Institute of Certified Public Accountants. (See Note 12)

         Q.  Reclassification and Restatement - Certain prior years' amounts
             have been reclassified to conform to the current year's method of
             presentation.

Note 2 - Investment Securities
         ---------------------

             The amortized cost and fair values of investment securities are as
         follows as of September 30, 1999 and 1998.

<TABLE>
<CAPTION>
                                                    Gross       Gross
                                      Amortized   Unrealized  Unrealized     Fair
                                        Cost        Gains       Losses       Value
                                     -----------  ----------  ----------  -----------
 <S>                                 <C>          <C>         <C>         <C>
 Held to Maturity:

 September 30, 1999
   U.S. Government and Agency
    Obligations, held to maturity    $35,232,306  $        -  $1,014,635  $34,217,671
                                     ===========  ==========  ==========  ===========
 September 30, 1998
   U.S. Government and Agency
    Obligations, held to maturity    $12,610,823  $   50,228  $        -  $12,661,051
                                     ===========  ==========  ==========  ===========
</TABLE>

                                      F-12
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 2 - Investment Securities - Continued
         ---------------------

             The following is a summary of investment securities:

<TABLE>
<CAPTION>
                                               September 30, 1999        September 30, 1998
                                            ------------------------  ------------------------
                                             Amortized      Fair       Amortized      Fair
                                               Cost         Value        Cost         Value
                                            -----------  -----------  -----------  -----------
  <S>                                         <C>          <C>          <C>          <C>
  Held to Maturity:

  U.S. Government and Agency Obligations
  --------------------------------------
   Due within 12 months                     $   500,000  $   498,594  $ 1,000,000  $ 1,000,313
   Due beyond 12 months but
    within five years                        21,985,811   21,460,136    5,060,823    5,073,727
   Due beyond five years but
    within ten years                         11,996,495   11,542,144    6,550,000    6,587,011
   Due beyond ten years                         750,000      716,797            -            -
                                            -----------  -----------  -----------  -----------
                                            $35,232,306  $34,217,671  $12,610,823  $12,661,051
                                            ===========  ===========  ===========  ===========
</TABLE>

             Proceeds from maturities of held to maturity securities were
         $10,360,000 and $40,179,069 for the years ended September 30, 1999 and
         1998, respectively. There were no gross gains or losses realized for
         the years ended September 30, 1999 and 1998.

                                      F-13
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 3 - Loans Receivable
         ----------------

             Loans receivable at September 30, 1999 and 1998 consist of the
         following:

<TABLE>
<CAPTION>
                                                                                     September 30,
                                                                            ------------------------------
                                                                                  1999           1998
                                                                              -------------  -------------
         <S>                                                                  <C>            <C>
         Single-family residential mortgages                                  $146,867,904   $126,272,171
         Single-family rental property loans                                     4,831,931      5,252,511
         Commercial real estate loans                                           10,215,951      9,496,991
         Construction loans                                                      5,592,033      7,935,958
         Commercial loans secured                                                1,081,205              -
         Commercial lines of credit                                                 50,000         50,000
         Automobile loans                                                       46,753,355     33,747,553
         Home equity loans                                                       7,963,402      6,549,261
         Other consumer loans                                                    1,907,405        680,899
                                                                              ------------   ------------
                                                                               225,263,186    189,985,344

            Less - undisbursed portion of
                      loans in process                                           2,579,374      2,962,757
                  - unearned interest                                            5,948,416      3,741,821
                         - deferred loan origination
                       fees and costs                                               79,578        277,633
                  - allowance for loan
                      losses                                                     1,272,731      1,033,907
                                                                              ------------   ------------
                                                                              $215,383,087   $181,969,226
                                                                              ============   ============
</TABLE>

             The following is a summary of the allowance for loan losses:

<TABLE>
<CAPTION>
                                                                                     September 30,
                                                                              ---------------------------
                                                                                  1999           1998
                                                                              ------------   ------------
         <S>                                                                  <C>            <C>
         Balance - beginning of year                                          $  1,033,907   $    977,639
         Provision for losses on loans                                             339,251        118,995
         Charge-offs                                                              (231,991)      (278,215)
         Recoveries                                                                131,564        215,488
                                                                              ------------   ------------
         Balance - end of year                                                $  1,272,731   $  1,033,907
                                                                              ============   ============
</TABLE>

                                      F-14
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 3 - Loans Receivable - Continued
         ----------------

             Residential lending is generally considered to involve less risk
         than other forms of lending, although payment experience on these loans
         is dependent to some extent on economic and market conditions in the
         Bank's lending area. Multifamily residential, commercial, construction
         and other loan repayments are generally dependent on the operations of
         the related properties or the financial condition of its borrower or
         guarantor. Accordingly, repayment of such loans can be more susceptible
         to adverse conditions in the real estate market and the regional
         economy.

             A significant portion of the Bank's loans receivable are mortgage
         loans secured by residential and commercial real estate properties
         located in the State of Maryland. Loans are extended only after
         evaluation by management of customers' creditworthiness and other
         relevant factors on a case-by-case basis. The Bank generally does not
         lend more than 90% of the appraised value of a property and requires
         private mortgage insurance on residential mortgages with loan-to-value
         ratios in excess of 80%. In addition, the Bank generally obtains
         personal guarantees of repayment from borrowers and/or others for
         multifamily residential, commercial and construction loans and
         disburses the proceeds of construction and similar loans only as work
         progresses on the related projects. Automobile loans are secured by
         vehicles and home equity loans are secured by subordinated real estate
         properties. Repayments of automobile loans and home equity loans are
         expected primarily from the cash flows of the borrowers.

             Non-accrual loans for which interest has been reduced totaled
         approximately $1,025,577 and $1,111,798 at September 30, 1999 and 1998,
         respectively. There were no impaired loans as defined by SFAS No. 114
         at September 30, 1999 and 1998. There was no interest income recognized
         on impaired loans during these periods. The Bank was not committed to
         fund additional amounts on these loans.

             Interest income that would have been recorded under the original
         terms of non-accrual loans and the interest actually recognized for the
         years ended September 30, are summarized below:

                                                              September 30,
                                                            ------------------
                                                              1999      1998
                                                            --------  --------

         Interest income that would have been recognized     $44,279   $71,415
         Interest income recognized                           34,102    44,610
                                                             -------   -------
            Interest income not recognized                   $10,177   $26,805
                                                             =======   =======

                                      F-15
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 3 - Loans Receivable - Continued
         ----------------

             The following table set forth the amount and activity of the loans
         outstanding to officers and directors at September 30, 1999 and 1998.

                                                           September 30,
                                                       ---------------------
                                                         1999        1998
                                                       ---------   ---------

         Beginning balance                             $ 318,411   $ 243,777
         New loans                                       208,268     155,600
         Loan repayments                                (110,477)    (80,966)
                                                       ---------   ---------
         Ending balance                                $ 416,202   $ 318,411
                                                       =========   =========

             The Bank services loans for others. The amount of such loans
         serviced at September 30, 1999 and 1998 was $2,829,212 and $5,553,596,
         respectively. At September 30, 1999 and 1998, the balance of loans sold
         by the Bank with recourse amounted to $662,424 and $798,365,
         respectively.

             Custodial escrow balances maintained in connection with the
         foregoing loan servicings were approximately $35,199 and $41,083 at
         September 30, 1999 and 1998, respectively.

             The Bank is a party to financial instruments with off-balance-sheet
         risk made in the normal course of business to meet the financing needs
         of its customers. These financial instruments are standby letters of
         credit, lines of credit and commitments to fund mortgage loans and
         involve to varying degrees elements of credit risk in excess of the
         amount recognized in the statement of financial position. The contract
         amounts of those instruments express the extent of involvement the Bank
         has in this class of financial instruments and represents the Bank's
         exposure to credit loss from nonperformance by the other party.

             Unless noted otherwise, the Bank does not require collateral or
         other security to support financial instruments with off-balance-sheet
         credit risk.
<TABLE>
<CAPTION>
                                                            Contract Amount At
       Financial Instruments Whose Contract       -------------------------------------
         Amounts Represent Credit Risk            September 30, 1999 September 30, 1998
       ------------------------------------       ------------------ ------------------
       <S>                                        <C>                <C>
         Standby letters of credit                   $ 1,131,169         $ 2,171,615
         Lines of credit                             $19,252,900         $14,737,500
         Mortgage loan commitments, fixed rate       $ 3,463,600         $ 2,222,100
         Mortgage loan commitments, variable rate    $   200,000         $   631,000
</TABLE>

                                      F-16
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 3 - Loans Receivable - Continued
         ----------------

             Standby letters of credit are conditional commitments issued by the
         Bank guaranteeing performance by a customer to a third party. Those
         guarantees are issued primarily to support private borrowing
         arrangements, generally limited to real estate transactions. Unless
         otherwise noted, the standby letters of credit are not collateralized.
         The credit risk involved in issuing letters of credit is essentially
         the same as that involved in extending loan facilities to customers.

             Lines of credit are loan commitments to individuals and companies
         and have fixed expiration dates as long as there is no violation of any
         condition established in the contract. The Bank evaluates each
         customer's credit worthiness on a case-by-case basis.

             Rates on mortgage loan commitments for fixed rate loans ranged from
         6.5% to 7.875% and 6.500% to 7.50% at September 31, 1999 and 1998,
         respectively. Rates on mortgage loan commitments for variable rate
         loans ranged from .25% under prime to prime at September 30, 1999.

             No amount was recognized in the statement of financial position at
         September 30, 1999 and 1998, as liability for credit loss nor was any
         liability recognized for fees received for standby letters of credit.

             The Bank grants loans to customers, substantially all of whom are
         residents of the Metropolitan Baltimore and Harford County areas.

Note 4 - Mortgage Backed Securities
         --------------------------

             The amortized cost and fair values of mortgage backed securities
         are as follows as of September 30, 1999 and 1998:

         Held to Maturity:

<TABLE>
<CAPTION>
                                                             Gross       Gross
                                               Amortized   Unrealized  Unrealized    Fair
                                                 Cost        Gains       Losses      Value
                                              -----------  ----------  ----------  -----------
         <S>                                  <C>          <C>         <C>         <C>
         September 30, 1999
         ------------------
            GNMA certificates                 $ 1,263,787     $ 5,015  $    4,283  $ 1,264,519
            FNMA certificates                  15,482,015      23,016     131,568   15,373,463
            FHLMC participating certificates    6,753,992      70,724      66,983    6,757,733
                                              -----------  ----------  ----------  -----------
                                              $23,499,794  $   98,755  $ 202,834   $23,395,715
                                              ===========  ==========  ==========  ===========
</TABLE>

                                      F-17
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 4 - Mortgage Backed Securities - Continued
         --------------------------

<TABLE>
<CAPTION>
                                                                Gross      Gross
                                                 Amortized   Unrealized  Unrealized     Fair
                                                   Cost         Gains      Losses       Value
                                                -----------  ----------  ----------  -----------
         <S>                                    <C>          <C>         <C>         <C>
         September 30, 1998
         ------------------
            GNMA certificates                   $   441,742  $   17,115  $        -  $   458,857
            FNMA certificates                    24,099,992     479,986           -   24,579,978
            FHLMC participating certificates      9,656,110     179,047         171    9,834,986
                                                -----------  ----------  ----------  -----------
                                                $34,197,844  $  676,148  $      171  $34,873,821
                                                ===========  ==========  ==========  ===========
</TABLE>

             No gains or losses were realized during the years ended September
         30, 1999 and 1998, respectively.

Note 5 - Foreclosed Real Estate

             Foreclosed real estate at September 30, 1999 and 1998 is summarized
         by major classification as follows:

<TABLE>
<CAPTION>
                                                                             September 30,
                                                                         -----------------------
                                                                             1999         1998
                                                                             ----         ----
         <S>                                                             <C>          <C>
         EPIC loans                                                      $   50,822   $   55,903
         Residential real estate                                             89,091      403,938
         Allowance for losses                                               (50,822)     (89,151)
                                                                         ----------   -----------
                                                                         $   89,091   $   370,690
                                                                         ==========   ===========
</TABLE>

             The following is a summary of the allowances for losses on
         foreclosed real estate:

<TABLE>
<CAPTION>
                                                                                September 30,
                                                                           -----------------------
                                                                              1999         1998
                                                                           ----------   -----------
         <S>                                                               <C>          <C>
         Balance - beginning of year                                       $   89,151   $     55,903
         Provision for losses                                                       -         33,248
         Charge-offs                                                          (38,329)             -
                                                                           ----------    -----------
         Balance - end of year                                             $   50,822    $    89,151
                                                                           ==========    ===========
</TABLE>

                                      F-18
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 6 - Investment in Real Estate Development and Loans to Joint Ventures
         -----------------------------------------------------------------

             The subsidiary is a party to a joint venture formed for the purpose
         of developing lots for resale. The subsidiary's interest in the profits
         or losses of the joint venture is 20%. The subsidiary's equity in the
         joint venture is $5,287 and $8,195 at the periods ended September 30,
         1999 and 1998, respectively.

             During the periods ended September 30, 1999 and 1998, the Bank made
         no acquisition, development and construction loans to the joint venture
         mentioned above. There was no provision for or allowance for losses on
         loans to the joint venture during the years ended September 30, 1999
         and 1998.

             Gain from real estate development and joint ventures consisted of a
         cash payment of $5,352.

Note 7 - Premises and Equipment
         ----------------------

             Premises and equipment at September 30, 1999 and 1998 are
         summarized by major classification as follows:

                                                         September 30,
                                              ----------------------------------
                                                 1999        1998        Life
                                                 ----        ----        ----
         Office building                      $3,400,332  $2,440,860    50 Years
         Leasehold improvements                  169,995     144,768  7-31 Years
         Furniture, fixtures and equipment     4,381,608   3,103,435    10 Years
                                              ----------  ----------
                                               7,951,935   5,689,063
             Accumulated depreciation          3,105,814   2,700,505
                                              ----------  ----------
                                              $4,846,121  $2,988,558
                                              ==========  ==========

                                      F-19
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 7 - Premises and Equipment - Continued
         ----------------------

             The Bank has entered into long-term leases for the land on which
         the main office is located and the premises of its branch offices.
         Rental expense under long-term leases for property for the years ended
         September 30, 1999 and 1998 was $381,254 and $280,091, respectively. At
         September 30, 1999, minimum rental commitments under noncancellable
         leases are as follows:


             Years Ended September 30,                Amount
             -------------------------             ------------
                    2000                           $    419,941
                    2001                                387,212
                    2002                                346,403
                    2003                                359,185
                 After 2003                             701,750
                                                   ------------
                                                   $  2,214,491
                                                   ============
Note 8 - Deposits

             Deposits are summarized as follows at September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                            1999                  1998
                                                                   --------------------   --------------------
                                                                      Amount       %         Amount       %
                                                                   ------------  ------   ------------  ------
   <S>                                                             <C>           <C>      <C>           <C>
   Type of Account
   ---------------
      Deposits
      --------
         NOW                                                       $ 19,743,190    8.46%  $ 19,689,552    8.92%
         Non-interest bearing NOW                                     6,940,410    2.97      5,652,964    2.56
         Money market                                                 8,530,901    3.66      8,727,537    3.95
         Passbook savings                                            58,353,919   25.00     54,812,311   24.82
         Certificates                                               139,030,657   59.58    131,196,477   59.42
                                                                   ------------  ------   ------------  ------
                                                                    232,599,077   99.67    220,078,841   99.67
         Accrued interest payable                                       765,487     .33        725,883     .33
                                                                   ------------  ------   ------------  ------
                                                                   $233,364,564  100.00%  $220,804,724  100.00%
                                                                   ============  ======   ============  ======
</TABLE>

             The aggregate amount of jumbo certificates of deposit with a
         minimum denomination of $100,000 was approximately $15,134,298 and
         $12,438,466 at September 30, 1999 and 1998, respectively. Deposits in
         excess of $100,000 are not insured by the Savings Association Insurance
         Fund.

                                      F-20
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 8 - Deposits - Continued
         --------

             At September 30, 1999, scheduled maturities of certificates of
         deposit are as follows:

                2000                                         $110,571,368
                2001                                           15,425,638
                2002                                            5,732,939
                2003                                            4,186,804
                2004 and thereafter                             3,513,908
                                                             ------------
                                                             $139,030,657
                                                             ============

             Interest expense on deposits for the years ended September 30, 1999
         and 1998 is as follows:

                                                        1999            1998
                                                    -------------   ------------
         NOW                                        $     367,157   $    401,288
         Money market                                     270,672        313,474
         Passbooks savings                              1,846,252      2,004,071
         Certificates                                   7,130,035      7,137,857
                                                    -------------   ------------
                                                    $   9,614,116   $  9,856,690
                                                    =============   ============

Note 9 - Federal Home Loan Bank of Atlanta Advances

             The Bank has the following outstanding Federal Home Loan Bank
         advances as of September 30, 1999:

           Due                         Rate               Total
           ---                         ----               -----
       Less than one year          5.44% - 6.26%,      $ 13,500,000
       One to two years            5.86% - 6.13%          2,500,000
                                                       ------------
       Total borrowings                                $ 16,000,000
                                                       ============

             At September 30, 1998 and for the year ended September 30, 1998,
         the Bank had no outstanding borrowings. The line has no predetermined
         limit and is secured by a blanket lien on mortgages. Each borrowing is
         evaluated on a case-by-case basis by the lender.

                                      F-21
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 10- Pension Plan
         ------------

             The Bank has a noncontributory, defined contribution, pension plan
         covering substantially all employees. It is a money purchase plan with
         contributions made each year for every participant in accordance with
         actuarial recommended formula. There is no past service liability or
         unfunded value of vested benefits as of December 31, 1998, the date of
         latest available annual review and valuation of the plan.

             The expense for the pension plan amounted to $213,057 and $238,844
         for the years ended September 30, 1999 and 1998, respectively.

Note 11- Directors Retirement Plan
         -------------------------

             During 1998, the Directors Retirement Plan was rescinded in favor
         of a Rabbi Trust that is invested primarily in the Company's stock. No
         compensation expense was recognized for the Rabbi Trust during 1998.
         Compensation expense recognized in connection with the Deferred
         Compensation Plan prior to adoption of the Rabbi Trust for the year
         ended September 30, 1998 was $51,334. Compensation expense was reduced
         by $269,323 for the year ended September 30, 1999 principally because
         of a decline in value of shares held in the Rabbi Trust.

Note 12- Common Stock
         ------------

             In 1998, the Bank reorganized from a federally chartered mutual
         savings bank to a federally chartered stock savings bank.
         Simultaneously, the Bank consummated the formation of a new holding
         company, BCSB Bankcorp, Inc. Also simultaneously, a mutual holding
         company was formed, Baltimore County Savings Bank, M.H.C. In connection
         with the reorganization, the Company issued 6,116,562 shares of its
         common stock. A majority of that stock (3,754,960 shares) was issued to
         Baltimore County Savings Bank, M.H.C. The remainder was issued to the
         general public. Also, the Bank established the Baltimore County Savings
         Bank, F.S.B. Foundation through a contribution of 75,000 shares of its
         common stock.

                                      F-22
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 12- Common Stock - Continued
         ------------

             At the same time as the reorganization, the Bank established an
         Employee Stock Ownership Plan ("ESOP") for its employees. On July 8,
         1998 the ESOP acquired 182,928 shares of the Company's common stock in
         connection with the Bank's Reorganization to a mutual holding company
         form of organization. The ESOP holds the common stock in a trust for
         allocation among participating employees, in trust or allocated to the
         participants' accounts and an annual contribution from the Bank to the
         ESOP and earnings thereon.

             All employees of the Bank who attain the age of 18 and complete one
         year of service with the Bank will be eligible to participate in the
         ESOP. Participants must be employed at least 500 hours in a plan year
         in order to receive an allocation. Each participant's vested interest
         under the ESOP is determined according to the following schedule: 0%
         for less than 2 years of service with the Company or the Bank, 20% for
         2 years of service, 40% for 3 years of service, 60% for 4 years of
         service, 80% for 5 years of service, and 100% for 6 years of service.
         For vesting purposes, a year of service means any plan year in which an
         employee completes at least 1,000 hours of service (whether before or
         after the ESOP's January 1, 1998 effective date). Vesting accelerates
         to 100% upon a participant's attainment of age 65, death or disability.

             The ESOP will be funded by contributions made by the Bank in cash
         or common stock and dividends on the shares held in the Trust. The Bank
         will recognize compensation expense as shares are committed for release
         from collateral at their current market price. Dividends on allocated
         shares are recorded as a reduction of retained earnings and dividends
         on unallocated shares are recorded as a reduction of Debt. The
         compensation costs for the years ended September 30, 1999 and 1998 were
         $262,800 and $36,684, respectively.

             The ESOP shares were as follows as of September 30:

                                                           1999        1998
                                                           ----        ----
         Shares released and allocated                      32,013           -
         Unearned shares                                   150,917     182,930
                                                        ----------  ----------
                                                           182,930     182,930
                                                        ==========  ==========

         Fair value of unearned shares                  $1,037,554  $1,966,476
                                                        ==========  ==========

                                      F-23
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 13- Management Recognition Plan
         ---------------------------

             On July 15, 1999, the Bank established a Management Recognition
         Plan ("MRP") to retain personnel of experience and ability in key
         positions of responsibility. Members of the Board of Directors and
         certain executive officers may be awarded a total of 91,464 shares of
         stock, which will be held in a separate trust that manages the MRP. The
         Bank funded the MRP during the year ended September 30, 1999 by
         purchasing 87,000 shares of common stock in the open market. No shares
         have vested. The Bank initially awarded an aggregate of 45,600 shares
         of common stock and intends to reserve the remaining 45,864 shares for
         possible future awards. Shares awarded to the participants in the MRP
         vest at a rate of 25% per year on each anniversary of the effective
         date of the MRP. If a participant terminates employment for reasons
         other than death, disability, change in control or retirement he or she
         forfeits all rights to unvested shares. Compensation expense of $22,444
         was recognized for the MRP for the year ended September 30, 1999.

Note 14- Stock Option Plan
         -----------------

             The Company has a Stock Option Plan (the "Plan") whereby 228,660
         shares of common stock have been reserved for issuance under the Plan.
         Options granted under the Plan may be Incentive Stock Options within
         the meaning of Section 422 of the Internal Revenue Code of 1986 as
         amended or Non-Incentive Stock Options. Options are exercisable in four
         annual installments at the market price of common stock at the date of
         grant. The Options must be exercised within ten years from the date of
         grant. During the year ended September 30, 1999, the Company granted
         options to purchase 80,000 shares at a weighted average price of $8.00
         per share.

             The following table summarizes the status of and changes in the
         Company's stock option plan during the past two years.

<TABLE>
<CAPTION>
                                                                   Weighted Average
                                                       Shares       Exercise Price
                                                       ------      ----------------
         <S>                                           <C>         <C>
         Outstanding at September 30, 1998                  -                     -
         Granted                                       80,000               $  8.00
                                                       ------

         Outstanding at September 30, 1999             80,000               $  8.00
                                                       ======

         Exercisable at September 30, 1999              -0-
                                                       ======
</TABLE>

                                      F-24
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 14- Stock Option Plan - Continued
         -----------------

             SFAS No. 123, "Accounting for Stock-Based Compensation", requires
         the Company to make certain disclosures as if the fair value method of
         accounting had been applied to the Company's stock option grants made
         subsequent to 1994. Accordingly, the Company estimated the grant date
         fair value of each option awarded in fiscal 1999 using the Black-
         Scholes Option-Pricing model with the following relevant assumptions:
         dividend yield of 6.25%, risk-free interest rate of 5.72% and expected
         lives of 10 years. The assumption for expected volatility was 31.55%.
         Had 1999 compensation cost been determined including the weighted-
         average estimate of fair value of each option granted of $1.62, the
         Company's net income would be reduced to proforma amount of $1,304,841.
         Proforma earnings, basic and diluted, per share would have been $.22 in
         fiscal 1999.

Note 15- Retained Earnings
         -----------------

             The Bank is subject to various regulatory capital requirements
         administered by the federal banking agencies. Failure to meet minimum
         capital requirements can initiate certain mandatory, and possible
         additional discretionary, actions by the regulators that, if
         undertaken, could have a direct material effect on the Bank's financial
         statements. Under capital adequacy guidelines and the regulatory
         framework for prompt corrective action, the Bank must meet specific
         capital guidelines that involve quantitative measures of the Bank's
         assets, liabilities, and certain off-balance sheet items as calculated
         under regulatory accounting practices. The Bank's capital amounts and
         classifications are also subject to qualitative judgments by the
         regulators about components, risk weightings, and other factors.

             Quantitative measures established by regulation to ensure capital
         adequacy require the Bank to maintain minimum amounts and ratios (set
         forth in the table below) of total and Tier I capital (as defined in
         the regulations) and risk-weighted assets (as defined), and of Tier I
         capital (as defined) to average assets (as defined). Management
         believes, as of September 30, 1999, that the Bank meets all capital
         adequacy requirements to which it is subject.

             As of September 30, 1999, the most recent notification from the
         Office of Thrift Supervision categorized the Bank as well capitalized
         under the regulatory framework for prompt corrective action. To be
         categorized as well capitalized the Bank must maintain minimum total
         risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
         in the table. There are no conditions or events since that notification
         that management believes have changed the Bank's category. The Bank's
         actual capital amounts and ratios are also presented in the table.

                                      F-25
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 15- Retained Earnings - Continued
         -----------------

             The following table presents the Bank's capital position based on
         the September 30 financial statements and the current capital
         requirements.

<TABLE>
<CAPTION>
                                                                     To Be Well Capitalized
                                                   For Capital       Under Prompt Corrective
                                Actual          Adequacy Purposes       Action Provisions
                         --------------------  --------------------  -----------------------
                           Actual      % of     Required     % of     Required        % of
                           Amount     Assets     Amount     Assets     Amount        Assets
                         -----------  ------   -----------  ------   -----------     -------
   <S>                   <C>          <C>      <C>          <C>      <C>             <C>
   September 30, 1999
   ------------------
   Tangible (1)          $34,200,742   11.77%  $ 4,358,431    1.50%  $       N/A         N/A%
   Tier I capital (2)     34,200,742   19.57           N/A     N/A    10,484,460        6.00
   Core (1)               34,200,742   11.77     8,716,862    3.00    14,528,103        5.00
   Risk-weighted (2)      35,473,473   20.30    13,979,280    8.00    17,474,100       10.00

   September 30, 1998
   ------------------
   Tangible (1)          $32,826,759   12.57%  $ 3,916,205    1.50%  $       N/A         N/A%
   Tier I capital (2)     32,826,759   22.22           N/A     N/A     8,862,799        6.00
   Core (1)               32,826,759   12.57     7,832,409    3.00    13,054,015        5.00
   Risk-weighted (2)      33,860,666   22.92    11,817,065    8.00    14,771,331       10.00
</TABLE>

         (1) To adjusted total assets.
         (2) To risk-weighted assets.

             The OTS has adopted an interest rate risk component of regulatory
         capital requirements effective January 1, 1994. The rule requires
         additional capital to be maintained if the Bank's interest rate risk
         exposure, measured by the decline in the market value of the Bank's net
         portfolio value, exceeds 2% of assets as a result of a 200 basis point
         shift in interest rates. As of September 30, 1999, the Bank is not
         subject to the interest rate risk requirement.

             OTS regulations limit the payment of dividends and other capital
         distributions by the Bank. The Bank is able to pay dividends during a
         calendar year without regulatory approval to the extent of the greater
         of (i) an amount which will reduce by one-half its surplus capital
         ratio at the beginning of the year plus all its net income determined
         on the basis of generally accepted accounting principles for that
         calendar year or (ii) 75% of net income for the last four calendar
         quarters.

                                      F-26
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 15- Retained Earnings - Continued
         -----------------

             The Bank is restricted in paying dividends on its stock to the
         greater of the restrictions described in the preceding paragraph, or an
         amount that would reduce its retained earnings below its regulatory
         capital requirement or the accumulated bad debt deduction.

             The mutual holding company for the Company, Baltimore County
         Savings Bank, M.H.C. ("M.H.C.") has waived receipt of its quarterly
         dividends, thereby reducing the actual dividend payout by the Company
         in 1999. The dividends waived by M.H.C. are considered as a restriction
         on the retained earnings of the Bank. The amount of any dividend waived
         by M.H.C. is available for declaration as a dividend solely to M.H.C.
         At June 30, 1999, the cumulative amount of such waived dividends was
         $1,408,110.

Note 16- Income Taxes
         ------------

             The current tax provision consists of the following for the years
         ended September 30, 1999 and 1998:

                                                          1999         1998
                                                          ----         ----
         Current expense                               $1,299,576   $1,012,697
         Deferred expense (benefit)                      (342,109)      60,391
                                                       ----------   ----------
            Total tax expense                          $  957,467   $1,073,088
                                                       ==========   ==========

             The tax effects to temporary differences that give rise to
         significant portions of the deferred tax assets and deferred tax
         liabilities at September 30, 1999 and 1998 are as follows:

                                                           1999      1998
                                                           ----      ----
         Deferred Tax Assets:
           Charitable deduction carryforward             $ 70,047  $      -
            Market value change in Rabbi Trust assets     116,028         -
            Allowance for loan losses                     491,529   399,295
            Allowance for uncollected interest             24,307    22,253
                                                         --------  --------
               Total gross deferred tax assets            701,911   421,548


                                      F-27
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 16- Income Taxes - Continued
         ------------

                                                            1999       1998
                                                            ----       ----
         Deferred Tax Liabilities:
            Federal Home Loan Bank of Atlanta
             stock dividends                              $(151,928) $(151,928)
            Depreciation                                   (123,317)  (108,903)
            Bad debt deduction in excess of
             base year reserves                            (228,486)  (304,646)
                                                          ---------  ---------
                  Total gross deferred tax liabilities     (503,731)  (565,477)
                                                          ---------  ---------
         Net Deferred Tax Assets (Liabilities)            $ 198,180  $(143,929)
                                                          =========  =========

             The amount computed by applying the statutory federal income tax
         rate to income before taxes and extraordinary item is greater than the
         taxes provided for the following reasons:

<TABLE>
<CAPTION>
                                                     For the Years Ended September 30,
                                              ----------------------------------------------
                                                       1999                     1998
                                              ----------------------    --------------------
                                                            Percent                  Percent
                                                           of Pretax                of Pretax
                                               Amount        Income       Amount      Income
                                              ---------    ---------    ----------  --------
         <S>                                  <C>          <C>          <C>         <C>
         Statutory federal income tax rate    $ 796,231        34.00%   $  925,266     34.00%
         Increases (Decreases)
          Resulting From
          -----------------------
            State income tax net of
             federal income tax benefit         111,542         4.76       129,738      4.77
            Other                                49,694         2.12        18,084       .66
                                              ---------    ---------    ----------  --------
                                              $ 957,467        40.88%   $1,073,088     39.43%
                                              =========    =========    ==========  ========
</TABLE>

             The Company and its subsidiaries file a consolidated income tax
         return on a fiscal year basis. The returns have been audited by the
         Internal Revenue Service through the year ended September 30, 1994.

             Qualified thrift lenders such as the Bank are not required to
         provide a deferred tax liability for bad debt reserves for tax purposes
         that arose in fiscal years beginning before December 31, 1987. Such bad
         debt reserve for the Bank amounted to approximately $4,227,000 with an
         income tax effect of approximately $1,633,000 at September 30, 1999.
         This bad debt reserve would become taxable if certain conditions are
         met by the Bank.

                                      F-28
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 17- Disclosures About Fair Value of Financial Instruments
         -----------------------------------------------------

             The estimated fair values of the Bank's financial instruments are
         summarized below. The fair values of a significant portion of these
         financial instruments are estimates derived using present value
         techniques prescribed by the FASB and may not be indicative of the net
         realizable or liquidation values. Also, the calculation of estimated
         fair values is based on market conditions at a specific point in time
         and may not reflect current or future fair values.

             The carrying amount is a reasonable estimate of fair value for
         cash, federal funds and interest-bearing deposits in other banks. Fair
         value is based upon market prices quoted by dealers for investment
         securities and mortgage backed securities. The carrying amount of
         Federal Home Loan Bank of Atlanta stock is a reasonable estimate of
         fair value. Loans receivable were discounted using a single discount
         rate, comparing the current rates at which similar loans would be made
         to borrowers with similar credit ratings and for the same remaining
         maturities. These rates were used for each aggregated category of loans
         as reported on the Office of Thrift Supervision Quarterly Report. The
         fair value of demand deposits, savings accounts and money market
         deposits is the amount payable on demand at the reporting date. Federal
         Home Loan Bank advances are considered to be at fair value. The fair
         value of fixed-maturity certificates of deposit is estimated using the
         rates currently offered on deposits of similar remaining maturities.

             The estimated fair values of the Bank's financial instruments are
         as follows:

<TABLE>
<CAPTION>
                                              September 30, 1999    September 30, 1998
                                             --------------------  --------------------
                                             Carrying  Estimated   Carrying  Estimated
                                              Amount   Fair Value   Amount   Fair Value
                                             --------  ----------  --------  ----------
                                                       (Amounts in Thousands)
<S>                                          <C>       <C>         <C>       <C>
Financial Assets
----------------
 Cash                                        $  5,977    $  5,977  $  3,572    $  3,572
 Interest bearing deposits in other banks       8,651       8,651    20,300      20,300
 Federal funds sold                               449         449     9,134       9,134
 Investment securities - held to maturity      35,232      34,218    12,611      12,661

Loans Receivable
----------------
    Mortgage loans                           $164,142    $161,826  $145,141    $153,242
    Share loans                                   581         581       681         681
    Consumer loans                             50,660      50,736    36,147      36,380
 Mortgage backed securities                    23,500      23,396    34,198      34,874
 Federal Home Loan Bank of Atlanta stock        1,650       1,650     1,512       1,512
</TABLE>

                                      F-29
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 17- Disclosures About Fair Value of Financial Instruments - Continued
         -----------------------------------------------------

<TABLE>
<CAPTION>
                                          September 30, 1999    September 30, 1998
                                         --------------------  --------------------
                                         Carrying  Estimated   Carrying  Estimated
                                          Amount   Fair Value   Amount   Fair Value
                                         --------  ----------  --------  ----------
                                                   (Amounts in Thousands)
   <S>                                   <C>       <C>         <C>       <C>
   Financial Liabilities
   ---------------------
    Deposits                             $233,364    $233,481  $220,805    $221,133
    Federal Home Loan Bank of Atlanta
     advances                              16,500      16,500         -           -
    Mortgage loan commitments                   -       3,664         -       2,853
</TABLE>

Note 18- Condensed Financial Information (Parent Company Only)
         -----------------------------------------------------

             Information as to the financial position of BCSB Bankcorp as of
         September 30 and the results of operations and cash flows for the years
         ended September 30 are summarized below.

<TABLE>
<CAPTION>
                                                     September 30,  September 30,
                                                         1999           1998
                                                     -------------  -------------
         <S>                                         <C>            <C>
         Statement of Financial Condition

                    Assets
                    ------
         Cash                                          $   227,761    $   192,182
         Interest bearing deposits in other banks        1,205,965      3,100,089
         Federal funds                                           -      5,500,000
         Investment securities, held to maturity         7,247,897              -
         Employee Stock Ownership Plan loan              1,646,352      1,829,280
         Account receivables - intercompany                245,539        802,449
         Investment in subsidiary                       35,069,404     33,725,488
                                                       -----------    -----------
         Total assets                                  $45,642,918    $45,149,488
                                                       ===========    ===========

          Liabilities and Stockholders' Equity
          ------------------------------------
         Liabilities
         -----------
          Accrued taxes payable                        $    57,860    $     6,440
          Dividends payable                                294,797              -
          Other liabilities                                  9,802              -
                                                       -----------    -----------
                                                           362,459          6,440
</TABLE>

                                      F-30
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 18- Condensed Financial Information (Parent Company Only) - Continued
         -----------------------------------------------------

<TABLE>
<CAPTION>
                                                             September 30,   September 30,
                                                                  1999           1998
                                                             -------------   -------------
         <S>                                                 <C>             <C>
         Stockholders' Equity
         --------------------
          Common stock (6,116,562 shares issued
           and outstanding)                                    $    61,166     $    61,166
          Paid-in capital                                       21,918,472      22,645,088
          Retained earnings (substantially restricted)          25,788,692      25,221,308
                                                               -----------     -----------
                                                                47,768,330      47,927,562
          Employee Stock Ownership Plan                         (1,509,156)     (1,829,280)
          Stock held by Rabbi Trust                               (978,715)       (955,234)
                                                               -----------     -----------
         Total stockholders' equity                             45,280,459      45,143,048
                                                               -----------     -----------
         Total liabilities and stockholders' equity            $45,642,918     $45,149,488
                                                               ===========     ===========

         Statement of Operations
          Interest and fees on loans                           $   171,096     $         -
          Interest and dividends on investment securities          234,152               -
          Other interest income                                    275,790          16,724
                                                               -----------     -----------
         Net interest income                                       681,038          16,724

         Other Income
          Income from subsidiary                                 1,068,093       1,638,047
                                                               -----------     -----------
                                                                 1,749,131       1,654,771
         Non-Interest Expenses
          Professional fees                                         95,015               -
          Other expense                                             70,617              49
                                                               -----------     -----------
         Total non-interest expense                                165,632              49
                                                               -----------     -----------
         Net income before tax provision                         1,583,499       1,654,722

         Income tax provision                                      199,110           6,440
                                                               -----------     -----------
         Net income                                            $ 1,384,389     $ 1,648,282
                                                               ===========     ===========
</TABLE>

                                      F-31
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 18- Condensed Financial Information (Parent Company Only) - Continued
         -----------------------------------------------------

<TABLE>
<CAPTION>
                                                               September 30,   September 30,
                                                                    1999            1998
                                                               -------------   -------------
  <S>                                                          <C>             <C>
       Statement of Cash Flows
  Net income                                                     $ 1,384,389    $  1,648,282
  Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities
   -------------------------------------
     Accretion of discount on investments                               (199)              -
     Equity in net income of subsidiary                           (1,068,093)       (542,812)
     (Increase) decrease in accounts receivable
     intercompany                                                    865,938        (802,449)
     Increase in accrued interest receivable on loans                (95,694)              -
     Increase in accrued interest receivable on investments         (146,792)              -
     Increase in other assets                                         (3,053)              -
     Increase in income taxes payable                                 51,420               -
     Increase in other liabilities and payables
     to disbursing agents                                            (53,687)              -
                                                                 -----------    ------------
       Net cash provided by operating activities                     934,229         303,021

  Cash Flows from Investing Activities
  ------------------------------------
     Purchase of stock subsidiary                                $         -    $(12,108,741)
     Increase in accrued taxes payable                                     -           6,440
     Proceeds from maturing interest bearing deposits                293,000               -
     Purchase of interest bearing deposits                          (883,000)              -
     Purchases of investment securities - held to maturity        (7,247,518)              -
     Principal collected on longer term loans                        182,928               -
                                                                 -----------    ------------
       Net cash used by investing activities                      (7,654,590)    (12,102,301)

  Cash Flows from Financing Activities
  ------------------------------------
     Proceeds from stock offering                                          -      22,420,831
     Refund of stock offering expense                                 55,000               -
     Employee Stock Ownership Plan (ESOP)                                  -      (1,829,280)
     Stock held by Management Retention Plan                        (732,073)              -
     Stock repurchase                                                (28,903)              -
     Dividends on stock                                             (817,005)              -
     Increase in dividends payable                                   294,797               -
                                                                 -----------    ------------
       Net cash provided (used) by financing activities           (1,228,184)     20,591,551
                                                                 -----------    ------------
</TABLE>

                                      F-32
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 18- Condensed Financial Information (Parent Company Only) - Continued
         -----------------------------------------------------

<TABLE>
<CAPTION>
                                                              September 30,   September 30,
                                                                   1999           1998
                                                              -------------   -------------
  <S>                                                         <C>             <C>
  Increase (decrease) in cash and cash equivalents              $(7,948,545)     $8,792,271
  Cash and cash equivalents at beginning of period                8,792,271               -
                                                                -----------      ----------
  Cash and cash equivalents at end of period                    $   843,726      $8,792,271
                                                                ===========      ==========

  The following is a summary of cash and cash equivalents:
      Cash                                                      $   227,761      $  192,182
      Interest bearing deposits in other banks                    1,205,965       3,100,089
      Federal funds sold                                                  -       5,500,000
                                                                -----------      ----------
      Balance of cash items reflected on Statement of
       Financial Condition                                        1,433,726       8,792,271

           Less - certificate of deposit with a maturity
                        of more than three months                   590,000               -
                                                                -----------      ----------

  Cash and cash equivalents reflected on the
    Statement of Cash Flows                                     $   843,726      $8,792,271
                                                                ===========      ==========
</TABLE>

Note 19- Recent Accounting Pronouncements
         --------------------------------

             SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities" was issued in June, 1998. This Statement standardizes the
         accounting for derivative instruments including certain derivative
         instruments embedded in other contracts, by requiring that an entity
         recognize these items as assets or liabilities in the statement of
         financial position and measure them at fair value. This Statement
         generally provides for matching the timing of gain or loss recognition
         on the hedging instrument with the recognition of the changes in the
         fair value of the hedged asset or liability that are attributable to
         the hedged risk or the earnings effect of the hedged forecasted
         transaction. The Statement, which is effective for all fiscal quarters
         of all fiscal years beginning after June 15, 2000, will not affect the
         Company's financial position or its results of operations.

                                      F-33
<PAGE>

BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------

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


Note 19- Recent Accounting Pronouncements - Continued
         --------------------------------

             Statement of Position ("SOP") 98-5, "Reporting on the Costs of
         Start-Up Activities". This Statement provides guidance on the financial
         reporting of start-up cost and organization cost. It requires costs of
         start-up activities and organization cost to be expensed as incurred.
         The "SOP" also requires the initial application to be reported as a
         cumulative effect of a change in accounting principle. This "SOP" which
         is effective for fiscal years beginning after December 15, 1998 will
         not affect the Company's financial position or results of operations.

                                      F-34
<PAGE>

<TABLE>
<S>                                           <C>                                                      <C>
                                                        BOARD OF DIRECTORS

Henry V. Kahl                                      Gary C. Loraditch                                   John J. Panzer, Jr.
Chairman of the Board                              President and Chief Executive Officer               Self Employed
                                                   of the Company and the Bank
H. Adrian Cox
Vice Chairman of the Board                         William M. Loughran                                 P. Louis Rohe, Jr.
Insurance Agent for Rohe and Rohe                  Senior Vice President of the Bank and               Retired
Associates, Baltimore, Maryland                    Director

                                                   Frank W. Dunton
                                                   Retired


                                                        EXECUTIVE OFFICERS

Gary C. Loraditch                                  William M. Loughran                                 Bonnie M. Klein
President and Chief Executive Officer              Senior Vice President                               Vice President and Treasurer


                                 Michelle J. Scott                              David M. Meadows
                                 Vice President                                 Vice President, Secretary and
                                                                                General Counsel


                                                         OFFICE LOCATIONS

     4111 E. Joppa Road, Suite 300                   4208 Ebenezer Road                 563 Bel Air Plaza
     Baltimore, Maryland  21236                      Perry Hall, Maryland 21128         Bel Air, Maryland 21014

     1736 Merritt Blvd.                              2165 York Road                     712 N. Rolling Road
     Dundalk, Maryland 21222                         Timmonium, Maryland 21093          Catonsville, Maryland 21228

                                2105 Rock Spring Road                   402 Constant Friendship Boulevard
                                Forest Hill, Maryland 21050             Abingdon, Maryland 21009

                                                       CORPORATE INFORMATION

Independent Certified Accountants             Special Counsel                                  Annual Report on Form 10-KSB
Anderson Associates, LLP                      Housley Kantarian & Bronstein, P.C.
7621 Fitch Lane                               1220 19th Street, N.W., Suite 700                A copy of the Company's Annual
Baltimore, Maryland 21236                     Washington, D.C. 20036                           Report on Form 10-KSB for the
                                                                                               fiscal year ended September 30,
General Counsel                               Annual Meeting                                   1999 as filed with the Securities
Moore, Carney, Ryan & Lattanzi, LLC           The 2000 Annual Meeting of Stockholders          and Exchange Commission, will be
4111 E. Joppa Road, Suite 201                 will be held on February 9, 2000 at              furnished without charge to
Baltimore, Maryland 21236                     4:00 p.m. at the Bank's Perry Hall               stockholders as of the record date
                                              office located at 4208 Ebenezer Road,            for the 2000 Annual Meeting upon
Transfer Agent and Registrar                  Baltimore, Maryland                              written request to Corporate
Chase-Mellon Shareholder Services                                                              Secretary, BCSB Bankcorp, Inc.,
450 W. 33rd Street, 15th Floor                                                                 4111 E. Joppa Road, Suite 300,
New York, New York  10001                                                                      Baltimore, Maryland  21236
</TABLE>