SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ________________
                                   FORM 10-KSB

      FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[x]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
For the fiscal year ended September 30, 2002
                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

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

                           Commission File No. 0-24589

                               BCSB BANKCORP, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

    UNITED STATES                                                  52-2108333
---------------------------------                              -----------------
(State or Other Jurisdiction                                   (I.R.S. Employer
of Incorporation or Organization)                                Identification
No.)

4111 E. JOPPA ROAD, SUITE 300, BALTIMORE, MARYLAND                   21236
---------------------------------------------------             ----------------
(Address of Principal Executive Offices)                          (Zip Code)

         Issuer's telephone number, including area code: (410) 256-5000

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)

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

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     For  the  fiscal  year  ended   September  30,  2002,  the  registrant  had
$29,533,751 in revenues.

As of December  16,  2002,  the  aggregate  market value of voting stock held by
non-affiliates  was  approximately  $19,563,144  computed  by  reference  to the
closing  sale price for the  registrant's  common  stock on December 16, 2002 as
reported on the Nasdaq National Market System. For purposes of this calculation,
it is assumed that directors,  executive  officers and beneficial owners of more
than 5% of the registrant's outstanding voting stock are affiliates.

     Number of shares of Common  Stock  outstanding  as of  December  16,  2002:
5,874,082

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following lists the documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:

1.   Portions of the  registrant's  Annual Report to Stockholders for the Fiscal
     Year ended September 30, 2002. (Parts II and III)
2.   Portions  of Proxy  Statement  for  registrant's  2003  Annual  Meeting  of
     Stockholders. (Part III)

<PAGE>
                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS
---------------------------------

GENERAL

     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 63.9% of the Company's  outstanding common
stock.  The  Company's  assets  consist  of its  investment  in the Bank and its
portfolio of  investment  securities.  The Company is  primarily  engaged in the
business of directing,  planning and coordinating the business activities of the
Bank.

     The  Company's  most  significant  asset  is its  investment  in the  Bank.
Accordingly,  the  information  set forth in this  report,  including  financial
statements and related data,  relates primarily to the Bank. In the future,  the
Company may become an operating  company or acquire or organize other  operating
subsidiaries,  including other financial  institutions.  Currently,  the Company
does not maintain  offices separate from those of the Bank or employ any persons
other than its officers who are not separately  compensated for such service. At
September  30,  2002,  the Company  had total  assets of $587.1  million,  total
deposits of $498.8 million and stockholders' equity of $45.3 million.

     The Company's and the Bank's executive offices are located at 4111 E. Joppa
Road,  Suite 300,  Baltimore,  Maryland 21236,  and its main telephone number is
(410) 256-5000.

     Baltimore  County Savings Bank,  F.S.B.  The Bank is a federally  chartered
stock  savings  bank  operating  through  sixteen  banking  offices  serving the
Baltimore  Metropolitan Area. The Bank was chartered by the State of Maryland in
1955 under the name Baltimore  County  Building and Loan  Association.  The Bank
received  federal  insurance  of its  deposit  accounts  in 1985 and  received a
federal  charter in 1987, at which time it adopted its present name of Baltimore
County Savings Bank, F.S.B.

     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 AREA

     The Bank's  market area  consists of the  Baltimore  metropolitan  area. At
September 30, 2002,  management estimates that more than 95% of deposits and 95%
of all lending came from its market area.

     The  economy  of the  Bank's  market  area  is  diversified,  with a mix of
services,   manufacturing,   wholesale/retail   trade,  and  federal  and  local
government.  Once  the  backbone  of the  regional  economy,  the  manufacturing
industry  is  relatively  stable  after  almost  two  decades  of  decline.  The
manufacturing  section of Baltimore County received a further boost with General
Motors completion of its construction of a new Allison Transmission Plant in the
White Marsh growth area.  Baltimore County currently maintains 36 percent of the
regional  manufacturing  base.  Manufacturing in the market area is dominated by
high technology,  particularly within the defense industry.  Similar to national
trends,  most of the job growth in the Bank's  market area has been  realized in
service related industries,  and service jobs account for the largest portion of
the workforce.  Based on the most recent data available,  service jobs accounted
for 32.8% of Baltimore County's employment in 1995 as compared to 30.5% in 1991.
Comparatively, from 1991 to 1995, manufacturing jobs declined from 11.3% to 9.7%
of Baltimore County's labor force.

     Harford County  continued to experience  strong  economic growth during the
recent period,  and continues to be one of Maryland's  fastest growing counties.
Since 1990 private sector  employment has grown by 18.5% with the

                                       2
<PAGE>

largest  growth  occurring  in the  transportation,  communications  and  public
utilities  sector,  69.8%.  While  personal  income grew over the same period by
27.7%,  a rate of growth 6% greater than the  Baltimore  region and 4.5% greater
than the State of Maryland.

     With the  acquisition of Heritage  Savings Bank, the Bank's market area has
extended into the City of Baltimore and Howard  County,  Maryland.  The combined
population of those  jurisdictions in addition to the jurisdictions of Baltimore
and  Harford  Counties,  result  in  an  estimated  market  area  population  of
approximately 1,800,000 people as of 1995. While Baltimore City's population has
declined in the last two decades,  all of the surrounding counties in the Bank's
market area have experienced increases in population. Baltimore County maintains
approximately  30% of the total population of the area, while Harford and Howard
Counties have  experienced the greatest  percentage  increase in population from
1995 to 2000.  The total  estimated  market  area  population  as of 2000 equals
1,887,200.

LENDING ACTIVITIES

     General.  The  Bank's  gross  loan  portfolio  totaled  $416.4  million  at
September  30,  2002,  representing  70.9%  of total  assets  at that  date.  At
September 30, 2002, $220.1 million, or 52.9% of the Bank's gross loan portfolio,
consisted of single-family,  residential  mortgage loans. Other loans secured by
real estate  include  construction  loans,  single-family  rental  property  and
commercial real estate loans, which amounted to $11.7 million,  $8.3 million and
$57.4  million,  respectively,  or 2.8%,  2.0% and 13.8%,  respectively,  of the
Bank's  gross loan  portfolio at September  30, 2002.  The Bank also  originates
consumer loans,  consisting  primarily of automobile loans and home equity lines
of credit, which totaled $93.2 million and $13.9 million, respectively, or 22.4%
and 3.3%, respectively, of the Bank's gross loan portfolio.

                                       3
<PAGE>
     Loan Portfolio  Composition.  The following  table sets forth selected data
relating to the  composition of the Bank's loan portfolio by type of loan at the
dates indicated.  At September 30, 2002, the Bank had no concentrations of loans
exceeding 10% of gross loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                                     At September 30,
                                             --------------------------------------------------------------------
                                                    2002                   2001                   2000
                                             ------------------     -----------------       -----------------
                                              Amount       %        Amount      %           Amount       %
                                             --------    ------     ------    -------       ------     ------
                                                                 (Dollars in thousands)
<S>                                         <C>          <C>      <C>          <C>        <C>          <C>
Real estate loans:
  Single-family residential (1)...........  $ 221,062    53.09%   $ 165,028    57.94%     $ 152,469    59.42%
  Single-family rental property loans.....      8,306     2.00        7,581     2.66          5,080     1.98
  Commercial..............................     57,356    13.77       15,068     5.29         13,649     5.32
  Construction (2)........................     11,734     2.82        8,709     3.06          5,905     2.30
Commercial lines of credit................      4,208     1.01          400      .14             44      .02
Commercial leases.........................      1,170      .28        1,308      .46             --       --
Commercial loans secured..................      1,595      .38        2,588      .91          1,475      .57

Consumer loans:
  Automobile..............................     93,161    22.38       72,822    25.57         67,852    26.44
  Home equity lines of credit.............     13,864     3.33        8,935     3.13          8,147     3.18
  Other...................................      3,897      .94        2,395      .84          1,976      .77
                                            ---------   ------    ---------   ------      ---------   ------
                                              416,353   100.00%     284,834   100.00%       256,597   100.00%
                                                        ======                ======                  ======
Add:
  Purchase accounting premium (net).......      1,990                    --                      --
Less:
  Undisbursed portion of loans in process.      4,902                 4,434                   3,850
  Deferred loan origination fees..........        661                   143                     214
  Unearned interest.......................     13,964                10,684                   9,610
  Allowance for loan losses...............      2,199                 1,563                   1,403
                                            ---------             ---------               ---------
    Total.................................  $ 396,617             $ 268,010               $ 241,520
                                            =========             =========               =========
<CAPTION>
                                                           At September 30,
                                              ---------------------------------------
                                                    1999                   1998
                                              ------------------      ---------------
                                              Amount        %         Amount      %
                                              ------      ------      ------   ------
                                                    (Dollars in thousands)
<S>                                         <C>           <C>      <C>         <C>
Real estate loans:
  Single-family residential (1)...........  $ 146,868     65.20%   $126,272    66.46%
  Single-family rental property loans.....      4,832      2.15       5,253     2.76
  Commercial..............................     10,216      4.54       9,497     5.00
  Construction (2)........................      5,592      2.48       7,936     4.18
Commercial lines of credit................         50       .02          50      .03
Commercial leases.........................         --        --          --       --
Commercial loans secured..................      1,081       .48          --       --

Consumer loans:
  Automobile..............................     46,753     20.75      33,748    17.76
  Home equity lines of credit.............      7,963      3.54       6,549     3.45
  Other...................................      1,908       .84         681      .36
                                             --------    ------    --------   ------
                                              225,263    100.00%    189,986   100.00%
                                                         ======               ======
Add:
  Purchase accounting premium (net).......         --                    --
Less:
  Undisbursed portion of loans in process.      2,579                 2,963
  Deferred loan origination fees..........         80                   278
  Unearned interest.......................      5,948                 3,742
  Allowance for loan losses...............      1,273                 1,034
                                             --------              --------
    Total.................................   $215,383              $181,969
                                             ========              ========
<FN>
--------------
(1)      Includes fixed-rate second mortgage loans.
(2)      Includes acquisition and development loans.
</FN>
</TABLE>
                                       4
<PAGE>
     Loan Maturity Schedules. The following table sets forth certain information
at  September  30, 2002  regarding  the dollar  amount of loans  maturing in the
Bank's  portfolio  based  on their  contractual  terms  to  maturity,  including
scheduled repayments of principal. Demand loans, loans having no stated schedule
of repayments and no stated maturity,  and overdrafts are reported as due in one
year or less.  The table does not include  any  estimate  of  prepayments  which
significantly  shorten  the  average  life of  mortgage  loans and may cause the
Bank's repayment experience to differ from that shown below.
<TABLE>
<CAPTION>

                                                              Due after
                                       Due during             1 through               Due after
                                     the year ending        5 Years After           5 Years After
                                   September 30, 2003    September 30, 2003      September 30, 2003         Total
                                   ------------------    ------------------      ------------------         -----
                                                                       (In thousands)
<S>                                   <C>                     <C>                     <C>                 <C>
Real estate loans:
  Single-family residential.........  $     2,157             $    11,812             $   207,093         $  221,062
  Single-family rental property.....           10                     141                   8,155              8,306
  Commercial........................        7,712                  10,074                  39,570             57,356
  Construction......................        8,867                     849                   2,018             11,734
Commercial lines of credit..........        3,048                   1,160                      --              4,208
Commercial leases...................           14                   1,156                      --              1,170
Commercial loans secured............          287                   1,308                      --              1,595

Consumer:
  Automobile........................        1,086                  90,379                   1,696             93,161
  Home equity lines of credit.......          173                   3,886                   9,805             13,864
  Other.............................          828                   1,372                   1,697              3,897
                                      -----------             -----------             -----------         ----------
     Total..........................  $    24,182             $   122,137             $   270,034         $  416,353
                                      ===========             ===========             ===========         ==========
</TABLE>
     The following  table sets forth at September 30, 2002, the dollar amount of
all loans due one year or more after September 30, 2002 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                                     Predetermined              Floating or
                                                                         Rate                Adjustable Rates
                                                                        ------               ----------------
                                                                               (In thousands)
                  <S>                                                  <C>                       <C>
                  Real estate loans:
                     Single-family residential.......................  $ 199,355                 $  19,550
                     Single-family rental property...................      4,826                     3,470
                     Commercial......................................     45,103                     4,541
                     Construction....................................      2,867                        --
                  Commercial lines of credit.........................      1,160                        --
                  Commercial leases..................................      1,156                        --
                  Commercial loans secured...........................      1,308                        --
                  Consumer:
                     Automobiles.....................................     92,075                        --
                     Home equity lines of credit.....................         --                    13,691
                     Other...........................................      3,069                        --
                                                                       ---------                 ---------
                          Total......................................  $ 350,919                 $  41,252
                                                                       =========                 =========
</TABLE>
     Scheduled  contractual  principal  repayments  of loans do not  reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare a loan immediately due and
payable in the event,  among  other  things,  that the  borrower  sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially  higher than rates on  existing  mortgage  loans and,  conversely,
decrease when current  mortgage loan market rates are  substantially  lower than
rates on existing mortgage loans.

                                       5
<PAGE>

     Originations,  Purchases  and  Sales  of  Loans.  The  Bank  generally  has
authority  to  originate  and  purchase  loans  secured by real  estate  located
throughout  the  United  States.   Consistent  with  its  emphasis  on  being  a
community-oriented  financial  institution,  the Bank  concentrates  its lending
activities in its market area.

     The  following  table sets forth  certain  information  with respect to the
Bank's loan origination, purchase and sale activity for the periods indicated.
<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                                     --------------------------------------------
                                                       2002              2001             2000
                                                     --------          --------         --------
                                                                    (In thousands)
<S>                                                  <C>               <C>              <C>
Loans originated:
  Real estate loans:
    Single-family residential......................  $  39,589         $  33,457        $  22,703
    Single-family rental property loans............      2,686             3,270            1,072
    Commercial.....................................     10,002             3,030            3,666
    Construction...................................      1,708             3,071            5,497
Commercial lines of credit.........................      3,014               980               --
Commercial loans secured...........................      2,584             1,185              656
Commercial leases..................................        518             1,414               --
Consumer loans:
    Automobiles....................................     62,456            44,350           52,648
    Home equity lines of credit....................      5,102             2,957            2,278
    Other..........................................      1,573             1,563            1,076
                                                     ---------         ---------        ---------
       Total loans originated......................  $ 129,232         $  95,277        $  89,596
                                                     =========         =========        =========
Loans purchased:
  Real estate loans................................  $      --         $   1,500        $     764
                                                     ---------         ---------        ---------
Total loans purchased..............................  $      --         $   1,500        $     764
                                                     =========         =========        =========
Loans sold:
  Whole loans......................................  $  10,183         $   2,805        $   1,085
                                                      --------          --------         --------
Total loans sold...................................  $  10,183         $   2,805        $   1,085
                                                     =========         =========        =========
</TABLE>

     The  Bank's  loan  originations  are  derived  from a  number  of  sources,
including referrals by realtors or automobile dealers,  depositors and borrowers
and advertising,  as well as walk-in customers. The Bank's solicitation programs
consist  of   advertisements   in  local  media,   in  addition  to   occasional
participation in various community  organizations and events.  Real estate loans
are originated by the Bank's loan personnel.  Automobile loans may be originated
on an indirect  basis  through a limited  number of approved  dealers,  and loan
applications are accepted at the Bank's offices.

     Loan Underwriting  Policies.  The Bank's lending  activities are subject to
the  Bank's  written,  non-discriminatory  underwriting  standards  and to  loan
origination  procedures  prescribed  by the Bank's  Board of  Directors  and its
management.  Detailed loan applications are obtained to determine the borrower's
ability  to repay,  and the more  significant  items on these  applications  are
verified   through  the  use  of  credit  reports,   financial   statements  and
confirmations.  Real estate  loans up to  $500,000,  as well as all requests for
lines of credit up to  $250,000,  may be approved by the Bank's Loan  Committee,
which  consists of the Bank's  President,  Senior Vice  President of Lending and
Treasurer  and  meets  weekly.  All loans in  excess  of these  amounts  must be
approved by the full Board of  Directors.  Individual  officers of the Bank have
been granted  authority by the Board of Directors to approve loans up to varying
specified dollar amounts,  depending upon the type of loan. Automobile loans are
approved by the Bank's car loan manager or assistant manager and reviewed by the
Bank's Sr. Vice President who supervises lending operations.

     Applications for single-family real estate loans generally are underwritten
and closed in accordance with the standards of FHLMC and FNMA. Upon receipt of a
loan application from a prospective  borrower, a credit report and verifications
are ordered to verify  specific  information  relating  to the loan  applicant's
employment, income and credit standing. If a proposed loan is to be secured by a
mortgage on real estate,  an appraisal  of the real estate is  undertaken  by an
appraiser  approved by the Bank and  licensed by the State of  Maryland.  In the
case of

                                       6
<PAGE>

single-family  residential mortgage loans, except when the Bank becomes aware of
a particular risk of  environmental  contamination,  the Bank generally does not
obtain a formal  environmental  report on the real  estate at the time a loan is
made.  A  formal  environmental  report  may  be  required  in  connection  with
commercial real estate loans, and the Bank obtains a Phase I environmental study
in connection with its underwriting of acquisition and development loans.

     It is the Bank's policy to record a lien on the real estate securing a loan
and to obtain title insurance or an attorney's  certification which ensures that
the property is free of prior  encumbrances  and other  possible  title defects.
Borrowers must also obtain hazard insurance  policies prior to closing and, when
the property is in a flood plain as designated by Federal  Emergency  Management
Agency, pay flood insurance policy premiums.

     With respect to single-family  residential mortgage loans, the Bank makes a
loan  commitment  of  between  30 and 60 days for  each  loan  approved.  If the
borrower  desires a longer  commitment,  the commitment may be extended for good
cause and upon  written  approval.  No fees are charged in  connection  with the
issuance of a commitment letter. The interest rate is guaranteed until closing.

     The Bank is  permitted  to lend up to 97% of the  lesser  of the  appraised
value or the  purchase  price of the real  property  securing a  mortgage  loan.
However,  if the amount of a residential  loan originated or refinanced  exceeds
80% of the  appraised  value,  the Bank's policy is to obtain  private  mortgage
insurance at the  borrower's  expense on the principal  amount of the loan.  The
Bank  will  make a  single-family  residential  mortgage  loan  with up to a 97%
loan-to-value ratio if the required private mortgage insurance is obtained.  The
Bank generally limits the loan-to-value ratio on commercial real estate mortgage
loans to 75%, although the  loan-to-value  ratio on commercial real estate loans
in  limited  circumstances  has  been  as  high  as 80%.  The  Bank  limits  the
loan-to-value  ratio on single-family  rental property loans to 80%. Home equity
loans are made in amounts which, when added to any senior  indebtedness,  do not
exceed 80% of the value of the property.

     Under applicable law, with certain limited exceptions, loans and extensions
of credit by a savings institution to a person outstanding at one time shall not
exceed  15% of the  institution's  unimpaired  capital  and  surplus.  Loans and
extensions of credit fully secured by readily marketable collateral may comprise
an additional  10% of unimpaired  capital and surplus.  Under these limits,  the
Bank's loans to one borrower were limited to $6.8 million at September 30, 2002.
Applicable law additionally authorizes savings institutions to make loans to one
borrower,  for any purpose,  in an amount not to exceed $500,000 or in an amount
not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus
to  develop  residential  housing,  provided:  (i) the  purchase  price  of each
single-family  dwelling in the development  does not exceed  $500,000;  (ii) the
savings  institution  is  and  continues  to be in  compliance  with  its  fully
phased-in  regulatory  capital   requirements;   (iii)  the  loans  comply  with
applicable loan-to-value  requirements;  (iv) the aggregate amount of loans made
under this authority does not exceed 150% of unimpaired capital and surplus; and
(v) the  Director of OTS, by order,  permits  the savings  institution  to avail
itself of this higher  limit.  At September  30,  2002,  the Bank had no lending
relationships  in excess of the  loans-to-one-borrower  limit.  At September 30,
2002,  the  Bank's  largest  loan  customer  was  a  $3.4  million  relationship
consisting of a construction  commercial  real estate loan. The loan was made to
acquire and develop one  commercial  building.  At September 30, 2002, the loans
were current and performing in accordance with their terms.

     Interest  rates  charged by the Bank on loans are affected  principally  by
competitive factors, the demand for such loans and the supply of funds available
for lending purposes.  These factors are, in turn,  affected by general economic
conditions,  monetary policies of the federal government,  including the Federal
Reserve Board, legislative tax policies and government budgetary matters.

     Single-Family  Residential Real Estate Lending.  The Bank  historically has
been and continues to be an originator of single-family, residential real estate
loans in its market area.  At September  30,  2002,  single-family,  residential
mortgage loans,  excluding  single-family  rental property loans and home equity
loans, totaled $220.1 million, or 52.9% of the Bank's gross loan portfolio.

     The Bank  originates  fixed-rate  mortgage  loans at  competitive  interest
rates.  At  September  30,  2002,  the Bank had  $218.2  million  of  fixed-rate
single-family   mortgage   loans,   which   amounted  to  99.1%  of  the  Bank's
single-family  mortgage loans. The Bank emphasizes the origination of fixed-rate
single-family  residential mortgage

                                       7
<PAGE>

loans with maturities of 15 years or less by offering more competitive  rates on
these loans as compared to the rates it offers on fixed-rate mortgage loans with
terms in excess of 15 years.

     The Bank also offers  adjustable-rate,  single-family  residential mortgage
loans.  As  of  September  30,  2002,  $1.9  million,  or  .90%  of  the  Bank's
single-family  mortgage loans carried  adjustable rates. After the initial term,
the rate adjustments on the Bank's  adjustable-rate  loans are indexed to a rate
which  adjusts  annually  based  upon  changes  in an index  based on the weekly
average  yield on U.S.  Treasury  securities  adjusted to a constant  comparable
maturity of one year,  as made  available  by the  Federal  Reserve  Board.  The
interest rates on most of the Bank's adjustable-rate mortgage loans are adjusted
once a year, and the Bank offers loans that have an initial adjustment period of
one, three or five years.  The maximum  adjustment is 2% per  adjustment  period
with a maximum  aggregate  adjustment of 6% over the life of the loan.  The Bank
offers adjustable-rate mortgage loans that provide for initial rates of interest
below the rates that would prevail when the index used for repricing is applied,
i.e., "teaser" rates. All of the Bank's  adjustable-rate  loans require that any
payment adjustment resulting from a change in the interest rate be sufficient to
result in full  amortization  of the loan by the end of the loan term and, thus,
do not permit any of the increased  payment to be added to the principal  amount
of the loan, known as "negative amortization."

     The retention of adjustable-rate loans in the Bank's portfolio helps reduce
the Bank's exposure to increases in prevailing  market interest rates.  However,
there are  unquantifiable  credit risks  resulting from  potential  increases in
costs to borrowers in the event of upward repricing of adjustable-rate loans. It
is possible that during periods of rising interest rates, the risk of default on
adjustable-rate  loans  may  increase  due to  increases  in  interest  costs to
borrowers.  Further,  although  adjustable-rate loans allow the Bank to increase
the sensitivity of its interest-earning assets to changes in interest rates, the
extent of this interest  sensitivity is limited by the initial fixed-rate period
before  the  first   adjustment  and  the  lifetime   interest  rate  adjustment
limitations.  Accordingly,  there can be no assurance  that yields on the Bank's
adjustable-rate  loans will fully  adjust to  compensate  for  increases  in the
Bank's  cost of  funds.  Finally,  adjustable-rate  loans  increase  the  Bank's
exposure to decreases in prevailing market interest rates, although decreases in
the Bank's cost of funds tend to offset this effect.

     Single-family  Rental  Property Loans.  The Bank also offers  single-family
residential mortgage loans secured by properties that are not owner-occupied. As
of September 30, 2002, single-family rental property loans totaled $8.3 million,
or 2.0%,  of the Bank's  gross loan  portfolio.  Originations  of  single-family
rental  property loans were $2.7 million,  $3.3 million and $1.0 million for the
years ended  September  30,  2002,  2001 and 2000,  respectively.  Single-family
residential mortgage loans secured by nonowner-occupied properties are made on a
fixed-rate or an  adjustable-rate  basis and carry interest rates generally from
..5%  to  1.0%  above  the  rates   charged  on   comparable   loans  secured  by
owner-occupied properties. The maximum term on such loans is 30 years.

     Construction  Lending.  A  substantial  portion of the Bank's  construction
loans are  originated  for the  construction  of  owner-occupied,  single-family
dwellings in the Bank's primary market area. Residential  construction loans are
offered primarily to individuals  building their primary or secondary residence,
as well as to  selected  local  developers  to  build  single-family  dwellings.
Generally,  loans to  owner/occupants  for the  construction of  owner-occupied,
single-family  residential  properties  are  originated in  connection  with the
permanent loan on the property and have a construction  term of up to 12 months.
Such loans are offered on a fixed-rate or adjustable-rate  basis. Interest rates
on residential construction loans made to the owner/occupant have interest rates
during the  construction  period  equal to the same rate on the  permanent  loan
selected by the customer.  Interest rates on residential  construction  loans to
builders  are set at the  prime  rate  plus a margin  of  between  .5% and 1.5%.
Interest rates on commercial construction loans are based on the prime rate plus
a  negotiated  margin  of  between  .5%  and  1.5%  and  adjust  monthly,   with
construction  terms  generally not  exceeding 18 months.  Advances are made on a
percentage of completion  basis. At September 30, 2002, $11.7 million,  or 2.8%,
of the Bank's gross loan portfolio  consisted of commercial  construction loans,
acquisition  and  development  loans,  and  construction  loans on single family
residences.

     Prior to making a  commitment  to fund a loan,  the Bank  requires  both an
appraisal of the property by appraisers approved by the Board of Directors and a
study of projected  construction  costs. The Bank also reviews and inspects each
project at the commencement of construction and as needed prior to disbursements
during the term of the construction loan.

                                       8
<PAGE>

     Consolidation in the building  industry and the increasing  presence in the
Bank's  market of large  builders  that are not locally  based have  limited the
Bank's  ability  to  compete  for some  loans to  builders  because  the  Bank's
loans-to-one-borrower   limitation   limits  its  ability  to  meet  the  volume
requirements of the large builders.  The Bank's construction loans totaled $11.7
million,  $8.7 million, $5.9 million, $5.6 million and $7.9 million at September
30,  2002,  2001,  2000,  1999 and 1998,  respectively,  and  construction  loan
originations were $1.7 million,  $3.1 million, and $5.5 million during the years
ended September 30, 2002, 2001 and 2000, respectively.

     On occasion,  the Bank makes  acquisition  and  development  loans to local
developers  to acquire and develop land for sale to builders who will  construct
single-family   residences.   Acquisition  and  development   loans,  which  are
considered by the Bank to be construction loans, are made at a rate that adjusts
monthly,  based on the prime rate plus a negotiated  margin,  for terms of up to
three  years.  Interest  only is paid  during  the  term  of the  loan,  and the
principal  balance  of the  loan is paid  down as  developed  lots  are  sold to
builders.  Generally,  in connection with acquisition and development loans, the
Bank  issues a letter of credit to secure the  developer's  obligation  to local
governments  to complete  certain work.  If the developer  fails to complete the
required  work,  the Bank would be required to fund the cost of  completing  the
work up to the amount of the letter of credit.  Letters of credit  generate  fee
income for the Bank but create  additional risk. At September 30, 2002, the Bank
had seven such facilities  outstanding  totaling  $356,000.  All acquisition and
development loans were performing in accordance with their terms at such date.

     Construction  financing  generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a  construction  loan is  dependent  largely upon the accuracy of the
initial  estimate of the  property's  value at  completion  of  construction  or
development and the estimated cost (including interest) of construction.  During
the  construction  phase,  a number of factors  could  result in delays and cost
overruns.  If the estimate of construction costs proves to be inaccurate and the
borrower  is unable to meet the Bank's  requirements  of  putting up  additional
funds to cover extra costs or change orders,  then the Bank will demand that the
loan be paid  off and,  if  necessary,  institute  foreclosure  proceedings,  or
refinance the loan. If the estimate of value proves to be  inaccurate,  the Bank
may be  confronted,  at or prior to the  maturity of the loan,  with  collateral
having a value  which is  insufficient  to assure full  repayment.  The Bank has
sought to  minimize  this risk by  limiting  construction  lending to  qualified
borrowers (i.e.,  borrowers who satisfy all credit  requirements and whose loans
satisfy  all  other  underwriting  standards  which  would  apply to the  Bank's
permanent mortgage loan financing for the subject property) in the Bank's market
area. On loans to builders, the Bank works only with selected builders with whom
it has experience and carefully monitors the creditworthiness of the builders.

     Commercial  Real Estate  Lending.  The Bank's  commercial  real estate loan
portfolio  includes loans to finance the acquisition of small office  buildings,
churches, medical condominiums,  small shopping centers and small commercial and
industrial  buildings.  Such loans  generally  range in size from $100,000 to $3
million,  with the  largest  having an  outstanding  principal  balance  of $2.5
million at September 30, 2002. At September 30, 2002, the Bank had $57.4 million
of  commercial  real estate loans,  which  amounted to 13.8% of the Bank's gross
loan  portfolio.  Commercial real estate loans are originated on a fixed-rate or
adjustable-rate basis with terms of up to 25 years at a rate that is at least 1%
above the rate charged by the Bank on single-family  residential  mortgage loans
having comparable terms and interest rate adjustment periods.

     Commercial  real estate lending  entails  significant  additional  risks as
compared with single-family residential property lending. Commercial real estate
loans  typically  involve larger loan balances to single  borrowers or groups of
related  borrowers.  The payment experience on such loans typically is dependent
on the successful operation of the real estate project,  retail establishment or
business.  These  risks  can be  significantly  impacted  by supply  and  demand
conditions  in the  market for office  and  retail  space and,  as such,  may be
subject to a greater extent to adverse conditions in the economy  generally.  To
minimize these risks,  the Bank generally limits itself to its market area or to
borrowers with which it has prior  experience or who are otherwise  known to the
Bank. It is the Bank's policy generally to obtain annual financial statements of
the  business of the  borrower or the project for which  commercial  real estate
loans are made. In addition, in the case of commercial real estate loans made to
a legal entity, the Bank seeks, whenever possible, to obtain personal guarantees
and annual financial statements of the principals of the legal entity.

     Commercial Lines of Credit. The Bank provides commercial lines of credit to
businesses  within the Bank's  market area.  These loans are secured by business
assets,  including real property,  equipment,  automobiles and

                                       9
<PAGE>

consumer leases.  Generally,  all loans are further personally guaranteed by the
owners of the business. The commercial lines have adjustable interest rates tied
to the prime  rate and are  offered  at rates from prime plus 1% to prime plus 3
1/2%.  As of  September  30,  2002,  the  Bank had $4.2  million  of such  loans
outstanding.

     Consumer Lending. The consumer loans currently in the Bank's loan portfolio
consist of  automobile  loans,  home equity lines of credit and loans secured by
savings deposit.

     Automobile loans totaled $93.2 million,  or 22.4%, of the Bank's gross loan
portfolio,  at September 30, 2002.  Automobile loans are secured by both new and
used cars and, depending on the  creditworthiness  of the borrower,  may be made
for up to 100% of the "sticker price" or purchase price, whichever is lower, or,
with  respect to used  automobiles,  the loan values as published by a wholesale
value listing  utilized by the automobile  industry.  Automobile  loans are made
directly to the borrower-owner or indirectly, where the financing is arranged by
the car dealer.  Management  of the Bank  estimates  that  approximately  80% of
automobile loans are originated on an indirect basis through various dealerships
located in its market area. Automobile loans originated on an indirect basis are
considered to entail greater credit risk than automobile  loans  originated on a
direct  basis.  New and  relatively  new cars (less than two years old or 20,000
miles or less) are  financed for a period  generally  of up to six years,  while
used cars are  financed  for a period  generally  of up to five years,  or less,
depending  on the  age of the  car.  Collision  insurance  is  required  for all
automobile loans. The Bank also maintains a blanket  collision  insurance policy
that provides insurance for any borrower who allows his insurance to lapse.

     The Bank originates  second mortgage loans and home equity lines of credit.
As of September 30, 2002, home equity lines of credit totaled $13.9 million,  or
3.3%,  of the Bank's gross loan  portfolio.  Second  mortgage  loans are made at
fixed rates and for terms of up to 15 years and totaled $15.3 million,  or 3.7%,
of the Bank's gross loans at September 30, 2002.

     The Bank's home equity lines of credit  currently have adjustable  interest
rates  tied to the prime  rate and can be  offered  anywhere  from as low as the
prime rate less .25% up to the prime rate. The interest rate may not adjust to a
rate higher than 18%. The home equity lines of credit require  monthly  payments
until the loan is paid in full,  with a loan  term not to  exceed 20 years.  The
minimum  monthly  payment is 1.5% of the  outstanding  principal  balance.  Home
equity lines of credit are secured by subordinate liens against residential real
property.  The Bank requires that fire and extended coverage casualty  insurance
(and,  if  appropriate,  flood  insurance)  be  maintained in an amount at least
sufficient to cover its loan.

     The Bank  makes  savings  account  loans  for up to 90% of the  depositor's
savings account balance.  The interest rate is normally 2.0% above the rate paid
on a passbook savings account,  and the account must be pledged as collateral to
secure the loan.  Interest  generally is billed on a monthly basis. At September
30, 2002,  savings account loans accounts  totaled $1.3 million,  or .3%, of the
Bank's gross loan portfolio.

     As part of the Bank's loan strategy,  the Bank has  diversified its lending
portfolio  to afford  the Bank the  opportunity  to earn  higher  yields  and to
provide a fuller range of banking  services.  These products have generally been
in the consumer area and include  surgical  loans,  boat loans and loans for the
purchase of recreational vehicles.  Such loans totaled $2.6 million at September
30, 2002.

     Consumer  lending  affords the Bank the  opportunity  to earn yields higher
than those obtainable on single-family  residential lending.  However,  consumer
loans entail greater risk than do residential  mortgage  loans,  particularly in
the case of loans which are unsecured or secured by rapidly  depreciable assets.
Repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood of damage, loss or depreciation.  The remaining deficiency often does
not warrant further  substantial  collection  efforts  against the borrower.  In
addition,  consumer loan collections are dependent on the borrower's  continuing
financial stability, and thus are more likely to be adversely affected by events
such as job loss, divorce,  illness or personal bankruptcy.  Indirect automobile
lending  generally is considered to entail  greater risk than direct  automobile
lending due to the higher down payments  generally made by direct  borrowers and
the level of sophistication of the borrowers.

     Loan Fees and  Servicing.  The Bank receives  fees in connection  with late
payments  and for  miscellaneous  services  related to its loans.  The Bank also
charges fees in connection with loan  originations  typically from 0 to 3

                                       10
<PAGE>

points (one point being equal to 1% of the loan amount) on residential  mortgage
loan originations.  The Bank generally does not service loans for others, except
for participation loans originated and sold by the Bank with servicing retained,
and earns minimal income from this activity.

     Nonperforming  Loans and Other Problem Assets. It is management's policy to
continually  monitor its loan portfolio to anticipate and address  potential and
actual  delinquencies.  When a borrower  fails to make a payment on a loan,  the
Bank takes immediate  steps to have the delinquency  cured and the loan restored
to current  status.  Loans  which are past due 15 days incur a late fee of 5% of
principal  and  interest  due. As a matter of policy,  the Bank will send a late
notice to the borrower  after the loan has been past due 15 days and again after
30 days. If payment is not promptly  received,  the borrower is contacted again,
and efforts are made to formulate an affirmative  plan to cure the  delinquency.
Generally,  after  any  loan  is  delinquent  90  days  or  more,  formal  legal
proceedings  are  commenced to collect  amounts  owed. In the case of automobile
loans,  late  notices  are sent  after  loans are ten days  delinquent,  and the
collateral  is  seized  after a loan is  delinquent  60 days.  Repossessed  cars
subsequently are sold at auction.

     Loans  generally are placed on  nonaccrual  status if the loan becomes past
due more than 90 days, except in instances where in management's  judgment there
is no doubt as to full  collectibility of principal and interest,  or management
concludes  that  payment in full is not  likely.  Consumer  loans are  generally
charged off, or any expected loss is reserved  for,  after they become more than
120 days past due.  All other loans are charged  off when  management  concludes
that they are uncollectible. See Note 3 of Notes to Financial Statements.

     Real estate  acquired by the Bank as a result of  foreclosure is classified
as real estate acquired through  foreclosure until such time as it is sold. When
such  property is  acquired,  it is  initially  recorded at the lower of cost or
estimated fair value and  subsequently  at the lower of book value or fair value
less  estimated  costs to sell.  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.  Any
required  write-down of the loan to its fair value less estimated  selling costs
upon foreclosure is charged against the allowance for loan losses. See Note 1 of
Notes to Financial Statements.


                                       11
<PAGE>
     The  following  table sets  forth  information  with  respect to the Bank's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                          At September 30,
                                                    --------------------------------------------------------------
                                                     2002          2001          2000         1999           1998
                                                    ------        ------        ------       ------         ------
                                                                             (In thousands)
<S>                                                 <C>           <C>           <C>          <C>          <C>
Loans accounted for on  a nonaccrual basis: (1)
  Real estate:
    Single-family residential....................   $    291      $     239     $    383     $    840     $    769
    Single-family rental property................         --             --           --           --           --
    Commercial...................................         --             --           --          185          150
    Construction.................................         --             --           --           --          193
  Commercial lines of credit.....................         --             --           --           --           --
  Commercial loans secured.......................      1,100             --           --           --           --
  Consumer.......................................         --             --           --           --           --
                                                    --------      ---------     --------     --------     --------
    Total........................................   $  1,391      $     239     $    383     $  1,025     $  1,112
                                                    ========      =========     ========     ========     ========
Accruing loans which are contractually past
 due 90 days or more:
  Real estate:
    Single-family residential....................   $     --      $      --     $     --     $     --     $     --
    Single-family rental property................         --             --           --           --           --
    Commercial...................................         --             --           --           --           --
    Construction.................................         --             --           --           --           --
  Commercial lines of credit.....................         --             --           --           --           --
  Commercial loans secured.......................         --             --           --           --           --
  Consumer.......................................         --             --           --           --           --
                                                    --------      ---------     --------     --------     --------
    Total........................................   $     --      $      --     $     --     $     --     $     --
                                                    ========      =========     ========     ========     ========
    Total non-performing loans...................   $  1,391      $      --     $    383     $  1,025     $  1,112
                                                    ========      =========     ========     ========     ========
Percentage of gross loans........................       .33%            .09 %        .15%         .45%       0.59%
                                                    =======       ==========    ========     ========     =======
Percentage of total assets.......................       .24%            .06 %        .12%         .34%       0.41%
                                                    =======       ==========    ========     ========     =======
Other non-performing assets (2)..................   $    229      $     134     $    126     $    132     $    441
                                                    ========      =========     ========     ========     ========
Loans modified in troubled debt  restructuring...   $     --      $      --     $     --     $     --     $     --
                                                    ========      =========     ========     ========     ========
<FN>
_____________
(1)  Non-accrual  status  denotes loans on which,  in the opinion of management,
     the collection of additional  interest is unlikely.  Payments received on a
     non-accrual loan are either applied to the outstanding principal balance or
     recorded as interest  income,  depending on management's  assessment of the
     collectibility of the loan.
(2)  Other  nonperforming  assets  include the Bank's  inventory of  repossessed
     cars.
</FN>
</TABLE>

     During the year ended September 30, 2002, gross interest income of $33,000,
would have been  recorded on loans  accounted  for on a nonaccrual  basis if the
loans had been current  throughout the year.  Interest on such loans included in
income during the year ended September 30, 2002 amounted to $8,000.

     At September 30, 2002,  the Bank had no loans which were not  classified as
non-accrual,  90 days past due or restructured but where known information about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan  repayment  terms
and may result in disclosure as nonaccrual, 90 days past due or restructured.

     At September 30, 2002,  nonaccrual  loans consisted of seven  single-family
residential mortgage loans aggregating $291,000. At September 30, 2002, the Bank
had a $1.1 million  commercial  loan that is  considered  non-accrual.  The $1.1
million is collateralized by automobile leases and automobiles.  The borrower is
in  bankruptcy.  The Bank has entered into a consent  order with the  bankruptcy
court to receive  lease  payments on the  underlying  leases  directly  form the
lessee.  Since  September 30, 2002,  the principal  amount owed on this loan has
been  reduced to  $687,000  as of  December  21,  2002,  as lessees of cars have
elected to  refinance  their leases or purchase  their cars with loans  directly
from the Bank or as loans have paid down in the normal  course of business.  For
additional information on this loan, see "Item 3 - Legal Proceedings."

                                       12
<PAGE>
     Real estate acquired through foreclosure is initially recorded at the lower
of cost or estimated fair value and  subsequently  at the lower of book value or
fair value less estimated  costs to sell. Fair value is defined as the amount in
cash or cash-equivalent  value of other  consideration that a real estate parcel
would yield in a current sale between a willing buyer and a willing  seller,  as
measured by market  transactions.  If a market does not exist, fair value of the
item is estimated based on selling prices of similar items in active markets or,
if there are no active markets for similar  items,  by discounting a forecast of
expected cash flows at a rate commensurate with the risk involved. Fair value is
generally  determined through an appraisal at the time of foreclosure.  The Bank
records a  valuation  allowance  for  estimated  selling  costs of the  property
immediately after foreclosure.  Subsequent to foreclosure,  real estate acquired
through foreclosure is periodically evaluated by management and an allowance for
loss is established if the estimated fair value of the property,  less estimated
costs to sell,  declines.  At September  30,  2002,  the Bank had no real estate
owned. The Bank had $229,000 of other nonperforming  assets,  which consisted of
the Bank's inventory of repossessed cars.

     Federal regulations  require savings  institutions to classify their assets
on the  basis  of  quality  on a  regular  basis.  An asset  meeting  one of the
classification  definitions  set forth  below may be  classified  and still be a
performing loan. An asset is classified as substandard if it is determined to be
inadequately  protected by the current retained  earnings and paying capacity of
the obligor or of the  collateral  pledged,  if any. An asset is  classified  as
doubtful if full collection is highly  questionable  or improbable.  An asset is
classified as loss if it is considered uncollectible, even if a partial recovery
could be expected  in the future.  The  regulations  also  provide for a special
mention designation, described as assets which do not currently expose a savings
institution  to a  sufficient  degree of risk to warrant  classification  but do
possess credit deficiencies or potential weaknesses deserving management's close
attention.  Such assets designated as special mention may include  nonperforming
loans consistent with the above definition.  Assets classified as substandard or
doubtful require a savings  institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, a savings institution
must either establish a specific allowance for loss in the amount of the portion
of the asset classified loss, or charge off such amount.  Federal  examiners may
disagree with a savings institution's classifications.  If a savings institution
does not agree with an examiner's classification of an asset, it may appeal this
determination  to the OTS  Regional  Director.  The Bank  regularly  reviews its
assets   to   determine   whether   any   assets   require   classification   or
re-classification.  At  September  30,  2002,  the  Bank  had  $4.2  million  in
classified  assets  consisting  of $2.0 million in assets  classified as special
mention, $2.2 million in assets classified as substandard,  no assets classified
as doubtful and no assets  classified as loss.  Special mention assets consisted
of $853,000 single-family residential mortgage loans 60 to 89 days delinquent at
September  30,  2002,  and  substandard  assets  consisted  of the  $229,000  in
nonaccrual loans described above.

     Allowance for Loan Losses.  In originating  loans, the Bank recognizes that
credit  losses  will be  experienced  and that the risk of loss will vary  with,
among other things,  the type of loan being made,  the  creditworthiness  of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. It is  management's
policy to maintain an adequate  allowance  for loan losses based on, among other
things,  the  Bank's  and  the  industry's   historical  loan  loss  experience,
evaluation of economic  conditions,  regular reviews of  delinquencies  and loan
portfolio quality and evolving standards imposed by federal bank examiners.  The
Bank  increases its allowance  for loan losses by charging  provisions  for loan
losses against the Bank's income.

     Management  will continue to actively  monitor the Bank's asset quality and
allowance  for loan  losses.  Management  will  charge off loans and  properties
acquired in settlement of loans against the  allowances for losses on such loans
and such properties when  appropriate and will provide  specific loss allowances
when  necessary.  Although  management  believes  it uses the  best  information
available to make  determinations  with respect to the allowances for losses and
believes such  allowances are adequate,  future  adjustments may be necessary if
economic  conditions differ  substantially  from the economic  conditions in the
assumptions used in making the initial determinations.

     The Bank's methodology for establishing the allowance for loan losses takes
into consideration  probable losses that have been identified in connection with
specific  assets as well as  losses  that  have not been  identified  but can be
expected to occur.  Management conducts regular reviews of the Bank's assets and
evaluates  the  need to  establish  allowances  on the  basis  of  this  review.
Allowances are established by the Board of Directors on a monthly basis based on
an  assessment  of risk in the  Bank's  assets  taking  into  consideration  the
composition and quality of the

                                       13
<PAGE>

portfolio,  delinquency  trends,  current  charge-off and loss experience,  loan
concentrations,  the  state  of  the  real  estate  market,  regulatory  reviews
conducted  in  the  regulatory   examination  process  and  economic  conditions
generally.  Additional provisions for losses on loans are made in order to bring
the allowance to a level deemed adequate. Specific reserves will be provided for
individual assets, or portions of assets, when ultimate collection is considered
improbable by management  based on the current  payment status of the assets and
the  fair  value  of  the  security.   At  the  date  of  foreclosure  or  other
repossession,  the Bank would  transfer the property to real estate  acquired in
settlement of loans  initially at the lower of cost or estimated  fair value and
subsequently  at the lower of book value or fair value  less  estimated  selling
costs.  Any portion of the outstanding loan balance in excess of fair value less
estimated  selling  costs would be charged off  against the  allowance  for loan
losses. If, upon ultimate disposition of the property, net sales proceeds exceed
the net carrying  value of the property,  a gain on sale of real estate would be
recorded.

     The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                    -------------------------------------------------------------
                                                     2002          2001          2000         1999         1998
                                                    ------        ------        ------       ------       ------
                                                                             (In thousands)
<S>                                                 <C>           <C>           <C>          <C>          <C>
Balance at beginning of period...................   $  1,563      $   1,403     $  1,273     $  1,034     $   978
                                                    --------      ---------     --------     --------     -------

Loans charged-off:
  Real estate mortgage:
    Single-family residential....................         --             20            7           --          --
    Multi-family residential.....................         --             --           --           --          --
    Commercial...................................         --             --           --           --          --
    Construction.................................         --             --           --          (15)         --
  Commercial loans secured.......................        159             --           --           --          --
  Consumer.......................................        530            324          201         (217)       (278)
                                                    --------      ---------     --------     --------     -------
Total charge-offs................................        689            344          208         (232)       (278)

Recoveries:
  Real estate mortgage:
    Single-family residential....................         --             --           --           --          --
    Multi-family residential.....................         --             --           --           --          --
    Commercial...................................         --             --           --           --          --
    Construction.................................         --             --           --           --          --
  Commercial loans secured.......................         --             --           --           --          --
  Consumer.......................................        429            172          176          132         215
                                                    --------      ---------     --------     --------     -------
Total recoveries.................................        429            172          176          132         215
Net loans charged off............................       (260)          (172)         (32)        (100)        (63)
Provision for loan  losses.......................        509            332          162          339         119
Allowance assumed in the provision...............        387             --           --           --          --
                                                    --------      ---------     --------     --------     -------
Balance at end of period.........................   $  2,199      $   1,563     $  1,403     $  1,273     $ 1,034
                                                    ========      =========     ========     ========     =======

Ratio of net charge-offs to average
  loans outstanding during the period............         .09%           .07%        .01%        0.05%       (0.04)%
                                                    =========     ==========    ========     ========     ========
</TABLE>

                                       14
<PAGE>
     The  following  table  allocates  the  allowance  for loan  losses  by loan
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                     At September 30,
                                         --------------------------------------------------------------------------
                                                  2002                      2001                     2000
                                         -----------------------    ----------------------    ---------------------
                                                      Percent of                Percent of               Percent of
                                                       Loans in                  Loans in                 Loans in
                                                    Category to                Category to              Category to
                                          Amount    Total Loans     Amount     Total Loans    Amount    Total Loans
                                         -------    ------------    ------     -----------    ------    -----------
                                                                            (Dollars in thousands)
<S>                                       <C>           <C>         <C>           <C>        <C>           <C>
Real estate:
  Single-family residential.............  $     760     52.9%       $     587     57.94%     $    421      59.42%
  Single-family rental property.........         17      2.0               15      2.66            10       1.98
  Commercial............................        314     14.0              151      5.29           136       5.32
  Construction..........................         70      2.8               40      3.06            70       2.30
Commercial lines of credit..............         46      1.0               --       .14            --        .02
Commercial leases.......................         --       .3               --       .46            --         --
Commercial loans secured................         --       .3               --       .91            --        .57
Consumer................................        992     26.7              770     29.54           766      30.39
                                          ---------    ------       ---------    ------      --------     ------
    Total allowance for loan losses.....  $   2,199    100.00%      $   1,563    100.00%     $  1,403     100.00%
                                          =========    ======       =========    ======      ========     ======
<CAPTION>
                                                        At September 30,
                                           ------------------------------------------------
                                                  1999                       1998
                                           ---------------------    -----------------------
                                                     Percent of                 Percent of
                                                      Loans in                   Loans in
                                                     Category to                Category to
                                           Amount    Total Loans     Amount     Total Loans
                                           ------    -----------    -------     -----------
                                                       (Dollars in thousands)
<S>                                        <C>         <C>          <C>          <C>
Real estate:
  Single-family residential.............   $   452     65.20%       $    413     66.46%
  Single-family rental property.........        10      2.15              10      2.76
  Commercial............................       118      4.54             124      5.00
  Construction..........................        75      2.48              78      4.18
Commercial lines of credit..............        --       .02              --       .03
Commercial leases.......................        --        --              --        --
Commercial loans secured................        --       .48              --        --
Consumer................................       618     25.13             409     21.57
                                         ---------    ------        --------    ------
    Total allowance for loan losses..... $   1,273    100.00%       $  1,034    100.00%
                                         =========    ======        ========    ======
</TABLE>

                                       15
<PAGE>
INVESTMENT ACTIVITIES

     General.   The  Bank  is  permitted  under  federal  law  to  make  certain
investments,  including  investments  in  securities  issued by various  federal
agencies and state and municipal  governments,  deposits at the FHLB of Atlanta,
certificates  of deposit in federally  insured  institutions,  certain  bankers'
acceptances  and  federal  funds.  It  may  also  invest,   subject  to  certain
limitations,  in  commercial  paper rated in one of the two  highest  investment
rating categories of a nationally  recognized credit rating agency,  and certain
other types of corporate debt securities and mutual funds.  Federal  regulations
require the Bank to maintain an investment in FHLB stock and a minimum amount of
liquid assets which may be invested in cash and specified securities.  From time
to time, the OTS adjusts the percentage of liquid assets which savings banks are
required to maintain.  See " -- Regulation -- Depository  Institution Regulation
-- Liquidity Requirements."

     The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory  authorities and manage cash flow,  diversify its assets,
obtain yield and to satisfy  certain  requirements  for favorable tax treatment.
The  investment  activities  of the Bank  consist  primarily of  investments  in
mortgage-backed securities and other investment securities, consisting primarily
of securities  issued or guaranteed by the U.S.  government or agencies thereof.
Typical investments include federally sponsored agency mortgage pass-through and
federally  sponsored  agency and  mortgage-related  securities.  Investment  and
aggregate investment  limitations and credit quality parameters of each class of
investment are  prescribed in the Bank's  investment  policy.  The Bank performs
analyses on  mortgage-related  securities  prior to  purchase  and on an ongoing
basis to  determine  the impact on  earnings  and  market  value  under  various
interest rate and prepayment  conditions.  Under the Bank's  current  investment
policy,  securities  purchases  are made by the  Bank's  President.  The  Bank's
President and Treasurer have authority to sell investment  securities subject to
the Bank's designation as available for sale and purchase comparable  investment
securities  with similar  characteristics.  The Board of  Directors  reviews all
securities transactions on a monthly basis.

     Securities designated as "held to maturity" are those assets which the Bank
has the ability and intent to hold to maturity. Upon acquisition, securities are
classified  as to the Bank's  intent,  and a sale would only be effected  due to
deteriorating  investment quality.  The held to maturity investment portfolio is
not used for speculative purposes and is carried at amortized cost. In the event
the Bank sells  securities  from this  portfolio  for other than credit  quality
reasons,   all  securities   within  the  investment   portfolio  with  matching
characteristics  may be  reclassified as assets  available for sale.  Securities
designated as "available  for sale" are those assets which the Bank may not hold
to  maturity  and thus are  carried  at market  value with  unrealized  gains or
losses,  net of tax effect,  recognized in retained  earnings.  At September 30,
2002 the Bank's  securities  portfolio  consists of both  available for sale and
held to maturity securities.

     Mortgage-Backed   and  Related   Securities.   Mortgage-backed   securities
represent a participation  interest in a pool of  single-family  or multi-family
mortgages,  the  principal  and  interest  payments on which are passed from the
mortgage  originators  through   intermediaries  that  pool  and  repackage  the
participation  interest in the form of securities to investors such as the Bank.
Such intermediaries may include quasi-governmental  agencies such as FHLMC, FNMA
and GNMA which  guarantee  the payment of principal  and interest to  investors.
Mortgage-backed  securities  generally increase the quality of the Bank's assets
by virtue of the  guarantees  that back them,  are more liquid  than  individual
mortgage loans and may be used to collateralize  borrowings or other obligations
of the Bank.

     Mortgage-related  securities  typically  are issued with  stated  principal
amounts and the securities are backed by pools of mortgages that have loans with
interest  rates  that  are  within  a range  and have  similar  maturities.  The
underlying   pool  of  mortgages  can  be  composed  of  either   fixed-rate  or
adjustable-rate  mortgage  loans.   Mortgage-backed   securities  generally  are
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages, i.e., fixed-rate or adjustable-rate,  as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security is equal to the life of the underlying mortgages.

     The actual maturity of a mortgage-backed security varies, depending on when
the  mortgagors  prepay or repay the  underlying  mortgages.  Prepayments of the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to

                                       16
<PAGE>
the  mortgage-backed   security.   Premiums  and  discounts  on  mortgage-backed
securities are amortized or accredited over the estimated term of the securities
using a level yield method.  The  prepayment  assumptions  used to determine the
amortization  period for premiums and  discounts  can  significantly  affect the
yield of the  mortgage-backed  security,  and  these  assumptions  are  reviewed
periodically  to reflect the actual  prepayment.  The actual  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates.  The  difference  between  the  interest  rates  on the
underlying  mortgages and the prevailing mortgage interest rates is an important
determinant  in the rate of  prepayments.  During  periods of  falling  mortgage
interest rates, prepayments generally increase, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying  mortgage  significantly  exceeds the  prevailing  market
interest rates offered for mortgage loans,  refinancing  generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.

     Mortgage-related   securities,   which  include   collateralized   mortgage
obligations  ("CMOs"),  are typically issued by a special purpose entity,  which
may be organized in a variety of legal forms,  such as a trust, a corporation or
a partnership. The entity aggregates pools of pass-through securities, which are
used to collateralize the mortgage-related  securities.  Once combined, the cash
flows can be divided into  "tranches"  or "classes"  of  individual  securities,
thereby  creating  more  predictable  average  lives for each  security than the
underlying pass-through pools.  Accordingly,  under this security structure, all
principal   paydowns  from  the  various  mortgage  pools  are  allocated  to  a
mortgage-related  securities' class or classes structured to have priority until
it has been paid off. These securities generally have fixed interest rates, and,
as a result,  changes in interest rates  generally would affect the market value
and possibly the prepayment rates of such securities.

     Some  mortgage-related  securities  instruments are like  traditional  debt
instruments  due to their stated  principal  amounts and  traditionally  defined
interest rate terms.  Purchasers of certain  other  mortgage-related  securities
instruments  are  entitled to the excess,  if any, of the  issuer's  cash flows.
These mortgage-related securities instruments may include instruments designated
as residual  interest and are riskier in that they could result in the loss of a
portion of the original investment.  Cash flows from residual interests are very
sensitive to prepayments and, thus, contain a high degree of interest rate risk.
The Bank does not purchase residual interests in mortgage-related securities.

     The Bank's  mortgage-backed  securities  portfolio  consists  primarily  of
seasoned  fixed-rate and adjustable rate  mortgage-backed  securities.  The Bank
makes such investments in order to manage cash flow,  diversify  assets,  obtain
yield,  to satisfy  certain  requirements  for  favorable  tax  treatment and to
satisfy  the  qualified  thrift  lender  test.  See  "Regulation  --  Depository
Institution Regulation -- Qualified Thrift Lender Test."

     At September 30, 2002, mortgage-backed securities with an amortized cost of
$33.7 million were  classified as held to maturity.  At September 30, 2002,  the
Bank's held to maturity mortgage-backed  securities had a weighted average yield
of 6.16%.

     At September 30, 2002, mortgage-backed securities with an amortized cost of
$59.7 million were  classified as available for sale. At September 30, 2002, the
Bank's  available for sale  mortgage-backed  securities  had a weighted  average
yield of 4.72%.

     At  September  30,  2002,  the Bank did not have any CMOs,  and the  Bank's
investment  policy does not permit  investments in individual  issues of CMOs or
Real Estate Mortgage Investment Conduits ("REMICs").


                                       17
<PAGE>
         The following table sets forth the carrying value of the Company's
investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                          At September 30,
                                                               -------------------------------------
                                                                 2002           2001          2000
                                                               --------      ----------    ---------
                                                                              (In thousands)
<S>                                                           <C>            <C>           <C>
Securities available for sale:
   U.S. government and agency securities....................  $  19,360      $ 14,757      $      --
    Mortgage Backed securities..............................     60,411        11,442             --
    Equity Investment in Mutual Funds.......................     25,723         9,212             --
                                                              ---------      --------      ---------

      Total Available for Sale..............................  $ 105,494      $ 35,411      $      --
                                                              ---------      --------      ---------


 Securities held to maturity:
   U.S. government and agency
       securities...........................................  $   4,496      $ 18,494      $  41,158
   Mortgage-backed securities...............................     33,691        41,655         19,824
   FHLB stock...............................................      3,940         1,834          1,834
                                                              ---------      --------      ---------

      Total Held to Maturity................................  $  42,127      $ 61,983      $  62,816


Total    ...................................................  $ 147,621      $ 97,394      $  62,816
                                                              =========      ========      =========
</TABLE>

                                       18
<PAGE>
     The following  table sets forth  information  in the scheduled  maturities,
amortized  cost,  market values and average yields for the Company's  investment
portfolio at September 30, 2002.
<TABLE>
<CAPTION>
                                     One Year or Less       One to Five Years       Five to Ten Years
                                    ------------------    --------------------    --------------------
                                    Carrying   Average     Carrying    Average    Carrying     Average
                                      Value     Yield       Value       Yield       Value       Yield
                                    ---------  -------    ---------   --------    ---------     -------
                                                         (Dollars in thousands)
<S>                                 <C>         <C>        <C>          <C>        <C>           <C>
Securities available for sale:
   U.S. government and  agency
      obligations.................  $     --     --%       $   3,675    3.79%      $  13,139     4.65%
   Mortgage-backed securities.....        --     --            1,507    4.98           3,624     4.93
   Equity Investment in Mutual
     Funds .......................    25,723     4.01             --     --               --      --
                                    --------               ---------               ---------
      Total available for sale....    25,723                   5,182                  16,763
                                    --------               ---------               ---------

<CAPTION>
                                    More than Ten Years       Total Investment Portfolio
                                    --------------------    -------------------------------
                                    Carrying     Average    Carrying    Market     Average
                                      Value       Yield       Value     Value       Yield
                                    --------     -------    --------    ------     --------
                                                     (Dollars in thousands)
<S>                                 <C>            <C>       <C>       <C>          <C>
Securities available for sale:
   U.S. government and  agency
      obligations.................  $   2,546      4.34%     $ 19,360  $  19,360    4.45%
   Mortgage-backed securities.....     55,280      4.70        60,411     60,411    4.72
   Equity Investment in Mutual
     Funds .......................         --       --         25,723     25,723    4.01
                                    ---------                --------  ---------
      Total available for sale....     57,826                 105,494    105,494
                                    ---------                --------  ---------
</TABLE>
<TABLE>
<CAPTION>
                                     One Year or Less       One to Five Years       Five to Ten Years
                                    ------------------    --------------------    --------------------
                                    Carrying   Average     Carrying    Average    Carrying     Average
                                      Value     Yield       Value       Yield       Value       Yield
                                    ---------  -------    ---------   --------    ---------     -------
                                                              (Dollars in thousands)
<S>                                 <C>         <C>        <C>          <C>        <C>           <C>
Securities held to maturity:
   U.S. government and  agency
      obligations.................  $     --      -- %     $   3,499    4.35%      $     997     5.58%
   Mortgage-backed securities.....     1,173     5.92          1,443    6.40           3,275     5.64
   FHLB stock ....................        --      --              --     --               --      --
                                    --------               ---------               ---------
      Total held to maturity......     1,173                   4,942                   4,272
                                    --------               ---------               ---------

Total ............................  $ 26,896               $  10,124               $  21,035
                                    ========               =========               =========
<CAPTION>
                                      More than Ten Years       Total Investment Portfolio
                                      --------------------    -------------------------------
                                      Carrying     Average    Carrying    Market     Average
                                        Value       Yield       Value     Value       Yield
                                       --------    -------    --------    ------     --------
                                                       (Dollars in thousands)
<S>                                   <C>            <C>       <C>       <C>          <C>
Securities held to maturity:
   U.S. government and  agency
      obligations.................    $      --       -- %     $  4,496  $   4,621    4.63%
   Mortgage-backed securities.....       27,800      6.21        33,691     35,010    6.16
   FHLB stock ....................           --       --          3,940      3,940    5.56
                                      ---------                --------  ---------
      Total held to maturity......       27,800                  42,127     43,571
                                      ---------                --------  ---------

Total ............................    $  85,626                $147,621  $ 149,065
                                      =========                ========  =========
</TABLE>
                                       19
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits are the primary  source of the Bank's funds for lending,
investment activities and general operational purposes. In addition to deposits,
the Bank derives funds from loan principal and interest  repayments,  maturities
of investment  securities and  mortgage-backed  securities and interest payments
thereon.  Although  loan  repayments  are a relatively  stable  source of funds,
deposit inflows and outflows are  significantly  influenced by general  interest
rates and money market conditions.  Borrowings may be used on a short-term basis
to compensate for reductions in the  availability  of funds, or on a longer term
basis for general operational  purposes.  The Bank has access to borrow from the
FHLB of Atlanta.

     Deposits.  The Bank attracts  deposits  principally  from within its market
area by offering a variety of deposit instruments,  including checking accounts,
money market  accounts,  statement  and passbook  savings  accounts,  Individual
Retirement  Accounts,  and  certificates of deposit which range in maturity from
seven days to five years.  Deposit terms vary  according to the minimum  balance
required,  the length of time the funds must remain on deposit and the  interest
rate.  Maturities,  terms, service fees and withdrawal penalties for its deposit
accounts are established by the Bank on a periodic  basis.  The Bank reviews its
deposit mix and pricing on a weekly basis. In determining the characteristics of
its  deposit  accounts,  the Bank  considers  the  rates  offered  by  competing
institutions,  lending  and  liquidity  requirements,  growth  goals and federal
regulations.  Management  believes it prices its  deposits  comparably  to rates
offered by its competitors. The Bank does not accept brokered deposits.

     The Bank  attempts to compete for deposits with other  institutions  in its
market  area by  offering  competitively  priced  deposit  instruments  that are
tailored  to the needs of its  customers.  Additionally,  the Bank seeks to meet
customers'  needs by providing  convenient  customer  service to the  community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are Maryland residents. To provide additional  convenience,  the Bank
participates  in the STAR Automated  Teller Machine ("ATM") network at locations
throughout  the  mid-Atlantic  and the South  and the  CIRRUS  Automated  Teller
Machine  network at  locations  throughout  the  United  States,  through  which
customers can gain access to their  accounts at any time. The Bank currently has
ATM  machines in all of its sixteen  offices.  The Bank also has a remote ATM at
the Forest Hill Lanes in Forest Hill, Maryland. In addition, during fiscal 1999,
the Bank expanded its ATM network by installing ATMs at three community colleges
in Baltimore County. During fiscal year 2000, the Bank introduced Remote Banking
which is an  Internet  based  banking  system  to  provide  additional  customer
convenience.

                                       20
<PAGE>

     Savings  deposits in the Bank at September 30, 2002 were represented by the
various types of savings programs described below.
<TABLE>
<CAPTION>
Interest       Minimum                                                    Minimum       Balances     Percentage of
  Rate           Term                     Category                         Amount      (In thousands) Total Savings
--------       -------                    --------                        --------     -------------- -------------
<S>            <C>                  <C>                                   <C>          <C>              <C>
                                    Demand deposits:
 .68%          None                   NOW and Super NOW accounts          $     250    $   45,827          9.19%
1.46           None                   Money market                              250        18,909          3.79
                                                                                       ----------       -------
                                            Total demand deposits                          64,736         12.98
                                    Passbook savings deposits:
1.52           None                   Regular passbook                           25        62,922         12.61
1.94           None                   Money market passbook                  10,000        29,379          5.89
                                                                                       ----------       -------
                                    Total passbook savings deposits                        92,301         18.50

                                    Certificates of Deposit
                                    -----------------------

1.85           3 months or less     Fixed-term, fixed-rate                    1,000        14,926          2.99
3.28           6 months             Fixed-term, fixed-rate                    1,000        21,952          4.40
2.92           12 months            Fixed-term, fixed-rate                      100        73,806         14.80
3.66           18 months            Fixed-term, fixed-rate                      100        20,932          4.20
4.29           24  months           Fixed-term, fixed-rate                      100        34,065          6.83
6.57           30 months            Fixed-term, fixed-rate                      100        22,533          4.52
5.54           36 months            Fixed-term, fixed-rate                      100        13,111          2.63
6.03           42 months            Fixed-term, fixed-rate                      100           104           .02
5.68           48 months            Fixed-term, fixed-rate                      100         3,804           .76
5.92           60 months            Fixed-term, fixed-rate                      100        61,294         12.29
5.77           $100,000 and over    Fixed-term, fixed-rate                      N/A        73,742         14.78
                                                                                       ----------       -------
                                    Total certificates of deposit                      $  340,269         68.22
               Purchase accounting premiums, net                                            1,392           .28
                                    Accrued interest payable                                   87           .02
                                                                                       ----------       -------
                                            Total deposits                             $  498,785       100.00%
                                                                                       ==========       ======
<FN>
---------------
*       Represents weighted average interest rate.
</FN>
</TABLE>

                                       21
<PAGE>
     The  following  table sets forth the change in dollar amount of deposits in
the various types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>

                                    Balance at                          Balance at                        Balance at
                                    September    % of      Increase     September     % of     Increase   September    % of
                                    30, 2002    Deposits  (Decrease)    30,  2001   Deposits  (Decrease)  30, 2000   Deposits
                                    ---------   --------  ----------    ---------   -------   ---------   ---------  --------
                                                                        (Dollars in thousands)
<S>                                 <C>           <C>      <C>         <C>           <C>       <C>        <C>         <C>
NOW ............................... $ 45,827      9.19%    $ 11,788    $ 34,039      10.45%    $ 3,514    $ 30,525    11.35%
Money market deposit...............   18,909      3.79       12,255       6,654       2.04        (679)      7,333     2.73
Passbook savings deposits..........   92,301     18.50       31,357      60,944      18.71       3,665      57,279    21.30
Certificates of deposit............  266,527     53.44       88,855     177,672      54.54      28,448     149,224    55.50
Certificates of deposit
   $100,000 and over...............   73,742     14.78       27,470      46,272      14.20      22,314      23,958     8.91
Purchase accounting premiums,
   net.............................    1,392       .28        1,392          --         --          --          --      --
Accrued interests payable..........       87       .02         (118)        205        .06        (358)        563     .21
                                    --------    ------     --------    --------     ------     -------    --------  ------
                                    $498,785    100.00     $172,999    $325,786     100.00     $56,904    $268,882  100.00
                                    ========    ======     ========    ========     ======     =======
</TABLE>

                                       22
<PAGE>

     The following  tables set forth the average  balances and average  interest
rates based on month-end  balances for various types of deposits as of the dates
indicated.
<TABLE>
<CAPTION>
                                                    Year Ended September 30,
                                 ------------------------------------------------------------------
                                        2002                   2001                   2000
                                 --------------------  -------------------     --------------------
                                 Average     Average   Average     Average      Average     Average
                                 Balance     Rate (1)  Balance      Rate       Balance        Rate
                                 -------     --------  -------     -------     -------     -------
                                                        (Dollars in thousands)
<S>                              <C>           <C>      <C>            <C>     <C>            <C>
NOW...........................   $  25,423     1.71%    $   21,663     1.57 %  $   21,917     2.06%
Money market deposits.........       9,920     1.74          7,005     2.52         8,115     3.03
Passbook savings deposits.....      72,364     3.15         57,809     2.57        58,378     3.40
Non-interest-bearing demand
   deposits...................      12,583       --         10,671       --         8,043      --
Certificates of deposit.......     262,439     4.23        200,584     5.87       154,853     5.31
                                 ---------              ----------             ----------
    Total.....................   $ 382,729     3.65     $  297,732     4.63    $  251,306     4.32
                                 =========              ==========             ==========
<FN>
--------
(1)  Annualized.
</FN>
</TABLE>

     The following  table sets forth the time deposits in the Bank classified by
rates at the dates indicated.
<TABLE>
<CAPTION>

                                                                        At September 30,
                                                               -------------------------------------
                                                                 2002         2001           2000
                                                                ------       ------         ------
                                                                         (In thousands)
<S>                                                           <C>            <C>           <C>
1.76 -   2%.................................................  $   16,369     $      --     $      --
2.01 -   4%.................................................     167,206        23,525            --
4.01 -   6%.................................................      80,228        90,699        93,428
6.01 -   8%.................................................      76,466       109,720        79,754
                                                              ----------     ---------     ---------
                                                               $ 340,269     $ 223,944     $ 173,182
                                                               =========     =========     =========
</TABLE>
     The following  table sets forth the amount and  maturities of time deposits
at September 30, 2002.
<TABLE>
<CAPTION>
                                                                    Amount Due
                                  ------------------------------------------------------------------------
                                  Less Than                                        After
Rate                              One Year        1-2 Years        2-3 Years       3 Years        Total
----                              --------        ---------        ---------       -------       -------
                                                                    (In thousands)
<S>                                <C>             <C>            <C>              <C>           <C>
 1.76 - 2%....................     $  16,369       $      --      $      --        $     --      $  16,369
 2.01 - 4%....................       122,989          29,743         13,107           1,367        167,206
 4.01 - 6%....................        35,856          16,865          2,422          25,086         80,229
 6.01 - 8%....................        33,937           5,202         29,412           7,914         76,465
                                   ---------       ---------      ---------        --------      ---------
                                   $ 209,151       $  51,810      $  44,941        $ 34,367      $ 340,269
                                   =========       =========      =========        ========      =========

                                       23
<PAGE>

</TABLE>

     The  following  table  indicates the amount of the Bank's  certificates  of
deposit of $100,000 or more by time remaining until maturity as of September 30,
2002. At such date, such deposits represented 14.78% of total deposits and had a
weighted average rate of 5.77%.

                                                    Certificates
       Maturity Period                               of Deposit
       ----------------                            --------------
                                                  (In thousands)

       Three months or less.........................  $  13,035
       Over three through six months................     12,434
       Over six through 12 months...................     12,427
       Over 12 months...............................     35,846
                                                      ---------
             Total..................................  $  73,742
                                                      =========

     The following  table sets forth the savings  activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                               ---------------------------------------
                                                                  2002          2001          2000
                                                               ----------    ----------    -----------
                                                                          (In thousands)
<S>                                                           <C>           <C>            <C>
Deposits....................................................  $   682,641   $  653,749     $  593,370
Increase from WHG merger....................................      118,218           --             --
Withdrawals.................................................     (641,844)    (610,630)      (568,720)
                                                              -----------   -----------    ----------
Net increase (decrease) before interest  credited...........      159,015       43,119         24,650
Interest credited...........................................       13,984       13,785         10,867
                                                              -----------   ----------     ----------
    Net increase in savings  deposits.......................  $   172,999   $   56,904     $   35,517
                                                              ===========   ==========     ==========
</TABLE>
     In the unlikely event the Bank is liquidated,  depositors  will be entitled
to full payment of their deposit accounts prior to any payment being made to the
sole stockholder of the Bank.

     Borrowings.  Savings deposits  historically have been the primary source of
funds for the Bank's lending,  investments and general operating activities. The
Bank is  authorized,  however,  to use  advances  from  the FHLB of  Atlanta  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The FHLB of Atlanta functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member of the FHLB System, the Bank is required to own stock in the FHLB of
Atlanta  and is  authorized  to apply for  advances.  Advances  are  pursuant to
several different programs, each of which has its own interest rate and range of
maturities.  The Bank has a Blanket  Agreement  for advances with the FHLB under
which the Bank may borrow up to 11% of assets  subject to normal  collateral and
underwriting requirements.  Advances from the FHLB of Atlanta are secured by the
Bank's stock in the FHLB of Atlanta and other eligible assets.  At September 30,
2002, the Bank had $25.7 million in outstanding FHLB advances.

     On June 27, 2002, the Company established a trust subsidiary (the "Trust"),
which issued and sold to private  investors 12,500 securities with a liquidation
amount  of  $1,000  per  security,  for a total of $12.5  million  of  preferred
securities.  The Company  funded the Trust with $387,000 in exchange for 100% of
the  Trust's  common  securities.   The  Trust  used  the  proceeds  from  these
transactions to purchase  $12,887,000 of floating rate  subordinated  debentures
from the Company. The Company makes periodic interest payments on the debentures
to the  Trust,  and the  Trust in turn  makes  interest  payments  on the  trust
preferred securities to the private investors.

     The trust preferred securities and subordinated debentures are due June 30,
2032.  The rate is 3.65% per annum  over the  three-month  LIBOR rate and resets
quarterly.  The rate at September  30, 2002 was 5.51%.  The

                                       24
<PAGE>
junior   subordinated   debentures  are  the  sole  assets  of  the  Trust.  The
subordinated  debt  securities,  unsecured,  rank junior and are  subordinate in
right  of  payment  of all  senior  debt of the  Company,  and the  Company  has
guaranteed  repayment on the trust preferred securities issued by the Trust. The
Company used the proceeds from these transactions to increase the capital of the
Bank. The $12.5 million of  subordinated  debt securities are includable as part
of Tier 1 regulatory capital for the Bank. Based on the current interest rate of
5.425%,  the Company  would have an annual  expense of  $688,000  related to the
trust preferred securities.

     Payments  to be made by the Trust on the  trust  preferred  securities  are
dependent on payments that the Company has undertaken to make,  particularly the
payment to be made by the Company on the debentures.  Distributions on the trust
preferred securities are payable quarterly at a rate of 3.65% per annum over the
three-month  LIBOR  rate.  The  distributions  are funded by  interest  payments
received on the  debentures  and are  subject to  deferral  for up to five years
under certain  conditions.  Distributions are included in interest expense.  The
Company may redeem the debentures, in whole or in part, at par at any time after
June 30, 2007, or under certain conditions in whole but not in part, at any time
at a  redemption  price equal to 103% of the  principal  amount plus any accrued
unpaid interest.

SUBSIDIARY ACTIVITIES

     As a federally  chartered  savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries,  with an additional investment
of 1% of assets where such investment serves primarily community, inner-city and
community  development  purposes.  Under such  limitations,  as of September 30,
2002, the Bank was authorized to invest up to approximately $17.6 million in the
stock of or loans to  subsidiaries,  including the  additional 1% investment for
community inner-city and community  development  purposes.  Institutions meeting
their applicable minimum regulatory capital requirements may invest up to 50% of
their  regulatory  capital in conforming first mortgage loans to subsidiaries in
which they own 10% or more of the capital stock.

     The Bank has two subsidiary service corporations,  Baltimore County Service
Corp.  ("BCSC") and Ebenezer Road, Inc. ("Ebenezer Road").  Further,  BCSC has a
wholly owned subsidiary,  Route 543, Incorporated ("Route 543"). BCSC was formed
in the mid 1970's for the purpose of  participating  in joint  ventures  for the
development of real estate.  The last  development  project was completed during
the year ended  September 30, 1996,  and at September 30, 2002,  BCSC  conducted
immaterial  activities.  Route 543 currently is inactive. At September 30, 2002,
BCSC had  substantially  no assets or  liabilities.  The Bank does not intend to
conduct real estate  development  activities in the future.  Ebenezer Road is an
insurance  agency that sells primarily  vendor's  single  interest  insurance on
automobile loans, as well as mortgage life insurance and annuity  products.  The
fees from the activities of its  subsidiaries  were  immaterial  during the year
ended September 30, 2002.

COMPETITION

     The Bank faces  strong  competition  both in  originating  real  estate and
consumer loans and in attracting deposits. The Bank competes for real estate and
other loans  principally on the basis of interest  rates,  the types of loans it
originates,  the  deposit  products  it offers and the  quality of  services  it
provides to  borrowers.  The Bank also competes by offering  products  which are
tailored to the local  community.  Its  competition in  originating  real estate
loans comes  primarily  from other savings  institutions,  commercial  banks and
mortgage bankers.  Commercial banks, credit unions and finance companies provide
vigorous  competition in consumer lending.  Competition may increase as a result
of the continuing  reduction of  restrictions  on the  interstate  operations of
financial institutions.

     The Bank attracts its deposits through its offices primarily from the local
community.  Consequently,  competition  for deposits is  principally  from other
savings  institutions,  commercial banks, credit unions and brokers in the local
community. The Bank competes for deposits and loans by offering what it believes
to be a variety of deposit accounts at competitive  rates,  convenient  business
hours, a commitment to outstanding  customer  service and a well-trained  staff.
The Bank believes it has developed strong  relationships with local realtors and
the community in general.

     Management  considers  its market area for  gathering  deposits  and making
loans to be the Baltimore Metropolitan Area in Maryland. The Bank estimates that
it competes with numerous banks and savings and loan  associations  for deposits
and  loans.  Based  on data  provided  by a  private  marketing  firm,  the Bank
estimates  that at

                                       25
<PAGE>

September 30, 2002, it had approximately 1.87% of deposits held by all banks and
savings institutions in the Baltimore Metropolitan Area.

EMPLOYEES

     As of September  30, 2002,  the Company had 152  full-time and 20 part-time
employees,  none of whom were represented by a collective  bargaining agreement.
Management considers the Bank's relationships with its employees to be good.

DEPOSITORY INSTITUTION REGULATION

     General. The Bank is a federally chartered savings institution, is a member
of the FHLB of Atlanta  and its  deposits  are  insured by the FDIC  through the
SAIF. As a federal  savings  institution,  the Bank is subject to regulation and
supervision  by the OTS and  the  FDIC  and to OTS  regulations  governing  such
matters  as  capital  standards,  mergers,   establishment  of  branch  offices,
subsidiary investments and activities and general investment authority.  The OTS
periodically   examines  the  Bank  for  compliance   with  various   regulatory
requirements and for safe and sound operations.  The FDIC also has the authority
to conduct special  examinations of the Bank because its deposits are insured by
the SAIF.  The Bank must file reports with the OTS describing its activities and
financial  condition  and must obtain the  approval of the OTS prior to entering
into  certain  transactions,  such as  mergers  with or  acquisitions  of  other
depository institutions.

     Regulatory  Capital  Requirements.   Under  the  OTS's  regulatory  capital
requirements,  savings  associations must maintain  "tangible"  capital equal to
1.5% of adjusted total assets, "core" capital equal to at least 4.0% or 3.0% (if
the  institution is rated  composite 1 CAMELS under the OTS  examination  rating
system) of adjusted  total assets and "total"  capital (a  combination of "core"
and "supplementary" capital) equal to 8.0% of risk-weighted assets. In addition,
the OTS has adopted  regulations  which impose certain  restrictions  on savings
associations that have a total risk-based  capital ratio that is less than 8.0%,
a ratio of Tier 1 capital to  risk-weighted  assets of less than 4.0% or a ratio
of Tier 1 capital  to  adjusted  total  assets of less than 4.0% (or 3.0% if the
institution  is  rated  composite  1 CAMELS  under  the OTS  examination  rating
system).  For  purposes  of  these  regulations,  Tier 1  capital  has the  same
definitions as core capital. See "--Prompt Corrective Regulatory Action."

     Core capital is defined as common  stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity  accounts of fully  consolidated  subsidiaries,  certain
nonwithdrawable  accounts  and  pledged  deposits  and  "qualifying  supervisory
goodwill."  Core  capital is  generally  reduced  by the  amount of the  savings
association's  intangible assets for which no market exists.  Limited exceptions
to the  deduction  of  intangible  assets are provided  for  purchased  mortgage
servicing rights and qualifying supervisory goodwill.  Tangible capital is given
the same  definition  as core  capital  but does not  include an  exception  for
qualifying  supervisory goodwill and is reduced by the amount of all the savings
association's  intangible  assets with only a limited  exception  for  purchased
mortgage servicing rights. Both core and tangible capital are further reduced by
an amount  equal to a  savings  institution's  debt and  equity  investments  in
subsidiaries engaged in activities not permissible to national banks (other than
subsidiaries  engaged in  activities  undertaken  as agent for  customers  or in
mortgage  banking  activities and subsidiary  depository  institutions  or their
holding companies). Investments in and extensions of credit to such subsidiaries
are required to be fully netted against tangible and core capital.  At September
30, 2002, the Bank had no such investments.

     Adjusted  total  assets  are  a  savings   association's  total  assets  as
determined under generally accepted accounting  principles  increased by certain
goodwill  amounts  and by a pro rated  portion of the  assets of  unconsolidated
includable  subsidiaries  in which  the  savings  association  holds a  minority
interest.  Adjusted  total  assets are reduced by the amount of assets that have
been deducted from capital, the portion of savings association's  investments in
unconsolidated  includable  subsidiaries,  and,  for purpose of the core capital
requirement,  qualifying supervisory goodwill. At September 30, 2002, the Bank's
adjusted  total  assets  for the  purposes  of the  core  and  tangible  capital
requirements were approximately $576.7 million.

     In  determining  compliance  with the  risk-based  capital  requirement,  a
savings  association  is allowed to include both core capital and  supplementary
capital  in its total  capital  provided  the  amount of  supplementary  capital
included does not exceed the savings  association's core capital.  Supplementary
capital is defined to include certain

                                       26
<PAGE>

preferred stock issues,  nonwithdrawable  accounts and pledged  deposits that do
not qualify as core capital,  certain approved  subordinated debt, certain other
capital  instruments,  a  portion  of the  savings  association's  general  loss
allowances and up to 45% of unrealized  gains on equity  securities.  Total core
and supplementary  capital are reduced by the amount of capital instruments held
by other depository institutions pursuant to reciprocal arrangements, all equity
investments and that portion of the institution's land loans and non-residential
construction  loans in excess of 80%  loan-to-value  ratio.  As of September 30,
2002, the Bank had no high ratio land or non-residential  construction loans and
no equity  investments for which OTS regulations  require a deduction from total
capital.

     The risk-based capital requirement is measured against risk-weighted assets
which  equal  the sum of each  asset  and the  credit-equivalent  amount of each
off-balance sheet item after being multiplied by an assigned risk weight.  Under
the OTS risk-weighting system,  one-to-four family first mortgages not more than
90 days  past  due  with  loan-to-value  ratios  under  80% and  average  annual
occupancy  rates  of  at  least  80%  and  certain   qualifying  loans  for  the
construction of  one-to-four-family  residences  pre-sold to home purchasers are
assigned a risk weight of 50%. Consumer and residential  construction  loans are
assigned a risk  weight of 100%.  Mortgage-backed  securities  issued,  or fully
guaranteed  as to principal and interest by the FNMA or FHLMC are assigned a 20%
risk weight.  Cash and U.S.  Government  securities backed by the full faith and
credit of the U.S.  Government  (such as  mortgage-backed  securities  issued by
GNMA) are given a 0% risk weight.

     For information  with respect to the Bank's  compliance with its regulatory
capital requirements at September 30, 2002, see Note 16 of Notes to Consolidated
Financial Statements.

     The risk-based  capital  requirements  of the OTS also require that savings
institutions  with more than a "normal"  level of interest rate risk to maintain
additional total capital. A savings institution's interest rate risk is measured
in terms of the sensitivity of its "net portfolio  value" to changes in interest
rates.  Net  portfolio  value is defined,  generally,  as the  present  value of
expected cash inflows from existing assets and off-balance  sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution  is  considered  to have a  "normal"  level of  interest  rate  risk
exposure if the decline in its net portfolio  value after an immediate 200 basis
point increase or decrease in market  interest rates  (whichever  results in the
greater  decline)  is less than two percent of the  current  estimated  economic
value of its assets.  A savings  institution with a greater than normal interest
rate risk will be  required  to deduct  from  total  capital,  for  purposes  of
calculating its risk-based  capital  requirement,  an amount (the "interest rate
risk  component")  equal to one-half the  difference  between the  institution's
measured  interest  rate  risk and the  normal  level  of  interest  rate  risk,
multiplied by the economic value of its total assets.

     The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the  institution in a schedule to its quarterly
Thrift  Financial  Report and using the  interest  rate risk  measurement  model
adopted by the OTS. The amount of the interest rate risk  component,  if any, to
be  deducted  from  a  savings  institution's  total  capital  is  based  on the
institution's  Thrift Financial Report filed two quarters earlier.  The interest
rate risk rule did not have a material effect on the Bank's  risk-based  capital
at September 30, 2002.

     In addition to requiring generally applicable capital standards for savings
institutions,  the OTS is  authorized  to establish the minimum level of capital
for a savings  institution at such amount or at such ratio of  capital-to-assets
as the OTS  determines to be necessary or  appropriate  for such  institution in
light of the particular  circumstances  of the institution.  Such  circumstances
would include a high degree of exposure to interest rate risk,  concentration of
credit risk and certain risks arising from non-traditional activity. The OTS may
treat the failure of any  savings  institution  to maintain  capital at or above
such level as an unsafe or unsound practice and may issue a directive  requiring
any savings  institution which fails to maintain capital at or above the minimum
level required by the OTS to submit and adhere to a plan for increasing capital.
Such an order may be enforced in the same manner as an order issued by the FDIC.

     Qualified Thrift Lender Test. A savings  institution that does not meet the
Qualified  Thrift Lender  ("QTL") test must either  convert to a bank charter or
comply with the following  restrictions on its  operations:  (i) the institution
may not  engage in any new  activity  or make any new  investment,  directly  or
indirectly,  unless  such  activity  or  investment  is  permissible  for both a
national  bank and a  savings  institution;  (ii) the  branching  powers  of the
institution  shall  be  restricted  to  those  of a  national  bank;  (iii)  the
institution shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the institution  shall be subject to the rules regarding

                                       27
<PAGE>
     payment of dividends  by a national  bank.  In  addition,  any company that
controls a savings  institution  that fails to qualify as a QTL will be required
to register as, and to be deemed,  a bank holding  company subject to all of the
provisions  of the Bank  Holding  Company  Act of 1956  (the  "BHCA")  and other
statutes  applicable  to bank holding  companies.  Upon the  expiration of three
years  from the date the  institution  ceases  to be a QTL,  it must  cease  any
activity and not retain any investment not permissible for a national bank and a
savings institution and immediately repay any outstanding FHLB advances (subject
to safety and soundness considerations).

     To meet the QTL test, an institution's  "Qualified Thrift Investments" must
total at least  65% of  "portfolio  assets."  Under OTS  regulations,  portfolio
assets are defined as total assets less intangibles,  property used by a savings
institution in its business and liquidity investments in an amount not exceeding
20% of  assets.  Qualified  Thrift  Investments  consist  of (i)  loans,  equity
positions  or  securities  related  to  domestic,  residential  real  estate  or
manufactured  housing,  (ii) 50% of the dollar  amount of  residential  mortgage
loans  subject to sale under certain  conditions,  and (iii) stock in an FHLB or
the FHLMC or FNMA.  In  addition,  subject to a 20% of portfolio  assets  limit,
savings  institutions are able to treat as Qualified Thrift  Investments 200% of
their   investments  in  loans  to  finance   "starter   homes"  and  loans  for
construction,  development  or  improvement  of housing  and  community  service
facilities or for financing small businesses in  "credit-needy"  areas. In order
to maintain QTL status,  the savings  institution must maintain a weekly average
percentage of Qualified Thrift Investments to portfolio assets equal to 65% on a
monthly average basis in nine out of 12 months. A savings institution that fails
to maintain QTL status will be permitted to requalify  once, and if it fails the
QTL test a second time, it will become  immediately  subject to all penalties as
if all time limits on such penalties had expired.

     At September  30,  2002,  the  percentage  of the Bank's  portfolio  assets
invested  in  Qualified  Thrift  Investments  was in  excess  of the  percentage
required to qualify the Bank under the QTL test.

     Dividend  Limitations.  Under the OTS prompt corrective action regulations,
the Bank would be  prohibited  from making any capital  distributions  if, after
making the distribution,  it would have: (i) a total risk-based capital ratio of
less than 8.0%;  (ii) a Tier 1 risk-based  capital  ratio of less than 4.0%;  or
(iii) a Tier 1  leverage  ratio  of  less  than  4.0%.  See  "Prompt  Corrective
Regulatory  Action." The OTS, after  consultation  with the FDIC,  however,  may
permit an otherwise  prohibited  stock repurchase if made in connection with the
issuance of additional  shares in an equivalent  amount and the repurchase  will
reduce  the  institution's   financial  obligations  or  otherwise  improve  the
institution's  financial  condition.  Under  OTS  regulations,  the  Bank is not
permitted to pay dividends on its capital stock if its regulatory  capital would
thereby be reduced  below the amount then required for the  liquidation  account
established for the benefit of certain depositors of the Bank at the time of its
conversion to stock form.

     Savings  institutions  must  submit  notice  to the OTS  prior to  making a
capital  distribution  if (a)  they  would  not be  well-capitalized  after  the
distribution,  (b) the distribution would result in the retirement of any of the
institution's  common  or  preferred  stock or debt  counted  as its  regulatory
capital,  or (c) the institution is a subsidiary of a holding company. A savings
institution  must make  application to the OTS to pay a capital  distribution if
(x)  the  institution  would  not  be  adequately   capitalized   following  the
distribution,  (y) the institution's  total  distributions for the calendar year
exceeds the  institution's net income for the calendar year to date plus its net
income (less distributions) for the preceding two years, or (z) the distribution
would  otherwise  violate  applicable  law or regulation or an agreement with or
condition imposed by the OTS.

     In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves  and deducted for federal  income tax  purposes are not  available  for
payment of cash dividends or other  distributions to the Company without payment
of taxes at the then  current  tax rate by the Bank on the  amount  of  earnings
removed from the reserves for such  distributions.  See  "Taxation." The Company
intends to make full use of this  favorable tax  treatment  afforded to the Bank
and the Company and does not  contemplate  use of any  earnings of the Bank in a
manner  which would limit  either  institution's  bad debt  deduction  or create
federal tax liabilities.

     Deposit  Insurance.  FDCIA  required  the FDIC to  establish  a  risk-based
assessment  system for insured  depository  associations that takes into account
the risks attributable to different  categories and concentrations of assets and
liabilities.  Under the rule,  the FDIC assigns an  association  to one of three
capital  categories   consisting  of  (i)  well  capitalized,   (ii)  adequately
capitalized,   or  (iii)   undercapitalized,   and  one  of  three   supervisory
subcategories.  The supervisory  subgroup to which an association is assigned is
based on a  supervisory  evaluation  provided  to the FDIC by the  association's
primary  federal  regulator  and  information  which the FDIC  determines  to be
relevant

                                       28
<PAGE>

to the  association's  financial  condition  and the risk  posed to the  deposit
insurance funds (which may include, if applicable,  information  provided by the
association's state supervisor). An association's assessment rate depends on the
capital  category and  supervisory  category to which it is assigned.  There are
nine assessment risk classifications  (i.e.,  combinations of capital groups and
supervisory   subgroups)  to  which  different  assessment  rates  are  applied.
Assessment  rates range from zero basis points for an association in the highest
category  (i.e.,  well-capitalized  and  healthy)  to 27  basis  points  for  an
association in the lowest  category (i.e.,  undercapitalized  and of substantial
supervisory concern.)

     Federal  Home Loan Bank  System.  The Bank is a member of the FHLB  System,
which consists of 12 district Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB").  The Federal Home Loan
Banks provide a central credit facility primarily for member institutions.  As a
member of the FHLB of  Atlanta,  the Bank is required to acquire and hold shares
of capital stock in the FHLB of Atlanta in an amount at least equal to 1% of the
aggregate unpaid principal of its home mortgage loans, home purchase  contracts,
and similar  obligations  at the beginning of each year, or 1/20 of its advances
(borrowings)  from the FHLB of Atlanta,  whichever  is greater.  The Bank was in
compliance  with this  requirement  with  investment in FHLB of Atlanta stock at
September 30, 2002, of $3.9 million.  The FHLB of Atlanta serves as a reserve or
central bank for its member  institutions  within its assigned  district.  It is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System.  It offers  advances to members in accordance  with policies
and procedures established by the FHFB and the Board of Directors of the FHLB of
Atlanta.  Long-term advances may only be made for the purpose of providing funds
for  residential  housing  finance.  At September  30, 2002,  the Bank had $25.7
million in advances outstanding from the FHLB of Atlanta.

     Federal  Reserve  System.  Pursuant to regulations  of the Federal  Reserve
Board,  all  FDIC-insured  depository  institutions  must maintain average daily
reserves equal to 3% on transaction accounts of up to $42.8 million, plus 10% on
the  amount  over $42.8  million.  These  reserve  requirements  are  subject to
adjustment  by the Federal  Reserve  Board.  Because  required  reserves must be
maintained in the form of vault cash or in a non-interest  bearing  account at a
Federal  Reserve Bank,  the effect of the reserve  requirement  is to reduce the
amount of the institution's  interest-earning  assets. As of September 30, 2002,
the Bank met its reserve requirements.

     Prompt  Corrective  Regulatory  Action.  Under FDICIA,  the federal banking
regulators  are  required  to  take  prompt  corrective  action  if  an  insured
depository  institution  fails to satisfy certain minimum capital  requirements,
including a leverage  limit,  a risk-based  capital  requirement,  and any other
measure deemed  appropriate by the federal banking  regulators for measuring the
capital  adequacy  of  an  insured  depository  institution.  All  institutions,
regardless  of their  capital  levels,  are  restricted  from making any capital
distribution or paying any management fees if the institution  would  thereafter
fail to satisfy  the  minimum  levels for any of its  capital  requirements.  An
institution  that  fails to meet the  minimum  level  for any  relevant  capital
measure (an  "undercapitalized  institution")  may be: (i) subject to  increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable  capital  restoration  plan within 45 days; (iii) subject to asset
growth  limits;  and (iv)  required  to obtain  prior  regulatory  approval  for
acquisitions,  branching and new lines of  businesses.  The capital  restoration
plan must  include a guarantee  by the  institution's  holding  company that the
institution  will comply with the plan until it has been adequately  capitalized
on average for four consecutive quarters,  under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the  institution  into capital  compliance  as of the date it
failed  to  comply  with  its  capital   restoration   plan.  A   "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
does not  submit an  acceptable  capital  restoration  plan,  may be  subject to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution may also be
required  to divest the  institution  or the  institution  could be  required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
provisions.  If an institution's ratio of tangible capital to total assets falls
below the  "critical  capital  level"  established  by the  appropriate  federal
banking  regulator,  the  institution  will be  subject  to  conservatorship  or
receivership within specified time periods.

                                       29
<PAGE>

     Under  the  implementing  regulations,   the  federal  banking  regulators,
including the OTS,  generally  measure an institution's  capital adequacy on the
basis of its total  risk-based  capital ratio (the ratio of its total capital to
risk-weighted  assets),  Tier 1 risk-based  capital ratio (the ratio of its core
capital  to  risk-weighted  assets)  and  leverage  ratio (the ratio of its core
capital to adjusted total assets).  The following table shows the capital ratios
required for the various prompt corrective action categories.
<TABLE>
<CAPTION>
                                                     Adequately                                     Significantly
                           Well Capitalized          Capitalized         Undercapitalized        Undercapitalized
                           ----------------          -----------         ----------------        ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio          10.0% or more             8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
-----------
*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

A "critically undercapitalized" savings institution is defined as an institution
that  has a ratio of  "tangible  equity"  to total  assets  of less  than  2.0%.
Tangible equity is defined as core capital plus cumulative  perpetual  preferred
stock  (and  related  surplus)  less  all  intangibles   other  than  qualifying
supervisory  goodwill and certain purchased  mortgage  servicing rights. The OTS
may reclassify a well capitalized savings institution as adequately  capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing,  that the savings  institution is in an unsafe
or unsound  condition or that the  institution  has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category.

     Safety and  Soundness  Standards.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  Federal  banking  agency was required to  establish  safety and  soundness
standards for  institutions  under its authority.  On July 10, 1995, the Federal
banking   agencies,   including  the  OTS,   released   Interagency   Guidelines
Establishing  Standards  for Safety and  Soundness  and  published  a final rule
establishing  deadlines  for  submission  and  review  of safety  and  soundness
compliance  plans.  The  guidelines  require  savings  institutions  to maintain
internal  controls and  information  systems and internal audit systems that are
appropriate for the size,  nature and scope of the institution's  business.  The
guidelines also establish certain basic standards for loan documentation, credit
underwriting,  interest rate risk  exposure,  and asset growth.  The  guidelines
further provide that savings  institutions should maintain safeguards to prevent
the payment of compensation,  fees and benefits that are excessive or that could
lead to material  financial  loss, and should take into account  factors such as
comparable  compensation  practices  at  comparable  institutions.  If  the  OTS
determines  that a savings  institution is not in compliance with the safety and
soundness  guidelines,  it may require the  institution  to submit an acceptable
plan to achieve  compliance  with the  guidelines.  A savings  institution  must
submit an acceptable  compliance  plan to the OTS within 30 days of receipt of a
request for such a plan.  Failure to submit or implement a  compliance  plan may
subject the institution to regulatory sanctions. Under the guidelines, a savings
institution  should maintain systems,  commensurate with its size and the nature
and  scope  of  its   operations,   to  identify   problem  assets  and  prevent
deterioration  in those assets as well as to evaluate  and monitor  earnings and
ensure that earnings are sufficient to maintain  adequate  capital and reserves.
Management believes that these regulatory standards do not materially affect the
Bank's operations.

     Lending Limits.  Savings institutions  generally are subject to the lending
limits  applicable  to national  banks.  With certain  limited  exceptions,  the
maximum  amount that a savings  institution  or a national  bank may lend to any
borrower  outstanding  at one time and not fully secured by collateral  having a
market  value at least  equal to the amount of the loan or  extension  of credit
(including certain related entities of the borrower) outstanding at one time and
not fully  secured by  collateral  having a market  value at least  equal to the
amount of the loan or extension  of credit may not exceed 15% of the  unimpaired
capital and surplus of the  institution.  Loans and  extensions  of credit fully
secured by readily  marketable  collateral  may  comprise an  additional  10% of
unimpaired capital and surplus. Savings institutions are additionally authorized
to make loans to one borrower,  for any purpose:  (i) in an amount not to exceed
$500,000,  or (ii) by order of the  Director  of OTS, in an amount not to exceed
the lesser of  $30,000,000  or

                                       30
<PAGE>

30% of unimpaired capital and surplus to develop residential housing,  provided:
(a) the purchase price of each  single-family  dwelling in the development  does
not exceed  $500,000;  (b) the savings  institution  is and  continues  to be in
compliance with its fully phased-in capital  requirements;  (c) the loans comply
with applicable  loan-to-value  requirements,  and; (d) the aggregate  amount of
loans made under this authority  does not exceed 150% of unimpaired  capital and
surplus,  or  (iii)  loans to  finance  the sale of real  property  acquired  in
satisfaction of debts previously  contracted in good faith, not to exceed 50% of
unimpaired capital and surplus of the institution.

     At September 30, 2002,  the maximum  amount that the Bank could have loaned
to any one borrower  without prior OTS approval was $6.8 million.  At such date,
the largest  aggregate  amount of loans that the Bank had outstanding to any one
borrower was $3.4 million.

     Uniform Lending Standards. Under OTS regulations, savings institutions must
adopt and  maintain  written  policies  that  establish  appropriate  limits and
standards  for  extensions  of credit that are secured by liens or  interests in
real estate or are made for the purpose of financing  permanent  improvements to
real estate.  These  policies  must  establish  loan  portfolio  diversification
standards, prudent underwriting standards,  including loan-to-value limits, that
are clear and  measurable,  loan  administration  procedures and  documentation,
approval and  reporting  requirements.  The real estate  lending  policies  must
reflect  consideration  of the  Interagency  Guidelines  for Real Estate Lending
Policies (the  "Interagency  Guidelines")  that have been adopted by the federal
bank regulators.

     The  Interagency  Guidelines,  among  other  things,  call upon  depository
institutions to establish  internal  loan-to-value  limits for real estate loans
that are not in  excess  of the  following  supervisory  limits:  (i) for  loans
secured by raw land, the supervisory  loan-to-value limit is 65% of the value of
the collateral;  (ii) for land development loans (i.e., loans for the purpose of
improving  unimproved  property  prior  to  the  erection  of  structures),  the
supervisory  limit is 75%; (iii) for loans for the  construction  of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for loans for the construction of one-to-four family properties, the supervisory
limit is 85%;  and (v) for  loans  secured  by other  improved  property  (e.g.,
farmland,  completed  commercial  property and other  income-producing  property
including  non-owner-occupied,  one-to-four family property),  the limit is 85%.
Although  no  supervisory   loan-to-value   limit  has  been   established   for
owner-occupied,  one-to-four  family  and home  equity  loans,  the  Interagency
Guidelines  state that for any such loan with a loan-to-value  ratio that equals
or exceeds 90% at origination,  an institution should require appropriate credit
enhancement  in the form of either  mortgage  insurance  or  readily  marketable
collateral.

     The Interagency  Guidelines  state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value  ratios in excess of the
supervisory  loan-to-value limits, based on the support provided by other credit
factors.   The  aggregate   amount  of  loans  in  excess  of  the   supervisory
loan-to-value limits,  however,  should not exceed 100% of total capital and the
total of such loans secured by commercial,  agricultural,  multifamily and other
non-one-to-four  family  residential  properties  should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans  including  loans insured or guaranteed by the U.S.  government and its
agencies or by  financially  capable  state,  local or municipal  governments or
agencies, loans backed by the full faith and credit of a state government, loans
that are to be sold promptly after origination without recourse to a financially
responsible  party, loans that are renewed,  refinanced or restructured  without
the advancement of new funds, loans that are renewed, refinanced or restructured
in connection with a workout,  loans to facilitate sales of real estate acquired
by the  institution  in the  ordinary  course of  collecting  a debt  previously
contracted and loans where the real estate is not the primary collateral.

     Management believes that the Bank's current lending policies conform to the
Interagency Guidelines.

     Transactions  with  Related  Parties.  Generally,  transactions  between  a
savings  bank  or its  subsidiaries  and its  affiliates  must  be on  terms  as
favorable to the Bank as transactions with non-affiliates.  In addition, certain
of these  transactions  are  restricted to a percentage  of the Bank's  capital.
Affiliates of the Bank include the Company, the MHC, BCSB Bankcorp Capital Trust
I and any company which would be under common control with the Bank.

     The Bank's authority to extend credit to executive  officers,  trustees and
10%  shareholders,  as well as entities under such persons control are currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things,  these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals,  place limits on the

                                       31
<PAGE>

amount of loans the Bank may make to such persons based,  in part, on the Bank's
capital position, and require certain approval procedures to be followed.

     Financial Modernization Legislation.  The Gramm-Leach-Bliley ("G-L-B") Act,
which was enacted in November 1999,  authorizes  affiliations  between  banking,
securities  and  insurance  firms and  authorizes  bank  holding  companies  and
national banks to engage in a variety of new financial activities. Among the new
activities  that will be permitted to bank holding  companies are securities and
insurance  brokerage,   securities  underwriting,   insurance  underwriting  and
merchant banking.  The Federal Reserve Board, in consultation with the Secretary
of the Treasury,  may approve additional  financial  activities.  The G-L-B Act,
however,  prohibits  future  acquisitions  of existing  unitary savings and loan
holding  companies,  like the Company,  by firms which are engaged in commercial
activities and limits the permissible  activities of unitary  holding  companies
formed after May 4, 1999.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
with which may acquire  control of the Company,  it may facilitate  affiliations
with companies in the financial services industry.

REGULATION OF THE COMPANY

     The Company is a savings  and loan  holding  company  within the meaning of
Section 10 of the HOLA and, as such,  the Company is subject to OTS  regulation,
examination  and  supervision.  In  addition,  because the Bank's  deposits  are
insured  by the SAIF  maintained  by the FDIC,  the Bank is  subject  to certain
restrictions in dealing with the Company and with other persons  affiliated with
the Bank.

     As a condition to OTS approval of the Bank's reorganization into the mutual
holding  company  structure,  the  Company  must  operate  under the  activities
restrictions applicable to multiple savings and loan holding companies. The HOLA
limits the  activities  of a multiple  savings and loan holding  company and its
non-insured  institution   subsidiaries  primarily  to  activities  specifically
permissible  by statute for multiple  savings and loan holding  companies and to
activities of bank holding  companies which the Federal Reserve Board has deemed
permissible by regulation under Section 4(c)(8) of the Bank Holding Company Act,
as amended the  ("BHCA"),  subject to prior  approval  of the OTS,  and to other
activities  authorized by OTS  regulation.  In addition,  under the terms of the
Company's federal stock charter,  the purpose of the Company is to pursue any or
all of the lawful objectives of a federal mutual holding company.

                                       32
<PAGE>

     The Company is permitted to, among other things: (i) invest in the stock of
a savings  institution;  (ii) acquire a mutual institution through the merger of
such  institution into a savings  institution  subsidiary of such mutual holding
company or an interim savings institution of such mutual holding company;  (iii)
merge with or acquire another mutual holding company,  one of whose subsidiaries
is a savings institution;  (iv) acquire  non-controlling amounts of the stock of
savings  institutions  and savings  institution  holding  companies,  subject to
certain restrictions;  (v) invest in a corporation the capital stock of which is
available for purchase by a savings  institution  under Federal law or under the
law of any state where the subsidiary  savings  institution or institutions have
their home offices;  (vi) furnish or perform  management  services for a savings
institution  subsidiary of such company;  (vi) hold, manage, or liquidate assets
owned or acquired from a savings institution subsidiary of such company;  (viii)
hold or manage properties used or occupied by a savings  institution  subsidiary
of such company; and (ix) acting as a trustee under deed or trust.

     The HOLA prohibits a savings and loan holding company, such as the Company,
directly or  indirectly,  from (1)  acquiring  control (as defined) of a savings
institution  (or  holding  company  thereof)  without  prior OTS  approval,  (2)
acquiring more than 5% of the voting shares of a savings institution (or holding
company  thereof)  which is not a  subsidiary,  subject to  certain  exceptions,
without prior OTS approval,  or (3) acquiring  through merger,  consolidation or
purchase of assets,  another savings institution (or holding company thereof) or
acquiring all or substbantially all of the assets,  another savings  institution
(or holding  company  thereof)  without  prior OTS  approval,  or (4)  acquiring
control of an uninsured institution.  A savings and loan holding company may not
acquire as a separate  subsidiary a savings  institution which has its principal
offices  outside of the state  where the  principal  offices  of its  subsidiary
institution is located, except (i) in the case of certain emergency acquisitions
approved by the FDIC, (ii) if the holding  company  controlled (as defined) such
savings  institution  as of March 5,  1987,  (iii) when the laws of the state in
which the savings institution to be acquired is located  specifically  authorize
such an  acquisition.  No  director  or  officer of a savings  and loan  holding
company or person owning or controlling more than 25% of such holding  company's
voting shares may, except with the prior approval of the OTS, acquire control of
any savings institution which is not a subsidiary of such holding company.

TAXATION

     General.  The Company and the Bank, together with the Bank's  subsidiaries,
file a  consolidated  federal  income tax return  based on a fiscal  year ending
September 30. Consolidated  returns have the effect of deferring gain or loss on
intercompany   transactions   and  allowing   companies   included   within  the
consolidated return to offset income against losses under certain circumstances.

     Federal Income Taxation.  Thrift institutions are subject to the provisions
of the  Internal  Revenue  Code of 1986,  as  amended  (the  "Code") in the same
general manner as other  corporations.  However,  institutions  such as the Bank
which met certain definitional tests and other conditions prescribed by the Code
benefited from certain  favorable  provisions  regarding  their  deductions from
taxable income for annual  additions to their bad debt reserve.  For purposes of
the bad debt reserve  deduction,  loans were  separated  into  "qualifying  real
property  loans," which generally are loans secured by interests in certain real
property,  and  nonqualifying  loans,  which are all other  loans.  The bad debt
reserve  deduction with respect to nonqualifying  loans was based on actual loss
experience,  however,  the amount of the bad debt reserve deduction with respect
to  qualifying  real property  loans could be based upon actual loss  experience
(the "experience  method") or a percentage of taxable income determined  without
regard  to  such  deduction  (the   "percentage  of  taxable  income   method").
Legislation  recently signed by the President repealed the percentage of taxable
income method of calculating  the bad debt reserve.  The Bank  historically  has
elected to use the percentage method.

     Earnings appropriated to an institution's bad debt reserve and claimed as a
tax  deduction  were not  available  for the  payment of cash  dividends  or for
distribution to  shareholders  (including  distributions  made on dissolution or
liquidation),  unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.

     Beginning  with the first taxable year  beginning  after December 31, 1995,
savings  institutions,  such as the Bank, will be treated the same as commercial
banks.  Associations  with $500  million or more in assets  will only be able to
take a tax deduction when a loan is actually charged off. Associations with less
than $500 million in assets will still be permitted to make  deductible bad debt
additions to reserves, but only using the experience method.

                                       33
<PAGE>

     The Bank's tax returns were last audited for the year ended  September  30,
1994.

     Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"), enacted
on August 10, 1993, the maximum federal  corporate income tax rate was increased
from 34% to 35% for taxable income over $10.0 million,  with a 3% surtax imposed
on taxable income over $15.0 million.  Also under  provisions of RRA, a separate
depreciation calculation requirement has been eliminated in the determination of
adjusted  current  earnings  for  purposes of  determining  alternative  minimum
taxable income,  rules relating to payment of estimated  corporate  income taxes
were  revised,  and certain  acquired  intangible  assets  such as goodwill  and
customer-based intangibles were allowed a 15-year amortization period. Beginning
with tax years  ending on or after  January  1,  1993,  RRA also  provides  that
securities  dealers must use  mark-to-market  accounting  and generally  reflect
changes in value  during the year or upon sale as taxable  gains or losses.  The
IRS has indicated that  financial  institutions  which  originate and sell loans
will be subject to the rule.

     State  Income  Taxation.  The State of  Maryland  imposes  an income tax of
approximately 7% on income measured  substantially the same as federally taxable
income.  Until  December  2000,  Maryland  imposed a franchise tax, at a rate of
0.013% of the total  withdrawal  value of the  deposits  that a savings and loan
association  held in Maryland  at  December 31 each year.  The State of Maryland
currently assesses a personal property tax for December 2000 and forward.

     For  additional  information  regarding  taxation,  see Note 15 of Notes to
Financial Statements.

ITEM 2.  DESCRIPTION OF PROPERTIES
----------------------------------

     The  following  table  sets  forth  the  location  and  certain  additional
information regarding the Bank's offices at September 30, 2002.
<TABLE>
<CAPTION>
                                                                     Book Value at      Approximate    Deposits at
                         Year       Owned or       Expiration Date   September 30,        Square     September 30,
                        Opened       Leased        (If Leased) (1)       2002             Footage         2002
                        ------       ------        ---------------      ------            -------        ------
                                                                                                      (Deposits in
                                                                                                       thousands)
<S>                      <C>        <C>          <C>                 <C>                  <C>           <C>
MAIN OFFICE:
     Perry Hall          1955       Leased (2)   November 2003       $   234,186          8,000         $   130,149

BRANCH OFFICES:
     Bel Air             1975       Leased       June 2008                    --          2,000              40,125
     Dundalk (3)         1976       Leased       June 2006                    --          1,700              43,021
     Timonium            1978       Leased       July 2008                    --          1,250              60,553
     Catonsville         1981       Leased       February 2006                --          1,750              36,109
     Abingdon            1999       Leased (2)   October 2008            461,354          1,800              10,400
     Forest Hill         1999       Leased (2)   July 2019               401,150          1,800              16,848
     Essex               1999       Leased       November 2004                --          3,200               8,924
     Hickory             2000       Leased (2)   January 2020            461,159          1,800               6,623
     White Marsh         2000       Leased (2)   January 2015            517,457          1,800              17,448
     Carney              2001       Leased       July 2011                    --          2,100              12,741
     Lutherville (4)     2002       Owned                                622,650          7,440              36,352
     Golden Ring (4)     2002       Leased       May 2006                     --                             30,313
     Hamilton (4)        2002       Owned                                101,645          1,500               9,961
     Woodlawn (4)        2002       Leased       July 2004                    --                             13,263
     Ellicott City (4)   2002       Leased       August 2020                  --                             25,955

ADMINISTRATIVE OFFICE:
     4111 E. Joppa Road  1994       Owned                              1,327,362         18,000
     Warehouse           1998       Leased       September 2004                           4,800
<FN>
---------------

(1)  All leases have at least one five-year renewal option, except for Woodlawn,
     Ellicott City and Golden Ring locations.

                                       34
<PAGE>

(2)  Building is owned, but land is leased.
(3)  The  Bank  also is  leasing  a kiosk  and  drive-in  ATM  facility  at this
     location.
(4)  Branch acquired in WHG Bancshares acquisition.
</FN>
</TABLE>

     The book value of the Bank's  investment in premises and equipment  totaled
$8.6 million at September 30, 2002. See Note 6 of Notes to Financial Statements.

ITEM 3. LEGAL PROCEEDINGS.
-------------------------

     From  time to time,  the MHC,  the  Company  and/or  the Bank is a party to
various legal proceedings  incident to its business.  Except as set forth below,
at September  30, 2002,  there were no legal  proceedings  to which the MHC, the
Company or the Bank was a party,  or to which any of their property was subject,
which were  expected by  management to result in a material loss to the MHC, the
Company or the Bank.  There are no pending  regulatory  proceedings to which the
MHC, the Company,  the Bank or their  subsidiaries is a party or to which any of
their properties is subject which are currently expected to result in a material
loss.

     The Bank has  obtained  judgments in the amount of  $1,500,000  against Key
Leasing & Rental, Inc. and related parties before the Circuit Court of Baltimore
County,  and  filed  similar  claims  against  the same  Defendants  in  pending
bankruptcy  cases. The judgments and bankruptcy filing seek to secure the Bank's
interest in automobile  leases pledged as collateral to Baltimore County Savings
Bank and to recover any deficiency  balances remaining after the disposal of the
collateral.  The Bank has foreclosed  upon the collateral  pursuant to a consent
agreement reached between the Bank and the US Bankruptcy Trustee.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
----------------------------------------------------------

     Not applicable.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------

     The information contained under the sections captioned "Market Information"
in the  Company's  Annual  Report to  Stockholders  for the  Fiscal  Year  Ended
September  30,  2002  (the  "Annual  Report")  filed as  Exhibit  13  hereto  is
incorporated herein by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and  Analysis  of  Financial  Condition  and Results of  Operations"  on pages 4
through 12 in the Annual Report is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The  Consolidated  Financial  Statements,  Notes to Consolidated  Financial
Statements,  Independent  Auditors' Report and Selected  Consolidated  Financial
Data  in the  Annual  Report,  which  are  listed  under  Item  13  herein,  are
incorporated herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     Not applicable.

                                       35
<PAGE>

                                    PART III

ITEM 9. DIRECTORS,  EXECUTIVE OFFICERS OF THE REGISTRANT,  PROMOTERS AND CONTROL
        PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE ACT
--------------------------------------------------------------------------------

     The  information  contained  under the  sections  captioned  "Proposal I --
Election  of  Directors"  and  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance" in the Company's  definitive  proxy statement for the Company's 2002
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under the  sections  captioned  "Proposal I --
Election of Directors -- Executive  Compensation,"  "--  Compensation  Committee
Report on Executive  Compensation," "-- Comparative Stock Performance Graph" and
" -- Director  Compensation"  in the Proxy Statement is  incorporated  herein by
reference.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

     (a) and (b)    Security Ownership of Certain Beneficial Owners and Security
                    Ownership of Management

                    Information  required by this item is incorporated herein by
                    reference to the section  captioned  "Voting  Securities and
                    Security Ownership" in the Proxy Statement.

     (c)             Changes in Control

                    Management  of  the  Company   knows  of  no   arrangements,
                    including  any  pledge by any  person of  securities  of the
                    Company,  the  operation of which may at a  subsequent  date
                    result in a change in control of the registrant.

     Item 201(d)    Equity Compensation Plans

                    The  following  table sets forth  certain  information  with
                    respect to the Company's equity compensation plans.
<TABLE>
<CAPTION>
                                                                                                Number of securities remaining
                                     Number of securities to be                                 available for future issuance
                                      issued upon exercise of       Weighted-average exercise     under equity compensation
                                        outstanding options,          price of outstanding       plans (excluding securities
                                        warrants and rights       options, warrants and rights     reflected in column (a))
                                        -------------------       ----------------------------     ------------------------
                                                (a)                            (b)                           (c)
<S>                                           <C>                             <C>                          <C>
Equity compensation plans
  approved by security holders                225,850                         $9.47                        288,798

Equity compensation plans not
  approved by security holders

       Total                                  225,850                         $9.47                        288,798
</TABLE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section  captioned  "Proposal I -- Election of Directors --  Transactions
with Management" in the Proxy Statement.

                                       36
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
-----------------------------------------------

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
          ----------------------------------------------

     (1) Financial Statements.  The following  consolidated financial statements
are incorporated by reference from Item 7 hereof (see Exhibit 13):

          Independent Auditors' Report
          Consolidated Statement of Financial Condition as of September 30, 2002
          and 2001
          Consolidated  Statements of Operations  for the Years Ended  September
          30, 2002 and 2001
          Consolidated  Statements of  Stockholders'  Equity for the Years Ended
          September 30, 2002 and 2001
          Consolidated  Statements  of Cash Flows for the Years Ended  September
          30, 2002 and 2001
          Notes to Consolidated Financial Statements

     (2) Financial  Statement  Schedules.  All schedules for which  provision is
made in the  applicable  accounting  regulations  of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the  required  information  is included in the  consolidated
financial statements and related notes thereto.

     (3)  Exhibits.  The  following is a list of exhibits  filed as part of this
Annual Report on Form 10-KSB and is also the Exhibit Index.
<TABLE>
<CAPTION>
      No.         Description
      --          -----------
<S>               <C>
*      3.1        Charter of BCSB Bankcorp, Inc.
*      3.2        Bylaws of BCSB Bankcorp, Inc.
**     4          Form of Common Stock Certificate of BCSB Bankcorp, Inc.
***   10.1        BCSB Bankcorp, Inc. 1999 Stock Option Plan
***   10.2        BCSB Bankcorp, Inc. Management Recognition Plan and Trust Agreement
*     10.3        Amended and Restated Form of  Change-in-Control  Severance  Agreements  between  Baltimore County
                  Savings Bank, F.S.B. and Gary C. Loraditch and William M. Loughran
      10.4        Baltimore County Savings Bank, F.S.B. Deferred Compensation Plan, as amended
*     10.5        Baltimore County Savings Bank, F.S.B. Incentive Compensation Plan
      10.6        Form of  Change-in-Control  Severance  Agreements  between  Baltimore County Savings Bank, F.S.B.
                  and David M. Meadows and Bonnie M. Klein
      10.7        Baltimore County Savings Bank, F.S.B. Cash Deferred Compensation Plan
      13          2002 Annual Report to Stockholders
      21          Subsidiaries of the Registrant
      23          Consent of Anderson Associates, LLP
      99          Certification pursuant to 18 U.S.C. Section 1350
<FN>
___________
*      Incorporated  herein  by  reference  from the  Company's  Registration  Statement  on Form  SB-2  (File  No.
       333-44831).
**     Incorporated herein by reference from the Company's Registration Statement on Form 8-A (File No. 0-24589).
***    Incorporated  herein  by  reference  from the  Company's  Annual  Report  on Form  10-K  for the year  ended
       September 30, 1999 (File No. 0-24589).
</FN>
</TABLE>

     (b)  REPORTS ON FORM 8-K. On July 25,  2002,  the  Company  filed a Current
          -------------------
          Report  on Form  8-K with  respect  to the  event  on July  24,  2002,
          reporting  under  Item  2 the  completion  of its  acquisition  of WHG
          Bancshares, Inc. ("WHG") and under Item 7 as to exhibits and financial
          statements. The Company fled an amendment to the Form 8-K on September
          20, 2002 (the "Form 8-K/A"),

                                       37
<PAGE>

          reporting under Item 2 its  acquisition of WHG  Bancshares,  Inc., and
          under Item 7 the following financial statements were filed:

          1. The following  documents  have been filed with the  Securities  and
          Exchange   Commission  (the  "Commission")  by  WHG  pursuant  to  the
          Securities Exchange Act of 1934, as amended,  and were incorporated by
          reference in the Form 8-K/A.  All  documents  that are as of September
          30, 2001 and 2000 were  incorporated  by  reference  from WHG's Annual
          Report on Form 10-KSB for the year ended September 30, 2001 filed with
          the  Commission on December 21, 2001.  All documents that are as of or
          for the Six  Months  March  31,  2002 and 2001  were  incorporated  by
          reference  from WHG's  Quarterly  Report on Form 10-QSB for its second
          fiscal  quarter ended March 31, 2002 filed with the  Commission on May
          13, 2002.

          (i)  Consolidated  Statements  of Financial  Condition as of September
               30, 2001 and 2000 and as of March 31, 2002, and notes thereto.

          (ii) Consolidated   Statements  of  Operations  for  the  Years  Ended
               September  30,  2001 and 2000 and for the Six Months  Ended March
               31, 2002 and 2001, and notes thereto.

          (iii)Consolidated  Statements  of  Stockholders'  Equity for the Years
               Ended September 30, 2001 and 2000, and notes thereto.

          (iv) Consolidated  Statements  of  Cash  Flows  for  the  Years  Ended
               September  30, 2001 and 2000,  and for the Six Months Ended March
               31, 2002 and 2001, and notes thereto.

          (v)  Independent  Auditors'  Report  dated  as  of  November  7,  2001
               relating to the consolidated statements of financial condition of
               WHG and  Subsidiary  as of September  30, 2001 and 2000,  and the
               related   consolidated   statements   of   income,   changes   in
               stockholders'  equity and cash flows for each of the years in the
               two-year period ended September 30, 2001, filed with WHG's Annual
               Report on Form 10-KSB for the year ended September 30, 2001.

          2.  Unaudited  pro  forma  condensed  combined  financial   statements
          prepared to illustrate the effect of the acquisition.

ITEM 14. CONTROLS AND PROCEDURES
--------------------------------

     Within 90 days prior to the date of this report, the Company carried out an
evaluation,  under the supervision and with the  participation  of the Company's
principal   executive   officer  and  principal   financial   officer,   of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures.  Based on this  evaluation,  the Company's  principal  executive
officer and principal financial officer concluded that the Company's  disclosure
controls  and  procedures  are  effective  in timely  alerting  them to material
information required to be included in the Company's periodic SEC reports.

     In  addition,  there  have been no  significant  changes  in the  Company's
internal  controls or in other  factors  that could  significantly  affect those
controls subsequent to the date of their last evaluation.


                                       38
<PAGE>
                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       BCSB BANKCORP, INC.

December 27, 2002
                                       By: /s/ Gary C. Loraditch
                                           -------------------------------------
                                           Gary C. Loraditch
                                           President and Chief Executive Officer

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


/s/ Gary C. Loraditch                                         December 27, 2002
-----------------------------------------------
Gary C. Loraditch
President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Bonnie M. Klein                                           December 27, 2002
-----------------------------------------------
Bonnie M. Klein
Vice President and Treasurer
(Principal Financial and Accounting Officer)

/s/ Henry V. Kahl                                             December 27, 2002
----------------------------------------------
Henry V. Kahl
Chairman of the Board

/s/ H. Adrian Cox                                             December 27, 2002
----------------------------------------------
H. Adrian Cox
Vice Chairman of the Board


----------------------------------------------
William J. Kappauf, Jr.
Director

/s/ William M. Loughran                                       December 27, 2002
----------------------------------------------
William M. Loughran
Vice President and Director

/s/ John J. Panzer, Jr.                                       December 27, 2002
----------------------------------------------
John J. Panzer, Jr.
Director


----------------------------------------------
P. Louis Rohe, Jr.
Director

/s/ Michael J. Klein                                          December 27, 2002
----------------------------------------------
Michael J. Klein
Director

<PAGE>
                                  CERTIFICATION


I, Gary C. Loraditch,  President and Chief  Executive  Officer of BCSB Bankcorp,
Inc., certify that:

     1. I have  reviewed  this annual  report on Form  10-KSB of BCSB  Bankcorp,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: December 27, 2002


                                  /s/ Gary C. Loraditch
                                  -------------------------------------
                                  Gary C. Loraditch
                                  President and Chief Executive Officer


<PAGE>
                                  CERTIFICATION


I, Bonnie M. Klein, Vice President and Chief Financial Officer of BCSB Bankcorp,
Inc., certify that:

     1. I have  reviewed  this annual  report on Form  10-KSB of BCSB  Bankcorp,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: December 27, 2002


                                      /s/ Bonnie M. Klein
                                      ------------------------------------------
                                      Bonnie M. Klein
                                      Vice President and Chief Financial Officer