UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                      ------------------------------------


                                    FORM 10-Q
                      ------------------------------------


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

    [ X ]      For the quarterly period ended September 30, 1996

                                       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 Number 0-24744

                               Life Bancorp, Inc.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Virginia                                           54-1711207
--------------------------------               --------------------------------
(State or other jurisdiction of                (I.R.S. Employer Identification
 incorporation or organization)                 Number)

  109 East Main Street
   Norfolk, Virginia                                         23510
--------------------------------               --------------------------------
(Address of principal executive office)                   (Zip Code)

                                 (757) 858-1000
       ------------------------------------------------------------------
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]    No  [  ]

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

Common Stock (par value $.01 per share)                     9,846,840
---------------------------------------           -----------------------------
         (Title of Class)                         (Number of Shares Outstanding 
                                                   as of November 8, 1996)




<PAGE>
<TABLE>
<CAPTION>

                                                LIFE BANCORP, INC.

                                                 TABLE OF CONTENTS
                                                                                                               Page
<S>                                                                                                              <C>

PART I - FINANCIAL INFORMATION..................................................................................  1

Item 1.   Financial Statements..................................................................................  1
     Unaudited Consolidated Balance Sheets......................................................................  1
     Unaudited Consolidated Statements of Operations - Three Months.............................................  2
     Unaudited Consolidated Statements of Operations - Year-to-Date.............................................  3
     Unaudited Consolidated Statement of Changes in Stockholders' Equity........................................  4
     Unaudited Consolidated Statements of Cash Flows............................................................  5
     Notes to Unaudited Consolidated Financial Statements.......................................................  6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations............................................................................................  7
     General....................................................................................................  7
          Acquisition of Seaboard Bancorp, Inc..................................................................  7
          Stock Repurchases.....................................................................................  7
     Impact of Recently Enacted Legislation.....................................................................  8
          SAIF Recapitalization.................................................................................  8
               BIF/SAIF Premium Disparity.......................................................................  8
               Proposed Risk-Based Premium Assessment...........................................................  8
               Merger of BIF and SAIF...........................................................................  9
          Bad Debt Reserve Recapture............................................................................  9
     Financial Condition.......................................................................................  10
          Assets...............................................................................................  10
          Liabilities and Stockholders' Equity.................................................................  11
          Asset Quality........................................................................................  11
               General.........................................................................................  11
               Impaired Loans..................................................................................  11
               Troubled Debt Restructurings....................................................................  13
               Non-Performing Assets...........................................................................  14
               Potential Problem Loans.........................................................................  14
               Allowance for Loan Losses.......................................................................  15
     Results of Operations.....................................................................................  17
          Comparison of Results of Operations for the Three Months Ended September 30,
               1996 and 1995...................................................................................  17
               General.........................................................................................  17
               Net Interest Income.............................................................................  17
               Yields Earned and Rates Paid....................................................................  18
               Provision for Loan Losses.......................................................................  18
               Noninterest Income..............................................................................  18

                                                       i

<PAGE>



               Noninterest Expense.............................................................................  19
               Income Tax Provision............................................................................  19
          Comparison of Results of Operations for the Nine Months Ended September 30, 1996
               and 1995........................................................................................  19
               General.........................................................................................  19
               Net Interest Income.............................................................................  19
               Yields Earned and Rates Paid....................................................................  20
               Provision for Loan Losses.......................................................................  20
               Noninterest Income..............................................................................  21
               Noninterest Expense.............................................................................  21
               Income Tax Provision............................................................................  21
     Liquidity and Capital Resources...........................................................................  21

PART II - OTHER INFORMATION....................................................................................  22

Item 1.   Legal Proceedings....................................................................................  22

Item 2.   Changes in Securities................................................................................  22

Item 3.   Defaults Upon Senior Securities......................................................................  22

Item 4.   Submission of Matters to a Vote of Security Holders..................................................  22

Item 5.   Other Information....................................................................................  22

Item 6.   Exhibits and Reports on Form 8-K.....................................................................  22

SIGNATURES.....................................................................................................  23
</TABLE>


                                                      ii

<PAGE>

                                          PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>

                                                LIFE BANCORP, INC.
                                       Unaudited Consolidated Balance Sheets
                                         (In thousands, except stock data)

                                                                September 30, 1996  December 31, 1995
                                                                ------------------  ------------------
                               Assets
<S>                                                                  <C>              <C>   

Cash and cash equivalents........................................... $   10,637       $    8,845
Investment securities, available-for-sale...........................     35,316           23,040
Mortgage-backed securities:
  Held-to-maturity (Market value of $146.0 million and
    $169.2 million at 09/30/96 and 12/31/95, respectively)..........    147,174          168,602
  Available-for-sale................................................    574,680          393,587
Loans receivable, net...............................................    592,103          467,424
Accrued interest and dividends receivable...........................     11,036            9,443
Real estate owned...................................................      1,276              622
Federal Home Loan Bank stock, at cost...............................      8,740            8,310
Premises and equipment..............................................     15,493           13,975
Excess of cost over net assets of companies acquired................      4,794              459
Other assets........................................................      3,511            2,693
                                                                     ----------       ----------
        Total assets................................................ $1,404,760       $1,097,000
                                                                     ==========       ==========


                Liabilities and Stockholders' Equity

Liabilities:
  Deposits.......................................................... $  720,920       $  607,139
  Notes payable and other borrowings:
    Advances from Federal Home Loan Bank of Atlanta.................    154,011          148,636
    Securities sold under agreements to repurchase..................    358,145          162,000
    Secured note due to Thrift Financing Corporation................      5,222            6,518
  Advances from borrowers for taxes and insurance...................      4,254            2,981
  Other liabilities.................................................     16,762            8,785
                                                                     ----------       ----------
        Total liabilities...........................................  1,259,314          936,059
                                                                     ----------       ----------

Stockholders' Equity:
  Preferred stock of $0.01 par value, authorized 5,000,000
    shares, none issued or outstanding..............................        --               --
  Common stock of $0.01 par value, authorized 30,000,000
    shares, issued and outstanding 9,846,840 shares at
    September 30, 1996 and 10,910,625 at December 31, 1995..........         98              109
  Additional paid-in capital........................................     91,939          106,659
  Retained earnings, substantially restricted.......................     61,706           59,447
  Common stock held by ESOP and RRP trusts..........................     (7,684)          (7,073)
  Unrealized gain (loss) on securities (net of taxes)...............       (613)           1,799
                                                                     ----------       ----------
        Total stockholders' equity..................................    145,446          160,941
                                                                     ----------       ----------

        Total liabilities and stockholders' equity.................. $1,404,760       $1,097,000
                                                                     ==========       ==========

<FN>
                             See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>

                                                         1

<PAGE>
<TABLE>
<CAPTION>
                                                LIFE BANCORP, INC.
                     Unaudited Consolidated  Statements  of Operations - Three  Months 
                                      (In thousands, except per share data)

                                                                               For the
                                                                          Three Months Ended
                                                                             September 30,
                                                                        -----------------------
                                                                         1996             1995
                                                                        -------         -------
<S>                                                                     <C>             <C> 
Interest income:
  Interest on loans..............................................       $12,523         $ 9,902
  Interest on investment securities..............................           687             160
  Interest on mortgage-backed securities.........................        11,619           9,390
                                                                        -------         -------
        Total interest income....................................        24,829          19,452
                                                                        -------         -------

Interest expense:
  Interest on deposits...........................................         9,254            7,765
  Interest on notes payable and other borrowings.................         7,100            4,540
                                                                        -------         -------
        Total interest expense...................................        16,354          12,305
                                                                        -------         -------
        Net interest income......................................         8,475           7,147
Provision for loan losses........................................          (295)             75
                                                                        -------         -------
        Net interest income after provision
         for loan losses.........................................         8,770           7,072
                                                                        -------         -------

Noninterest income:
  Deposit fees and related income................................           162             111
  Servicing fees.................................................           141             157
  Net gain on sales of mortgage loans held-
   for-sale......................................................             2              51
  Net gain of sales of mortgage-backed securities
   available-for-sale............................................            14             --
  Net gain on sales of real estate owned.........................           213              51
  Net gain on sales of assets....................................           --               62
  Other..........................................................           408             368
                                                                        -------         -------
        Total noninterest income.................................           940             800
                                                                        -------         -------

Noninterest expense:
  Compensation and employee benefits.............................         2,856           2,622
  Occupancy and office operations................................           791             623
  FDIC Premium...................................................         4,776             344
  Advertising and promotion......................................            53              85
  Provision for losses on real estate owned......................            34               1
  Amortization of excess of cost over net assets
   of companies acquired.........................................           599              43
  Other..........................................................           365             357
                                                                        -------        --------
        Total noninterest expense................................         9,474           4,075
                                                                        -------         -------
Income before income taxes.......................................           236           3,797
Income tax provision.............................................            70           1,443
                                                                        -------         -------
Net income.......................................................       $   166         $ 2,354
                                                                        =======         =======

Earnings per common and common equivalent share..................       $  0.02        $   0.23
                                                                        =======        ========

Dividends paid per common share..................................       $  0.11        $   0.11
                                                                        =======        ========
<FN>
                             See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
                                                         2

<PAGE>
<TABLE>
<CAPTION>
                                                LIFE BANCORP, INC.
                          Unaudited Consolidated Statements of Operations - Year-to-Date
                                         (In thousands, except stock data)

                                                                                  For the
                                                                             Nine Months Ended
                                                                                September 30,
                                                                        ------------------------
                                                                          1996            1995  
                                                                        --------        --------
<S>                                                                     <C>             <C>    
Interest income:
  Interest on loans..............................................       $35,736         $28,518
  Interest on investment securities..............................         2,155             883
  Interest on mortgage-backed securities.........................        31,409          27,816
                                                                        -------         -------
        Total interest income....................................        69,300          57,217
                                                                        -------         -------

Interest expense:
  Interest on deposits...........................................        26,335          22,328
  Interest on notes payable and other borrowings.................        17,738          13,300
                                                                        -------         -------
        Total interest expense...................................        44,073          35,628
                                                                        -------         -------
        Net interest income......................................        25,227          21,589
Provision for loan losses........................................         (299)             366
                                                                        -------         -------
        Net interest income after provision
         for loan losses.........................................        25,526          21,223
                                                                        -------         -------

Noninterest income:
  Deposit fees and related income................................           464             303
  Servicing fees.................................................           437             481
  Net gain on sales of mortgage loans held-
   for-sale......................................................             8             119
  Net gain of sales of mortgage-backed securities
   available-for-sale............................................            14              --
  Net gain on sales of real estate owned.........................           290              83
  Net gain on sales of assets....................................            12              62
  Other..........................................................         1,257           1,107
                                                                        -------         -------
        Total noninterest income.................................         2,482           2,155
                                                                        -------         -------

Noninterest expense:
  Compensation and employee benefits.............................         8,337           7,320
  Occupancy and office operations................................         2,306           1,897
  FDIC Premium...................................................         5,549           1,021
  Advertising and promotion......................................           418             460
  Provision for losses on real estate owned......................            34              41
  Amortization of excess of cost over net assets
   of companies acquired.........................................           857              84
  Other..........................................................         1,428           1,244
                                                                        -------         -------
        Total noninterest expense................................        18,929          12,067
                                                                        -------         -------
Income before income taxes.......................................         9,079          11,311
Income tax provision.............................................         3,635           4,297
                                                                        -------         -------
Net income.......................................................       $ 5,444         $ 7,014
                                                                        =======         =======

Earnings per common and common equivalent share..................       $  0.56         $  0.69
                                                                        =======         =======

Dividends paid per common share..................................       $   .33         $  0.33
                                                                        =======         =======
<FN>
                             See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>

                                                         3

<PAGE>
<TABLE>
<CAPTION>
                                                LIFE BANCORP, INC.
                        Unaudited Consolidated Statement of Changes in Stockholders' Equity
                                                  (In thousands)


                                                                                  Common       Unrealized
                                                                                   Stock       Gain (loss)
                                                                                   Held       on Securities
                                                      Additional                  by ESOP      Available-
                                            Common     Paid-in      Retained      and RRP       for-Sale         Total
                                             Stock     Capital      Earnings      Trusts      (Net of Tax)      Equity
                                            -------   ----------   ---------     --------     ------------     ---------

<S>                                          <C>      <C>           <C>          <C>           <C>              <C>

Balance, December 31, 1995..............     $109     $106,659      $59,447      $(7,073)      $ 1,799          $160,941

Net income..............................                              5,444                                        5,444

Cash dividends paid.....................                             (3,185)                                      (3,185)

Common Stock released by
  ESOP trust............................                   521                      1,015                          1,536

Common Stock in RRP trust...............                   (90)                    (1,626)                        (1,716)

Common Stock repurchased &
  retired...............................      (11)     (15,151)                                                  (15,162)

Unrealized gain (loss) on
  securities, net of tax................                                                        (2,412)           (2,412)
                                             -----    --------      -------      -------       -------          --------

Balance, September 30, 1996.............     $  98    $ 91,939      $61,706      $(7,684)      $  (613)         $145,446
                                             =====    ========      =======      =======       =======          ========





















<FN>
                                    See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
                                                               4

<PAGE>
<TABLE>
<CAPTION>
                                                       LIFE BANCORP, INC.
                                         Unaudited Consolidated Statements of Cash Flows
                                                         (In thousands)
                                                                                           For the Nine Months
                                                                                           Ended September 30,
                                                                                       --------------------------
                                                                                          1996              1995
                                                                                       ---------         ---------
<S>                                                                                     <C>               <C>   
Cash flows from operating activities:
     Net Income.................................................................        $  5,444          $  7,014
     Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:
         Provision for losses on loans and real estate owned....................            (265)              407
         Depreciation and amortization..........................................             465               417
         Net amortization of premiums and discounts on investments..............             (23)              245
         Amortization of excess of cost over net assets of companies acquired...             857                84
         Net gain on sales of real estate owned.................................            (290)              (83)
         Net gain on sales of mortgage loans....................................              (8)             (119)
         Net gain on sales of assets............................................             (12)              (62)
     Loans originated for resale................................................            (637)           (7,434)
     Proceeds from loans sold to others.........................................             645             7,553
     Non-Cash ESOP Expenses.....................................................             827               --
     Changes in assets and liabilities:
       (Increase) decrease in assets:
         Accrued interest receivable............................................          (1,774)             (121)
         Deferred loan fees.....................................................            (676)             (394)
         Deferred income taxes..................................................            (492)            4,133
         Other assets...........................................................            (192)              700
       Increase (decrease) in liabilities:
         Accrued expenses and other liabilities.................................           7,988             1,281
                                                                                        --------          --------
             Net cash provided by (used in) operating activities................          11,857            13,621
                                                                                        --------          --------

Cash flows from investing activities:
     Proceeds from sales and maturities of investments and mortgage-backed
       securities...............................................................           8,007            15,075
     Purchase of investment securities..........................................         (19,425)              --
     Principal collected on loans...............................................          54,476            38,676
     Loans originated for investment............................................        (115,714)          (72,219)
     Proceeds from sale of premises and equipment...............................               5               146
     Purchases of premises and equipment........................................          (1,023)             (260)
     Purchase of Seaboard Bancorp...............................................          (8,235)              --
     Purchases of mortgage-backed securities....................................        (271,290)         (103,185)
     Principal collected on mortgage-backed securities..........................         111,325            56,312
     Proceeds from sale of real estate owned....................................             620               691
     Redemption of FHLB stock...................................................             351               957
     Principal collected on ESOP loan...........................................             943               934
     Purchase of FHLB stock.....................................................             --               (518)
                                                                                        --------          --------
             Net cash provided by (used in) investing activities................        (239,960)          (63,391)
                                                                                        --------          --------

Cash flows from financing activities:
     Net increase in checking deposits, liquid assets deposits, savings
       deposits, and certificates of deposits accounts..........................          49,977             9,773
     Advances from borrowers for taxes and insurance............................           1,273             1,957
     Dividends Paid on Common Stock.............................................          (3,421)           (3,600)
     Repurchase of Common Stock.................................................         (15,162)              --
     Stock purchase for RRP Trust...............................................          (2,996)              --
     Proceeds from notes payable and other borrowings...........................         893,662           607,053
     Repayment of notes payable and other borrowings............................        (693,438)         (568,235)
                                                                                        --------          --------
             Net cash provided by (used in) financing activities................         229,895            46,948
                                                                                        --------          --------

Net increase (decrease) in cash and cash equivalents............................           1,792            (2,822)

Cash and cash equivalents at beginning of period................................           8,845             7,945
                                                                                        --------          --------
Cash and cash equivalents at end of period......................................        $ 10,637          $  5,123
                                                                                        ========          ========
<FN>
                                    See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
                                                               5

<PAGE>

                               LIFE BANCORP, INC.
              Notes to Unaudited Consolidated Financial Statements

1.      Summary of Significant Accounting Policies

        Basis of Financial Statement Presentation

        The  accompanying   unaudited  consolidated  financial  statements  were
        prepared in accordance with instructions to Form 10-Q, and therefore, do
        not include all of the disclosures or footnotes necessary for a complete
        presentation of financial position, results of operations and cash flows
        in conformity with generally accepted  accounting  principles.  However,
        all normal,  recurring  adjustments which, in the opinion of management,
        are necessary for a fair presentation of the financial statements,  have
        been  included.  The results of operations for the three and nine months
        ended September 30, 1996 are not  necessarily  indicative of the results
        that may be expected for the entire year or for any interim period.

        Principles of Consolidation

        The  consolidated  financial  statements  include  the  accounts of Life
        Bancorp,  Inc. (the  "Company") and its  wholly-owned  subsidiary,  Life
        Savings  Bank,   FSB  (the   "Bank").   All   significant   intercompany
        transactions  have  been  eliminated  in  consolidation.   Additionally,
        certain  reclassifications  may have been made to prior period financial
        statements  in  order to  conform  with the  current  presentation.  The
        accompanying consolidated financial statements have been prepared on the
        accrual basis.

2.      Earnings Per Share

        Earnings per share for the three- and nine-month periods ended September
        30,  1996 was  determined  by  dividing  income  for the  periods by the
        weighted  average  number  of  common  and  common   equivalent   shares
        outstanding during the periods.  There is no material difference between
        primary and fully-diluted earnings per share.

        Common  equivalent  shares  include  shares  issuable  upon  exercise of
        dilutive  options  outstanding  under the  treasury  stock  method.  The
        Company accounts for the shares acquired by its Employee Stock Ownership
        Plan  ("ESOP") in accordance  with  Statement of Position  93-6.  Shares
        acquired by the ESOP and the  Recognition  and  Retention  Plan  ("RRP")
        Trusts are not  considered in the weighted  average  shares  outstanding
        until the shares are committed for allocation or vested to an employee's
        individual account.

        The  weighted  average  number of common  and common  equivalent  shares
        outstanding during the periods are as follows:

               For the three months ended September 30, 1996       9,189,655
               For the three months ended September 30, 1995      10,189,909
               For the nine months ended September 30, 1996        9,659,171
               For the nine months ended September 30, 1995       10,183,347


3.      Subsequent Event

        On  October  21,  1996,  the Board of  Directors  declared  a  quarterly
        dividend of $0.11 per share payable on November 29, 1996 to stockholders
        of record on November 15, 1996.

                                        6

<PAGE>



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

                                     General

        The Company's  principal business is conducted through the Bank from its
headquarters  located in Norfolk,  Virginia and 20  full-service  retail banking
offices located in the cities of Norfolk, Chesapeake,  Portsmouth,  Suffolk, and
Virginia  Beach,  Virginia.  The Bank's  deposits  are  insured  by the  Savings
Association  Insurance Fund ("SAIF") to the maximum extent permitted by law. The
Bank is subject to  examination  and  comprehensive  regulation by the Office of
Thrift Supervision ("OTS"), which is the Bank's chartering authority and primary
regulator.  The  Bank is also  subject  to  regulation  by the  Federal  Deposit
Insurance Corporation ("FDIC"), as the administrator of the SAIF, and to certain
reserve requirements  established by the Federal Reserve Board ("FRB"). The Bank
is a member of the Federal Home Loan Bank ("FHLB") of Atlanta.

        Acquisition of Seaboard  Bancorp,  Inc. On January 31, 1996, the Company
completed  its  previously  announced  acquisition  of  Seaboard  Bancorp,  Inc.
("Seaboard"),  the holding company for Seaboard Savings Bank, F.S.B., ("Seaboard
Savings").  Seaboard  Savings,  headquartered in Virginia Beach,  operated three
offices,  one each in the  Virginia  cities of  Chesapeake,  Virginia  Beach and
Portsmouth.  The  operations  of  Seaboard  Savings  were  merged  into the Bank
effective  February  1, 1996,  representing  a natural  extension  of the Bank's
existing operations and strengthening its presence in the Hampton Roads market.

        The  purchase  of  Seaboard is being  accounted  for under the  purchase
method of accounting,  whereby the purchase price is allocated to the underlying
assets acquired and liabilities assumed based on their respective fair values at
the date of acquisition. The purchase price for Seaboard, $8.2 million, exceeded
the fair value of the net assets by  approximately  $5.4 million  which is being
accounted  for as  goodwill  and  amortized  in  accordance  with  Statement  of
Financial  Accounting  Standards  ("SFAS")  No.  72.  Results of  operations  of
Seaboard,  beginning  February  1,  1996,  are  included  in the  results of the
Company.

        At December 31, 1995,  Seaboard's  assets  totaled  approximately  $81.8
million and its deposits  totaled  approximately  $67.0  million.  The financial
results of the Company for 1995 do not include the results of the acquisition of
Seaboard.

        Stock  Repurchases.  During the first nine  months of 1996,  the Company
repurchased and retired 1,063,785 shares, or 9.75% of its outstanding  shares on
December 31, 1995, at a total acquisition price of approximately $15.2 million.

        On August 13, 1996, the Company  announced that it had received approval
from the OTS to repurchase up to an additional 15% of its outstanding shares, 5%
during the period  ending  October 11,  1996,  and another 10% during the period
beginning  October  12,  1996,  and ending  October  11,  1997.  No shares  were
repurchased between August 13, 1996, and October 11, 1996.

        Future  decisions by the Company to repurchase  shares will be based on,
among other  things,  the then current  market  value of the stock,  alternative
opportunities for utilization of capital and the anticipated  positive effect of
the repurchase program on the Company's long-term shareholder value.


                                        7

<PAGE>



                     Impact of Recently Enacted Legislation

SAIF Recapitalization

     BIF/SAIF  Premium  Disparity.  On September 30, 1996, the President  signed
into law the Omnibus  Consolidated  Appropriations  Act.  Part of this act,  the
Deposit  Insurance  Funds Act of 1996  ("BIF/SAIF  Legislation"),  provides for,
among other things,  the resolution of the FDIC premium  disparity  between Bank
Insurance Fund ("BIF") and Savings  Association  Insurance Fund ("SAIF") insured
financial  institutions.  Prior  to the  legislation,  most  insured  depository
institutions  holding  BIF-assessable  deposits  paid the  statutory  minimum of
$2,000 for deposit  insurance while most insured  depository  institutions  with
SAIF-assessable  deposits,  such as the Bank,  paid 23 basis  points  (100 basis
points being equal to 1%).

        The  BIF/SAIF  Legislation  requires a one-time  special  assessment  to
recapitalize the SAIF. The assessment is based on the amount of  SAIF-assessable
deposits held by an  institution as of March 31, 1995, is effective on September
30, 1996, and, in accordance with final rules adopted by the FDIC, is payable on
November 27, 1996.  The FDIC has determined  that, in order to fully  capitalize
the SAIF to statutory mandated levels, all SAIF insured depository  institutions
(except  certain  "weak  institutions")  will be assessed  65.7 basis  points on
SAIF-assessable deposits as of March 31, 1995. If an institution has merged with
or acquired another institution since March 31, 1995, it must add to its special
assessment base the March 31, 1995,  assessable deposits of the institution that
was acquired.

        The Emerging  Issues Task Force of the  Financial  Accounting  Standards
Board ("FASB") previously discussed the financial reporting issues relating to a
special  assessment,  and, in November,  1995,  indicated that institutions with
SAIF-assessable  deposits  should accrue the liability  when the  legislation is
enacted and the related  charge  should be reported as a component  of operating
expenses in the period that includes the  enactment  date.  Further,  the charge
should not be reported as an extraordinary item.

        Consistent with the BIF/SAIF  Legislation,  the Bank's pro-rata one-time
special assessment to recapitalize the SAIF is $4.4 million.  In conformity with
the applicable FASB guidelines, the Bank accrued this liability on September 30,
1996, resulting in an additional one-time increase in FDIC premiums.

        Proposed Risk-Based Premium  Assessment.  Effective January 1, 1997, the
BIF/SAIF  Legislation  requires that SAIF members will have the same  risk-based
assessment   schedule  as  BIF   members,   ranging  from  0  basis  points  for
"well-capitalized  institutions"  to 27 basis  points  for "weak  institutions."
Additionally,  the legislation provides for sharing of the Financing Corporation
bond  obligation  ("FICO  Bonds")1  between  members  of the  SAIF  and the BIF.
Beginning  January 1, 1997,  FICO Bond  assessments  of 6.4 and 1.3 basis points
will be added to the regular  assessment  for the  SAIF-assessable  base and the
BIF-assessable base,  respectively,  until December 31, 1999. Thereafter,  about
2.4  basis  points  will be added to each  regular  assessment  for all  insured
depositories,  achieving  full pro-rata FICO sharing.  The BIF/SAIF  Legislation
also provides for the conditional merger of the BIF and the SAIF no
--------
1 FICO  Bonds  were  issued in an attempt  undertaken  between  1987 and 1989 to
provide  funds for the ailing  Federal  Savings and Loan  Insurance  Corporation
(FSLIC) without a direct taxpayer  expense.  Since the establishment of the SAIF
in 1989, a portion of the SAIF  premiums has been  earmarked to satisfy the $780
million in annual  interest  obligations  on FICO Bonds,  payments that continue
until 2019.

                                        8

<PAGE>



earlier than January 1, 1999.  When the funds are merged,  the FICO Bond premium
will be equal for all members of the new fund.

        As a "well capitalized  institution",  the Bank was previously  assessed
the lowest FDIC-SAIF insurance premium at the rate of 23 basis points on insured
deposits for the fourth quarter of 1996. Since the SAIF became fully capitalized
as of October 1, 1996, the regular assessment rate for SAIF-member  institutions
has been  lowered  retroactively  to that date.  Until  January  1,  1997,  FICO
payments  can  be  made  only  from  assessments  on  SAIF-member  institutions;
therefore, during the fourth quarter of 1996 the SAIF premium assessment will be
the  amount  necessary  to cover  the FICO  obligations.  Overpayment  of fourth
quarter FDIC premiums  (currently  estimated at approximately 1.25 basis points,
or  $88,300  for the Bank) will be  refunded  or  credited  toward  future  FDIC
insurance  premiums.  Beginning  January 1, 1997, unless the base rate for "well
capitalized  institutions"  is modified,  the Bank's FDIC premium  should be 6.4
basis points (the FICO Bond obligation).  Based on current deposit levels,  this
will reduce the Bank's annual premium assessment by approximately $1.2 million.

        Merger  of BIF and  SAIF.  The  BIF/SAIF  Legislation  provides  for the
conditional  merger of the BIF and the SAIF on January  1,  1999,  if no insured
depository institution is a savings association on that date. By March 31, 1997,
the  Secretary  of the  Treasury  is  required  to conduct a study and prepare a
report to Congress  addressing all issues which the Secretary considers relevant
with respect to the  development of a common charter for all insured  depository
institutions  and the abolition of separate and distinct  charters between banks
and savings institutions.

Bad Debt Reserve Recapture

        On August 20, 1996, as part of the Small  Business Job Protection Act of
1996 (SBJPA),  Congress enacted a new law that makes it substantially easier for
savings  institutions to convert to a commercial  bank charter,  diversify their
assets,  or merge into a commercial bank. In essence,  the legislation  forgives
the  recapture  of bad debt  reserves  accumulated  before 1988 and requires all
savings institutions to recapture their post-1987 reserves.

        Since 1952,  savings  institutions  have received  special tax treatment
with respect to calculating deductions for bad debt. Generally,  most businesses
compute bad debt  deductions  by using the  specific  charge-off  method,  which
allows a  taxpayer  to deduct  the  amount of any debt  that  becomes  wholly or
partially  worthless  during the year.  Under previous law, a qualified  savings
institution,  such as the Bank, could elect to use one of two reserve methods of
accounting, -- the experience method or the percentage of taxable income method.
To qualify, 60% of a savings  institution's assets had to consist of "qualifying
assets" such as cash,  government  obligations,  or loans secured by residential
real property. If a savings institution used the reserve method, it was required
to  establish  and  maintain a reserve  for bad debts and charge  actual  losses
against the reserve.  Regardless  of whether a savings  institution  experienced
actual losses, it was allowed to deduct annual additions to its bad debt reserve
that were computed by using either the  percentage  of taxable  income method or
the experience method. A savings institution's reserve,  however, was subject to
recapture if it converted  to a  commercial  bank,  was acquired by a commercial
bank, or failed to satisfy the 60% qualified asset test.

        The SBJPA  prohibits  the  continued  use of the  percentage  of taxable
income method for all savings institutions. While savings institutions with less
than $500 million in assets may still use the experience method, all others will
be required to use the specific  charge-off method.  Reserves  accumulated after
1987 must be restored to taxable income ratably over a six-year  period starting
after  December  31,  1995,  unless the  institution  meets a  residential  loan
requirement, in which case the recapture may be suspended

                                        9

<PAGE>



on a per annum basis for up to two years. A savings  institution  with more than
$500 million in assets, such as the Bank, is generally required to recapture its
entire post-1987 additions to its bad debt reserve. The Bank has determined that
approximately  $1.4 million of post-1987  tax reserves are subject to recapture.
Since the Bank previously established a deferred tax liability  corresponding to
its post-1987 tax reserves, the effects of the recapture are not material to the
Bank's financial condition or results of operations. The impact to the Bank will
be the loss of earnings on the cash payment of the deferred tax liability.

        Additionally,  the SBJPA repeals certain other provisions in present tax
law applicable only to savings institutions,  including special rules applicable
to foreclosures; a reduction in the dividends received deduction; the ability of
a savings  institution  to use net operating  losses to offset its income from a
residual interest in a Real Estate Mortgage Investment Conduit (REMIC);  and the
denial of a portion of certain  tax credits to a savings  institution.  The Bank
has not determined what effect,  if any, these changes may have on its financial
condition or results of operations.


                               Financial Condition

Assets

        Total assets of the Company increased by $307.8 million,  or 28.1%, from
$1.1 billion at December 31, 1995 to $1.4  billion at September  30, 1996.  This
increase was in part due to a net addition of $159.7 million in  mortgage-backed
securities  and the  aforementioned  merger of Seaboard  Savings  into the Bank,
which added $79.0 million to the Company's total assets.

        During the nine-month period, the Bank's net loans receivable, increased
by $124.7 million, or 26.7%, from $467.4 million at December 31, 1995, to $592.1
million at  September  30,  1996.  The merger of Seaboard  Savings into the Bank
initially  increased  net loan  receivables  by $72.1  million.  The Bank had no
mortgage loans held-for-sale at either September 30, 1996 or December 31, 1995.

        Investment securities  available-for-sale increased by $12.3 million, or
53.3%,  from $23.0  million at December 31, 1995,  to $35.3 million at September
30, 1996, primarily as a part of the Bank's asset/liability  management strategy
to increase  government  agency  investment  securities during the interest rate
environment which existed during the first part of 1996.

     Mortgage-backed  securities increased $159.7 million, or 28.4%, from $562.2
million  at  December  31,  1995,  to $721.9  million  at  September  30,  1996,
reflecting the continuing  emphasis by the Bank on investing in  mortgage-backed
securities as part of its  asset/liability  management strategy and an arbitrage
program instituted by the Bank in June, 1996, consistent with its Business Plan.
Under the arbitrage  program,  the Bank  increased its  investment in government
agency  mortgage-backed  securities and funded such  investments with additional
borrowed  money.  This arbitrage  program is intended to partially  leverage the
Company's excess capital, increase its return on equity and improve earnings per
share  until  such  time  as  more  appropriate  alternative  opportunities  for
utilization of capital exist.

     The excess of cost over net assets of  companies  acquired  increased  $4.3
million to $4.8  million at  September  30, 1996 from  $459,000 at December  31,
1995. This increase resulted from the aforementioned purchase of Seaboard and is
net of  amortizations  of $386,000  during the nine-month  period and a $451,000
adjustment in the valuation of acquired goodwill due to the SAIF special

                                       10

<PAGE>



assessment.  This  valuation  adjustment  reduces  the  amount of goodwill to be
amortized to future period noninterest expenses.

        The increases in assets were primarily funded by increases in repurchase
agreements and deposits.

Liabilities and Stockholders' Equity

        Deposits  increased by $113.8 million,  or 18.7%, from $607.1 million at
December  31, 1995,  to $720.9  million at  September  30,  1996.  The merger of
Seaboard  Savings into the Bank initially  increased  deposits by $66.9 million.
Repurchase  agreements  increased  by $196.1  million,  or 121.1%,  from  $162.0
million at December 31, 1995,  to $358.1  million at  September  30, 1996.  FHLB
advances increased by $5.4 million, or 3.6%, from $148.6 million at December 31,
1995, to $154.0 million at September 30, 1996.  Initially,  the  mortgage-backed
securities  purchased as part of the Bank's arbitrage program mostly were funded
with short term reverse repurchase agreements.

        Stockholders'  equity  decreased by $15.5 million,  or 9.6%, from $160.9
million at December  31, 1995,  to $145.4  million at  September  30, 1996.  The
decrease in stockholders' equity was a net result of the Company's net income of
$5.4 million for the nine months ended  September 30, 1996,  which was more than
offset by decreases in equity during the  nine-month  period  resulting from (i)
the  repurchase  and  retirement of 1,063,785  shares of Common Stock at a total
acquisition  cost  of  $15.2  million;  (ii) a  $2.4  million  market  valuation
adjustment   in   unrealized   losses,   net  of   taxes,   in   the   Company's
available-for-sale securities portfolio, consistent with the required accounting
treatment under SFAS No. 115; and, (iii) quarterly cash dividends  totaling $3.2
million or $0.11 per share paid on each of  February  29, May 31, and August 31,
1996.

Asset Quality

        General. When a borrower fails to make a required payment on a loan, the
Bank  attempts to cure the  deficiency  by  contacting  the borrower and seeking
payment.  Contacts  are  generally  made 15 days after a payment is due. In most
cases, deficiencies are cured promptly. If a delinquency continues, late charges
are assessed and additional efforts are made to collect the loan. While the Bank
prefers  to work with  borrowers  to resolve  such  problems,  when the  account
becomes 90 days  delinquent,  the Bank  generally  pursues  foreclosure or other
proceedings, as necessary, to minimize any potential loss.

        Impaired Loans. The Company has adopted SFAS No. 114, as amended by SFAS
118. SFAS No. 114, as amended,  provides that a loan is impaired when,  based on
current  information and events, it is probable that the creditor will be unable
to collect all principal and interest  amounts due according to the  contractual
terms of the loan  agreement.  SFAS No. 114, as amended,  requires that impaired
loans be measured based on the present value of the expected  future cash flows,
discounted at the loan's effective interest rate. The effective interest rate of
a loan is defined as the contractual interest rate adjusted for any net deferred
loan  fees  or  costs,  premiums  or  discounts  existing  at the  inception  or
acquisition  of the loan.  If the loan is collateral  dependent,  as a practical
expedient,  impairment can be based on a loan's  observable  market price or the
fair  value of the  collateral.  The  value of the loan is  adjusted  through  a
valuation  allowance  created through a charge to the provision for loan losses.
Residential mortgages,  consumer installment obligations and credit cards may be
excluded.  Loans that were treated as in-substance  foreclosures  under previous
accounting pronouncements are considered to be impaired loans and under SFAS No.
114 will remain in the loan portfolio.


                                       11

<PAGE>



        A loan may be placed on  non-accrual  status  and not  classified  as an
impaired loan when in the opinion of  management,  based on current  information
and events,  it is probable that the Bank will eventually  collect all principal
and  interest  amounts  due  according  to the  contractual  terms  of the  loan
agreement.  Interest  income for impaired  loans is generally  recognized  on an
accrual  basis  unless it is deemed  inappropriate  to do so. In those  cases in
which the receipt of interest payments is deemed more uncertain,  the cash basis
of income  recognition  is utilized.  Loans are placed on a  non-accrual  status
when, in the judgment of management,  the  probability  of timely  collection of
interest is deemed to be insufficient to warrant further accrual. As a matter of
policy,  the Bank does not  accrue  interest  on loans  past due 90 days or more
except when the estimated  value of the collateral  and  collection  efforts are
deemed  sufficient  to  ensure  full  recovery.  When  a  loan  is  placed  on a
non-accrual  status,  previously  accrued but unpaid  interest is deducted  from
interest income.

        The  following  table  sets  forth  information  relating  to the Bank's
recorded  investment in impaired loans at or during the periods indicated.  Loan
balances are not net of specific reserves.
<TABLE>
<CAPTION>

                                                    Three Months Ended            Year Ended
                                         September 30,   June 30,   March 31,     December 31,
                                             1996         1996        1996          1995
                                         ------------   --------    ---------     -----------

                                                              (In thousands)
<S>                                          <C>         <C>          <C>           <C>   

Impaired loans for which there is a
related allowance for credit losses          $8,306      $8,538       $11,607       4,223

Impaired loans for which there is
no related allowance for credit
losses                                          --          --            --           --

Total impaired loans                         $8,306      $8,538       $11,607       $4,223
                                             ======      ======       =======       ======

Allowance for credit losses on
impaired loans                               $3,317      $3,358       $ 3,361       $  768
                                             ======      ======       =======       ======

Average impaired loans during the
period                                       $8,371      $9,560       $11,615       $4,234
                                             ======      ======       =======       ======

Interest income recognized on
impaired loans during the time
within the period that the loans
were impaired                                $  126      $  190       $   140       $   98
                                             ======      ======       =======       ======

Interest income recognized on  
impaired loans using a cash-basis 
method of accounting during the time
within the period that the loans 
were impaired                                $  126      $  190       $   140       $   98
                                             ======      ======       =======       ======


</TABLE>

        In  conjunction  with the  acquisition  of Seaboard  Savings,  completed
during the first quarter, the Bank, in accordance with its impaired loan policy,
classified $6.8 million of the loans acquired from

                                       12

<PAGE>



Seaboard as impaired loans.  Of the $3.3 million  allowance for credit losses on
impaired loans, $2.4 million relates to the Seaboard Savings loans acquired.

        Troubled  Debt  Restructurings.   Under  Generally  Accepted  Accounting
Principles  ("GAAP"),   the  Bank  is  required  to  account  for  certain  loan
modifications or restructurings as "troubled debt  restructurings."  In general,
the  modification  or  restructuring  of a  debt  constitutes  a  troubled  debt
restructuring  if the  Bank,  for  economic  or  legal  reasons  related  to the
borrower's financial difficulties,  grants a concession to the borrower that the
Bank  would  not  otherwise  consider  under  current  market  conditions.  Debt
restructurings or loan  modifications  for a borrower do not necessarily  always
constitute   troubled   debt   restructurings,   however,   and  troubled   debt
restructurings do not necessarily result in non-accrual loans. The Bank had $2.5
million of troubled debt restructurings,  net of specific reserves, at September
30, 1996.  Included in the Bank's troubled debt  restructurings at September 30,
1996, is an office warehouse complex with a carrying value of $1.1 million,  net
of  specific  reserves.   At  September  30,  1996,  this  loan  was  classified
substandard.  The loan was added as a troubled debt restructuring as a result of
the purchase of Seaboard  Savings and at September  30, 1996,  was current.  The
remaining  $1.4 million of troubled debt  restructurings  at September 30, 1996,
consisted of loans secured by multi-family and commercial  properties located in
Virginia Beach and Norfolk.


                                       13

<PAGE>



        Non-Performing  Assets.  The  following  table  sets  forth  information
relating  to the  carrying  balances  of the  Bank's  non-performing  assets and
troubled  debt  restructurings  at the dates  indicated.  Loans  obtained in the
acquisition  of Seaboard  Savings  resulted in  increases of $1.0 million to the
total   non-performing   assets   and  $1.1   million  to  the   troubled   debt
restructurings.
<TABLE>
<CAPTION>

                                                     September 30,  December 31,
                                                         1996          1995
                                                     -------------  ------------

                                                            (In thousands)

<S>                                                     <C>           <C>    
Non-performing assets:
  Non-accruing loans:
    Mortgage loans:
      Single-family:
        Conventional                                    $  777        $  859
        FHA/VA                                             608           245
      Multi-family                                         --            --
      Commercial                                           --            436
    Consumer loans                                         258           195
                                                        ------        ------
  Total non-accruing loans                               1,643         1,735
  Real estate owned, net                                 1,227           622
                                                        ------        ------

Total non-performing assets                              2,870         2,357

Troubled debt restructurings                             2,486         4,525
                                                        ------        ------

Total non-performing assets and
troubled debt restructurings                            $5,356        $6,882
                                                        ======        ======

Non-accruing loans to total loans held
for investment                                            0.28%         0.37%
                                                          ====          ====

Total non-performing assets to total
assets                                                    0.20%         0.21%
                                                          ====          ====

Total non-performing assets and
troubled debt restructurings to total
assets                                                    0.38%         0.63%
                                                          ====          ====

</TABLE>

        The Bank's Real Estate Owned ("REO") at September 30, 1996, consisted of
17 properties.  During the first nine months of 1996, the Bank sold eight single
family residences, two hotel condominiums, one multi-family residence previously
acquired in foreclosure  and one parcel of land acquired  through a deed in lieu
of  foreclosure  for a  combined  sale  price of  $3,937,000.  After  satisfying
superior liens and deductions for valuation allowances,  repairs,  holding costs
and  settlement  expenses,  the  Bank  realized  a net gain on the sale of these
properties of $289,846.

        Potential  Problem Loans. In addition to the loans included in the above
impaired  loans and  non-performing  assets  and  troubled  debt  restructurings
tables,  at September 30, 1996, the Bank had loans totaling $12.0 million which,
even though they were not impaired or categorized as a  non-performing  asset or
troubled debt restructuring, were designated as substandard or special mention.

                                       14

<PAGE>




        At September 30, 1996, there were eight performing loans,  totaling $5.6
million,  to five borrowers  which the Bank had designated as  substandard.  One
such loan, a performing construction loan, is secured by a retirement home under
construction  in Virginia  Beach.  In August,  1996,  the partially  constructed
building was substantially destroyed by fire and the Bank classified the loan as
substandard.  At the time of the fire,  in-process  disbursements  totaled  $3.3
million.  The  appropriate  insurance  claims have been filed.  At September 30,
1996, the loan was current as the borrower  continues to fund interest  payments
and plans to rebuild.  Of the remaining  seven loans,  two loans,  totaling $1.5
million,  are secured by  commercial  properties  located in Norfolk,  Virginia;
three loans, totaling $600,000, are secured by commercial properties in Virginia
Beach,  Virginia;  and two  loans,  totaling  $200,000,  are  secured by various
multi-family  properties and developed lots in Norfolk,  Virginia. At this time,
the Bank does not anticipate losses on any of these loans.

        Additionally,  at September 30, 1996, there were five performing  loans,
totaling  $6.4  million,  to four  borrowers  which the Bank had  designated  as
special  mention.  Two of these loans,  totaling  $2.2  million,  are secured by
multi-family  dwelling  units in  Norfolk,  Virginia;  two loans  totaling  $3.5
million,  are secured by  multi-family  units and town houses in Virginia Beach,
Virginia;  and one loan totaling $700,000,  is secured by several  single-family
units  located in  Virginia  Beach,  Virginia.  At this time,  the Bank does not
anticipate losses on any of these loans.

        Allowance for Loan Losses.  The Bank's  policy is to establish  reserves
for estimated  losses on loans when it determines that losses may be incurred on
such loans.  The allowance for losses on loans is maintained at a level believed
adequate by management to absorb potential losses in the portfolio. Management's
determination  of the adequacy of the allowance is based on an evaluation of the
portfolio; past loss experience; current economic conditions; volume, growth and
composition  of the  portfolio;  and other  relevant  factors.  The allowance is
increased by provisions for loan losses which are charged against income.


                                       15

<PAGE>



        The following table sets forth the activity in the Bank's  allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>

                                                 Three Months Ended       Nine Months Ended
                                                    September 30,           September 30,
                                              ----------------------    ---------------------
                                                1996          1995       1996          1995
                                              ---------     --------    -------       -------

                                                              (In thousands)

<S>                                           <C>           <C>         <C>           <C>   

Allowance at beginning of period              $ 9,505       $4,356      $ 4,438       $4,459
Addition to allowance from acquisition
  of Seaboard Savings                             --           --         5,192          --
Provision for loan losses                        (295)          75         (299)         366
Charge-offs:
  Mortgage loans:
    Single-family                                 (33)         (19)        (150)        (150)
    Multi-family                                  (38)         --           (38)        (161)
    Construction                                  --           --            --          --
    Commercial                                    (40)         (17)         (40)        (291)
    Residential lots                              --           --            --          --
  Consumer loans                                  (57)         (22)        (249)         (99)
                                              -------       ------      --------      ------
      Total charge-offs                          (168)         (58)        (477)        (701)
Recoveries:
  Mortgage loans:
    Single-family                                  62            3           64           20
    Multi-family                                   10           25           10           58
    Construction                                  --           --           --           --
    Commercial                                  1,468          --         1,623          154
  Consumer loans                                   12           16           43           61
                                              -------       ------      -------       ------
      Total recoveries                          1,552           44        1,740          293
                                              -------       ------      -------       ------
Allowance at end of period                    $10,594       $4,417      $10,594       $4,417
                                              =======       ======      =======       ======

Allowance for loan losses to total non-
  accruing loans at end of period              644.80%      579.66%      644.80%      579.66%
                                              =======       ======      =======       ======

Allowance for loan losses to total
  impaired loans at end of period              127.59%      103.83%      127.59%      103.83%
                                              =======       ======      =======       ======

Allowance for loan losses to total loans
  held for investment at end of period           1.79%        0.97%        1.79%        0.97%
                                              =======       ======      ========      ======

</TABLE>


        In  July,  1996,  the Bank  accepted  a deed in lieu of  foreclosure  on
property  located  in  Williamsburg,  Virginia  in  settlement  of a  previously
charged-off  deficiency  relating to three Williamsburg  hotels sold in October,
1994.  The property was sold for $3.3 million and settled on September 30, 1996.
After satisfying  superior liens on the property and other costs associated with
the  acquisition  and sale, the Bank netted a loan loss recovery of $1.4 million
and a gain on sale of REO of $206,000.  This sizable  recovery  during the third
quarter more than offset normally determined adjustments to the Bank's loan loss
allowance and resulted in a net negative loan loss provision of $295,000.

                                       16

<PAGE>




        Management  of the Bank  presently  believes that its allowance for loan
losses is  adequate  to cover  possible  losses in the  Bank's  loan  portfolio.
However,  future adjustments to this allowance may be necessary,  and the Bank's
results of  operations  could be  adversely  affected  if  circumstances  differ
substantially   from  the   assumptions   used  by   management  in  making  its
determinations in this regard.


                              Results of Operations

     Comparison  of Results of Operations  for the Three Months Ended  September
30, 1996 and 1995

        General.  The Company reported net income of approximately  $3.1 million
for the three months ended  September  30, 1996,  before a one time  statutorily
mandated SAIF assessment and a related charge.  This income reflects an increase
of 32.4% over the $2.4 million for the three months  ended  September  30, 1995.
After the effect of the SAIF  assessment and related  charge,  the Company's net
income was reduced to  approximately  $166,000 for the three-month  period ended
September 30, 1996.

        Net Interest Income.  Net interest income increased by $1.3 million,  or
18.6%, in the three months ended  September 30, 1996, to $8.5 million,  compared
to $7.1 million during the same period in 1995. The reason for such increase was
a $5.4  million  improvement  in interest  income,  mainly due to an increase in
average interest-earning assets of $305.6 million, or 30.0%, to $1.3 billion for
the three  months ended  September  30, 1996.  The  additional  interest-earning
assets  resulted  from the Company's  acquisition  of Seaboard,  consummated  on
February  1,  1996,  as well as  increases  in  mortgage-backed  and  investment
securities and internal growth in the Bank's loan  portfolio.  Interest on loans
increased $2.6 million,  or 26.5%,  as a result of a $139.5  million,  or 30.8%,
increase in the average balance of the loan portfolio  partially  offset by a 29
basis point (100 basis points  being equal to 1%) decrease in the average  yield
earned thereon.  Interest income on  mortgage-backed  securities  increased $2.2
million  as a result of a $132.9  million,  or 23.9%,  increase  in the  average
balance of the  mortgage-backed  securities  portfolio partially offset by a one
basis point  decrease in the average yield earned  thereon.  The  improvement in
interest  income was  partially  offset by a $4.0  million  increase in interest
expense  mainly  as a  result  of an  increase  of  $309.9  million  in  average
interest-bearing  liabilities.  Interest on deposits increased $1.5 million,  or
19.2%,  as a result of an increase in the average  balance of deposits of $119.3
million,  or 20.0%,  and a decrease in the cost of deposits from 5.22% to 5.18%.
Interest expense on borrowings  increased by $2.6 million, or 56.4%, as a result
of an increase in the average  balance of $190.6  million,  or 65.9%,  partially
offset by a decrease in the average rate paid on borrowings from 6.28% to 5.92%.
The Bank's  average  interest  rate spread and net interest  margin  amounted to
2.02% and 2.56%, respectively, during the three months ended September 30, 1996,
compared to 2.08% and 2.81% for the comparable period in 1995.



                                       17

<PAGE>
        Yields Earned and Rates Paid.  The following  table sets forth,  for the
periods indicated, information regarding (i) the total dollar amount of interest
income of the Company from  interest-earning  assets and the  resultant  average
yields;  (ii) the total dollar  amount of interest  expense on  interest-bearing
liabilities  and the resultant  average rate;  (iii) net interest  income;  (iv)
interest-rate  spread;  and  (v)  net  interest  margin.  Average  balances  are
determined on an average daily balance basis.
<TABLE>
<CAPTION>
                                                          Three Months Ended September 30,
                                         ----------------------------------------------------------------
                                                      1996                             1995
                                         ------------------------------  --------------------------------
                            Yield/Cost                         Average                              Average
                         at September 30,  Average             Yield/      Average                  Yield/
                               1996        Balance   Interest  Cost (1)    Balance    Interest      Cost (1)
                          ------------   ----------  --------  --------  ----------   --------     --------
                                                                   (In thousands)
<S>                            <C>       <C>         <C>         <C>     <C>           <C>          <C>
Interest-earning assets:
Loans receivable:
  Mortgage loans                8.00%    $  520,280  $10,871     8.36%   $  399,548    $ 8,603      8.61%
  Consumer loans               10.23%        71,714    1,652     9.21%       52,909      1,299      9.82%
                                         ----------  -------             ----------    -------
Total loans                     8.27%       591,994   12,523     8.46%      452,457      9,902      8.75%
Mortgage-backed securities      7.06%       689,370   11,619     6.74%      556,422      9,390      6.75%
Investment securities           6.71%        36,406      623     6.85%        3,027         49      6.48%
Other earning assets            5.80%         6,886       64     3.72%        7,102        111      6.25%
                                         ----------  -------             ----------    -------
Total interest-earning assets   7.60%     1,324,656   24,829     7.50%    1,019,008     19,452      7.64%
                                                     -------                           -------
Noninterest-earning assets                   38,757                          37,633
                                         ----------                      ----------
    Total assets                         $1,363,413                      $1,056,641
                                         ==========                      ==========
Interest-bearing liabilities:
Deposits:
  Demand deposits               2.95%    $   36,680      228     2.49%   $   25,686        139      2.16%
  Passbook savings              3.25%        53,452      430     3.22%       62,358        501      3.21%
  Certificates                  5.51%       624,620    8,596     5.50%      507,407      7,125      5.62%
                                         ----------  -------             ----------    -------
Total deposits                  5.18%       714,752    9,254     5.18%      595,451      7,765      5.22%
Borrowings                      5.80%       479,909    7,100     5.92%      289,338      4,540      6.28%
                                         ----------  -------             ----------    -------
  Total interest-bearing
    liabilities                 5.44%     1,194,661   16,354     5.48%      884,789     12,305      5.56%
                                                     -------                           -------
Noninterest-bearing liabilities              21,440                          15,642
                                         ----------                      ----------
    Total liabilities                     1,216,101                         900,431
Stockholders' equity                        147,312                         156,210
                                         ----------                      ----------
  Total liabilities and
    stockholders' equity                 $1,363,413                      $1,056,641
                                         ==========                      ==========
Net interest-earning assets              $  129,995                      $  134,219
                                         ==========                      ==========
Net interest income and
  interest-rate spread          2.16%                $ 8,475     2.02%                 $ 7,147      2.08%
                                                     =======                           =======
Net interest margin                                              2.56%                              2.81%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                                   1.11x                              1.15x
-----------------
<FN>
(1)  Annualized
</FN>
</TABLE>
        Provision  for Loan Losses.  The net negative  provision for loan losses
amounted to $295,000 for the three months ended September 30, 1996,  compared to
a net positive  provision of $75,000 for the three  months ended  September  30,
1995. For  additional  discussion of the loan loss provision and the Bank's loan
loss  policy,  see  "Financial  Condition - Asset  Quality - Allowance  for Loan
Losses."

        Noninterest Income.  Noninterest income increased by $140,000, or 17.5%,
to $940,000 during the quarter ended September 30, 1996, compared to $800,000 in
the comparable  three months of 1995. This increase  primarily  resulted from an
increase in the net gains on sales on REO of $162,000 and an

                                       18

<PAGE>



increase of $48,700 in commission income from a Bank subsidiary.  For additional
information relating to the net gain on sales of REO, see "Financial Condition -
Asset Quality - Non-Performing Assets."

        Noninterest  Expense.  Noninterest  expense increased by $5.4 during the
three months ended September 30, 1996, to $9.5 million, compared to $4.1 million
during the three months ended  September 30, 1995.  Consistent with the recently
enacted SAIF recapitalization legislation, the Bank was assessed $4.4 million by
the FDIC as its pro rata share to recapitalize the SAIF. See "Impact of Recently
Enacted  Legislation  - SAIF  Recapitalization."  As a  result  of  the  special
assessment,  relative to  deposits  obtained in the  Seaboard  acquisition,  the
acquired  goodwill  relating  to  Seaboard  was  adjusted  through  a charge  to
noninterest  expense of  $451,000.  Before the one time  assessment  and related
charge,  noninterest  expenses  increased  by $569,000,  or 14.0%,  in the three
months ended  September 30, 1996,  over the comparable  prior year period.  This
increase  primarily  resulted from the expenses  related to the  acquisition and
integration of the operations of Seaboard Savings Bank during the quarter.

        Income Tax Provision.  The provision for income taxes  decreased by $1.4
million  due to both a decrease  in the  provision  rate and the level of income
before  income  taxes.  The income tax provision  rate  decreased  from 38.0% of
income  before  taxes  for the  third  quarter  of 1995,  to 29.7% for the third
quarter of 1996 due to differences in non-taxable  and  non-deductible  items in
the third quarter of 1996, compared to the third quarter of 1995 and the effects
of less taxable income in higher income tax brackets in 1996.


     Comparison of Results of Operations for the Nine Months Ended September 30,
1996 and 1995

        General.  The Company reported net income of approximately  $8.4 million
for the nine months  ended  September  30, 1996,  before a one time  statutorily
mandated SAIF assessment and a related charge.  This income reflects an increase
of 19.7% over the $7.0  million for the nine months  ended  September  30, 1995.
After the effect of the SAIF  assessment and related  charge,  the Company's net
income was reduced to $5.4 million for the nine-month period ended September 30,
1996.

        Net Interest Income.  Net interest income increased by $3.6 million,  or
16.9%, in the nine months ended  September 30, 1996, to $25.2 million,  compared
to $21.6  million  during the same period in 1995.  The reason for such increase
was a $12.1 million improvement in interest income, mainly due to an increase in
average interest-earning assets of $204.8 million, or 20.3%, to $1.2 billion for
the nine months ended September 30, 1996. The additional interest-earning assets
resulted from the Company's acquisition of Seaboard,  consummated on February 1,
1996, as well as increases in  mortgage-backed  and  investment  securities  and
internal growth in the Bank's loan  portfolio.  Interest on loans increased $7.2
million,  or 25.3%, as a result of a $112.4 million,  or 25.2%,  increase in the
average  balance of the loan portfolio  together with a one basis point increase
in  the  average  yield  earned  thereon.  Interest  income  on  mortgage-backed
securities  increased  $3.6  million as a result of a $66.1  million,  or 12.2%,
increase  in the average  balance of the  mortgage-backed  securities  portfolio
together with a five basis point  increase in the average yield earned  thereon.
The  improvement  in  interest  income was  partially  offset by a $8.4  million
increase in interest expense mainly as a result of an increase of $199.1 million
in average  interest-bearing  liabilities.  Interest on deposits  increased $4.0
million,  or 17.9%,  as a result of both an increase  in the average  balance of
deposits  of $85.1  million,  or 14.3%,  and an increase in the cost of deposits
from 4.99% to 5.15%.  Interest expense on borrowings  increased by $4.4 million,
or 33.4%,  as a result of an increase in the average  balance of $114.0 million,
or 40.6%,  partially offset by a decrease in the average rate paid on borrowings
from 6.31% to 5.99%. The Bank's average interest rate spread and net

                                       19

<PAGE>
interest  margin  amounted  to 2.16% and  2.79%,  respectively,  during the nine
months ended September 30, 1996,  compared to 2.15% and 2.86% for the comparable
period in 1995.

        Yields Earned and Rates Paid.  The following  table sets forth,  for the
periods indicated, information regarding (i) the total dollar amount of interest
income of the Company from  interest-earning  assets and the  resultant  average
yields;  (ii) the total dollar  amount of interest  expense on  interest-bearing
liabilities  and the resultant  average rate;  (iii) net interest  income;  (iv)
interest-rate  spread;  and  (v)  net  interest  margin.  Average  balances  are
determined on an average daily balance basis.
<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                         -----------------------------------------------------------------
                                                      1996                             1995
                                         ------------------------------  ---------------------------------
                            Yield/Cost                         Average                            Average
                         at September 30,  Average             Yield/     Average                 Yield/
                               1996        Balance  Interest   Cost (1)   Balance     Interest    Cost (1)
                           -----------   ---------- --------   --------  ----------   --------    --------
                                                           (In thousands)
<S>                            <C>       <C>         <C>         <C>     <C>           <C>         <C>
Interest-earning assets:
Loans receivable:
  Mortgage loans                8.00%    $  491,892  $31,101     8.43%   $  397,413    $24,763      8.31%
  Consumer loans               10.23%        66,964    4,635     9.23%       49,061      3,755     10.20%
                                         ----------  -------             ----------    -------
Total loans                     8.27%       558,856   35,736     8.53%      446,474     28,518      8.52%
Mortgage-backed securities      7.06%       608,757   31,409     6.88%      542,628     27,816      6.83%
Investment securities           6.71%        36,800    1,887     6.84%       12,783        650      6.78%
Other earning assets            5.80%         7,597      268     4.70%        5,302        233      5.86%
                                         ----------  -------             ----------    -------
Total interest-earning assets   7.60%     1,212,010   69,300     7.62%    1,007,187     57,217      7.57%
                                                     -------                           -------
Noninterest-earning assets                   40,361                          37,905
                                         -----------                     ----------
    Total assets                         $1,252,371                      $1,045,092
                                         ==========                      ==========
Interest-bearing liabilities:
Deposits:
  Demand deposits               2.95%    $   34,255      682     2.65%   $   25,417        410      2.15%
  Passbook savings              3.25%        54,886    1,350     3.28%       62,497      1,511      3.22%
  Certificates                  5.51%       592,198   24,303     5.47%      508,333     20,407      5.35%
                                         ----------  -------             ----------    -------
Total deposits                  5.18%       681,339   26,335     5.15%      596,247     22,328      4.99%
Borrowings                      5.80%       394,950   17,738     5.99%      280,941     13,300      6.31%
                                         ----------  -------             ----------    -------
  Total interest-bearing
    liabilities                 5.44%     1,076,289   44,073     5.46%      877,188     35,628      5.42%
                                                     -------                          -------
Noninterest-bearing liabilities              22,683                          15,059
                                         ----------                      ----------
    Total liabilities                     1,098,972                         892,247
Stockholders' equity                        153,399                         152,845
                                         ----------                      ----------
  Total liabilities and
    stockholders' equity                 $1,252,371                      $1,045,092
                                         ==========                      ==========
Net interest-earning assets              $  135,721                      $  129,999
                                         ==========                      ==========
Net interest income and
  interest-rate spread          2.16%                $25,227     2.16%                $21,589       2.15%
                                                     =======                          =======
Net interest margin                                              2.79%                              2.86%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                                   1.13x                              1.15x
-----------------
<FN>
(1)  Annualized
</FN>
</TABLE>
        Provision  for Loan Losses.  The net negative  provision for loan losses
amounted to $299,000 for the nine months ended September 30, 1996, compared to a
net positive provision of $366,000 for the nine months ended September 30, 1995.
For  additional  discussion of the loan loss  provision and the Bank's loan loss
policy, see "Financial Condition - Asset Quality - Allowance for Loan Losses."


                                       20

<PAGE>



        Noninterest Income.  Noninterest income increased $327,000, or 15.2%, to
$2.5 million during the nine months ended  September 30, 1996,  compared to $2.2
million in the comparable nine months of 1995. The additional noninterest income
resulted  from an increase  in the net gains on sales of REO of $207,000  and an
increase of $164,500 in commission income from a Bank subsidiary. For additional
information relating to the net gain on sales of REO, see "Financial Condition -
Asset Quality - Non-Performing Assets."

        Noninterest  Expense.  Noninterest  expense  increased  by $6.9  million
during the nine months ended  September 30, 1996, to $18.9 million,  compared to
$12.1 million during the nine months ended  September 30, 1995.  Consistent with
the recently enacted SAIF  recapitalization  legislation,  the Bank was assessed
$4.4  million by the FDIC as its pro rata share to  recapitalize  the SAIF.  See
"Impact of Recently Enacted Legislation - SAIF Recapitalization." As a result of
the  special   assessment,   relative  to  deposits  obtained  in  the  Seaboard
acquisition,  the acquired  goodwill relating to Seaboard was adjusted through a
charge to noninterest  expense of $451,000.  Before the one time  assessment and
related charge, noninterest expenses increased by $2.0 million, or 16.8%, during
the nine months ended September 30, 1996, over the comparable prior year period.
This increase  primarily  resulted from the expenses  related to the acquisition
and  integration  of the  operations  of Seaboard  Savings  Bank during the nine
months.

        Income Tax  Provision.  The  provision  for income  taxes  decreased  by
$662,000  for  the  nine  months  ended  September  30,  1996,  compared  to the
comparable  period of 1995 due to a decrease in the level of income before taxes
partially  offset by an increase in the provision rate. The income tax provision
rate increased  from 38.0% of income before taxes,  for the first nine months of
1995,  to  40.0%,  for the first  nine  months of 1996,  due to  differences  in
non-taxable and non-deductible  items in the first nine months of 1996, compared
to the 1995 nine-month period.


                         Liquidity and Capital Resources

        The Bank's  liquidity,  represented by cash and cash  equivalents,  is a
product of its operating, investing and financing activities. The Bank's primary
sources  of  funds  are  deposits;  borrowings;  amortization,  prepayments  and
maturities of outstanding loans and mortgage-backed securities;  sales of loans;
maturities of investment securities and other short-term investments;  and funds
provided from  operations.  While  scheduled  payments from the  amortization of
loans and  mortgage-backed  securities  and maturing  investment  securities and
short-term  investments  are relatively  predictable  sources of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic conditions and competition.  In addition, the Bank invests excess funds
in overnight deposits and other short-term interest-earning assets which provide
liquidity  to meet  lending  requirements.  The Bank has been  able to  generate
sufficient cash through its deposits as well as borrowings (primarily consisting
of FHLB advances and repurchase agreements). At September 30, 1996, the Bank had
$154.0  million of  outstanding  FHLB advances and $363.4  million in repurchase
agreements and other borrowings.

        Liquidity  management is both a daily and long-term function of business
management.  Excess  liquidity is generally  invested in short-term  investments
such as  overnight  deposits.  On a  longer-term  basis,  the Bank  maintains  a
strategy  of  investing  in various  lending  products.  The Bank uses its funds
acquired  primarily  to meet its  ongoing  commitments,  to  provide  funds  for
maturing savings certificates and savings withdrawals, fund loan commitments and
maintain a portfolio of  mortgage-backed  and other  investment  securities.  At
September 30, 1996, the total approved loan commitments  outstanding amounted to
$63.9  million.  At the same  date,  commitments  under  unused  lines of credit
amounted to $6.1  million.  Certificates  of deposit  scheduled to mature in one
year or less at September 30, 1996,

                                       21

<PAGE>



totaled  $353.5  million.  Management  believes  that a  significant  portion of
maturing deposits will remain with the Bank. The Bank anticipates that even with
interest rates at lower levels than have been  experienced  in recent years,  it
will  continue  to have  sufficient  funds to meet its current  commitments.  At
September 30, 1996, the Bank had a liquidity ratio of 10.8%,  which exceeded the
required minimum liquid asset ratio of 5.0%.

        At September 30, 1996, the Bank's regulatory  capital was well in excess
of applicable minimums required by federal regulations. The Bank, as a member of
the  thrift  industry,  is  required  to  maintain  tangible  capital of 1.5% of
adjusted  total  assets,  core  capital  of 3.0% of  adjusted  total  assets and
risk-based  capital of 8.0% of adjusted  risk-weighted  assets. At September 30,
1996, the Bank's tangible capital was $117.6 million,  or 8.4% of adjusted total
assets,  core capital was $117.6  million,  or 8.4% of adjusted total assets and
risk-based  capital  was  $124.0  million,  or 22.4% of  adjusted  risk-weighted
assets,  exceeding the  requirements  by $96.6 million,  $75.6 million and $79.8
million, respectively.


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings
                       Not applicable.

Item 2. Changes in Securities
                       Not applicable.

Item 3. Defaults Upon Senior Securities
                       Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders
                       Not applicable.

Item 5. Other Information
                       Not applicable.

Item 6. Exhibits and Reports on Form 8-K

               a)      Not applicable.

               b)      No Form 8-K Reports were filed during the quarter.




                                       22

<PAGE>



                                   SIGNATURES


        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                                    LIFE BANCORP, INC.



Date:  November 14, 1996          By:  /s/ Tollie W. Rich, Jr.
                                      -----------------------
                                  Tollie W. Rich, Jr., Executive Vice President,
                                  Chief Operating Officer


Date:  November 14, 1996          By:  /s/ Emory J. Dunning, Jr.
                                       -------------------------
                                  Emory J. Dunning, Jr., Senior Vice President,
                                  Treasurer and Chief Financial Officer


                                       23