UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)


(x)  Quarterly  Report  pursuant  to  Section  13 or 15 (d)  of  the  Securities
     Exchange Act of 1934

For the quarterly  period ended June 30, 1999

( )  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: 0-23323

               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
            ---------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
                          ---------------------------
         (State or other jurisdiction of incorporation of organization)

                                   36-4153491
                            ------------------------
                      (I.R.S. employer identification no.)


2900 Texas Avenue, Bryan, Texas                                      77802
--------------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip Code)

                                 (409) 779-2900
             -------------------------------------------------------
               (Registrants telephone number, including area code)

     Former name,  former  address and former fiscal year, if changed since last
report

     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 proceeding 12 months (or for such shorter period that the issuer
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

No                              Yes    x
   -----------                      ---------

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

                                            Shares Outstanding
                     Class                  as of August 10, 1999
         -------------------------------    ---------------------
                 Common Stock                    428,409


Transitional Small Business Disclosure Format (Check One):

No    x                         Yes
  ----------                        ---------

<PAGE>


               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                                  Bryan, Texas

                                   FORM 10-QSB

                         Three Months Ended June 30, 1999

                         PART I - FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS
                                                                            Page

     Consolidated Statements of Financial Condition........................... 3

     Consolidated Statements of Income........................................ 4

     Consolidated Statements of Changes in Stockholders' Equity............... 5

     Consolidated Statements of Cash Flows.................................... 6

     Notes to Consolidated Financial Statements..............................7-9


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF
           OPERATIONS......................................................10-22


                           PART II - OTHER INFORMATION

Other Information.............................................................23

Signatures....................................................................24

                                       2
<PAGE>

<TABLE>
               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                      June 30, 1999 and September 30, 1998
                                   (Unaudited)
                       In thousands, except per share data

---------------------------------------------------------------------------------------
<CAPTION>

                                                           June 30,       September 30,
                                                             1999             1998
                                                          ---------       -------------
<S>                                                          <C>         <C>

ASSETS
Cash and due from banks ....................................   $ 1,869       $ 1,435
Interest-bearing deposits in other financial institutions ..     2,231         3,892
                                                               -------         -------
    Total cash and cash equivalents ........................     4,100         5,327

Securities available-for-sale ..............................         5             5
Mortgage-backed securities held-to-maturity ................       804           954
Loans held for sale ........................................     4,170           328
Loans receivable ...........................................    68,925        71,666
Federal Home Loan Bank stock ...............................       398           382
Mortgage servicing rights ..................................       261            --
Real estate owned and in judgment ..........................       378           282
Premises and equipment .....................................     1,693         1,636
Accrued interest receivable ................................       657           608
Other assets ...............................................     2,088         1,446
                                                               -------       -------

                                                               $83,479       $82,634
                                                               =======       =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits ...............................................   $73,869       $73,554
    Advance payments by borrowers for insurance and taxes ..       623           863
    Advances from Federal Home Loan Bank ...................     1,000           800
    Debentures .............................................     3,629         3,629
    Accrued interest payable and other liabilities .........     1,320         1,045
                                                               -------       -------
                                                                80,441        79,891

Minority interest ..........................................       873           873

Stockholders' equity
    Common stock - par value $.01 per share;
      authorized 1,500,000 shares in 1999 and
      3,000,000 shares in 1998, issued 428,409 shares ......         4             4
    Additional paid-in capital .............................     1,849         1,849
    Retained earnings, substantially restricted ............       312            17
                                                               -------       -------
                                                                 2,165         1,870
                                                               -------       -------

                                                               $83,479       $82,634
                                                               =======       =======
</TABLE>

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

                                       3
<PAGE>

<TABLE>
               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                 CONSOLIDATED STATEMENTS OF INCOME For the three
               months and nine months ended June 30, 1999 and 1998
                                   (Unaudited)
                       In thousands, except per share data

-------------------------------------------------------------------------------------------------------
<CAPTION>

                                                           Nine Months Ended         Three Months Ended
                                                                June 30,                  June 30,
                                                           1999         1998         1999          1998
                                                           ----         ----         ----          ----
<S>                                                    <C>            <C>          <C>         <C>

Interest income
   Loans .............................................   $ 5,508      $ 4,903      $ 1,835      $ 1,686
   Mortgage-backed securities ........................        37           48           12           15
   Other .............................................       139          117           32           33
                                                         -------      -------      -------       -------
      Total interest income ..........................     5,684        5,068        1,879        1,734

Interest expense
   Deposits ..........................................     2,378        2,173          754          761
   Other borrowings ..................................       324          311          107          128
                                                         -------      -------      -------      -------
      Total interest expense .........................     2,702        2,484          861          889
                                                         -------      -------      -------      -------


Net interest income ..................................     2,982        2,584        1,018          845

Provision for loan losses ............................        74           79           24           50
                                                         -------      -------      -------      -------


Net interest income after provision for loan losses ..     2,908        2,505          994          795

Noninterest income
   Service charges ...................................       565          429          204          171
   Gain on sale of loans and mortgage servicing
     rights...........................................       447          135           96           56
   Other .............................................       264           82           49           20
                                                         -------      -------      -------      -------
   Total noninterest income ..........................     1,276          646          349          247

Noninterest expense
   Compensation and benefits .........................     1,737        1,376          594          514
   Occupancy and equipment expense ...................       406          303          131          118
   Federal insurance premiums ........................        48           28           16           10
   Net (gain) loss on real estate owned,
      including provision ............................       148           13            2           --
   Professional fees .................................       227          136           91           52
   Data processing ...................................       190          143           65           48
   Office supplies ...................................       108           82           37           27
   Telephone .........................................        89           53           32           21
   Postage ...........................................        80           74           26           25
   Other .............................................       712          558          261          259
                                                         -------      -------      -------      -------
      Total noninterest expense ......................     3,745        2,766        1,255        1,074
                                                         -------      -------      -------      -------


Income before income tax expense .....................       439          385           88          (32)

Income tax expense ...................................       144          131           40          (11)
                                                         -------      -------      -------      -------


Net income ...........................................   $   295      $   210      $    48      $   (21)
                                                         =======      =======      =======      =======

Earnings per share:
   Basic .............................................   $   .69      $   .36      $   .11      $  (.03)
                                                         =======      =======      =======      =======
   Diluted ...........................................   $   .69      $   .36      $   .11      $  (.03)
                                                         =======      =======      =======      =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                       4
<PAGE>

<TABLE>
               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             June 30, 1999 and 1998
                                   (Unaudited)
                       In thousands, except per share data

-------------------------------------------------------------------------------------------
<CAPTION>

                                                  Nine Months Ended     Three Months Ended
                                                      June 30,               June 30,
                                                  ------------------    -------------------
                                                  1999       1998        1999        1998
                                                  ----       ----        ----        ----
<S>                                            <C>        <C>        <C>        <C>


Balance at beginning of period                 $  1,870    $  4,834    $  2,117   $   4,945

Net income                                          295         254          48
(21)

Issuance 0f 200,000 shares common stock              --       2,000          --       2,000

Purchase of Bank common stock                        --      (3,943)         --      (3,943)

Minority interest                                    --        (872)         --        (872)

Stock issue costs                                    --        (276)         --        (276)

Cash dividends paid                                  --        (164)         --          --
                                               --------    --------    --------    --------


Balance at end of period                       $  2,165    $  1,833    $  2,165    $  1,833
                                               ========    ========    ========    ========

</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       5
<PAGE>


<TABLE>
               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
               CONSOLIDATED STATEMENTS OF CASH FLOWS For the three
                  and nine months ended June 30, 1999 and 1998
                                   (Unaudited)
                                  In thousands

----------------------------------------------------------------------------------------------------------
<CAPTION>
                                                              Nine Months Ended         Three Months Ended
                                                                 June 30,                   June 30,
                                                            -------------------        -------------------
                                                            1999           1998         1999          1998
                                                            ----           ----         ----          ----
<S>                                                        <C>          <C>           <C>           <C>

Cash flows from operating activities
   Net income                                          $   295            $   254       $   48      $  (21)
   Adjustments to reconcile net income to net cash
     from operating activities
      Depreciation                                         250                190           83          93
      Amortization of premiums and discounts on
        investment and mortgage-backed securities, net       4                 --            1          --
Net change in loans held for sale                       (3,506)              (129)      (3,884)       (218)
      Net change in mortgage servicing rights             (261)                --           37          --
      Change in deferred loan origination fees              39                (31)           7         (59)
      Net (gains) losses on sales of
         Mortgage loans and servicing rights              (447)              (135)         (96)        (56)
         Real estate owned                                  (1)                (4)         (10)         (5)
      Provision for losses on loans                         74                 79           24          50
      Federal Home Loan Bank stock dividend                (16)               (33)          (5)         (6)
      Change in
         Accrued interest receivable                       (49)               (67)         (31)         (4)
         Other assets                                     (642)                --           11          --
         Accrued interest payable and other
           liabilities                                     275               (153)         439         (81)
                                                      --------             ------       ------      ------

           Net cash provided by (used in) operating
             activities                                 (3,985)               (29)      (3,376)       (307)

Cash flows from investing activities
   Net (increase) decrease in loans receivable           2,352             (2,496)       3,461        (649)
   Principal payments on mortgage-backed securities
     and collateralized mortgage obligations               146                140           47          35
   Proceeds from sale of mortgage servicing rights         111                 74           40          26
   Redemption of FHLB Stock                                 --                552           --         552
   Investment in office properties and equipment,
     net                                                  (307)              (710)        (125)       (331)
   Proceeds from sale of foreclosed real estate            205                 18            6           4
   Capital expenditures on foreclosed real estate          (24)               (10)          (9)         --
                                                      --------            -------    ---------     -------
      Net cash used in investing activities              2,483             (2,432)       3,420        (363)

Cash flows from financing activities
   Net increase in deposits                                315             10,312       (1,842)      2,613
   Net increase (decrease) in advance payments by
     borrowers for insurance and taxes                    (240)              (191)         210         305
   Net change in Federal Home Loan Bank advances           200             (8,000)       1,000      (1,700)
   Issuance of common stock, net of costs                   --              1,724           --       1,724
   Issuance of debentures, net of costs                     --              3,153           --       3,153
   Purchase of Bank stock                                   --             (3,943)          --      (3,943)
   Dividends paid                                           --               (164)          --          --
                                                       -------            -------     --------    --------
      Net cash provided by (used in) financing
        activities                                         275              2,891         (632)      2,152
                                                       -------            -------     --------    --------
Decrease in cash and cash equivalents                   (1,227)               430         (588)      1,482
Cash and cash equivalents at beginning of period         5,327              4,431        4,688       3,379
                                                       -------            -------     --------    --------

Cash and cash equivalents at end of period             $ 4,100            $ 4,861     $  4,100     $ 4,861
                                                       =======            =======     ========     =======

</TABLE>

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

                                       6
<PAGE>

               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all the  information  and  footnotes  required by  generally
accepted accounting principles for complete financial statements.

In the opinion of management,  the unaudited  consolidated  financial statements
contain  all  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary to present fairly the financial condition of The Bryan-College Station
Financial Holding Company (the Company) and its wholly-owned  subsidiary,  First
Federal  Savings Bank,  Bryan/College  Station,  Texas (the Bank) as of June 30,
1999 and September 30, 1998,  and the results of its  operations  and cash flows
for the three-month and nine-month periods ended June 30, 1999 and 1998.

On April 1, 1998,  the Company  issued 200,000 shares of common stock at $10 per
share and 3,629  debentures at $1,000 per unit. The Debentures  bear an interest
rate of 11.5% and mature in 2003. Each Debenture includes detachable warrants to
purchase 9 shares of Company  common stock at $12.50 per share.  Net proceeds to
the Company  totaled  $1.7 million and $3.2 million for the common stock and the
Debentures, respectively.

Concurrent  with the  offerings,  the Company  acquired  75,784 shares of common
stock of the Bank in exchange  for 189,346  shares of Company  common  stock and
purchased  the  remaining  163,828  shares of the Bank's  common  stock for cash
totaling $3.9 million.


NOTE 2 - ALLOWANCE FOR LOAN LOSSES

     The summary of changes in the allowance for loan losses is as follows:

                                                     Nine Months Ended
                                                          June 30,
                                                       (In thousands)
                                                     1999             1998
                                                  ----------       ----------

        Balances, beginning of period             $    307        $    273
        Provision charged to operations                 74              79
        Charge-offs                                    (31)            (74)
        Recoveries                                       1              25
                                                  --------        --------

           Balances, end of period                $    351        $    303
                                                  ========        ========


                                       7
<PAGE>

               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS

NOTE 3 - CAPITAL REQUIREMENTS

Pursuant to federal  regulations,  savings  institutions  must meet two separate
capital  requirements.  The  following  is a summary  of the  Bank's  regulatory
requirements at June 30, 1999:

                                                    Core         Risk-Based
                                                   Capital         Capital
                                                  ---------      ----------
                                                       (In thousands)

        Regulatory capital                        $   5,888       $  6,239
        Minimum capital requirement                   3,307          5,528
                                                  ---------       --------

        Excess regulatory capital over
          minimum requirement                     $   2,581       $    711
                                                  =========       ========

NOTE 4 - STOCK OPTIONS

The Company's  stock option plan was approved by  shareholders  at the Company's
1998  shareholder's  meeting.  Under the terms of the stock option plan,  40,000
shares of the Company's  common stock were  reserved for  issuance.  The options
expire ten years from the date of grant for incentive  stock options and fifteen
years  from the date of grant  for  non-employee  stock  options.  During  1999,
immediately  exercisable  options for 27,250 shares of Company common stock were
granted at an  exercise  price of $8 per share.  None of the  options  have been
forfeited or exercised.

NOTE 5 - EARNINGS PER COMMON SHARE

Earnings per share is calculated  under the provisions of Statement of Financial
Accounting  Standards No. 128,  "Earnings  Per Share",  which was adopted by the
Bank in 1997.  The amount  reported as earnings  per common share for the period
reflects  earnings  available  to common  shareholders  divided by the  weighted
average  number of common  shares  outstanding.  Earnings per share for the nine
months ended June 30, 1998 have been restated to reflect the 2.5 exchange  ratio
of Company  common stock for Bank common  stock.  In addition,  all periods have
been restated to reflect a 10% common stock dividend issued on March 1, 1999.


                                       8
<PAGE>


               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS

NOTE 5 - EARNINGS PER COMMON SHARE (Continued)

A  reconciliation  of the numerator and  denominator  of the earnings per common
share  computation  for the periods  ended June 30,  1999 and 1998 is  presented
below.

<TABLE>
<CAPTION>
                                                 Nine Months Ended      Three Months Ended
                                                     June 30,                June 30,
                                                 1999          1998        1999             1998
                                                 ----          ----        ----             ----
<S>                                          <C>        <C>             <C>            <C>


Basic EPS Computation
Net income (loss)                            $     295     $      254     $       48    $      (21)
Preferred stock dividends                           --            (44)            --            --
                                             ---------     ----------     ----------    ----------
  Income available to common shareholders          295            210             48           (21)
                                             ---------     ----------     ----------    -----------

Common shares outstanding                      428,409        582,092        428,409       658,933
                                             ---------     ----------     ----------    ----------

Basic EPS                                    $      .69    $      .36     $      .11    $     (.03)
                                             ==========    ==========     ==========    ==========

</TABLE>

The Company's  outstanding stock options were not considered in the computations
of diluted earnings per share because the effects of assumed exercise would have
been antidilutive.  In future years,  outstanding stock options may be exercised
which would  increase  the  weighted  average  common  shares  outstanding  and,
thereby,  dilute  earnings per share.  In addition,  if the average common stock
price were to exceed the exercise price of outstanding options in a future year,
the assumed  exercise of the  options  and/or the assumed  issuance of the stock
awards  would have a dilutive  effect on earnings per share for the future year.
However,  previously  reported earnings per share and diluted earnings per share
are not restated to reflect change in the status of changes in the  relationship
between exercise prices and average stock prices.

                                       9
<PAGE>

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


General

     The Bryan-College  Station Financial Holding Company (the "Holding Company"
and,  when  referred  to  with  its  subsidiary,   the  "Company"),  a  Delaware
corporation,  was formed to act as the unitary thrift holding  company for First
Federal Savings Bank, Bryan,  Texas ("First Federal" or the "Bank") by acquiring
100% of the stock of First Federal through the exchange of approximately  32% of
First Federal common stock for Holding  Company common stock and the purchase of
approximately  68% of First Federal  common stock for cash (the  "Acquisition").
The Company received approval from the Office of Thrift  Supervision (the "OTS")
to acquire all of the common stock of the Bank  outstanding  upon  completion of
the Acquisition.  The Acquisition was completed on April 1, 1998. All references
to the Company,  unless otherwise indicated, at or before April 1, 1998 refer to
the Bank.

     First Federal's major goals are to provide high quality full-service retail
banking  on a  profitable  basis  to its  targeted  "niche"  of  customers,  the
middle-class  population,  through its offices located in Bryan/College Station.
First  Federal  intends to continue  to focus  primarily  on one-to  four-family
residential loans,  direct and indirect consumer lending,  including  automobile
and home improvement loans,  construction  loans, and commercial business loans,
some of which are partially  guaranteed by the U.S. Small  Business  Association
("SBA").  In addition,  First Federal also seeks to continue improving its asset
quality and minimizing to the extent possible,  its  vulnerability to changes in
interest  rates in order to  maintain a  reasonable  spread  between its average
yield on loans and  securities and its average cost of interest paid on deposits
and borrowings.

     First Federal's net interest income has historically been dependent largely
upon the  difference  ("spread")  between the average yield earned  primarily on
loans,  and to a lesser extent  mortgage-backed  securities and other securities
("interest-earning  assets")  and the  average  rate paid on  savings  and other
deposits  and  borrowings  ("interest-bearing  liabilities"),  as  well  as  the
relative  amounts of such  assets and  liabilities.  The  interest  rate  spread
between interest-earning assets and interest-bearing  liabilities is impacted by
several factors,  including  economic and competitive  conditions that influence
interest rates,  loan demand,  deposit flows,  regulatory  developments  and the
types of assets and liabilities on its balance sheet.

     Like all financial  institutions,  First Federal has always been subject to
interest rate risk because its interest-bearing liabilities (primarily deposits)
mature  or  reprice  at  different  times,  or on a  different  basis  than  its
interest-earning  assets (primarily  loans).  First Federal's net income is also
affected  by gains and losses on the sale of loans,  loan  servicing  rights and
investments,  provisions  expensed  for loan and  other  losses  on  repossessed
assets,  service charge fees,  loan servicing  income,  fees for other financial
services  rendered,  operating expenses and income taxes. First Federal believes

                                       10
<PAGE>

that building its earnings from net interest income and noninterest income, such
as the profitable  sale of long-term,  fixed rate loans to the secondary  market
utilizing a  fully-staffed  residential  loan  department  and SBA business loan
staff,  along with income from  service  charges and fees on checking  accounts,
while continuing to reduce operating  expenses,  can provide a stable foundation
for successful operations. Noninterest income can provide an excellent source of
secondary income through fees charged to customers for services rendered and the
sale of loans, without requiring additional capital.

     During the past fiscal year,  management has transitioned First Federal for
future growth and to provide more convenient  full-service  banking  services to
its  customers,  by (i) upgrading its tellers with more  experienced,  full-time
professionals;  (ii) opening a new full-service branch in north Bryan,  adjacent
to a key intersection  between two major highways,  in the heart of a large area
where many of First Federal's  targeted middle class customers live, and an area
not presently served by another banking facility; (iii) doubling the size of its
staff in its  expanding  Second  Chance Auto  Lending  Program  (under  which we
purchased $6,000 of  credit-default  insurance  per loan for  losses  due to the
borrower's loan default);  (iv) hiring new management and adding to the staff of
its  Residential  Lending  Department and providing this department with new and
larger offices on the main east-west  artery in College  Station;  (v) providing
24-hour  telephone  banking;  (vi)  addressing  the  challenges of the Year 2000
issue,  and (vii)  increasing  salaries to retain  quality  people on its staff.
Management  believes  that this  strategy  will enable First  Federal to enhance
profitability  in the  future  and meet the needs of its  customers  in a highly
competitive market.

     First Federal's  restructuring and expansion,  as described above, in order
to provide additional full-service banking and convenience to its customers, has
caused an increase in First Federal's  operating  expense levels which,  despite
the  recent  increase  in net  interest  income,  resulted  in  First  Federal's
operating expenses exceeding its net interest income for the quarter ending June
30, 1999.

     Since 1991,  First Federal has relied  primarily on its noninterest  income
for net income.  While First Federal's  noninterest income has been a relatively
steady  source of  income,  it is highly  dependent  upon the  ability  of First
Federal to  originate  loans and realize  profits on the sale of these loans and
related  servicing  rights to the  secondary  market and to increase its service
charge and fee income  from  additional  checking  accounts  resulting  from its
transition to full-service banking.

Financial Condition

     The Company's  total assets  increased by $845,000 to $83.5 million at June
30, 1999 from $82.6  million at September  30, 1998,  due to a planned  moderate
level of growth in order to maintain  adequate  capital  levels.  This  increase
consisted  primarily  of an  increase  in loans held for sale and other  assets,
offset by a decrease in loans receivable and cash.

     Net loans receivable (excluding loans held for sale) decreased $2.8 million
to $68.9  million at June 30, 1999,  compared to $71.7  million at September 30,
1998,  after the sale of $3.0  million in loan  participations  during this same
period of time.  During  the three  months  ended  June 30,  1999,  the  Company
originated  $11.0 million of mortgage loans,  including $10.7 million secured by
one- to four-family  residential loans. In addition, the Company originated $6.6
million in consumer  loans,  of which $3.1 million were Second Chance auto loans
and $2.4 million in commercial business loans.

                                       11
<PAGE>

     Deposits increased $315,000 to $73.9 million at June 30, 1999,  compared to
$73.6  million at September  30, 1998,  in  accordance  with a planned  moderate
growth of deposits as compared to fiscal year ending  September 30, 1998.  Other
liabilities  increased  $235,000 to $6.6 million at June 30,  1999,  compared to
$6.3  million at  September  30,  1998,  primarily as a result of an increase in
advances from the Federal Home Loan Bank of Dallas and other liabilities, offset
by a decrease in escrowed  funds for property taxes related to loans held by the
Bank.

     Stockholders'  equity in the Company increased  $295,000 to $2.2 million at
June 30, 1999 from $1.9 million at September 30, 1998 due to all earnings  being
retained as equity.

Asset/Liability Management

     The Company's subsidiary,  First Federal, like all financial  institutions,
is  subject  to  interest  rate  risk to the  degree  that its  interest-bearing
liabilities  (deposits) mature or reprice more rapidly, or on a different basis,
than its  interest-earning  assets (loans),  some of which may be longer term or
fixed  interest  rate.  As a continuing  part of its financial  strategy,  First
Federal  continually  considers  methods of  managing  any such  asset/liability
mismatch,  consistent with maintaining  acceptable levels of net interest income
and interest rate risk.

     In order to monitor and manage interest rate  sensitivity and interest rate
spread, First Federal created an Asset/Liability  Committee (ALCO),  composed of
its President/Chief Executive Officer, Executive Vice President/CFO, Senior Vice
President/Financial and four outside Directors. The responsibilities of the ALCO
are to assess First Federal's  asset/liability mix and recommend strategies that
will enhance income while managing First Federal's  vulnerability  to changes in
interest rates.

     First Federal's  asset/liability  management strategy has two goals. First,
the Bank seeks to build its net interest  income and noninterest  income,  while
adhering to its underwriting  and lending  guidelines.  Second,  and to a lesser
extent,  First Federal seeks to increase the interest  rate  sensitivity  of its
assets and decrease the interest rate  sensitivity  of its  liabilities so as to
reduce First Federal's overall  sensitivity to changes in interest rates.  There
can be no assurance that this strategy will achieve the desired results and will
not result in  substantial  losses in the event of an increase in interest  rate
risk.

     As part of this  strategy,  management  continues  to  emphasize  growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing
savings  deposits  by  offering  full  service  retail  banking to its  targeted
customer  base. In order to minimize the possible  adverse impact that a rise in
interest  rates may have on net interest  income,  First  Federal has  developed
several strategies to manage its interest rate risk. Primarily, First Federal is
currently selling all newly-originated  one-to four-family  residential mortgage
loans which are saleable in the  secondary  market--most  of which are long-term
fixed-rate  loans. In addition,  First Federal currently offers three-year fixed
rate balloon  loans and other  adjustable  rate loans,  and has  implemented  an

                                       12
<PAGE>

active, diversified short-term consumer lending program, giving First Federal an
opportunity to reprice its loans on a more frequent basis.

Net Portfolio Value

     The OTS, First Federal's  primary  regulator has issued a proposed rule for
the  calculation  of an interest  rate risk  component for  institutions  with a
greater  than  "normal"  (i.e.,  greater  than 2%) level of  interest  rate risk
exposure  ("NPV").  The OTS has not yet  implemented  the capital  deduction for
interest  rate  risk.  NPV is  the  difference  between  incoming  and  outgoing
discounted cash flows from assets,  liabilities and off-balance sheet contracts.
This approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities,  as well as cash flows from off-balance sheet contracts.  Under OTS
regulations,  an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not  exceeding  2% of the present  value of its assets.  The amount of
that  deduction  is one-half  of the  difference  between (a) the  institution's
actual  calculated  exposure  to a 200 basis  point  interest  rate  increase or
decrease  (whichever  results in the greater pro forma  decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.

     It has been, and continues to be, an objective of First  Federal's Board of
Directors  and  management  to  manage  interest  rate  risk.   First  Federal's
asset/liability  policy,  established  by  the  Board  of  Directors,   dictates
acceptable  limits on the  amount of change  in NPV  given  certain  changes  in
interest rates. See "-- Asset/Liability Management."

     Presented  below,  as  of  March  31,  1999,  the  latest  date  for  which
information is available,  is an analysis of First Federal's  interest rate risk
as measured by changes in NPV for instantaneous and sustained parallel shifts in
the yield curve, in 100 basis point increments,  up and down 400 basis points in
accordance  with OTS  regulations.  As  illustrated  in the  table,  NPV is more
sensitive to rising rates than declining rates. This occurs principally because,
as rates rise,  the market value of  fixed-rate  loans  declines due to both the
rate increase and slowing  prepayments.  When rates decline,  First Federal does
not  experience  a  significant  rise in market  value for these  loans  because
borrowers  prepay  at  relatively  high  rates.  OTS  assumptions  are  used  in
calculating  the amounts in this table.  Even though the  information  presented
reflects  the  Bank's  interest  rate  risk  position  at the close of the prior
quarter, management believes that this information is helpful in assessing First
Federal's current interest rate risk position.

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                         Acceptable Limits
         Change in                                                         Established by
       Interest Rate           Estimated         At March 31, 1999       Board of Directors
      (Basis Points)              NPV          $ Change     % Change          % Change
     ----------------        ------------    -----------  -----------   --------------------
                                     (Dollars in Thousands)
<S>                         <C>               <C>           <C>       <C>

           +300                  8,835           +125          +1%              -50
           +200                  8,928           +218          +2%              -30
           +100                  8,881           +171          +2%              -15
             0                   8,711
           -100                  8,584           -126          -1%              -15
           -200                  8,623           - 87          -1%              -30
           -300                  8,861           +150          +2%              -50

</TABLE>


     Management  reviews the OTS  measurements on a quarterly basis. In addition
to monitoring  selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates.  This measure is
used in conjunction with NPV measures to identify  excessive interest rate risk.
In the event of a 400 basis point change in interest rates,  First Federal would
experience  no change in NPV in a declining  rate  environment  or a rising rate
environment.  As of March 31, 1999,  an increase in interest  rates of 200 basis
points  would have  resulted  in a 2%  increase  in the  present  value of First
Federal's  assets,  while a change in the  interest  rates of negative 200 basis
points  would have  resulted  in a 1%  decrease  in the  present  value of First
Federal's assets.

     In  evaluating  First  Federal's  exposure to interest  rate risk,  certain
shortcomings  inherent  in the method of  analysis  presented  in the  foregoing
tables must be considered.  For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Further,  in the event of a change in interest rates,  prepayment
and early  withdrawal  levels  would  likely  deviate  significantly  from those
assumed in calculating the table. For example,  projected passbook, money market
and checking  account  maturities may also  materially  change if interest rates
change.  Finally,  the  ability  of many  borrowers  to  service  their debt may
decrease in the event of an interest rate increase.  First Federal considers all
of these factors in monitoring its exposure to interest rate risk.

Non-Performing Assets and Loan Loss Provision

     The provision for loan losses is based on  management's  periodic review of
the Company's loan portfolio which considers,  among other factors,  past actual
loan loss experience, the general prevailing economic conditions, changes in the
size,  composition  and  risks  inherent  in  the  loan  portfolio,  independent
third-party  loan  reviews  and  specific  borrower  considerations  such as the
ability to repay the loan and the estimated value of the underlying  collateral.
In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically review the Company's allowance for estimated
loan losses.  Such agencies may require the Company to provide  additions to the
allowance based upon judgments which differ from those of management.

                                       14

<PAGE>

     The Company  recorded a provision  for loan losses in the amount of $24,000
for the three months  ending June 30, 1999,  as compared to a $50,000  provision
for the same period in 1998.  The decrease in the  provision for loan losses was
largely a result of an  improved  loss  history  on loans due to  credit-default
insurance  on the Second  Chance loan  program.  This  credit-default  insurance
limits  the  Company's  loss  exposure  on  certain   automobile  loans.   Total
non-performing  assets  increased  during the three month  period ended June 30,
1999 to $2.3  million or 2.73% of total  assets as compared  to $1.2  million or
1.46%  of  total  assets  at  September  30,  1998.  Most  of this  increase  in
non-performing  assets was  attributable to repossessed  assets that the Company
believes are covered by credit-default  insurance  limiting  the Company's loss
exposure on certain automobiles.

Results of Operations

     The  Company's  results of operations  are  primarily  dependent on its net
interest   income  which  is  the   difference   between   interest   income  on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Interest income is a function of the average balances of interest-earning assets
outstanding  during the period and the  average  yields  earned on such  assets.
Interest  expense  is a  function  of the  average  amount  of  interest-bearing
liabilities  outstanding  during the period and the  average  rates paid on such
liabilities.  The Company also generates noninterest income, such as income from
service charges and fees on checking accounts, loan servicing and other fees and
charges and gains on sales of loans and  servicing  rights.  The  Company's  net
income  is also  affected  by the  level of its  noninterest  expenses,  such as
employee salaries and benefits,  occupancy and equipment  expenses,  and federal
deposit insurance premiums.

Comparison of Nine months ended June 30, 1999 to June 30, 1998

     The Company reported net income after taxes of $295,000 for the nine months
ended June 30,  1999,  an  increase  of $41,000 as  compared  to $254,000 in net
income  reported  for the nine  months  ended June 30,  1998.  The  increase  in
earnings,  as discussed in more detail below, resulted primarily from a $616,000
increase in the Company's interest income and a $630,000 increase in noninterest
income,  partially  offset by an increase of $218,000 in interest expense and an
increase of $979,000 in noninterest expense.

     Net interest income  increased  $398,000 to $3.0 million for the nine month
period ended June 30, 1999 from $2.6 million for the prior period in 1998.  This
increase was  attributable  primarily to an increase in interest earned on loans
receivable,  primarily  as a result of an  increase  in the  average  balance of
outstanding  loans  partially  offset  by  rates  paid  on  the  Bank's  deposit
liabilities and the Company's  debentures  issued on April 1, 1998. For the nine
months ended June 30,  1999,  the spread  between the average  yield on interest
earning assets and the average cost of funds increased to 5.61% at June 30, 1999
from 4.65% at June 30, 1998.

                                       15
<PAGE>

     Noninterest  income increased  $630,000 to $1.3 million for the nine months
ended June 30, 1999 from $646,000 for the nine months ended June 30, 1998.  This
increase can be attributed to a $136,000 increase in service charges on checking
accounts,  a  $312,000  increase  in net  gain  on sale of  loans  and  mortgage
servicing rights which is comprised of a $211,000 gain on the sale of loans with
servicing  retained and a $101,000 gain on sale of loans with  servicing  rights
released,  and a $182,000 increase in other noninterest  income. The increase in
other  noninterest  income was  primarily  a result of  recognizing  excess auto
dealer  reserves due to the  repayment of auto loan  balances and the receipt of
after tax casualty loss for hail damage to the Bank's  office  premises and bank
owned vehicles.

     Noninterest  expense increased $979,000 to $3.7 million for the nine months
ended June 30, 1999 from $2.8  million for the nine months  ended June 30, 1998.
Compensation and benefits  increased  $361,000 as a result of an increase in the
number of employees  due  primarily to the opening of a new branch and increased
expenses  related to the  expansion  of the mortgage  lending and Second  Chance
automobile  lending  departments.  Occupancy  and  equipment  expense  increased
$103,000  as a result of the  opening  of the new  North  Bryan  branch  and the
recently expanded  mortgage lending offices in College Station.  Net (gain) loss
on real estate owned,  including provision increased $135,000 due to a provision
of $129,000 for repossessed  assets.  Professional fees increased $91,000 due to
legal expenses related to the Company's SEC reporting  requirements,  consulting
expenses  related to the  review  and  implementation  of  competitive  employee
benefit  programs and audit fees related to the Second Chance  lending  program.
Data processing  increased $47,000 primarily due to the increase in loan volume,
in particular,  the Second Chance Auto Loan Program.  Other  expenses  increased
$242,000, which consisted of various items, including $66,000 of amortization of
debt  issue  costs and  organizational  costs  related to the  formation  of the
Holding Company and payment of a Bank minority interest preferred stock dividend
of $44,000.  Various other expenses have also increased primarily as a result of
the  increased  loan  production  of the  Company and the  positioning  of First
Federal as a leading financial institution in its market area.

     Income tax expense  increased $13,000 to $144,000 for the nine months ended
June 30, 1999 from  $131,000 for the nine month ended June 30, 1998.  The period
reflected  tax rates of 32.8% and  34.0%  for June 30,  1999 and June 30,  1998,
respectively.

Comparison of Three months ended June 30, 1999 to June 30, 1998

     The Company reported net income after taxes of $48,000 for the three months
ended June 30,  1999,  an  increase of $69,000 as compared to a $21,000 net loss
reported for the three  months ended June 30, 1998.  The increase in net income,
as discussed in more detail below,  resulted  primarily from a $145,000 increase
in interest income, a $102,000 increase in noninterest  income and a decrease of
$28,000 in the  Company's  interest  expense.  This was  partially  offset by an
$181,000 increase in noninterest expense.

     Net interest income increased  $173,000 to $1.0 million for the three-month
period  ended June 30, 1999 from  $845,000  for the prior  period in 1998.  This
increase was  attributable  primarily to an increase in interest earned on loans
receivable,  primarily  as a result of an  increase  in the  average  balance of
outstanding  loans and a decrease in interest expense paid on the Bank's deposit
liabilities and the Company's  debentures issued on April 1, 1998. For the three
months ended June 30,  1999,  the spread  between the average  yield on interest
earning assets (loans and securities) and the average cost of funds increased to
5.61%, from 4.65% at June 30, 1998.

                                       16
<PAGE>

     Noninterest  income  increased  $102,000 to $349,000  for the three  months
ended June 30, 1999 from $247,000 for the three months ended June 30, 1998. This
increase can be attributed to a $33,000  increase in service charges on checking
accounts, a $40,000 increase on net gain on sale of loans and mortgage servicing
rights, and a $29,000 increase in other noninterest income.

     Noninterest expense increased $181,000 to $1.3 million for the three months
ended June 30, 1999 from $1.1  million for the three months ended June 30, 1998.
Compensation  and benefits  increased  $80,000 as a result of an increase in the
number of  employees  and  increased  expenses  related to the  expansion of the
mortgage lending and Second Chance automobile lending departments and the hiring
of an Executive Vice  President/Chief  Financial Officer with twenty-three years
banking experience in large and mid-size financial  institutions.  Occupancy and
equipment  expense  increased  $13,000  due to the  recently  expanded  mortgage
lending  offices in College  Station.  Professional  fees increased  $39,000 due
primarily to legal expenses related to the Company's SEC reporting requirements.
Data processing  increased $17,000 primarily due to the increase in loan volume,
in  particular,  the Second  Chance Auto Loan Program.  Other expense  increased
$32,000,  which  consisted of various items related to the Second Chance lending
program.

     Income tax expense was $40,000 for the three months ended June 30, 1999, as
compared to  ($11,000)  for the three  months  ended June 30,  1998.  The period
reflected  a tax rate of 45.4% and 34.4%  for June 30,  1999 and June 30,  1998,
respectively.

Liquidity and Capital Resources

     The Company's  primary  sources of funds are deposits,  checking  accounts,
principal  and  interest  payments  on loans and  mortgage  related  securities,
proceeds  from sales of long term,  fixed-rate  residential  mortgage  loans and
other funds provided from operations.  Additionally, the Company in the past has
borrowed  funds from the Federal  Home Loan Bank  ("FHLB") of Dallas or utilized
particular sources of funds based on need, comparative costs and availability at
the time.

     While scheduled loan and mortgage-backed securities repayments,  short-term
investments, and FHLB borrowings are relatively stable sources of funds, deposit
flows  are  unpredictable  and are a  function  of  external  factors  including
competition,  the general level of interest rates,  general economic  conditions
and most recently, the restructuring occurring in the banking industry.

     The Company  maintains  investments in liquid assets based on  management's
assessment of cash needs, expected deposit flows,  availability of advances from
the FHLB,  available yield on liquid assets (both  short-term and long-term) and
the objectives of its asset/liability  management  program.  Several options are
available  to  increase   liquidity,   including   reducing  loan  originations,
increasing  deposit  marketing  activities,  and increasing  borrowings from the
FHLB.

                                       17
<PAGE>

     At June 30, 1999, the Company had commitments to originate loans, including
loans in process,  totaling $11.2 million.  The Company also had $1.7 million of
outstanding unused lines of credit and $50,000 of letters of credit. The Company
considers  its  liquidity  and  capital  resources  to be  adequate  to meet its
foreseeable short and long-term needs. The Company expects to be able to fund or
refinance,   on  a  timely  basis,   its  material   commitments  and  long-term
liabilities.  First Federal intends to expand its credit-default  insured Second
Chance Auto Loan Program with additional  select automobile  dealers  throughout
the State of Texas,  retaining a portion of these  loans for its own  portfolio,
and selling loan  participations  in order to maintain  capital  compliance  and
liquidity  needs. The Company also has the ability,  if needed,  to borrow up to
$28.2 million from the FHLB of Dallas for liquidity purposes.  At June 30, 1999,
the Company had $1.0 million in advances outstanding from the FHLB.

     Federal regulations require insured institutions to maintain minimum levels
of  liquid  assets.  As of June  30,  1999,  the  minimum  regulatory  liquidity
requirement  was 4% of the sum of First  Federal's  average daily balance of net
withdrawable deposit accounts and borrowing payable in one year or less. At June
30, 1999, First Federal's  regulatory  liquidity ratio was 6.12%.  First Federal
uses its capital resources  principally to meet its ongoing  commitments to fund
maturing  certificates of deposits and deposit  withdrawals,  repay  borrowings,
fund existing and continuing loan  commitments,  maintain its liquidity and meet
operating expenses.

     At June 30, 1999,  the Bank had Core Capital of $5.9  million,  or 7.12% of
total assets,  which was $2.6 million above the minimum  capital  requirement of
$3.3 million or 4% of total assets.

     At June 30, 1999, the Bank had total Risk-based Capital of $6.2 million and
risk-weighted  assets of $69.1 million or total  Risk-based  Capital of 9.03% of
risk-weighted  assets.  This amount was  $711,000  above the minimum  regulatory
requirement of $5.5 million, or 8.0% of risk-weighted assets.

Year 2000 Issue

     General.  The year 2000  ("Y2K")  issue  confronting  the  Company  and its
suppliers,  customers,  customers'  suppliers  and  competitors  centers  on the
inability of computer systems to recognize the year 2000. Many existing computer
programs  and  systems  originally  were  programmed  with six digit  dates that
provided only two digits to identify the calendar  year in the date field.  With
the impending new  millennium,  these programs and computers will recognize "00"
as the year 1900 rather than the year 2000.

     Financial  institution  regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance  concerning the  responsibilities
of  senior  management  and  directors.   The  Federal  Financial   Institutions
Examination  Council has issued  several  interagency  statements on Y2K project
management awareness.  These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect to the data exchange and the potential  impact of the Y2K issue on their
customers,   suppliers,  and  borrowers.  These  statements  also  require  each

                                       18

<PAGE>

federally  regulated  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the  Bank,  to assure  resolution  of any Y2K
problems.  The  federal  banking  agencies  have  assessed  that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and thus, that an institution's  failure to address  appropriately the Y2K
issue  could  result  in  supervisory   action,   including   reduction  of  the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.

     Risks.  Like  most  financial  service  providers,   the  Company  and  its
operations may be significantly  affected by the Y2K issue due to its dependence
on technology and date-sensitive  data. Computer software and hardware and other
equipment,  both within and  outside the  Company's  direct  control,  and third
parties  with  whom  the  Company  electronically  or  operationally  interfaces
(including  without limitation its customers and third party vendors) are likely
to be  affected.  If computer  systems  are not  modified in order to be able to
identify  the  year  2000,  many  computer  applications  could  fail or  create
erroneous  results.  As a result,  many  calculations,  which rely on date field
information such as interest, payment on due dates, and all operating functions,
could generate results which are significantly  misstated, and the Company could
experience an inability to process transactions, prepare statements or engage in
similar normal business activities.  Likewise,  under certain  circumstances,  a
failure to adequately address the Y2K issue could adversely affect the viability
of the  Company's  suppliers  and  creditors  and  the  creditworthiness  of its
borrowers.  Thus, if not adequately  addressed,  the Y2K issue could result in a
significant  adverse  impact  on the  Company's  operations  and,  in turn,  its
financial condition and results of operations.

     State of Readiness.  In October 1997,  the Company  formulated  its plan to
address the Y2K issue.  Since that time,  the  Company  has taken the  following
steps:

o Established senior management advisory and review responsibilities;
o Completed a company-wide inventory of applications and system software;
o Built an internal tracking database for applications and system software;
o Developed compliance plans and schedules for all lines of business;
o Completed a computer network, hardware, and software upgrade;
o Completed in-house testing of all systems;
o Obtained data processor vendor compliance certification;
o Completed data processor vendor testing;
o Began  awareness and  educational  activities for employees  through  existing
  internal communication channels; and
o Developed a process to respond to customer  inquiries  as well as help educate
  customers on the Y2K issue.

                                       19


<PAGE>

     The following paragraphs summarize the phases of the Company's Y2K plan:

     Awareness Phase. The Company formally established a Y2K plan that is headed
by a senior manager,  and a project team was assembled for management of the Y2K
project.  The project  team created a plan of action that  includes  milestones,
budget estimates,  strategies,  and methodologies to track and report the status
of the  project.  Members of the  project  team also  attended  conferences  and
information  sharing  sessions  to gain  more  insight  into the Y2K  issue  and
potential strategies for addressing it. This phase is substantially complete.

     Assessment  Phase.  The Company's  strategies  were further  developed with
respect  to how the  objectives  of the Y2K plan  would be  achieved,  and a Y2K
business risk  assessment  was conducted to quantify the extent of the Company's
Y2K  exposure.  A  corporate  inventory  (which is  periodically  updated as new
technology is acquired and as systems  progress through  subsequent  phases) was
developed  to  identify  and  monitor  Y2K  readiness  for  information  systems
(hardware,  software,  vendors, and utilities) as well as environmental  systems
(security systems, facilities, etc.). Systems were prioritized based on business
impacts and available alternatives. Mission critical systems supplied by vendors
were  researched  to determine  Y2K  readiness.  If Y2K ready  versions were not
available,  the Company began  identifying  functional  replacements  which were
either  upgradable  or Y2K ready,  and a formal  plan was  developed  to repair,
upgrade or replace all mission  critical  systems.  This phase is  substantially
complete.

     The  Company  has begun Y2K  discussions  with its  larger  borrowers.  All
credits  greater  than  $50,000  are  being  evaluated  for  Y2K  exposure  by a
relationship  account officer using a  questionnaire  developed by the Company's
credit administration staff. As part of the current credit approval process, all
new and renewed  loans are  evaluated  for Y2K risk.  During the course of these
evaluations,  Company personnel are meeting individually with each of its larger
borrowers to discuss and obtain information regarding each borrower's dependence
on information  technology and third party vendors and the nature of steps being
taken by the borrowers to address their own Y2K issues.

     Renovation  Phase.  The  Company's  corporate  inventory  revealed that Y2K
upgrades were available for all vendor supplied  mission critical  systems,  and
all these Y2K ready versions have been delivered and placed into  production and
have entered the validation process.

     Validation  Phase.  The validation phase is designed to test the ability of
hardware and software to accurately process date-sensitive data. The Company has
substantially  completed the validation testing of each mission critical system.
The Company  hired two outside  firms to perform this phase.  These firms tested
independent  of each other  verifying  the other's  validation  of all  systems.
During  the  validation  testing  process,  no  significant  Y2K  problems  were
identified relating to any modified or upgraded mission critical systems.

     Implementation  Phase.  Y2K ready  modified or upgraded  versions have been
installed  and placed  into  production  with  respect to all  mission  critical
systems.

                                       20

<PAGE>

     Company Resources  Invested.  The Company is expensing all costs associated
with required  system  changes as those costs are  incurred,  and such costs are
being funded through  operating cash flows. The total cost of the Y2K conversion
project  since  commencement  in October 1997 for the Company is estimated to be
$250,000 of which  $140,000 has been spent as of June 30, 1999. The Company does
not expect significant  increases in future data processing costs related to Y2K
compliance.

     Contingency   Plans.   During  the  assessment  phase,  the  Company  began
developing  back-up  or  contingency  plans  for  each of its  mission  critical
systems.  Virtually all of the Company's  mission critical systems are dependent
upon third party  vendors or service  providers.  Therefore,  contingency  plans
include  selecting a new vendor or service provider and converting their system.
In the event a current  vendor's system fails during the validation phase and it
is determined that the vendor is unable or unwilling to correct the failure, the
Company will  convert to a new system from a  pre-selected  list of  prospective
vendors.  In each case,  realistic  trigger dates have been established to allow
for orderly and  successful  conversions.  For some systems,  contingency  plans
consist of using  spreadsheet  software or  reverting  to manual  systems  until
system problems can be corrected.

     The  majority  of the  Company's  mission  critical  system  falls into the
categories of its  core-banking  software and its proof of deposit  system.  The
Company has  received  warranties  from  vendors to the effect that the proof of
deposit and core-banking system is Y2K ready.

New Accounting Pronouncements

     Statement  of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities" (SFAS No. 133"), issued in June
1998,  must be  adopted  as of  January  1,  2000.  This  Statement  establishes
accounting and reporting standards for derivative financial  instruments and for
hedging  activities.  Upon adoption of the Statement,  all  derivatives  must be
recognized  at fair value as either  assets or  liabilities  in the statement of
financial  position.  Changes in the fair value of derivatives not designated as
hedging instruments are to be recognized currently in earnings.  Gains or losses
on  derivatives  designated as hedging  instruments  are either to be recognized
currently  in  earnings  or  are  to  be  recognized  as a  component  of  other
comprehensive  income,  depending on the intended use of the derivatives and the
resulting designations. Upon adoption, retroactive application of this Statement
to  financial   statements  of  prior  periods  is  not  permitted.   Management
anticipates  the adoption of SFAS No. 133 will not have a material impact on the
financial condition or operations of the Bank.

                                       21
<PAGE>

Safe Harbor Statement

     This  report  contains  forward-looking  statements  within the  meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be  covered  by the safe  harbor  provision  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally identifiable by use of the words believe, expect, intend,  anticipate,
estimate,  project  or similar  expressions.  The  Company's  ability to predict
results  or the  actual  effect  of future  plans or  strategies  is  inherently
uncertain.  Factors which could have a material adverse affect on the operations
and future  prospects of the Company and the subsidiaries  include,  but are not
limited  to,  changes  in:  interest   rates,   general   economic   conditions,
legislative/regulatory  changes,  monetary  and  fiscal  policies  of  the  U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and could affect the Company's  financial  performance  and cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.

     The Company does not undertake,  and specifically disclaims any obligation,
to  revise  any   forward-looking   statements  to  reflect  the  occurrence  of
anticipated  or  unanticipated  events or  circumstances  after the date of such
statements.  Further  information  concerning  the  Company  and  its  business,
including   additional  factors  that  could  materially  affect  the  Company's
financial results,  is included in the Company's filings with the Securities and
Exchange Commission.

                                       22
<PAGE>


                           PART II- OTHER INFORMATION


Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities

         None.

Item 3.  Defaults upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         (a)  The following exhibit is filed herewith:

              1.    Exhibit 27:  Financial Data Schedule

         (b)  Reports on Form 8-K:

              No reports on Form 8-K were filed by the Company during the
              quarter ended June 30, 1999.

                                       23
<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.

                                       THE BRYAN COLLEGE STATION FINANCIAL
                                         HOLDING COMPANY


Date: August 16, 1999                  /s/ J. Stanley Stephen
      ---------------                  ---------------------------------
                                       J. Stanley Stephen
                                       President and Chief Executive Officer
                                       (Duly Authorized Representative)





Date: August 16, 1999                  /s/ William Wantuck
      ---------------                  ---------------------------------
                                       William Wantuck
                                       Chief Financial Officer
                                       (Principal Financial Officer)

                                       24