UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                              WASHINGTON, DC 20552

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

                                    FORM 10-Q

(Mark One)

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


For the quarterly period ended: September 30, 1998
                                ------------------

                                       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 000-29460
                                               ---------

                       COMMUNITY SAVINGS BANKSHARES, INC.
--------------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            UNITED STATES                               65-0780334
-------------------------------------        ---------------------------------
   (STATE OR OTHER JURISDICTION OF                    (IRS EMPLOYER
    INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

         660 US Highway One
        North Palm Beach, FL                              33408
-------------------------------------        ---------------------------------
   (ADDRESS OF PRINCIPAL EXECUTIVE                      (ZIP CODE)
              OFFICES)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 881-2212

     Indicate  by check  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 [ ]

     As of November 10, 1998,  there were 5,103,960  shares of the  Registrant's
common stock outstanding.
<PAGE>

                COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Part I. Financial Information                                                          Page
-----------------------------                                                          ----
<S>           <C>                                                                       <C>
Item 1.       Financial Statements
              Consolidated Statements of Financial Condition as of
              September 30, 1998 (Unaudited) and December 31, 1997                       2

              Consolidated Statements of Operations (Unaudited)
              for the three and nine months ended September 30, 1998 and 1997            3

              Consolidated Statements of Comprehensive Income 
              (Unaudited) for the three and nine months 
              ended September 30, 1998 and 1997                                          4

              Consolidated Statements of Changes in Shareholders' Equity for the
              nine months ended September 30, 1998 (Unaudited) and
              for the year ended December 31, 1997                                       5

              Consolidated Statements of Cash Flows (Unaudited) for the nine months
              ended September 30, 1998 and 1997                                          6

              Notes to Consolidated Financial Statements (Unaudited)                     7

Item 2.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                                 10

Item 3.       Quantitative and Qualitative Disclosures About Market Risk                18

Part II. Other Information
--------------------------

Item 1.       Legal Proceedings                                                         19

Item 2.       Changes in Securities                                                     19

Item 3.       Default Upon Senior Securities                                            19

Item 4.       Submission of Matters to a Vote of Security Holders                       19

Item 5.       Other Information                                                         19

Item 6.       Exhibits and Reports on Form 8-K                                          19

              Signature Page                                                            20
</TABLE>

                                       1
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                          September 30,  December 31,
                                                                                              1998           1997
                                                                                            ---------     ---------
                                                                                                 (Unaudited)
                                                                                                (In thousands)
<S>                                                                                         <C>           <C>
ASSETS                                                                                   
  Cash and cash equivalents:                                                             
     Cash and amounts due from depository institutions                                      $  16,436     $  12,333
     Interest-bearing deposits                                                                 34,395        13,621
                                                                                            ---------     ---------
        Total cash and cash equivalents                                                        50,831        25,954
                                                                                         
  Securities available for sale                                                               100,317       142,269
  Investments - held to maturity                                                               21,595        21,388
  Mortgage-backed and related securities - held to maturity                                    36,869        46,413
  Loans receivable, net of allowance for loan losses                                          540,602       451,709
  Accrued interest receivable                                                                   2,785         3,162
  Office properties and equipment, net                                                         23,822        20,206
  Real estate owned, net                                                                          705           592
  Federal Home Loan Bank stock - at cost                                                        4,722         3,264
  Other assets                                                                                  9,043         5,176
                                                                                            ---------     ---------
        Total assets                                                                        $ 791,291     $ 720,133
                                                                                            =========     =========
                                                                                                        
LIABILITIES                                                                                             
  Deposits                                                                                  $ 580,757     $ 550,708
  Mortgage-backed bond - net                                                                   15,657        16,333
  Advances from Federal Home Loan Bank                                                         94,043        57,341
  Employee Stock Ownership Plan borrowing                                                          --         1,424
  Advances by borrowers for taxes and insurance                                                 8,007           931
  Other liabilities                                                                             5,011         9,101
  Deferred income taxes                                                                         3,260         3,036
                                                                                            ---------     ---------
        Total liabilities                                                                     706,735       638,874
                                                                                            ---------     ---------
                                                                                                
SHAREHOLDERS' EQUITY                                                                            
  Preferred stock ($1 par value): 10,000,000 authorized shares, no shares issued                   --            --
  Common stock ($1 par value): 20,000,000 authorized shares; 5,103,960 and                      
     5,094,920 shares outstanding at September 30, 1998 and December 31, 1997, respectively     5,104         5,095
  Additional paid in capital                                                                   30,765        30,278
  Retained income - substantially restricted                                                   49,994        47,887
  Common stock purchased by Employee Stock Ownership Plan                                      (1,129)       (1,424)
  Common stock issued to Recognition and Retention Plan                                          (284)         (423)
  Unrealized decrease in market value of securities available                                           
    for sale, net of income taxes                                                                 106          (154)
                                                                                            ---------     ---------
        Total shareholders' equity                                                             84,556        81,259
                                                                                            ---------     ---------
        Total liabilities and shareholders' equity                                          $ 791,291     $ 720,133
                                                                                            =========     =========
</TABLE>

See notes to consolidated financial statements.

                                                          2
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                               For the three months          For the nine months
                                                                ended September 30,          ended September 30,
                                                            --------------------------    --------------------------
                                                               1998            1997          1998           1997
                                                            -----------    -----------    -----------    -----------
                                                                                   (Unaudited)
                                                                                 (In thousands)
<S>                                                         <C>            <C>            <C>            <C>
Interest income:
  Real estate loans                                         $     9,979    $     8,065    $    28,356    $    23,544
  Consumer and commercial business loans                            490            405          1,403          1,222
  Investment securities and securities available for sale         1,868          3,135          6,623          8,414
  Mortgage-backed and related securities                            837            816          2,474          2,827
  Interest-earning deposits                                         589            473          1,735          1,464
                                                            -----------    -----------    -----------    -----------
     Total interest income                                       13,763         12,894         40,591         37,471
                                                            -----------    -----------    -----------    -----------

Interest expense:
  Deposits                                                        6,101          5,800         18,078         16,832
  Advances from Federal Home Loan Bank and borrowings
     other borrowings                                             1,640          1,236          4,319          3,464
                                                            -----------    -----------    -----------    -----------
     Total interest expense                                       7,741          7,036         22,397         20,296
                                                            -----------    -----------    -----------    -----------
Net interest income                                               6,022          5,858         18,194         17,175
Provision for loan losses                                           223            138            436            221
                                                            -----------    -----------    -----------    -----------
Net interest income after provision for loan losses               5,799          5,720         17,758         16,954
                                                            -----------    -----------    -----------    -----------

Other income:
Servicing income and other fees                                      47             46            150            204
NOW account and other customer fees                                 866            876          2,543          2,483
Net loss on sale and early maturities of securities
   available for sale                                                --             (8)            --             (8)
Gain on sale of other assets                                         --            617             --            617
Net gain on sale of loans receivable                                 --              3             --              3
Loss incurred in real estate venture                                 --            (75)            --            (75)
Miscellaneous income (loss)                                          (7)            63            (31)           160
                                                            -----------    -----------    -----------    -----------
     Total other income                                             906          1,522          2,662          3,384
                                                            -----------    -----------    -----------    -----------

Operating expense:
 Employee compensation and benefits                               2,567          2,332          7,561          6,585
 Occupancy and equipment                                          1,396          1,257          3,923          3,677
 Net gain (loss) on real estate owned                                11            (26)            30            (29)
 Advertising and promotion                                          195            115            663            547
 Federal deposit insurance premium                                   88             86            259            185
 Miscellaneous                                                      809          1,209          2,476          2,813
                                                            -----------    -----------    -----------    -----------
     Total operating expense                                      5,066          4,973         14,912         13,778
                                                            -----------    -----------    -----------    -----------

Income before provision for income taxes                          1,639          2,269          5,508          6,560
Provision for income taxes                                          401            720          1,759          2,276
                                                            -----------    -----------    -----------    -----------
Net income                                                  $     1,238    $     1,549    $     3,749    $     4,284
                                                            ===========    ===========    ===========    ===========
Basic earnings per share                                    $      0.25    $      0.31    $      0.75    $      0.85
                                                            ===========    ===========    ===========    ===========
Diluted earnings per share                                  $      0.24    $      0.30    $      0.73    $      0.84
                                                            ===========    ===========    ===========    ===========
Basic weighted average shares outstanding                     4,991,693      4,935,442      4,976,283      4,924,497
                                                            ===========    ===========    ===========    ===========
Diluted weighted average shares outstanding                   5,121,665      5,066,404      5,117,267      5,036,778
                                                            ===========    ===========    ===========    ===========
</TABLE>


                                       3
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                               For the three months    For the three months
                                                ended September 30,     ended September 30,
                                                   1998     1997           1998     1997
                                                  ------   ------         ------   ------
                                                                (Unaudited)
                                                               (In thousands)
<S>                                               <C>      <C>            <C>      <C>   
Net income                                        $1,238   $1,549         $3,749   $4,284
Other comprehensive income, net of tax:
   Change in unrealized increase in
      market value of assets available for sale      539      445            260      928
                                                  ------   ------         ------   ------
Comprehensive income                              $1,777   $1,994         $4,009   $5,212
                                                  ======   ======         ======   ======
</TABLE>

See notes to consolidated financial statements.


                                             4
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                        Unrealized
                                                                                                         Increase
                                                                                                      (Decrease) in
                                                               Retained       Employee   Recognition   Market Value
                                                  Additional    Income-        Stock        and       of Securities
                                        Common     Paid In   Substantially   Ownership   Retention    Available for
                                         Stock     Capital    Restricted        Plan       Plan            Sale       Total
                                       ======================================================================================
                                                                                (In thousands)
<S>                                    <C>         <C>         <C>           <C>         <C>            <C>         <C>     
Balance - December 31, 1996            $  5,090    $ 29,920    $ 44,603      $ (1,818)   $   (608)      $ (1,068)   $ 76,119
Net income for the year ended                                                                          
     December 31, 1997                       --          --       5,356            --          --             --       5,356
Stock options exercised                       5          45          --            --          --             --          50
Unrealized increase in market value                                                                    
     of assets available for sale                                                                     
     (net of income taxes)                   --          --          --            --          --            914         914
Amortization of deferred
     compensation - Employee Stock
     Ownership Plan and Recognition
     and Retention Plan                      --         313          --           394         185             --         892
Dividends declared                           --          --      (2,072)           --          --             --      (2,072)
                                       --------------------------------------------------------------------------------------
                                                                                                       
Balance - December 31, 1997               5,095      30,278      47,887        (1,424)       (423)          (154)     81,259
                                                                                                       
Net income for the nine months ended
     September 30, 1998                      --          --       3,749            --          --             --       3,749
Stock options exercised                       9          90          --            --          --             --          99
Unrealized increase in  market value
     of assets available for sale   
     (net of income taxes)                   --          --          --            --          --            260         260
Amortization of deferred
     compensation - Employee Stock
     Ownership Plan and Recognition
     and Retention Plan                      --         397          --           295         139             --         831
Dividends declared                           --          --      (1,642)           --          --             --      (1,642)
                                       --------------------------------------------------------------------------------------
Balance-September 30, 1998         
     (Unaudited)                       $  5,104    $ 30,765    $ 49,994      $ (1,129)   $   (284)      $    106    $ 84,556
                                       ======================================================================================
</TABLE>

See notes to consolidated financial statements.


                                                               5
<PAGE>

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                    For the nine months ended
                                                                                          September 30,
                                                                                    -------------------------
                                                                                        1998        1997
                                                                                      --------    --------
                                                                                           (Unaudited)
                                                                                         (In thousands)
<S>                                                                                   <C>         <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 Net income                                                                           $  3,749    $  4,284
 Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation                                                                          1,092       1,049
   ESOP and Recognition and Retention Plan compensation expense                            831         603
   Accretion of discounts, amortization of premiums, and other deferred yield items     (2,000)     (1,149)
   Provision for loan losses                                                               436         221
   Provision for net gains on sales of real estate owned                                    (9)       (123)
   Amortization of discount on mortgage-backed bond                                        364         369
   Net loss on sale and early maturities of securities available for sale                   --           8
   Net loss (gain) on sale of loans and other assets                                         7        (630)
 Decrease (increase) in accrued interest receivable                                        377        (470)
 Increase in other assets                                                               (3,867)     (2,120)
 Decrease in loans available for sale                                                       --          70
 Decrease in other liabilities                                                          (4,090)       (409)
                                                                                      --------    --------

      Net cash (used for) provided by operating activities                              (3,110)      1,703
                                                                                      --------    --------

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 Loan originations and principal payments on loans-net                                 (51,080)    (25,750)
 Principal payments received on mortgage-backed and related securities
     and securities available for sale                                                  33,902      10,194
 Principal payments received on investments-held to maturity                             1,012       1,438
 Purchases of:
   Loans                                                                               (38,354)     (4,463)
   Mortgage-backed and related securities                                              (20,086)         --
   Securities available for sale                                                        (5,000)    (41,309)
   Federal Home Loan Bank stock                                                         (1,458)       (399)
   Office property and equipment                                                        (4,723)     (4,933)
Proceeds from sales of:
   Office properties and equipment                                                          76         129
   Real estate acquired in settlement of loans                                             522       1,263
Proceeds from calls of securities available for sale                                    43,504      21,434
Proceeds from maturities of investments-held to maturity                                    --         300
Other investing                                                                           (211)        331
                                                                                      --------    --------

          Net cash used for investing activities                                       (41,896)    (41,765)
                                                                                      --------    --------

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 Net increase in:
   NOW accounts, demand deposits, and savings accounts                                  12,733       2,494
   Certificates of deposit                                                              17,316      28,092
 Advances from Federal Home Loan Bank                                                   42,000      20,000
 Repayment of advances from Federal Home Loan Bank                                      (5,298)     (5,837)
 Advances by borrowers for taxes and insurance                                           7,076       5,909
 ESOP loan                                                                              (1,424)       (294)
 Proceeds from exercise of stock options                                                    99          54
 Payments made on mortgage-backed bond                                                  (1,040)     (1,041)
 Dividends paid                                                                         (1,579)     (1,460)
                                                                                      --------    --------

          Net cash provided by financing activities                                     69,883      47,917
                                                                                      --------    --------

NET  INCREASE IN CASH AND CASH EQUIVALENTS                                              24,877       7,855
CASH AND CASH EQUIVALENTS, beginning of period                                          25,954      42,442
                                                                                      --------    --------
CASH AND CASH EQUIVALENTS, end of period                                              $ 50,831    $ 50,297
                                                                                      ========    ========
</TABLE>

See notes to consolidated financial statements.


                                                       6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

      The unaudited  consolidated  interim  financial  statements  for Community
      Savings Bankshares,  Inc.  ("Bankshares") and its wholly-owned  subsidiary
      Community  Savings,  F. A. (the  "Association"),  reflect all  adjustments
      (consisting  only of normal  recurring  accruals) which, in the opinion of
      management,  are  necessary  to present  fairly  Bankshares'  consolidated
      financial  condition and the  consolidated  results of operations and cash
      flows for  interim  periods.  The  results  for  interim  periods  are not
      necessarily  indicative  of trends or results to be expected  for the full
      year. All weighted  interest  rates are presented on an annualized  basis.
      The unaudited  consolidated  interim financial statements and notes should
      be read in conjunction with the audited consolidated  financial statements
      and  the  notes  thereto   included  in   Bankshares'   Annual  Report  to
      Shareholders  for the year ended December 31, 1997. As the common stock of
      the Association  represents  Bankshares' sole investment on a consolidated
      basis,  the interim periods  presented herein are comparable to prior year
      financial data.

2.    REORGANIZATION  TO A MID-TIER HOLDING COMPANY AND CONVERSION TO STOCK FORM
      OF OWNERSHIP

      On September 30, 1997, the Association  completed its reorganization  into
      the two-tier form of mutual  holding  company  ownership.  Pursuant to the
      reorganization,  the Association is now the wholly owned subsidiary of the
      federally chartered mid-tier stock holding company, Bankshares. Bankshares
      is the majority owned subsidiary of ComFed, M.H.C. ("ComFed"), a federally
      chartered mutual holding company.  ComFed,  Bankshares and the Association
      are chartered and regulated by the Office of Thrift Supervision ("OTS").

      The  reorganization  was accounted for in a manner similar to a pooling of
      interests and did not result in any  significant  accounting  adjustments.
      Bankshares' only significant asset is the common stock of the Association.
      Consequently,  substantially  all of its net  income is  derived  from the
      Association.

3.    REORGANIZATION TO STOCK HOLDING COMPANY STRUCTURE

      During July,  1998, the Boards of Directors of ComFed,  Bankshares and the
      Association  unanimously  adopted a plan of  conversion  and agreement and
      plan of reorganization  (the "Plan of Conversion"),  pursuant to which the
      Association  will  reorganize  from the two-tier  mutual  holding  company
      structure to the stock holding company  structure.  The Plan of Conversion
      was amended on August 13, 1998 and October 14, 1998.  Pursuant to the Plan
      of Conversion,  (i) ComFed and Bankshares will be merged with and into the
      Association,  with the Association as survivor,  (ii) the Association will
      become a wholly owned  subsidiary of a newly formed  Delaware  corporation
      ("New  Holding  Company"),  (iii) the shares of common stock of Bankshares
      held by persons other than ComFed (whose shares will be cancelled) will be
      converted into shares of common stock of the New Holding Company  pursuant
      to an  exchange  ratio  designed  to  preserve  the  percentage  ownership
      interests of such persons,  subject to certain  adjustments,  and (iv) the
      New  Holding  Company  will offer and sell  shares of its common  stock to
      members of ComFed, shareholders of Bankshares and others in the manner and
      subject to the priorities set forth in the Plan of Conversion.

      The  transactions  contemplated  by the Plan of Conversion  are subject to
      approval of Bankshares'  shareholders,  the members of ComFed, and various
      regulatory agencies. The OTS has approved the Plan of Conversion,  subject
      to the approval of ComFed's  members and Bankshares'  shareholders and the
      satisfaction of certain other conditions.

4.    NEW ACCOUNTING PRONOUNCEMENTS

      SFAS  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
      Activities" ("SFAS No. 133"), issued by FASB in June 1998, must be adopted
      by Bankshares 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


                                       7
<PAGE>

      application of this Statement to financial  statements of prior periods is
      not  permitted.  Bankshares is currently in the process of evaluating  the
      impact of SFAS No. 133 on its consolidated  financial position and results
      of operations and has neither  determined whether to adopt it earlier than
      required  or whether  any  securities  will be  reclassified  from held to
      maturity to available for sale upon adoption of SFAS No. 133.

5.    LOANS RECEIVABLE

      Loans receivable consists of the following:

                                              September 30,   December 31,
                                                   1998           1997
                                                ---------      ---------
                                               (Unaudited)
                                                     (In thousands)
      Real estate loans:
         Residential 1-4 family                 $ 423,346      $ 339,117
         Residential 1-4 family held for sale                
            (at lower of cost or fair value)           --             --
         Residential construction                  48,188         32,828
         Non-residential construction               4,329          2,022
         Land                                      15,183         17,117
         Multi-family                               8,642          8,800
         Commercial                                47,960         59,220
                                                ---------      ---------
            Total real estate loans               547,648        459,104
                                                ---------      ---------
                                                             
      Non-real estate loans:                                 
         Consumer                                  15,531         15,694
         Commercial business                        6,313          3,530
                                                ---------      ---------
            Total non-real estate loans            21,844         19,224
                                                ---------      ---------
            Total loans receivable                569,492        478,328
                                                             
      Less:                                                  
         Undisbursed loan proceeds                 27,185         24,163
         Unearned discount (premium) and                     
            net deferred loan fees (costs)         (1,285)          (206)
         Allowance for loan losses                  2,990          2,662
                                                ---------      ---------
      Total loans receivable,  net              $ 540,602      $ 451,709
                                                =========      =========
                                                     
      The  amount  of  loans  which  had  ceased  accruing  interest  aggregated
      approximately $1,659,000 and $1,379,000 at September 30, 1998 and December
      31,  1997,  respectively.  The amount of interest  not accrued  related to
      these loans  totalled  approximately  $90,000 and $86,000 at September 30,
      1998 and December 31, 1997, respectively.

      An analysis of the changes in the allowance for loan losses is as follows:

                                                    For the nine months
                                                    ended September 30,
                                                   --------------------
                                                    1998          1997
                                                   ------        ------
                                                       (Unaudited)
                                                      (In thousands)

      Balance, beginning of period                 $2,662        $2,542
      Provision charged to income                     436           221
      Losses charged to allowance                    (108)         (131)
      Recoveries                                       --            --
                                                       --            --
                                                   ------        ------
      Balance, end of period                       $2,990        $2,632
                                                   ======        ======

      The  Association  accounts for impaired loans in accordance  with SFAS No.
      114  "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
      No.  118   "Accounting  by  Creditors  for  Impairment  of  a  Loan-Income
      Recognition   and   Disclosures".   Impaired  loans  totaled  $25,000  and
      $1,044,000  with related  allowances  of $25,000 and $252,000 at September
      30, 1998 and December 31, 1997, respectively.

                                       8
<PAGE>

6.    REAL ESTATE OWNED

      Real estate owned consists of the following:

                                                September 30,   December 31,
                                                    1998            1997
                                                    ----            ----
                                                         (Unaudited)
                                                       (In thousands)

      Real estate owned                             $752            $633
      Less allowance for loss                         47              41
                                                    ----            ----
      Total real estate owned                       $705            $592
                                                    ====            ====

      Changes in the allowance for loss on real estate owned are as follows:

                                                     For the nine months
                                                     ended September 30,
                                                    ---------------------
                                                     1998            1997
                                                    -----            ----
                                                         (Unaudited)
                                                        (In thousands)

      Balance, beginning of period                   $41             $92
      Provision charged to income                      6              --
      Losses charged to allowance                     --             (43)
                                                     ---             ---
      Balance, end of period                         $47             $49
                                                     ===             ===

7.    CONTINGENCIES

      There  are  various  claims  and  lawsuits  in  which  Bankshares  or  the
      Association are periodically  involved incidental to its business.  In the
      opinion of  management,  no  material  loss is  expected  from any of such
      pending  claims or lawsuits.  Reference is made to Note 13 in the Notes to
      Consolidated  Financial  Statements  included in  Bankshares'  1997 Annual
      Report.



                                       9
<PAGE>

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

                                     GENERAL

In the  following  discussion,  references to  "Bankshares"  relate to Community
Savings Bankshares, Inc. together with its subsidiary, Community Savings, F. A.(
the "Association").

                       COMMUNITY SAVINGS BANKSHARES, INC.

Bankshares is a federally  chartered mid-tier stock holding company organized in
August 1997. The only  significant  asset of Bankshares is its investment in its
wholly-owned  subsidiary,  the  Association.  Bankshares  is  majority  owned by
ComFed, M.H.C.  ("ComFed"),  a federally chartered mutual holding company. After
the close of business on  September  30,  1997,  Bankshares  acquired all of the
issued and  outstanding  common stock of the  Association in connection with the
Association's  reorganization  into the two-tier form of mutual holding  company
ownership.  At that  time,  each  share of the  Association's  common  stock was
converted  into one share of  Bankshares'  common stock.  At September 30, 1998,
ComFed owned  2,620,144  shares of  Bankshares'  common stock with the remaining
2,483,816 owned by minority shareholders. The holding company reorganization was
accounted for at historical cost in a manner similar to a pooling of interests.

                            COMMUNITY SAVINGS, F. A.

The  Association,  founded in 1955,  is a federally  chartered  savings and loan
association  headquartered  in North  Palm  Beach,  Florida.  The  Association's
deposits are  federally  insured by the Federal  Deposit  Insurance  Corporation
("FDIC")  through  the  Savings   Association   Insurance  Fund  ("SAIF").   The
Association has been a member of the Federal Home Loan Bank of Atlanta  ("FHLB")
since 1955.  The  Association  is regulated by the Office of Thrift  Supervision
("OTS"). On October 24, 1994, the Association  completed a reorganization into a
federally   chartered   mutual  holding   company,   ComFed.   As  part  of  the
reorganization,  the  Association  organized  a new  federally  chartered  stock
savings  association  and  transferred  substantially  all  of  its  assets  and
liabilities  to the stock savings  association in exchange for a majority of the
common stock of the stock savings association.

The Association is a community-oriented  financial institution engaged primarily
in the business of attracting  deposits  from the general  public and using such
funds, together with other borrowings,  to invest in various consumer-based real
estate loans, commercial loans,  mortgage-backed and related securities ("MBS"),
and  investment   securities.   The  Association's  plan  is  to  operate  as  a
well-capitalized,   profitable  and  independent  institution.  The  Association
currently  exceeds  all  regulatory  capital  requirements.   The  Association's
profitability  is highly  dependent on its net interest  income.  The components
that determine net interest income are the amount of interest-earning assets and
interest-bearing  liabilities,  together  with the rates  earned or paid on such
interest  rate-sensitive  instruments.  The Association is sensitive to managing
interest rate risk exposure by better  matching  asset and liability  maturities
and rates.  This is  accomplished  while  considering the credit risk of certain
assets. The Association maintains asset quality by utilizing  comprehensive loan
underwriting   standards  and  collection   efforts  as  well  as  by  primarily
originating or purchasing  secured or guaranteed  assets. At September 30, 1998,
the interest rate composition of the Association's  loan portfolio  consisted of
42% of adjustable-rate  mortgage loans, 17% of hybrid-rate mortgage loans (which
have a fixed  rate  for 7 or 10 years  and  which  then  convert  to a  one-year
adjustable rate), 33% of fixed-rate mortgage loans, 3% of consumer loans, and 5%
of commercial loans.

                         LIQUIDITY AND CAPITAL RESOURCES

The Association  adjusts its liquidity  levels in order to meet funding needs of
deposit outflows,  payment of real estate taxes on mortgage loans,  repayment of
borrowings,  and loan  commitments.  The Association  also adjusts  liquidity as
appropriate  to meet its  asset and  liability  management  objectives.  A major
portion of the Association's liquidity consists of cash and cash equivalents and
interest-bearing deposits, which are a product of its operating,  investing, and
financing activities.


                                       10
<PAGE>

The  Association  is  required to maintain  minimum  levels of liquid  assets as
defined by OTS  regulations.  This  requirement,  which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 4.0%. The
Association's  liquidity  ratio  averaged  11.2%  during the nine  months  ended
September 30, 1998 compared to 14.2% for the year ended December 31, 1997.

The  Association's  primary  sources  of funds are  deposits,  amortization  and
prepayment  of loans and MBS,  maturities  of  investment  securities  and other
short-term  investments,  FHLB  advances,  and earnings and funds  provided from
operations.   While  scheduled  principal  repayments  on  loans  and  MBS,  and
maturities of securities are a relatively  predictable source of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic conditions, and competition. The Association manages the pricing of its
deposits to maintain a desired  deposit  balance.  In addition,  the Association
invests  funds in excess of its immediate  needs in short-term  interest-earning
deposits and other assets, which provide liquidity to meet lending requirements.
Short-term  interest-bearing deposits with the FHLB of Atlanta amounted to $33.9
million at September 30, 1998. Other assets qualifying for liquidity outstanding
at September  30, 1998 amounted to $12.8  million.  For  additional  information
about cash flows from the operating,  financing,  and investing activities,  see
the unaudited  consolidated  statements of cash flows  included in the financial
statements.

Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.   If  funds  are  required  beyond  the  ability  to  generate  them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. FHLB advances totaled $94.0 million at September 30, 1998.

At September 30, 1998,  outstanding loan commitments totaled $9.0 million, which
amount does not include the unfunded  portion of loans in process.  Certificates
of deposit  scheduled to mature in less than one year totaled  $248.5 million at
September  30,  1998.  Based on prior  experience,  management  believes  that a
significant portion of such deposits will remain with the Association.


                                       11
<PAGE>

                               FINANCIAL CONDITION

                SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997

The following  table  summarizes  certain  information  relating to  Bankshares'
financial condition at the dates indicated.

<TABLE>
<CAPTION>
                                                    September, 30   December 31,     Increase
                                                         1998           1997        (Decrease)
                                                       --------       --------      ----------
                                                     (Unaudited)
                                                                   (In thousands)
<S>                                                    <C>            <C>            <C>
Assets:
   Total assets                                        $791,291       $720,133       $ 71,158
   Cash and cash equivalents                             50,831         25,954         24,877
                                                                                   
   Securities portfolio:                                                           
      Investments- held to maturity                      21,595         21,388            207
      Securities available for sale                     100,317        142,269        (41,952)
      Mortgage-backed and related securities-                                      
           held to maturity                              36,869         46,413         (9,544)
                                                       --------       --------       --------
   Total securities portfolio                           158,781        210,070        (51,289)
                                                       ========       ========       ========
                                                                                   
    Loans receivable, net                               540,602        451,709         88,893
    Real estate owned, net                                  705            592            113
                                                                                   
Liabilities and Shareholders' Equity:                                              
  Total liabilities                                     706,735        638,874         67,861
                                                                                   
  Deposits:                                                                        
      Passbook and statement savings accounts            32,652         30,221          2,431
      NOW and non interest bearing checking accounts     99,221         94,577          4,644
      Money market deposit accounts                      84,490         78,832          5,658
      Certificates of deposit                           364,394        347,078         17,316
                                                       --------       --------       --------
  Total deposits                                        580,757        550,708         30,049
                                                       ========       ========       ========
                                                                                   
  Federal Home Loan Bank advances                        94,043         57,341         36,702
  Shareholders' equity                                   84,556         81,259          3,297
</TABLE>

Total assets  increased  $71.2  million to $791.3  million at September 30, 1998
from $720.1  million at  December  31, 1997  primarily  due to an $88.9  million
increase in the net loan  portfolio as a result of the  Association's  continued
emphasis on expanding its lending  activities.  The securities  portfolio (which
includes securities available for sale, investment securities and MBS) decreased
$51.3  million  primarily  due to calls and normal  amortization.  The  proceeds
resulting  from such calls and  amortization  were used in part to fund the loan
originations  and  purchases  totalling  $187.5  million  during  the nine month
period,  and resulted in the $24.9 million increase in cash and cash equivalents
during the period.  The  increase  in total  assets was also funded in part by a
$30.0 million  increase in deposits to $580.7 million at September 30, 1998 from
$550.7  million at  December  31,  1997.  The  increase  in  deposits  primarily
reflected  increased  retail  deposits  resulting  from  special  promotions  of
odd-term  certificates  and deposit growth  experienced at newer branch offices.
The growth also reflected the  Association's  continued efforts to competitively
price deposit accounts to enhance its market share. In addition, a $36.7 million
net increase in FHLB  advances  was used to  partially  fund the increase in the
loan portfolio as well as to purchase mortgage-backed securities.  Shareholders'
equity increased to $84.6 million or $16.91 per share at September 30, 1998 from
$81.3  million or $16.39 per share at December 31, 1997,  reflecting  net income
for the nine months of $3.7  million,  offset  primarily by dividends  totalling
$1.6  million  declared  during  the nine  months on the  common  stock  held by
minority shareholders.  For further information,  see the unaudited consolidated
statements of changes in shareholders'  equity in the accompanying  consolidated
financial statements.


                                       12
<PAGE>

The Association is required to report regulatory  capital ratios  unconsolidated
with Bankshares.  The Association's actual regulatory capital amounts and ratios
at September 30, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                    To be Considered
                                                                                          Well
                                                                      For             Capitalized
                                                                    Capital            for Prompt
                                                                   Adequacy              Action
                                                Actual             Purposes            Provisions
                                           ----------------    ----------------     ----------------
                                           Ratio     Amount    Ratio     Amount     Ratio     Amount
                                           -----     ------    -----     ------     -----     ------
                                                              (Dollars in thousands)
<S>                                        <C>      <C>         <C>     <C>         <C>      <C>
As of September 30, 1998:
Total risk-based capital (to
  risk-weighted assets)                    18.17%   $78,182     8.0%    $34,424     10.0%    $43,030
Core (Tier 1) capital                                                                       
  (to adjusted tangible assets)             9.51     75,215     4.0      31,648      5.0      39,560
Tangible capital (to tangible assets)       9.51     75,215     1.5      11,868      N/A         N/A
Core (Tier 1) capital                                                                       
  (to risk-weighted assets)                17.48     75,215     4.0      17,212      6.0      25,818
</TABLE>

As of  September  30, 1998,  tangible  assets,  adjusted  tangible  assets,  and
risk-weighted  assets were $791.2 million,  $791.2 million,  and $430.3 million,
respectively.



                                       13
<PAGE>

                                  ASSET QUALITY

Loans  90  days  past  due are  generally  placed  on  non-accrual  status.  The
Association ceases to accrue interest on a loan once it is placed on non-accrual
status and interest  accrued but unpaid at such time is charged against interest
income. Additionally,  any loan for which it appears evident prior to being past
due 90 days  that the  collection  of  interest  is in doubt is also  placed  on
non-accrual  status.  Real estate  owned is carried at the lower of cost or fair
value,  less cost to dispose.  Management  regularly reviews assets to determine
proper  valuation.  There were no restructured  loans within the meaning of SFAS
No. 15 at September 30, 1998 or December 31, 1997.

The following table sets forth  information  regarding the delinquent  loans and
foreclosed real estate at the dates indicated:

                                                  September 30,    December 31,
                                                      1998             1997
                                                     ------           ------
                                                          (In thousands)
Non-performing loans:
Residential real estate loans:
  Loans 60 to 89 days delinquent                     $  684           $  492
  Loans more than 90 days delinquent                  1,494            1,344
                                                     ------           ------
    Total                                             2,178            1,836
                                                     ------           ------
                                                                    
Commercial and multi-family real estate loans:                      
  Loans 60 to 89 days delinquent                         --               --
  Loans more than 90 days delinquent                     52               --
                                                     ------           ------
    Total                                                52               --
                                                     ------           ------
                                                                    
Consumer and commercial business loans:                             
  Loans 60 to 89 days delinquent                         19               31
  Loans more than 90 days delinquent                     49               --
                                                     ------           ------
     Total                                               68               31
                                                     ------           ------
                                                                    
Land:                                                               
  Loans 60 to 89 days delinquent                         --               35
  Loans more than 90 days delinquent                     64               --
                                                     ------           ------
    Total                                                64               35
                                                     ------           ------
Total non-performing loans                            2,362            1,902
                                                                    
Real estate owned net of related allowance              705              592
Loans to facilitate sale of real estate owned           152              217
                                                     ------           ------
Total non-performing assets and                                     
   loans to facilitate sale of real estate owned     $3,219           $2,711
                                                     ======           ======

                            YEAR 2000 CONSIDERATIONS

In order to be ready for the year 2000 (the "Year 2000 Issue"),  the Association
has developed a Year 2000 Action Plan (the "Action Plan") which was presented to
the Audit Committee of the Board of Directors  during July 1997. The Action Plan
was  developed   using  the  guidelines   outlined  in  the  Federal   Financial
Institutions  Examination's  Council's "The Effect of 2000 on Computer Systems."
The Association's  Strategic Planning Committee assigned  responsibility for the
Action Plan to the Year 2000 Committee  which reports to the Strategic  Planning
Committee  and the  Board of  Directors  on a monthly  basis.  The  Action  Plan
recognizes  that  the   Association's   operating,   processing  and  accounting
operations  are  computer  reliant and could be affected by the Year 2000 Issue.
The  Association  is primarily  reliant on third party  vendors for its computer
output and processing, as well as other significant functions and services (i.e.
securities safekeeping services, securities pricing information, et cetera). The
Year 2000  Committee  is  currently  working  with these third party  vendors to
assess their year 2000 readiness. Based upon the initial assessment,  management
presently  believes  that with planned  modifications  to existing  software and
hardware and planned conversions to new software and hardware, the Association's
third party vendors are taking the appropriate  steps to ensure critical systems
will function properly.


                                       14
<PAGE>

The  Association  has  identified  64  mission   critical   (without  which  the
Association  cannot  operate)  and  critical  (necessary  applications  but  the
Association can function for a moderate amount of time without such applications
being Year 2000 complaint) applications operated by third party vendors. Of such
mission  critical and critical  applications,  the Association has been informed
that a majority are already Year 2000 compliant and approximately 30% are in the
process of revising and testing their systems for Year 2000 compliance.  Of such
64 mission critical and critical applications, approximately 25% are provided by
the Association's data service processor which has informed the Association that
it expects to  complete  testing of its updated  systems  (in which  testing the
Association  has been involved) by the end of 1998. The initial phase of testing
of the data service  processor's  updated  system was  completed in October 1998
with   substantially   all  such  systems   evidencing  Year  2000   compliance.
Substantially  all of the  Association's  vendors of its  mission  critical  and
critical  applications have provided written  assurances that their products and
services will be Year 2000  compliant.  The  Association  currently  expects the
majority of such  modifications  and  conversions  and  related  testing of such
systems to be  completed  by  December  31, 1998 with any  remaining  ones being
completed by March 31, 1999. While the Association has received  assurances from
such vendors as to compliance, such assurances are not guarantees and may not be
enforceable. The Association's existing older contracts with such vendors do not
include Year 2000 certifications or warranties. Thus, in the event such vendor's
products and/or services are not Year 2000 compliant, the Association's recourse
in the event of such failure may be limited.  If the required  modifications and
conversions are not made, or are not completed on a timely basis,  the Year 2000
Issue could have a material impact on the operations of the  Association.  There
can be no  assurance  that  potential  systems  interruptions  or  unanticipated
additional  expense  incurred  to obtain Year 2000  compliance  would not have a
material  adverse effect on the  Association's  business,  financial  condition,
results of operations and business prospects. Nevertheless, the Association does
not believe that the cost of addressing  the Year 2000 issues will be a material
event or uncertainty that would cause reported  financial  information not to be
necessarily indicative of future operating results or financial conditions,  nor
does it believe that the costs or the  consequences  of  incomplete  or untimely
resolution  of its  Year  2000  issues  represent  a  known  material  event  or
uncertainty that is reasonably likely to affect its future financial results, or
cause its reported  financial  information  not to be necessarily  indicative of
future operating results or future financial condition.

The Year  2000  issues  also  affect  certain  of the  Association's  customers,
particularly  in the areas of access to funds  and  additional  expenditures  to
achieve  compliance.  As of June 30, 1998, the  Association had contacted all of
its commercial credit customers (69 borrowers with loans outstanding aggregating
$60.1 million) regarding the customers'  awareness of the Year 2000 Issue. While
no  assurance  can be given  that its  customers  will be Year  2000  compliant,
management  believes,  based on representations of such customers and reviews of
their   operations   (including   assessments   of  the   borrowers'   level  of
sophistication and data and record keeping requirements), that the customers are
either  addressing the appropriate  issues to insure compliance or that they are
not faced with material Year 2000 issues.  None of such  borrowers use networked
computer systems or data centers to conduct their  operations.  In addition,  in
substantially  all cases the credit extended to such borrowers is collateralized
by real estate which  inherently  minimizes  the  Association's  exposure in the
event that such  borrowers do  experience  problems or delay  becoming Year 2000
compliant.

The  Association  has completed its  company-wide  Year 2000  contingency  plan.
Individual  contingency  plans concerning  specific software and hardware issues
and operational plans for continuing operations were completed for a substantial
majority  of its mission  critical  hardware  and  software  applications  as of
September  15, 1998 with the  remainder  expected to be  completed by the end of
1998. The Year 2000 Committee is reviewing  substantially  all mission  critical
test  plans and  contingency  plans to ensure the  reasonableness  of the plans.
Testing began on mission critical systems in October 1998 and planned completion
of testing of a majority of such  systems is expected by December  1998 with the
remainder by March 31, 1999. The Association has completed contingency plans for
more than 80% of its identified mission critical and critical applications.  The
Association is working to develop contingency plans for the remainder by the end
of 1998  including  working  on  contingency  plans  which  address  operational
policies and procedures in the event of data  processing,  electric power supply
and/or  telephone   service  failures   associated  with  the  Year  2000.  Such
contingency  plans  provide  documented  actions  to allow  the  Association  to
maintain and/or resume normal  operations in the event of the failure of mission
critical and critical applications. Such plans identify participants,  processes
and  equipment  that will be  necessary  to permit the  Association  to continue
operations. Such plans may include providing off-line system processing, back-up
electrical and telephone  systems and other methods to ensure the  Association's
ability to continue to operate.


                                       15
<PAGE>

The costs of modifications to the existing software is being primarily  absorbed
by the third party vendors,  however the  Association  recognized  that the need
exists to purchase new hardware and software.  Based upon current estimates, the
Association has identified  approximately $1.8 million in total costs, including
hardware,  software,  and other issues, for completing the Year 2000 project. Of
that amount,  approximately  $1.2  million and $39,000 was  expensed  during the
years  ended  December  31,  1997 and  1996,  respectively,  with the  remaining
$535,000 budgeted for the year ended December 31, 1998.

                              RESULTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                     GENERAL

Net income for the quarter ended  September 30, 1998 was $1.2 million,  or $0.25
basic earnings per share, a $311,000 decrease from $1.5 million,  or $0.31 basic
earnings per share, for the quarter ended September 30, 1997.

                               NET INTEREST INCOME

Net interest  income  increased to $6.0 million for the quarter ended  September
30, 1998 from $5.9 million for the same period in 1997  primarily as a result of
a $66.2 million  increase in average  interest-earning  assets to $729.5 million
for the three months ended  September 30, 1998 from $663.3  million for the same
period in the  prior  year,  partially  offset by a $71.9  million  increase  in
average  interest-bearing  liabilities  to $679.4  million for the quarter ended
September  30,  1998 from $607.5  million for the same period in 1997  primarily
reflecting the growth of the Association's deposit portfolio and additional FHLB
advances.  This  increase  related to volume was offset in part by a decrease in
the interest rate spread to 2.99% for the quarter ended  September 30, 1998 from
3.15% for the same period in 1997.

                            PROVISION FOR LOAN LOSSES

The  Association  maintains an  allowance  for loan losses based upon a periodic
evaluation  of,  among  other  things,  known  and  inherent  risks  in the loan
portfolio,  past  loan  loss  experience,  adverse  situations  that may  affect
borrowers'  ability to repay loans,  the estimated  value of the underlying loan
collateral,  volume and type of lending conducted by the Association and current
economic  conditions  in its market area.  Loan loss  provisions  are based upon
management's  estimate of the fair value of the  collateral  and the actual loss
experience,  as well as guidelines  applied by the OTS and the FDIC.  Management
reviews the adequacy of its allowance for loan losses monthly  through its asset
classification  review.  The  provision  for loan  losses was  $223,000  for the
quarter ended  September 30, 1998, as compared to $138,000 for the quarter ended
September  30, 1997  primarily  due to  management's  decision  to increase  the
allowance due to the continued  growth in the loan portfolio  during fiscal 1998
which  increased  the inherent  potential  risk of loss.  The allowance for loan
losses as a percentage of net loans  receivable was 0.55% and 0.63% at September
30, 1998 and 1997, respectively.

                                  OTHER INCOME

Other income consists of servicing income and fee income,  service charges, gain
or loss on the sale of securities  available  for sale and other  assets.  Other
income decreased  $616,000 to $906,000 for the quarter ended September 30, 1998,
from  $1.5  million  for the same  period  in 1997,  primarily  as a result of a
$617,000 gain on the sale of the Association's  investment in its service bureau
during the quarter ended September 30, 1997.

                                OPERATING EXPENSE

Operating  expense  increased $93,000 to $5.1 million for the three month period
ended September 30, 1998 from $5.0 million for the same period in 1997. Employee
compensation and benefits and occupancy and equipment expense increased $235,000
and $139,000,  respectively,  during the quarter  ended  September 30, 1998 as a
result of increased  staffing due to branch  office  openings,  and the expanded
loan production program. This increase was offset in part by a $400,000 decrease
in  miscellaneous  expense.  Miscellaneous  expense  was higher  during the 1997
period  primarily as a result of the recognition of a $254,000  reserve for loss
on an insurance claim.


                                       16
<PAGE>

                           PROVISION FOR INCOME TAXES

The provision for income taxes was $401,000 for the three months ended September
30,  1998 as compared to  $720,000  for the same period in 1997  reflecting  the
decrease in net income.


                              RESULTS OF OPERATIONS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                     GENERAL

Net income for the nine months ended  September  30, 1998 was $3.7  million,  or
$0.75 basic earnings per share, a $535,000 decrease from $4.3 million,  or $0.85
basic earnings per share, for the nine months ended September 30, 1997.

                               NET INTEREST INCOME

Net  interest  income  increased  to $18.2  million  for the nine  months  ended
September 30, 1998 from $17.2 million for the same period in 1997 primarily as a
result of a $62.6 million increase in average  interest-earning assets to $711.2
million for the nine months ended September 30, 1998 from $648.6 million for the
same period in the prior year,  partially  offset by a $65.3 million increase in
average interest-bearing liabilities to $659.6 million for the nine months ended
September  30, 1998 from $594.4  million for the same period in 1997,  primarily
reflecting the growth of the Association's deposit portfolio and additional FHLB
advances.  This  increase  related to volume was offset in part by a decrease in
the interest  rate spread to 3.08% for the nine months ended  September 30, 1998
from 3.15% for the same period in 1997.

                            PROVISION FOR LOAN LOSSES

The provision  for loan losses was $436,000 for the nine months ended  September
30, 1998, as compared to $221,000 for the nine months ended  September 30, 1997.
The increase was due to  management's  decision to increase the allowance due to
the continued  growth in the loan portfolio  during fiscal 1998 which  increased
the inherent potential risk of loss.

                                  OTHER INCOME

Other income consists of servicing income and fee income,  service charges, gain
or loss on the sale of securities  available  for sale and other  assets.  Other
income  decreased  $722,000 to $2.7 million for the nine months ended  September
30, 1998,  from $3.4 million for the same period in 1997,  primarily  due to the
$617,000 gain on the sale of the Association's  investment in its service bureau
during the 1997  period.  In  addition,  amoritization  of  $211,000 of the $4.8
million  affordable  housing tax credit  partnership  was recognized in the nine
months ended September 30, 1998 as compared to $74,000 during the same period in
1997. The partnership began its scheduled amortization in August 1997.

                                OPERATING EXPENSE

Operating  expense  increased  $1.1 million to $14.9  million for the nine month
period ended  September 30, 1998 from $13.8 million for the same period in 1997.
Increased  employee  compensation and benefits and occupancy and equipment costs
accounted for the majority of such increase,  increasing  $976,000 and $246,000,
respectively,  during the nine months ended  September  30, 1998, as compared to
the  1997  period.   Additional  costs  related  to  the  incentive-based   loan
originators  were incurred  during the 1998 period as a result of increased loan
originations.  In addition,  increases in staffing and occupancy  costs resulted
from two additional  branch offices operating in the nine months ended September
30, 1998 that were not open during the same period in 1997, the  requirements of
the new company wide computer network,  which involved new hardware and software
depreciation  expense and additional  personnel for implementation and training,
as well as the increased cost of benefit programs reflecting the increase in the
market value of Bankshares' common stock. These increases were offset in part by
a $337,000 decrease in miscellaneous expense primarily as a result of a $254,000
reserve for loss on an insurance  claim which was  recognized in the 1997 period
and not repeated in the 1998 period.

                           PROVISION FOR INCOME TAXES

The  provision  for income  taxes was $1.8  million  for the nine  months  ended
September  30,  1998 as  compared  to $2.3  million  for the same period in 1997
reflecting  the $260,000 tax benefit  received from the  affordable  housing tax
credit  partnership  during the nine months ended September 30, 1998 as compared
to $126,000 for the 1997 period.


                                       17
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of Bankshares' asset and liability  management policies as well
as the  potential  impact of  interest  rate  changes  upon the market  value of
Bankshares' portfolio equity, see "Management's Discussion and Analysis - Market
Risk  Analysis" and -"Market Value of Portfolio  Equity" in  Bankshares'  Annual
Report to Shareholders  for the year ended December 31, 1998.  There has been no
material change in Bankshares' asset and liability  position or the market value
of Bankshares' portfolio equity since December 31, 1997.




                                       18
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

              There are various  claims and lawsuits in which  Bankshares or the
              Association are periodically  involved incidental to its business.
              In the opinion of  management,  no material  loss is expected from
              any of such pending claims or lawsuits.  Reference is made to Note
              13 in the Notes to Consolidated  Financial  Statements included in
              Bankshares' 1997 Annual Report.

ITEM 2.       CHANGES IN SECURITIES

              Not applicable.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

              None.

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

              None.

ITEM 5.       OTHER INFORMATION.

              On July 29, 1998,  the Boards of  Directors of ComFed,  Bankshares
              and the Association  unanimously  adopted a plan of conversion and
              agreement and plan of  reorganization  (the "Plan of Conversion"),
              pursuant  to  which  the  Association  will  reorganize  from  the
              two-tier  mutual  holding  company  structure to the stock holding
              company  structure.  The Plan of Conversion  was amended on August
              13, 1998 and October 14, 1998. Pursuant to the Plan of Conversion,
              (i)  ComFed  and  Bankshares  will be  merged  with  and  into the
              Association,   with  the   Association   as  survivor,   (ii)  the
              Association   will  become  a  wholly   owned   subsidiary   of  a
              to-be-formed  Delaware corporation ("New Holding Company"),  (iii)
              the shares of common  stock of  Bankshares  held by persons  other
              than ComFed  (whose  shares will be  cancelled)  will be converted
              into shares of common stock of the New Holding Company pursuant to
              an exchange ratio  designed to preserve the  percentage  ownership
              interests of such  persons,  subject to certain  adjustments,  and
              (iv) the New  Holding  Company  will offer and sell  shares of its
              common stock to members of ComFed,  shareholders of Bankshares and
              others in the manner and  subject to the  priorities  set forth in
              the Plan of Conversion.

              The  transactions  contemplated  by the  Plan  of  Conversion  are
              subject to approval of  Bankshares'  shareholders,  the members of
              ComFed, and various regulatory agencies.  The OTS has approved the
              Plan of  Conversion,  subject to approval of ComFed's  members and
              Bankshares'  shareholders  and the  satisfaction  of certain other
              conditions.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K.
 (a)          Exhibits.
              --------

              None.

 (b)          Current Reports on Form 8-K.
              ---------------------------

              Form 8-KA Amendment No. 2 and 3 filed October 11, 1998 and October
              27,  1998,  respectively.   "Changes  in  Registrant's  Certifying
              Accountant".



                                       19
<PAGE>

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.




                                         COMMUNITY SAVINGS BANKSHARES, INC.




Date:  November 12, 1998                       /s/ James B. Pittard, Jr.
                                         --------------------------------------
                                                   James B. Pittard, Jr.
                                         President and Chief Executive Officer


Date:  November 12, 1998                       /s/ Larry J. Baker          
                                         --------------------------------------
                                                   Larry J. Baker
                                         Senior Vice President and Treasurer