<PAGE>
<PAGE>
              SECURITIES AND EXCHANGE COMMISSION
                  Washington, D.C.  20549
                  _______________________

                         FORM 10-KSB

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

          For the fiscal year ended March 31, 1999

             Commission File Number: 0-24194

               HARBOR FEDERAL BANCORP, INC.
    ---------------------------------------------------
    (Exact name of small business issuer as specified
                      in its charter)

     Maryland                                52-1860591
   ---------------------------------    ------------------
   (State or other jurisdiction          (I.R.S. Employer
   of incorporation or organization)    Identification No.)

   705 York Road, Baltimore, Maryland             21204
   ---------------------------------------    --------------
   (Address of principal executive offices      (Zip Code)

   Registrant's telephone number, including area code:
                     (410) 321-7041
                     --------------

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

          Common Stock, par value $.01 per share
          --------------------------------------
                    (Title of Class)

     Check whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.  YES   X    NO
                            ---      ---

     Check if no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB.  [X]

     State issuer's revenues for its most recent fiscal year:
$17,661,877.

     State the aggregate market value of the voting stock held
by non-affiliates computed by reference to the price at
which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within the past 60 days:
$19,747,408 (1,234,213 shares at the most recent price of which
management was aware as of June 2, 1999 ($16.00 per
share)).

     State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 1,676,515 shares of common stock as of June 1, 1999.

     Transitional small business disclosure format (check one):
YES      NO  X
   ___      ___

                 DOCUMENTS INCORPORATED BY REFERENCE

     1.  Portions of the registrant's Annual Report to
Stockholders for the Fiscal Year Ended March 31, 1999 (the
"Annual Report").  (Part II)

     2.  Portions of the Proxy Statement for the registrant's
1999 Annual Meeting of Stockholders (the "Proxy Statement").
(Part III)

    
<PAGE>
<PAGE>
                        PART I

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

GENERAL

    Harbor Federal Bancorp, Inc.  Harbor Federal Bancorp, Inc.
(the "Company") was incorporated under the laws of the State of
Maryland in January 1994 at the direction of the Board of
Directors of the predecessor of Harbor Federal Savings Bank
("Harbor Federal" or the "Bank") for the purpose of serving as
the holding company of Harbor Federal upon its conversion from
mutual to stock form (the "Conversion"), which was effective
August 11, 1994.  Before the Conversion, the Company did not
engage in any material operations.  Since the Conversion, the
Company has had no significant assets other than the outstanding
capital stock of Harbor Federal, a portion of the net proceeds
of the Conversion, investment securities and a note payable from
the Company's employee stock ownership plan ("ESOP"), and the
Company's principal business has been the business of Harbor
Federal.

    The holding company structure permits the Company to
expand the financial services currently offered through Harbor
Federal, although there currently are no definitive plans or
arrangements for such expansion.   As a holding company, the
Company has greater flexibility than Harbor Federal to diversify
its business activities through existing or newly formed
subsidiaries or through acquisition or merger with other
financial institutions, although the Company currently does not
have any plans, agreements, arrangements or understandings with
respect to any such acquisitions or mergers.   The Company is
classified as a unitary savings institution holding company and
is subject to regulation by the Office of Thrift Supervision
("OTS").  As long as the Company remains a unitary savings
institution holding company, the Company currently may diversify
its activities in such a manner as to include any activities
allowed by law or regulation to a unitary savings institution
holding company.  For additional information, see "Regulation of
the Company."

    The Company's executive offices are located at 705 York
Road, Baltimore, Maryland  21204, and its main telephone number
is (410) 321-7041.

    Harbor Federal Savings Bank.  Harbor Federal was
originally organized in 1887 as "Riverside Permanent Building
and Loan Association," a Maryland-chartered mutual savings
institution.  In 1941, it converted to a federally chartered
mutual savings and loan association, obtained federal deposit
insurance, became a member of the Federal Home Loan Bank
("FHLB") System and changed its name to "Riverside Federal
Savings and Loan Association."  In 1981, Riverside Federal
combined with Highland Federal Savings and Loan Association and
changed its name to "Harbor Federal Savings and Loan
Association."  Effective August 11, 1994, Harbor Federal
converted from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank and
adopted its current name.  Effective February 16, 1996, Harbor
Federal acquired from Sequoia National Bank, Bethesda, Maryland,
three branch offices in the Baltimore area with deposits
totaling approximately $44.1 million.  Harbor Federal currently
operates through nine banking offices in the City of Baltimore
and the Counties of Baltimore and Anne Arundel in Maryland.

    Harbor Federal is primarily engaged in the business of
attracting deposits from the general public and originating
loans secured by first mortgages on one- to four-family
residences in Harbor Federal's market area.  Harbor Federal also
makes commercial and multi-family real estate loans,
construction loans, commercial business loans and other loans.
For additional information, see the Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Annual Report.

<PAGE>
    As a federally chartered savings institution, Harbor
Federal is subject to extensive regulation by the OTS.  The
lending activities and other investments of Harbor Federal must
comply with various federal regulatory requirements, and the OTS
periodically examines Harbor Federal for compliance with various
regulatory requirements.  The Federal Deposit Insurance
Corporation ("FDIC") also has the authority to conduct special
examinations.  Harbor Federal must file reports with OTS
describing its activities and financial condition and is also
subject to certain reserve requirements

                            1
<PAGE>
<PAGE>
promulgated by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board").  For additional information,
see "Regulation of the Bank."

PROPOSED LEGISLATIVE CHANGES

    The Banking Committee and Commerce Committee of the U.S.
House of Representatives have each passed differing versions of
H.R. 10 (the "Act"), which calls for a sweeping modernization of
the banking system that would permit affiliations between
commercial banks, securities firms and insurance companies.  The
Act removes the restrictions contained in the Glass-Steagall Act
of 1933 and the Bank Holding Company Act of 1956, thereby
allowing qualified financial holding companies to control banks,
securities firms, insurance companies, and other financial
firms.  Conversely, securities firms, insurance companies and
financial firms would be allowed to own or affiliate with a
commercial bank.  The Act preserves the thrift charter and all
existing thrift powers, but restricts the activities of new
unitary thrift holding companies.  The Senate has passed S. 900,
which is similar to the Act but would exempt small rural banks
from the Community Reinvestment Act.  At this time, it is
unknown whether the Act will be enacted, or if enacted, what
form the final version of such legislation might take.

LENDING ACTIVITIES

    General.  Harbor Federal's principal lending activity
consists of the origination of loans secured by first mortgages
on existing one- to four-family residences in Harbor Federal's
market area.  Harbor Federal also makes commercial and multi-
family real estate loans, construction loans, land loans and
other loans.

    Historically, Harbor Federal's residential lending
activities consisted primarily of originating fixed rate
mortgage loans with maturities of up to 30 years for retention
in the loan portfolio.  Since the early 1980s, Harbor Federal
has sought to build a more rate-sensitive loan portfolio by also
originating adjustable rate mortgages.  In recent years,
management has sought to manage Harbor Federal's interest rate
risk by emphasizing the origination of adjustable rate mortgage
loans and fixed rate mortgage loans with terms of 15 years or
less, as well as by investing in significant amounts of short
and medium term mortgage-backed securities and other
investments.  In recent periods of both falling and rising
market interest rates, borrowers have tended to prefer longer
term, fixed rate mortgage loans rather than shorter term or
adjustable rate mortgage loans.  Prevailing market conditions,
regulatory considerations and the need for a balanced portfolio
have necessitated that Harbor Federal continue to offer fixed
rate mortgages.  Since Harbor Federal is a portfolio lender
(i.e., its loans are originated for retention in portfolio
rather than for sale in the secondary market), Harbor Federal's
fixed rate loan originations are a function of the level of
interest rate risk that Harbor Federal is willing to accept
given its capital, profitability and other factors.

                            2
<PAGE>
<PAGE>
    Loan Portfolio Composition.  The following table sets forth
selected data relating to the composition of Harbor Federal's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>

                                                           At March 31,
                                       ---------------------------------------------------
                                           1999                1998             1997
                                       ---------------    ---------------   --------------
                                       Amount      %      Amount      %     Amount     %
                                       ------    -----    ------    ----    ------    ----
                                                      (Dollars in thousands)
<S>                                    <C>       <C>      <C>       <C>     <C>       <C>
Real estate loans:
  One- to four-family residential. .  $114,994   71.20%  $118,815   77.23%  $119,924   80.84%
  Multi-family residential . . . . .       900     .56        929     .60        956     .64
  Commercial . . . . . . . . . . . .    19,784   12.25     16,392   10.66     12,183    8.21
  Construction (1) . . . . . . . . .    14,848    9.19      8,296    5.39      6,633    4.47
  Land . . . . . . . . . . . . . . .     3,293    2.04      2,934    1.91      1,473     .99
  Loans held for sale. . . . . . . .     2,659    1.65      2,756    1.79      3,866    2.61

Consumer loans:
  Savings accounts . . . . . . . . .       290     .18        621     .40        651     .44
  Home equity loans. . . . . . . . .       533     .33        456     .30        400     .27
  Other. . . . . . . . . . . . . . .       511     .31        224     .15        112     .08
Commercial business (2). . . . . . .     2,907    1.80      1,661    1.08      1,396     .94
Accrued interest receivable. . . . .       793     .49        759     .49        761     .51
                                      --------  ------   --------  ------   --------  ------
                                       161,512  100.00%   153,843  100.00%   148,355  100.00%
                                                ======             ======             ======
Less:
  Loans in process . . . . . . . . .     6,225              4,438              2,307
  Discounts, deferred loan fees
    and other. . . . . . . . . . . .       911              1,014                966
  Allowance for loan losses. . . . .       457                490                380
                                      --------           --------           --------
     Total . . . . . . . . . . . . .  $153,919           $147,901           $144,702
                                      ========           ========           ========
<FN>
___________
(1) Consisted solely of one- to four-family residences under construction at March 31, 1999, 1998 and
    1997.
(2) Includes financing leases of  $1.4 million, $850,000 and $277,000 at March 31, 1999, 1998 and
    1997, respectively.
</FN>
</TABLE>

                             3
<PAGE>
<PAGE>
    The following table sets forth information at March 31, 1999
regarding the dollar amount of loans maturing in Harbor
Federal's portfolio, including scheduled repayments of
principal, based on contractual terms to maturity.   Demand
loans, loans having no schedule of repayments and no stated
maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
                                 3 Months                6 Months
                                 or Less    3-6 Months   - 1 Year  1-3 Years  3-5 Years  5-10 Years
                                 --------   ----------   --------  ---------  ---------  ----------
                                                           (In thousands)
<S>                             <C>         <C>          <C>       <C>        <C>         <C>
Real estate:
 Residential mortgage (1) . . .  $ 4,352     $7,594      $ 9,204   $21,805     $11,804    $ 6,213
 Construction and Land
   Development. . . . . . . . .    3,790         50          143       974         335          5
 Commercial . . . . . . . . . .    1,869        549        2,124       234       4,994      1,123
Non-real estate (2) . . . . . .    1,512        215          527       282         520        408
Accrued interest receivable . .      793         --           --        --          --         --
                                 -------     ------      -------   -------     -------    -------
    Total . . . . . . . . . . .  $12,316     $8,408      $11,998   $23,295     $17,653    $ 7,749
                                 =======     ======      =======   =======     =======    =======
<CAPTION>
                                                More Than
                                 10-20 Years    20 Years        Total
                                 -----------    ---------     --------
                                             (In thousands)
<S>                             <C>            <C>            <C>
Real estate:
 Residential mortgage (1) . . .  $21,139       $36,975        $119,086
 Construction and Land
   Development. . . . . . . . .    2,542         4,077          11,916
 Commercial . . . . . . . . . .    5,412         3,479          19,784
Non-real estate (2) . . . . . .      244            --           3,708
Accrued interest receivable . .       --            --             793
                                 -------       -------        --------
    Total . . . . . . . . . . .  $29,337       $44,531        $155,287
                                 =======       =======        ========
</TABLE>



    The following table sets forth the dollar amount of all loans
at March 31, 1999 due on or after March 31, 2000 which have
predetermined interest rates and floating or adjustable interest
rates.
<TABLE>
<CAPTION>
                                             Floating or
                              Fixed Rate   Adjustable Rates    Total
                              ----------   ----------------   -------
                                          (In thousands)
<S>                            <C>           <C>              <C>

Real Estate:
  Residential mortgage (1) . . $66,085       $31,851          $ 97,936
  Construction and Land
    Development. . . . . . . .   7,058           875             7,933
  Commercial . . . . . . . . .  15,119           123            15,242
  Non-real estate (2). . . . .   1,454            --             1,454
                               -------       -------          --------
        Total. . . . . . . . . $89,716       $32,849          $122,565
                               =======       =======          ========
<FN>
__________
(1) Includes both one- to four-family residential and multi-family residential.
(2) Includes commercial business loans, loans secured by savings accounts, home
    improvement loans and financing leases.
</FN>
</TABLE>
                            4

<PAGE>
<PAGE>
    Scheduled contractual principal repayments of loans do not
necessarily reflect the actual life of such assets.  The average
life of long-term loans is substantially less than their
contractual terms, due to prepayments.  The average life of
mortgage loans tends to increase when current mortgage loan
market rates are substantially higher than rates on existing
mortgage loans and tends to decrease when current mortgage loan
market rates are substantially lower than rates on existing
mortgage loans.

    Originations, Purchases and Sales of Loans.  The following
table sets forth certain information with respect to Harbor
Federal's loan originations, purchases and sales during the
periods indicated.
<TABLE>
<CAPTION>

                                         Year Ended March 31,
                                     ----------------------------
                                      1999       1998       1997
                                     -----      ------     ------
                                          (In thousands)
<S>                                  <C>       <C>       <C>
Loans originated:
  Real estate loans:
    One- to four-family. . . . . . . $ 17,396  $ 12,806   $ 18,456
    Land . . . . . . . . . . . . . .    1,250     2,423        844
    Commercial . . . . . . . . . . .    2,536     4,350      2,606
    Construction . . . . . . . . . .   19,256    14,405     16,714
  Commercial business. . . . . . . .      368        --         --
                                     --------  --------   --------
    Total loans originated . . . . .   40,806    33,984     38,620
Loan repayments. . . . . . . . . . .  (35,523)  (28,253)   (20,307)
                                     --------  --------   --------
    Net loan originations. . . . . . $  5,283  $  5,731   $ 18,313
                                     ========  ========   ========

Loans purchased:
  Real estate loans:
  One- to four-family. . . . . . . . $    160  $  1,355   $  9,102
  Land . . . . . . . . . . . . . . .       --        --        214
  Commercial . . . . . . . . . . . .      781       750         19
                                     --------  --------   --------
    Total loans purchased. . . . . . $    941  $  2,105   $  9,335
                                     ========  ========   ========

Loans sold:
  Real estate loans:
    One- to four-family. . . . . . . $  1,017  $  4,803   $     --
                                     ========  ========   ========
</TABLE>
    In June 1997, Harbor Federal formed a mortgage company,
Bank Street Mortgage Company to provide additional one- to four-
family loan production.  Even with the establishment of the new
mortgage company, market demand  was not as great in one- to
four-family and construction real estate loans in fiscal 1998 as
in the prior year.  For additional information regarding Harbor
Federal's commercial real estate lending, see "Commercial and
Multi-Family Real Estate Lending" below.

    One- to Four-Family Residential Lending.  Historically,
Harbor Federal's principal lending activity has been the
origination of loans secured by first mortgages on existing one-
to four-family residences in Harbor Federal's market area.
Harbor Federal also originates significant amounts of loans for
the construction of such residences.  The purchase price or
appraised value of most of such residences historically has been
between $50,000 and $300,000, with Harbor Federal's loan amounts
averaging less than $150,000.  At March 31, 1999, $118.2
million, or 73.2%, of Harbor Federal's total loans were secured
by one- to four-family residences, a substantial majority of
which were existing, owner-occupied, single-family residences in
Harbor Federal's market area.  At March 31, 1999, $51.0 million,
or 42.8%, of Harbor Federal's one- to four-family residential
loans had adjustable interest rates, and $68.1 million, or
57.2%, had fixed-rates.
                            5
<PAGE>
    Harbor Federal's one- to four-family residential mortgage
loans generally are for terms of 5 to 30 years, amortized on a
monthly basis, with principal and interest due each month.
Residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms.
Borrowers may refinance or prepay loans at their option without
penalty.  These loans customarily contain "due-on-sale" clauses
which permit Harbor Federal to accelerate repayment of a loan
upon transfer of ownership of the mortgaged property.

    Harbor Federal's lending policies generally limit the
maximum loan-to-value ratio on one- to four-family residential
mortgage loans secured by owner-occupied properties to 95% of
the lesser of the appraised value or purchase price, with
private mortgage insurance required on loans with loan-to-value
ratios in excess of 80%.  The maximum loan-to-value ratio on
mortgage loans secured by non-owner-occupied properties is
limited to 90%.

    Harbor Federal's fixed-rate, one- to four-family
residential mortgage loans are underwritten in accordance with
applicable guidelines and requirements for sale in the secondary
market.  Harbor Federal currently originates and holds most
loans for portfolio.

    Harbor Federal offers adjustable-rate, one- to four-family
residential mortgage loans.  These loans generally are indexed
to the weekly average rate on U.S. Treasury securities adjusted
to a constant maturity (usually, one year).  The rates at which
interest accrues on these loans are adjustable periodically
(usually, annually), generally with limitations on adjustments
of 2% per adjustment period and 6% over the life of the loan.
Some of Harbor Federal's adjustable rate mortgage loans have an
initial term of five to seven years before the first interest
rate adjustment, with annual rate adjustments thereafter.

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

    Construction and Land Lending.  Harbor Federal offers
single family residential construction loans to qualified
borrowers for construction of one- to four-family residences in
Harbor Federal's market area.  At March 31, 1999, one- to four-
family residential construction loans constituted $14.8 million,
or 9.2%, of Harbor Federal's total loans.  Typically, Harbor
Federal limits its construction lending to single-settlement,
construction-permanent loans to individuals building their
primary residences and, to a lesser extent, interim construction
loans to selected local developers to build single-family
dwellings where a permanent purchase commitment has been
obtained.  These loans generally have adjustable interest rates
and are underwritten in accordance with the same standards as
Harbor Federal's mortgages on existing properties, except the
loans generally provide for disbursement in stages during a
construction period of up to 12 months, during which period the
borrower is required to make monthly payments of accrued
interest on the outstanding loan balance.  Construction loans
generally have a maximum loan-to-value ratio of 90%.  Borrowers
must satisfy all credit requirements which would apply to Harbor
Federal's permanent mortgage loan financing for the subject
property.  While Harbor Federal's construction-permanent
construction loans convert to permanent loans following
construction, Harbor Federal's interim construction loans
generally require repayment in full upon the completion of
construction.
                            6

<PAGE>
<PAGE>
    Harbor Federal also offers loans for the acquisition and
development of land.  At March 31, 1999, land acquisition and
development loans constituted $3.3 million, or 2.0%, of Harbor
Federal's total loans.  These loans are made on a selective
basis to borrowers which management believes have the requisite
experience in land development and financial strength to ensure
repayment.  These loans also are made in limited amounts,
usually not in excess of 65% of the appraised value of the
property.  These loans generally provide for payments of only
interest during development, and the maximum loan amount and
term on these loans generally are $2,000,000 and 36 months,
respectively.

    Construction and land financing are considered to involve
a higher degree of risk of loss than long-term financing on
improved, occupied real estate.  Risk of loss on a construction
or land loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of
development or construction and the estimated cost (including
interest) thereof.  During the development and construction
phases, a number of factors could result in delays and cost
overruns.  If the estimate of development or construction costs
proves to be inaccurate, Harbor Federal may be required to
advance funds beyond the amount originally committed to permit
completion of the project.  If the estimate of value proves to
be inaccurate, Harbor Federal may be confronted, at or prior to
the maturity of the loan, with a project having a value which is
insufficient to assure full repayment.  The ability of a
developer to sell developed lots or a builder to sell completed
dwelling units will depend on, among other things, demand,
pricing, availability of comparable properties and economic
conditions.  Harbor Federal has sought to limit this risk by
restricting construction and land lending to qualified borrowers
in Harbor Federal's market area and by restricting the aggregate
amounts of outstanding construction and land loans.

    Commercial and Multi-Family Real Estate Lending.  Harbor
Federal originates limited amounts of commercial and multi-
family real estate loans in order to benefit from the higher
origination fees and interest rates, as well as shorter terms to
maturity, than could be obtained from single-family mortgage
loans.  Harbor Federal's commercial and multi-family real estate
loans are secured by apartments, offices, warehouses, shopping
centers and other income-producing multi-family and commercial
properties.  At March 31, 1999, Harbor Federal had 110 of these
loans, with a median loan balance of $205,000.

    Harbor Federal's commercial and multi-family real estate
loans generally are limited to loans not exceeding $1,000,000 on
properties in Harbor Federal's market area, with amortization
periods and maturities of up to 30 years.  These loans generally
have annually adjustable interest rates, with limitations on
adjustments of 2% per year, and maximum loan-to-value ratios of
80%.

    The following paragraphs set forth information regarding
Harbor Federal's commercial and multi-family real estate loans
with outstanding balances exceeding $1.0 million at March 31,
1999.  None of these loans was classified by management as
substandard, doubtful or loss or designated by management as
special mention at that date.  For information regarding Harbor
Federal's asset classification policies, see "Asset
Classification, Allowances for Losses and Non-Performing
Assets."

         Retail Space/Restaurant in Ocean City, Maryland. In
    December 1995, Harbor Federal granted a $2,500,000
    construction/permanent loan secured by a restaurant and
    six retail outlets with Boardwalk frontage.  At that time
    an appraisal indicated a market value of $3,600,000 for a
    loan to value ratio of 69%.  The loan is being amortized
    over a period of twenty years, and the full balance is due
    in January 2016.  At March 31, 1999 the outstanding
    balance was $2,335,000, and the loan was fully performing
    in accordance with its terms.

<PAGE>
         Professional Real Estate Offices in Central
    Maryland.  In January 1996 and July 1997, Harbor Federal
    originated several loans to the same borrowers totaling
    $2,637,202 secured by several full service real estate
    brokerage offices.  The commercial office buildings are
    situated in Howard County, Maryland, Anne Arundel County,
    Maryland and Harford County, Maryland.  At the time the
    appraisals indicated a combined market value of $4,360,000
    for a total loan to value ratio of 60%.  The loans are
    being amortized over thirty years for the purpose of
    monthly payments of principal and interest, and the full
    balance of the loans will be due

                            7

<PAGE>
<PAGE>
    in February 2026.  At March 31, 1999 the outstanding
    aggregate balance was $2,575,000, and the loans were fully
    performing in accordance with their terms.

         Three Commercial Buildings in Cockeysville,
    Maryland.  Harbor Federal made two separate loans to the
    same borrowers.  One was settled in February 1996 for
    $450,000 and matures January 2016 with possible annual
    interest rate changes.  This property is a large
    commercial strip specializing in antique sales. The
    appraisal indicated a value of $1,141,500 for a loan-to-
    value ratio of 39%.  Furthermore a mortgage was issued to
    the same borrowers for $850,000 in October 1996 with the
    security being a full service restaurant with a liquor
    license and a separate catering hall.  The note comes due
    September 2016 with interest rate changes possible on an
    annual basis.  At the inception an appraisal was completed
    indicating a value of $1,520,000 for a loan-to-value ratio
    of 56%.  At March 31, 1999 the outstanding aggregate
    balance was $1,230,000, and the loans were fully
    performing in accordance with their terms.

         Luxury Apartments/Professional Offices in Towson,
    Maryland.  In December 1997, Harbor Federal made a
    $1,920,000 loan secured by high-end residential apartments
    and first floor professional offices with private parking.
    At the time, an appraisal indicated a market value of
    $2,400,000, for a loan to value ratio of 80%.  The loan is
    being amortized over thirty years for the purpose of
    monthly payments of principal and interest, and the full
    balance of the loan will be due in January 2002.  At March
    31, 1999 the outstanding balance was $1,904,000, and the
    loan was fully performing in accordance with its terms.

    In addition, at March 31, 1999 Harbor Federal had $11.2
million in 100 commercial and multi-family real estate loans
with outstanding balances not exceeding $1.0 million, none of
which was adversely classified or designated by management.

    Commercial and multi-family real estate lending entails
significant additional risks compared with one- to four-family
residential lending.  For example, commercial and multi-family
real estate loans typically involve large loan balances to
single borrowers or groups of related borrowers, the payment
experience on such loans typically is dependent on the
successful operation of the real estate project, and these risks
can be significantly impacted by supply and demand conditions in
the market for multi-family residential units and commercial
office, retail and warehouse space.

    The aggregate amount of loans which federally chartered
savings institutions may make on the security of liens on
commercial real estate currently may not exceed 400% of the
institution's capital; however, the limits on commercial real
estate lending do not require divestiture of any loan or
investment that was lawful when made.

    Commercial Business Lending.  Under laws and regulations
enacted during the past several years, Harbor Federal is
permitted to make secured and unsecured loans for commercial,
corporate, business and agricultural purposes, including issuing
letters of credit and engaging in inventory financing and
commercial leasing activities.  The aggregate outstanding amount
of such loans generally may not exceed 10% of Harbor Federal's
assets.  Harbor Federal offers commercial business loans on a
selected basis and in limited amounts.  At March 31, 1999,
Harbor Federal's commercial business loans totaled $2.9 million
and primarily consisted of line of credit loans to developers
and nine term loans to six leasing companies.  There are seven
direct line of credit loans with local developers of up to $1.7
million in the aggregate, each secured by personal guarantee of
the respective borrower.  At March 31, 1999, the total
outstanding balance of these loans was $1.5 million, and all of
these loans were performing in accordance with their respective
terms.  In addition, loans to the leasing companies with an
aggregate original balance of $1.6 million have an aggregate
outstanding balance at March 31, 1999 of $1.4 million and were
fully performing in accordance with their terms.

    Commercial business loans, including finance leases,
generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding credit
obligation as a result of damage, loss or depreciation, and the
remaining deficiency often does not warrant further substantial
collection efforts against the obligor.  In addition,
collections are dependent on the obligor's continuing

                            8

<PAGE>
<PAGE>
financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy.
Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered.  These financings may
also give rise to claims and defenses by an obligor against
Harbor Federal, and an obligor may be able to assert against
Harbor Federal claims and defenses which it has against the
seller of the underlying collateral.  In underwriting commercial
business loans, Harbor Federal considers the obligor's credit
history, an analysis of the obligor's income, expenses and
ability to repay the obligation and the value of the collateral.
Harbor Federal's risks associated with commercial business loans
have been minimized by the immaterial amount of such loans made
by Harbor Federal.

    Consumer Lending.  Federally chartered thrift institutions
are authorized to make secured and unsecured consumer loans up
to 35% of the institution's assets.  In addition, a federal
thrift institution has lending authority above the 35% category
for certain consumer loans, such as home equity loans, property
improvement loans, mobile home loans and loans secured by
savings accounts.  Harbor Federal currently does not emphasize
consumer lending.  Harbor Federal's consumer loans primarily
consist of loans secured by deposit accounts at Harbor Federal.
Harbor Federal makes deposit account loans for up to 90% of the
face amount of the deposit balance.  The interest rate on these
loans generally is two percent above the rate paid on the
account, and interest is billed on a monthly basis.  The account
must be pledged as collateral to secure the loan.  For
information regarding the consumer lending activities of Harbor
Federal's partially owned subsidiary, Bankers Affiliate, Inc.,
see "Subsidiary Activities."

    Loan Solicitation and Processing.  Harbor Federal's loan
originations are derived from a number of sources, including
referrals by realtors, builders, depositors, borrowers and
mortgage brokers, as well as walk in customers.  Harbor
Federal's solicitation programs consist of regular calls by
Harbor Federal's branch managers and loan officers to local
realtors and builders and advertisements in local newspapers and
radio and television broadcasts.  Real estate loans are
originated by Harbor Federal's salaried staff loan officers as
well as Harbor Federal's branch managers who also receive only
salaries.  Loan applications are accepted at each of Harbor
Federal's offices and then submitted to the main office for
processing and approval.  Loans made through brokers are
underwritten by Harbor Federal prior to settlement and are
funded by Harbor Federal.  For information regarding mortgage
brokerage activities of Harbor Federal's wholly owned
subsidiary, Bank Street Mortgage Company, see "Subsidiary
Activities."

    Upon receipt of a loan application from a prospective
borrower, a credit report and verifications are ordered to
verify specific information relating to the loan applicant's
employment, income and credit standing.  It is Harbor Federal's
policy to obtain an appraisal of the real estate intended to
secure a proposed mortgage loan from an independent fee
appraiser approved by Harbor Federal.  It is Harbor Federal's
policy to obtain personal guarantees from the principals on all
loans.  Except when Harbor Federal becomes aware of a particular
risk of environmental contamination, Harbor Federal generally
does not obtain a formal environmental report on the real estate
at the time a loan is made.

    It is Harbor Federal's policy to record a lien on the real
estate securing the loan and to obtain a title insurance policy
which insures that the property is free of prior encumbrances.
Borrowers must also obtain hazard insurance policies prior to
closing and, when the property is in a designated flood plain,
paid flood insurance policies.  Most borrowers are also required
to advance funds on a monthly basis together with each payment
of principal and interest to a mortgage escrow account from
which Harbor Federal makes disbursements for items such as real
estate taxes.

    The Board of Directors has the overall responsibility and
authority for general supervision of Harbor Federal's loan
policies.  The Board has established written lending policies
for Harbor Federal.  One- to four-family real estate loans are
generally underwritten in accordance with FHLMC guidelines.  The
Board approves all commercial business and acquisition,
development and construction loans and all loans over $500,000,
the President is authorized to approve loans up to $500,000, the
Executive Vice President is authorized to approve loans up to
$350,000, and Harbor Federal's branch managers are authorized to
approve share loans up to 90% of a borrower's deposit balance.

                            9

<PAGE>
<PAGE>
    Loan applicants are promptly notified of the decision of
Harbor Federal.  It has been management's experience that
substantially all approved loans are funded.

    Interest Rates and Loan Fees.  Interest rates charged by
Harbor Federal on mortgage loans are primarily determined by
competitive loan rates offered in its market area and Harbor
Federal's minimum yield requirements.  Mortgage loan rates
reflect factors such as prevailing market interest rate levels,
the supply of money available to the savings industry and the
demand for such loans.  These factors are in turn affected by
general economic conditions, the monetary policies of the
federal government, including the Federal Reserve Board, the
general supply of money in the economy, tax policies and
governmental budget matters.

    Harbor Federal receives fees in connection with loan
commitments and originations, loan modifications, late payments
and changes of property ownership and for miscellaneous services
related to its loans.  Income from these activities varies from
period to period with the volume and type of loans originated,
sold and purchased, which in turn is dependent on prevailing
market interest rates and their effect on the demand for loans
in Harbor Federal's market area. Loan origination fees are
calculated as a percentage of the loan principal.  Harbor
Federal typically receives fees of between zero and two points
(one point being equivalent to 1% of the principal amount of the
loan) in connection with the origination of fixed-rate and
adjustable-rate residential mortgage loans.  The excess, if any,
of loan origination fees over direct loan origination expenses
is deferred and accreted into income over the contractual life
of the loan using the interest method.  If a loan is prepaid,
refinanced or sold, all remaining deferred fees with respect to
such loan are taken into income at such time.

    In addition to the foregoing fees, Harbor Federal receives
fees for servicing loans for others.  Servicing activities
include the collection and processing of mortgage payments,
accounting for loan funds and paying real estate taxes, hazard
insurance and other loan-related expenses out of escrowed funds.
Loan servicing fees usually are charged as a percentage
(usually, between 1/4% and 3/8%) of the balance of the loans
being serviced.

    Collection Policies.  When a borrower fails to make a
payment on a loan, Harbor Federal generally takes immediate
steps to have the delinquency cured and the loan restored to
current status.  Once the payment grace period has expired (in
most instances 15 days after the due date), a late notice is
promptly mailed to the borrower, and a late charge is imposed,
if applicable.  If payment is not promptly received, the
borrower is contacted, and efforts are made to formulate an
affirmative plan to cure the delinquency.  If a loan becomes 30
days in default, a letter is mailed to the borrower requesting
payment by a specified date.  If a mortgage becomes 60 days past
due, a certified letter is sent to the borrower demanding
payment by a certain date and indicating that a foreclosure suit
will be filed if the deadline is not met.  If payment is not
made, management may pursue foreclosure or other appropriate
action.  Before foreclosure, it is Harbor Federal's policy to
conduct an informal inspection of the subject property and, when
warranted, to obtain an appropriate environmental report.

    Asset Classification, Allowances for Losses and Non-
Performing Assets.  Federal regulations require savings
institutions to classify their assets on the basis of quality on
a regular basis.  An asset is classified as substandard if it is
determined to be inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged,
if any.  An asset is classified as doubtful if full collection
is highly questionable or improbable.  An asset is classified as
loss if it is considered uncollectible, even if a partial
recovery could be expected in the future.  The regulations also
provide for a special mention designation, described as assets
which do not currently expose a savings institution to a
sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving
management's close attention.  Assets classified as substandard
or doubtful require a savings institution to establish general
allowances for loan losses.  If an asset or portion thereof is
classified loss, a savings institution must either establish a
specific allowance for loss in the amount of the portion of the
asset classified loss, or charge off such amount.  Federal
examiners may disagree with a savings institution's
classifications.  If a savings institution does not agree with
an examiner's classification of an asset, it may appeal this
determination to the OTS Regional Director.  Harbor Federal
regularly reviews its assets to determine whether any assets
require classification or re-classification.  The Board of
Directors reviews and approves all classifications.  At March
31, 1999, Harbor

                            10

<PAGE>
<PAGE>
Federal had no assets classified as loss, $986,000 of assets
classified as doubtful, $112,000 of assets classified as
substandard and $371,000 of assets designated as special
mention.  Harbor Federal's total adversely classified
and designated assets were $1,469,000, which represented 0.61%
of Harbor Federal's total assets and 6.1% of Harbor Federal's
core regulatory capital, at March 31, 1999.  At that date,
substantially all of Harbor Federal's adversely classified or
designated assets were one- to four-family residences in Harbor
Federal's market area, and none of such assets was in excess of
$300,000.

    In extending credit, Harbor Federal recognizes that losses
will occur and that the risk of loss will vary with, among other
things, the type of credit being extended, the creditworthiness
of the obligor over the term of the obligation, general economic
conditions and, in the case of a secured obligation, the quality
of the security.  It is management's policy to maintain adequate
allowances for losses based on, among other things, regular
reviews of delinquencies and credit portfolio quality, character
and size, Harbor Federal's and the industry's historical and
projected loss experience and current economic conditions.
Harbor Federal increases its allowance for loan losses by
charging provisions for losses against income.  Federal
examiners may disagree with a savings institution's allowance
for loan losses.

    Management actively monitors Harbor Federal's asset
quality and charges off loans and properties acquired in
settlement of loans against the allowances for losses on such
loans and such properties when appropriate and provides specific
loss allowances when necessary.  Although management believes it
uses the best information available to make determinations with
respect to the allowances for losses, future adjustments may be
necessary if economic or other conditions differ substantially
from the assumptions used in making the initial determinations.

    Harbor Federal's methodology for establishing the
allowance for losses takes into consideration probable losses
that have been identified in connection with specific assets as
well as losses that have not been identified but can be expected
to occur.  Management conducts regular reviews of Harbor
Federal's assets and evaluates the need to establish allowances
on the basis of this review.  Allowances are established by the
Board of Directors on a monthly basis based on an assessment of
risk in Harbor Federal's assets taking into consideration the
composition and quality of the portfolio, delinquency trends,
current charge-off and loss experience, the state of the real
estate market, regulatory reviews conducted in the regulatory
examination process and economic conditions generally.
Allowances are provided for individual assets, or portions of
assets, when ultimate collection is considered improbable by
management based on the current payment status of the assets and
the fair value or net realizable value of the security.  At the
date of foreclosure or other repossession, Harbor Federal
transfers the property to real estate acquired in settlement of
loans at the lower of cost or fair value.  Fair value is defined
as the amount in cash or cash-equivalent value of other
consideration that a property would yield in a current sale
between a willing buyer and a willing seller.  Fair value is
measured by market transactions.  If a market does not exist,
fair value of the property is estimated based on selling prices
of similar properties in active markets or, if there are no
active markets for similar properties, by discounting a forecast
of expected cash flows at a rate commensurate with the risk
involved.  Fair value generally is determined through
independent appraisal at the time of foreclosure.  At March 31,
1999, Harbor Federal held no properties acquired in settlement
of loans for which market prices were unavailable.  Any amount
of cost in excess of fair value is charged-off against the
allowance for loan losses.  Harbor Federal records an allowance
for estimated selling costs of the property immediately after
foreclosure.  Subsequent to acquisition, the property is
periodically evaluated by management and an allowance is
established if the estimated fair value of the property, less
estimated costs to sell, declines.  If, upon ultimate
disposition of the property, net sales proceeds exceed the net
carrying value of the property, a gain on sale of real estate is
recorded.

    The OTS has adopted a policy statement regarding
maintenance of an adequate allowance for loan and lease losses
and an effective loan review system.  This policy includes an
arithmetic formula for checking the reasonableness of an
institution's allowance for loan loss estimate compared to the
average loss experience of the industry as a whole.  Examiners
will review an institution's allowance for loan losses and
compare it against the sum of (i) 50% of the portfolio that is
classified doubtful; (ii) 15% of the portfolio that is
classified as substandard; and (iii) for the portions of the
portfolio that have not been classified (including those loans
designated as special mention), estimated credit losses over the
upcoming twelve months given the facts and circumstances as of
the evaluation date.  This amount is considered neither a
"floor" nor a "safe harbor" of the level of allowance for loan
losses an institution should maintain,

                            11

<PAGE>
<PAGE>
but examiners will view a shortfall relative to the amount as an
indication that they should review management's policy on
allocating these allowances to determine whether it is
reasonable based on all relevant factors.

    The following table sets forth an analysis of Harbor
Federal's allowance for loan losses (there were no recoveries)
for the periods indicated.
<TABLE>
<CAPTION>
                                        Year Ended March 31,
                                     --------------------------
                                      1999      1998      1997
                                     -----     ------    ------
                                          (In thousands)
<S>                                  <C>       <C>       <C>
Balance at beginning of period . . . $ 490     $ 380     $ 438
                                     -----     -----     -----

Charge-offs:
  Real estate - mortgage . . . . . .   108        --        --
  Commercial business. . . . . . . .    --        --        91
                                     -----     -----     -----
        Total charge-offs. . . . . .   108        --        91
                                     -----     -----     -----

Provision for loan losses. . . . . .    75       110        33
                                     -----     -----     -----
Balance at end of period . . . . . . $ 457     $ 490     $ 380
                                     =====     =====     =====
Ratio of net charge-offs to average
  loans outstanding during the
  period . . . . . . . . . . . . . .  0.07%      .00%     0.07%
                                     =====     =====     =====
</TABLE>
    The following table allocates the allowance for loan
losses by asset category at the dates indicated.  The allocation
of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance
to absorb losses in any category.
<TABLE>
<CAPTION>
                                                           At March 31,
                             --------------------------------------------------------------------------
                                        1999                    1998                   1997
                             ------------------------   -----------------------  ----------------------
                                         Percent of                Percent of              Percent of
                                        Loans in Each            Loans in Each           Loans in Each
                                         Category to              Category to             Category to
                              Amount     Total Loans    Amount    Total Loans    Amount   Total Loans
                              ------   --------------   ------  ---------------  ------  --------------
                                                   (Dollars in thousands)
<S>                           <C>        <C>            <C>         <C>          <C>        <C>
Real estate - mortgage:
  Residential. . . . . . . .  $ 290      71.76%        $ 265        77.83%       $ 155      81.48%
  Construction . . . . . . .     --       9.51            50         5.72          125       4.47
  Commercial . . . . . . . .    150      11.93           175        10.33          100       8.21
Commercial business. . . . .     17        .88            --         1.08           --        .94
                              -----                    -----                     -----
Total allowance for loan
  losses . . . . . . . . . .  $ 457                    $ 490                     $ 380
                              =====                    =====                     =====
</TABLE>
    While management believes Harbor Federal has established
its existing loss allowances in accordance with generally
accepted accounting principles, there can be no assurance that
regulators, in reviewing Harbor Federal's assets, will not make
Harbor Federal adjust its loss allowance, thereby affecting
Harbor Federal's reported financial condition and results of
operations.

    Harbor Federal ceases accruing interest on a loan when, in
the opinion of management, full collection of principal or
interest is in doubt, or payment of principal or interest has
become 90 days or more past due.   Interest accrued prior to a
loan becoming 90 days past due is retained in income.  Such
interest is considered as part of the total investment in
determining the need for an allowance for losses.  Any interest
received in excess of the amount previously accrued on such a
loan is recorded in income in the period of recovery.
                            12
<PAGE>

    The following table sets forth information with respect to
Harbor Federal's nonperforming assets at the dates indicated.
At these dates, Harbor Federal did not have any restructured
loans within the meaning of Statement of Financial Accounting
Standards No. 15.
<TABLE>
<CAPTION>
                                            At March 31,
                                     --------------------------
                                      1999      1998     1997
                                     ------    ------   ------
                                          (In thousands)
<S>                                  <C>       <C>       <C>
Loans accounted for on a nonaccrual
  basis:
  Real Estate:
    Residential. . . . . . . . . . .$  986     $  975    $  289
                                    ======     ======    ======

  Percentage of nonperforming loans
    to total loans . . . . . . . . .  0.64%      0.66%     0.20%
                                    ======     ======    ======

  Other nonperforming assets (1) . .$  447     $   --    $  465
                                    ======     ======    ======

  Percentage of nonperforming assets
    to total assets. . . . . . . . .  0.41%      0.42%     0.34%
                                    ======     ======    ======
<FN>
__________
(1) Other nonperforming assets represents property acquired by
    Harbor Federal through foreclosure of repossession.  The
    property is carried at the lower of its fair market value or
    the principal balance of the related loan.
</FN>
</TABLE>

    During the year ended March 31, 1999, gross interest
income of $86,000 would have been recorded on loans accounted
for on a non-accrual basis if the loans had been current
throughout the year.  Interest on such loans included in income
during the year amounted to $60,000.  At March 31, 1999,
management had identified approximately $483,000 of loans which
were not reflected in the preceding table but as to which known
information about possible credit problems of borrowers caused
management to have doubts as to the ability of the borrowers to
comply with present loan repayment terms, and all of such loans
were classified as substandard, doubtful or loss or designated
as special mention.  This group comprised six loans, all of
which had balances below $300,000, and substantially all of
which were secured by one- to four-family residences.
Management does not expect Harbor Federal to experience any
material loss on these loans in the future.

MORTGAGE-BACKED SECURITIES

    Harbor Federal maintains a significant portfolio of
mortgage-backed securities in the form of FHLMC, GNMA and FNMA
participation certificates.  FNMA and FHLMC certificates are
each guaranteed by their respective agencies as to principal and
interest, and GNMA certificates are backed by the full faith and
credit of the U.S. Government.  Mortgage-backed securities
generally entitle Harbor Federal to receive a pro rata portion
of the cash flows from an identified pool of mortgages.
Although mortgage-backed securities generally yield less than
the loans which are exchanged for such securities, they present
substantially lower credit risk, they are more liquid than
individual mortgage loans, and they may be used to collateralize
obligations of Harbor Federal.

<PAGE>
    The following table sets forth information regarding
Harbor Federal's mortgage-backed securities at the dates
indicated.
<TABLE>
<CAPTION>
                                            At March 31,
                                     --------------------------
                                      1999      1998      1997
                                     ------    ------    ------
                                          (In thousands)
<S>                                  <C>       <C>       <C>
     FHLMC . . . . . . . . . . . .  $ 2,215    $ 3,949   $ 5,753
     GNMA. . . . . . . . . . . . .   10,757     15,310     6,048
     FNMA. . . . . . . . . . . . .    1,097      1,747     2,243
                                    -------    -------   -------
         Total . . . . . . . . . .  $14,069    $21,006   $14,044
                                    =======    =======   =======
</TABLE>

                           13
<PAGE>
<PAGE>
     The following table sets forth information regarding the
scheduled maturities, amortized cost, market value and weighted
average yields for Harbor Federal's mortgage-backed securities
at March 31, 1999.  Expected maturities will differ from
contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with
or without prepayment penalties.  The following table does not
take into consideration the effects of scheduled repayments or
the effects of possible prepayments.

<TABLE>
<CAPTION>

                          One to Five Years     More Than Five Years         Total Portfolio
                       ---------------------    --------------------   ---------------------------
                       Carrying      Average    Carrying     Average   Carrying   Fair     Average
                         Value        Yield      Value       Yield      Value     Value     Yield
                       --------      -------    --------    ---------  --------   ----     -------
<S>                    <C>           <C>        <C>          <C>       <C>        <C>       <C>
FHLMC . . . . . . . .   $  7         10.00%     $ 2,208      7.41%     $ 2,215    $ 2,237    7.48%
GNMA. . . . . . . . .     --           --        10,757      7.48       10,757     10,804    7.48
FNMA. . . . . . . . .    524         6.14           573      9.04        1,097      1,137    7.66
                        ----                    -------                -------    -------
    Total . . . . . .   $531                    $13,538                $14,069    $14,178
                        ====                    =======                =======    =======
</TABLE>

    For additional information, see the Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Note 3 of the Notes to Consolidated Financial
Statements in the Annual Report.

INVESTMENT ACTIVITIES

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

    Harbor Federal invests in investment securities in order
to diversify its assets, manage cash flow, obtain yield and
maintain the minimum levels of liquid assets required by
regulatory authorities.  Such investments generally include
federal funds, securities purchased for short terms under
repurchase agreements, federal government and agency
obligations, investment grade corporate bonds and notes and
qualified deposits in other financial institutions.  Investment
decisions generally are made by the Chief Executive Officer and
ratified by the Board of Directors.

    Since February 1996, Harbor Federal has placed all
purchased U.S. government or agency obligations in the
"Available for Sale" category to remain more flexible for
investment purposes.  These securities and the investment in
FHLMC preferred stock at March 31, 1999 had an aggregate
carrying value of $59.5 million.

                           14
<PAGE>
<PAGE>
    The following table sets forth information regarding
Harbor Federal's investment securities and other investments at
the dates indicated.
<TABLE>
<CAPTION>
                                             At March 31,
                                     --------------------------
                                      1999      1998     1997
                                     ------    ------   ------
                                          (In thousands)
<S>                                  <C>       <C>      <C>
Investment securities:
  U.S. government and agency
   obligations . . . . . . . . . . . $50,372   $50,821  $46,783
  Trust preferred securities           8,640        --       --
  Other. . . . . . . . . . . . . .       447       370      213
                                     -------   -------  -------
    Total investment securities       59,459    51,191   46,996
Federal funds sold . . . . . . . .     2,545       313    3,939
Interest-earning deposits. . . . .       114       174      276
FHLB stock . . . . . . . . . . . .     1,434     1,434    1,366
                                     -------   -------  -------
    Total. . . . . . . . . . . . .   $63,552   $53,112  $52,577
                                     =======   =======  =======
</TABLE>
                            15
<PAGE>
<PAGE>
      The following table sets forth information regarding the
scheduled maturities, market value and weighted average yields
for Harbor Federal's investment securities and certain other
investments at March 31, 1999.

<TABLE>
<CAPTION>

                                  One Year or Less      One to Five Years        Five to Ten Years
                                -------------------   --------------------    ----------------------
                                Carrying   Average     Carrying    Average     Carrying    Average
                                  Value     Yield       Value       Yield       Value       Yield
                                 --------  -------    ---------   --------    ---------   ---------
                                                   (Dollars in thousands)
<S>                              <C>        <C>       <C>         <C>          <C>        <C>
Investment securities:
  U.S. government and
    agency obligations . . . .  $   --       -- %     $   --        --%       $ 4,007      6.77%
  Trust preferred securities .      --       --           --        --             --        --
  FHLMC stock. . . . . . . . .     447      1.05          --        --             --        --
                                ------                ------                  -------
    Total investment
      securities . . . . . . .     447                    --                    4,007
Federal funds sold . . . . . .   2,545      5.00          --        --             --        --
Interest-earning deposits. . .     114      5.05          --        --             --        --
FHLB stock . . . . . . . . . .   1,434      7.50          --        --             --        --
                                ------                ------                  -------
    Total. . . . . . . . . .    $4,540                $   --                  $ 4,007
                                ======                ======                  =======
<CAPTION>

                                More than Ten Years     Total Investment Portfolio
                                -------------------   ----------------------------------
                                Carrying   Average     Carrying    Market      Average
                                  Value     Yield       Value      Value        Yield
                                 --------  -------    ---------   --------    ---------
                                                   (Dollars in thousands)
<S>                              <C>        <C>       <C>         <C>          <C>
Investment securities:
  U.S. government and
    agency obligations . . . .  $46,365     6.87%     $50,372     $50,372      6.78%
  Trust preferred securities .    8,640     8.55        8,640       8,640      8.55
  FHLMC stock. . . . . . . . .       --       --          447         447      1.05
                                -------               -------     -------
    Total investment
      securities . . . . . . .   55,005                59,459      59,459
Federal funds sold . . . . . .       --       --        2,545       2,545      5.00
Interest-earning deposits. . .       --       --          114         114      5.05
FHLB stock . . . . . . . . . .       --       --        1,434       1,434      7.50
                                -------               -------      -------

    Total. . . . . . . . . .    $55,005               $63,552      $63,552
                                =======               =======      =======
</TABLE>


      For additional information, see the Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Note 2 of the Notes to Consolidated Financial
Statements in the Annual Report.  At March 31, 1999, all
investment securities include provisions which allow the issuers
to call them under certain terms and conditions at par value.


                            16
<PAGE>
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

    General.  Deposits are the primary source of Harbor
Federal's funds for lending and other investment purposes.  In
addition to deposits, Harbor Federal derives funds from loan
principal repayments, interest payments and maturing
investments.  Loan repayments and interest payments are a
relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by prevailing market
interest rates and money market conditions.  Borrowings may be
used to supplement Harbor Federal's available funds.  Harbor
Federal is authorized to borrow from the FHLB of Atlanta as well
as to obtain funds through reverse repurchase agreements.

    Deposits.  Harbor Federal attracts deposits principally
from within its market area by offering a variety of deposit
instruments, including passbook and statement accounts and
certificates of deposit which range in term from three to 60
months.  Deposit terms vary, principally on the basis of the
minimum balance required, the length of time the funds must
remain on deposit and the interest rate.  Harbor Federal also
offers Individual Retirement Accounts ("IRAs").

    Harbor Federal's policies are designed primarily to
attract deposits from local residents through Harbor Federal's
branch network rather than from outside Harbor Federal's market
area.  Harbor Federal does not accept deposits from brokers due
to their rate sensitivity.  Harbor Federal's interest rates,
maturities, service fees and withdrawal penalties on deposits
are established by management on a periodic basis.  Management
determines deposit interest rates and maturities based on Harbor
Federal's funds acquisition and liquidity requirements, the
rates paid by Harbor Federal's competitors, Harbor Federal's
growth goals and applicable regulatory restrictions and
requirements.

    Deposits in Harbor Federal as of March 31, 1999 were
represented by the various programs described below.

<TABLE>
<CAPTION>
Weighted Average   Minimum                         Minimum              Percentage of
Interest Rate (1)   Term     Category               Amount    Balances  Total Savings
----------------   -------   --------              --------   --------  --------------
<S>                <C>       <C>                    <C>        <C>        <C>
 1.01%             None      NOW accounts           $   300    $  6,657    3.63%
 3.05              None      Passbook accounts          100      29,265   15.96
 0.00              None      Commercial checking        750       1,631     .89
 3.05              None      Christmas club              10         330     .18

                   Money Market
                   ------------
 3.25              None      Money market passbook    2,500       7,733    4.22
 3.25              None      Money market checking    2,500       2,718    1.48
 3.50              None      Money market plus
                               passbook              10,000      12,322    6.72
 3.25              None      IRA money market
                               passbook                 100         349     .19

                   Certificates of Deposit
                   -----------------------
 3.20              3 month   Fixed-Term, Fixed-Rate   1,000         182     .10
 5.10              6 month   Fixed-Term, Fixed-Rate   1,000       7,275    3.97
 5.10              6 month   Fixed-Term, Fixed-Rate  10,000       4,251    2.32
 5.15              12 month  Fixed-Term, Fixed-Rate   1,000      16,466    8.98
 5.15              12 month  Fixed-Term, Fixed-Rate  10,000      13,951    7.61
 5.20              18 month  Fixed-Term, Fixed-Rate   1,000       9,140    4.98
 5.30              24 month  Fixed-Term, Fixed-Rate   1,000      20,585   11.23
 6.07              30 month  Fixed-Term, Fixed-Rate   1,000         106     .06
 5.40              36 month  Fixed-Term, Fixed-Rate   1,000      19,244   10.49
 5.50              48 month  Fixed-Term, Fixed-Rate   1,000      14,856    8.10
 5.60              60 month  Fixed-Term, Fixed-Rate   1,000      16,300    8.89
                                                               --------  ------
                                                               $183,361  100.00%
                                                               ========  ======

</TABLE>


                            17
<PAGE>
<PAGE>
     The following table sets forth the change in dollar amount
of deposits in the various types of accounts offered by Harbor
Federal between the dates indicated.
<TABLE>
<CAPTION>
                                  Balance at
                                   March 31,     %      Increase
                                     1999     Deposits  (Decrease)
                                   ---------  --------  ---------
                                       (Dollars in thousands)
<S>                               <C>          <C>      <C>
Certificates . . . . . . . . . .   $122,356    66.73%   $ 7,732
Money market . . . . . . . . . .     23,122    12.61       (253)
Passbook . . . . . . . . . . . .     29,265    15.96       (391)
NOW. . . . . . . . . . . . . . .      6,657     3.63        953
Christmas Club . . . . . . . . .        330      .18         (7)
Commercial checking. . . . . . .      1,631      .89        168
                                   --------   ------    -------
    Total. . . . . . . . . . . .   $183,361   100.00%   $ 8,202
                                   ========   ======    =======

<CAPTION>

                         Balance at                        Balance at
                          March 31,     %      Increase     March 31,      %
                            1998    Deposits   (Decrease)      1997      Deposits
                         ---------  --------   ---------   ----------   --------
                                       (Dollars in thousands)
<S>                      <C>         <C>        <C>         <C>         <C>
Certificates . . . . . . $114,624    65.44%     $ 3,398     $111,226      63.89%
Money market . . . . . .   23,375    13.35       (1,425)      24,800      14.24
Passbook . . . . . . . .   29,656    16.93       (1,598)      31,254      17.95
NOW. . . . . . . . . . .    5,704     3.26          278        5,426       3.12
Christmas Club . . . . .      337      .19            4          333        .19
Commercial checking. . .    1,463      .83          397        1,066        .61
                         --------   ------      -------     --------     ------
    Total. . . . . . . . $175,159   100.00%     $ 1,054     $174,105     100.00%
                         ========   ======      =======     ========     ======
</TABLE>


                       18
<PAGE>
<PAGE>
    The following table sets forth the average balances and
interest rates based on month-end balances for certificates of
deposit and non-certificate accounts as of the dates indicated.
<TABLE>
<CAPTION>

                                                     Year Ended March 31,
                                --------------------------------------------------------------------
                                        1999                  1998                    1997
                                -------------------   --------------------    ----------------------
                                Interest-             Interest-               Interst-
                                Bearing               Bearing                 Bearing
                                Demand      Time      Demand      Time        Demand        Time
                                Deposits   Deposits   Deposits   Deposits     Deposits     Deposits
                                --------   --------   ---------  --------     ---------    --------
                                                   (Dollars in thousands)
<S>                             <C>        <C>        <C>        <C>          <C>          <C>
Average Balance. . . . . . .   $58,092     $118,439   $58,947    $113,850     $61,222      $103,309
Average Rate . . . . . . . .      3.02%        5.82%     3.13%       5.81%       3.19%         5.94%
</TABLE>

    The following table sets forth the time deposits in Harbor
Federal classified by rates at the dates indicated.
<TABLE>
<CAPTION>
                                             At March 31,
                                     --------------------------
                                      1999      1998     1997
                                     ------    ------   ------
                                          (In thousands)
<S>                                  <C>       <C>      <C>
    2 -  3.99% . . . . . . . . . . . $    189  $    101 $    118
    4 -  5.99% . . . . . . . . . . .   98,092    79,438   67,143
    6 -  7.99% . . . . . . . . . . .   24,075    35,085   43,874
    8 -  9.99% . . . . . . . . . . .       --        --       91
                                     --------  -------- --------
                                     $122,356  $114,624 $111,226
                                     ========  ======== ========
</TABLE>
    The following table sets forth the amount and maturities of
time deposits in Harbor Federal at March 31, 1999.
<TABLE>
<CAPTION>
                                     Amount Due
                   -------------------------------------------------
                   Less Than                         After
    Rate           One Year   1-2 Years 2-3 Years  3 Years   Total
    ----           --------- ---------- ---------- --------  -------
                                 (In thousands)
<S>                <C>       <C>         <C>       <C>       <C>
2 -  3.99% . . . . $   189   $    --     $   --    $    --   $    189
4 -  5.99% . . . .  59,679    20,542      7,257     10,614     98,092
6 -  7.99% . . . .  11,547    10,402      1,602        524     24,075
                   -------   -------     ------    -------   --------
                   $71,415   $30,944     $8,859    $11,138   $122,356
                   =======   =======     ======    =======   ========
</TABLE>

    The following table indicates the amount of the certificates
of deposit of $100,000 or more in Harbor Federal by time
remaining until maturity at March 31, 1999.
<TABLE>
<CAPTION>

                                      Certificates
    Maturity Period                    of Deposit
    ---------------                   ------------
                                     (In thousands)
    <S>                                <C>
    Three months or less . . . . . . . $ 1,533
    Three through six months . . . . .   1,540
    Six through nine months. . . . . .   1,585
    Nine through twelve months . . . .   1,714
    Over twelve months . . . . . . . .   5,281
                                       -------
      Total. . . . . . . . . . . . . . $11,653
                                       =======
</TABLE>
                            19
<PAGE>
<PAGE>
    The following table sets forth the deposit activities of
Harbor Federal for the periods indicated.

<TABLE>
<CAPTION>
                                    Year Ended March 31,
                                 ----------------------------
                                  1998      1997        1996
                                 ------    ------      ------
                                      (In thousands)
<S>                              <C>       <C>       <C>
Deposits . . . . . . . . . . . . $235,623  $187,564  $191,670
Withdrawals. . . . . . . . . . .  218,603   177,665   173,760
                                 --------  --------  --------
  Net increase before interest
    credited . . . . . . . . . .   17,020     9,899    17,910
Interest credited. . . . . . . .    8,818     8,845     8,467
                                 --------  --------  --------
  Net increase in deposits . . . $  8,202  $  1,054  $  9,443
                                 ========  ========  ========
</TABLE>
    Borrowings.  Savings deposits historically have been the
primary source of funds for Harbor Federal's lending, investment
and general operating activities.  Harbor Federal is authorized,
however, to use advances from the FHLB of Atlanta to supplement
its supply of lendable funds and to meet deposit withdrawal
requirements.  The FHLB of Atlanta functions as a central
reserve bank providing credit for savings institutions and
certain other member financial institutions.  As a member of the
FHLB system, Harbor Federal is required to own stock in the FHLB
of Atlanta and is authorized to apply for advances.  Advances
are made pursuant to several different programs, each of which
has its own interest rate and range of maturities.  Advances
from the FHLB of Atlanta are secured by Harbor Federal's stock
in the FHLB and a portion of Harbor Federal's mortgage loan
portfolio.  At March 31, 1999, Harbor Federal had $10 million in
advances outstanding from the FHLB of Atlanta.  This advance was
made in December 1997 at a fixed rate of 5.05% and is set to
mature in December 2007, subject to an early termination option.
 In December 1998, or at any payment date thereafter, the FHLB
of Atlanta may convert the advance into a three (3) month LIBOR-
based floating rate advance (ARC).

    In addition, the Company is authorized to obtain funds
through reverse repurchase agreements.  Such agreements are
treated as financings, and the obligation to repurchase
securities sold is reflected as a liability in the consolidated
statements of financial condition.  The Company had outstanding
financings under reverse repurchase agreements of $17.6 million
and $15.3 million at March 31, 1999 and 1998, respectively.  The
average rates of interest on these reverse repurchase agreements
were 5.08% and 5.80%, respectively.

    For additional information, see the Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Notes 7 and 8 of Notes to Consolidated Financial
Statements in the Annual Report.

SUBSIDIARY ACTIVITIES

    Federally chartered savings institutions are permitted to
invest up to 2% of their assets in subsidiary service
corporations, plus an additional 1% in subsidiaries engaged in
specified community purposes.  In addition, Harbor Federal has
received OTS approval to lend an amount of up to one-half of its
regulatory capital to an affiliate, Bankers Affiliate, Inc.
("BAI").   Harbor Federal's principal subsidiaries are Harbor
Service Corporation ("HSC"), a wholly owned subsidiary that
receives insurance commissions on credit life and health and
accident policies written for Harbor Federal's borrowers; BAI, a
one-third owned subsidiary that makes various types of consumer
and home equity loans, generally in amounts not in excess of
$50,000, for customers of Harbor Federal and two other local
savings institutions; and Bank Street Mortgage Company ("BSM"),
a wholly owned subsidiary formed by the Bank in June 1997
primarily to broker one- to four-family residential real estate
loans for Harbor Federal and various other correspondents.   At
March 31, 1999, the net book values of Harbor Federal's
investment in BAI totaled $2,525,000, including advances of
$2,500,000.  The net book value of Harbor Federal's investments
in HSC and BSM are immaterial.  Harbor Federal is

                            20
<PAGE>
<PAGE>
also authorized to make investments of any amount in operating
subsidiaries that engage solely in activities that federal
savings institutions may conduct directly.

    In April 1999, Harbor Federal sold its interest in BAI to
another thrift institution for the par value of the capital
stock.  At that time, the advances were repaid by BAI.

MARKET AREA

    Harbor Federal currently conducts its business through
nine banking offices in the City of Baltimore and the Counties
of Baltimore and Anne Arundel in Maryland.  While Harbor
Federal's primary market areas tend to be concentrated in the
areas immediately surrounding each of Harbor Federal's offices,
Harbor Federal accepts deposits and loan applications from
throughout the greater Baltimore metropolitan area and central
Maryland.  At March 31, 1999, management believed that most of
Harbor Federal's depositors and borrowers resided within ten
miles of one of Harbor Federal's offices.  The majority of loans
originated by Harbor Federal are from the Central Maryland area,
which is located within the greater Baltimore metropolitan area
and the larger Washington-Baltimore area.  The Baltimore
metropolitan area is the largest in Maryland and has had a
relatively stable and diversified labor force and economic base.
The heaviest employment concentrations in the greater Baltimore
metropolitan area in manufacturing industries are in primary
metals (steel and copper), transportation equipment, fabricated
materials, chemicals, machinery and electrical equipment.  In
addition, the Port of Baltimore is the fourth largest foreign
tonnage port in the U.S. and the second largest container
tonnage port on the East and Gulf Coasts.

COMPETITION

    Harbor Federal faces strong competition for deposits and
loans.  Harbor Federal's principal competitors for deposits are
other banking institutions, such as commercial banks, credit
unions and other savings institutions, as well as mutual funds
and other investments.  Harbor Federal principally competes for
deposits by offering a variety of deposit accounts, convenient
business hours and branch locations, customer service and a well
trained staff.  Harbor Federal competes for loans with other
depository institutions, as well as specialty mortgage lenders
and brokers and consumer finance companies.  Harbor Federal
principally competes for loans on the basis of interest rates
and the loan fees it charges, the types of loans it originates
and the convenience and service it provides to borrowers.  In
addition, Harbor Federal believes it has developed strong
relationships with the businesses, realtors, builders and
general public in its market area.  Due to Harbor Federal's
small size relative to the many and various other depository and
lending institutions in its market area, management believes
that Harbor Federal has an insubstantial overall share of the
deposit and loan market.

REGULATION OF THE BANK

    As a federally chartered savings institution, Harbor
Federal is subject to extensive regulation by the OTS.  The
lending activities and other investments of the Bank must comply
with various federal regulatory requirements, and the OTS
periodically examines the Bank for compliance with various
regulatory requirements.  The FDIC also has the authority to
conduct special examinations.  The Bank must file reports with
OTS describing its activities and financial condition and is
also subject to certain reserve requirements promulgated by the
Federal Reserve Board.  This supervision and regulation is
intended primarily for the protection of depositors.

    Federal Home Loan Bank System.  Harbor Federal is a member
of the FHLB System, which consists of 12 district FHLBs subject
to supervision and regulation by the Federal Housing Finance
Board.  The FHLBs provide a central credit facility primarily
for member institutions.  As a member of the FHLB of Atlanta,
the Bank is required to acquire and hold shares of capital stock
in the FHLB of Atlanta in an amount at least equal to 1% of the
aggregate unpaid principal of its home mortgage loans, home
purchase contracts, and similar obligations at the beginning of
each year or 1/20 of its advances (borrowings) from the FHLB of
Atlanta, whichever is greater.  The Bank was in compliance

                            21
<PAGE>
<PAGE>
with this requirement with an investment in FHLB of Atlanta
stock at March 31, 1999 of $1,433,500.  For additional
information, see Note 10 of the Notes to Consolidated Financial
Statements in the Annual Report.

    The FHLB of Atlanta serves as a reserve or central bank
for its member institutions within its assigned district.  It is
funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes advances
to members in accordance with policies and procedures
established by the OTS and the Board of Directors of the FHLB of
Atlanta.  Long-term advances may only be made for the purpose of
providing funds for residential housing finance.  At March 31,
1999, Harbor Federal had $10.0 million in advances outstanding
with the FHLB of Atlanta.  See "Deposit Activity and Other
Sources of Funds -- Borrowings."

    Liquidity Requirements.  Harbor Federal generally is
required to maintain average daily balances of liquid assets
(generally, cash, certain time deposits, bankers' acceptances,
highly rated corporate debt and commercial paper, securities of
certain mutual funds, and specified United States government,
state or federal agency obligations) equal to 4% of its net
withdrawable accounts plus short-term borrowings either at the
end of the preceeding calendar quarter or on an average daily
basis during the preceding quarter.  Harbor Federal also is
required to maintain sufficient liquidity to ensure its safe and
sound operation.  Monetary penalties may be imposed for failure
to meet liquidity requirements.  The average daily balance of
liquid assets ratio of Harbor Federal for March 1999 was 17.4%.

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

    To meet its QTL test, a savings institution's "Qualified
Thrift Investments" must represent 65% of "portfolio assets."
Under OTS implementing regulations, portfolio assets are defined
as total assets less intangibles, property used by an
institution in its business and liquidity investments in an
amount not exceeding 20% of assets.  Qualified Thrift
Investments consist of (i) loans, equity positions or securities
related to domestic, residential real estate or manufactured
housing and (ii) 50% of the dollar amount of residential
mortgage loans subject to sale under certain conditions.  In
addition, subject to a 20% of portfolio assets limit,
institutions are able to treat as Qualified Thrift Investments
200% of their investments in loans to finance "starter homes"
and loans for construction, development or improvement of
housing and community service facilities or for financing small
businesses in "credit-needy" areas.  Qualified Thrift
Investments do not include any intangible asset.

    A savings institution shall be deemed a Qualified Thrift
Lender as long as its percentage of Qualified Thrift Investments
continues to equal or exceed 65% in at least nine out of each 12
months.  An institution will cease to be a Qualified Thrift
Lender if its percentage of Qualified Thrift Investments as
measured by monthly averages over the immediately preceding 12-
month period falls below 65% for four or more months.  An
institution that fails to maintain QTL status will be permitted
to requalify once, and if it fails the QTL test a second time,
it will become immediately subject to all penalties as if all
time limits on such penalties had expired.

    At March 31, 1999, 73% of Harbor Federal's portfolio
assets were invested in Qualified Thrift Investments as
currently defined.

    Regulatory Capital Requirements.  Under OTS capital
standards, savings institutions must maintain "tangible" capital
equal to at least 1.5% of adjusted total assets, "core" capital
equal to at least 3% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital)
equal to at least 8% of "risk-weighted" assets.  In

                            22
<PAGE>
<PAGE>
addition, the OTS has adopted regulations which impose certain
restrictions on institutions that have a total risk-based
capital ratio that is less than 8.0%, a ratio of Tier 1 capital
to risk-weighted assets of less than 4.0% or a ratio of Tier 1
capital to adjusted total assets of less than 4.0% (or 3.0% if
the institution is rated Composite 1 under the OTS examination
rating system).  For purposes of these regulations, Tier 1
capital has the same definition as core capital.  See "Prompt
Corrective Regulatory Action."  Core capital is defined as
common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully consolidated
subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill."  Core capital is
generally reduced by the amount of an institution's intangible
assets for which no market exists.  Limited exceptions to the
deduction of intangible assets are provided for purchased
mortgage servicing rights, purchased credit card relationships
and qualifying supervisory goodwill held by an eligible
institution.  Tangible capital is given the same definition as
core capital but does not include an exception for qualifying
supervisory goodwill and is reduced by the amount of all the
savings institution's intangible assets with only a limited
exception for purchased mortgage servicing rights and purchased
credit card relationships.  The OTS capital rule requires that
core and tangible capital be further reduced by an amount equal
to a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national
banks ("nonincludable subsidiaries"), other than subsidiaries
engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository
institutions or their holding companies.  As of March 31, 1999,
Harbor Federal had no material investments in or extensions of
credit to nonincludable subsidiaries.

    OTS regulations further provide that core and tangible
capital need not be reduced by the amount of core deposit
intangibles resulting from branch purchase transactions
consummated (or under firm contract) prior to March 4, 1994, to
the extent permitted by OTS, provided that such core deposit
intangibles are valued in accordance with generally accepted
accounting principles, supported by credible assumptions, and
have their amortization adjusted at least annually to reflect
decay rates (past and present) in the acquired customer base.
As of March 31, 1999, Harbor Federal had no such transactions.

    Adjusted total assets are a savings institution's total
assets as determined under generally accepted accounting
principles, adjusted for certain goodwill amounts, and increased
by a pro rated portion of the assets of subsidiaries in which
the institution holds a minority interest and which are not
engaged in activities for which the capital rules require the
institution to net its debt and equity investments against
capital, as well as a pro rated portion of the assets of other
subsidiaries for which netting is not fully required under
phase-in rules.  Adjusted total assets are reduced by the amount
of assets that have been deducted from capital, the portion of
the institution's investments in subsidiaries that must be
netted against capital under the capital rules and, for purposes
of the core capital requirement, qualifying supervisory
goodwill.  At March 31, 1999, Harbor Federal's adjusted total
assets for purposes of the core and tangible capital
requirements were $233.9 million.

    In determining compliance with the risk-based capital
requirement, a savings institution is allowed to use both core
capital and supplementary capital provided the amount of
supplementary capital used does not exceed the institution's
core capital.  Supplementary capital is defined to include
certain preferred stock issues, nonwithdrawable accounts and
pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments
and a portion of the institution's general loss allowances.

    The risk-based capital requirement is measured against
risk-weighted assets which equal the sum of each asset and the
credit-equivalent amount of each off-balance sheet item after
being multiplied by an assigned risk weight.  Under the OTS
risk-weighting system, assets are assigned a risk weight between
zero and 100%, based on their general risk characteristics.   As
of March 31, 1999, the Bank's risk-weighted assets were
approximately $114.0 million.

                            23
<PAGE>
<PAGE>
    The OTS has adopted but delayed effectiveness of an
amendment to its risk-based capital requirements that would
require savings institutions with more than a "normal" level of
interest rate risk to maintain additional total capital.  An
institution's interest rate risk will be measured in terms of
the sensitivity of its "net portfolio value" to changes in
interest rates.  Net portfolio value is defined, generally, as
the present value of expected cash inflows from existing assets
and off-balance sheet contracts less the present value of
expected cash outflows from existing liabilities.  An
institution will be considered to have a "normal" level of
interest rate risk exposure if the decline in its net portfolio
value after an immediate 200 basis point increase or decrease in
market interest rates (whichever results in the greater decline)
is less than two percent of the current estimated economic value
of its assets.  An institution with a greater than normal
interest rate risk will be required to deduct from total
capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component")
equal to one-half the difference between the institution's
measured interest rate risk and the normal level of interest
rate risk, multiplied by the economic value of its total assets.

    The OTS will calculate the sensitivity of an institution's
net portfolio value based on data submitted by the institution
in a schedule to its quarterly Thrift Financial Report and using
the interest rate risk measurement model adopted by the OTS.
The amount of the interest rate risk component, if any, to be
deducted from an institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters
earlier.  Institutions with less than $300 million in assets and
a risk-based capital ratio above 12% generally are exempt from
filing the interest rate risk schedule with their Thrift
Financial Reports.  However, the OTS will require any exempt
institution that it determines may have a high level of interest
rate risk exposure to file such schedule on a quarterly basis.
Management does not believe that Harbor Federal would have been
deemed to have had more than normal interest rate risk under the
rule as of March 31, 1999.

    At March 31, 1999, Harbor Federal substantially exceeded
all regulatory minimum capital requirements.  The table below
presents certain information relating to the Bank's regulatory
capital compliance at March 31, 1999.
<TABLE>
<CAPTION>
                                                Percent of
                                      Amount     Assets (1)
                                      ------    ----------
                                      (Dollars in thousands)
<S>                                   <C>        <C>
Tier 1 Capital. . . . . . . . . . . . $23,945     10.2%
Tier 1 Capital Requirement. . . . . .   9,356      4.0
                                      -------     ----
  Excess. . . . . . . . . . . . . . . $14,589      6.2%
                                      =======     ====

Total Capital . . . . . . . . . . . . $24,600     21.0%
Risk-Based Capital Requirement. . . .   9,122      8.0
                                      -------     ----
  Excess. . . . . . . . . . . . . . . $15,478     13.0%
                                      =======     ====
<FN>
____________
(1) Based on adjusted total assets for purposes of Tier 1
    capital requirement, and risk-weighted assets for purpose of
    the risk-based capital requirement.
</FN>
</TABLE>

    For additional information regarding regulations with
respect to capital, see the paragraphs below and Note 10 of the
Notes to Consolidated Financial Statements in the Annual Report.

    The capital standards for savings institutions must be no
less stringent than the capital standards applicable to national
banks.  Effective December 31, 1990, regulations of the Office
of the Comptroller of the Currency ("OCC") established a new
minimum core capital ratio of 3% for the most highly rated
national banks, with an additional 100 to 200 basis point
"cushion" amount of additional capital required on a case-by-
case basis, considering the quality of risk management systems
and the overall risk in individual banks.  The OTS has proposed
an amendment to its capital

                            24
<PAGE>
<PAGE>
regulations establishing a minimum core capital ratio of 3% for
institutions rated Composite 1 under the OTS examination rating
system.  For all other institutions, the minimum core capital
ratio will be 3% plus at least an additional 100 to 200 points.
In determining the amount of additional core capital, the OTS
will assess both the quality of risk management systems and the
level of overall risk in each individual institution through the
supervisory process on a case-by-case basis.

    In addition to requiring generally applicable capital
standards for institutions, the Director of the OTS is
authorized to establish the minimum level of capital for an
institution at such amount or at such ratio of capital-to-assets
as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the
institution.  The Director of the OTS may treat the failure of
any institution to maintain capital at or above such level as an
unsafe or unsound practice and may issue a directive requiring
any institution which fails to maintain capital at or above the
minimum level required by the Director to submit and adhere to a
plan for increasing capital.  Such an order may be enforced in
the same manner as an order issued by the FDIC.

    Deposit Insurance.  Harbor Federal is required to pay
assessments based on a percent of its insured deposits to the
FDIC for insurance of its deposits by the SAIF.  Under the
Federal Deposit Insurance Act, the FDIC is required to set semi-
annual assessments for SAIF-insured institutions at a level
necessary to maintain the designated reserve ratio of the SAIF
at 1.25% of estimated insured deposits or at a higher percentage
of estimated insured deposits that the FDIC determines to be
justified for that year by circumstances indicating a
significant risk of substantial future losses to the SAIF.

    The FDIC has established a risk-based assessment system
for insured depository institutions.  Under the system, the
assessment rate for an insured depository institution depends on
the assessment risk classification assigned to the institution
by the FDIC which will be determined by the institution's
capital level and supervisory evaluations.  Based on the data
reported to regulators for the date closest to the last day of
the seventh month preceding the semi-annual assessment period,
institutions are assigned to one of three capital groups -- well
capitalized, adequately capitalized or undercapitalized -- using
the same percentage criteria as under the prompt corrective
action regulations.  See "Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of
three subgroups on the basis of supervisory evaluations by the
institution's primary supervisory authority and such other
information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the
deposit insurance fund.  Subgroup A consists of financially
sound institutions with only a few minor weaknesses.  Subgroup B
consists of institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration of the
institution and increased risk of loss to the deposit insurance
fund.  Subgroup C consists of institutions that pose a
substantial probability of loss to the deposit insurance fund
unless effective corrective action is taken.

    For the past several semi-annual periods, savings
institutions with SAIF-assessable deposits, like Harbor Federal,
have been required to pay higher deposit insurance premiums than
institutions with deposits insured by the BIF.  In order to
recapitalize the SAIF and address the premium disparity, the
Deposit Insurance Funds Act of 1996 authorized the FDIC to
impose a one-time special assessment on institutions with SAIF-
assessable deposits based on the amount determined by the FDIC
to be necessary to increase the reserve levels of the SAIF to
the designated reserve ratio of 1.25% of insured deposits.
Institutions were assessed at the rate of 65.7 basis points
based on the amount of their SAIF-assessable deposits as of
March 31, 1995.  As a result of the special assessment, the Bank
incurred a pre-tax expense of $806,000 during the quarter ended
September 30, 1996.

<PAGE>
    The FDIC has adopted a assessment schedule for SAIF
deposit insurance pursuant to which the assessment rate for
well-capitalized institutions with the highest supervisory
ratings would be reduced to zero and institutions in the least
favorable risk assessment classification will be assessed at the
rate of 0.27% of insured deposits.  Until December 31, 1999,
however, SAIF-insured institutions, will be required to pay
assessments to the FDIC at the rate of 6.5 basis points to help
fund interest payments on certain bonds issued by the Financing
Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts.  During
this period, BIF members will be assessed for

                            25
<PAGE>
<PAGE>
these obligations at the rate of 1.3 basis points.  After
December 31, 1999, both BIF and SAIF members will be assessed at
the same rate for FICO payments.

    The FDIC has adopted a regulation which provides that any
insured depository institution with a ratio of Tier 1 capital to
total assets of less than 2% will be deemed to be operating in
an unsafe or unsound condition, which would constitute grounds
for the initiation of termination of deposit insurance
proceedings.  The FDIC, however, would not initiate termination
of insurance proceedings if the depository institution has
entered into and is in compliance with a written agreement with
its primary regulator, and the FDIC is a party to the agreement,
to increase its Tier 1 capital to such level as the FDIC deems
appropriate.  Tier 1 capital is defined as the sum of common
stockholders' equity, noncumulative perpetual preferred stock
(including any related surplus) and minority interests in
consolidated subsidiaries, minus all intangible assets other
than mortgage servicing rights and qualifying supervisory
goodwill eligible for inclusion in core capital under OTS
regulations and minus identified losses and investments in
certain securities subsidiaries.  Insured depository
institutions with Tier 1 capital equal to or greater than 2% of
total assets may also be deemed to be operating in an unsafe or
unsound condition notwithstanding such capital level.  The
regulation further provides that in considering applications
that must be submitted to it by savings institutions, the FDIC
will take into account whether the institution is meeting the
Tier 1 capital requirement for state non-member banks of 4% of
total assets for all but the most highly rated state non-member
banks.

    Federal Reserve System. Pursuant to regulations of the
Federal Reserve Board, all FDIC-insured depository institutions
must maintain average daily reserves against their transaction
accounts.  No reserves are required on the first $4.9 million of
transaction accounts maintained; reserves of 3% are required on
the next $46.5 million of transaction accounts and a reserve of
10% must be maintained against all remaining transaction
accounts.  These reserve requirements are subject to adjustment
by the Federal Reserve Board.  Because required reserves must be
maintained in the form of vault cash or in a non-interest
bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets.

    Dividend Restrictions.  OTS regulations impose additional
limitations on the payment of dividends and other capital
distributions (including stock repurchases and cash mergers) by
Harbor Federal.  Under these regulations, an institution that,
immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution, has total capital
(as defined by OTS regulation) that is equal to or greater than
the amount of its fully phased-in capital requirements (a "Tier
1 Bank") is generally permitted, after notice, to make capital
distributions during a calendar year in the amount equal to the
greater of: (a) 75% of its net income for the previous four
quarters; or (b) 100% of its net income to date during the
calendar year plus an amount that would reduce by one-half the
amount by which its ratio of total capital to assets exceeded
its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year.  An institution with total
capital in excess of current minimum capital ratio requirements
but not in excess of the fully phased-in requirements (a "Tier 2
Bank") is permitted, after notice, to make capital distributions
without OTS approval of up to 75% of its net income for the
previous four quarters, less dividends already paid for such
period.  An institution that fails to meet current minimum
capital requirements (a "Tier 3 Bank") is prohibited from making
any capital distributions without the prior approval of the OTS.
A Tier 1 Bank that has been notified by the OTS that its is in
need of more than normal supervision will be treated as either a
Tier 2 or Tier 3 Bank.  Despite the above authority, the OTS may
prohibit any institution from making a capital distribution that
would otherwise be permitted by the regulation, if the OTS were
to determine that the distribution constituted an unsafe or
unsound practice.

    Under the OTS prompt corrective action regulations, the
Bank would be prohibited from making any capital distributions
if, after making the distribution, it would have: (i) a total
risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-
based capital ratio of less than 4.0%; or (iii) a Tier 1 core
capital ratio of less than 4.0%.  See "Prompt Corrective
Regulatory Action."

                            26
<PAGE>
<PAGE>
    In addition to the foregoing, earnings of the Bank
appropriated to bad debt reserves and deducted for federal
income tax purposes are not available for payment of cash
dividends or other distributions to the Company without payment
of taxes at the then current tax rate on the amount of earnings
removed from the reserves for such distributions.  See
"Taxation."  The Company intends to make full use of this
favorable tax treatment afforded to the Bank and the Company and
does not contemplate use of any post-Conversion earnings of the
Bank in a manner which would limit either company's bad debt
deduction or create federal tax liabilities.  Also, Harbor
Federal would not be permitted to pay dividends on its capital
stock if its regulatory capital would thereby be reduced below
the remaining balance of the liquidation account established for
the benefit of certain depositors of the Bank at the time of the
Conversion.

    Limits on Loans to One Borrower.  Savings institutions
generally are subject to the lending limits applicable to
national banks.  With certain limited exceptions, an
institution's loans and extensions of credit outstanding to a
person at one time shall not exceed 15% of the unimpaired
capital and surplus of the institution.  An institution may lend
an additional amount, equal to 10% of unimpaired capital and
surplus, if such loan is fully secured by readily marketable
collateral.  Savings institutions are additionally authorized to
make loans to one borrower, for any purpose, in an amount not to
exceed $500,000 or, by order of the Director of the OTS, in an
amount not to exceed the lesser of $30,000,000 or 30% of
unimpaired capital and surplus to develop residential housing,
provided:  (i) the purchase price of each single-family dwelling
in the development does not exceed $500,000; (ii) the
institution is in compliance with its fully phased-in capital
requirements; (iii) the loans comply with applicable loan-to-
value requirements, and; (iv) the aggregate amount of loans made
under this authority does not exceed 150% of unimpaired capital
and surplus.  A savings institution is also authorized to make
loans to one borrower to finance the sale of real property
acquired in satisfaction of debts in an amount up to 50% of
unimpaired capital and surplus.  The lending limits generally do
not apply to purchase money mortgage notes taken from the
purchaser of real property acquired by the institution in
satisfaction of debts previously contracted if no new funds are
advanced to the borrower and the institution is not placed in a
more detrimental position as a result of the sale.  Certain
types of loans are excepted from the lending limits, including
loans secured by savings deposits.

    At March 31, 1999, the maximum amount that Harbor Federal
could have lent to any one borrower under the 15% limit was
approximately $3.6 million.  At such date, the largest aggregate
amount of loans that the Bank had outstanding to any one
borrower or group of affiliated borrowers was $2.6 million.

    Transactions with Related Parties.  Transactions between
savings institutions and any affiliate are governed by Sections
23A and 23B of the Federal Reserve Act.  An affiliate of an
institution is any company or entity which controls, is
controlled by or is under common control with the savings
institution.  In a holding company context, the parent holding
company of an institution (such as the Company) and any
companies which are controlled by such parent holding company
are affiliates of the savings institution.  Generally, Sections
23A and 23B (i) limit the extent to which the savings
institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10%
of such institution's capital stock and surplus, and contain an
aggregate limit on all such transactions with all affiliates to
an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the
institution or subsidiary as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other
types of transactions.  In addition to the restrictions imposed
by Sections 23A and 23B, no savings institution may (i) loan or
otherwise extend credit to an affiliate, except for any
affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any
stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the
savings institution.

    Further, savings institutions are subject to the
restrictions contained in Section 22(h) of the Federal Reserve
Act and the Federal Reserve Board's Regulation O thereunder on
loans to executive officers, directors and principal
stockholders.  Under Section 22(h), loans to a director,
executive officer and to a greater than 10% stockholder of an
institution and certain affiliated interests of such persons,
may not exceed, together with all other outstanding loans to
such person and affiliated interests, the institution's loans-
to-one-borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus).  Section 22(h)
also prohibits the making of loans above amounts prescribed

                            27
<PAGE>
<PAGE>
by the appropriate federal banking agency, to directors,
executive officers and greater than 10% stockholders of an
institution, and their respective affiliates, unless such loan
is approved in advance by a majority of the board of directors
of the institution with any "interested" director not
participating in the voting.  Regulation O prescribes the loan
amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is
required as being the greater of $25,000 or 5% of capital and
surplus (up to $500,000).  Further, Section 22(h) requires that
loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered
in comparable transactions to other persons.  Section 22(h) also
generally prohibits a depository institution from paying the
overdrafts of any of its executive officers or directors.

    Savings institutions are also subject to the requirements
and restrictions of Section 22(g) of the Federal Reserve Act and
Regulation O on loans to executive officers and the restrictions
of 12 U.S.C. Section1972 on certain tying arrangements and
extensions
of credit by correspondent banks. Section 22(g) of the Federal
Reserve Act requires approval by the board of directors of a
depository institution for extension of credit to executive
officers of the institution, and imposes reporting requirements
for and additional restrictions on the type, amount and terms of
credits to such officers.  Section 1972 (i) prohibits a
depository institution from extending credit to or offering any
other services, or fixing or varying the consideration for such
extension of credit or service, on the condition that the
customer obtain some additional service from the institution or
certain of its affiliates or not obtain services of a competitor
of the institution, subject to certain exceptions, and (ii)
prohibits extensions of credit to executive officers, directors,
and greater than 10% stockholders of a depository institution by
any other institution which has a correspondent banking
relationship with the institution, unless such extension of
credit is on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and does
not involve more than the normal risk of repayment or present
other unfavorable features.

    Prompt Corrective Regulatory Action.  Under the Federal
Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the federal banking regulators are required to take
prompt corrective action if an institution fails to satisfy
certain minimum capital requirements, including a leverage
limit, a risk-based capital requirement, and any other measure
deemed appropriate by the federal banking regulators for
measuring the capital adequacy of an insured depository
institution.  All institutions, regardless of their capital
levels, are restricted from making any capital distribution or
paying any management fees that would cause the institution to
become undercapitalized.  An institution that fails to meet the
minimum level for any relevant capital measure (an
"undercapitalized institution") generally is: (i) subject to
increased monitoring by the appropriate federal banking
regulator; (ii) required to submit an acceptable capital
restoration plan within 45 days; (iii) subject to asset growth
limits; and (iv) required to obtain prior regulatory approval
for acquisitions, branching and new lines of businesses.  The
capital restoration plan must include a guarantee by the
institution's holding company that the institution will comply
with the plan until it has been adequately capitalized on
average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the
institution's total assets or the amount necessary to bring the
institution into capital compliance as of the date it failed to
comply with its capital restoration plan.  A significantly
undercapitalized institution, as well as any undercapitalized
institution that does not submit an acceptable capital
restoration plan, may be subject to regulatory demands for
recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible
replacement of directors and officers, and restrictions on
capital distributions by any bank holding company controlling
the institution.  Any company controlling the institution may
also be required to divest the institution or the institution
could be required to divest subsidiaries.  The senior executive
officers of a significantly undercapitalized institution may not
receive bonuses or increases in compensation without prior
approval and the institution is prohibited from making payments
of principal or interest on its subordinated debt, with certain
exceptions.  If an institution's ratio of tangible capital to
total assets falls below the "critical capital level"
established by the appropriate federal banking regulator, the
institution is subject to conservatorship or receivership within
90 days unless periodic determinations are made that forbearance
from such action would better protect the deposit insurance
fund.  Unless appropriate findings and certifications are made
by the appropriate federal bank regulatory agencies, a
critically undercapitalized institution must be placed in
receivership if it remains critically undercapitalized on
average during the calendar quarter beginning 270 days after the
date it became critically undercapitalized.

                            28
<PAGE>
<PAGE>
    Under the OTS regulation implementing the prompt
corrective action provisions of FDICIA, the OTS measures an
institution's capital adequacy on the basis of its total risk-
based capital ratio (the ratio of its total capital to risk-
weighted assets), Tier 1 risk-based capital ratio (the ratio of
its core capital to risk-weighted assets) and Tier 1 core
capital ratio (the ratio of its core capital to adjusted total
assets).   An institution that is not subject to an order or
written directive to meet or maintain a specific capital level
is deemed "well capitalized" if it also has: (i) a total risk-
based capital ratio of 10% or greater; (ii) a Tier 1 risk-based
capital ratio of 6.0% or greater; and (iii) a Tier 1 core
capital ratio of 5.0% or greater.  An "adequately capitalized"
savings institution is an institution that does not meet the
definition of well capitalized and has: (i) a total risk-based
capital ratio of 8.0% or greater; (ii) a Tier 1 capital risk-
based ratio of 4.0% or greater; and (iii) a Tier 1 core capital
ratio of 4.0% or greater (or 3.0% or greater if the savings
institution has a Composite 1 rating).  An "undercapitalized
institution" is an institution that has (i) a total risk-based
capital ratio less than 8.0%; or (ii) a Tier 1 risk-based
capital ratio of less than 4.0%; or (iii) a Tier 1 core capital
ratio of less than 4.0% (or 3.0% if the institution has a
Composite 1 rating).  A "significantly undercapitalized"
institution is defined as an institution that has: (i) a total
risk-based capital ratio of less than 6.0%; or (ii) a Tier 1
risk-based capital ratio of less than 3.0%; or (iii) a Tier 1
core capital ratio of less than 3.0%.  A "critically
undercapitalized" savings institution is defined as an
institution that has a ratio of core capital to total assets of
less than 2.0%.  The OTS may reclassify a well capitalized
savings institution as adequately capitalized and may require an
adequately capitalized or undercapitalized institution to comply
with the supervisory actions applicable to institutions in the
next lower capital category if the OTS determines, after notice
and an opportunity for a hearing, that the savings institution
is in an unsafe or unsound condition or that the institution has
received and not corrected a less-than-satisfactory rating for
any Composite rating category.

    Standards for Safety and Soundness.  FDICIA requires each
federal bank regulatory agency to prescribe, by regulation,
safety and soundness standards for institutions under its
authority.  In 1995, these agencies, including the OTS, released
interagency guidelines establishing such standards and adopted
rules with respect to safety and soundness compliance plans.
The OTS guidelines require savings institutions to maintain
internal controls and information systems and internal audit
systems that are appropriate for the size, nature and scope of
the institution's business.  The guidelines also establish
certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure and asset growth.  The
guidelines further provide that savings institutions should
maintain safeguards to prevent the payment of compensation, fees
and benefits that are excessive or that could lead to material
financial loss and should take into account factors such as
comparable compensation practices at comparable institutions.
If the OTS determines that a savings institution is not in
compliance with the safety and soundness guidelines, it may
require the institution to submit an acceptable plan to achieve
compliance with the guidelines.  A savings institution must
submit an acceptable compliance plan to the OTS within 30 days
of receipt of a request for such a plan.  Failure to submit or
implement a compliance plan may subject the institution to
regulatory sanctions.  Management believes that Harbor Federal
meets substantially all the standards adopted in the interagency
guidelines.

    Additionally, each federal banking agency is required to
establish standards relating to the adequacy of asset and
earnings quality.  In 1995, these agencies, including the OTS,
issued proposed guidelines relating to asset and earnings
quality.  Under the proposed guidelines, a savings institution
should maintain systems, commensurate with its size and the
nature and scope of its operations, to identify problem assets
and prevent deterioration in those assets as well as to evaluate
and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves.  Management does not
believe that the asset and earnings standards, in the form
proposed by the OTS, would have a material effect on Harbor
Federal.

REGULATION OF THE COMPANY

    The Company is a savings institution holding company and,
as such, subject to OTS registration, regulation, examination,
supervision and reporting requirements.  As a subsidiary of a
savings institution holding company, Harbor Federal is subject
to certain restrictions in its dealings with the Company and
affiliates thereof.  The Company also is required to file
certain reports with, and otherwise comply with the rules and
regulations of, the Securities and Exchange Commission ("SEC")
under the federal securities laws.

                            29
<PAGE>
<PAGE>
    Activities Restrictions.  The Board of Directors of the
Company presently intends to operate the Company as a unitary
savings institution holding company.  There are generally no
restrictions on the activities of a unitary savings institution
holding company.  However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation
by an institution holding company of an activity constitutes a
serious risk to the financial safety, soundness or stability of
its subsidiary savings institution, the Director of the OTS may
impose such restrictions as deemed necessary to address such
risk including limiting: (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution
and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be
imposed on the savings institution.  Notwithstanding the above
rules as to permissible business activities of unitary savings
institution holding companies, if the savings institution
subsidiary of such a holding company fails to meet the QTL test,
then such unitary holding company shall also presently become
subject to the activities restrictions applicable to multiple
holding companies and, unless the savings institution
requalifies as a QTL within one year thereafter, register as,
and become subject to, the restrictions applicable to a bank
holding company.  See "Regulation of the Bank -- Qualified
Thrift Lender Test."  Legislative initiatives have been
introduced in the U.S. Congress which could result in the
imposition of restrictions on the activities of unitary savings
institution holding companies in the future.

    If the Company were to acquire control of another savings
institution, other than through merger or other business
combination with Harbor Federal, the Company would thereupon
become a multiple savings institution holding company.  Except
where such acquisition is pursuant to the authority to approve
emergency thrift acquisitions and where each subsidiary savings
institution meets the QTL test, the activities of the Company
and any of its subsidiaries (other than the Bank or other
subsidiary savings institutions) would thereafter be subject to
further restrictions.  Among other things, no multiple savings
institution holding company or subsidiary thereof which is not
an institution shall commence or continue for a limited period
of time after becoming a multiple savings institution holding
company or subsidiary thereof, any business activity, upon prior
notice to, and no objection by, the OTS, other than: (i)
furnishing or performing management services for a subsidiary
savings institution; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary savings institution; (iv)
holding or managing properties used or occupied by a subsidiary
savings institution; (v) acting as trustee under deeds of trust;
(vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies; or (vii)
unless the Director of the OTS by regulation prohibits or limits
such activities for savings institution holding companies, those
activities authorized by the Federal Reserve Board as
permissible for bank holding companies.  A multiple savings
institution holding company must obtain the approval of the OTS
prior to engaging in the activities described in (vii) above.

    Restrictions on Acquisitions.  Savings institution holding
companies may not acquire, without prior approval of the
Director of the OTS, (i) control of any other savings
institution or savings institution holding company or
substantially all the assets thereof or (ii) more than 5% of the
voting shares of an institution or holding company thereof which
is not a subsidiary.  Under certain circumstances, a registered
savings institution holding company is permitted to acquire,
with the approval of the Director of the OTS, up to 15% of the
voting shares of an under-capitalized savings institution
pursuant to a "qualified stock issuance" without that savings
institution being deemed controlled by the holding company.  In
order for the shares acquired to constitute a "qualified stock
issuance," the shares must consist of previously unissued stock
or treasury shares, the shares must be acquired for cash, the
savings institution holding company's other subsidiaries must
have tangible capital of at least 6-1/2% of total assets, there
must not be more than one common director or officer between the
savings institution holding company and the issuing savings
institution, and transactions between the savings institution
and the savings institution holding company and any of its
affiliates must conform to Sections 23A and 23B of the Federal
Reserve Act.  Except with the prior approval of the Director of
the OTS, no director or officer of an institution holding
company or person owning or controlling by proxy or otherwise
more than 25% of such company's stock, may also acquire control
of any savings institution, other than a subsidiary savings
institution, or of any other savings institution holding
company.

    The Director of the OTS may only approve acquisitions
resulting in the formation of a multiple savings institution
holding company which controls savings institutions in more than
one state if:  (i) the multiple savings

                            30
<PAGE>
<PAGE>
institution holding company involved controls an institution
which operated a home or branch office in the state of the
institution to be acquired as of March 5, 1987; (ii) the
acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of
the FDIC Act; or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit
institutions to be acquired by state-chartered institutions or
savings institution holding companies located in the state where
the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).

    OTS regulations permit federal savings institutions to
branch in any state or states of the United States and its
territories.  Except in supervisory cases or when interstate
branching is otherwise permitted by state law or other statutory
provision, a federal institution may not establish an out-of-
state branch unless (i) the federal institution qualifies as a
"domestic building and loan association" under
Section7701(a)(19) of the Internal Revenue Code and the total
assets attributable to all branches of the institution in the
state would qualify such branches taken as a whole for treatment
as a domestic building and loan association and (ii) such branch
would not result in (a) formation of a prohibited multi-state
multiple savings holding company or (b) a violation of certain
statutory restrictions on branching by savings institution
subsidiaries of banking holding companies.  Federal associations
generally may not establish new branches unless the institution
meets or exceeds minimum regulatory capital requirements.  The
OTS will also consider the institution's record of compliance
with the Community Reinvestment Act of 1977 in connection with
any branch application.  Legislative initiatives have been
introduced in the U.S. Congress which could result in the
imposition of restrictions on the branching activities of
federal savings institutions in the future.

    Under the Bank Holding Company Act of 1956, as amended,
bank holding companies are specifically authorized to acquire
control of any savings institution.  Pursuant to rules
promulgated by the Federal Reserve Board, owning, controlling or
operating an institution is a permissible activity for bank
holding companies, if the savings institution engages only in
deposit-taking activities and lending and other activities that
are permissible for bank holding companies.  A bank holding
company that controls an institution may merge or consolidate
the assets and liabilities of the savings institution with, or
transfer assets and liabilities to, any subsidiary bank which is
a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board.  The resulting
bank will be required to continue to pay assessments to the SAIF
at the rates prescribed for SAIF members on the deposits
attributable to the merged savings institution plus an annual
growth increment.  In addition, the transaction must comply with
the restrictions on interstate acquisitions of commercial banks
under the Bank Holding Company Act.

    Federal Securities Law.  The Common Stock is registered
with the SEC under the Securities Exchange Act of 1934, as
amended ("Securities Exchange Act"), and under OTS regulations
generally may not be deregistered for at least three years after
the Conversion.  The Company is subject to the information,
proxy solicitation, insider trading restrictions and other
requirements of the Securities Exchange Act.

TAXATION

    The Company and its subsidiaries file a consolidated
federal income tax return on a fiscal year basis.  Consolidated
returns have the effect of eliminating intercompany
distributions, including dividends, from the computation of
consolidated taxable income for the taxable year in which the
distributions occur.

    Federal Income Taxation. Thrift institutions are subject
to the provisions of the Internal Revenue Code of 1986 (the
"Code") in the same general manner as other corporations.
However, institutions such as Harbor Federal which meet certain
definitional tests and other conditions prescribed by the Code
may benefit from certain favorable provisions regarding their
deductions from taxable income for annual additions to their bad
debt reserve.  For purposes of the bad debt reserve deduction,
loans are separated into "qualifying real property loans," which
generally are loans secured by interests in certain real
property, and nonqualifying loans, which are all other loans.
The bad debt reserve deduction with respect to nonqualifying
loans must be based on actual loss experience.  For tax years
beginning before January 1, 1996, the amount of the bad debt
reserve deduction with respect to qualifying real property loans
may be based upon

                            31
<PAGE>
<PAGE>
actual loss experience (the "experience method") or a percentage
of taxable income determined without regard to such deduction
(the "percentage of taxable income method").

    Legislation that is effective for tax years beginning
after December 31, 1995 requires institutions to recapture into
taxable income over a six taxable year period the portion of the
tax loan loss reserve that exceeds the pre-1988 tax loan loss
reserve.  Harbor Federal is no longer allowed to use the
percentage of taxable income method for tax loan loss
provisions, but is allowed to use the experience method of
accounting for bad debts.  There has been no effect on net
income of Harbor Federal from the recapture because the taxes on
these bad debts reserves were accrued as a deferred tax
liability.

    The legislation provides for a suspension of this
recapture if the institution meets the "residential loan
requirement."  This requirement is met if the principal amount
of residential loans that the institution originates during its
first taxable year after December 31, 1995, exceeds the average
of the principal amounts of residential loans made by the
institution during the six most recent taxable years beginning
before January 1, 1996.  If the requirement is met, the
recapture is suspended until a taxable year beginning December
31, 1997, or until the residential loan requirement is not met
in a subsequent year.  Harbor Federal met this requirement for
the taxable year ended March 31, 1999.

    Harbor Federal historically elected to use the percentage
of taxable income method.  Under the percentage of taxable
income method, the bad debt reserve deduction for qualifying
real property loans is computed as a percentage, which Congress
has reduced from as much as 60% in prior years to 8% of taxable
income, with certain adjustments, effective for taxable years
beginning after 1986.  The allowable deduction under the
percentage of taxable income method (the "percentage bad debt
deduction") for taxable years beginning before 1987 was scaled
downward in the event that less than 82% of the total dollar
amount of the assets of an association were within certain
designated categories.  When the percentage method bad debt
deduction was lowered to 8%, the 82% qualifying assets
requirement was lowered to 60%.  For all taxable years, there is
no deduction in the event that less than 60% of the total dollar
amount of the assets of an association falls within such
categories.  Moreover, in such case, the Bank could be required
to recapture, generally over a period of up to four years, their
existing bad debt reserve.  As of March 31, 1999, more than the
required amount of the Bank's total assets fell within such
category.

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

    State Income Taxation.  The State of Maryland imposes an
income tax of approximately 7% on income measured substantially
the same as federal taxable income.  In addition, Maryland
imposes a franchise tax, at a rate of 0.013% of the total
withdrawal value of the deposits that a savings and loan
association holds in Maryland at December 31 each year.

    Harbor Federal's federal and state income tax returns have
been audited through December 31, 1993.  For additional
information, see Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report.

EMPLOYEES

    As of March 31, 1999, Harbor Federal had 49 full-time and
seven part-time employees, none of whom was represented by a
collective bargaining agreement.

<PAGE>
EXECUTIVE OFFICERS

    The following table sets forth information as of March 31,
1999 regarding the executive officer of Harbor Federal who did
not serve on the Board of Directors.

                            32
<PAGE>
<PAGE>
Name                 Age     Title
----                 ---     -----

Norbert J. Luken      61     Vice President and Chief Financial
                             Officer

    NORBERT J. LUKEN has been with Harbor Federal since 1969,
and is currently Vice President and Chief Financial Officer.  He
has served as Treasurer of Financial Managers Society, Maryland
Chapter, Committeeman and Treasurer of Boy Scout Troop 746, Shot
Tower District Chairman of the Baltimore Area Council, BSA, and
a member of the St. Joseph's Catholic Church Choir, and the
Archdiocesan Choir of Baltimore.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

    The following table sets forth information regarding
Harbor Federal's locations at March 31, 1999.

<TABLE>
<CAPTION>
                              Year               Book Value                    Deposits at
                           Opened or  Owned or  at March 31,   Approximate   March 31, 1999
                           Acquired    Leased      1999      Square Footage  (In thousands)
                           ---------  --------  ------------ --------------  --------------
<S>                        <C>        <C>       <C>             <C>             <C>
Main Office:
 Towson --
 705 York Road              1993      Owned      $1,155,400     8,300           $17,290

Branch Offices:
 South Baltimore --
 132 East Fort Avenue       1887      Owned          24,100     3,300            26,003

 Riviera Beach --
 8553 Ft. Smallwood Road    1972      Owned          43,700     2,200            28,991

 Locust Point --
 1350 East Fort Avenue      1981      Owned          67,800     1,400            12,268

 Highlandtown --
 3200 Eastern Avenue        1910      Owned         107,700     5,300            30,886

 Parkville --
 7917 Harford Road          1989      Owned         122,100     1,600            21,740

 Pikesville --
 507 Reisterstown Road      1996      Leased          4,900     1,500            20,329

 Putty Hill --
 8030 Belair Road           1996      Owned         230,800     2,400            13,005

 Roland Park --
 4806 Roland Avenue         1996      Leased          4,000     1,800            12,849

</TABLE>

    The book value of Harbor Federal's investment in premises
and equipment totaled $1.8 million at March 31, 1999.

                            33
<PAGE>
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS
--------------------------

    From time to time, Harbor Federal is a party to various
legal proceedings incident to its business.  At March 31, 1999,
there were no legal proceedings to which the Company, Harbor
Federal or its subsidiaries was a party, or to which any of
their property was subject, which were expected by management to
result in a material loss.

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

    No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 1999.


                        PART II

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

    The information required by this item is incorporated by
reference to "Item 1.  Business -- Regulation -- Dividend
Limitations" herein and "Market Information," "Market Price of
Common Stock and Dividend Information" and Note 11 of the Notes
to Consolidated Financial Statements in the portions of the
Annual Report filed as Exhibit 13 to this report.

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

    The information required by this item is incorporated by
reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the portions of the
Annual Report filed as Exhibit 13 to this report.

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

    The financial statements required by this item are
incorporated by reference to the consolidated financial
statements, notes to consolidated financial statements and
independent auditors' report in the portions of the Annual
Report filed as Exhibit 13 to this report.

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

    Not applicable.
                       PART III

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

    The information required by this item is incorporated by
reference to "Election of Directors" in the Proxy Statement and
"Item 1.  Description of Business -- Executive Officers" herein.

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

    The information required by this item is incorporated by
reference to "Executive Compensation" in the Proxy Statement.

<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT
-------------------------------------------------------------

    The information required by this item is incorporated by
reference to "Voting Securities and Principal Holders Thereof"
and "Election of Directors" in the Proxy Statement.

                            34
<PAGE>
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

    The information required by this item is incorporated by
reference to "Transactions with Management" in the Proxy
Statement.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

    (a)  The following exhibits either are filed as part of
this report or are incorporated herein by reference:

    No.            Description
    ---            -----------
     3.1          Articles of Incorporation of Harbor Federal
                  Bancorp, Inc. (1)

     3.2          Bylaws of Harbor Federal Bancorp, Inc. (1)

     4            Form of Common Stock Certificate (1)

    10.1          Employment and Guaranty Agreements between
                  Harbor Federal Bancorp, Inc. and Harbor
                  Federal Savings Bank and Robert A. Williams
                  and Lawrence W. Williams, as amended  (2)

    10.2          Severance Agreements between Harbor Federal
                  Bancorp, Inc. and Harbor Federal Savings
                  Bank and Norbert J. Luken, as amended  (2)

    10.3          Employment Agreement and Guaranty Agreement
                  between Thomas J. Riehl  and Bank Street
                  Mortgage Company and Harbor Federal Bancorp,
                  Inc. (3)

    10.4          Harbor Federal Savings Bank Non-Employee
                  Director Retirement Plan, as amended * (2)

    10.5          Harbor Federal Savings Bank Deferred
                  Compensation Plan, as amended (4)

    10.6          Harbor Federal Savings Bank Supplemental
                  Executive Retirement Agreement with Robert
                  Williams (renamed Grantor Trust), as amended
                  * (4)

    10.7          Harbor Federal Bancorp, Inc. Incentive
                  Compensation Plan, as amended  (4)

    10.8          Harbor Federal Bancorp, Inc. 1995 Stock
                  Option and Incentive Plan and Trust, as
                  amended (3)

    10.9          Harbor Federal Bancorp, Inc. Management
                  Recognition Plan and Trust, as amended (3)

    10.10         Harbor Federal Bancorp, Inc. 1999 Stock
                  Incentive Plan *

    13            1999 Annual Report to Stockholders *

    21            Subsidiaries (5)

    23            Consent of KPMG LLP *

    27.1          Financial Data Schedule *

    27.2          Restated Financial Data Schedule for
                  fiscal 1998 *

    27.3          Restated Financial Data Schedule for
                  fiscal 1997 *

[FN]
__________
*   Some or all filed as an exhibit to this report.
(1) Some or all incorporated by reference to the Company's
    Registration Statement on Form S-1 (File No. 33-75624).
(2) Some or all incorporated by reference to the Company's
    Quarterly Report on Form 10-QSB for the Quarterly Period
    ended June 30, 1994 and the Company's Annual Report on Form
    10-KSB for the year ended March 31, 1998.
(3) Incorporated by reference to the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1998.
(4) Some or all incorporated by reference to the Company's
    Registration Statement on Form S-1 (File No. 33-75624) and
    the Company's Annual Report on Form 10-KSB for the year
    ended March 31, 1998.
(5) Incorporated by reference to "Item 1.  Business --
    Subsidiary Activities" in this report.



      (b)  No report on Form 8-K was filed during the last
quarter of the fiscal year covered by this report.

                            35
<PAGE>
<PAGE>
                      SIGNATURES


    Pursuant to the requirements of Section 13 or 15(d) 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.

                             HARBOR FEDERAL BANCORP, INC.


Date:  June 21, 1999      By: /s/ Robert A. Williams
                              ----------------------------
                              Robert A. Williams
                              President
                              (Duly Authorized Representative)

    Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.


By: /s/ Robert A. Williams                  Date: June 21, 1999
    -------------------------------
    Robert A. Williams
    President
   (Director and Principal Executive Officer)


By: /s/ Norbert J. Luken                    Date: June 21, 1999
    -------------------------------
    Norbert J. Luken
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)


By: /s/ Joseph J. Lacy                      Date: June 21, 1999
    -------------------------------
    Joseph J. Lacy
    Director

By: /s/ John H. Riehl, III                  Date: June 21, 1999
    -------------------------------
    John H. Riehl, III
    Director

By: /s/ J. Kemp Roche                       Date: June 21, 1999
    -------------------------------
    J. Kemp Roche
    Director

By: /s/ Gideon N. Stieff, Jr.               Date: June 21, 1999
    -------------------------------
    Gideon N. Stieff, Jr.
    Director

By: /s/ Lawrence W. Williams                Date: June 21, 1999
    -------------------------------
    Lawrence W. Williams
    Director