Exhibit 13

         Portions of 1997 Annual Report to Stockholders<PAGE>
<PAGE>
                   MARKET INFORMATION

The Company's common stock began trading under the symbol "HRBF"
on the NASDAQ National Market System on August 11, 1994.  At
March 31, 1997, there were 1,754,420 shares of the common stock
outstanding and approximately 437 holders of record of the common
stock.  During fiscal year ended March 31, 1997 four dividends
have been paid on the common stock at $0.10 per share.  On April
10, 1997 a dividend of $0.10 per share was also paid.

           MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The earnings of Harbor Federal depend primarily on its level
of net interest income, which is the difference between interest
earned on Harbor Federal's interest-earning assets, consisting
primarily of mortgage loans, mortgage-backed securities,
interest-bearing deposits at other institutions, investment
securities and other investments, and the interest paid on
interest-bearing liabilities which have consisted primarily of
savings deposits.  Net interest income is a function of Harbor
Federal's interest rate spread, which is the difference between
the average yield on interest-earning assets and the average rate
paid on interest-bearing liabilities, as well as the average
balances of interest-earning assets and interest-bearing
liabilities.  Harbor Federal's earnings are also affected by its
level of noninterest income, including primarily service fees and
charges, and non-interest expense, including primarily
compensation and employee benefits, occupancy and equipment
expenses and SAIF deposit insurance premiums.  Earnings of Harbor
Federal also are affected significantly by general economic and
competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities,
which events are beyond the control of Harbor Federal.

     On February 16, 1996, Harbor Federal acquired three
Baltimore area branches from Sequoia National Bank.  These
branches contained deposits of $44.1 million for  which Harbor
Federal paid a premium of $3.2 million.  Harbor Federal received
$13.9 million in various types of loans and $27.0 million in
cash.  After adjusting this premium for real and tangible assets
acquired in the transaction, the premium balance of $3.0 million
is being amortized over an eight year period.

FINANCIAL CONDITION

     Harbor Federal's total assets increased by $22.7 million or
11.5% from $196.8 million at March 31, 1996 to $219.5 million at
March 31, 1997, primarily due to an increase in loans of $27.8
million, partially offset by decreases in mortgage-backed
securities of $3.8 million and investment securities of $1.2
million.

     Net loans receivable increased $27.8 million or 23.8% from
$116.9 million at March 31, 1996 to $144.7 million at March 31,
1997.  This increase was due primarily to a higher level of loan
originations, which was funded in part by an increase in deposits
of $9.8 million, in part by an increase in borrowed funds of
$12.0 million, and in part by proceeds of sales and repayments of
mortgage-backed and investment securities.

     Harbor Federal's deposits increased by $9.8 million or 6.1%
from $161.6 million at March 31, 1996 to $171.4 million at March
31, 1997.  This increase was primarily due to competitive rates
offered on certificates of deposit, which increased $11.1 million
or 11.1% from $100.1 million at March 31, 1996 to $111.2 million
at March 31, 1997.
<PAGE>
<PAGE>
RESULTS OF OPERATIONS

     Harbor Federal had net income totaling $901,000, $1.0
million and $1.6 million for fiscal years 1997, 1996, and 1995,
respectively.

    Interest Income.  Total interest income increased by $3.6
million, or 30.4%, from $11.8 million for the year ended March
31, 1996 to $15.4 million for the year ended March 31, 1997.  The
increase in interest income was principally attributable to a
$49.3 million, or 31.5% increase in the balance of average
interest-earning assets to $205.8 million for the year ended
March 31, 1997 from $156.5 million for the year ended March 31,
1996, partially offset by a decrease in the average yield on
Harbor Federal's average interest-earning assets to 7.47% for the
year ended March 31, 1997 from 7.53% for the year ended March 31,
1996.  The increase in interest-earning assets during the year
ended March 31, 1997 compared to the year ended March 31, 1996
reflects management's use of the funds received from deposits
including the deposits acquired in February 1996, and borrowings. 
The increase in average interest-earning assets was largely the
result of a $29.8 million increase in average loans and a $22.5
million increase in average investment securities, partially
offset by a  $1.3 million decrease in average mortgage-backed
securities and a $1.7 million decrease in average short-term
investment securities and other interest-earning assets.  The
decrease in average yield was caused primarily by a decrease in
fixed and adjustable rates on one-to four-family residential
mortgage loans.

     Interest income on first mortgage and other loans increased
by $2.2 million, or 26.2%, to $10.4 million for the year ended
March 31, 1997 from $8.2 million for the year ended March 31,
1996.  This increase was attributable to the increase in the
average investment in first mortgage and other loans to $133.7
million for the year ended March 31, 1997 from $103.9 million for
the year ended March 31, 1996, partially offset by a decrease in
the average yield on first mortgage and other loans to 7.8% for
the year ended March 31, 1997 from 8.0% for the year ended March
31, 1996.  The lower yield on mortgage loans reflects primarily
decreasing interest rates on adjustable rate mortgage loans. 
Interest income on mortgage-backed securities decreased by
$86,000, or 6.6% to $1.2 million for the year ended March 31,
1997 from $1.3 million for the year ended March 31, 1996.  The
decrease resulted primarily from a $1.3 million, or 7.3%,
decrease in average mortgage-backed securities to $16.8 million
for the year ended March 31, 1997 from $18.1 million for the year
ended March 31, 1996.  Interest income on investment securities
increased $1.5 million, or 80.8%, to $3.4 million for the year
ended March 31, 1997 from $1.9 million for the year ended March
31, 1996.  The increase resulted from an increase in average
investment securities to $48.9 million for the year ended March
31, 1997 from $26.4 million for the year ended March 31, 1996. 
The increase in the average balance of investment securities
resulted primarily from the reinvestment of a portion of the
proceeds of the deposits acquired in February 1996.  Interest
income from short-term investments and other interest-earning
assets decreased $31,000, or 9.5%, to $294,000 for the year ended
March 31, 1997 from $325,000 for the year ended March 31, 1996 as
a result of a decrease in average short-term investments and
other interest-earning assets of $1.6 million, or 20.4%, to $6.5
million for the year ended March 31, 1997 from $8.1 million for
the year ended March 31, 1996, partially offset by an increase in
average yield on short-term investments and other interest-
earning assets to 4.6% for the year ended March 31, 1997 from
4.0% for the year ended March 31, 1996.

     Total interest income increased by $1.5 million, or 14.56%,
from $10.3 million for the year ended March 31, 1995 to $11.8
million for the year ended March 31, 1996.  The increase in
interest income was principally attributable to a $18.0 million, 
<PAGE>
<PAGE>
or 13.0% increase in the balance of average interest-earning
assets to $156.5 million for the year ended March 31, 1996 from
$138.5 million for the year ended March 31, 1995, and an increase
in the average yield on average interest-earning assets to 7.53%
for the year ended March 31, 1996 from 7.44% for the year ended
March 31, 1995.  The increase in interest-earning assets during
the year ended March 31, 1996 compared to the year ended March
31, 1995 reflects management's use of the funds received with the
deposits acquired in February 1996.  The increase in average
interest-earning assets was largely the result of a $9.7 million
increase in average loans, a $1.7 million increase in average
investment securities, a $5.3 million increase in average
mortgage-backed securities and a $1.2 million increase in average
short-term investment securities and other interest-earning
assets.  The increase in the average yield was caused primarily
by an increase in fixed and adjustable rates on one-to four-
family residential mortgage loans and higher yielding investment
securities.

     The interest income on first mortgage and other loans
increased by $970,000, or 13.3%, to $8.3 million for the year
ended March 31, 1996 from $7.3 million for the year ended March
31, 1995.  This increase was attributable to the increase in
average investments in first mortgage and other loans to $103.9
million for the year ended March 31, 1996 from $94.2 million for
the year ended March 31, 1995 and an increase in the average
yield on first mortgage and other loans to 8.0% for the year
ended March 31, 1996 from 7.7% for the year ended March 31, 1995. 
The higher yield on mortgage loans reflects primarily increasing
interest rates on adjustable rate mortgage loans and the
acquisition of $13.9 million in various loan types from Sequoia
National Bank with a slightly higher average rate than Harbor
Federal's portfolio.  Interest income on mortgage-backed
securities increased by $313,000, or 31.8% to $1.3 million for
the year ended March 31, 1996 from $1.0 million for the year
ended March 31, 1995.  The increase resulted from a $5.3 million,
or 41.4%, increase in average mortgage-backed securities to $18.1
million for the year ended March 31, 1996 from $12.8 million for
the year ended March 31, 1995, partially offset by a decrease in
the average yield to 7.2% for the year ended March 31, 1996 from
7.7% for the year ended March 31, 1995.  The lower average yield
on mortgage-backed securities generally resulted from a more
rapid prepayment of mortgage-backed securities in a declining
rate environment.  Interest income on investment securities
increased $147,000, or 8.4%, to $1.9 million for the year ended
March 31, 1996 from $1.8 million for the year ended March 31,
1995.  The increase resulted from an increase in average
investment securities to $26.4 million for the year ended March
31, 1996 from $24.7 million for the year ended March 31, 1995 and
an increase in the average yield to 7.2% for the year ended March
31, 1996 from 7.1% for the year ended March 31, 1995.  The
increase in the average balance of investment securities resulted
from the investment of the proceeds from the acquired deposits. 
Interest income from short-term investments and other interest-
earning assets increased $45,000, or 16.1%, to $325,000 for the
year ended March 31, 1996 from $280,000 for the year ended March
31, 1995 as a result of an increase in average short-term
investments and other interest-earning assets of $1.2 million, or
17.4%, to $8.1 million for the year ended March 31, 1996 from
$6.9 million for the year ended March 31, 1995 and a decrease in
the average yield on short-term investments and other interest-
earning assets to 4.0% for the year ended March 31, 1996 from
4.1% for the year ended March 31, 1995.

     Interest Expense.  Total interest expense increased by $3.2
million, or 50.8%, to $9.4 million for the year ended March 31,
1997 from $6.2 million for the year ended March 31, 1996.  The
increase was attributable to an increase in the average cost of
deposits to 5.2% for the year ended March 31, 1997 from 4.9% for
the year ended March 31, 1996, a $41.9 million, or 34.2%,
increase in average deposits to $164.5 million for the year ended 
<PAGE>
<PAGE>
March 31, 1997 from $122.6 million for the year ended March 31,
1996, and a $10.7 million increase in average borrowed funds to
$15.2 million for the year ended March 31, 1997 from $4.5 million
for the year ended March 31, 1996.  The borrowed funds were
needed to fund loan originations.
     
     Total interest expense increased by $1.5 million, or 31.9%,
to $6.2 million for the year ended March 31, 1996 from $4.7
million for the year ended March 31, 1995.  The increase was
attributable to an increase in the average cost of deposits to
4.9% for the year ended March 31, 1996 from 4.1% for the year
ended March 31, 1995 and a $9.3 million, or 8.2%, increase in
average deposits to $122.6 million for the year ended March 31,
1996 from $113.3 million for the year ended March 31, 1995 and a
$4.0 million increase in average borrowed funds to $4.5 million
for the year ended March 31, 1996 from $500,000 for the year
ended March 31, 1995.  The borrowed funds were needed to fund the
purchase of mortgage-backed securities.

     Net Interest Income.  Net interest income increased by
$428,000, or 7.7% to $6.0 million for the year ended March 31,
1997 from $5.6 million for the same period in 1996.  The
principal reason for the increase in net interest income was the
increase in average outstanding loans, partially offset by a
reduction in the interest rate spread to 2.3% for the year ended
March 31, 1997 from 2.6% for the year ended March 31, 1996.

     Net interest income decreased by $53,000, or 0.9% to $5.57
million for the year ended March 31, 1996 from $5.62 million for
the same period in 1995.  The principal reason for the decrease
in net interest income was a decrease in Harbor Federal's
interest rate spread to 2.6% for the year ended March 31, 1996
from 3.3% for the year ended March 31, 1995.

     Provisions for Losses.  Harbor Federal maintains an
allowance for losses on loans based on management's review and
classification of the loan portfolio and analyses of borrowers'
ability to pay, past collection experience, risk characteristics
of individual loans or groups of similar loans and underlying
collateral, current and prospective economic conditions, status
of nonperforming loans and regulatory reviews conducted in the
regulatory examination process.  There was a $33,000 provision
for losses on loans for the year ended March 31, 1997 as compared
to no provision during the year ended March 31, 1996 and a
provision of $3,000 during the year ended March 31, 1995. 
Management believes that the current level of loan loss
allowances is adequate to provide for losses, although there can
be no assurance that such losses will not exceed estimated
amounts.  See Notes 1 and 4 of the Notes to Consolidated
Financial Statements for additional information on the allowance
for losses on loans.

     Noninterest Income.  Noninterest income increased $87,000 or
61.3% to $229,000 for the year ended March 31, 1997 from $142,000
for the year ended March 31, 1996.  The increase was due
primarily to fees of $45,000 earned from an ATM machine installed
in Ocean City, Maryland in May 1996.

     Noninterest income decreased $56,000 or 28.3% to $142,000
for the year ended March 31, 1996 from $198,000 for the  year
ended March 31, 1995.  Changes in noninterest income resulted
from changes in the volume of loans serviced, the amount of
service fees charged on deposit accounts, late fees charged on
delinquent loans and other miscellaneous fees.

     Noninterest Expense.  Noninterest expense increased by
$656,000 to $4.7 million for the year ended March 31, 1997 from
$4.1 million for the year ended March 31, 1996.  The increase in
noninterest expense was due to a one-time assessment of $806,000
for deposit insurance due to the federally mandated recapitaliza-
tion of Savings Association Insurance Fund as of September 30,
1996.
<PAGE>
<PAGE>
     There was also an increase in occupancy expense of $115,000
to $439,000 for the year ended March 31, 1997 from $324,000 for
the year ended March 31, 1996.  This was primarily due to rentals
of two branches purchased from Sequoia National Bank in February
1996 and rental of space for the ATM machine in Ocean City,
Maryland.  These increases were partially offset by reductions in
legal and accounting fees of $101,000 to $73,000 from $174,000,
advertising of $74,000 to $162,000 from $236,000 and compensation
and benefits expense of $85,000 to $2.4 million from $2.5
million.

     Noninterest expense increased by $882,000 to $4.1 million
for the year ended March 31, 1996 from $3.2 million for the year
ended March 31, 1995.  The increase in noninterest expense
resulted from various factors, most of which related to the
Company converting to a stock company in August 1994 and the
acquisition of three branches from Sequoia National Bank in
February 1996.  Other noninterest expenses that increased for the
year ended March 31, 1996 over the same period in 1995 were as
follows:  advertising $90,000 to $236,000 from $146,000, legal
and accounting $72,000 to $174,000 from $102,000, electronic data
processing $27,000 to $132,000 from $105,000.

     At the Company's Annual Meeting of Stockholders on September
28, 1994, stockholders approved the implementation of a stock
option plan and three separate recognition plans relating to
directors, executive officers and key management personnel of the
Company.  Increases in compensation expense related to these
plans totaled $585,000 for the year ended March 31, 1996.

     Income Taxes.  The changes in the amounts of Harbor
Federal's income tax provision reflect the changes in income
before income taxes.  Income tax provisions for the years ended
March 31, 1997, 1996 and 1995 are generally reflective of the
amounts of Harbor Federal's pre-tax income and the effective
income tax rate then in effect.  See Notes 1 and 9 of the Notes
to Consolidated Financial Statements for additional information
on income taxes.

AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

     The following tables set forth certain information relating
to Harbor Federal's average interest-earning assets and interest-
bearing liabilities and the average yield on assets and the
average cost of liabilities for the periods indicated.  Such
yields and costs are derived by dividing income or expense by the
average daily balance of assets or liabilities, respectively, for
the periods indicated.  During the periods indicated, nonaccrual
loans are included in the net loan category.

     The table also presents information for the periods
indicated, with respect to the difference between the weighted
average yield earned on interest-earning assets and the weighted
average rate paid on interest-bearing liabilities, or "interest
rate spread," which savings institutions have traditionally used
as an indicator of profitability.  Another indicator of an
institution's net interest income is its "net yield on interest-
earning assets," which is its net interest income divided by the
average balance of interest-earning assets.  Net interest income
is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing
liabilities.  When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread
will generate net interest income.

<PAGE>
<PAGE>
<TABLE>
<CAPTION>
                                                                   Year Ended March 31,  
                                -------------------------------------------------------------------------------------
                                            1997                         1996                       1995
                                ----------------------------  --------------------------- ---------------------------
                                                     Average                      Average                    Average
                                Average               Yield/  Average              Yield/ Average             Yield/
                                Balance   Interest   Cost(1)  Balance   Interest  Cost(1)  Balance  Interest  Cost(1)
                                -------   --------   -------  -------   --------  ------- --------  --------  -------
                                                               (Dollars in thousands)
<S>                             <C>       <C>        <C>      <C>       <C>       <C>     <C>       <C>       <C>
Interest-earning assets:
  Loans .  .  .  .  .  .  .  .  $133,674   $10,426    7.80%   $103,861  $ 8,259    7.95%  $ 94,166  $ 7,289    7.74%
  Investment securities.  .  .    48,895     3,437    7.03      26,426    1,901    7.19     24,681    1,754    7.11
  Mortgage-backed securities .    16,810     1,211    7.21      18,136    1,297    7.15     12,792      985    7.70
  Short-term investments and 
   other interest-earning 
   assets (2).  .  .  .  . . .     6,456       295    4.56       8,115      326    4.01      6,874      280    4.07
                                --------   -------            --------  -------           --------  -------
    Total interest-earning 
      assets  .  .  .  .  .  .   205,835    15,369    7.47     156,538   11,783    7.53    138,513   10,308    7.44
                                           -------                      -------                     -------
Non-interest-earning assets  .     4,347                         4,387                       4,518
                                --------                      --------                    --------
    Total assets .  .  .  .  .  $210,182                      $160,925                    $143,031
                                ========                      ========                    ========
                                        
Interest-bearing liabilities:                                         
    Deposits  .  .  .  .  .  .  $164,531     8,468    5.15    $122,575    5,944    4.85   $113,253    4,656   4.11
    Borrowed funds. .  .  .  .    15,210       904    5.94       4,554      269    5.90        537       29   5.45
                                --------   -------            --------  -------           --------  -------
    Total interest-bearing
      liabilities   .  .  .  .   179,741     9,372    5.21     127,129    6,213    4.89    113,790    4,685     4.13
                                           -------                      -------                     -------
Non-interest bearing 
  liabilities.  .  .  .  .  .      2,489                         2,115                       2,026
                                --------                      --------                    --------
    Total liabilities.  .   .    182,230                       129,244                     115,816
Stockholders' equity  .  .  .     27,952                        31,681                      27,215       
                                --------                      --------                    --------
    Total liabilities and 
      stockholders' equity.  .  $210,182                      $160,925                    $143,031
                                ========                      ========                    ========
Net interest income.  .  .  .              $ 5,997                      $ 5,570                     $ 5,623
                                           =======                      =======                     =======   
Interest rate spread (3)  .  .                        2.26%                        2.64%                      3.31%
                                                      ====                         ====                       ====
Net yield on interest-earning
    assets (4)  .  .  .  .  .                         2.91%                        3.56%                      4.06%
                                                      ====                         ====                       ====
Ratio of average interest-
   earning assets to average 
   interest-bearing
   liabilities  .  .  .  .  .                       114.52%                      123.13%                    121.73%
                                                    ======                       ======                     ======
<FN>
__________________
(1)  Represents interest income or expense as a percentage of average interest-earning
     assets or average interest-bearing liabilities.
(2)  Includes interest-bearing deposits, certificates of deposit, short-term investments,
     secured demand loans to Bankers Affiliate, Inc. (affiliate) and Federal Home Loan
     Bank stock.
(3)  Interest rate spread represents the difference between the average yield on interest-
     earning assets and the average cost of interest-bearing liabilities.
(4)  Net yield on interest-earning assets represents net interest income as a percentage
     of average interest-earning assets.
</FN>
/TABLE
<PAGE>
<PAGE>
RATE/VOLUME ANALYSIS

     The table below sets forth certain information regarding
changes in interest income and interest expense of Harbor Federal
for the periods indicated.  For each category of interest-earning
asset and interest-bearing liability, information is provided on
changes attributable to: (i) changes in volume (changes in volume
multiplied by old rate), (ii) changes in rates (change in rate
multiplied by old volume) and (iii) changes in rate-volume
(changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>

                                                               Year Ended March 31,
                                      -------------------------------------------------------------
                                          1997       vs.       1996       1996      vs.      1995
                                      -------------------------------  ----------------------------
                                              Increase (Decrease)           Increase (Decrease)
                                                   Due to                         Due to
                                      -------------------------------  ----------------------------
                                                        Rate/                        Rate/           
                                       Volume   Rate   Volume   Total  Volume  Rate  Volume   Total
                                      -------   ----  --------  -----  ------  ----  ------   -----
<S>                                   <C>       <C>    <C>      <C>     <C>    <C>    <C>     <C>
Interest income:                                       
    Loans  .  .  .  .  .  .  .  .  .  $2,370   $(158)  $ (45)   $ 2,167  $  750 $ 198  $ 22       $  970
    Investment securities .  .  .  .   1,617     (44)    (37)     1,536     124    20     3       147

    Mortgage-backed securities  .  .     (95)     10      (1)       (86)    411   (70)  (28)      313
    Short-term investments and
        other interest-earning
        assets (1)  .  .  .  .  .  .     (67)     45      (9)       (31)     50    (4)   (1)       45
                                      ------  ------   -----    -------  ------ -----  ----    ------
      Total interest-earning
        assets.  .  .  .  .  .  .  .   3,825    (147)    (92)     3,586   1,335   144    (4)    1,475

Interest expense:                                      
    Deposits  .  .  .  .  .  .  .  .   2,034     364     126      2,524     383   838    68     1,289
    Borrowed funds. .  .  .  .  .  .     628       2       5        635     219     2    18       239
                                      ------  ------   -----    -------  ------ -----  ----    ------
      Total interest-bearing
        liabilities .  .  .  .  .  .   2,662     366     131      3,159     602   840    86     1,528
                                      ------  ------   -----    -------  ------ -----  ----    ------
Change in net interest income.  .  .  $1,163  $ (513)  $(223)   $   427  $  733 $(696) $(90)   $  (53)
                                      ======  ======   =====    =======  ====== =====  ====    ======
<FN>
________________________
(1) Includes interest on interest-bearing deposits,
    certificates of deposit, short term investments, secured
    demand loan to Bankers Affiliate, Inc. (affiliate) and
    dividends on Federal Home Loan Bank stock.
</FN>
</TABLE>

ASSET/LIABILITY MANAGEMENT

     Interest Rate Sensitivity Gap.  The matching of assets and
liabilities may be analyzed by examining the extent to which such
assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap".  An
asset or liability is interest rate sensitive within a specific
time period if it will mature or reprice within that time period. 
The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that
time period.  A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest
rate liabilities.  A gap is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets.  Management believes that, due to
its substantial amount of relatively long term assets and short
term liabilities, Harbor Federal generally has a negative gap. 
During a period of rising interest rates, a negative gap would
tend to adversely affect net interest income while a positive gap
would tend to positively affect net interest income.  Similarly,
during a period of falling interest rates, a negative gap would
tend to positively affect net interest income while a positive
gap would tend to adversely affect net interest income.  As a
result, management expects that during periods of rising rates
the Bank's net interest income could be adversely affected.

<PAGE>
<PAGE>
     Harbor Federal's policy in recent years has been to reduce
its exposure to interest rate risk generally by emphasizing fixed
rate one-to four-family mortgage loans with terms of 15 years or
less, adjustable rate one-to four- family mortgage loans and
investing in mortgage-backed securities, short and medium term
U.S. government and agency securities, and short term investments
such as federal funds, interest-earning deposits in other
institutions, and securities purchased under agreements to
resell.  The advantage of the adjustable rate loans is somewhat
diminished by the fact that Harbor Federal in recent years has
offered these loans with an initial period of five to seven years
before the first interest adjustment.  By maintaining a
significant percentage of its assets in cash and other liquid
investments, Harbor Federal is able to reinvest a higher
percentage of its assets more quickly in response to changes in
market interest rates, thereby reducing its exposure to interest
rate volatility.  However, prevailing market conditions,
regulatory considerations and the need for a balanced portfolio
have necessitated that Harbor Federal continue to offer fixed
rate mortgage loans.  In addition to emphasizing adjustable rate
loans and high levels of liquidity, Harbor Federal offers
competitive rates on deposit accounts and prices certificates of
deposits to provide customers with incentives to choose
certificates of deposit with longer terms.  Due to the current
interest rate environment, however, certificates of deposit with
longer terms are not attractive to customers.

     Net Portfolio Value.  The OTS has incorporated an interest
rate risk ("IRR") component into the risk-based regulatory
capital rules.  The IRR component is a dollar amount that would
be deducted from total capital for the purpose of calculating an
institution's risk-based capital requirement and would be
measured in terms of the sensitivity of its net portfolio value
("NPV") to changes in interest rates.  NPV is the difference
between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts.  An institution's
IRR is measured as the change in its NPV as a result of a
hypothetical 200 basis point change in market interest rates.  A
resulting change in NPV of more than 2% of the estimated market
value of its assets will require the institution to deduct from
its capital 50% of the excess change.  Based on the most recent
information provided to Harbor Federal by the OTS, which is as of
December 31, 1996, Harbor Federal was not subject to an IRR
component.

LIQUIDITY AND CAPITAL RESOURCES

     Harbor Federal is required to maintain minimum levels of
liquid assets as defined by OTS regulations.  This requirement,
which varies from time to time depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and
short-term borrowings.  The required ratio currently is 5.0%. 
Harbor Federal's liquidity ratio averaged 9.5% during the month
of March 1997.  Liquidity ratios averaged 10.6% for the year
ended March 31, 1997.  Harbor Federal adjusts its liquidity
levels in order to meet funding needs of deposit outflows,
payment of real estate taxes on mortgage loans, repayment of
borrowings and loan commitments.  Harbor Federal also adjusts
liquidity as appropriate to meet its asset and liability
management objectives.

     Harbor Federal's primary sources of funds are deposits,
amortization and prepayment of loans and mortgage-backed
securities, maturities of investment securities and other
investments, and earnings and funds provided from operations. 
While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, and competition.  Harbor 
<PAGE>
<PAGE>
Federal manages the pricing of its deposits to maintain a desired
deposit balance.  In addition, Harbor Federal invests in short-
term interest-earning assets, which provide liquidity to meet 
lending requirements.  At March 31, 1997, $2.0 million, or 4.2%,
of Harbor Federal's investment portfolio was scheduled to mature
in one year or less, $9.5 million, or 20.0%, was scheduled to
mature in one to five years, and $35.3 million was scheduled to
mature in over five years.  At March 31, 1997, certificates of
deposit which were scheduled to mature in one year or less
totaled $52.6 million.  Assets qualifying for liquidity
outstanding at March 31, 1997 amounted to $17.8 million.

    Harbor Federal had $4.7 million in outstanding loan
commitments at March 31, 1997.  Harbor Federal expects to fund
its loan originations through principal and interest payments on
loans and mortgage-backed securities, proceeds from investment
and other securities as maturities occur, and to the extent
necessary, borrowed funds.  Management expects that funds
provided from these sources will be adequate to meet Harbor
Federal's needs.

IMPACT OF INFLATION AND CHANGING PRICES

     The consolidated financial statements and the related notes
thereto have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the change in the relative purchasing power
of money over time and due to inflation.  The impact of inflation
is reflected in the increased cost of Harbor Federal's
operations.  Unlike most industrial companies, nearly all the
assets and liabilities of Harbor Federal are monetary.  As a
result, interest rates have a greater impact on Harbor Federal's
performance than do the effects of general levels of inflation. 
Interest rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.

NEW ACCOUNTING STANDARDS

     Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.  In June 1996 the FASB issued
SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities".  SFAS No.
125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively.  This Statement will
require, among other things, that the Company record at fair
value, assets and liabilities resulting from a transfer of
financial assets.  In December 1996, SFAS No. 127 was issued
which deferred the effective date of certain provisions of SFAS
No. 125 related to repurchase agreements, securities lending and
similar transactions until January 1, 1998.  The Company adopted
the provisions of SFAS No. 125 as of January 1, 1997, and the
adoption did not have a material effect on the Company's reported
financial condition or results of operations.

     Earnings per Share.  In February 1997, the FASB issued SFAS
No. 128, "Earnings per Share", which is effective for the
financial statements issued for periods ending after December 15,
1997.  SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and replaces the
presentation of primary EPS with a presentation of basic EPS.  It
requires dual presentation of basic and diluted EPS on the face
of the consolidated statement of income and the reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. 
Earlier application is not permitted but disclosure of pro forma
EPS amounts computed using the standards established by SFAS No.
128 is permitted in the notes to financial statements for periods
ending prior to the effective date.  See Note 1 to the Notes to
the Consolidated Financial Statements for additional information.
<PAGE>
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDEND INFORMATION
-----------------------------------------------------

     The Company's common stock is traded on the over-the-counter
market under the symbol "HRBF" and trading information is
reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) National Market System.  As of March
31, 1997, there were 437 stockholders of record and 1,754,420
shares of common stock entitled to vote and receive dividends of
which 1,640,736 shares were considered outstanding for financial
reporting purposes due to nonvesting of certain ESOP shares.  See
Note 12 of Notes to Consolidated Financial Statement.  The number
of stockholders of record does not reflect the number of persons
or entities who hold their stock in nominee or "street" name.

     Four quarterly dividends of $.10 per share have been paid
during the year ended March 31, 1997 and five quarterly dividends
of $.05 per share have been paid during the year ended March 31,
1996.  On February 24, 1997, a dividend of $.10 per share was
declared payable April 10, 1997 to holders of record at the close
of business on April 1, 1997.  The high and low closing sale
prices for the Company's common stock as reported on the NASDAQ
stock market during each quarter of fiscal 1997, 1996 and 1995
were as follows:
<TABLE>   
<CAPTION>
                          First   Second    Third   Fourth
                          Quarter Quarter  Quarter  Quarter
                          ------- -------  -------  -------
<S>                       <C>     <C>      <C>      <C>
Market Price Range
Fiscal 1997:
    High                  $13.75  14.50    16.00    18.25
    Low                    12.50  12.38    14.25    15.38

Fiscal 1996:
    High                  $13.75  15.38    15.50    15.00
    Low                    12.00  13.25    14.38    12.75

Fiscal 1995:
    High                  $ N/A   13.00    12.00    12.63
    Low                     N/A   11.69     9.75    10.25
</TABLE>
<PAGE>
<PAGE>








INDEPENDENT AUDITORS' REPORT


The Board of Directors
Harbor Federal Bancorp, Inc.
Baltimore, Maryland:

We have audited the accompanying consolidated statements of
financial condition of Harbor Federal Bancorp, Inc. and
subsidiary as of March 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended
March 31, 1997.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Harbor Federal Bancorp, Inc. and subsidiary as of
March 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period
ended March 31, 1997 in conformity with generally accepted
accounting principles.

                                KPMG PEAT MARWICK LLP
Baltimore, Maryland 
May 16, 1997
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, 1997 and 1996
------------------------------------------------------------------------------
                                                      1997          1996
------------------------------------------------------------------------------
<S>                                                <C>            <C>
ASSETS
Cash:
  On hand and due from banks                       $1,482,872     1,814,498
  Interest-bearing deposits                           275,962       992,754
Federal funds sold                                  3,939,419     3,441,969
Investment securities, fair value of $46,968,577
  and $48,286,914, respectively (notes 2 and 8)    47,543,418    48,738,919
Mortgage-backed securities, fair value of 
  $14,251,452 and $18,122,990, respectively 
  (notes 3 and 8)                                  14,161,239    17,937,421
Loans receivable, net (note 4)                    144,701,746   116,891,985
Investment in Federal Home Loan Bank
  stock, at cost (note 10)                          1,366,000     1,269,600
Investments in real estate, net                       465,136        43,848
Investment in and advances to affiliated
  corporation (note 5)                              2,775,000     2,825,000
Property and equipment, net (note 6)                1,938,699     1,978,542
Prepaid expenses and other assets                     812,693       621,663
Federal and state income taxes receivable                  --       205,564
------------------------------------------------------------------------------
                                                 $219,462,184   196,761,763
------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Savings accounts (note 7)                      $171,466,629   161,643,312
  Borrowed funds (note 8)                          16,500,000     4,500,000
  Advance payments by borrowers for taxes,
    insurance and ground rents                      1,902,414     1,929,535
  Accrued expenses and other liabilities            1,296,861       799,822
  Federal and state income taxes payable               71,501            --
------------------------------------------------------------------------------
Total liabilities                                 191,237,405   168,872,669
Stockholders' equity (notes 1, 10, 11 and 12):
  Preferred stock $0.01 par value; authorized
    5,000,000 shares; none issued                          --            --
  Common stock $0.01 par value; authorized 
    20,000,000 shares; issued and outstanding 
    1,754,420 shares                                   17,544        17,544
  Additional paid-in capital                       13,611,599    13,316,038
  Unearned ESOP shares                             (1,136,840)   (1,363,250)
  Retained income, substantially restricted        16,068,969    16,041,999
  Unrealized holding gain (loss) on securities 
    available for sale, net                          (336,493)     (123,237)
------------------------------------------------------------------------------
Total stockholders' equity                         28,224,779    27,889,094
Commitments and contingencies (notes 10, 11,
  12 and 14)
------------------------------------------------------------------------------
                                                 $219,462,184   196,761,763
------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------
                                               1997       1996       1995
------------------------------------------------------------------------------
<S>                                       <C>           <C>        <C>
Interest income:
  Loans receivable                        $10,426,017   8,258,649  7,288,928
  Mortgage-backed securities                1,211,214   1,297,242    984,484
  Investment securities                     3,437,112   1,901,219  1,754,209
  Interest-earning deposits and other
    short-term investments                    294,470     325,511    280,063
------------------------------------------------------------------------------
Total interest income                      15,368,813  11,782,621 10,307,684
------------------------------------------------------------------------------
Interest expense:
  Savings accounts:
    Certificates                            6,375,035   4,351,237  2,999,199
    NOW and money market deposit
     accounts                               1,054,961     800,607    814,759
    Passbook and statement savings          1,037,527     792,324    841,491
------------------------------------------------------------------------------
                                            8,467,523   5,944,168  4,655,449
  Borrowed funds                              903,821     268,528     29,306
------------------------------------------------------------------------------
Total interest expense                      9,371,344   6,212,696  4,684,755
------------------------------------------------------------------------------
Net interest income                         5,997,469   5,569,925  5,622,929
Provision for losses on loans (note 4)         32,605          --      2,703
------------------------------------------------------------------------------
Net interest income after provision
  for losses on loans                       5,964,864   5,569,925  5,620,226
------------------------------------------------------------------------------
Noninterest income:
  Loan fees and service charges                65,687      65,916     88,047
  Other                                       163,587      76,203    109,885
------------------------------------------------------------------------------
Total noninterest income                      229,274     142,119    197,932
------------------------------------------------------------------------------
</TABLE>
                                                  (Continued)
 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income, Continued
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------
                                               1997       1996       1995
------------------------------------------------------------------------------
<S>                                       <C>           <C>        <C>
Noninterest expense:
  Compensation and benefits (note 12)  $2,412,898     2,498,000   1,912,901
  Occupancy and equipment                 438,675       323,800     310,288
  SAIF deposit insurance premiums 
    (note 10)                           1,029,651       297,295     273,679
  Advertising                             162,434       235,969     146,136
  Gain on foreclosed collateral                --            --     (51,958)
  Other                                   681,800       714,586     596,998
------------------------------------------------------------------------------
Total noninterest expense               4,725,458     4,069,650   3,188,044

Income before income taxes              1,468,680     1,642,394   2,630,114

Income taxes (note 9)                     567,200       638,182   1,015,900
------------------------------------------------------------------------------
Net income                             $  901,480     1,004,212   1,614,214

Net income per share of common 
  stock (note 1):
  Primary:
    Post-conversion                    $     0.54          0.54        0.52
    Proforma                                   --            --        0.93
------------------------------------------------------------------------------
  Fully diluted:
    Post-conversion                    $     0.54          0.54        0.48
    Proforma                                   --            --        0.85
------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------------
                                            Common     Additional       Unearned
                                            stock     paid-in capital  ESOP Shares
------------------------------------------------------------------------------------
<S>                                         <C>        <C>            <C>
Balance at March 31, 1994                  $    --     $        --    $        --
Proceeds from stock offering                21,801      21,779,059             --
Conversion costs                                --      (1,050,000)            --
Borrowings for Employee Stock
  Ownership Plan (ESOP)                         --              --     (1,744,070)
Compensation under stock-based
  benefit plans                                 --          98,784        174,410
Adjustment to unrealized holding
  gain (loss) on securities available
  for sale, net (note 1)                        --              --             --
Dividends ($.05 per share)                      --              --             --
Net income - 1995                               --              --             --
------------------------------------------------------------------------------------
Balance at March 31, 1995                   21,801      20,827,843     (1,569,660)

Compensation under stock-based benefit 
  plans                                         --         451,677        206,410
Purchase of 425,666 shares of common stock  (4,257)     (5,973,431)            --
Purchase of 87,203 shares of common stock
  for MRP Trust                                 --      (1,242,522)            --
Purchase of 58,707 shares of common stock
  for Stock Option Trust                        --        (875,242)            --
Exercise of 12,020 stock options by
  Stock Option Trust                            --         127,713             --
Adjustment to unrealized holding gain
  (loss) on securities available for
  sale, net (note 1)                            --              --             --
Dividends ($.20 per share)                      --              --             --
Net income - 1996                               --              --             --
------------------------------------------------------------------------------------
Balance at March 31, 1996                   17,544      13,316,038     (1,363,250)

Compensation under stock-based benefit
  plans                                         --         236,240        226,410
Purchase of 698 shares of common stock
  for Stock Option Trust                        --          (8,987)            --
Exercise of 6,429 stock options by 
  Stock Option Trust                            --          63,308             --
Adjustment to unrealized holding gain
  (loss) on securities available for
  sale, net (note 1)                            --              --             --
Dividends ($.40 per share)                      --              --             --
Net income - 1997                               --              --             --
------------------------------------------------------------------------------------
Balance at March 31, 1997                  $17,544     $13,611,599    $(1,136,840)
------------------------------------------------------------------------------------
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------------
                                      Retained    Unrealized Holding    
                                        income       gain (loss) on      Total
                                    substantially securities available stockholders'
                                       restricted     for sale            equity
------------------------------------------------------------------------------------
<S>                                       <C>        <C>                <C>
Balance at March 31, 1994              $13,936,410   $        --       $13,936,410
Proceeds from stock offering                    --            --        21,800,860
Conversion costs                                --            --        (1,050,000)
Borrowings for Employee Stock
  Ownership Plan (ESOP)                         --            --        (1,744,070)
Compensation under stock-based
  benefit plans                                 --            --           273,194
Adjustment to unrealized holding
  gain (loss) on securities available
  for sale, net (note 1)                        --        68,523            68,523
Dividends ($.05 per share)                (109,004)           --          (109,004)
Net income - 1995                        1,614,214            --         1,614,214
------------------------------------------------------------------------------------
Balance at March 31, 1995               15,441,620        68,523        34,790,127 

Compensation under stock-based benefit 
  plans                                         --            --           658,087
Purchase of 425,66 shares of common stock       --            --        (5,977,688)
Purchase of 87,203 shares of common stock
  for MRP Trust                                 --            --        (1,242,522)
Purchase of 58,707 shares of common stock
  for Stock Option Trust                        --            --          (875,242)
Exercise of 12,020 stock options by
  Stock Option Trust                            --            --           127,713 
Adjustment to unrealized holding gain
  (loss) on securities available for
  sale, net (note 1)                            --      (191,760)         (191,760)
Dividends ($.20 per share)                (403,833)           --          (403,833)
Net income - 1996                        1,004,212            --         1,004,212
------------------------------------------------------------------------------------
Balance at March 31, 1996               16,041,999      (123,237)       27,889,094 

Compensation under stock-based benefit
  plans                                         --            --           462,650
Purchase of 698 shares of common stock
  for Stock Option Trust                        --            --            (8,987)
Exercise of 6,429 stock options by 
  Stock Option Trust                            --            --            68,308
Adjustment to unrealized holding gain
  (loss) on securities available for
  sale, net (note 1)                            --      (213,256)         (213,256)
Dividends ($.40 per share)                (874,510)           --          (874,510)
Net income - 1997                          901,480            --           901,480
------------------------------------------------------------------------------------
Balance at March 31, 1997               16,068,969      (336,493)       28,224,779
------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------------ 
                                                  1997       1996       1995
------------------------------------------------------------------------------
<S>                                             <C>           <C>        <C>
Cash flows from operating activities:
  Net income                                  $ 901,480    1,004,212     1,614,214
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                150,976      151,322       149,489
    Amortization of premium on savings 
     deposits                                   381,384       25,314            --
    Provision for losses on loans                32,605           --         2,703
    Deferred income tax provision              (104,374)      14,275        30,819
    Noncash compensation under stock-
      based benefit plans                       462,650      658,087       273,194
    Loans originated for sale                (2,666,457)  (1,199,431)           --
    Amortization of loan fees, premiums
      and discounts, net                        (85,708)     (48,941)      168,319
    Loss on sale of mortgage-backed 
      securities available for sale               7,787           --            --
    Decrease (increase) in prepaid 
      expenses and other assets                  47,091       (2,535)      588,541
    Increase in accrued expenses and 
      other liabilities                         210,826      325,977       282,064
    Increase (decrease) in federal and 
      state income taxes                        277,065     (279,093)     (162,266)
    Increase in accrued interest receivable    (120,068)    (238,981)      (73,477)
    Increase (decrease) in accrued interest 
      payable                                   113,471       (8,441)       14,773
------------------------------------------------------------------------------------
Net cash provided by (used in) 
  operating activities                         (391,272)     401,765     2,888,373
------------------------------------------------------------------------------------
Cash flows from investing activities:
  Premium paid on savings deposits                   --   (3,044,642)           --
  Purchases of investment securities
    available for sale                       (4,997,965) (21,981,389)           --
  Maturities of investment securities
    available for sale                        4,000,000           --            --
  Principal repayments of mortgage-backed 
    securities available for sale             1,193,668    2,462,614            --
  Purchases of mortgage-backed securities
    available for sale                       (4,996,875) (10,484,123)           --
  Sales of mortgage-backed securities 
    available for sale                        3,538,099           --            --
  Maturities of investment securities         2,000,000   11,000,000       988,400
  Purchases of investment securities                 --  (10,986,501)   (8,966,726)
  Purchases of mortgage-backed securities            --           --    (1,020,262)
  Principal repayments of mortgage-backed 
    securities                                3,890,273    1,818,389     2,768,183
  Loan principal disbursements, net of
    repayments                              (16,110,791)   1,166,296   (10,290,711)
  Loan purchases                             (9,334,785) (14,424,603)   (7,199,236)
  Increase in investment in Federal Home 
    Loan Bank stock                             (96,400)          --            --
  Proceeds from sales of investments in 
    real estate                                  43,848           --        91,230
  Purchases of property and equipment          (111,133)    (275,361)     (129,926)
  Decrease (increase) in investment in and 
   advances to affiliated corporation, net       50,000      (50,000)     (100,000)
------------------------------------------------------------------------------------
Net cash used in investing activities       (20,932,061) (44,799,320)  (23,859,048)
------------------------------------------------------------------------------------
                                                                        (Continued)
</TABLE> 
 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Years ended March 31, 1997, 1996 and 1995
------------------------------------------------------------------------------------
                                                    1997       1996       1995
------------------------------------------------------------------------------------
<S>                                              <C>           <C>        <C>
Cash flows from financing activities:
  Net increase (decrease) in savings accounts  $ 9,441,933  52,870,177   (1,739,040)
  Net increase in borrowed funds                12,000,000   2,500,000    2,000,000
  Increase (decrease) in advance payments by 
    borrowers for taxes, insurance and 
    ground rents                                   (27,121)   (164,902)    499,165
  Proceeds from stock offering                          --          --  19,006,790
  Stock repurchases                                     --  (5,977,688)         --
  Purchase of stock for MRP Trust                       --  (1,242,522)         --
  Purchase of stock for Stock Option Trust          (8,987)   (875,242)         --
  Exercise of stock options by Stock Option Trust   68,308     127,713          --
  Dividends paid                                  (701,768)   (403,833)   (109,004)
------------------------------------------------------------------------------------
Net cash provided by financing activities       20,772,365  46,833,703  19,657,911
------------------------------------------------------------------------------------
Net increase (decrease) in cash equivalents       (550,968)  2,436,151  (1,312,764)
Cash and cash equivalents at beginning of year   6,249,221   3,813,070   5,125,834
------------------------------------------------------------------------------------
Cash and cash equivalents at end of year        $5,698,253   6,249,221   3,813,070
------------------------------------------------------------------------------------
Supplemental information:
  Interest paid on savings accounts and 
    borrowed funds                              $8,899,748   6,217,000   4,656,000
  Income taxes paid                                628,000     900,000   1,252,000
------------------------------------------------------------------------------------
Schedule of noncash investing and 
  financing transactions:
  Transfers of loans receivable to investments
    in real estate                              $  465,136      43,848          --
  Unrealized holding gains (loss) on securities 
    available for sale, net of income tax         (213,256)    (191,760)     68,523
------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

 <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

March 31, 1997, 1996 and 1995
----------------------------------------------------------------

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CONSOLIDATION

     The consolidated financial statements include the accounts
     of Harbor Federal Bancorp, Inc. (the Company) and its
     wholly-owned subsidiary Harbor Federal Savings Bank (the
     Bank).  All significant intercompany accounts and 
     transactions have been eliminated in consolidation.

     BUSINESS

     The Bank provides a full range of banking services to
     individual and corporate customers through its subsidiaries
     and branch banks in Maryland.  The Bank is subject to
     competition from other financial institutions.  The Bank is
     subject to the regulations of certain federal agencies and
     undergoes periodic examinations by those regulatory
     authorities.

     BASIS OF PRESENTATION

     The financial statements have been prepared in conformity
     with generally accepted accounting principles.  In preparing
     the financial statements, management is required to make
     estimates and assumptions that affect the reported amounts
     of assets and liabilities as of the date of the statement of
     financial condition and revenues and expenses for the
     period.  Actual results could differ from those estimates.

     Material estimates that are particularly susceptible to
     significant change in the near-term relate to the
     determination of the allowance for loan losses and the 
     valuation of real estate owned.  In connection with the
     determination of the allowance and the valuation of real
     estate, management prepares fair value analyses and obtains
     independent appraisals for significant properties, where
     appropriate.

     Management believes that the allowances for losses on loans
     and investments in real estate are adequate.  While
     management uses available information to recognize losses on
     loans and real estate owned, future additions to the 
     allowances may be necessary based on changes in economic
     conditions, particularly in Baltimore and the state of
     Maryland.  In addition, various regulatory agencies, as an
     integral part of their examination processes, periodically
     review the Bank's allowances for losses on loans and
     investments in real estate.  Such agencies may require the
     Bank to recognize additions to the allowances based on their
     judgments about information available to them at the time of
     their examinations.

                                                     (Continued)
 
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

-----------------------------------------------------------------
(1)  CONTINUED

     CASH AND CASH EQUIVALENTS

     Cash equivalents includes Federal funds sold and are carried
     at cost which approximates fair value.  Generally, Federal
     funds are purchased and sold for one-day periods.

     INVESTMENT AND MORTGAGE-BACKED SECURITIES

     Statement of Financial Accounting Standards (SFAS) No. 115,
     Accounting for Certain Investments in Debt and Equity
     Securities, requires classification of investments into
     three categories.  Debt securities that the Company has the
     positive intent and ability to hold to maturity are
     classified as held to maturity and recorded at amortized
     cost.  Debt not classified as held to maturity and equity
     securities with readily determinable fair values are
     classified as trading securities if bought and held
     principally for the purpose of selling them in the near
     term.  Trading securities are reported at fair value, with
     unrealized gains and losses included in income.  Investments
     not classified as held to maturity or trading are considered
     available for sale and are reported at fair value, with
     unrealized holding gains and losses excluded from income and
     reported as a separate component of stockholders' equity
     (net of tax effects).  Fair value is determined based on bid
     prices published in financial newspapers or bid quotations
     received from securities dealers.  Realized gains and losses
     on sales are determined using the specific identification
     method.

     DISCOUNTS AND PREMIUMS ON LOANS AND MORTGAGE-BACKED
     SECURITIES

     Discounts and premiums on loans and mortgage-backed
     securities are deferred and amortized to income using the
     level-yield method over the contractual term of the loan or
     security.

     UNEARNED INTEREST ON FINANCING LEASES

     Leases included in loans receivable are accounted for as
     direct financing leases.  The excess of rentals to be
     received over the cost of the investment in the lease is
     deferred and amortized to income using the level-yield
     method over the lease term.

     LOANS HELD FOR SALE

     Loans held for sale consisted of mortgage loans at March 31,
     1997 and 1996.  Loans held for sale are carried at the lower
     of cost or market as determined by outstanding commitments
     from investors or current investor yield requirements
     calculated on an aggregate basis.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

-----------------------------------------------------------------
(1)  CONTINUED

     INVESTMENTS IN REAL ESTATE

     Real estate acquired through foreclosure is initially
     recorded at the lower of cost or fair value and subsequently
     at the lower of cost or fair value less estimated costs to
     sell.  Costs relating to holding real estate are charged
     against income, while costs relating to improving real
     estate are capitalized until a salable condition is reached.

     PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost less accumulated
     depreciation and amortization.  Depreciation and
     amortization are accumulated using the straight-line and
     accelerated methods over the estimated useful lives of the 
     related assets.  Additions and betterments are capitalized,
     and costs of repairs and maintenance are expensed when
     incurred.  The related cost and accumulated depreciation or
     amortization are eliminated from the accounts when an asset
     is sold or retired and the resultant gain or loss is 
     credited or charged to income.

     LOAN FEES

     Loan origination and commitment fees are deferred and
     amortized to income over the contractual lives of the
     related loans using the level-yield method.  Under certain
     circumstances, commitment fees are recognized as income over
     the commitment period or upon expiration of the commitment.
     Direct loan origination costs are deferred and recognized as
     a reduction of the loan yield over the contractual lives of
     the related loans using the level-yield method.  Deferred
     fees and costs are combined where applicable and the net
     amount is amortized.

     PROVISION FOR LOSSES ON LOANS

     The provision for losses on loans is determined based on
     management's review of the loan portfolio and analyses of
     borrowers' ability to pay, past collection experience, risk
     characteristics of individual loans or groups of similar
     loans and underlying collateral, current and prospective
     economic conditions and the status of nonperforming loans.
     Loans or portions thereof are charged off when considered,
     in the opinion of management, uncollectible.

     Interest on potential problem loans is not accrued 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 past due.  Interest accrued prior to a
     loan becoming 90 days past due is retained in income.  Such
     interest is considered in management's determination of the
     allowance for loan losses.  Any interest received in excess
     of the amount previously accrued on such loans is recorded
     in income in the period of recovery.

                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

-----------------------------------------------------------------
(1)  CONTINUED

     SFAS No. 114, Accounting by Creditors for Impairment of a
     Loan (SFAS No. 114) addresses the accounting by creditors
     for impairment of certain loans.  It is generally applicable
     to all loans, except large groups of smaller balance 
     homogenous loans, including residential mortgage loans and
     consumer installment loans that are collectively evaluated
     for impairment.  It also applies to loans that are
     restructured in a troubled debt restructuring involving a
     modification of terms, with limited exceptions.

     A loan is considered impaired when, based on current
     information and events, it is probable that a creditor will
     be unable to collect all amounts due according to the
     contractual terms of the loan agreement.  SFAS No. 114
     requires that impaired loans be measured based on the
     present value of expected future cash flows discounted at
     the loan's effective interest rate, or at the loan's
     observable market price or the fair value of the collateral
     if the loan is collateral dependent.  If the measure of the
     impaired loan is less than the recorded investment in the
     loan, an impairment is recognized through a valuation
     allowance.

     In October 1994, the Financial Accounting Standards Board
     (FASB) issued SFAS No. 118 Accounting by Creditors for
     Impairment of a Loan - Income Recognition Disclosures (SFAS  
     No. 118).  SFAS No. 118 amends SFAS No. 114 to allow a
     creditor to use existing methods for recognizing interest
     income on impaired loans.  It also requires disclosure about
     the recorded investment in certain impaired loans and how
     the creditor recognizes interest income related to those
     loans.

     The Company adopted the provisions of SFAS No. 114 and No.
     118 as of April 1, 1995.  The impact of adoption was not
     material.

     PREMIUM ON SAVINGS ACCOUNTS

     Effective February 16, 1996, the Bank purchased certain
     assets and liabilities, principally loans and deposits,
     relating to three branch offices pursuant to a Purchase and
     Assumption Agreement.  The acquisition was accounted for
     using the purchase method and the excess of the purchase
     cost over the fair values of the acquired assets of
     $3,044,642 was recorded as a premium on savings accounts
     which is being amortized using the straight-line method over
     an estimated life of eight years.

                                                     (Continued)

<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

-----------------------------------------------------------------
(1)  CONTINUED

     INCOME TAXES

     Deferred income taxes are accounted for using the asset and
     liability method.  Under this method, deferred income taxes
     are recognized, with certain exceptions, for temporary
     differences between the financial reporting basis and income
     tax basis of assets and liabilities based on enacted tax
     rates expected to be in effect when such amounts are
     realized or settled.  Deferred tax assets are recognized
     only to the extent that it is more likely than not that such
     amounts will be realized based on consideration of available
     evidence, including tax planning strategies and other
     factors.  The effects of changes in tax laws or rates on
     deferred tax assets and liabilities are recognized in the
     period that includes the enactment date.

     Qualified thrift lenders, such as the Bank, are not required
     to provide a deferred tax liability for bad debt reserves
     for tax purposes that arose in fiscal years beginning before
     December 31, 1987.  Such bad debt reserve for the Bank
     amounted to approximately $4,600,000 with an income tax
     effect of approximately $1,750,000 at March 31, 1997 and
     1996.  As specified in legislation enacted in August 1996,
     this bad debt reserve would become taxable in the future if
     certain conditions are not met by the Bank.

     STOCK-BASED BENEFIT PLANS

     The Company uses the intrinsic value method to account for
     stock-based employee compensation plans.  Under this method,
     compensation cost is recognized for awards of shares of
     common stock to employees only if the quoted market price of
     the stock at the grant date (or other measurement date,
     if later) is greater than the amount the employee must pay
     to acquire the stock.  Compensation cost is recorded on a
     pro-rata basis as the employees perform the services
     required to acquire the stock.

     In October 1995, the FASB issued SFAS No. 123, Accounting
     for Stock-Based Compensation (SFAS No. 123).  SFAS No. 123
     permits companies to adopt a new fair value-based method to
     account for stock-based employee compensation plans or to
     continue using the intrinsic value method.  Information
     required by SFAS No. 123 concerning the Company's stock-
     based compensation plans is provided in note 12.

     The Company has established an Employee Stock Ownership Plan
     (ESOP) for its employees.  The Company recognizes the costs
     associated with the ESOP in accordance with provisions of
     AICPA Statement of Position 93-6, Employers' Accounting for
     Employee Stock Ownership Plans.  Accordingly, compensation 
     expense is recorded based on the market value of shares 
     committed-to-be-released to the ESOP for allocation to
     participants for services rendered.
                                                     (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------

(1)  CONTINUED

     NET INCOME PER SHARE OF COMMON STOCK

     Primary net income per share for 1997 and 1996 has been
     computed based on 1,664,823 and 1,865,250 weighted average
     shares of common stock and common stock equivalents
     outstanding, respectively.  Weighted average shares used in
     computing fully diluted net income per share for 1997 and
     1996 were 1,671,094 and 1,865,250, respectively.  Unearned
     ESOP shares are not included in outstanding shares.

     Net income per share for the portion of the year ended 
     March 31, 1995 for which the Company was a stock
     corporation, (i.e., August 11, 1994 through March 31, 1995),
     is computed using estimated net income for such period.  Pro
     forma net income per share for the year ended March 31, 1995
     is computed assuming net proceeds of the sale of common
     stock issued in the conversion were received and invested
     beginning April 1, 1994 at a net effective yield of 4.5%
     (the approximate weighted average yield on all interest-
     earning assets, net of tax).  

     In February 1997, the FASB issued SFAS No. 128, Earnings per
     Share, which is effective for financial statements issued
     for periods ending after December 15, 1997.  SFAS No. 128
     establishes standards for computing and presenting earnings
     per share ("EPS") and replaces the presentation of primary
     EPS with a presentation of basic EPS.  It requires dual
     presentation of basic and diluted EPS on the face of the
     consolidated statement of income and reconciliation of the
     numerator and denominator of the basic EPS computation to
     the numerator and denominator of the diluted EPS
     computation.  Earlier application is not permitted but
     disclosure of pro forma EPS amounts computed using the
     standards established by SFAS No. 128 is permitted in the
     notes to financial statements for periods ending prior to
     the effective date.  Pro forma EPS of the Company determined
     in accordance with SFAS No. 128 are as follows for the years
     ended March 31:
     <TABLE>
     <CAPTION>
                                                1997      1996
     -----------------------------------------------------------
     <S>                                       <C>       <C>
     Basic                                     $0.55      0.54
     Diluted                                    0.54      0.53
     -----------------------------------------------------------
     </TABLE>
 
                                                    (Continued)

       <PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------

(2)  Investment Securities

     Investment securities are summarized as follows at March 31:
<TABLE>
<CAPTION>
                                                               1997
                                   -----------------------------------------------------------------
                                                 Gross         Gross           
                                   Amortized    unrealized    unrealized     Fair     Carrying
                                     cost         gains         losses       value     amount
----------------------------------------------------------------------------------------------------
<S>                               <C>             <C>        <C>           <C>        <C>
Held to maturity:
  U.S. Government and 
    agency obligations           $24,476,611  $  6,140     $   (580,981)  $23,901,770  $24,476,611
--------------------------------------------------------------------------------------------------
Available for sale:
  U.S. Government and
    agency obligations            22,977,853        --         (671,253)   22,306,600   22,306,600
  Preferred stock -
    Federal Home Loan
    Mortgage Corporation              6,339    206,211               --       212,550      212,550
----------------------------------------------------------------------------------------------------
                                 22,984,192    206,211         (671,253)   22,519,150   22,519,150
Accrued interest receivable         547,657         --               --       547,657      547,657
----------------------------------------------------------------------------------------------------
                                $48,008,460   $212,351       (1,252,234)   46,968,577   47,543,418
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                               1996
                                   -----------------------------------------------------------------
                                                 Gross         Gross           
                                   Amortized    unrealized    unrealized     Fair     Carrying
                                     cost         gains         losses       value     amount
----------------------------------------------------------------------------------------------------
<S>                               <C>             <C>        <C>           <C>        <C>
Held to maturity:
  U.S. Government and 
    agency obligations           $26,460,790  $ 65,542     $   (517,547)  $26,008,785  $26,460,790
---------------------------------------------------------------------------------------------------
Available for sale:
  U.S. Government and
    agency obligations            21,987,661        --         (366,594)   21,621,067   21,621,067
  Preferred stock -
    Federal Home Loan
    Mortgage Corporation               6,339   159,899               --       166,238      166,238
----------------------------------------------------------------------------------------------------
                                  21,994,000   159,899         (366,594)   21,787,305   21,787,305
Accrued interest receivable          490,824        --               --       490,824      490,824
----------------------------------------------------------------------------------------------------
                                 $48,945,614  $225,441         (884,141)   48,286,914   48,738,919
----------------------------------------------------------------------------------------------------
</TABLE>
                                                               (Continued)

<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------
(2)   Continued

      Investment securities mature as follows at March 31:
<TABLE>
<CAPTION>
                                                 1997                       1996
                                        ---------------------      ---------------------
                                        Amortized       Fair       Amortized      Fair
                                           cost         value         cost        value
----------------------------------------------------------------------------------------
<S>                                    <C>             <C>         <C>           <C>
Held to maturity:
  Due in one year or less              $ 2,000,140    $ 2,001,880  $ 1,997,493  $ 1,987,670
  Due after one through five years       8,494,899      8,403,015    9,487,608    9,377,990
  Due after five through ten years      12,981,572     12,497,655   13,975,689   13,628,275
  Due after ten years                    1,000,000        999,220    1,000,000    1,014,850
-------------------------------------------------------------------------------------------
                                        24,476,611     23,901,770   26,460,790   26,008,785
-------------------------------------------------------------------------------------------
Available for sale:
  Due after one through five years       1,000,000        966,410    2,000,000    1,956,160
  Due after five through ten years      17,984,611     17,519,280   16,993,680   16,783,027
  Due after ten years                    3,993,242      3,820,910    2,993,981    2,881,880
-------------------------------------------------------------------------------------------
                                        22,977,853     22,306,600   21,987,661   21,621,067
Accrued interest receivable                547,657        547,657      490,824      490,824
-------------------------------------------------------------------------------------------
                                       $48,002,121     46,756,027   48,939,275   48,120,676
----------------------------------------------------------------------------------------
</TABLE>
There were no sales of investment securities during the years
ended March 31, 1997, 1996 and 1995.
                                                    (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------------------

(3)  Mortgage-Backed Securities

     Mortgage-backed securities and accrued interest receivable
     thereon are summarized as follows at March 31:
<TABLE>
<CAPTION>
                                                               1997
                                   -----------------------------------------------------------------
                                                 Gross         Gross           
                                   Amortized    unrealized    unrealized     Fair     Carrying
                                     cost         gains         losses       value     amount
----------------------------------------------------------------------------------------------------
<S>                               <C>             <C>        <C>           <C>        <C>
Held to maturity:
  U.S. Government National
    Mortgage Association
    (GNMA)                       $ 1,319,880  $ 66,667     $         --   $ 1,386,547  $ 1,319,880
  Federal National Mortgage
    Association (FNMA)             2,243,013    58,086          (31,432)    2,269,667    2,243,013
  Federal Home Loan Mortgage
    Corporation (FHLMC)            2,392,199    45,693          (48,801)    2,389,091    2,392,199
---------------------------------------------------------------------------------------------------
                                   5,955,092   170,446          (80,233)    6,045,305    5,955,092
Available for sale:
   GNMA                            4,814,984        --          (87,215)    4,727,769    4,727,769
   FHLMC                           3,347,231    13,966               --     3,361,181    3,361,181
----------------------------------------------------------------------------------------------------
                                   8,162,215    13,966          (87,215)    8,088,950    8,088,950
Accrued interest receivable          117,197        --               --       117,197      117,197
----------------------------------------------------------------------------------------------------
                                 $14,234,504   184,412         (167,448)   14,251,452   14,161,239
----------------------------------------------------------------------------------------------------
</TABLE>
                                                    (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------
(3)     Continued
<TABLE>
<CAPTION>
                                                               1996
                                   -----------------------------------------------------------------
                                                 Gross         Gross           
                                   Amortized    unrealized    unrealized     Fair     Carrying
                                     cost         gains         losses       value     amount
----------------------------------------------------------------------------------------------------
<S>                               <C>             <C>        <C>           <C>        <C>
Held to maturity:
  GNMA                           $ 1,697,869   100,379               --     1,798,248    1,697,869
  FNMA                             2,924,271    72,458          (45,050)    2,951,679    2,924,271
  FHLMC                            5,212,609    88,576          (30,794)    5,270,391    5,212,609
---------------------------------------------------------------------------------------------------
                                   9,834,749   261,413          (75,844)   10,020,318    9,834,749
Available for sale:
   FNMA                            3,712,263     1,176               --     3,713,439    3,713,439
   FHLMC                           4,233,641     4,134               --     4,236,775    4,236,775
----------------------------------------------------------------------------------------------------
                                   7,944,904     5,310               --     7,950,214    7,950,214
Accrued interest receivable          152,458        --               --       152,458      152,458
----------------------------------------------------------------------------------------------------
                                $17,932,111    266,723          (75,844)   18,122,990   17,937,421
----------------------------------------------------------------------------------------------------
</TABLE>

Contractual maturities of mortgage-backed securities are as
follows at March 31:
<TABLE>
<CAPTION>
                                                 1997                       1996
                                        ---------------------      ---------------------
                                        Amortized       Fair       Amortized      Fair
                                           cost         value         cost        value
----------------------------------------------------------------------------------------
<S>                                    <C>             <C>         <C>           <C>
Held to maturity:
  Due in one year or less              $   695,097        692,776    1,717,215    1,723,558
  Due after one through five years       1,832,768      1,753,954    2,884,826    2,836,102
  Due after five through ten years          58,590         60,201      856,299      837,711
  Due after ten years                    3,368,637      3,538,374    4,376,409    4,622,947
-------------------------------------------------------------------------------------------
                                         5,955,092      6,045,305    9,834,749   10,020,318
-------------------------------------------------------------------------------------------
Available for sale:
  Due after ten years                    8,162,215      8,088,950    7,944,904    7,950,214
Accrued interest receivable                117,197        117,197      152,458      152,458
-------------------------------------------------------------------------------------------
                                       $14,234,504     14,251,452   17,932,111   18,122,990
----------------------------------------------------------------------------------------
</TABLE>

Contractual maturities do not consider anticipated prepayments
of mortgage-backed securities.  

During the year ended March 31, 1997, mortgage-backed
securities with an amortized cost of $3,538,099 were sold at a
loss of $7,787. There were no sales of mortgage-backed
securities during the years ended March 31, 1996 and 1995.
                                                    (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------
(4)     Loans Receivable

Loans receivable and accrued interest receivable thereon are
summarized as follows at March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                <C>           <C>
First Mortgage loans on real estate:
   One-to four-family residential               $119,924,528  100,156,599
   Multifamily residential                           955,952      980,180
   Commercial                                     12,182,568    9,054,078
   Construction                                    6,632,972    6,129,635
   Land                                            1,473,445    1,927,527
   Loans held for sale                             3,865,888    1,199,431
------------------------------------------------------------------------------
Total first mortgage loans                       145,035,353  119,447,450

   Loans secured by savings accounts                 650,540      667,260
   Home equity loans                                 400,088      499,224
   Home improvement loans                            112,163       87,833
   Financing leases                                  277,112           --
   Commercial loans                                1,118,630    1,400,427
   Accrued interest receivable                       760,571      662,248
------------------------------------------------------------------------------
                                                 148,354,457  122,764,442
------------------------------------------------------------------------------
Less:
   Undisbursed portion of loans in process         2,306,965    4,767,046
   Unearned discount on loans purchased               46,130       57,941
   Unearned loan fees                                919,616      608,970
   Allowance for losses                              380,000      438,500
------------------------------------------------------------------------------
                                                   3,652,711    5,872,457
------------------------------------------------------------------------------
Loans receivable, net                           $144,701,746  116,891,985
------------------------------------------------------------------------------
</TABLE>
Substantially all of the loans receivable are mortgage loans
secured by residential and commercial real estate properties
located in the state of Maryland.  Loans are extended only
after evaluation by management of customers' creditworthiness
and other relevant factors on a case-by-case basis.  The Bank
generally does not lend more than 90% of the appraised value of
a property and requires private mortgage insurance on
residential mortgages with loan-to-value ratios in excess of
80%.  In addition, the Bank generally obtains personal
guarantees of repayment from borrowers and/or others for
construction, commercial and multifamily residential loans and
disburses the proceeds of construction and similar loans only
as work progresses on the related projects.
                                                    (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------
(4)  (Continued)

Residential lending is generally considered to involve less
risk than other forms of lending, although payment experience
on these loans is dependent to some extent on economic and
market conditions in the Bank's lending area.  Commercial and
construction loan repayments are generally dependent on the
operations of the related properties or the financial condition
of the borrowers or guarantors.  Accordingly, repayment of such
loans can be more susceptible to adverse conditions in the real
estate market and the regional economy.

Nonperforming loans amounted to approximately $289,000 and
$403,000 at March 31, 1997 and 1996, respectively.  For the
years ended March 31, 1997, 1996, and 1995, the amount of
interest income that would have been recorded on loans in
nonaccrual status at year end had such loans performed in
accordance with their terms, was approximately $11,000, $14,000
and $22,000, respectively.  The actual interest income recorded
on these loans for the years ended March 31, 1997, 1996 and
1995 was approximately $5,000, $11,000 and $8,000,
respectively.

The Bank, through its normal asset review process, has
identified certain loans which management believes involve a
degree of risk warranting additional attention.  Such loans,
totaling approximately $1,170,000 at March 31, 1997, are not
included above in nonperforming loans, but have exhibited
potential or actual weaknesses, which, if not corrected, would
cause management to have doubts as to the ability of the
borrowers to comply with the present loan repayment terms and
which could result in classification of such loans as
nonperforming in the future.

Changes in the allowance for losses were as follows for the
years ended March 31:
<TABLE>
<CAPTION>

                                      1997      1996     1995
-----------------------------------------------------------------
<S>                                 <C>      <C>       <C>
Beginning balance                 $438,500  $465,000  $489,016
Provision for losses on loans       32,605        --     2,703
Charge-offs                        (91,105)  (26,500)  (26,719)
-----------------------------------------------------------------
Ending balance                    $380,000   438,500   465,000
-----------------------------------------------------------------
</TABLE>
                                                  (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(4)  (Continued)

The following table allocates the allowance for losses on loans
by loan category at March 31 of the years 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>

                                      1997      1996     1995
---------------------------------------------------------------
<S>                                 <C>      <C>       <C>
Residential mortgage               $155,000  155,000   165,000
Commercial mortgage                 100,000  100,000   100,000
Construction                        125,000  125,000   125,000
Commercial and financing leases          --   58,500    75,000
---------------------------------------------------------------
                                   $380,000  438,500   465,000
---------------------------------------------------------------
</TABLE>
At March 31, 1997, 1996 and 1995, the Bank was servicing loans
for the benefit of others of approximately $9,215,000,
$9,550,000 and $11,088,000, respectively.

The Bank has made loans to certain of its directors and a
company in which an executive officer holds a 50% interest. 
These loans were made on substantially the same terms,
including interest rate and collateral requirements, as those
prevailing at the time for comparable transactions with
unrelated customers.  The balance outstanding at March 31, 1997
on such loans was approximately $432,000.

(5)     Investment in and Advances to Affiliated Corporation

Bankers Affiliate, Inc. (formerly, Cash, Inc.) was organized in
April 1983 as a service corporation.  It is owned by the Bank
and two other thrift institutions and makes consumer loans to
their customers. Advances are due on demand and bear interest
at a rate determined by the Bank and the two other thrift
institutions.  The interest rate at March 31, 1997 was 7.0%. 
The Bank accounts for its investment using the equity method. 
As of March 31, 1997, all profits to date have been reinvested. 
Each of the three investors share profits and losses equally at
33-1/3%.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(5)  (Continued)

The investment in and advances to Bankers Affiliate, Inc. are
as follows at March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                <C>           <C>
Capital stock, at cost                           $   25,000    $   25,000
Advances                                          2,750,000     2,800,000
------------------------------------------------------------------------------
                                                 $2,775,000    $2,825,000
------------------------------------------------------------------------------
</TABLE>
Summarized financial information as of June 30, 1996 and 1995
and for the years ended June 30, 1996, 1995 and 1994 for
Bankers Affiliate, Inc. is as follows:
<TABLE>
<CAPTION>
                                                       1996          1995
------------------------------------------------------------------------------
<S>                                                <C>           <C>
Cash                                             $  233,189     $  157,999
Finance receivables, net                          8,124,742      8,308,052
Other assets                                         24,461          8,166
Real estate owned                                   117,729        199,722
------------------------------------------------------------------------------
                                                 $8,500,121     $8,673,939
------------------------------------------------------------------------------
Loans payable to Harbor Federal                  $2,800,000     $2,800,000
Other loans payable                               5,600,000      5,773,000
Other liabilities                                    34,162         37,679
------------------------------------------------------------------------------
                                                  8,434,162      8,610,679
Stockholders' equity                                 65,959         63,260
------------------------------------------------------------------------------
                                                 $8,500,121     $8,673,939
------------------------------------------------------------------------------
</TABLE>
                                                  (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
-----------------------------------------------------------------

(5)  (Continued)
<TABLE>
<CAPTION>
                                      1997      1996     1995
-----------------------------------------------------------------
<S>                                 <C>      <C>       <C>
Income:
    Interest                      $897,767  $852,817  $782,023
    Other income                    33,866    28,920    33,908
-----------------------------------------------------------------
                                   931,633   881,737   815,931
-----------------------------------------------------------------
Expenses:
    Interest                       686,482   594,761   599,157
    Salaries                       120,997   119,428   109,402
    Provision for losses            40,392    73,694    35,302
    Other expenses                  78,013    78,890    73,205
-----------------------------------------------------------------
                                   925,884   866,773   817,066
-----------------------------------------------------------------
Income (loss) before income taxes    5,749    14,964    (1,135)
Income taxes                         3,050    15,688    29,765
-----------------------------------------------------------------
Income (loss) before cumulative
  effect of accounting change        2,699      (724)  (30,900)
-----------------------------------------------------------------
Cumulative effect of change in
  accounting for income taxes           --        --    20,086
-----------------------------------------------------------------
Net income (loss)                 $  2,699   $  (724) $(10,814)
-----------------------------------------------------------------
</TABLE>
(6)  Property and Equipment

Property and equipment are summarized as follows at March 31:
<TABLE>
<CAPTION>
                                 1997      1996      Useful life
-----------------------------------------------------------------
<S>                              <C>       <C>          <C>
Land                           $  733,189  $  733,189        --
Buildings and improvements      1,356,498   1,356,498 15-30 years
Leasehold improvements             33,000      33,000  5-10 years
Furniture, fixtures and
  equipment                       829,189     718,056  5-10 years
Automobiles                        24,128      24,128     3 years
-----------------------------------------------------------------
Total, at cost                  2,976,004   2,864,871
Less accumulated depreciation
  and amortization              1,037,305     886,329
-----------------------------------------------------
Property and equipment, net    $1,938,699   1,978,542
-----------------------------------------------------
</TABLE>
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(6)  (Continued)

At March 31, 1997, the Bank was obligated under noncancellable
long-term operating leases for two of its branch offices and
space for an automated teller machine.  These leases expire at
various dates to 1999 and provide for approximate aggregate
rentals of $93,000 in 1998 and $15,000 in 1999.

Rent expense was $103,618, $6,248 and $24,350 for the years
ended March 31, 1997, 1996, and 1995, respectively.

(7)  SAVINGS ACCOUNTS

Savings accounts are summarized as follows at March 31:
<TABLE>
<CAPTION>
                            Weighted average rate           1997                1996   
                            ---------------------   -------------------   ------------------
                             1997          1996     Amount         %       Amount        %
--------------------------------------------------------------------------------------------
<S>                          <C>           <C>      <C>           <C>     <C>          <C>
Certificates                5.99%          6.03%   $111,226,244   63.9%  $100,088,706  60.8%
Money market                3.65%          3.64%     24,799,745   14.2%    24,331,222  14.8%
Passbook                    3.05%          3.16%     31,254,100   18.0%    33,088,140  20.1%
NOW                         0.96%          2.57%      5,425,414    3.1%     5,442,070   3.3%
Christmas Club              3.05%          3.05%        333,075    0.2%       382,424   0.2%
Commercial checking           --             --       1,065,995    0.6%     1,330,078   0.8%
--------------------------------------------------------------------------------------------
                                                    174,104,573  100.0%   164,662,640 100.0%
                                                                 =====                =====
Unamortized premium                                  (2,637,944)           (3,019,328)
                                                   ------------          ------------
                                                   $171,466,629          $161,643,312
                                                   ============          ============
Certificate accounts maturing:
   Under 12 months                                 $ 52,551,230   47.2%    58,601,861  58.6%
   12 months to 24 months                            32,311,982   29.1%     8,784,095   8.8%
   24 months to 36 months                            17,203,594   15.5%    17,223,018  17.2%
   36 months to 48 months                             6,710,506    6.0%     9,057,298   9.0%
   48 months to 60 months                             2,448,932    2.2%     6,422,434   6.4%
                                                   ------------  -----    ----------- -----
                                                   $111,226,244  100.0%   100,088,706 100.0%
                                                   ============  =====    =========== =====
</TABLE>

At March 31, 1997 and 1996, customer deposits in savings
accounts of $100,000 or more were approximately $12,540,000 and
$15,716,000, respectively.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(8)  BORROWED FUNDS

Borrowed funds are summarized as follows at March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                <C>           <C>
Securities sold under agreements to 
  repurchase with interest rates and 
  maturities as follows:
    5.7% due June 1997                             $ 4,500,000    4,500,000
    5.7% due October 1997                           10,000,000           --
    5.6% due November 1997                           2,000,000           -- 
------------------------------------------------------------------------------
                                                   $16,500,000    4,500,000
------------------------------------------------------------------------------
</TABLE>
The Bank enters into sales of mortgage-backed securities with
agreements to repurchase.  Such agreements are treated as
financings, and the obligations to repurchase securities sold
are reflected as a liability in the consolidated statements of
financial condition.  The securities underlying the agreements 
are book-entry securities.  The securities are delivered by
appropriate entry into the counterparties' accounts maintained
at the Federal Reserve Bank of New York.  The mortgage-backed
securities remain in the asset accounts.

Information with respect to reverse repurchase agreements is as
follows for the years ended March 31:
<TABLE>
<CAPTION>
                                        1997         1996        1995
----------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>
Amount outstanding at year-end        $16,500,000   4,500,000    2,000,000
Maximum outstanding at any month-end   21,415,000   7,500,000    2,000,000
Average outstanding                    15,210,000   4,700,000    1,746,000
Fair value of securities sold under
  reverse repurchase agreements
  at year-end:
    Mortgage-backed securities          9,354,892   4,886,383    2,073,335
    Investment securities               8,734,950          --           --
Amortized cost of securities sold
  under reverse repurchase 
  agreements at year-end
    Mortgage-backed securities          9,478,744   4,995,156    2,157,186
    Investment securities               9,000,000          --           --
----------------------------------------------------------------------------
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES

Under a blanket floating lien security agreement with the
Federal Home Loan Bank of Atlanta, the Bank is required to
maintain as collateral for its advances qualifying first
mortgage loans in an amount equal to 110% of the advances.  
There were no advances in 1997 and 1996, and no first mortgage
loans were pledged as collateral at March 31, 1997.


                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(9)     Income Taxes

The income tax provision is composed of the following for the
years ended March 31:
<TABLE>
<CAPTION>
                                        1997         1996        1995
----------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>
Current:
    Federal                             $ 549,850   $ 510,822    $  801,598
    State                                 121,724     113,085       183,483
----------------------------------------------------------------------------
                                          671,574     623,907       985,081
----------------------------------------------------------------------------
Deferred:
    Federal                               (85,457)     11,688        24,900
    State                                 (18,917)      2,587         5,919
----------------------------------------------------------------------------
                                         (104,374)     14,275        30,819
----------------------------------------------------------------------------
                                        $ 567,200     638,182     1,015,900
----------------------------------------------------------------------------
</TABLE>
The net deferred tax asset at March 31, 1997 and 1996 consists
of total deferred tax assets of $887,301 and $642,260,
respectively, and total deferred tax liabilities of $448,267
and $441,175, respectively.  The tax effects of temporary
differences between the financial reporting and income
tax basis of assets and liabilities relate to the following at
March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                <C>           <C>
Interest and fees on loans                        $  51,457      $  67,211
Allowance for losses on loans                       146,949        173,404
Accrual basis of accounting and deferred
  compensation                                      408,271        323,497
Unamortized premium on savings deposits              68,901             --
Federal Home Loan Bank stock dividends             (207,351)      (207,351)
Prepaid pension cost                                (29,771)       (22,660)
Tax bad debt reserve in excess of base year        (211,145)      (211,164)
Unrealized loss on investment available for sale    211,723         78,148
------------------------------------------------------------------------------
                                                  $ 439,034      $ 201,085
------------------------------------------------------------------------------
</TABLE>

                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(9)     Continued

A reconciliation between the income tax provision computed by
multiplying income before income taxes by the statutory Federal
income tax rate of 34% and the actual provision for income
taxes is as follows for the years ended March 31:

<TABLE>
<CAPTION>
                                        1997         1996        1995
----------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>
Tax at statutory rate                 $499,351     558,414       894,239
State income taxes, net of 
  Federal income tax benefit            67,853      76,344       121,511
Other, net                                  (4)      3,424           150
----------------------------------------------------------------------------
Income tax provision                   567,200     638,182     1,015,900
----------------------------------------------------------------------------
Effective tax rate                        38.6%       38.9%         38.6%
----------------------------------------------------------------------------
</TABLE>
(10)     Regulatory Matters

The Federal Deposit Insurance Corporation, through the Savings
Association Insurance Fund (SAIF), insures deposits of
accountholders up to $100,000.  The Bank pays an annual premium
to provide for this insurance.  The Bank is also a member of
the Federal Home Loan Bank System and is required to maintain
an investment in the stock of the Federal Home Loan Bank of
Atlanta equal to at least 1% of the unpaid principal balances
of its residential mortgage loans, .3% of its total assets or
5% of its outstanding advances from the Bank, whichever is
greater.  Purchases and sales of stock are made directly with
the Federal Home Loan Bank of Atlanta at par value.

During 1997, the Bank paid a special assessment of
approximately $806,000 as a result of the federally-mandated
recapitalization of the SAIF. The assessment was required of
substantially all SAIF-insured depository institutions and was 
charged to noninterest expense.

The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect 
on the Bank's financial statements.  Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, iabilities,
and certain off-balance-sheet items as calculated under 
regulatory accounting practices.  The Bank's capital amounts
and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other
factors.

                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(10)    Continued

Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital
amounts and ratios (as defined in the regulations and as set
forth in the table below).  As of December 31, 1996, the most
recent notification from the Office of Thrift Supervision (OTS) 
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.  To be categorized as
well capitalized the Bank must maintain minimum tangible, core
and risk-based capital ratios as set forth in the table below. 
There are no conditions or events since that notification 
that management believes have changed the Bank's category.

Regulatory capital amounts and ratios for the Bank are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    To Be Well
                                                                                 Capitalized Under
                                                              For Capital        Prompt Corrective
                                         Actual            Adequacy Purposes     Action Provisions
                                  ---------------------   -------------------   ------------------
                                   Amount        Ratio     Amount      Ratio     Amount     Ratio
--------------------------------------------------------------------------------------------------
<S>                                <C>           <C>      <C>           <C>     <C>          <C>
As of March 31, 1997:
   Tangible capital (a)           $24,479      11.24%     $3,268       1.50%    $10,893     >5%
   Core capital (a)                24,479      11.24%      6,536       3.00%     13,072     >6%
   Risk-based capital (b)          24,859      27.17%      7,320       8.00%      9,150    >10%
As of March 31, 1996:
   Tangible capital (a)            23,398      11.80%      2,975       1.50%      9,914     >5%
   Core capital (a)                23,398      11.80%      5,949       3.00%     11,897     >6%
   Risk-based capital (b)          23,846      29.38%      6,494       8.00%      8,117    >10%

<FN>
(a)     Percentage of capital to ending assets.
(b)     Percentage of risk-based capital to ending risk-weighted assets.
</FN>
</TABLE>
The OTS adopted a final rule in August, 1993 incorporating an
interest rate risk (IRR) component into the risk-based capital
rules.  The new rule was effective January 1, 1994; however,
the IRR capital deduction discussed below has been waived until
the OTS publishes guidelines under which institutions may
appeal such a deduction.  The IRR component is a dollar amount
that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and
is measured in terms of the sensitivity of its net portfolio
value (NPV) to changes in interest rates.  NPV is the
difference between incoming and outgoing discounted cash flows
from assets, liabilities, and off-balance sheet contracts.   An
institution's IRR is measured as the change to its 
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(10)    Continued

NPV as a result of a hypothetical 200 basis point change in
market interest rates.  A resulting change in NPV of more than
2% of the estimated market value of its assets will require the
institution to deduct from its capital 50% of that excess
change.  The rule provides that the OTS will calculate the 
IRR component quarterly for each institution.  Institutions,
such as the Bank, with total assets of less than $300,000,000
and a risk-based capital ratio of greater than 12% are exempt
from calculating an IRR component.  At its discretion, the OTS
may require an institution to be subject to an IRR component.

(11)     Stockholders' Equity and Related Matters

In 1994, the Board of Directors approved a plan of
reorganization from a mutual savings association to a capital
stock savings bank and the concurrent formation of a holding
company.  The conversion was accomplished through amendment of
the Bank's charter and the sale (on August 11, 1994) of the 
Company's common stock in an amount equal to the consolidated
pro forma market value of the Company and the Bank after giving
effect to the conversion.  A subscription offering of the
shares of common stock was made initially to employee benefit
plans of the Company, depositors, borrowers, directors, 
officers and employees and certain other eligible parties.  In
connection with the conversion, the Company publicly issued
2,180,086 shares of its common stock, par value $.01 per share
for gross proceeds of $21,800,860 and net proceeds of
$19,006,790, of which $10,360,430 was contributed to the Bank
in exchange for all of its outstanding common stock.

Federal regulations require that, upon conversion from mutual
to stock form of ownership, a "liquidation account" be
established by restricting a portion of net worth for the
benefit of eligible savings account holders who maintain 
their savings accounts with the Bank after conversion.  In the
event of complete liquidation (and only in such event), each
savings account holder who continues to maintain a savings
account shall be entitled to receive a distribution from the
liquidation account after payment to all creditors, but 
before any liquidation distribution with respect to capital
stock.  This account will be proportionately reduced for any
subsequent reduction in the eligible holders' savings accounts. 
At conversion the liquidation account totaled approximately
$14,500,000.

OTS regulations impose limitations on all capital distributions
by savings institutions.  Capital distributions include cash
dividends, payments to repurchase or otherwise acquire the
institution's capital stock, payments to shareholders of
another institution in a cash-out merger and other 
distributions charged against capital.  The regulations
establish three tiers of institutions.  An institution that
exceeds all fully phased-in capital requirements before and
after a proposed capital distribution (Tier 1 Institution) may,
after prior notice but without the approval of the OTS, make 
capital distributions during a calendar year up to 100% of its
net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(11)    Continued

capital requirements) at the beginning of the calendar year or
75% of its net income over the most recent four-quarter period. 
Any additional capital distributions require prior OTS
approval.  

An institution that meets its regulatory capital requirements,
but not its fully phased-in capital requirements before or
after its capital distribution (Tier 2 Institution) may, after
prior notice but without the approval of the OTS, make capital
distributions of: up to 75% of its net income over the most 
recent four-quarter period if it satisfies the risk-based
capital requirement that was applicable to it on January 1,
1993, computed based on its current portfolio; up to 50% of its
net income over the most recent four-quarter period if it
satisfies the risk-based capital standard that was applicable
to it on January 1, 1991, computed based on its current
portfolio; and up to 25% of its net income over the most recent
four-quarter period if it satisfies its current risk-based
capital requirement.  In computing the institution's 
permissible percentage of capital distributions, previous
distributions made during the prior four-quarter period must be
included.

An institution that does not meet its current regulatory
capital requirements before or after payment of a proposed
capital distribution (Tier 3 Institution) may not make any
capital distributions without the prior approval of the OTS.

In addition, the OTS would prohibit a proposed capital
distribution by any institution which would otherwise be
permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. 
In addition, the Federal Deposit Insurance Corporation
Improvement Act of 1991 provides that, as a general rule, a
financial institution may not make a capital distribution if it
would be undercapitalized after making the capital
distribution.  Also, an institution meeting the Tier 1
capital criteria which has been notified that it needs more
than normal supervision will be treated as a Tier 2 or Tier 3
Institution unless the OTS deems otherwise.

In addition to the foregoing, bad debt reserves deducted from
income for federal income tax purposes and included in retained
income of the Bank are not available for the payment of cash
dividends or other distributions to stockholders, without
payment of taxes at the then-current tax rate by the 
Bank on the amount removed from the reserves for such
distributions.

On February 24, 1997 the Company's Board of Directors declared
a $.10 per share dividend payable April 10, 1997, to holders of
record on April 1, 1997.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(12) STOCK-BASED BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN

On August 11, 1994 the ESOP acquired 174,407 shares of the
Company's common stock in exchange for a note in conjunction
with the conversion to a capital stock form of organization. 
The ESOP holds the common stock in a trust for 
allocation among participating employees.  The ESOP's sources
of repayment of the note are dividends on the common stock, if
any, either held in trust or allocated to the participants'
accounts, and an annual contribution from the Bank to the ESOP
and earnings thereon.  For the years ended March 31, 1997, 
1996 and 1995 the Bank made contributions to the ESOP of
approximately $312,000, $275,000 and $183,000, respectively.

All employees who attain the age of 21 and complete six months
of service are eligible to participate in the ESOP. 
Participants are 100% vested in their accounts after seven
years of service or, if earlier, upon death, disability 
or attainment of normal retirement age.  Participants received
credit for service with the Bank prior to the establishment of
the ESOP.

For the years ended March 31, 1997, 1996 and 1995, compensation
expense related to the ESOP was $284,000, $259,000 and
$229,000, respectively.  Dividends on ESOP shares used for debt
service by the ESOP for the years ended March 31, 1997 and 1996
were $52,000 and $32,000, respectively. No dividends on ESOP
shares were used for debt service by the ESOP for the year
ended March 31, 1995.  

The ESOP shares were as follows at March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                   <C>           <C>
Allocated shares                                        60,723       38,082
Unearned shares                                        113,684      136,325
------------------------------------------------------------------------------
                                                       174,407      174,407
------------------------------------------------------------------------------
Fair value of unearned shares at March 31           $1,847,365    1,823,347
------------------------------------------------------------------------------
</TABLE>
                             
MANAGEMENT RECOGNITION PLAN

Effective January 13, 1995, the Company established a
Management Recognition Plan (MRP) to retain personnel of
experience and ability in key positions of responsibility. 
Members of the Board of Directors and certain executive 
officers were awarded a total of 87,203 shares of stock which
are held in a separate trust that manages the MRP.  The Company
funded the MRP in 1996 by purchasing 87,203 shares of its
common stock in the open market.  Shares awarded to
participants in the MRP vest at a rate of 20% per 
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(12) CONTINUED

year on each anniversary of the effective date of the MRP.  If
a participant terminates employment for reasons other than
death or disability, he or she forfeits all rights to unvested
shares.  For the years ended March 31, 1997, 1996 and 1995,
compensation expense related to the MRP was $150,650, $383,520 
and $90,006, respectively.

DIRECTORS RETIREMENT PLAN

On August 11, 1994, the Bank established a Directors Retirement
Plan for certain directors.  Participants include the President
of the Bank and other directors who were members of the Board
of Directors at the date of conversion to a capital stock form
of organization and were not employees at that date.  
Participants become one-third vested per full year of service
from the date of conversion.  The President's benefits are
equal to 60% of his average salary for the final three years of
service.  Nonemployee directors' benefits are equal to annual
directors' fees times a benefit percentage.  Such benefit 
percentages are 33-1/3%, 66-2/3% and 100% for 6 to 14 years, 15
to 24 years, and 25 years or more of service on the Board of
Directors, respectively.  Participants receive on each of the
ten anniversary dates following retirement, an amount equal to
the vesting percentage times the benefit percentage times the
annual fee received for service on the Board of Directors 
during the calendar year preceding retirement.  For the years
ended March 31, 1997, 1996 and 1995, compensation expense
related to the Directors Retirement Plan was $214,668, $214,668
and $136,534, respectively. 

STOCK OPTION PLAN

Effective January 13, 1995, Company established a stock option
plan which provides for the granting of options to acquire
common stock to directors and key employees.  Option prices are
equal to or greater than the estimated fair market value of the
common stock at the date of grant.  Employee options vest 
at 20% per year from the date of grant.  Director options may
be exercised at any time after the date of grant.  Options
expire ten years after the date of grant or one year after the
date of an employee's termination.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(12) CONTINUED

Information with respect to options is as follows for the years
ended March 31:
<TABLE>
<CAPTION>
                                                       1997          1996
                                                     (shares)      (shares)
------------------------------------------------------------------------------
<S>                                                   <C>           <C>
Outstanding at beginning of year - $10.625 per share  203,409       218,009
   Granted                                                 --            --
   Exercised                                           (6,429)      (12,020)
   Forfeited                                          (24,475)       (2,580)
------------------------------------------------------------------------------
Outstanding at end of year - $10.625 per share        172,505       203,409
------------------------------------------------------------------------------
Exercisable at end of year                             87,701        64,682
------------------------------------------------------------------------------
</TABLE>

In connection with the Stock Option Plan, the Company
established a Stock Option Trust to purchase shares in the open
market or unissued shares of stock.  The Company purchased 698
shares for $8,987 and 58,707 shares for $875,242 in 1997 and
1996, respectively, and is authorized to purchase up to 
49,600 shares in the open market at March 31, 1997.

(13)     PENSION PLAN

Substantially all employees are included in a defined
contribution pension plan.  Benefits under the plan are funded
partly by contributions to trust funds and partly by payments
of premiums on life insurance policies.  For the years ended
March 31, 1997, 1996 and 1995, pension expense was $84,370, 
$99,581 and $119,056, respectively.

(14)      FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about Fair Value of Financial
Instruments  requires disclosure of estimated fair values for
certain on- and off-balance sheet financial instruments.  Fair
value estimates and the methods and assumptions used to
determine them are set forth below for financial instruments 
outstanding as of March 31, 1997 and 1996. 
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(14) CONTINUED

The carrying value and estimated fair value of financial
instruments is summarized as follows at March 31:
<TABLE>
<CAPTION>
                                         1997                        1996
                                  ---------------------   ------------------------
                                  Carrying       Fair       Carrying        Fair
                                  amount         value       amount        value
------------------------------------------------------------------------------------
<S>                               <C>           <C>         <C>          <C>
Assets:
  Cash and interest-bearing
    deposits                   $  1,758,834  $  1,759,000 $  2,807,252 $  2,807,000
  Federal funds sold              3,939,419     3,939,000    3,441,969    3,442,000
  Investment securities          47,543,418    46,969,000   48,738,919   48,287,000
  Mortgage-backed securities     14,161,239    14,251,000   17,937,421   18,123,000
  Loans receivable              144,701,746   144,975,000  116,891,985  116,458,000

Liabilities:
  Savings accounts              171,466,629   175,433,000  161,643,312  166,844,000
  Borrowed funds                 16,500,000    16,500,000    4,500,000    4,500,000
  Advances payments by 
    borrowers for taxes, 
    insurance and ground 
    rents                         1,902,414     1,902,000    1,929,535    1,930,000
------------------------------------------------------------------------------------
</TABLE>
CASH AND INTEREST-BEARING DEPOSITS

The carrying amount for cash on hand and due from banks
approximates fair value due to the short maturity of these
instruments.

FEDERAL FUNDS SOLD

The carrying amount for Federal funds sold approximates fair
value due to the overnight maturity of these instruments.

INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

The fair value of investment securities and mortgage-backed
securities is based on bid prices received from an external
pricing service or bid quotations received from securities
dealers. 
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(14) CONTINUED

LOANS

The fair value of residential loans is calculated by
discounting anticipated cash flows determined based on
weighted-average contractual maturity, weighted-average coupon
and certain prepayment assumptions.  Prepayment speed estimates
are derived from published historical prepayment experience in
the mortgage pass-through market and recent issuance activity
in the primary and secondary mortgage markets.  The discount
rate used is calculated by adding to the Treasury yield for the
corresponding weighted average maturity associated with each
prepayment assumption a market spread as observed for mortgage-
backed securities with similar characteristics.  The
fair values of multifamily and nonresidential loans are
calculated by discounting the contractual cash flows at the
Bank's current nonresidential loan origination 
rate.  Construction, land and commercial loans, loans secured
by savings accounts and mortgage lines of credit are considered
to be at fair value due to their adjustable rate nature.  The
fair value of second mortgage loans is calculated by
discounting scheduled cash flows through the estimated maturity 
date using estimated market discount rates that reflect the
credit and interest rate risk inherent in the portfolio.  The
fair value of consumer loans is calculated by discounting the
contractual cash flows at the Bank's current consumer loan
origination rate.  The fair value of nonperforming loans 
is determined by reducing the carrying value of the loans by
the Bank's historical loss percentage for each specific loan
category. 

ACCRUED INTEREST RECEIVABLE

The carrying amount of accrued interest receivable approximates
its fair value.

SAVINGS ACCOUNTS

The fair value of deposits with no stated maturity, such as
noninterest bearing deposits, interest bearing NOW accounts,
money market and statement savings accounts, is equal to the
carrying amounts.  The fair value of certificates of deposit is
based on the discounted value of contractual cash flows.  The
discount rates are based on the rates currently offered by the 
Bank for deposits of similar maturities.

BORROWED FUNDS

Securities sold under agreements to repurchase are considered
to be at fair value.

ACCRUED INTEREST PAYABLE

The carrying amount of accrued interest payable approximates
its fair value.
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(14) CONTINUED

ADVANCE PAYMENTS BY BORROWERS FOR TAXES, INSURANCE AND
GROUND RENTS

The carrying amount of advance payments by borrowers for taxes,
insurance and ground rents approximates its fair value.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business, including mortgage
loan commitments and lines of credit on commercial business
loans.  These instruments involve, to various degrees, elements
of credit and interest rate risk in excess of the amount 
recognized in the consolidated statements of financial
condition.

The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
is represented by the contract amount of the financial
instrument.

The Bank uses the same credit policies in making commitments
for off-balance-sheet financial instruments as it does for
on-balance-sheet financial instruments.  The contract amounts
of financial instruments with off-balance-sheet risk were
approximately as follows at March 31:
<TABLE>
<CAPTION>
                                                            1997
                                                  ---------------------------
                                                  Fixed rate    Floating Rate
-----------------------------------------------------------------------------
<S>                                               <C>           <C>
Residential mortgage loans to be funded          $2,447,600       774,900
Commercial mortgage loans to be funded            1,495,000            --
Undisbursed lines of credit                              --     1,266,400
------------------------------------------------------------------------------
                                                 $3,942,600     2,041,300
------------------------------------------------------------------------------
</TABLE>
All residential mortgage loan commitments usually expire within
thirty days.  The interest rate range on fixed rate mortgage
loan commitments was from 6.875% to 9.50% at March 31, 1997. 
These mortgage loan commitments and undisbursed lines of credit
are expected to be settled at face amount or expire unused.

The disclosure of fair value amounts does not include the fair
values of any intangibles, including core deposit intangibles. 
Core deposit intangibles represent the value attributable to
total deposits based on an expected duration of customer
relationships.   
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(14) CONTINUED

LIMITATIONS

Fair value estimates are made at a specific point in time,
based on relevant market information and information about
financial instruments.  These estimates do not reflect any
premium or discount that could result from offering for sale at
one time the entire holdings of a particular financial 
instrument.  Fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments and other factors.  These estimates are 
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision.  Changes in assumptions could significantly affect
the estimates.

(15)  CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

Summarized financial information for the Company is as follows
as of and for the years ended March 31:

<TABLE>
<CAPTION>
                                                       1997          1996
------------------------------------------------------------------------------
<S>                                                   <C>           <C>
Cash                                                $ 5,178,382    6,009,797
Investment in the Bank                               10,542,516    9,461,336
------------------------------------------------------------------------------
                                                    $15,720,898   15,471,133
------------------------------------------------------------------------------
Loan payable - Bank                                 $ 1,136,840    1,363,250
Federal and state income taxes (receivable)
  payable                                              (226,254)       1,728
Other liabilities                                       185,450       30,234
------------------------------------------------------------------------------
                                                      1,096,036    1,395,212
Stockholders' equity                                 14,624,862   14,075,921
------------------------------------------------------------------------------
                                                    $15,720,898   15,471,133
------------------------------------------------------------------------------
</TABLE>
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(15) CONTINUED

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                        1997         1996        1995
----------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>
Income:
  Interest income                      $112,763    $258,840     $173,024
----------------------------------------------------------------------------
Expenses:
  Interest expense                      110,349     233,434           --
  Professional fees                      19,200      75,000       54,256
  Other expenses                         30,565      42,247       16,801
----------------------------------------------------------------------------
                                        160,114     350,681       71,057
----------------------------------------------------------------------------
Income (loss) before equity in
  net income of subsidiary and
  income taxes                          (47,351)    (91,841)     101,967
Equity in net income of subsidiary      930,531   1,060,703    1,551,647
----------------------------------------------------------------------------
Income before income taxes              883,180     968,862    1,653,614
Income taxes (benefit)                  (18,300)    (35,350)      39,400
----------------------------------------------------------------------------
Net income                           $  901,480   1,004,212    1,614,214
----------------------------------------------------------------------------
</TABLE>
 
                                                   (Continued)
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
---------------------------------------------------------------

(15) CONTINUED

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                           1997         1996        1995
----------------------------------------------------------------------------
<S>                                        <C>         <C>          <C>
Operating activities:
  Net income                             $  901,480   $1,004,212   1,614,214
  Adjustments to reconcile net
    income to net cash provided
    by operating activities:
     Equity in net income of subsidiary    (930,531)  (1,060,703) (1,551,647)
     Noncash compensation under stock-
       based benefit plans                  462,650      658,087     273,194
     Other, net                            (396,157)    (261,656)     69,400
----------------------------------------------------------------------------
Net cash provided by operating activities    37,442      339,940     405,161
----------------------------------------------------------------------------
Investing activities:
   Purchase of stock of Bank                     --           -- (10,465,465)
   Dividend distribution from Bank               --    4,000,000          --
----------------------------------------------------------------------------
Net cash provided by (used in) 
  investing activities                           --    4,000,000 (10,465,465)
----------------------------------------------------------------------------
Financing activities:
  Net proceeds of stock conversion               --           --  19,006,790
  Purchase of common stock                   (8,987)  (7,220,210) (1,034,545)
  Exercise of stock options by Stock
    Option Trust                             68,308      127,713          --
  Borrowings                                     --           --   1,744,070
  Repayment of borrowings                  (226,410)    (206,410)   (174,410)
  Dividends paid                           (701,768)    (403,833)   (109,004)
----------------------------------------------------------------------------
Net cash provided by (used in) financing
  activities                               (868,857)  (7,702,740) 19,432,901
----------------------------------------------------------------------------
Increase (decrease) in cash and 
  equivalents                              (831,415)  (3,362,800)  9,372,597
Cash and equivalents at beginning of
  year                                    6,009,797    9,372,597          --
----------------------------------------------------------------------------
Cash and equivalents at end of year      $5,178,382    6,009,797   9,372,597
----------------------------------------------------------------------------
</TABLE>