<PAGE>
<PAGE> 
              SECURITIES AND EXCHANGE COMMISSION
                  Washington, D.C.  20549
                                                 
                         FORM 10-KSB

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

          For the fiscal year ended March 31, 1997

             Commission File Number: 0-24194

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

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

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

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

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

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

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

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

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

     State issuer's revenues for its most recent fiscal year: 
$15,598,087

     State the aggregate market value of the voting stock held
by non-affiliates computed by reference to the price at which
the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days:
$22,825,597  (1,323,223 shares at the most recent price of
which management was aware as of June 2, 1997 ($17.25 per
share)).

     State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 1,693,420 shares of common stock as of June 2, 1997.
<PAGE>
          DOCUMENTS INCORPORATED BY REFERENCE

     1.  Portions of the registrant's Annual Report to
Stockholders for the Fiscal Year Ended March 31, 1997 (the
"Annual Report").  (Part II)

     2.  Portions of the Proxy Statement for the registrant's
1997 Annual Meeting of Stockholders (the "Proxy Statement"). 
(Part III)
                                                                
    <PAGE>
<PAGE>
                     PART I

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

GENERAL

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

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

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

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

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

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

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

PROPOSED LEGISLATIVE CHANGES

    Legislation recently introduced in the Senate and the House
of Representatives could have a profound impact on the
operations of the Bank.  Such legislation includes proposals to
eliminate regulatory distinctions between banks and savings
associations under federal law and would ease the merger of the
Savings Association Insurance Fund ("SAIF") and the Bank
Insurance Fund ("BIF"), the two deposit insurance funds.  In
its current form, the legislation would require all
federally-chartered savings associations to convert to national
banks or to state depository institutions effective on a
to-be-specified date.  The legislation will be subject to major
revisions and might not be adopted soon or  ever.

LENDING ACTIVITIES 

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

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

                                                   At March 31,
                            -------------------------------------------------
                                 1997            1996             1995   
                            ---------------  ---------------   -------------
                             Amount      %    Amount      %     Amount    %
                             ------    -----  ------    ----    ------   ----
                                       (Dollars in thousands)
<S>                          <C>       <C>    <C>       <C>     <C>      <C>
Real estate loans:
  One- to four-family 
   residential. . . . . . $119,924   80.84%  $100,157  81.58%  $87,332  81.15%
  Multi-family 
   residential . . . . .       956     .64        980    .80     1,002    .93
  Commercial . . . . . .    12,183    8.21      9,054   7.38     6,155   5.72
  Construction (1) . . .     6,633    4.47      6,130   4.99     9,209   8.56
  Land . . . . . . . . .     1,473     .99      1,928   1.57     1,964   1.83
  Loans held for sale. .     3,866    2.61      1,199    .98        --     --

Consumer loans:
  Savings accounts . . .       651     .44        667    .54       254    .24
  Home equity loans. . .       400     .27        499    .41        --     --
  Other. . . . . . . . .       112     .08         88    .07         2     --
Commercial business(2) .     1,396     .94      1,400   1.14     1,144   1.06
Accrued interest 
 receivable. . . . . . .       761     .51        662    .54       554    .51
                          --------  ------   -------- ------  -------- ------
                           148,355  100.00%   122,764 100.00%  107,616 100.00%
                                    ======            ======           ======
Less:
  Loans in process . . .     2,307              4,767            4,312
  Discounts, deferred 
   loan fees and other .       966                667              592
  Allowance for loan 
   losses. . . . . . . .       380                438              465
                          --------           --------         --------
     Total . . . . . . .  $144,702           $116,892         $102,247
                          ========           ========         ========
<FN>
__________
(1) Consisted solely of one- to four-family residences
    under construction at March 31, 1997, 1996 and
    1995.
(2) Includes financing leases of $277,000 and $8,000
    at March 31, 1997 and 1995, respectively. 
</FN>
</TABLE>

                          3<PAGE>
<PAGE>
    The following table sets forth information at March 31, 1997
regarding the dollar amount of loans maturing in Harbor Federal's
portfolio, including scheduled repayments of principal, based on
contractual terms to maturity.   Demand loans, loans having no
schedule of repayments and no stated maturity and overdrafts are
reported as due in one year or less.
<TABLE>
<CAPTION>
                                 3 Months                6 Months  
                                 or Less    3-6 Months   - 1 Year  1-3 Years  3-5 Years  5-10 Years
                                 --------   ----------   --------  ---------  ---------  ----------
                                                           (In thousands)
<S>                             <C>         <C>          <C>       <C>        <C>         <C>
Real estate:
 Residential mortgage (1) . . .  $ 6,516     $5,071      $ 8,319   $25,045     $38,214    $11,299
 Construction and Land 
   Development. . . . . . . . .    1,218         --        1,441     1,118       1,614        109
 Commercial . . . . . . . . . .    1,882        355        3,241     1,483         580      1,224
Non-real estate (2) . . . . . .      300        115          393       610         709         32
Accrued interest receivable . .      761         --           --        --          --         --
                                 -------     ------      -------   -------     -------    -------
    Total . . . . . . . . . . .  $10,677     $5,541      $13,394   $28,256     $41,117    $12,664
                                 =======     ======      =======   =======     =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                More Than
                                 10-20 Years    20 Years        Total
                                 -----------    ---------     -------- 
                                             (In thousands)
<S>                             <C>            <C>            <C>
Real estate:
 Residential mortgage (1) . . .  $10,482       $20,200        $125,146
 Construction and Land 
   Development. . . . . . . . .       --           299           5,799
 Commercial . . . . . . . . . .      948         2,470          12,183
Non-real estate (2) . . . . . .       --            --           2,159
Accrued interest receivable . .       --            --             761
                                 -------       -------        --------
    Total . . . . . . . . . . .  $11,430       $22,969        $146,048
                                 =======       =======        ========
</TABLE>

    The following table sets forth the dollar amount of all loans
at March 31, 1997 due on or after March 31, 1998 which have
predetermined interest rates and have floating or adjustable
interest rates.

<TABLE>
<CAPTION>
                                             Floating or
                              Fixed Rate   Adjustable Rates    Total
                              ----------   ----------------   -------
                                          (In thousands)
<S>                            <C>             <C>           <C>
Real Estate:
 Residential mortgage (1) . .  $40,142         $65,098       $105,240
 Construction and Land 
   Development. . . . . . . .      579           2,561          3,140
      Commercial. . . . . . .    6,606              99          6,705
    Non-real estate (2) . . .      685             666          1,351
                               -------         -------       --------
     Total. . . . . . . . . .  $48,012         $68,424       $116,436
                               =======         =======       ========
<FN>
______________
(1) Includes both one- to four-family residential and
    multi-family residential.
(2) Includes commercial loans, loans secured by
    savings accounts, home improvement loans and
    financing leases.
</FN>
</TABLE>
                                4<PAGE>
<PAGE>
    Scheduled contractual principal repayments of loans do not
necessarily reflect the actual life of such assets. The average
life of long-term loans is substantially less than their
contractual terms, due to prepayments.  The average life of
mortgage loans tends to increase when current mortgage loan
market rates are substantially higher than rates on existing
mortgage loans and tends to decrease when current mortgage loan
market rates are substantially lower than rates on existing
mortgage loans.

    Originations, Purchases and Sales of Loans.  The following
table sets forth certain information with respect to Harbor
Federal's loan originations and purchases (there were no sales)
during the periods indicated.
<TABLE>
<CAPTION>

                                        Year Ended March 31,
                                     --------------------------
                                      1997      1996     1995
                                     -----     ------   ------
                                          (In thousands)
<S>                                 <C>      <C>       <C>
Loans originated: 
  Real estate loans:
  One- to four-family. . . . . . . $ 18,456  $  7,235  $ 10,093
        Land . . . . . . . . . . .      844       640       554
        Commercial . . . . . . . .    2,606     4,971       595
       Construction. . . . . . . .   16,714     6,081    16,825
      Consumer . . . . . . . . . .       --       346       285
      Commercial business. . . . .       --       886       202
                                   --------  --------  --------
        Total loans originated . .   38,620    20,159    28,554
    Loan repayments. . . . . . . .  (20,307)  (20,126)  (18,263)
                                   --------  --------  --------
        Net loan originations. . . $ 18,313  $     33  $ 10,291
                                   ========  ========  ========
    Loans purchased:
      Real estate loans:
        One- to four-family. . . . $  9,102  $ 11,731  $  6,643
        Land . . . . . . . . . . .      214        --        --
        Commercial . . . . . . . .       19     1,293       556
      Consumer . . . . . . . . . .       --       894        --
      Commercial business. . . . .       --       507        --
                                   --------  --------  --------
          Total loans purchased. . $  9,335  $ 14,425  $  7,199
                                   ========  ========  ========
</TABLE>

    Management attributes the increased amounts of one- to
four-family real estate loan originations in fiscal 1997 and 1996
to increased demand for such loans during those years.  Moreover,
Harbor Federal hired its first mortgage loan sales representative
in February 1996 which provided additional one- to four-family
loan production during this fiscal year.  For additional
information regarding Harbor Federal's commercial real estate
lending, see "Commercial and Multi-Family Real Estate Lending"
below.

    One- to Four-Family Residential Lending.  Historically,
Harbor Federal's principal lending activity has been the
origination of loans secured by first mortgages on existing one-
to four-family residences in Harbor Federal's market area. 
Harbor Federal also originates significant amounts of loans for
the construction of such residences.  The purchase price or
appraised value of most of such residences historically has been
between $50,000 and $300,000, with Harbor Federal's loan amounts
averaging less than $150,000.  At March 31, 1997, $119.9 million,
or 80.8%, of Harbor Federal's total loans were secured by one- to
four-family residences, a substantial majority of which were
existing, owner-occupied, single-family residences in Harbor
Federal's market area.  At March 31, 1997, $78.1 million, or
65.1%, of Harbor Federal's one- to four-family residential loans
had adjustable interest rates, and $41.8  million, or 34.9%, had
fixed-rates.

    Harbor Federal's one- to four-family residential mortgage
loans generally are for terms of 5 to 30 years, amortized on a
monthly basis, with principal and interest due each month. 
Residential real estate loans often remain

                           5<PAGE>
<PAGE>

outstanding for significantly shorter periods than their
contractual terms.  Borrowers may refinance or prepay loans at
their option without penalty.  These loans customarily contain
"due-on-sale" clauses which permit Harbor Federal to accelerate
repayment of a loan upon transfer of ownership of the mortgaged
property.

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

    Harbor Federal's fixed-rate, one- to four-family residential
mortgage loans are underwritten in accordance with applicable
guidelines and requirements for sale in the secondary market. 
Harbor Federal currently originates and holds all loans for
portfolio.  At March 31, 1997, Harbor Federal was servicing $9.2
million of loans for others.  The majority of this amount, $8.9
million, is serviced for Bankers Affiliate, Inc. (formerly "Cash,
Inc."), a consumer lending company in which Harbor Federal is a
1/3 owner.

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

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

    Construction and Land Lending.  Harbor Federal offers single
family residential construction loans to qualified borrowers for
construction of one- to four-family residences in Harbor
Federal's market area.  At March 31, 1997, one-to four-family
residential construction loans constituted $6.6 million, or 4.4%,
of Harbor Federal's total loans. Typically, Harbor Federal limits
its construction lending to single-settlement,
construction-permanent loans to individuals building their
primary residences and, to a lesser extent, interim construction
loans to selected local developers to build single-family
dwellings where a permanent purchase commitment has been
obtained.  These loans generally have adjustable interest rates
and are underwritten in accordance with the same standards as
Harbor Federal's mortgages on existing properties, except the
loans generally provide for disbursement in stages during a
construction period of up to 12 months, during which period the
borrower is required to make monthly payments of accrued interest
on the outstanding loan balance.  Construction loans generally
have a maximum loan-to-value ratio of 90%.  Borrowers must
satisfy all credit requirements which would apply to Harbor
Federal's permanent mortgage loan financing for the subject
property.  While Harbor Federal's construction-permanent
construction loans convert to permanent loans following
construction, Harbor Federal's interim construction loans
generally require repayment in full upon the completion of
construction.

                           6<PAGE>
<PAGE>
    Harbor Federal also offers loans for the acquisition and
development of land.  At March 31, 1997, land acquisition and
development loans constituted $1.5 million, or 1.0%, of Harbor
Federal's total loans.  These loans are made on a selective basis
to borrowers which management believes have the requisite
experience in land development and financial strength to ensure
repayment.  These loans also are made in limited amounts, usually
not in excess of 65% of the appraised value of the property. 
These loans generally provide for payments of only interest
during development, and the maximum loan amount and term on these
loans generally are $2,000,000 and 24 months, respectively.

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

    Commercial and Multi-Family Real Estate Lending.  Harbor
Federal originates limited amounts of commercial and multi-family
real estate loans in order to benefit from the higher origination
fees and interest rates, as well as shorter terms to maturity,
than could be obtained from single-family mortgage loans.  Harbor
Federal's commercial and multi-family real estate loans are
secured by apartments, offices, warehouses, shopping centers and
other income-producing multi-family and commercial properties. 
At March 31, 1997, Harbor Federal had 51 of these loans, with a
median loan balance of $257,600.

    The following paragraphs set forth information regarding
Harbor Federal's commercial and multi-family real estate loans
with outstanding balances exceeding $500,000 at March 31, 1997. 
None of these loans was classified by management as substandard,
doubtful or loss or designated by management as special mention
at that date.  For information regarding Harbor Federal's asset
classification policies, see "Asset Classification, Allowances
for Losses and Non-Performing Assets."

         U.S. Post Office in Cicero, New York.  In September
1994, Harbor Federal purchased a 40%.  participation interest in
the amount of $555,600 in a loan secured by a full service postal
facility.  At that time, an appraisal indicated a market value of
$1,464,000, for a loan-to-value ratio of 95%.  The property has
been leased for use by the U.S. Postal Service, an agency whose
obligations are backed by the federal government, under a 20-year
lease.  The loan is being amortized over twenty years for the
purpose of monthly payments of principal and interest, but the
full balance of the loan will be callable in September 1999.  At
March 31, 1997, the outstanding balance was $540,000, and the
loan was fully performing in accordance with its terms.

         Warehouse/Office in Baltimore, Maryland.  In June 1990,
Harbor Federal made a $975,000 loan secured by warehouse/
office/parking lot.  At that time, an appraisal indicated a
market value of $1,300,000,   for a loan-to-value ratio of 75%. 
The loan is being amortized over twenty years for the purpose of
monthly payments of principal and interest, and the full balance
of the loan will be due in June 2010.  At March 31, 1997, the
outstanding balance was $823,000, and the loan was fully
performing in accordance with its terms.

         Retail Space/Restaurant in Ocean City, Maryland. In
December 1995, Harbor Federal granted a  $2,500,000 construction/
permanent loan secured by a restaurant and six retail outlets
with Boardwalk frontage. At that time an appraisal indicated a
market value of $3,600,000 for a loan to value ratio of 69%.  The
loan is

                          7<PAGE>
<PAGE>
being amortized over a period of twenty years, and the full
balance is due in January 2016.  At March 31, 1997 the
outstanding balance was $2,445,000, and the loan was fully
performing in accordance with its terms.

         Professional Real Estate Offices in Central Maryland. 
In January 1996, Harbor Federal originated four separate loans to
the same borrowers totaling $2,022,202 secured by four full
service real estate brokerage offices.  The four commercial
office buildings are situated in Howard County, Maryland, Anne
Arundel County, Maryland and two in Harford County, Maryland.  At
the time the appraisals indicated a market value of $2,795,000
for a total loan to value ratio of 75%.  The loans are being
amortized over thirty years for the purpose of monthly payments
of principal and interest, and the full balance of the loans will
be due in February 2026.  At March 31, 1997 the outstanding
aggregate balance was $2,007,000, and the loans were fully
performing in accordance with their terms.

         Dental Offices and Two Commercial Building Lots in
Baltimore County, Maryland.  Harbor Federal granted three
separate loans to the same borrower.  One loan was made in June
1994.  The property is improved with a Dental/Medical Center and
had an opening balance of $295,000 and matures May 2019.  At  
the time an appraisal indicated a value of $704,000 for a
loan-to-value ratio of 42%.  Additionally, two commercial
building lot loans with the same borrower totaling $410,000 were
made in February 1995 and November 1996 and are due to mature no
later than September 1999.  An appraisal on these two lots
estimated a loan-to-value ratio of 76%.  At March 31, 1997 the
outstanding aggregate balance was $638,000, and the loans were
fully performing in accordance with their terms.

         Three Commercial Buildings in Cockeysville, Maryland. 
Harbor Federal made two separate loans to the same borrowers. 
One was settled in February 1996 for $450,000 and matures January
2016 with possible annual interest rate changes.  This property
is a large commercial strip specializing in antique sales.  The
appraisal indicated a value of $1,141,500 for a loan-to-value
ratio of 39%.  Furthermore a mortgage was issued to the same
borrowers for $850,000 in October 1996 with the security being a
full service restaurant with a liquor license and a separate
catering hall.  The note comes due September 2016 with interest
rate changes possible on an annual basis.  At the inception an
appraisal was completed indicating a value of $1,520,000 for a
loan-to-value ratio of 56%.  At March 31, 1997 the outstanding
aggregate balance was $1,286,000, and the loans were fully
performing in accordance with their terms.

         Fast Food Restaurant/Two Commercial Buildings in Towson,
Maryland.   In July 1996, Harbor Federal granted two loans
totaling $780,000 on a major fast food outlet and two small
commercial office buildings.  At the time the appraisals
indicated a market value of $1,314,000 for a  loan-to-value ratio
of 59%.  The loans are being amortized over twenty years for the
purpose of monthly payments of principal and interest,  and the
full balance of the loans will be due in June 2003.  All
associated properties have leases which are  assignable to the
Bank.  At March 31, 1997 the outstanding aggregate balance was
$772,000, and the loans were fully performing in accordance with
their terms.
  
    In addition, at March 31, 1997 Harbor Federal had $4.6
million in 37 commercial and multi-family real estate loans with
outstanding balances not exceeding $500,000, none of which was
adversely classified or designated by management.

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

    Commercial and multi-family real estate lending entails
significant additional risks compared with one- to four-family
residential lending.  For example, commercial and multi-family
real estate loans typically involve large loan balances to single
borrowers or groups of related borrowers, the payment experience
on such loans typically is 


                        8<PAGE>
<PAGE>
dependent on the successful operation of the real estate project,
and these risks can be significantly impacted by supply and
demand conditions in the market for multi-family residential
units and commercial office, retail and warehouse space.

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

    Commercial Business Lending.  Under laws and regulations
enacted during the past several years, Harbor Federal is
permitted to make secured and unsecured loans for commercial,
corporate, business and agricultural purposes, including issuing
letters of credit and engaging in inventory financing and
commercial leasing activities.  The aggregate outstanding amount
of such loans generally may not exceed 10% of Harbor Federal's
assets.  Harbor Federal offers commercial business loans on a
selected basis and in limited amounts.  At March 31, 1997, Harbor
Federal's commercial business loans totaled $1.4 million and
primarily consisted of line of credit loans to developers and two
term loans to a leasing company.  There are eight direct line of
credit loans with local developers of up to $1.7 million in the
aggregate, each secured by the personal guarantee of the
respective borrower.  At March 31, 1997, the total outstanding
balance of these loans was $1.1 million, and all of these loans
were performing in accordance with their respective terms.  In
addition, loans to a leasing company were made in October 1996
and February 1997.  The aggregate original amount of these loans
was $500,000.  At March 31, 1997, the aggregate outstanding
balance of these loans was $277,000 (with a remaining term of
approximately 62 months), and the loans were fully performing in
accordance with their terms.

    Commercial business loans, including finance leases,
generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding credit obligation
as a result of damage, loss or depreciation, and the remaining
deficiency often does not warrant further substantial collection
efforts against the obligor.  In addition, collections are
dependent on the obligor's continuing financial stability, and
thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy.   Further, the
application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount
which can be recovered.  These financings may also give rise to
claims and defenses by an obligor against Harbor Federal, and an
obligor may be able to assert against Harbor Federal claims and
defenses which it has against the seller of the underlying
collateral.  In underwriting commercial business loans, Harbor
Federal considers the obligor's credit history, an analysis of
the obligor's income, expenses and ability to repay the
obligation and the value of the collateral.  Harbor Federal's
risks associated with commercial business loans have been
minimized by the immaterial amount of such loans made by Harbor
Federal.

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

    Loan Solicitation and Processing.  Harbor Federal's loan
originations are derived from a number of sources, including
referrals by realtors, builders, depositors, borrowers and
mortgage brokers, as well as walk in customers. Harbor Federal's
solicitation programs consist of regular calls by Harbor
Federal's branch managers and loan officers to local realtors and
builders and advertisements in local newspapers and radio and
television broadcasts.  Real estate loans are originated by
Harbor Federal's salaried staff loan officers as well as Harbor
Federal's branch managers who also receive only salaries.  Loan
applications are accepted at each of Harbor Federal's offices and
then submitted to the


                             9<PAGE>
<PAGE>
main office for processing and approval.  Loans made through
brokers are underwritten by Harbor Federal prior to settlement
and are funded by Harbor Federal.

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

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

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

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

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

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

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

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

    Asset Classification, Allowances for Losses and
Non-Performing Assets.  Federal regulations require savings
institutions to classify their assets on the basis of quality on
a regular basis.  An asset is classified as substandard if it is
determined to be inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged,
if any.  An asset is classified as doubtful if full collection is
highly questionable or improbable.  An asset is classified as
loss if it is considered uncollectible, even if a partial
recovery could be expected in the future.  The regulations also
provide for a special mention designation, described as assets
which do not currently expose a savings institution to a
sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving
management's close attention.  Assets classified as substandard
or doubtful require a savings institution to establish general
allowances for loan losses.  If an asset or portion thereof is
classified loss, a savings institution must either establish a
specific allowance for loss in the amount of the portion of the
asset classified loss, or charge off such amount.  Federal
examiners may disagree with a savings institution's
classifications.  If a savings institution does not agree with an
examiner's classification of an asset, it may appeal this
determination to the OTS Regional Director.  Harbor Federal
regularly reviews its assets to determine whether any assets
require classification r re-classification.  The Board of
Directors reviews and approves all classifications.  At March 31,
1997, Harbor Federal had no assets classified as loss, $180,000
of assets classified as doubtful, $345,000 of assets classified
as substandard and $934,000 of assets designated as special
mention.  Harbor Federal's total adversely classified and
designated assets were $1,459,000, which represented 0.67% of
Harbor Federal's total assets and 5.96% of Harbor Federal's
tangible regulatory capital, at March 31, 1997.  At that date,
substantially all of Harbor Federal's adversely classified or
designated assets were one- to four-family residences in Harbor
Federal's market area, and none of such assets was in excess of
$300,000.

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

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

    Harbor Federal's methodology for establishing the allowance
for losses takes into consideration probable losses that have
been identified in connection with specific assets as well as
losses that have not been identified but can be expected to
occur.  Management conducts regular reviews of Harbor Federal's
assets and evaluates the need to establish allowances on the
basis of this review.  Allowances are established by the Board of
Directors on a monthly basis based on an assessment of risk in
Harbor Federal's assets taking into consideration the composition
and quality of the portfolio,


                           11<PAGE>
<PAGE>
delinquency trends, current charge-off and loss experience, the
state of the real estate market, regulatory reviews conducted in
the regulatory examination process and economic conditions
generally.  Allowances are provided for individual assets, or
portions of assets, when ultimate collection is considered
improbable by management based on the current payment status of
the assets and the fair value or net realizable value of the
security.  At the date of foreclosure or other repossession,
Harbor Federal transfers the property to real estate acquired in
settlement of loans at the lower of cost or fair value.  Fair
value is defined as the amount in cash or cash-equivalent value
of other consideration that a property would yield in a current
sale between a willing buyer and a willing seller.  Fair value is
measured by market transactions.  If a market does not exist,
fair value of the property is estimated based on selling prices
of similar properties in active markets or, if there are no
active markets for similar properties, by discounting a forecast
of expected cash flows at a rate commensurate with the risk
involved.  Fair value generally is determined through independent
appraisal at the time of foreclosure.  At March 31, 1997, Harbor
Federal held no properties acquired in settlement of loans for
which market prices were unavailable.  Any amount of cost in
excess of fair value is charged-off against the allowance for
loan losses.  Harbor Federal records an allowance for estimated
selling costs of the property immediately after foreclosure. 
Subsequent to acquisition, the property is periodically evaluated
by management and an allowance is established if the estimated
fair value of the property, less estimated costs to sell,
declines.  If, upon ultimate disposition of the property, net
sales proceeds exceed the net carrying value of the property, a
gain on sale of real estate is recorded.  

    The OTS has adopted a policy statement regarding maintenance
of an adequate allowance for loan and lease losses and an
effective loan review system.  This policy includes an arithmetic
formula for checking the reasonableness of an institution's
allowance for loan loss estimate compared to the average loss
experience of the industry as a whole. Examiners will review an
institution's allowance for loan losses and compare it against
the sum of (i) 50% of the portfolio that is classified doubtful;
(ii) 15% of the portfolio that is classified as substandard; and
(iii) for the portions of the portfolio that have not been
classified (including those loans designated as special mention),
estimated credit losses over the upcoming twelve months given the
facts and circumstances as of the evaluation date.  This amount
is considered neither a "floor" nor a "safe harbor" of the level
of allowance for loan losses an institution should maintain, but
examiners will view a shortfall relative to the amount as an
indication that they should review management's policy on
allocating these allowances to determine whether it is reasonable
based on all relevant factors.
<PAGE>
    The following table sets forth an analysis of Harbor
Federal's allowance for loan losses (there were no recoveries)
for the periods indicated.
<TABLE>
<CAPTION>

                                        Year Ended March 31,
                                     --------------------------
                                      1997      1996     1995
                                     -----     ------   ------
                                          (In thousands)
<S>                                  <C>        <C>      <C>
Balance at beginning of period . . . $438       $465     $489
    
Charge-offs:
  Real estate - mortgage . . . . . .   --         --       20
  Commercial business. . . . . . . .   91         27        7
                                     ----       ----     ----
     Total charge-offs . . . . . . .   91         27       27
                                     ----       ----     ----
Provision for loan losses. . . . . .   33         --        3
                                     ----       ----     ----
Balance at end of period . . . . . . $380       $438     $465
                                     ====       ====     ====
Ratio of net charge-offs to 
  average loans outstanding 
  during the period. . . . . . . . . 0.07%      0.03%    0.03%
                                     ====       ====     ====
                            12<PAGE>
<PAGE>
    The following table allocates the allowance for loan losses
by asset category at the dates indicated.  The allocation of the
allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to
absorb losses in any category.

</TABLE>
<TABLE>
<CAPTION>
                                                           At March 31,
                             ----------------------------------------------------------------------
                                        1997                    1996                   1995   
                             ------------------------   -----------------------  ----------------------
                                        Percent of                 Percent of              Percent of
                                        Loans in each            Loans in each           Loans in each
                                          Category to             Category to             Category to
                              Amount     Total Loans    Amount    Total Loans    Amount   Total Loans
                              ------   --------------   ------  ---------------  ------  --------------
                                                   (Dollars in thousands)
<S>                           <C>        <C>           <C>         <C>           <C>        <C>
Real estate - mortgage:
  Residential. . . . . . . .  $ 155      81.48%         $ 155        82.38%      $ 165       82.08%
  Construction . . . . . . .    125       4.47            125         4.99         125        8.56
  Commercial . . . . . . . .    100       8.21            100         7.38         100        5.72
Commercial business. . . . .     --        .94             58         1.14          75        1.06
                              -----                     -----                    -----
Total allowance for 
  loan losses. . . . . . . .  $ 380                     $ 438                    $ 465                    
                              =====                     =====                    =====
</TABLE>
    While management believes Harbor Federal has established its
existing loss allowances in accordance with generally accepted
accounting principles, there can be no assurance that regulators,
in reviewing Harbor Federal's assets, will not make Harbor
Federal increase its loss allowance, thereby negatively affecting
Harbor Federal's reported financial condition and results of
operations.

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

    The following table sets forth information with respect to
Harbor Federal's nonperforming assets at the dates indicated.  At
these dates, Harbor Federal did not have any restructured loans
within the meaning of Statement of Financial Accounting Standards
No. 15.
<TABLE>
<CAPTION>
                                            At March 31,
                                     --------------------------
                                      1997      1996     1995
                                     -----     ------   ------
                                          (In thousands)
<S>                                 <C>      <C>       <C>
Loans accounted for on a 
nonaccrual basis:
  Real Estate:
    Residential. . . . . . . . . .  $ 289     $ 403    $ 264
                                    =====     =====    =====
Percentage of nonperforming 
  loans to total loans . . . . . .   0.20%     0.34%    0.26%
                                    =====     =====    =====
Other nonperforming assets (1) . .  $ 465     $  44    $  91
                                    =====     =====    =====
Percentage of nonperforming assets 
  to total assets . . . . . . .  .   0.34%     0.23%    0.37%
                                    =====     =====    =====
<FN>__________
(1) Other nonperforming assets represents property acquired by
    Harbor Federal through foreclosure of repossession.  The
    property is carried at the lower of its fair market value or
    the principal balance of the related loan, whichever is
    lower. 
</FN>
</TABLE>
                           13<PAGE>
<PAGE>
    During the year ended March 31, 1997, gross interest income
of $11,000 would have been recorded on loans accounted for on a
non-accrual basis if the loans had been current throughout the
year.  Interest on such loans included in income during the year
amounted to $5,000.  At March 31, 1997, management had identified
approximately $1,170,000 of loans which were not reflected in the
preceding table but as to which known information about possible
credit problems of borrowers caused management to have doubts as
to the ability of the borrowers to comply with present loan
repayment terms, and all of such loans were classified as
substandard, doubtful or loss or designated as special mention. 
This group comprised 10 loans, all of which had balances below
$300,000, and substantially all of which were secured by one- to
four-family residences and were between 60 and 89 days
delinquent.  Management does not expect Harbor Federal to
experience any material loss on these loans in the future.

MORTGAGE-BACKED SECURITIES

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

    The following table sets forth information regarding Harbor
Federal's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                             At March 31,
                                     --------------------------
                                      1997      1996     1995
                                     -----     ------   ------
                                          (In thousands)
<S>                                 <C>        <C>      <C>
FHLMC . . . . . . . . . . . . . . . $ 5,753   $ 9,449   $ 6,354
GNMA. . . . . . . . . . . . . . . .   6,048     1,698     2,089
FNMA. . . . . . . . . . . . . . . .   2,243     6,638     3,226
                                    -------   -------   -------
   Total. . . . . . . . . . . . . . $14,044   $17,785   $11,669
                                    =======   =======   =======
</TABLE>

     The following table sets forth information regarding the
scheduled maturities, amortized cost, market value and weighted
average yields for Harbor Federal's mortgage-backed securities at
March 31, 1997.  Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may
have the right to call or prepay obligations with or without
prepayment penalties.  The following table does not take into
consideration the effects of scheduled repayments or the effects
of possible prepayments.<PAGE>
<TABLE>
<CAPTION>

                          One to Five Years     More Than Five Years    Total Investment Portfolio
                       ---------------------    --------------------   ----------------------------
                       Carrying      Average    Carrying     Average   Carrying   Fair    Average
                         Value        Yield      Value       Yield      Value     Value    Yield 
                       --------      -------    --------    ---------  --------   ----    -------
<S>                    <C>          <C>        <C>          <C>       <C>        <C>       <C>
FHLMC. . . . . . . . .  $1,338       5.47%      $ 4,415      7.51%     $ 5,753    $ 5,750   7.03%
GNMA . . . . . . . . .      --        --          6,048      7.98        6,048      6,114   7.98
FNMA . . . . . . . . .   1,189       6.09         1,054      9.04        2,243      2,270   7.47
                        ------                  -------                -------    -------
  Total. . . . . . . .  $2,511                  $11,533                $14,044    $14,134
                        ======                  =======                =======    =======
</TABLE>

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

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

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

    Since February 1996, Harbor Federal has placed all purchased
U.S. government or agency obligations in the "Available for Sale"
category to remain more flexible for investment purposes.  These
securities and the investment in FHLMC preferred stock at March
31, 1997 had an aggregate carrying value of $22.5 million.  The
remaining investments in debt securities are carried at cost,
adjusted for amortization of premiums and accretion for discounts
on a method which approximates the interest method over the term
of the related security.

    The following table sets forth information regarding Harbor
Federal's investment securities and other investments at the
dates indicated.
<TABLE>
<CAPTION>

                                            At March 31,
                                     --------------------------
                                      1997      1996     1995
                                     -----     ------   ------
                                          (In thousands)
<S>                                 <C>       <C>       <C>
Investment securities:
  U.S. government and agency
   obligations . . . . . . . . . .  $46,783   $48,082   $25,464
  Corporate bonds and notes. . . .       --        --       998
  Other. . . . . . . . . . . . . .      213       166       118
                                    -------   -------   -------
    Total investment securities. .   46,996    48,248    26,580
Federal funds sold . . . . . . . .    3,939     3,442     2,155
Interest-earning deposits. . . . .      276       993       143
FHLB stock . . . . . . . . . . . .    1,366     1,270     1,270
                                    -------   -------   -------
    Total. . . . . . . . . . . . .  $52,577   $53,953   $30,148
                                    =======   =======   =======
</TABLE>
                           15<PAGE>
<PAGE>
     The following table sets forth information regarding the
scheduled maturities, market value and weighted average yields
for Harbor Federal's investment securities and certain other
investments at March 31, 1997.
<TABLE>
<CAPTION>
    
                                  One Year or Less      One to Five Years        Five to Ten Years
                                -------------------   --------------------    ----------------------
                                Carrying   Average     Carrying    Average     Carrying    Average
                                  Value     Yield       Value       Yield       Value       Yield
                                 --------  -------    ---------   --------    ---------   ---------
                                                   (Dollars in thousands)
<S>                              <C>        <C>       <C>         <C>          <C>        <C>
Investment securities:
  U.S. government and
    agency obligations . . . .  $2,000      6.87%     $9,461      5.65%       $30,501      7.03%
  FHLMC stock. . . . . . . . .     213      1.47          --                       --
                                ------                ------                  -------
    Total investment 
      securities . . . . . . .   2,213                 9,461                   30,501
Federal funds sold . . . . . .   3,939      6.25          --                       --
Interest-earning deposits. . .     276      6.60          --                       --
FHLB stock . . . . . . . . . .   1,366      7.25          --                       --
                                ------                ------                  -------
    Total. . . . . . . . . .    $7,794                $9,461                  $30,501
                                ======                ======                  =======
  </TABLE>
<TABLE>
<CAPTION>
    
                                More than Ten Years     Total Investment Portfolio
                                -------------------   ----------------------------------
                                Carrying   Average     Carrying    Market      Average 
                                  Value     Yield       Value      Value        Yield  
                                 --------  -------    ---------   --------    ---------
                                                   (Dollars in thousands)
<S>                              <C>        <C>       <C>         <C>          <C>      
Investment securities:
  U.S. government and
    agency obligations . . . .  $4,821      7.80%     $46,783     $46,208      6.83%
  FHLMC stock. . . . . . . . .      --                    213         213      1.47
                                ------                -------     -------
    Total investment 
      securities . . . . . . .   4,821                46,996       46,421      
Federal funds sold . . . . . .      --                 3,939        3,939      6.25
Interest-earning deposits. . .      --                   276          276      6.60
FHLB stock . . . . . . . . . .      --                 1,366        1,366      7.25
                                ------               -------      -------

    Total. . . . . . . . . .    $4,821               $52,577      $52,002
                                ======               =======      =======
  </TABLE>

      For additional information, see the Management's Discussion
and Analysis of Financial Condition and Results of Operations and
Note 2 of the Notes to Consolidated Financial Statements in the
Annual Report.
                       16<PAGE>
<PAGE>
 DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
  
      General.  Deposits are the primary source of Harbor
Federal's funds for lending and other investment purposes.  In
addition to deposits, Harbor Federal derives funds from loan
principal repayments, interest payments and maturing investments. 
Loan repayments and interest payments are a relatively stable
source of funds, while deposit inflows and outflows are
significantly influenced by prevailing market interest rates and
money market conditions.  Borrowings may be used to supplement
Harbor Federal's available funds.  Harbor Federal is authorized
to borrow from the FHLB of Atlanta as well as to obtain funds
through reverse repurchase agreements.
  
      Deposits.  Harbor Federal attracts deposits principally
from within its market area by offering a variety of deposit
instruments, including passbook and statement accounts and
certificates of deposit which range in term from three to 60
months.  Deposit terms vary, principally on the basis of the
minimum balance required, the length of time the funds must
remain on deposit and the interest rate.  Harbor Federal also
offers Individual Retirement Accounts ("IRAs").  
  
      Harbor Federal's policies are designed primarily to attract
deposits from local residents through Harbor Federal's branch
network rather than from outside Harbor Federal's market area. 
Harbor Federal does not accept deposits from brokers due to their
rate sensitivity.  Harbor Federal's interest rates, maturities,
service fees and withdrawal penalties on deposits are established
by management on a periodic basis.  Management determines deposit
interest rates and maturities based on Harbor Federal's funds
acquisition and liquidity requirements, the rates paid by Harbor
Federal's competitors, Harbor Federal's growth goals and
applicable regulatory restrictions and requirements.
  
      Deposits in Harbor Federal as of March 31, 1997 were
represented by the various programs described below.
<TABLE>
<CAPTION>  
Weighted Average   Minimum                         Minimum              Percentage of
Interest Rate (1)   Term     Category               Amount    Balances  Total Savings
----------------   -------   --------              --------   --------  -------------- 
<S>                <C>      <C>                    <C>        <C>        <C>

0.96%              None   NOW accounts             $   300    $  5,426     3.12%
3.05               None   Passbook accounts            100      31,254    17.95
 --                None   Commercial checking          750       1,066      .61
3.05               None   Christmas club                10         333      .19
                       
                            Money Market 
                            ------------

3.30               None   Money market passbook      2,500       8,329     4.78
3.39               None   Money market checking      2,500       3,798     2.18
3.98               None Money market plus passbook  10,000      12,413     7.13
3.30               None   IRA money market passbook    100         260      .15
                       
                          Certificates of Deposit  
                          -----------------------

3.20              3 month  Fixed-Term, Fixed-Rate    1,000          93      .05
5.10              6 month  Fixed-Term, Fixed-Rate    1,000       3,921     2.25
5.10              6 month  Fixed-Term, Fixed-Rate   10,000       5,593     3.21
5.42             12 month  Fixed-Term, Fixed-Rate    1,000       9,293     5.34
5.40             12 month  Fixed-Term, Fixed-Rate   10,000      18,625    10.70
5.82             18 month  Fixed-Term, Fixed-Rate    1,000      15,441     8.87
5.90             24 month  Fixed-Term, Fixed-Rate    1,000      12,908     7.42
6.31             30 month  Fixed-Term, Fixed-Rate    1,000       1,548      .89
6.06             36 month  Fixed-Term, Fixed-Rate    1,000       8,665     4.98
5.76             42 month  Fixed-Term, Fixed-Rate    1,000       1,171      .67
7.05             48 month  Fixed-Term, Fixed-Rate    1,000      18,770    10.78
6.53             60 month  Fixed-Term, Fixed-Rate    1,000      15,198     8.73
                                                              --------   ------
                                                              $174,105   100.00%
                                                              ========   ======
</TABLE>
                       17<PAGE>
<PAGE>

    The following table sets forth the change in dollar amount of
deposits in the various types of accounts offered by Harbor
Federal between the dates indicated.
<TABLE>
<CAPTION>
                                  Balance at
                                   March 31,     %      Increase
                                      1997    Deposits  Decrease)
                                   ---------  --------  ---------
<S>                               <C>          <C>      <C> 
Certificates . . . . . . . . . .   $111,226    63.89%   $11,137
Money market . . . . . . . . . .     24,800    14.24        469
Passbook . . . . . . . . . . . .     31,254    17.95     (1,834)
NOW. . . . . . . . . . . . . . .      5,426     3.12        (16)
Christmas Club . . . . . . . . .        333      .19        (49)
Commercial checking. . . . . . .      1,066      .61       (264)
                                   --------   ------    -------
    Total. . . . . . . . . . . .   $174,105   100.00%   $ 9,443
                                   ========   ======    =======
</TABLE>
<TABLE>
<CAPTION>
                         
                         Balance at                        Balance at
                          March 31,     %      Increase     March 31,      %
                            1997    Deposits   (Decrease)      1995      Deposits   
                         ---------  --------   ---------   ----------   --------
 <S>                      <C>         <C>       <C>         <C>         <C>
Certificates . . . . . . $100,089    60.8%      $36,511     $ 63,578      56.9%
Money market . . . . . .   24,331    14.8         4,661       19,670      17.6
Passbook . . . . . . . .   33,088    20.1         8,381       24,707      22.1
NOW. . . . . . . . . . .    5,442     3.3         2,574        2,868       2.6
Christmas Club . . . . .      382      .2           (20)         402        .3
Commercial checking. . .    1,330      .8           763          567        .5
                         --------   -----       -------     --------     -----
    Total. . . . . . . . $164,662   100.0%      $52,870     $111,792     100.0%
                         ========   =====       =======     ========     =====
</TABLE>


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

                                                     Year Ended March 31,
                                --------------------------------------------------------------------    
                                        1997                  1996                    1995
                                -------------------   --------------------    ----------------------
                                Interest-             Interest-               Interst-      
                                Bearing               Bearing                 Bearing
                                Demand      Time      Demand      Time        Demand        Time
                                Deposit    Deposits   Deposits   Deposits     Deposits     Deposits
                                --------   --------   ---------  --------     ---------    --------
                                                   (Dollars in thousands)
<S>                             <C>        <C>        <C>        <C>          <C>          <C>
Average Balance. . . . . . .   $61,222     $103,309   $49,584    $72,991      $57,841      $60,438
Average Rate . . . . . . . .      3.19%        5.94%     3.21%      5.96%        2.86%        4.96%
</TABLE>


    The following table sets forth the time deposits in Harbor
Federal classified by rates at the dates indicated.
<TABLE>
<CAPTION>

                                       At March 31,
                                 --------------------------
                                  1997      1996     1995
                                 -----     ------   ------
                                      (In thousands)
     <S>                         <C>      <C>       <C>
    2 -  3.99% . . . . . . . .  $    118  $    298  $   2,534
    4 -  5.99% . . . . . . . .    67,143    46,455     37,654
    6 -  7.99% . . . . . . . .    43,874    53,253     20,855
    8 -  9.99% . . . . . . . .        91        83      2,535
                                --------  --------  ---------
                                $111,226  $100,089  $  63,578
                                ========  ========  =========
</TABLE>

    The following table sets forth the amount and maturities of
time deposits in Harbor Federal at March 31, 1997.
<TABLE>
<CAPTION>
                                     Amount Due
                   -------------------------------------------------
    Rate           Less Than                         After
                   One Year   1-2 Years 2-3 Years  3 Years   Total
                   -------------------------------------------------
                                 (In thousands)
<S>                <C>       <C>       <C>        <C>      <C>
2 -  3.99% . . . . $    93   $     6   $    19    $   --   $    118
4 -  5.99% . . . .  47,158    17,122       901     1,962     67,143
6 -  7.99% . . . .   5,209    15,184    16,284     7,197     43,874
8 -  9.99% . . . .      91        --        --        --         91
                   -------   -------   -------    ------   --------
                   $52,551   $32,312   $17,204    $9,159   $111,226
                   =======   =======   =======    ======   ========
</TABLE>

    The following table indicates the amount of the certificates
of deposit of $100,000 or more in Harbor Federal by time
remaining until maturity at March 31, 1997.

                                      Certificates
    Maturity Period                    of Deposit  
    ---------------                   ------------
                                    (In thousands)
    
    Three months or less . . . . . .  $ 1,642
    Three through six months . . . .      660
    Six through nine months. . . . .    1,780
    Nine through twelve months . . .    1,371
    Over twelve months . . . . . . .    7,087
                                      -------
      Total. . . . . . . . . . . . .  $12,540
                                      =======
                       19<PAGE>
<PAGE>
    The following table sets forth the deposit activities of
Harbor Federal for the periods indicated.
<TABLE>
<CAPTION>
                                    Year Ended March 31,
                                 --------------------------
                                  1997      1996     1995
                                 -----     ------   ------
                                      (In thousands)
<S>                              <C>      <C>       <C>
Deposits . . . . . . . . . . .  $191,670  $159,535  $163,718
Withdrawals. . . . . . . . . .   173,760   112,608   170,291
                                --------  --------  --------
  Net increase (decrease)
    before interest credited .    17,910    46,927    (6,573)
Interest credited. . . . . . .     8,467     5,943     4,834
                                --------  --------  --------
  Net increase (decrease) 
    in deposits. . . . . . . .  $  9,443  $ 52,870  $ (1,739)
                                ========  ========  ========
</TABLE>
    Borrowings.  Savings deposits historically have been the
primary source of funds for Harbor Federal's lending, investment
and general operating activities.  Harbor Federal is authorized,
however, to use advances from the FHLB of Atlanta to supplement
its supply of lendable funds and to meet deposit withdrawal
requirements.  The FHLB of Atlanta functions as a central reserve
bank providing credit for savings institutions and certain other
member financial institutions.  As a member of the FHLB system,
Harbor Federal is required to own stock in the FHLB of Atlanta
and is authorized to apply for advances.  Advances are made
pursuant to several different programs, each of which has its own
interest rate and range of maturities.  Advances from the FHLB of
Atlanta are secured by Harbor Federal's stock in the FHLB and a
portion of Harbor Federal's mortgage loan portfolio.  At March
31, 1997, Harbor Federal had no advances outstanding from the
FHLB of Atlanta.

    In addition, the Company is authorized to obtain funds
through reverse repurchase agreements.  Such agreements are
treated as financings, and the obligation to repurchase
securities sold is reflected as a liability in the consolidated
statements of financial condition.  The Company had outstanding
financings under reverse repurchase agreements of $16.5 million
and $4.5 million at March 31, 1997 and 1996, respectively.  The
average rates of interest on these reverse repurchase agreements
were 5.68% and 5.70%, respectively.

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

SUBSIDIARY ACTIVITIES

    Federally chartered savings institutions are permitted to
invest up to 2% of their assets in subsidiary service
corporations, plus an additional 1% in subsidiaries engaged in
specified community purposes.  In addition, Harbor Federal
received OTS approval to lend an amount of up to one-half of its
regulatory capital to an affiliate, Bankers Affiliate, Inc.
("BAI") (formerly "Cash, Inc.").  Harbor Federal's principal
subsidiaries are Harbor Service Corporation ("HSC"), a wholly
owned subsidiary that receives insurance commissions on credit
life and health & accident policies written for Harbor Federal's
borrowers, and BAI, a one-third owned subsidiary that makes
various types of consumer and home equity loans, generally in
amounts not in excess of $50,000, for customers of Harbor Federal
and two other local savings institutions.  At March 31, 1997, the
net book values of Harbor Federal's investments in BAI and HSC
totaled $2,776,730, including advances of $2,750,000 to BAI. 
Harbor Federal is also authorized to make investments of any
amount in operating subsidiaries that engage solely in activities
that federal savings institutions may conduct directly.  
                       20<PAGE>
<PAGE>
MARKET AREA 

    Harbor Federal currently conducts its business through nine
banking offices in the City of Baltimore and the Counties of
Baltimore and Anne Arundel in Maryland.  While Harbor Federal's
primary market areas tend to be concentrated in the areas
immediately surrounding each of Harbor Federal's offices, Harbor
Federal accepts deposits and loan applications from throughout
the greater Baltimore metropolitan area and central Maryland.  At
March 31, 1997, management believed that most of Harbor Federal's
depositors and borrowers resided within ten miles of one of
Harbor Federal's offices.  The majority of loans originated by
Harbor Federal are from the Central Maryland area, which is
located within the greater Baltimore metropolitan area and the
larger Washington-Baltimore area.  The Baltimore metropolitan
area is the largest in Maryland and has had a relatively stable
and diversified labor force and economic base.  The heaviest
employment concentrations in the greater Baltimore metropolitan
area in manufacturing industries are in primary metals (steel and
copper), transportation equipment, fabricated materials,
chemicals, machinery and electrical equipment.  In addition, the
Port of Baltimore is the fourth largest foreign tonnage port in
the U.S. and the second largest container tonnage port on the
East and Gulf Coasts.

COMPETITION

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

REGULATION OF THE BANK

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

    Federal Home Loan Bank System.  Harbor Federal is a member of
the FHLB System, which consists of 12 district FHLBs subject to
supervision and regulation by the Federal Housing Finance Board. 
The FHLBs provide a central credit facility primarily for member
institutions.  As a member of the FHLB of Atlanta, the Bank is
required to acquire and hold shares of capital stock in the FHLB
of Atlanta in an amount at least equal to 1% of the aggregate
unpaid principal of its home mortgage loans, home purchase
contracts, and similar obligations at the beginning of each year,
 .3% of its total assets or 1/20 of its advances (borrowings) from
the FHLB of Atlanta, whichever is greater.  The Bank was in
compliance with this requirement with an investment in FHLB of
Atlanta stock at March 31, 1997 of $1,366,000.  For additional
information, see Note 10 of the Notes to Consolidated Financial
Statements in the Annual Report.

    The FHLB of Atlanta serves as a reserve or central bank for
its member institutions within its assigned district.  It is
funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes advances
to members in accordance with policies and procedures established
by the OTS and the Board of Directors of the FHLB of Atlanta. 
Long-term advances may only be made for the purpose of providing
funds for residential
                       21<PAGE>
<PAGE>
housing finance.  At March 31, 1997, Harbor Federal had no
advances outstanding with the FHLB of Atlanta.  See "Deposit
Activity and Other Sources of Funds -- Borrowings."

    Liquidity Requirements.  Harbor Federal is required to
maintain average daily balances of liquid assets (cash, deposits
maintained pursuant to Federal Reserve Board requirements, time
and savings deposits in certain institutions, obligations of the
United States and states and political subdivisions thereof,
shares in mutual funds with certain restricted investment
policies, highly rated corporate debt and mortgage loans and
mortgage-related securities with less that one year to maturity
or subject to pre-arranged sale within one year) equal to the
monthly average of not less than a specified percentage
(currently 5%) of its net withdrawable savings deposits plus
short-term borrowings.  The Bank is also required to maintain
average daily balances of short-term liquid assets at a specified
percentage (currently 1%) of the total of its net withdrawable
savings accounts and borrowings payable in one year or less. 
Monetary penalties may be imposed for failure to meet liquidity
requirements.  The average daily liquidity ratio of the Bank for
the month of March 1997 was 9.50%.

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

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

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

    At March 31, 1997, approximately 77.6% of Harbor Federal's
portfolio assets were invested in Qualified Thrift Investments,
which was in excess of the percentage required to qualify the
Bank under the QTL test.

    Regulatory Capital Requirements.  Under OTS capital
standards, savings institutions must maintain "tangible" capital
equal to at least 1.5% of adjusted total assets, "core" capital
equal to at least 3% of adjusted total assets and "total" capital
(a combination of core and "supplementary" capital) equal to at
least 8% of "risk-weighted" assets.  In addition, the OTS has
adopted regulations which impose certain restrictions on
institutions that have a total risk-based capital ratio that is
less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets
of less than 4.0% or a ratio of Tier 1 capital to adjusted total
assets of less than 4.0% (or 3.0% if the institution is rated
Composite 1 under the OTS examination rating system).  For
purposes of these regulations, Tier 1 capital has the same
definition as core capital. See "Prompt Corrective Regulatory
Action."  Core capital is defined as common stockholders' equity
(including retained
                       22<PAGE>
<PAGE>
earnings), noncumulative perpetual preferred stock and related
surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits and "qualifying supervisory goodwill."  Core
capital is generally reduced by the amount of an institution's
intangible assets for which no market exists.  Limited exceptions
to the deduction of intangible assets are provided for purchased
mortgage servicing rights, purchased credit card relationships
and qualifying supervisory goodwill held by an eligible
institution.  Tangible capital is given the same definition as
core capital but does not include an exception for qualifying
supervisory goodwill and is reduced by the amount of all the
savings institution's intangible assets with only a limited
exception for purchased mortgage servicing rights and purchased
credit card relationships.  Tangible capital is given the same
definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the
savings institution's intangible assets except for certain
purchased mortgage servicing rights.  The OTS capital rule
requires that core and tangible capital be further reduced by an
amount equal to a savings institution's debt and equity
investments in subsidiaries engaged in activities not permissible
to national banks ("nonincludable subsidiaries"), other than
subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary
depository institutions or their holding companies.  As of March
31, 1997, Harbor Federal had no material investments in or
extensions of credit to nonincludable subsidiaries.

    OTS regulations further provide that core and tangible
capital need not be reduced by the amount of core deposit
intangibles resulting from branch purchase transactions
consummated (or under firm contract) prior to March 4, 1994, to
the extent permitted by OTS, provided that such core deposit
intangibles are valued in accordance with generally accepted
accounting principles, supported by credible assumptions, and
have their amortization adjusted at least annually to reflect
decay rates (past and present) in the acquired customer base.  As
of March 31, 1997, Harbor Federal had no such transactions.

    Adjusted total assets are a savings institution's total
assets as determined under generally accepted accounting
principles, adjusted for certain goodwill amounts, and increased
by a pro rated portion of the assets of subsidiaries in which the
institution holds a minority interest and which are not engaged
in activities for which the capital rules require the institution
to net its debt and equity investments against capital, as well
as a pro rated portion of the assets of other subsidiaries for
which netting is not fully required under phase-in rules. 
Adjusted total assets are reduced by the amount of assets that
have been deducted from capital, the portion of the institution's
investments in subsidiaries that must be netted against capital
under the capital rules and, for purposes of the core capital
requirement, qualifying supervisory goodwill.  At March 31, 1997,
Harbor Federal's adjusted total assets for purposes of the core
and tangible capital requirements were $217.9 million.

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

    The risk-based capital requirement is measured against
risk-weighted assets which equal the sum of each asset and the
credit-equivalent amount of each off-balance sheet item after
being multiplied by an assigned risk weight. Under the OTS
risk-weighting system, assets are assigned a risk weight between
zero and 100%, based on their general risk characteristics.  As
of March 31, 1997, the Bank's risk-weighted assets were
approximately $91.5 million.
                       23<PAGE>
<PAGE>
    The OTS has adopted but delayed effectiveness of an amendment
to its risk-based capital requirements that would require savings
institutions with more than a "normal" level of interest rate
risk to maintain additional total capital.  An institution's
interest rate risk will be measured in terms of the sensitivity
of its "net portfolio value" to changes in interest rates.  Net
portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet
contracts less the present value of expected cash outflows from
existing liabilities. An institution will be considered to have a
"normal" level of interest rate risk exposure if the decline in
its net portfolio value after an immediate 200 basis point
increase or decrease in market interest rates (whichever results
in the greater decline) is less than two percent of the current
estimated economic value of its assets.  An institution with a
greater than normal interest rate risk will be required to deduct
from total capital, for purposes of calculating its risk-based
capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the
institution's measured interest rate risk and the normal level of
interest rate risk, multiplied by the economic value of its total
assets.

    The OTS will calculate the sensitivity of an institution's
net portfolio value based on data submitted by the institution in
a schedule to its quarterly Thrift Financial Report and using the
interest rate risk measurement model adopted by the OTS.  The
amount of the interest rate risk component, if any, to be
deducted from an institution's total capital will be based on the
institution's Thrift Financial Report filed two quarters earlier. 
Institutions with less than $300 million in assets and a
risk-based capital ratio above 12% generally are exempt from
filing the interest rate risk schedule with their Thrift
Financial Reports.  However, the OTS will require any exempt
institution that it determines may have a high level of interest
rate risk exposure to file such schedule on a quarterly basis. 
Management does not believe that Harbor Federal would have been
deemed to have had more than normal interest rate risk under the
rule as of March 31, 1997.

    At March 31, 1997, Harbor Federal substantially exceeded all
regulatory minimum capital requirements.  The table below
presents certain information relating to the Bank's regulatory
capital compliance at March 31, 1997.
<TABLE>
<CAPTION>
                                                 Percent of
                                   Amount        Assets (1)
                                   ------        ----------
                                    (Dollars in thousands)
<S>                                <C>             <C>
Tangible Capital. . . . . . . . .  $24,479         11.2%
Tangible Capital Requirement. . .    3,268          1.5
                                   -------         ----
  Excess. . . . . . . . . . . . .  $21,211          9.7%
                                   =======         ====
Core Capital. . . . . . . . . . .  $24,479         11.2%
Core Capital Requirement. . . . .    6,536          3.0
                                   -------         ----
  Excess. . . . . . . . . . . . .  $17,943          8.2%
                                   =======         ====
Total Capital . . . . . . . . . .  $24,859         27.2%
Risk-Based Capital Requirement. .    7,320          8.0
                                   -------         ----
  Excess. . . . . . . . . . . . .  $17,539         19.2%
<FN>                               =======         ====
____________
(1) Based on adjusted total assets for purposes of the
    tangible capital and core capital requirements,
    and risk-weighted assets for purpose of the
    risk-based capital requirement.
</FN>
</TABLE>
                       24<PAGE>
<PAGE>
    The capital standards for savings institutions must be no
less stringent than the capital standards applicable to national
banks.  Effective December 31, 1990, regulations of the Office of
the Comptroller of the Currency ("OCC") established a new minimum
core capital ratio of 3% for the most highly rated national
banks, with an additional 100 to 200 basis point "cushion" amount
of additional capital required on a case-by-case basis,
considering the quality of risk management systems and the
overall risk in individual banks.  The OTS has proposed an
amendment to its capital regulations establishing a minimum core
capital ratio of 3% for institutions rated Composite 1 under the
OTS examination rating system.  For all other institutions, the
minimum core capital ratio will be 3% plus at least an additional
100 to 200 points.  In determining the amount of additional core
capital, the OTS will assess both the quality of risk management
systems and the level of overall risk in each individual
institution through the supervisory process on a case-by-case
basis.

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

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

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

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

    The FDIC has proposed a new assessment schedule for SAIF
deposit insurance pursuant to which the assessment rate for
well-capitalized institutions with the highest supervisory
ratings would be reduced to zero and institutions in the lowest
risk assessment classification will be assessed at the rate of
0.27% of insured deposits.  Until 

                       25<PAGE>
<PAGE>
December 31, 1999, however, SAIF-insured institutions, will be
required to pay assessments to the FDIC at the rate of 6.5 basis
points to help fund interest payments on certain bonds issued by
the Financing Corporation ("FICO") an agency of the federal
government established to finance takeovers of insolvent thrifts. 
During this period, BIF members will be assessed for these
obligations at the rate of 1.3 basis points.  After December 31,
1999, both BIF and SAIF members will be assessed at the same rate
for FICO payments.

    SAIF members generally are prohibited from converting to the
BIF, also administered by the FDIC, or merging with or
transferring assets to a BIF member before the date on which the
SAIF first meets or exceeds the designated reserve ratio of 1.25%
of insured deposits.  The FDIC, however, may approve such a
transaction in the case of a SAIF member in default or if the
transaction involves an insubstantial portion of the deposits of
each participant.  In addition, mergers, transfers of assets and
assumptions of liabilities may be approved by the appropriate
bank regulator so long as deposit insurance premiums continue to
be paid to the SAIF for deposits attributable to the SAIF members
plus an adjustment for the annual rate of growth of deposits in
the surviving bank without regard to subsequent acquisitions. 
Each depository institution participating in a SAIF-to-BIF
conversion transaction is required to pay an exit fee to the SAIF
equal to 0.90% of the deposits transferred and an entrance fee to
BIF based on the current reserve ratio of the BIF. A savings
institution may adopt a commercial bank or savings bank charter
if the resulting bank remains a SAIF member.  

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

    Federal Reserve System.  Pursuant to regulations of the
Federal Reserve Board, a savings institution must maintain
average daily reserves equal to 3% on the first $49.3 million of
net transaction accounts, plus 10% on the remainder.  This
percentage is subject to adjustment by the Federal Reserve Board. 
Because required reserves must be maintained in the form of vault
cash or in a non-interest bearing account at a Federal Reserve
Bank, the effect of the reserve requirement is to reduce the
amount of the institution's interest-earning assets.  As of March
31, 1997, Harbor Federal met its reserve requirements.

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

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

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

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

    At March 31, 1997, the maximum amount that Harbor Federal
could have lent to any one borrower under the 15% limit was
approximately $3.6 million.  At such date, the largest aggregate
amount of loans that the Bank had outstanding to any one borrower
or group of affiliated borrowers was $2.5 million.

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

    Further, savings institutions are subject to the restrictions
contained in Section 22(h) of the Federal Reserve Act and the
Federal Reserve Board's Regulation O thereunder on loans to
executive officers, directors and principal stockholders.  Under
Section 22(h), loans to a director, executive officer and to a
greater than 10% stockholder of an institution and certain
affiliated interests of such persons, may not exceed, together
with all other outstanding loans to such person and affiliated
interests, the institution's loans-to-one-borrower limit
(generally equal to 15% of the institution's unimpaired capital
and surplus).  Section 22(h) also prohibits the making of loans
above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10%
stockholders of an institution, and their respective affiliates,
unless such loan is approved in advance by a majority of the
board of directors of the institution with any "interested"
director not participating in the voting.  Regulation O
prescribes the loan amount (which includes all other outstanding
loans to such person) as to which such prior board of director
approval is required as being the greater of $25,000 or 5% of
capital and surplus (up to $500,000).  Further, Section 22(h)
requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same as
offered in comparable transactions to other persons.  Section
22(h) also generally prohibits a depository institution from
paying the overdrafts of any of its executive officers or
directors.

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

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

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

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

    Additionally, each federal banking agency is required to
establish standards relating to the adequacy of asset and
earnings quality.  In 1995, these agencies, including the OTS,
issued proposed guidelines relating to asset and earnings
quality.  Under the proposed guidelines, a savings institution
should maintain systems, commensurate with its size and the
nature and scope of its operations, to identify problem assets
and prevent deterioration in those assets as well as to evaluate
and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital

                       29<PAGE>
<PAGE>
and reserves.  Management does not believe that the asset and
earnings standards, in the form proposed by the OTS, would have a
material effect on Harbor Federal.

REGULATION OF THE COMPANY

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

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

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

    Restrictions on Acquisitions.  Savings institution holding
companies may not acquire, without prior approval of the Director
of the OTS, (i) control of any other savings institution or
savings institution holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of an
institution or holding company thereof which is not a subsidiary. 
Under certain circumstances, a registered savings institution
holding company is permitted to acquire, with the approval of the
Director of the OTS, up to 15% of the voting shares of an
under-capitalized savings institution pursuant to a "qualified
stock issuance" without that savings institution being deemed
controlled by the holding company.  In order for the shares
acquired to constitute a "qualified stock issuance," the shares
must consist of

                       30<PAGE>
<PAGE>
previously unissued stock or treasury shares, the shares must be
acquired for cash, the savings institution holding
company's other subsidiaries must have tangible capital of at
least 6-1/2% of total assets, there must not be more than
one common director or officer between the savings institution
holding company and the issuing savings institution,
and transactions between the savings institution and the savings
institution holding company and any of its affiliates
must conform to Sections 23A and 23B of the Federal Reserve Act. 
Except with the prior approval of the Director of
the OTS, no director or officer of an institution holding company
or person owning or controlling by proxy or otherwise
more than 25% of such company's stock, may also acquire control
of any savings institution, other than a subsidiary
savings institution, or of any other savings institution holding
company.

    The Director of the OTS may only approve acquisitions
resulting in the formation of a multiple savings
institution holding company which controls savings institutions
in more than one state if:  (i) the multiple savings
institution holding company involved controls an institution
which operated a home or branch office in the state of the
institution to be acquired as of March 5, 1987; (ii) the acquiror
is authorized to acquire control of the savings institution
pursuant to the emergency acquisition provisions of the FDIC Act;
or (iii) the statutes of the state in which the institution
to be acquired is located specifically permit institutions to be
acquired by state-chartered institutions or savings
institution holding companies located in the state where the
acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).

    OTS regulations permit federal savings institutions to branch
in any state or states of the United States and its
territories.  Except in supervisory cases or when interstate
branching is otherwise permitted by state law or other
statutory provision, a federal institution may not establish an
out-of-state branch unless (i) the federal institution qualifies
as a "domestic building and loan association" under 7701(a)(19)
of the Internal Revenue Code and the total assets attributable to
all branches of the institution in the state would qualify such
branches taken as a whole for treatment as a domestic building
and loan association and (ii) such branch would not result in (a)
formation of a prohibited multi-state multiple savings holding
company or (b) a violation of certain statutory restrictions on
branching by savings institution subsidiaries of banking holding
companies.  Federal associations generally may not establish new
branches unless the institution meets or exceeds minimum
regulatory capital requirements.  The OTS will also consider the
institution's record of compliance with the Community
Reinvestment Act of 1977 in connection with any branch
application.  Legislative initiatives have been introduced in the
U.S. Congress which could result in the imposition of
restrictions on the branching activities of federal savings
institutions in the future.

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

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

                       31<PAGE>
<PAGE>
TAXATION

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

    Federal Income Taxation. Thrift institutions are subject to
the provisions of the Internal Revenue Code of 1986 (the "Code")
in the same general manner as other corporations.  However,
institutions such as Harbor Federal which meet certain
definitional tests and other conditions prescribed by the Code
may benefit from certain favorable provisions regarding their
deductions from taxable income for annual additions to their bad
debt reserve.  For purposes of the bad debt reserve deduction,
loans are separated into "qualifying real property loans," which
generally are loans secured by interests in certain real
property, and nonqualifying loans, which are all other loans. 
The bad debt reserve deduction with respect to nonqualifying
loans must be based on actual loss experience.  For tax years
beginning before January 1, 1996, the amount of the bad debt
reserve deduction with respect to qualifying real property loans
may be based upon actual loss experience (the "experience
method") or a percentage of taxable income determined without
regard to such deduction (the "percentage of taxable income
method").

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

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

    Harbor Federal historically elected to use the percentage of
taxable income method.  Under the percentage of taxable income
method, the bad debt reserve deduction for qualifying real
property loans is computed as a percentage, which Congress has
reduced from as much as 60% in prior years to 8% of taxable
income, with certain adjustments, effective for taxable years
beginning after 1986.  The allowable deduction under the
percentage of taxable income method (the "percentage bad debt
deduction") for taxable years beginning before 1987 was scaled
downward in the event that less than 82% of the total dollar
amount of the assets of an association were within certain
designated categories.  When the percentage method bad debt
deduction was lowered to 8%, the 82% qualifying assets
requirement was lowered to 60%.  For all taxable years, there is
no deduction in the event that less than 60% of the total dollar
amount of the assets of an association falls within such
categories.  Moreover, in such case, the Bank could be required
to recapture, generally over a period of up to four years, their
existing bad debt reserve.  As of March 31, 1997, more
than the required amount of the Bank's total assets fell within
such category. 

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

    State Income Taxation.  The State of Maryland imposes an
income tax of approximately 7% on income measured substantially
the same as federally taxable income.  In addition, Maryland
imposes a franchise tax, at a rate

                       32<PAGE>
<PAGE>
of 0.013% of the total withdrawal value of the deposits that a
savings and loan association holds in Maryland at December 31
each year.

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

EMPLOYEES

    As of March 31, 1997, Harbor Federal had 45 full-time and six
part-time employees, none of whom was represented by a collective
bargaining agreement.

EXECUTIVE OFFICERS

    The following table sets forth information as of March 31,
1997 regarding the executive officer of Harbor Federal who did
not serve on the Board of Directors. 
<TABLE>
<CAPTION>

Name                 Age     Title
----                 ---     -----
<S>                  <C>     <C>
Norbert J. Luken     59      Vice President and Chief Financial Officer
</TABLE>

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

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

    The following table sets forth information regarding Harbor
Federal's locations at March 31, 1997.
<TABLE>
<CAPTION>
                              Year               Book Value                    Deposits at
                           Opened or  Owned or  at March 31,   Approximate   March 31, 1997
                           Acquired    Leased      1997      Square Footage  (In thousands) 
                           ---------  --------  ------------ --------------  --------------
<S>                        <C>        <C>       <C>           <C>             <C>
Main Office:
  Towson --
  705 York Road             1993       Owned    $1,241,200       8,300        $14,530

Branch Offices:
  South Baltimore --
  132 East Fort Avenue      1887       Owned        25,800       3,300         26,925

  Riviera Beach --
  8553 Ft. Smallwood Road   1972       Owned        56,100       2,200         26,747

  Locust Point --
  1350 East Fort Avenue     1981       Owned        76,500       1,400         10,945

  Highlandtown --
  3200 Eastern Avenue       1910       Owned       145,900       5,300         29,900
     Parkville --
  7917 Harford Road         1989       Owned       115,300       1,600         20,065
</TABLE>
                       33<PAGE>
<PAGE>
<TABLE>
<CAPTION>
                              Year               Book Value                    Deposits at
                           Opened or  Owned or  at March 31,   Approximate   March 31, 1997
                           Acquired    Leased      1997      Square Footage  (In thousands) 
                           ---------  --------  ------------ --------------  --------------
<S>                        <C>        <C>       <C>           <C>             <C>
  Pikesville --
  507 Reisterstown Road     1996      Leased       9,500        1,500          21,253

  Putty Hill --
  8030 Belair Road          1996      Owned      220,900        2,400          12,166

  Roland Park --
  4806 Roland Avenue        1996      Leased       7,900        1,800          11,574

 Automated Teller Machine:
  Ocean City --
  Boardwalk at N. 
    Division St.            1996      Leased      26,000          200              --
</TABLE>

    The book value of Harbor Federal's investment in premises and
equipment totaled $1.9 million at March 31, 1997.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

    From time to time, Harbor Federal is a party to various legal
proceedings incident to its business.  At March 31, 1997, there
were no legal proceedings to which the Company, Harbor Federal or
its subsidiary was a party, or to which any of their property was
subject, which were expected by management to result in a
material loss.

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

    No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 1997. 


                             PART II

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

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

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

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

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

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

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

    Not applicable.

                       34<PAGE>
<PAGE>

                       PART III

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

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

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

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

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

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

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

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

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

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

    No.            Description
    ---            -----------
    3.1         Articles of Incorporation of Harbor Federal
                Bancorp, Inc. *

    3.2         Bylaws of Harbor Federal Bancorp, Inc. *

    4           Form of Common Stock Certificate *

    10.1        Employment Agreements between Harbor Federal
                Bancorp, Inc. and Harbor Federal
                Savings Bank and Robert A. Williams **

    10.2        Severance Agreements between Harbor Federal
                Bancorp, Inc. and Harbor Federal Savings Bank
                and Lawrence W. Williams and Norbert J. Luken **

    10.3        Harbor Federal Savings Bank Non-Employee Director
                Retirement Plan **

    10.4        Harbor Federal Savings Bank Deferred Compensation
                Plan *

    10.5        Harbor Federal Savings Bank Supplemental
                Executive Retirement Agreement *

    10.6        Harbor Federal Bancorp, Inc. Employee Stock
                Ownership Plan, as amended *

    10.7        Harbor Federal Bancorp, Inc. Incentive
                Compensation Plan, as amended *

    13          Portions of 1997 Annual Report to Stockholders
                       35<PAGE>
<PAGE>

    21          Subsidiaries *

    23          Consent of KPMG Peat Marwick LLP

    27          Financial Data Schedule

___________        
*   Incorporated by reference to the Company's Registration
    Sttatement on Form S-1 (File No. 33-75624).
**  Incorporated by reference to the Company's Quarterly Report
    on Form 10-QSB for the Quarterly Period ended June 30, 1994.


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


    Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, as of the date set forth
below.

                             HARBOR FEDERAL BANCORP, INC.


Date:  June 27, 1997         By: /s/ Robert A. Williams
                                 ------------------------         
                                 Robert A. Williams
                                 President
                                 (Duly Authorized Representative)

    Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities indicated
as of the date set forth above.

By: /s/ Robert A. Williams                                        
    -----------------------          
    Robert A. Williams
    President
    (Director and Principal Executive Officer)


By: /s/ Norbert J. Luken                                          
    ----------------------       
    Norbert J. Luken
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)


By: /s/ Louis V. Koerber                                          
    -------------------------    
    Louis V. Koerber
    Director


By: /s/ Joseph J. Lacy                                            
    -------------------------      
    Joseph J. Lacy
    Director


By: /s/ John H. Riehl, III                                        
    -------------------------      
    John H. Riehl, III
    Director                              


By: /s/ J. Kemp Roche                                             
    -------------------------    
    J. Kemp Roche
    Director


By: /s/ Gideon N. Stieff, Jr.                                     
    -------------------------        
     Gideon N. Stieff, Jr.
     Director

By: /s/ Lawrence W. Williams                                      
    -------------------------
    Lawrence W. Williams
    Director