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                                                                     EXHIBIT 13




                       1998 ANNUAL REPORT TO SHAREHOLDERS
                                        
                                        
                                        
                                   COVER PAGE
                       COMMUNITY SAVINGS BANKSHARES, INC.
                               1998 ANNUAL REPORT
                                        

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                               INSIDE FRONT COVER



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                        This is a map of Florida showing
                        the branches of Community
                        Savings, FA and the counties 
                        where they are located
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                                CORPORATE PROFILE

Community Savings Bankshares, Inc. ("Bankshares") is a Delaware-chartered stock
holding company which was organized in August 1998 and became the holding
company for Community Savings, F. A. ("the Association" or "Community Savings")
on December 15, 1998. Bankshares' primary asset consists of its investment in
its wholly-owned subsidiary, the Association, a stock savings and loan
association headquartered in North Palm Beach, Florida, as well as cash. The
Association's 21 full-service banking offices are well positioned in one of
America's fastest-growing markets, known for its affluent population and its
high quality of life. The mission statement of the Association reflects our
dedication to our shareholders and customers.

      COMMUNITY SAVINGS IS A SOUTH FLORIDA BASED, COMMUNITY ORIENTED FINANCIAL
      INSTITUTION DEDICATED TO PROVIDING QUALITY RETAIL FINANCIAL PRODUCTS AND
      CUSTOMER SERVICE AT COMPETITIVE PRICES TO INDIVIDUALS AND BUSINESSES IN
      OUR PRIMARY MARKET AREA OF PALM BEACH, MARTIN, ST. LUCIE, AND INDIAN RIVER
      COUNTIES, WHILE EFFECTIVELY UTILIZING THE RESOURCES OF THE INSTITUTION,
      ITS HOLDING COMPANY'S SHAREHOLDERS, AND OPERATING IN A SAFE, SOUND AND
      PROFITABLE MANNER.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

      Locations                                                               Inside front cover
<S>                                                                                          <C>
      Community Savings Bankshares, Inc. Corporate Directory                                   2

      President's Message                                                                      3

      Financial Highlights                                                                     7

      Management's Discussion and Analysis                                                     8

      Independent Auditors' Report                                                            20
         Consolidated Statements of Financial Condition                                       21
         Consolidated Statements of Income                                                    22
         Consolidated Statements of Comprehensive Income                                      23
         Consolidated Statements of Changes in Shareholders' Equity                           24
         Consolidated Statements of Cash Flows                                                25
         Notes to Consolidated Financial Statements                                           26

      Corporate Information                                                                   50

      Community Savings, F. A. Corporate Directory                             Inside back cover
</TABLE>



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This is a picture of the Board of Directors







<TABLE>
<CAPTION>
COMMUNITY SAVINGS BANKSHARES, INC.
BOARD OF DIRECTORS
<S>                                       <C>            <C>                          <C>
Frederick A. Teed                         Forest C. Beaty, Jr.                        Robert F. Cromwell
Chairman of the Board                     Director                                    Director

Karl D. Griffin                           James B. Pittard, Jr.                       Harold I. Stevenson, CPA
Director and Assistant Secretary          President and Chief Executive Officer       Director

CORPORATE OFFICERS

James B. Pittard, Jr.
President and Chief Executive Officer

Larry J. Baker ,CPA                                      Cecil F. Howard, Jr.
Senior Vice President and Treasurer                      Senior Vice President

Feriel G. Hughes                          Mary L. Kaminske                            Michael E. Reinhardt
Senior Vice President                     Senior Vice President                       Senior Vice President

Joe L. Knorr                              Deborah M. Rousseau                         Donna L. Sheppard, CPA
Vice President                            Vice President                              Vice President
                                          Secretary

Trina L. Miles
Assistant Secretary
</TABLE>





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                   This is a picture of James B. Pittard, Jr.
                 President of Community Savings Bankshares, Inc.









                              James B. Pittard, Jr.
                 President of Community Savings Bankshares, Inc.

                       PRESIDENT'S MESSAGE TO SHAREHOLDERS


"1998 WAS A CHALLENGING YET REWARDING YEAR FOR OUR COMPANY."

         1998 saw a major change in our corporate structure. In December 1998,
the Association completed its reorganization and conversion from the two-tier
mutual holding company structure to the stock holding structure. Our
reorganization was accompanied by a stock offering by our new holding company,
Community Savings Bankshares, Inc. As a result of the reorganization , Community
Savings Bankshares, Inc., a newly-formed Delaware company, became the parent
holding company for the Association. The proceeds from the offering are
primarily being used to support the Association's lending and investment
activities to meet its strategic goals for 1999, enhancing the Association's
ability to serve the borrowing and other financial needs of its community. The
reorganization also increased the liquidity of our stock from 2.4 million shares
to over 10 million shares in the market.

         In connection with the reorganization, 5,470,651 shares of common stock
were sold at $10 per share, resulting in net proceeds of approximately $53
million. In addition, 5,078,233 exchange shares were issued to the existing
minority shareholders at the exchange ratio of 2.0445 shares for each share of
mid-tier holding company common stock. The total number of shares of common
stock outstanding after the reorganization is 10,548,884. The new shares began
trading on The Nasdaq Stock Market on December 16, 1998. The symbol remains
"CMSV".

"WE MET OUR FINANCIAL GOALS FOR 1998."

         Net income totaled $5.0 million and total assets increased 17 % to
$844.0 million at year end as we continued implementation of our strategic plan
to increase the size of the company. Our primary strategy was to invest
extensively in new loans secured by property within our market area, emphasizing
one- to four- family residential loans, consumer loans, and commercial real
estate loans. We exceeded our goal by originating and purchasing a total of
$234.6 million of new loans. The new loans were funded by a $62.3 million
reduction in the securities portfolio to $147.8 million at December 31, 1998, as
well as an increase in retail deposits of $43.7 million, resulting in total
deposits of $594.4 million at December 31, 1998. We also funded specific
investment and loan transactions with a $34.6 million net increase in Federal
Home Loan Bank advances.

         Our continued efforts to reduce expenses and enhance non-interest
income identified opportunities totaling $1.1 million.

"WE MET OUR COMMITMENT TO IMPROVE OUR TECHNOLOGY TO BETTER SERVE OUR CUSTOMERS'
NEEDS."

         During 1998, we completed the installation of our wide-area computer
network and new customer information system in all of our branches and support
departments. This system assists customer service representatives and tellers
with opening accounts, servicing customers, and selling additional products and
services. In addition, it supports our upgraded loan tracking system which
allows us to process new loans more quickly and efficiently. The implementation
of two substantial systems upgrades resulted in a noticeable improvement in
customer service.



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"WE RELOCATED BRANCHES TO NEW LOCATIONS TO BETTER MEET THE NEEDS OF OUR
CUSTOMERS."

         During 1998, we relocated two branch offices from leased spaces in
small strip shopping centers to larger free standing buildings in more
convenient locations for our customers. These branches had reached their
potential in the limited space they occupied and need to be moved in order to
continue growing.

         The new Maplewood office, located on Indiantown Road in Jupiter,
Florida, replaces our Chasewood office. This office provides drive-in lanes as
well as a drive-up ATM which were not possible in the old location.


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This is a picture of the Maplewood office in Jupiter, Florida








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         We also opened the Community Savings Professional Center, located on
Pt. St. Lucie Boulevard, in Port St. Lucie, Florida and relocated our Pt. St.
Lucie office as the primary tenant. We have additional space available in the
building for other tenants that will complement our branch business.


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      This is a picture of the Pt. St. Lucie Boulevard
      office in Pt. St. Lucie, Florida









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"THE YEAR 2000 CONTINUES TO BE A MAJOR FOCUS FOR US."

         Our preparations for Year 2000 continued throughout 1998. We met our
target dates for testing our mission critical systems and have experienced a
high level of compliance with our existing and newly installed systems. We will
continue to make every effort to prepare for this event. We believe our mission
critical systems are Year 2000 compliant.

"WE EXPECT 1999 TO BE A YEAR OF CONTINUED GROWTH AND PROFITABILITY."

         1999 will see us continuing to pursue our strategic objective of
emphasizing residential, consumer, and commercial real estate loan originations.
We will be targeting new loan markets and adding additional lending staff to
achieve this objective.

         We will continue to look for new deposit markets in the upcoming year.
As part of this goal, we plan to open a new office in May 1999 near the Ibis
Country Club golf course community, located in suburban West Palm Beach. The
office will be located on land we purchased in a shopping center located at the
entrance to Ibis.

         We plan to fully utilize our new Marketing Call Center, which opened in
December 1998, to create additional new business opportunities. The sales team
will assist new residents of the area and handle Internet referrals as well as
make follow-up calls on our direct mail promotions, CD renewals, and new
mortgage customers.

         We are committed to exploring avenues that will improve our efficiency
by competitively pricing our products and services and by reducing our costs.

"WE ARE EXCITED BY OUR POSSIBILITIES AS A FULLY PUBLIC COMPANY."

         On behalf of all of our employees, officers and directors, I want to
thank you for your loyal support during this past year. 1998 was an exciting
year for us and we look forward to the challenges and opportunities of 1999. We
look forward to earning your continued support in the future, as well.




                                                           James B. Pittard, Jr.
                                           President and Chief Executive Officer



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FINANCIAL HIGHLIGHTS

Community Savings Bankshares, Inc. common stock trades on The Nasdaq Stock
Market under the symbol "CMSV".

<TABLE>
<CAPTION>
                                                    12/31/98    12/31/97     12/31/96      9/30/96     9/30/95    9/30/94
FOR THE YEAR ENDED (In Thousands)
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<S>                                                  <C>         <C>          <C>          <C>         <C>        <C>    
Interest income                                      $54,489     $50,316      $45,580      $43,889     $37,720    $34,130
Interest expense                                      30,159      27,390       23,888       22,859      18,634     15,525
Net interest income                                   24,330      22,926       21,692       21,030      19,086     18,605
Net income                                             4,994       5,356        4,024        3,915       4,574      3,737

AVERAGE FOR THE YEAR ENDED (In Thousands)
--------------------------------------------------------------------------------------------------------------------------
Total assets                                        $772,248    $693,175     $631,038     $612,004    $544,555   $528,286
Loans receivable, net                                510,491     411,098      359,414      346,880     321,849    321,721
Cash and cash equivalents                             44,819      42,029       47,532       48,367      53,736     40,946
Mortgage-backed securities - held to maturity         85,688      99,884      106,387       99,959      53,349     28,843
Investments - held to maturity and securities
   available for sale                                 81,669     110,986       89,378       87,280     130,094    106,031
Deposits                                             578,574     537,965      494,034      478,955     429,893    452,070
Borrowed funds                                        90,928      61,551       46,076       42,416      29,086     23,657
Shareholders' equity                                  86,980      78,822       75,323       74,638      69,263     36,376

AT YEAR END (In Thousands)
--------------------------------------------------------------------------------------------------------------------------
Total assets                                        $844,041    $720,133     $655,209     $650,332    $567,006   $560,268
Loans receivable, net                                538,204     451,709      389,040      376,219     329,442    317,117
Cash and cash equivalents                            117,015      25,954       42,442       44,780      42,497     89,843
Mortgage-backed securities - held to maturity         32,395      46,413       53,405       54,945      77,499     41,281
Investments - held to maturity                        20,224      21,388       22,139       22,293      59,679     52,204
Securities available for sale                         95,151     142,269      123,152      124,287      27,028     26,729
Real estate owned                                        522         592        1,455        1,384       1,910      3,686
Deposits                                             594,400     550,708      513,709      498,929     437,376    459,979
Borrowed funds                                       107,350      75,098       53,908       55,867      39,101     19,233
Shareholders' equity                                 133,286      81,259       76,119       75,056      72,848     38,110

KEY FINANCIAL DATA
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS:

Return on average assets                                0.65%      0.77%        0.64%        0.64%        0.84%      0.71%
Return on average equity                                5.74       6.80         5.34         5.25         6.60      10.27
Net interest rate spread                                3.04       3.13         3.24         3.24         3.40       3.69
Non-interest income to average assets                   0.53       0.64         0.58         0.55         0.62       0.63
Non-interest expense to average assets                  2.68       2.72         3.18         3.20         2.74       2.82
Dividend payout ratio                                   53.5      38.69        39.57        42.89        28.22         --
ASSET QUALITY RATIOS:
Non-performing loans to net loans receivable            0.31       0.31         0.42         0.22         0.20       0.93
Non-performing assets to total assets                   0.26       0.27         0.47         0.40         0.45       1.25
Allowance for loan losses to non-performing loans     189.45     193.04       155.86       274.58       527.49     114.72
Allowance for loan losses to net loans receivable       0.59       0.59         0.65         0.61         1.06       1.07
CAPITAL RATIOS:
Shareholders' equity to total assets                   15.79      11.28        11.62        11.54        12.85       6.80
Average equity to average assets                       11.26      11.37        11.65        12.20        12.72       6.89
</TABLE>






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MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

In the following discussion, references to "Bankshares" relate to Community
Savings Bankshares, Inc. together with its subsidiary, Community Savings, F. A.
(the "Association"). During January 1997, the Board of Directors approved the
change in the fiscal year end for all related entities from September 30th to
December 31st, effective with the year and the three months ended December 31,
1996.

                       COMMUNITY SAVINGS BANKSHARES, INC.

Bankshares is a Delaware-chartered stock holding company organized in August
1998. Bankshares' significant assets include cash and its investment in its
wholly-owned subsidiary, the Association. On December 15, 1998, Bankshares
completed its reorganization and stock offering in connection with the
conversion and reorganization of ComFed, M. H. C. ("ComFed") and its mid-tier
holding company (the "Mid-Tier"). Bankshares sold 5,470,65l shares of common
stock at $10.00 per share in a subscription and community offering (the
"Offering") resulting in net proceeds of approximately $53.0 million. Bankshares
also issued 5,078,233 exchange shares to existing minority shareholders (the
"Exchange") at an exchange ratio of 2.0445 shares for each share of Mid-Tier
Holding Company common stock. The conversion and reorganization was accounted
for at historical cost in a manner similar to a pooling of interests. At
December 31, 1998, there were 10,548,884 shares of common stock outstanding.

                            COMMUNITY SAVINGS, F. A.

The Association, founded in 1955, is a federally chartered stock savings and
loan association headquartered in North Palm Beach, Florida. The Association's
deposits are federally insured by the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF"). The
Association has been a member of the Federal Home Loan Bank of Atlanta ("FHLB")
since 1955. The Association is regulated by the Office of Thrift Supervision
("OTS"). On October 24, 1994, the Association completed a reorganization into a
federally chartered mutual holding company, ComFed. As part of the 1994
reorganization, the Association organized a new federally chartered stock
savings association and transferred substantially all of its assets and
liabilities to the stock savings association in exchange for a majority of the
common stock of the stock savings association. On December 15, 1998, in
connection with the conversion and reorganization, ComFed and the Mid-Tier were
merged with and into the Association and the Association became the wholly-owned
subsidiary of Bankshares.

The Association is a community-oriented financial institution engaged primarily
in the business of attracting deposits from the general public and using such
funds, together with other borrowings, to invest in various consumer-based real
estate loans, mortgage-backed securities ("MBS"), and investment securities. The
Association's plan is to operate as a well-capitalized, profitable and
independent institution. The Association currently exceeds all regulatory
capital requirements. The Association's profitability is highly dependent on its
net interest income. The components that determine net interest income are the
amount of interest-earning assets and interest-bearing liabilities, together
with the rates earned or paid on such interest rate-sensitive instruments. The
Association is sensitive to managing interest rate risk exposure by better
matching maturities and rates of its assets and liabilities. This is
accomplished while considering the credit risk of its assets. The Association
maintains asset quality by utilizing comprehensive loan underwriting standards
and collection efforts as well as by primarily originating or purchasing secured
or guaranteed assets.

LIQUIDITY AND CAPITAL RESOURCES

The Association adjusts its liquidity levels in order to meet funding needs of
deposit outflows, payment of real estate taxes on mortgage loans, repayment of
borrowings and loan commitments. The Association also adjusts liquidity as
appropriate to meet its asset and liability management objectives. A major
portion of the Association's liquidity consists of cash and cash equivalents,
which are a product of its operating, investing and financing activities. The
Association is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required ratio currently is 4.0%. The
Association's liquidity ratio averaged 17.8% during the month of December 31,
1998 and 12.0% for fiscal 1998.

The Association's primary sources of funds are deposits, amortization and
prepayment of loans and MBS, maturities of investment securities and other
short-term investments, FHLB advances, and earnings and funds provided from
operations. While scheduled principal repayments on loans and MBS, and
maturities of securities are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Association manages the pricing of its
deposits to maintain a desired deposit balance. In addition, the Association
invests funds in excess of its immediate needs in short-term interest-earning
deposits and other assets, which provide liquidity to meet lending requirements.
Short-term interest-bearing 






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deposits with the FHLB of Atlanta amounted to $100.3 million at December 31,
1998. Other assets qualifying for liquidity outstanding at December 31, 1998
amounted to $13.9 million. For additional information about cash flows from
operating, financing, and investing activities, see Consolidated Statements of
Cash Flows included in the consolidated financial statements.

Liquidity management is both a daily and long-term function of business
management. If funds are required beyond the ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. FHLB advances totaled $91.9 million at December 31, 1998. At
December 31, 1998, loan commitments totaled $14.9 million and the unfunded
portion of loans in process totaled $33.2 million. There were no commitments
outstanding to purchase loans at that date. Certificates of deposit scheduled to
mature in less than one year totaled $277.2 million at December 31, 1998. Based
on prior experience, management believes that a significant portion of such
deposits will remain with the Association.

The deposits of savings and loan associations, such as the Association, are
presently insured by the SAIF. The SAIF and the Bank Insurance Fund ("BIF") are
the two insurance funds administered by the FDIC. On August 8, 1995, in
recognition of BIF achieving its mandated reserve ratio, the FDIC revised the
premium schedule for BIF members to provide a new range of .04% to .31% of
deposits (as compared to the then existing range of .23% to .31% of deposits for
BIF and SAIF insured institutions). Subsequent revisions in such schedule
resulted in most BIF-insured institutions paying the statutory annual minimum
premium of $2,000. As a result, well capitalized and healthy BIF members paid
significantly lower premiums than SAIF-insured institutions. Without a
substantial increase in premium rates, or the imposition of special assessments
or other significant developments, such as a merger of SAIF and BIF, it was not
anticipated that SAIF would be adequately recapitalized until 2002. As a result
of the disparity in BIF and SAIF premium rates, SAIF members were placed at a
significant competitive disadvantage in relation to BIF members with respect to
pricing of loans and deposits and the ability to lower their operating costs.

On September 30, 1996, Congress passed, and the President signed, the Deposit
Insurance Funds Act of 1996 (the "DIF"), which mandated that all institutions
which had deposits insured by SAIF were required to pay a one-time special
assessment of 65.7 basis points on SAIF-insured deposits (subject to adjustment
for certain types of banks with SAIF deposits) that were held at March 31, 1995
payable by November 27, 1996 to recapitalize the SAIF. The assessment increased
the SAIF's reserve ratio to a level comparable to that of the BIF at 1.25% of
total insured deposits. The FDIC, in connection with the recapitalization, also
lowered SAIF premiums from $0.23 per $100 to $0.065 per $100 of insured deposits
beginning in January 1997. The Association's share of this special assessment
totaled $2.8 million and is reflected in the operating results for the year
ended September 30, 1996.

In August 1996, Congress passed legislation which repealed Bankshares' present
method of accounting for bad debts for federal income tax purposes. As discussed
in Note 9 to the consolidated financial statements, Bankshares previously used
the percentage of taxable income method to determine its bad debt deduction in
the computation of its taxable income. Under the new legislation, Bankshares is
required to use the specific charge-off method, which may result in a different
deduction for bad debts in determining taxable income than as computed under the
previous method. Additionally, Bankshares is required to recapture its post-1987
additions to its bad debt reserves. Since Bankshares had previously provided
deferred taxes for the income tax bad debt reserves established after 1987, no
additional income tax liability related to the recapture occurred. The new
legislation was effective for taxable years beginning after December 31, 1995.

IMPACT OF INFLATION AND CHANGING PRICES

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

FINANCIAL CONDITION
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997

Total assets increased $123.9 million, or 17.2%, to $844.0 million at December
31, 1998 from $720.1 million at December 31, 1997. The increase in total assets
was primarily due to an $86.5 million increase in the loan portfolio as well as
an $88.1 million increase in interest earning deposits. In addition, office
properties and equipment increased $5.8 million primarily related to the
purchase of land intended for two future branch sites totaling $1.8 million, the
relocation of two existing branches totaling $3.6 million, and the exercise of
options to purchase two existing leaseholds and land totaling $2.0 million. FHLB
stock increased by $1.4 million as the required level was increased reflecting
the increase in the deposit portfolio. Other assets increased by $1.8 million
due to an investment in an affordable




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<PAGE>   10

housing tax credit partnership. These increases resulted from the implementation
of the Association's growth strategy for fiscal year 1998. This strategy
emphasized increased loan production funded by retail deposits, combined with
purchases of securities funded by odd-term certificates of deposit or FHLB
advances. To increase the loan portfolio, the Association continued to emphasize
an incentive-based loan origination program which resulted in new loan
originations and purchases of $234.6 million, of which $208.0 million were
one-to four-family residential loans, $11.3 million were commercial real estate
loans, $6.2 million were commercial business loans, $4.0 million were land loans
and $5.1 million were other loans. These originations and purchases were offset
in part by repayments totaling $139.6 million and other adjustments totaling
$8.5 million.

The securities portfolio, which includes securities both held to maturity and
available for sale, had a net decrease for the year of $62.3 million. Investment
securities held to maturity decreased $15.2 million to $52.6 million at December
31, 1998 from $67.8 million at December 31, 1997. Securities available for sale
also decreased by $47.1 million to $95.2 million at December 31, 1998 from
$142.3 million at December 31, 1997. These decreases were due primarily to calls
totaling $41.7 million, maturities totaling $3.4 million and normal amortization
totaling $44.0 million. During 1998, $25.0 million of new securities were
purchased. Such purchases included $5.0 million in U. S. Government and agency
securities and $20.0 in mortgage-backed and related securities. All such
purchases of securities were classified as available for sale.

Office properties and equipment increased by $5.8 million for the year primarily
as a result of the relocation of two branch offices, the exercise of options to
purchase two existing leaseholds as well as the purchase of new computer
hardware and software in connection with the implementation of the Association's
wide-area computer network. Other assets increased $1.8 million to $7.0 million
at December 31, 1998 from $5.2 million at December 31, 1997, due to the
investment in an affordable housing tax credit partnership. The Association's
approximately 4% limited partnership interest results in tax benefits in the
form of tax deductions from partnership operating losses and tax credits. The
investment in the partnership is being amortized over the estimated 15-year life
of the partnership.

The increase in total assets was funded primarily by a $43.7 million increase in
deposits to $594.4 million at December 31, 1998 as compared to $550.7 million at
December 31, 1997. The deposit growth reflected increased retail deposits
resulting from special promotions of odd-term certificates combined with
competitive pricing intended to maintain existing deposit customers as well as
to attract new customers in the Association's market area. The increase in
assets also reflected the purchase of securities in leveraged transactions
intended to enhance net interest income as well as loan originations and
purchases which were funded by a $34.6 million net increase in advances from the
FHLB to $91.9 million at December 31, 1998 from $57.3 million at December 31,
1997.

Shareholders' equity increased to $133.3 million or $13.43 per share at December
31, 1998 from $81.3 million or $8.02 per share at December 31, 1997, reflecting
increases of $53.0 million of net proceeds raised in the Offering and net income
for the year of $5.0 million offset primarily by dividends totaling $2.7 million
declared during the year on the common stock held by minority shareholders and
the purchase of 437,652 shares of common stock by the Employee Stock Ownership
Plan (the "ESOP") in the Offering, which was funded by a loan from Bankshares.
As a result of the exercise of stock options granted pursuant to the stock
option plan, 9,040 shares of common stock were issued from authorized but
unissued shares during the year ended December 31, 1998, resulting, in
combination with the Offering and the Exchange , in 10,548,884 outstanding
shares as of December 31, 1998.

RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

GENERAL

Net income for the year ended December 31, 1998 decreased 6.8% to $5.0 million,
or $0.49 per share, compared to $5.4 million, or $0.53 per share for the same
period in 1997. Results for the year ended December 31, 1997 included a one-time
$384,000 after tax gain on the sale of the stock of the Association's data
service bureau which did not reoccur during 1998. However, during fiscal 1998,
net interest income increased $1.4 million to $24.3 million from $22.9 million
for fiscal 1997. Other income and the provision for income taxes decreased
$379,000 and $823,000, respectively, during fiscal 1998 while operating expense
increased $1.9 million during this time period.

INTEREST INCOME

Interest income for the year ended December 31, 1998 totaled $54.5 million, an
increase of $4.2 million, or 8.3%, from $50.3 million for 1997 reflecting, in
part, the implementation of the Association's growth strategy to increase the
loan portfolio and securities available for sale. The increase was due primarily
to a $68.8 million increase in average interest-earning assets of to $722.7
million for the year ended December 31, 1998 from $653.8 million for 1997,
partially offset by a decrease in the average yield on average interest-earning
assets to 7.54% for the year ended December 31, 1998 from 7.70% for fiscal 1997.
Interest income on loans increased $6.7 million, or 20.0%, to $40.2 million for
the year ended December 31, 1998 compared to $33.5 million for 1997. Interest
income on real estate loans increased by $6.5 million, or 20.4%, to $38.3
million for the year ended December 31, 1998 from $31.8 million for 1997,
primarily because of a

                                       8
<PAGE>   11

$97.1 million increase in the average balance of real estate loans, or 24.7% to
$489.9 million for the year ended December 31, 1998 from $392.8 million for
1997, partially offset by a decrease in the average yield on real estate loans
to 7.83% from 8.11%. Interest income from securities held to maturity and
securities available for sale decreased by $3.2 million, or 21.5%, to $11.6
million for the year ended December 31, 1998 from $14.9 million for 1997. The
decrease in income from securities held to maturity and securities available for
sale was primarily caused by a $43.5 million decrease in the average balance to
$167.4 million for the year ended December 31, 1998 from $210.9 million for 1997
as well as a decrease in the average yield to 6.95% for the year ended December
31, 1998 from 7.05% for 1997. Other interest and dividend income which includes
interest-earning deposits and FHLB stock, increased $676,000, or 34.6%, to $2.6
million for the year ended December 31, 1998 from $2.0 million for 1997. The
increase in other interest and dividend income is primarily attributable to a
$13.0 million, or 40.7% increase in the average balance of other investments to
$44.8 million during 1998 from $31.8 million during 1997, partially offset by a
decrease in the average yield on other investments to 5.87% for the year ended
December 31, 1998 from 6.14% for 1997.

INTEREST EXPENSE

Interest expense increased $2.8 million, or 10.2%, to $30.2 million for the year
ended December 31, 1998 from $27.4 million for 1997. Interest on deposits
increased $1.4 million, or 6.2%, to $24.1 million for the year ended December
31, 1998 from $22.6 million for 1997. The increase was due primarily to the
increase in the average balance of deposits of $40.6 million, or 7.5%, to $578.6
million during 1998 from $538.0 million during 1997 partially offset by a small
decrease in the average cost of deposits to 4.17% from 4.21%. In order to
increase its market share of total deposits during 1998 as well as to maintain
its existing deposit customers, the Association has continued to place an
increased emphasis on competitively pricing its deposit products, including
odd-term certificate of deposit products, as well as existing certificate of
deposit products, as part of its asset liability policy. Certificates of deposit
typically have a higher interest rate cost to the Association than transaction
accounts. Certificates of deposits and transaction accounts increased $10.1
million and $33.6 million, respectively, at December 31, 1998 as compared to
December 31, 1997. Interest expense attributable to borrowed funds increased
$1.3 million, or 27.7%, to $6.1 million for the year ended December 31, 1998
from $4.7 million for 1997, primarily due to an increase in the average balance
of borrowed funds to $90.9 million during 1998 from $61.6 million during the
1997 period, partially offset by a decrease in the average cost of borrowed
funds to 6.65% for the year ended December 31, 1998 from 7.70% for the 1997
period. During 1998, additional advances from the FHLB were used primarily to
fund the purchase of securities with higher interest yields than the interest
cost of the FHLB advances.

PROVISION FOR LOAN LOSSES

The Association maintains an allowance for loan losses based upon a periodic
evaluation of known and inherent risks in the loan portfolio, its past loan loss
experience, adverse situations that may affect borrowers' ability to repay
loans, the estimated value of the underlying loan collateral, the nature and
volume of its loan activities, and current as well as expected future economic
conditions. Loan loss provisions are based upon management's estimate of the
fair value of the collateral and the actual loss experience, as well as
guidelines applied by the OTS and the FDIC. The provision for loan losses was
$622,000 for the year ended December 31, 1998 as compared to $264,000 for 1997.
The increase in the provision for loan losses for 1998 was primarily
attributable to management's assessment that the allowance for loan losses
needed to be increased to protect against the inherent risk in the loan
portfolio due to the $86.5 million increase in the loan portfolio during this
period. Management reviews the adequacy of its allowances for loan losses
monthly through asset classification review. The allowance for loan losses as a
percentage of net loans receivable at December 31, 1998 and 1997 was 0.59% and
0.59%, respectively.

OTHER INCOME

Other income consists of servicing income and fee income, service charges, gain
or loss on the sale or early maturity of securities available for sale, loans,
and other assets. Other income decreased $379,000 or 8.4%, to $4.1 million for
the year ended December 31, 1998 from $4.5 million for 1997. Net gain on sale of
other assets of $617,000 in the year ended December 31, 1997 represented the
one-time gain on the sale of stock of the Association's data service bureau. Fee
income (which includes servicing income and other loan fees, and NOW account and
other customer fees) was $3.6 million for both the 1998 and the 1997 periods.

OPERATING EXPENSE

Total operating expense increased $1.9 million to $20.7 million for the year
ended December 31, 1998 from $18.8 million for 1997. Employee compensation and
benefits increased by $1.4 million to $10.4 million during the year ended
December 31, 1998 from $9.0 million during 1997 primarily as a result of
increased staffing and compensation levels and increased cost of the stock
benefit programs reflecting changes in the market value of Bankshares' common
stock during 1998. Occupancy and equipment expense increased $437,000 to $5.5
million for the year ended December 31, 1998, from $5.1 million for the 1997
period primarily as a result of the relocation of two branch offices, the
exercise of options to purchase two existing leaseholds, and increased
depreciation expense. These events involved construction costs as well as
increased depreciation expense related to new hardware and software purchased
for the Association's computer network.

                                       9

<PAGE>   12

PROVISION FOR INCOME TAXES

The provision for income taxes decreased $823,000 million to $2.1 million for
the year ended December 31, 1998 from $2.9 million for the 1997 period due in
part to lower taxable income during the year ended December 31, 1998. The
decrease also reflected the increased benefit from tax credits totaling $320,000
resulting from the Association's investment in the affordable housing
partnership during the year ended December 31, 1998 as compared to $197,000 for
1997.

RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 1996

GENERAL

The comparison periods vary due to the change in the fiscal year of Bankshares
and the Association from September 30th to December 31st. Net income for the
year ended December 31, 1997 increased 38.5 % to $5.4 million, or $0.53 per
share, compared to $3.9 million, or $0.39 per share for the year ended September
30, 1996. This increase in net income was primarily due to the special one-time
SAIF pretax assessment of $2.8 million which was recorded during September 1996
and which did not re-occur during the year ended December 31, 1997. Net interest
income increased $1.9 million to $22.9 million for the year ended December 31,
1997 from $21.0 million for the year ended September 30, 1996. Other income and
the provision for income taxes increased $641,000 and $2.2 million,
respectively, for the year ended December 31, 1997, while operating expense
decreased $1.2 million during these time periods due to the absence of any
special assessment.

INTEREST INCOME

Interest income for the year ended December 31, 1997 totaled $50.3 million, an
increase of $6.4 million, or 14.6%, from $43.9 million for the year ended
September 30, 1996 reflecting, in part, the implementation of the Association's
growth strategy to increase the net loan portfolio and securities held for sale.
The increase was due primarily to an increase in average interest-earning assets
of $77.9 million to $653.8 million for the year ended December 31, 1997 from
$575.9 million for the year ended September 30, 1996, enhanced by an increase in
the average yield on average interest-earning assets to 7.70% for the year ended
December 31, 1997 from 7.62% for the year ended September 30, 1996. Interest
income on loans increased $5.2 million, or 18.5%, to $33.5 million for the year
ended December 31, 1997 compared to $28.3 million for the year ended September
30, 1996. Interest income on real estate loans increased by $5.0 million, or
19.0%, to $31.8 million for the year ended December 31, 1997 from $26.8 million
for the year ended September 30, 1996, primarily because of an increase in the
average balance of real estate loans of $61.6 million, or 18.6%, and an increase
in the average yield on real estate loans to 8.11% from 8.09%. Interest income
from investment securities and securities available for sale increased by $1.8
million, or 13.7%, to $14.9 million for the year ended December 31, 1997 from
$13.1 million for the year ended September 30, 1996. The increase in income from
investment securities and securities available for sale was primarily caused by
an increase in the average balance of $23.7 million to $210.9 million for the
year ended December 31, 1997 from $187.2 million for the year ended September
30, 1996, as well as an increase in the average yield to 7.05% for the year
ended December 31, 1997 from 7.01% for the year ended September 30, 1996.
Interest income from other investments, which includes interest-earning deposits
and FHLB stock, decreased $537,000, or 21.5%, to $2.0 million for the year ended
December 31, 1997 from $2.5 million for the year ended September 30, 1996. The
decrease in interest from other investments is primarily attributable to a $9.9
million, or 23.7%, decrease in the average balance of other investments to $31.9
million during 1997 from $41.8 million during 1996, partially offset by an
increase in the average yield on other investments to 6.14% for the year ended
December 31, 1997 from 5.96% for the year ended September 30, 1996.

INTEREST EXPENSE

Interest expense increased $4.5 million, or 19.8%, to $27.4 million for the year
ended December 31, 1997 from $22.9 million for the year ended September 30,
1996. Interest on deposits increased $3.4 million, or 17.7%, to $22.6 million
for the year ended December 31, 1997 from $19.2 million for the year ended
September 30, 1996. The increase was due primarily to the increase in average
cost of deposits to 4.21% from 4.02%, as well as an increase in the average
balance of deposits of $59.0 million, or 12.3%, to $538.0 million during 1997
from $479.0 million during 1996. In order to increase its market share of total
deposits during 1997 as well as to maintain its existing deposit customers, the
Association placed an increased emphasis on competitively pricing its deposit
products, including odd-term certificate of deposit products, as well as
existing certificate of deposit products, as part of its asset liability policy.
Certificates of deposit typically have a higher interest rate cost to the
Association than transaction accounts. Certificates of deposits and transaction
accounts increased $19.4 million and $17.6 million, respectively, at December
31, 1997 as compared to September 30, 1996. Interest expense attributable to
borrowed funds increased $1.1 million, or 31.2%, to $4.7 million for the year
ended December 31, 1997 from $3.6 million for the year ended September 30, 1996.
The increase in interest expense attributable to borrowed funds is due to an
increase in the average balance of borrowed funds to $61.6 million during 1997
from $42.4 million during the 1996 period, partially offset by a decrease in the
average cost of borrowed funds to 7.70% for the year ended December 31, 1997
from 8.52% for the 1996 period. During 1997, additional advances from the FHLB
were used primarily to fund the purchase of securities with higher interest
yields than the interest cost of the FHLB advances.



                                       10
<PAGE>   13

PROVISION FOR LOAN LOSSES

The provision for loan losses was $264,000 for the year ended December 31, 1997
as compared to $98,000 for the year ended September 30, 1996. The increase in
the provision for loan losses for 1997 reflected management's assessment that
the allowance for loan losses needed to be increased to absorb the risk inherent
in the loan portfolio due not only to the growth in the loan portfolio (which
was increased by $62.7 million during this period) but also due to increased
investment in commercial and multi-family real estate lending which is deemed to
have greater risk than single-family residential lending. The allowance for loan
losses as a percentage of net loans receivable at December 31, 1997 and
September 30, 1996 was 0.59% and 0.61%, respectively.

OTHER INCOME

Other income consists of servicing income and fee income, service charges, gain
or loss on the sale or early maturity of securities available for sale, loans,
and other assets as well as income or loss from a real estate venture in which a
subsidiary of the Association was involved. Other income increased $657,000, or
17.3%, to $4.4 million for the year ended December 31, 1997 from $3.8 million
for the year ended September 30, 1996. Net gain on sale of other assets of
$617,000 in the year ended December 31, 1997 represented the sale of stock of
the Association's data service bureau which did not occur during 1996. In
addition, the year ended December 31, 1997 reflected a $3,000 net gain on the
sale of loans as compared to a $225,000 net loss for the 1996 period. Fee income
(which includes servicing income and other loan fees, and NOW account and other
customer fees) increased $310,000 to $3.6 million for the 1997 year from $3.3
million for the 1996 period as a result of fee structure changes put in place
during 1997.

OPERATING EXPENSE

Total operating expense decreased $1.2 million to $18.8 million for the year
ended December 31, 1997 from $20.0 million for the year ended September 30,
1996. Operating expense was higher in the 1996 period primarily due to the
one-time $2.8 million special assessment for recapitalization of the SAIF. This
special assessment was levied against institutions having SAIF-insured deposits
as of March 31, 1995, as mandated by the DIF. Due to new reduced deposit
insurance premium levels during 1997, the 1997 regular premium was $270,000 as
compared to $l.1 million for the 1996 period. Employee compensation and benefits
increased by $1.2 million to $9.0 million during the year ended December 31,
1997 from $7.8 million during the year ended September 30, 1996 and occupancy
and equipment expense increased $478,000 to $5.1 million for the year ended
December 31, 1997, from $4.6 million for the 1996 period. These increases were
primarily the result of the opening of three new branch offices, the
implementation of a new company wide computer network, and additional costs
related to the incentive-based loan originators. These events involved
construction costs, increases in staffing, and depreciation expense increases
related to new hardware and software for the network.

PROVISION FOR INCOME TAXES

Provision for income taxes increased $2.2 million to $2.9 million for the year
ended December 31, 1997 from $761,000 for the 1996 period. This increase was the
result of higher taxable income during the year ended December 31, 1997. In
addition, the 1996 period included the reversal of a $1.1 million prior accrued
liability which in management's opinion was no longer required and which was
reversed with a credit to the 1996 income tax provision.

RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995

GENERAL

Net income for the three months ended December 31, 1996 increased 10.5% to $1.2
million, or $0.12 per share, compared to $1.1 million, or $0.11 per share, for
the three months ended December 31, 1995. The increase in net income was due to
increases in net interest income of $662,000 and in other income of $145,000
partially offset by increases of $213,000 in the provision for loan losses,
$455,000 in operating expense, and $29,000 in the provision for income taxes.

NET INTEREST INCOME

Net interest income increased to $5.5 million for the quarter ended December 31,
1996 from $4.9 million for the three months ended December 31, 1995 primarily as
a result of a $78.0 million increase in average interest-earning assets to
$616.6 million for the three months ended December 31, 1996 from $538.6 million
for the same period in 1995. This increase was offset in large part by a $74.8
million increase in average interest-bearing liabilities to $559.8 million for
the three months ended December 31, 1996 from $485.0 million for the same period
in 1995.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $243,000 for the three months ended December
31, 1996 as compared to $30,000 for the same period in 1995. The increase in the
provision of $213,000 included a $200,000 transfer to the general loan valuation
allowance from a specific reserve which had been maintained with respect to an
interest-earning deposit which was pledged as collateral for the loan made to
the 





                                       11
<PAGE>   14

ESOP and which was recovered during the three months ended December 31, 1996.
The allowance for loan losses as a percentage of net loans receivable was 0.65%
and 1.04% at December 31, 1996 and 1995, respectively.

OTHER INCOME

Other income consists of servicing income and fee income, service charges, gain
or loss on the sale of securities available for sale and income or loss from the
Association's subsidiary's real estate venture. Other income increased $145,000
to $1.2 million for the three months ended December 31, 1996 from $1.1 million
for the same period in 1995, due to the reversal of a specific reserve of
$200,000 referenced above which had been maintained with respect to an
interest-earning deposit which was pledged as collateral for the ESOP loan and
which was recovered during the 1996 period.

OPERATING EXPENSE

Operating expense increased $455,000, or 10.9%, to $4.6 million for the three
month period ended December 31, 1996, from $4.2 million from the same period in
1995, primarily due to increases of $135,000 in advertising and promotion due to
increased advertising designed to increase the Association's market share, and
$122,000 in employee compensation and benefits as a result of increased staffing
due to both a branch office opening and the expanded loan production program as
previously discussed.

PROVISION FOR INCOME TAXES

Provision for income taxes increased $29,000 to $696,000 for the three months
ended December 31, 1996 as compared to $667,000 for the same period in 1995 due
to the increase in net income.

IMPACT OF NEW ACCOUNTING STANDARDS

Beginning January 1, 2000, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges generally will be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise recorded. This is not expected to have a material effect
but the effect will depend on derivative holdings when this standard applies.

Mortgage loans originated in mortgage banking are converted into securities on
occasion. A new accounting standard for 1999 will allow these securities to be
classified as available for sale, held to maturity, or trading , instead of the
current requirement to classify as trading. This is not expected to have a
material effect but the effect will vary depending on the level and designation
of securitizations as well as on market price movements.

YEAR 2000 CONSIDERATIONS

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

The Association has identified 64 mission critical applications (without which
the Association cannot operate) and critical applications (necessary
applications but the Association can function for a moderate amount of time
without such applications being Year 2000 compliant) operated by third party
vendors. Of such mission critical and critical applications, the Association has
been informed that a majority are already Year 2000 compliant and approximately
30% are in the process of revising and testing their systems for Year 2000
compliance. Of such 64 mission critical and critical applications, approximately
25% are provided by the Association's data service processor which had informed
the Association that it had substantially completed testing of its updated
systems (in which testing the Association was involved) by December 31, 1998.
The initial phase of testing of the data service processor's updated system was
completed in October 1998 with substantially all such systems evidencing Year
2000 compliance. Substantially all of the Association's vendors of its mission
critical and critical applications have provided written assurances that their
products and services will be Year 2000 compliant. The majority of such
modifications and conversions and related testing of such systems was
successfully completed by December 31, 1998 with the remaining ones anticipated
being completed by March 31, 1999. While the Association has received 




                                       12
<PAGE>   15

assurances from such vendors as to compliance, such assurances are not
guarantees and may not be enforceable. The Association's existing older
contracts with such vendors do not include Year 2000 certification or
warranties. Thus, in the event such vendors' products and/or services are not
Year 2000 compliant, the Association's recourse in the event of such failure may
be limited. If the required modifications and conversions are not made, or are
not completed on a timely basis, then the Year 2000 Issue could have a material
impact on the operations of the Association. There can be no assurance that
potential systems interruptions or unanticipated additional expense incurred to
obtain Year 2000 compliance would not have a material adverse effect on the
Association's business, financial condition, results of operations and business
prospects. Nevertheless, the Association does not believe that the cost of
addressing the Year 2000 issues will be a material event or uncertainty that
would cause reported financial information not to be necessarily indicative of
future operating results or financial conditions, nor does it believe that the
costs or the consequences of incomplete or untimely resolution of its Year 2000
issues represent a known material event or uncertainty that is reasonably likely
to affect its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition.

The Year 2000 issues also affect certain of the Association's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of June 30, 1998, the Association had contacted all of
its commercial credit customers (69 borrowers with outstanding loans aggregating
$60.l million) regarding such customers' awareness of the Year 2000 Issue. While
no assurance can be given that its customers will be Year 2000 compliant,
management believes, based on representations of such customers and reviews of
their operations (including assessments of the borrowers' level of
sophistication and data and record keeping requirements), that the customers are
either addressing the appropriate issues to insure compliance or that they are
not faced with material Year 2000 issues. None of such borrowers use networked
computer systems or data centers to conduct their operations. In addition, in
substantially all cases the credit extended to such borrowers is collateralized
by real estate which inherently minimizes the Association's exposure in the
event that such borrowers do experience problems or delays becoming Year 2000
compliant. Since June 30, 1998, the Association has established an ongoing
policy to perform a Year 2000 assessment of all new commercial credit customers'
Year 2000 awareness and the anticipated impact on their business.

The Association has completed its own company-wide Year 2000 contingency plan.
Individual contingency plans concerning specific software and hardware issues
and operational plans for continuing operations were completed for its mission
critical hardware and software applications by the end of January 1999. The Year
2000 Committee is reviewing substantially all mission critical test plans and
contingency plans to ensure the reasonableness of the plans. Testing of the
majority of the mission critical systems was successfully completed by December
1998 with the remainder expected to be completed by March 31, 1999. The
Association has developed contingency plans which address operational policies
and procedures in connection with data processing, electric power supply and/or
telephone service failures associated with the Year 2000 issue. Such contingency
plans provide documented actions to allow the Association to maintain and/or
resume normal operations in the event of the failure of mission critical and
critical applications. Such plans identify participants, processes and equipment
that will be necessary to permit the Association to continue operations. Such
plans may include providing off-line system processing, back-up electrical and
telephone systems and other methods to ensure the Association's ability to
continue to operate.

The cost of modifications to the existing software is being primarily absorbed
by the third party vendors. However the Association recognized a need to
purchase new hardware and software. The Association identified approximately
$1.8 million in total costs, including hardware, software, and other issues, for
completing the Year 2000 project. Of that amount, approximately $500,000, $1.2
million and $39,000 was purchased during the twelve months ended December 31,
1998, 1997 and 1996, respectively.

FORWARD-LOOKING STATEMENTS

Certain information in this annual report may constitute forward-looking
information that involves risks and uncertainties that could cause actual
results to differ materially from those estimated. Persons are cautioned that
such forward-looking statements are not guarantees of future performance and are
subject to various factors which could cause actual results to differ materially
from those estimated. These factors include, but are not limited to, changes in
general economic and market conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, demand for loan and
deposit products and the development of an interest rate environment that
adversely affects the interest rate spread or other income from Bankshares'
investments and operations.










                                       13

<PAGE>   16


AVERAGE BALANCE SHEET

The following tables set forth certain information relating to Bankshares'
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. The use of monthly average balances (except as noted otherwise)
instead of daily average balances has not caused any material difference in the
information presented.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                    For the Year Ended                      For the Year Ended
                                                     December 31, 1998                       December 31, 1997
                                           -------------------------------------------------------------------------------
                                                                      Average                                  Average
                                             Average                   Yield/       Average                     Yield/
                                             Balance      Interest      Cost        Balance         Interest     Cost
--------------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars In Thousands)
                                           -------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>        <C>            <C>            <C>  
Interest-earning assets:
     Real estate loans                        $489,915      $38,342         7.83%     $392,782       $31,846         8.11%
     Consumer and other loans                   20,576        1,886         9.17        18,316         1,644         8.98
     Mortgage-backed and related securities     85,688        6,074         7.09        99,884         7,330         7.34
     Investment securities                      81,669        5,555         6.80       110,986         7,540         6.79
     Other investments(1)                       44,819        2,632         5.87        31,851         1,956         6.14
                                           -----------  -----------               ------------  ------------
  Total interest-earning assets                722,667       54,489         7.54       653,819        50,316         7.70
                                                        -----------                             ------------
Non-interest-earning assets                     49,581                                  39,356
                                           -----------                            ------------
       Total assets                           $772,248                                $693,175
                                           ===========                            ============
Interest-bearing liabilities:
     Deposits                                 $578,574      $24,111         4.17%     $537,965       $22,648         4.21%
     Borrowed funds                             90,928        6,048         6.65        61,551         4,742         7.70
                                           -----------  -----------               ------------  ------------
  Total interest-bearing liabilities           669,502       30,159         4.50       599,516        27,390         4.57
                                                        -----------                             ------------
Non-interest-bearing liabilities                15,766                                  14,837
                                           -----------                            ------------
       Total liabilities                       685,268                                 614,353
Shareholders' equity                            86,980                                  78,822
                                           -----------                            ------------
Total liabilities and shareholders' equity    $772,248                                $693,175
                                           ===========                            ============

Net interest income                                         $24,330                                  $22,926
                                                        ===========                                  =======
Net interest rate spread(2)                                                 3.04%                                    3.13%
                                                                      ==========                               ==========
Net yield on interest-earning assets(3)                                     3.37%                                    3.51%
                                                                      ==========                               ==========
Ratio of average interest-earning assets to
  average interest-bearing liabilities                                    107.94%                                  109.06%
                                                                     ==========                               ==========
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)     Includes interest-earning deposits and FHLB stock.
(2)     Net interest-rate spread represents the difference between the average
        yield earned on interest-earning assets and the average rate paid on
        interest-bearing liabilities.
(3)     Net yield on interest-earning assets represents net interest income as a
        percentage of average interest-earning assets.



























                                       14
<PAGE>   17


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                For the Three Months Ended                  For the Year Ended
                                                     December 31, 1996                       September 30,1996
                                           -------------------------------------------------------------------------------
                                                                       Average                                  Average
                                              Average                  Yield/        Average                    Yield/
                                              Balance    Interest       Cost         Balance     Interest        Cost
--------------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars In Thousands)
                                           -------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>       <C>             <C>            <C>  
Interest-earning assets:
     Real estate loans                        $365,269      $ 7,427         8.13%    $331,134        $26,765         8.09%
     Consumer and other loans                   17,989          408         9.07       15,746          1,508         9.48
     Mortgage-backed and related securities    107,190        1,992         7.43       99,959          7,423         7.43
     Investment securities                      93,399        1,578         6.76       87,280          5,700         6.53
     Other investments(1)                       32,764          491         5.99       41,817          2,493         5.96
                                           -----------  -----------               -----------       --------
  Total interest-earning assets                616,611       11,896         7.72      575,936         43,889         7.62
                                                        -----------                                 --------
Non-interest-earning assets                     35,425                                 36,068
                                           -----------                            -----------
       Total assets                           $652,036                               $612,004
                                              ========                               ========

Interest-bearing liabilities:
     Deposits                                 $504,738      $ 5,251         4.16%    $478,955        $19,247         4.02%
     Borrowed funds                             55,063        1,127         8.19       42,416          3,612         8.52
                                           -----------  -----------               -----------      ---------
  Total interest-bearing liabilities           559,801        6,378         4.56      521,371         22,859         4.38
                                                        -----------                                ---------
Non-interest-bearing liabilities                16,294                                 15,995
                                           -----------                            -----------
       Total liabilities                       576,095                                537,366
Shareholders' equity                            75,941                                 74,638
                                           -----------                            -----------
Total liabilities and shareholders' equity    $652,036                               $612,004
                                           ===========                            ===========

Net interest income                                         $ 5,518                                  $21,030
                                                            =======                                =========
Net interest rate spread(2)                                                 3.16%                                    3.24%
                                                                      ==========                                 ========
Net yield on interest-earning assets(3)                                     3.58%                                    3.65%
                                                                      ==========                                 ========
Ratio of average interest- earning
 assets to average interest-bearing
 liabilities                                                              110.15%                                  110.47%
                                                                          ======                                  =======
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Includes interest-earning deposits and FHLB stock.

(2)  Net interest-rate spread represents the difference between the average
     yield earned on interest-earning assets and the average rate paid on
     interest-bearing liabilities.

(3)  Net yield on interest-earning assets represents net interest income as a
     percentage of average interest-earning assets.


















                                       15
<PAGE>   18
RATE VOLUME ANALYSIS

Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing the volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected the interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in average volume (change in average volume multiplied
by prior rate); (ii) changes attributable to changes in rate (changes in rate
multiplied by prior average volume); (iii) changes in rate-volume (changes in
rate multiplied by changes in average volume); and (iv) the net change.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                            Year Ended December 31,            Year Ended December 31, 1997         Three Months Ended December 31,
                                1998 vs. 1997                vs. Year Ended September 30, 1996              1996 vs. 1995
-----------------------------------------------------------------------------------------------------------------------------------
                             Increase/(Decrease)               Increase/(Decrease)                Increase/(Decrease)
                                   Due to                            Due to                              Due to                  
                           ----------------------      Total  ---------------------      Total   -----------------------    Total
                                              Rate/   Increase                 Rate/   Increase                  Rate/    Increase
                            Volume    Rate   Volume  (Decrease) Volume  Rate  Volume  (Decrease)  Volume   Rate  Volume  (Decrease)

 ----------------------------------------------------------------------------------------------------------------------------------
                                                                      (In Thousands)

                            -------------------------------------------------------------------------------------------------------
 <S>                         <C>    <C>     <C>        <C>       <C>      <C>    <C>     <C>       <C>       <C>    <C>    <C>   
 INTEREST INCOME:

    First mortgage loans    $7,877 $(1,100)$    (281)  $6,496    $4,981   $  99   $  1     $5,081     $ 947     $175   $27   $1,149
    Consumer and other
     loans                     203      35         4      242       246     (94)   (16)       136       74       (9)   (2)       63
    Mortgage-backed and
     related securities     (1,042)   (250)        36  (1,256)       (6)    (90)     3        (93)     523      (72)  (23)      428
    Investment securities   (1,991)     11         (5) (1,985)     1,548    227     65      1,840      171       42     4       217
    Other investments (1)      796     (86)       (34)    676       (594)    75    (18)      (537)     (157)     (12)    3     (166)
                             -----   -----       ----  ------     ------  -----    ---      -----     -----      ---   ---    ------
    Total interest-earning
     assets                  5,843  (1,390)      (280)  4,173      6,175    217     35      6,427     1,558      124     9     1,691
                             -----   -----       ----  ------     ------  -----    ---      -----     -----      ---   ---    ------

 INTEREST EXPENSE

    Deposits                 1,710    (215)       (32)  1,463      2,372    910    119      3,401       588      145    19       752
    Borrowed funds           2,262    (646)      (310)  1,306      1,630   (348)  (152)     1,130       363      (60)  (26)      277
                             -----   -----       ----  ------     ------  -----    ---      -----     -----      ---   ---    ------
    Total interest-bearing
     liabilities             3,972    (861)      (342)  2,769      4,002    562    (33)     4,531       951       85    (7)    1,029
                             -----   -----       ----  ------     ------  -----    ---      -----     -----      ---   ---    ------
 Net change in net
   interest income          $1,871  $(529)       $62   $1,404     $2,173  $(345)   $68     $1,896     $ 607     $ 39   $16      $662
                             =====   =====       ====  ======     ======  =====    ===      =====     =====      ===   ===    ======
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
   
(1) Includes interest-earning deposits and FHLB stock.

ASSET/LIABILITY MANAGEMENT

Since substantially all of Bankshares' interest-earning assets and
interest-bearing liabilities are held by the Association, Bankshares' interest
rate risk exposure primarily lies at the Association level. As a result, all
significant interest rate risk management procedures are performed by management
of the Association. The Association's balance sheet consists of investments in
interest-earning assets (primarily loans and investment securities) which are
primarily funded by interest-bearing liabilities (deposits and borrowings.) Such
financial instruments have varying levels of sensitivity to changes in market
interest rates resulting in market risk. All financial instruments are either
classified as held to maturity or available for sale. As of December 31, 1998,
the Association did not own any trading assets, nor did it have any hedging
transactions in place such as interest rate swaps and caps. No assets are held
for trading purposes. Based upon the nature of the Association's operations, the
Association is not subject to foreign currency exchange or commodity price risk.
The Association's loan portfolio is secured by assets located primarily in Palm
Beach, Martin, St. Lucie, and Indian River counties in Florida and therefore is
subject to risks associated with those local economies.

Bankshares is subject to interest rate risk to the extent that its
interest-bearing liabilities with short and intermediate-term maturities reprice
more rapidly, or on a different basis, than its interest-earning assets.
Significant effort has been made to reduce the duration and average life of the
interest-earning assets. Bankshares continues to emphasize adjustable-rate loans
and to increase the amount of its consumer and commercial loan portfolios which
are generally shorter term in nature than its mortgage loan portfolio. In
addition, the majority of all long-term, fixed-rate mortgages are underwritten
in accordance with Fannie Mae ("FNMA") guidelines thereby allowing for
flexibility to sell the assets into the secondary market when market conditions
are favorable. With its funding sources, management has attempted to reduce the
impact of interest rate changes by emphasizing longer-term certificates of
deposit and the use of longer-term advances from the FHLB.

Management measures Bankshares' interest rate risk by computing estimated
changes in net interest income and the net portfolio value ("NPV") of its cash
flows from assets and liabilities in the event of a range of assumed changes in
market interest rates. Bankshares' exposure to interest rate risk is reviewed on
a quarterly basis by the Board of Directors and by the Asset/Liability Committee
(the 
                                      16


<PAGE>   19

"ALCO") which is comprised of senior management. The ALCO establishes
policies to monitor and coordinate the Association's sources, uses, and pricing
of funds. Exposure to interest rate risk is measured with the use of interest
rate sensitivity analysis to determine the change in NPV in the event of
hypothetical changes in interest rates. If estimated changes to NPV and net
interest income are not within the limits established by the Board of Directors,
then the Board may direct management to adjust the Association's asset and
liability mix to bring interest rate risk within Board approved limits.

NPV represents the market value of assets less the market value of liabilities.
This analysis assesses the risk of loss in market risk sensitive instruments in
the event of sudden and sustained 1% to 4% increases and decreases in market
interest rates. The Association's Board of Directors has adopted an interest
rate risk policy which establishes maximum decreases in NPV in the event of such
changes in market interest rates.

The following table presents Bankshares' internal calculations of NPV at
December 31, 1998.

<TABLE>
<CAPTION>
                                                                                                           NPV as % of
Change in Interest Rates in Basis Points      ESTIMATED NET MARKET VALUE OF PORTFOLIO EQUITY          PV OF AVERAGE ASSETS
                                              ----------------------------------------------          --------------------
             (Rate Shock)                     Amount             $ Change         % Change           NPV Ratio    Change
                                                                      (Dollars in Thousands)                   (Basis Points)

                  <S>                        <C>               <C>                <C>                <C>            <C>  
                  400                        $118,024          $(36,995)          (23.9)%            15.28%         (479)
                  300                         126,058           (28,961)          (18.7)             16.32          (375)
                  200                         134,834           (20,185)          (13.0)             17.46          (261)
                  100                         144,450           (10,569)           (6.8)             18.71          (136)
                Static                        155,019                --              --              20.07            --
                 (100)                        166,670             11,652                             21.58            151
                 (200)                        179,556             24,537           15.8              23.25            167
                 (300)                        193,851             38,832           25.0              25.10            185
                 (400)                        209,761             54,742           35.3              27.16            206
 
</TABLE>


As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. This occurs principally because, as rates rise, the market
value of fixed-rate loans declines due to both the rate increase and slowing
prepayments. When rates decline, Bankshares does not experience a significant
rise in market value for these loans because borrowers prepay at a relatively
high rate. The value of the Association's deposits and borrowings changes in
approximately the same proportion in rising or falling rate scenarios.

As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. The interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other types may lag behind changes in market rates. Additionally,
certain assets, such as adjustable-rate mortgage loans have features which
restrict changes in interest rates on a short term basis and over the life of
the asset. In the event of a change in interest rates, expected rates of
prepayments on loans, decay rates of deposits and early withdrawals from
certificates could likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of a significant interest rate increase.

In addition, the above table may not properly reflect the impact of general
interest rate movements on Bankshares' net interest income because the repricing
of certain categories of assets and liabilities are subject to competitive and
other pressures beyond Bankshares' control.

For information regarding the contractual maturities of the loan, securities and
deposit portfolios, see Notes to Consolidated Financial Statements.


                                      17

<PAGE>   20




INDEPENDENT AUDITORS' REPORT

Community Savings Bankshares, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Community Savings Bankshares, Inc. ("Bankshares") as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
changes in shareholders' equity and cash flows for the years ended December 31,
1998 and 1997, for the three months ended December 31, 1996 and for the year
ended September 30, 1996. These consolidated financial statements are the
responsibility of Bankshares' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of Bankshares as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, for the three months ended
December 31, 1996 and for the year ended September 30, 1996, in conformity with
generally accepted accounting principles.

                                                  Crowe, Chizek and Company LLP
                                                         Grand Rapids, Michigan
                                                              February 11, 1999





                                      18

<PAGE>   21


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                                                                            December 31,
                                                                                                           1998     1997

--------------------------------------------------------------------------------------------------------------------------
                                                                                                           (In Thousands)

<S>                                                                                                    <C>        <C>    
ASSETS

Cash and amounts due from depository institutions                                                      $ 15,305   $12,333
Interest-earning deposits                                                                               101,710    13,621
                                                                                                       --------   -------

    Cash and cash equivalents                                                                           117,015    25,954

Securities available for sale                                                                            95,151   142,269
Securities held to maturity  (Approximate fair value - 1998, $57,303; 1997, $72,523)                     52,619    67,801
Loans receivable, net of allowance for loan losses                                                      538,204   451,709
Accrued interest receivable                                                                               2,782     3,162
Federal Home Loan Bank stock - at cost                                                                    4,722     3,264
Premises and equipment, net                                                                              26,016    20,206
Real estate owned, net                                                                                      522       592
Other assets                                                                                              7,010     5,176
                                                                                                       --------   -------
    Total assets                                                                                       $844,041  $720,133
                                                                                                       ========   =======


LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Deposits:
    Demand deposits                                                                                     $31,769   $24,715
    NOW and funds transfer deposits                                                                      82,628    69,862
    Savings deposits                                                                                     32,919    30,221
    Money market deposits                                                                                89,895    78,832
    Time deposits                                                                                       357,189   347,078
                                                                                                       --------   -------
       Total deposits                                                                                   594,400   550,708

Mortgage-backed bond, net                                                                                15,430    16,333
Advances from Federal Home Loan Bank                                                                     91,920    57,341
Employee Stock Ownership Plan borrowings                                                                     --     1,424
Advances by borrowers for taxes and insurance                                                             1,208       931
Other liabilities                                                                                         7,797    12,137
                                                                                                       --------   -------
       Total liabilities                                                                                710,755   638,874
                                                                                                       --------   -------

SHAREHOLDERS' EQUITY

Preferred stock ($1 par value), 10,000,000 authorized shares, no shares issued                               --        --
Common stock ($1 par value), 60,000,000 authorized shares: 1998, 10,548,884; 1997, 5,094,920
  shares issued and outstanding                                                                          10,549     5,095
Additional paid-in capital                                                                               93,268    30,278
Retained income - substantially restricted                                                               35,545    47,887
Common stock purchased by Employee Stock Ownership Plan                                                  (5,407)   (1,424)
Common stock issued to Recognition and Retention Plan                                                      (237)     (423)
Unrealized decrease in market value of securities available for sale, net of income taxes                  (432)     (154)
                                                                                                       --------   --------
       Total shareholders' equity                                                                       133,286    81,259
                                                                                                       ========   ========
Total liabilities and shareholders' equity                                                             $844,041   $720,133
                                                                                                       ========   ========

</TABLE>

See notes to consolidated financial statements.


                                       19


<PAGE>   22


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------
                                                          For the         For the       For the Three        For the
                                                        Year Ended      Year Ended      Months Ended       Year Ended
                                                       December 31,    December 31,     December 31,    September 30,
                                                           1998            1997             1996              1996
---------------------------------------------------------------------------------------------------------------------
                                                               (Dollars In Thousands Except Per Share Data)

<S>                                                    <C>              <C>              <C>               <C>      
Interest income:

  Loans                                                $    40,228      $    33,490      $   7,835         $  28,273
  Securities                                                11,629           14,870          3,570            13,123
  Other interest and dividend income                         2,632            1,956            491             2,493
                                                       -----------       ----------     ----------        ----------
     Total interest income                                  54,489           50,316         11,896            43,889
                                                       -----------       ----------     ----------        ----------

Interest expense:
  Deposits                                                  24,082           22,648          5,251            19,247
  Advances from Federal Home Loan Bank
      and other borrowings                                   6,077            4,742          1,127             3,612
                                                       -----------       ----------     ----------        ----------
   Total interest expense                                   30,159           27,390          6,378            22,859
                                                       -----------       ----------     ----------        ----------
Net interest income                                         24,330           22,926          5,518            21,030

Provision for loan losses                                      622              264            243                98
                                                       -----------       ----------     ----------        ----------

Net interest income after provision for loan losses         23,708           22,662          5,275            20,932
                                                       -----------       ----------     ----------        ----------

Other income:

 Servicing income and other fees                               198              269             33               148
 NOW account and other customer fees                         3,441            3,339            820             3,150
 Net gain (loss) on sale and early maturities of            
   securities                                                  175              (8)             51               254
 

 Net gain (loss) on real estate owned                           18              112            (37)              243
 Gain on sale of other assets                                   --              617             --                 -
 Net gain (loss) on sale of loans receivable                    --                3              3              (225)
 Miscellaneous                                                 233              112            318               217
                                                       -----------       ----------     ----------        ----------
   Total other income                                        4,065            4,444          1,188             3,787
                                                       -----------       ----------     ----------        ----------

Operating expense:
 Employee compensation and benefits                         10,397            8,989          2,125             7,785
 Occupancy and equipment                                     5,496            5,059          1,201             4,581
 Advertising and promotion                                     915              734            240               616
 Federal deposit insurance premium                             342              270            288             3,883
 Miscellaneous                                               3,522            3,768            753             3,178
                                                       -----------       ----------     ----------        ----------
   Total operating expense                                  20,672           18,820          4,607            20,043
                                                       -----------       ----------     ----------        ----------

Income before provision for income taxes                     7,101            8,286          1,856             4,676
                                                       -----------       ----------     ----------        ----------
Provision (benefit) for income taxes:

 Current                                                     2,872            3,042             65             1,817
 Deferred                                                     (765)            (112)           631            (1,056)
                                                       -----------       ----------     ----------        ----------
   Total provision for income taxes                          2,107            2,930            696               761
                                                       -----------       ----------     ----------        ----------

Net income                                                $  4,994         $  5,356       $  1,160          $  3,915
                                                       ===========       ==========     ==========        ==========
Earnings per share - basic                                $   0.49         $   0.53       $   0.12          $   0.39
                                                       ===========       ==========     ==========        ==========
Earnings per share - diluted                              $   0.48         $   0.52       $   0.11          $   0.39
                                                       ===========       ==========     ==========        ==========
Weighted average common shares outstanding - basic      10,175,899       10,079,363     10,023,118         9,955,157
                                                       ===========       ==========     ==========        ==========
Weighted average common shares outstanding - diluted    10,448,327       10,334,647     10,123,996        10,093,212
                                                       ===========       ==========     ==========        ==========


</TABLE>

  See notes to consolidated financial statements.



                                       20


<PAGE>   23


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                          For the          For the    For the Three        For the
                                                         Year Ended      Year Ended    Months Ended       Year Ended
                                                        December 31,    December 31,   December 31,      September 30,
                                                            1998            1997           1996              1996
--------------------------------------------------------------------------------------------------------------------------
                                                                          (Dollars In Thousands)

<S>                                                         <C>             <C>            <C>              <C>   
  Net income                                                $4,994          $5,356         $1,160           $3,915
  Other comprehensive income, net of tax:
     Unrealized gain in market value of
      securities transferred from held to maturity to
      available for sale                                        --              --             --              247
     Change in unrealized gain (loss) in market
       value of securities available for sale                 (278)            914            130             (974)
                                                            ------          ------         ------           ------
  Comprehensive income, net of income taxes                 $4,716          $6,270         $1,290           $3,188 
                                                            ======          ======         ======           ======
</TABLE>


    See notes to consolidated financial statements.


                                       21

<PAGE>   24


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
THREE MONTHS ENDED DECEMBER 31, 1996 AND THE YEAR ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>

 
                                                  ---------------------------------------------------------------------------------
                                                                                                              Unrealized
                                                                                                               Increase
                                                                                                              (Decrease)
                                                                                                                  in
                                                                                                                 Value
                                                                                                                   of
                                                                        Retained      Employee   Recognition   Securities
                                                          Additional     Income-        Stock        and       Available
                                                  Common   Paid-In     Substantially   Ownership    Retention       for  
                                                   Stock   Capital      Restricted      Plan         Plan         Sale    Total
                                                  ---------------------------------------------------------------------------------
                                                                                   (In Thousands)

<S>                                                  <C>      <C>         <C>         <C>            <C>           <C>     <C> 
Balance - September 30, 1995                         $5,089   $30,182      $41,666     $(2,456)      $(1,162)      $(471)  $ 72,848
Net income for the year ended September 30, 1996         --        --        3,915          --            --          --      3,915
Stock options exercised                                   1        12           --          --            --          --         13
Transfer from securities held to maturity
   to securities available for sale (net of
   income taxes)                                         --        --           --          --            --         247        247
Unrealized decrease in market value of assets
available for sale (net of income taxes)                                                                            (974)      (974)
Adjustment to deferred compensation--
   Recognition and Retention Plan                        --     (378)           --          --           378          --         --
Shares committed to be released -- Employee Stock
   Ownership Plan and Recognition and Retention
   Plan                                                  --       65            --         491           130          --        686
Dividends declared                                       --       --        (1,679)         --            --          --     (1,679)
                                                     ------   -------      -------     -------      --------     -------   --------
Balance - September 30, 1996                          5,090    29,881       43,902      (1,965)         (654)     (1,198)    75,056
Net income for three months ended December 31, 1996      --        --        1,160          --            --          --      1,160
Stock options exercised                                  --         4           --          --            --          --          4
Unrealized increase in market value of assets
  available for sale (net of income taxes)               --        --           --          --            --         130        130
Shares committed to be released - Employee Stock
   Ownership Plan and Recognition and Retention
   Plan                                                  --        35           --         147            46          --        228
Dividends declared                                       --        --         (459)         --            --          --       (459)
                                                     ------   -------      -------     -------      --------     -------   --------
Balance - December 31, 1996                           5,090    29,920       44,603      (1,818)         (608)     (1,068)    76,119
Net income for the year ended December 31, 1997          --        --        5,356          --            --          --      5,356
Stock options exercised                                   5        45           --          --            --          --         50
Unrealized increase in market value of assets
  available for sale (net of income taxes)               --        --           --          --            --         914        914
Shares committed to be released -Employee Stock
   Ownership Plan and Recognition and Retention
   Plan                                                  --       313           --         394           185          --        892

Dividends declared                                       --        --       (2,072)         --            --          --     (2,072)
                                                     ------   -------      -------     -------      --------     -------   --------
Balance - December 31, 1997                           5,095    30,278       47,887      (1,424)         (423)       (154)    81,259
Net income for the year ended December 31, 1998          --        --        4,994          --            --          --      4,994
Stock options exercised                                   9        92           --          --            --          --        101
Unrealized decrease in market value of assets
  available for sale (net of income taxes)               --        --           --          --            --        (278)      (278)
Shares committed to be released - Employee Stock
    Ownership Plan and Recognition and Retention
    Plan                                                 --       445           --         394           186          --      1,025
Dividends declared                                       --        --       (2,674)         --            --          --     (2,674)
Merger of Mutual Holding Company pursuant to
  Reorganization                                         --        --          201          --            --          --        201
Exchange due to Reorganization                       (5,104)  (30,815)     (14,863)         --            --          --    (50,782)
Issuance of common stock pursuant to
  Reorganization, net of costs of issuance 
   of $1,672                                         10,549    93,268           --          --            --          --    103,817
Purchase of common stock by Employee Stock
  Ownership Plan                                         --        --           --      (4,377)           --          --     (4,377)
                                                     ------   -------      -------     -------      --------     -------   --------
Balance - December 31, 1998                         $10,549   $93,268      $35,545     $(5,407)         $(237)      $(432)  $133,286
                                                     ======   =======      =======     =======     =========     =======   ========

</TABLE>

See notes to consolidated financial statements.



                                       22

<PAGE>   25


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                                                                  For the          For the      For the Three         For the
                                                                 Year Ended      Year Ended      Months Ended       Year Ended
                                                                December 31,      December 31,    December 31,      September 30,
                                                                    1998             1997             1996               1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                     (In Thousands)

<S>                                                              <C>               <C>               <C>               <C>   
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:

Net income                                                       $4,994            $5,356            $1,160            $3,915
 Adjustments to reconcile net income to net cash 
  provided by (used for) operating activities:
   Depreciation and amortization                                  1,523             1,993               452             1,800
   Employee Stock Ownership Plan and Recognition and
     Retention Plan compensation expense                          1,025               892               228               686
   Deferred income tax provision                                   (765)             (112)              631            (1,056)
   Accretion of discounts, amortization of premiums, and
     other deferred yield items                                  (1,731)           (1,915)             (396)           (1,494)
   Provision for loan losses                                        622               264               243                98
   Net (gain) loss on sale and early  maturities  of:
               Securities available for sale                         --                 8               (51)             (254)
               Loans and other assets                                --              (620)               (3)              225
               Securities held to maturity                         (175)               --                --                --

   (Increase) decrease in accrued interest receivable               380              (808)             (146)              (65)
   (Increase) decrease in other assets                           (1,912)           (2,582)              320              (426)
   Increase (decrease)  in other liabilities                     (4,371)            1,347            (3,851)            4,424
                                                                -------            ------            ------            ------ 
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES               (410)            3,823            (1,413)            7,853
                                                                -------            ------            ------            ------ 

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:

 Loan originations and principal payments on loans -- net       (48,980)          (38,624)          (11,120)          (34,073)
 Principal payments received on securities                       44,022            16,247             3,315            14,125
 Purchases of:
               Loans and participations                         (38,354)          (24,455)           (1,998)          (16,775)
               Federal Home Loan Bank stock                      (1,458)             (400)               --               --
               Securities available for sale                    (25,086)          (46,311)               --           (73,654)
               Office property and equipment                     (7,404)           (5,300)             (344)           (1,481)
 Proceeds from sales of:
               Securities available for sale                         --             2,435               100               749
               Federal Home Loan Bank stock                          --                --             2,520             2,000
               Office property and equipment                        168               128               178               443
               Real estate acquired in settlement of loans, net     840             1,378                --               700
               Loans purchased                                       --                --                --             3,452
 Proceeds from calls or maturities of securities                 45,136            19,300                --            22,012
 Investment in real estate venture                                   --                --               156             1,305
 Other investing                                                      6              (351)             (184)             (455)
                                                                -------            ------            ------            ------ 
      NET CASH USED FOR INVESTING ACTIVITIES                    (31,110)          (75,953)           (7,377)          (81,652)
                                                                -------            ------            ------            ------ 

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:

 Net increase (decrease) in:
               NOW accounts, demand deposits, and
                 savings accounts                                33,581            17,591             3,112            (1,200)
               Certificates of deposit                           10,111            19,408            11,668            62,753
 Advances from Federal Home Loan Bank                            42,000            30,000                --            22,500
 Repayment of advances from Federal Home Loan Bank               (7,421)           (7,425)           (1,587)           (4,350)
 Net increase (decrease) in advances by borrowers for taxes
  and insurance                                                     277              (128)           (5,802)             (136)
 Repayment of Employee Stock Ownership Plan loan                 (1,424)             (491)             (149)             (493)
 Sale of common stock-net of issuance costs                      53,236                --                --                13
 Purchase of ESOP shares                                         (4,377)               --                --                --
 Proceeds from exercise of stock options                            101                50                 4                --
 Payments made on mortgage-backed bond                           (1,387)           (1,387)             (346)           (1,387)
 Dividends paid                                                  (2,116)           (1,976)             (448)           (1,618)
                                                                -------            ------            ------            ------ 
      NET CASH PROVIDED BY FINANCING ACTIVITIES                 122,581            55,642             6,452            76,082
                                                                -------            ------            ------            ------ 
Net increase (decrease) in cash and cash equivalents             91,061           (16,488)           (2,338)            2,283
Cash and cash equivalents, beginning of period                   25,954            42,442            44,780            42,497
                                                                -------            ------            ------            ------ 
Cash and cash equivalents, end of period                       $117,015          $ 25,954           $42,442          $ 44,780
                                                                =======            ======            ======            ====== 
   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
       Cash paid for income taxes                               $ 2,943          $  2,836           $ 1,877           $ 1,877
       Cash paid for interest on deposits and other borrowings  $29,749          $ 27,959           $22,146           $22,146
       Real estate acquired in settlement of loans              $   713          $    558           $   400           $   400
       Transfer of securities from held to maturity to
       available for sale                                       $    --          $     --           $    --           $49,500

</TABLE>

See notes to consolidated financial statements.



                                       23

<PAGE>   26
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED  DECEMBER  31, 1998 AND 1997,  
THE THREE MONTHS  ENDED  DECEMBER  31, 1996,  AND THE YEAR ENDED
SEPTEMBER 30, 1996.

1.    SIGNIFICANT ACCOUNTING POLICIES

      On December 15, 1998, Community Savings Bankshares, Inc. ("Bankshares"),
      a Delaware corporation, became the holding company for Community Savings,
      F. A. (the "Association") as a result of the completion of the conversion
      and reorganization of the Association from the two-tier mutual holding
      company structure to the stock holding company structure and the related
      stock offering of Bankshares. In the course of this reorganization,
      ComFed, M. H. C. ("ComFed") and Community Savings Bankshares, Inc. (the
      "Mid-Tier Holding Company"), the Holding Company and mid-tier holding
      company, respectively, of the Association were merged with and into the
      Association. Such mergers were accounted for in a manner similar to a
      pooling of interests and did not result in any significant accounting
      adjustments. The Association is chartered and regulated by the Office of
      Thrift Supervision (the "OTS"). Bankshares' only significant asset is the
      common stock of the Association. Consequently, the majority of its net
      income is derived from the Association.

      On September 30, 1997, the Association completed its reorganization into
      the two-tier form of mutual holding company ownership. Pursuant to the
      reorganization, the Association became the wholly owned subsidiary of the
      newly-formed, federally chartered mid-tier stock holding company, the
      Mid-Tier Holding Company. The Mid-Tier Holding Company was the majority
      owned subsidiary of ComFed. The reorganization was accounted for in a
      manner similar to a pooling of interests and did not result in any
      significant accounting adjustments.

      The accounting and reporting policies of Bankshares, the Association, and
      the Association's wholly-owned subsidiary, ComFed, Inc. conform to
      generally accepted accounting principles and to general practices within
      the savings and loan industry. The following summarizes the more
      significant of these policies and practices:

      PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
      include the accounts of Bankshares, the Association and ComFed, Inc.
      ComFed, Inc. was formed for the purpose of owning and operating an
      insurance agency, Community Insurance Agency. Prior to December 31, 1996,
      the Association had three other wholly-owned subsidiaries, ComFed
      Development Co., which was engaged in real estate development activities
      under joint venture arrangements with local developers, Select Florida
      Properties, Inc. and Select Florida Properties II, Inc., which were formed
      to acquire and sell foreclosed assets as well as hold delinquent loans.
      These subsidiaries were dissolved into ComFed, Inc. All significant
      intercompany balances and transactions have been eliminated.

      CHANGE IN YEAR END - During January 1997, the Board of Directors voted to
      change the fiscal year end for all related entities from September 30th to
      December 31st, effective with the year and three months ending December
      31, 1996.

      USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      disclosure of contingent assets and liabilities as of the date of the
      financial statements, and the reported amounts of revenues and expenses
      during the reporting period, as well as the disclosures provided. Areas
      involving the use of significant estimates and assumptions in the
      accompanying financial statements include the allowance for loan losses,
      fair values of securities and other financial instruments, determination
      and carrying value of impaired loans, and the determination of
      depreciation of premises and equipment recognized in Bankshares' financial
      statements. Actual results could differ from those estimates. Estimates
      associated with the allowance for loan losses and the fair values of
      securities and other financial instruments are particularly susceptible to
      material change in the near term.

      CASH AND CASH EQUIVALENTS - Cash and cash equivalents are defined to
      include the Association's cash on hand, amounts due from financial
      institutions and short-term interest-earning deposits in other financial
      institutions with original maturities of 90 days or less. Bankshares
      reports net cash flows for customer loan and deposit transactions, advance
      payments by borrowers for taxes and insurance, and interest-earning time
      deposits in other financial institutions.

      SECURITIES - Bankshares classifies securities into held-to-maturity,
      available-for-sale and trading categories. Held-to-maturity securities are
      those which Bankshares has the positive intent and ability to hold to
      maturity, and are reported at amortized cost. Available-for-sale
      securities are those Bankshares may decide to sell if needed for
      liquidity, asset-liability management or other reasons. Available-for-sale
      securities are reported at fair value, with unrealized gains and losses
      included as a separate component of shareholders' equity, net of tax,
      until realized. Trading securities are bought principally for sale in the
      near term, and are reported at fair value with unrealized gains and losses
      included in earnings. Securities are written down to fair value when a
      decline in fair value is not temporary. 

                                      24

<PAGE>   27

      COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY 
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Realized gains and losses resulting from the sale of securities are
      computed by the specific identification method. Interest and dividend
      income, adjusted by amortization of purchase premium or discount, is
      included in earnings. Premiums and discounts are recognized in interest
      income using the interest method over the period to maturity.

      INTEREST RATE RISK - The Association is engaged principally in providing
      first mortgage loans (adjustable-rate, fixed-rate and hybrid-rate) to
      individuals and commercial enterprises. At December 31, 1998 and 1997, the
      Association's assets consisted primarily of assets that earned interest at
      adjustable interest rates. Those assets were funded primarily with
      short-term liabilities that have interest rates that vary with market
      rates over time.

      LOANS RECEIVABLE, NET - Loans receivable are reported at the unpaid
      principal balance, less the allowance for loan losses, deferred fees or
      costs on originated loans, and unamortized premiums or discounts on
      purchased loans.

      Discounts on mortgage loans are amortized to income using the level-yield
      method over the remaining period to contractual maturity, adjusted for
      anticipated prepayments. Interest income is reported on the interest
      method and includes amortization of net deferred fees and costs over the
      loan term. When full loan repayment is in doubt, interest income is not
      reported. Payments received on such loans are reported as principal
      reductions.

      Because some loans may not be repaid in full, an allowance for loan losses
      is recorded. The allowance for loan losses is increased by charges to
      income and decreased by charge-offs (net of recoveries). Estimating the
      risk of loss and the amount of loss on any loan is necessarily subjective.
      Accordingly, the allowance is maintained by management at a level
      considered adequate to cover losses that are currently anticipated.
      Management's periodic evaluation of the adequacy of the allowance is based
      on the Association's past loan loss experience, known and inherent risks
      in the portfolio, adverse situations that may affect the borrower's
      ability to repay, the estimated value of any underlying collateral, and
      current economic conditions. A loan is charged off against the allowance
      by management when deemed uncollectible, although collection efforts
      continue and future recoveries may occur. In addition, various regulatory
      agencies, as an integral part of their examination process, periodically
      review the Association's allowances for losses on loans and foreclosed
      real estate. Such agencies may require the Association to recognize
      additions to the allowances based on their judgments of information
      available to them at the time of their examination.

      Loan impairment is reported when full payment under the loan terms is not
      expected. Impairment is evaluated in the aggregate for smaller balance
      loans of similar nature such as residential mortgage, consumer and credit
      card loans, and on an individual loan basis for other loans. If a loan is
      impaired, a portion of the allowance is allocated so that the loan is
      reported, net, at the present value of estimated future cash flows using
      the loan's existing rate or at the fair value of the collateral if the
      loan is collateral dependent. Loans are evaluated for impairment when
      payments are delayed, typically 90 days or more, or when it is probable
      that all principal and interest amounts will not be collected according to
      the original terms of the loan. The Association's policy on interest
      income on impaired loans is to reverse all accrued interest against
      interest income if a loan becomes more than 90 days delinquent or if
      management determines at an earlier date that the loan is not performing
      and ceases accruing interest thereafter. Such interest ultimately
      collected is credited to income in the period of recovery. Cash receipts
      for impaired loans are used first to satisfy any outstanding interest due,
      and any amounts remaining are applied to the outstanding principal
      balance.

      UNCOLLECTED INTEREST - The Association reverses accrued interest on
      mortgage loans which are more than ninety days past due or if management
      determines at an earlier date that the loan is not performing and ceases
      accruing interest on such loans thereafter. Any such interest ultimately
      collected is credited to income in the period of recovery.

      LOANS HELD FOR SALE - Mortgage loans originated and intended for sale in
      the secondary market are carried at the lower of cost or estimated fair
      value determined on an aggregate loan basis. Net unrealized losses are
      recognized in a valuation allowance by charges to income.

      OFFICE PROPERTIES AND EQUIPMENT - Office properties and equipment are
      carried at cost less accumulated depreciation. These assets are reviewed
      for impairment when events indicate the carrying amount may not be
      recoverable. Depreciation is computed on the straight-line method over the
      estimated useful lives of the assets which range from 13 to 50 years for
      buildings, executed lease terms for leasehold improvements, and from 3 to
      10 years for furniture and equipment.


                                      25

<PAGE>   28


      COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      REAL ESTATE OWNED - Real estate properties acquired through, or in lieu
      of, loan foreclosure are to be sold and are initially recorded at fair
      value at the date of acquisition, establishing a new cost basis. Any
      reduction to fair value from the carrying value of the related loan at the
      time of acquisition is accounted for as a loan loss and charged against
      the allowance for loan losses. After acquisition, the property is carried
      at the lower of cost or fair value, less estimated costs to sell. A
      valuation allowance is recorded through a charge to income for the amount
      of selling costs. Valuations are periodically performed by management and
      valuation allowances are adjusted through a charge to income for changes
      in fair value or estimated selling costs. Costs relating to improvement of
      the property are capitalized, whereas costs and revenues relating to the
      holding of the property are expensed.

      LIMITED PARTNERSHIP INVESTMENT IN QUALIFIED AFFORDABLE HOUSING PROJECT -
      The Association has an approximate 4% limited partner interest in three
      separate real estate partnerships that operates qualified affordable
      housing projects. The Association receives tax benefits from the
      partnerships in the form of tax deductions from operating losses and tax
      credits. The Association accounts for its investments in the partnerships
      on the effective yield method and is amortizing the cost over the
      estimated life of the partnerships (15 years). The amortized cost of the
      investments at December 31, 1998 and 1997 is $4.4 million and $3.0
      million, respectively, and is included in other assets. Amortization for
      the year ended December 31, 1998 and 1997 was $246,000 and $147,000,
      respectively, and is included in miscellaneous expense. In addition to the
      tax benefit related to the amortization, tax credits of $320,000 and
      $197,000 were recognized during the year ended December 31, 1998 and 1997,
      respectively, as a reduction of the provision for income taxes.

      INCOME TAXES - The entities included in these consolidated financial
      statements file a consolidated federal income tax return. Bankshares
      records income tax expense based on the amount of taxes due on its tax
      return plus the change in deferred tax assets and liabilities computed
      based on the expected future tax consequences of temporary differences
      between the carrying amounts and tax bases of assets and liabilities,
      using enacted tax rates.

      EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") - Bankshares accounts for its ESOP
      in accordance with AICPA Statement of Position 93-6. The cost of shares
      issued to the ESOP, but not yet allocated to participants, are presented
      as a reduction of shareholders' equity. Compensation expense is recorded
      based on the market price of the shares as they are committed to be
      released for allocation to participant accounts. The difference between
      the market price and the cost of shares committed to be released is
      recorded as an adjustment to additional paid-in capital. Dividends on
      allocated ESOP shares are recorded as a reduction of retained earnings;
      dividends on unearned ESOP shares are reflected as a reduction of debt and
      accrued interest.

      RECOGNITION AND RETENTION PLAN ("RRP") - The RRP is a stock award plan for
      which the measurement of total compensation cost is based upon the fair
      value of the shares on the date of grant. RRP awards vest in five equal
      annual installments from the date of grant, subject to the continuous
      employment of the recipients as defined under such plan. Compensation
      expense for the RRP is recognized on a pro rata basis over the vesting
      period of the awards. The unearned compensation value of the RRP awards is
      shown as a reduction of shareholders' equity.

      STOCK OPTION PLAN ("SOP") - Expense for employee compensation under the
      SOP would be recognized only if options are granted below the market price
      at the grant date which the existing SOP does not allow. As shown in a
      separate note, pro forma disclosures of net income and earnings per share
      are provided as if the fair value method were used for stock-based
      compensation.

      FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - The Association, in
      the normal course of business, makes commitments to make loans which are
      not reflected in the financial statements. A summary of these commitments
      is disclosed in Note 10.

      EARNINGS PER SHARE - Earnings per share are determined in accordance with
      the provisions of SFAS No. 128 "Earnings per Share" ("SFAS No. 128"). The
      weighted average number of shares of common stock used in calculating
      basic earnings per share was determined by reducing outstanding shares by
      unallocated ESOP shares and unvested RRP shares. Diluted earnings per
      share includes the maximum dilutive effect of common stock issuable upon
      exercise of common stock options and unallocated ESOP and RRP shares of
      common stock. The effect of common stock options on weighted average
      shares outstanding are calculated using the treasury stock method.

      COMPREHENSIVE INCOME - Under a new accounting standard, comprehensive
      income is now reported for all periods. Comprehensive income includes both
      net income and the change in unrealized gains and losses on securities
      available for sale.




                                      26
<PAGE>   29


      COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FAIR VALUES OF FINANCIAL INSTRUMENTS - Fair values of financial
      instruments are estimated using relevant market information and other
      assumptions. Fair value estimates involve uncertainties and matters of
      significant judgment regarding interest rates, credit risk, prepayments
      and other factors, especially in the absence of broad markets for
      particular items. Changes in assumptions or in market conditions could
      significantly affect the estimates. The fair value estimates of existing
      on- and off-balance-sheet financial instruments does not include the value
      of anticipated future business or the values of assets and liabilities not
      considered financial instruments.

      IMPACT OF NEW ACCOUNTING ISSUES- Beginning January 1, 2000, a new
      accounting standard will require all derivatives to be recorded at fair
      value. Unless designated as hedges, changes in these fair values will be
      recorded in the income statement. Fair value changes involving hedges will
      generally be recorded by offsetting gains and losses on the hedge and on
      the hedged item, even if the fair value of the hedged item is not
      otherwise recorded. This is not expected to have a material effect but the
      effect will depend on derivative holdings when this standard applies.

      Mortgage loans originated in mortgage banking are converted into
      securities on occasion. A new accounting standard for 1999 will allow
      these securities to be classified as available for sale, held to maturity
      or trading, instead of the current requirement to classify as trading.
      This is not expected to have a material effect but the effect will vary
      depending on the level and designation of securitizations as well as on
      market price movements.

      RECLASSIFICATIONS - Certain items in the 1997 and 1996 financial
      statements and the notes thereto have been reclassified to conform with
      the 1998 presentation and to reflect the second step conversion.








                                      27
<PAGE>   30


      COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.    SECURITIES AVAILABLE FOR SALE

      Securities available for sale at December 31, 1998 and 1997 are
      summarized as follows:

<TABLE>
<CAPTION>
      --------------------------------------------------------------------------------------------------------------------
                                                                                           Gross       Gross           
                                                                             Amortized  Unrealized   Unrealized     Fair
                                                                                Cost       Gains        Losses     Value
      ---------------------------------------------------------------------------------------------------------------------
                                                                                       (Dollars In Thousands)

<S>                                                                           <C>            <C>          <C>     <C>     
       December 31, 1998:
         Equity securities                                                    $      7       $23          $ --    $     30
         United States Government and agency obligations                         9,976        96            --      10,072
         Mutual funds                                                           41,000        17          (630)     40,387

         Mortgage-backed and related securities:
           GNMA II pass-through certificates                                    19,666       124            --      19,790
           Collateralized mortgage obligations                                  24,837       124           (89)     24,872
                                                                            ----------      ----          ----    --------
          Total mortgage-backed and related securities                          44,503       248           (89)     44,662
                                                                            ----------      ----          ----    --------
           Total securities available for sale                              $   95,496      $384         $(719)   $ 95,151
                                                                            ==========      ====          =====   ========
       Weighted average interest rate                                             6.26%
                                                                                  ----
       December 31, 1997:
         Equity securities                                                       $   7       $16         $  --     $    23
         United States Government and agency obligations                        54,937       258           (20)     55,175
         Mutual funds                                                           41,000        58          (337)     40,721
         Collateralized mortgage obligations                                    46,413       275          (338)     46,350
                                                                            ----------      ----          ----    --------
            Total securities available for sale                               $142,357      $607         $(695)   $142,269
                                                                              ========      ====        ======    ========
       Weighted average interest rate                                             6.52%
                                                                                  ----
</TABLE>


      The table below sets forth the contractual maturity distribution of
      securities available for sale at December 31, 1998.

      -------------------------------------------------------------------------
                                                    December 31, 1998
                                                Amortized         Fair
                                                  Cost           Value
      -------------------------------------------------------------------------


       Due in one year or less                   $41,007         $40,417
       Due after one year through five years      10,007          10,103
       Due after five years through ten years         --              --
       Due after ten years                        44,472          44,631
                                                 -------         -------
       Total                                     $95,486         $95,151
                                                 =======         =======

      Proceeds from the sale of securities available for sale were $0,
      $2,435,000, $100,000, and $749,000 during the fiscal years ended December
      31, 1998 and 1997, the three months ended December 31, 1996, and the year
      ended September 30, 1996, respectively. For the year ended December 31,
      1997, sales resulted in gross losses of $8,000. For the three months ended
      December 31, 1996, sales resulted in gross gains of $51,000. There were no
      gross realized gains or losses during the fiscal years ended December 31,
      1998 and September 30, 1996.

      Securities, with carrying values of approximately $23,781,000 and
      $33,681,000 at December 31, 1998 and 1997, were pledged as collateral for
      purposes required or permitted by law.



                                       28
<PAGE>   31


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.    SECURITIES HELD TO MATURITY

      Securities held to maturity at December 31, 1998 and 1997 are summarized
      as follows:
<TABLE>
<CAPTION>
       ---------------------------------------------------------------------------------------------------------------------
                                                                                      Gross           Gross
                                                                       Amortized    Unrealized      Unrealized       Fair
                                                                          Cost         Gains          Losses        Value
       ---------------------------------------------------------------------------------------------------------------------
                                                                                       (Dollars In Thousands)
       <S>                                                             <C>             <C>              <C>        <C> 
       DECEMBER 31, 1998:
        United States Government and agency obligations                 $13,088         $4,547           $  --      $17,635

        Mortgage-backed and related securities:
           United States agency pass through certificates                 9,018            118             (12)       9,124
           Agency for International Development pass 
             through certificates                                           188             --              --          188
           Collateralized mortgage obligations                           23,186             56            (300)      22,942
           CMO residual interest bonds                                        4             --              --            4
                                                                        -------         ------           -----      -------
            Total mortgage-backed and related securities                 32,396            174            (312)      32,258
                                                                        -------         ------           -----      -------

        Corporate debt issues:
           Chase Federal mortgage-backed bond                             6,420            275              --        6,695
           Auto Bond Receivables Corp.                                      715             --                          715
                                                                        -------         ------           -----      -------
            Total corporate debt issues                                   7,135            275              --        7,410
                                                                        -------         ------           -----      -------

       Total securities held to maturity                                $52,619         $4,996           $(312)     $57,303
                                                                        =======         ======           =====      =======

       DECEMBER 31, 1997:
        United States Government and agency obligations                 $13,039         $3,891           $  --      $16,930

        Mortgage-backed and related securities:
           United States agency pass through certificates                12,532            136             (95)      12,573
           Agency for International Development pass through
             certificates                                                   236             --              --          236
           Collateralized mortgage obligations                           33,638            617            (133)      34,122
           CMO residual interest bonds                                        7             --              --            7
                                                                        -------         ------           -----      -------
            Total mortgage-backed and related securities                 46,413            753            (228)      46,938
                                                                        -------         ------           -----      -------

        Corporate debt issues:
           Chase Federal mortgage-backed bond                             6,856            311              --        7,167
           Auto Bond Receivables Corp.                                    1,493             --              (5)       1,488
                                                                        -------         ------           -----      -------
            Total corporate debt issues                                   8,349            311              (5)       8,655
                                                                        -------         ------           -----      -------

       Total securities held to maturity                                $67,801         $4,955         $  (233)     $72,523
                                                                        =======         ======           =====      =======

</TABLE>

      The table below sets forth the contractual maturity distribution of the
      securities held to maturity at December 31, 1998.

-------------------------------------------------------------------------------
                                                      December 31, 1998
                                                   Carrying          Fair
                                                     Value           Value
-------------------------------------------------------------------------------

     Due in one year or less                        $    --          $    --
     Due after one year through five years           15,049           18,475
     Due after five years through ten years           2,682            3,822
     Due after ten years                             34,888           35,006
                                                    -------           ------
     Total                                          $52,619          $57,303
                                                    =======          =======



                                      29

<PAGE>   32


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Securities held to maturity were called during the years ended December
      31, 1998 and September 30, 1996 which resulted in gains of $175,000 and
      $254,000, respectively. There were no sales of securities held to maturity
      during the year ended December 31, 1998 and 1997, the three months ended
      December 31, 1996, or the year ended September 30, 1996. The fair value of
      securities held to maturity is based on quoted market prices.

      Mortgage-backed securities represent participating interest in pools of
      long-term first mortgage loans. Although mortgage-backed securities are
      initially issued with a stated maturity date, the underlying mortgage
      collateral may be prepaid by the mortgagee and, therefore, such
      certificates may not reach their maturity date.

      The Association also invests in mortgage-related securities such as
      collateralized mortgage obligations ("CMOs"), CMO residual interest bonds,
      and real estate investment conduits ("REMICs"). These securities are
      generally divided into tranches whereby principal repayments from the
      underlying mortgages are used sequentially to retire the securities
      according to the priority of the tranches. The Association invests
      primarily in senior sequential tranches of CMOs. Such tranches have stated
      maturities ranging from 6.5 years to 30 years; however, because of
      prepayments, the expected weighted average life of these securities is
      less than the stated maturities. At December 31, 1998, the Association had
      $32,396,000 in such mortgage-related securities, which were held for
      investment and had a fair value of $32,258,000. The fixed-rate CMOs have
      coupon rates ranging from 6.0% to 10.0%.

      FEDERAL HOME LOAN BANK STOCK - At December 31, 1998 and 1997, the
      Association held $4,722,000 and $3,264,000, respectively, of FHLB Stock,
      which approximates fair value. FHLB Stock is not readily marketable as it
      is not traded on a registered security exchange.

4.    LOANS RECEIVABLE

      Loans receivable consisted of the following:

      -------------------------------------------------------------------------
                                           December 31,          December 31,
                                               1998                  1997
      -------------------------------------------------------------------------
                                                    (In Thousands)
       Real estate loans:
         Residential 1-4 family              $421,766              $339,117
         Residential construction loans        54,391                32,828
         Nonresidential construction loans      6,292                 2,022
         Land loans                            14,624                17,117
         Multi-family loans                     8,392                 8,800
         Commercial                            46,118                59,220
                                             --------              --------
           Total real estate loans            551,583               459,104
                                             --------              --------

       Non-real estate loans:
         Consumer loans                        15,015                15,694
         Commercial business                    6,635                 3,530
                                             --------              --------
           Total non-real estate loans         21,650                19,224
                                             --------              --------
           Total loans receivable             573,233               478,328

       Less:
         Undisbursed loan proceeds             33,202                24,163
         Unearned discount and premium and
            net deferred loan fees and costs   (1,333)                 (206)
         Allowance for loan losses              3,160                 2,662
                                             --------              --------
       Total loans receivable, net           $538,204              $451,709
                                             ========              ========

      LOANS SERVICED FOR OTHERS - Mortgage loans serviced for others are not
      included in the accompanying consolidated statements of financial
      condition. The unpaid balances of these loans at December 31, 1998, 1997
      and 1996 were $14,173,000, $18,967,000 and $21,761,000, respectively.
      Custodial escrow balances maintained in connection with the foregoing loan
      servicing were $53,000, $47,000 and $57,000, respectively.




                                       30


<PAGE>   33


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      LOANS HELD FOR SALE - The Association originates both adjustable- and
      fixed-rate loans. Adjustable- rate as well as fixed-rate loans with
      original maturities of 15 years or less are held in the Association's
      portfolio. Based on management's assessment of current portfolio mix and
      Board of Directors' established limits, fixed-rate loans with maturities
      greater than 15 years are either held in the portfolio or sold in the
      secondary market when originated, except those originated for special
      financing on low income housing. There are no loans held for sale included
      in loans receivable at December 31, 1998 and 1997.

      LOANS TO OFFICERS AND DIRECTORS - The Association offers loans to its
      employees, including directors and executive officers, at prevailing
      market interest rates. For adjustable-rate loans, employees are offered a
      50 basis point reduction from the margin. The Association waives the
      points charged for employee loans. However, directors and senior
      management pay points based on current loan terms. These loans are made in
      the ordinary course of business and on substantially the same terms and
      collateral requirements as those of comparable transactions prevailing at
      the time. The total loans to such persons did not exceed 5% of
      shareholders' equity at December 31, 1998. At December 31, 1998 and 1997,
      the total amount of loans to directors, executive officers, and associates
      of such persons was $867,000 and $433,000, respectively.

      An analysis of the changes in the allowance for loan losses for the years
      ended December 31, 1998 and 1997, the three months ended December 31, 1996
      and the year ended September 30, 1996 was as follows:

<TABLE>
<CAPTION>

       -------------------------------------------------------------------------------------------------------------------
                                                                   For the Year        For the Three     For the Year Ended
                                                                Ended December 31,      Months Ended       September 30,
                                                                 1998       1997      December 31, 1996       1996
       -------------------------------------------------------------------------------------------------------------------
                                                                                        (In Thousands)

<S>                                                             <C>         <C>             <C>               <C>    
       Balance, beginning of period                             $2,662      $2,542          $2,312            $ 3,492
       Provision charged to income                                 622         264             243                 98
       Losses charged to allowance                                (376)       (144)            (13)            (1,278)
       Recoveries                                                  252          --              --                 --
                                                               -------      ------          ------            -------
       Balance, end of year                                     $3,160      $2,662          $2,542            $ 2,312
                                                               =======      ======          ======            =======
</TABLE>

      During the year ended September 30, 1996, the Association sold its
      interest in a note with a net carrying value of $3,453,000. Included in
      the allowance for loan losses for the year ended September 30, 1995 was a
      $1,200,000 specific reserve related to such interest. In connection with
      the sale, the Association recorded an additional loss of $217,000.

      IMPAIRED LOANS - An analysis of the recorded investment in impaired loans
was as follows:

<TABLE>
<CAPTION>

       -------------------------------------------------------------------------------------------------------------------
                                                         At or for the           At or for the          At or for the
                                                          Years Ended         Three Months Ended          Year Ended
                                                          December 31,          December 31,             September 30,
                                                      1998        1997              1996                     1996
       -------------------------------------------------------------------------------------------------------------------
                                                                            (In Thousands)

<S>                                                  <C>         <C>                  <C>                     <C>   
      Impaired loan balance                          $25         $1,044               $1,071                  $1,081
      Related allowance                               --            252                  252                     252
      Average impaired loan balance                   13          1,057                1,076                   4,046
      Interest income recognized                       1             91                   24                      94

</TABLE>



                                      31
<PAGE>   34


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.    PLEDGED ASSETS

      In the normal course of doing business the Association is required to
      comply with certain collateral requirements.

      The following tables set forth amounts of various asset components, as of
      December 31, 1998 and 1997 which were pledged as collateral.

     --------------------------------------------------------------------------
                                             December 31,        December 31,
                                                 1998                1997
     --------------------------------------------------------------------------
                                                    (In  Thousands)

     Real estate loans (unpaid 
      principal balance)                       $87,109             $54,018
     FHLB stock and accrued interest             4,811               3,323
                                               -------             -------
     Total pledged to the FHLB                 $91,920             $57,341
                                               -------             -------
     Other pledged assets:
     Deposits of public funds -- 
       State of Florida Mortgage-backed 
       and related securities                  $21,681             $31,681
     Line of credit -- Federal Reserve Bank 
      of Atlanta 
       United States Government 
        and agency obligations                   1,800               1,800
     Treasury tax and loan deposits
       United States Government and 
        agency obligations                         300                 200
     Mortgage-backed bond
       Unpaid principal balance 
        of loans                                32,046              31,738
                                               -------             -------
     Total for other pledged assets            $55,827             $65,419
                                               =======             =======

      FHLB ADVANCES - The Association has a security agreement with the FHLB
      which includes a blanket floating lien that requires the Association to
      maintain as collateral for its advances, the Association's FHLB capital
      stock and first mortgage loans equal to 100% of the unpaid amount of FHLB
      advances outstanding.

6.    OFFICE PROPERTIES AND EQUIPMENT

      Office properties and equipment at December 31, 1998 and 1997 are
      summarized as follows:

     --------------------------------------------------------------------------
                                             December 31,        December 31,
                                                 1998                1997
     --------------------------------------------------------------------------
                                                    (In  Thousands)
      
       Land                                    $ 8,291             $ 5,571
       Buildings and improvements               19,245              16,431
       Furniture and equipment                  16,951              15,268
                                               -------             -------
       Total                                    44,487              37,270
       Less accumulated depreciation           (18,471)            (17,064)
                                               -------             -------
       Total office properties and 
          equipment -- net                    $ 26,016            $ 20,206
                                               =======             =======




                                      32

<PAGE>   35


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    DEPOSITS

      Individual deposits greater than $100,000 at December 31, 1998 and 1997
      aggregated approximately $86,669,000, and $87,257,000, respectively.
      Deposits in excess of $100,000 are not insured.

      The total of related party deposits owned by directors, executive
      officers, and associates of such persons was $2,913,000 and $3,704,000 at
      December 31, 1998 and 1997, respectively.

      Scheduled maturities of certificate accounts at December 31, 1998 were as
follows:

      -------------------------------------------------------------------------
                                                                December 31,
                                                                    1998
      -------------------------------------------------------------------------
                                                               (In Thousands)

       Maturity
       Less than 1 year                                           $277,254
       1 year - 2 years                                             37,790
       2 years - 3 years                                            15,943
       3 years - 4 years                                            14,790
       4 years - 5 years                                            10,621
       Thereafter                                                      791
                                                                  --------
       Total certificates of deposit                              $357,189
                                                                  ========

8.    ADVANCES FROM FEDERAL HOME LOAN BANK

      At December 31, 1998 and 1997, outstanding advances from the FHLB totaled
      $91,920,000 and $59,341,000, respectively.

      Scheduled maturities of FHLB advances at December 31, 1998 were as
      follows:

      -------------------------------------------------------------------------
        Years Ending           Average Interest                    Amount
         December 31,                 Rate                        Maturing
      -------------------------------------------------------------------------
                                                         (Dollars in Thousands)

          1999                      6.83%                          $ 6,734
          2000                      6.23                             8,471
          2001                      6.36                             7,572
          2002                      5.82                            26,071
          2003                      6.69                             1,072
          2008                      5.32                            42,000
                                                                   -------
          Total FHLB advances       5.75%                          $91,920
                                    ====                           =======

9.    INCOME TAXES

      In accordance with SFAS No. 109, deferred income tax assets and
      liabilities are computed annually for differences between financial
      statement and tax basis of assets and liabilities that will result in
      taxable or deductible amounts in the future based on enacted tax laws and
      rates applicable to periods in which the differences are expected to
      affect taxable income. Valuation allowances are established, when
      necessary, to reduce deferred tax assets to the amount expected to be
      realized. Income tax expense is the tax payable or refundable for the
      period adjusted for the change during the period in deferred tax assets
      and liabilities.



                                      33

<PAGE>   36


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Income tax provision consists of the following components for the years
      ended December 31, 1998 and 1997, the three months ended December 31,
      1996, and the year ended September 30, 1996.

<TABLE>
<CAPTION>

       -------------------------------------------------------------------------------------------------------------------
                                                       For the Years              For the Three        For the Year
                                                           Ended                   Months Ended           Ended
                                                        December 31,               December 31,       September 30,
                                                   1998              1997              1996                1996
       -------------------------------------------------------------------------------------------------------------------
                                                                             (In Thousands)

<S>                                               <C>             <C>                 <C>                <C>    
       Current - federal                          $2,640          $2,745              $ 49               $ 1,592
       Current - state                               232             297                16                   225
                                                  ------          ------              ----               -------
       Total current                               2,872           3,042                65                 1,817

       Deferred - federal and state                 (765)           (112)              631                (1,056)
                                                  ------          ------              ----               -------
       Total provision for income taxes           $2,107          $2,930              $696                $  761
                                                  ======          ======              ====               =======


</TABLE>

      Bankshares' provision for income taxes differs from the amounts determined
      by applying the statutory federal income tax rate to income before income
      taxes for the following reasons:

<TABLE>
<CAPTION>

       -------------------------------------------------------------------------------------------------------------------
                                                                                   For the Three
                                                   For the Years Ended             Months Ended      For the Year Ended
                                                      December 31,                 December 31,          September 30,
                                                   1998              1997                1996                   1996
                                             Amount     %        Amount    %       Amount     %          Amount       %
       -------------------------------------------------------------------------------------------------------------------
                                                                             (In Thousands)

<S>                                          <C>         <C>     <C>      <C>        <C>     <C>         <C>        <C>  
      Tax at federal tax rate                $2,485      35.0%   $2,900   35.0%      $650    35.0%       $1,637     35.0%
         State income taxes, net of
              federal income tax benefits       123       1.7       281    3.3         70     3.8           139      3.0
         Low income housing credits            (320)     (4.5)       --     --         --      --           --        --
         Reversal of prior year liability        --        --        --     --         --      --        (1,140)   (24.4)
         Other                                 (110)     (1.5)     (168)  (2.0)       (6)    (0.3)          172      3.7
      Benefit of graduated tax rate             (71)     (1.0)      (83)  (1.0)      (18)    (1.0)          (47)    (1.0)
                                             ------      ----    ------   ----       ----    ----         -----     ----
      Total provision for income taxes       $2,107      29.7%   $2,930   35.3%     $ 696    37.5%      $   761     16.3%
                                             ======      ====    ======   ====       ====    ====         =====     ====
</TABLE>


      During the year ended September 30, 1996 , management concluded that a
      liability accrued in prior years was no longer required and reversed such
      liability resulting in a $1,140,000 credit to the 1996 income tax
      provision.




                                      34


<PAGE>   37


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The tax effect of temporary differences that gave rise to deferred tax
      assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>


      -----------------------------------------------------------------------------------------------------------------------
                                                                    For the Years             For the Three     For the Year
                                                                        Ended                  Months Ended        Ended
                                                                     December 31,              December 31,     September 30,
                                                                1998             1997              1996               1996
      ------------------------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)

<S>                                                             <C>              <C>              <C>            <C>    
       Deferred tax liabilities:
         Depreciation                                           $  631           $  582           $  627         $   639
         Loan fee income                                            22              170              167             188
         FHLB stock dividends                                      458              457              454             868
         Deferred loan costs                                       711              467              412             392
         Unamortized discount on mortgage-backed bond            1,865            2,112            2,302           2,350
         Book over tax on investments in partnerships               55            1,003            1,003             937
         Other                                                      13               --               --              --
                                                                ------           ------           ------          ------
       Gross deferred tax liabilities                            3,755            4,791            4,965           5,374
                                                                ------           ------           ------          ------

       Deferred tax assets:
         Excess of book bad debt reserve over tax reserve          978            1,043              918             907
         Retirement plans                                          360              586              802             686
         Unrealized loss on decrease in fair value
            of securities available for sale                       126               33              561             615
         Deferred loss on loans held for sale                       39               43               46              48
         Deferred compensation                                     140              130              115             109
         SAIF recapitalization                                      --               --               --           1,088
         Other                                                      93               19               --              83
                                                                ------           ------           ------          ------
       Gross deferred tax assets                                 1,736            1,854            2,442           3,536
                                                                ------           ------           ------          ------
       Valuation  allowance on unrealized  loss on decrease
       in fair value of securities available for sale             (222)             (99)            (138)           (182)
                                                                ------           ------           ------          ------
       Gross deferred tax assets -- net of valuation
         allowance                                               1,514            1,755            2,304           3,354
                                                                ------           ------           ------          ------
       Net deferred tax liability                               $2,241           $3,036           $2,661          $2,020
                                                                ======           ======           ======          ======
</TABLE>


      During 1996, legislation was passed that repealed Section 593 of the
      Internal Revenue Code for taxable years beginning after December 31, 1995.
      Section 593 allowed thrift institutions, including the Association, to use
      the percentage-of-taxable income bad debt accounting method, if it was
      more favorable than the specific charge-off method, for federal income tax
      purposes. The excess reserves (deduction based on the
      percentage-of-taxable income less the deduction based on the specific
      charge-off method) accumulated post-1987 are required to be recaptured
      ratably over a six year period beginning in 1996. The Association had
      excess reserves of approximately $435,000 as of December 31, 1996. The
      recapture will have no effect on Bankshares' statement of operations as
      taxes were provided for in prior years in accordance with SFAS 109,
      "Accounting for Income Taxes." It is not likely the pre-1988 accumulated
      bad debt reserves will be required to be recaptured into taxable income.
      The unrecorded potential liability related to the pre-1988 bad debt
      reserves approximates $4.3 million.

10.   COMMITMENTS AND CONTINGENCIES

      LOAN COMMITMENTS - In the normal course of business, the Association makes
      commitments to extend credit. Commitments to extend credit are agreements
      to lend to a customer as long as there is no violation of any condition
      established in the contract. The interest rates on both fixed- and
      variable-rate loans are based on the market rates in effect on the date of
      closing.



                                       35


<PAGE>   38


      COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Commitments generally have fixed expiration dates of 30 to 60 days and
      other termination clauses. Since many of the commitments are expected to
      expire without being drawn upon, the total commitment amounts do not
      necessarily represent future cash requirements. Each customer's
      creditworthiness is evaluated on a case-by-case basis. The amount of
      collateral obtained if deemed necessary by the Association upon extension
      of credit is based on management's credit evaluation of the customer.
      Collateral held varies, but may include single-family homes, marketable
      securities and income-producing residential and commercial properties.
      Credit losses may occur when one of the parties fails to perform in
      accordance with the terms of the contract. The Association's exposure to
      credit risk is represented by the contractual amount of the commitments to
      extend credit. Commitments to extend credit for mortgage loans, excluding
      undisbursed portions of loans in process, were approximately $14,086,000
      and $4,733,000 at December 31, 1998 and December 31, 1997, respectively.

      At December 31, 1998, the $14,086,000 of loan commitments were comprised
      of approximately $10,049,000 of fixed-rate commitments and $4,037,000 of
      variable-rate commitments. These commitments are at prevailing market
      rates and terms. Interest rates on fixed-rate loan commitments were from
      6.50% to 8.50%. No value is placed on the commitments as the borrower is
      required to close at the market rates in effect on the date of closing. No
      fees are received in connection with such commitments.

      Unused consumer lines of credit were $6,703,000 and $8,948,000 at
      December 31, 1998 and 1997, respectively.

      Commercial lines and letters of credit and other loan commitments were
      $6,129,000 at December 31, 1998. There were no commitments to sell loans
      to FNMA at December 31, 1998 and 1997. There were no commitments to
      purchase loans at December 31, 1998 and 1997.

      LEASE COMMITMENTS - The Association leases various properties for original
      periods ranging from 2 to 25 years. Rent expense for the years ended
      December 31, 1998 and 1997, the three months ended December 31, 1996, and
      the year ended September 30, 1996, was approximately $633,000, $626,000,
      $141,000, and $545,000, respectively. At December 31, 1998, future minimum
      lease payments under these operating leases were as follows:

      -------------------------------------------------------------------------
                             Years Ending
                              December 31,                          Amount
                                                               (In Thousands)
      -------------------------------------------------------------------------

                                 1999                             $ 486
                                 2000                               362
                                 2001                               279
                                 2002                               145
                                 2003                               145
                              Thereafter                             73
                                                                 ------
                                Total                            $1,490
                                                                 ======

      LINE OF CREDIT - The Association has a $1,800,000 available line of credit
      with the Federal Reserve Bank of Atlanta which is secured by United States
      Government and agency obligations (see Note 5). At December 31, 1998 and
      1997, the Association had no outstanding advances.

      CASH RESTRICTIONS - The Association maintained a $625,000 required
      two-week average balance in the clearing account held at the Federal
      Reserve Bank of Atlanta at both December 31, 1998 and 1997.



                                       36

<PAGE>   39


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      11.BENEFIT PLANS

      PENSION PLAN - The Association has a noncontributory, qualified pension
      plan covering substantially all employees. The plan calls for benefits to
      be paid to eligible employees at retirement based primarily upon years of
      service with the Association and compensation rates during those years.
      Currently, the Association's policy is to fund the qualified retirement
      plan in an amount that is determined in accordance with the minimum
      funding standards of the Employee Retirement Income Security Act, but
      falls below the tax deductible contribution. Plan assets consist primarily
      of corporate and government agency bonds, mutual funds, common stock, and
      managed funds.

      Information about the pension plan was as follows:

      -------------------------------------------------------------------------
                                                December 31,       December 31,
                                                     1998               1997
      -------------------------------------------------------------------------
                                                          (In Thousands)

        Change in benefit obligation:
             Beginning benefit obligation          $ 7,077           $ 6,861
             Service cost                              609               550
             Interest cost                             494               447
             Actuarial gain                            864              (413)
             Benefits paid                            (155)             (368)
                                                   -------           -------
             Ending benefit obligation               8,889             7,077
                                                   -------           -------

        Change in plan assets, at fair value:
             Beginning plan assets                   9,644             7,350
             Actual return                             578             2,038
             Employer contribution                     724               624
             Benefits paid                            (155)             (368)
                                                   -------           -------
             Ending plan assets                     10,791             9,644
                                                   -------           -------

        Funded status                                1,902             2,567
        Unrecognized net actuarial loss             (2,251)           (3,557)
        Unrecognized prior service cost                 25                28
                                                   -------           -------
        Accrued benefit cost                       $  (324)          $  (962)
                                                   =======           =======

      The components of pension expense and related actuarial assumptions were
      as follows:
<TABLE>
<CAPTION>

      -------------------------------------------------------------------------------------------------------------------
                                                       For the Year           For the Three Months       For the Year
                                                    Ended December 31,         Ended December 31,     Ended September 30,
                                                    1998           1997               1996                    1996
      -------------------------------------------------------------------------------------------------------------------
                                                                         (Dollars In Thousands)

<S>                                               <C>              <C>                <C>                    <C> 
      Service cost                                $ 609            $ 550              $138                   $552
      Interest cost                                 494              447               112                    452
      Expected return on plan assets               (818)            (626)             (156)                  (533)
      Amortization of prior service cost            (68)             (68)              (18)                   (68)
      Recognized net actuarial gain                (132)             (52)              (13)                    --
                                                  -----            -----              ----                   ----
            Net                                    $ 85            $ 251              $ 63                  $ 403
                                                  =====            =====              ====                   ====

      Discount rate on benefit obligation          7.00%            6.75%             6.75%                  6.50%
      Long-term expected rate of return on
         plan assets                               8.50%            8.50%             8.50%                  8.00%
      Rate of compensation increase                5.00%            5.00%             5.00%                  5.00%

</TABLE>

      For the years ended December 31, 1998, and 1997 the three months ended
      December 31, 1996, and the year ended September 30, 1996, pension expense
      amounts were based upon actuarial computations.



                                       37

<PAGE>   40


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      SUPPLEMENTAL RETIREMENT INCOME PLAN ("SERP") - During 1989, the
      Association's Board of Directors established a nonqualified unfunded
      defined benefit plan for certain officers. For the years ended December
      31, 1998 and 1997, the three months ended December 31, 1996, and the year
      ended September 30, 1996, the net periodic expense for the officers' plan
      totaled $76,000, $54,000, $13,000, and $60,000, respectively.

      Information about the SERP was as follows:

      -------------------------------------------------------------------------
                                            December 31,        December 31,
                                               1998                 1997
      -------------------------------------------------------------------------
                                                       (In Thousands)

        Change in benefit obligation:
             Beginning benefit obligation       $479                  $388
             Service cost                         51                    41
             Interest cost                        33                    25
             Actuarial gain                      136                    41
             Benefits paid                       (16)                  (16)
                                                ----                  ----
             Ending benefit obligation          $683                  $479
                                                ====                  ====

      The actuarial assumptions were as follows:
<TABLE>
<CAPTION>

        -------------------------------------------------------------------------------------------------------------------
                                                           Years Ended              Three Months Ended       Year Ended
                                                           December 31,                December 31,         September 30,
                                                       1998           1997                 1996                   1996
        -------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>                 <C>                   <C>  
          Discount rate                                 6.75%          7.00%               6.75%                 6.50%
          Salary scale                                  5.00%          5.00%               5.00%                 5.00%

</TABLE>

      Bankshares and the Association do not provide any material postretirement
or postemployment benefits.

      EMPLOYEE STOCK OWNERSHIP PLAN - As of December 31, 1998, the Employee
      Stock Ownership Plan ("ESOP") has outstanding loan balances of $1,031,000
      (Loan I)and $4,377,000 (Loan II)related to the purchases of 389,248 shares
      and 437,652 shares of common stock, respectively, in the open market.
      Collateral for the loans is the common stock purchased by the ESOP.
      Payment of the loans is principally from the Association's contributions
      to the ESOP over a period of up to seven years and 15 years, respectively.
      Interest on ESOP Loan I is a fixed interest rate of 8.50%. Interest on
      ESOP Loan II is a fixed rate of 7.75% for the term of the loan.
      Contributions of principal and interest for the years ended December 31,
      1998 and 1997, the three months ended December 31, 1996 and the year ended
      September 30, 1996 totaled $510,000, $525,000, 187,000, and $675,000,
      respectively.

      Statement of Position 93-6 "Employers' Accounting for Employee Stock
      Ownership Plan" ("SOP 93-6") requires that the Association reflect shares
      allocated to employees under the ESOP as compensation expense at their
      fair value, rather than cost. The difference between the cost of such
      shares and their fair value is treated, net of tax, as an adjustment of
      additional paid-in capital. Contributions to the ESOP will be in an amount
      proportional to the repayment of the ESOP loans, and will be allocated
      among participants on the basis of compensation in the year of allocation,
      up to an annual adjusted maximum level of compensation. In accordance with
      generally accepted accounting principles, the unallocated shares held by
      the ESOP are shown as a deduction from shareholders' equity.

      Information related to the ESOP was as follows:

<TABLE>
<CAPTION>

       -------------------------------------------------------------------------------------------------------------------
                                                           For the Year         For the Three Months       For the Year
                                                        Ended December 31,       Ended December 31,     Ended September 30,
                                                        1998         1997               1996                    1996
       -------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>         <C>                 <C>                   <C>   
        Number of shares allocated                      55,610      55,610              20,972                69,666
        Average fair value per share                   $ 15.08     $ 12.71             $  8.72               $  7.97
                                                       -------     -------             -------               -------
        Compensation expense                          $839,000    $707,000            $183,000              $555,000
                                                      ========    ========            ========              ========
        Number of shares distributed                    11,216       4,034               1,374                    --
                                                      ========    ========            ========              ========

</TABLE>



                                      38


<PAGE>   41

COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Shares held by the ESOP were as follows:

      -------------------------------------------------------------------------
                                            December 31,        December 31,
                                               1998                 1997

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

        Allocated to participants           227,005               182,611
        Unallocated                         583,333               201,291
                                            -------               -------
        Total ESOP shares                   810,338               383,902
                                            =======               =======
        Fair  value of unallocated 
           shares                        $8,711,000            $7,018,000
                                         ==========            ==========

      RECOGNITION AND RETENTION PLAN - In January 1995, the shareholders of the
      Association approved the Recognition and Retention Plan (the "Recognition
      Plan") for certain officers and non-employee directors of the Association.
      Concurrent with such approval, such officers and directors were awarded
      181,756 shares of common stock, which vest in five equal annual
      installments, starting January 1996. The fair value of the shares on the
      date of award is being recognized as compensation expense over the vesting
      period. To fund the Recognition plan, 181,756 shares were issued from
      authorized but unissued shares of common stock in July 1995. During the
      year ended September 30, 1996, unamortized deferred compensation and
      additional paid-in capital were adjusted to correct amounts initially
      recorded in connection with the Recognition Plan. Unamortized deferred
      compensation of $237,000 at December 31, 1998 is reflected as a reduction
      of shareholders' equity. Compensation expense related to the Recognition
      Plan was $186,000, $185,000, $46,000 and $130,000 for the years ended
      December 31, 1998 and 1997, the three months ended December 31, 1996, and
      the year ended September 30, 1996, respectively.

      STOCK OPTION PLAN - The Association has a stock option plan for the
      benefit of its directors, officers, and other key employees. The number of
      shares of Bankshares' common stock reserved for issuance under the stock
      option plan was equal to 486,561 shares or 10% of the total number of
      common shares issued to persons other than ComFed, pursuant to the
      Association's conversion to the stock form of ownership in 1994. The
      option exercise price cannot be less than the fair value of the underlying
      common stock as of the date of the option grant and the maximum option
      term cannot exceed ten years. The stock options granted to the directors,
      officers, and employees vest in five equal annual installments. The first
      installment became exercisable on January 18, 1996. Below is a summary of
      transactions:

<TABLE>
<CAPTION>

      ----------------------------------------------------------------------------------------------------
                                                                                 Option Price
                                                                   ---------------------------------------
                                                                              Average
                                                         Number of           Exercise           Aggregate
                                                          Options           Price Per            Exercise
                                                        Outstanding           Share                Price
      ----------------------------------------------------------------------------------------------------

     <S>                                                <C>                  <C>             <C>       
      Options Outstanding:
      Balance - September 30, 1996                       432,708              $5.441          $2,354,364
            Granted                                           --                  --                  --
            Exercised                                         --                  --                  --
            Canceled                                          --                  --                  --
                                                         -------                              ----------
      Balance - December 31, 1996                        432,708                               2,354,364
            Granted                                       15,333              $9.301             142,612
            Exercised                                     (9,813)             $5.441            (53,393)
            Canceled                                          --                  --                 --
                                                         -------                              ----------
      Balance - December 31, 1997                        438,228                               2,443,583
            Granted                                           --
            Exercised                                    (18,482)              $5.441           (100,561)
            Canceled                                          --                   --                 -- 
                                                         -------                              ----------
      Balance - December 31, 1998                        419,746                              $2,343,022
                                                         =======                              ==========

</TABLE>



                                      39


<PAGE>   42



COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Options exercisable at December 31, 1998, 1997 and 1996, and September 30,
      1996 totaled 234,353, 165,861, 86,531, and 86,531, respectively.
      Bankshares adopted the disclosure-only option under SFAS No. 123,
      "Accounting for Stock-based Compensation" as of January 1, 1997. The fair
      value of options granted under the stock option plan during the fiscal
      year ended December 31, 1997 was estimated using the Binary Option Pricing
      Model with the following assumptions used:

<TABLE>
<CAPTION>
      ------------- ------------ ------------ --------------- ------------------ -------------- ------------ -------------
                     Number of    Exercise      Fair Value        Risk Free        Expected      Expected      Dividend
       Grant date     Options       Price       of Options      Interest Rate    Life (Years)   Volatility      Yield
      ------------- ------------ ------------ --------------- ------------------ -------------- ------------ -------------
        <S>           <C>           <C>           <C>              <C>               <C>         <C>            <C>   
        01/18/97      15,333        $9.30         $2.57             6.37%              5          15.36%        2.67%

</TABLE>


      Had compensation cost for the stock options been determined based on the
      fair value at the grant date for awards under those plans consistent with
      the method of SFAS No. 123, Bankshares' net income and earnings per shares
      for the years ended December 31, 1998 and 1997 would have been reduced to
      the pro forma amounts indicated below:

      --------------------------------------------------------------------------
                                        For the Years Ended December 31,
                                       1998                             1997
      --------------------------------------------------------------------------
      Net income

            As reported             $4,994,000                     $5,356,000
            Pro forma               $4,989,000                     $5,351,000
      Earnings per share

            As reported - basic     $     0.49                     $     0.53
            Pro forma - basic       $     0.49                     $     0.53
            As reported - diluted   $     0.48                     $     0.52
            Pro forma - diluted     $     0.48                     $     0.52

12.   MORTGAGE-BACKED BOND

      On September 30, 1983, the Association sold two of its branch offices to
      another financial institution with the approval of the Federal Home Loan
      Bank Board ("FHLBB"), predecessor to the OTS. Under terms of the sale, the
      Association issued a 10.94%, 30-year term mortgage-backed bond (the
      "Bond") for approximately $41,601,000. The Bond issue has a stated
      interest rate which was less than the market rate (assumed to have been
      17.53%) for similar debt at the effective date of the sale. Accordingly,
      the Association recorded a discount on the Bond which is being accreted on
      the interest method over the life of the Bond.

      The Bond bears an interest rate that is adjustable semi-annually, on April
      1 and October 1, to reflect changes in the average of the United States
      10-year and 30-year long-term bond rates. The Bond's interest rate on
      December 31, 1998 and 1997 was 4.28% and 5.62%, respectively. The
      unamortized discount at December 31, 1998 and 1997 was $4,955,000 and
      $5,439,000, respectively. Principal and interest payments are due
      quarterly. During the years ended December 31, 1998 and 1997, the three
      months ended December 31, 1996, and the year ended September 30, 1996,
      approximately $484,000, $490,000, $123,000, and $496,000, respectively, of
      the discount was accreted.

      At December 31, 1998 and 1997, the Association held $13,088,000 and
      $13,039,000 (net of discounts of $8,712,000 and $10,161,000),
      respectively, of Salomon Brothers Certificates of Accrual on Treasury
      Securities ("CATS") which were purchased at the time of issuing the Bond.
      The accrual of interest on the CATS offsets the discount amortization of
      the Bond. The CATS are included in United States Government and agency
      obligations described in Note 3 to the consolidated financial statements.



                                      40

<PAGE>   43


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Bond at December 31, 1998 was repayable as follows:

      -------------------------------------------------------------------------
             Years Ending                                         Amount
              December 31,                                    (In Thousands)
      -------------------------------------------------------------------------

                1999                                              $ 1,387
                2000                                                1,387
                2001                                                1,387
                2002                                                1,387
                2003                                                1,387
                2004 and after                                     13,450
                                                                  -------
                Total                                              20,385

            Less unamortized discount                               4,955
                                                                  -------
          Total mortgage-backed bond                              $15,430
                                                                  =======

13.   REGULATORY RESTRICTIONS ON RETAINED INCOME AND REGULATORY CAPITAL
      REQUIREMENT

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

      Quantitative measures established by regulation to ensure capital adequacy
      require the Association to maintain minimum amounts and ratios of tangible
      capital of not less that 1.5% of adjusted total assets, total capital to
      risk-weighted assets of not less that 8.0%, Tier I capital equal to
      adjusted total assets of 3.0%, and Tier I capital to risk-weighted assets
      of 4.0% (as defined in the regulations). Management believes, as of
      December 31, 1998, that the Association meets all capital adequacy
      requirements to which it is subject.

      As of December 31, 1998, the most recent notification from the OTS
      categorized the Association as "Well Capitalized" under the framework for
      prompt corrective action. To be considered well capitalized under Prompt
      Corrective Action Provisions, the Association must maintain total
      risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
      the following table. There are no conditions or events since that
      notification that management believes have changed the Association's
      categorization.



                                      41


<PAGE>   44


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Association is required to report capital ratios unconsolidated with
      Bankshares. The Association's actual capital amounts and ratios are
      presented in the following tables:

<TABLE>
<CAPTION>

      -----------------------------------------------------------------------------------------------------------------------------
                                                                                                                To be Considered
                                                                                                For             Well Capitalized
                                                                                        Capital Adequacy     for Prompt Corrective
                                                                    Actual                   Purposes          Action Provisions
                                                     ------------------------------------------------------------------------------
                                                              Ratio        Amount       Ratio       Amount        Ratio     Amount

      -----------------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)

      <S>                                                     <C>         <C>          <C>        <C>          <C>      <C>        
      As of December 31, 1998:
      Total Risk-Based Capital (to Risk-weighted Assets)        25.0%     $111,398       8.0%      $35,647     10.0%   $44,559
      Core (Tier 1) Capital (to Adjusted Tangible Assets)       12.8       108,238       3.0        25,352      5.0     42,253
      Tangible Capital (to Tangible Assets)                     12.8       108,238       1.5        12,676      N/A        N/A

      Core (Tier 1) Capital (to Risk-weighted Assets)           24.3       108,238        N/A         N/A       6.0     26,736
</TABLE>

       As of December 31, 1998, tangible assets, adjusted tangible assets, and
       risk-weighted assets were $845,054,000, $845,054,000, and and $,
       respectively $845,054,000, and $445,592,000 respectively.

<TABLE>
<CAPTION>

      <S>                                                     <C>         <C>          <C>        <C>          <C>      <C>        
      As of December 31, 1997:
      Total Risk-Based Capital (to Risk-weighted Assets)        18.4%      $70,048       8.0%      $30,416     10.0%   $38,020
      Core (Tier 1) Capital (to Adjusted Tangible Assets)        9.8        70,681       3.0        21,609      5.0     36,014
      Tangible Capital (to Tangible Assets)                      9.8        70,681       1.5        10,804      N/A        N/A
      Core (Tier 1) Capital (to Risk-weighted Assets)           18.6        70,681       N/A          N/A       6.0     22,812


</TABLE>

       As of December 31, 1997, tangible assets, adjusted tangible assets, and
       risk-weighted assets were $720,284,000, $720,284,000, and $380,197,000,
       respectively.

       At the close of the conversion and reorganization of the Association in
       December 1998, a liquidation account in the amount of $51,566,000 was
       established. The liquidation account will be maintained for the benefit
       of eligible depositors who continue to maintain their accounts at the
       Association after December 15, 1998. The liquidation account is to be
       reduced annually to the extent that eligible depositors have reduced
       their qualifying deposits. Subsequent increases of such deposits do not
       restore an eligible account holder's interest in the liquidation account.
       In the event of a complete liquidation, each eligible depositor will be
       entitled to receive a distribution from the liquidation account in an
       amount proportionate to the current adjusted qualifying balances for
       accounts then held. Bankshares may not pay dividends that would reduce
       shareholder's equity below the required liquidation account balance.

14.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      SFAS No. 107, as amended by SFAS No. 119, "Disclosures about Fair Value
      of Financial Instruments" ("SFAS No. 107"), requires the estimation of
      fair values of financial instruments, as defined in SFAS No. 107.

      Estimates of fair value are made at a specific date, based upon, where
      available, relevant market prices and information about the financial
      instrument. For a substantial portion of the financial instruments, no
      quoted market exists. Therefore, estimates of fair value are necessarily
      based on a number of significant assumptions (many of which involve events
      outside the control of management). Such assumptions include assessments
      of current economic conditions, perceived risks associated with these
      financial instruments and their counterparties, future expected loss
      experience and other factors. Given the uncertainties surrounding these
      assumptions, the reported fair values represent estimates only and,
      therefore, cannot be compared to the historical accounting model. Use of
      different assumptions or methodologies are likely to result in
      significantly different fair value estimates.

      Although management uses its best judgment in estimating the fair value of
      the financial instruments, there are inherent limitations in any
      estimation technique. Therefore, the fair value estimates presented herein
      are not necessarily indicative of the amounts which could be realized in a
      current transaction.

      The estimated fair values presented neither include nor give effect to the
      values associated with the Association's existing customer relationships,
      extensive branch banking network or property, or certain tax implications
      related to the realization of unrealized gains or losses. Also under SFAS
      No. 107, the fair value of non-interest-bearing checking accounts,
      interest-bearing NOW accounts, passbook and statement accounts, and money
      market accounts is equal to the carrying amount because these have no
      stated maturity. The approach to estimating fair value excludes the
      significant benefit that results from the low-cost funding provided by
      such deposit liabilities, as compared to alternative sources of funding.


                                      42
<PAGE>   45


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following methods and assumptions were used to estimate the fair value
      of each major classification of financial instruments at December 31, 1998
      and 1997:

      CASH AND CASH EQUIVALENTS - The carrying amounts reported in the Statement
      of Financial Condition for cash and cash equivalents approximates their
      fair value.

      SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE - Fair value
      is determined by reference to quoted market prices or by use of broker
      price estimates.

      LOANS RECEIVABLE - The fair value of loans was estimated by using a method
      which approximates the effect of discounting the estimated future cash
      flows over the expected repayment periods using rates which consider
      credit risk and other relevant factors.

      FHLB STOCK - The carrying amount of FHLB stock is a reasonable estimate
      of fair market value.

      ACCRUED INTEREST RECEIVABLE - The carrying amount of accrued interest
      receivable is a reasonable estimate of fair market value.

      DEPOSITS - Current carrying amounts approximate estimated fair value of
      deposits with no stated maturity, including demand deposits, interest
      bearing NOW accounts, passbooks and statement accounts, and money market
      accounts. Fair value for fixed maturity certificate of deposit accounts
      was estimated by discounting the contractual cash flow using a rate which
      reflects the Association's cost of funds and other relevant factors.

      MORTGAGE-BACKED BOND - The fair value of the Bond is estimated using the
      Association's cost of funds and other relevant factors.

      ADVANCES FROM FEDERAL HOME LOAN BANK - The fair value of advances from
      FHLB is estimated using the Association's cost of funds and other relevant
      factors.

      ESOP LOAN - The aggregate carrying amount of the ESOP loans is a
      reasonable estimate of fair market value.

      ACCRUED INTEREST PAYABLE - The carrying amount of accrued interest payable
      is a reasonable estimate of fair market value.

      COMMITMENTS TO EXTEND CREDIT - At December 31, 1998 and 1997, the fair
      value of commitments to extend credit was considered insignificant due to
      the short-term nature of the commitments.

      The estimated fair values of the financial instruments were as follows:

<TABLE>
<CAPTION>

     ----------------------------------------------------------------------------------------------------------------------
                                                                   December 31, 1998                  December 31, 1997
                                                                Carrying           Fair           Carrying            Fair
                                                                  Value           Value              Value           Value
    ----------------------------------------------------------------------------------------------------------------------
                                                                                        (In Thousands)


<S>                                                            <C>             <C>                 <C>              <C>     
     Financial assets:
     Cash and cash equivalents                                 $117,015        $117,015            $ 25,954         $ 25,954
     Securities held to maturity                                 52,619          57,303              67,801           72,839
     Securities available for sale                               95,151          95,151             142,269          142,269
     Loans receivable - net                                     538,204         552,735             451,709          461,650
     FHLB stock                                                   4,722           4,722               3,264            3,264
     Accrued interest receivable                                  2,782           2,782               3,162            3,162

     Financial liabilities:
     Deposits                                                  $594,400        $592,085            $550,708         $548,321
     Mortgage-backed bond                                        15,430          15,446              16,333           16,360
     Advances from FHLB                                          91,920          90,157              57,341           57,246
     ESOP borrowings                                                 --              --               1,424            1,424
     Accrued interest payable                                       403             403                 292              292


</TABLE>


                                       43

<PAGE>   46


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

      The following condensed statements of financial condition as of December
      31, 1998 and 1997, and the condensed statements of operations and
      statements of cash flows for the years ended December 31, 1998 and 1997,
      the three months ended December 31, 1996, and the year ended September
      30, 1996 should be read in conjunction with the consolidated financial
      statements and the related notes. Since the reorganization of Bankshares
      and the Association was accounted for in a manner similar to a pooling of
      interests, these statements have been presented as if Bankshares was in
      existence for all periods covered by the consolidated financial
      statements.

      STATEMENTS OF FINANCIAL CONDITION

      -------------------------------------------------------------------------
                                                            At December 31,
                                                         1998            1997
      -------------------------------------------------------------------------
                                                             (In Thousands)

     Assets:

          Cash and cash equivalents                     $  212         $11,243
          Investment in the Association                107,808          70,527
          Loans to the Association                      26,407              --
          Other assets                                      64              --
                                                      --------        --------
     Total assets                                     $134,491         $81,770
                                                      ========         =======

     Liabilities                                       $ 1,205           $ 511
     Shareholders' equity                              133,286          81,259
                                                      --------        --------
     Total liabilities and 
       shareholders' equity                           $134,491         $81,770
                                                      ========         =======


     STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

     ----------------------------------------------------------------------------------------------------------------------
                                                                     For the             For the Three      For the Year
                                                                   Year Ended            Months Ended          Ended
                                                                  December 31,           December 31,      September 30,
                                                               1998          1997            1996               1996
     ----------------------------------------------------------------------------------------------------------------------
                                                                                    (In Thousands)

<S>                                                             <C>         <C>               <C>                <C> 
     Income                                                     $ 90        $ --              $ --               $ --
     Expenses                                                      5          41                --                 --
                                                              ------       -----             -----              -----
     Income (loss) before income taxes and equity in                                            --                 --
         earnings of the Association                              85         (41)               --                 --
     Income tax expense (provision) benefit                      (32)         15                --                 --
                                                              ------       -----             -----              -----
     Income (loss) before equity in earnings
         of the Association                                       53         (26)               --                 --
     Equity in earnings of the Association                     4,941       5,382             1,160              3,915
                                                              ------       -----             -----              -----
     Net income                                                4,994       5,356             1,160              3,915
                                                              ------       -----             -----              -----
     Other comprehensive income, net of tax:
          Unrealized gain in market value of securities
              transferred from held to maturity to
              available for sale                                  --          --                --                247
          Change in unrealized gain (loss) in market value
              of securities available for sale                  (278)        914               130               (974)
                                                              ------       -----             -----              -----
     Comprehensive income, net of income taxes                $4,716      $6,270            $1,290             $3,188
                                                              ======       =====             =====             ======

</TABLE>


                                       44

<PAGE>   47


     COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

     ----------------------------------------------------------------------------------------------------------------------
                                                                     For the             For the Three      For the Year
                                                                   Year Ended            Months Ended          Ended
                                                                  December 31,           December 31,      September 30,
                                                               1998          1997            1996               1996
     ----------------------------------------------------------------------------------------------------------------------
                                                                                    (In Thousands)

<S>                                                             <C>         <C>            <C>                   <C> 
     Cash flows from operating activities:
          Net income                                           $4,994       $ 5,356         $ 1,160             $ 3,915
          Adjustments to reconcile net income to net cash
           used for operating activities:
           Equity in earnings of the Association               (4,941)       (5,382)         (1,160)             (3,915)
           Other                                                 (206)          (15)             --                  --
                                                               ------       -------         -------              ------
     Net cash used for operating activities                      (153)          (41)             --                  --
                                                               ------       -------         -------              ------
     Cash flows from for investing activities:
          Loans to subsidiaries                               (26,407)           --              --                  --
          Dividends received from the Association                  --        13,260             448               1,618
          Investment in Association through proceeds from
                stock sale                                    (32,340)           --              --                  --
                                                               ------       -------         -------              ------
     Net cash provided by (used for) investing activities     (58,747)       13,260             448               1,618
                                                               ------       -------         -------              ------
     Cash flows from financing activities:
          Proceeds from sale of stock, net of issuance costs   26,535            --              --                  --
          Dividends paid                                           --        (1,976)           (448)              (1,618)
          Purchase of ESOP shares                              (4,377)           --              --                  --
          Proceeds from exercise of stock options                 101            --              --                  --
          Amortization of deferred compensation                 1,025            --              --                  --
                                                               ------       -------         -------              ------
     Net cash provided by (used for) financing activities      26,535        (1,976)           (448)              (1,618)
                                                               ------       -------         -------              ------
     (Decrease) increase in cash and cash equivalents         (11,031)       11,243              --                  --
     Cash and cash equivalents, beginning of period            11,243            --              --                  --
                                                               ------       -------         -------              ------
     Cash and cash equivalents, end of period                  $  212       $11,243         $    --              $   --
                                                               ======       =======         =======              ======

</TABLE>


Payment of dividends to Bankshares by the Association is subject to various
limitations by bank regulatory agencies. Undistributed earnings of the
Association available for distribution as dividends under these limitations were
$24,757,000 and $30,773,000 as of December 31, 1998 and 1997, respectively.



                                      45
<PAGE>   48


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.      EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted
earnings per share for the years ended December 31, 1998 and 1997, for the three
months ended December 31, 1996 and for the year ended September 30, 1996 was as
follows:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
                                                                   For the              For the Three        For the
                                                                 Year Ended              Months Ended       Year Ended
                                                                December 31,             December 31,      September 30,
                                                             1998          1997              1996               1996
-------------------------------------------------------------------------------------------------------------------------
                                                                  (Dollars In Thousands except per share data)

<S>                                                           <C>           <C>             <C>                 <C>
Basic earnings per share
     Net income available to common shareholders           $     4,994   $     5,356      $     1,160        $     3,915
     Weighted average common shares outstanding             10,175,899    10,079,363       10,023,118          9,955,157
                                                           -----------   -----------      -----------        -----------
     Basic earnings per share                              $      0.49   $      0.53      $      0.12        $      0.39
                                                           ===========   ===========      ===========        ===========

Diluted earnings per share
     Net income available to common shareholders           $     4,994   $     5,356      $     1,160        $     3,915
                                                           -----------   -----------      -----------        -----------
     Weighted average common shares outstanding             10,175,899    10,079,363       10,023,118          9,955,157
     Add:  dilutive effects of assumed exercise of
           stock options and unvested RRP shares
             Stock options                                     271,205       255,284          100,878            138,055
             RRP shares                                          1,223            --               --                 --
                                                           -----------   -----------      -----------        -----------
     Weighted average common and dilutive potential
       common shares outstanding                            10,448,327    10,334,647       10,123,996         10,093,212
                                                           -----------   -----------      -----------        -----------
     Diluted earnings per share                            $      0.48   $      0.52      $      0.11        $      0.39
                                                           ===========   ===========      ===========        ===========
</TABLE>

RRP shares were not considered in the computation of diluted earnings per share
for the year ended December 31, 1997, the three months ended December 31, 1996
and the year ended September 30, 1996 as they were antidilutive.





                                      46

<PAGE>   49


COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.   QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   Quarter Ended
      ----------------------------------------------------------------------------------------------------------------
                                                    March 31,           June 30,     September 30,       December 31,
      ----------------------------------------------------------------------------------------------------------------
                                                                    (Dollars In Thousands)

<S>                                                   <C>                <C>               <C>                <C>    
      Year ended December 31, 1998:
           Interest income                            $13,358            $13,469           $13,763            $13,899
           Interest expense                             7,299              7,356             7,741              7,763
                                                      -------            -------           -------            -------
                Net interest income                     6,059              6,113             6,022              6,136

           Provision for loan losses                      117                 96               223                186
           Other income                                   947                928               966              1,224
           Operating expense                            4,976              4,989             5,126              5,581
           Provision for income taxes                     681                677               401                348
                                                      -------            -------           -------            -------
           Net income                                 $ 1,232            $ 1,279           $ 1,238            $ 1,245
                                                      =======            =======           =======            =======

           Basic earnings per share                   $  0.12            $  0.13           $  0.12            $  0.12
                                                      =======            =======           =======            =======
           Diluted earnings per share                 $  0.12            $  0.12           $  0.12            $  0.12
                                                      =======            =======           =======            =======

</TABLE>


<TABLE>
<CAPTION>

                                                                         Quarter Ended
      -----------------------------------------------------------------------------------------------------------------
                                                    March 31,           June 30,      September 30        December 31,
      -----------------------------------------------------------------------------------------------------------------

<S>                                                   <C>                <C>               <C>                <C>    
      Year ended December 31, 1997
           Interest income                            $12,020            $12,557           $12,894            $12,845
           Interest expense                             6,448              6,813             7,036              7,093
                                                      -------            -------           -------            -------
                Net interest income                     5,572              5,744             5,858              5,752

           Provision for loan losses                       30                 53               138                 43
           Other income                                   885                980             1,622                957
           Operating expense                            4,287              4,521             5,073              4,939
           Provision for income taxes                     789                767               720                654
                                                      -------            -------           -------            -------
           Net income                                 $ 1,351            $ 1,383           $ 1,549            $ 1,073
                                                      =======            =======           =======            =======

           Basic earnings per share                   $  0.13            $  0.14           $  0.15            $  0.11
                                                      =======            =======           =======            =======
           Diluted earnings per share                 $  0.13            $  0.13           $  0.15            $  0.11
                                                      =======            =======           =======            =======

</TABLE>



                                       47


<PAGE>   50


                       COMMUNITY SAVINGS BANKSHARES, INC.
                             CORPORATE INFORMATION

<TABLE>
<CAPTION>

                 <S>                                                  <C>
                  CORPORATE HEADQUARTERS                                            AUDITORS
                   660 U.S. Highway One                                 Crowe, Chizek and Company LLP
                      P. O. Box 14547                                     400 Riverfront Plaza Bldg
                North Palm Beach, FL 33408                                       55 Campau Ave. NW
                 www.communitysavings.com                                      Grand Rapids, MI 49503
                    (561) 881-2212
                 (800) 879-0112 (Florida)                                           SPECIAL COUNSEL
                                                                       Elias, Matz, Tiernan & Herrick L.L.P.
                        ANNUAL MEETING                                        734 15th Street, NW, 12th Floor
                   June 18, 1999, 1:30 p.m.                                         Washington, DC 20005
            Embassy Suites PGA, 4350 PGA Boulevard                                      www.emth.com
                 Palm Beach Gardens, FL 33410
                                                                                         FORM 10-K
                  REGISTRAR & TRANSFER AGENT                               A copy of Bankshares' Annual Report on
           ChaseMellon Shareholder Services, L.L.C.                 Form 10-K, as filed with the Securities and Exchange
             Overpeck Centre, 85 Challenger Road                          Commission, is available without charge.
                  Ridgefield Park, NJ 07660
              (800) 526-0801 www.chasemellon.com                                       STOCK LISTING
                                                                   The Common Stock of Community Savings Bankshares, Inc.
                      DIVIDEND SERVICES                                 is traded on The Nasdaq Stock Market
              Dividend Reinvestment and Optional                               under the symbol CMSV.
         Cash Investment Plan - provides shareholders
         a regular way of investing cash dividends in                              SHAREHOLDER RELATIONS
    additional shares and investing optional cash payments                Deborah M. Rousseau, Corporate Secretary
          without payment of brokerage commissions.                    Trina L. Miles, Assistant Corporate Secretary
                                                                      Susan L. Sabias, Shareholder Relations Secretary

                SHAREHOLDER ACCOUNT ASSISTANCE
     Shareholders who wish to change the name, address or                            INVESTOR RELATIONS
ownership of stock or report lost certificates should contact          James B. Pittard, Jr., Chief Executive Officer
       the Registrar and Transfer Agent at the address                  Larry J. Baker, CPA, Chief Financial Officer
                    or phone number above.
</TABLE>


On December 15, 1998, the conversion and reorganization of ComFed, M. H. C. was
consummated. Each existing share of Community Savings Bankshares, Inc. except
for those shares held by ComFed, M. H. C., were exchanged for 2.0445 shares of
common stock of Bankshares. The book value, prices, and dividends per share in
the following table have been adjusted to reflect the transaction. As of
December 31, 1998, there were 10,548,884 shares of Common Stock outstanding and
2,792 shareholders of record, not including the number of persons or entities
whose stock is held in nominee or "street" name through various brokerage firms
or banks. The following table sets forth quarter ending book value, high, low,
and closing trade prices, and dividend per share information.


<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                     Stock Prices                                       
                               Book          -------------------- -------------------- ------------------     Dividend
                               Value                High                  Low                Close            Per Share
----------------------- -------------------- -------------------- -------------------- ------------------ -------------------
<S>                           <C>                  <C>                  <C>                 <C>                  <C> 
December 31, 1998             $13.43               $12.23               $ 8.50              $10.75               $.11
September 30, 1998            $ 8.27               $18.22               $10.27              $10.64               $.11
June 30, 1998                 $ 8.15               $19.08               $15.16              $16.14               $.11
March 31, 1998                $ 8.08               $20.05               $16.45              $18.89               $.11

December 31, 1997             $ 8.02               $19.44               $15.77              $17.30               $.10
September 30, 1997            $ 7.95               $18.22               $10.64              $17.73               $.10
June 30, 1997                 $ 7.80               $11.01               $ 9.60              $10.76               $.10
March 31, 1997                $ 7.62               $10.09               $ 9.05              $ 9.60               $.09




                                      48


</TABLE>


<PAGE>   51


                            COMMUNITY SAVINGS, F. A.
                              CORPORATE DIRECTORY


BOARD OF DIRECTORS

Frederick A. Teed                                               Karl D. Griffin
Chairman of the Board              Director and Secretary Emeritus of the Board

Forest C. Beaty, Jr.                                      James B. Pittard, Jr.
Director                                  President and Chief Executive Officer

Robert F. Cromwell                                     Harold I. Stevenson, CPA
Director and Chairman Emeritus of the Board                            Director

ADMINISTRATIVE DIVISION                              HUMAN RESOURCES, MARKETING
                    .                                       & TRAINING DIVISION
James B. Pittard, Jr
President and Chief Executive Officer                         
Judith M. Hogan                                                Feriel G. Hughes
Compliance Officer                                            Division Director

Joe L. Knorr                                                  Cynthia J. Cullen
Internal Auditor                                               Training Manager

Deborah M. Rousseau                                             Juanita Swinton
Corporate Secretary                                           Marketing Manager

FINANCE DIVISION                                                  Jane H. Ryder
                                                              Personnel Manager
Larry J. Baker, CPA
Chief Financial Officer                                     OPERATIONS DIVISION
Division Director
                                                               Mary L. Kaminske
Donna L. Sheppard, CPA                                        Division Director
Controller
                                                              Theresa J. Brooks
Bruce C. Tissot                                         Regional Branch Manager
Staff Accountant
                                                               Douglas S. Clive
LOAN DIVISION                                        Corporate Security Officer

Cecil F. Howard, Jr.                                        Elizabeth A. DeLosh
Division Director                                     Branch Operations Manager

John C. Allen, Jr.                                               Rizwana Khalid
Commercial Loan Officer                                Deposit Products Manager

Priscilla Clancy                                               Eileen St. Denis
Commercial Loan Officer                                 Regional Branch Manager

Charles J. Gifford                                            Cindy L. Sheppard
New Loan Operations Manager                         Information Systems Manager

Mildred C. Lodge                                        PROPOERTIES & INSURANCE
Consumer/Residential Loan Officer                                      DIVISION

Johnny L. Morris                                           Michael E. Reinhardt
Lending Sales Manager                                         Division Director

Lisa M. Rhodes                                                 Larry F. Koerner
Loan Servicing Manager                                       Facilities Manager




                                       49
<PAGE>   52







                                   BACK COVER






                       Community Savings Bankshares, Inc.
                                P. O. Box 14547
                              660 U.S. Highway One
                        North Palm Beach, Florida 33408
                            www.communitysavings.com








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