HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
                             Index to Annual Report





                                                                          Page

Selected Consolidated Financial Data                                        2

Management's Discussion and Analysis of
     Financial Condition and Results of Operations                          4

Independent Auditors' Report                                               15

Consolidated Statements of Financial Condition
     - September 30, 2000 and 1999                                         16

Consolidated Statements of Earnings -
     Years ended September 30, 2000, 1999, and 1998                        17

Consolidated Statements of Stockholders'
     Equity and Comprehensive Income - Years
     ended September 30, 2000, 1999, and 1998                              18

Consolidated Statements of Cash Flows -Years
     ended September 30, 2000, 1999, and 1998                              20

Notes to the Consolidated Financial Statements                             22




All schedules are omitted as they are not required or are not  applicable or the
required  information  is  shown  in  the  applicable   consolidated   financial
statements or notes thereto.




<PAGE>



Selected Consolidated Financial Data

Selected Consolidated Financial Condition Data
<TABLE>
<CAPTION>
                                                                   September 30,
                                      2000              1999              1998              1997              1996
                                      ----              ----              ----              ----              ----
                                                                   (In thousands)
<S>                                <C>               <C>               <C>               <C>               <C>
Total assets                       $1,582,695        $1,462,550        $1,350,583        $1,131,024        $1,057,443
Loans (net) (1)                     1,251,669         1,070,335           944,700           834,270           765,019
Federal funds sold                        ---               ---            20,000               250            16,075
Investment securities (2)              85,967            87,076           101,505            52,553            53,493
Mortgage-backed securities            165,059           196,971           201,049           176,854           153,293
Real estate owned                         871               911             2,534             2,314             3,118
Deposits                            1,098,537           977,595           918,126           911,576           851,853
Short-term borrowings                  18,000               ---               ---            30,100            25,000
Long-term debt                        220,091           225,000           145,000            70,375            70,674
Stockholders' equity                  219,384           235,922           263,719            96,802            84,832
</TABLE>

(1) Excludes loans held for sale of $2,548,000,  $1,747,000, $714,000, $141,000,
    and $4.9 million,  as of September 30, 2000,  1999,  1998,  1997,  and 1996,
    respectively.
(2) Includes  investments  available for sale of $85.8  million,  $76.1 million,
    $71.5 million,  $47.6 million,  and $33.5 million in 2000,  1999, 1998, 1997
    and 1996, respectively.



Selected Consolidated Operating Data
<TABLE>
<CAPTION>
                                                                                            Years Ended September 30,
                                                        2000          1999          1998          1997           1996
                                                        ----          ----          ----          ----           ----
                                                         (Dollars in thousands except per share data)
<S>                                                    <C>           <C>            <C>            <C>           <C>
Interest income                                        $112,322      $103,884       $95,158        $84,814       $74,357
Interest expense                                         55,215        48,840        46,658         45,159        39,114
                                                         ------        ------        ------         ------        ------
Net interest income                                      57,107        55,044        48,500         39,655        35,243
Provision for (recovery of) loan losses                     847           816           297            782           (76)
                                                           ----         -----         -----          ------         ----

Net interest income after provision for loan losses      56,260        54,228        48,203         38,873        35,319
                                                         ------        ------        ------         ------        ------
Other income:
    Other fees and service charges                        6,812         5,505         4,074          3,319          2,797
    Other                                                 1,058           675         1,864            905            88
                                                          -----           ---         -----            ---            --
Total other income                                        7,870         6,180         5,938          4,224         2,885
                                                          -----         -----         -----          -----         -----
Other expenses:
    Compensation and benefits                            16,503        15,413        14,282         11,931        10,690
    Occupancy                                             4,185         3,422         3,365          3,046         2,632
    SAIF deposit insurance premium                          299           552           572            785         6,300
    Other                                                 7,676         6,648         6,313          5,397         4,510
                                                          -----         -----         -----          -----         -----
Total other expenses                                     28,663        26,035        24,532         21,159        24,132
                                                         ------        ------        ------         ------        ------
Income before income taxes.                              35,467        34,373        29,609         21,938        14,072
Income tax expense                                       13,719        13,154        12,243          8,611         5,432
                                                         ------        ------        ------          -----         -----
Net income                                             $ 21,748      $ 21,219      $ 17,366       $ 13,327       $ 8,640
                                                       ========      ========      ========       ========       =======
Net income per share:
    Basic                                                  $.89          $.77          $.58           $.44          $.29
    Diluted                                                $.88          $.76          $.57           $.43          $.29
</TABLE>


                                       2
<PAGE>



Selected Financial Ratios
<TABLE>
<CAPTION>
                                                                                  At or for the years ended September 30,
                                                           2000             1999             1998             1997             1996
                                                           ----             ----             ----             ----             ----
<S>                                                       <C>              <C>              <C>              <C>             <C>
Performance Ratios:
    Return on average assets (1)                             1.44%            1.49%            1.40%            1.22%           .91%
    Return on average stockholders' equity (1)               9.82             8.54             9.34            14.72          10.51
    Net interest rate spread                                 3.34             3.30             3.40             3.36           3.40
    Net yield on average interest-earning assets             3.91             3.99             4.04             3.72           3.79
    Noninterest expense to average assets (1)                1.90             1.83             1.98             1.93           2.53
    Average interest-earnings assets to average
        interest-bearing liabilities                       115.34           119.76           116.54           108.33         109.24
    Efficiency Ratio (1)                                    44.49            42.84            46.96            48.83          62.83

Asset Quality Ratios:
    Nonperforming assets to total assets                      .23              .24              .37              .43            .50
    Allowance for loan losses to total loans                 1.02             1.12             1.25             1.40           1.44
    Allowance for loan losses to nonperforming
        loans                                              460.19           470.31           483.13           453.11         507.25

Capital Ratios:
    Average stockholders' equity to average assets          14.65            17.45            15.01             8.26           8.62
    Stockholders' equity to assets at period end            13.86            16.13            19.53             8.56           8.02
</TABLE>



(1) Year ended  September  30, 1996 includes  one-time  SAIF special  assessment
    expense of $4.6 million, $2.8 million, net of tax. Without the one-time SAIF
    special  assessment,  return on average assets would have been 1.20%, return
    on average  equity  would have been 13.92%,  noninterest  expense to average
    assets  would  have been  2.05% and the  efficiency  ratio  would  have been
    50.97%.

                                       3
<PAGE>


Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Special Note Regarding Forward-Looking Statements

This  report  contains  certain  "forward-looking  statements."  Harbor  Florida
Bancshares,  Inc. (the "Company") desires to take advantage of the "safe harbor"
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995  and is
including  this  statement  for the express  purpose of  availing  itself of the
protections  of  the  safe  harbor  with  respect  to all  such  forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis and elsewhere,  describe  future plans or strategies and
include  the  Company's  expectations  of future  financial  results.  The words
"believe,"   "expect,"   "anticipate,"   "estimate,"   "project,"   and  similar
expressions  identify  forward-looking  statements.  The  Company's  ability  to
predict  results or the effect of future plans or strategies or  qualitative  or
quantitative  changes  based on market risk  exposure is  inherently  uncertain.
Factors  which could  affect  actual  results  include but are not limited to i)
change in general market interest rates, ii) general economic  conditions,  iii)
legislative/regulatory  changes,  iv) monetary  and fiscal  policies of the U.S.
Treasury and the Federal  Reserve,  v) changes in the quality or  composition of
the Company's loan and investment portfolios, vi) demand for loan products, vii)
deposit flows, viii)  competition,  and ix) demand for financial services in the
Company's  markets.  These  factors  should  be  considered  in  evaluating  the
forward-looking  statements,  and undue  reliance  should  not be placed on such
statements.

General

The Company's results of operations are primarily  dependent on its net interest
income.  Net  interest  income  is a  function  of the  balances  of  loans  and
investments  outstanding in any one period,  the yields earned on such loans and
investments,  and the interest  paid on deposits  and  borrowed  funds that were
outstanding  in that same period.  The  Company's  noninterest  income  consists
primarily of fees and service charges,  insurance commissions,  gains on sale of
mortgage loans and,  depending on the period,  real estate operations which have
either provided income or loss. The results of operations are also significantly
impacted  by the  amount  of  provisions  for loan  losses  which,  in turn,  is
dependent upon,  among other things,  the size and makeup of the loan portfolio,
loan quality, and trends. The noninterest expenses consist primarily of employee
compensation and benefits,  occupancy expense and data processing services.  Its
results  of  operations  are  affected  by  general   economic  and  competitive
conditions,  including changes in prevailing  interest rates and the policies of
regulatory agencies.

Market Risk and Asset and Liability Management

The  Company  attempts  to manage its assets and  liabilities  in a manner  that
stabilizes  net interest  income and net  economic  value under a broad range of
interest  rate  environments.  This is  accomplished  by matching  maturity  and
repricing  periods on loans and investments to maturity and repricing periods on
deposits and borrowings.

The matching of assets and liabilities may be analyzed by determining the extent
to which such assets and liabilities  are interest rate  sensitive.  An asset or
liability is  considered to be interest  rate  sensitive  within a specific time
period if it  matures  or  reprices  within  that  time  period.  Interest  rate
sensitivity  analysis,  also known as "gap"  analysis,  attempts  to measure the
difference between the amount of  interest-earning  assets expected to mature or
reprice within a specific time period compared to the amount of interest-bearing
liabilities  expected to mature or reprice within that time period.  An interest
rate  sensitive  "gap" is  considered  positive when the amount of interest rate
sensitive  assets  exceeds the amount of  interest  rate  sensitive  liabilities
maturing or  repricing  within a specified  time period.  A "gap" is  considered
negative  when the amount of  interest  rate  sensitive  liabilities  exceed the
amount of  interest  rate  sensitive  assets  that  mature or  reprice  within a
specified time period.  Interest rate sensitivity  analysis is based on numerous
assumptions, such as estimates for paying loans off prior to maturity. Estimates
are revised annually to reflect the anticipated interest rate environment.

Generally,  an institution with a positive  interest rate sensitivity  "gap" can
expect net interest  income to increase  during periods of rising interest rates
and decline during periods of falling interest rates.  Likewise,  an institution
with a negative  "gap" can expect an  increase  in net  interest  income  during
periods of falling  interest rates and a decrease in net interest  income during
periods  of  rising  interest  rates.  At  September  30,  2000,  the  Company's
cumulative one-year interest rate sensitivity "gap" was negative 11.33%.

The Board of Directors  has  established  an  Asset/Liability  Committee,  which
consists of the  Company's  president and other senior  officers.  The Committee
meets on a monthly  basis to review  loan and  deposit  pricing  and  production
volumes,  interest rate risk  analysis,  liquidity and  borrowing  needs,  and a
variety of other asset and liability management topics.

The Company currently utilizes the following  strategies to reduce interest rate
risk: (a) the Company seeks to originate and hold in portfolio  adjustable  rate
loans which have annual  interest  rate  adjustments;  (b) the Company  seeks to
lengthen  the  maturities  of deposits  when deemed cost  effective  through the
pricing and  promotion of  certificates  of deposits;  (c) the Company  seeks to
                                       4
<PAGE>

attract  low  cost  checking  and  transaction  accounts  which  tend to be less
interest  rate  sensitive  when  interest  rates  rise;  and (d) the Company has
utilized  long  term  Federal  Home  Loan  Bank  ("FHLB")  advances  to fund the
origination  of fixed rate  loans.  The Company  also  maintains a high level of
liquid assets  consisting  of  shorter-term  investments,  which are expected to
increase in yield as interest rates rise.

Interest Rate Sensitivity

The table below provides  information about the Company's financial  instruments
that are sensitive to changes in interest  rates as of September  30, 2000.  For
borrowings, the table presents principal cash flows by expected maturity dates.


<TABLE>
<CAPTION>
                                                                      More than one      More than
                                       Within           Four to      year to three    three years to
                                    three months     Twelve months        years         five years     Over five years       Total
                                    ------------            ------        -----         ----------          -----            -----
                                                                           (Dollars in thousands)
<S>                                    <C>              <C>              <C>             <C>              <C>              <C>
Interest-earning assets (1):
  Mortgage loans (2)
    Fixed rate                         $ 26,737         $ 78,690         $175,018        $ 136,792        $ 376,002        $ 793,239
    Adjustable rate                      41,621          132,403           86,820           60,213            7,286          328,343
  Other loans (2):
    Fixed rate                           15,414           46,243           31,283            4,455              740           98,135
    Adjustable rate                      37,086            7,943              325              228            1,647           47,229
  Mortgage-backed securities:
    Fixed rate (3)                        6,968           20,495           42,162           37,066           48,880          155,571
    Adjustable rate                         986            8,502               --               --               --            9,488
  Investment securities and
    other assets                         13,229           29,846           49,392               --              200           92,667
                                         ------           ------           ------        ---------     ------------           ------
       Total                          $ 142,041        $ 324,122        $ 385,000        $ 238,754        $ 434,755       $1,524,672
                                      ---------        ---------        ---------        ---------        ---------       ----------
Interest-bearing liabilities:
  Deposits (4):
    NOW accounts                        $ 7,088         $ 21,264         $ 27,218          $ 9,799          $ 5,512         $ 70,881
    Passbook accounts                    14,315           42,944           32,065            5,130              977           95,431
    Money market accounts                19,045           57,134           18,283              731               30           95,223
    Certificates of deposits            139,818          305,947          263,648           12,109            1,217          722,739
  Borrowings                             13,000           25,000          117,091           78,000            5,000          238,091
                                   ------------           ------          -------           ------            -----          -------
       Total                          $ 193,266        $ 452,289        $ 458,305         $105,769         $ 12,736      $ 1,222,365
                                      ---------        ---------        ---------         --------         --------      -----------
Excess (deficiency) of interest
    earning assets over
    interest-bearing liabilities     $ (51,225)      $ (128,167)       $ (73,305)        $ 132,985        $ 422,019        $ 302,307
                                     ==========      ===========       ==========        =========        =========        =========
Cumulative excess (deficiency)
    of interest-earning assets
    over interest-bearing
    liabilities                      $ (51,225)      $ (179,392)      $ (252,697)      $ (119,712)        $ 302,307
                                     ==========      ===========      ===========      ===========        =========
Cumulative excess (deficiency)
    of interest-earning assets
    over interest-bearing
    liabilities as a percent of
    total assets                         (3.24)%         (11.33)%         (15.97)%          (7.56)%           19.10%
                                         =======         ========         ========          =======           ======
</TABLE>


--------------------------
(1) Adjustable  and  floating  rate  assets are  included in the period in which
    interest  rates are next  scheduled  to adjust  rather than in the period in
    which they are due,  and fixed rate  assets are  included  in the periods in
    which they are  scheduled to be repaid based on scheduled  amortization,  in
    each case  adjusted to take into account  estimated  prepayments.  Estimated
    prepayment  statistics  were  obtained  from the  research  department  of a
    primary  securities  dealer.  For fixed rate  mortgages and  mortgage-backed
    securities, annual prepayment rates from 9 to 49%, based on the coupon rate,
    were used.
(2) Balances  have been reduced for loans in process and deferred  loan fees and
    discounts   that   aggregated  to  $81.5  million  at  September  30,  2000.
    Nonperforming  loans  aggregating  $2.8 million were  included in the within
    three month repricing period.
(3) Fixed rate  mortgage-backed  securities include  amortizing  securities that
    balloon 5 years and 7 years from  original  issue date.  Balloon  securities
    amounted to $47.1 million at September 30, 2000.

                                       5

<PAGE>

(4) The Company's  negotiable  order of withdrawal  ("NOW")  accounts,  passbook
    savings accounts and money market deposit accounts are generally  subject to
    immediate  withdrawal.  However,  management  considers a certain portion of
    these accounts to be core deposits  having  significantly  longer  effective
    maturities  based on the  Company's  retention of such  deposit  accounts in
    changing interest rate environments. NOW accounts, passbook savings accounts
    and money  market  deposit  accounts  are assumed to be  withdrawn at annual
    rates of 40%, 60% and 80%,  respectively,  of the declining  balance of such
    accounts  during  the  period  shown.  Management  believes  the  rates  are
    indicative  of  expected   withdrawal   rates  in  a  rising  interest  rate
    environment.  If  all  of  the  Company's  NOW  accounts,  passbook  savings
    accounts,  and money market deposit  accounts had been assumed to be subject
    to  repricing  within  one  year,  the  cumulative  one-year  deficiency  of
    interest-earning  assets to  interest-bearing  liabilities  would  have been
    $279.1 million, or negative 17.64% of total assets.

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.  Also, 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 that restrict  changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would 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 an interest rate increase.

The  Company  does  not  purchase,  sell  or  enter  into  derivative  financial
instruments  or  derivative  commodity  instruments  as defined by  Statement of
Financial Accounting Standards No. 119,  "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments."

Interest Rate Risk

The  Company  uses a computer  model to quantify  its  interest  rate risk.  The
computer  model  measures the  sensitivity of asset and liability fair values to
hypothetical changes in interest rates. Interest rate sensitive instruments used
in the computer model include:  loans,  mortgage-backed  securities,  investment
securities,  federal funds sold,  interest-bearing deposits in other banks, FHLB
stock,  deposits,  advances from the FHLB, and off- balance sheet loan servicing
rights and  commitments.  The model  calculates  net present  values for assets,
liabilities  and  off-balance  sheet  contracts  using a  discounted  cash  flow
methodology. These amounts are netted together to determine net portfolio value.
Management  estimates  discount  rates by using current market yields on similar
financial  instruments.  Discount rates are adjusted  upward and downward by 100
basis points and 200 basis points to reflect a  hypothetical  parallel  shift in
interest rates. In addition, management estimates loan prepayment rates, deposit
decay  rates,  and values of certain  assets  that  could  correspond  with such
hypothetical parallel shifts in interest rates.

Presented below is an analysis of the Company's  interest rate risk at September
30,  2000 as  calculated  utilizing  the  Company's  computer  model.  The table
presents net portfolio value, dollar and percent changes in net portfolio value,
for  instantaneous  and  parallel  shifts in the yield  curve in 100 basis point
increments up and down.


Change in        Net portfolio
  Rates           value amount         Dollar change        Percent
  -----           ------------         -------------        -------
                     (Dollars in thousands)
   +200 B.P.       $ 193,137            $(57,799)          (23.0)%
   +100 B.P.       $ 219,743            $(31,193)          (12.4)%
      0 B.P.       $ 250,936            $      0               0 %
   -100 B.P.       $ 276,926            $ 25,990            10.4 %
   -200 B.P.       $ 283,726            $ 32,790            13.1 %



The preceding analysis is based on numerous assumptions that management believes
to be reasonable.  These  assumptions  relate to interest rates, loan prepayment
rates,  deposit decay rates,  and market values of certain  assets under various
interest rate scenarios.  It was also assumed that  delinquency  rates would not
change  as a result  of  changes  in  interest  rates  although  there can be no
assurance  that this  will be the case.  Even if  interest  rates  change in the
designated  increments,  there can be no assurance that the Company's assets and
liabilities  would  perform as indicated  in the table above.  Since there is no
quoted market for most of the Company's financial instruments, management has no
basis to determine  that values  presented  would be  indicative  of the amounts
realized  in  an  actual  negotiated  sale.  Furthermore,   management  has  not
considered  the tax  effect or  transaction  costs that may be  associated  with
disposal of the  Company's  assets and  liabilities.  A change in U.S.  Treasury
rates in the indicated amounts, accompanied by a change in the slope or shape of
the yield curve,  could result in  significantly  different net portfolio values
than shown above.
                                       6
<PAGE>

Equity Pricing Risk

The Company maintains a portfolio of available for sale equity securities, which
subjects  the  Company to equity  pricing  risks.  The change in fair  values of
equity securities  represents  instantaneous changes in all prices for available
for sale equity  securities.  Equity  pricing  risk is managed  through  company
diversification  and individual  position  limits  established in the investment
policy.  At September  30, 2000 the company did not  maintain an equity  trading
portfolio.  The  following  are  changes  in the  fair  value  of the  Company's
available for sale securities at September 30, 2000 based on percentage  changes
in fair value.


  Percent change                   Fair value of available-
  in fair value                      for-sale securities
  -------------                      -------------------
                (Dollars in thousands)
        20 %                                 $7,835
        10 %                                 $7,182
         0 %                                 $6,529
       (10)%                                 $5,876
       (20)%                                 $5,223


Actual  future price  appreciation  or  depreciation  may be different  from the
changes identified in the table above.

Analysis of Net Interest Income

The Company's  earnings  historically  depended  primarily upon its net interest
income,  which is the difference between interest income earned on its loans and
investments  ("interest-earning  assets") and interest  paid on its deposits and
any borrowed  funds  ("interest-bearing  liabilities").  Net interest  income is
affected by (i) the difference between rates of interest earned on the Company's
interest-earning  assets  and  rates  paid on its  interest-bearing  liabilities
("interest rate spread") and (ii) the relative  amounts of its  interest-earning
assets and interest-bearing liabilities.

The  following  tables  present an analysis of certain  aspects of the Company's
operations  during the periods  indicated.  The first table presents the average
balances of, and the interest and dividends  earned or paid on, each major class
of interest-earning assets and interest-bearing  liabilities.  No tax equivalent
adjustments were made.  Average balances  represent daily average balances.  The
yields and costs include fees that are considered adjustments to yields.
                                    7
<PAGE>
<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                                     -------------------------
                                            2000                              1999                               1998
                                            ----                              ----                               ----
                                          Interest                          Interest                           Interest
                                Average      &        Yield/     Average       &       Yield/       Average       &        Yield/
                                Balance   Dividends   Rate       Balance    Dividends   Rate        Balance    Dividends    Rate
                                -------   ---------   ----       -------    ---------   ----        -------    ---------    ----
                                                                       (Dollars in thousands)
<S>                           <C>          <C>        <C>       <C>         <C>         <C>       <C>           <C>        <C>
Assets:
Interest-earning assets (1):
  Federal funds sold              $ ---      $ ---       ---%     $ 5,699       $ 299      5.25%     $ 7,959       $ 448     5.63%
  Interest-bearing deposits      15,416        844      5.47       45,317       2,198      4.85       40,531       2,233     5.51
  Investment securities          97,490      5,849      6.00      102,585       6,107      5.95       82,076       4,945     6.02
  Mortgage-backed
      securities                180,460     11,537      6.39      207,544      13,173      6.35      173,177      11,301     6.53
  Mortgage loans              1,035,615     81,928      7.91      902,964      71,600      7.93      791,491      66,329     8.38
  Other loans                   130,580     12,164      9.32      114,359      10,507      9.19      105,287       9,902     9.40
                                -------     ------      ----      -------      ------      ----      -------       -----     ----
Total interest-earning
      assets                  1,459,561    112,322      7.70    1,378,468     103,884      7.54    1,200,521      95,158     7.93
                              ---------    -------      ----    ---------     -------      ----    ---------      ------     ----
Total noninterest-earning
      assets                     52,207                            45,038                             38,155
                                 ------                            ------                             ------
Total assets                  1,511,768                         1,423,506                          1,238,676
                              =========                         =========                          =========

 Liabilities and
Stockholders' Equity:
Interest-bearing liabilities
    Deposits:
     Transaction accounts    $ 221,001     $2,466      1.12%   $ 180,662      $1,781      0.99%   $ 158,723      $1,894     1.19%
     Passbook savings          106,465      2,002      1.88      103,272       1,993      1.93       87,760       1,674     1.91
     Official checks             9,161        ---       .00        8,693         ---       .00        8,004         ---      .00
     Certificate savings       695,866     37,546      5.40      660,584      33,945      5.14      670,628      36,651     5.47
                               -------     ------      ----      -------      ------      ----      -------      ------     ----
     Total deposits          1,032,493     42,014      4.07      953,211      37,719      3.96      925,115      40,219     4.35
    FHLB advances              232,917     13,195      5.67      197,767      11,117      5.62      104,877       6,419     6.12
    Other borrowings
                                    16          6     35.15          ---           4       .00          167          20    11.98
                                    --          -     -----         ----           -       ---          ---          --    -----
Total interest-bearing
        liabilities          1,265,426     55,215      4.36    1,150,978      48,840      4.24    1,030,159      46,658     4.53
                             ---------     ------      ----    ---------      ------      ----    ---------      ------     ----
Noninterest-bearing
        liabilities             24,922                            24,058                             22,648
                                ------                            ------                             ------
Total liabilities            1,290,348                         1,175,036                          1,052,807
Stockholders' equity           221,420                           248,470                            185,869
                               -------                           -------                            -------
Total liabilities and
        stockholders'
        equity               1,511,768                         1,423,506                          1,238,676
                             =========                         =========                          =========
Net interest income/
    interest rate spread
    (2)                                  $ 57,107      3.34%                $ 55,044      3.30%                $ 48,500      3.40%
                                           ======      ====                 ========      ====                 ========      ====
Net interest-earning
    assets/net interest
    margin (3)               $ 194,135                 3.91%   $ 227,490                  3.99%   $ 170,362                  4.04%
                             =========                 ====    =========                  ====    =========                  ====
Interest-earning assets to
    interest-bearing
    liabilities                                      115.34%                            119.76%                            116.54%
                                                    =======                             ======                             ======
</TABLE>
---------------
(1)    Average balances and rates include nonaccruing loans.
                                        8

<PAGE>
(2) Interest rate spread represents the difference between weighted average
       interest rates earned on interest-earning assets and the weighted average
       interest rates paid on interest-bearing liabilities.
(3)    Net interest margin represents net interest income as a percentage of
       average interest-earning assets.


Rate/Volume Analysis

The relationship between the volume and rates of the Company's  interest-earning
assets and  interest-bearing  liabilities  influences the Company's net interest
income.  The following table reflects the sensitivity of the Company's  interest
income and  interest  expense to  changes in volume and in  prevailing  interest
rates.  For  each  category  of  interest-earning  assets  and  interest-bearing
liabilities,  information is provided on effects attributable to: (1) changes in
volume (changes in volume  multiplied by old rate); (2) changes in rate (changes
in rate multiplied by old volume);  and (3) net change.  Changes attributable to
the combined impact of volume and rates have been allocated  proportionately  to
changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
                                                                         Years Ended September 30,
                                                                            Increase (Decrease)
                                                                            -------------------
                                            2000 vs. 1999                       1999 vs. 1998              1998 vs. 1997
                                            -------------                       -------------              -------------
                                    Volume       Rate         Net    Volume       Rate        Net     Volume      Rate        Net
                                    ------       ----         ---    ------       ----        ---     ------      ----        ---
                                                                           (In thousands)
<S>                               <C>           <C>       <C>         <C>        <C>         <C>       <C>          <C>       <C>
Interest income:
    Interest-bearing deposits     $ (1,935)     $ 282     $(1,653)    $ 118      $ (302)     $(184)    $ 638        $30       $668
    Investment securities             (288)        30        (258)    1,163          (1)     1,162     1,086         (7)     1,079
    Mortgage-backed securities      (1,731)        95      (1,636)    2,181        (309)     1,872     1,294        (81)     1,213
    Mortgage loans                  10,499       (171)     10,328     8,954      (3,683)     5,271     6,207        122      6,329
    Nonmortgage loans:
        Commercial loans               446         81         527       520         (74)       446       417        (22)       395
        Consumer loans               1,075         55       1,130       320        (161)       159       601         59        660
                                     -----         --       -----       ---        ----        ---       ---         --        ---
Total interest income                8,066        372       8,438    13,256      (4,530)     8,726    10,243        101     10,344
                                     -----        ---       -----    ------      ------      -----    ------        ---     ------

Interest expense:
    Deposits:
        Transaction accounts         $ 437       $248       $ 685     $ 213       $(326)    $ (113)    $ 224     $ (226)      $ (2)
        Passbook savings               123       (114)          9       299          20        319       192        126        318
        Certificate savings          1,904      1,697       3,601      (516)     (2,190)    (2,706)      409        350        759
                                     -----      -----       -----      ----      ------     ------       ---        ---        ---
    Total deposits                   2,464      1,831       4,295        (4)     (2,496)    (2,500)      825        250      1,075
    FHLB advances                    1,911        167       2,078     4,736         (38)     4,698       331        126        457
    Other borrowings                     2        ---           2       (16)        ---        (16)     (36)          3        (33)
                                         -                      -       ---                    ---      ---           -        ---
 Total interest expense              4,377      1,998       6,375     4,716      (2,534)     2,182     1,120        379      1,499
                                     -----      -----       -----     -----      ------      -----     -----        ---      -----

Net interest income                 $3,689   $ (1,626)    $ 2,063    $8,540    $ (1,996)   $ 6,544    $9,123    $ (278)    $ 8,845
                                    ======   =========    =======    ======    =========   =======    ======    =======    =======
</TABLE>

                                       9
<PAGE>


Results of Operations

Year Ended September 30, 2000 Compared to Year Ended September 30, 1999

General

Diluted  earnings per share for the year ended  September  30,  2000,  increased
15.8% to 88 cents per share on net income of $21.7 million, compared to 76 cents
per share on net income of $21.2  million for the same  period  last year.  This
increase  was due  primarily  to the  growth  in the loan  portfolio,  increased
non-interest  income due to the growth in transaction  accounts partially offset
by increased  operating  expenses and a decrease in the average number of shares
outstanding  as a result of the  stock  repurchase  plan.  Net  interest  income
increased 3.7% to $57.1 million for the year ended September 30, 2000,  compared
to $55.0 million for the year ended September 30, 1999. This increase was due to
an increase in interest income of $8.4 million offset by an increase in interest
expense of $6.3  million.  Other  income  increased to $7.9 million for the year
ended  September  30, 2000 from $6.2  million for the year ended  September  30,
1999. Other expenses increased to $28.7 million for the year ended September 30,
2000 from $26.0 million for the year ended September 30, 1999.

Interest Income

Total interest  income  increased to $112.3 million for the year ended September
30, 2000 from $103.9  million for the year ended  September 30, 1999 as a result
of an increase in average  interest-earning  assets to $1.5 billion for the year
ended  September  30, 2000 from $1.4  billion for the year ended  September  30,
1999. The average rate earned on interest-earning  assets increased to 7.70% for
the year ended  September 30, 2000,  from 7.54% for the year ended September 30,
1999, a increase of 16 basis  points.  This  increase  was due  primarily to the
change in the mix of  interest-earning  assets  resulting  from the  increase in
higher  yielding  loans  and the  decrease  in  lower  yielding  securities  and
interest-bearing  deposits in other banks.  Interest  income on loans  increased
$12.0 million to $94.1 million for the year ended  September 30, 2000 from $82.1
million for the year ended  September 30, 1999.  This increase was a result of a
$148.9 million  increase in the average  balance to $1.2 billion in 2000 from $1
billion in 1999. The average yield on loans  remained  constant at 8.07% in 2000
and 1999.  The increase in the average  balance of total loans was mainly due to
significant  growth in the residential and commercial loan portfolios  resulting
from increased levels of loan  originations.  Interest income on mortgage-backed
securities  decreased $1.7 million to $11.5 million for the year ended September
30, 2000 from $13.2 million for the year ended September 30, 1999. This decrease
was primarily the result of a $27.1 million  decrease in the average  balance to
$180.5  million in 2000 from $207.5 million in 1999. The decrease in the average
balance of  mortgage-backed  securities was primarily due to  repayments.  Other
interest income,  mainly consisting of interest on interest-bearing  deposits in
other banks and federal funds sold,  decreased  $1.7 million to $844,000 for the
year ended September 30, 2000 from $2.5 million for the year ended September 30,
1999. This decrease was primarily the result of a $35.6 million  decrease in the
average  balance  to $15.4  million  in 2000 from  $51.0  million  in 1999.  The
decrease in the average balance of  interest-bearing  deposits and federal funds
sold was primarily due to the funding of the repurchase of the Company's  common
stock.

Interest Expense

Total interest  expense  increased to $55.2 million for the year ended September
30, 2000 from $48.8 million for the year ended September 30, 1999. This increase
was due primarily to an increase in average interest-bearing liabilities to $1.3
billion for the year ended  September  30,  2000 from $1.2  billion for the year
ended  September 30, 1999.  The average  interest rate paid on  interest-bearing
liabilities  was 4.36% for the year ended  September  30, 2000 compared to 4.24%
for the year ended September 30, 1999, an increase of 12 basis points.  Interest
expense on deposits  increased  $4.3 million to $42.0 million for the year ended
September  30, 2000 from $37.7  million for the year ended  September  30, 1999.
This increase was a result of a $79.3 million increase in the average balance to
$1  billion in 2000 from  $953.2  million  in 1999 and an  increase  of 11 basis
points in the average  interest rate paid to 4.07% for the year ended  September
30, 2000 from 3.96% for the year ended  September 30, 1999. The average  deposit
mix changed to 32.6% and 67.4% of core deposits and certificates,  respectively,
for the year ended  September  30, 2000 from 30.7% and 69.3% for the same period
in 1999.  Interest expense on FHLB advances and other borrowings  increased $2.1
million  to $13.2  million  for the year  ended  September  30,  2000 from $11.1
million for the year ended  September 30, 1999.  This increase was the result of
an increase of $35.1  million in the average  balance to $232.9  million in 2000
from $197.8 million in 1999 primarily due to proceeds from new short-term  daily
rate advances taken in order to fund short-term cash operating needs in 2000 and
new  long-term  fixed  rate  advances  taken in order  to fund the  purchase  of
mortgage-backed securities and investment securities in 1999.

                                       10
<PAGE>

Provision for Loan Losses

The  provision  for loan losses was  $847,000 for the year ended  September  30,
2000,  compared to $816,000 for the year ended September 30, 1999. The provision
for loan losses for the year ended September 30, 2000 was principally  comprised
of a credit of  approximately  $99,000  related  to a  decrease  in the level of
classified  loans,  a charge  of  approximately  $876,000  due to  overall  loan
portfolio growth and a charge of approximately  $70,000 for net chargeoffs.  The
provision for loan losses for the year ended  September 30, 1999 was principally
comprised  of a credit of  approximately  $511,000  related to a decrease in the
level of classified  loans,  a charge of  approximately  $645,000 due to overall
loan portfolio growth and a charge of approximately $682,000 for net chargeoffs.
The  allowance  for loan  losses  was at $12.7  million  and $12.0  million  for
September 30, 2000 and 1999, respectively.  The allowance was 1.02% and 1.12% of
total  loans at  September  30, 2000 and 1999,  respectively  and was 277.9% and
230.7% of classified loans at September 30, 2000 and 1999,  respectively.  While
the Company's  management  uses  available  information  to recognize  losses on
loans,  future  additions to the allowance may be necessary  based on changes in
economic conditions.

Other Income

Other  income  increased  by $1.7  million  to $7.9  million  for the year ended
September 30, 2000 from $6.2 million for the year ended September 30, 1999. This
increase  is due  primarily  to an  increase  of $1.3  million in other fees and
service charges,  an increase of $247,000 in insurance  commissions and fees and
to a  $169,000  gain on the  sale of land  partially  offset  by a  decrease  of
$156,000 in income from real estate operations.  Other fees and service charges,
primarily from fees and service charges on deposit  products,  were $6.8 million
and $5.5 million for the years ended September 30, 2000 and 1999,  respectively.
This increase was due primarily to the growth in transaction accounts. Insurance
commissions  and fees were  $418,000 and $171,000 for the years ended  September
30,  2000  and  1999,  respectively.  This  increase  was due  primarily  to the
acquisition  of  two  insurance  agencies  in  2000.  Income  from  real  estate
operations was $249,000 and $405,000 for the years ended  September 30, 2000 and
1999,  respectively.  This decrease was due primarily to a $211,000  increase in
the provision for losses on real estate owned partially offset by an increase of
$67,000 in gain on sale of real estate owned.  The provision was $25,000 for the
year  ended  September  30,  2000,  compared  to a credit  of  $186,000  for the
comparable period in 1999.

Other Expense

Other  expense  increased  by $2.6  million to $28.6  million for the year ended
September 30, 2000 from $26.0 million for the year ended September 30, 1999. The
increase was due  primarily to an increase of $1.1 million in  compensation  and
benefits,  an  increase  of  $763,000  in  occupancy  expense and an increase of
$490,000 in other  expenses.  The increase in  compensation  and benefits is due
primarily to annual salary  increases and  additional  staff required to support
the growth in loans and  deposits.  The  increase  in  occupancy  expense is due
primarily  to an  increase in data  processing  equipment  expense and  expenses
resulting  from the addition of three new branch  offices during the last fiscal
year.  The increase in other expense is due primarily to an increase of $215,000
in professional fees and other increases  resulting from the growth in loans and
deposits.  The increase in professional  fees is due primarily to fees paid to a
consulting firm for a net interest margin and product pricing study.

Income Taxes

Income tax expense  increased  by  $565,000 to $13.7  million for the year ended
September 30, 2000 from $13.2 million for the year ended September 30, 1999, due
primarily to an increase in pretax  accounting  income.  The effective tax rates
were  38.7%  and  38.3%  for the  years  ended  September  30,  2000  and  1999,
respectively.

Year Ended September 30, 1999 Compared to Year Ended September 30, 1998

General

Diluted  earnings per share for the year ended  September  30,  1999,  increased
43.4% to 76 cents per share on net income of $21.2 million, compared to 53 cents
per  share  on net  income  of  $16.0  million  for the same  period  last  year
(excluding the impact in 1998 of $1.3 million after tax of  nonrecurring  income
from the payoff of a problem  commercial  real estate  loan,  sale of the Bank's
ownership  interest  in its  data  processing  servicer  and  sale of  land  and
buildings).   This  increase  was  due  primarily  to  an  increase  in  average
interest-earning  assets  and  a  decrease  in  the  average  number  of  shares
outstanding.  Reported  diluted  earnings per share for the year ended September
30,  1998 was 57 cents per share on net income of $17.4  million.  Net  interest
income  increased  13.5% to $55.0 million for the year ended September 30, 1999,
compared to $48.5 million for the year ended  September 30, 1998.  This increase
was due to an increase in interest  income of $8.7 million offset by an increase
in interest expense of $2.2 million.  Other income increased to $6.0 million for
the year ended September 30, 1999 from $5.8 million for the year ended September
30, 1998. Other expenses increased to $25.8 million for the year ended September
30, 1999 from $24.4 million for the year ended September 30, 1998.
                                    11
<PAGE>

Interest Income

Total interest  income  increased to $103.9 million for the year ended September
30, 1999 from $95.1 million for the year ended September 30, 1998 as a result of
an increase in average  interest-earning  assets that was partially  offset by a
decrease  in  the  average  interest  rate.  Average   interest-earnings  assets
increased  to $1.4  billion  for the year  ended  September  30,  1999 from $1.2
billion  for the year ended  September  30,  1998.  The  average  rate earned on
interest-earning  assets  decreased  to 7.54% for the year ended  September  30,
1999,  from 7.93% for the year ended  September 30, 1998, a decrease of 39 basis
points.  The year ended September 30, 1998 included  $874,000 of interest income
recognized on the payoff of a problem  commercial real estate loan. The increase
in average  interest-earning  assets was due primarily to cash proceeds from the
conversion of Harbor  Financial,  M.H.C.  and a concurrent  stock  offering (the
"Stock  Offering"),  new FHLB  advances and the  increase in deposits.  Interest
income on loans  increased  $5.9  million  to $82.1  million  for the year ended
September  30, 1999 from $76.2  million for the year ended  September  30, 1998.
This increase was a result of a $120.2 million  increase in the average  balance
to $1 billion in 1999 from $896.8 million in 1998 that was partially offset by a
decrease of 43 basis points in the average  yield to 8.07% in 1999 from 8.50% in
1998.  The  increase  in the  average  balance of total  loans was mainly due to
significant  growth in the residential and commercial loan portfolios  resulting
from  increased  levels of loan  originations.  Interest  income  on  investment
securities  increased $1.1 million to $6.1 million for the year ended  September
30, 1999 from $5.0 million for the year ended  September 30, 1998. This increase
was primarily the result of a $20.5 million  increase in the average  balance to
$102.5  million in 1999 from $82.0 million in 1998.  The increase in the average
balance of investment  securities  was primarily due to the purchase of FHLB and
FNMA Notes with the proceeds from the Stock  Offering in 1998, new FHLB advances
and the  increase in deposits.  Interest  income on  mortgage-backed  securities
increased  $1.9 million to $13.2  million for the year ended  September 30, 1999
from $11.3  million for the year ended  September  30, 1998.  This  increase was
primarily  the result of a $34.3  million  increase  in the  average  balance to
$207.5  million in 1999 from $173.2 million in 1998. The increase in the average
balance of  mortgage-backed  securities  was  primarily  due to the  purchase of
fifteen-year fixed rate securities with the proceeds from new FHLB advances.

Interest Expense

Total interest  expense  increased to $48.8 million for the year ended September
30, 1999 from $46.6 million for the year ended September 30, 1998. This increase
was due primarily to an increase in average interest-bearing liabilities to $1.2
billion for the year ended September 30, 1999 from $1 billion for the year ended
September  30,  1998.  The  average  interest  rate  paid  on   interest-bearing
liabilities  was 4.24% for the year ended  September  30, 1999 compared to 4.53%
for the year ended  September 30, 1998, a decrease of 29 basis points.  Interest
expense on deposits  decreased  $2.5 million to $37.7 million for the year ended
September  30, 1999 from $40.2  million for the year ended  September  30, 1998.
This  decrease was due primarily to a decrease of 43 basis points in the average
interest  rate paid on deposits to 3.96% for the year ended  September  30, 1999
from  4.39% for the year  ended  September  30,  1998.  The  average  balance of
deposits  increased  by $28.1  million  to  $953.2  million  for the year  ended
September  30, 1999 from $925.1  million for the year ended  September 30, 1998.
The  average  deposit  mix  changed  to 30.7%  and  69.3% of core  deposits  and
certificates, respectively, for the year ended September 30, 1999 from 27.5% and
72.5% for the same period in 1998.  Interest  expense on FHLB advances and other
borrowings  increased $4.7 million to $11.1 million for the year ended September
30, 1999 from $6.4 million for the year ended  September 30, 1998. This increase
was the result of an increase of $92.9 million in the average  balance to $197.8
million in 1999 from $104.9  million in 1998  primarily due to proceeds from new
long-term   fixed  rate  advances  taken  in  order  to  fund  the  purchase  of
mortgage-backed securities and investment securities.

Provision for Loan Losses

The  provision  for loan losses was  $816,000 for the year ended  September  30,
1999,  compared to $297,000 for the year ended September 30, 1998. The provision
for loan losses for the year ended September 30, 1999 was principally  comprised
of a credit of  approximately  $511,000  related to a  decrease  in the level of
classified  loans,  a charge  of  approximately  $645,000  due to  overall  loan
portfolio growth and a charge of approximately $682,000 for net charge offs. The
provision for loan losses for the year ended  September 30, 1998 was principally
comprised of a credit of  approximately  $909,000  related to an decrease in the
level of classified loans, a charge of approximately $1.1 million due to overall
loan  portfolio  growth and a charge of  approximately  $103,000  for net charge
offs.  The  allowance for loan losses was at $12.0 million and $11.8 million for
September 30, 1999 and 1998, respectively.  The allowance was 1.12% and 1.25% of
total loans at  September  30, 1999 and 1998,  respectively,  and was 230.7% and
211.9% of classified loans at September 30, 1999 and 1998,  respectively.  While
the Company's  management  uses  available  information  to recognize  losses on
loans,  future  additions to the allowance may be necessary  based on changes in
economic conditions.

Other Income

Other income  increased by $242,000 to $6.2 million for the year ended September
30, 1999 from $5.9 million for the year ended  September 30, 1998. This increase
is due  primarily  to an  increase  of $1.4  million in other  fees and  service
charges and an  increase  of  $446,000  in income  from real  estate  operations
partially  offset by the $719,000  gain on the sale of the  Company's  ownership
                                       12
 <PAGE>
interest in its data processing servicer and the $596,000 gain on the sale of
land and buildings in 1998. Other fees and service charges,  primarily from fees
and service charges on deposit products,  were $5.5 million and $4.1 million for
the years ended  September  30, 1999 and 1998,  respectively.  This increase was
primarily  due to the growth in  transaction  accounts.  Income from real estate
operations was $405,000 for the year ended September 30, 1999 compared to a loss
of $41,000 for the year ended September 30, 1998.

Other Expense

Other  expense  increased  by $1.5  million to $26.0  million for the year ended
September 30, 1999 from $24.5 million for the year ended September 30, 1998. The
increase was due  primarily to an increase of $1.1 million in  compensation  and
benefits  and an  increase  of  $129,000  in other  expenses.  The  increase  in
compensation  and benefits is due  primarily  to  additional  staff  required to
support the growth in loans and  deposits.  The increase in other expense is due
primarily to an increase of $185,000 in deposit account losses.

Income Taxes

Income tax expense  increased  by  $911,000 to $13.2  million for the year ended
September 30, 1999 from $12.2 million for the year ended September 30, 1998, due
primarily to an increase in pretax  accounting  income.  The effective tax rates
were  38.3%  and  41.3%  for the  years  ended  September  30,  1999  and  1998,
respectively.

Liquidity and Capital Resources

On March 18, 1998, the Company completed its  reorganization  and stock offering
in connection with the conversion of Harbor  Financial,  M.H.C. The Company sold
16,586,752  shares of common  stock for $10.00 per share in the Stock  Offering.
Cash proceeds  after costs and funding of the Company's  ESOP was  approximately
$150 million. The Company also issued 14,112,400 exchange shares (exchange ratio
of 6.0094 to 1) to existing Harbor Florida  Bancorp,  Inc. public  stockholders.
The net proceeds were used for general corporate purposes,  including investment
in home mortgages and other investments in the ordinary course of business.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS regulations. This requirement,  which varies from time to time, is currently
4% of deposits and  short-term  borrowings.  It is the Bank's policy to maintain
average  monthly levels of liquid assets of at least 50 basis points higher than
the  minimum  requirement,  primarily  as a part  of  its  asset  and  liability
management strategy of increasing its levels of rate-sensitive  interest-earning
assets.  At September 30, 2000, the Bank had cash and investments  that exceeded
the  minimum  regulatory   requirement.   In  addition,  the  Bank  had  certain
investments in mortgage-backed  securities  aggregating $165.0 million that also
qualify as liquid  assets under OTS  regulations.  The Bank intends to hold such
investments  in  mortgage-backed   securities  until  maturity.   However,  such
investments  may be used as collateral  for  borrowing as such need arises.  The
Bank's total  liquidity  position as of September  30, 2000 was $280.1  million,
which was $236.5 million in excess of the minimum requirement of $43.6 million.

The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed  securities,  maturities of investment  securities and
other short-term  investments,  and earnings and funds provided from operations.
The Bank will consider increasing its borrowings from the Federal Home Loan Bank
of Atlanta from time to time as an  alternative  to increasing  deposit  account
interest rates. In addition,  the Bank holds unpledged fixed and adjustable rate
mortgage-backed  securities  totaling  $164.3 million at September 30, 2000 that
could  be used as  collateral  under  repurchase  transactions  with  securities
dealers.  Repurchase  transactions  serve as secured  borrowings  and  provide a
source of short-term liquidity for the Bank.

Net cash  provided  by the  Company's  operating  activities  (i.e.  cash  items
affecting net income) was $24.7 million,  $24.6  million,  and $20.7 million for
the years ended September 30, 2000, 1999 and 1998, respectively.

Net cash used by the Company's  investing  activities  (i.e. cash used primarily
from its investment securities,  mortgage-backed securities and loan portfolios)
was $152.2  million,  $115.5  million,  and $188.2  million  for the years ended
September 30, 2000, 1999 and 1998,  respectively.  The increase in cash flows in
2000 was due primarily to an increase of $56.9 million in net loans,  a decrease
of $29.3  million in proceeds  from  maturity  of  investment  securities  and a
decrease of $16.1  million in the purchase of  investment  securities  partially
offset by a $70.1 million decrease in the purchase of mortgage-backed securities
and a decrease  of $42.2  million in proceeds  from  principal  repayments  from
mortgage-backed securities. The decrease in cash flows in 1999 was due primarily
to a  decrease  of  $12.6  million  in  proceeds  from  maturity  of  investment
securities, a decrease of $73.7 million in the purchase of investment securities
and a $30.1  million  decrease  in the  purchase of  mortgage-backed  securities
partially offset by a net increase of $13.5 million in loans.

Net cash  provided by the Company's  financing  activities  (i.e.  cash receipts
primarily from net increases  (decreases) in deposits and net FHLB advances) was
$94.2 million,  $90.4 million,  and $198.4 million for the years ended September
30, 2000, 1999, and 1998,  respectively.  The decrease in 1999 was due primarily
to $150.2 million net proceeds from the Stock Offering in 1998.

                                       13
<PAGE>
The Bank's liquid assets consist primarily of investment securities and cash. At
September  30, 2000,  the Bank had liquid  assets of $115.8  million,  with loan
commitments  of  $42.2  million   (consisting  of  unused  lines  of  credit  to
homebuilders and residential and commercial loan commitments), letters of credit
of $5.1  million  and  unfunded  loans in process of  $77.1million  (the  latter
consisting primarily of residential loans in process).

Harbor Florida  Bancshares,  Inc. (the holding company) has cash requirements to
pay dividends to shareholders and the holding company's  expenses.  During 2000,
the holding  company  expended $8.6 million for  dividends  and expenses.  As of
September  30,  2000,  the  holding  company  had $4.0  million in cash and $6.5
million in available for sale  securities  and is eligible to receive  dividends
from the Bank in order to meet future  cash  requirements.  Management  believes
that sufficient  financial  resources exist at the holding company level to meet
its  obligations  for the next twelve  months.  As of September  30,  2000,  $62
million was  available  for  distribution  from the Bank to the holding  company
without further regulatory approval.

Impact of New Accounting Standards

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
("Statement  133").  The  effective  date for  Statement 133 was delayed by SFAS
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- deferral of the effective date of FASB No. 133"  ("Statement  137"), to fiscal
years  beginning after June 15, 2000.  Statement 133 establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure those instruments at fair value. In
June 2000,  the FASB  issued SFAS No. 138,  "Accounting  for Certain  Derivative
Instruments and Certain Hedging  Activities,  an amendment to FASB Statement No.
133"  ("Statement  138").  Statement  138  addresses a limited  number of issues
causing  implementation  difficulties for numerous entities that apply FASB 133.
It is currently anticipated that the Company will adopt Statement 133 on October
1, 2000, and that the statement will not have a significant  financial statement
impact upon adoption.

In September  2000, the FASB issued SFAS No. 140,  "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities,"  ("Statement
140") which replaces SFAS No. 125. This statement provides consistent  standards
for  distinguishing  transfers of financial assets that are sales from transfers
that are secured  borrowings.  Because  Statement 140 focuses on control after a
transfer of financial  assets,  an entity is required to recognize the financial
and  servicing   assets  it  controls  and  the  liabilities  it  has  incurred,
derecognize financial assets when control has been surrendered,  and derecognize
liabilities when extinguished.  All measurements and allocations should be based
on fair value.  Statement  140 is  effective  for  transfers  and  servicing  of
financial assets and  extinguishments  of liabilities  occurring after March 31,
2001.  This  statement is effective  for  recognition  and  reclassification  of
collateral  and for  disclosures  relating to  securitization  transactions  and
collateral for fiscal years ending after December 15, 2000. The Company does not
expect  implementation  of this  statement  to  have a  material  effect  on the
Company's financial statements.

                                       14
<PAGE>










                          Independent Auditors' Report







Board of Directors
Harbor Florida Bancshares, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of Harbor Florida Bancshares, Inc. and subsidiaries as of September 30, 2000 and
1999, and the related consolidated statements of earnings,  stockholders' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended September 30, 2000. These consolidated financial statements are the
responsibility   of  Harbor   Florida   Bancshares,   Inc.'s   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Harbor  Florida
Bancshares,  Inc.  and  subsidiaries  at  September  30, 2000 and 1999,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  September  30,  2000 in  conformity  with  accounting
principles generally accepted in the United States of America.



                                         KPMG LLP



October 13, 2000
West Palm Beach

                                    15
<PAGE>


Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
 September 30, 2000 and 1999                                                                        2000                1999
                                                                                                    ----                ----
                                                                                                (In thousands except share data)
<S>                                                                                             <C>                 <C>
 Assets:
 Cash and amounts due from depository institutions                                                $ 29,085            $ 30,214
 Interest-bearing deposits in other banks                                                              729              32,959
 Investment securities held to maturity (estimated market value of $200 and $10,844 at
    September 30, 2000 and 1999, respectively)                                                         200              10,910
 Investment securities available for sale at estimated market value                                 85,767              76,166
 Mortgage-backed securities held to maturity (estimated market value of $161,853 and
    $193,474 at September 30, 2000 and 1999, respectively)                                         165,059             196,971
 Loans held for sale (estimated market value of $2,548 and $1,747 at September 30, 2000 and
    1999, respectively)                                                                              2,548               1,747
 Loans, net                                                                                      1,251,669           1,070,335
 Accrued interest receivable                                                                         8,387               7,580
 Real estate owned                                                                                     871                 911
 Premises and equipment, net                                                                        21,121              20,139
 Federal Home Loan Bank stock                                                                       12,500              11,250
 Goodwill, net                                                                                       3,430               2,361

 Other assets                                                                                        1,329               1,007
                                                                                                     -----               -----
               Total assets                                                                     $1,582,695          $1,462,550
                                                                                                ==========          ==========

 Liabilities and Stockholders' Equity:
 Liabilities:
    Deposits                                                                                   $ 1,098,537           $ 977,595
    Short-term borrowings                                                                           18,000                 ---
    Long-term debt                                                                                 220,091             225,000
    Advance payments by borrowers for taxes and insurance                                           20,688              18,951
    Income taxes payable                                                                               435                  22
    Other liabilities                                                                                5,560               5,060
                                                                                                     -----               -----
               Total liabilities                                                                 1,363,311           1,226,628
                                                                                                 ---------           ---------

 Stockholders' Equity:
    Preferred stock; $.10 par value; authorized 10,000,000 shares; none issued and
        outstanding                                                                                    ---                 ---
    Common stock; $.10 par value; authorized 70,000,000 shares; 31,139,509 shares issued
        and 25,268,518 outstanding at September 30, 2000 and 31,099,967 shares issued and
        28,008,627 outstanding at September 30, 1999                                                 3,114               3,110
    Paid-in capital                                                                                191,291             191,016
    Retained earnings                                                                              109,941              96,485
    Accumulated other comprehensive income (loss), net                                                 233                 (70)
    Common stock purchased by:
        Employee stock ownership plan (ESOP)                                                       (12,047)            (12,746)
        Recognition and retention plan (RRP)                                                        (5,385)             (6,258)
    Treasury stock, at cost, 5,870,991 shares and 3,091,340 shares at September 30, 2000
        and 1999, respectively                                                                     (67,763)            (35,615)
            -----                                                                                  -------             -------

             Total stockholders' equity                                                            219,384             235,922
                                                                                                   -------             -------

             Total liabilities and stockholders' equity                                         $1,582,695          $1,462,550
                                                                                                ==========          ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       16
<PAGE>


Consolidated Statements of Earnings

<TABLE>
<CAPTION>
Years ended September 2000, 1999, and 1998
                                                                       2000                     1999                      1998
                                                                       ----                     ----                      ----
                                                                              (In thousands except per share data)
<S>                                                                   <C>                      <C>                       <C>
 Interest income:
    Loans                                                             $94,092                  $82,107                   $76,231
    Investment securities                                               5,849                    6,107                     4,945
    Mortgage-backed securities                                         11,537                   13,173                    11,301
    Other                                                                 844                    2,497                     2,681
                                                                          ---                    -----                     -----
             Total interest income                                    112,322                  103,884                    95,158
                                                                      -------                  -------                    ------
 Interest expense:
    Deposits                                                           42,014                   37,719                    40,219
    Other                                                              13,201                   11,121                     6,439
                                                                       ------                   ------                     -----
             Total interest expense                                    55,215                   48,840                    46,658
                                                                       ------                   ------                    ------
             Net interest income                                       57,107                   55,044                    48,500
 Provision for loan losses                                                847                      816                       297
                                                                          ---                      ---                       ---
             Net interest income after provision for
                loan losses                                            56,260                   54,228                    48,203
                                                                       ------                   ------                    ------
 Other income:
    Other fees and service charges                                      6,812                    5,505                     4,074
    Insurance commissions and fees                                        418                      171                       222
    Income (losses) from real estate operations                           249                      405                       (41)
    Gain on sale of mortgage loans                                         66                       57                       142
    Gain on sale of securities                                            103                      ---                       ---
    Other                                                                 222                       42                     1,541
                                                                          ---                       --                     -----
             Total other income                                         7,870                    6,180                     5,938
                                                                        -----                    -----                     -----
 Other expenses:
    Compensation and employee benefits                                 16,503                   15,413                    14,282
    Occupancy                                                           4,185                    3,422                     3,365
    Data processing services                                            1,764                    1,490                     1,332
    Advertising and promotion                                           1,049                    1,038                     1,010
    Other                                                               5,162                    4,672                     4,543
                                                                        -----                    -----                     -----
             Total other expense                                       28,663                   26,035                    24,532
                                                                       ------                   ------                    ------
             Income before income taxes                                35,467                   34,373                    29,609
 Income tax expense                                                    13,719                   13,154                    12,243
                                                                       ------                   ------                    ------
             Net income                                              $ 21,748                 $ 21,219                  $ 17,366
                                                                     ========                 ========                  ========
    Net income per share:
                   Basic                                              $ .89                     $ .77                    $ .58
                                                                      =====                     =====                    =====
                   Diluted                                            $ .88                     $ .76                    $ .57
                                                                      =====                     =====                    =====
</TABLE>

See accompanying notes to consolidated financial statements.

                                       17
<PAGE>

 Consolidated Statements of Stockholders' Equity and Comprehensive Income
 Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
                                                                          Common     Common
                         Compre-                                          Stock      stock
                         hensive     Common      Paid-in    Retained    Purchased  purchased
                         Income       Stock      Capital    earnings     by ESOP     by RRP
                         ------       -----      -------    --------   - -------     ------
                                                     (In thousands)
 <S>                      <C>            <C>       <C>         <C>          <C>       <C>
Balance at September
     30, 1997                            $3,052    $23,874     $71,203       $(374)       $ -
                                         ------    -------     -------       ------       ---
 Comprehensive income
 Net income               $17,366            -          -      17,366           -          -
 Other comprehensive
    income, net of
    tax:
   Unrealized gain on
      securities
      available for
      sale                    666            -          -           -           -          -
                          -------
 Comprehensive income     $18,032
                          =======
 Reorganization of MHC                       -          -         200           -          -
 Proceeds of stock
    offering, net                            -    163,493           -           -          -
 Issuance of ESOP
    shares                                   -          -           -     (13,269)         -
 Stock options
    exercised                               39        618           -           -          -
 Amortization of
    award of ESOP and
    RRP                                      -      1,798           -         299          -
 Dividends paid                              -          -   (5,414)             -          -
 Tax benefit of stock
    plans                                    -        175           -           -          -
 Stock purchased by
    deferred comp plan                       -          -           -           -          -
 Satisfaction of
    deferred
    compensation
    liability                                -          -           -           -          -
                                       -------        ---         ---         ---    -------
 Balance at September
    30, 1998                           $ 3,091  $ 189,958    $ 83,355   $ (13,344)       $ -
                                       -------  ---------    --------   ----------       ---
 Comprehensive income
 Net income               $21,219            -          -      21,219           -          -
 Other comprehensive
    loss, net of tax:
  Unrealized loss on
      securities
      available for
      sale                   (729)           -          -           -           -          -
                         --------
 Comprehensive income     $20,490
                          =======
 Stock options
    exercised                               19        383           -           -          -
 Amortization of
    award of ESOP and
    RRP                                      -        515           -         598        913
 Dividends paid                              -          -   (8,089)             -          -
 Tax benefit of stock
    plans                                    -        160           -           -          -
 Purchase RRP shares                         -          -           -           -     (7,171)
Purchase of treasury
   shares                                    -          -           -           -          -
                                      --------        ---         ---         ---        ---
 Balance at September
    30, 1999                           $ 3,110  $ 191,016    $ 96,485   $ (12,746)  $ (6,258)
                                       -------  ---------    --------   ----------  ---------
                                    18
<PAGE>
                                                                          Common     Common
                         Compre-                                          Stock      stock
                         hensive     Common      Paid-in    Retained    Purchased  purchased
                         Income       Stock      Capital    earnings     by ESOP     by RRP
                         ------       -----      -------    --------   - -------     ------
 Balance at September
    30, 1999
    (continued)                        $ 3,110  $ 191,016    $ 96,485   $ (12,746)  $ (6,258)
                                       -------  ---------    --------   ----------  ---------
 Comprehensive income
 Net income               $21,748            -          -      21,748           -          -
 Other comprehensive
    income, net of
    tax:
  Unrealized gain on
      securities
      available for
      sale                    303            -          -           -           -          -
                          -------
 Comprehensive income     $22,051
                          =======
 Stock options
    exercised                                4         92           -           -          -
 Amortization of
    award of ESOP and
    RRP                                      -        102           -         699        873
 Dividends paid                              -          -   (8,292)             -          -
 Tax benefit of stock
    plans                                    -        188           -           -          -
 Treasury Stock
    issued to
    purchase
    insurance agency                         -       (107)          -           -          -
Purchase of treasury
   shares                                    -          -           -           -          -
                                     ---------        ---         ---         ---        ---
 Balance at September
    30, 2000                           $ 3,114  $ 191,291    $109,941   $ (12,047)  $ (5,385)
                                       =======  =========    ========   ==========  =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              Common                 Accum.
                               stock                 Other
                             purchased               compre-
                            by deferred   Treasury   hensive
                           compensation    stock     income
                                plan     purchased   (loss)     Total
                                ----     ---------   ------     -----
<S>                          <C>           <C>     <C>      <C>
Balance at September
   30, 1997                   $(946)        $-      $ (7)    $ 96,802
                              ------        --      -----    --------

Comprehensive income              -          -         -       17,366
Net income
Other comprehensive
   income, net of
   tax:
  Unrealized gain on
     securities
     available for                -          -       666          666
     sale

Comprehensive income
                                  -          -         -          200
Reorganization of MHC
Proceeds of stock                 -          -         -      163,493
   offering, net
Issuance of ESOP                  -          -         -      (13,269)
   shares
Stock options                     -          -         -          657
   exercised
Amortization of
   award of ESOP and              -          -         -        2,097
   RRP                            -          -         -       (5,414)
Dividends paid
Tax benefit of stock              -          -         -          175
   plans
Stock purchased by             (100)         -         -         (100)
   deferred comp plan
Satisfaction of
   deferred
   compensation               1,046                    -       1,046
   liability                  -----       ----     -----       -----

Balance at September           $  -         $-     $ 659     $263,719
   30, 1998                    ----       ----     -----     --------

Comprehensive income              -          -         -       21,219
Net income
Other comprehensive
   loss, net of tax:
 Unrealized loss on
     securities
     available for                -          -      (729)        (729)
     sale

Comprehensive income

Stock options                     -          -         -          402
   exercised
Amortization of
   award of ESOP and              -          -         -        2,026
   RRP                            -          -         -       (8,089)
Dividends paid
Tax benefit of stock              -          -         -          160
   plans                          -          -         -       (7,171)
Purchase RRP shares
Purchase of treasury              -    (35,615)        -      (35,615)
  shares                        ---    --------     ----     --------

Balance at September            $ -  $ (35,615)    $ (70)    $235,922
   30, 1999                     ---  ----------    ------    --------

<PAGE>
                              Common                 Accum.
                               stock                 Other
                             purchased               compre-
                            by deferred   Treasury   hensive
                           compensation    stock     income
                                plan     purchased   (loss)     Total
                                ----     ---------   ------     -----

Balance at September
   30, 1999                     $ -  $ (35,615)    $ (70)    $235,922
   (continued)                  ---  ----------    ------    --------

Comprehensive income              -          -         -       21,748
Net income
Other comprehensive
   income, net of
   tax:
 Unrealized gain on
     securities
     available for                -          -       303          303
     sale

Comprehensive income

Stock options                     -          -         -           96
   exercised
Amortization of
   award of ESOP and              -          -         -        1,674
   RRP                            -          -         -       (8,292)
Dividends paid
Tax benefit of stock              -          -         -          188
   plans
Treasury Stock
   issued to
   purchase                       -      1,194         -        1,087
   insurance agency
Purchase of treasury              -    (33,342)        -      (33,342)
  shares                        ---    --------    -----     --------
Balance at September
   30, 2000                     $ -  $ (67,763)    $ 233     $219,384
                                ===  ==========    =====     ========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>

Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                   2000            1999             1998
                                                                                   ----            ----             ----
                                                                                           (In thousands)
<S>                                                                             <C>              <C>             <C>
 Cash provided by operating activities:
    Net income                                                                  $ 21,748         $ 21,219        $ 17,366
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Gain on sale of investment securities available for sale                    (103)              ---            ---
        Gain on sale of premises and equipment                                      (167)              (2)           (594)
        Gain on sale of real estate owned                                           (271)            (207)           (176)
        Provision for loan losses                                                    847              816             297
        Provision for (recovery of) losses on real estate owned                       25             (186)            136
        Depreciation and amortization                                              2,358            2,259           2,485
        ESOP forfeitures transferred to treasury stock                               (23)             (44)            ---
        Accretion of discount on purchased loans                                     (13)             (13)           (352)
        Deferred income tax benefit                                                 (432)             (66)           (208)
        Originations of loans held for sale                                       (6,023)          (9,408)         (9,556)
        Proceeds from sale of loans held for sale                                  5,224            8,375           8,983
        Increase in deferred loan fees and costs                                   1,592            2,156           1,816
        (Increase) decrease in accrued interest receivable                          (807)             292            (839)
        (Increase) decrease in other assets                                         (322)            (263)            277
        Increase (decrease)  in income taxes payable                                 601             (579)            308
        Increase in other liabilities                                                468              216             746
                                                                                     ---              ---             ---


        Net cash provided by operating activities                                 24,702           24,565          20,689
                                                                                  ------           ------          ------

 Cash used by investing activities:
    Net increase in loans                                                       (183,741)        (126,827)       (113,365)
    Purchase of mortgage-backed securities                                           ---          (70,074)       (100,222)
    Proceeds from principal repayments of
         mortgage-backed securities                                               31,789           73,986          75,827
    Proceeds from maturities and calls of investment
         securities held to maturity                                              10,715           20,000           5,000
    Purchase of investment securities held to maturity                               ---             (915)        (29,983)
    Proceeds from maturities and calls of
         investment securities available for sale                                    ---           20,000          47,582
    Proceeds from sale of investment securities available for sale                 1,663              ---             ---
    Purchase of investment securities available for sale                         (10,613)         (25,805)        (70,427)
    Proceeds from sale of real estate owned                                        1,626            1,818           2,111
    Purchase of premises and equipment                                            (2,842)          (4,801)         (5,602)
    Proceeds from sale of premises and equipment                                     278              118           1,460
    FHLB stock purchase                                                           (1,250)          (3,038)           (617)
    Net cash provided from purchase of insurance agencies                            158              ---             ---
                                                                                     ---              ---             ---

        Net cash used by investing activities                                   (152,217)        (115,538)       (188,236)
                                                                                ---------        ---------       ---------
                                    20
<PAGE>

 Cash provided by financing activities:
    Net increase in deposits                                                     120,942           59,469           6,751
    Net proceeds from short-term borrowings                                       13,000              ---         (30,400)
    Repayments of long-term borrowings                                                (8)             ---             (75)
    Net proceeds from long-term borrowings                                           ---           80,000          75,000
    Increase in advance payments by borrowers for taxes and insurance              1,737            1,343           1,682
    Dividends paid                                                                (8,292)          (8,089)         (5,414)
    Common stock options exercised                                                    96              402             657
    Purchase of common stock by recognition and retention plan                       ---           (7,171)            ---
    Purchase of  treasury stock                                                  (33,319)         (35,571)            ---
    Net proceeds from issuance of common stock                                       ---              ---         150,224
                                                                                   -----            -----         -------


        Net cash provided by financing activities                                 94,156           90,383         198,425
                                                                                  ------           ------         -------

        Net increase (decrease) in cash and cash equivalents                     (33,359)            (590)         30,878

 Cash and cash equivalents - beginning of year                                    63,173           63,763          32,885
                                                                                  ------           ------          ------

 Cash and cash equivalents - end of year                                        $ 29,814         $ 63,173        $ 63,763
                                                                                ========         ========        ========


 Supplemental disclosures:
    Cash paid for:
        Interest                                                                $ 55,032         $ 48,435        $ 46,509
        Taxes                                                                     13,550           13,799          12,142
    Noncash investing and financing activities:
        Additions to real estate acquired in
              settlement of loans through foreclosure                              2,049            1,488           2,815
        Sale of real estate owned financed by the Company                            709            1,685             524
        Change in unrealized gain (loss) on securities available for sale            496           (1,187)          1,084
        Change in deferred taxes related to securities available for sale           (193)             458            (418)
        Tax benefit of stock plans credited to capital                               188              160             175
        Issue ESOP common stock                                                      ---              ---          13,269
        Addition to retained earnings due to merger of
              Harbor Financial, M.H.C.                                               ---              ---             200
        Satisfaction of deferred compensation plan                                   ---              ---           1,046
        Transfer to short-term borrowings from long-term debt                      5,000              ---             300
        Distribution of RRP shares                                                   873              913             ---
        Treasury stock issued to purchase insurance agency                         1,087              ---             ---
        Note payable issued to purchase insurance agency                              99              ---             ---
</TABLE>

    See accompanying notes to consolidated financial statements.


<PAGE>


Notes to Consolidated Financial Statements

September 30, 2000, 1999, and 1998

(1)    Summary of Significant Accounting Policies

(a)    Nature of Business, Reorganization and Offering of Common Stock

Harbor Florida  Bancshares,  Inc. (the "Company" or "Bancshares") is the holding
company for Harbor Federal  Savings Bank (the "Bank").  The Company owns 100% of
the  Bank's  common  stock.  Currently,  it  engages  in  no  other  significant
activities  beyond its ownership of the Bank's common stock.  Consequently,  its
net income is derived from the Bank.  The Bank  provides a wide range of banking
services and is engaged in the business of attracting  deposits  primarily  from
the communities it serves and using these and other funds to originate primarily
one-to-four family first mortgage loans for retention in its portfolio.

Prior to March 18,  1998,  the  Company's  predecessor  entity,  Harbor  Florida
Bancorp,  Inc.  ("Bancorp"),  was owned approximately 53.37% by Harbor Financial
M.H.C.  ("Mutual Holding Company") and 46.63% by public  shareholders.  On March
18,  1998,  pursuant to a plan of  conversion  and  reorganization,  and after a
series of  transactions:  (1) a new  entity,  Bancshares,  became the  surviving
corporate  entity,  (2)  Bancshares  sold  the  ownership  interest  in  Bancorp
previously  held by the Mutual  Holding  Company to the public in a subscription
offering (the "Offering")  (16,586,752  common shares at $10.00 resulting in net
cash proceeds after costs and funding the ESOP (note 17) of  approximately  $150
million), (3) previous public shareholders of Bancorp had their shares exchanged
into 14,112,400 common shares of Bancshares (exchange ratio of 6.0094 to 1) (the
"Exchange"),  and (4) the  Mutual  Holding  Company  ceased to exist.  The total
number of shares of common stock outstanding following the Offering and Exchange
was 30,699,152.  The  reorganization  was accounted for in a manner similar to a
pooling  of  interests  and  did  not  result  in  any  significant   accounting
adjustments.  As a result  of the  reorganization,  the  consolidated  financial
statements  for prior  periods have been  restated to reflect the changes in the
par value of  common  stock  from  $.01 to $.10 per  share and in the  number of
authorized shares of common stock from 13,000,000 to 70,000,000.

(b)    Basis of Presentation

The  accompanying  consolidated  financial  statements  include the  accounts of
Harbor  Florida  Bancshares,   Inc.,  the  Bank  and  the  Bank's  wholly  owned
subsidiaries.  In  consolidation,  all  significant  intercompany  accounts  and
transactions have been eliminated.

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

Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination of the allowance for loan losses and
the valuation of real estate  acquired in  connection  with  foreclosures  or in
satisfaction of loans. In connection  with the  determination  of the allowances
for loan losses and real estate owned, management obtains independent appraisals
for significant properties.

As of  September  30,  2000,  substantially  all  of  the  Company's  loans  and
investment  in real estate  owned are secured by real estate in the  counties in
which the Company has branch  facilities:  St.  Lucie,  Indian  River,  Brevard,
Martin and Volusia Counties, Florida.  Accordingly,  the ultimate collectibility
of a substantial  portion of the Company's  loan portfolio and the recovery of a
substantial  portion of the carrying amount of real estate owned are susceptible
to changes in market conditions in the above counties.  Management believes that
the  allowances  for losses on loans and real estate owned are  adequate.  While
management  uses  available  information  to recognize  losses on loans and real
estate  owned,  future  additions to the  allowances  may be necessary  based on
changes in economic conditions, particularly in the above counties. In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and real estate
owned.  Such  agencies  may require the Company to  recognize  additions  to the
allowances based on their judgments about  information  available to them at the
time of their examination.

(c)    Loan Origination and Commitment Fees and Related Costs

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee is  recognized  in  interest  income  using  the  interest  method  over the
contractual life of the loans. Commitment fees and costs relating to commitments
whose likelihood of exercise is remote are recognized over the commitment period
on a straight-line basis. If the commitment is subsequently exercised during the
commitment  period,  the  remaining  unamortized  commitment  fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.
                                       22
<PAGE>
(d)    Loan Interest Income

The Company reverses accrued interest related to loans which are 90 days or more
delinquent or placed on non-accrual  status. Such interest is recorded as income
when  collected.  Amortization  of net  deferred  loan  fees  and  accretion  of
discounts  are  discontinued  for  loans  that  are 90 days or more  delinquent.
Interest  income on impaired  loans is  recognized  on an accrual  basis  unless
designated nonaccrual as noted above.

(e)    Investment and Mortgage Backed Securities

Bonds,  notes,  and other debt securities for which the Company has the positive
intent and  ability to hold to  maturity  are  reported  at cost,  adjusted  for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity.

Available-for-sale securities consist of bonds, notes, other debt securities and
certain   equity   securities   not   classified   as  trading   securities   or
held-to-maturity  securities.  Available-for-sale  securities  are  reported  at
estimated  market  value  and  include  securities  that are  being  held for an
unspecified  period of time, such as those the Company would consider selling to
meet  liquidity  needs  or as part of the  Company's  risk  management  program.
Unrealized  holding  gains  and  losses,  net  of  tax,  on   available-for-sale
securities are reported as a component of comprehensive  income in stockholders'
equity until realized.

Gains and losses on the sale of  available-for-sale  securities  are  determined
using the specific-identification method.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary results in write-downs
of the individual  securities to their fair value.  The related  write-downs are
included in earnings as realized losses.

At  September  30,  2000  and  1999,  the  Company  had no  commitments  to sell
investment or mortgage-backed securities.

(f)         Loans

Loans are  stated at unpaid  principal  balances,  less  loans in  process,  the
allowances for loan losses and net deferred loan origination fees and discounts.

Discounts on mortgage loans are amortized to interest  income using the interest
method over the remaining period to contractual maturity.

The Company  follows a consistent  procedural  discipline  and accounts for loan
loss  contingencies  in  accordance  with  Statement  of  Financial   Accounting
Standards No. 5, "Accounting for Contingencies"  (Statement 5). The following is
a  description  of how  each  portion  of  the  allowance  for  loan  losses  is
determined.

The  Company  segregates  the loan  portfolio  for loan loss  purposes  into the
following  broad  segments:  commercial  real estate;  residential  real estate;
commercial business;  and consumer. The Company provides for a general allowance
for losses inherent in the portfolio by the above categories,  which consists of
two  components.  (1)  General  loss  percentages  are  established  based  upon
historical analyses.  (2) A supplemental portion of the allowance is established
for inherent  losses which probably exist as of the evaluation  date even though
they might not have been  identified by the more objective  processes used. This
is due to the risk of error and/or  inherent  imprecision  in the process.  This
portion of the allowance is particularly subjective and requires judgments based
on  qualitative  factors  which do not  lend  themselves  to exact  mathematical
calculations such as: trends in delinquencies and nonaccruals;  migration trends
in the  portfolio;  trends in  volume,  terms,  and  portfolio  mix;  new credit
products  and/or  changes  in the  geographic  distribution  of those  products;
changes in lending policies and procedures;  loan review reports on the efficacy
of the risk identification  process;  changes in the outlook for local, regional
and  national  economic  conditions;  concentrations  of credit;  and peer group
comparisons.

Specific  allowances  are  provided  in the event that the  specific  collateral
analysis  on  each  classified  loan  indicates  that  the  probable  loss  upon
liquidation  of  collateral  would  be  in  excess  of  the  general  percentage
allocation.  The  provision  for loan  losses is debited or credited in order to
state the allowance for loan losses to the required level as determined above.

The Company considers a loan to be impaired when it is probable that the Company
will be  unable to  collect  all  amounts  due,  both  principal  and  interest,
according  to the  contractual  terms  of the  loan  agreement.  When a loan  is
impaired,  the Company may measure  impairment based on (a) the present value of
the expected  future cash flows of the impaired  loan  discounted  at the loan's
original  effective  interest  rate,  (b) the  observable  market  price  of the
impaired loan, or (c) the fair value of the collateral of a collateral-dependent
<PAGE>

loan. The Company selects the measurement method on a loan-by-loan basis, except
for  collateral-dependent  loans  for  which  foreclosure  is  probable  must be
measured at the fair value of the collateral.  In a troubled debt  restructuring
involving a restructured  loan, the Company  measures  impairment by discounting
the total expected  future cash flows at the loan's  original  effective rate of
interest.

(g)    Loans Held for Sale

Mortgage  loans  originated  and  intended  for  sale in the  secondary  market,
comprised of 1-4 family  residential  loans, are carried at the lower of cost or
estimated market value, in the aggregate.  Net unrealized  losses are recognized
through a valuation allowance by charges to income.

(h)    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  foreclosure
establishing  a new  cost  basis.  After  foreclosure,  management  periodically
performs  valuations  and the real  estate is carried  at the lower of  carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the  valuation  allowance  are included in income  (losses) from real
estate operations.

(i)         Premises and Equipment

Premises  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation of premises and equipment is provided on the  straight-line  method
over the estimated useful lives of the related assets. Estimated lives are three
to fifty  years  for  buildings  and  improvements  and  three to ten  years for
furniture  and   equipment.   Leasehold   improvements   are  amortized  on  the
straight-line  method  over the  shorter of the  remaining  term of the  related
leases or their estimated useful lives.

Maintenance and repairs are charged to expense as incurred and  improvements are
capitalized.  The cost and  accumulated  depreciation  relating to premises  and
equipment retired or otherwise  disposed of are eliminated from the accounts and
any resulting gains or losses are credited or charged to income.

(j)         Goodwill

Goodwill is being amortized on a straight-line  basis over its estimated  useful
life of 15 years.  The  Company  assesses  the  recoverability  of  goodwill  by
determining  whether the  amortization  over the remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.  The
assessment of goodwill will be impacted if such estimated  future operating cash
flows are not achieved and any impairment  will be evaluated  based on projected
discounted future operating cash flows.

(k)    Income Taxes

The Company and its  subsidiaries  file  consolidated  income tax  returns.  The
Company uses the asset and liability  method to account for income taxes.  Under
the asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary  differences" by applying enacted statutory tax rates
applicable  to future  years to  differences  between  the  financial  statement
carrying  amounts  and the tax bases of  existing  assets and  liabilities.  The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.

The tax bad debt reserve method previously  available to thrift institutions was
repealed  for the  Bank  effective  for the  year  beginning  October  1,  1996.
Consequently,  the  Bank  changed  from  the  reserve  method  to  the  specific
charge-off  method to compute its bad debt  deduction for the tax year beginning
October 1, 1996.

As a result of this change in  accounting  method,  the Bank must  recapture the
portion of its bad debt  reserve  (other  than the  supplemental  reserve)  that
exceeds  its base year  reserve  (i.e.,  its tax  reserve  for the last tax year
beginning  before  1988).  For  financial  statement  purposes,   the  Bank  has
previously  provided  deferred  taxes on the  amount of the bad debt  reserve in
excess of the base year reserve. At the time the Bank was required to change its
method of accounting,  the total reserve  subject to recapture and the base year
reserve was approximately $6.8 million and $14.8 million, respectively.

The recapture  amount  resulting  from the change in the method of accounting is
required to be taken into taxable income ratably (on a straight-line basis) over
a six-year period. If the Bank meets certain residential  lending  requirements,
<PAGE>

the  commencement of the recapture period may be delayed until the first taxable
year ending after December 31, 1997. The Bank met such  requirements for the tax
years beginning October 1, 1996 and 1997 and began the recapture in the tax year
beginning October 1, 1998.

The Bank's base year reserve must be recaptured  into taxable income as a result
of  certain  non-dividend  distributions.   A  distribution  is  a  non-dividend
distribution  to the extent that, for federal income tax purposes,  (i) it is in
redemption of shares,  (ii) it is pursuant to a liquidation of the  institution,
or (iii) in the case of a current  distribution it, together with all other such
distributions  during the taxable year, exceeds the Bank's current and post-1951
accumulated earnings and profits. The amount charged against the Bank's bad debt
reserves in respect to a distribution, which is includible in gross income, will
equal the amount of such distribution, increased by the amount of federal income
tax resulting from such inclusion.

(l)         Pension Plan

The  Company's  policy is to fund  pension  costs as they accrue based on normal
cost.

(m)    Stock-Based Compensation

In  October  1995,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("Statement 123"). This standard allows the use of either the fair
value based  method  described  in Statement  123 or the  intrinsic  value based
method  prescribed  by APB  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees." ("APB 25") The Company has elected to continue  accounting for stock
based  compensation under the APB 25 method and disclose the pro forma impact of
Statement 123.

(n)    Statement of Cash Flows

Cash equivalents include amounts due from banks and interest-bearing deposits in
other banks. For purposes of cash flows, the Company considers all highly liquid
debt instruments with original maturities when purchased of three months or less
to be cash equivalents.

(o)    Net Income Per Share

In February 1997, the FASB issued  Statement of Financial  Accounting  Standards
No. 128, "Earnings Per Share" ("Statement 128").  Statement 128 is effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997.
Statement 128 replaced primary and fully diluted earnings per share ("EPS") with
basic and  diluted  EPS.  Basic  earnings  per share  excludes  dilution  and is
computed by dividing net income by the weighted  average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution  that could occur if  options,  convertible  securities  or warrants to
issue common shares were exercised.

(p)    Reclassification

Certain amounts included in the 1999 and 1998 consolidated  financial statements
have been reclassified in order to conform to the 2000 presentation.

(q)    Derivative Instruments

The  Company  does  not  purchase,  sell  or  enter  into  derivative  financial
instruments  or  derivative  commodity  instruments  as defined by  Statement of
Financial Accounting Standards No. 119,  "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments."

(r)    New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
("Statement  133").  The  effective  date for  Statement 133 was delayed by SFAS
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- deferral of the effective date of FASB No. 133"  ("Statement  137"), to fiscal
years  beginning after June 15, 2000.  Statement 133 establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure those instruments at fair value. In
<PAGE>

June 2000,  the FASB  issued SFAS No. 138,  "Accounting  for Certain  Derivative
Instruments and Certain Hedging  Activities,  an amendment to FASB Statement No.
133"  ("Statement  138").  Statement  138  addresses a limited  number of issues
causing  implementation  difficulties for numerous entities that apply FASB 133.
It is currently anticipated that the Company will adopt Statement 133 on October
1, 2000, and that the statement will not have a significant  financial statement
impact upon adoption.

In September  2000, the FASB issued SFAS No. 140,  "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities,"  ("Statement
140") which replaces SFAS No. 125. This statement provides consistent  standards
for  distinguishing  transfers of financial assets that are sales from transfers
that are secured  borrowings.  Because  Statement 140 focuses on control after a
transfer of financial  assets,  an entity is required to recognize the financial
and  servicing   assets  it  controls  and  the  liabilities  it  has  incurred,
derecognize financial assets when control has been surrendered,  and derecognize
liabilities when extinguished.  All measurements and allocations should be based
on fair value.  Statement  140 is  effective  for  transfers  and  servicing  of
financial assets and  extinguishments  of liabilities  occurring after March 31,
2001.  This  statement is effective  for  recognition  and  reclassification  of
collateral  and for  disclosures  relating to  securitization  transactions  and
collateral for fiscal years ending after December 15, 2000. The Company does not
expect  implementation  of this  statement  to  have a  material  effect  on the
Company's financial statements.


<PAGE>

(2)         Investment and Mortgage-backed Securities

The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
                                                                Gross           Gross          Estimated
                                            Amortized        unrealized       unrealized        market
                                               cost             gains           losses           value
                                                                   (In thousands)
<S>                                         <C>                   <C>            <C>          <C>
Available for sale:
   FHLB notes                               $ 59,718              $79            $498         $ 59,299
   FNMA notes                                 19,990              ---              51           19,939
                                              ------                               --           ------
                                              79,708               79             549           79,238
   Equity securities                           5,678              891              40            6,529
                                               -----              ---              --            -----
                                              85,386              970             589           85,767
                                              ------              ---             ---           ------
Held to maturity:
   Municipal securities                          200              ---             ---              200
                                                 ---                                               ---
                                                 200              ---             ---              200
                                                 ---                                               ---

   FHLMC mortgage-backed securities           75,288              244           2,187           73,345
   FNMA mortgage-backed securities            89,771              189           1,452           88,508
                                              ------              ---           -----           ------
                                             165,059              433           3,639          161,853
                                             -------              ---           -----          -------
                                            $250,645           $1,403          $4,228         $247,820
                                             =======            =====           =====          =======
</TABLE>


The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                             Gross           Gross
                                                          unrealized       unrealized       Estimated
                                       Amortized cost        gains           losses       market value
                                                 ----        -----           ------              -----
                                                                (In thousands)
<S>                                           <C>                 <C>              <C>          <C>
Available for sale:
   FHLB notes                                 $ 50,000            $ ---            $498         $ 49,502
   FNMA notes                                   19,961              ---              86           19,875
                                                ------              ---              --           ------
                                                69,961              ---             584           69,377
   Equity securities                             6,320              577             108            6,789
                                                 -----              ---             ---            -----
                                                76,281              577             692           76,166
                                                ------              ---             ---           ------
Held to maturity:
   FHLB notes                                    9,995              ---               3            9,992
   Municipal securities                            915              ---              63              852
                                                   ---              ---              --              ---
                                                10,910              ---              66           10,844
                                                ------              ---              --           ------

   FHLMC mortgage-backed securities             88,191              312           2,444           86,059
   FNMA mortgage-backed securities             108,780              314           1,679          107,415
                                               -------              ---           -----          -------
                                               196,971              626           4,123          193,474
                                               -------              ---           -----          -------
                                              $284,162           $1,203          $4,881         $280,484
                                               =======            =====           =====          =======
</TABLE>


<PAGE>

The amortized  cost and estimated  market value of debt  securities at September
30, 2000 and 1999 by contractual  maturity are shown below.  Expected maturities
will differ from contractual  maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                          2000                              1999
                                                          ----                              ----
                                                                Estimated                        Estimated
                                              Amortized          market         Amortized         market
                                                cost             value             cost           value
                                                                      (In thousands)
<S>                                            <C>              <C>               <C>              <C>
Available for sale:
   Due in one year or less                     $ 29,990         $ 29,846          $  ---           $  ---
   Due in one to five years                      49,718           49,392          69,961           69,377
                                                 ------           ------          ------           ------
                                                 79,708           79,238          69,961           69,377
                                                 ------           ------          ------           ------
Held to maturity:
   Due in one year or less                          ---              ---           9,995            9,992
   Due after ten years                              200              200             915              852
                                                  -----             ----            ----              ---
                                                    200              200          10,910           10,844
                                                    ---              ---          ------           ------

   FHLMC mortgage-backed securities              75,288           73,345          88,191           86,059
   FNMA mortgage-backed securities               89,771           88,508         108,780          107,415
                                                 ------           ------         -------          -------
                                                165,059          161,853         196,971          193,474
                                                -------          -------         -------          -------
                                               $244,967         $241,291        $277,842         $273,695
                                                =======          =======         =======          =======
</TABLE>

Gross realized  gains and gross  realized  losses on sales of available for sale
securities  totaled  $103,279  and -0-  during  2000.  There  were no  sales  of
available for sale securities during 1999 or 1998. As of September 30, 2000, the
Company had pledged  securities  with a market  value of $200,000 and a carrying
value of $200,000 to collateralize the public funds on deposit.  The Company had
also pledged  mortgage-backed  securities  with a market value of $802,000 and a
carrying value of $795,000 to collateralize  treasury,  tax and loan accounts as
of September 30, 2000.
<PAGE>

(3)         Loans

Loans at September 30, 2000 and 1999 are summarized below:
                                                 2000                   1999
                                                 ----                   ----
                                                (Dollars in thousands)
Mortgage loans:
   Construction 1-4 family                     $ 106,063              $ 91,922
   Permanent 1-4 family                          899,229               788,408
   Multi-family                                   20,474                15,141
   Nonresidential                                120,067                99,824
   Land                                           54,731                41,882
                                                  ------                ------
       Total mortgage loans                    1,200,564             1,037,177
                                               ---------             ---------
Other loans:
   Commercial                                     28,606                21,192
   Home improvement                               21,636                17,205
   Manufactured housing                           15,736                16,190
   Other consumer                                 79,363                65,489
                                                  ------                ------
       Total other loans                         145,341               120,076
                                                 -------               -------
       Total loans                             1,345,905             1,157,253
                                               ---------             ---------
Less:
   Loans in process                               77,074                70,722
   Net deferred loan fees and discounts            4,433                 4,244
   Allowance for loan losses                      12,729                11,952
                                                  ------                ------
                                                  94,236                86,918
                                                  ------                ------
       Total loans, net                       $1,251,669            $1,070,335
                                               =========             =========
Weighted average yield                             8.07%                 8.07%

An analysis of the allowance  for loan losses for the years ended  September 30,
2000, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                                   2000           1999            1998
                                                   ----           ----            ----
                                                             (In thousands)
<S>                                              <C>            <C>             <C>
Beginning balance                                $ 11,952       $ 11,818        $ 11,691
Provision for loan losses                             847            816             297
Charge-offs                                          (233)          (762)           (574)
Recoveries                                            163             80             404
                                                      ---             --             ---
Ending balance                                   $ 12,729       $ 11,952        $ 11,818
                                                   ======         ======          ======
</TABLE>

At  September  30,  2000 and 1999,  loans  with  unpaid  principal  balances  of
approximately  $2,766,000  and  $2,541,000,  respectively,  were 90 days or more
contractually  delinquent or on nonaccrual  status.  Interest income relating to
nonaccrual loans not recognized for the years ended September 30, 2000, 1999 and
1998 totaled approximately $159,000, $184,000, and $135,000, respectively.


<PAGE>

As of September  30, 2000 and 1999,  approximately  $2,463,000  and  $2,059,000,
respectively,  of loans  90 days or more  contractually  delinquent  were in the
process of foreclosure.

The investment in impaired  loans  (primarily  consisting of classified  loans),
other than those evaluated  collectively  for impairment,  at September 30, 2000
and 1999 was  $3,748,000  and  $4,511,000,  respectively.  The average  recorded
investment in impaired loans during the years ended  September 30, 2000 and 1999
were approximately $3,435,000 and $5,118,000,  respectively.  The total specific
allowance for loan losses  related to these loans was $-0- on September 30, 2000
and 1999. Interest income on impaired loans of approximately $311,000,  $461,000
and $790,000 was  recognized  in the years ended  September  30, 2000,  1999 and
1998, respectively.

As of  September  30,  2000 and 1999,  mortgage  loans  which had been sold on a
recourse basis had  outstanding  principal  balances of $985,000 and $1,413,000,
respectively.

Accrued interest receivable at September 30, 2000 and 1999 is summarized below:

                                                    2000                 1999
                                                    ----                 ----
                                                        (In thousands)
Loans                                              $6,346               $5,241
Investment securities                                 834                1,002
Mortgage-backed securities                            965                1,143
FHLB stock dividends                                  242                  194
                                                      ---                  ---
                                                   $8,387               $7,580
                                                   ======               ======

The Company is a party to financial instruments in the normal course of business
to meet  the  financing  needs of its  customers.  These  financial  instruments
include  commitments  to extend  credit and  standby  letters  of credit.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount  recognized in the  statements  of  condition.  The
contract  or  notional  amounts  of these  instruments  reflect  the  extent  of
involvement the Company has in particular classes of financial instruments.  The
Company  uses the same  credit  policies  in making  commitments  as it does for
on-balance  sheet  instruments.  The Company  controls  the credit risk of these
transactions through credit approvals,  limits, and monitoring procedures.  Such
commitments  are  agreements  to lend to a  customer  as  long  as  there  is no
violation of conditions established in the contract.  Commitments generally have
fixed expiration dates or other termination  clauses.  Standby letters of credit
are conditional  commitments  issued by the Company to guarantee the performance
of a customer to a third party.  The credit risk involved in issuing  letters of
credit is essentially  the same as that involved in extending loan facilities to
customers.  The Company holds collateral  supporting those commitments for which
collateral is deemed  necessary.  Since many of the  commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Outstanding  mortgage  loan  commitments  (excluding  loans  in  process),  that
generally expire in 60 days, amounted to approximately  $21,700,000  ($8,922,000
fixed rate,  interest  rates from 7.75% to 10.13%) as of September  30, 2000. In
addition,  as of September 30, 2000, the Company had determined that $19,196,000
might be lent to certain homebuilders on a variable rate and home-by-home basis,
subject to underwriting and product approval by the Company.  Outstanding  other
loan commitments as of September 30, 2000 were approximately $1,279,000.


<PAGE>

(4)         Loan Servicing

Mortgage loans, including those underlying pass through securities, serviced for
others are not included in the accompanying  consolidated  financial statements.
The unpaid principal  balances of these loans at September 30, 2000 and 1999 are
summarized as follows:


                                        2000                 1999
                                        ----                 ----
                                             (In thousands)

FHLMC                                 $ 8,432              $ 11,868
FNMA                                   31,437                33,816
Other Investors                           392                   520
                                          ---                   ---
                                     $ 40,261              $ 46,204
                                     ========              ========

At  September  30, 2000 and 1999,  collection  of  principal  and interest to be
remitted to FHLMC and FNMA and advance payment for taxes and insurance  relating
to FHLMC and FNMA serviced loans are reflected in the consolidated statements of
financial condition as advance deposits by borrowers for taxes and insurance.

 (5)   Premises and Equipment

Premises and equipment at September 30, 2000 and 1999 are summarized as follows:


<TABLE>
<CAPTION>
                                                        2000                  1999
                                                        -----                 ----
                                                              (In thousands)
<S>                                                    <C>                  <C>
Land                                                   $ 6,841              $ 6,897
Buildings and leasehold improvements                    14,137               12,724
Furniture, fixtures and equipment                       12,841               11,755
                                                        ------               ------
                                                        33,819               31,376
Less accumulated depreciation and amortization         (12,698)             (11,237)
                                                       -------              -------
                                                      $ 21,121             $ 20,139
                                                       =======              =======
</TABLE>

Depreciation  expense  for the years ended  September  30,  2000,  1999 and 1998
totaled $1,725,000, $1,473,000, and $1,116,000, respectively.


<PAGE>

 (6)   Deposits

 Deposits at September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
                                                                     2000                       1999
                                                                     ----                       ----
                                                                      Period-end                   Period-end
                                                          Amount    weighted rate     Amount     weighted rate
                                                          ------    -------------     ------     -------------
                                                                                (Dollars in thousands)
<S>                                                     <C>          <C>              <C>          <C>
Commercial checking                                     $51,501                        $40,455
Noninterest-bearing personal checking accounts           51,033                         35,721
NOW                                                      70,881        0.74%            66,184        1.09%
Passbook                                                 95,431        1.58%           108,508        1.97%
Money market checking                                     1,398        1.27%             1,486        1.27%
Money market investment                                  93,825        4.54%            41,529        2.54%
Official checks                                          11,729                         12,431
                                                         ------                         ------
                                                        375,798                        306,314
                                                        -------                        -------
Certificate accounts:
       2.01 - 3.00%                                         103                            129
       3.01 - 4.00%                                       5,081                         11,275
       4.01 - 5.00%                                     124,393                        335,422
       5.01 - 6.00%                                     300,063                        298,719
       6.01 - 7.00%                                     279,215                         25,361
       7.01 - 8.00%                                      13,866                            375
       8.01 - 9.00%                                          18                            ---
                                                      ---------                       --------
                                                        722,739                        671,281
                                                        -------                        -------
                                                    $ 1,098,537                      $ 977,595
                                                    ===========                      =========
Weighted average interest rate                            4.42%                          3.86%
                                                          =====                          =====
</TABLE>


Maturities of outstanding certificates of deposit at September 30, 2000 and 1999
are summarized as follows:

                                       2000                     1999
                                       ----                     ----
                                              (In thousands)
Less than one year                  $ 445,765               $ 450,851
One to three years                    263,648                 203,099
Over three years                       13,326                  17,331
                                       ------                  ------
                                    $ 722,739               $ 671,281
                                    =========               =========

The aggregate  amount of  certificates of deposit in amounts of $100,000 or more
was  approximately  $83,795,000  and $68,922,000 at September 30, 2000 and 1999,
respectively.  Balances of individual certificates in excess of $100,000 are not
federally insured.


<PAGE>

Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                    2000              1999              1998
                                                     ----              ----              ----
                                                                    (In thousands)
<S>                                                 <C>               <C>                <C>
Passbook accounts                                   $ 2,002           $ 1,993            $ 1,674
NOW, money market checking,
     and money market investment accounts             2,466             1,781              1,894
Certificate accounts                                 37,546            33,945             36,651
                                                     ------            ------             ------
                                                   $ 42,014          $ 37,719           $ 40,219
                                                   ========          ========           ========
</TABLE>

Early withdrawal penalties for the years ended September 30, 2000, 1999 and 1998
aggregated  $282,540,  $194,563,  and  $191,391,  respectively,  and are  netted
against interest expense on certificate accounts.

Accrued  interest  payable of $342,364 and  $137,425 at  September  30, 2000 and
1999, respectively, is included in other liabilities.

(7)    Short-term borrowings

At September  30, 2000,  short-term  borrowings  from the Federal Home Loan Bank
(FHLB) were comprised of a $5 million advance due September 30, 2001, with fixed
terms and a fixed interest rate of 6.13%, and a $13 million daily advance,  with
interest at September 30, 2000 of 6.94%. There were no short-term  borrowings at
September 30, 1999.

Information concerning short-term borrowings is summarized as follows:
                                                 2000               1999
                                                 ----               ----
                                                 (Dollars in thousands)
Average balance during the year                $  7,944             $  ---
Average interest rate during the year             6.62%                ---
Maximum month-end balance during the year      $ 18,000              $ ---

(8)    Long-term debt

Advances  from the  Federal  Home Loan Bank  (FHLB)  were $220  million and $225
million at September 30, 2000 and 1999, respectively. The debt is due at various
dates through  December 2008,  with fixed terms and fixed interest rates ranging
from 4.94% to 6.50%.

Also included in long-term debt is a note payable,  maturing August 2002, with a
fixed interest rate of 8%, relating to the purchase of an insurance agency.  The
balance at September 30, 2000 is approximately $91,000.

Pursuant to a collateral  agreement  with the FHLB,  advances are secured by all
stock in the FHLB and a blanket  floating  lien that  requires  the  Company  to
maintain  qualifying  first  mortgage  loans as pledged  collateral in an amount
equal to, when discounted at 75% of the unpaid principal balances, the advances.


<PAGE>

At September  30, 2000 and 1999,  the FHLB  advances  have fiscal year  maturity
dates as follows:

<TABLE>
<CAPTION>
                                      2000                               1999
                                      ----                               ----
                                             Weighted                           Weighted
                             Amount        average rate         Amount        average rate
                             ------        ------------         ------        ------------
                                               (Dollars in thousands)
<S>                         <C>                <C>            <C>                <C>
 Year ending September 30,
       2001                   $   ---                            $ 5,000            6.13%
       2002                    10,000            6.10%            10,000            6.10%
       2003                    22,000            6.20%            22,000            6.20%
       2004                    25,000            5.80%            25,000            5.80%
       2005                    13,000            5.97%            13,000            5.97%
  2006 and after              150,000            5.34%           150,000            5.34%
                              -------            -----           -------            -----
                            $ 220,000            5.55%         $ 225,000            5.56%
                            =========            =====         =========            =====
</TABLE>

Other interest expense is summarized as follows:

                               2000              1999              1998
                               ----              ----              ----
                                        (In thousands)
Advances from the FHLB       $ 13,195          $ 11,117           $ 6,419
ESOP loan                         ---               ---                15
Other                               6                 4                 5
                             --------          --------           -------
                             $ 13,201          $ 11,121           $ 6,439
                             ========          ========           =======

(9)    Income Taxes

Income tax expense  (benefit) for the years ended  September 30, 2000,  1999 and
1998 is summarized as follows:


                        2000               1999              1998
                        ----               ----              ----
                                              (In thousands)
Current:
   Federal            $12,133           $11,430            $10,751
   State                2,018             1,790              1,700
                        -----             -----              -----
                       14,151            13,220             12,451
                       ------            ------             ------
Deferred:
   Federal               (370)              (57)              (195)
   State                  (62)               (9)               (13)
                         ----               ---               ----
                         (432)              (66)              (208)
                        -----              ----              -----
                     $ 13,719          $ 13,154           $ 12,243
                     ========          ========           ========
<PAGE>


The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and  deferred  tax  liabilities  at  September  30,  2000 and 1999 are as
follows:
                                                           2000          1999
                                                           ----          ----
                                                             (In thousands)
Deferred tax assets:
   Allowance for bad debts                                $ 3,157     $ 2,418
   Valuation of real estate owned                              11          11
   Deferred compensation                                      905         780
                                                              ---         ---
       Total deferred tax assets                            4,073       3,209
                                                            -----       -----
Deferred tax liability:
   Net deferred loan fees and costs                         3,752       3,424
   FHLB stock dividend                                        840         840
   Premises and equipment depreciation difference             717         654
   Purchase accounting adjustments                            ---          21
   Installment sales                                          96          95
                                                              ---         --
       Total deferred tax liabilities                       5,405       5,034
                                                            -----       -----
                                                            1,332       1,825
Unrealized gain (loss) on available for sale securities       150         (43)
                                                              ---         ----
       Net deferred tax liability                           1,482       1,782
                                                            -----       -----

Less liability at beginning of year                        (1,782)     (2,306)
Deferred tax asset acquired from insurance agency              61         ---
Change in unrealized gain (loss) on available for sale
   securities                                                (193)        458
                                                             -----        ---
Provision (benefit) for deferred income taxes               $(432)       $(66)
                                                            ======      =====

Income tax expense on income from  continuing  operations is different  than the
amount computed by applying the United States Federal income tax rate of 35% for
2000,  1999 and 1998 to income from  continuing  operations  before income taxes
because of the following:

<TABLE>
<CAPTION>
                                                                2000         1999          1998
                                                                ----         ----          ----
<S>                                                              <C>          <C>           <C>
Statutory Federal income tax rate                                35.0%        35.0%         35.0%
State income tax (net of Federal income tax benefit)             3.6          3.6           3.6
Other                                                             .1         (0.3)          2.7
                                                                 ----         ----          ----
Effective tax expense rate                                       38.7%        38.3%         41.3%
                                                                 =====        =====         =====
</TABLE>


Deferred  income taxes payable of  approximately  $1,482,000  and  $1,782,000 at
September 30, 2000 and 1999, respectively, are included in other liabilities.

Retained earnings at September 30, 2000 includes approximately  $14,800,000 base
year tax bad debt reserve for which no deferred  income tax  liability  has been
recognized.  This  amount  represents  an  allocation  of  income  to  bad  debt
deductions.  Reduction of amounts so allocated  for purposes  other than tax bad
debt losses or adjustments  arising from carryback of net operating losses would
create income for tax purposes  only,  which income would be subject to the then
current corporate income tax rate. The unrecorded  deferred income tax liability
on the above amounts was approximately $5,696,000 at September 30, 2000.
<PAGE>

(10)   Net Income per Share

Net income per share was computed by dividing net income by the weighted average
number of shares of common  stock  outstanding  during the twelve  months  ended
September 30, 2000, 1999 and 1998.  Adjustments  have been made, where material,
to give effect to the shares that would be outstanding, assuming the exercise of
dilutive stock options, all of which are considered common stock equivalents.


<TABLE>
<CAPTION>
                                                                    2000           1999         1998
                                                                    ----           ----         ----

<S>                                                              <C>            <C>          <C>
Net income                                                       $21,748,045    $21,218,745  $17,366,095
                                                                  ==========     ==========   ==========

Weighted average common shares outstanding:
    Shares outstanding                                            25,730,986     29,044,075   30,713,432
    Less weighted average uncommitted ESOP shares                 (1,241,943)    (1,316,732)    (857,136)
                                                                  -----------    -----------    ---------
       Total                                                      24,489,043     27,727,343   29,856,296
                                                                  ==========     ==========   ==========

Basic earnings per share                                              $ 0.89         $ 0.77       $ 0.58
                                                                       =====          =====        =====


Weighted average common shares outstanding                        24,489,043     27,727,343   29,856,296
  Additional dilutive shares related to stock options                215,280        268,481      416,444
                                                                     -------        -------      -------
  Total weighted average common shares and equivalents
   outstanding for
   diluted earnings per share computation                         24,704,323     27,995,824   30,272,740
                                                                  ==========     ==========   ==========

Diluted earnings per share                                            $ 0.88         $ 0.76       $ 0.57
                                                                       =====          =====        =====
</TABLE>


Additional  dilutive  shares are  calculated  under the  treasury  stock  method
utilizing the average  market value of the Company's  stock for the period.  For
the year ended  September 30, 2000,  there were 143,900 common stock options and
23,304 unvested RRP shares that were  antidilutive and therefore not included in
the above  calculation.  For the years ended September 30, 1999 and 1998,  there
were 72,500 and 15,000  shares of common  stock  options,  respectively,  and no
unvested  RRP  shares  that  were  antidilutive  and not  included  in the above
calculation.

(11)   Regulatory and Capital Matters

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as  defined).  During  2000,  the  minimum  ratio for Tier 1 capital was
adjusted from 4% to 3 % for savings associations that meet certain requirements.
Management  believes,  as of September 30, 2000, that the Bank meets all capital
adequacy requirements to which it is subject.
<PAGE>

As of September 30, 2000 and 1999, the most recent  notification from the Office
of  Thrift  Supervision  categorized  the  Bank as well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized the Bank must maintain minimum total risk-based,  Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
institution's category.

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
                                                                                                            To be well capitalized
                                                                                     For capital            Under prompt corrective
                                                          Actual                  Adequacy purpose             action provisions
                                                   Amount          Ratio       Amount         Ratio           Amount         Ratio
                                                   ------          -----       ------         -----           ------         -----
                                                                               (Dollars in thousands)
<S>                                              <C>          <C>           <C>              <C>            <C>          <C>
As of September 30, 2000
   Total capital (to risk-weighted assets)       $176,676     19.48%        $72,549         >8.0%           $90,687     >10.0%
   Tier I (core) capital (to risk-weighted
       assets)                                    166,527     18.36%         27,206         >3.0%            54,412     > 6.0%
   Tier I (core) capital (to adjusted
       tangible assets)                           166,527     10.58%         47,205         >3.0%            78,675     > 5.0%
   Tangible capital (to adjusted tangible
       assets)                                    166,527     10.58%         23,602         >1.5%               n/a        N/a
As of September 30, 1999
   Total capital (to risk-weighted assets)       $153,633     19.50%        $63,035         >8.0%           $78,793     >10.0%
   Tier I (core) capital (to risk-weighted
       assets)                                    144,448     18.33%         31,517         >4.0%            47,276     > 6.0%
   Tier I (core) capital (to adjusted
       tangible assets)                           144,448      9.93%         58,160         >4.0%            72,701     > 5.0%
   Tangible capital (to adjusted tangible
       assets)                                    144,448      9.93%         21,810         >1.5%               n/a        N/a
</TABLE>

The Certificate of  Incorporation of the Company provides that in no event shall
any record owner of any outstanding  Common Stock which is  beneficially  owned,
directly or indirectly,  by a person who  beneficially  owns in excess of 10% of
the then  outstanding  shares of Common  Stock  (the  "Limit")  be  entitled  or
permitted to any vote in respect of the shares held in excess of the Limit.

The Company has authorized but not issued preferred stock, subject to regulatory
restrictions and determination of rights and preferences to be determined by the
Board of Directors.

The Plan of  Conversion  (Note 1a) provided for the  establishment  of a special
"liquidation   account"  for  the  benefit  of  Eligible   Account  Holders  and
Supplemental  Eligible  Account  Holders in an amount equal to the amount of any
dividends  waived by the Mutual Holding  Company plus the greater of (1) 100% of
the Bank's retained earnings of $34.5 million at September 30, 1992, the date of
the latest balance sheet  contained in the final offering  circular  utilized in
the Bank's initial public offering in the Mutual Holding Company Reorganization,
or (2) 53.41% of the  Bank's  total  stockholders'  equity as  reflected  in its
latest balance sheet contained in the final Prospectus  utilized in the Offering
plus the amounts  distributed to Bancorp by the Bank at the formation of Bancorp
in 1998. Each eligible Account Holder and Supplemental  Eligible Account Holder,
if such person were to continue to maintain such person's deposit account at the
Bank,  would be  entitled,  upon a  complete  liquidation  of the Bank after the
conversion,  to an interest in the  liquidation  account prior to any payment to
the Company as the sole stockholder of the Bank.

For a period of one year after the date of the Conversion,  total dividends paid
to  stockholders  must not  exceed  the net  income of the  Company  during  the
one-year period.

Applicable rules and regulations of the OTS impose limitations on dividends paid
by the Bank.  Within those  limitations,  certain  "safe  harbor"  dividends are
permitted;  subject to providing the OTS at least 30 days' advance  notice.  The
safe harbor  amount is based upon an  institution's  regulatory  capital  level.
Thrift  institutions  which have  capital in excess of all capital  requirements
before  and  after  the  proposed  dividend,   are  permitted  to  make  capital

<PAGE>

distributions  during  any  calendar  year up to the  greater of (i) 100% of net
income to date during the calendar year,  plus one-half of the surplus over such
institution's  capital  requirements  at the beginning of the calendar  year, or
(ii) 75% of net income  over the most  recent  four-quarter  period.  Additional
restrictions  would  apply to an  institution  that  does  not meet its  capital
requirement  before or after a proposed  dividend.  As of  September  30,  2000,
$62,023,000 was available for distribution  from the Bank to the holding company
without further regulatory approval.

(12)   Commitments and Contingencies

At September 30, 2000, the Company had irrevocable letters of credit aggregating
approximately $5,097,000.

The Company and  subsidiaries  are  defendants in certain other claims and legal
actions  arising  in  the  ordinary  course  of  business.  In  the  opinion  of
management,  after consultation with legal counsel,  the ultimate disposition of
these  matters  is  not  expected  to  have a  material  adverse  effect  on the
consolidated financial statements of the Company and subsidiaries.

(13)   Related Party Transactions

Directors,  executive  officers and  principal  stockholders  of the Company had
certain  transactions  with the Company in the ordinary  course of business,  as
described below.

Loan  transactions were made on substantially the same terms as those prevailing
at the time for  comparable  loans to other  persons,  did not involve more than
normal risk of collectibility, and are performing as agreed.

The summary of changes in the related party loans follows:

<TABLE>
<CAPTION>
                                           2000                 1999                 1998
                                           ----                 ----                 ----
                                                           (In thousands)
<S>                                      <C>                 <C>                   <C>
Outstanding loans - beginning of year    $ 2,658             $ 1,882               $ 2,284
New loans                                  5,655               6,525                 4,714
Repayments                                (6,511)             (5,749)               (5,116)
                                         -------             -------               -------
Outstanding balance - end of year        $ 1,802             $ 2,658               $ 1,882
                                         =======             =======               =======
</TABLE>

Frank H. Fee, III, a director of the Company,  is also President of the law firm
of Fee & Koblegard,  P.A., which does business under the registered name of Fee,
Koblegard & DeRoss, a general practice law firm. The Company paid  approximately
$177,000,  $126,000, and $122,000 of legal fees in the years ended September 30,
2000, 1999 and 1998, respectively, to this law firm.

Richard K.  Davis,  formerly a director  of the  Company,  is also  chairman  of
Richard K. Davis Construction Corp. ("Davis  Construction").  In the years ended
September  30, 2000 and 1999,  the Company  paid Davis  Construction  a total of
$201,229 and $43,806,  respectively,  for roof construction on branch facilities
and tenant improvements on rental property.

During 2000,  the Company  purchased  the Enns Agency,  owned by Edward G. Enns,
Chairman of the Company. (See Note 17.)



<PAGE>

(14)   Other Expense

Other expense for the years ended  September 30, 2000, 1999 and 1998 consists of
the following:

                                         2000             1999            1998
                                         ----             ----            ----
                                                    (In thousands)
Professional fees                         $ 772           $ 558           $ 589
Office supplies and forms                   417             394             399
Postage                                     501             409             397
Telephone                                   394             353             360
SAIF deposit insurance premium              299             552             572
Other                                     2,779           2,406           2,226
                                          -----           -----           -----
                                        $ 5,162         $ 4,672         $ 4,543
                                        =======         =======         =======

(15)   Disclosures about Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and Amounts Due From Depository  Institutions,  Interest-Bearing  Assets in
Other Banks and Federal  Funds Sold - The  carrying  amount of these assets is a
reasonable estimate of their fair value.

Investment  Securities and  Mortgage-Backed  Securities  Held to Maturity - Fair
value equals quoted market price, if available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

Investment  Securities  Available for Sale - Fair value equals  carrying  value,
which equals quoted market price, if available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

Loans - The fair value of loans is  estimated by  discounting  future cash flows
using the current rate at which  similar  loans would be made to borrowers  with
similar credit ratings for the same remaining maturities.

Deposits  -  The  fair  value  of  demand  deposits,  interest-bearing  checking
accounts,  savings and money market  deposits is the amount payable on demand at
the reporting  date. The fair value of  certificates  of deposit is estimated by
discounting  future cash flows using the rates currently offered for deposits of
similar remaining maturities.

Advances from the FHLB - The fair value of FHLB  advances is estimated  based on
rates  currently  available to the Company for FHLB  advances with similar terms
and maturities.

Commitments  to Extend Credit and Standby  Letters of Credit - The fair value of
commitments is insignificant.


<PAGE>

The estimated  fair values of the Company's  financial  instruments at September
30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                       2000                             1999
                                                                       ----                             ----
                                                             Carrying          Fair          Carrying           Fair
                                                              Amount          Value           Amount           Value
                                                              ------          -----           ------           -----
<S>                                                           <C>             <C>              <C>             <C>
Assets:                                                                             (In thousands)
   Cash and amounts due from depository institutions            $ 29,085        $ 29,085         $ 30,214        $ 30,214
   Interest-bearing deposits in other banks                          729             729           32,959          32,959
   Investment securities held to maturity                            200             200           10,910          10,844
   Investment securities available for sale                       85,767          85,767           76,166          76,166
   Mortgage-backed securities held to maturity                   165,059         161,853          196,971         193,474
   Loans held for sale                                             2,548           2,548            1,747           1,747

   Loans                                                       1,264,398       1,256,654        1,082,287       1,078,685
   Less allowance for loan losses                               (12,729)           ---           (11,952)           ---
                                                                --------           -----         --------           ---
       Loans, net                                              1,251,669       1,256,654        1,070,335       1,078,685
                                                               ---------       ---------        ---------       ---------
Liabilities:
   Commercial checking, non-interest-bearing personal, NOW,
       passbook, money market accounts and official checks       375,798         375,798          306,314         306,314
   Certificate accounts                                          722,739         719,232          671,281         670,852
   Short term borrowings                                          18,000          17,973              ---             ---
   Long term debt                                                220,091         212,870          225,000         215,007
</TABLE>

Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a portion of the  Company's  financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial instruments and other factors.  These estimates are subjective
in nature and involve  uncertainties  and matters of  significant  judgment and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect the estimates.

(16)   Benefit Plans

Employee Stock Ownership Plan

In January,  1994, as part of the reorganization to the stock form of ownership,
the Company's Employee Stock Ownership Plan ("ESOP") purchased 900,208 shares of
the Company's common stock at $1.664 per share, or $1,498,000,  which was funded
by  a  loan  from  an  unaffiliated  lender.  In  March  1998  as  part  of  the
reorganization  and conversion of Harbor Financial,  M.H.C.,  the Company's ESOP
purchased 1,326,940 shares of the Company's common stock at $10 per share, which
was funded by a loan from the Company. The ESOP covers all eligible employees of
the Company age 21 and over.  Dividends  paid on  unallocated  shares reduce the
Company's  cash  contribution  to the ESOP.  GAAP  requires that any third party
borrowing by the ESOP be reflected as a liability on the Company's  statement of
financial  condition.  The ESOP's  borrowing  from the Company is  eliminated in
consolidation.  At September  30, 2000,  there were  880,354  allocated  shares,
52,379 shares committed to be released,  and 1,204,722 suspense (unallocated and
not yet  committed  to be  released)  shares  held by the ESOP.  As  shares  are
released,  the  Company  recognizes  compensation  expense  equal to the current
market price of the shares. Allocated shares and shares committed to be released
are included in the weighted  average common shares  outstanding used to compute
earnings per share. Total compensation  expense charged to earnings in the years
ended  September 30, 2000,  1999 and 1998,  totaled  $802,072,  $1,101,982,  and
$2,064,654,  respectively.  At  September  30,  2000,  the  fair  value  of  the
unallocated shares was $15,163,781.


<PAGE>

Recognition and Retention Plans and Stock Option Plans

The  Company's  1998 Stock  Incentive  Plan,  adopted  on  September  18,  1998,
authorizes the award of  Recognition  and Retention Plan Shares (RRP Shares) and
the granting of options to purchase  common stock. As of September 30, 2000, the
Company  has  awarded  618,182  RRP  shares  at $10.76  average  price per share
totaling  $6,649,385.  The total award will be amortized as compensation expense
ratably over the participants' vesting periods of 5 to 10 years. In November and
December,  1998, the Company's  Recognition  and Retention Plan (RRP)  purchased
663,470  shares  from  market  sources  at an  average  cost of $10.81 per share
totaling  $7,171,000  in  order  to  fund  the  grants  of  RRP  shares.   Total
compensation  expense charged to earnings in the years ended September 30, 2000,
1999 and 1998, totaled $871,121, $924,354, and $33,013, respectively.

At  September  30,  2000,  the Company had stock option plans for the benefit of
directors, officers, and other key employees of the Company. The Company applies
APB  Opinion  25 and  related  Interpretations  in  accounting  for  its  plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans since stock option  exercise  prices are equal to market price at dates of
grant. The number of shares of common stock reserved for issuance under the 1994
stock option plan is equal to 1,286,012  shares,  or 9.6% of the total number of
common  shares  issued  in the  minority  offering  pursuant  to  the  Company's
reorganization  to the stock form of  ownership.  The number of shares of common
stock  reserved for  issuance  under the 1998 Stock  Incentive  Plan is equal to
1,658,675 or 5.40% of the outstanding shares of common stock as of the effective
date of the plan.  The stock  options  vest in equal  installments  over varying
periods not to exceed 10 years,  depending upon the individual's position in the
Company. At September 30, 2000, 255,767 shares were available for future awards.

A summary of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                   2000                          1999                        1998
                                                   ----                          ----                        ----
                                                         Weighted                     Weighted                     Weighted
                                                          average                      average                      average
                                                         exercise                     exercise                     exercise
                                           Number          price         Number         price         Number         price
                                           ------          -----         ------         -----         ------         -----

<S>                                       <C>                <C>       <C>                <C>         <C>              <C>
Options outstanding beginning of year     1,716,425          $9.69     1,919,673          $8.90       807,038          $1.94
Options granted                              88,175         $12.28        60,000         $11.86     1,513,615         $10.70
Options exercised                          (39,542)          $2.42     (190,137)          $2.12     (387,496)          $1.70
Options forfeited                         (169,464)         $10.67      (73,111)         $10.36      (13,484)          $1.66
                                          ---------         ------      --------         ------      --------          -----
Options outstanding end of year           1,595,594          $9.91     1,716,425          $9.69     1,919,673          $8.90
                                          =========          =====     =========          =====     =========          =====
Options exercisable at year-end             428,242                      305,253                      146,733
                                            =======                      =======                      =======
Weighted average fair value of options
   granted during the year                   $ 4.48                       $ 4.35                       $ 3.97
                                             ======                       ======                       ======
</TABLE>


<PAGE>

The following table summarizes  information  about stock options  outstanding at
September 30, 2000:

<TABLE>
<CAPTION>
                                                  Options outstanding                                  Options exercisable
                                                  -------------------                                  -------------------
                                                   Weighted average
                             Number outstanding        remaining         Weighted average    Number exercisable     Weighted average
  Range of exercise prices        @ 9/30/00        contractual life       exercise price          @ 9/30/00          exercise price
  ------------------------        ---------        ----------------       --------------          ---------          --------------
<S>                             <C>                      <C>                <C>                 <C>                   <C>
          $ 1.664                 117,402                  3.3                $ 1.66              117,402               $ 1.664
      $ 2.746 to 4.493             39,860                  4.9                $ 3.80               15,826                 2.746
      $ 5.638 to 5.658             21,032                  6.3                $ 5.66                  ---                   ---
      $ 6.365 to 6.781              3,004                  6.7                $ 6.41                  ---                   ---
      $ 10.69 to 12.00          1,340,896                  8.0                $10.75              291,027                 10.72
      $ 12.38 to 12.44             73,400                  9.2                $12.42                3,987                 12.38
                                   ------                                                           -----
           Total                1,595,594                                                         428,242
                                =========                                                         =======
</TABLE>

Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  consistent  with  Statement  123, the  Company's  net income and net
income per share  would have been  reduced  to the pro forma  amounts  indicated
below:

<TABLE>
<CAPTION>
                                                       2000               1999              1998
                                                       ----               ----              ----
                                                           (In thousands except per share data)
<S>                                                   <C>               <C>                 <C>
Net income                          As reported       $ 21,748          $ 21,219            $17,366
                                    Pro forma           20,565            20,119             17,326
Net income per share - basic        As reported         .89               .77                .58
                                    Pro forma           .84               .73                .58
Net income per share - diluted      As reported         .88               .76                .57
                                    Pro forma           .83               .72                .57
</TABLE>

Only options granted after October 1, 1995 are included in pro forma amounts.

The option method used to calculate the  Statement 123  compensation  adjustment
was  the  Binomial  model  with  the  following   grant  date  fair  values  and
assumptions:
<TABLE>
<CAPTION>
                      Number of       Grant date                        Risk free        Expected        Expected         Expected
  Date of grant    options granted    fair value    Exercise price    interest rate    Life (years)     volatility        dividend
  -------------    ---------------    ----------    --------------    -------------    ------------     ----------        --------
<S>                   <C>            <C>              <C>              <C>                    <C>          <C>              <C>
  01/06/96            27,038         $ 1.10           $ 4.49           5.421%                 5            38.71            $ .27
  11/27/96             6,009           1.21             5.64           5.912                  5            29.89              .30
  01/06/97            18,028           1.19             5.66           6.291                  5            28.33              .30
  06/16/97             2,704           1.50             6.37           6.276                  5            30.71              .32
  06/20/97               300           1.67             6.78           6.271                  5            31.11              .32
  07/08/98            15,000           4.68            12.00           5.433                  5            32.66              .38
  09/18/98         1,498,615           3.96            10.69           4.517                  5            35.13              .38
  12/08/98             1,500           4.21            10.94           4.379                  5            36.20              .46
  04/19/99            58,500           4.35            11.88           5.044                  5            32.25              .46
  12/08/99            53,131           4.60            12.44           6.050                  5            33.90              .52
  01/07/00            17,889           4.58            12.38           6.411                  5            33.83              .52
  01/21/00            10,000           4.65            12.38           6.632                  5            33.33              .52
  04/19/00             7,155           3.04            10.75           6.230                  5            26.95              .52
</TABLE>


<PAGE>

Other Plans

The Company has a  noncontributory-defined  benefit  pension  plan  covering all
employees  who have  attained  one year of service and 21 years of age.  Pension
expense  was $9,600,  $11,500,  and  $8,700,  respectively,  for the years ended
September 30, 2000, 1999 and 1998. The plan is a multi-employer  plan.  Separate
actuarial  valuations  are not made for each  employer  nor are plan  assets  so
segregated. The assumed average rate of return used in determining the actuarial
present value of  accumulated  plan benefits was 8%. The date of the most recent
actuarial evaluation is July 1, 1999.

The Company's  401(k) Profit  Sharing Plan and Trust (the "401(k)  Plan") covers
all eligible  employees of the Company age 21 and over. An eligible employee may
elect to  contribute  to the 401(k) Plan in the form of  deferrals of between 1%
and 15% of the  total  compensation  that  would  otherwise  be  payable  to the
employee.  Employee  contributions  are fully vested and  nonforfeitable  at all
times.  The 401(k)  Plan  permits  contributions  by the  Company.  The  Company
currently  makes  matching  contributions  of  25%  of  the  first  6%  of  each
participant's  contributions.  For the years ended  September 30, 2000, 1999 and
1998,  the  Company's  matching  contribution  totaled  approximately   $88,000,
$96,000, and $89,000, respectively.

The Company has a deferred  compensation  plan for  Directors  (the  "Directors'
Deferred  Compensation Plan") who may elect to defer all or part of their annual
director  fees to fund  the  Directors'  Deferred  Compensation  Plan.  The plan
provides  that deferred fees are to earn interest at an annual rate equal to the
30-month  certificate  of deposit rate,  adjusted and compounded  quarterly.  At
September  30,  2000  and  1999,  deferred  directors'  fees  included  in other
liabilities aggregated $241,122 and $235,234, respectively.  Directors may elect
to have their deferred  compensation balance invested in shares of the Company's
common stock. Such purchases were approximately $137,000, $113,000, and $101,000
in 2000, 1999 and 1998, respectively.  After purchase of shares of the Company's
common stock, the Company's liability has been satisfied except for distribution
of the shares to the director when he ceases to be a director.  At September 30,
2000 and 1999,  the  Directors'  Deferred  Compensation  Plan held  295,386  and
303,386 shares of the Company's common stock, respectively.

The Company also has a retirement plan for  nonemployee  directors (the "Plan").
The annual basic  benefit under the Plan is based on a percentage of the average
three years  director's fees preceding the termination of service  multiplied by
the  number  of  years of  service,  not to  exceed  50% of the  average  annual
director's  fees.  During the years ended September 30, 2000, 1999 and 1998, the
charge to earnings relating to the Plan was insignificant.

(17)   Acquisition of Insurance Agencies

On July 3, 2000, the Bank acquired all of the outstanding common stock of Haynes
and Haynes Insurance  Company, a property and casualty insurance company located
in Ft. Pierce,  Florida,  for approximately  $1.1 million in common stock of the
Company.  The  insurance  company's  name was  subsequently  changed  to  Harbor
Insurance Agency, Inc.

Harbor  Insurance  Agency,  Inc., a wholly owned  subsidiary  of the Bank,  will
continue  to operate at Haynes and Haynes  Insurance  Company's  location in Ft.
Pierce,  Florida.  The  principal  owners  and  managers  of Haynes  and  Haynes
Insurance  Company will  continue as the  management  team for Harbor  Insurance
Agency, Inc.

On July 21, 2000,  Harbor  Insurance Agency completed the acquisition of certain
assets of the Enns Agency for  approximately  $98,500 in cash and a $98,500 note
payable.  (See Note 8.) The Enns  Agency is located in Ft.  Pierce,  Florida and
specializes  in property  and casualty  insurance.  The Enns Agency was owned by
Edward G. Enns, Chairman of the Company.

The acquisitions  were accounted for using the purchase  method.  The results of
operations  of Harbor  Insurance  Agency from July 3, 2000 to September 30, 2000
are included in the consolidated financial statements of the Company.
<PAGE>

The fair value of assets  acquired and liabilities  assumed in conjunction  with
the acquisitions of the insurance agencies was as follows:

                                                    (In thousands)
Cash                                                        $  292
Premises and equipment                                           6
Deferred tax asset                                              61
Goodwill                                                     1,256
Other assets                                                     1
                                                             -----
Fair value of assets acquired                                1,616
                                                             -----

Other liabilities                                              332
                                                               ---
Fair value of liabilities assumed                              332
                                                               ---

Fair value of net assets acquired                            1,284
                                                             -----
Acquisition costs                                               36
                                                              ----

Purchase of insurance agencies                               1,320
Cash acquired                                                  292
Treasury shares issued                                       1,087
Notes Payable issued                                            99
                                                               ---
Net cash provided from purchase of insurance
     agencies                                               $ (158)
                                                              ====

The following  table  indicates the net decrease in earnings  resulting from the
net  amortization  of goodwill  resulting from the use of the purchase method of
accounting during each of the years 2000 through 2004.

                                                  Net decrease of
              Years ending September 30,            net earnings
              --------------------------            ------------
                                                   (In thousands)
                         2001                            $ 86
                         2002                              86
                         2003                              86
                         2004                              86
                      Thereafter                          928

Goodwill is being amortized on a straight-line  basis over its estimated  useful
life of 15 years. As of September 30, 2000,  goodwill related to purchase of the
insurance agencies is approximately $1.3 million.  Goodwill does not qualify for
amortization for tax purposes.

Pro forma income and earnings per share as if the purchases had been consummated
on October 1, 1999 and 1998, after giving effect to goodwill amortization, would
not be significantly different from actual net income and earnings per share.

<PAGE>

(18)   Quarterly Results of Operations (Unaudited)

The quarterly  results of operations for the years ended  September 30, 2000 and
1999 are as follows: For the three months ended fiscal 2000


<TABLE>
<CAPTION>
                                                          September 30   June 30   March 31    December 31
                                                         ------------    -------   --------    -----------
                                                                (In thousands except share data)
<S>                                                          <C>        <C>        <C>         <C>
Interest income                                              $ 29,655   $ 28,437   $ 27,283    $ 26,947
Interest expense                                               15,125     13,883     13,213      12,994
                                                               ------     ------     ------      ------
       Net interest income                                     14,530     14,554     14,070      13,953
Provision for loan losses                                         210        244        189         204
                                                                  ---        ---        ---         ---
       Net interest income after provision for loan losses     14,320     14,310     13,881      13,749
Total other income                                              2,381      1,972      1,820       1,697
Total other expenses                                            7,341      7,081      7,203       7,038
                                                                -----      -----      -----       -----
       Income before income taxes                               9,360      9,201      8,498       8,408
Income tax                                                      3,632      3,540      3,287       3,260
                                                                -----      -----      -----       -----
Net income                                                    $ 5,728    $ 5,661     $5,211     $ 5,148
                                                              =======    =======     ======     =======
Net income per share
   Basic                                                       $ 0.24     $ 0.24     $ 0.21       $0.20
                                                               ======     ======     ======       =====
   Diluted                                                     $ 0.24     $ 0.23     $ 0.21       $0.20
                                                               ======     ======     ======       =====
</TABLE>


<TABLE>
<CAPTION>
                                                                 For the three months ended fiscal 1999
                                                            September 30    June 30    March 31   December 31
                                                            ------------    -------    --------   -----------
                                                                        (In thousands except share data)
<S>                                                            <C>         <C>         <C>         <C>
Interest income                                                $ 26,343    $ 26,047    $ 25,847    $ 25,647
Interest expense                                                 12,239      12,198      12,221      12,182
                                                                 ------      ------      ------      ------
       Net interest income                                       14,104      13,849      13,626      13,465
Provision for  loan losses                                          152         155         354         155
                                                                    ---         ---         ---         ---
       Net interest income after provision for loan losses       13,952      13,694      13,272      13,310
Total other income                                                1,584       1,575       1,504       1,517
Total other expenses                                              6,771       6,390       6,349       6,525
                                                                  -----       -----       -----       -----
       Income before income taxes                                 8,765       8,879       8,427       8,302
Income tax                                                        3,197       3,405       3,204       3,348
                                                                  -----       -----       -----       -----
Net income                                                      $ 5,568     $ 5,474      $5,223     $ 4,954
                                                                =======     =======      ======     =======
Net income per share
   Basic                                                         $ 0.21      $ 0.20      $ 0.19       $0.17
                                                                 ======      ======      ======       =====
   Diluted                                                       $ 0.21      $ 0.20      $ 0.18       $0.17
                                                                 ======      ======      ======       =====
</TABLE>


<PAGE>

(19)   Parent Company Financial Information

Condensed  Statements of Financial  Condition at September 30, 2000 and 1999 and
Condensed  Statements of Operations and Cash Flows for the years ended September
30, 2000,  1999 and 1998 are shown below (in  thousands) for Bancshares and it's
predecessor,  Bancorp  (Note  1a),  which  was  formed  on  June  25,  1998 in a
reorganization accounted for in a manner similar to a pooling of interests:

Condensed Statements of Financial Condition
September 30, 2000 and 1999
<TABLE>
<CAPTION>
                                                                              2000                 1999
                                                                              ----                 ----
<S>                                                                         <C>                  <C>
Assets:                                                                    (In thousands except share data)
Cash deposited at Harbor Federal                                              $ 4,024              $ 9,832
Investment securities available for sale at market value                        6,503                6,789
Investment in and advances to Harbor Federal                                  209,153              219,436
Income tax receivable from Harbor Federal                                           5                   11
Accrued interest receivable                                                        50                   61
Other assets                                                                      ---                    6
                                                                            ---------             --------
        Total assets                                                         $219,735             $236,135
                                                                             ========             ========

Liabilities and Stockholders' Equity:
Liabilities:
    Other liabilities                                                           $ 351               $  213
                                                                                -----               ------
        Total liabilities                                                         351                  213
                                                                                -----               -- ---
Stockholders' Equity:
   Preferred stock; $.10 par value; authorized
       10,000,000 shares; none issued and
       outstanding                                                                ---                  ---
   Common stock; $.10 par value; authorized
       70,000,000 shares; 31,139,509 shares
       issued and 25,268,518 outstanding at
       September 30, 2000 and 31,099,967 shares
       issued and 28,008,627 outstanding at September 30, 1999                  3,114                3,110
   Paid-in capital                                                            191,291              191,016
   Retained earnings                                                          109,941               96,485
   Accumulated other comprehensive income (loss), net                             233                  (70)
   Common stock purchased by:
       Employee stock ownership plan (ESOP)                                   (12,047)             (12,746)
       Recognition and retention plan (RRP)                                    (5,385)              (6,258)
   Treasury stock, at cost, 5,870,991 shares and
       3,091,340 shares at September 30,
       2000 and 1999, respectively                                            (67,763)             (35,615)
                                                                              --------             --------
        Total stockholders' equity                                            219,384              235,922
                                                                              -------              -------
        Total liabilities and stockholders' equity                          $ 219,735            $ 236,135
                                                                            =========            =========
</TABLE>
<PAGE>

Condensed Statements of Operations
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
                                                             2000            1999          1998
                                                             -----           -----         ----
                                                                             (In thousands)
<S>                                                         <C>             <C>           <C>
Interest on investment securities                           $  214          $  238        $  ---
                                                               ---             ---           ---
     Total interest income                                     214             238           ---
                                                               ---             ---           ---

Gain on sale of securities available for sale                  103             ---           ---
                                                               ---             ---           ---
     Total other income                                        103             ---           ---
                                                               ---             ---           ---
Other expense
     Management fee to Harbor Federal                          175             175           161
     Other expenses                                            330             423           197
                                                               ---             ---           ---
    Total other expense                                        505             598           358
        Loss before income tax benefit and earnings of
           Harbor Federal                                     (188)           (360)         (358)
Income tax benefit                                              63             136            76
                                                                --             ---            --
        Loss before earnings of Harbor Federal                (125)           (224)         (282)
Equity in net earnings of Harbor Federal                    21,873          21,443        17,648
                                                            ------          ------        ------
        Net income                                         $21,748         $21,219       $17,366
                                                           =======         =======       =======
</TABLE>

<PAGE>

Condensed Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
                                                                              2000                 1999               1998
                                                                              ----                 ----               ----
<S>                                                                 <C>           <C>                <C>
Cash used by operating activities:                                            (In thousands)
    Net income                                                      $ 21,748      $ 21,219           $ 17,366
    Adjustments to net income:
        Equity in earnings of Harbor Federal                         (21,873)      (21,443)      (17,648)
        Gain on sale of securities available for sale                   (103)          ---           ---
        (Increase) decrease in accrued interest receivable                11           (61)          ---
        (Increase) decrease in income tax receivable                       6            23           (53)
        (Increase) decrease in other assets                                6            (6)          ---
        Increase in payable to Harbor Federal                            175           175           160
        Increase (decrease) in other liabilities                         (10)          (56)           86
                                                                         ----          ----           --
        Net cash used by operating activities                            (40)         (149)          (89)
                                                                         ----         -----          ----
Cash used by investing activities:
    Purchase of investment securities available for sale                (892)       (5,805)         (514)
     Sale of investment securities available for sale                  1,662            ---           ---
                                                                       -----            ---           ---
        Net cash provided by (used by) investing activities              770        (5,805)         (514)
                                                                         ---        -------         -----
Cash provided by financing activities:
    Net proceeds from issuance of common stock                           ---           ---       150,223
    (Investment in)/amounts received from Harbor Federal              35,000        54,000      (143,889)
    Dividends paid                                                    (8,292)       (8,089)       (5,414)
    Purchase common stock to fund RRP Plan                               ---        (7,171)          ---
    Purchase Treasury Stock                                          (33,342)      (35,571)          ---
    Common stock options exercised                                        96           402           657
                                                                          --           ---           ---
        Net cash provided by (used by) financing activities           (6,538)        3,571         1,577
                                                                      -------        -----         -----

        Net (decrease) increase in cash and cash equivalents          (5,808)       (2,383)          974

Cash and cash equivalents - beginning of year                          9,832        12,215        11,241
                                                                       -----        ------        ------

Cash and cash equivalents - end of year                              $ 4,024       $ 9,832      $ 12,215
                                                                     =======       =======      ========

Supplemental disclosures:
    Changes in unrealized gain (loss) on securities available for
        sale net of tax                                               $  303       $  (729)       $  666
    Amortization of stock benefit plans                                1,674         2,026         2,097
    Issuance of ESOP common stock                                        ---           ---        13,269
    Satisfaction of  deferred compensation plan                          ---           ---         1,046
    Tax benefit of employee benefit plans                                188           160           175
    Distribution of RRP shares                                           873           913           ---
    ESOP forfeitures transferred to treasury stock                       ---            44           ---
    Treasury stock issued to purchase insurance agency                 1,087           ---           ---
</TABLE>