Exhibit 99



                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                                         5
Independent Auditor's Report                                          18
Consolidated Statement of Financial Condition - September 30,
     1998 and 1997                                                    19
Consolidated Statements of Earnings -  Years ended September
     30, 1998, 1997, and 1996                                         20
Consolidated Statements of Stockholders' Equity - Years ended
     September 30, 1998, 1997, and 1996                               21
Consolidated Statement of Cash Flows -Years ended September
     30, 1998, 1997, and 1996                                         23
Notes to the Consolidated Financial Statements                        24




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.




                                        1

<PAGE>


                                                                      Exhibit 99


SELECTED CONSOLIDATED
FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
                                               SEPTEMBER 30,
                               1998       1997      1996       1995      1994
                               ----       ----      ----       ----      ----
                                            (IN THOUSANDS)
<S>                         <C>        <C>        <C>         <C>      <C>

Total assets............... $1,350,583 $1,131,024 $1,057,443  $886,570 $808,110
Loans (net) (1)............    944,700    834,270    765,019   631,307  576,406
Federal funds sold.........     20,000        250     16,075    12,825    7,400
Investment securities (2)..    101,505     52,553     53,493    25,186   40,286
Mortgage-backed securities.    201,049    176,854    153,293   164,759  120,099
Real estate owned..........      2,534      2,314      3,118     2,786    2,522
Deposits...................    918,126    911,576    851,853   720,981  673,830
FHLB advances..............    145,000    100,000     95,000    65,000   45,000
Other borrowings...........        ---        475        674       974    1,273
Stockholders' equity.......    263,719     96,802     84,832    77,500   68,251
</TABLE>

(1)      Excludes loans held for sale of $714,000, $141,000, $4.9 million, 
         $1 million, and $25,000, as of September 30, 1998, 1997, 1996, 1995,
         and 1994, respectively.
(2)      Includes investments available for sale of $71.5 million, $47.6 million
         and $33.5 million in 1998, 1997 and 1996, respectively.


                                        2

<PAGE>


                                                                      Exhibit 99


SELECTED CONSOLIDATED OPERATING DATA
<TABLE>
<CAPTION>

                                                               YEARS ENDED SEPTEMBER 30,
                                                   1998        1997       1996        1995        1994
                                                  -------    --------   --------    --------    --------
                                                            (IN THOUSANDS)
<S>                                              <C>         <C>        <C>         <C>         <C>       
Interest income ..............................   $ 95,158    $ 84,814   $ 74,357    $ 64,884    $ 56,084
Interest expense .............................     46,658      45,159     39,114      33,280      26,276
                                                 --------    --------   --------    --------    --------
    Net interest income ......................     48,500      39,655     35,243      31,604      29,808
 Provision for (recovery of) loan losses .....        297         782        (76)        460       1,553
                                                 --------    --------   --------    --------    --------
 Net interest income after provision for loan
    losses ...................................     48,203      38,873     35,319      31,144      28,255
                                                 --------    --------   --------    --------    --------
Other income:
    Income (loss) from real estate operations         (41)        145       (301)        (40)      1,250
    Gain (loss) on sale of mortgage loans ....        142         188        (40)         91         118
    Other ....................................      5,749       3,880      3,226       2,856       2,701
                                                 --------    --------   --------    --------    --------
         Total other income ..................      5,850       4,213      2,885       2,907       4,069
                                                 --------    --------   --------    --------    --------
Other expenses:
    Compensation and benefits ................     14,282      11,931     10,690      10,048       9,433
    Professional fees ........................        589         599        527         699       1,137
    SAIF deposit insurance premium ...........        572         785      6,300       1,556       1,672
    Other ....................................      9,001       7,833      6,615       5,895       5,624
                                                 --------    --------   --------    --------    --------
         Total other expenses ................     24,444      21,148     24,132      18,198      17,866
                                                 --------    --------   --------    --------    --------
 Income before income taxes ..................     29,609      21,938     14,072      15,853      14,458
Income tax expense ...........................     12,243       8,611      5,432       5,958       5,254
                                                 --------    --------   --------    --------    --------
 Income before extraordinary  item and
    cumulative effect of change in accounting
    principle ................................     17,366      13,327      8,640       9,895       9,204
Extraordinary item (1) .......................       --          --         --          --        (1,342)
 Cumulative effect on prior years  of
    changing to a different method of
    accounting for income taxes ..............       --          --         --          --         1,935
                                                 --------    --------   --------    --------    --------
Net income ...................................   $ 17,366    $ 13,327   $  8,640    $  9,895    $  9,797
                                                 ========    ========   ========    ========    ========
</TABLE>
(1)      Extinguishment of FHLB advances for year 1994.

                                        3

<PAGE>                                                         
                                                                      Exhibit 99

SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>


                                                                                     AT OR FOR THE YEARS ENDED SEPTEMBER 30,
                                                          1998       1997      1996     1995     1994
                                                          ----       ----      ----     ----     ----
<S>                                                         <C>       <C>       <C>      <C>       <C>
PERFORMANCE RATIOS:
    Return on average assets (1) .............        1.40%     1.22%      .91%     1.16%     1.25%

    Return on average stockholders' equity (1)        9.34     14.72     10.51     13.61     16.85

    Net interest rate spread .................        3.40      3.36      3.40      3.42      3.68

    Net yield on average interest-earning
         assets ..............................        4.04      3.72      3.79      3.80      3.92

    Noninterest expense to average assets (1)         1.97      1.93      2.53      2.14      2.27

    Net interest income to noninterest
         expense (1) .........................        1.98      1.88      1.46      1.74      1.67

    Average interest-earnings assets to
         average interest-bearing liabilities       116.54    108.33    109.24    109.58    106.94

    Efficiency Ratio (1) .....................       46.87     48.83     62.83     52.76     54.81



ASSET QUALITY RATIOS:

    Nonperforming assets to total assets .....         .37       .43       .50       .71       .85

    Allowance for loan losses to total loans .        1.25      1.40      1.44      1.60      1.64

    Allowance for loan losses to
          nonperforming loans ................      483.13    453.11    507.25    286.70    329.74

    Allowance for losses on real estate
         owned to total real estate owned ....       20.01     19.99     35.45     40.00     33.37



CAPITAL RATIOS:

    Average stockholders' equity to average
         assets ..............................       15.01      8.26      8.62      8.54      7.40

    Stockholders' equity to assets at period
         end .................................       19.53      8.56      8.02      8.74      8.45
</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%, net interest income to
         noninterest  expense  would  have been 1.80% and the  efficiency  ratio
         would have been 50.97%.

                                        4

<PAGE>
                                                                     Exhibit 99

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,  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  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,  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 federal deposit insurance premiums. 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,  1998,  the  Company's
cumulative one year interest rate sensitivity "gap" was negative 2.62%.

In addition to interest rate sensitivity analysis, the Company monitors interest
rate  risk  exposure  with  the  use  of  computerized  simulation  models.  The
computerized  models  simulate  the effect of rising and falling  interest  rate
levels  on the  Company's  net  interest  income  and net  economic  value.  The
Company's Board of Directors reviews the simulation results on a quarterly basis
to ensure that simulated  fluctuations  of net interest  income and net economic
value remain  within  limits  established  in the  Company's  interest rate risk
management policy.


                                        5

<PAGE>


                                                                      Exhibit 99

The Board of  Directors  has  established  an  asset/liability  committee  which
consists of the Company's  president and senior Company 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
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.


                                        6

<PAGE>


                                                                      Exhibit 99

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, 1998.  For
borrowings, the table presents principal cash flows by expected maturity dates.
<TABLE>
<CAPTION>
                                                                     More than 
                                            Four to    More than     three years
                                Within       twelve   one year to     to five   Over five
                             three months    months   three years      years      years       Total

                                                           (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>         <C>         <C>       <C>          <C>
Interest-earning assets (1):
    Mortgage loans (2)
       Fixed rate............   $ 28,178     $ 84,532    $158,511    $ 98,654  $ 159,654    $ 529,529
       Adjustable rate.......     44,885      143,221      28,905      93,279      7,583      317,873
    Other loans (2):
       Fixed rate............      7,296       21,888      29,844      11,698      7,451       78,177
       Adjustable rate.......     23,264        8,389         ---          --         --       31,653
    Mortgage-backed
       securities:
       Fixed rate (3)........     16,296       48,885      59,633      25,688     27,493      177,995
       Adjustable rate.......      2,426       20,628          --          --         --       23,054
    Investment securities
       and other assets......     58,114       30,092      60,960          --         --      149,166
                               ---------     --------   ---------   ---------  ---------   ----------
         Total...............  $ 180,459    $ 357,635   $ 337,853   $ 229,319  $ 202,181   $1,307,447
                               ---------    ---------   ---------   ---------  ---------   ----------
Interest-bearing liabilities:
    Deposits (4):
       NOW accounts..........  $   6,013     $ 18,039   $  23,090   $   8,312  $   4,675   $   60,129
       Passbook accounts.....     13,905       41,714      31,147       4,983        949       92,698
       Money market
         accounts............      8,215       24,644       7,886         315         14       41,074
       Certificates of
         deposits............    146,353      314,625     158,980      38,018        866      658,842
    Borrowings...............        ---          ---       5,000      32,000    108,000      145,000
                               ---------    ---------   ---------  ----------  ---------   ----------
         Total...............  $ 174,486    $ 399,022   $ 226,103  $   83,628  $ 114,504   $  997,743
                               ---------    ---------   ---------  ----------  ---------   ----------
 Excess (deficiency) of
    interest earning assets
    over interest-bearing
    liabilities..............   $  5,973    $ (41,387)  $ 111,750   $ 145,691  $  87,677   $ 309,704
                                 =======   ===========  =========   =========   ========    =========
 Cumulative excess
    (deficiency) of interest-
    earning assets over
    interest-bearing
    liabilities..............    $ 5,973    $ (35,414)   $ 76,336   $ 222,027  $ 309,704
                                 =======    ==========   ========   =========  =========
 Cumulative excess                           
    (deficiency) of interest-
    earning assets over
    interest-bearing
    liabilities as a percent of
    total assets.............      .44%       (2.62)%      5.65%       16.44%     22.93%     
                                  ====       =======      =====       ======     ======     
</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

                                        7

<PAGE>


                                                                      Exhibit 99

    the  research  department  of a primary  securities  dealer.  For fixed rate
    mortgages and mortgage-backed  securities,  annual prepayment rates from 11%
    to 57%, based on the coupon rate, were used.
(2) Balances  have been reduced for loans in process and deferred  loan fees and
    discounts  which   aggregated  to  $49.9  million  at  September  30,  1998.
    Nonperforming  loans  aggregating  $2.4 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 $107.9 million at September 30, 1998.
(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
    $116.8 million or 8.65% of total assets.

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."

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 which 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.

ANALYSIS OF NET INTEREST INCOME

The Company's  earnings have historically  depended primarily upon the Company's
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 which are considered adjustments to yields.

                                        8

<PAGE>

                                                                      Exhibit 99


<TABLE>
<CAPTION>                                                                        Years Ended September 30,
                                             1998                                 1997                                  1996
                                Average  Interest &     Yield/      Average  Interest &    Yield/    Average   Interest &    Yield/
                                Balance   Dividends      Rate       Balance   Dividends     Rate     Balance   Dividends      Rate 
                                -------   ---------      ----       -------   ---------     ----     -------   ---------      ---- 
                                                                           (DOLLARS IN THOUSANDS)                                  
ASSETS:                                                                                                                            
Interest-earning assets (1):                                                                                                       
<S>                         <C>          <C>             <C>    <C>          <C>            <C>    <C>         <C>            <C>  
  Federal funds sold .....  $    7,959   $      448      5.63%  $    7,404   $      399     5.39%  $   12,679  $      669     5.28%
  Interest-bearing
    deposits .............      40,531        2,233      5.51       29,674        1,614     5.44       24,062       1,320     5.49
  Investment securities ..      82,076        4,945      6.02       63,743        3,866     6.07       39,825       2,462     6.18
  Mortgage-backed
    securities ...........     173,177       11,301      6.53      153,347       10,088     6.58      152,895      10,155     6.64
  Mortgage loans .........     791,491       66,329      8.38      718,319       60,000     8.35      620,166      52,237     8.42
  Other loans ............     105,287        9,902      9.40       94,634        8,847     9.35       79,875       7,514     9.41
                            ----------   ----------   -------   ----------   ----------  -------   ----------  ----------  -------
    Total interest-earning
       assets ............   1,200,521       95,158      7.93    1,067,121       84,814     7.94      929,502      74,357     8.00
                                             ------      ----                    ------     ----                   ------     ----

Noninterest earning
  assets .................      38,155                              29,575                             24,481              
                                ------                              ------                             ------              
                                                                                                                           
Total assets .............   1,238,676                           1,096,696                            953,983              
                             =========                           =========                            =======              
                                                                               
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing
  liabilities
  Deposits:
    Transaction accounts .  $  158,723   $    1,894      1.19%  $  138,721   $    1,896     1.37%  $  118,398  $    1,724     1.46%
    Passbook savings .....      87,760        1,674      1.91       77,707        1,356     1.75       79,617       1,506     1.89
    Official checks ......       8,004         --         .00        5,612         --        .00        6,400        --        .00
    Certificate savings ..     670,628       36,651      5.47      663,143       35,892     5.41      570,518      31,210     5.47
                            ----------   ----------   -------   ----------   ----------  -------   ----------  ----------  -------
    Total deposits .......     925,115       40,219      4.35      885,183       39,144     4.42      774,933      34,440     4.44
  FHLB advances ..........     104,877        6,419      6.12       99,342        5,962     6.00       75,096       4,593     6.12
  Other borrowings .......         167           20     11.87          561           53     9.48          857          81     9.47
                               -------       ------      ----      -------       ------     ----      -------      ------     ----
Total interest-bearing
  liabilities ............   1,030,159       46,658      4.53      985,086       45,159     4.58      850,886      39,114     4.60
                                             ------      ----                    ------     ----                   -------   -----
Noninterest-bearing
  liabilities ............      22,648                              21,045                             20,863
                                ------                              ------                             ------
Total liabilities ........   1,052,807                           1,006,131                            871,749
Stockholders' equity .....     185,869                              90,565                             82,234
                               -------                              ------                             ------
Total liabilities and                                                            
  stockholders' equity ...   1,238,676                           1,096,696                            953,983
                             =========                           =========                            =======
Net interest income/
  interest rate
  spread (2) .............               $   48,500      3.40%                  $39,655    3.36%                $   35,243     3.40%
         ==                              ==========      -----                  =======    -----                ==========     -----
Net interest-earning
 assets/net interest

 margin (3) ..............  $  170,362                   4.04%     $82,035                 3.72%      $78,616                  3.79%
        ==                  ==========                   -----     =======                 -----      =======                  -----
Interest-earning assets
  to interest-bearing
  liabilities ............                             116.54%                           108.33%                             109.24%
                                                       -------                           -------                             -------
</TABLE>

(1)  Average  balances and rates include  nonaccruing  loans.  

(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.  Net interest margin increase in 1998 is
     due primarily to interest  earned on cash  proceeds from the  conversion of
     Harbor Financial, M.H.C. and concurrent stock offering.

                                        9

<PAGE>


                                                                      Exhibit 99

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)
                                    1998 vs. 1997                         1997 vs. 1996                        1996 vs. 1995
                                    -------------                         -------------                        -------------
                              Volume      Rate         Net      Volume        Rate         Net      Volume         Rate         Net
                              ------      ----         ---      ------        ----         ---      ------         ----         ---
                                                                      (IN THOUSANDS)
Interest income:
<S>                        <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>          <C>
  Interest-bearing
    deposits ...........   $    638    $     30    $    668    $     21    $      3    $     24    $    194    $    (74)    $   120
  Investment securities       1,086          (7)      1,079       1,424         (20)      1,404        (202)        312         110
  Mortgage-backed
    securities .........      1,294         (81)      1,213          29         (96)        (67)        360         182         542
  Mortgage loans .......      6,207         122       6,329       8,259        (496)      7,763       6,681         673       7,354
  Nonmortgage loans:
    Commercial loans ...        417         (22)        395          85         (72)         13          46        (110)        (64)
    Consumer loans .....        601          59         660       1,289          31       1,320       1,305         106       1,411
                           --------    --------    --------    --------    --------    --------    --------    --------    --------
Total interest income ..     10,243         101      10,344      11,107        (650)     10,457       8,384       1,089       9,473
                           --------    --------    --------    --------    --------    --------    --------    --------    --------

Interest expense:
  Deposits:
    Transaction accounts   $    224    $   (226)   $     (2)   $    278    $   (106)   $    172    $    144    $   (202)   $    (58)
    Passbook savings ...        192         126         318         (33)       (117)       (150)       (114)        (98)       (212)
    Certificate savings         409         350         759       5,013        (331)      4,682       3,806       1,277       5,083
                           --------    --------    --------    --------    --------    --------    --------    --------    --------
    Total deposits .....        825         250       1,075       5,258        (554)      4,704       3,836         977       4,813
  FHLB advances ........        331         126         457       1,455         (86)      1,369       1,035          12       1,047
  Other borrowings .....        (36)          3         (33)        (26)         (2)        (28)        (26)       --           (26)
                           --------    --------    --------    --------    --------    --------    --------    --------    --------
Total interest expense .      1,120         379       1,499       6,687        (642)      6,045       4,845         989       5,834
                           --------    --------    --------    --------    --------    --------    --------    --------    --------

Net interest income ....   $  9,123    $   (278)   $  8,845    $  4,420    $     (8)   $  4,412    $  3,539    $    100    $  3,639
                           ========    ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>





                                       10

<PAGE>


                                                                      Exhibit 99

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997

GENERAL

Net  income for the year  ended  September  30,  1998  increased  30.3% to $17.4
million or 57 cents per diluted share, compared to $13.3 million or 43 cents per
diluted share for the same period last year. Net interest income increased 22.3%
to $48.5  million  for the year ended  September  30,  1998,  compared  to $39.6
million for the year ended  September  30,  1997.  This  increase  was due to an
increase in interest  income of $10.4 million  offset by an increase in interest
expense of $1.5  million.  Other  income  increased to $5.8 million for the year
ended  September  30, 1998 from $4.2  million for the year ended  September  30,
1997. Other expenses increased to $24.4 million for the year ended September 30,
1998 from $21.1 million for the year ended September 30, 1997.

INTEREST INCOME

Total interest  income  increased to $95.1 million for the year ended  September
30, 1998 from $84.8 million for the year ended September 30, 1997. This increase
was due  primarily to an increase in average  interest-earning  assets to $1.201
billion for the year ending  September 30, 1998,  compared to $1.067 billion for
the year ending September 30, 1997 and $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 the  cash  proceeds  from  the
conversion of Harbor Financial, M.H.C. and concurrent stock offering (the "Stock
Offering").  Additionally,  in the quarter ending December 31, 1997, the Company
received  final  payment  on a  commercial  real  estate  loan.  This  loan  was
performing,  but had  been  seriously  delinquent  in the  past  and  had  other
characteristics which caused management to be uncertain about the ability of the
borrower to comply with the loan repayment terms. Additional interest income was
recognized in the amount of $874,000 due to deferred cash interest  payments and
unearned  purchase  discount  remaining at time of payoff of the loan.  Interest
income on loans  increased  $7.4  million  to $76.2  million  for the year ended
September  30, 1998 from $68.8  million for the year ended  September  30, 1997.
This increase was a result of a $83.8 million increase in the average balance to
$896.8  million in 1998 from $812.9 million in 1997 and the $874,000 of interest
income recognized on the payoff of the problem  commercial real estate loan. The
increase  in the average  balance of total  loans was mainly due to  significant
growth in the residential  and commercial  loan  portfolios  resulting from high
levels of loan originations.  Interest income on investment securities increased
$1.1  million to $5.0  million for the year ended  September  30, 1998 from $3.9
million for the year ended  September 30, 1997.  This increase was primarily the
result of a $18.3  million  increase in the average  balance to $82.0 million in
1998 from  $63.7  million  in 1997.  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.  Interest  income on  mortgage-backed
securities  increased $1.2 million to $11.3 million for the year ended September
30, 1998 from $10.1 million for the year ended September 30, 1997. This increase
was primarily the result of a $19.8 million  increase in the average  balance to
$173.2  million in 1998 from $153.4 million in 1997. The increase in the average
balance of  mortgage-backed  securities  was  primarily  due to the  purchase of
seven-year  balloon  securities and fifteen-year  fixed rate securities with the
proceeds from new FHLB advances.

INTEREST EXPENSE

Total interest  expense  increased to $46.6 million for the year ended September
30, 1998 from $45.1 million for the year ended September 30, 1997. This increase
was due  primarily  to an increase in average  interest-bearing  liabilities  to
$1.030 billion for the year ended September 30, 1998 from $985.1 million for the
year  ended   September   30,   1997.   The  average   interest   rate  paid  on
interest-bearing  liabilities  was 4.53% for the year ended  September  30, 1998
compared to 4.58% for the year ended  September  30, 1997, a decrease of 5 basis
points. Interest expense on deposits increased $1.1 million to $40.2 million for
the year  ended  September  30,  1998  from  $39.1  million  for the year  ended
September  30, 1997.  This  increase  was due  primarily to an increase of $39.9
million in the average  balance to $925.1 million in 1998 from $885.2 million in
1997. The average interest rate paid on deposits  decreased by 7 basis points to
4.35%  for the year  ended  September  30,  1998 from  4.42% for the year  ended
September 30, 1997. This decrease was primarily due to the change in deposit mix
to lower rate core deposits from higher rate  certificates.  The average deposit
mix changed to 27.5% and 72.5% of core deposits and certificates,  respectively,
for the year ended  September  30, 1998 from 25.1% and 74.9% for the same period
in 1997.  Interest  expense  on FHLB  advances  and other  borrowings  increased
$424,000 to $6.4 million for the year ended September 30, 1998 from $6.0 million
for the year  ended  September  30,  1997.  This  increase  was the result of an
increase of $5.5 million in the average  balance to $104.9  million in 1998 from
$99.9 million in 1997  primarily  due to proceeds from new long-term  fixed rate
advances  taken in order to fund the  purchase  of  mortgage-backed  securities,
partially  offset by maturities in 1998 of short-term  advances taken in 1997 to
fund purchases of FHLB Notes.

<PAGE>
                                                                      Exhibit 99

PROVISION FOR LOAN LOSSES

The  provision  for loan  losses is  charged  to  operations  to bring the total
allowance for loan losses to a level considered  appropriate by management based
on historical  experience,  volume and type of lending conducted by the Company,
industry  standards,  the level and status of past due and nonperforming  loans,
the general economic  conditions of the Company's lending area and other factors
affecting collectibility of the Company's loan portfolio. The provision for loan
losses was $297,000 for the year ended  September  30, 1998 compared to $782,000
for the year ended  September  30, 1997.  The  provision for loan losses for the
year  ended  September  30,  1998  was  principally  comprised  of a  credit  of
approximately $909,000 related to a 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  provision for loan
losses for the year ended  September  30, 1997 was  principally  comprised  of a
charge  of  approximately  $600,000  related  to an  increase  in the  level  of
classified commercial real estate loans, a charge of approximately  $100,000 due
to an increase  in  classified  consumer  loans,  and a charge of  approximately
$80,000 for  unidentified but probable losses due to growth in the consumer loan
portfolio.  The allowance for loan losses was at $11.8 million and $11.7 million
for September 30, 1998 and 1997, respectively. The allowance was 1.25% and 1.40%
of total loans at September 30, 1998 and 1997, respectively,  and was 211.9% and
117.5% of  classified  loans at September 30, 1998 and 1997,  respectively.  The
Company  had net  charge  offs of  $170,000  and  $107,000  for the years  ended
September 30, 1998 and 1997,  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 $1.6  million  to $5.8  million  for the year ended
September 30, 1998 from $4.2 million for the year ended  September 30, 1997, due
primarily to a $719,000 gain on the sale of the Company's  ownership interest in
its data processing  servicer, a $596,000 gain on the sale of land and buildings
and an increase of  $678,000 in other fees and service  charges.  Other fees and
service  charges,  primarily from fees and service charges on deposit  products,
was $4.0  million and $3.3  million for the years ended  September  30, 1998 and
1997, respectively. This increase was primarily due to the growth in deposits.

OTHER EXPENSE

Other  expense  increased  by $3.3  million to $24.4  million for the year ended
September 30, 1998 from $21.1 million for the year ended September 30, 1997. The
increase was  primarily due to an increase of $2.4 million in  compensation  and
benefits,  an increase of $319,000 in occupancy expense, an increase of $839,000
in other  expense  partially  offset by a decrease of  $213,000 in SAIF  deposit
insurance  premiums.  The increase in compensation and benefits is due primarily
to additional  staff required to support the growth in loans and deposits and an
increase of $910,000 in noncash expense of stock benefit plans.  The increase in
occupancy  expense is due primarily to an increase in data processing  equipment
expense.  The  increase  in other  expense is due  primarily  to an  increase of
$116,000 in Delaware franchise tax, $108,000 in deposit account losses and other
increases resulting from the growth in loans and deposits.  The decrease in SAIF
deposit  insurance  premiums is due to lower assessment rates resulting from The
Deposit Insurance Act of 1996.

INCOME TAXES

Income tax expense increased by $3.6 million to $12.2 million for the year ended
September 30, 1998 from $8.6 million for the year ended  September 30, 1997, due
primarily to an increase in pretax  accounting  income.  The effective tax rates
were 41% and 39% for the years ended September 30, 1998 and 1997, respectively.

YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996

GENERAL

Net  income for the year  ended  September  30,  1997  increased  16.1% to $13.3
million or 43 cents per diluted share, compared to $11.5 million or 39 cents per
diluted share for the same period last year, excluding the one-time SAIF special
assessment.  Including the one-time SAIF special assessment,  net income for the
year ended  September 30, 1996 was $8.6 million,  or 29 cents per diluted share.
Net  interest  income  increased  12.5% to  $39.6  million  for the  year  ended
September 30, 1997  compared to $35.2  million for the year ended  September 30,
1996.  This increase was due to an increase in interest  income of $10.5 million
offset  by an  increase  in  interest  expense  of $6.0  million.  Other  income
increased  to $4.2  million  for the year  ended  September  30,  1997 from $2.9
million for the year ended September 30, 1996. Other expenses decreased to $21.1
million for the year ended  September  30, 1997 from $24.1  million for the year
ended September 30, 1996, due primarily to the one-time SAIF special  assessment
of $4.5 million.

                                       12

<PAGE>

                                                                      Exhibit 99
INTEREST INCOME

Total interest  income  increased to $84.8 million for the year ended  September
30, 1997 from $74.3  million for the year ended  September 30, 1996, 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-earning assets increased
to $1.067 billion for the year ended  September 30, 1997 from $929.5 million for
the year ended  September 30, 1996. The average rate earned on  interest-earning
assets  decreased to 7.94% for the year ended  September 30, 1997 from 8.00% for
the year ended September 30, 1996, a decrease of 6 basis points. Interest income
on loans  increased  $9.0 million to $68.8 million for the year ended  September
30, 1997 from $59.8 million for the year ended September 30, 1996. This increase
was a result of a $112.9  million  increase  in the  average  balance  to $812.9
million  in 1997 from  $700.0  million  in 1996 that was  partially  offset by a
decrease of 7 basis  points in the average  yield to 8.47% in 1997 from 8.54% in
1996.  The  increase  in the  average  balance of total  loans was mainly due to
significant growth in the residential loan portfolio  resulting from high levels
of loan  originations  and the acquisition of $62 million of loans from Treasure
Coast  Bank,  FSB in  June,  1996.  Interest  income  on  investment  securities
increased  $1.4  million to $3.9 million for the year ended  September  30, 1997
from $2.5  million for the year ended  September  30,  1996.  This  increase was
primarily the result of a $23.9 million increase in the average balance to $63.7
million in 1997 from $39.8 million in 1996. The increase in the average  balance
of  investment  securities  was primarily due to the purchase of FHLB Notes with
the proceeds from new FHLB advances.

INTEREST EXPENSE

Total interest  expense  increased to $45.1 million for the year ended September
30, 1997 from $39.1  million for the year ended  September 30, 1996, as a result
of an increase in average interest-bearing liabilities. Average interest-bearing
liabilities  increased to $985.1  million for the year ended  September 30, 1997
from $850.9 million for the year ended September 30, 1996. The average  interest
rate paid on interest-bearing liabilities was 4.58% for the year ended September
30, 1997 compared to 4.60% for the year ended  September 30, 1996, a decrease of
2 basis points.  Interest  expense on deposits  increased  $4.7 million to $39.1
million for the year ended  September  30, 1997 from $34.4  million for the year
ended  September  30, 1996.  This increase was a result of an increase of $110.3
million in the average  balance to $885.2 million in 1997 from $774.9 million in
1996  partially  offset by a decrease of 2 basis  points in the average  rate to
4.42% in 1997  from  4.44% in 1996.  The  increase  in the  average  balance  of
deposits reflects the acquisition of $70 million of deposits from Treasure Coast
Bank, FSB in June, 1996.  Interest expense on FHLB advances and other borrowings
increased  $1.3  million to $6.0 million for the year ended  September  30, 1997
from $4.7 million for the year ended  September 30, 1996.  This increase was the
result of an increase of $24.0  million in the average  balance to $99.9 million
in 1997 from $75.9 million in 1996  primarily  due to proceeds  from  short-term
advances taken in order to fund the purchase of FHLB Notes.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $782,000 for the year ended September 30, 1997
compared  to a credit of $76,000  for the year ended  September  30,  1996.  The
provision for loan losses for the year ended  September 30, 1997 was principally
comprised of a charge of  approximately  $600,000  related to an increase in the
level of  classified  commercial  real estate loans,  a charge of  approximately
$100,000  due to an  increase  in  classified  consumer  loans,  and a charge of
approximately  80,000 for  unidentified but probable losses due to growth in the
consumer  loan  portfolio.  The credit to the  provision for loan losses for the
year ended  September  30,  1996 was  principally  comprised  of a credit to the
provision  of $1.7  million  related  to a decrease  in the level of  classified
assets  compared to the prior year and $100,000 of additional  net recoveries on
loans during the year. This was partially offset by a charge to the provision of
approximately $1.6 million due to growth primarily in the commercial real estate
and  consumer  portfolios  (which  excludes  loan  growth  associated  with  the
acquisition  of  Treasure  Coast) and due to the  Company's  perception  and the
inherent risk of loans  originated for these  portfolios  during the period,  as
well as the  additional  inherent  risk of loans  acquired  as a  result  of the
acquisition  of Treasure  Coast;  and $200,000  related to downgrades of certain
performing  commercial  real estate loans.  The allowance for loan losses was at
$11.7 million and $11.0  million for September 30, 1997 and 1996,  respectively.
The  allowance  was 1.4% of total  loans at both  September  30,  1997 and 1996,
respectively,  and was 117.5% and 129.4% of  classified  loans at September  30,
1997 and 1996, respectively. The Company had net charge offs of $107,000 for the
year ended  September  30, 1997  compared to net  recoveries of $124,000 for the
year ended  September 30, 1996.  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 $1.3  million  to $4.2  million  for the year ended
September 30, 1997 from $2.9 million for the year ended  September 30, 1996, due
primarily  to an increase of  $511,000  in other fees and  service  charges,  an
increase  of $446,000  in income  from real  estate  operations,  an increase of
$228,000  in gain on sale of  mortgage  loans and a $239,000  gain on sale of an
undeveloped parcel of land. Other fees and service charges,  primarily from fees
and service charges on deposit  products,  was $3.3 million and $2.8 million for
the years ended  September  30, 1997 and 1996,  respectively.  This increase was
primarily due to the growth in deposits.  Income from real estate operations was
$145,000 for the year ended  September 30, 1997,  compared to a loss of $301,000
in the comparable period in 1996.
                                       13
<PAGE>
                                                                      Exhibit 99

Gain on sale of mortgage  loans was  $188,000 for the year ended  September  30,
1997, compared to a loss of $40,000 in the comparable period in 1996.

OTHER EXPENSE

Other  expense  decreased  by $3.0  million to $21.1  million for the year ended
September 30, 1997 from $24.1 million for the year ended September 30, 1996. The
decrease  was  primarily  due to a  decrease  of $5.5  million  in SAIF  deposit
insurance  premiums due to the special  assessment  of $4.5 million for the year
ended September 30, 1996 and a decrease of $1.0 million in premiums for the year
ended  September  30,  1997  due  to  lower   assessment  rates  resulting  from
recapitalization of the SAIF. Other changes included an increase of $1.2 million
in compensation and benefits,  an increase of $414,000 in occupancy  expense and
an increase  of $804,000 in other  expense.  The  increase in  compensation  and
benefits is due primarily to additional  staff required to support the growth in
loans and deposits and an increase in amortization  of stock benefit plans.  The
increase  in other  expense is  primarily  due to an  increase  of  $164,000  in
amortization of goodwill,  an increase of $207,000 in advertising and promotion,
an increase of $96,000 in data  processing  services  and $52,000 in filing fees
primarily relating to the organization of the mid-tier holding company.

INCOME TAX EXPENSE

Income tax expense  increased by $3.2 million to $8.6 million for the year ended
September 30, 1997 from $5.4 million for the year ended  September 30, 1996, due
primarily to an increase in pretax  accounting  income,  net of the $1.7 million
tax  effect of the  one-time  SAIF  special  assessment  included  in 1996.  The
effective tax rates were 39% for the years ended September 30, 1997 and 1996.

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 Company 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 Company'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, 1998, the Company had federal funds,
cash and  investments  which  exceeded the minimum  regulatory  requirement.  In
addition,  the Company had certain  investments  in  mortgage-backed  securities
aggregating  $199.2  million  which  also  qualify  as liquid  assets  under OTS
regulations.  The Company  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 Company's total liquidity position as of
September 30, 1998 was $399.4 million, which was $362.4 million in excess of the
minimum requirement of $37 million.

The Company'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 Company will consider  increasing its borrowings  from the Federal Home Loan
Bank of  Atlanta  from  time  to  time to  hedge  against  future  increases  in
prevailing  deposit  account  interest  rates.  In addition,  the Company  holds
unpledged fixed and adjustable rate  mortgage-backed  securities totaling $199.2
million at September 30, 1998 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 Company.

Net cash  provided  by the  Company's  operating  activities  (i.e.,  cash items
affecting net income) was $20.7 million, $15.7 million, and $9.9 million for the
years ended September 30, 1998, 1997 and 1996, respectively.

Net cash used by the Company's  investing  activities (i.e., cash disbursements,
primarily for its investment securities,  mortgage-backed  securities,  and loan
portfolios) was $188.2 million,  $93.8 million,  and $86.2 million for the years
ended September 30, 1998, 1997 and 1996, respectively.  The increase in 1998 was
principally  due to a $43.6  million net  increase in loans and a $50.9  million
increase in the purchase of investment securities.


                                       14

<PAGE>


                                                                      Exhibit 99

Net cash provided by the Company's  financing  activities  (i.e.,  cash receipts
primarily  from net  increases  in deposits  and net FHLB  advances)  was $198.4
million,  $62.7  million,  and $86.2  million for the years ended  September 30,
1998, 1997, and 1996, respectively.  The increase in 1998 was principally due to
$150.2 million net proceeds from the Stock Offering.

The Company's liquid assets consist primarily of investment securities,  federal
funds and cash. At September  30, 1998,  the Company had liquid assets of $165.3
million,  with loan commitments of $36.6 million  (consisting of unused lines of
credit to homebuilders and residential and commercial loan commitments), letters
of credit of $1.4  million and unfunded  loans in process of $46.2  million (the
latter consisting primarily of residential loans in process).

IMPACT OF NEW ACCOUNTING STANDARDS

REPORTING COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("Statement  130").  Statement 130 is effective for fiscal years beginning after
December 15, 1997. Statement 130 establishes standards for reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial  statements.   Statement  130  requires  all  items  recognized  under
accounting  standards as components of comprehensive  income to be reported in a
financial  statement with equal prominence as other financial  statements.  Such
statement  will be presented by the Company  beginning  with the quarter  ending
December 31, 1998.

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("Statement  131").  Statement  131 is  effective  for periods  beginning  after
December 15, 1997.  Statement 131 establishes  standards for the way that public
business  enterprises report information about operating segments,  based on how
the  enterprise  defines  such  segments.  The  Company  is  required  to report
operating  segment  information,  to  the  extent  such  segments  are  defined,
beginning with the year ending September 30, 1999.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"  ("Statement
133").  Statement  133 is effective  for fiscal years  beginning  after June 15,
1999, with earlier adoption permitted.  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. It
is currently anticipated that the Company will adopt Statement 133 on October 1,
1999,  and that the statement  will not have a significant  financial  statement
impact upon adoption.

REGULATORY MATTERS

On September 30, 1996,  President Clinton signed The Deposit Insurance Funds Act
of 1996,  which was intended to recapitalize the Savings  Association  Insurance
Fund ("SAIF") and  substantially  bridge the assessment rate disparity  existing
between SAIF and Bank Insurance Fund insured institutions. The new law subjected
institutions  with  SAIF-assessable  deposits,  including Harbor Federal Savings
Bank (the "Bank"),  to a one-time  assessment of 65.7 basis points of assessable
deposits as of March 31, 1995, and provided for,  among other things,  a sharing
of FICO bond obligation fundings by banks and thrifts and the eventual merger of
the Bank Insurance Fund with the SAIF. The Bank's one-time  assessment  resulted
in a pre-tax charge of approximately $4,552,000,  which was paid on November 27,
1996 and,  under  provisions  of the new law,  was treated for tax purposes as a
fully deductible "ordinary and necessary business expense" when paid. Results of
operations  for the year ended  September  30,  1996  includes a charge for this
one-time  assessment.  Additionally,  the Bank  recorded  a  pre-tax  charge  of
approximately $450,000 related to the application of this assessment to deposits
held by Treasure Coast at March 31, 1995. Such charge was reflected as a cost of
the acquisition of Treasure Coast.

YEAR 2000 CONSIDERATIONS

The Year 2000  problem  represents  one of the  biggest  challenges  to face the
information  technology  age.  The problem  results  from  efforts to store data
efficiently in the early years of computer development, when computer memory was
at a premium.  In those years,  computer  programmers made the decision,  almost
universally followed, to store the year as a two-digit number (e.g., 75) instead
of a four-digit number (e.g., 1975).  Therefore,  when the next century arrives,
the date "00" may be interpreted as "1900" instead of "2000". This can cause

                                       15

<PAGE>
                                                                      Exhibit 99

systems  to lock up,  crash or  provide  erroneous  information.  The Year  2000
problem  affects  computer  systems in all  industries,  both  domestically  and
internationally.  It is a complex and difficult problem because of the number of
systems potentially impacted and the interdependence of systems.

The  Company has been  addressing  Year 2000  issues,  by  developing  plans and
implementing  solutions  utilizing the  guidelines  and five  management  phases
recommended by the Federal Financial  Institutions  Examination Council (FFIEC).
The five phases are: 1) AWARENESS  Define the Year 2000 issues,  gain  executive
level  support,  establish  a project  team,  develop a strategy  to address all
internal  and  external  systems and discuss  Year 2000 plans with  vendors,  2)
ASSESSMENT  - Assess  the size and  complexity  of the  issues  and  detail  the
magnitude of the effort  necessary  to address  them,  3)  RENOVATION - Convert,
replace or eliminate  software,  hardware and date sensitive  items as necessary
and monitor  vendors'  renovation  activities,  4)  VALIDATION - Test and verify
software,  systems  components,   other  applicable  date  sensitive  items  and
contingency  plans, and 5) IMPLEMENTATION - Put tested date sensitive items into
production,  monitor  implementation with vendors, and execute contingency plans
as necessary.

The Year 2000  issue is the  Company's  top  technology  priority.  Even so, the
Company  is  treating  this  problem  as a  "business"  issue,  and not one just
affecting  technology.  To  successfully  prepare for the Year 2000,  enterprise
coordination  has been  established and resources have been mobilized across the
company to support this effort.  The Company has also developed a Year 2000 plan
(the  "Millennium  Plan")  which was first  presented  to the Board of Directors
during June 1997.  Management provides monthly progress reports to the Company's
Systems  Corporate  Steering  Committee  which oversees all Systems  activities,
including  the Year 2000 plan.  In  addition,  the Board of Directors is updated
monthly on the Company's Year 2000 process.

The Company has  identified  and assessed its system  level  software  including
operating  systems  and  networking  software;   applications   software;   data
processing  hardware  platforms such as personal  computers and automated teller
machines;   customer,   service  bureau,   and  third  party   interfaces;   and
environmental  systems  including,  but not limited to, climate control systems,
sprinklers, elevators, and security systems. The Company is primarily reliant on
external third party vendors for its computer output and processing,  as well as
other significant  functions and services.  Management is currently working with
these third party  vendors to assess their Year 2000  readiness.  Based upon the
current  assessment,  management  believes  that with planned  modifications  to
existing  software  and  hardware  and planned  conversions  to new software and
hardware,  the Company's third party vendors are taking the appropriate steps to
ensure critical systems will function properly for the Year 2000.

To assess the  Company's  date  sensitive  items,  each item was  identified  as
mission  critical,   mission  necessary,   mission  important  and  non  mission
necessary.  Mission  critical  items are the primary focus for the Company.  The
largest  component of mission  critical items is the Company's  service  bureau,
which has  informed  the  Company  that it  expects to  complete  testing of its
updated  systems by the end of 1998. The Company was  significantly  involved in
the initial phase of testing the service bureau's updated systems.  This testing
was completed in October 1998 and  substantially all systems evidenced Year 2000
compliance.   Management   currently  expects  the  majority  of  modifications,
conversions  and related  testing of all vendors to be completed by December 31,
1998 with any remaining ones being  completed by March 31, 1999.  Ninety percent
(90 %) of the Company's remaining mission critical and mission necessary vendors
have provided  written  assurance  that their products and services will be Year
2000 compliant.

While the Company has received such assurances  from these vendors,  risk exists
in that the assurances are not guarantees and may not be  enforceable.  Thus, in
the event such vendors'  products  and/or  services are not Year 2000 compliant,
the  Company's  recourse in the event of such  failure  may be  limited.  If the
required  modifications  and conversions are not made, or are not completed on a
timely basis, the Year 2000 issue could have a material impact on the operations
of the Company.  Other risk factors  associated with the Year 2000 event include
the risk that the  Company's  business  could be  disrupted  due to the  service
bureau and customer  system  failures,  or even the possible  loss of electrical
power or phone service. The Company could also be subjected to litigation due to
Year 2000 non compliance  from  customers,  borrowers and vendors as a result of
both internal and third party system failures.

It is the intention of the Company to maintain normal business operations during
the  Year  2000  transition  and  beyond.  The  Company  has  developed  its own
company-wide  Year  2000  Contingency  Plan  as an  addition  to  the  Company's
Corporate  Recovery Plan.  Together these plans provide the means to help insure
the continuity of daily operations in the event of a loss of essential resources
due to Year 2000 induced failures.  They describe  individual  contingency plans
concerning  distinctive  software and  hardware  issues,  operational  plans for
continuing operations,  and specific policies and procedures to follow up on the
occurrence  of  a  power  outage,  computer   interruptions,   telecommunication
interruptions,  hurricanes, etc. Such plans identify participants, processes and
equipment  that will be necessary to permit the Company to continue  operations.
Testing of the Contingency Plan actions started August 1, 1998 and will continue
through  September 30, 1999.  Third party testing  processes  will depend on the
nature of the third party and will be independently  agreed upon for each party.
Recommendations  and adjustments to the  contingency  plan will be made based on
the results of the testing and necessary circumstances.


                                       16

<PAGE>


                                                                      Exhibit 99

Management  has  also  completed  a  review  of risk  related  to the  Company's
customers.  The Company  sent  brochures  to  customers  and  questionnaires  to
borrowers and vendors. Upon review of customer risk, it was determined that only
commercial loan customers  posed any  significant  potential risk related to the
Year 2000. As of June 30, 1998,  the Company had contacted all of its commercial
loan customers (514 borrowers with loans  outstanding  aggregating  $108,090,700
million) regarding the customers'  awareness of the Year 2000 problem.  While no
assurance  can be  given  that  its  customers  will  be  Year  2000  compliant,
management  believes,  based on representations of such customers and reviews of
their  operations,  that the customers  are either  addressing  the  appropriate
issues to insure  compliance  or that they are not faced with material Year 2000
issues.  Management  also  regularly  reviews  the need to  establish a specific
reserve  for  potential  losses  associated  with the  Year  2000  issue.  As of
September  30,  1998,  such  a  reserve  was  not  necessary.   Furthermore,  in
substantially  all cases the credit extended to such borrowers is collateralized
by real estate which  inherently  minimizes the Company's  exposure in the event
that  such  borrowers  do  experience  problems  or  delays  becoming  Year 2000
compliant.  Additionally,  management has developed a liquidity contingency plan
should any unlikely  problems occur with Fund Providers or Capital  Market/Asset
Management Counter parties.

A Year 2000 budget has been established.  Although the costs of modifications to
the existing  software is being  primarily  absorbed by the third party vendors,
the Company  recognized  the need to purchase new hardware and  software.  Based
upon current  estimates,  the Company has identified  approximately  $731,000 in
total costs, including hardware,  software, and other issues, for completing the
Year 2000 project.  Of that amount,  approximately  $490,000 was incurred during
the year ended September 30, 1998, with the remaining  $241,000 budgeted for the
year ending September 30, 1999.

Due to the general uncertainty inherent in the Year 2000 issues, there can be no
assurance that  potential  systems  interruptions  or  unanticipated  additional
expense  incurred  to obtain  Year  2000  compliance  would not have a  material
adverse  effect on the  Company's  business,  financial  condition,  results  of
operations and business prospects. Nevertheless, the Company believes that, with
the implementation  and completion of the Year 2000 process,  the possibility of
significant interruptions of normal operations and additional expenses should be
reduced.   Further,  all  disclosure  concerning  Year  2000  issues  should  be
considered  "Year  2000  Readiness   Disclosure"   pursuant  to  the  Year  2000
Information  and Readiness  Disclosure Act. The Year 2000  information  provided
herein should be read in connection with the Year 2000 Information and Readiness
Disclosure  Act which,  among other  things,  mandates  that  certain  Year 2000
readiness disclosures may not be used in litigation.


                                       17

<PAGE>


                                                                      Exhibit 99

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., (formerly Harbor Florida Bancorp, Inc.) and
subsidiaries  as of September  30, 1998 and 1997,  and the related  consolidated
statements  of  earnings,  stockholders'  equity  and cash flows for each of the
years in the  three-year  period ended  September 30, 1998.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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, 1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally accepted
accounting principles.



                                                       KPMG Peat Marwick LLP



West Palm Beach, Florida
October 9, 1998


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       18

<PAGE>


                                                                      Exhibit 99

CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 AND 1997                                                                     1998                 1997
---------------------------                                                                     ----                 ----

                                                                                         (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

ASSETS
<S>                                                                                         <C>                 <C>       
Cash and amounts due from depository institutions                                           $   23,861          $   16,899
Interest-bearing deposits in other banks                                                        19,902              15,736
Federal funds sold                                                                              20,000                 250
Investment securities held to maturity (estimated market value of $30,273 in 1998
   and $4,993 in 1997)                                                                          29,989               5,000
Investment securities available for sale at estimated market value                              71,516              47,553
Mortgage-backed securities held to maturity (estimated market value of $204,842
   in 1998 and $178,954 in 1997)                                                               201,049             176,854
Loans held for sale (estimated market value of $736 in 1998 and $144 in 1997)                      714                 141
Loans, net                                                                                     944,700             834,270
Accrued interest receivable                                                                      7,872               7,033
Real estate owned                                                                                2,534               2,314
Premises and equipment, net                                                                     16,927              13,313
Federal Home Loan Bank stock                                                                     8,212               7,595
Goodwill, net                                                                                    2,563               3,045
Other assets                                                                                       744               1,021
                                                                                            ----------          ----------
              Total assets                                                                  $1,350,583          $1,131,024
                                                                                            ==========          ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits                                                                                $   918,126         $   911,576
   Short-term borrowings                                                                           ---              30,100
   Long-term debt                                                                              145,000              70,375
   Advance payments by borrowers for taxes and insurance                                        17,608              15,924
   Income taxes payable                                                                            761                 628
   Other liabilities                                                                             5,369               5,619
                                                                                             ---------           ---------
              Total liabilities                                                              1,086,864           1,034,222
                                                                                             ---------           ---------

Commitments and contingencies                                                                      ---                 ---
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; issued and
       outstanding 30,909,830 shares at September 30, 1998 and 30,522,862 at
       September 30, 1997                                                                        3,091               3,052
   Paid-in capital                                                                             189,958              23,874
   Retained earnings                                                                            83,355              71,203
   Common stock purchased by:
       Employee stock ownership plan (ESOP)                                                    (13,344)               (374)
       Deferred compensation plan                                                                  ---                (946)
   Net unrealized gain (loss) on investment securities available for sale, net of
       income taxes                                                                                659                  (7)
                                                                                         -------------     ----------------
            Total stockholders' equity                                                         263,719              96,802
                                                                                           -----------        ------------
            Total liabilities and stockholders' equity                                      $1,350,583          $1,131,024
                                                                                            ==========          ==========
</TABLE>
    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       19

<PAGE>


                                                                      Exhibit 99

CONSOLIDATED STATEMENTS
OF EARNINGS

YEARS ENDED SEPTEMBER 1998, 1997, AND 1996
<TABLE>
<CAPTION>
                                                              1998           1997         1996
                                                              ----           ----         ----
                                                       (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income:
<S>                                                        <C>           <C>            <C>     
   Loans                                                   $  76,231     $  68,847      $ 59,751
   Investment securities                                       4,945         3,866         2,462
   Mortgage-backed securities                                 11,301        10,088        10,155
   Other                                                       2,681         2,013         1,989
                                                            --------      --------      --------
            Total interest income                             95,158        84,814        74,357
                                                             -------       -------       -------
Interest expense:
   Deposits                                                   40,219        39,144        34,440
   Other                                                       6,439         6,015         4,674
                                                            --------      --------      --------
            Total interest expense                            46,658        45,159        39,114
                                                             -------       -------       -------
            Net interest income                               48,500        39,655        35,243
Provision for (recovery of) loan losses                          297           782          (76)
                                                            --------      --------    ---------
            Net interest income after provision for
               (recovery of) loan losses                      48,203        38,873        35,319
                                                             -------       -------       -------
Other income:
   Other fees and service charges                              3,986         3,308         2,797
   Income (losses) from real estate operations                  (41)           145         (301)
   Gain (loss) on sale of mortgage loans                         142           188          (40)
   Other                                                       1,763           572           429
                                                             -------       -------      --------
            Total other income                                 5,850         4,213         2,885
                                                             -------        ------       -------
Other expenses:
   Compensation and employee benefits                         14,282        11,931        10,690
   Occupancy                                                   3,365         3,046         2,632
   SAIF deposit insurance premium                                572           785         6,300
   Other                                                       6,225         5,386         4,510
                                                            --------        ------      --------
            Total other expense                               24,444        21,148        24,132
                                                             -------       -------       -------

            Income before income taxes                        29,609        21,938        14,072
Income tax expense                                            12,243         8,611         5,432
                                                            --------     ---------      --------
            Net income                                      $ 17,366      $ 13,327      $  8,640
                                                            ========      ========      ========
            Net income per share                        
                  Basic                                       $ .58          $ .44          $ .29  
                                                              =====          =====          =====  
                  Diluted                                     $ .57          $ .43          $ .29  
                                                              =====          =====          =====
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       20

<PAGE>


                                                                      Exhibit 99

CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY

YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
                                                                                                Common stock   Unrealized
                                                                           Common     Common    purchased by gain (loss) on
                                                                           stock       stock     deferred      securities
                                         Common     Paid-in    Retained   purchased  purchased  compensation   available
                                          stock     capital    earnings    by ESOP    by RRP's       plan     for sale, net  Total
                                                                            (DOLLARS IN THOUSANDS)

<S>                                      <C>        <C>        <C>         <C>         <C>         <C>         <C>         <C>
Balance at September 30,
   1995 ..............................   $  3,015   $ 21,489   $ 54,672    $   (974)   $   (267)   $   (435)   $   --      $ 77,500
Net income ...........................       --         --        8,640        --          --          --          --         8,640
Stock options exercised ..............         14        220       --          --          --          --          --           234
Amortization of award of
   ESOP and RRP's ....................       --          482       --           300         214        --          --           996
Tax benefit of RRP's .................       --          137       --          --          --          --          --           137
Dividends paid .......................       --         --       (2,419)       --          --          --          --        (2,419)
Unrealized gain on
   securities available
   for sale, net .....................       --         --         --          --          --          --           126         126
Change in unrealized gain
   (loss) on securities
   available for sale, net ...........       --         --         --          --          --          --          (175)       (175)
Tax benefit of non-
   qualified stock
   options ...........................       --           31       --          --          --          --          --            31
Stock purchased by
   deferred compensation
   plan ..............................       --         --         --          --          --          (238)       --          (238)
                                         --------   --------   --------    --------    --------    --------    --------    --------
Balance at September 30,
   1996 ..............................   $  3,029   $ 22,359   $ 60,893    $   (674)   $    (53)   $   (673)   $    (49)   $ 84,832
                                         --------   --------   --------    --------    --------    --------    --------    --------

Net income ...........................       --         --       13,327        --          --          --          --        13,327
Stock options exercised ..............         23        367       --          --          --          --          --           390
Amortization of award of
   ESOP and RRP's ....................       --          856       --           300          53        --          --         1,209
Tax benefit of RRP's .................       --          193       --          --          --          --          --           193
Dividends paid .......................       --         --       (3,017)       --          --          --          --        (3,017)
Change in unrealized
   gain(loss) on securities
   available for sale, net ...........       --         --         --          --          --          --            42          42
Tax benefit of non-
   qualified stock options ...........       --           99       --          --          --          --          --            99
Stock purchased by
   deferred compensation
   plan ..............................       --         --         --          --          --          (273)       --          (273)
                                         --------   --------   --------    --------    --------    --------    --------    --------

Balance at September 30,
   1997 ..............................   $  3,052   $ 23,874   $ 71,203    $   (374)   $   --      $   (946)   $     (7)   $ 96,802
                                         --------   --------   --------    --------    --------    --------    --------    --------
</TABLE>


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       21

<PAGE>


                                                                      Exhibit 99


CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
                                                                                              Common stock   Unrealized
                                                                          Common     Common   purchased by   gain (loss)
                                                                           stock      stock     deferred    on securities
                                     Common      Paid-in    Retained     purchased  purchased compensation     available
                                     stock       capital    earnings      by ESOP   by RRP's      plan       for sale, net   Total

                                                                            (DOLLARS IN THOUSANDS)
<S>                                 <C>         <C>         <C>          <C>          <C>       <C>          <C>          <C>      
Balance at September 30, 
   1997 .........................   $   3,052   $  23,874   $  71,203    $    (374)   $  --     $    (946)   $      (7)   $  96,802
                                    ---------   ---------   ---------     ---------    -------   ---------    ---------    ---------
Net income ......................        --          --        17,366         --         --          --           --         17,366
Reorganization of MHC ...........        --          --           200         --         --          --           --            200
Proceeds of stock offering,
   net ..........................        --       163,493        --           --         --          --           --        163,493
Issuance of ESOP shares .........        --          --          --        (13,269)      --          --           --        (13,269)
Stock options exercised .........          39         618        --           --         --          --           --            657
Amortization of award of
   ESOP shares ..................        --         1,798        --            299       --          --           --          2,097
Dividends paid ..................        --          --        (5,414)        --         --          --           --         (5,414)
Change in unrealized
   gain(loss) on securities
   available for sale, net ......        --          --          --           --         --          --            666          666
Tax benefit of stock plans ......        --           175        --           --         --          --           --            175
Stock purchased by
   deferred compensation
   plan .........................        --          --          --           --         --          (100)        --           (100)
Satisfaction of deferred
   compensation liability .......        --          --          --           --         --         1,046         --          1,046
                                    ---------   ---------    ---------    -------   ---------    ---------    ---------   ---------
Balance at September 30,
   1998 .........................   $   3,091   $ 189,958   $  83,355    $ (13,344)   $  --     $    --      $     659    $ 263,719
                                    =========   =========   =========    =========    =======   =========    =========    =========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       22

<PAGE>


                                                                      Exhibit 99


CONSOLIDATED STATEMENTS
OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                        1998       1997          1996
                                                                        ----       ----          ----
                                                                              (DOLLARS IN THOUSANDS)
Cash provided by operating activities:
<S>                                                                 <C>          <C>          <C>      
   Net income ...................................................   $  17,366    $  13,327    $   8,640
   Adjustments to reconcile net income to net cash
      provided by operating activities:
       Amortization of stock benefit plans ......................       2,097        1,209          996
       Tax benefit of stock plans credited to capital ...........         175          292          168
       Originations of loans held for sale ......................      (9,556)      (5,360)      (8,554)
       Proceeds from sale of loans held for sale ................       8,983        8,395        4,693
       Depreciation and amortization ............................       1,282        1,103        1,104
       Deferred income tax provision (benefit) ..................        (208)       1,781       (1,365)
       Increase in deferred loan fees and costs .................       1,816        1,133        1,047
       Amortization of deferred loan fees and costs .............      (1,195)        (926)        (973)
       Amortization of goodwill .................................         221          236           71
       Net amortization (accretion) of other purchase
            accounting adjustments ..............................          80          (12)         (20)
       Gain on sale of premises and equipment ...................        (594)        (239)        --
       (Gain) loss on sale of real estate owned .................        (176)        (127)          39
       Accretion of discount on purchased loans .................        (352)         (17)         (24)
       Increase in accrued interest receivable ..................        (839)        (411)        (184)
       Provision for (recovery of) loan losses ..................         297          782          (76)
       Provision for (recovery of) losses on real estate owned ..         136         (150)         117
       (Increase) decrease in other assets ......................         277          157         (143)
       Increase (decrease)  in income taxes payable .............         133         (334)         469
       Increase (decrease) in other liabilities .................         746       (5,371)       3,940
                                                                    ---------    ---------    ---------

       Net cash provided by operating activities ................      20,689       15,468        9,945
                                                                    ---------    ---------    ---------
Cash used by investing activities:
   Net increase in loans ........................................    (113,365)     (69,732)     (72,973)
   Purchase of mortgage-backed securities .......................    (100,222)     (61,769)     (29,265)
   Proceeds from principal repayments of mortgage-backed
       securities ...............................................      75,827       38,031       40,068
   Proceeds from maturities and calls of investment securities
       held to maturity .........................................       5,000       35,000         --
   Purchase of investment securities held to maturity ...........     (29,983)     (20,000)     (20,000)
   Proceeds from maturities and calls of investment securities
       available for sale .......................................      47,582       15,533       10,595
   Proceeds from sale of investment securities available for sale        --           --          6,745
   Purchase of investment securities available for
         sale ...................................................     (70,427)     (29,500)     (17,939)
   Proceeds from sale of real estate owned ......................       2,111        2,202        1,434
   Purchase of premises and equipment ...........................      (5,602)      (4,068)      (1,423)
   Proceeds from sale of premises and equipment .................       1,460          587        1,590
   FHLB stock purchase ..........................................        (617)        (437)        (619)
   Purchase of Treasure Coast Bank, net of cash acquired ........        --           --         (4,451)
   Other ........................................................        --            306         --
                                                                    ---------    ---------    ---------
                                                                     (188,236)     (93,847)     (86,238)
                                                                    ---------    ---------    ---------
       Net cash used by investing activities
</TABLE>
<PAGE>
                                                                      Exhibit 99

CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>

                                                                      1998        1997          1996
                                                                      ----        ----          ----
                                                                              (DOLLARS IN THOUSANDS)
Cash provided by financing activities:
<S>                                                                   <C>         <C>          <C>   
   Net increase in deposits ...................................       6,751       59,816       60,679
                                                                                            ---------
   Net (repayments of) proceeds from short-term borrowings ....     (30,400)       5,100       15,000
   Repayments of long-term borrowings .........................         (75)        (299)        (300)
   Net proceeds from long-term borrowings .....................      75,000         --         15,000
   Increase (decrease) in advance payments by borrowers for
       taxes and insurance ....................................       1,682          712       (1,994)
   Dividends paid .............................................      (5,414)      (3,017)      (2,419)
   Common stock options exercised .............................         657          390          234
   Net proceeds from issuance of common stock .................     150,224         --           --
                                                                  ---------    ---------    ---------

       Net cash provided by financing activities ..............     198,425       62,702       86,200
                                                                  ---------    ---------    ---------

       Net increase (decrease) in cash and cash equivalents ...      30,878      (15,677)       9,907

Cash and cash equivalents - beginning of period ...............      32,885       48,562       38,655
                                                                  ---------    ---------    ---------

Cash and cash equivalents - end of period .....................   $  63,763    $  32,885    $  48,562
                                                                  =========    =========    =========


Supplemental disclosures:

                                                                  
   Cash paid for:
       Interest................................................   $  46,509    $  45,159    $  39,324
       Taxes ..................................................      12,142        6,918        6,161
   Noncash investing and financing activities:
       Additions to real estate acquired in settlement of loans
            through foreclosure ...............................       2,815        2,459        2,879
       Sale of real estate owned financed by the Company ......         524        1,337        1,044
       Transfer of investment securities from held to maturity
            to available for sale .............................        --           --         26,011
       Change in unrealized gain (loss) on securities available
            for sale ..........................................       1,084           68          (80)
       Change in deferred taxes related to securities available
            for sale ..........................................        (418)         (26)          31
       Transfer of loans held for sale to held for maturity ...        --          1,693         --
       Issue ESOP common stock ................................      13,269         --           --
       Addition to retained earnings due to merger of Harbor
            Financial, M.H.C ..................................         201         --           --
       Satisfaction of deferred compensation plan .............       1,046         --           --
       Transfer to short-term borrowings from long-term debt ..         300         --           --
</TABLE>


    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       23

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

SEPTEMBER 30, 1998, 1997, AND 1996

(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.   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,  1998,  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 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.

----------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       24
<PAGE>

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(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  loans  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  nor  as
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 net amount in a separate component of 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.

The Company does not  purchase,  sell or utilize  off-balance  sheet  derivative
financial instruments or derivative commodity instruments.

At  September  30,  1998  and  1997,  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 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.  General loss  percentages are calculated  based upon historical
analyses.  A  supplemental  portion of the allowance is calculated  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 loss 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

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       25

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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  loans,  or (c) the fair value of the
collateral of a  collateral-dependent  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,  valuations are periodically
performed by management  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.  Goodwill is evaluated by management for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of goodwill
may not be recoverable based on facts and circumstances  related to the value of
net assets acquired that gave rise to the goodwill.

(K)    INCOME TAXES

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 Company for the year  beginning  October 1, 1996.  As a result,
the Company changed from the reserve method to the specific charge-off method to
compute its bad debt deduction.

The Company is required  generally to recapture into income for tax purposes the
portion of its bad debt  reserves  (other than the  supplemental  reserve)  that
exceeds its base year  reserves  (i.e.,  its tax  reserves for the last tax year
beginning  before  1988).  For  financial  statement  purposes,  the Company has
previously  provided  deferred  taxes on the  amount of the bad debt  reserve in
excess of the base  year.  Such  reserves  subject  to  recapture  and base year
reserves  were  approximately  $6.8 million and $14.8  million at September  30,
1998, respectively.

The recapture  amount  resulting from the change in the method of accounting for
its bad debt reserves  generally will be taken into taxable income ratably (on a
straight-line basis) over a six-year period. If the Company meets a "residential
loan  requirement",  as defined for a tax year  beginning  in 1996 or 1997,  the
recapture of the reserves will be suspended  for such tax year.  The Company met
such requirement for the tax years beginning October 1, 1996 and 1997.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       26

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

Certain  events,  as defined,  will still  trigger a recapture  of the base year
reserve. However, the base year will not be recaptured if a thrift converts to a
bank  charter  or is merged  into a bank.  The base year  reserves  also  remain
subject to income tax penalty  provisions  which, in general,  require recapture
upon certain stock redemptions of, and excess distributions to, shareholders.

(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 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,  interest-bearing  deposits in
other banks and  Federal  funds sold.  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.  The  Company  began  disclosing  EPS in
accordance  with  Statement  128 for the current  period with  previous  periods
restated.

(P)    RECLASSIFICATION

Certain amounts included in the 1997 and 1996 consolidated  financial statements
have been reclassified in order to conform to the 1998 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, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income"  ("Statement  130").  Statement  130 is
effective  for fiscal years  beginning  after  December 15, 1997.  Statement 130
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.  Statement 130
requires  all items  recognized  under  accounting  standards as  components  of
comprehensive  income be reported in a financial statement with equal prominence
as other financial  statements.  Such statement will be presented by the Company
beginning with the quarter ended December 31, 1998.

In June, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("Statement 131"). Statement 131 is effective for years beginning after December
15, 1997.  Statement 131 establishes  standards for the way that public business
enterprises  report  information  about  operating  segments,  based  on how the
enterprise  defines such segments.  The Company is required to report  operating
segment information, to the extent such segments are defined, beginning with the
year ending September 30, 1999.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       27

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

In June, 1998, the FASB issued Statement of Financial  Accounting  Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"  ("Statement
133").  Statement  133 is effective  for fiscal years  beginning  after June 15,
1999, with earlier adoption permitted.  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. It
is currently anticipated that the Company will adopt Statement 133 on October 1,
1999,  and that the statement  will not have a significant  financial  statement
impact upon adoption.

(2)         INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 1998 are as follows:


<TABLE>
<CAPTION>
                                                  Gross      Gross     Estimated
                                      Amortized unrealized unrealized    market
                                         cost      gains    losses       value
                                         ----      -----    ------       -----
                                                   (IN THOUSANDS)
Available for sale:
<S>                                   <C>        <C>        <C>        <C>     
   FHLB notes .....................   $ 50,000   $    721   $   --     $ 50,721
   FNMA notes .....................     19,929        414       --       20,343
   Other securities ...............        514       --           62        452
                                      --------   --------   --------   --------
                                        70,443      1,135         62     71,516
                                      --------   --------   --------   --------
Held to maturity:
   FHLB notes .....................     19,989        279       --       20,268
   FNMA notes .....................     10,000          5       --       10,005
                                      --------   --------   --------   --------
                                        29,989        284       --       30,273
                                      --------   --------   --------   --------

   FHLMC mortgage-backed securities     65,610      1,338       --       66,948
   FNMA mortgage-backed securities     135,439      2,455       --      137,894
                                      --------   --------   --------   --------
                                       201,049      3,793       --      204,842
                                      --------   --------   --------   --------
                                      $301,481   $  5,212   $     62   $306,631
                                      ========   ========   ========   ========
</TABLE>

The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 1997 are as follows:

                                                   Gross      Gross    Estimated
                                       Amortized unrealized unrealized   market
                                         cost      gains      losses     value
                                         ----      -----      ------     -----
                                                   (IN THOUSANDS)
Available for sale:
   Treasury notes ..................   $ 17,982   $      3   $   --     $ 17,985
   FHLB notes ......................     29,500       --           14     29,486
   Other securities ................         82       --         --           82
                                       --------   --------   --------   --------
                                         47,564          3         14     47,553
                                       --------   --------   --------   --------
Held to maturity:
   FHLB notes ......................      5,000       --            7      4,993
                                       --------   --------   --------   --------

   FHLMC mortgage-backed securities      87,840        999       --       88,839
   FNMA mortgage-backed securities .     89,014      1,101       --       90,115
                                       --------   --------   --------   --------
                                        176,854      2,100       --      178,954
                                       --------   --------   --------   --------
                                       $229,418   $  2,103   $     21   $231,500
                                       ========   ========   ========   ========
<PAGE>
The amortized  cost and estimated  market value of debt  securities at September
30,  1998 and  September  30,  1997 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>
                                              1998                1997
                                               ----                ----
                                                 Estimated            Estimated
                                      Amortized   market    Amortized   market
                                        cost      value       cost      value
                                                             (IN THOUSANDS)
Available for sale:
<S>                                    <C>        <C>        <C>        <C>     
   Due in one year or less .........   $   --     $   --     $ 22,482   $ 22,482
   Due in one to five years ........     69,929     71,064     25,000     24,989
   Other securities ................        514        452         82         82
                                       --------   --------   --------   --------
                                         70,443     71,516     47,564     47,553
                                       --------   --------   --------   --------
Held to maturity:
   Due in one year or less .........       --         --         --         --
   Due in one to five years ........     29,989     30,273      5,000      4,993
                                       --------   --------   --------   --------
                                         29,989     30,273      5,000      4,993
                                       --------   --------   --------   --------
   FHLMC mortgage-backed securities      65,610     66,948     87,840     88,839
   FNMA mortgage-backed securities .    135,439    137,894     89,014     90,115
                                       --------   --------   --------   --------
                                        201,049    204,842    176,854    178,954
                                       --------   --------   --------   --------
                                       $301,481   $306,631   $229,418   $231,500
                                       ========   ========   ========   ========
</TABLE>

There were no sales of available for sale securities during 1998 or 1997. During
1996,  gross  realized  gains and gross  realized  losses on available  for sale
securities  were $19,000 and $0,  respectively.  As of September  30, 1998,  the
Company had pledged  mortgage-backed  securities with a market value of $368,000
and a carrying value of $355,000 to  collateralize  the public funds on deposit.
The Company had also pledged  mortgage-backed  securities with a market value of
$1,522,000 and a carrying value of $1,476,000 to collateralize Treasury, tax and
loan accounts as of September 30, 1998.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       28

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(3)         LOANS

Loans at September 30, 1998 and 1997 are summarized below:

<TABLE>
<CAPTION>
                                              1998           1997
                                              ----           ----
                                                  (DOLLARS IN THOUSANDS)
Mortgage loans:
<S>                                       <C>           <C>         
   Construction 1-4 family ............   $   66,671    $   47,800
   Permanent 1-4 family ...............      707,078       629,906
   Multi-family .......................       11,074        15,326
   Nonresidential .....................       84,254        54,983
   Land ...............................       27,562        33,182
                                          ----------    ----------
       Total mortgage loans ...........      896,639       781,197
                                          ----------    ----------

Other loans:
   Commercial nonmortgage .............       15,074        11,287
   Home improvement ...................       19,016        20,614
   Manufactured housing ...............       16,418        16,399
   Other consumer .....................       59,223        51,988
                                          ----------    ----------
       Total other loans ..............      109,731       100,288
                                          ----------    ----------
       Total loans ....................    1,006,370       881,485
                                          ----------    ----------

Less:
   Loans in process ...................       46,152        32,078
   Net deferred loan fees and discounts        3,700         3,446
   Allowance for loan losses ..........       11,818        11,691
                                          ----------    ----------
                                              61,670        47,215
                                          ----------    ----------
       Total loans, net ...............   $  944,700    $  834,270
                                          ==========    ==========

Weighted average yield ................      8.50%         8.47%
</TABLE>

       An analysis of the  allowance  for loan losses as of September  30, 1998,
1997 and 1996 follows:


                                              1998          1997        1996
                                              ----          ----        ----
                                                   (DOLLARS IN THOUSANDS)
Beginning balance ....................     $ 11,691      $ 11,016      $ 10,083
Provision for (recovery of) loan
   losses ............................          297           782           (76)
Allowance for loan losses
   acquired ..........................         --            --             885
Charge-offs ..........................         (574)         (262)         (366)
Recoveries ...........................          404           155           490
                                           --------      --------      --------
Ending balance .......................     $ 11,818      $ 11,691      $ 11,016
                                           ========      ========      ========

At  September  30,  1998 and 1997,  loans  with  unpaid  principal  balances  of
approximately  $2,447,000  and  $2,580,000,  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, 1998, 1997 and
1996 totaled approximately $135,000, $131,000 and $140,000, respectively.

As of September  30, 1998 and 1997,  approximately  $1,909,000  and  $2,377,000,
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, 1998
and 1997 was  $6,109,000 and  $12,157,000,  respectively.  The average  recorded
investment in impaired loans during the years ended September 30, 1998, 1997 and
1996 were approximately $7,695,000,  $12,122,000 and $13,651,000,  respectively.
The

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       29

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

total   specific   allowance  for  loan  losses   related  to  these  loans  was
approximately  $29,000 and  $117,000,  respectively,  on September  30, 1998 and
1997.  Interest income on impaired loans of approximately  $790,000,  $1,147,000
and $1,346,000 was  recognized in the years ended  September 30, 1998,  1997 and
1996, respectively.

As of September 30, 1998 and September 30, 1997,  mortgage  loans which had been
sold on a recourse basis had  outstanding  principal  balances of $2,213,000 and
$3,185,000, respectively.

Accrued interest receivable at September 30, 1998 and 1997 is summarized below:


                                               1998      1997
                                               ----      ----
                                                (IN THOUSANDS)
                  Loans ....................   $4,983   $4,874
                  Investment securities ....    1,460      759
                  Mortgage-backed securities    1,274    1,261
                  FHLB stock dividends .....      155      139
                                               ------   ------
                                               $7,872   $7,033
                                               ======   ======

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),  which
generally expire in 60 days, amounted to approximately  $14,368,000  ($8,349,000
fixed rate,  interest  rates from 5.85% to 8.0%) as of September  30,  1998.  In
addition,  as of September 30, 1998, the Company had determined that $17,626,000
may be lent to certain home builders on a variable rate and home-by-home  basis,
subject to underwriting and product approval by the Company.

(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, 1998 and 1997 are
summarized as follows:



                                    1998      1997       1996
                                    ----      ----       ----
                                         (IN THOUSANDS)

                 FHLMC .........   $16,214   $22,888   $30,169
                 FNMA ..........    34,706    34,217    33,521
                 Other Investors       579     2,767     3,547
                                   -------   -------   -------
                                   $51,499   $59,872   $67,237
                                   =======   =======   =======

At  September  30, 1998 and 1997,  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.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       30

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(5)         REAL ESTATE OWNED

Real estate owned at September 30, 1998 and 1997 includes the following:

                                                       1998        1997
                                                       ----        ----
                                                        (IN THOUSANDS)
      Real estate acquired in satisfaction of loans   $ 3,168    $ 2,892
      Allowance for losses ........................      (634)      (578)
                                                      -------    -------
                                                      $ 2,534    $ 2,314
                                                      =======    =======

Activity in the  allowance  for losses on real estate owned as of September  30,
1998 and 1997 is as follows:


                                            1998        1997        1996
                                            ----        ----        ----
                                                  (IN THOUSANDS)
      Beginning balance ................   $   578    $ 1,712    $ 1,857
      Provision for (reversal of) losses       136       (150)       117
      Allowance for losses  acquired ...      --         --           21
      Charge-offs ......................       (80)      (984)      (283)
                                           -------    -------    -------
      Ending balance ...................   $   634    $   578    $ 1,712
                                           =======    =======    =======

Provision  for losses on real estate owned is included in income  (losses)  from
real estate operations in the consolidated statements of earnings.

Legal and  consulting  fees relating to real estate  operations  and real estate
owned are included in other expenses in the consolidated statements of earnings.

(6)    PREMISES AND EQUIPMENT

Premises and equipment at September 30, 1998 and 1997 are summarized as follows:



                                                         1998        1997
                                                         ----        ----
                                                          (IN THOUSANDS)
     Land .........................................   $  5,327    $  5,239
     Buildings and leasehold improvements .........     11,639       9,170
     Furniture, fixtures and equipment ............     10,091       8,080
                                                      --------    --------
                                                        27,057      22,489
     Less accumulated depreciation and amortization    (10,130)     (9,176)
                                                      --------    --------
                                                      $ 16,927    $ 13,313
                                                      ========    ========

Depreciation  expense  for the years ended  September  30,  1998,  1997 and 1996
totaled $1,116,000, $952,000, and $902,000, respectively.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       31

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(7)    DEPOSITS

 Deposits at September 30, 1998 and 1997 are summarized as follows:

                                        1998                  1997
                                        ----                  ----

                                          Period-end               Period-end
                                  Amount  stated rate    Amount    stated rate
                                  ------  -----------    ------    -----------
                                                    (DOLLARS IN THOUSANDS)
Commercial checking             $  28,508              $  22,032
Noninterest-bearing personal
   checking accounts               26,446                 18,717
NOW                                60,129     1.13%       52,045     1.32%
Passbook                           92,698     2.06%       76,540     1.69%
Money market checking               1,721     1.27%        1,492     1.26%
Money market investment            39,353     2.59%       41,909     2.55%
Official checks                    10,429                  9,081
                                  -------               --------
                                  259,284                221,816
                                  -------                -------
Certificate accounts:
       2.01 - 3.00%                   328                    545
       3.01 - 4.00%                   ---                    ---
       4.01 - 5.00%                84,192                 88,472
       5.01 - 6.00%               540,210                553,986
       6.01 - 7.00%                33,673                 46,333
       7.01 - 8.00%                   434                    424
       8.01 - 9.00%                     5                   ---
                              -----------            ----------
                                  658,842                689,760
                               ----------              ---------
                                $ 918,126              $ 911,576
                                =========              =========
Weighted average interest rate     4.29%                  4.47%
                                   =====                  =====



Maturities of outstanding certificates of deposit are summarized as follows:


                                          1998       1997
                                          ----       ----
                                            (IN THOUSANDS)
                    Less than one year   $460,798   $467,204
                    One to three years    159,160    180,702
                    Over three years .     38,884     41,854
                                         --------   --------
                                         $658,842   $689,760
                                         ========   ========

The aggregate  amount of  certificates of deposit in amounts of $100,000 or more
was  approximately  $62,727,000  and $62,006,000 at September 30, 1998 and 1997,
respectively.  Balances of individual certificates in excess of $100,000 are not
federally insured.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       32

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

Interest expense on deposits is summarized as follows:


                                                     1998     1997      1996
                                                     ----     ----      ----
                                                         (IN THOUSANDS)
 Passbook accounts .............................   $ 1,674   $ 1,356   $ 1,506
    NOW, money market checking, and money market
 investment accounts ...........................     1,894     1,896     1,724
 Certificate accounts ..........................    36,651    35,892    31,210
                                                   -------   -------   -------
                                                   $40,219   $39,144   $34,440
                                                   =======   =======   =======


Early withdrawal penalties for the years ended September 30, 1998, 1997 and 1996
aggregated  $191,391,  $205,702,  and  $173,560,  respectively,  and are  netted
against interest expense on certificate accounts.

Accrued  interest  payable of $135,942 and  $145,989 at  September  30, 1998 and
1997, respectively, is included in other liabilities.

(8)    SHORT-TERM BORROWINGS

There were no  short-term  borrowings  at September  30, 1998.  At September 30,
1997,  short-term  borrowings were comprised of $30 million in advances from the
Federal Home Loan Bank (FHLB) due at various dates  through  March,  1998,  with
fixed  terms and fixed  interest  rates of 5.63% to 5.81%  and a  $100,000  note
payable, maturing January, 1998, relating to the purchase of land.

Information concerning short-term borrowings is summarized as follows:

                                                     1998        1997
                                                     ----        ----
                                                  (DOLLARS IN THOUSANDS)
        Average balance during the year .........   $12,292    $29,301
        Average interest rate during the year ...      5.83%      5.62%
        Maximum month-end balance during the year   $40,300    $40,000

(9)    LONG-TERM DEBT

 Long-term debt at September 30, 1998 and 1997 is summarized as follows:


                                                          1998        1997
                                                          ----        ----
                                                            (IN THOUSANDS)
    Advances from the Federal Home Loan Bank (FHLB),  
       due at various  dates  through
       September, 2008, with fixed terms and
       fixed interest rates of 5.46% to 6.5% .........   $145,000   $ 70,000
    ESOP Loan, paid off March, 1998 with a variable
       interest rate of prime plus .25%, 
       8.75% at September 30, 1997                           --          375
                                                         --------   --------
                                                         $145,000   $ 70,375
                                                         ========   ========


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.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       33

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

At September 30, 1998 and 1997,  the FHLB advances and the ESOP loan have fiscal
year maturity dates as follows:


                                       1998                     1997
                                       ----                     ----
                                             Weighted              Weighted
Year ending September 30,         Amount   average rate   Amount average rate
-------------------------         ------   ------------   ------ ------------
                                           (DOLLARS IN THOUSANDS)
         1998                 $     ---       ---       $     300     8.75%
         1999                       ---       ---              75     8.75%
         2000                       ---       ---          10,000     6.17%
         2001                     5,000        6.13%        5,000     6.13%
         2002                    10,000        6.10%       10,000     6.10%
    2003 and after              130,000        5.72%       45,000     6.10%
                                -------        -----       ------     -----
                              $ 145,000        5.76%     $ 70,375     6.13%
                              =========        =====     ========     =====


Other interest expense is summarized as follows:



                                         1998    1997     1996
                                         ----    ----     ----
                                             (IN THOUSANDS)
               Advances from the FHLB   $6,419   $5,962   $4,593
               ESOP loan ............       15       49       76
               Other ................        5        4        5
                                        ------   ------   ------
                                        $6,439   $6,015   $4,674
                                        ======   ======   ======

(10)   INCOME TAXES

Income tax expense (benefit) on income from continuing  operations for the years
ended September 30, 1998, 1997 and 1996 is summarized as follows:



                                 1998       1997        1996
                                 ----       ----        ----
                                       (IN THOUSANDS)
                 Current:
                    Federal   $ 10,751    $  5,868    $  5,832
                    State .      1,700         962         965
                              --------    --------    --------
                                12,451       6,830       6,797
                              --------    --------    --------
                 Deferred:
                    Federal       (195)      1,527      (1,170)
                    State .        (13)        254        (195)
                              --------    --------    --------
                                  (208)      1,781      (1,365)
                              --------    --------    --------
                              $ 12,243    $  8,611    $  5,432
                              ========    ========    ========



-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       34

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and  deferred  tax  liabilities  at  September  30,  1998 and 1997 are as
follows:


                                                          1998         1997
                                                          ----         ----
                                                            (IN THOUSANDS)
    Deferred tax assets:
       Allowance for bad debts ......................   $ 1,850    $ 1,713
       Valuation of real estate owned ...............       648        626
       Deferred compensation ........................       690        692
       Other ........................................      --           71
                                                        -------    -------
                                                          3,188      3,102
       Less valuation allowance .....................      (130)      (250)
                                                        -------    -------
           Total deferred tax assets ................     3,058      2,852
                                                        -------    -------
    Deferred tax liability:
       Net deferred loan fees and costs .............     3,220      3,332
       FHLB stock dividend ..........................       840        840
       Premises and equipment depreciation difference       653        447
       Purchase accounting adjustments ..............        52        360
       Cash to accrual adjustment ...................        44         88
       Installment sales ............................       140        128
       Other ........................................      --           17
                                                        -------    -------
           Total deferred tax liabilities ...........     4,949      5,212
                                                        -------    -------
                                                          1,891      2,360
    Unrealized gain (loss) on available for sale
    securities ......................................       415         (3)
                                                        -------    -------
           Net deferred tax liability ...............     2,306      2,357
                                                        -------    -------
    Less liability at beginning of year .............    (2,357)      (550)
    Change in unrealized gain on available for sale
       securities ...................................      (418)       (26)
    Other ...........................................       261       --
                                                        -------    -------
    Provision (benefit) for deferred income taxes ...   $  (208)   $ 1,781
                                                        =======    =======


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
1998 and 34% for  1997 and 1996 to  income  from  continuing  operations  before
income taxes because of the following:


                                                      1998    1997    1996
                                                      ----    ----    ----
      Statutory Federal income tax rate .........     35.0%   34.0%   34.0%
      State income tax (net of Federal income tax      3.6     3.6     3.6
      benefit)
      Other .....................................      2.7     1.7     1.0
                                                       ---     ---     ---
      Effective tax expense rate ................     41.3%   39.3%   38.6%
                                                      ====    ====    ==== 


Deferred  income taxes payable of  approximately  $2,306,000  and  $2,357,000 at
September 30, 1998 and 1997, respectively, are included in other liabilities.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       35

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

Retained earnings at September 30, 1998 includes approximately  $14,800,000 base
year tax bad debt  reserve  for which no deferred  Federal and state  income tax
liability has been recognized.  These amounts  represent an allocation of income
to bad debt deductions for tax purposes only.  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  would be  subject to the then  current  corporate  income  tax rate.  The
unrecorded  deferred income tax liability on the above amounts was approximately
$5,700,000 at September 30, 1998.

(11)   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, 1998 and 1997. 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.
Beginning  with the quarter  ended  December 31, 1997,  net income per share has
been  calculated  in  accordance  with the  provisions of Statement of Financial
Accounting  Standards  No. 128  "Earnings  Per  Share",  with  previous  periods
restated.



<TABLE>
<CAPTION>
                                                          1998           1997             1996
                                                          ----           ----             ----

<S>                                                   <C>             <C>             <C>         
Net income ........................................   $ 17,366,095    $ 13,326,761    $  8,640,216
                                                      ============    ============    ============

Weighted average common shares outstanding:
    Shares outstanding ............................     30,713,432      30,426,407      30,212,212
    Less weighted average uncommitted ESOP
      shares ......................................       (857,136)       (322,047)       (502,114)
                                                      ------------    ------------    ------------
       Total ......................................     29,856,296      30,104,360      29,710,098
                                                      ============    ============    ============

Basic earnings per share ..........................   $       0.58    $       0.44    $       0.29
                                                      ============    ============    ============


Weighted average common shares outstanding ........     29,856,296      30,104,360      29,710,098
  Additional dilutive shares related to stock
   options ........................................        490,374         586,817         597,455
                                                      ------------    ------------    ------------
  Total weighted average common shares and
   equivalents outstanding for diluted earnings per
   share computation ..............................     30,346,670      30,691,177      30,307,553
                                                      ============    ============    ============
Diluted earnings per share                            $       0.57    $       0.43    $       0.29
                                                      ============    ============    ============
</TABLE>



Additional  dilutive  shares are  calculated  under the  treasury  stock  method
utilizing the average market value of the Company's stock for the period.

(12)   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.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       36

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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).  Management  believes,  as of September 30, 1998,  that the
Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 1998, 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)
AS OF SEPTEMBER 30, 1998
<S>                                      <C>          <C>        <C>          <C>       <C>          <C>  
   Total Capital (to risk-
       weighted assets)                  $193,276     27.76%     $55,700     >8.0%      $69,625     >10.0%
   Tier I Capital (to risk-
       weighted assets)                   185,730     26.68%      27,850     >4.0%       41,775     > 6.0%
   Tier I Capital (to adjusted
       tangible assets)                   185,730     13.79%      53,883     >4.0%       67,354     > 5.0%
   Tangible Capital (to adjusted
       tangible assets)                   185,730     13.79%      20,206     >1.5%          n/a      n/a

AS OF SEPTEMBER 30, 1997
   Total Capital (to risk-
       weighted assets)                   $89,721     15.15%     $47,371     >8.0%      $59,213     >10.0%
   Tier I Capital (to risk-
       weighted assets)                    82,269     13.89%      23,685     >4.0%       35,528     > 6.0%
   Tier I Capital (to adjusted
       tangible assets)                    82,269      7.29%      33,842     >3.0%       56,404     > 5.0%
   Tangible Capital (to adjusted           
     tangible assets)                      82,269      7.29%      16,921     >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 Offerings
plus the amounts  distributed to Bancorp by the Bank at the formation of Bancorp
in 1997. 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

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       37

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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
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  which  does not meet its  capital
requirement before or after a proposed dividend.

On September 30, 1996,  President Clinton signed The Deposit Insurance Funds Act
of 1996,  which was intended to recapitalize the Savings  Association  Insurance
Fund ("SAIF") and  substantially  bridge the assessment rate disparity  existing
between SAIF and Bank Insurance Fund insured institutions. The new law subjected
institutions with  SAIF-assessable  deposits,  including the Bank, to a one-time
assessment of 65.7 basis points of assessable deposits as of March 31, 1995, and
provides for, among other things, a sharing of FICO bond obligation  fundings by
banks and thrifts and the eventual  merger of the Bank  Insurance  Fund with the
SAIF.  The  Bank's  one-time   assessment   resulted  in  a  pre-tax  charge  of
approximately  $4,552,000,  which  was paid on  November  27,  1996  and,  under
provisions  of the new law, was treated for tax  purposes as a fully  deductible
"ordinary and necessary  business expense" when paid.  Results of operations for
the year ended September 30, 1996 include a charge for this one-time assessment.
Additionally,  the Bank  recorded  a pre-tax  charge of  approximately  $450,000
related to the application of this assessment to deposits held by Treasure Coast
(see note 17) at March 31,  1995.  Such  charge was  reflected  as a cost of the
acquisition of Treasure Coast.

13)    COMMITMENTS AND CONTINGENCIES

At September 30, 1998, the Company had irrevocable letters of credit aggregating
approximately $1,395,000.

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.

(14)   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:


                                               1998       1997       1996
                                               ----       ----       ----
                                                    (IN THOUSANDS)
     Outstanding loans - beginning of year   $ 2,284    $ 1,786    $ 1,478
     New loans ...........................     4,714      3,015        842
     Repayments ..........................    (5,116)    (2,517)      (534)
                                             -------    -------    -------
     Outstanding balance - end of year ...   $ 1,882    $ 2,284    $ 1,786
                                             =======    =======    =======


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       38

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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
$122,000,  $150,000, and $125,000 of legal fees in the years ended September 30,
1998, 1997 and 1996, respectively, to this law firm.

Richard K. Davis,  a director  of the  Company,  is also  chairman of Richard K.
Davis Construction Corp.  ("Davis  Construction").  In the years ended September
30, 1998 and 1997,  the Company paid Davis  Construction a total of $106,668 and
$27,057,  respectively,  for a roof on a new branch  facility and  re-roofing of
existing branch facilities.  Additionally,  Davis Construction constructed a new
office and drive-in  facility for the  Company.  This  contract for $926,984 was
awarded June 25, 1997.  The  contract  was put out for  competitive  bid and was
awarded  to Davis  Construction  because  it  submitted  the  lowest bid for the
contract.  In the  years  ended  September  30,  1998 and 1997,  total  payments
relating to this contract were  $853,990 and $72,994,  respectively.  Additional
payments  made during  1998 for tenant  improvements  in the new office  totaled
$102,938.

Richard B. Hellstrom,  a director of the Company,  is also President of Lindahl,
Browning, Ferrari & Hellstrom,  (LBF&H), an engineering firm. During 1998, LBF&H
was selected to complete the modifications of an existing branch. This contract,
worth $8,600,  was awarded to LBF&H in April,  1998. Total payments made in 1998
related to the contract were $8,209. Additionally, payments to LBF&H during 1998
relating to the relocation of a branch totaled $16,441.

Prior to Richard N. Bird's  nomination and  subsequent  election to the Board of
Directors  of the  Company,  Bird  Realty  Group,  Inc.  entered  into a listing
agreement  with the Company on property  listed at  $3,895,000.  Commissions  of
$30,833 and $25,000  were paid to Bird Realty in the years ended  September  30,
1998 and 1997, respectively, with regard to the sale of the property.

(15)   OTHER EXPENSE

Other expense for the years ended  September 30, 1998, 1997 and 1996 consists of
the following:


                                       1998     1997    1996
                                       ----     ----    ----
                                            (IN THOUSANDS)
                  Data processing .   $1,243   $1,188   $1,092
                  Advertising .....      984      942      735
                  Professional fees      589      599      527
                  Postage .........      397      364      294
                  Insurance .......      174      162      214
                  Telephone .......      360      280      265
                  OTS assessment ..      227      212      190
                  Other ...........    2,251    1,639    1,193
                                      ------   ------   ------
                                      $6,225   $5,386   $4,510
                                      ======   ======   ======

(16)   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.


-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       39

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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 using
the rates currently offered for deposits of similar remaining maturities.

Short and Long Term  Advances from the FHLB - Rates  currently  available to the
Company for FHLB advances with similar terms and remaining  maturities  are used
to estimate the fair value of FHLB advances.

ESOP Loan - The  carrying  amount of the ESOP loan is a  reasonable  estimate of
fair market value.

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

The estimated  fair values of the Company's  financial  instruments at September
30, 1998 and 1997 are as follows:


<TABLE>
<CAPTION>
                                                      1998                     1997
                                                      ----                     ----
                                               CARRYING      FAIR       CARRYING       FAIR
                                                AMOUNT       VALUE       AMOUNT        VALUE
ASSETS:                                                      (IN THOUSANDS)
<S>                                           <C>          <C>         <C>          <C>      
   Cash and amounts due from depository
       institutions .......................   $  23,861    $  23,861   $  16,899    $  16,899
   Interest-bearing deposits in other banks      19,902       19,902      15,736       15,736
   Federal funds sold .....................      20,000       20,000         250          250
   Investment securities held to maturity .      29,989       30,273       5,000        4,993
   Investment securities available for sale      71,516       71,516      47,553       47,553
   Mortgage-backed securities held to
       maturity ...........................     201,049      204,842     176,854      178,954
   Loans held for sale ....................         714          736         141          144

   Loans ..................................     956,518      989,418     845,961      858,944
   Less allowance for loan losses .........     (11,818)        --       (11,691)        --
                                              ---------    ---------   ---------    ---------
       Loans, net .........................     944,700      989,418     834,270      858,944
                                              ---------    ---------   ---------    ---------
LIABILITIES:
   Commercial checking, non-interest-
       bearing personal, NOW, passbook,
       money market accounts and official
       checks .............................     259,284      259,284     221,816      221,816
   Certificate accounts ...................     658,842      665,877     689,760      691,406
   FHLB advances ..........................     145,000      148,046     100,000       98,887
   ESOP loan ..............................        --           --           375          375
</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.

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       40

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(17)   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.   For  the  years  ended  September  30,  1998  and  1997,  total
contributions  to the ESOP,  which  were  used to fund  principal  and  interest
payments  on  the  ESOP  debt,  totaled  approximately  $162,000  and  $259,000,
respectively.  At September  30,  1998,  there were  726,051  allocated  shares,
135,029 shares committed to be released, and 1,371,952 suspense (unallocated and
not yet committed to be released) shares held by the ESOP.  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,  1998,  1997 and
1996, totaled $2,064,654,  $1,155,066 and $766,500,  respectively.  At September
30, 1998, the fair value of the unallocated shares was $15,541,496.

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 Stock (RRP Stock) and the
granting of options to purchase common stock. On September 18, 1998, the Company
awarded  630,296 RRP shares at $10.69 per share totaling  $6,736,000.  The total
award will be amortized as compensation  expense ratably over the  participants'
vesting  periods of from 5 to 10 years.  Management's  current  intention  is to
purchase  Common  Stock from  market  sources in order to fund the grants of RRP
Stock. However, management's intention is based on current market conditions and
is subject to change. In January,  1994, the Company's Recognition and Retention
Plans ("RRP")  purchased  385,803 shares at $1.664 per share totaling  $642,000.
The funds used to acquire the RRP shares were  contributed  by the Company.  The
purchase price of $642,000 was amortized as  compensation  expense  ratably over
the  participants'  vesting period of three years.  Total  compensation  expense
charged to  earnings  in the years  ended  September  30,  1998,  1997 and 1996,
totaled $33,013, $53,511 and $213,996, respectively.

At  September  30,  1998,  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  (1,498,615  shares  granted at  September  30,  1998) 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,
1998, 161,377 shares were available for future awards.



-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       41

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
                                                                           YEARS ENDED SEPTEMBER 30,
                                           1998                  1997                   1996
                                           ----                  ----                   ----
                                                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 ..........      807,038    $ 1.94    1,022,234    $1.79    1,151,215    $1.71
Options granted ...............    1,513,615    $10.70       27,042    $5.57       27,042    $4.49
Options exercised .............     (387,496)   $ 1.70     (234,206)   $1.66     (140,999)   $1.66
Options forfeited .............      (13,484)   $ 1.66       (8,032)   $3.15      (15,024)   $1.66
                                  ----------    ------   ----------    -----   ----------    -----
Options outstanding end of year    1,919,673    $ 8.90      807,038    $1.94    1,022,234    $1.79
                                  ==========    ======   ==========    =====   ==========    =====
Options exercisable at year-end      146,733                302,056               209,806
                                     =======                =======               =======
Weighted average fair value of 
   options granted during the year   $ 3.97                 $ 1.23                $ 1.10
                                     ======                 ======                ======
</TABLE>

The following table summarizes  information  about stock options  outstanding at
September 30, 1998:


<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                                                  WEIGHTED
                               NUMBER              AVERAGE             WEIGHTED             NUMBER              WEIGHTED
   RANGE OF EXERCISE        OUTSTANDING @         REMAINING             AVERAGE          EXERCISABLE @           AVERAGE
        PRICES                 9/30/98        CONTRACTUAL LIFE      EXERCISE PRICE          9/30/98          EXERCISE PRICE
        ------                 -------        ----------------      --------------          -------          --------------
<S>     <C>                  <C>                       <C>                <C>             <C>                      <C>    
        $ 1.664              321,622                   5.3                $ 1.66          143,028                  $ 1.664
   $ 2.746 to 4.493           60,400                   6.7                $ 3.53            3,705                    2.746
   $ 5.638 to 5.658           21,032                   8.3                $ 5.66              ---                  ---
   $ 6.365 to 6.781            3,004                   8.7                $ 6.41              ---                  ---
   $ 10.69 to 12.00        1,513,615                  10.0                $10.70              ---                  ---
</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>
                                                                  1998         1997
                                                                  ----         ----
<S>                                             <C>           <C>          <C>
Net income ..................................   As reported   $   17,366   $   13,327
                                                Pro forma         17,326       13,320
Net income per share - basic ................   As reported          .58          .44
                                                Pro forma            .58          .44
Net income per share - diluted ..............   As reported          .57          .43
                                                Pro forma            .57          .43
</TABLE>

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

-------------------------------------------
HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       42

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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
    Date of          options         Grant date       Exercise         Risk free        Expected         Expected         Expected
     grant           granted         fair value         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
</TABLE>

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  $8,700,  $8,500,  and  $7,400,  respectively,  for the years ended
September 30, 1998, 1997 and 1996. 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 7.5%. The date of the most recent
actuarial evaluation is June 30, 1997.

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, 1998, 1997 and
1996, the Company's matching contribution totaled approximately $89,000, $83,000
and $75,000, 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,  1998  and  1997,  deferred  directors'  fees  included  in other
liabilities aggregated $216,737 and $195,069, respectively.  Directors may elect
to have their deferred  compensation balance invested in shares of the Company's
common stock. Such purchases were approximately $101,000,  $273,000 and $238,000
in 1998, 1997 and 1996, 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,
1998 and 1997,  the  Directors'  Deferred  Compensation  Plan held  323,799  and
363,268 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, 1998, 1997 and 1996, the
charge to earnings relating to the Plan was insignificant.




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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       43

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(18)   ACQUISITION OF TREASURE COAST

On June 1, 1996,  the Company  acquired all of the  outstanding  common stock of
Treasure  Coast  Bank,  FSB  ("Treasure  Coast"),  a  Florida  based  bank,  for
approximately  $6.8 million in cash. The acquisition was accounted for using the
purchase  method.  Treasure Coast had assets of approximately  $75 million.  The
acquisition  added one branch to the Company's  branch  network.  The results of
operations  of  Treasure  Coast  from June 1,  1996 to  September  30,  1996 are
included in the consolidated financial statements of the Company.

The fair value of assets  acquired and liabilities  assumed in conjunction  with
the acquisition of Treasure Coast was as follows:


                                                          (In thousands)
           Cash ...........................................   $ 2,315
           Investments ....................................     7,039
           Mortgage-backed securities .....................       287
           Loans receivable, net ..........................    62,575
           Accrued interest receivable ....................       437
           Real estate owned ..............................        86
           Property and equipment .........................     1,778
           Goodwill .......................................     3,365
           Other assets ...................................       542
                                                              -------
           Fair value of assets acquired ..................    78,424
                                                              -------
           Deposits .......................................    70,239
           Other liabilities ..............................     1,712
                                                              -------
           Fair value of liabilities assumed ..............    71,951
                                                              -------
           Acquisition costs ..............................       293
                                                              -------
           Purchase of Treasure Coast .....................     6,766
           Cash acquired ..................................     2,315
                                                              -------
           Purchase of Treasure Coast, net of cash acquired   $ 4,451
                                                              =======


The following table  indicates the estimated net decrease in earnings  resulting
from the net  amortization/accretion  of the  adjustments,  including  goodwill,
resulting from the use of the purchase  method of accounting  during each of the
years  1998  through  2002.  The  amounts  (in  thousands)  assume  no  sales or
dispositions of the related assets or liabilities.


                                            Net
                                        decrease of
Years ending September 30,              net earnings
--------------------------              ------------
       1998                                     (301)
       1999                                     (283)
       2000                                     (256)
       2001                                     (202)
       2002                                     (202)
       Thereafter                             (2,016)

Adjustments to fair value are being  amortized on a straight-line  basis,  which
approximates  the level yield method,  over the  estimated  average term of four
years for  loans,  and one year for  deposits.  Goodwill  does not  qualify  for
amortization  for tax purposes.  Goodwill is being  amortized on a straight-line
basis over its estimated  useful life of 15 years.  Goodwill as of September 30,
1998 is $2.6 million.


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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       44

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(19)   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The quarterly  results of operations for the years ended  September 30, 1998 and
1997 are as follows (in thousands):


<TABLE>
<CAPTION>
                                                   FOR THE THREE MONTHS ENDED FISCAL 1998
                                            SEPTEMBER 30   JUNE 30      MARCH 31  DECEMBER 31
                                            ------------   -------      --------  ----------
<S>                                           <C>         <C>          <C>         <C>     
Interest income ..........................    $ 25,015    $ 24,315     $ 22,773    $ 23,054
Interest expense .........................      12,057      11,375       11,459      11,766
                                               -------     -------      -------     -------
       Net interest income ...............      12,958      12,940       11,314      11,288
Provision for (recovery of) loan losses ..          66        (231)         651        (188)
                                               -------     -------      -------     -------
       Net interest income after provision
            for (recovery of) loan losses       12,892      13,171       10,663      11,476
Total other income .......................       1,298       1,887        1,085       1,580
Total other expenses .....................       6,412       5,987        5,927       6,117
                                               -------     -------      -------     -------
       Income before income taxes ........       7,778       9,071        5,821       6,939
Income tax ...............................       3,231       3,736        2,432       2,844
                                               -------     -------      -------     -------
Net income ...............................    $  4,547    $  5,335     $  3,389    $  4,095
                                               =======     =======      =======     =======
Net income per share
   Basic .................................    $   0.15    $   0.18     $   0.11    $   0.14
                                               =======     =======      =======     =======
   Diluted ..............................     $   0.15    $   0.18     $   0.11    $   0.13
                                               =======     =======      =======     =======
</TABLE>



<TABLE>
<CAPTION>
                                               FOR THE THREE MONTHS ENDED FISCAL 1997
                                            SEPTEMBER 30  JUNE 30     MARCH 31  DECEMBER 31
                                            ------------  -------     --------  -----------
<S>                                            <C>         <C>         <C>         <C>    
Interest income ..........................     $22,009     $21,554     $20,723     $20,528
Interest expense .........................      11,777      11,447      11,002      10,932
                                               -------     -------     -------     -------
       Net interest income ...............      10,232      10,107       9,721       9,596
Provision for loan losses ................         326         205         126         125
                                               -------     -------     -------     -------
       Net interest income after provision
            for loan losses ..............       9,906       9,902       9,595       9,471
Total other income .......................       1,318       1,041         860         994
Total other expenses .....................       5,442       5,318       5,106       5,282
                                               -------     -------     -------     -------
       Income before income taxes ........       5,782       5,625       5,349       5,183
Income tax ...............................       2,272       2,209       2,048       2,082
                                               -------     -------     -------     -------
Net income ...............................     $ 3,510     $ 3,416     $ 3,301     $ 3,101
                                               =======     =======     =======     =======
Net income per share
   Basic .................................     $  0.12     $  0.11     $  0.11     $  0.10
                                               =======     =======     =======     =======
   Diluted ...............................     $  0.11     $  0.11     $  0.11     $  0.10
                                               =======     =======     =======     =======
</TABLE>




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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       45

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(20)   PARENT COMPANY FINANCIAL INFORMATION

Condensed  Statements of Financial  Condition at September 30, 1998 and 1997 and
Condensed  Statements of Operations and Cash Flows for the year ended  September
30, 1998 and for the period June 25, 1997 through  September  30, 1997 are shown
below (in thousands) for  Bancshares  and it's  predecessor,  Bancorp (Note 1a),
which was formed on June 25, 1997 in a reorganization  accounted for in a manner
similar to a pooling of interests:

CONDENSED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 AND 1997                                                       1998            1997
                                                                                  ----            ----
                                                                                  (DOLLARS IN THOUSANDS)
ASSETS
<S>                                                                             <C>            <C>      
Cash deposited at Harbor Federal ..........................................     $  12,215      $  11,241
Investment securities available for sale at market value ..................           453           --
Investment in Harbor Federal ..............................................       249,956         85,306
Income tax receivable from Harbor Federal .................................            34             10
Due from Harbor Federal ...................................................         1,277            369
                                                                                ---------      ---------
    Total assets ..........................................................     $ 263,935      $  96,926
                                                                                =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Due to Harbor Federal .................................................     $     152      $      97
    Other liabilities .....................................................            64             27
                                                                                ---------      ---------
        Total liabilities .................................................           216            124
                                                                                ---------      ---------
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;
        issued and outstanding 30,090,830 shares at September 30, 1998
        and 30,522,862 at September 30, 1997 ..............................         3,091          3,052
    Paid in capital .......................................................       189,958         23,874
    Retained earnings .....................................................        83,355         71,203
    Common stock purchased by:
        Employee stock ownership plan (ESOP) ..............................       (13,344)          (374)
        Deferred compensation plan ........................................          --             (946)
    Net unrealized gain on investment securities available for sale, net of
        income taxes ......................................................           659             (7)
                                                                                ---------      ---------
        Total stockholders' equity ........................................       263,719         96,802
                                                                                ---------      ---------
        Total liabilities and stockholders' equity ........................     $ 263,935      $  96,926
                                                                                =========      =========
</TABLE>


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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       46

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                For the period
                                                                                 June 25, 1997
                                                                    Year ended      through
                                                                    eptember 30, September 30,
                                                                       1998          1997
                                                                       ------        -----
                                                                            IN THOUSANDS
<S>                                                                   <C>           <C>      
Management fee to Harbor Federal ................................     $   (161)     $    (38)
Other expenses ..................................................         (197)          (27)
                                                                      --------      --------
    Loss before income tax benefit and earnings of Harbor Federal         (358)          (65)
Income tax benefit ..............................................           76            10
                                                                      --------      --------
    (Loss) before earnings of Harbor Federal ....................         (282)          (55)
Equity in net earnings of Harbor Federal ........................       17,648         3,565
                                                                      --------      --------
    Net income ..................................................     $ 17,366      $  3,510
                                                                      ========      ========
</TABLE>


CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         For the period
                                                                          June 25, 1997
                                                           Year ended       through
                                                          September 30,   September 30,
                                                              1998            1997
                                                             ------          -----
Cash used by operating activities:                                 IN THOUSANDS
<S>                                                          <C>            <C>      
    Net income .........................................     $  17,366      $   3,510
    Adjustments to net income:
        Equity in earnings of Harbor Federal ...........       (17,648)        (3,565)
        Increase in income tax receivable ..............           (53)           (10)
        Increase in payable to Harbor Federal ..........           160             37
        Increase in other liabilities ..................            86             27
                                                             ---------      ---------
        Net cash used by operating activities ..........           (89)            (1)
                                                             ---------      ---------

Cash used by investing activities:
    Purchase of investment securities available for sale          (514)          --
                                                             ---------      ---------
        Net cash used by investing activities ..........          (514)          --
                                                             ---------      ---------

Cash provided by financing activities:
    Net proceeds from issuance of common stock .........       150,223           --
    (Investment in)/amounts received from Harbor Federal      (143,889)        12,000
    Dividends paid .....................................        (5,414)          (790)
    Common stock options exercised .....................           657             32
                                                             ---------      ---------
        Net cash provided by financing activities ......         1,577         11,242
                                                             ---------      ---------

        Net increase in cash and cash equivalents ......           974         11,241

Cash and cash equivalents - beginning of period ........        11,241              0
                                                             ---------      ---------

Cash and cash equivalents - end of period ..............     $  12,215      $  11,241
                                                             =========      =========
</TABLE>


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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       47

<PAGE>


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                  For the period
                                                                                   June 25, 1997
                                                                        Year ended    through
                                                                       September 30, September 30,
                                                                             1998      1997
                                                                            ------     -----
Supplemental disclosures:                                                    IN THOUSANDS

<S>                                                                        <C>         <C>    
Changes in unrealized gain on securities available for sale net of tax     $   666     $    36
Amortization of stock benefit plans ..................................       2,097         369
Issuance of ESOP common stock ........................................      13,269        --
Satisfaction of  deferred compensation plan ..........................       1,046        --
Tax benefit of employee benefit plans ................................         175        --
</TABLE>


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HARBOR FLORIDA BANCSHARES, INC. & SUBSIDIARIES 1998 ANNUAL REPORT
                                       48