UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20552

                                   ----------

                                    FORM 10-K

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

For  the fiscal year ended September 30, 1998 OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from ________ to ________

                        Commission file number 000-22817

                         HARBOR FLORIDA BANCSHARES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                               DELAWARE 65-0813766
                  (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
              OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

                              100 S. SECOND STREET
                              FORT PIERCE, FL 34950
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE            (561) 461-2414
                                                  --------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                         Common Stock (par value $0.10)
                         ------------------------------
                                (TITLE OF CLASS)

                         ------------------------------
                                (TITLE OF CLASS)



<PAGE>



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

          Indicate by check mark if disclosure of delinquent  filers pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

          The aggregate market value of the voting stock held by  non-affiliates
of the  Registrant  computed by  reference to the average bid and asked price of
the common stock as of December 7, 1998 ($11.00) was $340,100,662.

          The number of shares of common stock outstanding on December 7, 1998
was 30,918,242.


          Documents incorporated by reference:

1.        Annual Report to Stockholders  for the fiscal year ended September 30,
          1998 (Parts II and III).

2.        Proxy  Statement for the 1999 Annual  Meeting of  Stockholder's  (Part
          III). (To be filed pursuant to General Instruction G.(3)).




<PAGE>




                                TABLE OF CONTENTS



Item                                                                      Page
No.                                                                        No.
          PART I
 1        Business...........................................................2
 2        Properties........................................................20
 3        Legal Proceedings.................................................22
 4        Submission of Matters to a Vote of Security-Holders...............23

          PART II
 5        Market for Registrant's Common Equity and 
          Related Stockholder Matters.................................      23
 6        Selected Financial Data...........................................23
 7        Management's Discussion and Analysis of Financial
          Condition and Results of Operations...............................24
 7A       Quantitative and Qualitative Disclosures about Market Risk........24
 8        Financial Statements and Supplementary Data.......................24
 9        Changes in and Disagreements with Accountants on 
          Accounting and Financial Disclosure...............................25
 
         PART III
 10       Directors and Executive Officers of the Registrant................25
 11       Executive Compensation............................................25
 12       Security Ownership of Certain Beneficial Owners and Management....25
 13       Certain Relations and Related Transactions........................25
 14       Exhibits, Financial Statement Schedules, and Reports on Form 8-K..26



HARBOR FLORIDA BANCSHARES, INC.
                                        1

<PAGE>




                                     PART I

ITEM 1.  BUSINESS

GENERAL

         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.

         On June 1, 1996,  the Company  acquired all of the  outstanding  common
stock of Treasure Coast Bank, F.S.B. ("Treasure Coast"), a Florida based federal
savings association, 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  Treasure  Coast  acquisition  resulted in the
addition  of  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.


MARKET AREA

         The Company  serves  communities  in six  growing  and diverse  Florida
counties. Its headquarters are in Fort Pierce,  Florida,  located on the eastern
coast  of  Florida  between  Stuart  and  Daytona  Beach.  In  addition  to  its
headquarters,  it has sixteen  branch  offices in St.  Lucie,  Indian  River and
Martin  counties,   located  on  Florida's   "Treasure   Coast."  This  area  is
characterized  by both a large  retirement  and vacation home  population  and a
significant  agricultural economy,  primarily citrus crops. The Company has five
branch offices located in Brevard County, which encompasses the "Space Coast" of
the state.  Brevard  County has a greater  industrial  base fueled  primarily by
companies  related  to NASA  and the John F.  Kennedy  Space  Center.  Prominent
electronics concerns such as Harris Corporation are also major employers in this
area.  The Company also has one branch  office in  Okeechobee  County,  a rural,
agricultural area, and four branch offices in Volusia County,  where tourism and
a large retirement population predominate.

LENDING ACTIVITIES

         GENERAL.  The Company's  principal  lending  activity has  historically
been, and will continue to be for the  foreseeable  future,  the  origination of
one-to-four family residential  mortgage loans.  Although the Company sells some
conforming  loans,  primarily  to  the  Federal  National  Mortgage  Association
("FNMA") and the Federal Home Loan Mortgage Corporation  ("FHLMC"),  and has, on
rare  occasions,  purchased  whole  loans and loan  participations,  it  focuses
primarily  on the  origination  of loans and retains them in its  portfolio  for
investment. See " -- Lending Activities -- One

HARBOR FLORIDA BANCSHARES, INC.
                                        2

<PAGE>



to Four Family  Permanent  Residential  Mortgage Loans" below.  The Company also
originates a substantial amount of one-to-four  family residential  construction
and  consumer  loans,  and  consumer  installment,  commercial  real  estate and
commercial business loans. Substantially all of the Company's mortgage loans are
secured by  property in its market  area and most of its  nonmortgage  loans are
made to borrowers in its market area.

         The Company offers both fixed-rate and adjustable rate mortgage ("ARM")
loans. The Company has sought to increase its origination of ARM loans to reduce
its interest rate risk.  However,  the Company's  ability to originate ARM loans
has been limited by borrower  preference for fixed-rate loans in many instances,
particularly in low interest rate environments.

         LOAN  AND  MORTGAGE  - BACKED  SECURITIES  PORTFOLIO  COMPOSITION.  The
following  table sets forth a summary of the  composition  of the Company's loan
and mortgage-backed securities portfolio by type of loan.

<TABLE>
<CAPTION>
                                                               September 30,
                                                               -------------
                                          1998                     1997                     1996
                                         ------                   ------                    -----
                                              Percent of                Percent of                 Percent of
                                    Amount      Total         Amount      Total        Amount        Total
                                    ------      -----         ------      -----        ------        -----
                                                                      (Dollars in thousands)
MORTGAGE LOANS
<S>                              <C>          <C>           <C>         <C>          <C>            <C>

Construction 1 - 4 Family.....   $   66,671        6.62%    $   47,800     5.42%     $  43,994         5.46%
Permanent 1 - 4 Family........      707,078       70.26        629,906    71.46        584,297        72.49
Multifamily...................       11,074        1.10         15,326     1.74         17,804         2.21
Nonresidential................       84,254        8.37         54,983     6.24         41,970         5.21
Land..........................       27,562        2.75         33,182     3.76         29,034         3.60
                                   --------    --------       -------- --------       --------     --------
    Total Mortgage Loans......      896,639       89.10        781,197    88.62        717,099        88.97
                                    -------     -------        -------  -------        -------      -------
OTHER LOANS
Commercial Nonmortgage........       15,074        1.50         11,287     1.28          8,199         1.02
Consumer:
    Home Improvement..........       19,016        1.89         20,614     2.34         20,679         2.56
    Manufactured Housing......       16,418        1.63         16,399     1.86         15,784         1.96
    Other Consumer (1)........       59,223        5.88         51,988     5.90         44,265         5.49
                                   --------    --------       -------- --------       --------     --------
    Total Other Loans.........      109,731       10.90        100,288    11.38         88,927        11.03
                                   --------      ------       --------  -------       --------      -------
Total Loans Receivable........    1,006,370      100.00%       881,485   100.00%       806,026       100.00%
                                  ---------      ======        -------   ======        -------       ======
LESS:
Loans in process..............       46,152                     32,078                  26,788
Deferred loan fees and
    discounts.................        3,700                      3,446                   3,203
Allowance for loan losses.....       11,818                     11,691                  11,016
                                   --------                   --------                --------
    Subtotal..................       61,670                     47,215                  41,007
                                   --------                   --------                --------
TOTAL LOANS RECEIVABLE,
     NET......................      944,700                    834,270                 765,019
                                    -------                    -------                 -------
LOANS HELD FOR SALE...........          714                        141                   4,870
                                   --------                   --------                --------
MORTGAGE-BACKED
    SECURITIES................      201,049                    176,854                 153,293
                                    -------                    -------                 -------

TOTAL.........................   $1,146,463                 $1,011,265                $923,182
                                 ==========                 ==========                ========
</TABLE>
------------
(1) Includes home equity and other second mortgage loans.

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

HARBOR FLORIDA BANCSHARES, INC.
                                        3

<PAGE>



       The  following  table shows the  maturity or period to  repricing  of the
Company's loan and mortgage-backed  securities portfolios at September 30, 1998.
Loans that have  adjustable  rates are shown as being due in the period in which
the  interest  rates are next  subject  to change.  The table  does not  include
prepayments  or scheduled  principal  amortization.  Prepayments  and  scheduled
principal  amortization on loans totaled $246.4,  $163.0, and $143.5 million for
fiscal years 1998, 1997 and 1996, respectively.  Loans having no stated maturity
and no schedule of repayments (including delinquent loans), and demand loans are
reported as due within one year.


<TABLE>
<CAPTION>
                                                One       Three       Five
                                Within        through    through     through    Ten through     Beyond
                               one year    three years  five years  ten years   twenty years twenty years    Total
                               --------    -----------  ----------  ---------   -------------------------    -----
                                                          (In thousands)
Mortgage loans:
<S>                             <C>           <C>        <C>          <C>          <C>          <C>
  Permanent 1 - 4 family....    $153,039      $40,388     $70,525      $47,807     $202,113     $221,954     $735,826
  Other.....................      39,944        9,137      29,039       15,043       19,603          729      113,495
Other loans:
  Consumer .................      27,120       12,347      24,706       24,977        5,369          ---       94,519
  Commercial ...............       8,392          342       2,848        1,197           26        1,976       14,781
Nonperforming loans (1).....       2,311          ---         ---          ---          ---          ---        2,311
Mortgage-backed
    securities..............      32,986        8,881      13,933       89,599       55,211          439      201,049
                                --------       ------     -------      -------      -------     --------     --------
    Sub-total...............    $263,792      $71,095    $141,051     $178,623     $282,322     $225,098   $1,161,981
                                ========      =======    ========     ========     ========     ========
Deferred loan fees and
    discounts...............                                                                                   (3,700)
Allowance for loan
    losses..................                                                                                  (11,818)
                                                                                                            ---------
Total (2)(3)................                                                                               $1,146,463
                                                                                                           ==========
</TABLE>


(1) All  nonperforming  loans are reported as due within one year  regardless of
the  actual  maturity  term.  (2)  Amounts  reported  do not  include  principal
repayment or prepayment assumptions.  (3) Amounts include loans held for sale of
$714,000 at September 30, 1998.
                                 --------------

       The   following   table  sets  forth  the   amount  of   fixed-rate   and
adjustable-rate loans at September 30, 1998 due after September 30, 1999.


                                            Adjustable
                             Fixed Rate        Rate          Total
                                          (In thousands)
Mortgage loans:
  Permanent 1 - 4 family.....  $464,484        $118,303        $582,787
  Other......................    39,772          33,779          73,551
Other loans:
  Consumer ..................    67,399             ---          67,399
  Commercial ................     6,389             ---           6,389
                              ---------       ---------       ---------
Total loans..................   578,044         152,082         730,126
Mortgage-backed securities...   168,063             ---         168,063
                               --------       ---------        --------
Total........................  $746,107        $152,082        $898,189
                               ========        ========        ========

          ONE-TO-FOUR FAMILY PERMANENT RESIDENTIAL MORTGAGE LOANS. The Company's
primary  lending  activities  focus on the  origination  of  one-to-four  family
residential mortgage loans. The Company generally does not originate one-to-four

HARBOR FLORIDA BANCSHARES, INC.
                                        4

<PAGE>



family  residential loans on properties outside of its market area. At September
30, 1998,  $707.1  million or 70.26% of the Company's  total loan  portfolio and
52.35% of total  assets  consisted of  one-to-four  family loans and over 95% of
such loans were  collateralized  by properties  located in the Company's  market
area.

       The Company's fixed rate loans generally are originated and  underwritten
according to standards that permit sales in the secondary market.  However,  the
decision to sell depends on a number of factors including the yield and the term
of the loan, market  conditions,  and the Company's current portfolio  position.
The  Company  sells a small  portion  of newly  originated  30 year  fixed  rate
mortgage  loans.  In addition,  the Company  sells loans under the single family
Mortgage Revenue Bond Programs through local County Housing Finance Authorities.
The servicing on these loans is also released.

       The Company  currently offers  one-to-four  family  residential  mortgage
loans with fixed,  adjustable  or a  combination  of  fixed/adjustable  interest
rates.  Originations of fixed rate mortgage loans versus ARM loans are monitored
on an  ongoing  basis  and are  affected  significantly  by the  level of market
interest rates,  customer preference,  the Company's interest rate gap position,
and loan products offered by the Company's  competitors.  In a low interest rate
environment,  borrowers typically prefer fixed rate loans to ARM loans, and even
if  management's  strategy is to emphasize ARM loans,  market  conditions may be
such that there is greater demand for fixed rate mortgage loans.

       The Company  generates  residential  mortgage loan activity through local
advertising, its existing customers and referrals from local real estate brokers
and home builders.  All loans are  originated by Company loan officers,  none of
whom have underwriting authority. Independent loan brokers are not used.

       Residential  loans are authorized and approved under central authority by
experienced  underwriters.  Underwriters  have  individual  authority to approve
loans up to the maximum amount of $250,000. Residential mortgage loans in excess
of this amount are  approved  by  management  individually  up to $750,000 or by
committee if above $750,000.  The Company also has direct endorsement  authority
from the Federal Housing Authority ("FHA") to allow for internal approval of FHA
insured loans. FHA loans are approved under central  authority by an underwriter
with a "Direct Endorsement" designation from the FHA. The Company's underwriting
standards are intended to ensure that borrowers are sufficiently  credit worthy,
and all of the Company's lending is subject to written underwriting policies and
guidelines  approved  by  the  Company's  Board  of  Directors.   Detailed  loan
applications are designed to determine the borrower's  ability to repay the loan
and certain information  solicited in these applications is verified through the
use of credit reports, financial statements and other confirmations. The Company
obtains an appraisal of substantially  all of the proposed  security property in
connection with  residential  mortgage loans.  Additionally,  title insurance is
required for all mortgage loans except home equity loans of $50,000 or less.

       The types,  amounts,  terms of and security for conventional loans (those
not insured or guaranteed by the U.S.  government or agencies thereof,  or state
housing  agencies)  originated  by the Company are  significantly  prescribed by
federal regulation.  OTS regulations limit the amount which the Company can lend
up to specified percentages of the value of the real property securing the loan,
as determined by an appraisal at the time the loan is originated (referred to as
"loan-to-value  ratios").  The Company makes  one-to-four  family home loans and
other residential real estate loans with loan-to-value ratios generally of up to
80% of the appraised value of the security  property.  In certain  circumstances
loan-to-value  ratios  exceed 80%, in which case private  mortgage  insurance is
generally  required.  A substantial part of the Company's loan  originations are
made to  borrowers  to finance  second  homes for  vacation  use or for use as a
rental property.  Such loans may be considered to have a higher credit risk than
loans to finance a primary residence.

       ONE-TO-FOUR  FAMILY  RESIDENTIAL   CONSTRUCTION  LOANS.  A  part  of  the
Company's  loan  originations  are to finance the  construction  of  one-to-four
family homes in the Company's market area. At September 30, 1998 the Company had
$66.7  million  in such  loans,  representing  6.62% of total  loans.  It is the
Company's  policy to disburse loan proceeds as  construction  progresses  and as
inspections warrant.

       A portion of these  loans are made  directly to the  individual  who will
ultimately  own and occupy the home. Of these,  the vast majority are structured
at origination  to guarantee the permanent  financing to the Company as well. In
recent years the  origination  of these  construction  loans to  individuals  is
second in volume only to the  origination  of  traditional  loans to finance the
purchase or refinance of an existing home.  However,  the  significance  of this
type of lending to the Company is not evident  from the amount of these loans in
its portfolio at any given time because these  construction loans to individuals
usually "roll" into permanent financing.


HARBOR FLORIDA BANCSHARES, INC.
                                        5

<PAGE>



       Approximately  one-half of the Company's  one-to-four family construction
loans are to builders.  In most  instances  these loans are also  structured  to
guarantee permanent financing by the Company.

       CONSUMER  LOANS.  The Company  originates  consumer loans as an essential
element  in  its  retail-oriented  strategy.   Secured  consumer  loans  include
automobile,  manufactured  housing,  boat and truck loans,  home equity and home
improvement  loans as well as loans secured by the borrower's  deposit  accounts
with the Company.  The loans for manufactured  housing are generally  originated
within  quality,  retirement  lifestyle  communities  spread  throughout the six
county  market  area  that  feature  amenities  such as full  service  clubhouse
facilities, swimming pools, and, in a number of cases, golf courses. These loans
are subject to the normal underwriting  standards of the Company. Loans are made
on either a fixed-rate or  adjustable-rate  basis, with terms generally up to 20
years. A limited  amount of unsecured  consumer  loans are also  originated.  At
September 30, 1998,  consumer-oriented loans accounted for $94.7 million or 9.4%
of the Company's total loan portfolio.

       NON-RESIDENTIAL  AND LAND MORTGAGE  LOANS. In the late 1980's the Company
curtailed its lending in  non-residential  mortgages with the exception of loans
to finance the sale of the Company's real estate acquired  through  foreclosure.
In recent years,  the Company  re-entered  this market and made a total of $38.3
million,  $18.3 million, and $12.9 million of non-residential  mortgage loans in
1998, 1997 and 1996, respectively.  At September 30, 1998,  nonresidential loans
constituted  8.37%of the Company's  total loan  portfolio.  Origination of these
loans plays a subordinate  role to the  origination of residential  mortgage and
consumer-related loans. Non-residential mortgage loans are offered on properties
within the Company's  primary  market area using both fixed or  adjustable  rate
programs.

       Loans  secured by  non-residential  real estate  generally  carry  larger
balances  and  involve  a  greater  degree  of  risk  than  one-to-four   family
residential  mortgage loans. This increased risk is a result of several factors,
including  the  concentration  of  principal  in a  limited  number of loans and
borrowers,  the  effects  of general  economic  conditions  on  income-producing
properties,  and the increased  difficulty of evaluating  and  monitoring  these
loans.  Furthermore,  the repayment of loans secured by non-residential property
is typically dependent upon the successful  operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired.
See "Business -- Delinquent, Nonperforming and Classified Assets."

       The Company also  originates  developed  building lot loans ("lot loans")
secured by individual  improved lots for future  residential  construction.  Lot
loans are offered  with either a fixed or  adjustable  interest  rate and with a
maximum term of up to 15 years.  At September 30, 1998 these loans accounted for
$14.9 million or 1.48% of the Company's total loan portfolio.

       OTHER  LOANS.   The  balance  of  the  Company's   lending   consists  of
multi-family  mortgage and commercial  non-mortgage loans. At September 30, 1998
these  loans  represented  $11.0  million  or 1.10% and $15.1  million or 1.50%,
respectively,  of the Company's total loan portfolio.  The multi-family mortgage
loans are secured primarily by apartment  complexes.  These loans are subject to
the same  lending  limits  as  apply to the  Company's  commercial  real  estate
lending.  The commercial  non-mortgage loans represent  primarily  equipment and
other business loans to  professionals  such as physicians and attorneys.  These
loans are an integral part of the Company's  strategy of seeking synergy between
its various deposit and loan products and as a service to existing customers.

ORIGINATION AND SALE OF LOANS

       From time to time the Company has sold mortgage  loans,  primarily to the
Federal  National  Mortgage  Association  and the  Federal  Home  Loan  Mortgage
Corporation.  Historically, the Company has not purchased significant amounts of
loans, particularly in light of its past policy to control asset growth.

       The Company sells a small portion of newly  originated 30 year fixed rate
mortgage  loans.  In addition,  the Company  sells loans under the single family
Mortgage Revenue Bond Programs through local County Housing Finance Authorities.
The servicing on these loans is also released.  The purpose of selling a portion
of fixed rate loans from current  production is to reduce  interest rate risk by
limiting  the growth of longer  term fixed  rate loans in the  portfolio  and to
generate service fee income over time.


HARBOR FLORIDA BANCSHARES, INC.
                                        6

<PAGE>



       The  following  table shows  total loan  origination  activity  including
mortgage-backed securities, during the periods indicated.

<TABLE>
<CAPTION>

                                              Years Ended September 30,
                                       =====================================
                                           1998        1997         1996
                                           ----        ----         ----
                                                  (In thousands)
MORTGAGE LOANS (GROSS):
<S>                                      <C>          <C>          <C>
  At beginning of year (1).............  $781,341     $722,435     $596,478
  Mortgage loans originated:
    Construction 1-4 Family............    83,429       63,237       59,000
    Permanent 1-4 Family...............   173,758       84,853       85,853
    Multi-family.......................       605        2,526        2,935
    Nonresidential.....................    38,260       18,302       12,941
    Land...............................    11,313       12,264       13,384
                                          -------      -------      -------
  Total mortgage loans originated (2)..   307,365      181,182      174,113
  Mortgage loans acquired (3)..........       ---          ---       60,482
  Mortgage loans sold..................    (9,125)      (8,583)      (4,653)
  Principal repayments.................  (179,354)    (111,255)    (101,359)
  Mortgage loans transferred to real
    estate owned.......................    (2,864)      (2,438)      (2,626)
                                        ---------    ---------    ---------
  At end of year.......................  $897,363     $781,341     $722,435
                                         ========     ========     ========
OTHER LOANS (GROSS):
  At beginning of year................. $ 100,288     $ 88,927     $ 73,760
  Other loans originated...............    77,044       63,406       52,702
  Loans acquired (3)...................       ---          ---        4,468
  Principal repayments.................   (67,601)     (52,045)     (42,003)
                                          -------     --------     --------
  At end of year.......................  $109,731     $100,288     $ 88,927
                                         ========     ========     ========
MORTGAGE-BACKED SECURITIES (GROSS):
  At beginning of year.................  $176,854     $153,293     $164,759
  Mortgage-backed securities purchased.   100,222       61,769       29,265
  Principal repayments.................   (76,027)     (38,208)     (40,731)
                                         --------     --------     --------
  At end of year.......................  $201,049     $176,854     $153,293
                                         ========     ========     ========
</TABLE>
 
(1)       Includes loans held for sale.  
(2)       Loans originated represent loans closed,  however all loans may not be
          fully disbursed at time of closing.  
(3)       Represents  loans  acquired  in  connection  with the  acquisition  of
          Treasure Coast.

MORTGAGE-BACKED SECURITIES

       A substantial  part of the Company's  business  involves  investments  in
mortgage-backed  securities  issued or  guaranteed  by an  agency of the  United
States  government.   Historically,  the  Company's  mortgage-backed  securities
portfolio  has  consisted  primarily  of  pass-through  mortgage   participation
certificates issued by FHLMC and FNMA. These pass-through certificates represent
a participation interest in a pool of single-family mortgages, the principal and
interest payments on which are passed from the loans'  originators,  through the
FHLMC and FNMA that pools and packages the participation interests into the form
of securities,  to investors such as the Company.  The FHLMC and FNMA guarantees
the payment of principal  and  interest.  The  underlying  pool of mortgages can
consist of either  fixed-rate or  adjustable-rate  loans. At September 30, 1998,
the Company's  portfolio of  mortgage-backed  securities  consisted  entirely of
FHLMC  and  FNMA   participation   certificates.   Of  the  $201.0   million  in
mortgage-backed  securities  at that date,  approximately  $23.0  million or 11%
represented  adjustable-rate  securities and $178.0  million or 89%  represented
fixed-rate securities with anticipated maturity dates from 3 months to 28 years.


HARBOR FLORIDA BANCSHARES, INC.
                                        7

<PAGE>



    Adjustable-rate  mortgage-backed securities ("ARM Securities") have periodic
adjustments  in the coupons based on the  underlying  mortgages.  These periodic
coupon  adjustments are subject to annual and lifetime caps. The caps serve as a
limit to the amount that the coupon will change  during any coupon reset period.
As interest  rates on the  mortgages  underlying  the ARM  Securities  are reset
periodically  (one to 12 months),  the yields on these securities will gradually
adjust  to  reflect  changes  in  market  rates.  Management  believes  that the
adjustable-rate feature of ARM Securities will help to reduce sharp fluctuations
in security value that result from normal changes in interest rates.

    During periods of declining interest rates, the coupon on ARM Securities may
adjust  downward,  resulting  in lower  yields  and  reduced  income  from these
securities.   Thus,   ARM   Securities  may  have  less  potential  for  capital
appreciation as compared to fixed-rate debt securities. During periods of rising
interest  rates,  the coupon on ARM  Securities  may not fully adjust  upward in
conjunction  with  changes  in market  rates due to  annual or  lifetime  coupon
adjustment  caps.  This could result in ARM Securities  that depreciate in value
similar to long-term,  fixed-rate  mortgage securities in a rising interest rate
environment.

    The  Company's  fixed-rate   mortgage-backed   securities  consist  of  both
long-term  and  balloon  securities.  The  long-term  securities  have  original
maturity terms of ten,  fifteen and thirty years.  The balloon  securities  have
principal and interest  amortization  based on a thirty-year  maturity  schedule
with final principal  balloon payments due in five years or seven years from the
date  of the  security.  Balloon  mortgage-backed  securities  are  held  in the
portfolio as a means of reducing the average life of the fixed-rate portfolio. A
shorter  average  portfolio  life  will  help  reduce  the  interest  rate  risk
associated  with  these  investments.  As  of  September  30,  1998,  long-term,
fixed-rate  mortgage-backed  securities  amounted to $70.1 million and five-year
and seven-year balloon mortgage-backed  securities amounted to $32.6 million and
$75.3 million, respectively.

    During  periods of  declining  interest  rates,  fixed-rate  mortgage-backed
securities  may  have   accelerated   principal   reductions  due  to  increased
refinancing  activity on the underlying  mortgage loans. The reinvestment of the
accelerated principal reductions at lower prevailing rates could result in lower
overall  portfolio  yields and income.  During periods of rising interest rates,
fixed-rate  mortgage-backed  securities will tend to depreciate in value.  Thus,
total returns on fixed-rate  mortgage-backed  securities are expected to decline
as market interest rates rise.

    If  the  Company   purchases   mortgage-backed   securities  at  a  premium,
accelerated principal repayments may result in some loss of principal investment
to the extent of the premium paid. Conversely, if mortgage-backed securities are
purchased at a discount,  accelerated principal reductions will increase current
and total returns.

DELINQUENT, NONPERFORMING AND CLASSIFIED ASSETS

       DELINQUENT LOANS. All delinquent loan results are reviewed monthly by the
Company's Board of Directors.  The Company believes it has an effective  process
and policy for dealing with delinquent loans.

       Residential delinquencies are handled by the Loan Collections Department.
This  department  begins  collection  efforts on  residential  loans when a loan
appears on the 15-day delinquent list. Borrowers are sent a notice to accelerate
the debt when the debt is 45 days delinquent.  If the delinquent account has not
been corrected,  foreclosure  proceedings are begun generally at the 75th day of
delinquency.  At September 30, 1998,  residential  loans  delinquent 90 days and
longer represented 0.10% of the total residential loan portfolio.

       Commercial  delinquent  accounts are  processed by the Problem  Asset and
Lending  Departments.  For commercial  accounts  classified as  Substandard,  as
defined below, or worse, the Problem Asset Department has jurisdiction  over the
collection efforts.  As with residential  delinquent loans, any commercial loans
90 days past due or where the  collection  of the interest or full  principal is
considered doubtful are placed on a non-accrual basis.

       If a collection  action is instituted  on a consumer or commercial  loan,
the Company,  in compliance  with the loan  documents and the law, may repossess
and sell the collateral  security for the loan through  private sales or through
judicially ordered sales when necessary.  Should the sale result in a deficiency
owing to the Company,  the borrowers  generally are pursued where such action is
deemed appropriate,  including recourse based on personal loan guarantees by the
borrower's principals.


HARBOR FLORIDA BANCSHARES, INC.
                                        8

<PAGE>



       The following table shows the Company's loans  delinquent 90 days or more
at the dates indicated.


                                             September 30,
                               1998               1997              1996
                              ------             ------            ------
                                           (Dollars in thousands)
                           Number  Amount    Number    Amount   Number   Amount
Mortgage loans:
  Construction and land....  ---  $    ---       2    $    162       2   $    98
  Permanent 1 - 4
    family.................   19       778      28       1,565      23     1,196
  Other mortgage...........    4     1,102       3         689       2       423
                              --    ------      --     -------     ---   -------
  Total mortgage loans.....   23     1,880      33       2,416      27     1,717
Other loans................   13       542      10         164       9       132
                              --   -------      --     -------     ---   -------
Total loans................   36    $2,422      43      $2,580      36    $1,849
                              ==    ======      ==     =======      ==    ======
Delinquent loans to
    total loans............           .26%                .31%              .24%
                                      ====                ====              ====

       As of  September  30, 1998,  1997 and 1996,  $25,000,  $0, and  $323,000,
respectively,  of loans were on  nonaccrual  status  which were not 90 days past
due.

       NONPERFORMING ASSETS. The Company also places emphasis on improving asset
quality. The Company's nonperforming assets as a percentage of total assets have
decreased from .50% at September 30, 1996 to .37% at September 30, 1998.

       Loans 90 days past due are generally  placed on non-accrual  status.  The
Company  ceases to accrue  interest  on a loan once it is placed on  non-accrual
status, and interest accrued but unpaid at that time is charged against interest
income.  Additionally,  any loan where it appears evident that the collection of
interest is in doubt is also placed on a non-accrual  status.  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 and  1997  were
approximately  $7,695,000  and  $12,122,000,  respectively.  The 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 and $1,147,000 was recognized in the
year ended September 30, 1998 and 1997, respectively.

       If a foreclosure action is instituted on a real  estate-secured  loan and
the loan is not  reinstated,  paid in full,  refinanced,  or deeded  back to the
Company,  the property is sold at a foreclosure sale at which the Company may be
the buyer.  Thereafter,  such acquired  property is listed in the Company's real
estate  owned  ("REO")  account or that of a  subsidiary,  until the property is
sold.  The  Company  carries REO at the lower of cost or fair value less cost to
dispose.  The Company  also  finances  the sales of REO  properties.  Should the
foreclosure  sale not produce  sufficient  proceeds to pay the loan  balance and
court  costs,  the  Company's  attorneys,  where  appropriate,  may  pursue  the
collection of a deficiency judgment against the responsible borrower.

       It is the  Company's  policy to try to liquidate its holdings in REO on a
timely basis while  considering both market  conditions and the cost of carrying
REO properties. Upon acquisition the Company records all REO at the lower of its
fair value (less estimated  costs to dispose),  or cost. The fair value is based
upon the most recent appraisal and management's evaluation. If the fair value of
the asset is less than the loan balance  outstanding,  the difference is charged
against the Company's loan loss  allowance  prior to  transferring  the asset to
REO.  Administration  of REO property is handled by the Problem Asset Department
which is responsible for the sale of all residential and commercial  properties.
In those  instances  where the  property  may be located  outside the  Company's
market area or where the property, due to its nature, requires certain expertise
(I.E., hotels, apartment complexes), outside management firms may be utilized.


HARBOR FLORIDA BANCSHARES, INC.
                                        9

<PAGE>



       At the dates indicated,  nonperforming  assets in the Company's portfolio
were as follows:


                                                         September 30,
                                                         -------------
                                                 1998         1997        1996
                                                 ----         ----        ----
                                                     (Dollars in thousands)
Non-accrual mortgage loans:
  Delinquent less than 90 days............ $      ---    $      ---    $   323
  Delinquent 90 days or more..............      1,880         2,416      1,717
                                                -----         -----      -----
     Total................................      1,880         2,416      2,040
                                                -----         -----      -----
Non-accrual other loans:
  Delinquent less than 90 days............         25           ---        ---
  Delinquent 90 days or more..............        542           164        132
                                               ------        ------     ------
     Total................................        567           164        132
                                               ------        ------     ------
Total non-accrual loans...................      2,447         2,580      2,172
Accruing loans 90 days or more delinquent         ---           ---        ---
                                             --------      --------   --------
  Total nonperforming loans...............      2,447         2,580      2,172
                                                -----         -----      -----
Other nonperforming assets:
  Real estate owned.......................      3,168         2,892      4,830
    Less allowance for losses.............       (634)         (578)    (1,712)
                                              -------       -------    -------
      Total...............................      2,534         2,314      3,118
                                               ------        ------     ------

Total nonperforming assets, net...........     $4,981        $4,894     $5,290
                                               ======        ======     ======
Nonperforming loans to total net loans....      0.26%         0.31%      0.28%
Total nonperforming assets to
  total assets............................      0.37%         0.43%      0.50%

       For the year ended September 30, 1998,  interest income of $135,000 would
have been recorded on loans  accounted  for on a non-accrual  basis if the loans
had been current throughout the period. No interest income was actually included
in net income regarding non-accrual loans during the same period.

       The Company's  policy requires that a general  allowance be maintained on
all REO. The  Company's  periodic  provisions to its allowance for losses on REO
are included in income (losses) from real estate  operations on its consolidated
statements of earnings.

       Management  evaluates each REO property on no less than a quarterly basis
to assure that the net carrying value of the property on the Company's  books is
no greater  than the fair market  value less  estimated  costs to dispose.  When
necessary,  the property is written down or specific  allowances are established
to reduce the carrying value.

REO Allowances
                                             Years Ended September 30,
                                             -------------------------
                                           1998        1997        1996
                                           ----        ----        ----
                                                   (In thousands)

Beginning balance...................        $578      $1,712     $1,857
Provision for (recovery of) losses..         136        (150)       117
Allowance for losses on REO
   acquired.........................         ---         ---         21
Charge-offs.........................         (80)       (984)      (283)
                                           -----      ------     ------
Ending balance......................       $ 634      $  578     $1,712
                                           =====      ======     ======

       Not included in the preceding table are net gains, (losses) or recoveries
on the sale of real estate owned of $176,000,  $127,000  and  ($39,000)  for the
years ended September 30, 1998, 1997 and 1996, respectively.

HARBOR FLORIDA BANCSHARES, INC.
                                       10

<PAGE>



       CLASSIFIED  ASSETS.  Under OTS  regulations,  problem  assets of  insured
institutions  are classified as either  "substandard,"  "doubtful" or "loss." An
asset is considered  "substandard"  if the current net worth and paying capacity
of the obligor and/or the value of the collateral pledged are no longer adequate
to support the loan.  "Substandard"  assets are  characterized  by the "distinct
possibility"  that the  insured  institution  will  sustain  "some  loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard,"   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable  and  improbable."  Assets  classified  "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without  the  establishment  of a specific  loss  reserve is not  warranted.  In
addition to the classification of assets as "substandard," "doubtful" or "loss,"
the OTS  regulations  also require that assets that do not currently  expose the
Company to a  sufficient  degree of risk to warrant  one of the three  foregoing
classifications but which do possess credit deficiencies or potential weaknesses
deserving management's close attention must be designated "special mention."

       When  an  insured   institution   classifies  problem  assets  as  either
substandard  or doubtful,  it is required to establish  specific  allowances for
loan losses in an amount considered appropriate by management.  See "--Allowance
for Loan  Losses"  below.  Additionally,  the  institution  establishes  general
allowances to recognize the inherent risk  associated  with lending  activities,
but which,  unlike  specific  allowances,  have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of the  amount of the asset so  classified  or to  charge-off  such  amount.  An
institution's  determination  as to the  classification  of its  assets  and the
amount of its valuation  allowances  is subject to review by the OTS,  which can
order the establishment of additional general or specific loss allowances.

       The following table presents the Company's classified assets at the dates
indicated.


                                             September 30,
                                             -------------
                                       1998        1997        1996
                                       ----        ----        ----
                                                 (In thousands)
  Substandard:
    Real Estate Owned..........       $ 3,168     $ 2,892     $ 3,897
    Loans......................         5,375       9,832       8,150
                                      -------     -------     -------
      Total Substandard........         8,543      12,724      12,047
  Doubtful.....................           ---         ---         192
  Loss.........................           202         117         174
                                    ---------   ---------   ---------
                                       $8,745     $12,841     $12,413
                                       ======     =======     =======


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

       At September 30, 1997 in addition to the Company's classified loans noted
above,  the Company had five  commercial  real  estate and  commercial  business
loans, aggregating  approximately $3.9 million, which were currently performing,
where management had obtained  information about possible credit problems of the
borrowers  or  had  been  seriously   delinquent  in  the  past  and  had  other
characteristics  which  caused  management  to  question  the  ability  of  such
borrowers to comply with present loan repayment terms. During 1998, one of these
loans which had a net book value prior to  allowance of $2.6 million was paid in
full.

ALLOWANCE FOR LOAN LOSSES

       Provisions  for loan losses are charged to  operations  to  establish  an
allowance for loan losses;  recognized loan losses (recoveries) are then charged
(credited)  to  the  allowance.  The  Company  evaluates  the  outstanding  loan
portfolio with respect to the adequacy of the allowance for loan losses at least
quarterly.

       Management's  policy is to provide for estimated  losses on the Company's
loan portfolio based on management's evaluation of the probable losses (existing
and inherent). Such evaluations are made for all major loans on which full

HARBOR FLORIDA BANCSHARES, INC.
                                       11

<PAGE>



collectibility of interest and/or principal may not be reasonably  assured.  The
factors which the Company  considers are the estimated  value of the  underlying
collateral,  the  management of the  borrower,  and current  operating  results,
trends and cash flow. In addition to analyzing individual loans, management also
analyzes on a regular basis its asset  classification and recent loss experience
on other loans to help insure that prudent general  allowances are maintained on
one-to-four  family loans,  automobile  loans and home equity loans.  Management
periodically  evaluates the allowance percentages utilized for general allowance
purposes based upon delinquencies, charge-off, underwriting, and other trends.

       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 loans.

       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 for the portion of the allowance described above.
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.


HARBOR FLORIDA BANCSHARES, INC.
                                       12

<PAGE>



       The following tables set forth an analysis of the Company's allowance for
loan losses at the dates indicated.


                                                Years Ended September 30,
                                                -------------------------
                                           1998          1997         1996
                                           ----          ----         ----
                                                 (Dollars in thousands)
Balance at beginning of year......        $11,691      $11,016      $10,083
Provision for (recovery of)
    losses........................            297          782          (76)
Allowance for loan losses
    acquired (1)..................            ---          ---          885
Charge-offs:
    Residential...................           (259)         (43)        (137)
    Commercial real estate........            ---          (91)         ---
    Consumer......................           (213)        (125)         (48)
    Other.........................           (102)          (3)        (180)
                                         ---------      -------    ---------
       Total charge-offs..........           (574)        (262)        (365)

Recoveries:
    Residential...................             86           44           28
    Commercial real estate........              2           19          207
    Consumer......................             16           62           79
    Other.........................            300           30          175
                                         --------      -------     --------
       Total recoveries...........            404          155          489

Balance at end of year............        $11,818      $11,691      $11,016
                                          =======      =======      =======

Allowance for loan losses to
    total loans...................          1.25%        1.40%        1.44%
Allowance for loan losses to
    total non-performing loans...         483.13%      453.11%      507.25%
Allowance for loan losses and
    allowance for REO to total
    non- performing assets........        221.80%      224.21%      181.78%
Net charge-offs (recoveries) to
    average loans outstanding
    during the period............           0.02%        0.01%       (0.02)%
Classified loans to total net               0.59%        1.19%        1.11%
    loans

(1)    Represents allowance acquired in conjunction with acquisition of Treasure
       Coast.


HARBOR FLORIDA BANCSHARES, INC.
                                       13

<PAGE>




       The following  table  presents an allocation of the entire  allowance for
loan losses among various loan  classifications and sets forth the percentage of
loans in each category to total loans.  The allowance  shown in the table should
not be  interpreted  as an indication  that  charge-offs  in future periods will
occur in these  amounts or  proportions  or that the analysis  indicates  future
charge-off trends.


<TABLE>
<CAPTION>
                                                      September 30,
                                                      -------------
                                    1998                   1997                  1996
                                    ----                   ----                  ----
                               Amount   Percent(1)    Amount    Percent(1)   Amount  Percent(1)
                               ------   ----------    ------    ----------   ------  ----------
<S>                            <C>       <C>         <C>         <C>        <C>      <C>
                                                          (Dollars in thousands)
Allowance at end of period
    applicable to:
Residential................... $ 2,251     76.88%    $ 2,141      76.88%    $ 2,077   77.95%
Commercial real estate........   5,986     12.22       6,487      11.74       6,088   11.02
Consumer .....................   2,310      9.40       2,068      10.10       1,802   10.01
Commercial business...........   1,271      1.50         995       1.28       1,049    1.02
                              --------   -------    --------    -------    -------- -------
    Total..................... $11,818    100.00%    $11,691     100.00%    $11,016  100.00%
                               =======    ======     =======     ======     =======  ====== 
</TABLE>

------------------
(1) Percent of loans in each category to total loans at the dates indicated.


INVESTMENT ACTIVITIES

       The Company invests  primarily in overnight  funds,  U.S.  Government and
agency  obligations,  and Federal Home Loan Bank of Atlanta  capital stock.  The
Company does not invest in derivatives,  collateralized  mortgage obligations or
other hedging instruments.

       The table below  summarizes the carrying value and estimated market value
of the Company's portfolio of investment securities at the dates indicated.

<TABLE>
<CAPTION>
                                                          September 30,
                                     1998                     1997                 1996
                                    ------                   ------               -----
                                                         (In thousands)
                             Carrying      Market      Carrying    Market    Carrying    Market
                               Value        Value       Value       Value     Value      Value

<S>                         <C>            <C>          <C>         <C>       <C>        <C>
Available for sale:
  Treasury Notes..........  $      ---     $    ---     $17,985     $17,985   $23,347    $23,347
  FHLB notes..............      50,721       50,721      29,486      29,486    10,031     10,031
  FNMA Notes                    20,343       20,343         ---         ---       ---        ---
  Other securities........         452          452          82          82       115        115
                               -------     --------     -------     -------   -------    -------
      Total                    $71,516      $71,516     $47,553     $47,553   $33,493    $33,493
                                ======       ======      ======      ======    ======     ======
Held to maturity:
  FHLB notes..............      19,989       20,268       5,000       4,993    20,000     20,016
  FNMA notes..............      10,000       10,005       ---         ---       ---          ---
                               -------       ------  ----------     -------    ------    -------
      Total...............     $29,989      $30,273     $ 5,000     $ 4,993   $20,000    $20,016
                                ======       ======      ======      ======    ======     ======

FHLB stock................     $ 8,212      $ 8,212     $ 7,595     $ 7,595   $ 7,158    $ 7,158
</TABLE>

      On November 15, 1995, the FASB issued Special Report No. 155-B, A GUIDE TO
IMPLEMENTATION  OF STATEMENT 115 ON ACCOUNTING  FOR CERTAIN  INVESTMENTS IN DEBT
AND EQUITY SECURITIES,  (the "Special Report").  Pursuant to the Special Report,
the  Company  was   permitted  to  conduct  a  one-time   reassessment   of  the
classifications of all securities held at that time. Any reclassifications  from
the  held-to-maturity  category made in conjunction with that reassessment would
not call into question an  enterprise's  intent to hold other debt securities to
maturity in the future. The Company undertook such

HARBOR FLORIDA BANCSHARES, INC.
                                       14

<PAGE>



a reassessment and, effective December 31, 1995, all investment  securities were
reclassified   as   available   for  sale.   On  the   effective   date  of  the
reclassification,  the  securities  transferred  had a  carrying  value of $25.8
million  and an  estimated  fair  value of  $26.0  million,  resulting  in a net
increase  to  stockholders'  equity  for  the  net  unrealized  appreciation  of
$126,000, after deducting applicable income taxes of $76,000.

      The table below presents the contractual  maturities and weighted  average
yields of investment  securities at September 30, 1998, excluding FHLB stock and
equity securities.


<TABLE>
<CAPTION>
               One Year or Less    One to Five Years     More Than Five Years            Total Investment Securities
               ----------------    -----------------     --------------------           ----------------------------
                                                       (Dollars in thousands)
                                                                                 Average
                        Weighted              Weighted               Weighted   Remaining             Weighted
             Carrying   Average    Carrying    Average    Carrying    Average    Years to   Carrying   Market    Average
               Value     Yield      Value       Yield       Value      Yield     Maturity    Value     Value      Yield
               -----     -----      -----       -----       -----      -----     --------    -----     -----      -----
<S>          <C>          <C>      <C>           <C>       <C>          <C>       <C>       <C>       <C>         <C>  
FHLB Notes   $  ---       0.00%    $70,710       5.97%     $ ---        0.00%     1.8       $70,710   $70,989     5.97%

FNMA Notes      ---       0.00      30,343       5.72        ---        0.00      2.1        30,343    30,348     5.72

</TABLE>

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


SOURCES OF FUNDS

     DEPOSITS.  The  Company  offers a number  of  different  deposit  accounts,
including   regular   savings,   interest-bearing   checking  or  NOW  accounts,
non-interest  checking,  money market  deposit,  term  certificate  accounts and
individual retirement accounts.

     The Company has twenty-four  full-service  banking offices and one in-store
branch  location in addition to its home office in Fort  Pierce.  The  Company's
strategy has been to have conveniently  located offices in growth markets as one
of its main methods of attracting  funds. The Company's  deposits  primarily are
obtained from areas surrounding its offices.  Certificate  accounts in excess of
$100,000 are not actively solicited nor are brokers used to obtain deposits.

     The Company had a decline in deposit  balances  for several  years prior to
1993.  This was a strategy that the Company used to improve its capital  ratios.
Much of the decline was accomplished by the closing of less profitable branches.
With the Company's  improved  capital position in the beginning of 1993, it made
an effort to stabilize  deposits and increase account balances.  As part of this
strategy,  the Company has upgraded a number of branch facilities and moved from
leased storefronts to full service free-standing offices.

      Management  believes that demand and passbook  accounts are less sensitive
to changes in interest rates than other types of accounts,  such as certificates
of deposit.  As of September 30, 1998, the Company had 27.10% of its deposits in
passbook and demand  accounts,  71.76% in  certificates  of deposit and 1.14% in
official checks.  Due to the recent low interest rate  environment,  the Company
has also been pricing its  certificates  of deposit to encourage  lengthening of
maturities.  When  management  determines  the  levels  of  its  deposit  rates,
consideration is given to local competition, U.S.
Treasury securities offerings, and anticipated funding requirements.


HARBOR FLORIDA BANCSHARES, INC.
                                       15

<PAGE>



     The following table sets forth the  distribution  of the Company's  deposit
accounts at the dates indicated and the weighted  average interest rates on each
category  of deposits  presented.  Management  does not believe  that the use of
year-end  balances  instead of average  monthly  balances  produces any material
difference in the information presented:


<TABLE>
<CAPTION>
                                                      September 30,
                                                      -------------
                                   1998                     1997                         1996
                                   ----                     ----                         ----
                                         Weighted                   Weighted                   Weighted
                                          Average                    Average                    Average
                                          Nominal                    Nominal                    Nominal
                          Amount  Percent  Rate    Amount   Percent   Rate      Amount  Percent  Rate
                          ------  ------   ----    ------   -------   ----      ------  -------  ----
<S>                     <C>       <C>      <C>      <C>      <C>       <C>     <C>      <C>       <C>
                                                    (Dollars in thousands)
Demand accounts:
  Non-interest
    bearing demand....  $ 54,954    5.99%   N/A     $ 40,749   4.47%   N/A     $ 33,613   3.95%   N/A
  NOW accounts........    60,129    6.55   1.13%      52,045   5.71    1.32%     54,806   6.43    1.51%
  Money market
    accounts..........    41,074    4.46   2.54       43,401   4.76    2.51      42,561   5.00    2.58
                         -------    ----   ----      -------  -----    ----      -------  ----    ----
    Subtotal..........   156,157   17.00   1.10      136,195  14.94    1.30     130,980  15.38    1.46
Savings accounts:
  Passbook............    92,698   10.10   2.06       76,540   8.40    1.69      77,305   9.07    1.78
  Certificates of
    deposit...........   658,842   71.76   5.43      689,760  75.67    5.47     636,907  74.77    5.37
Official checks.......    10,429    1.14    N/A        9,081    .99    N/A        6,661    .78     N/A
                        -------- -------   ----     -------- ------    ----    -------- -------   ----
Total deposits........  $918,126  100.00%  4.29%    $911,576 100.00%   4.47%   $851,853 100.00%   4.41%
                        ========  ======   ====     ======== ======    ====    ======== ======    ==== 
</TABLE>

    The following table presents, by various categories,  information concerning
the amounts and maturities of the Company's time deposits.


                                                 September 30,
                                                 -------------
                                        1998           1997            1996
                                        ----           ----            ----
                                              (Dollars in thousands)

  0.00 - 3.00%................       $     328      $     545       $      307
  3.01 - 4.00%................              --             --                1
  4.01 - 5.00%................          84,192         88,472          155,121
  5.01 - 6.00%................         540,209        553,986          378,999
  6.01 - 7.00%................          33,674         46,333          101,780
  7.01 - 8.00%................             434            424              603
  8.01 - 9.00%................               5            ---                3
  Premiums on deposits
    acquired                                --             --               93
                                    ----------     ----------       ----------
Total Certificate Accounts....        $658,842       $689,760         $636,907
                                      ========       ========         ========



HARBOR FLORIDA BANCSHARES, INC.
                                       16

<PAGE>



    At September 30, 1998, the Company had certificates of deposit in amounts of
$100,000 or more maturing as follows:


                                                                  Amount
Maturity Period                                               (In thousands)
---------------
3 Months or Less.........................................        $13,276
Over 3 to 6 Months.......................................         13,355
Over 6 to 12 Months......................................         14,370
Over 12 Months...........................................         21,726
                                                                 -------
Total....................................................        $62,727
                                                                 =======

    The following table contains information  regarding deposit account activity
for the periods shown.


                                             Years Ended September 30,
                                             -------------------------
                                       1998           1997          1996
                                       ----           ----          ----
                                                   (Dollars in thousands)
 Net increase (decrease)
    before interest credited..      $ (28,838)      $ 25,563      $ 30,644
 Interest credited............         35,388         34,160        30,035
 Deposits acquired............            ---            ---        70,193
                                      -------       --------      --------

 Deposit account increase.....        $ 6,550       $ 59,723      $130,872
                                      =======       ========      ========
 Weighted average cost
    of deposits during the
    year......................          4.35%          4.42%         4.44%
 Weighted average cost of               4.29%          4.47%         4.41%
    deposits at end of year...


      BORROWINGS.  The  Company  is a member  of the  Federal  Home Loan Bank of
Atlanta  ("FHLB of Atlanta").  The FHLB of Atlanta offers various fixed rate and
variable  rate  advances to its members.  Requests for advances with an original
term to maturity of five years or less may be  approved  for any sound  business
purpose in which the member is authorized to engage.  Requests for advances with
original  maturity in excess of five years may be approved  only for the purpose
of enabling that member to provide funds for residential  housing  finance.  The
FHLB of Atlanta  underwrites  each  advance  request  based on  factors  such as
adequacy and stability of capital  position,  quality and composition of assets,
liquidity  management,  level of  borrowings  from all  sources  and other  such
factors.  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.

      As of September 30, 1998, the Company had $145 million of outstanding FHLB
advances. Of this amount, all have remaining maturity dates of thirty-six months
or longer.

      As of  September  30,  1998,  the Company had a total credit limit of $250
million and an availability limit of $105 million with the FHLB of Atlanta.

      In addition to FHLB advances,  the Company had $199.2 million of unpledged
mortgage-backed    securities   at   September   30,   1998.   These   unpledged
mortgage-backed  securities could be used as collateral under reverse repurchase
transactions with various security dealers.  Such borrowing  transactions  could
provide  additional  cash and liquidity to the Company in the event of sudden or
unforeseen deposit withdrawals.


HARBOR FLORIDA BANCSHARES, INC.
                                       17

<PAGE>



      The Company  recognizes the maturity  characteristics  of its time deposit
portfolio.  Management  believes that unused FHLB  advances and other  borrowing
sources would provide sufficient funding for potential deposit withdrawals.

      The  following  table  sets  forth  information  regarding  the  Company's
borrowing at and for the periods indicated:

<TABLE>
<CAPTION>

                                                 At or for the Year Ended September 30,
                                                       1998        1997       1996
                                                       (Dollars in thousands)
FHLB Advances:
<S>                                                  <C>         <C>         <C>    
      Average Balance................................$104,877    $ 99,342    $75,096
      Maximum balance at any month-end............... 145,000     110,000     95,000
      Balance at year end............................ 145,000     100,000     95,000
      Weighted average interest rate during the
              year...................................    6.12%       6.00%      6.12%
      Weighted average interest rate at year end.....    5.76%       6.00%      6.02%
Other Borrowings:
      Average Balance................................ $   167     $   561    $   857
      Maximum balance at any month-end...............     475         674        974
      Balance at year end............................     ---         475        674
      Weighted average interest rate during the
              year...................................   11.98%       9.48%      9.47%
      Weighted average interest rate at year end.....     ---        7.12%      8.50%
Total Borrowings:
      Average Balance................................$105,044     $99,903    $75,953
      Maximum balance at any month-end............... 145,000     110,674     95,974
      Balance at year end............................ 145,000     100,475     95,674
      Weighted average interest rate during the
              year...................................    6.13%       6.02%      6.15%
      Weighted average interest rate at year end.....    5.76%       6.01%      6.04%
</TABLE>

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

SUBSIDIARIES

      Federal  associations  generally  may  invest up to 2% of their  assets in
service corporations plus an additional 1% of assets for community purposes.  In
addition,  federal  associations  such as the Bank may invest up to 50% of their
regulatory capital in conforming loans to service  corporations.  In addition to
investments  in service  corporations,  federal  associations  are  permitted to
invest  an  unlimited  amount  in  operating   subsidiaries  engaged  solely  in
activities which a federal association may engage in directly.

       The Bank has two active subsidiary corporations. Appraisal Analysts, Inc.
provides real estate appraisal services to the Bank as well as third parties. H.
F.  Development  Company,  Inc. serves as a repository for some of the Company's
commercial REO  properties  held for  disposition.  See "Business -- Delinquent,
Nonperforming and Classified Assets".

COMPETITION

      The Company encounters strong competition both in attracting  deposits and
in originating real estate and consumer loans.  Its most direct  competition for
deposits has come historically from commercial  banks,  brokerage houses,  other
savings  associations  and credit unions in its market area. The Company expects
continued strong competition from such financial institutions in the foreseeable
future.  The Company's  market area includes  branches of a number of commercial
banks that are  substantially  larger  than the  Company  in terms of  statewide
deposits.  The Company competes for deposits by offering depositors a high level
of personal service, convenient locations and a competitive interest rate.


HARBOR FLORIDA BANCSHARES, INC.
                                       18

<PAGE>



      The  competition  for real estate and other loans comes  principally  from
commercial  banks,  mortgage banking  companies and other savings  associations.
Lending competition has increased  substantially in recent years, as a result of
the large  number of  institutions  seeking  to  benefit  from the growth in the
Company's market area.

      The Company  competes for loans  primarily  through the interest rates and
loan fees it  charges,  the types of loans it  offers,  and the  efficiency  and
quality of services it provides  borrowers,  real estate  brokers and  builders.
Factors that affect competition  include general and local economic  conditions,
current  interest rate levels and volatility of the mortgage  markets.  Based on
total  assets,  as of September  30, 1998,  the Company was the largest  savings
institution headquartered in the six county area served by the Company.

EMPLOYEES

      At September 30, 1998, the Company had a total of 329 full-time  employees
and 96  part-time  employees,  none of whom  were  represented  by a  collective
bargaining  unit.  The Company  considers its relations with its employees to be
good.


ITEM 2.  PROPERTIES

      The Company conducts its business from its headquarters in Fort Pierce and
through 24 full-service  banking  offices,  one loan  production  office and one
in-store branch  location.  These offices are located in Brevard,  Indian River,
Martin, Okeechobee, St. Lucie, and Volusia counties, Florida. The net book value
at September 30, 1998 of the Company's offices was $13.3 million.  The following
table sets forth information regarding the Company's offices.


                                     Year                              Lease
           Location                 Opened       Owned/Leased    Expiration Date
           --------                 ------       ------------    ---------------

ST. LUCIE COUNTY
----------------
MAIN OFFICE                          1934           OWNED
100 SOUTH SECOND STREET
FORT PIERCE, FL 34950

VIRGINIA AVENUE                      1968           OWNED
500 VIRGINIA AVENUE
FORT PIERCE, FL 34950

PSL MAIN                             1975           OWNED
7181 SOUTH U.S. #1
PORT ST. LUCIE, FL 34952

H.F. CENTER                          1981           OWNED
2400 S.E. MIDPORT RD., SUITE 300
PORT ST. LUCIE, FL 34952

LAKEWOOD PARK                        1981           OWNED
5100 TURNPIKE FEEDER RD.
FORT PIERCE, FL 34951

DARWIN SQUARE                        1991           OWNED
3201 S.W. PSL BLVD.
PORT ST. LUCIE, FL 34953

ORANGE BLOSSOM                       1984           OWNED
4156 OKEECHOBEE ROAD
FORT PIERCE, FL 34947


HARBOR FLORIDA BANCSHARES, INC.
                                       19

<PAGE>



                                     Year                              Lease
                  Location          Opened       Owned/Leased    Expiration Date
                  --------          ------       ------------    ---------------
ST. LUCIE WEST                       1993           OWNED
1320 S.W. ST. LUCIE WEST BLVD.
PORT ST. LUCIE, FL 34986

INDIAN RIVER
------------
VERO MAIN                            1978           OWNED
655 21st STREET
VERO BEACH, FL 32960

CAUSEWAY                             1981           OWNED
1700 S.A1A
VERO BEACH, FL 32963

INDIAN RIVER MALL                    1997           OWNED
6080 20TH ST.
VERO BEACH, FL 32966

SEBASTIAN                            1979           OWNED
13397 U.S. HIGHWAY #1
SEBASTIAN, FL 32958

WEST SEBASTIAN                       1998           OWNED
993 FELLSMERE ROAD
SEBASTIAN, FL 32958

MARTIN COUNTY
-------------
PALM CITY                            1978           LEASED           07/26/05
1251 S.W. 27TH STREET
PALM CITY, FL  34990

EAST OCEAN                           1981           OWNED
1500 E. OCEAN BLVD.
STUART, FL 34996

STUART MAIN                          1996           LEASED           08/15/99
789 S. FEDERAL HWY.
STUART, FL 34994

BREVARD COUNTY
--------------
PALM BAY                             1981           OWNED
5245 BABCOCK ST., N.E.
PALM BAY, FL 32905

INDIALANTIC                          1981           OWNED
305 5th AVENUE
INDIALANTIC, FL 32903

WEST MELBOURNE                       1982           OWNED
2950 W. NEW HAVEN AVENUE
MELBOURNE, FL 32904

VIERA                                1995           OWNED
100 CAPRON TRAIL
MELBOURNE, FL  32940


HARBOR FLORIDA BANCSHARES, INC.
                                       20

<PAGE>



                                     Year                              Lease
                  Location          Opened       Owned/Leased    Expiration Date
                  --------          ------       ------------    ---------------
WAL-MART                             1998           LEASED           08/31/03
1000 N  WICKHAM ROAD
MELBOURNE, FL 32935

LOAN PRODUCTION OFFICE               1998           LEASED           10/10/99
2460 N COURTENAY PARKWAY
   SUITE 107
MERRITT ISLAND, FL 32953

OKEECHOBEE COUNTY
-----------------
OKEECHOBEE                           1980           OWNED
2801 HIGHWAY #441 SOUTH
OKEECHOBEE, FL 34974

VOLUSIA COUNTY
--------------
NEW SMYRNA BEACH                     1988           LEASED           09/30/99
REGIONAL SHOPPING CENTER
1940 STATE ROAD #44
NEW SMYRNA BEACH, FL 32168

PORT ORANGE                          1983           OWNED
4035 NOVA ROAD
PORT ORANGE, FL 32127

ORMOND BEACH                         1984           OWNED
75 N. NOVA ROAD
ORMOND BEACH, FL 32174

DELTONA                              1998           OWNED
2901 HOWLAND BOULEVARD
DELTONA, FL 32725


      All leases are anticipated to renew upon their expiration.

      The Company uses a data processing service located in Orlando, Florida for
record keeping activities.  The data processor  specializes in servicing savings
associations.   The  Company's  current  contract  expires  in  2002.  All  data
processing  equipment  that is used  internally  by the  Company is owned by the
Company.  The net book  value of such  data  processing  equipment  and  related
software as of September 30, 1998 was $1,985,000.


ITEM 3.  LEGAL PROCEEDINGS

      There are various claims and lawsuits in which the Company is periodically
involved incident to the Company's  business.  In the opinion of management,  no
material loss is anticipated from any such pending claims or lawsuits.


HARBOR FLORIDA BANCSHARES, INC.
                                       21

<PAGE>



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

A Special Meeting of Stockholders  of Harbor Florida  Bancshares,  Inc. was held
September 18, 1998 for the purpose of considering  and voting upon the following
matters:

1.     To approve the Harbor Florida Bancshares,  Inc. 1998 Stock Incentive Plan
       for directors, officers and employees (the "Plan").

2.     The approval of the adjournment of the Special Meeting, if necessary,  to
       permit  solicitation  of  proxies in the event  there are not  sufficient
       votes at the time of the Special Meeting to approve the Plan.


   The following table sets forth the results as to each matter voted upon:


                                                           %          BROKER
PROPOSAL          FOR        AGAINST       ABSTAIN     APPROVED      NON-VOTES
--------          ---        -------       -------     --------      ---------

No. 1          18,356,951   3,218,808         ---          59%            -
No. 2          18,361,951     422,083         ---          59%            -




                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's  common stock trades on the NASDAQ National Market under the
symbol HARB. The  approximate  number of  shareholders  of record and beneficial
shareholders  of the common stock at December 7, 1998 was 10,886,  some of which
are street name holders.

      The Company paid $0.246 in cash  dividends per share for the twelve months
ended in fiscal 1998.  Payments were $0.058 in the first and second quarters and
$0.065 in the third and fourth  quarters.  The Company  currently  expects  that
comparable cash dividends will continue to be paid in the future.

      On December 7, 1998 the closing sales price of the Company's  common stock
was $11.00 per share. The following table sets forth the price range of the high
and low closing  sales price per share of common stock as reported by the NASDAQ
stock market for the four quarters of fiscal year 1998 and 1997.

      On March 8, 1998, the conversion and  reorganization  of Harbor Financial,
M.H.C. was  consummated.  Pursuant to this  transaction,  the Company became the
stock  holding  company for the Bank and Harbor  Financial,  M.H.C.,  the Bank's
mutual holding company,  ceased to exist.  Each existing share of Harbor Florida
Bancorp,  Inc.,  except for those shares held by Harbor  Financial,  M.H.C. were
exchanged  for 6.0094 shares of the Company.  The prices in the following  table
have been adjusted to reflect this transaction.


                                           Low $                High $
                                           -----                ------
FISCAL 1998
   First Quarter....................        9.29                11.61
   Second Quarter ..................       10.65                12.56
   Third Quarter....................       11.63                12.81
   Fourth Quarter...................        9.31                13.56


HARBOR FLORIDA BANCSHARES, INC.
                                       22

<PAGE>



                                           Low $                High $
                                           -----                ------
FISCAL 1997
   First Quarter....................       4.91                 6.03
   Second Quarter ..................       5.57                 6.49
   Third Quarter....................       5.82                 7.65
   Fourth Quarter...................       8.99                 9.88


ITEM 6. SELECTED FINANCIAL DATA.

      The information  contained in the table captioned  "Selected  Consolidated
Financial  Data" in the  Annual  Report on pages 2-3 is  incorporated  herein by
reference.

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND
       RESULTS OF OPERATIONS.

      The  information   contained  in  the  section   captioned   "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  on
pages 4 through 16 in the Annual Report is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The information contained in the sections captioned "Market Risk and Asset
and Liability  Management" and "Interest Rate Sensitivity" on pages 9 through 12
in the Annual Report is incorporated herein by reference.

Interest Rate Risk

      The monetary nature of the Company's  assets and  liabilities  exposes the
Company to significant  interest rate risk. Interest rate risk generally results
from a mismatch  between  the extent and timing of asset cash flows  compared to
liability cash flows.

      The Company uses a computer  model to quantify its interest rate risk. The
computer  model  measures the  sensitivity of asset and liability fair values to
hypothetical changes in interest rates. Interest rate sensitive instruments used
in the computer model include:  loans,  mortgage-backed  securities,  investment
securities,  federal funds sold,  interest-bearing deposits in other banks, FHLB
stock,  deposits,  advances from the FHLB, and off- balance sheet loan servicing
rights and commitments.  The model calculates net portfolio value of fair values
for assets,  liabilities and off-balance sheet contracts using a discounted cash
flow methodology.  Management  estimates  discount rates by using current market
yields on similar financial instruments.  Discount rates are adjusted upward and
downward  by 100 basis  points and 200 basis  points to  reflect a  hypothetical
parallel  shift in  interest  rates.  In  addition,  management  estimates  loan
prepayments rates,  deposit decay rates, and values of certain assets that could
correspond with such hypothetical parallel shifts in interest rates.  Management
also assumes that loan delinquency  rates will not change as a result of changes
in interest  rates,  although  there can be no  assurance  that this will be the
case.


HARBOR FLORIDA BANCSHARES, INC.
                                       23

<PAGE>



      Presented  below is an analysis  of the  Company's  interest  rate risk at
September 30, 1998 as calculated  utilizing the Company's  computer  model.  The
table presents net portfolio value,  dollar and percent changes in net portfolio
value,  for  instantaneous  and parallel  shifts in the yield curve in 100 basis
point increments up and down.



 Change in       Net Portfolio
   Rates          Value Amount     Dollar Change          Percent
   -----          ------------     -------------          -------
                             (Dollars in thousands)
+200 B.P.         $ 269,410          $ (42,933)            (13.7)%
+100 B.P.         $ 293,342          $ (19,001)             (6.1)%
   0 B.P.         $ 312,343          $       0                 0%
-100 B.P.         $ 313,737          $   1,394               0.4%
-200 B.P.         $ 313,506          $   1,163               0.4%



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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Company's  consolidated financial statements listed in Item 14 herein,
together  with the report  thereon by KPMG Peat  Marwick  LLP,  are found in the
Annual Report on pages 16 through 47 and incorporated herein by reference.

ITEM 9.  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
       FINANCIAL DISCLOSURE.

      None.



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The  information   contained  under  the  sections  captioned  "Beneficial
Ownership of Common Stock,"  "Management of the Company," and "Management of the
Bank" in the Proxy  Statement of Harbor  Florida  Bancshares,  Inc.  (the "Proxy
Statement") to be filed pursuant to General  Instruction  G.(3) is  incorporated
herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION.

      The information  contained under the sections captioned "Management of the
Bank"  and  "Management  of the  Company"  in the  Proxy  Statement  to be filed
pursuant to General Instruction G.(3) is incorporated herein by reference.

HARBOR FLORIDA BANCSHARES, INC.
                                       24

<PAGE>





ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

   (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

   Information  required by this item is incorporated herein by reference to the
   sections  captioned "Voting  Securities" and "Beneficial  Ownership of Common
   Stock" in the Proxy  Statement  to be filed  pursuant to General  Instruction
   G.(3).

   (b)  SECURITY OWNERSHIP OF MANAGEMENT

   Information  required by this item is incorporated herein by reference to the
   section  captioned  "Beneficial  Ownership  of  Common  Stock"  in the  Proxy
   Statement to be filed pursuant to General Instruction G.(3).

   (c)  CHANGES IN CONTROL

   Management of the Company knows of no  arrangements,  including any pledge by
   any persons of  securities  of the Company,  the operation of which may, at a
   subsequent date, result in a change in control of the Registrant.


ITEM 13.  CERTAIN RELATIONS AND RELATED TRANSACTIONS

      The information  required by this item is incorporated herein by reference
to the sections captioned "Voting Securities",  "Beneficial  Ownership of Common
Stock"  and  "Management  of the  Bank --  Certain  Transactions"  in the  Proxy
Statement to be filed pursuant to General Instruction G.(3).


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

   (a)             Documents filed as a part of this Report:

   (1) The Consolidated  Financial Statements of the Registrant are attached and
are listed below:

                                                  Pages in Annual
                                                      Report
                                                      ------
Independent Auditors' Report                            18
Consolidated Statements of Financial Condition          19
Consolidated Statements of Earnings                     20
Consolidated Statements of Stockholders' Equity         21
Consolidated Statements of Cash Flows                   23
Notes to Consolidated Financial Statements            24 - 48

   (2) The  Consolidated  Financial  Statement  Schedules of the  Registrant  as
   required to be filed in this Report are either not applicable or are included
   elsewhere in this Report.


HARBOR FLORIDA BANCSHARES, INC.
                                       25

<PAGE>



   (3) Exhibit Index

      The  exhibits   listed  below  are  included   with  this  Report  or  are
incorporated  herein by reference to the identified  document  previously  filed
with the Securities and Exchange Commission as set forth parenthetically.

       3(i)   Certificate  of  Incorporation  of  Registrant   (Exhibit  3.3  to
              Pre-effective  Amendment  No. 1 to the  Registration  Statement on
              Form S-1, No. 333-37275 filed November 10, 1997).

       3(ii)  Bylaws of Registrant.  (Exhibit 3.4 to Pre-Effective Amendment No.
              1 to the Registration Statement on Form S-1, No. 333-37275,  filed
              November 10, 1997).

       10(i)  Employment  contract with Michael J. Brown,  Sr. (Exhibit 10(a) to
              the Registration Statement on Form S-4 filed December 20, 1996)

       10(ii) Recognition and Retention Plan and Trust Agreement  (Exhibit 10(d)
              to the Registration Statement on Form S-4 filed December 20, 1996)

       10(iii)Outside  Directors'  Recognition  and  Retention  Plan  and  Trust
              Agreement (Exhibit 10(e) to the Registration Statement on Form S-4
              filed December 20, 1996)

       10(iv) 1994   Incentive   Stock  Option  Plan   (Exhibit   10(b)  to  the
              Registration Statement on Form S-4 filed December 20, 1996)

       10(v)  1994 Stock Option Plan for Outside Directors (Exhibit 10(c) to the
              Registration Statement on Form S-4 filed December 20, 1996)

       10(vi) Harbor Federal  Savings Bank  Non-Employee  Directors'  Retirement
              Plan  (Exhibit  10(vi) to Form 10-Q for the quarter ended June 30,
              1997 filed August 11, 1997)

       10(vii) Unfunded Deferred Compensation Plan for Directors

       10(viii) Management  Incentive  Compensation  Plan for fiscal year ending
              September 30, 1998 (Exhibit  10(xiii) to Form 10-Q for the quarter
              ended December 31, 1997 filed February 11, 1998)

       10(ix) 1998 Stock  Incentive Plan for  Directors,  Officers and Employees
              (Exhibit  4.3 to the  Registration  Statement  on Form  S-8  filed
              October 26, 1998.)

       10(x)  Change of Control Agreements

       21     Subsidiaries of the Registrant

       27     Financial Data Schedule

       99     Consolidated Financial Statements of the Registrant (Annual Report
              to Stockholders for fiscal year September 30, 1998)

(b)   Reports on Form 8-K

      None.


HARBOR FLORIDA BANCSHARES, INC.
                                       26

<PAGE>



                                   SIGNATURES


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


                                                 HARBOR FLORIDA BANCSHARES, INC.

                                                                    (Registrant)



Dated: December 22, 1998                      By:
                                                           Michael J. Brown, Sr.
                                                   President and Chief Executive
                                                            Officer and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated.


-----/s/------------                                           December 22, 1998
Michael J. Brown, Sr.
President, Chief Executive
Officer and Director


----/s/------                                                  December 22, 1998
Don W. Bebber
Senior Vice President, Finance
(Principal Financial and Accounting Officer)

----/s/--------------------------                              December 22, 1998
Bruce R. Abernethy, Sr., Director


----/s/--------------                                          December 22, 1998
Richard K. Davis, Director


----/s/-----------------                                       December 22, 1998
Edward G. Enns, Director


----/s/--------------------                                    December 22, 1998
Frank H. Fee, III, Director


----/s/-----------------------                                 December 22, 1998
Richard B. Hellstrom, Director


----/s/-------------------                                     December 22, 1998
Richard N. Bird, Director


                                       27