FORM 10-QSB
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                For the quarterly period 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 1-13691

                             Bay State Bancorp, Inc.
        (Exact name of small business issuer as specified in its charter)

            Delaware                                      04-3398630
 (State or other jurisdiction of                      (I.R.S. Employer
  Incorporation or organization)                     Identification No.)

 1299 Beacon Street, Brookline, Massachusetts               02446
   (Address of principal executive offices)               (Zip Code)
                                               
         Issuer's telephone number, including area code: (617) 739-9500

         Check whether the issuer (1) filed all reports  required to be filed by
section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]

The number of shares of common stock outstanding of each of the issuer's classes
of common stock, as of November 7, 1998 was 2,535,232.

Transitional Small Business Disclosure Format                     Yes [_] No [X]


<PAGE>

<TABLE>
<CAPTION>
                    BAY STATE BANCORP, INC. AND SUBSIDIARIES

                                      INDEX

<S>                                                                                                              <C>
  PART I - FINANCIAL INFORMATION..................................................................................1
    Item 1 - Financial Statements.................................................................................1
      Consolidated Balance Sheets - September 30, 1998 and March 31, 1998 ........................................1
      Consolidated Income Statements - Three and six months ended September 30, 1998 and 1997.....................2
      Consolidated Statements of Cash Flows - Six months ended September 30, 1998 and 1997........................3
      Consolidated Statements of Changes in Stockholders' Equity - Six months ended September 30, 1998............4
      Notes to Consolidated Financial Statements for the Period Ended September 30, 1998..........................5
    Item 2 - Management's Discussion and Analysis or Plan of Operation............................................6

  PART II - OTHER INFORMATION....................................................................................19
    Item 1 - Legal Proceedings...................................................................................19
    Item 2 - Changes in Securities and use of proceeds...........................................................20
    Item 3 - Defaults Upon Senior Securities.....................................................................20
    Item 4 - Submission of Matters to a Vote of Security Holders.................................................20
    Item 5 - Other Information...................................................................................20
    Item 6 - Exhibits and Reports on Form 8-K....................................................................20

    SIGNATURES...................................................................................................22
    EXHIBITS.....................................................................................................23
      Computation of per share earnings - Exhibit 11.............................................................23
      Financial Data Schedule - Exhibit 27.......................................................................24
</TABLE>

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                    Bay State Bancorp, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                       September 30,       March 31,
                                                                            1998             1998
                                                                         ---------        ---------
                                                                        (Unaudited)
<S>                                                                      <C>              <C>      
ASSETS
Cash and due from banks                                                  $   3,201        $   3,513
Short-term investments                                                      10,500           46,000
Investment and mortgage-backed securities
         Available-for-sale (amortized cost of $23,531 and $5,391)          23,744            6,523
         Held to maturity (market value of $1,664 and $4,274)                1,621            4,272
Mortgage loans held for sale                                                   236              822
Loans receivable, net                                                      257,284          224,928
Stock in Federal Home Loan Bank of Boston                                    1,873            1,873
Accrued interest receivable                                                  1,580            1,260
Premises and equipment, net                                                  2,589            2,581
Deferred tax asset, net                                                      2,380            2,065
Other assets                                                                 1,384            1,454
                                                                         ---------        ---------
                Total assets                                             $ 306,392        $ 295,291
                                                                         =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
         Deposits                                                        $ 206,429        $ 207,780
         Federal Home Loan Bank Advances                                    31,500           20,000
         Other borrowed funds                                                2,336            2,176
         Accrued expenses and other liabilities                              2,038            1,761
                                                                         ---------        ---------
                 Total liabilities                                         242,303          231,717
                                                                         ---------        ---------

Stockholders' equity:
         Common stock, par value $.01 per share, issued
                 and outstanding 2,535,232 shares                               25               25
         Additional paid-in capital                                         49,194           49,194
         Retained earnings                                                  18,460           17,340
         Net unrealized gain on investments available for sale                  61              666
            Less: Unearned ESOP shares                                      (3,651)          (3,651)
                                                                         ---------        ---------
                 Total stockholders' equity                                 64,089           63,574
                                                                         ---------        ---------
                       Total liabilities and stockholders' equity        $ 306,392        $ 295,291
                                                                         =========        =========

Equity-to-asset ratio                                                        20.92%           21.53%
Book value per share                                                     $   27.24        $   27.02
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 1

<PAGE>

                    Bay State Bancorp, Inc. and Subsidiaries
                         Consolidated Income Statements
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                Three months ended       Six months ended
                                                                   September 30,           September 30,
                                                               -------------------     -------------------
                                                                 1998        1997        1998        1997
                                                               -------     -------     -------     -------
                                                                    Unaudited               Unaudited
                                                                    ---------               ---------
<S>                                                            <C>         <C>         <C>         <C>    
Interest income:
   Loans                                                       $ 4,998     $ 4,470     $ 9,650     $ 8,685
   Investments                                                     367         275         606         552
   Other interest                                                  177          14         704          37
                                                               -------     -------     -------     -------
      Total interest income                                      5,542       4,759      10,960       9,274
                                                               -------     -------     -------     -------
Interest expense:
   Deposits                                                      2,248       2,216       4,490       4,366
   Borrowed funds                                                  246         304         462         544
                                                               -------     -------     -------     -------
      Total interest expense                                     2,494       2,520       4,952       4,910
                                                               -------     -------     -------     -------
      Net interest income before provision for loan losses       3,048       2,239       6,008       4,364
Provision for loan losses                                          100         444         150         444
                                                               -------     -------     -------     -------
      Net interest income after provision for loan losses        2,948       1,795       5,858       3,920
                                                               -------     -------     -------     -------
Non-interest income:
   Service charges on deposit accounts                              70          65         132         135
   Gain on sale of loans                                            16           2          28           5
   Gain on sale of other real estate owned                          --          --          --          19
                                                               -------     -------     -------     -------
      Total non-interest income                                     86          67         160         159
                                                               -------     -------     -------     -------
      Income before non-interest expense and income taxes        3,034       1,862       6,018       4,079
                                                               -------     -------     -------     -------
Non-interest expense:
   Salaries and employee benefits                                1,142         866       2,331       1,718
   Equipment Expense                                               175         160         331         317
   Occupancy Expense                                                86          60         166         123
   Federal deposit insurance premiums                               32          32          63          62
   Advertising                                                      55          46         101          88
   Data processing                                                  65          55         122         110
   Other                                                           451         183         959         471
                                                               -------     -------     -------     -------
      Total non-interest expense                                 2,006       1,402       4,073       2,889
                                                               -------     -------     -------     -------
      Income before income taxes                                 1,028         460       1,945       1,190
Income tax expense                                                 422         196         825         492
                                                               -------     -------     -------     -------
      Net income                                               $   606     $   264     $ 1,120     $   698
                                                               =======     =======     =======     =======
Comprehensive net income                                       $     0     $   869     $   515     $   862
                                                               =======     =======     =======     =======


Weighted average common and common equivalent shares
outstanding                                                  2,352,696         n/a   2,352,696         n/a
                                                             =========               =========

Basic earnings per share                                        $ 0.26         n/a      $ 0.48         n/a
                                                                ======                  ======

Diluted earnings per share                                      $ 0.26         n/a      $ 0.48         n/a
                                                                ======                  ======
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 2

<PAGE>


                    Bay State Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
 Net cash flows from operating activities:                                             Six months ended September 30,
                                                                                       ------------------------------
                                                                                           1998            1997
                                                                                         --------        --------
                                                                                                 Unaudited
                                                                                                 ---------
<S>                                                                                      <C>             <C>     
 Net income                                                                              $  1,120        $    698
 Adjustments to reconcile net income to net cash provided by operating activities:
 Provision for loan losses                                                                    150             444
 Net decrease in mortgage loans held-for-sale                                                 586              --
 Gain on sale of mortgage loans                                                               (28)             (5)
 Depreciation and amortization                                                                138             107
 Increase (decrease) in deferred loan origination fees                                       (282)              5
 Amortization of securities, net of accretion                                                   3               4
 Gain on sale of other real estate owned                                                       --             (19)
 Increase in accrued interest receivable                                                     (320)            (87)
 Deferred tax (benefit) expense                                                                --            (169)
 Increase in income taxes payable                                                              --             212
 Increase in accrued expenses                                                                  --             110
 Increase  in other assets                                                                     --            (138)
 (Increase) decrease in prepaid expenses                                                       70            (112)
 Decrease in thrift fund                                                                       --              96
 Increase (decrease) in other liabilities                                                     277             (19)
                                                                                         --------        --------
 Net cash provided by operating activities                                                  1,714           1,127
                                                                                         --------        --------

 Cash flows from investing activities:
 Proceeds from sales of other real estate owned                                                --             272
 Proceeds from maturities of held-to-maturity securities                                    2,648             393
 Proceeds from maturities of available-for-sale securities                                  1,000              --
 Purchases of available-for-sale securities                                               (19,141)            (69)
 Distribution to Rabbi Trust                                                                   --            (697)
 Net increase in loans                                                                    (32,196)        (12,948)
 Recoveries of previously charged-off loans                                                    --              18
 Capital expenditures                                                                        (146)           (567)
                                                                                         --------        --------
 Net cash used in investing activities                                                    (47,835)        (13,598)
                                                                                         --------        --------

 Cash flows from financing activities:
 Net increase (decrease) in deposits                                                       (1,351)          5,102
 Repayment of advances from the Federal Home Loan Bank                                     (5,000)        (34,000)
 Advances from the Federal Home Loan Bank                                                  16,500          42,000
 Net increase in other borrowed funds                                                         160             421
                                                                                         --------        --------
 Net cash provided by financing activities                                                 10,309          13,523
                                                                                         --------        --------

 Net increase (decrease) in cash and cash equivalents                                     (35,812)          1,052
 Cash and cash equivalents at beginning of period                                          49,513           3,617
                                                                                         --------        --------
 Cash and cash equivalents at end of period                                              $ 13,701        $  4,669
                                                                                         ========        ========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
                  Interest                                                               $  4,957        $  4,910
                  Taxes                                                                       690             518
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 3

<PAGE>

                    Bay State Bancorp, Inc. and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                  Additional                    Net         Unearned       Total
                                                       Common      Paid-in      Retained     Unrealized       ESOP     Stockholders'
                                                        Stock      Capital      Earnings        Gain         shares        Equity
                                                      --------     --------     --------      --------      --------      --------
<S>                                                   <C>          <C>          <C>           <C>           <C>           <C>
Balance at March 31, 1997                             $     --     $     --     $ 19,091      $    383      $     --      $ 19,474
      Net loss                                              --           --       (1,751)           --            --        (1,751)
      Stock issued pursuant to initial common
          stock offering                                    23       45,245           --            --            --        45,268
      Issuance of 187,795 shares of common stock
        to The Bay State Federal Savings
        Charitable Foundation                                2        3,754           --            --            --         3,756

      Common stock acquired by ESOP                         --           --           --            --        (4,056)       (4,056)
      Reduction in unearned ESOP shares charged
        to expense                                          --           --           --            --           405           405
      Appreciation in fair value of unearned ESOP
        shares charged  to expense                          --          195           --            --            --           195
      Change in net unrealized gain on
        investments available for sale                      --           --           --           283            --           283
                                                      --------     --------     --------      --------      --------      --------
Balance at March 31, 1998                                   25       49,194       17,340           666        (3,651)       63,574
      Net income                                            --           --        1,120            --            --         1,120
      Change in net unrealized gain on
      investments available for sale                        --           --           --          (605)           --          (605)
                                                      --------     --------     --------      --------      --------      --------
Balance at September 30, 1998 (Unaudited)             $     25     $ 49,194     $ 18,460      $     61      $ (3,651)     $ 64,089
                                                      ========     ========     ========      ========      ========      ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 4

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE PERIOD ENDED September 30, 1998

(1)  Organization

     Bay State Bancorp,  Inc.  ("Company" or "Bay State") was incorporated under
the laws of Delaware  in October  1997 for the purpose of serving as the holding
company  of Bay  State  Federal  Savings  Bank  ("Bank")  as part of the  Bank's
conversion  from a mutual form of  organization  to a stock form of organization
(the  "Conversion").  The Company is a savings and loan  holding  company and is
subject to regulation by the Office of Thrift Supervision  ("OTS"),  the Federal
Deposit  Insurance   Corporation   ("FDIC")  and  the  Securities  and  Exchange
Commission ("SEC"). The Conversion, completed on March 29, 1998, resulted in the
Company  issuing an aggregate  2,535,232  shares of its common stock,  par value
$.01 per share,  at a price of $20 per share,  of which  2,347,437  shares  were
issued in a  subscription  offering  and  187,795  shares were issued to The Bay
State Federal Savings Charitable  Foundation (the  "Foundation),  established by
the Bank.  Prior to the  Conversion,  Bay State had not engaged in any  material
operations.

(2)  Accounting Principles

     The accompanying  unaudited  consolidated financial statements of Bay State
Bancorp,   Inc.  have  been  prepared  in  accordance  with  generally  accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions  to Form 10-QSB and of Regulation S-B.  Accordingly,  the financial
statements  do not  include all of the  information  and  footnotes  required by
generally accepted accounting principles for complete financial  statements.  In
the opinion of management,  all  adjustments  (consisting of a normal  recurring
nature)  considered  necessary  for a  fair  presentation  have  been  included.
Operating  results for the three and six months ended September 30, 1998 are not
necessarily  indicative  of the  results  that may be  expected  for the current
fiscal year.

     For further  information,  refer to the consolidated  financial  statements
included in the  Company's  annual  report and Form 10-KSB for the period  ended
March 31, 1998,  and form 10-QSB for the period ended June 30, 1998,  filed with
the Securities and Exchange Commission.

(3)  Stock Based Incentive Plan

     The Company has  established a trust to purchase  101,409  shares of common
stock for the purpose of funding the 1998 Stock Based  Incentive  Plan ("Plan").
The Plan was approved by shareholders' at the September 29, 1998 Annual Meeting.
As of  November 7, 1998,  the trust had  purchased  101,409  shares at a cost of
$2,270,000.  The  purchase of these  shares has the effect of reducing  the book
value by $0.97 per share.

(4)  Stock Repurchase Program

     On October 30, 1998 the Company announced it had received approval from the
OTS to repurchase up to 5% of the Company's outstanding common stock, or 126,762
shares.  The Company intends to purchase the shares in open market  transactions
as market  conditions  allow.


                                     Page 5

<PAGE>

Item 2 - Management's Discussion and Analysis or Plan of Operation

General

     Bay  State  Bancorp,   Inc.,  a  savings  and  loan  holding  company,  was
incorporated  under the laws of  Delaware  in  October  1997 for the  purpose of
serving as the holding  company of Bay State Federal Savings Bank as part of the
Bank's conversion from a mutual to stock form of organization. Bay State Federal
Savings Bank is a federally  chartered savings bank and is subject to regulation
by the Office of Thrift Supervision.

     The Bank has five full service  retail banking  offices  located in Norfolk
and Suffolk counties,  Massachusetts.  Through these offices,  the Bank offers a
full range of retail and commercial  banking  products and services and conducts
other business as allowable for federally  chartered  banks.  The Banks' lending
operations focus on, residential first mortgages,  commercial real estate loans,
residential construction loans, home equity lines of credit, and consumer loans.

     The Bank's business  activities are concentrated in Eastern  Massachusetts.
All retail banking activity is conducted  through the banking  offices.  Lending
operations,  particularly  loan  originations,  are  conducted  from the  retail
offices  and at the point of sale.  Neither  the Company and the Bank nor any of
their subsidiaries conduct business on a national or international basis.

     The operating  results of the Company depend  primarily on its net interest
and dividend income,  which is the difference  between (i) interest and dividend
income on earnings  assets,  primarily loans and investment  securities and (ii)
interest expense on interest bearing liabilities,  which consist of deposits and
borrowings.  Results of  operations  are also affected by the provision for loan
losses, the level of non-interest income, including deposit and loan fees, gains
on sales of assets, operating expenses and income taxes.

Comparison of Financial Condition at September 30, 1998 and March 31, 1998

     Total assets at September 30, 1998 were $306.4 million,  compared to $295.3
million at March 31, 1998, an increase of 3.8%. Loans receivable increased $32.4
million,  or 14.4%,  primarily in 1-4 family residential  mortgages,  which were
originated and purchased,  and to a lesser extent,  multi-family residential and
commercial real estate loans. The increase in total assets was funded from a net
reduction of $20.9 million,  or 36.8%, in short-term  investments and investment
securities and an increase of $11.5 million, or 57.5%, in Federal Home Loan Bank
borrowings.

     Total equity was $64.1 million,  or 20.92% of total assets at September 30,
1998, an increase of $515,000,  or 0.81%,  from the $63.6 million,  or 21.53% of
total assets at March 31, 1998.  The Company's book value per share at September
30, 1998 was $27.24, or $26.27, after adjusting for the shares purchased for the
Company's 1998 Stock Based Incentive Plan.



                                     Page 6

<PAGE>

Investments

     Short-term  investments  of $10.5 million at September 30, 1998,  consisted
solely of overnight deposits in the Federal Home Loan Bank of Boston, a decrease
of $35.5 million, or 77.2%, from the $46.0 million at March 31, 1998. Investment
securities increased $14.6 million, or 135.2%,  primarily in short term agencies
and common and trust  preferred  equities.  The net decrease in  investments  of
$20.9 million was used to fund loan growth.

     As a result of the instability of the financial  markets during the period,
and the corresponding  impact on the market value of the investments  classified
as  available-for-sale,  a $61,000  net  unrealized  gain was  recognized  as an
increase to equity at September  30,  1998,  compared to an  unrealized  gain of
$666,000 at March 31, 1998.

     The tables below show the investment  securities portfolios for the periods
presented:

     The   amortized   cost  and   estimated   market   values  of   investments
available-for-sale were:

                                      September 30, 1998      March 31, 1998
                                      ------------------    ------------------
                                                Estimated             Estimated
                                     Amortized    market   Amortized    market
                                        cost      value       cost      value
                                      -------    -------    -------    -------
Investment securities                               (In thousands)

Marketable equity securities          $ 9,376    $ 9,529    $ 5,391    $ 6,523

Trust preferred equity securities       2,901      2,876         --         --

Corporate bonds and notes                 756        752         --         --

Preferred stocks                        1,500      1,545         --         --

Government agency securities            8,998      9,042         --         --
                                      -------    -------    -------    -------
                                      $23,531    $23,744    $ 5,391    $ 6,523
                                      =======    =======    =======    =======


     The   amortized   cost  and   estimated   market   values  of   investments
held-to-maturity were:

                                      September 30, 1998      March 31, 1998
                                      ------------------    ------------------
                                                Estimated             Estimated
                                     Amortized    market   Amortized    market
                                        cost      value       cost      value
                                      -------    -------    -------    -------
Investment securities                               (In thousands)

Government agency securities           $   --     $   --     $2,001     $1,999

Mortgage-backed securities              1,621      1,664      2,271      2,275
                                       ------     ------     ------     ------
                                       $1,621     $1,664     $4,272     $4,274
                                       ======     ======     ======     ======


                                     Page 7

<PAGE>

Loans

     During the first six months of the fiscal year, loans receivable  increased
by $32.4 million, or 14.39%, as detailed below:


                               September 30, % of total   March 31,   % of total
                                   1998        loans         1998        loans
                                 --------    --------      --------    --------
Mortgage loans:                               (Dollars in thousands)
   Residential 1 - 4 family      $168,346       64.74%     $157,240       68.99%
   Equity lines                     4,625        1.78         4,028        1.77
   Residential multi-family        30,279       11.64        22,411        9.83
   Commercial real estate          44,549       17.13        35,468       15.56
   Construction and development     5,125        1.97         5,287        2.32
                                 --------    --------      --------    --------
        Total mortgage loans      252,924       97.26       224,434       98.47
Commercial loans                    1,911        0.73            43        0.02
Other loans                         5,210        2.01         3,434        1.51
                                 --------    --------      --------    --------
         Total loans              260,045      100.00%      227,911      100.00%
                                             ========                  ========
Deduct:
   Allowance for loan losses        2,573                     2,513
   Deferred loan fees                 188                       470
                                 --------                  --------
Net loans receivable             $257,284                  $224,928
                                 ========                  ========


     The Banks' primary lending focus is real estate  lending.  At September 30,
1998, residential, commercial real estate and construction and development loans
represented 97.3% of total loans, compared to 98.5% at March 31, 1998.

     At  September  30, 1998 loans  serviced  for  investors  was $18.0  million
compared to $15.6 million at March 31, 1998.

Asset Quality

     At  September  30, 1998  non-performing  assets  totaled  $1.7  million,  a
decrease  of  $564,000,  or  24.75%,  from  $2.3  million  at  March  31,  1998.
Non-performing  assets consist of all loans that are delinquent 90 days or more.
The Bank had no other real estate owned at September 30, 1998 or March 31, 1998.
At September 30, 1998,  non-performing  assets represented 0.56% of total assets
and 0.67% of loans  receivable,  compared to 0.77% and 1.00%,  respectively,  at
March  31,  1998.  The  decrease  in  non-performing  assets  was  primarily  in
one-to-four family and multi-family  residential  mortgages as the result of the
payoff of certain loans.


                                     Page 8

<PAGE>

     The  composition  of  non-performing   assets,   which  consist  solely  of
non-performing loans for the periods presented was:

                                               September 30,      March 31,
                                              1998       1997       1998
                                             ------     ------     ------
                                                 (Dollars in thousands)
Non-accrual loans:
         One-to-four-family                  $  678     $1,229     $1,258
         Multi-family                           281         --        254
         Commercial real estate                 740         --        739
         Construction and development            --         --         --
         Equity lines                            --         38         --
         Other                                   16          2         28
                                             ------     ------     ------
                                             $1,715     $1,269     $2,279
                                             ======     ======     ======

Non-performing assets as a percentage of:
         Loans receivable                      0.67%      0.58%      1.00%
         Total assets                          0.56       0.51       0.77


     The following  represents the activity in the allowance for loan losses for
the six months ended September 30, 1998:

                                                    (In thousands)
         Balance at March 31, 1998                      $ 2,513
         Provision for loan losses                          150
         Losses charged to allowance                         90
         Recoveries                                          --
                                                        -------
         Balance at September 30, 1998                  $ 2,573
                                                        =======

     The Bank  continually  reviews its delinquency  position,  underwriting and
appraisal  procedures,  charge-off  experience  and current  real estate  market
conditions with respect to its entire loan portfolio.  While management uses the
best information available in establishing the allowance, future adjustments may
be necessary if economic  conditions  differ from the assumptions used in making
the current evaluation.


                                     Page 9

<PAGE>

Deposits and Borrowed Funds

         Deposits  decreased  slightly  during the six month  period as detailed
below:

                               September 30, % of total    March 31,  % of total
                                    1998      deposits       1998      deposits
                                  --------    --------     --------    --------
                                              (Dollars in thousands)
Regular savings accounts          $ 27,464       13.30%    $ 32,216       15.51%
NOW accounts                        20,570        9.96       22,989       11.06
Money market accounts               48,756       23.62       42,440       20.43
Non-interest bearing deposits          885        0.44          485        0.23
                                  --------    --------     --------    --------
                                    97,675       47.32       98,130       47.23
Term deposits                      108,754       52.68      109,650       52.77
                                  --------    --------     --------    --------
         Total deposits           $206,429      100.00%    $207,780      100.00%
                                  ========    ========     ========    ========


     During the period,  FHLB advances increased $11.5 million, or 57.5%, as the
Bank took advantage of attractive pricing to fund asset growth.

Comparison  of Operating  Results for the three months ended  September 30, 1998
and 1997

Results of Operations

     Consolidated  net income for the three  months  ended  September  30,  1998
totaled $606,000,  or $0.26 per share,  compared to $264,000 for the same period
last year. This represents an increase of 129.55% in earnings. Due to the recent
Conversion,  the  earnings  per  share  numbers  for the  prior  period  are not
applicable. The increase in earnings was directly attributable to an increase in
net  interest  income and a lower loan loss  provision  offset by an increase in
operating expenses. The increase in net interest income is directly attributable
to the  increased  level of  interest-earning  assets  funded by the  Conversion
proceeds and an increased level of borrowed funds.

Interest Income

     Interest  income for the three months ended  September  30, 1998  increased
$783,000,  or 16.5%,  to $5.5  million,  compared  to $4.8  million for the same
period  last year.  The  increase  in interest  income was  primarily  due to an
increase in the average balance of interest-earning  assets, partially offset by
a decrease  in the yield on  interest-earning  assets.  The  average  balance of
interest-earning  assets  increased  from $235.9  million for the quarter  ended
September 30, 1997 to $280.8  million for the quarter ended  September 30, 1998,
an increase of $44.2 million,  or 18.7%.  The increase in the average balance of
interest-earning assets was primarily a net result of an increase in the average
balance of short-term investments and investment securities of $20.6 million, or
135.5%,  an increase in loans,  net, and  mortgage-loans  held for sale of $25.4
million  or  11.7%  and a  decrease  in  mortgage-backed  and  mortgage  related
securities  of $1.2  million,  or 39.6%.  The yield on  interest-earning  assets
decreased 18 basis points to 7.89%.

Interest Expense

     Interest  expense for the three months ended  September 30, 1998  decreased
$26,000, or 1.0%, to $2,494,000, compared to $2,520,000 for the same period last
year. The decrease in interest expense was the net result of a $2.4


                                    Page 10

<PAGE>


million,   or  1.1%,   increase  in  the  average  balance  of  interest-bearing
liabilities  which  increased  from $220.9  million for the three  months  ended
September  30, 1997 to $223.3  million for the three months ended  September 30,
1998,  offset by a decrease of 9 basis points in the cost of funds to 4.56%. The
increase in the average balance of interest-bearing  liabilities was primarily a
result of an  increase in the average  balance of deposits of $4.2  million,  or
2.1%  offset by a  decrease  in the  average  balance of FHLB  advances  of $1.8
million, or 8.5%.

Net interest income

     The table below shows the average  balance sheet,  the interest  earned and
paid  on  interest-earning  assets  and  interest-bearing  liabilities  and  the
resulting net interest spread and margin for the periods presented.

<TABLE>
<CAPTION>
For the three months ended September 30,                      1998                                      1997
                                             -------------------------------------     -------------------------------------
                                                            Interest                                  Interest
                                              Average       income/        Yield/      Average        income/        Yield/
                                              balance       expense         rate       balance        expense         rate
                                             --------       --------      --------     --------       --------      --------
Assets                                                                   (Dollars in thousands)
<S>                                          <C>            <C>            <C>         <C>            <C>               <C>
Interest-earning assets:
 Short-term investments                      $ 12,010       $    177       5.90%       $    922       $     14          6.07%
 Investment securities                         23,835            336       5.64          14,276            227          6.36
 Mortgage-backed and mortgage related
 securities                                     1,779             31       6.97           2,944             48          6.52
Loans and mortgage loans held-for-sale        243,192          4,998       8.22         217,755          4,470          8.21
                                             --------       --------                   --------       --------
Total interest-earning assets                 280,816          5,542       7.89         235,897          4,759          8.07
                                                            --------                                  --------
Non interest-earning assets                    11,305                                     8,138
                                             --------                                  --------
  Total                                      $292,121                                  $244,035
                                             ========                                  ========
Liabilities and Equity
Interest-bearing liabilities:
  NOW accounts                               $ 21,316             94       1.76        $ 21,191             97          1.83
  Regular savings accounts                     27,153            166       2.45          29,549            183          2.48
  Money market accounts                        46,846            471       4.02          41,519            418          4.03
  Certificate accounts                        108,652          1,517       5.58         107,559          1,518          5.65
                                             --------       --------                   --------       --------
Total interest-bearing deposits               203,967          2,248       4.41         199,818          2,216          4.44
  FHLB advances                                19,337            246       4.98          21,125            304          5.69
                                             --------       --------                   --------       --------
Total interest-bearing liabilities            223,304          2,494       4.47         220,943          2,520          4.56
                                                            --------                                  --------
  Demand deposits                                 610                                       150
  Other liabilities                             4,147                                     2,750
  Equity                                       64,060                                    20,192
                                             --------                                  --------
  Total                                      $292,121                                  $244,035
                                             ========                                  ========

Net interest income                                         $  3,048                                  $  2,239
                                                            ========                                  ========
Interest rate spread                                                       3.43%                                        3.51%
                                                                        ========                                     ========
Net interest margin                                                        4.18%                                        3.80%
                                                                        ========                                     ========
</TABLE>


                                    Page 11

<PAGE>


     The increase of $809,000 in net interest income is analyzed as follows:

                                                Quarters ended September 30,
                                                       1998 vs. 1997
                                             ---------------------------------
                                             Change due to Increase (Decrease)
                                             ---------------------------------
                                          Volume          Rate             Net
                                          -----           -----           -----
                                                     (In thousands)
Interest income:
         Loans                            $ 523           $   5           $ 528
         Investments                        274             (19)            255
                                          -----           -----           -----
              Total                         797             (14)            783
                                          -----           -----           -----
Interest expense:
         Deposits                            58             (26)             32
         Borrowings                         (23)            (35)            (58)
                                          -----           -----           -----
              Total                          35             (61)            (26)
                                          -----           -----           -----
Net interest income                       $ 762           $  47           $ 809
                                          =====           =====           =====


Provision for Loan Losses

     The  provision  for loan losses  totaled  $100,000  for the  quarter  ended
September  30,  1998,  compared to $444,000  for the same period last year.  The
provision  reflects  the  risks  associated  with  the  Banks'  primary  lending
objective to increase the overall loan portfolio.  The allowance for loan losses
is  maintained at an amount  management  considers  adequate to cover  estimated
losses on loans  receivable  which are deemed  probable and  estimable  based on
information currently known to management.  While management believes the Bank's
allowance  for loan losses is  sufficient  to cover losses  inherent in its loan
portfolio  at this time,  no  assurances  can be given that the Bank's  level of
allowance for loan losses will be sufficient to cover future losses  incurred by
the Bank, or that future  adjustments  to the allowance for loan losses will not
be necessary  if economic and other  conditions  differ  substantially  from the
economic and other  conditions  analyzed by  management to determine the current
level of the allowance for loan losses.

Non-interest income

Total non-interest  income increased $19,000,  or 28.3%, to $86,000.  Other fees
and charges increased $5,000 from fees on transaction accounts.  Gain on sale of
loans increased $14,000, or 700.0%, due to the increased level of sales over the
same period last year.

Non-interest expense

     Salaries and benefits increased $276,000,  or 31.9%, the result of $122,000
in  compensation  expense  associated  with the Employee  Stock  Ownership  Plan
allocation,  a general  increase in salaries and benefits and an increase in the
number of  employees  over the same  period  last  fiscal  year.  Occupancy  and
equipment  expenses  increased  $41,000,  or  18.6%,  primarily  a result of the
increased level of depreciation on building and leasehold


                                    Page 12

<PAGE>

improvements.  Other  expenses  increased  $268,000,  or 146.5%,  primarily as a
result of $117,000 in non-recurring  expenses associated with the implementation
of certain  developmental  strategies as part of the strategic  planning for the
future and approximately $35,000 associated with software upgrades for year 2000
compliance.

Income Taxes

     Income taxes for the three months ended September 30, 1998 were $422,000 on
pretax  income of  $1,028,000,  for an  effective  rate of 41.05%,  compared  to
$196,000 on pretax income of $460,000,  for an effective  rate of 42.61% for the
same period last year.  The effective tax rate is different  than the prior year
due to the  non-deductibility of certain expenses and the reduction in the state
tax rate for banks.

Comparison of Operating  Results for the six months ended September 30, 1998 and
1997

Results of Operations

     Consolidated net income for the six months ended September 30, 1998 totaled
$1,120,000,  or $0.48 per share,  compared to $698,000  for the same period last
year.  This  represents  an  increase of 60.46% in  earnings.  Due to the recent
Conversion,  the  earnings  per  share  numbers  for the  prior  period  are not
applicable. The increase in earnings was directly attributable to an increase in
net  interest  income and a lower loan loss  provision  offset by an increase in
operating expenses. The increase in net interest income is directly attributable
to the  increased  level of  interest-earning  assets  funded by the  Conversion
proceeds and an increased level of borrowed funds.

Interest Income

     Interest  income for the six months  ended  September  30,  1998  increased
$1,686,000,  or 18.2%,  to $11.0 million,  compared to $9.3 million for the same
period  last year.  The  increase  in interest  income was  primarily  due to an
increase in the average balance of interest-earning  assets, partially offset by
a decrease  in the yield on  interest-earning  assets.  The  average  balance of
interest-earning  assets  increased from $228.5 million for the six months ended
September  30, 1997 to $279.1  million for the six months  ended  September  30,
1998,  an  increase  of $50.6  million,  or 22.2%.  The  increase in the average
balance of  interest-earning  assets was primarily the net result of an increase
in the average balance of short-term  investments  and investment  securities of
$27.9 million,  or 181.5%, an increase in loans, net and mortgage loans held for
sale, of $23.8 million or 11.3% and a decrease in  mortgage-backed  and mortgage
related  securities of $1.1  million,  or 35.7%.  The yield on  interest-earning
assets decreased 25 basis points to 7.85%.

Interest Expense

     Interest  expense for the six months  ended  September  30, 1998  increased
$42,000, or 1.0%, to $4,952,000, compared to $4,910,000 for the same period last
year. The increase in interest  expense was primarily due to a $8.4 million,  or
3.9%,  increase in the average  balance of  interest-bearing  liabilities  which
increased  from $213.7  million for the six months ended  September  30, 1997 to
$222.1 million for the six months ended September 30, 1998, offset by a decrease
of 12 basis points in the cost of  interest-bearing  liabilities  to 4.46%.  The
increase in the average balance of interest-bearing  liabilities was primarily a
result of an  increase in the average  balance of deposits of $8.5


                                    Page 13

<PAGE>

million,  or 4.4% and a decrease in the average  balance of FHLB advances of $.1
million, or 0.6%.

Net interest income

     The table below shows the average  balance sheet,  the interest  earned and
paid  on  interest-earning  assets  and  interest-bearing  liabilities  and  the
resulting net interest spread and margin for the periods presented.

<TABLE>
<CAPTION>
For the six months ended September 30,                      1998                                      1997
                                            -------------------------------------     -------------------------------------
                                                           Interest                                  Interest
                                             Average       income/        Yield/      Average        income/        Yield/
                                             balance       expense         rate       balance        expense         rate
                                            --------       --------      --------     --------       --------      --------
Assets                                                                  (Dollars in thousands)
<S>                                         <C>            <C>           <C>          <C>            <C>               <C>
Interest-earning assets:
 Short-term investments                     $ 24,411       $    704      5.77%        $  1,358       $     37          5.43%
 Investment securities                        18,921            539      5.70           14,036            447          6.35
 Mortgage-backed and mortgage related
 securities                                    1,936             67      6.92            3,011            105          6.95
 Loans, net and mortgage loan held-
 for-sale                                    233,843          9,650      8.25          210,062          8,685          8.25
                                            --------       --------                   --------       --------
Total interest-earning assets                279,111         10,960      7.85          228,467          9,274          8.10
                                                           --------                                  --------
Non interest-earning assets                   11,799                                     6,826
                                            --------                                  --------
  Total                                     $290,910                                  $235,293
                                            ========                                  ========
Liabilities and Equity
Interest-bearing liabilities:
  NOW accounts                              $ 21,546            188      1.75         $ 20,649            190          1.84
  Regular savings accounts                    27,890            340      2.44           29,273            367          2.50
  Money market accounts                       42,709            921      4.31           39,523            803          4.05
  Certificate accounts                       111,534          3,041      5.45          105,715          3,006          5.67
                                            --------       --------                   --------       --------
Total interest-bearing deposits              203,679          4,490      4.41          195,160          4,366          4.46
  FHLB advances                               18,419            462      4.93           18,536            544          5.85
                                            --------       --------                   --------       --------
Total interest-bearing liabilities           222,098          4,952      4.46          213,696          4,910          4.58
                                                           --------                                  --------
  Demand deposits                                554                                        88
  Other liabilities                            4,303                                     2,037
  Equity                                      63,955                                    19,472
                                            --------                                  --------
  Total                                     $290,910                                  $235,293
                                            ========                                  ========

Net interest income                                         $ 6,008                                  $  4,364
                                                           ========                                  ========
Interest rate spread                                                     3.39%                                         3.52%
                                                                      ========                                      ========
Net interest margin                                                      4.16%                                         3.81%
                                                                      ========                                      ========
</TABLE>


                                     Page 14

<PAGE>

     The increase of $1,644,000 in net interest income is analyzed as follows:


                                               Six months ended September 30,
                                                       1998 vs. 1997
                                             ---------------------------------
                                             Change due to Increase (Decrease)
                                             ---------------------------------
                                          Volume          Rate             Net
                                          -------        -------        -------
                                                     (In thousands)
Interest income:
         Loans                            $   962        $     3        $   965
         Investment securities                757            (36)           721
                                          -------        -------        -------
              Total                         1,719            (33)         1,686
                                          -------        -------        -------
Interest expense:
         Deposits                             180            (56)           124
         Borrowings                            (3)           (79)           (82)
                                          -------        -------        -------
              Total                           177           (135)            42
                                          -------        -------        -------
Net interest income                       $ 1,542        $   102        $ 1,644
                                          =======        =======        =======


Provision for Loan Losses

     The  provision  for loan losses  totaled  $150,000 for the six months ended
September  30,  1998,  compared to $444,000  for the same period last year.  The
reduction in provision for loan losses from the previous year is attributable to
the  classification  of certain  purchased  loans that had been  acquired in the
merger with  another  financial  institution.  These loans were  identified  and
classified  accordingly,  as a result an increase  in the level of reserves  was
recognized in conjunction with the classification of the loans.

Non-interest income

Total  non-interest  income totaled  $160,000  compared to $159,000 for the same
period last year. Other fees and charges decreased $3,000 from the reduced level
of fees  collected  on  transaction  accounts.  Gain on sale of loans  increased
$23,000,  or  460.0%,  due to the  increased  level of loans  sold over the same
period last year.  During the six months ended  September  30,1997,  the company
recognized income of $19,000 from the sale of other real estate owned; there was
no such income for the same period this year.

Non-interest expense

     Salaries and benefits increased $613,000,  or 35.7%, the result of $269,000
in  compensation  expense  associated  with the Employee  Stock  Ownership  Plan
allocation,  a general  increase in salaries and benefits and an increase in the
number of  employees  over the same  period  last  fiscal  year.  Occupancy  and
equipment  expenses  increased  $57,000,  or  13.0%,  primarily  a result of the
increased level of depreciation  on building and leasehold  improvements.  Other
expenses  increased  $488,000,  or 103.6%,  primarily as a result of $305,000 in
non-recurring   expenses   associated   with  the   implementation   of  certain
developmental  strategies as part of the  strategic  planning for


                                    Page 15

<PAGE>

the future and approximately  $35,000 associated with software upgrades for year
2000 compliance.

Income Taxes

     Income taxes for the six months ended  September  30, 1998 were $825,000 on
pretax  income of  $1,945,000,  for an  effective  rate of 42.42%,  compared  to
$492,000 on pretax income of $1,190,000, for an effective rate of 41.34% for the
same period last year.  The effective tax rate is different  than the prior year
due to the  non-deductibility of certain expenses and the reduction in the state
tax rate for banks.

Capital Adequacy

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

     At  September  30,  1998 the  Company's  capital  ratio was 20.92% of total
assets.  The Bank at  September  30,  1998 had total  capital of 13.54% and risk
based  capital  of  24.74%  (unaudited),   as  compared  to  14.09%  and  26.23%
(unaudited) at June 30, 1998.

     The  FDIC  sets  minimum  leverage  ratios  for  each  insured  institution
depending upon its CAMELS rating. Banks with the highest ratings are required to
carry a 3.0% leverage  ratio,  with less highly rated  institutions  required to
have minimum  ratios at least 1.0% to 2.0% greater.  Additionally,  the FDIC has
risk-based  capital  regulations.  Under these  requirements,  banks must have a
minimum risk-based capital rate of 8.00%.

     At September 30, 1998 the Company and the Bank met all the capital adequacy
requirements  to which they are  subject.  As of September  30,  1998,  the most
recent  notification from the Office of Thrift Supervision  categorized the Bank
as "well  capitalized"  under the  regulatory  framework  for prompt  corrective
action.

Asset/Liability Management

     The  principal  objective  of the  Bank's  interest  rate  risk  management
function is to evaluate the interest rate risk included in certain balance sheet
accounts,  determine  the  appropriate  level of risk given the Bank's  business
strategy,   operating  environment,   capital  and  liquidity  requirements  and
performance  objectives  and  manage  the  risk  consistent  with  the  Board of
Directors'  approved  guidelines.  Through  such  management,  the Bank seeks to
reduce the vulnerability of its operations to changes in interest rates.

     The Bank  monitors  its  interest  rate  risk as such risk  relates  to its
operating  strategies.   The  Bank's  Board  of  Directors  has  established  an
Asset/Liability   Committee,   responsible  for  reviewing  its  asset/liability
policies and


                                    Page 16

<PAGE>

interest rate risk  position,  which meets on a monthly basis and reports trends
and interest rate risk position to the Board of Directors on a quarterly  basis.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Bank.


     In recent years, the Bank has primarily  utilized the following  strategies
to manage  interest rate risk: (i)  emphasizing  the origination and purchase of
adjustable-rate  loans; (ii) investing  primarily in short-term U.S.  Government
securities  or  mortgage-backed  and  mortgage-related  securities  with shorter
estimated  maturities;  (iii)  utilizing  FHLB advances to better  structure the
maturities  of  its  interest  rate  sensitive   liabilities;   and  (iv)  to  a
substantially  lesser  extent,  selling  in  the  secondary  market  longer-term
fixed-rate  mortgage loans  originated  while generally  retaining the servicing
rights on such loans.

     As part of its interest rate risk analysis,  the Bank uses an interest rate
sensitivity  model  which  generates  estimates  of the change in the Bank's net
portfolio  value  ("NPV") over a range of interest  rate  scenarios and which is
prepared by the OTS on a quarterly  basis.  NPV is the present value of expected
cash flows from assets,  liabilities and off-balance  sheet  contracts.  The NPV
ratio, under any interest rate scenario,  is defined as the NPV in that scenario
divided by the market  value of assets in the same  scenario.  The OTS  produces
such  analysis  using its own  model,  based upon data  submitted  on the Bank's
quarterly Thrift Financial Reports,  including  estimated loan prepayment rates,
reinvestment  rates and deposit decay rates.  The following table sets forth the
Bank's NPV as of June 30, 1998 (the latest NPV analysis prepared by the OTS), as
calculated by the OTS.


   Change in
Interest Rates in
 Basis Points           Net Portfolio Value                NPV as % of Portfolio
 (Rate Shock)                                                 Value of Assets
                                                             NPV
                Amount      $ Change        % Change        Ratio    Change(1)
               ---------------------------------------------------------------
                                    (Dollars in thousands)

 400           $36,101      $(6,168)          (15)%         13.16%       (173)
 300            38,478       (3,791)           (9)          13.86        (103)
 200            40,430       (1,839)           (4)          14.42         (47)
 100            41,772         (497)           (1)          14.79         (10)
 Static         42,269           --            --           14.89          --
 (100)          42,921          652             2           15.04          15
 (200)          43,341        1,072             3           15.12          23
 (300)          44,851        2,582             6           15.52          62
 (400)          46,694        4,425            10           16.00         111
         

(1)   Expressed in basis points.


Liquidity

     The Bank's  primary  sources of funds are deposits,  principal and interest
payments on loans,  mortgage-backed and investment securities and FHLB advances.
While maturities and scheduled  amortization of loans are predictable sources of
funds,  deposit flows and mortgage prepayments are greatly influenced by general
interest rates,  economic conditions and competition.  The Bank has continued to
maintain the  required  levels of liquid  assets as defined by


                                    Page 17

<PAGE>

OTS  regulations.  This  requirement  of the OTS,  which  may be  varied  at the
direction of the OTS depending upon economic  conditions  and deposit flows,  is
based upon a  percentage  of  deposits  and  short-term  borrowings.  The Bank's
currently  required  liquidity  ratio is 4%. At  September  30,  1998 the Bank's
liquidity ratio was 10.71%.  Management's  strategy is to maintain  liquidity as
close as possible to the minimum regulatory requirement and to invest any excess
liquidity  in higher  yielding  interest-earning  assets.  The Bank  manages its
liquidity  position and demands for funding  primarily by investing excess funds
in short-term investments and utilizing FHLB advances in periods when the Bank's
demands for liquidity exceed funding from deposit inflows.

     The Bank's most liquid assets are cash and cash equivalents and securities.
The levels of these  assets are  dependent on the Bank's  operating,  financing,
lending and investing activities during any given period. At September 30, 1998,
cash and cash  equivalents  and securities  totaled $39.1 million,  or 12.75% of
total assets.

     The Bank has other  sources of  liquidity  if a need for  additional  funds
arises,  including  FHLB  advances.  At September  30, 1998,  the Bank had $31.5
million in advances outstanding from the FHLB, and at September 30, 1998, had an
additional overall borrowing capacity from the FHLB of $135.3 million. Depending
on market  conditions,  the pricing of deposit  products and FHLB advances,  the
Bank may continue to rely on FHLB borrowings to fund asset growth.

Year 2000 Compliance

     As the year 2000  approaches,  an  important  business  issue  has  emerged
regarding how existing  application  software programs and operating systems can
accommodate  this date value. In addressing the year 2000 the Company has broken
down the process into four steps:  assessment,  correction/replacement,  testing
and implementation.

     The Company  has  completed  the  assessment  phase.  During this phase the
Company  identified  all  potential  programs  and  applications  that  could be
effected  which were date  sensitive.  The Company has also included the various
utility  companies  that it uses for  assessment as to their  readiness for year
2000. This assessment included all hardware and software applications as well as
vendor identification. The various applications identified were then prioritized
in   consideration   of  their  overall   importance  of  use  to  the  Company.
Correspondence  was sent to all vendors  inquiring into there  applications year
2000 compliance. For a number of applications the correction, testing and vendor
certification and implementation has been completed.

     The most critical  applications  to the Company are the software to process
all loan and deposit accounts and transactions,  the internal  accounting system
and utility  companies for the various facility  locations.  The Bank utilizes a
third-party vendor for processing the primary banking  applications and does not
have any proprietary or self developed software. In addition, the Bank also uses
third-party vendor application software for all ancillary computer applications,
specifically  general ledger and accounting systems.  The third-party vendor for
the Bank's banking applications is in the process of modifying and upgrading its
computer applications to ensure Year 2000 compliance. The Bank has completed the
first phase of testing and is in the process of  completing  the second phase of
testing. At the current time it is anticipated that the system will be compliant
and  implemented by June 30, 1999. It is expected that the Company's  accounting
software and applications will be year 2000 compliant by the end of 1998.


                                    Page 18

<PAGE>


     For all other  applications the Company is continuing to ensure  compliance
by  continuing  to follow up with vendors for year 2000  certification.  At this
point in time the  Company  remains in the  correction/replacement,  testing and
implementation phases of the process.

     The Company is also in the process of creating a  contingency  plan to deal
with any unforeseen  events that could occur which would have a negative  impact
on the  day to day  operations  of the  Company.  The  plan  is  expected  to be
completed by March 31, 1999.  The plan will address how to deal with the lack of
utilities and support systems.

     The  Company  has  expensed  approximately  $35,000 to replace  and upgrade
existing  software  for year 2000  compliance.  In addition  the company will be
purchasing a new accounting  system which will be year 2000 compliant;  the cost
of this  system  will be  approximately  $75,000  and  will be  capitalized  and
depreciated over its expected useful life.  Additional expenses will be incurred
over the next year to meet year 2000  compliance,  however,  at this time  these
expenses are not expected to be material in nature.

     In the  event  that  the  Bank's  third  party  vendor  or its  significant
suppliers  or  customers  do not  successfully  and  timely  achieve  year  2000
compliance,  the Bank's  business or  operations  could be  adversely  affected.
However,  management believes that the Bank's own internal system,  networks and
resources would allow the Bank to effectively  operate and service its customers
in the event its  significant  vendors  do not  achieve  satisfactory  year 2000
compliance.  In  addition,  if  significant  vendors  failed  to meet  year 2000
operating  requirements,  the Bank  intends to engage  alternative  vendors  and
suppliers. While the Bank cannot estimate the costs and expenses associated with
hiring new vendors and suppliers,  management believes that such costs would not
have a material impact on the Bank's earnings or results of operations.

     Statements contained in this document,  which are not historical facts, are
forward-looking  statements  as that term is defined in the  Private  Securities
Litigation  Reform Act of 1995. Such  forward-looking  statements are subject to
risk and  uncertainties,  which could cause actual results to differ  materially
from those currently anticipated due to a number of factors,  which include, but
are not limited to, factors discussed in documents filed by the Company with the
Securities and Exchange Commission from time to time.


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

     Neither  the Company  nor any of its  subsidiaries  is party to any pending
legal proceedings which are material other than routine litigation incidental to
their business activities.



                                    Page 19

<PAGE>

Item 2 - Changes in Securities and Use of Proceeds

         Not applicable.

Item 3 - Defaults Upon Senior Securities

         Not applicable.

Item 4 - Submission of Matters to a Vote of Security Holders

On September 29, 1998, the Company held its Annual Meeting of  Shareholders.  At
that meeting the following items were brought before the shareholders for a vote
and the results were as indicated:

1.  Election of Directors

                                   For              %        Withhold         %
                                ---------         ----        ------         ---
         Robert B. Cleary       2,236,946         97.8        49,626         2.2
         Jerome R. Dangel       2,236,946         97.8        49,626         2.2
         Kent T. Spellman       2,236,946         97.8        49,626         2.2

2.  The approval of the Bay State Bancorp, Inc. 1998 Stock-Based Incentive Plan

            For             %        Against        %       Abstain         %
         ---------        ----       ------        ---       ------        ---
         1,607,813        93.9       85,497        5.0       18,657        1.1

3. The ratification of the appointment of Shatswell,  MacLeod & Company, P.C. as
independent  auditors  for Bay State  Bancorp,  Inc.  for the fiscal year ending
March 31, 1999.

            For             %        Against        %       Abstain         %
         ---------        ----       ------        ---       ------        ---
         2,259,107        98.8        9,253        0.4       18,212        0.8

Item 5 - Other Information

         Not applicable.

Item 6 - Exhibits and Reports on Form 8-K

         (a)  Exhibits

         3.1  Certificate of Incorporation of Bay State Bancorp, Inc. *
         3.2  Bylaws of Bay State Bancorp, Inc. *
         4.0  Stock Certificate of Bay State Bancorp, Inc. *


                                    Page 20

<PAGE>

        11.0  Computation of per share earnings (filed herewith)
        27.0  Financial data schedule (filed herewith)

*    Incorporated   herein  by   reference   from  the  exhibits  to  Form  SB-2
     registration as amended, Registration No. 333-40115

         (b)  Reports on Form 8-K

              (i)   None



                                    Page 21

<PAGE>

                                   SIGNATURES


Under the  requirements  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.


                                    Bay State Bancorp, Inc.


November 10, 1998                   \s\ John F. Murphy
-----------------                   ----------------------------
Date                                John F. Murphy
                                    Chairman, President, and
                                    Chief Executive Officer
                                    (Principal Executive Officer)


November 10, 1998                   \s\ Michael O. Gilles
-----------------                   ----------------------------
Date                                Michael O. Gilles
                                    Senior Vice President and
                                    Chief Financial Officer
                                    (Principal Accounting and Financial Officer)




                                    Page 22