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, 1999

                                       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.
__x__ Yes  _____ No

The number of shares of common stock outstanding of each of the issuer's classes
of common stock, as of November 9, 1999 was 2,266,646

Transitional Small Business Disclosure Format                _____ Yes  __x__ No


<PAGE>

                    BAY STATE BANCORP, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<S>                                                                                                      <C>
PART I - FINANCIAL INFORMATION............................................................................1
   Item 1 - Consolidated Financial Statements.............................................................1
      Consolidated Balance Sheets - September 30, 1999 (unaudited) and March 31, 1999 ....................1
      Consolidated Income Statements - Three and six months ended September 30, 1999 and 1998
      (unaudited).........................................................................................2
      Consolidated Statements of Cash Flows - Six months ended September 30, 1999 and 1998
      (unaudited).........................................................................................3
      Consolidated Statements of Changes in Stockholders' Equity - Six months ended
      September 30, 1999 (unaudited)......................................................................4
      Notes to Consolidated Financial Statements for the Period Ended September 30, 1999..................5
   Item 2 - Management's Discussion and Analysis or Plan of Operation.....................................6

PART II - OTHER INFORMATION..............................................................................21
   Item 1 - Legal Proceedings............................................................................21
   Item 2 - Changes in Securities and Use of proceeds....................................................21
   Item 3 - Defaults Upon Senior Securities..............................................................21
   Item 4 - Submission of Matters to a Vote of Security Holders..........................................21
   Item 5 - Other Information............................................................................21
   Item 6 - Exhibits and Reports on Form 8-K.............................................................21

   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 - Consolidated Financial Statements

                    Bay State Bancorp, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  September 30,           March 31,
                                                                                      1999                  1999
                                                                                  -------------           ---------
ASSETS                                                                             (Unaudited)
<S>                                                                                 <C>                  <C>
Cash and due from banks                                                             $   3,587            $   3,738
Short-term investments                                                                  3,096                6,369
Investment in available-for-sale securities (at fair value)                            39,206               24,350
Investments in held-to-maturity securities (fair values of $644 as of                     644                  956
September 30, 1999 and $978 as of March 31, 1999)
Stock in Federal Home Loan Bank of Boston                                               6,850                3,850
Mortgage loans held for sale                                                             --                    321
Loans receivable, net                                                                 364,227              304,372
Accrued interest receivable                                                             2,264                1,920
Premises and equipment, net                                                             2,667                2,564
Deferred tax asset, net                                                                 3,167                2,728
Investment in bank owned life insurance                                                 7,700                6,054
Other assets                                                                            2,657                2,182
                                                                                    ---------            ---------
                       Total assets                                                 $ 436,065            $ 359,404
                                                                                    =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:


            Deposits                                                                $ 223,817            $ 216,397
            Federal Home Loan Bank Advances                                           135,485               76,751
            Other borrowed funds                                                       15,578                3,240
            Accrued expenses and other liabilities                                      3,288                2,718
                                                                                    ---------            ---------
                       Total liabilities                                            $ 378,168            $ 299,106
                                                                                    ---------            ---------

Stockholders' equity:

            Common stock, par value $.01 per share, issued
                       and outstanding 2,535,232 shares                                    25                   25

            Additional paid-in capital                                                 49,277               49,277
            Retained earnings                                                          20,442               19,463

            Accumulated other comprehensive income                                       (743)                  45
            Less: Unearned ESOP shares                                                 (3,232)              (3,232)

                  Unearned shares, 1998 Stock-Based Incentive Plan                     (2,173)              (2,173)
                  Treasury stock at cost, 247,186 and 126,762 shares                   (5,699)              (3,107)
                                                                                    ---------            ---------
                       Total stockholders' equity                                      57,897               60,298
                                                                                    ---------            ---------

                       Total liabilities and stockholders' equity                   $ 436,065            $ 359,404
                                                                                    =========            =========



Equity-to-asset ratio                                                                   13.28%               16.78%

Book value per share                                                                $   27.28            $   26.88
</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
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                Three months ended             Six months ended
                                                                                   September 30,                 September 30,
                                                                             -------------------------      ------------------------
                                                                               1999            1998           1999           1998
                                                                             ---------       ---------      ---------      ---------
                                                                                     Unaudited                           Unaudited
<S>                                                                          <C>             <C>            <C>            <C>
Interest income:
   Loans                                                                        $6,807          $4,998        $13,067        $ 9,650
   Investments                                                                     744             544          1,323          1,310
                                                                             ---------       ---------      ---------      ---------
      Total interest income                                                      7,551           5,542         14,390         10,960
                                                                             ---------       ---------      ---------      ---------
Interest expense:
   Deposits                                                                      2,168           2,248          4,287          4,490
   Borrowed funds                                                                1,797             246          3,033            462
                                                                             ---------       ---------      ---------      ---------
      Total interest expense                                                     3,965           2,494          7,320          4,952
                                                                             ---------       ---------      ---------      ---------
      Net interest income before provision for loan losses                       3,586           3,048          7,070          6,008
Provision for loan losses                                                          225             100            450            150
                                                                             ---------       ---------      ---------      ---------
      Net interest income after provision for loan losses                        3,361           2,948          6,620          5,858
                                                                             ---------       ---------      ---------      ---------
Non-interest income:
   Service charges on deposit accounts                                              71              70            143            132
   Gain on sale of loans                                                             7              16              6             28
   Other income                                                                     88            --              185           --
                                                                             ---------       ---------      ---------      ---------
      Total non-interest income                                                    166              86            334            160
                                                                             ---------       ---------      ---------      ---------
      Income before non-interest expense and income taxes                        3,527           3,034          6,954          6,018
                                                                             ---------       ---------      ---------      ---------
Non-interest expense:
   Salaries and employee benefits                                                1,592           1,142          3,204          2,331
   Occupancy and Equipment Expense                                                 275             261            543            497
   Federal deposit insurance premiums                                               32              32             64             63
   Advertising                                                                      73              55            141            101
   Data processing                                                                  62              65            131            122
   Other expenses                                                                  455             451            925            959
                                                                             ---------       ---------      ---------      ---------
      Total non-interest expense                                                 2,489           2,006          5,008          4,073
                                                                             ---------       ---------      ---------      ---------
      Income before income taxes                                                 1,038           1,028          1,946          1,945
Income tax expense                                                                 365             422            689            825
                                                                             ---------       ---------      ---------      ---------
      Net income                                                                $  673          $  606        $ 1,257        $ 1,120
                                                                             =========       =========      =========      =========
Comprehensive net income(loss)                                                  $ (139)         $    0        $   469        $   515
                                                                             =========       =========      =========      =========

Weighted average common and common equivalent shares outstanding             2,122,658       2,352,696      2,150,171      2,352,696
                                                                             =========       =========      =========      =========
Basic earnings per share                                                        $ 0.32          $ 0.26        $  0.58        $  0.48
                                                                             =========       =========      =========      =========
Diluted earnings per share                                                      $ 0.32          $ 0.26        $  0.58        $  0.48
                                                                             =========       =========      =========      =========
</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
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                Six months ended  September 30,
                                                                                                  1999                 1998
                                                                                                ---------           ---------
                                                                                                         (Unaudited)
<S>                                                                                             <C>                 <C>
Net cash flows from operating activities:
     Net income                                                                                 $   1,257           $   1,120
     Adjustments to reconcile net income to net cash provided by operating activities:
          Provision for possible loan losses                                                          450                 150
          Net decrease in mortgage loans held-for-sale                                                321                 586
          Gain on sale of loans                                                                         6                 (28)
          Depreciation and amortization                                                               155                 138
          Amortization of securities, net of accretion                                               (105)                  3
          Amortization of loan fees and discounts                                                       2                (282)
          Increase in accrued interest receivable                                                    (344)               (320)
          Increase (decrease) in prepaid expense and other assets                                    (475)                 70
          Increase in accrued expenses and other liabilities                                          570                 277
                                                                                                ---------           ---------
     Net cash provided (used) by operating activities                                               1,837               1,714
                                                                                                ---------           ---------

Net cash flows from investing activities:
          Maturities and principal repayments on investments held to maturity                         310               2,648
          Maturities and principal repayments on investments available for sale                     5,883               1,000
          Purchase of investments available for sale                                              (21,859)            (19,141)
          Purchase of Federal Home Loan Bank of Boston Stock                                       (3,000)               --
          Investment in bank owned life insurance                                                  (1,646)               --
          Net decrease (increase) in loans                                                        (60,313)            (32,196)
          Capital expenditures                                                                       (258)               (146)
                                                                                                ---------           ---------
     Net cash provided (used) for investing activities                                            (80,883)            (47,835)
                                                                                                ---------           ---------
Net cash flows from financing activities:
          Net deposit activity                                                                      7,420              (1,351)
          Proceeds from Federal Home Loan Bank advances                                           156,973              16,500
          Repayment of Federal Home Loan Bank advances                                            (98,239)             (5,000)
          Net increase in other borrowed funds                                                     12,338                 160
          Dividend on common stock                                                                   (278)               --
          Purchase of treasury stock                                                               (2,592)               --
                                                                                                ---------           ---------
     Net cash provided by financing activities                                                     75,622              10,309
                                                                                                ---------           ---------
Net decrease in cash and cash equivalents:                                                         (3,424)            (35,812)
          Cash and cash equivalents at beginning of period                                         10,107              49,513
                                                                                                ---------           ---------
          Cash and cash equivalents at end of period                                            $   6,683           $  13,701
                                                                                                =========           =========
Supplemental disclosure of cash flow information:
          Cash paid during period for:
          Interest                                                                              $   7,265           $   2,465
          Income taxes                                                                          $     830           $      78
</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  Accumulated     Other      Unearned
                                                Common      Paid-in    Retained   Comprehensive    ESOP       Treasury
                                                 Stock      Capital    Earnings   Income(Loss)    Shares        Stock
                                                ------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>          <C>          <C>          <C>
Balance at March 31, 1997                       $    --     $    --     $19,091      $   383      $    --      $    --
  Net Loss                                           --          --      (1,751)          --           --           --
  Stock issued pursuant to initial common
    stock offering                                   23      45,245          --           --           --           --
  Issuance of 187,795 shares of common stock
    to The Bay State Federal Savings
      Charitable Foundation                           2       3,754          --           --           --           --
  Common Stock acquired by ESOP                      --          --          --           --       (4,056)          --
  Reduction in unearned ESOP shares charged
    to expense                                       --          --          --           --          405           --
  Appreciation in fair value of unearned ESOP
    shares charged to expense                        --         195          --           --           --           --
  Net Change in unrealized gain on available
    for sale securities                              --          --          --          283           --           --
                                                ------------------------------------------------------------------------
Balance at March 31, 1998                            25      49,194      17,340          666       (3,651)          --
  Net Income                                         --          --       2,234           --           --           --
  Net change in unrealized gain on available
    for sale securities, net of tax effect           --          --          --         (621)          --           --
       Comprehensive income                          --          --          --           --           --           --
  Purchase of treasury stock, 126,762 shares         --          --          --           --           --       (3,107)
  Dividends paid, $0.05 per share                    --          --        (111)          --           --           --
  Reduction in unearned ESOP shares charged
    to expense                                       --          --          --           --          419           --
  Appreciation in fair value of unearned ESOP
    shares charged to expense                        --          95          --           --           --           --
  Common stock acquired for stock-based
    Incentive plans                                  --          --          --           --           --           --
  Issuance of stock incentive plan shares            --         (12)         --           --           --           --
                                                ------------------------------------------------------------------------
Balance at March 31, 1999                       $    25     $49,277     $19,463      $    45      $(3,232)     $(3,107)
  Net Income                                         --          --       1,257           --           --           --
Net change in unrealized gain on available
  for sale securities, net of tax effect             --          --          --         (788)          --           --
     Comprehensive income                            --          --          --           --           --           --
  Purchase of treasury stock, 120,424 shares         --          --          --           --           --       (2,592)
  Dividends paid, $0.12 per share                    --          --        (278)          --           --           --
                                                ------------------------------------------------------------------------
Balance at September 30, 1999 (Unaudited)       $    25     $49,277     $20,442      $  (743)     $(3,232)     $(5,699)
                                                ========================================================================
<CAPTION>
                                                   Unearned
                                                 Stock-based
                                                  Incentive     Total
                                                    Plan     Stockholders'
                                                   Shares       Equity
                                                -----------------------
<S>                                               <C>          <C>
Balance at March 31, 1997                         $    --      $19,474
  Net Loss                                             --        1,751
  Stock issued pursuant to initial common
    stock offering                                     --       45,268
  Issuance of 187,795 shares of common stock
    to The Bay State Federal Savings
      Charitable Foundation                            --        3,756
  Common Stock acquired by ESOP                        --       (4,056)
  Reduction in unearned ESOP shares charged
    to expense                                         --          405
  Appreciation in fair value of unearned ESOP
    shares charged to expense                          --          195
  Net Change in unrealized gain on available
    for sale securities                                --          283
                                                -----------------------
Balance at March 31, 1998                              --       63,574
  Net Income                                           --           --
  Net change in unrealized gain on available
    for sale securities, net of tax effect             --           --
       Comprehensive income                            --        1,613
  Purchase of treasury stock, 126,762 shares           --       (3,107)
  Dividends paid, $0.05 per share                      --         (111)
  Reduction in unearned ESOP shares charged
    to expense                                         --          419
  Appreciation in fair value of unearned ESOP
    shares charged to expense                          --           95
  Common stock acquired for stock-based
    Incentive plans                                (2,269)      (2,269)
  Issuance of stock incentive plan shares              96           84
                                                -----------------------
Balance at March 31, 1999                         $(2,173)     $60,298
  Net Income                                           --           --
Net change in unrealized gain on available
  for sale securities, net of tax effect               --           --
     Comprehensive income                              --          469
  Purchase of treasury stock, 120,424 shares           --       (2,592)
  Dividends paid, $0.12 per share                      --         (278)
                                                -----------------------
Balance at September 30, 1999 (Unaudited)         $(2,173)     $57,897
                                                =======================
</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, 1999

(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.  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
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, 1999 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, 1999 and Form 10-QSB for the period ended June 30, 1999,  all of which
were filed with the Securities and Exchange Commission.

(3)  Stock Repurchase Program

     On September 27, 1999 the Company  announced it had received  approval from
the OTS to  repurchase up to 5% of the Company's  outstanding  common stock,  or
114,402  shares of its common  stock.  As of  November  9, 1999 the  Company has
repurchased  27,400  shares of the 114,402  shares  approved.  This is the third
repurchase  program  approved  by the Board since  becoming a public  company in
March of 1998.


                                     Page 5

<PAGE>

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

     This report contains certain forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identified  by  use  of  the  words  "believe,"  "expect,"  "intend,"
"anticipate,"  "estimate,"  "project,"  or similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse effect on the
operations of the Company and the subsidiaries  include, but are not limited to,
changes in: interest rates, general economic conditions,  legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S.  Treasury and the Federal Reserve Board,  the quality or composition
of the loan or investment portfolios,  demand for loan products,  deposit flows,
competition,  demand for  financial  services in the  Company's  market area and
accounting  principles and guidelines.  These risks and uncertainties  should be
considered in evaluating  forward-looking  statements and undue reliance  should
not be placed on such statements. Further information concerning the Company and
its business,  including  additional  factors that could  materially  affect the
Company's financial results, is included in the Company's filing with the SEC.

     The Company does not undertake-and specifically disclaims any obligation-to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

General

     Bay State, 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 the Bank as part of the Bank's conversion from a mutual to stock form
of organization.  The Bank is a federally  chartered savings bank and is subject
to regulation by the Office of Thrift Supervision.

     The Bank's business  activities are  concentrated in Eastern  Massachusetts
through five full service retail banking  offices located in Norfolk and Suffolk
Counties,  Massachusetts.  All retail banking activity is conducted  through the
banking offices.  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 Bank primarily makes  residential
first mortgages,  commercial and multi-family  real estate loans and to a lesser
extent home equity lines of credit, consumer loans and residential  construction
loans.  Lending operations,  particularly loan originations,  are conducted from
the retail  offices  and at the point of sale.  Neither the Company nor 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 earning  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.

                                     Page 6

<PAGE>

Comparison of Financial Condition at September 30, 1999 and March 31, 1999

     Total assets at September 30, 1999 were $436.1 million,  compared to $359.4
million  at March 31,  1999,  an  increase  of $76.7  million  or  21.3%.  Loans
receivable   increased  $59.9  million,   or  19.7%,   primarily  in  multi-unit
residential and commercial real estate loans,  and to a lesser extent 1-4 family
residential  mortgages,  which were  originated and  purchased.  The increase in
assets was funded mainly from an increase of $58.7 million,  or 76.5% in Federal
Home Loan Bank Advances,  a $12.3 million,  or 380.8% increase in other borrowed
funds  consisting  mainly of federal funds purchased and repurchase  agreements,
and a $7.4 million, or 3.4% increase in deposits.

     Total  stockholder's  equity was $57.9 million, or 13.3% of total assets at
September 30, 1999, a decrease of $2.4 million, or 4.0%, from the $60.3 million,
or 16.8% of total assets at March 31, 1999.  The change in equity was the result
of the  completion of a 5% stock  repurchase  program  during the period and the
reduction   in   market   value   of   investment   securities   classified   as
available-for-sale, offset by an increase in retained earnings due to net income
for the period.  The  Company's  book value per share at September  30, 1999 was
$27.28, compared to $26.88 at March 31, 1999.

Investments

     The company had  short-term  investments  of $3.1 million at September  30,
1999, which consisted mainly of overnight deposits in the Federal Home Loan Bank
of Boston,  this represented a decrease of $3.3 million, or 51.4%, from the $6.4
million at March 31, 1999.  Investment  securities  increased $14.5 million,  or
57.5%,   primarily  due  to  increases  in   short-term   agencies  and  various
collateralized  mortgage  obligations.  . The Company's  investment portfolio at
September 30, 1999 reflects a $743,000 net unrealized loss on available-for-sale
securities, compared to an unrealized gain of $45,000 at March 31, 1999.

     The  following  tables show the  investment  securities  portfolios  at the
periods   presented.   The  amortized   cost  and  fair  value  of   investments
available-for-sale were:

<TABLE>
<CAPTION>
                                               September 30, 1999                 March 31, 1999
                                            -------------------------         -------------------------
                                            Amortized          Fair           Amortized          Fair
                                              cost             value            cost             value
                                             -------          -------          -------          -------
                                                               (Dollars in thousands)
Investment securities
<S>                                          <C>              <C>              <C>              <C>
  Marketable equity securities               $ 9,676          $ 9,570          $ 9,525          $ 9,737
  Mortgage-backed securities                 $19,340          $18,894            5,371            5,391
  Trust preferred equity securities            4,968            4,965            2,506            2,521
  Corporate bonds and notes                    1,245            1,209            1,247            1,234
  Preferred stocks                             4,003            3,590            1,500            1,460
  Government agency securities                 1,000              978            4,000            4,007
                                             -------          -------          -------          -------
Total                                        $40,232          $39,206          $24,149          $24,350
                                             =======          =======          =======          =======
</TABLE>

                                     Page 7

<PAGE>

The amortized cost and fair value of investments held to maturity were:

<TABLE>
<CAPTION>
                                                         September 30, 1999             March 31, 1999
                                                        ---------------------       ---------------------
                                                        Amortized       Fair        Amortized       Fair
                                                          cost          Value         cost          Value
                                                        ---------       -----       ---------       -----
                                                                          (In thousands)
<S>                                                       <C>           <C>           <C>           <C>
Investment securities
Mortgage-backed  and mortgage-related securities          $644          $644          $956          $978
                                                          ----          ----          ----          ----
Total mortgage-backed and mortgage-related
  securities                                              $644          $644          $956          $978
                                                          ====          ====          ====          ====
</TABLE>

Loans

     During the first six months of the fiscal year, loans receivable  increased
by $59.9 million, or 19.7%, as detailed below:

<TABLE>
<CAPTION>
                                                  September 30,      % of total       March 31,        % of total
                                                      1999             Loans            1999             Loans
                                                    --------          --------        --------          --------
                                                                                  (Dollars in thousands)
<S>                                                 <C>                  <C>          <C>                  <C>
Mortgage loans:
     Residential 1 - 4 family                       $190,401             51.29%       $168,786             54.62%
     Multi-family                                     73,572             19.82          57,744             18.69
        Commercial real estate                        86,184             23.22          67,806             21.94
     Construction and development                      9,526              2.57           5,494              1.78
                                                    --------          --------        --------          --------
           Total mortgage loans                      359,683             96.90         299,830             97.03
                                                    --------          --------        --------          --------
Commercial loans                                         225              0.06             500              0.16
                                                    --------          --------        --------          --------
Consumer loans:
     Equity lines                                      7,393              1.99           5,156              1.67
        Other consumer loans                           3,902              1.05           3,535              1.14
                                                    --------          --------        --------          --------
     Total loans                                     371,203            100.00%        309,021            100.00%
                                                                      ========                          ========
Deduct:
     Allowance for loan loss                           3,490                             3,027
         Undisbursed proceeds of construction
            and development loans in process           3,287                             1,424
     Deferred loan fees                                  199                               198
                                                    --------                          --------
Net loans receivable                                $364,227                          $304,372
                                                    ========                          ========
</TABLE>

     At September 30, 1999 loans serviced for others was $22.5 million, compared
to $22.6 million at March 31, 1999.

Asset Quality

     At  September  30, 1999  non-performing  assets  totaled $2.0  million,  an
increase  of  $15,000,   or  0.8%,   from  $2.0   million  at  March  31,  1999.
Non-performing  assets consist of all loans that are delinquent 90 days or more.
The Bank had no real estate  owned at September  30, 1999 or March 31, 1999.  At
September 30, 1999,  non-performing assets represented 0.45% of total assets and
0.54% of loans receivable,  compared to 0.55% and 0.64%,

                                     Page 8

<PAGE>

respectively,  at March 31,  1999.  The  increase in  non-performing  assets was
primarily in other loans which consists mainly of consumer loans.

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

                                                    September 30,      March 31,
                                                   1999       1998       1999
                                                  ------     ------     ------
                                                      (Dollars in thousands)

Non-accrual loans:
     One-to-four-family                           $  861     $  678     $  862
     Multi-family                                    279        281        280
     Commercial real estate                          774        740        745
     Construction and development                   --         --         --
     Equity lines                                   --         --           65
     Other                                            65         16         12
                                                  ------     ------     ------
                                                  $1,979     $1,715     $1,964
                                                  ======     ======     ======
Non-performing assets as a percentage of:

            Net loans receivable                    0.54%      0.67%      0.64%
            Total assets                            0.45       0.56       0.55

     The following  represents the activity in the allowance for loan losses for
the six months ended September 30, 1999:

                                             (In thousands)
     Balance at March 31, 1999                   $ 3,027
     Provision for loan losses                       450
     Losses charged to allowance                      (1)
     Recoveries                                       14
                                                 -------
     Balance at September 30, 1999               $ 3,490
                                                 =======

     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 increased slightly during the six month period ended September 30,
1999 as detailed below:

<TABLE>
<CAPTION>
                                     September 30,     % of total         March 31,       % of total
                                         1999           deposits            1999           deposits
                                     -------------     ----------         --------        ----------
                                                           (Dollars in thousands)
<S>                                    <C>                <C>             <C>                <C>
Regular savings accounts               $ 25,200           11.26%          $ 27,460           12.70
NOW accounts                             22,551           10.08             24,155           11.16
Money market accounts                    59,206           26.45             54,305           25.09
Non-interest bearing deposits             1,569            0.70                867            0.40
                                       --------          ------           --------          ------
                                        108,526           48.49            106,787           49.35
Term deposits                           115,291           51.51            109,610           50.65
                                       --------          ------           --------          ------
            Total deposits             $223,817          100.00%          $216,397          100.00%
                                       ========          ======           ========          ======
</TABLE>

     During the period,  FHLB advances increased $58.7 million, or 76.5%, as the
Bank primarily utilized FHLB advances to fund asset growth. Other borrowed funds
increased  $12.3 million,  or 380.8%  consisting of federal funds  purchased and
repurchase agreements.

Comparison  of Operating  Results for the Three Months Ended  September 30, 1999
and 1998

General

     Consolidated  net income for the three  months  ended  September  30,  1999
totaled $673,000,  or $0.32 per share,  compared to $606,000, or $0.26 per share
for the same period last year.  This  represents an increase of $67,000 or 11.1%
in net income and a $0.06 or 23.1% increase in earnings per share.

Interest Income

     Interest  income for the three months ended  September  30, 1999  increased
$2.0 million,  or 36.3%, to $7.6 million,  compared to $5.5 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 primarily funded by
the  increase  in Federal  Home Loan Bank  Advances  and other  borrowings.  The
average balance of interest-earning assets increased from $280.8 million for the
quarter  ended  September  30,  1998 to $399.4  million  for the  quarter  ended
September 30, 1999, an increase of $118.6 million, or 42.2%. The increase in the
average  balance of  interest-earning  assets was  primarily  a net result of an
increase in the average  balance of investment  securities  of $3.4 million,  or
14.1%,  an increase in loans,  net, and  mortgage-loans  held for sale of $106.0
million  or 43.6%  and an  increase  in  mortgage-backed  and  mortgage  related
securities of $19.1 million,  or 1,074.1%.  The increase in interest  income was
offset by the yield on interest-earning  assets, which decreased 33 basis points
to 7.56%.

Interest Expense

     Interest  expense for the three months ended  September 30, 1999  increased
$1.5 million,  or 59.0%,  to $4.0 million  compared to $2.5 million for the same
period last year.  The  increase in interest  expense was the result of a $130.2
million,  or  58.3%,   increase  in  the  average  balance  of  interest-bearing
liabilities which increased from $223.3

                                    Page 10

<PAGE>

million for the three months ended  September 30, 1998 to $353.5 million for the
three months ended  September 30, 1999. A 2 basis point  increase in the cost of
funds to 4.49% also  contributed  to the  increase.  The increase in the average
balance of interest-bearing liabilities was primarily a result of an increase in
the average balance of total borrowings of $116.0 million, or 599.8%.

Net interest income

     The table below shows the average balances, 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,                             1999                                     1998
                                                    --------------------------------------    --------------------------------------
                                                                 Interest                                   Interest
                                                    Average      income/            Yield/     Average      income/           Yield/
                                                    balance      expense             rate      balance      expense            rate
                                                    --------     --------           ------    --------      -------            -----
                                                                      (Dollars in Thousands)
<S>                                                 <C>          <C>                 <C>      <C>          <C>                 <C>
Assets
Interest-earning assets:
 Short-term investments                             $  2,123     $     25            4.80%    $ 12,010     $    177            5.90%
 Investment securities                                27,195          407            5.98       23,835          336            5.64
 Mortgage-backed and mortgage related
  securities                                          20,887          312            5.97        1,779           31            6.97
Loans and mortgage loans held-for-sale               349,173        6,807            7.80      243,192        4,998            8.22
                                                    --------     --------                     --------       ------
Total interest-earning assets                        399,378        7,551            7.56      280,816        5,542            7.89
                                                                 --------                                    ------
Non interest-earning assets                           27,306                                    11,305
                                                    --------                                  --------
  Total                                             $426,684                                  $292,121
                                                    ========                                  ========
Liabilities and Equity
Interest-bearing liabilities:
  NOW accounts                                      $ 23,695           66            1.12     $ 21,316           94            1.76
  Regular savings accounts                            25,438          125            1.96       27,153          166            2.45
  Money market accounts                               59,991          578            3.85       46,846          471            4.02
  Certificate accounts                               109,102        1,399            5.13      108,652        1,517            5.58
                                                    --------     --------                     --------       ------
Total interest-bearing deposits                      218,226        2,168            3.97      203,967        2,248            4.41
  Other Borrowings                                     7,505          107            5.73           --           --              --
  FHLB advances                                      127,811        1,690            5.23       19,337          246            4.98
                                                    --------     --------                     --------       ------
Total interest-bearing liabilities                   353,542        3,965            4.49      223,304        2,494            4.47
                                                                 --------                                    ------

  Demand deposits                                      1,526                                       610

  Other liabilities                                   13,586                                     4,147

  Equity                                              58,030                                    64,060
                                                    --------                                  --------
  Total                                             $426,684                                  $292,121
                                                    ========                                  ========
Net interest income                                              $  3,586                                    $3,048
                                                                 ========                                    ======
Interest rate spread                                                                 3.08%                                     3.43%
                                                                                     ====                                      ====
Net interest margin                                                                  3.59%                                     4.18%
                                                                                     ====                                      ====
</TABLE>

                                    Page 11

<PAGE>

     The Following  table  presents the effects of changing rates and volumes on
the interest income and interest  expense of the Company.  The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume).  The volume column shows the effects  attributable to changes in volume
(changes in volume  multiplied by prior rate). The net column represents the sum
of the prior columns.

                                          Quarters ended September 30,
                                                  1999 vs. 1998
                                     ------------------------------------------
                                          Change due to Increase (Decrease)
                                     ------------------------------------------
                                     Volume            Rate               Net
                                     -------          -------           -------
                                               (Dollars in thousands)

Interest income:
     Loans                           $ 2,051          $  (242)          $ $1,809
     Investments                         211              (11)              200
                                     -------          -------           -------
           Total                       2,262             (253)            2,009
                                     -------          -------           -------
Interest expense:
     Deposits                            134             (214)              (80)
     Borrowings                        1,434              117             1,551
                                     -------          -------           -------
           Total                       1,568              (97)            1,471
                                     -------          -------           -------
Net interest income                  $   694          $  (156)          $   538
                                     =======          =======           =======

Provision for Loan Losses

     Provisions for loan losses are charged to operations to bring the allowance
for loan  losses to a level  considered  by  management  to be adequate to cover
estimated  losses on loans  receivable  which are deemed  probable and estimable
based on  information  currently  known to  management.  The  provision for loan
losses totaled  $225,000 for the quarter ended  September 30, 1999,  compared to
$100,000 for the same period last year.  The increase in the provision  reflects
management's  analysis of the risks  associated  with the Banks' primary lending
objective  to increase  the  overall  loan  portfolio.  The  increased  level of
provision is  reflective of the increase in the overall size and mix of the loan
portfolio during the period.

     At September 30, 1999 and March 31, 1999, the allowance for loan losses was
$3.5  million  and  $3.0  million,  respectively,  which  represents  176.4%  of
non-performing  loans and 0.95% of total loans at September 30, 1999 compared to
154.1% of non-performing loans and 0.98% of total loans at March 31, 1999.

     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 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 $80,000, or 93.0%, to $166,000.  Due to
the purchase of Bank Owned Life Insurance,  the  implementation of the new debit
card program and the new alternative  investment services the bank offers, other
income increased  $88,000,  compared to the same period last year.


                                    Page 12

<PAGE>

Non-interest expense

     Total  Non-interest  expense was $2.5  million for the three  months  ended
September  30, 1999,  compared to $2.0 million for the same period last year, an
increase of $483,000,  or 24.1%. Total salaries and benefits increased $450,000,
or  39.4%,  the  result of an  increase  of  $193,000  in  compensation  expense
associated  with the funding of the  company's  stock-based  benefit plans and a
general  increase  in  salaries  and  benefits  due a increase  in the number of
employees over the same period last fiscal year.  Advertising  expense increased
$18,000,  or 32.7% primarily as a result of the development and  introduction of
new products and retail services, specifically the Bank's new debit card program
and internet banking services.

Income Taxes

     Income taxes for the three months ended September 30, 1999 were $365,000 on
pretax  income of $1.0  million,  for an  effective  rate of 35.2%,  compared to
$422,000 on pretax  income of $1.0 million,  for an effective  rate of 41.0% for
the same period last year.  The lower  effective tax rate for the current period
is due various tax planning strategies implemented by the Company,  specifically
the purchase of non-taxable bank owned life insurance and the establishment of a
Massachusetts securities corporation at the Bank level.

Comparison of Operating  Results for the Six Months Ended September 30, 1999 and
1998

General

     Consolidated net income for the six months ended September 30, 1999 totaled
$1.3 million, or $0.58 per share,  compared to $1.1 million, or $0.48 per share,
for the same period last year. This represents an increase of $137,000, or 12.2%
in net income and a $0.10, or 20.8%, increase in earnings per share.

Interest Income

     Interest  income for the six months ended September 30, 1999 increased $3.4
million,  or 31.3%,  to $14.4  million,  compared to $11.0  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,  specifically loans
receivable. The average balance of interest-earning assets increased from $279.1
million for the six months ended  September  30, 1998 to $379.2  million for the
six months ended  September 30, 1999, an increase of $100.1  million,  or 35.8%.
The increase in the average balance of interest-earning assets was primarily the
net result of an increase in the average  balance of investment  securities  and
mortgage backed  securities of $22.4 million,  or 107.4%,  an increase in loans,
net, of $99.6 million, or 42.6%, offset by a decrease in short-term  investments
of $21.9 million,  or 89.8%.  The increase in interest income was offset by a 26
basis point decrease in the yield on interest-earning assets to 7.59%.

Interest Expense

     Interest expense for the six months ended September 30, 1999 increased $2.4
million, or 47.8%, to $7.3 million, compared to $5.0 million for the same period
last year.

     The increase in interest expense was primarily due to a $111.0 million,  or
50.0%,  increase in the average balance of  interest-bearing  liabilities  which
increased  from $222.1  million for the six months ended  September  30, 1998 to
$333.1 million for the six months ended September 30, 1999, offset by a decrease
of 7 basis points in the

                                    Page 13

<PAGE>

cost of interest-bearing liabilities to 4.39%.

     The increase in the average  balance of  interest-bearing  liabilities  was
primarily a result of an increase  in the  average  balance of FHLB  advances of
$94.0  million,  or  510.5%,  and  increase  in the  average  balance  of  other
borrowings  of $4.8  million,  or 100.0% and an  increase  in  deposits of $12.2
million, or 6.0%.

Net interest income

     The table below shows the average balances, 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,
                                                                       1999                                   1998
                                                       -----------------------------------     ----------------------------------
                                                                   Interest                                Interest
                                                       Average     income/          Yield/     Average     Income/         Yield/
                                                       balance     expense           rate      balance     expense          rate
                                                       --------    --------         ------    ---------    --------        ------
                                                                                  (Dollars in thousands)
<S>                                                      <C>            <C>           <C>       <C>            <C>            <C>
Assets
Interest-earning assets:
 Short-term investments                                  $2,489         $59           4.77%     $24,411        $704           5.77%
 Investment securities                                   23,908         685           5.73       18,921         539           5.70
 Mortgage-backed and mortgage related
   securities                                            19,354         579           5.98        1,936          67           6.92
 Loans, net and mortgage loan held-for-sale             333,414      13,067           7.84      233,843       9,650           8.25
                                                       --------    --------                   ---------    --------
Total interest-earning assets                           379,165      14,390           7.59      279,111      10,960           7.85
                                                                   --------                                --------
Non interest-earning assets                              24,469                                  11,799
                                                       --------                               ---------
  Total                                                $403,634                                $290,910
                                                       ========                                ========
Liabilities and Equity
Interest-bearing liabilities:
  NOW accounts                                          $23,533         131           1.11%     $21,546         188           1.75
  Regular savings accounts                               25,950         261           2.01       27,890         340           2.44
  Money market accounts                                  58,109       1,111           3.82       42,709         921           4.31
  Certificate accounts                                  108,250       2,784           5.14      111,534       3,041           5.45
                                                       --------    --------                   ---------    --------
Total interest-bearing deposits                         215,842       4,287           3.97      203,679       4,490           4.41
  Other Borrowings                                        4,812         136           5.65         --          --             --
  FHLB advances                                         112,442       2,897           5.10       18,419         462           4.93
                                                       --------    --------                   ---------    --------
Total interest-bearing liabilities                      333,096       7,320           4.39      222,098       4,952           4.46
                                                                   --------                                --------
  Demand deposits                                         1,471                                    554
  Other liabilities                                      10,488                                  4,303
  Equity                                                 58,579                                 63,955
                                                       --------                               --------
  Total                                                $403,634                               $290,910
                                                       ========                               ========
Net interest income                                                  $7,070                                  $6,008
                                                                   ========                                ========
Interest rate spread                                                                  3.20%                                   3.39%
                                                                                  ========                                    ====
Net interest margin                                                                   3.73%                                   4.16%
                                                                                  ========                                    ====
</TABLE>

                                    Page 14

<PAGE>

     The Following  table  presents the effects of changing rates and volumes on
the interest income and interest  expense of the Company.  The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume).  The volume column shows the effects  attributable to changes in volume
(changes in volume  multiplied by prior rate). The net column represents the sum
of the prior columns.

                                           Six months ended September 30,
                                                   1999 vs. 1998
                                         Change due to Increase (Decrease)

                                     Volume            Rate               Net
                                     -------          -------           -------
                                              (Dollars in thousands)
Interest income:
     Loans                           $ 3,875          $  (458)          $ 3,417
     Investments                         122             (109)               13
                                     -------          -------           -------
           Total                       3,997             (567)            3,430
                                     -------          -------           -------
Interest expense:
     Deposits                            186             (389)             (203)
     Borrowings                        2,422              149             2,571
                                     -------          -------           -------
           Total                       2,608             (240)            2,368
                                     -------          -------           -------
Net interest income                  $ 1,389          $  (327)          $ 1,062
                                     =======          =======           =======

Provision for Loan Losses

     The  provision  for loan losses  totaled  $450,000 for the six months ended
September  30,  1999,  compared to $150,000  for the same period last year.  The
level of reserve provisions for the six months ended September 30, 1999 was made
after an assessment of the composition of and growth in the loan portfolio.  The
Company  plans to add to the  provision  for loan  losses  to  support  any loan
portfolio expansion as considered necessary by management.

At September 30, 1999 and March 31, 1999, the allowance for loan losses was $3.5
million   and  $3.0   million,   respectively,   which   represents   176.4%  of
non-performing  loans and 0.95% of total loans at September 30, 1999 compared to
154.1% of non-performing loans and 0.98% of total loans at March 31, 1999.

     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 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  totaled  $334,000  for  the six  months  ended
September 30, 1999,  compared to $160,000 for the same period last year. Service
charges on deposit accounts increased $11,000 due to the increased level of fees
collected on transaction  accounts.  Gain on sale of loans decreased $22,000, or
78.6%,  due to the decreased level of loans sold over the same period last year.
Other income increased  $185,000,  primarily the result of income  recognized on
bank owned life insurance  policies  purchased by the Bank and income recognized
from the new  alternative  investment  services  and  insurance  products  being
offered by the Bank.

                                    Page 14

<PAGE>

Non-interest expense

     Total  non-interest  expense  was $5.0  million  for the six  months  ended
September  30, 1999,  compared to $4.1 million for the same period last year, an
increase of $935,000,  or 23.0%. Total salaries and benefits increased $873,000,
or  37.5%,  the  result of an  increase  of  $368,000  in  compensation  expense
associated with the company's  stock-based  benefit plans and a general increase
in salaries and benefits due to the increase in the number of employees compared
to the same period last year.  Occupancy and equipment expense totaled $543,000,
compared  to  $497,000  for the same  period  last year,  an  increase  of 9.3%.
Advertising  expense increased $40,000,  or 39.6%,  primarily as a result of the
development and introduction of new deposit  products and retail services.  Data
processing  expense  increased  $9,000,  or 7.4%,  as a result of the  increased
number of deposit accounts serviced and the implementation of new retail deposit
products.  Other expenses decreased $34,000,  or 3.6%,  primarily as a result of
last  year's  one-time  expenses  associated  with the  development  of  certain
products and programs as part of the strategic planning for the future.

Income Taxes

     For the six months ended  September  30, 1999 income taxes of $689,000 were
provided  on net income  before tax of $1.9  million  for an  effective  rate of
35.4%,  compared  to  $825,000  on income  before  taxes of $1.9  million for an
effective rate of 42.4%,  for the same period last year. The lower effective tax
rate  for  the  current  period  is  due  to  various  tax  planning  strategies
implemented by the Company,  specifically the purchase of non-taxable bank owned
life insurance and the establishment of a Massachusetts  securities  corporation
at the Bank level.

Capital Adequacy

     The  Company  and the  Bank  are  subject  to  various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can result in certain  mandatory - and  possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material  effect on the Company's  financial  condition.  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,  1999 the  Company's  capital  ratio was 13.28% of total
assets. The Bank at September 30, 1999 had total capital of 9.75% and risk based
capital of 17.28%  (unaudited),  as compared to 10.56% and 18.89% (unaudited) at
June 30, 1999.

     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, 1999 the Company and the Bank met all the capital adequacy
requirements  to which they are  subject.  As of September  30,  1999,  the most
recent  notification from the Office of Thrift Supervision  categorized the Bank
as "well  capitalized"  under the  regulatory  framework  for prompt  corrective
action.

                                    Page 16

<PAGE>

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 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.  In preparing such
model, the OTS estimates loan prepayment rates,  reinvestment  rates and deposit
decay rates.

                                    Page 17

<PAGE>

     The  following  table sets  forth the  Bank's NPV as of June 30,  1999 (the
latest NPV analysis prepared by the OTS), as calculated by the OTS.

<TABLE>
<CAPTION>
      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)

<S>                                        <C>              <C>                  <C>                   <C>        <C>
300                                        $19,854          $ (15,496)           $ (44)                 5.48%     $ (377)
200                                         25,490             (9,860)             (28)                 6.90        (235)
100                                         30,813             (4,537)             (13)                 8.19        (106)
Static                                      35,350                 --               --                  9.25          --
(100)                                       38,908              3,558               10                 10.05          80
(200)                                       42,338              6,989               20                 10.80         155
(300)                                       46,039             10,689               30                 11.60         234
</TABLE>


(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 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,  1999 the  Bank's  liquidity  ratio  was  7.82%.
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
available-for-sale  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, 1999, cash and cash equivalents and  available-for-sale
securities totaled $45.9 million, or 10.53% of total assets.

     The Bank has other  sources of  liquidity  if a need for  additional  funds
arises,  including  FHLB  advances.  At September 30, 1999,  the Bank had $135.5
million in advances outstanding from the FHLB, and at September 30, 1999, had an
additional overall borrowing capacity from the FHLB of $59.4 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.

                                    Page 18

<PAGE>

     At September 30, 1999, the Company had  commitments to originate  loans and
unused  outstanding  lines of credit and  undisbursed  proceeds of  construction
mortgages  totaling $22.8  million.  The Company  anticipates  that it will have
sufficient  funds  available to meet its current loan  origination  commitments.
Certificate  accounts,  which are scheduled to mature in less than one year from
September  30,  1999,   totaled  $72.0   million.   The  Company   expects  that
substantially all of the maturing  certificate  accounts will be retained by the
Company at maturity.

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. In addition, the Company has developed a business resumption
plan to address any Year 2000 problems that may occur over the year end.

     The Company  has  completed  the  assessment  phase.  During this phase the
Company  identified  all  potential  programs  and  applications  that were date
sensitive.  The Company also assessed the various utility companies that it uses
as to their  readiness  for Year 2000.  The  assessment  phase also  included an
analysis  of  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 their  applications Year 2000 compliance.
For a number of applications,  the correction,  testing and vendor certification
and  implementation  has been  completed.  For all  priority  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 has
completed the  correction/replacement,  testing and implementation phases of the
process.

     The most  critical  application  to the  Company  is the  software  package
utilized to process all loan and deposit accounts and transactions, the internal
accounting system and utility services 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  has completed
the final stages of modifying and upgrading its ancillary computer  applications
to  ensure  Year  2000  compliance.  The  Bank has  completed  the  testing  and
implementation  phases  and the  system is Year 2000  compliant.  The  Company's
accounting software and applications are Year 2000 compliant.

     The Bank has also sent correspondence to its customers  addressing the Year
2000 issue as it specifically applies to banks,  including a variety of commonly
asked questions and how they are being addressed by the Bank.

     Additionally,  a review of the loan  portfolio  was completed to assess any
customers  that were  susceptible  to any Year 2000 issues.  However,  since the
Bank's loans are primarily secured by real estate,  there were no major concerns
to any impact on the loan portfolio.

     The  Company  has created 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 contingency plan identifies the critical systems
and identifies various processing  alternatives depending on the severity of the
circumstances. These

                                    Page 19

<PAGE>

procedures  vary from using  back-up  sites and systems to  reverting  to manual
processes.  The business  resumption  plan for retail banking  services has been
completed and tested.

     The  Company  has  expensed  approximately  $65,000 to replace  and upgrade
existing software for Year 2000 compliance. In addition, the Company purchased a
new accounting system, which is Year 2000 compliant. The cost of this system was
approximately  $75,000  and was  capitalized  and will be  depreciated  over its
expected useful life.

     Additional  expenses  will be incurred  during the remainder of the 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.



                                    Page 20

<PAGE>

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.

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

         Not applicable.

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        Amended and restated bylaws of Bay State Bancorp, Inc. **
          4.0        Stock Certificate of Bay State Bancorp, Inc. *
         11.0        Computation of per share earnings
         27.0        Financial data schedule

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

**   Incorporated  herein by  reference  to the Form  10-QSB  as filed  with the
     Securities  and Exchange  Commission  on December 31, 1998.

          (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, 1999                   \s\ John F. Murphy
--------------------------          ------------------
Date                                John F. Murphy
                                    Chairman, President, and
                                    Chief Executive Officer
                                    (Principal Executive Officer)


November 10, 1999                   \s\ Michael O. Gilles
--------------------------          ---------------------
Date                                Michael O. Gilles
                                    Senior Vice President and
                                    Chief Financial Officer
                                    (Principal Accounting and Financial Officer)


                                    Page 22