Exhibit 13




                               Life Bancorp, Inc.



                                      1996
                          Annual Report to Stockholders


<PAGE>



                                    Contents
                                                                         Page
Message to Stockholders..................................................   2
Selected Financial and Operating Data....................................   5
Management's Discussion and Analysis of Financial Condition and Results
  of Operations..........................................................   6
Report of Independent Auditor............................................  23
Financial Statements:
  Consolidated Balance Sheets............................................  24
  Consolidated Statements of Operations..................................  25
  Consolidated Statement of Changes in Stockholders' Equity..............  26
  Consolidated Statements of Cash Flows..................................  27
Notes to Consolidated Financial Statements...............................  29
Directors and Executive Officers.........................................  63
Stockholder Information..................................................  64
Banking Locations - Life Savings Bank, FSB............      Inside Back Cover


                                Corporate Profile

        Life Bancorp,  Inc.  ("Life" or the  "Company") is a  Virginia-chartered
thrift holding company headquartered in Norfolk, Virginia.  Substantially all of
Life's assets and  operations  are in Life Savings Bank, FSB (the "Savings Bank"
or the "Bank"), a federal stock savings bank.

        At December  31, 1996,  Life had  consolidated  assets of $1.4  billion,
deposits of $732.3 million and stockholders'  equity of $150.9 million. The Bank
converted from mutual to stock ownership in October 1994, and  reorganized  into
the holding company form of organization  with the Company  becoming the holding
company for the Bank.

        Life operates twenty retail banking offices in its immediate market area
- South Hampton  Roads,  Virginia,  which  consists of the cities of Chesapeake,
Norfolk,  Portsmouth,  Suffolk and  Virginia  Beach.  Hampton,  Newport News and
Williamsburg,  are  also a part  of  Hampton  Roads,  which,  with  1.5  million
residents,  is the 4th largest  metropolitan  statistical  area in the Southeast
region of the United States and the 27th largest in the Nation.

        Through  its  retail  banking  offices,  Life  delivers  a wide range of
banking  products and services to meet the needs of individuals,  businesses and
organizations. The Bank attracts retail deposits from the general public and the
business  community through a variety of deposit products.  Deposits are insured
by the Savings Association  Insurance Fund,  administered by the Federal Deposit
Insurance Corporation, within applicable limits.

        The  Company's  lending   activities  focus  on  meeting  the  needs  of
individuals  and  businesses  in its  market  area  by  offering  permanent  and
construction  residential  loans,  second  mortgages and equity lines of credit,
consumer loans, commercial real estate and business loans, and lines of credit.

        The Company's  common stock trades on the Nasdaq National Market tier of
The  Nasdaq  Stock  Market(sm)  under the  symbol  "LIFB."  The Bank has been in
business since 1935. It is the largest  financial  institution  headquartered in
Hampton Roads and the largest savings bank in Virginia.

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                         To Our Stockholders and Friends

        We are again  pleased to prepare this message as a preface to our Annual
Report, an important and unique opportunity to speak personally with each of you
as we review the  highlights of 1996,  reflect on current  happenings,  and look
toward the future.

        Our primary  service area,  the Hampton Roads Market,  is located in the
southeastern corner of Virginia where the Elizabeth,  James and York Rivers flow
into the  Chesapeake  Bay which in turn  empties into the  Atlantic  Ocean.  The
coastal and tributary cities of Norfolk, Portsmouth, Virginia Beach, Chesapeake,
Suffolk,  Newport News, Hampton and Williamsburg,  with a combined population in
excess of 1.5  million,  make up our  primary  trade  area.  These are cities of
stable  growth,  a sound  employment  base,  significant  economic  and cultural
development,  and they are blessed to be a part of the eastern  seaboard and the
great port of Hampton Roads.  As  illustrated  on the cover and throughout  this
Report,  you will see that Life  Bancorp  is a major  part of this  market.  Our
financial  growth has  paralleled  and enhanced the economic  activities  of the
area, and, as our cities have prospered, so too have we.

        The fruits of our 1996 Business Plan increased our ability to capitalize
on our dynamic  market,  and our  financial  results are evident of this through
increased   revenues,   new  products  and  the   implementation  of  long-term,
cost-saving  technology.  As we discussed  last year,  our Business Plan must be
goal  oriented if we are to increase  stockholder  value and maximize  long-term
investment  return,  never  forgetting that the market value of our stock is the
financial measure of stockholders'  confidence in our progress.  The significant
changes taking place in the banking industry create  significant  challenges for
Management  as we attempt to maximize the  efficient use of our capital while at
the same  time  offering  broader  services  and  market  technology.  It is the
customer  who judges the  quality of our  service  delivery  and it is you,  the
stockholder, who grades our accomplishments. We feel we have received high marks
from both constituencies as we position ourselves for the future.

        Also  as a part  of our  Business  Plan,  we  implemented  an  arbitrage
investment  program as a means of growing the Bank, with minimum overhead costs,
by  utilizing  wholesale  borrowings  to  fund  investments  in  mortgage-backed
securities.  We  are  very  pleased  with  the  results  of  this  goal-oriented
management  strategy,  because  it  had  a  threefold  positive  effect  on  the
operations of the Bank in 1996.  First,  we attained  record net interest income
totaling in excess of $34 million.  Second,  we grew the Bank in total assets to
more than $1.4 billion,  and third, our strategy  provided an efficient means to
manage interest rate risk.  Over time, it is our intention to reduce  borrowings
as  a  percentage  of  retail  deposits,  and  mortgage-backed  securities  as a
percentage of originated  portfolio loans. We feel our Business Plan is working,
and I am confident that we can carry it even further as we move into 1997.

        1996 was a year of  Extraordinary  Events -- some of which would seem to
be negative  since they  adversely  impacted  operations  for the year,  but, in
reality,  were very positive for longer term income  enhancement and competitive
strategy. I speak primarily of the one-time, $4.4 million FDIC deposit insurance
assessment on Life Savings  Bank.  Such special  assessment  impacted all thrift
institutions and those commercial banks holding




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Savings  Association  Insurance Fund  deposits.  As a positive  event,  based on
deposits at December 31, 1996, the reduced  deposit  insurance  premiums,  which
were part of the legislative  package creating the one-time special  assessment,
will add  approximately  $1.2 million annually to pre-tax income in future years
and more than 7.5 cents in our after-tax earnings per share.

        On another positive note, along with our efforts to leverage the capital
of the  Bank,  we  completed  two  major  Stock  Repurchase  programs  in  1996.
Subsequent to our having gone public in October  1994,  we have now  repurchased
and  retired  over one  million  shares.  This action has been an ideal means to
increase our per share earnings,  which, before the earlier noted insurance fund
special assessment, would have been $1.20 per share in 1996, a 33% increase over
the $0.90 per share for 1995.  Though our current  return on average  equity has
increased  from  5.93% in 1995 to  7.60% in 1996  (excluding  the  special  SAIF
assessment and a related  charge),  the continuing  increase of effective return
remains one of our highest priorities. With a 10.63% capital ratio at the end of
1996,  we believe we have  additional  opportunities  to leverage  against  that
capital which will  facilitate our efforts to further  increase our earnings per
share and our return on capital.

        We are  again  proud  to  announce  that we were  classified  as a "Well
Capitalized" institution by regulatory authorities in 1996, and, relative to our
performance  under the  Community  Reinvestment  Act,  we again  received  their
"Outstanding"  designation for our excellent  record in meeting the credit needs
of our communities.

        The Acquisition  and  integration of the operations of Seaboard  Savings
Bank, in early 1996,  was  successful  and  strategically  important  because it
increased  our market share by bringing to us $66.8  million in deposits,  three
strategically located branches and a group of experienced and capable people who
have been an excellent  complement to our dedicated employee base. Including the
deposits  acquired with the Seaboard  acquisition,  our deposit base grew during
the year to $732 million from $607 million at the end of 1995.

        Net Earnings for 1996 were $8.6 million,  or $.89 per share, even though
some $4.9  million  in before  tax  expense  was  incurred  because of the noted
special  assessment and a related goodwill charge.  We were really quite pleased
with our performance especially since our net interest income hit record levels,
our fee income is growing,  our operating  costs remain firmly under control and
well below peer group averages and, other than goodwill,  our recent acquisition
related expenses are behind us. Our stock price at the close of 1996 was $18.00,
up from $15.00 at the end of the previous  year, and our year-end book value per
share was $15.33 compared to $14.75 at the end of 1995.

        Relative to Production  activities in 1996, we experienced a record year
in  generating  diversified  commercial  real  estate  loans as well as consumer
products,  especially in  automobile  finance.  Our  subsidiary  Life  Financial
Services  Corporation  enjoyed  a  record  year  in  securities,  annuities  and
insurance sales.

        Many events  occurred  in 1996 which are  expected to result in Improved
Operating Fundamentals and Efficiencies.  As we move into 1997 and beyond, other
significant  and  positive  activities  continue.  Toward  the  end of  1996  we
converted our data  processing  system to a modern  PC-based,  network  computer
service center that is  state-of-the-art  and will better position us as we move
toward and into the next millennium. Though there



                                        3

<PAGE>



are a few wrinkles,  we are very pleased as we look at the early results of this
conversion.  We are also  pleased to report two equity  investment  affiliations
with organizations providing title insurance and trust services.

        In the future,  certain national issues affecting our industry remain to
be resolved,  and our business  strategy  must  continue to address the Changing
Financial  Climate.  Regulatory relief continues to be a major issue, and we may
see significant changes in financial institution charter  requirements.  We must
continue to grow, expand our core product lines,  expand our geographic  markets
and  leverage  our  capital.  I truly  believe  that the primary  challenge  for
Management will be our ability to manage change while at the same time remaining
focused on core banking  efficiency.  Success relies on modern technology,  cost
containment,  prospect development and enhanced sales, yet never losing sight of
credit quality and customer service.

        On a more  personal  note .... we announced in early spring that William
J.  Fanney,  former  Chairman  of the Board,  had been  designated  as  Chairman
Emeritus.  Mr.  Fanney's  career  spans some 48 years with the Bank,  and we are
delighted  that we will continue to benefit from his wisdom gained over his long
and distinguished career.

        Looking into the future, we feel good about ourselves and our prospects.
As Board Chairman, and perhaps more importantly as a stockholder,  I am aware of
the  challenges  and the  expectations  of our  investors.  The  insurance  fund
resolution has been and will continue to be a dynamic event and, even though the
special  assessment  was a heavy price to pay, that  legislative  accomplishment
will allow us to more  effectively  plan for the future without dealing with the
competitive restraints of inequitable deposit insurance premiums.

        We are one team  with a common  vision  and an  enthusiasm  for  working
together, and we are prepared to face the challenges of the future.

                                       Sincerely,

                                       /s/ Edward E. Cunningham

                                       Edward E. Cunningham
                                       Chairman of the Board,
                                       President and Chief Executive Officer




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


[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]


                                        4

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<TABLE>
<CAPTION>


                                       Selected Financial and Operating Data

As of December 31,                                          1996          1995           1994          1993          1992
-------------------------------------------------------------------------------------------------------------------------

                                                                (Dollars in Thousands Except Per Share Data)
<S>                                                   <C>           <C>            <C>             <C>           <C>

Selected Financial Condition Data:
Total assets                                          $1,419,762    $1,097,000     $  996,908      $770,443      $691,976
Cash and cash equivalents                                 11,283         8,845          7,945         9,372         8,523
Mortgage loans held-for-sale                                  --            --             --         9,346         4,376
Investment securities                                     30,742        23,040         18,414        11,419        32,575
Mortgage-backed securities:
  Held-to-maturity                                       140,974       168,602        402,244       332,112       172,746
  Available-for-sale                                     565,086       393,587        107,264            --            --
Loans receivable, net                                    622,405       467,424        421,191       366,510       430,051
Deposit accounts                                         732,322       607,139        588,262       528,932       521,347
FHLB advances                                            261,711       148,636        174,977       159,272        52,388
Repurchase agreements and other borrowings               259,000       168,518         73,212        26,499        66,247
Stockholders' equity                                     150,938       160,941        148,511        48,252        43,652

Years Ended December 31,                                    1996          1995           1994          1993          1992
--------------------------------------------------------------------------------------------------------------------------

Selected Operating Data:
Interest income                                       $   95,133    $   77,025     $   57,017      $ 52,510      $ 56,296
Interest expense                                          60,929        48,266         35,419        32,031        34,967
                                                      ----------    ----------     ----------      --------      --------
Net interest income                                       34,204        28,759         21,598        20,479        21,329
Provision (credit) for loan losses                         (265)           454          1,431           715           894
Noninterest income                                         3,362         2,023          3,295         5,405         3,043
Noninterest expense                                       23,501        16,054         13,980        18,610        15,398
                                                      ----------    ----------     ----------      --------      --------
Income before income taxes                                14,330        14,274          9,482         6,559         8,080
Income taxes                                               5,716         5,126          3,007         2,099         3,285
                                                      ----------    ----------     ----------      --------      --------
Income before cumulative effect of accounting change       8,614         9,148          6,475         4,460         4,795
Cumulative effect of accounting change                        --            --             --           133            --
                                                      ----------    ----------     ----------      --------      --------
Net income                                            $    8,614    $    9,148     $    6,475      $  4,593      $  4,795
                                                      ==========    ==========     ==========      ========      ========
Earnings per share (1)                                $     0.89    $     0.90     $     0.27           N/A           N/A

Selected Ratios (2)
Return on average assets                                   0.67%         0.87%          0.75%         0.61%         0.71%
Return on average equity                                   5.66%         5.93%          9.42%         9.90%        11.68%
Average equity to average assets                          11.75%        14.61%          7.95%         6.14%         6.09%
Equity to assets at end of period                         10.63%        14.67%         14.90%         6.26%         6.31%
Interest-rate spread (3)                                   2.20%         2.15%          2.45%         2.83%         3.39%
Net interest margin (3)                                    2.73%         2.84%          2.67%         2.94%         3.46%
Noninterest expense, exclusive of amortization
  of goodwill, to average assets                           1.75%         1.51%          1.59%         2.40%         2.21%
Efficiency ratio (4)                                      60.16%        51.84%         55.07%        70.13%        61.04%
Non-performing assets to total assets (5)                  0.26%         0.21%          0.25%         1.41%         2.70%
Allowance for loan losses to non-accruing loans          378.67%       255.79%        275.93%       216.53%        74.97%
Allowance for loan losses to total loans                   1.55%         0.95%          1.06%         0.89%         0.64%
Full service customer facilities                              20            17             17            17            19
Number shares outstanding, including ESOP              9,846,840    10,910,625     10,910,625            --            --
Book value per outstanding share                      $    15.33    $    14.75     $    13.61            --            --

     -------------------------
<FN>
(1)  1994 earnings per share have been stated only for a partial  period because
     of the Company's conversion to stock form of ownership on October 11, 1994.
     See Note 23 to the Consolidated Financial Statements.
(2)  With the exception of end of period ratios, all ratios are based on average
     daily balances for 1996 and 1995,  average  monthly  balances prior to 1995
     and are annualized where appropriate.
(3)  Interest-rate spread represents the difference between the weighted average
     yield  on  interest-earning   assets  and  the  weighted  average  cost  of
     interest-bearing  liabilities,  and  net  interest  margin  represents  net
     interest income as a percentage of average interest-earning assets.
(4)  The  efficiency  ratio  represents   noninterest   expense,   exclusive  of
     amortization of goodwill, as a percentage of the sum of net interest income
     and noninterest income.
(5)  Non-performing assets consist of non-accrual loans and real estate acquired
     through  foreclosure,   by  deed-in-lieu  thereof  or  deemed  in-substance
     foreclosed.
</FN>
</TABLE>

                                        5

<PAGE>




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

                                     General

        Life Bancorp,  Inc. ("Life" or the "Company") is a Virginia  corporation
organized in May 1994. On October 11, 1994, the Company acquired all the capital
stock of Life Savings Bank, FSB ("Life Savings" or the "Bank") in the conversion
of the Bank from a federal  mutual savings bank to a federal stock savings bank.
The Company is a unitary thrift holding company and its only significant  assets
are the capital  stock of the Bank,  the  Company's  loan to an  Employee  Stock
Ownership  Plan  ("ESOP"),  and  the net  conversion  proceeds  retained  by the
Company.  To date,  the business of the Company has consisted of the business of
the Bank.

        The Company is subject to  examination  and  regulation by the Office of
Thrift  Supervision  ("OTS")  and is  subject  to  various  reporting  and other
requirements  of the Securities  and Exchange  Commission  ("SEC").  The Bank is
subject to  examination  and  comprehensive  regulation by the OTS, which is the
Bank's chartering authority and primary regulator. The Bank is also regulated by
the Federal Deposit  Insurance  Corporation  ("FDIC"),  the administrator of the
Savings  Association  Insurance  Fund  ("SAIF").  The Bank is subject to certain
reserve  requirements  established  by the  Board of  Governors  of the  Federal
Reserve System ("FRB") and is a member of the Federal Home Loan Bank ("FHLB") of
Atlanta, which is one of the 12 regional banks comprising the FHLB System.

        The following  discussion  and analysis is intended to assist readers in
understanding  the financial  condition and results of operations of the Company
and its  subsidiaries  for the years ended December 31, 1994 through 1996.  This
review should be read in conjunction with Life's audited consolidated  financial
statements,  accompanying  footnotes and  supplemental  financial  data included
herein.

        Acquisition of Seaboard  Bancorp,  Inc. On January 31, 1996, the Company
completed its acquisition of Seaboard Bancorp,  Inc.  ("Seaboard"),  the holding
company for  Seaboard  Savings  Bank,  F.S.B.,  ("Seaboard  Savings").  Seaboard
Savings,  headquartered in Virginia Beach,  operated three offices,  one each in
the Virginia cities of Chesapeake, Virginia Beach and Portsmouth. The operations
of  Seaboard  Savings  were  merged  into the Bank  effective  February 1, 1996,
representing  a  natural  extension  of  the  Bank's  existing   operations  and
strengthening its presence in the Hampton Roads market. Results of operations of
Seaboard,  beginning  February  1,  1996,  are  included  in the  results of the
Company. For additional information regarding the Seaboard acquisition, see Note
2 to the Consolidated Financial Statements.



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[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]

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                               Financial Condition
Assets

        General.  Total assets of the Company  increased by $322.8  million,  or
29.4%,  from $1.1 billion at December 31, 1995,  to $1.4 billion at December 31,
1996. This increase was due primarily to a $155.0 million  increase in net loans
receivable  and a  $143.9  million  increase  in the  Company's  mortgage-backed
securities  ("MBS").  The  increased  asset base was the result of both internal
growth and the merger of Seaboard  Savings into the Bank,  which initially added
$79.0 million to the Company's  total  assets.  The following  graph depicts the
Company's  asset  composition  at December 31, 1996,  and December 31, 1995. The
discussion  which  follows  focuses on the major changes in the asset mix during
1996.

[GRAPHIC DELETED]
--------------------------------------------------------------------------------

        In the  original  document,  there  follows  a pie chart  depicting  the
Company's  asset  composition  at December 31, 1996 and  December 31, 1995.  The
following table indicates the data points for the chart.

                         December 31, 1996              December 31, 1995
                     Dollars in      % of Total    Dollars in      % of Total
                      Millions         Assets       Millions         Assets
Fixed-rate Loans            271.1         19.1%          193.2            17.6%
Adjustable-rate Loans       351.3         24.7%          274.2            25.0%
Fixed-rate MBS              305.0         21.5%          307.2            28.0%
Adjustable-rate MBS         401.1         28.2%          255.0            23.2%
Other Assets                 48.1          3.4%           34.9             3.2%
Cash & Investments           42.0          3.0%           31.9             2.9%
REO                           1.2          0.1%            0.6             0.1%

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

        Cash and Cash Equivalents.  Cash and cash equivalents,  which consist of
interest-bearing and noninterest-bearing deposits, increased by $2.4 million, or
27.6%,  to $11.3  million at December  31,  1996,  compared  to $8.8  million at
December 31, 1995.

        Investment Securities.  Investment securities increased by $7.7 million,
or 33.4%,  to $30.7  million at December 31, 1996,  compared to $23.0 million at
December 31, 1995,  reflecting  Life's  asset/liability  management  strategy to
increase  investment  securities  during  the  generally  higher  interest  rate
environment  of 1996.  In  order  to  provide  more  flexibility  to Life in the
management of its investments  and in order to maintain an investment  portfolio
more responsive to market conditions, at December 31, 1996, all of the Company's
investment  securities  were classified as  available-for-sale.  At December 31,
1996, the Company's investment securities  available-for-sale  had an unrealized
loss of $354,000, net of

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<PAGE>



taxes, which was netted against stockholders' equity at such date. Notes 3 and 4
to the Consolidated  Financial  Statements provide further information on Life's
investment securities.

        Mortgage-Backed  Securities.   Total  mortgage-backed  securities  (both
held-to-maturity  and  available-for-sale)  increased  by an aggregate of $143.9
million,  or 25.6%,  to $706.1 million at December 31, 1996,  compared to $562.2
million at December 31, 1995. At December 31, 1996, $401.1 million,  or 56.8% of
the $706.1 million in total  mortgage-backed  securities had adjustable interest
rates. The increase in  mortgage-backed  securities  reflects both the Company's
continuing   emphasis  on  such  investments  as  part  of  its  asset/liability
management strategy as well as an additional arbitrage program instituted by the
Bank in June 1996.  Under the arbitrage  program,  consistent  with its Business
Plan,  the Bank increased its  investment in government  agency  mortgage-backed
securities and funded such  investments  with  additional  borrowed  funds.  The
arbitrage  program was  intended to  partially  leverage  the  Company's  excess
capital, increase its return on equity and improve earnings per share until such
time as more appropriate  alternative  opportunities  for utilization of capital
exist.

        The held-to-maturity  mortgage-backed  securities totaled $141.0 million
($10.2 million  adjustable-rate  and $130.8 million  fixed-rate) at December 31,
1996,  and  the  available-for-sale   totaled  $565.1  million  ($390.9  million
adjustable-rate  and $174.2  million  fixed-rate).  At December  31,  1995,  the
held-to-maturity   mortgage-backed  securities  totaled  $168.6  million  ($12.2
million   adjustable-rate   and   $156.4   million   fixed-rate),    while   the
available-for-sale  totaled $393.6 million ($242.9 million  adjustable-rate  and
$150.7 million fixed-rate).  The Bank classified all mortgage-backed  securities
purchased during 1996 as  available-for-sale,  providing the Bank with increased
asset and liability management  flexibility to react to yield curve and interest
rate changes.  At December 31, 1996,  the Company's  mortgage-backed  securities
available-for-sale  had an unrealized gain of $2.3 million,  net of taxes, which
was added to stockholders' equity at such date. Higher interest rates will cause
the carrying value of the available-for-sale  portfolio to be reduced, resulting
in an adjustment to stockholders' equity.

        In addition to mortgage-backed securities issued by the Federal National
Mortgage  Association  ("FNMA"),  the  Federal  Home Loan  Mortgage  Corporation
("FHLMC") or the Government  National Mortgage  Association  ("GNMA"),  commonly
called agency  securities,  the Bank invests in highly rated,  investment grade,
private label mortgage-backed securities structured in the form of a Real Estate
Mortgage  Investment  Conduit ("REMIC").  At December 31, 1996,  included in the
Company's  aggregate  total of $706.1 million  mortgage-backed  securities  were
$168.5 million ($139.6 million fixed-rate and $28.9 million  adjustable-rate) in
REMICs.  Of this amount $147.4 million were rated AAA by at least two nationally
recognized rating agencies. The remaining $21.1 million were rated AA.

        Mortgage-backed   securities  generally  increase  the  quality  of  the
Company's  assets by virtue of the  insurance or  guarantees  that often support
them,  are  more  liquid  than  individual  mortgage  loans,  and may be used to
collateralize  borrowings  or  other  obligations  of  the  Company.  Additional
information on Life's mortgage-backed securities portfolio may be found in Notes
3, 4 and 22 to the Consolidated Financial Statements.

        Loans  Receivable,  Net. Loans  receivable,  net,  which  constitute the
Company's  held-for-investment  loan portfolio,  increased by $155.0 million, or
33.2%,  to $622.4  million at December 31, 1996,  compared to $467.4  million at
December  31,  1995.  The merger of  Seaboard  Savings  into the Bank  initially
increased  net  loans  receivable  by  $69.2  million.  During  1996,  the  Bank
originated  an  aggregate  of $125.4  million of  mortgage  loans of which $93.2
million were  adjustable-rate  mortgage  loans  ("ARMs") and $32.2  million were
fixed-rate,  mortgage  loans  ($880,000 of which  subsequently  were sold in the
secondary  market).  During  1995,  the  Company  originated  $109.2  million of
mortgage  loans.  For  additional  information,  see Note 5 to the  Consolidated
Financial Statements.

     Real Estate Owned. Under Generally Accepted Accounting Principles ("GAAP"),
real estate  acquired by the Bank as a result of foreclosure or by  deed-in-lieu
of foreclosure is classified as real estate

                                        8

<PAGE>



owned ("REO"). At December 31 1996, REO was $1.2 million compared to $622,000 at
December 31, 1995. The REO at December 31, 1996 consisted of 18 properties.  For
additional information relating to REO, see Note 7 to the Consolidated Financial
Statements.

        Excess of Cost Over Net  Assets  Acquired.  The  excess of cost over net
assets acquired (goodwill) relates to the Savings Bank's acquisitions of insured
savings  institutions  and is being  amortized in accordance  with  Statement of
Financial   Accounting  Standards  ("SFAS")  No.  72,  "Accounting  for  Certain
Acquisitions  of Banking and Thrift  Institutions."  Goodwill  increased by $4.3
million  from  $459,000 at December  31,  1995,  to $4.8 million at December 31,
1996.  This  increase  resulted  from the  purchase  of  Seaboard  and is net of
amortizations  of  $449,000  during  the year and a $451,000  adjustment  in the
valuation  of  acquired  goodwill  due  to the  SAIF  special  assessment.  This
valuation  adjustment  reduces the amount of goodwill to be  amortized in future
periods as noninterest expense. For additional information, see Notes 1 and 2 to
the Consolidated Financial Statements.


Liabilities and Stockholders' Equity

        General.  The Company's primary funding sources include deposits,  notes
payable and other borrowings and stockholders' equity. The following graph shows
the  composition  of the  Company's  liabilities  and  stockholders'  equity  at
December 31, 1996, and December 31, 1995. The discussion  which follows  focuses
on the major changes in the mix during 1996.

[GRAPHIC DELETED]

--------------------------------------------------------------------------------
        In the  original  document,  there  follows  a pie chart  depicting  the
Company's  Liabilities and Equity  composition at December 31, 1996 and December
31, 1995. The following table indicates the data points for the chart.

                          December 31, 1996              December 31, 1995
                      Dollars in      % of Total    Dollars in      % of Total
                       Millions         Assets       Millions         Assets
Deposits                  732.3         51.6%          607.1            55.3%
Repurchase Agreements     259.0         18.2%          162.0            14.8%
FHLB Advances             261.7         18.4%          148.6            13.5%
Other Borrowings            5.2          0.4%            6.5             0.6%
Other Liabilities          10.6          0.8%           11.9             1.1%
Stockholders' Equity      150.9         10.6%          160.9            14.7%
--------------------------------------------------------------------------------




                                        9

<PAGE>



        Deposits.  Deposits  increased by $125.2 million,  or 20.6%, from $607.1
million at December 31, 1995, to $732.3 million at December 31, 1996. The merger
of Seaboard Savings into the Bank initially increased deposits by $66.8 million.
Additional  information  regarding  deposits  is  provided  in  Note  10 to  the
Consolidated Financial Statements.

        Borrowings. The Company's borrowings are comprised of: (i) advances from
the FHLB of Atlanta,  which increased by $113.1 million,  or 76.1%,  from $148.6
million at December 31,  1995,  to $261.7  million at December  31,  1996;  (ii)
Securities  sold under  agreements to repurchase  ("Repos"),  which increased by
$97.0  million,  or 59.9%,  from $162.0  million at December 31, 1995, to $259.0
million at December 31, 1996; and (iii) other borrowings which decreased by $1.3
million,  or 19.8%,  from $6.5 million at December 31, 1995,  to $5.2 million at
December 31, 1996. The Company's  borrowings are generally used to fund lending,
investments and other ordinary  course of business  activities.  Initially,  the
mortgage-backed  securities  purchased as part of the Bank's  arbitrage  program
mostly were funded  with  short-term  repos.  The Company  continuously  reviews
alternative sources of borrowings and in this regard has more recently increased
its use of advances  from the FHLB of Atlanta  relative to Repos due to the FHLB
of Atlanta's  lower costing  advances.  For  additional  information,  including
maturities of the Company's borrowings, see "Asset and Liability Management" and
Notes 11, 12 and 13 to the Consolidated Financial Statements.

        Stockholders'   Equity.   Stockholders'  equity  provides  a  source  of
permanent  funding,  allows for future  growth and  provides  the Company with a
cushion to withstand unforeseen, adverse developments. During 1996, primarily as
a  result  of  the  Company's  share   repurchase   program   discussed   below,
stockholders'  equity decreased by $10.0 million from $160.9 million at December
31, 1995 to $150.9 at December  31, 1996.  Stockholders'  equity at December 31,
1996,  contained  an increase of $2.0  million  required to adjust the  carrying
value of assets classified as  available-for-sale to their current market prices
as  required  by SFAS No. 115.  This  compares  to an increase in  stockholders'
equity at December 31, 1995, of $1.8 million for such carrying value adjustment.
See Note 4 to the Consolidated Financial Statements.

        The  $150.9  million  of  stockholders'  equity  at  December  31,  1996
represented  a book value of $15.33  per share and was 10.6% of total  assets at
the end of the year.

               [GRAPHIC DELETED]                     [GRAPHIC DELETED]
--------------------------------------------------------------------------------

        In the  original  document,  there  follows  a bar chart  depicting  the
Company's  Equity to Assets ratio at December 31 for each year from 1992 through
1996. The following table indicates the data points for the chart.


                            Equity to Assets
                               at Year End

Dec. 31, 1992                      6.31%
Dec. 31, 1993                      6.26%
Dec. 31, 1994                     14.90%
Dec. 31, 1995                     14.67%
Dec. 31, 1996                     10.63%

--------------------------------------------------------------------------------
        In the  original  document,  there  follows  a bar chart  depicting  the
regulatory capital at December 31, 1996, compared to the regulatory requirements
then in effect. The following table indicates the data points for the chart.

                OTS Required       The Bank's
               Capital Ratios    Capital Ratio
Tangible             1.5%            8.6%
Core                 3.0%            8.6%
Risk-Based           8.0%           21.4%
--------------------------------------------------------------------------------

                                       10

<PAGE>



        Federal  regulations impose minimum  regulatory capital  requirements on
all  FDIC  insured  institutions.   At  December  31,  1996,  the  Savings  Bank
significantly exceeded all required regulatory capital ratio requirements with a
tangible and core ratio of 8.6% and a risk-based ratio of 21.4%.  These compared
to regulatory requirements of 1.5%, 3.0% and 8.0%, respectively.  For additional
discussion of the Bank's  regulatory  capital  requirements,  see Note 14 to the
Consolidated Financial Statements.

        During  1996,  to  reduce  excess  stockholders'   equity,  the  Company
repurchased and retired 1,063,785 shares, or 9.75% of its outstanding  shares on
December 31, 1995, at a total acquisition price of approximately  $15.2 million.
The Company has received approval from the OTS to repurchase up to an additional
10% during the 12 month period ending October 11, 1997.  Future decisions by the
Company to  repurchase  shares will be based on,  among other  things,  the then
current market value of the stock, alternative  opportunities for utilization of
capital and the  anticipated  positive  effect of the repurchase  program on the
Company's long-term shareholder value.


                              Results of Operations

        General. For the year ended December 31, 1996, the Company reported that
net  earnings  before a one-time  statutorily  mandated  SAIF  assessment  and a
related  charge were $11.6  million,  or $1.20 per share,  a 26.4% increase over
earnings for 1995.  Consistent  with enacted Federal  legislation,  the Bank was
assessed,  during the third quarter of 1996, a pre-tax charge of $4.4 million by
the FDIC as its pro rata share to recapitalize  the insurance fund. This special
assessment  impacted all thrift  institutions and those commercial banks holding
SAIF insured  deposits.  After the one-time  assessment and related charge,  net
earnings were $8.6 million,  or $0.89 per share, for the year ended December 31,
1996. For the year ended December 31, 1995, the Company reported net earnings of
$9.1 million,  or $0.90 per share; and for 1994, net earnings were $6.5 million.
The change in net income in 1996,  compared  to 1995,  was due  primarily  to an
increase  in net  interest  income of $5.4  million,  a net loan loss  credit of
$265,000 and an increase in noninterest income of $1.3 million; partially offset
by an increase in noninterest expense of $7.4 million and

                                [GRAPHIC DELETED]

--------------------------------------------------------------------------------
               The  original   document  contains  a  bar  chart  depicting  the
        Company's  net  income for each of the years  ended  December  31,  1992
        through  1996.  The  following  table  indicates the data points for the
        chart.

                                     Net Income
                               (Dollars in Millions)

   1992                                $4.8
   1993                                 4.6
   1994                                 6.5
   1995                                 9.1
   1996 - Net Income                    8.6
     After tax effect of special SAIF
      assessment and a related charge   3.0
   1996 Adjusted total                 11.6
--------------------------------------------------------------------------------

an increase in the income tax provision of $590,000. The $2.7 million, or 41.3%,
increase in net income  during 1995,  compared to 1994,  was due primarily to an
increase in net interest  income of $7.2 million and a decrease in the provision
for loan losses of $1.0 million,  partially  offset by a decrease in noninterest
income of $1.3 million, an increase in noninterest expense of $2.1 million,  and
an increased income tax provision of $2.1 million.

        Net Interest  Income.  Net  interest  income is the  difference  between
interest   income  on   interest-earning   assets   and   interest   expense  on
interest-bearing   liabilities.   Net   interest   margin,   is  the  result  of
interest-rate  spread  (i.e.,  the  difference  between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing  liabilities)
and net interest-earning  assets (the amount of interest-earning assets relative
to interest-bearing  liabilities).  The Company's interest-rate spread was 2.32%
at

                                       11

<PAGE>



December 31, 1996,  and the average  interest-rate  spread was 2.20%,  2.15% and
2.45% during the years ended December 31, 1996, 1995 and 1994, respectively. The
Company's net interest margin was 2.73%,  2.84% and 2.67% during the years ended
December 31,  1996,  1995 and 1994,  respectively.  The decrease in 1996 was the
combined result of an increase in net interest-rate spread from 2.15% in 1995 to
2.20% in 1996 which was more than offset by a decrease  in net  interest-earning
assets of $5.8 million,  from $128.5  million in 1995 to $122.7 million in 1996.
This decrease in net interest-earnings assets was mostly due to fundings for the
Seaboard  acquisition  and stock  repurchases.  The  improvement in net interest
margin during

                                [GRAPHIC DELETED]
--------------------------------------------------------------------------------

               The  original   document  contains  a  bar  chart  depicting  the
        Company's net interest  margin for each of the years ended  December 31,
        1992 through 1996. The following table indicates the data points for the
        chart.
                                 Net Interest
                                    Margin

                       1992          3.46%
                       1993          2.94%
                       1994          2.67%
                       1995          2.84%
                       1996          2.73%
--------------------------------------------------------------------------------

1995 resulted from the increased level of net interest-earning  assets generated
by the investment and  leveraging,  for the entire year of 1995, of the proceeds
from the conversion of the Bank,  together with an increase in the average yield
on total  interest-earning  assets  from  7.04%  in 1994 to  7.60% in 1995.  The
conversion  of the Bank is  discussed in Note 23 to the  Consolidated  Financial
Statements.

        Net interest  income  increased by $5.4  million,  or 18.9%,  in 1996 to
$34.2 million  compared to $28.8  million in 1995.  The reason for such increase
was a $18.1 million  increase in interest  income,  partially  offset by a $12.7
million  increase in interest  expense.  Net interest  income  increased by $7.2
million,  or 33.2%, in 1995 to $28.8 million  compared to $21.6 million in 1994.
The reason for such  increase was a $20.0 million  increase in interest  income,
partially offset by a $12.8 million increase in interest expense.

        Interest  Income.  Interest  income  totaled  $95.1 million for the year
ended  December 31, 1996,  an increase of $18.1  million over the total of $77.0
million for the year ended December 31, 1995. This improvement was primarily the
result of an increase in the Company's average interest-earning assets of $236.7
million,  or 23.3%,  to $1.3 billion for the year ended  December 31, 1996.  The
additional  interest-earning  assets resulted from the Company's  acquisition of
Seaboard,  as well as increases in mortgage-backed and investment securities and
internal  growth  in  the  Bank's  loan  portfolio.   The  increased  volume  of
interest-earning  assets produced  additional  interest income of $18.5 million.
The average yield on  interest-earning  assets remained relatively flat at 7.60%
during 1995 and 1996, resulting in a decrease


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



[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]


                                       12

<PAGE>



in  interest  income  of only  $253,000,  due to a slight  difference  in yield.
Interest  earned on  mortgage-backed  securities  increased by $6.3 million,  or
17.0%,  in 1996,  due to an $82.7  million,  or 15.2%,  increase  in the average
balance of  mortgage-backed  securities  and an 11 basis  point  increase in the
yield. Interest on loans increased by $10.2 million, or 26.4%, as a result of an
increase  of  $130.0  million,  or 29.0%,  in the  average  balance  of the loan
portfolio partially offset by a decrease of 17 basis points in the average yield
earned thereon.

        Interest  income  totaled $77.0 million for the year ended  December 31,
1995,  an increase of $20.0 million over the total of $57.0 million for the year
ended  December  31,  1994.  This  improvement  was  primarily  the result of an
increase in the Company's average  interest-earning assets of $203.9 million, or
25.2%,  to $1.0 billion for the year ended  December 31, 1995.  This increase in
average interest-earning assets resulted from the Bank continuing the process of
leveraging the capital raised during the stock conversion consummated in October
1994.  The  increased  volume of  interest-earning  assets  produced  additional
interest income of $13.9 million.  The average yield on interest-earning  assets
increased from 7.04% during 1994 to 7.60% during 1995,  resulting in an increase
in  interest  income  of  $4.8  million.   Interest  earned  on  mortgage-backed
securities  increased  by $13.8  million,  or  59.3%,  in 1995,  due to a $148.6
million, or 37.4%, increase in the average balance of mortgage-backed securities
and a 94 basis point increase in the yield.  Interest on loans increased by $6.6
million, or 20.6%, as a result of an increase of $70.9 million, or 18.7%, in the
average  balance of the loan  portfolio  together  with an  increase of 14 basis
points in the average yield earned thereon.

        Interest Expense. Interest expense increased by $12.7 million, or 26.2%,
in 1996 compared to 1995.  Interest on deposits  increased by $5.4  million,  or
18.0%,  while  interest on  borrowings  increased  $7.2 million,  or 40.0%.  The
increase in interest  expense on total deposits was due to a $105.4 million,  or
17.6%, increase in the average balance of deposits,  while the average rate paid
thereon  remained  relatively  flat,  increasing  from 5.05% in 1995 to 5.07% in
1996, or only 2 basis points. The increase in interest expense on borrowings was
due to a $137.1 million, or 47.7%, increase in the average balance of borrowings
partially offset by a 32 basis point decrease in the cost of borrowings.

        Interest expense increased by $12.8 million,  or 36.3%, in 1995 compared
to 1994.  Interest  on  deposits  increased  by $5.7  million,  or 23.1%,  while
interest  on  borrowings  increased  $7.2  million,  or 65.9%.  The  increase in
interest expense on total deposits was due to a $28.2 million, or 4.9%, increase
in the average  balance of  deposits,  together  with an increase in the average
rate  paid  thereon  from  4.31%  in 1994 to 5.05%  in  1995,  a 74 basis  point
increase.  The increased  cost of deposits  resulted from maturing  certificates
rolling over to higher rates. The increase in interest expense on borrowings was
due to a $85.1 million, or 42.0%,  increase in the average balance of borrowings
and a 90 basis point increase in the cost of borrowings.


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



[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]

                                       13

<PAGE>
        Yields Earned and Rates Paid.  The following  table sets forth,  for the
years indicated,  information  regarding (i) the total dollar amount of interest
income of the Company from  interest-earning  assets and the  resultant  average
yields;  (ii) the total dollar  amount of interest  expense on  interest-bearing
liabilities  and the resultant  average rate;  (iii) net interest  income;  (iv)
interest-rate spread; and (v) net interest margin. Average balances for 1996 and
1995  are  determined  on a daily  basis  while  average  balances  for 1994 are
determined  on a monthly  basis.  Management  does not  believe  that the use of
average monthly  balances  instead of average daily balances results in material
differences in the information presented.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                      ----------------------------------------------------------------------------------------
                                                  1996                          1995                          1994
                                      ---------------------------- ----------------------------- -----------------------------
                          Yield/Cost                       Average                       Average                       Average
                           at December  Average             Yield/    Average             Yield/    Average             Yield/
                           31, 1996     Balance    Interest  Cost     Balance    Interest  Cost     Balance   Interest   Cost
                          ----------  ------------ ------- -------  ------------ ------- ------- ------------  ------- -------
                                                                       (Dollars in Thousands)

<S>                          <C>         <C>        <C>     <C>       <C>         <C>     <C>         <C>       <C>     <C>
Interest-earning assets:
Loans receivable:
  Mortgage loans              8.08%      $  510,189 $42,312 8.29%     $  398,622  $33,667 8.45%       $332,827  $27,658 8.31%
  Consumer loans             10.37%          68,973   6,544 9.49%         50,504    4,982 9.86%         45,409    4,394 9.68%
                                         ---------- -------           ----------  -------             --------  -------
Total loans                   8.36%         579,162  48,856 8.44%        449,126   38,649 8.61%        378,236   32,052 8.47%
Mortgage-backed securities    7.10%         628,645  43,494 6.92%        545,921   37,162 6.81%        397,277   23,328 5.87%
Investment securities         6.82%          35,740   2,411 6.75%         12,642      857 6.78%         20,205      926 4.58%
Other earning assets          6.70%           7,302     372 5.09%          6,454      357 5.53%         14,537      711 4.89%
                                         ---------- -------           ----------  -------             --------  -------
Total interest-earning assets 7.67%       1,250,849  95,133 7.60%      1,014,143   77,025 7.60%        810,255   57,017 7.04%
                                                    -------                       -------                       -------
Noninterest-earning assets                   44,306                       40,809                        54,345
                                         ----------                   ----------                      --------
    Total assets                         $1,295,155                   $1,054,952                      $864,600
                                         ==========                   ==========                      ========
Interest-bearing liabilities:
Deposits:
  Demand deposits             2.06%      $   41,194 $   851 2.07%     $   26,521      565 2.13%       $ 23,845      496 2.08%
  Passbook savings            3.30%          58,125   1,925 3.31%         60,320    2,023 3.35%         69,853    2,308 3.30%
  Certificates                5.51%         604,122  32,886 5.44%        511,215   27,634 5.41%        476,165   21,741 4.57%
                                         ---------- -------           ----------  -------             --------  -------
Total deposits                5.11%         703,441  35,662 5.07%        598,056   30,222 5.05%        569,863   24,545 4.31%
Borrowings                    5.69%         424,720  25,267 5.95%        287,590   18,044 6.27%        202,518   10,874 5.37%
                                         ---------- -------           ----------  -------             --------  -------
  Total interest-bearing
    liabilities               5.35%       1,128,161  60,929 5.40%        885,646   48,266 5.45%        772,381   35,419 4.59%
                                                    -------                       -------                       -------
Noninterest-bearing liabilities              14,825                       15,175                        23,451
                                         ----------                   ----------                      --------
    Total liabilities                     1,142,986                      900,821                       795,832
Stockholders' equity                        152,169                      154,131                        68,768
                                         ----------                   ----------                      --------
  Total liabilities and
    stockholders' equity                 $1,295,155                   $1,054,952                      $864,600
                                         ==========                   ==========                      ========
Net interest-earning assets              $  122,688                   $  128,497                      $ 37,874
                                         ==========                   ==========                      ========
Net interest income and
  interest-rate spread        2.32%                 $34,204 2.20%                 $28,759 2.15%                 $21,598 2.45%
                                                    =======                       =======                       =======
Net interest margin                                         2.73%                         2.84%                         2.67%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                              1.11x                         1.15x                         1.05x
</TABLE>

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


[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]


                                       14

<PAGE>

        The  following  table  presents the extent to which  changes in interest
rates and changes in the volume of interest-earning  assets and interest-bearing
liabilities  have affected the Company's  interest  income and interest  expense
during the periods  indicated.  Information  is provided in each  category  with
respect  to: (i)  changes in  interest  income  attributable  to changes in rate
(changes in rate  multiplied by prior volume);  (ii) changes in interest  income
attributable to changes in volume (changes in volume  multiplied by prior rate);
and  (iii)  changes  in  rate/volume  (change  in rate  multiplied  by change in
volume).

<TABLE>
<CAPTION>

                                    Interest Income and Expense      Interest Income and Expense      Interest Income and Expense
                                       1996 compared to 1995            1995 compared to 1994            1994 compared to 1993
                                  -------------------------------  -------------------------------- --------------------------------
                                  Increase                         Increase                         Increase                       
                                  (decrease) due to                (decrease) due to                (decrease) due to
                                  --------------------             ----------------------           ---------------------

                                                        Total Net                         Total Net                       Total Net
                                                Rate/   Increase                  Rate/   Increase                 Rate/  Increase
                                  Rate   Volume Volume (Decrease)  Rate    Volume Volume (Decrease) Rate    Volume Volume (Decrease)
                                  ----   ------ ------  ---------  ----   ------- ------  --------- ----    ------ ------ ----------
                                                                           (In Thousands)

<S>                               <C>    <C>     <C>    <C>      <C>      <C>     <C>     <C>     <C>      <C>        <C>   <C>    
Interest-earning assets:
  Loans receivable:
    Mortgage loans                $(637) $ 9,427 $(145) $ 8,645  $   452  $ 5,468 $   89  $ 6,009 $(2,134) $(2,044)  $ 138  $(4,040)
    Consumer loans                 (187)   1,821   (72)   1,562       85      493     10      588    (215)    (627)     26     (816)
                                  -----  ------- -----  -------  -------  ------- ------  -------   -----  -------   -----  -------
        Total loans receivable     (824)  11,248  (217)  10,207      537    5,961     99    6,597  (2,349)  (2,671)    164   (4,856)
Mortgage-backed securities          603    5,635    95    6,332    3,716    8,728  1,390   13,834   1,274    7,135     636    9,045
Investment securities                (4)   1,566    (8)   1,554      444     (347)  (166)     (69)   (167)      32      (5)    (140)
Other earning assets                (28)      47    (4)      15       93     (395)   (52)    (354)     29      385      44      458
                                  -----  ------- -----  -------  -------  ------- ------  ------- -------  -------   -----  -------
Total net change in income on
  interest-earning assets          (253)  18,496  (134)  18,108    4,790   13,947  1,271   20,008  (1,213)   4,881     839    4,507
                                  -----  ------- -----  -------  -------  ------- ------  ------- -------  -------   -----  -------

Interest-bearing liabilities:
  Deposits:
    Demand deposits                 (15)     313   (12)     286       12       56      1       69      (2)      35      --       33
    Passbook savings deposits       (24)     (74)   --      (98)      35     (315)    (5)    (285)     85       42       2      129
    Certificates of deposit         153    5,026    73    5,252    3,998    1,600    295    5,893  (1,266)   2,425    (148)   1,011
                                  -----  ------- -----  -------  -------  ------- ------  ------- -------  -------   -----  -------
      Total deposits                114    5,265    61    5,440    4,045    1,341    291    5,677  (1,183)   2,502    (146)   1,173
Borrowings                         (921)   8,598  (454)   7,223    1,832    4,568    770    7,170     225    1,940      50    2,215
                                  -----  ------- -----  -------  -------  ------- ------  ------- -------  -------   -----  -------
Total net change in expense on
  interest-bearing liabilities     (807)  13,863  (393)  12,663    5,877    5,909  1,061   12,847    (958)   4,442    (96)    3,388
                                  -----  ------- -----  -------  -------  ------- ------  ------- -------  -------   -----  -------
Net change in net interest income  $554  $ 4,633 $ 259  $ 5,445  $(1,087) $ 8,038 $  210  $ 7,161 $  (255) $   439   $ 935  $ 1,119
                                  =====  ======= =====  =======  =======  ======= ======  ======= =======  =======   =====  =======
</TABLE>


        Provision  for Loan  Losses.  Provisions  for loan losses are charged to
earnings  to bring the total  allowance  for loan  losses to a level  considered
appropriate by management based on historical experience, the volume and type of
lending conducted by the Company, the amount of the Company's classified assets,
the  status  of past due  principal  and  interest  payments,  general  economic
conditions,  particularly as they relate to the Company's market area, and other
factors  related  to  the   collectibility  of  the  Company's  loan  portfolio.
Management  reviews the  allowance  for loan losses on a monthly basis and makes
provisions  for loan  losses  as deemed  appropriate  in order to  maintain  the
adequacy of the allowance.



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



[PICTURE AND DESCRIPTION DELETED - SEE APPENDIX]

                                       15

<PAGE>



        In July 1996, the Bank acquired by deed in lieu of  foreclosure  certain
properties  located in  Williamsburg,  Virginia in  settlement  of a  previously
charged-off  deficiency  relating to three  Williamsburg  hotels sold in October
1994. The acquired  property was subsequently  sold for $3.3 million and settled
on September 30, 1996. After satisfying superior liens on the property and other
costs  associated  with the  acquisition  and sale,  the Bank netted a loan loss
recovery of $1.4  million and a gain on sale of REO of  $206,000.  This  sizable
recovery  during 1996 more than offset  normally  determined  adjustments to the
Bank's loan loss  allowance  and  resulted in a net loan loss credit for 1996 of
$265,000.

                                [GRAPHIC DELETED]
--------------------------------------------------------------------------------

               The  original   document  contains  a  bar  chart  depicting  the
        Company's loan loss allowance, compared to non-accruing loans at each of
        the years ended  December 31, 1992 through  1996.  The  following  table
        indicates, in million of dollars, the
        data points for the chart.

                       Non-Accruing          Loan Loss
                           Loans             Allowance

               1992           3.7                2.8
               1993           1.5                3.3
               1994           1.6                4.5
               1995           1.7                4.4
               1996           2.6                9.7
--------------------------------------------------------------------------------
        The Bank made a  provision  for loan losses of $454,000 in 1995 and $1.4
million  in  1994.  The  provision  in  1994  was  primarily  due  to  increased
allocations  of $1.0 million  effected in the second  quarter as a result of the
Bank's  reconsideration  of, and a modification  to, its policy on allowance for
loan losses after review of the  Interagency  Policy  Statement on Allowance for
Loan and Lease Losses  issued by the federal  regulatory  agencies as guidelines
for all regulated financial institutions.

        Based on facts and  circumstances  currently  available  to the Company,
management  believes that the allowance for loan losses was adequate at December
31, 1996;  however,  there can be no assurances that additions to such allowance
will not be  necessary  in future  periods,  which  would  adversely  affect the
Company's results of operations.

        Noninterest  Income.  During 1996, the Company's  noninterest income was
$3.4 million  compared to $2.0 million  during 1995.  The increased  noninterest
income  during 1996 resulted from an increase in the net gain on sales of REO of
$204,000,  an increase in deposit  related income of $185,000 and an increase of
$114,000 in commission  income from a Bank subsidiary.  In addition,  during the
fourth quarter of 1995, after the realignment of the Bank's securities portfolio
in accordance with the  implementation  guide for SFAS No. 115, the Company sold
$52.0 million of underperforming  available-for-sale  mortgage-backed securities
at a net loss of $883,000, which was recognized in the fourth quarter of 1995 as
a reduction in noninterest income.

        In  1995,  the  Company  reported  noninterest  income  of $2.0  million
compared  to $3.3  million  for 1994.  The  primary  reason for the  decrease in
noninterest  income  during 1995 was a decrease of $1.3  million in  noninterest
income from the  operations of three  foreclosed  hotels which the Bank operated
until it sold them in the fourth quarter of 1994.

        Additional  information  regarding the composition of noninterest income
is included in Note 17 to the Consolidated Financial Statements.

        Noninterest  expense.  Noninterest  expense  includes  compensation  and
employee benefits,  office and occupancy expense, FDIC premiums,  provisions for
losses on REO,  amortization  of goodwill and other items.  Noninterest  expense
amounted to $23.5  million,  $16.1 million and $14.0 million for the years ended
December 31, 1996,  1995 and 1994,  respectively.  Excluding  the one-time  SAIF
special  assessment and related charge and REO provisions,  noninterest  expense
totaled $18.6 million, $16.0

                                       16

<PAGE>



million and $13.2 million,  respectively,  during such periods.  The increase in
1996 mostly related to the costs associated with the acquisition and integration
of Seaboard  into the Bank.  The increase in 1995  resulted  from a $2.4 million
increase in  compensation  and  employee  benefits  due mainly to a $2.0 million
expense  associated with the Company's ESOP, a $596,800  expense relating to the
Company's  Recognition  and Retention  Plan ("RRP"),  and the  additional  costs
associated with operating as a public company.

        Generally,  a bank's ability to cover its recurring noninterest expenses
with net interest  income  (expense  coverage)  reflects its ability to maintain
core
                                [GRAPHIC DELETED]
--------------------------------------------------------------------------------

               The  original   document  contains  a  bar  chart  depicting  the
        Company's Expense Coverage for each of the years ended December 31, 1992
        through 1996. The following table indicates, in millions of dollars, the
        data points for the graph.

         Non-interest Expense excluding
          REO provision, special SAIF        Net Interest
         assessment and a related charge        Income

  1992         $12.2                           $21.3
  1993          12.3                            20.5
  1994          13.2                            21.6
  1995          16.0                            28.8
  1996          18.6                            34.2
--------------------------------------------------------------------------------
     profitability.  Note 17 to the Consolidated  Financial  Statements  details
additional  information regarding other noninterest expenses.  Income Taxes. For
the years ended December 31, 1996, 1995 and 1994 the Company recorded income tax
expense of $5.7  million,  $5.1  million  and $3.0  million,  respectively.  The
Company's  effective tax rates were to 39.9%,  35.9% and 31.7% during 1996, 1995
and 1994, respectively. The increase in the effective tax rate in 1996 primarily
resulted from differences in nondeductible  items during 1996, compared to 1995.
In 1994, the Company's effective tax rate was reduced by a tax credit related to
the rehabilitation of the Company's  headquarters which is an historic landmark.
For all periods presented, the difference between the effective tax rate and the
statutory tax rate  primarily  related to variances in the items that are either
nontaxable or  nondeductible  and the method of calculation used for the tax bad
debt deduction. See Note 16 to the Consolidated Financial Statements.

                         Asset and Liability Management

        The objective of Life's Asset/Liability Management Committee ("ALCO") is
to provide  direction in the  acquisition  and  deployment  of funds in order to
optimize the Company's net interest  income over time within the  constraints of
interest-rate sensitivity,  liquidity and capital adequacy consistent with Board
approved guidelines.  The ALCO meets monthly to monitor, among other things, the
Company's  exposure to interest-rate  risk. The Committee  generally reviews the
Bank's  liquidity,  cash flow needs,  maturities  of  investments,  deposits and
borrowings,  current  market  conditions and interest  rates.  The ALCO develops
strategies to attain  profitability and performance goals under various interest
rate scenarios. A pricing subcommittee meets at least weekly to make pricing and
funding  decisions  with  respect  to  the  Bank's  earning  assets  and  paying
liabilities.  Results of the ALCO are  reported to the Board of  Directors  on a
quarterly basis.

        The ALCO typically has adapted the Company's asset/liability  management
strategy to current market  conditions.  During the declining and relatively low
interest  rate  environment  which  prevailed  throughout  1992  and  1993,  the
Company's  ability to originate ARM loans was adversely  affected.  In addition,
since  the  longer  term (15  years or more)  fixed-rate  mortgage  loans  being
originated  typically had interest rates perceived to increase the interest-rate
risk exposure of maintaining such loans in portfolio,  the Company sold into the
secondary market a substantial amount of the residential mortgage loans which it
originated in 1992 and 1993.  During such period,  and continuing into 1994, the
Company

                                       17

<PAGE>



substantially   increased   its   investment  in   mortgage-backed   securities,
particularly those having an interest rate adjustment feature or with relatively
short  (less  than  five  years)  estimated  average  lives.  As a result of the
significant  increases in market rates of interest  during 1994,  mortgage  loan
production for sale into the secondary market was significantly reduced, and the
Company was able to  increase  its  originations  of ARMs for  retention  in its
portfolio.  Proceeds from the stock  conversion,  as well as most borrowed money
and deposit growth  recorded  during the fourth  quarter of 1994,  were invested
primarily in U.S. Treasury  indexed,  one-year  adjustable-rate  mortgage-backed
securities  in an effort to maintain a defensive  interest-rate  risk posture in
the rapidly rising  short-term  interest rate environment  during the period. At
December  31,  1994,  $244.2  million,  or 58.0%,  of the  Company's  total loan
portfolio had adjustable  interest rates or had provisions  which allow the Bank
to call  the loan at  certain  specified  dates  during  the  term of the  loan,
typically  every  one,  three  or five  years.  In  addition,  at such  date the
Company's mortgage-backed  securities portfolio had $199.0 million, or 39.1%, of
the portfolio invested in adjustable-rate securities.

        In 1995 the interest  rate  environment  changed as  long-term  interest
rates  declined,  resulting  in a flatter  yield curve.  Average  loan  balances
increased $70.9 million,  as borrowers  preferred  fixed-rate loans, rather than
ARM loan products.  Most of the lower rate fixed-rate  loans were originated for
sale into the secondary market. The Company purchased mortgage-backed securities
for the majority of its growth in earning assets;  the average portfolio grew by
$148.6 million  during the year,  and added $13.8 million in additional  pre-tax
income.

        The Company's  traditional source of funds,  savings deposits,  were not
sufficient  to fund the growth in assets in 1995.  The savings  customer did not
have the economic incentive to invest in moderate or longer term certificates of
deposits, and average savings gains were only $28.2 million.  Increasingly,  the
Company turned to wholesale borrowings for its funding requirements. The average
balance of borrowings grew by $85.1 million,  mostly in Repos. To take advantage
of  medium-term  inversions  in the yield  curve,  $133.0  million in Repos were
borrowed  for terms of from one to three  years.  The result  was a decrease  in
rates and a dramatic  increase in the weighted average term of Repos, as well as
reduced overall interest-rate risk of the Company. The effect was a $7.2 million
increase in the net interest margin in 1995 compared to 1994.

        In 1996 the interest  rate yield curve  steepened  slightly to the level
that  many  potential  borrowers  preferred  ARM  loans  once  again.  The  Bank
originated  $145.1 million in loans during the year, of which $93.2 million were
adjustable-rate mortgage loans. In an effort to leverage the Company, all except
$880,000  of the loans  were  retained  in its  portfolio.  The  result was that
average loans  increased  $130.0  million  during the year,  including the $69.2
million in loans from the Seaboard  acquisition,  and interest income  increased
$10.2 million.

        Further  leveraging was accomplished in mid-year with the purchase of an
additional  $132.4  million of one-year  Treasury based  adjustable-rate  agency
mortgage-backed  securities.  The result  was a $82.7  million  increase  in the
average  balance of  mortgage-backed  securities and a $6.3 million  increase in
interest income.

        Partial  funding  for the growth of earning  assets  was  provided  by a
$105.4  million  increase in average  deposits,  including  the $66.8 million in
deposits  from  Seaboard.  Additional  funding was provided by a $137.1  million
increase in average  borrowings  during the year. The average cost of borrowings
was reduced by 32 basis points by relying  relatively  less on short-term  Repos
and more on  convertible  FHLB  Advances  that  offer  interest  rates that were
approximately  50 basis  points less than 30-day  Repos.  Even though there is a
risk  that  interest  rates  will  decline  below  convertible   advance  rates,
management  feels that the risk is minimal,  given the  present  low  short-term
interest rate levels.  At December 31, 1996,  the Company had $102.7  million in
convertible  FHLB  Advances,  $159.0  million in other FHLB  Advances and $259.0
million in Repos.


                                       18

<PAGE>



        Interest-rate sensitivity is a function of the repricing characteristics
of the Company's  portfolio of assets and liabilities and the time and extent to
which  interest-earning  assets and  interest-bearing  liabilities mature or are
subject to changes in interest  rates.  To the extent that  liabilities  reprice
more quickly than assets within a given time period,  an  institution is said to
be "negatively gapped". Conversely, a "positive gap" indicates a situation where
assets  reprice  more  quickly  than  liabilities.  At December  31,  1996,  the
Company's  interest-earning  assets  which were  estimated  to mature or reprice
within one year exceeded the  Company's  interest-bearing  liabilities  with the
same characteristics, resulting in a positive gap of $21.2 million, or 1.49%, of
the Company's total assets. During a period of rising interest rates, a negative
gap would tend to decrease net interest income,  while a positive gap would tend
to result in an  increase  in net  interest  income.  During a period of falling
interest  rates,  a  negative  gap would  tend to result in an  increase  in net
interest  income,  while a positive  gap would  tend to  decrease  net  interest
income.

        The following table  summarizes the anticipated  maturities or repricing
of the Company's interest-earning assets and interest-bearing  liabilities as of
December 31, 1996. The estimates were produced using the Bank's internal model.
<TABLE>
<CAPTION>
                                                            Over One          Over Two
                                          One Year          Year Thru        Years Thru       Over Five
                                           or Less          Two Years        Five Years         Years            Total
                                       -------------     -------------     ------------     ------------     ------------
                                                                         (Dollars in Thousands)
<S>                                         <C>               <C>              <C>               <C>            <C>
Interest-earning assets:
Mortgage loans                              $215,630          $ 50,162         $194,021          $ 97,690       $  557,503
Mortgage-backed securities                   438,647            88,170          106,739            63,546          697,102
Consumer loans                                22,756            13,144           29,311            13,431           78,642
Investment securities                          9,242               500              700            30,000           40,442
                                            --------          --------         --------          --------       ----------
         Total                              $686,275          $151,976         $330,771          $204,667       $1,373,689
                                            ========          ========         ========          ========       ==========
Interest-bearing liabilities:
Certificates of deposit                     $400,340          $ 93,255         $ 76,676          $  8,601       $  578,872
Demand deposit accounts                       25,264            25,264           49,656              --            100,184
Savings accounts                              10,652            10,654           31,960              --             53,266
Other borrowings                               1,742             1,742            1,743              --              5,227
FHLB advances                                 32,377            30,724          191,587             7,023          261,711
Repos                                        182,000            66,000           11,000              --            259,000
                                            --------          --------         --------          --------       ----------
         Total                              $652,375          $227,639         $362,622          $ 15,624       $1,258,260
                                            ========          ========         ========          ========       ==========
Total off-balance sheet position            $(12,689)         $  5,141         $  7,548          $   --
                                            ========          ========         ========          ========

Excess (deficiency) of interest-earning
     assets over interest-bearing
     liabilities and off-balance sheet
     position                               $ 21,211          $(70,522)        $(24,303)         $189,043
                                            ========          ========         ========          ========
Cumulative excess (deficiency) of
     interest-earning assets over
     interest-bearing liabilities
     and off-balance sheet position         $ 21,211          $(49,311)        $(73,614)         $115,429
                                            ========          ========         ========          ========
Cumulative excess (deficiency) of
     interest-earning assets over
     interest-bearing liabilities and
     off-balance sheet position as a
     percent of total assets                    1.49%            (3.47)%          (5.18)%            8.13%
                                            ========          =========        =========         ========

</TABLE>




                                       19

<PAGE>



                         Liquidity and Capital Resources

        The Company's liquidity,  represented by cash and cash equivalents, is a
product of its  operating,  investing  and financing  activities.  The Company's
primary sources of funds are deposits, borrowings, amortization, prepayments and
maturities of outstanding loans and mortgage-backed securities,  sales of loans,
maturities of investment  securities and other short-term  investments and funds
provided from  operations.  While  scheduled  payments from the  amortization of
loans and  mortgage-backed  securities  and maturing  investment  securities and
short-term  investments  are relatively  predictable  sources of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic  conditions and  competition.  In addition,  the Company invests excess
funds in overnight deposits and other short-term  interest-earning  assets which
provide operational liquidity.  The Company has been able to generate sufficient
cash  through  its  deposits  as well as  borrowings  (primarily  consisting  of
advances from the FHLB of Atlanta and Repos).  At December 31, 1996, the Company
had $261.7  million of  outstanding  advances  from the FHLB of Atlanta,  $259.0
million in Repos and $5.2 million in other borrowings.

        Liquidity  provides  Life  funding  sources  for loan  growth as well as
unforeseen   transactional   requirements  affecting  the  asset  and  liability
structure  of the  balance  sheet.  Liquidity  management  is both a  daily  and
long-term  function of business  management.  OTS  regulations  require  savings
associations  to maintain an average  daily  balance of liquid assets equal to a
certain  percentage of the sum of its average daily balance of net  withdrawable
deposit  accounts and borrowings  payable in one year or less.  This  regulatory
liquidity requirement may be varied by the OTS from time to time (between 4% and
10%)  depending  upon  economic  conditions  and  savings  flows of all  savings
associations.  At  the  present  time,  the  required  liquidity  ratio  is  5%.
Additionally,  current  regulations  require that short-term  liquid assets must
constitute at least 1% of the average daily balance of net withdrawable accounts
and  current  borrowings.  The Bank,  as a component  of its  overall  asset and
liability  management  strategy,  maintains  qualifying  liquid assets at levels
which exceed  regulatory  requirements  and at December  31,  1996,  had a total
regulatory liquidity of 9.2% and a short-term regulatory liquidity of 1.1%.

        Excess liquidity is generally invested in short-term investments such as
overnight deposits.  On a longer-term basis, the Company maintains a strategy of
investing  in various  loan  products.  The  Company  uses its  sources of funds
primarily to meet its ongoing operations,  to fund maturing savings certificates
and  savings  withdrawals  and to fund loan  commitments  and its  portfolio  of
mortgage-backed  and  investment  securities.  At December 31,  1996,  the total
approved loan  commitments  outstanding  amounted to $47.7 million.  At the same
date,  commitments  under  unused  lines of  credit  amounted  to $9.0  million.
Certificates of deposit  scheduled to mature in one year or less at December 31,
1996, totaled $400.3 million.  Management believes that a significant portion of
maturing  deposits will remain with the Company.  The Company  anticipates that,
even with interest  rates at lower levels than have been  experienced  in recent
years, it will continue to have sufficient funds to meet its operational needs.

        Stockholders'  equity  amounted to $150.9  million at December 31, 1996.
This level of equity represents 10.6% of total assets at the end of the year. At
December  31,  1996,  the  Bank's  regulatory  capital  was  well in  excess  of
applicable regulatory requirements.



                                       20

<PAGE>



                       Impact of New Accounting Standards

     SFAS No. 125 and SFAS No. 127. The  Financial  Accounting  Standards  Board
("FASB") has issued SFAS No. 125,  "Accounting  for  Transfers  and Servicing of
Financial  Assets  and  Extinguishments  of  Liabilities",  and  SFAS  No.  127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125"
which do not permit  adoption prior to January 1, 1997. SFAS No. 125, as issued,
is effective for transfers and servicing of financial assets and extinguishments
of liabilities  occurring  after December 31, 1996.  SFAS No. 127 defers certain
provisions of SFAS No. 125 until after December 31, 1997.  SFAS No. 125 and SFAS
No. 127 will be adopted by the Bank when required. For additional information on
these and  other  FASB  statements,  see Note 21 to the  Consolidated  Financial
Statements.

                          Impact of Recent Legislation

SAIF Recapitalization

        On  September  30,  1996,  the  President  signed  into law the  Omnibus
Consolidated  Appropriations  Act. Part of this act, the Deposit Insurance Funds
Act of 1996  ("BIF/SAIF  Legislation"),  provides for,  among other things,  the
resolution of the FDIC premium disparity between Bank Insurance Fund ("BIF") and
SAIF insured financial institutions.

        The  BIF/SAIF  Legislation  required a one-time  special  assessment  to
recapitalize the SAIF. The assessments,  based on the amount of  SAIF-assessable
deposits held by an institution as of March 31, 1995, was effective on September
30, 1996,  and, in accordance  with final rules adopted by the FDIC, was paid in
November 1996. The FDIC determined  that, in order to fully  capitalize the SAIF
to statutorily mandated levels, all SAIF insured depository institutions (except
certain "weak  institutions") were assessed 65.7 basis points on SAIF-assessable
deposits as of March 31, 1995. If an institution merged with or acquired another
institution  since  March  31,  1995,  it was  required  to  add to its  special
assessment base the March 31, 1995 assessable  deposits of the institution  that
was acquired.

        Consistent with the BIF/SAIF  Legislation,  the Bank's pro-rata one-time
special assessment to recapitalize the SAIF was $4.4 million. In conformity with
the applicable FASB guidelines, the Bank accrued this liability on September 30,
1996,  resulting in the additional one-time increase in FDIC premiums,  and paid
the assessment in November 1996.

        Effective January 1, 1997, the BIF/SAIF  Legislation  requires that SAIF
members  have  the  same   risk-based   assessment   schedule  as  BIF  members.
Additionally,  the  legislation  provides  for a  sharing  formula  to meet  the
Financing  Corporation  bond obligation  ("FICO Bonds")1  between members of the
SAIF and the BIF. The BIF/SAIF  Legislation  also  provides for the  conditional
merger of the BIF and the SAIF no earlier than  January 1, 1999.  When the funds
are merged, the FICO Bond premium will be equal for all members of the new fund.

        As a "well capitalized institution", the Bank previously paid the lowest
SAIF  insurance  premium  rate of 23 basis  points on insured  deposits  for the
fourth quarter of 1996. Beginning January 1, 1997,
--------

1 FICO  Bonds  were  issued in an attempt  undertaken  between  1987 and 1989 to
provide  funds for the ailing  Federal  Savings and Loan  Insurance  Corporation
("FSLIC") without a direct taxpayer expense. Since the establishment of the SAIF
in 1989, a portion of the SAIF  premiums has been  earmarked to satisfy the $780
million in annual  interest  obligations on FICO Bonds,  interest that continues
until 2019.


                                       21

<PAGE>



unless the base rate for "well capitalized institutions" is modified, the Bank's
FDIC  premium  should be 6.4 basis points (the FICO Bond  obligation).  Based on
deposit levels at December 31, 1996,  this will reduce the Bank's annual premium
assessment by approximately $1.2 million.

Bad Debt Reserve Recapture

        On August 20, 1996, as part of the Small  Business Job Protection Act of
1996,  Congress  enacted  legislation  that  makes it  substantially  easier for
savings  institutions to convert to a commercial  bank charter,  diversify their
assets, or merge into a commercial bank. The legislation effectively changes the
methods savings institutions use to compute bad debt deductions for tax purposes
and  requires  savings  institutions  with assets  greater  than $500 million to
recapture   their   post-1987  tax  reserves.   The  Bank  has  determined  that
approximately  $1.4 million of  post-1987  tax reserves are subject to recapture
over a six-year  period.  The Bank previously  recorded a deferred tax liability
related to its post-1987 tax reserves and has determined that the effects of the
recapture  are not  material  to the Bank's  financial  condition  or results of
operations.

                     Impact of Inflation and Changing Prices

        The Consolidated  Financial  Statements of the Company and related notes
presented  herein have been prepared in  accordance  with GAAP which require the
measurement of financial  position and operating  results in terms of historical
dollars,  without  considering changes in the relative purchasing power of money
over time due to inflation.

        Unlike  most  industrial  companies,  virtually  all of the  assets  and
liabilities  of a financial  institution  such as the  Company  are  monetary in
nature.  As a  result,  interest  rates  have a  more  significant  impact  on a
financial  institution's  performance  than the  effects  of  general  levels of
inflation.  Interest rates do not  necessarily  move in the same direction or in
the same magnitude as the prices of goods and services, since such prices may be
affected by inflation to a larger extent than interest rates. As market interest
rates rise or fall in relation to the rates  earned on the  Company's  loans and
investments, the value of these assets decreases or increases, respectively.


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



[PICTURES AND DESCRIPTIONS DELETED - SEE APPENDIX]


                                       22

<PAGE>



                          Report of Independent Auditor





The Board of Directors and Stockholders of
  Life Bancorp, Inc.
Norfolk, Virginia


We have audited the  accompanying  consolidated  balance sheets of Life Bancorp,
Inc.  and  subsidiary  as of  December  31,  1996  and  1995,  and  the  related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended  December 31, 1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Life  Bancorp,  Inc.  and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three  years in the period  ended  December
31, 1996, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed  its method of  accounting  for certain  investments  in debt and equity
securities as of January 1, 1994.


/s/ Edmondson, LedBetter & Ballard, L.L.P.



Norfolk, Virginia
January 27, 1997


                                       23

<PAGE>
<TABLE>
<CAPTION>
                                                Life Bancorp, Inc.
                                            Consolidated Balance Sheets
                                         (In thousands, except stock data)

                                                                                           December 31,
                                                                                ---------------------------------
                                                                                     1996               1995
                                                                                --------------     --------------
<S>                                                                             <C>                <C>
                                      Assets
Cash and cash equivalents:
   Interest-bearing deposits....................................................$    3,494         $    1,668
   Noninterest-bearing deposits.................................................     7,789              7,177
Securities held-to-maturity (Note 3):
   Mortgage-backed securities (market value of $141,269 and $169,195,
     respectively)..............................................................   140,974            168,602
Securities available-for-sale (at market value) (Note 4):
   Investments .................................................................    30,742             23,040
   Mortgage-backed securities...................................................   565,086            393,587
Loans receivable, net (Note 5)..................................................   622,405            467,424
Accrued interest and dividends receivable (Note 6)..............................    10,824              9,443
Real estate owned, net (Note 7).................................................     1,202                622
FHLB stock, at cost (Note 8)....................................................    13,086              8,310
Premises and equipment, net (Note 9)............................................    17,468             13,975
Excess of cost over net assets acquired (Notes 1 and 2).........................     4,792                459
Other assets, including net deferred tax asset of $64 and $36,
   respectively (Note 16).......................................................     1,900              2,693
                                                                                ----------         ----------
       Total assets.............................................................$1,419,762         $1,097,000
                                                                                ==========         ==========
                       Liabilities and Stockholders' Equity
Liabilities:
   Deposits (Note 10)...........................................................$  732,322         $  607,139
   Notes payable and other borrowings:
     Advances from Federal Home Loan Bank of Atlanta (Note 12)..................   261,711            148,636
     Securities sold under agreements to repurchase (Note 11)...................   259,000            162,000
     Secured note due to Thrift Financing Corporation (Note 13).................     5,227              6,518
   Advances from borrowers for taxes and insurance..............................     1,795              2,981
   Accrued interest payable, accrued expenses and other liabilities.............     8,769              8,785
                                                                                ----------         ----------
       Total liabilities........................................................ 1,268,824            936,059
                                                                                ----------         ----------
Commitments and contingencies (Note 20)
Stockholders' Equity:
   Preferred stock of $0.01 par value, authorized 5,000,000 shares,
     none issued or outstanding.................................................        --                 --
   Common stock of $0.01 par value, authorized 30,000,000 shares,
     issued and outstanding 9,846,840 shares and 10,910,625, respectively.......        98                109
   Additional paid-in capital...................................................    92,122            106,659
   Retained earnings, substantially restricted (Note 23)........................    63,871             59,447
   Unearned common stock held by Employees' Stock Ownership
     Plan ("ESOP") (Note 15)....................................................    (5,732)            (7,073)
   Unearned common stock held by Recognition and Retention Plan
     ("RRP") (Note 15)..........................................................    (1,389)                --
   Unrealized gain on securities available-for-sale, net of tax (Note 4)........     1,968              1,799
                                                                                ----------         ----------
       Total stockholders' equity...............................................   150,938            160,941
                                                                                ----------         ----------
       Total liabilities and stockholders' equity...............................$1,419,762         $1,097,000
                                                                                ==========         ==========

<FN>

              The accompanying notes are an integral part of these statements.
</FN>
</TABLE>


                                       24

<PAGE>

<TABLE>
<CAPTION>
                                                Life Bancorp, Inc.
                                       Consolidated Statements of Operations
                                       (In thousands, except per share data)
                                                                                           For the Years Ended
                                                                                              December 31,
                                                                                ----------------------------------------
                                                                                  1996            1995            1994
                                                                                ---------     -----------      ---------
<S>                                                                             <C>              <C>            <C>    
Interest income:
   Interest on cash deposits...............................................     $   372          $   357        $   711
   Interest on investment securities.......................................       2,411              857            926
   Interest on mortgage-backed securities..................................      43,494           37,162         23,328
   Interest on loans.......................................................      48,856           38,649         32,052
                                                                                -------          -------        -------
     Total interest income.................................................      95,133           77,025         57,017
                                                                                -------          -------        -------

Interest expense:
   Interest on deposits....................................................      35,662           30,222         24,545
   Interest on notes payable and other borrowings..........................      25,267           18,044         10,874
                                                                                -------          -------        -------
     Total interest expense................................................      60,929           48,266         35,419
                                                                                -------          -------        -------
     Net interest income...................................................      34,204           28,759         21,598
Provision (credit) for loan losses (Note 5)................................        (265)             454          1,431
                                                                                -------          --------       -------
     Net interest income after provision for loan losses...................      34,469           28,305         20,167
                                                                                -------          -------        -------

Noninterest income:
   Deposit account fees and related income.................................         629              444            352
   Loan servicing fees.....................................................         577              636            674
   Net gain on sales of mortgage loans held-for-sale.......................          12              142             95
   Net gain on sales of real estate owned..................................         300               96            229
   Net gain on sales of assets.............................................           5               62              7
   Net gain (loss) on sales of investments and mortgage-backed
     securities............................................................          89             (883)          (691)
   Unrealized loss on mortgage loans held-for-sale.........................          --               --            (68)
   Other (Note 17).........................................................       1,750            1,526          2,697
                                                                                -------          -------        -------
     Total noninterest income..............................................       3,362            2,023          3,295
                                                                                -------          -------        -------

Noninterest expense:
   Compensation and employee benefits......................................      10,795            9,834          7,411
   Occupancy and office operations.........................................       3,063            2,481          2,392
   FDIC premium ...........................................................       1,568            1,365          1,256
   Special SAIF assessment (Note 18).......................................       4,380              N/A            N/A
   Advertising and promotion...............................................         593              639            610
   Provision for losses on real estate owned...............................          61               41            746
   Amortization of excess of cost over net assets acquired.................         900               96            271
   Other (Note 17).........................................................       2,141            1,598          1,294
                                                                                -------          -------        -------
     Total noninterest expense.............................................      23,501           16,054         13,980
                                                                                -------          -------        -------
Income before income taxes.................................................      14,330           14,274          9,482
Income tax provision (Note 16).............................................       5,716            5,126          3,007
                                                                                -------          -------        -------
Net income.................................................................     $ 8,614          $ 9,148        $ 6,475
                                                                                =======          =======        =======
Net income per common and common equivalent share (4th quarter only for 1994):
     Primary...............................................................     $   .89          $   .90        $   .27
                                                                                =======          =======        =======

     Fully diluted.........................................................     $   .88          $   .89        $   .27
                                                                                =======          =======        =======
<FN>
              The accompanying notes are an integral part of these statements.
</FN>
</TABLE>

                                       25

<PAGE>

<TABLE>
<CAPTION>
                                                Life Bancorp, Inc.
                             Consolidated Statement of Changes in Stockholders' Equity
                                                  (In thousands)

                                                                                                       Unrealized
                                                               Retained     Unearned    Unearned       Gain (Loss)
                                                               Earnings,     Common      Common       on Securities
                                                 Additional    Substan-      Stock       Stock         Available-
                                        Common    Paid-in       tially       Held        Held           for-Sale,
                                        Stock     Capital     Restricted    by ESOP     by RRP         Net of Tax      Total
                                        ------    --------    ----------   ---------   ---------    ---------------  --------
<S>                                     <C>       <C>           <C>        <C>         <C>              <C>          <C>
Balance at December 31, 1993..........  $ --      $     --      $48,252    $    --     $    --          $    --      $ 48,252
Net income............................    --            --        6,475         --          --               --         6,475
Net proceeds from issuance 
   of common stock....................   109       106,181           --     (8,728)         --               --        97,562
Common stock released by
   ESOP trust.........................    --          (45)           --        263          --               --           218
Unrealized loss on securities
   available-for-sale, net of tax.....    --            --           --         --          --           (3,996)       (3,996)
                                        ----      --------      -------    -------     -------          -------      --------

Balance at December 31, 1994..........   109       106,136       54,727     (8,465)         --           (3,996)      148,511
                                        ----      --------      -------    -------     -------          -------      --------
Net Income............................    --            --        9,148         --          --               --         9,148
Cash dividends paid...................    --            --       (4,428)        --          --               --        (4,428)
Net conversion expenses and
   refunds applied to additional
   paid-in capital....................    --           (16)          --         --          --               --           (16)
Common stock released by
   ESOP trust.........................    --           539           --      1,392          --               --         1,931
Unrealized gain on securities
   available-for-sale, net of tax.....    --            --           --         --          --            5,795         5,795
                                        ----      --------      -------    -------     -------          -------      --------

Balance at December 31, 1995 .........   109       106,659       59,447     (7,073)         --            1,799       160,941
                                        ----      --------      -------    --------    -------          -------      --------
Net Income............................    --            --        8,614         --          --               --         8,614
Cash dividends paid...................    --            --       (4,190)        --          --               --        (4,190)
Repurchase of common stock............   (11)      (15,151)          --         --          --               --       (15,162)
Common stock released by
   ESOP trust.........................    --           709           --      1,341          --               --         2,050
Acquisition of common stock
   by RRP.............................    --           (95)          --         --      (2,901)              --        (2,996)
Common stock released by  
   RRP trust..........................    --            --           --         --         895               --           895
Amortization of award of RRP..........    --            --           --         --         617               --           617
Unrealized gain on securities
   available-for-sale, net of tax.....    --            --           --         --          --              169           169
                                        ----      --------      -------    -------     -------          -------      --------

Balance at December 31, 1996 .........  $ 98      $ 92,122      $63,871    $(5,732)    $(1,389)         $ 1,968      $150,938
                                        ====      ========      =======    =======     =======          =======      ========



<FN>

                 The accompanying notes are an integral part of these statements.
</FN>
</TABLE>

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                                       Life Bancorp, Inc.
                                              Consolidated Statements of Cash Flows
                                                         (In thousands)
                                                                                                 For the Years Ended
                                                                                                    December 31,
                                                                                     -------------------------------------------
                                                                                         1996            1995            1994
                                                                                     -----------     -----------     -----------
<S>                                                                                    <C>             <C>             <C> 
Cash flows from operating activities:
   Net Income...................................................................       $ 8,614         $ 9,148         $ 6,475
   Adjustments to reconcile net income to net cash provided by
     (used in) operating activities:
     Provision for losses on loans and real estate owned........................         (204)             495           2,177
     Depreciation and amortization..............................................           651             530             509
     Net amortization of premiums and discounts on investments and
        mortgage-backed securities..............................................         1,676             (67)          3,806
     Amortization of excess of cost over net assets acquired....................           900              96             271
     Hotel income in excess of renovation costs.................................            --              --            (249)
     Charitable contribution of premises and real estate owned..................           153              --              --
     Net gain on sales of real estate owned.....................................          (300)            (96)           (229)
     Net gain on sales of mortgage loans........................................           (12)           (142)            (95)
     Unrealized loss on mortgage loans held-for-sale............................            --              --              68
     Net gain on sales of assets................................................            (5)            (62)             (7)
     Net (gain) loss on sales of investments and mortgage-backed securities.....           (89)            883             691
   Loans originated for resale..................................................          (880)        (10,451)         (5,881)
   Proceeds from loans sold to others...........................................           892          10,593          13,562
   Noncash ESOP expense.........................................................         1,105           1,046              --
   Noncash RRP expense..........................................................           915             597              --
   Changes in assets and liabilities:
     (Increase) decrease in assets:
      Accrued interest receivable...............................................          (828)           (480)         (1,819)
      Deferred loan fees........................................................           (94)            138            (427)
      Deferred income taxes.....................................................            28          (3,181)          1,701
      Deferred gain on sale of hotels...........................................            --              --          (1,080)
      Other assets..............................................................         1,025           1,285              60
     Increase (decrease) in liabilities:
      Accrued expenses and other liabilities....................................            82           1,263             601
                                                                                       -------         -------         -------
      Net cash provided by (used in) operating activities.......................       $13,629         $11,595         $20,134
                                                                                       -------         -------         -------












<FN>

                            (Continued on Next Page)

                 The accompanying notes are an integral part of these statements.
</FN>
</TABLE>

                                       27

<PAGE>
<TABLE>
<CAPTION>
                                                       Life Bancorp, Inc.
                                              Consolidated Statements of Cash Flows
                                                         (In thousands)
                                                                                                  For the Years Ended
                                                                                                     December 31,
                                                                                     -------------------------------------------
                                                                                          1996            1995            1994
                                                                                     -----------     -----------     -----------
<S>                                                                                    <C>             <C>             <C>   
Cash flows from investing activities:
   Proceeds from sales and maturities of investments and mortgage-backed 
     securities.................................................................       $  39,959       $  67,040       $  95,106
   Purchases of investment securities...........................................         (19,943)        (19,956)        (13,137)
   Principal collected on loans.................................................          54,779          51,728          68,267
   Loans originated for investment..............................................        (144,212)        (98,773)       (114,227)
   Proceeds from sale of premises and equipment.................................               5             146               7
   Purchases of premises and equipment..........................................          (3,055)           (263)         (1,211)
   Purchases of mortgage-backed securities......................................        (299,164)       (188,529)       (355,338)
   Purchases of hotel renovations...............................................              --              --            (459)
   Principal collected on mortgage-backed securities............................         133,335          92,708          78,040
   Proceeds from sale of real estate owned......................................             834             513           1,736
   Purchase of FHLB stock.......................................................          (4,346)           (518)         (1,726)
   Proceeds from redemption of FHLB stock.......................................             350             957           1,141
   Principal collected on ESOP loan.............................................           1,257           1,257             218
   Payments for purchase of Seaboard Bancorp, Inc., net of cash acquired........          (6,074)             --              --
                                                                                       ---------       ---------       ---------
     Net cash provided by (used in) investing activities........................        (246,275)        (93,690)       (241,583)
                                                                                       ---------       ---------       ---------

Cash flows from financing activities:
   Net increase (decrease) in checking deposits, savings
     deposits, and certificates of deposit......................................          58,394          18,877          59,330
   Proceeds from notes payable and other borrowings.............................         309,553         188,819         220,616
   Repayment of notes payable and other borrowings..............................        (108,869)       (119,854)       (158,198)
   Net increase (decrease) in advances from borrowers for taxes and insurance...          (1,335)            (31)            712
   Dividends paid...............................................................          (4,501)         (4,800)             --
   Repurchase of common stock...................................................         (15,162)             --              --
   Purchase of common stock held for RRP........................................          (2,996)             --              --
   Net proceeds (refunds) from issuance of common stock.........................              --             (16)         97,562
                                                                                       ---------       ---------       ---------
     Net cash provided by (used in) financing activities........................         235,084          82,995         220,022
                                                                                       ---------       ---------       ---------

     Net increase (decrease) in cash and cash equivalents.......................           2,438             900          (1,427)

Cash and cash equivalents, beginning of year....................................           8,845           7,945           9,372
                                                                                       ---------       ---------       ---------

Cash and cash equivalents, end of year..........................................       $  11,283       $   8,845       $   7,945
                                                                                       =========       =========       =========

Supplemental  disclosures of cash flow information:  Cash paid (received) during
   the year for:
     Interest...................................................................       $  35,195       $  28,685       $  20,670
                                                                                       =========       =========       =========
     Income tax payments........................................................       $   4,518       $   8,182       $   1,545
                                                                                       =========       =========       =========
     Income tax refunds.........................................................       $    (878)      $  (1,953)      $      --
                                                                                       =========       =========       =========

Supplemental disclosures of noncash transactions:
   Net foreclosed assets transferred from loans receivable to real estate owned.       $   1,149       $     542       $     935
                                                                                       =========       =========       =========

   Loans originated to finance sales of real estate owned.......................       $      --       $     322       $   9,392
                                                                                       =========       =========       =========


<FN>
                 The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
                                       28

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

1.    Summary of Significant Accounting Policies:

      Nature of Operations

      Life Bancorp,  Inc. (the "Holding Company" or the "Company") is a Virginia
      corporation  organized  in May,  1994,  for the  purpose of  becoming  the
      unitary  savings and loan holding  company for Life Savings Bank, FSB (the
      "Bank").  Through  its  network of 20 full  service  offices  in  Norfolk,
      Chesapeake,  Portsmouth,  Suffolk and Virginia Beach,  Virginia,  the Bank
      offers permanent and construction  residential loans, second mortgages and
      equity  lines of  credit,  consumer  loans,  commercial  real  estate  and
      business loans and lines of credit to individuals and businesses.  Through
      these  offices,  the Bank  delivers a wide range of deposit  products  and
      services to meet the needs of individuals, businesses and organizations.

      Principles of Consolidation

      The consolidated financial statements include the accounts of the Company,
      its  wholly-owned  subsidiary  Life  Savings  Bank,  FSB,  and the  Bank's
      wholly-owned subsidiaries.  The accounts of the Company are included as of
      October 11, 1994,  the  effective  date of the  conversion  (Note 23). All
      significant intercompany balances and transactions have been eliminated.

      Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure  of  contingent  assets  and  liabilities  at the  date  of the
      financial  statements  and the  reported  amounts of revenues and expenses
      during the  reporting  period.  Actual  results  could  differ  from those
      estimates.

      Cash Equivalents

      Cash   and   cash   equivalents    consist   of    interest-bearing    and
      noninterest-bearing  deposits. For purposes of the Consolidated Statements
      of Cash Flows,  the Company  considers all highly liquid debt  instruments
      with original maturities when purchased of three months or less to be cash
      equivalents.  From  time to time,  the Bank  may  have  deposits  at other
      institutions in excess of insurance coverage.

      Investment and Mortgage-Backed Securities

      Effective  January  1,  1994,  the Bank  adopted  Statement  of  Financial
      Accounting   Standards   ("SFAS")  No.  115  under  which  securities  are
      classified as held-to-maturity,  available-for-sale or trading. Securities
      classified as  held-to-maturity  are carried at amortized cost as the Bank
      has the positive intent and ability to hold these  securities to maturity.
      Securities classified as available-for-sale are carried at fair value with
      the amount of  unrealized  gains and  losses,  net of tax,  reported  as a
      separate  component of  stockholders'  equity.  The Bank had no securities
      classified as trading in the years ended 1996, 1995 or 1994.

      The amortized  cost  of  securities   classified  as  held-to-maturity  or
      available-for-sale is  adjusted  for  premium  amortization  and  discount
      accretion  using  the interest  method  over  the  estimated   period  to
      maturity.  Gains  or  losses  are  recognized  based  on  the  specific-
      identification method.

      The Bank had no outstanding commitments to sell securities at December 31,
      1996.

      Prior to the  adoption of SFAS No.  115,  all  securities  were  stated at
      amortized cost.

                                       29

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Loans Receivable

      Loans  receivable  are  stated  at  unpaid  principal  balances,  less the
      allowance for loan losses and net deferred loan origination fees or costs.

      The allowance for loan losses is increased by provisions charged to income
      and  reduced  by  charge-offs,  net of  recoveries.  Management's  monthly
      evaluation  of the  adequacy of the  allowance is based on the Bank's past
      loan loss experience,  known and inherent risks in the portfolio,  adverse
      situations  that may affect  the  borrower's  ability to repay,  estimated
      value of any underlying collateral and current economic conditions.

      Uncollectible interest on loans that are contractually past due is charged
      off  or  an  allowance  is  established  based  on  management's   monthly
      evaluation.  The allowance is established  by a charge to interest  income
      equal to all  interest  previously  accrued,  and  income is  subsequently
      recognized  only to the  extent  cash  payments  are  received  until,  in
      management's  judgment,  the borrower's  ability to make periodic interest
      and  principal  payments is no longer in doubt,  in which case the loan is
      returned to accrual status.

      Loan Origination Fees

      Origination  fees,  net of certain  direct  costs,  have been  deferred in
      accordance with SFAS No. 91. Such net fees are recognized as an adjustment
      to the  interest-rate  yield on each loan and are  included in income over
      the loan's contractual life, adjusted for prepayments. In the event that a
      loan  giving  rise to net  deferred  fees is repaid  prior to  maturity or
      renegotiation,  the  remaining  balance of any  related  deferred  fees is
      recognized as income at that time.

      Loan Servicing Fees

      The Bank earns fees for servicing  mortgage loans for others, but receives
      no excess fees required to be  capitalized.  Therefore,  all such fees are
      taken into income in the period  earned.  However,  see Note 21  regarding
      SFAS No. 122,  which was adopted by the Bank of January 1, 1996,  and SFAS
      No. 125, effective January 1, 1997. The amount of loans being serviced for
      others is disclosed in Note 5.

      Mortgage Loans Held-for-Sale

      The Bank periodically  generates  additional funds for lending by selling,
      without  recourse,  whole  fixed-rate loans with maturities of 15 years or
      greater.  Mortgage loans held-for-sale are carried at the lower of cost or
      market.  Gains or losses on such sales are  recognized at the time of sale
      and are  determined by the  difference  between the net sales proceeds and
      the  carrying  value of the loans  sold  adjusted  for any  remaining  net
      deferred fees as previously  discussed.  Management  intends,  and has the
      ability,  to hold all other loans to maturity and  management is not aware
      of any  conditions,  such as liquidity or regulatory  requirements,  which
      would impair its ability to do so.

      Real Estate Owned

      Real estate acquired in settlement of loans ("Real Estate Owned" or "REO")
      is  initially  recorded  at the lower of cost (loan  value of real  estate
      acquired in  settlement  of loans plus  incidental  expenses) or estimated
      fair value.  Costs  relating to the  development  and  improvement  of the
      property are capitalized,  while holding costs of the property are charged
      to expense in the period incurred. Carrying values of REO are reduced when
      they exceed fair value minus the estimated  costs to sell. Fair values and
      net realizable  values are determined by reference to appraisals,  written
      market  analyses from real estate  brokers,  tax  assessments,  internally
      generated property evaluations, and other relevant data.

                                       30

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Premises and Equipment

      Premises and equipment are recorded at cost and depreciation is calculated
      using the straight-line method, based on the following useful lives:

                           Asset Category                          Useful Life
                Buildings                                         20 - 50 years
                Furniture, fixtures and equipment                  3 - 10 years
                Automobiles                                             4 years

      Excess of Cost Over Net Assets Acquired

      The  cost in  excess  of fair  value of net  assets  acquired  relates  to
      acquisitions  in 1983 and 1996 and is being  amortized in accordance  with
      SFAS No. 72. The Bank  periodically  assesses  the  remaining  unamortized
      amounts of such intangible  assets to determine if impairment of value has
      occurred. See Note 2 for a discussion of the Company's 1996 acquisition of
      Seaboard Bancorp, Inc.

      Securities Sold Under Agreements to Repurchase

      The Bank  routinely  enters into sales of securities  under  agreements to
      repurchase (reverse repurchase agreements).  Reverse repurchase agreements
      are  accounted  for  as  financings  and  the  obligations  to  repurchase
      securities sold are reflected as a liability in the  Consolidated  Balance
      Sheets.  The  securities  underlying  the  agreements  remain in the asset
      accounts.

      Off-Balance-Sheet Risk

      The Bank is a party to financial instruments with  off-balance-sheet  risk
      such as  commitments  to extend  credit,  lines of credit  and  letters of
      credit. Management assesses the risk for potential losses related to these
      instruments on an on-going basis.

      Pension Plans

      The Bank maintains a non-contributory defined benefit pension plan for all
      qualifying  full-time  employees  hired prior to their 65th birthday.  The
      benefit formula is based upon final average earnings and years of credited
      service. The Bank's policy is to fund actuarially determined costs as they
      accrue.

      The Bank also maintains a  non-contributory  defined  benefit pension plan
      for  all  qualifying  directors.  The  plan  benefit  is  based  upon  120
      formula-determined  level payments beginning the month following the later
      of  retirement  or  attainment  of age 70.  While the related  expense and
      liability for the plan are  recognized  annually,  the Bank's policy is to
      fund the plan as benefits  become  payable to the retirees.  Funding needs
      for the plan are expected to be substantially offset by insurance proceeds
      as explained in Note 15.

      Deferred Compensation Plans

      The  Bank  also  maintains  two  deferred   compensation  plans,  one  for
      qualifying   directors  and   employees  and  the  other  for   qualifying
      executives.  Benefits  under both plans are based on the amount and timing
      of  both  elective  participant   deferrals  and  discretionary   employer
      contributions.  Contributions  are  funded  when the  related  expense  is
      recognized.


                                       31

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Income Taxes

      The Company and its subsidiary file a consolidated  income tax return. The
      provision for income taxes is computed  according to the terms of SFAS No.
      109, "Accounting for Income Taxes". Under this method,  deferred taxes are
      provided on a liability  method whereby deferred tax assets are recognized
      for  deductible  temporary  differences  and operating loss and tax credit
      carryforwards  and deferred tax  liabilities  are  recognized  for taxable
      temporary  differences.  Temporary differences are the differences between
      the  reported  amounts  of assets  and  liabilities  and their tax  bases.
      Deferred  tax assets are reduced by a  valuation  allowance  when,  in the
      opinion of management, it is more likely than not that some portion or all
      of the deferred  tax assets will not be realized.  Deferred tax assets and
      liabilities  are adjusted for the effects of changes in tax laws and rates
      on the date of enactment.

      Fair Value of Financial Instruments

      The estimated fair values required under SFAS No. 107,  "Disclosures About
      Fair Value of Financial  Instruments,"  have been  determined  by the Bank
      using appropriate valuation methodologies and available market information
      as of  December  31,  1996 and 1995.  However,  considerable  judgment  is
      required  to  develop  the  estimates  of  fair  value.  Accordingly,  the
      estimates  presented in Note 22 for the fair value of the Bank's financial
      instruments are not  necessarily  indicative of the amounts the Bank could
      realize  in a  current  market  exchange.  The  use  of  different  market
      assumptions or estimation  methodologies may have a material effect on the
      estimated fair value amounts.

      Reclassification

      Certain items in the 1995 and 1994 consolidated  financial statements have
      been reclassified in order to conform with the 1996 consolidated financial
      statements  presentation.  These  reclassifications had no effect on 1996,
      1995 or 1994 net income or retained earnings.

2.    Mergers and Acquisitions

      On January 31, 1996,  the Company  completed its  acquisition  of Seaboard
      Bancorp, Inc. ("Seaboard"), the holding company for Seaboard Savings Bank,
      F.S.B., ("Seaboard Savings"). Seaboard Savings,  headquartered in Virginia
      Beach,  operated  three  offices,  one  each  in the  Virginia  cities  of
      Chesapeake,  Virginia  Beach and  Portsmouth.  The  operations of Seaboard
      Savings were merged into the Bank effective February 1, 1996.

      The purchase of Seaboard was  accounted  for under the purchase  method of
      accounting,  whereby the purchase  price is  allocated  to the  underlying
      assets  acquired and  liabilities  assumed based on their  respective fair
      values at the date of acquisition. The total cost of $8.8 million exceeded
      the fair value of the net assets by approximately  $5.2 million which will
      be accounted for as goodwill and  amortized,  in accordance  with SFAS No.
      72, over approximately 15 years.  Additionally,  a $451,000  adjustment in
      the  valuation  of goodwill  was made due to the SAIF  special  assessment
      (Note 18). The results of  operations of Seaboard,  beginning  February 1,
      1996,  are included in the  Company's  results of  operations  in the 1996
      financial statements.

      At December  31,  1995,  Seaboard's  assets  totaled  approximately  $82.0
      million  and  its  deposits  totaled   approximately  $66.5  million.  The
      financial  results of the  Company  for 1995 do not include the results of
      the acquisition of Seaboard.


                                       32

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

3.    Securities Held-to-Maturity:

      The   amortized   cost  and   estimated   market   value   of   securities
      held-to-maturity  at December 31, 1996 and 1995, are summarized as follows
      (in thousands):

<TABLE>
<CAPTION>
                                       December 31, 1996                                    December 31, 1995
                       ---------------------------------------------------   --------------------------------------------------
                                       Gross      Gross         Estimated                   Gross        Gross       Estimated
                        Amortized   Unrealized  Unrealized        Market     Amortized    Unrealized   Unrealized      Market
                          Cost         Gains      Losses          Value         Cost        Gains        Losses        Value
                       -----------  ----------  ----------      ----------   -----------  -----------  -----------  -----------
<S>                    <C>          <C>          <C>            <C>          <C>          <C>          <C>          <C>
Mortgage-backed
  securities
  FHLMC/FNMA/
  GNMA
     30-year           $ 31,161     $  524       $  --          $ 31,685     $ 38,237     $  586       $  --        $ 38,823
     15-year             17,347        414          --            17,761       23,196        490          --          23,686
     7-year              67,082         --        (839)           66,243       78,377          2        (601)         77,778
     5-year               5,136         17          (9)            5,144        6,599         42          (7)          6,634
     Adjustable          10,223        292          --            10,515       12,165        102          --          12,267
  REMICs
     Fixed-rate          10,025         --        (104)            9,921       10,028         --         (21)         10,007
                       --------     ------       -----          --------     --------     ------       -----        --------

     Total             $140,974     $1,247       $(952)         $141,269     $168,602     $1,222       $(629)       $169,195
                       ========     ======       =====          ========     ========     ======       =====        ========
</TABLE>


      The   amortized   cost  and   estimated   market   value   of   securities
      held-to-maturity by final maturity date at December 31, 1996 and 1995, are
      shown below (in thousands):
<TABLE>
<CAPTION>
                                                                1996                                1995
                                                  ---------------------------         ---------------------------
                                                                    Estimated                           Estimated
                                                  Amortized           Market          Amortized           Market
                                                    Cost              Value             Cost              Value
                                                  ---------         ---------         ---------         ---------
   <S>                                            <C>               <C>               <C>               <C>   
   Due in one year or less                        $  5,136          $  5,144          $     --          $     --
   Due after one year through five years            67,092            66,254            84,976            84,413
   Due after five years through ten years           19,855            20,039            12,615            12,890
   Due after ten years                              48,891            49,832            71,011            71,892
                                                  --------          --------          --------          --------
                                                  $140,974          $141,269          $168,602          $169,195
                                                  ========          ========          ========          ========
</TABLE>





                                       33

<PAGE>
                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

4.    Securities Available-for-Sale:

      The   amortized   cost  and   estimated   market   value   of   securities
      available-for-sale  at  December  31,  1996 and 1995,  are  summarized  as
      follows (in thousands):
<TABLE>
<CAPTION>
                                        December 31, 1996                                      December 31, 1995
                       --------------------------------------------------    ------------------------------------------------
                                      Gross        Gross        Estimated                   Gross        Gross      Estimated
                       Amortized    Unrealized   Unrealized       Market     Amortized    Unrealized   Unrealized     Market
                         Cost         Gains        Losses         Value        Cost         Gains        Losses       Value
                       ---------    ----------   ----------     ---------    ---------    ----------   ----------   ---------
<S>                    <C>          <C>          <C>            <C>          <C>          <C>          <C>          <C>
U.S. Government
  and federal agency
  obligations          $ 31,316     $   12       $  (586)       $ 30,742     $ 17,957     $   68       $  --        $ 18,025
Mutual funds                 --         --            --              --        5,000         15          --           5,015
                       --------     ------       -------        --------     --------     ------       -----        --------
                         31,316         12          (586)         30,742       22,957         83          --          23,040
                       --------     ------       -------        --------     --------     ------       -----        --------
Mortgage-backed
  securities
  FHLMC/FNMA/
  GNMA 
     30-year             27,450        450          (153)         27,747       32,949        387         (39)         33,297
     7-year              17,055         17          (161)         16,911       40,217         17        (176)         40,058
     Adjustable         356,559      5,542          (129)        361,972      192,340      2,700        (226)        194,814
REMICs
  Fixed-rate            131,337        114        (1,917)        129,534       77,274        260        (178)         77,356
  Adjustable-rate        28,922         33           (33)         28,922       47,945        252        (135)         48,062
                       --------     ------       -------        --------     --------     ------       -----        --------

                        561,323      6,156        (2,393)        565,086      390,725      3,616        (754)        393,587
                       --------     ------       -------        --------     --------     ------       -----        --------

     Total             $592,639     $6,168       $(2,979)       $595,828     $413,682     $3,699       $(754)       $416,627
                       ========     ======       =======        ========     ========     ======       =====        ========
</TABLE>


      The  application  of SFAS No. 115  resulted  in a credit to  stockholders'
      equity of  $1,968,000  ($3,189,000  net of income  tax of  $1,221,000)  at
      December 31, 1996,  compared to a credit of $1,799,000  ($2,945,000 net of
      income tax of $1,146,000) at December 31, 1995.

      The   amortized   cost  and   estimated   market   value   of   securities
      available-for-sale  by final  maturity date at December 31, 1996 and 1995,
      are shown below (in thousands):

<TABLE>
<CAPTION>
                                                             1996                               1995
                                                  ---------------------------         ---------------------------
                                                                    Estimated                          Estimated
                                                  Amortized           Market          Amortized          Market
                                                    Cost              Value             Cost             Value
                                                  ---------         ---------         ---------        ----------
  <S>                                             <C>               <C>               <C>               <C>    
  Due in one year or less                         $    301          $    301          $  5,000          $  5,015
  Due after one year through five years             18,250            18,106            30,788            30,771
  Due after five years through ten years            33,321            32,846            27,386            27,312
  Due after ten years                              540,767           544,575           350,508           353,529
                                                  --------          --------          --------          --------
                                                  $592,639          $595,828          $413,682          $416,627
                                                  ========          ========          ========          ========
</TABLE>


      At December 31, 1996, the second and third  categories above include three
      securities   callable  within  one  year.  The  amortized  cost  of  these
      securities is $29,920,000  and at December 31, 1996, the estimated  market
      value associated with these callable securities is $29,346,000.


                                       34

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Results from sales of securities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               For the Years Ended
                                                                                   December 31,
                                                                    -------------------------------------------
                                                                      1996              1995              1994
                                                                    -------           -------           -------
           <S>                                                      <C>               <C>               <C>    
           Gross proceeds from sales                                $29,999           $51,765           $89,106
                                                                    =======           =======           =======

           Gross realized gains                                     $   146           $    --           $   646
           Gross realized losses                                        (57)             (883)           (1,337)
                                                                    -------           -------           -------

           Net realized gains (losses)                              $    89           $  (883)          $  (691)
                                                                    =======           =======           =======
</TABLE>


5.    Loans Receivable:

      Loans receivable at December 31, 1996 and 1995, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      --------------------------
                                                                                        1996              1995
                                                                                      --------          --------
         <S>                                                                          <C>               <C>   
         First mortgage loans Principal balances:
               Secured by one-to-four family residences                               $393,538          $329,793
               Secured by other properties                                             133,677            76,165
               Construction loans                                                       58,228            25,351
               Residential lots                                                          3,691             4,986
                                                                                      --------          --------
                                                                                       589,134           436,295
                                                                                      --------          --------
         Consumer and other loans Principal balances:
               Home equity and second mortgage                                          34,425            27,826
               Automobile                                                               31,072            15,970
               Lines of credit                                                           5,608             5,803
               Other                                                                     7,537             5,456
                                                                                      --------          --------
                                                                                        78,642            55,055
                                                                                      --------          --------
         Less:
            Loans-in-process                                                            31,631            16,062
            Allowance for loan losses                                                    9,656             4,438
            Net deferred loan origination fees                                           2,142             2,068
            Purchase accounting discount                                                   757               481
            Unearned discount                                                            1,134               595
            Discount on loans purchased                                                     51               282
                                                                                      --------          --------
                                                                                        45,371            23,926
                                                                                      $622,405          $467,424
                                                                                      ========          ======== 
</TABLE>





                                       35

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      The  following  is an  analysis  of the  allowance  for  loan  losses  (in
thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                      1996              1995             1994
                                                                    --------          -------          --------
         <S>                                                        <C>               <C>               <C>  
         Balance, beginning of year                                 $ 4,438           $4,459            $ 3,274
         Allowance acquired from Seaboard                             5,185              N/A                N/A
         Provisions (credited) charged to operations                   (265)             454              1,431
         Loans charged-off                                           (1,429)            (788)            (1,068)
         Recoveries                                                   1,727              313                822
                                                                    -------           ------            -------
         Balance, end of year                                       $ 9,656           $4,438            $ 4,459
                                                                    =======           ======            =======
</TABLE>

      The principal  balance of nonaccrual  loans,  and  renegotiated  loans for
      which the  interest  rate has been  reduced  from that  stipulated  in the
      original loan agreement,  totaled approximately  $6,286,000 and $6,947,000
      at  December  31, 1996 and 1995,  respectively.  The  differences  between
      interest  income that would have been recorded under the original terms of
      such loans and the interest  income  actually  recognized  are  summarized
      below (in thousands):
<TABLE>
<CAPTION>
                                                                               For the Years Ended
                                                                                   December 31,
                                                                    -----------------------------------------
                                                                     1996              1995             1994
                                                                    ------            ------            -----
         <S>                                                        <C>               <C>               <C>   
         Interest income that would have
            been recorded                                           $435              $639              $734
         Less interest income recognized                             206               462               540
                                                                    ----              ----              ----
         Interest income foregone                                   $229              $177              $194
                                                                    ====              ====              ====
</TABLE>

      The Bank is not committed to lend additional  funds to debtors whose loans
have been modified.

      Results from sales of loans are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                     1996               1995             1994
                                                                    ------            -------          --------
         <S>                                                        <C>               <C>               <C>   
         Gross proceeds from sales                                  $892              $10,544           $13,562
                                                                    ====              =======           =======
         Gross realized gains                                       $ 12              $   150           $   118
         Gross realized losses                                        --                   (8)              (23)
                                                                    ----              -------           -------
         Net realized gain                                          $ 12              $   142           $    95
                                                                    ====              =======           =======
</TABLE>

      Unrealized  losses on  mortgage  loans  held-for-sale  for the years ended
      December  31, 1996,  1995 and 1994 were $0, $0 and $68,000,  respectively.
      The  unrealized  loss  recognized  in 1994  resulted  from the transfer of
      certain loans held-for-sale into the held-to-maturity category.


                                       36

<PAGE>
                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Mortgage  loans  serviced for others are not included in the  accompanying
      Consolidated  Balance Sheets. The unpaid principal balances of these loans
      at December 31, 1996 and 1995, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                      ---------------------------
                                                                                        1996              1995
                                                                                      --------          ---------
         <S>                                                                          <C>               <C>    
         Mortgage loan portfolios serviced for:
            FHLMC                                                                     $131,514          $147,871
            GNMA                                                                        17,646            19,352
            VHDA                                                                         7,640             7,838
            Other Investors                                                                166               291
                                                                                      --------          --------
                                                                                      $156,966          $175,352
                                                                                      ========          ========
</TABLE>
      Custodial escrow balances maintained in connection with the foregoing loan
      servicing portfolios were approximately  $644,000 and $640,000 at December
      31,  1996 and 1995,  respectively.  Balances  at  December  31,  1996 were
      maintained in noninterest  checking  accounts as required under  servicing
      agreements.

      The following table sets forth information relating to the Bank's impaired
      loans for the years ended December 31, 1996 and 1995, (in  thousands),  as
      required by SFAS No. 114 (Note 21). The total of the  recorded  investment
      in these loans and the related  allowance for credit losses is included in
      loans receivable.
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                                      -------------------------
                                                                                        1996              1995
                                                                                      -------           -------
         <S>                                                                          <C>               <C>    
         Impaired loans for which there is a related
            allowance for credit losses                                               $9,022            $4,223

         Impaired loans for which there is no related
            allowance for credit losses                                                   --                --
                                                                                      ------            ------
         Total impaired loans                                                         $9,022            $4,223
                                                                                      ======            ======

         Allowance for credit losses:
            Balance, beginning of year                                                $  768            $  756
            Restructured loans not previously impaired                                   178                --
            Allowance acquired from Seaboard                                           2,415               N/A
            Provisions charged to operations                                             177                12
            Loans charged-off                                                            (38)               --
                                                                                      ------              ----
            Balance, end of year                                                      $3,500            $  768
                                                                                      ======            ======

         Average impaired loans during the period                                     $9,089            $4,234
                                                                                      ======            ======

         Interest income recognized on impaired loans
            during the time within the period that
            the loans were impaired                                                   $  131            $   98
                                                                                      ======            ======

         Interest income  recognized on impaired loans using a cash-basis method
            of accounting during the time within the period that
            the loans were impaired.                                                  $  131            $   98
                                                                                      ======            ======
</TABLE>

                                       37

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

6.    Accrued Interest and Dividends Receivable:

      Accrued  interest and dividends  receivable at December 31, 1996 and 1995,
      are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                      --------------------------
                                                                                        1996              1995
                                                                                      --------          --------
         <S>                                                                          <C>               <C>    
         Loans receivable                                                             $ 4,258           $4,730
         Mortgage-backed securities                                                     5,684            4,380
         Investment securities and other                                                  882              333
                                                                                      -------           ------
                                                                                      $10,824           $9,443
                                                                                      =======           ======
</TABLE>

7.    Real Estate Owned:

      Real  estate  owned at  December  31,  1996  and  1995,  consisted  of the
following (in thousands):
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                      -------------------------
                                                                                       1996              1995
                                                                                      -------           -------
         <S>                                                                          <C>               <C>    
         Real estate owned                                                            $1,232            $655
         Allowance for losses on real estate owned                                       (30)            (33)
                                                                                      ------            ----
                                                                                      $1,202            $622
                                                                                      ======            ====
</TABLE>

      The  following is an analysis of activity in the  allowance  for losses on
real estate owned (in thousands):
<TABLE>
<CAPTION>
                                                                               For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                     1996              1995              1994
                                                                    ------            ------            -------
         <S>                                                        <C>               <C>               <C>    
         Balance, beginning of year                                 $ 33              $ --              $ 5,060
         Allowance acquired from Seaboard                              8               N/A                  N/A
         Provisions charged to operations                             61                41                  746
         Losses charged-off                                          (72)              (11)              (5,808)
         Recoveries                                                   --                 3                    2
                                                                    ----              ----              -------
         Balance, end of year                                       $ 30              $ 33              $    --
                                                                    ====              ====              =======
</TABLE>




                                       38

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Results from sales of real estate owned are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                     1996              1995              1994
                                                                    ------            ------            -------
         <S>                                                        <C>               <C>               <C>    
         Gross proceeds from sales                                  $834              $835              $10,236
                                                                    ====              ====              =======

         Gross realized gains                                       $290              $ 89              $ 1,320
         Gross realized losses                                        --                (3)                 (10)
                                                                    ----              ----              -------

         Net realized gains                                          290                86                1,310

         Deferred realized gains                                      --                --               (1,117)
         Deferred gains recognized                                    10                10                   36
                                                                    ----              ----              -------

         Net recognized gain                                        $300              $ 96              $   229
                                                                    ====              ====              =======
</TABLE>

      On October  31,  1994,  the Bank sold three  foreclosed  hotel  properties
      representing  more than 90% of its total REO  balance  at that  date.  The
      properties were sold at a gain of $1,117,000  which is being recognized on
      the installment  method,  with $10,000,  $10,000 and $36,000 of gain being
      recognized  for  the  years  ended  December  31,  1996,  1995  and  1994,
      respectively. The Bank financed $8,500,000 of the sales price.


8.    FHLB Stock:

      The Bank,  as a member of the FHLB  system,  is  required  to  maintain an
      investment  in capital stock of the FHLB in an amount equal to the greater
      of 1% of its outstanding home loans or 5% of advances from the FHLB.

      At December  31, 1996 and 1995,  the Bank's  investment  in FHLB stock was
      $13,086,000 and $8,310,000, at cost, respectively.


9.    Premises and Equipment:

      Premises and  equipment at December 31, 1996 and 1995,  are  summarized by
      major classifications as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      --------------------------
                                                                                        1996              1995
                                                                                      --------          --------
         <S>                                                                          <C>               <C>    
         Land and buildings                                                           $18,656           $15,319
         Furniture, fixtures and equipment                                              5,307             3,509
                                                                                      -------           -------
                                                                                       23,963            18,828
         Less accumulated depreciation                                                 (6,524)           (4,886)
                                                                                      -------           -------
                                                                                       17,439            13,942
         Improvements to leased property, net of amortization                              29                33
                                                                                      -------           -------
                                                                                      $17,468           $13,975
                                                                                      =======           =======
</TABLE>



                                       39

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements


10.   Deposits:

      Deposits at  December  31, 1996 and 1995,  are  summarized  as follows (in
thousands):
<TABLE>
<CAPTION>
                                                           1996                                            1995
                                       -------------------------------------------     -------------------------------------------
                                                          Percent        Weighted                         Percent        Weighted
                                                            of            Average                           of            Average
                                          Amount           Total           Rates          Amount           Total           Rates
                                       -----------     -----------     -----------     -----------     -----------     -----------
  <S>                                  <C>                  <C>        <C>             <C>                 <C>         <C>
  Passbook accounts                    $ 52,521               7.17%    3.32%           $ 58,208              9.59%     3.34%
  Negotiable order of with-
     drawal ("NOW") accounts             29,496               4.03     2.19%             26,294              4.33      2.41%
  Noninterest checking
     accounts                             2,557               0.35       --               1,403              0.23        --
  Money market deposit
     accounts ("MMDA")                   68,704               9.38     4.04%             34,025              5.60      3.09%
                                       --------             ------                     --------            ------
                                        153,278              20.93                      119,930             19.75
                                       --------             ------                     --------            ------

  Certificates of deposit:
     Less than 4.00%                         68               0.01                        1,370              0.22
     4.00% - 4.99%                       32,834               4.49                       49,946              8.23
     5.00% - 6.99%                      521,509              71.21                      401,781             66.18
     7.00% - 8.99%                       21,703               2.96                       29,747              4.90
     9.00% - 10.99%                       2,763               0.38                        4,365              0.72
                                       --------             ------                     --------            ------
                                        578,877              79.05     5.65%            487,209             80.25      5.77%
                                       --------             ------                     --------            ------
  Purchase Accounting -
     Seaboard                               167                .02                          N/A               N/A
                                       --------             ------                     --------            ------
                                       $732,322             100.00%    5.17%           $607,139            100.00%     5.21%
                                       ========             ======                     ========            ======
</TABLE>

      The aggregate  amount of  short-term  (one year or less)  certificates  of
      deposit  with a minimum  denomination  of  $100,000  was  $35,009,000  and
      $36,337,000 at December 31, 1996 and 1995, respectively.

      At December 31, 1996,  scheduled maturities of all certificates of deposit
were as follows (in thousands):
<TABLE>
<CAPTION>
                                   1997            1998            1999            2000          2001          Thereafter
                               -----------     -----------      ----------     ----------     ---------       ------------
     <S>                         <C>             <C>             <C>             <C>           <C>              <C>
     Less than 4.00%             $      5        $    62         $    --         $     1       $    --          $   --
     4.00% - 4.99%                 31,539          1,140             155              --            --              --
     5.00% - 6.99%                360,599         89,319          42,255          10,062        13,034           6,240
     7.00% - 8.99%                  7,560          1,286           5,005           4,509           982           2,361
     9.00% - 10.99%                   637          1,448             678              --            --              --
                                 --------        -------         -------         -------       -------          ------
                                 $400,340        $93,255         $48,093         $14,572       $14,016          $8,601
                                 ========        =======         =======         =======       =======          ======
</TABLE>





                                       40

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

  At December 31, 1995, scheduled maturities of all certificates of deposit were
as follows (in thousands):
<TABLE>
<CAPTION>
                                   1996           1997            1998            1999           2000        Thereafter
                               -----------     ----------      ----------       ----------     ---------     -----------
     <S>                         <C>             <C>             <C>             <C>           <C>              <C>
     Less than 4.00%             $  1,370        $    --         $    --         $    --       $    --          $   --
     4.00% - 4.99%                 43,044          5,469           1,294             139            --              --
     5.00% - 6.99%                257,499         85,673          25,149          20,047         7,187           6,226
     7.00% - 8.99%                  8,188          7,361           1,260           5,179         4,435           3,324
     9.00% - 10.99%                 2,076            245           1,376             668            --              --
                                 --------        -------         -------         -------       -------          ------
                                 $312,177        $98,748         $29,079         $26,033       $11,622          $9,550
                                 ========        =======         =======         =======       =======          ======
</TABLE>




      Interest expense on deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                      1996              1995              1994
                                                                    --------          --------          -------
         <S>                                                        <C>               <C>               <C>  
         Passbook accounts                                          $ 2,657           $ 1,196           $ 1,359
         NOW accounts and MMDAs                                       3,324             2,473             2,570
         Certificates of deposit                                     29,681            26,553            20,616
                                                                    -------           -------           -------
                                                                    $35,662           $30,222           $24,545
                                                                    =======           =======           =======
</TABLE>


11.   Securities Sold Under Agreements to Repurchase:

      Securities  sold under  agreements  to repurchase at December 31, 1996 and
1995, are as follows (in thousands):

           Maturing
          Year Ending         Interest
         December 31,           Rate               1996              1995
       ---------------     ---------------      -----------       -----------
             1996           5.80% - 5.88%         $     --          $ 45,000
             1997           5.38% - 6.19%          182,000            80,000
             1998           5.01% - 5.91%           66,000            37,000
             1999                   5.10%           11,000                --
                                                  --------          --------
                                                  $259,000          $162,000
                                                  ========          ========




                                       41

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Additional  information  concerning  borrowings  under reverse  repurchase
      agreements is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      ---------------------------
                                                                                        1996              1995
                                                                                      ---------         ---------
         <S>                                                                          <C>               <C>   
         Average balance during the year                                              $258,417          $114,058
         Average interest rate during the year                                            5.67%             6.17%
         Maximum month-end balance during the year                                    $361,145          $195,000
         Mortgage-backed securities underlying the agreements at year-end:
               Carrying value, including accrued interest                             $288,209          $164,723
               Estimated market value                                                 $292,206          $166,054

</TABLE>


      The Bank  routinely  enters into sales of securities  under  agreements to
      repurchase.  Reverse repurchase agreements are accounted for as financings
      and the  obligations  to  repurchase  securities  sold are  reported  as a
      liability in the  accompanying  Consolidated  Balance  Sheets.  The dollar
      amount  of  securities  underlying  the  agreements  remains  in the asset
      accounts.

      Mortgage-backed  securities  sold  under  reverse  repurchase  and  dollar
      reverse  repurchase  agreements  are delivered to the  broker-dealers  who
      arrange the transactions.  Under reverse repurchase  agreements,  the Bank
      retains  legal  control  of  the  securities  underlying  the  agreements.
      Broker-dealers  may sell,  lend, or otherwise  dispose of securities  sold
      under dollar reverse repurchase  agreements to other parties in the normal
      course of their operation,  and agree to resell to the Bank  substantially
      identical securities at the maturities of the agreements.

      Interest expense on  securities  sold under  agreements  to  repurchase is
      summarized as follows (in thousands):

                                         For the Years Ended
                                            December 31,
                           ------------------------------------------------
                               1996              1995              1994
                           ------------      ------------      ------------
                             $14,665            $7,041             $739
                             =======            ======             ====




                                       42

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

12.   Advances From Federal Home Loan Bank of Atlanta:

      Advances  from the FHLB at December  31, 1996 and 1995,  consisted  of the
following (in thousands):
                                                      
          Maturing                                     December 31,
        Year Ending        Interest          --------------------------------   
        December 31,          Rate                1996               1995    
      ---------------   ---------------      ----------------   -------------  
            1996         4.87% - 6.94%           $    --         $ 54,478
            1997         5.72% - 6.99%             32,377          27,078
            1998         4.81% - 7.15%             30,724          17,937
            1999         4.84% - 6.97%             68,902           9,440
            2000         5.41% - 6.97%             26,715          26,715
         After 2000      4.72% - 7.03%            102,993          12,988
                                                 --------        ---------
                                                 $261,711        $148,636
                                                 ========        ========

      At December 31, 1996,  convertible advances which can be called monthly by
      the FHLB of Atlanta totaled $25,000,000 at a 4.84% interest rate scheduled
      to mature in 1999 and  $77,700,000 at interest rates ranging from 4.72% to
      4.77% scheduled to mature after the year 2000.

      Pursuant to collateral  agreements with the FHLB,  advances  routinely are
      collateralized  by the  Bank's  stock  in the FHLB  and  qualifying  first
      mortgage loans,  and sometimes by qualifying  mortgage-backed  securities.
      Total  collateral was  $362,034,000  and $229,852,000 at December 31, 1996
      and 1995, respectively.

      Interest expense on advances is summarized as follows (in thousands):

                                          For the Years Ended
                                             December 31,
                           ------------------------------------------
                            1996             1995              1994
                           -------          -------           ------
                           $9,934           $10,195           $9,104
                           ======           =======           ======


13.   Long-Term Debt, Thrift Financing Corporation:

      During 1985, through its wholly-owned,  single-purpose finance subsidiary,
      Life Capital  Corporation  ("Life  Capital"),  the Bank  participated in a
      mortgage collateralized  borrowing program (NMAC) through Thrift Financing
      Corporation.  Through this program,  Life Capital borrowed  $32,115,572 on
      its note  collateralized  by  mortgage-backed  securities  obtained in its
      initial  capitalization  from the Bank. This debt bears interest at a rate
      which is 0.2% above the weighted average rate of a group of bonds which it
      and  several  similar  notes  collateralize  under the NMAC  program.  The
      effective  rates for the years ended December 31, 1996, 1995 and 1994 were
      11.61%, 11.63% and 11.61%, respectively. The debt is to be repaid from the
      payment  proceeds,  including  prepayments,  if  any,  of  the  underlying
      collateral.  The debt  was  originally  due in four  segments  with  final
      maturity  dates  ranging from July 1, 1999 to January 1, 2016. At December
      31,  1996,  the  first  three  segments  had been  paid and a  balance  of
      $5,375,000 of the fourth segment remains with a final

                                       43

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      maturity  date  of  January  1,  2016.   Absent   significant   additional
      prepayments,  the approximate  anticipated  principal repayments under the
      NMAC program  during the next five years  ending  December 31 are as shown
      below.

             1997         1998           1999          2000         2001
         -----------   -----------   -----------   ----------    -----------
          $618,506      $83,675        $93,353      $104,151      $116,198


      The outstanding balance of long-term debt at December 31, 1996 and 1995, 
      is as follows (in thousands):
                                                December 31,
                                       ------------------------------
                                            1996              1995
                                       ------------      ------------
                                          $5,227            $6,518
                                          ======            ======


      Interest expense on long-term debt is summarized as follows(in thousands):

                                    For the Years Ended
                                        December 31,
                     ------------------------------------------------    
                          1996              1995              1994
                     ------------      ------------      ------------
                        $669              $808              $1,031
                        ====              ====              ======


14.   Capital Requirements and Other Regulatory Matters:

      The Bank is a federally  chartered savings association subject to the Home
      Owners' Loan Act and the  regulations of the Office of Thrift  Supervision
      ("OTS") promulgated thereunder. The OTS is responsible for the supervision
      and  regulation of savings  institutions.  The Federal  Deposit  Insurance
      Corporation ("FDIC") administers the federal deposit insurance program.

      Regulations  promulgated  by the OTS establish  certain  minimum levels of
      regulatory  capital for savings  institutions  subject to its supervision.
      The Bank must follow  specific  capital  guidelines  stipulated by the OTS
      which involve quantitative measures of the Bank's assets,  liabilities and
      certain  off-balance sheet items. An institution that fails to comply with
      its regulatory capital  requirements must obtain OTS approval of a capital
      plan and can be subject to a capital directive and certain restrictions on
      its  operations.  At December 31,  1996,  the minimum  regulatory  capital
      requirements were:

      o  Tangible  and core  capital  of 1.5% and 3%,  respectively,  consisting
         principally of  stockholders'  equity,  but excluding  most  intangible
         assets such as goodwill and any net unrealized  holding gains or losses
         on debt  securities  available-for-sale.  Core (or Tier 1) capital must
         also equal or exceed 4% of the value of the risk-weighted assets.

      o  Risk-based capital consisting of core capital plus certain subordinated
         debt and other capital instruments and, subject to certain limitations,
         general valuation  allowances on loans  receivable,  equal to 8% of the
         value of risk-weighted assets.

      At December 31,  1996,  the Bank was "well  capitalized"  under the prompt
      corrective action ("PCA")  regulations  adopted by the OTS pursuant to the
      Federal Deposit Insurance Corporation Improvement Act of

                                       44

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

     1991  ("FDICIA").  To be categorized as "well  capitalized,"  the Bank must
     maintain  the  following  minimum  ratios: 

      o Core  capital  of 5% 
      o Tier 1 risk-based capital of 6% 
      o Risk-based capital of 10%

      The Bank's  capital  amounts and  classification  are subject to review by
      federal  regulators  regarding   components,   risk-weightings  and  other
      factors.  There are no conditions or events since December 31, 1996,  that
      management believes have changed the institution's category.

      A  reconciliation  of the Bank's capital as calculated in accordance  with
      GAAP to the four components of regulatory  capital  calculated at December
      31, 1996 (in thousands, except ratios) is shown below:
<TABLE>
<CAPTION>
                                                                                                      Tier 1
                                                       Equity        Tangible           Core        Risk-Based      Risk-Based
                                                       Capital        Capital          Capital        Capital         Capital
                                                     -----------    -----------      -----------   ------------   -------------
         <S>                                         <C>            <C>              <C>             <C>             <C>   
         Stockholders' equity, substantially
            restricted                               $  127,844     $  127,844       $  127,844      $127,844        $127,844
         Unrealized gain on securities
            available-for-sale, net of tax               (1,968)        (1,968)          (1,968)       (1,968)         (1,968)
                                                     ----------     ----------       ----------      --------        --------
         Adjusted GAAP capital                       $  125,876        125,876          125,876       125,876         125,876
                                                     ==========
         Unallowable land loans                                             --               --            --            (787)
         Intangible assets                                              (4,821)          (4,821)       (4,821)         (4,821)
         General valuation allowances                                       --               --            --           5,973
                                                                    ----------       ----------      --------        --------
         Regulatory capital measure                                    121,055          121,055       121,055         126,241
         Minimum capital required                                       21,195           42,390        23,570          47,139
                                                                    ----------       ----------      --------        --------
         Excess                                                     $   99,860       $   78,665      $ 97,485        $ 79,102
                                                                    ==========       ==========      ========        ========
         Total assets per Thrift Report              $1,418,659
         Total risk-weighted assets                  ==========                                      $589,241        $589,241
                                                                                                     ========        ========
         Total tangible assets                                      $1,412,973       $1,412,973
                                                                    ==========       ==========
         Capital ratio                                      8.9%           8.6%             8.6%         20.5%           21.4%
                                                     ==========
         Regulatory capital category:
            Well capitalized, equal
               to or greater than                                          N/A%             5.0%          6.0%           10.0%
                                                                    ----------       ----------      --------        --------
         Excess                                                            N/A%             3.6%         14.5%           11.4%
                                                                    ==========       ==========      ========        ========
</TABLE>




                                       45

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      A  reconciliation  of the Bank's capital as calculated in accordance  with
      GAAP to the four components of regulatory  capital  calculated at December
      31, 1995 (in thousands, except ratios) is shown below:
<TABLE>
<CAPTION>
                                                                                                      Tier 1
                                                       Equity        Tangible           Core        Risk-Based       Risk-Based
                                                       Capital        Capital          Capital        Capital          Capital
                                                     ----------    ------------     -------------   ------------     -----------
         <S>                                         <C>            <C>              <C>             <C>             <C>   
         Stockholders' equity, substantially
            restricted                               $ 118,039      $  118,039       $  118,039      $118,039        $118,039
         Unrealized gain on securities
            available-for-sale, net of tax              (1,799)         (1,799)          (1,799)       (1,799)         (1,799)
                                                     ---------      ----------       ----------      --------        --------
         Adjusted GAAP capital                       $ 116,240         116,240          116,240       116,240         116,240
                                                     =========
         Unallowable land loans                                                                                           (72)
         Intangible assets                                                (511)            (511)         (511)           (511)
         General valuation allowances                                       --               --            --           3,274
                                                                    ----------       ----------      --------        --------
         Regulatory capital measure                                    115,729          115,729       115,729         118,931
         Minimum capital required                                       16,442           32,883        17,097          34,195
                                                                    ----------       ----------      --------        --------
         Excess                                                     $   99,287       $   82,846      $ 98,632        $ 84,736
                                                                    ==========       ==========      ========        ========
         Total assets per Thrift Report              $1,098,412
         Total risk-weighted assets                  ==========                                      $427,432        $427,432
                                                                                                     ========        ========
         Total tangible assets                                      $1,096,100       $1,096,100
                                                                    ==========       ==========
         Capital ratio                                     10.6%          10.6%            10.6%         27.1%           27.8%
                                                     ==========
         Regulatory capital category:
            Well capitalized, equal
               to or greater than                                          N/A%             5.0%          6.0%           10.0%
                                                                    ----------       ----------      --------        --------
         Excess                                                            N/A%             5.6%         21.1%           17.8%
                                                                    ==========       ==========      ========        ========
</TABLE>

      Life  Savings  Bank,  FSB's  capital  exceeds  all of the fully  phased-in
      capital  requirements  imposed by the OTS. OTS regulations provide that an
      institution that exceeds all fully phased-in capital  requirements  before
      and after a proposed  capital  distribution  can,  after prior  notice but
      without  the  approval of the OTS,  pay  dividends  or make other  capital
      distributions  during  the  calendar  year up to amounts  determined  by a
      formula  set  forth  in  the  regulations.   Dividends  or  other  capital
      distributions in excess of such amounts require prior regulatory approval.

      Life Bancorp,  Inc. is subject to the  restrictions of Virginia law, which
      generally  provide that a Virginia  corporation may make  distributions to
      its shareholders unless, after giving effect to the distribution,  (i) the
      corporation  would not be able to pay its debts as they  become due in the
      usual course of business or (ii) the  corporation's  total assets would be
      less than the sum of its total  liabilities  plus  (unless the articles of
      incorporation  permit otherwise,  which in the case of the Company they do
      not) the  amount  that  would be  needed,  if the  corporation  were to be
      dissolved  at the time of the  distribution,  to satisfy the  preferential
      rights upon  dissolution of  stockholders  whose  preferential  rights are
      superior to those receiving the distribution.



                                       46

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

15.   Benefit Plans:

      Retirement Plans

      Total pension plan and retirement expense for the years ended December 31,
      1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                   For the Years Ended
                                                                                       December 31,
                                                                    ------------------------------------------
                                                                     1996             1995              1994
                                                                    ------           ------         ------------
         <S>                                                        <C>               <C>               <C>   
         Net periodic pension cost:
            Employees' plan                                         $(259)            $114              $ 43
            Directors' plan                                            90              164                52
            401(k)                                                    133               91               118
         Actuarial fees and other plan expense                         27               72                74
                                                                    -----             ----              ----
            Total                                                   $  (9)            $441              $287
                                                                    =====             ====              ====
</TABLE>

      Prior to July 1, 1995,  the periodic cost  recognized  with respect to the
      employees' plan was computed in accordance  with the  requirements of SFAS
      No. 87 for  single-employer  pension  plans.  Effective  July 1, 1995, all
      assets and  liabilities  of this plan were  transferred  to the  Financial
      Institutions  Retirement  Fund  ("FIRF").  The  FIRF  is a  multi-employer
      pension plan under which plan assets are not  segregated by employer,  nor
      are separate  actuarial  valuations  made with  respect to each  employer.
      However, the full-funding limitation is applied on an employer-by-employer
      basis, with any overfunded balance available to offset future contribution
      requirements.  The Bank's overfunded balance was approximately $1,055,000,
      as of  July 1,  1996,  and  approximately  $1,260,000  as of July 1,  1995
      (previously  estimated by FIRF to be  $692,000).  Since  pension cost with
      respect  to   multi-employer   plans  is   recognized  in  the  amount  of
      contributions  made,  and  since  the  Bank was not  required  to make any
      contributions  in 1996 or 1995,  no expense  was  recognized  for the FIRF
      either year.  Also, due to the extent of the plan's  current  overfunding,
      pension  liabilities  previously  accrued  under  SFAS  No.  87 have  been
      reversed through 1996 operations.

      The  periodic  cost  recognized  with respect to the  directors'  plan was
      computed on the basis of individual  retirement agreements which represent
      unfunded  obligations of the Bank. However, the Bank is the beneficiary of
      life insurance policies on the lives of certain directors, the proceeds of
      which will be available to offset  retirement  benefit  costs or for other
      corporate uses.

      Effective  January 1, 1994,  the Bank  adopted an  employee  savings  plan
      (401(k)) for the benefit of all  employees  having  completed  one year of
      service and having  attained age 21. The Bank matches 50% of an employee's
      monthly  contributions  up  to  3% of  an  employee's  qualifying  monthly
      compensation.  The Bank's  contributions vest to the participants who have
      completed five or more years of service. The Bank's matching  contribution
      for 1996 was approximately $133,000.

      Deferred Compensation Plan

      The total  expense  recognized  with respect to the deferred  compensation
      plans  for  the  years  ended  December  31,  1996,   1995  and  1994  was
      approximately $52,000, $51,000 and $183,000, respectively.  Effective with
      the Bank's conversion to stock form, the then projected benefit obligation
      of $354,000 was invested on  participants'  behalf in savings  accounts of
      the Bank, which accounts earn interest at the Bank's one-year Money Market
      Certificate  rate. Of those funds,  $352,000 was subsequently  invested in
      Life Bancorp

                                       47

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      stock on behalf of plan participants. Additional accumulations may, at the
      election of  individual  participants,  also be  invested in Life  Bancorp
      stock.

      Employee Stock Ownership Plan

      On June 1, 1994, in  conjunction  with the Bank's  anticipated  conversion
      from  mutual to stock  form,  the Company  established  an Employee  Stock
      Ownership Plan ("ESOP") to provide additional  retirement  benefits to all
      full-time  employees  of the Company  and the Bank who have been  credited
      with at least 1,000 hours of service during a twelve-month  period and who
      have  attained  age 21. The Bank's  annual  contributions  to the ESOP are
      discretionary,  and may be made in the form of Company  stock,  cash or in
      such property as is acceptable to the Trustee.

      Initially,  the ESOP  acquired  872,850  shares  of the  Company's  stock,
      financed by an $8,728,500 loan from the Company.  The shares  purchased by
      the  ESOP  are  reported  in  the  stockholders'  equity  section  of  the
      accompanying balance sheet, together with an offsetting charge to Unearned
      common stock held by ESOP, a contra-equity account.

      Allocations of contributions are made to each participant's account in the
      same proportion that each such participant's qualifying gross compensation
      for the year  bears to the  total  qualifying  gross  compensation  of all
      participants  for that year. As of December 31, 1996,  299,692 shares have
      been so allocated,  based on principal  and interest  payments made by the
      ESOP on the loan, and no shares were committed-to-be-released. At December
      31,  1996,  the fair  market  value of the  573,158  unearned  shares  was
      approximately $10,317,000.

      ESOP  shares  allocated  to  participants  in 1996,  1995 and  1994,  were
      included in earnings  per share  calculations  for the number of days they
      were outstanding during each year.

      Total contributions to the ESOP, including  dividends,  which were used to
      fund principal and interest  payments amounted to $1,815,700 for 1996. The
      Bank  recognizes   compensation  expense  when  shares  are  released  for
      allocation to participants.  Dividends on all shares held by the ESOP were
      used by the  ESOP to make  additional  payments  on the  ESOP  loan,  thus
      releasing  additional shares for allocation to participants.  The total of
      such dividends in 1996 was $384,000.

      Stock Option Plan and Recognition and Retention Plan

      Under the Company's 1995 Stock Option Plan ("Stock Option Plan"),  options
      to purchase common stock are granted to non-employee directors and certain
      officers of the Bank at not less than the  estimated  fair market value at
      the date of grant.  The terms of the options  generally  provide that they
      will be  vested  and  exercisable  20% per year  over a five  year  period
      commencing  on the date of grant.  A total of  1,091,062  shares of common
      stock may be issued  pursuant to this plan.  Under the Stock  Option Plan,
      stock  appreciation  rights  may be  granted  such  that the  grantee  may
      surrender  an  exercisable  stock  option in  return  for  payment  by the
      Company. No stock appreciation rights were granted during 1996 and 1995.


                                       48

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      A summary of the status of the Company's  Stock Option Plan as of December
      31, 1996 and 1995 and changes during those years is presented as follows:
<TABLE>
<CAPTION>
                                                          1996                              1995
                                               ---------------------------       -----------------------------
                                                                 Exercise                           Exercise
                                                 Shares            Price           Shares             Price
                                               ---------        ----------       ----------      -------------
<S>                                             <C>               <C>              <C>               <C>    
Options outstanding at beginning of year        817,202           $13.88                --               --
Options granted                                  21,000            14.50           817,202           $13.88
Options exercised                                    --               --                --               --
Options forfeited                                    --               --                --               --
                                                -------           ------           -------            -----
Options outstanding at end of year              838,202           $13.90           817,202           $13.88
                                                =======           ======           =======           ======

Options exercisable at year-end                 163,440           $13.88                --
                                                =======           ======           =======
</TABLE>

      The remaining  contractual  lives of the options  granted in 1996 and 1995
      are 9.3 and 8.3 years,  respectively  at December 31,  1996.  The weighted
      average remaining contractual life of total options is 8.3 years.

      The  Company's  Recognition  and  Retention  Plan  ("RRP") was designed to
      retain  personnel of experience  and ability in key positions by providing
      employees  and  non-employee  directors  of the  Bank  with a  proprietary
      interest in the Company as an incentive to  contribute  to its success.  A
      total of 436,425  shares of common  stock may be issued  pursuant  to this
      plan. Unless the plan administration committee specifies otherwise, shares
      of common stock granted  pursuant to the RRP generally will be in the form
      of restricted stock payable over a five year period at the rate of 20% per
      year,  such payments  commencing on the first  anniversary  of the date of
      grant of the award.  A recipient  will be entitled to all voting and other
      shareholder rights of vested shares.  Nonvested shares,  while restricted,
      may not be sold,  pledged or otherwise  disposed of and are required to be
      held in the RRP Trust, and are voted by the trustees.  The Company granted
      10,500  shares at $14.50 per share and 322,623  shares at $13.88 per share
      in 1996 and 1995, respectively.  Of the shares granted in 1995, a total of
      64,518 shares vested and were  distributed  to  participants  in 1996. The
      Bank recognized expense related to the RRP of $915,487 and $596,800 during
      the years ended December 31, 1996 and 1995, respectively.

      During 1996,  the Company  purchased in the open market 209,127 shares for
      distribution under the RRP program.


                                       49

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      The Company  applies  Accounting  Principles  Board Opinion ("APB") 25 and
      related  interpretations  in accounting  for its Stock Option Plan and the
      RRP.  Accordingly,  no compensation cost has been recognized for the Stock
      Option Plan. Had compensation cost been determined based on the fair value
      at the grant dates  consistent with the methods of FASB Statement 123, the
      Company's  net income and net income per share would have been  reduced to
      the pro forma  amounts  indicated  below (in  thousands,  except per share
      data):

                                           For the Years Ended
                                               December 31,
                                      -------------------------------
                                         1996                 1995
                                      ----------           ----------
      Net income:
            As reported                 $8,614               $9,148
            Pro forma                    8,003                8,747
      Net income per share:
         Primary:
            As reported                 $ 0.89               $ 0.90
            Pro forma                     0.83                 0.86
         Fully diluted:
            As reported                 $ 0.88               $ 0.89
            Pro forma                     0.81                 0.85



      For purposes of computing the pro forma amounts  indicated above, the fair
      value  of each  option  on the  date  of  grant  is  estimated  using  the
      Black-Scholes  option-pricing model with the following assumptions for the
      grants in 1996 and 1995,  respectively:  dividend  yields of 3.0% for 1996
      and 1995;  expected volatility of 21% and 25%; risk-free interest rates of
      6.4% and 6.9%;  and an  expected  option  life of seven years for 1996 and
      1995.  The fair value at the date of grant of each option  granted in 1996
      and 1995 was $3.72 and $4.09, respectively.


16.   Income Tax Matters:

      Retained earnings at December 31, 1996 and 1995, included additions to bad
      debt reserves for income tax purposes of $14.3 million and $14.6  million,
      respectively.  If the amounts which  qualified as bad debt  deductions are
      used for  purposes  other  than to absorb bad debt  losses or  adjustments
      arising from the carry back of net operating  losses,  income taxes may be
      imposed at the then  existing  rates.  Because the Bank does not intend to
      use the reserves for purposes other than to absorb losses, deferred income
      taxes have not been  provided for these  amounts,  except for increases in
      the reserves, if any, since 1987 as required by SFAS No. 109.

      Prior  to  1996,  under  the  Internal  Revenue  Code  and the Tax Code of
      Virginia, the Bank was allowed a special deduction related to additions to
      tax bad debt reserves established for the purpose of absorbing losses. The
      provisions of the Internal  Revenue Code permitted the Bank to deduct from
      taxable  income an allowance  for bad debts based upon either a percentage
      of taxable  income (8%) before such  deduction or actual loss  experience;
      the Tax Code of Virginia  permitted a deduction of 40% of Virginia taxable
      income before such deduction or actual loss experience. The Small Business
      Job  Protection Act of 1996  ("SBJPA"),  enacted by Congress on August 20,
      1996,   eliminated  the  reserve  method  of  calculating   tax  bad  debt
      deductions,  effective January 1, 1996, for all savings institutions, like
      the Bank, with assets over $500 million. Those institutions

                                       50

<PAGE>
                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      are  now  required  to  use  the  direct  charge-off  method.   Virginia's
      conformity  rules  will  require  use of the same  method  in  calculating
      Virginia taxable income.

      The SBJPA also requires that reserves  accumulated  after 1987 be restored
      to taxable income ratably over a six-year  period  starting after December
      31, 1995, unless the institution meets a residential loan requirement,  in
      which case the  recapture  may be suspended on a per annum basis for up to
      two years.  A savings  institution  with more than $500 million in assets,
      such as the Bank, is generally  required to recapture its entire post-1987
      additions  to  its  bad  debt  reserve.   The  Bank  has  determined  that
      approximately  $1.4  million of  post-1987  tax  reserves  are  subject to
      recapture.  Since the Bank previously established a deferred tax liability
      corresponding to its post-1987 tax reserves,  the effects of the recapture
      are  not  material  to  the  Bank's  financial  condition  or  results  of
      operations.

      Additionally,  the SBJPA repeals  certain other  provisions in present tax
      law  applicable  only to savings  institutions,  including  special  rules
      applicable  to  foreclosures;   a  reduction  in  the  dividends  received
      deduction;  the  ability  of a savings  institution  to use net  operating
      losses to offset its  income  from a residual  interest  in a Real  Estate
      Mortgage  Investment  Conduit  ("REMIC");  and the  denial of a portion of
      certain tax credits to a savings institution.  The Bank has not determined
      what effect, if any, these changes may have on its financial  condition or
      results of operations.

      The  provision  for income  taxes  varies  from the  amount  that would be
      obtained by applying  statutory  income tax rates to income  before income
      taxes. The difference is explained as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                 For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                      1996             1995              1994
                                                                    -------           -------           -------
         <S>                                                        <C>               <C>               <C>    
         Statutory federal income tax                               $4,915            $4,896            $3,224
         Increases (decreases) in taxes resulting from:
            Nondeductible expenses                                     541                77                25
            Nontaxable income                                          (39)              (36)              (96)
            Tax credit and refunds                                      --                --              (409)
            State income tax, net of federal tax benefit               303               194               281
            Other                                                       (4)               (5)              (18)
                                                                    ------            ------            ------
         Provision for income taxes                                 $5,716            $5,126            $3,007
                                                                    ======            ======            ======
         Effective income tax rate                                    39.9%             35.9%             31.7%
                                                                    ======            ======            ======
</TABLE>
      Income tax expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    ------------------------------------------
                                                                     1996              1995              1994
                                                                    -------           -------           -------
         <S>                                                        <C>               <C>               <C>   
         Federal:
            Current                                                 $5,283            $4,458            $ (895)
            Deferred                                                   (91)              369             3,474
                                                                    ------            ------            ------
                                                                    $5,192            $4,827            $2,579
                                                                    ======            ======            ======
         State:
            Current                                                 $  405            $  259            $ (244)
            Deferred                                                   119                40               672
                                                                    ------            ------            ------
                                                                    $  524            $  299            $  428
                                                                    ======            ======            ======
</TABLE>
                                       51

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      The net deferred tax asset in the accompanying  Consolidated Balance Sheet
      at December 31, 1996 and 1995,  includes the following amounts of deferred
      tax assets and liabilities (in thousands):
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      ----------------------------
                                                                                        1996              1995
                                                                                      ---------         --------
         <S>                                                                          <C>               <C>   
         Deferred tax asset                                                           $ 4,098           $ 4,481
         Valuation allowance for deferred tax asset                                        --              (284)
         Deferred tax liability                                                        (4,034)           (4,161)
                                                                                      -------           -------
            Net deferred tax asset                                                    $    64           $    36
                                                                                      =======           =======
</TABLE>


      The tax effects of principal  temporary  differences  at December 31, 1996
      and 1995, are shown in the following table (in thousands):

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      --------------------------
                                                                                        1996              1995
                                                                                      ---------         --------
         <S>                                                                          <C>               <C>   
         Deferred Tax Assets:
            Amortization of goodwill                                                  $   203           $   --
            Accrued pension expense                                                        --              103
            Deferred loan fees                                                             --               45
            Book provision for losses on loans and real estate owned                    1,745            1,675
            Deferred compensation                                                         649              611
            ESOP and RRP                                                                  232              474
            Unrealized gain recognized under SFAS No. 115                               1,240            1,146
            Deferred gain on sale of hotels                                                --              416
            Other                                                                          29               11
                                                                                      -------           ------
               Total gross assets                                                       4,098            4,481
            Less valuation allowance                                                       --             (284)
                                                                                        4,098            4,197
                                                                                      -------           ------
         Deferred Tax Liabilities:
            Deferred loan fees                                                            110               --
            Depreciable property basis differences                                      2,395            2,377
            FHLB stock dividends                                                          881              920
            Accrued interest on pre-September 26, 1985 loans                              190              233
            Tax bad debt reserves                                                         453              625
            Other                                                                           5                6
                                                                                      -------           ------
                                                                                        4,034            4,161
                                                                                      -------           ------
               Net deferred tax asset                                                 $    64           $   36
                                                                                      =======           ======
</TABLE>




                                       52

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

17.   Other Noninterest Income and Expense:

      Other noninterest income and expense amounts are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                                For the Years Ended
                                                                                    December 31,
                                                                    -------------------------------------------
                                                                      1996              1995              1994
                                                                    --------          --------          -------
         <S>                                                        <C>               <C>               <C>    
         Other noninterest income:
            Dividends on FHLB stock                                 $  682            $  628            $  566
            Net income from hotel operations                            --                --             1,314
            Commission income                                          682               568               485
            Rental income                                              241               268               228
            Net REO income (expense)                                  (161)              (84)             (107)
            Other                                                      306               146               211
                                                                    ------            ------            ------
                                                                    $1,750            $1,526            $2,697
                                                                    ======            ======            ======
         Other noninterest expense:
            Insurance premiums                                      $  171            $  204            $  201
            Accounting and legal                                       471               383               276
            Directors' fees                                            217               185               170
            Charitable contributions                                   247                54                56
            Service charges                                             60                44                43
            Other                                                      748               524               356
                                                                    ------            ------            ------
                                                                    $2,141            $1,598            $1,294
                                                                    ======            ======            ======
</TABLE>

18.   Special SAIF Assessment:

      On September  30,  1996,  the  "Deposit  Insurance  Funds Act of 1996" was
      signed  into  law.  The  legislation  included  a  special  assessment  to
      recapitalize  the SAIF insurance fund up to its statutory goal of 1.25% of
      insured deposits.  The assessment required the Bank to pay an amount equal
      to approximately 65.7 basis points of its SAIF-assessable  deposit base as
      of March 31, 1995,  which resulted in a $4.38 million charge  (pre-tax) to
      income during the year ended December 31, 1996.


19.   Net Income Per Share Information:

      For the purpose of calculating net income per common and common equivalent
      share for each of the periods  presented,  the Company used the respective
      numbers of weighted-average outstanding shares shown below (in thousands):
<TABLE>
<CAPTION>

                                                                                       1994
                                                          1996        1995       (4th Quarter Only)
                                                         ------     --------     -----------------
         <S>                                             <C>         <C>               <C> 
         For primary net income per share                9,664       10,203            10,038
         For fully diluted net income per share          9,831       10,289            10,038
</TABLE>



                                       53

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Pro forma net income per share for periods prior to the fourth  quarter of
      1994 is not  considered  meaningful  because the Bank's  conversion to the
      stock form of ownership did not occur until October 11, 1994.

      The  dilutive  securities  included  in  the  calculations  above  consist
      entirely  of  common  equivalent  shares  in the  form  of  common  shares
      contingently   issuable   under  the  Company's   Stock  Option  Plan  and
      Recognition  and Retention Plan, both of which plans are described in Note
      15. No such shares were granted or issuable during 1994.

      The calculations of  weighted-average  common and common equivalent shares
      outstanding  in 1996 also include the effects of the Company's  repurchase
      of 1,063,785 shares of its outstanding common stock during the year. Under
      authorizations from its Board of Directors,  the Company repurchased those
      shares  between  January 26, 1996 and July 23, 1996 at prices ranging from
      $14 1/8 to $14 1/2. At December 31,  1996,  the Company is  authorized  to
      repurchase up to an additional 10% (or 984,684  shares) of its outstanding
      common stock during the 12 month period ending October 11, 1997.


20.   Commitments, Contingencies and Related Parties:

      Operating Leases

      The Bank leases certain branch offices  through  noncancellable  operating
      leases  with terms that range  from 4 to 12 years,  with  renewal  options
      thereafter.  Occupancy  and  office  operations  expense  attributable  to
      operating leases includes  $67,700 for 1996,  $39,500 for 1995 and $52,440
      for the year ended December 31, 1994.

      Minimum  future  annual  rent  commitments  under these  agreements  as of
      December 31, 1996, for the next five years and thereafter are:

         1997     1998       1999       2000      2001    Thereafter   Total
      ---------  --------  ---------  --------  --------  ----------  ---------
       $71,942   $74,689    $76,767   $75,555   $27,502    $112,500   $438,955


      Off-Balance-Sheet Risk

      In the normal course of business, as necessary to meet the financing needs
      of its  customers,  the  Bank is a party  to  financial  instruments  with
      off-balance-sheet risk. These financial instruments include commitments to
      extend  credit,  lines of credit and letters of credit.  They involve,  to
      varying degrees,  elements of credit and  interest-rate  risk in excess of
      the amount recognized in the Consolidated  Balance Sheets. The contract or
      notional  amounts of those  instruments  reflect the extent of involvement
      the Bank has in particular classes of financial instruments.

      The Bank's exposure to credit loss in the event of  nonperformance  by the
      other party to the financial  instrument for  commitments to extend credit
      and standby letters of credit is represented by the  contractual  notional
      amount of those  instruments.  The Bank uses the same  credit  policies in
      making   commitments   and   conditional   obligations   as  it  does  for
      on-balance-sheet instruments.


                                       54

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      A  summary   of  the   contract   amount  of  the   Bank's   exposure   to
      off-balance-sheet risk, except for undisbursed loan funds, at December 31,
      1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
                                                       December 31, 1996                             December 31, 1995
                                           ----------------------------------------     ------------------------------------------
                                              Fixed-       Variable                       Fixed-        Variable
                                               Rate          Rate          Total           Rate           Rate            Total
                                           ---------      ---------     -----------     ---------      -----------     -----------
     <S>                                   <C>            <C>           <C>             <C>            <C>             <C>
     Financial instruments whose
        contract amounts represent
        credit risk:
        Commitments to extend
           credit, mortgage loans          $3,361         $44,371       $47,732         $5,573         $19,531         $25,104

        Commitments to extend
           credit, consumer and
           other loans                        845              --           845            366              --             366
        Undisbursed lines of credit            --           8,980         8,980             --           5,898           5,898
        Letters of credit                      --           1,420         1,420             --           1,817           1,817
</TABLE>

      Fixed-interest  rates  range  from 7.00% to 9.00% for  mortgage  loans and
      8.00% to 17.50% for consumer and other loans.

      Fees  received in  connection  with the  letters of credit are  recognized
      immediately.  However,  had the Bank deferred the fees and amortized  them
      into  income  over the life of the  commitments,  net income  would not be
      materially different.

      Commitments  to extend credit are agreements to lend to a customer as long
      as there is no violation of any  condition  established  in the  contract.
      Commitments  generally have fixed  expiration  dates or other  termination
      clauses and may  require  payment of a fee.  Since some of the  commitment
      amounts  are  expected  to expire  without  being  drawn  upon,  the total
      commitment amounts do not necessarily  represent future cash requirements.
      The Bank evaluates  each  customer's  credit  worthiness on a case-by-case
      basis. The amount of collateral obtained,  if deemed necessary by the Bank
      upon extension of credit,  is based on management's  credit  evaluation of
      the customer.  Collateral  held varies,  but may include  income-producing
      commercial properties and other real estate.

      Standby letters of credit are conditional  commitments  issued by the Bank
      to  guarantee  the  performance  by a  customer  to a third  party.  Those
      guarantees were issued  primarily to support public and private  borrowing
      arrangements, including bond financing and similar transactions.

      The credit risk involved in issuing letters of credit is  essentially  the
      same as that involved in extending a loan.

                                       55

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      Loans to Officers and Directors

      The Bank has made loans to officers and  directors in the normal course of
      business.  The  following is an analysis at December 31, 1996 and 1995, of
      the loans to executive officers and directors (in thousands):
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      -------------------------
                                                                                        1996              1995
                                                                                      --------          -------
         <S>                                                                          <C>               <C>    
         Balance, beginning of year                                                   $1,066            $1,158
         Increase due to change in qualifying officers                                   206                --
         Originations                                                                    193                --
         Collections                                                                    (239)              (92)
                                                                                      ------            ------
         Balance, end of year                                                         $1,226            $1,066
                                                                                      ======            ======
</TABLE>

      Employment and Severance Agreements

      The Company has entered into employment  agreements with its President and
      Executive  Vice-President.  It also has entered into severance  agreements
      with its five  Senior  Vice-Presidents.  The Bank also is a party to those
      same  agreements.  At December 31, 1996,  the total  commitment  under all
      agreements was approximately $1,808,980.

      Litigation

      In the normal  course of business,  the Bank is involved in various  legal
      actions.  It is the opinion of management,  after  consultation with legal
      counsel,  that the  ultimate  resolution  of any such  matters  pending at
      December 31,  1996,  will not have a material  effect on the  accompanying
      consolidated financial statements.


21.   FASB Statements and Proposed Laws and Regulations:

      FASB has issued SFAS No. 125 and SFAS No. 127 which do not permit adoption
      prior to January 1, 1997.  SFAS No.  125,  as  issued,  is  effective  for
      transfers and  servicing  of  financial  assets  and   extinguishments  of
      liabilities occurring after December 31, 1996. SFAS No. 127 defers certain
      provisions of SFAS No. 125 until after December 31, 1997. SFAS No. 125 and
      SFAS No. 127 will be adopted by the Bank when required.


      SFAS No. 125,  "Accounting for Transfers and Servicing of Financial Assets
      and   Extinguishments  of  Liabilities,"   specifies  the  accounting  for
      transfers  and  servicing  of  financial  assets  and   extinguishment  of
      liabilities as well as assets that can be contractually  prepaid in such a
      way that the holder would not recover substantially all of its investment.
      Under SFAS No. 125,  an entity  recognizes  only  assets it  controls  and
      liabilities  it has  incurred,  derecognizes  assets only when control has
      been  surrendered and  derecognizes  liabilities  only when they have been
      extinguished.  Transfers not meeting the criteria for sale recognition are
      accounted  for  as  a  secured   borrowing   with  pledge  of  collateral.
      Extinguishments  of liabilities  are recognized  only when the debtor pays
      the creditor or is otherwise legally released from the obligation.

      This statement  addresses when an obligation to service  financial  assets
      should be recognized as an asset or a liability,  that the servicing asset
      or  liability  is to be  amortized  in  proportion  to the  period  of net
      servicing  income  or loss  and  establishes  that  servicing  assets  and
      liabilities  are to be assessed for impairment  based on their fair value.
      It  additionally  modifies the accounting for assets such as interest only
      strips or retained interests in securitizations  that can contractually be
      prepaid or settled in such a way that would preclude the

                                       56

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      holder from recovering  substantially all of its recorded  investment,  to
      require their classification as available-for-sale or trading securities.

      SFAS No. 125 as issued would have been  effective  for all  transfers  and
      servicing of financial assets and extinguishments of liabilities occurring
      after December 31, 1996. SFAS No. 127,  "Deferral of the Effective Date of
      Certain  Provisions of FASB Statement No. 125,"  deferred most  provisions
      related to repurchase  agreements,  dollar-rolls,  securities  lending and
      similar  transactions  to be effective  after  December 31, 1997.  It also
      deferred  the portion of SFAS No. 125  regarding  secured  borrowings  and
      collateral  until after  December 31, 1997. The Bank does not believe that
      adoption of the  applicable  portions of SFAS No. 125 will have a material
      effect on operations in 1997.

      The FASB has issued SFAS No. 121, SFAS No. 122 and SFAS No. 123 which were
      adopted by the Bank as of January 1, 1996. SFAS No. 121, SFAS No. 122, and
      SFAS No.123 became effective for fiscal years beginning after December 15,
      1995. 

      SFAS No. 121,  "Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed of," establishes accounting standards for
      the impairment of long-lived assets, certain identifiable intangibles, and
      goodwill  related  to those  assets to be held and used and to  long-lived
      assets and  certain  identifiable  intangibles  to be  disposed  of.  This
      statement  addresses  when  impairment  losses should be  recognized,  how
      impairment  losses  should be measured and the  reporting  and  disclosure
      requirements  when long-lived  assets have been determined to be impaired.
      Ultimately,  SFAS No.  121 may  shorten  the  amortization  period  of the
      Company's acquired intangible assets.

      SFAS No. 122,  "Accounting for Mortgage  Servicing Rights," amends certain
      provisions of SFAS No. 65, eliminates the accounting  distinction  between
      rights to service mortgage loans for others that are acquired through loan
      origination  activities and those acquired through purchase  transactions.
      When a mortgage banking enterprise purchases or originates mortgage loans,
      the  cost of  acquiring  those  loans  includes  the  cost of the  related
      mortgage  servicing  rights.  If the mortgage banking  enterprise sells or
      securitizes  the loans and  retains the  mortgage  servicing  rights,  the
      enterprise  should  allocate the total cost of the  mortgage  loans to the
      mortgage  servicing  rights  and the loans  based on their  relative  fair
      values.  Any  costs  allocated  to  mortgage  servicing  rights  should be
      recognized as a separate asset, amortized over the period of estimated net
      servicing  income and evaluated for impairment  based on their fair value.
      During  1996,  the Company  sold no loans to which it  retained  servicing
      rights;  therefore,  SFAS No.  122 has had no  impact  on these  financial
      statements.
      This SFAS has been superseded by SFAS No. 125 which is discussed above.

      SFAS No. 123, "Accounting for Stock-Based Compensation," establishes,  and
      encourages all entities to adopt,  new financial  accounting and reporting
      standards for stock-based  employee  compensation plans.  However, it also
      allows an entity to continue to measure  compensation cost for those plans
      using the intrinsic value based method of accounting prescribed by APB No.
      25,  "Accounting  for Stock  Issued to  Employees".  Entities  electing to
      remain with APB No. 25 accounting  must make pro forma  disclosures of net
      income  and  earnings  per  share as if the fair  value  based  method  of
      accounting  defined in SFAS No. 123 had been applied.  The affected  plans
      include all  arrangements  by which  employees  receive shares of stock or
      other  equity   instruments  of  the  employer  or  the  employer   incurs
      liabilities  to employees in amounts based on the price of the  employer's
      stock.  This  statement  also applies to  transactions  in which an entity
      issues  its  equity   instruments   to  acquire  goods  or  services  from
      nonemployees,  requiring that such  transactions be accounted for based on
      the fair  value of the  consideration  received  or the fair  value of the
      equity  instruments  issued,  whichever is more reliably  measurable.  The
      Company  continued to account for  stock-based  compensation in accordance
      with APB No. 25 and has presented in Note 15 the  disclosures  required by
      SFAS No. 123.


                                       57

<PAGE>
                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

      The FASB has  issued  SFAS No.  114,  which was  adopted by the Bank as of
      January 1, 1995. SFAS No. 114,  "Accounting by Creditors for Impairment of
      Loans,"  requires  that certain  impaired  loans be measured  based on the
      present  value of  expected  future  cash flows  discounted  at the loan's
      effective  interest  rate.  The effective rate of a loan is defined as the
      contractual  interest  rate  adjusted for any deferred loan fees or costs,
      premiums or  discounts  existing at the  inception or  acquisition  of the
      loan. SFAS No. 118 amended certain  provisions of SFAS No. 114 relating to
      the recognition of interest income on impaired loans. See Note 5.


22.   Disclosures About Fair Value of Financial Instruments:

      SFAS No. 107,  "Disclosures  About Fair Value of  Financial  Instruments,"
      requires  disclosure  of the fair  value of  financial  instruments,  both
      assets and  liabilities,  for which it is  practicable  to  estimate  fair
      value.  The  carrying  (book)  values  and fair  values  of the  Company's
      financial  instruments  at December 31, 1996 and 1995,  are as follows (in
      thousands):
<TABLE>
<CAPTION>
                                                                     December 31, 1996                  December 31, 1995
                                                               ------------------------------      -----------------------------
                                                                Carrying            Fair            Carrying           Fair
                                                                  Value             Value             Value            Value
                                                               -------------     ------------      ------------     ------------
         <S>                                                   <C>               <C>               <C>              <C>    
         Cash and cash equivalents                             $   11,283        $   11,283        $    8,845       $    8,845
         Securities held-to-maturity                              140,974           141,269           168,602          169,195
         Securities available-for-sale                            595,828           595,828           416,627          416,627
         Loans receivable                                         622,405           632,187           467,424          468,717
         Federal Home Loan Bank stock                              13,086            13,086             8,310            8,310
                                                               ----------        ----------        ----------       -----------
            Total financial instrument assets                   1,383,576         1,393,653         1,069,808        1,071,694
                                                               ----------        ----------        ----------       ----------

         Deposits with no stated maturities                       153,278           153,278           119,930          119,930
         Deposits with stated maturities                          579,044           583,380           487,209          491,975
         Federal Home Loan Bank advances                          261,711           256,945           148,636          150,560
         Other debt obligations                                   264,227           263,845           168,518          169,856
                                                               ----------        ----------        ----------       ----------
            Total financial instrument liabilities              1,258,260         1,257,448           924,293          932,321
                                                               ----------        ----------        ----------       ----------
            Net value of financial instruments                 $  125,316        $  136,205        $  145,515       $  139,373
                                                               ==========        ==========        ==========       ==========
</TABLE>

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

         The fair value of the Company's cash and cash  equivalents is estimated
         to be equal to their recorded amounts. For securities  held-to-maturity
         and securities  available-for-sale,  the fair value is estimated  using
         quoted market values obtained from independent pricing services.

         The fair value of loans has been estimated by discounting the projected
         cash  flows at  December  31,  1996 and  1995.  These  rates  have been
         adjusted as necessary to conform  with the  attributes  of the specific
         loan types in the  portfolio.  The valuation has also been adjusted for
         prepayment risk using  nationally  published and internally  determined
         prepayment  percentages,  which  approximate  the Bank's  estimates  of
         prepayment activity  experienced in the portfolio.  Management believes
         that the Bank's general  valuation  allowances at December 31, 1996 and
         1995  are an  appropriate  indication  of the  applicable  credit  risk
         associated  with  determining  the fair value of its loan portfolio and
         such  allowances  have been deducted  from the estimated  fair value of
         loans.

         No ready market exists for the Federal Home Loan Bank stock, and it has
         no quoted value.  For presentation  purposes,  such stock is assumed to
         have a market value which is equal to cost.


                                       58

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

         The  fair  value  of  deposits  with no  stated  maturities,  including
         checking accounts and statement  savings  accounts,  is estimated to be
         equal to the amount payable on demand as of December 31, 1996 and 1995.
         The fair value of  certificates of deposit is based upon the discounted
         value of the contractual  cash flows.  The discount rates used in these
         calculations  approximate  the current  rates  offered for  deposits of
         similar remaining maturities.

         The fair  value of  Federal  Home Loan  Bank  advances  outstanding  at
         December  31,  1996 and 1995,  is based  upon the  discounted  value of
         contractual  cash flows. The discount rate is estimated using the rates
         currently offered for advances of similar remaining maturities.

         The fair value of other debt  obligations  outstanding  at December 31,
         1996 and 1995,  includes  both  securities  sold  under  agreements  to
         repurchase and a secured note to Thrift Financing Corporation. The fair
         value of securities  sold under  agreements to repurchase is based upon
         the discounted  value of contractual  cash flows.  The discount rate is
         estimated using the rates  currently  offered for securities of similar
         remaining maturities.

         The estimated  fair value of commitments to extend credit is determined
         using fees  currently  charged for similar  arrangements  adjusted  for
         changes in interest rates and credit risk that have occurred subsequent
         to  origination.  Because  the  Bank  believes  that  the  credit  risk
         associated with available but undisbursed commitments would essentially
         offset fees that could be recognized  under similar  arrangements,  and
         because the commitments  are either  short-term in nature or subject to
         immediate  repricing,   no  fair  value  has  been  assigned  to  these
         off-balance sheet commitments.


23.   Conversion From Mutual to Stock Association

      The  Company  is a Virginia  corporation  organized  in May 1994,  for the
      purpose of becoming the unitary  savings and loan holding  company for the
      Bank.  The Board of  Directors of the Bank adopted an Amended and Restated
      Plan  of  Conversion  dated  May 9,  1994,  pursuant  to  which  the  Bank
      converted,  effective October 11, 1994, from a federally-chartered  mutual
      savings bank to a  federally-chartered  stock  savings  bank.  The Holding
      Company  completed its  Subscription  and  Community  Offering and, with a
      portion of the net proceeds, acquired the capital stock of the Bank.

      The total number of the Company's shares offered and issued at the date of
      conversion was 10,910,625 at $10 per share. Out of that offering,  872,850
      shares were bought by the ESOP. The costs  associated  with the conversion
      were  deducted  from the  proceeds of the shares  sold in the  conversion.
      Total  conversion  costs  approximated  $2,816,000,  and the net  proceeds
      received from the conversion approximated $97,562,000.

      At the time of the Bank's  conversion from the mutual to the stock form of
      organization,  it  established  a  liquidation  account  in the  amount of
      $48,973,000. The liquidation account will be maintained for the benefit of
      eligible account holders with qualifying deposits who continue to maintain
      their accounts at the Bank after the conversion.  Qualifying  deposits are
      those held in the Bank on February 28, 1993, by Eligible  Account  Holders
      and on June 30, 1994, by Supplemental  Eligible Account  Holders,  both as
      defined in the Prospectus  dated August 15, 1994. The liquidation  account
      will be reduced  annually to the extent that eligible account holders have
      reduced their qualifying deposits. In the event of a complete liquidation,
      each eligible  account  holder will be entitled to receive a  distribution
      from the  liquidation  account in an amount  proportionate  to the current
      adjusted qualifying balances for accounts then held.

      The  Bank is  restricted  from  declaring  or  paying  cash  dividends  or
      repurchasing any of its shares of common stock if the effect thereof would
      cause equity to be reduced below applicable regulatory capital maintenance
      requirements or if such  declaration  and payment would otherwise  violate
      regulatory requirements.  The Bank continues to be a member of the Federal
      Home Loan Bank  System and all  insured  savings  deposits  continue to be
      insured by the FDIC up to the maximum provided by law.

                                       59

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

24.   Subsequent Events:

      Dividends Declared

      On January 21, 1997, the Board of Directors of Life Bancorp, Inc. declared
      a cash  dividend of $.11 per common share payable on February 28, 1997, to
      stockholders of record on February 14, 1997.

25.   Condensed Parent Company Only Financial Statements:

      Condensed financial statements of Life Bancorp,  Inc. (parent company) are
      shown below. The parent company has no significant operating activities.

<TABLE>
<CAPTION>
                                                Condensed Balance Sheets
                                                     (In thousands)
                                                                                                 December 31,
                                                                                --------------------------------------------
                                                                                      1996                      1995
                                                                                ---------------------     ------------------

      <S>                                                                             <C>                       <C>    
                               Assets
      Cash in bank..................................................                  $    100                  $    258
      Investment in subsidiaries....................................                   127,844                   118,039
      Loans receivable from subsidiary..............................                    23,002                    43,797
                                                                                      --------                  --------

         Total assets...............................................                  $150,946                  $162,094
                                                                                      ========                  ========

                Liabilities and Stockholders' Equity
      Liabilities...................................................                  $      8                  $  1,153
                                                                                      --------                  --------
      Stockholders' equity:
         Common stock...............................................                        98                       109
         Additional paid-in capital.................................                    92,122                   106,659
         Retained earnings..........................................                    63,871                    59,447
         Unearned common stock held by ESOP.........................                   (5,732)                    (7,073)
         Unearned common stock held by RRP..........................                   (1,389)                        --
         Unrealized gain (loss) on securities held-for-sale by
            subsidiary, net of tax..................................                     1,968                     1,799
                                                                                      --------                  --------
            Total stockholders' equity..............................                   150,938                   160,941
                                                                                      --------                  --------
            Total liabilities and stockholders' equity..............                  $150,946                  $162,094
                                                                                      ========                  ========

                                           Condensed Statement of Operations
                                                     (In thousands)

                                                                                        1996                      1995
                                                                                ---------------------     -------------------


      Equity in earnings of subsidiary..............................                  $  7,020                  $  6,885
      Interest income...............................................                     2,519                     3,616
      Other expense.................................................                       159                       209
                                                                                      --------                  --------

      Income before income taxes....................................                     9,380                    10,292
      Provision for income taxes....................................                       766                     1,144
                                                                                      --------                  --------

      Net income....................................................                  $  8,614                  $  9,148
                                                                                      ========                  ========
</TABLE>



                                       60

<PAGE>


                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                           Condensed Statement of Cash Flows
                                                     (In thousands)

                                                                                             For the Years Ended
                                                                                                 December 31,
                                                                                --------------------------------------------
                                                                                       1996                      1995
                                                                                ---------------------     ------------------

      <S>                                                                             <C>                       <C>    
      Cash flows from operating activities:
         Net income.................................................                  $  8,614                  $ 9,148
         Adjustments to reconcile net income to net cash
           provided by (used in) operating activities:
            Equity in net income of subsidiary......................                    (7,020)                  (6,885)
            Increase (decrease) in other liabilities................                    (1,145)                     824
                                                                                      --------                  -------

            Net cash provided by (used in) operating activities.....                       449                    3,087
                                                                                      --------                  -------

      Cash flows from investing activities:
         Net decrease in loan to subsidiary.........................                    20,796                    5,706
         Purchase of capital stock of subsidiary....................                        (1)                  (5,000)
         Principal collected on ESOP loan...........................                     1,257                    1,257
                                                                                      --------                  -------

            Net cash provided by (used in) investing activities.....                    22,052                    1,963
                                                                                      --------                  -------

      Cash flows from financing activities:
         Dividends paid.............................................                    (4,501)                  (4,800)
         Net proceeds (refunds) from issuance of common stock.......                        --                      (16)
         Repurchase of common stock.................................                   (15,162)                      --
         Purchase of common stock held for RRP trust................                    (2,996)                      --
                                                                                      --------                  -------

            Net cash provided by (used in) financing activities.....                   (22,659)                  (4,816)
                                                                                      --------                  -------

            Net increase (decrease) in cash and cash equivalents....                      (158)                     234

      Cash and cash equivalents, beginning of period................                       258                       24
                                                                                      --------                  -------

      Cash and cash equivalents, end of period......................                  $    100                  $   258
                                                                                      ========                  =======
</TABLE>





                                       61

<PAGE>
                               Life Bancorp, Inc.
                   Notes to Consolidated Financial Statements

26.   Quarterly Results of Operations (Unaudited)(in thousands, except per share
      data):

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31, 1996
                                                               -----------------------------------------------------------------
                                                                   First            Second            Third            Fourth
                                                                  Quarter           Quarter          Quarter           Quarter
                                                               -------------     ------------      ------------     ------------
         <S>                                                      <C>               <C>              <C>               <C>    
         Total interest income.........................           $21,686           $22,785          $24,829           $25,833
         Total interest expense........................            13,449            14,270           16,354            16,856
                                                                  -------           -------          -------           -------
            Net interest income........................             8,237             8,515            8,475             8,977
         Provision (credit) for loan losses............                34               (38)            (295)               34
                                                                  -------           -------          -------           -------
            Net interest income after provision
               for loan losses.........................             8,203             8,553            8,770             8,943
         Noninterest income............................               699               843              940               880
         Noninterest expense...........................             4,505             4,950            9,474             4,572
                                                                  -------           -------          -------           -------
         Income before income taxes....................             4,397             4,446              236             5,251
         Income tax provision..........................             1,810             1,755               70             2,081
                                                                  -------           -------          -------           -------
         Net income....................................           $ 2,587           $ 2,691          $   166           $ 3,170
                                                                  =======           =======          =======           =======
         Net income per common and
            common equivalent share:
               Primary.................................           $   .25           $   .28          $   .02           $   .34
                                                                  =======           =======          =======           =======

               Fully diluted...........................           $   .25           $   .28          $   .02           $   .33
                                                                  =======           =======          =======           =======

         Dividends paid per common share...............           $   .11           $   .11          $   .11           $   .11
                                                                  =======           =======          =======           =======


                                                                                   Year Ended December 31, 1995
                                                               -----------------------------------------------------------------
                                                                   First            Second            Third            Fourth
                                                                  Quarter           Quarter          Quarter           Quarter
                                                               -------------     ------------      ------------     ------------


         Total interest income.........................           $18,740           $19,025          $19,452           $19,808
         Total interest expense........................            11,253            12,070           12,305            12,638
                                                                  -------           -------          -------           -------
            Net interest income........................             7,487             6,955            7,147             7,170
         Provision for loan losses.....................               168               123               75                88
                                                                  -------           -------          -------           -------
            Net interest income after provision
               for loan losses.........................             7,319             6,832            7,072             7,082
         Noninterest income............................               675               680              800              (132)
         Noninterest expense...........................             3,981             4,011            4,075             3,987
                                                                  -------           -------          -------           -------
         Income before income taxes....................             4,013             3,501            3,797             2,963
         Income tax provision..........................             1,513             1,341            1,443               829
                                                                  -------           -------          -------           -------
         Net income....................................           $ 2,500           $ 2,160          $ 2,354           $ 2,134
                                                                  =======           =======          =======           =======
         Net income per common and
            common equivalent share:
               Primary.................................           $   .25           $   .21          $   .23           $   .21
                                                                  =======           =======          =======           =======

               Fully diluted...........................           $   .25           $   .21          $   .22           $   .21
                                                                  =======           =======          =======          ========

         Dividends paid per common share...............           $   .11           $   .11          $   .11           $   .11
                                                                  =======           =======          =======          ========
</TABLE>

                                       62

<PAGE>

                        Directors and Executive Officers

                               Board of Directors
                  Life Bancorp, Inc. and Life Savings Bank, FSB
-------------------------------------------------------------------------------

Edward E. Cunningham
Chairman of the Board,
President and Chief Executive Officer

William J. Fanney
Chairman Emeritus

Joseph C. Addington, Jr.
Retired as Chairman of the
Board of Addington-Beaman
Lumber Company

Charles M. Earley, Jr., M.D.
Retired general surgeon

E. Saunders Early, Jr.
Chairman of the Board and consultant
of Robbie's Home Center, Inc.

Donald I. Fentress
General insurance agent and President of
Bryant-Fentress Associates, Ltd.

William J. Jonak, Jr.
Real estate appraiser and consultant
and President of Jonak & Company

Frederick V. Martin
Investment counselor and President
of Virginia Investment Counselors, Inc.

Tollie W. Rich, Jr.
Executive Vice President and
Chief Operating Officer

Braden Vandeventer, Esq.
Retired, formerly a Partner, then
Of Counsel with Vandeventer, Black,
Meredith & Martin, L.L.P.

                      Life Bancorp, Inc. Executive Officers
--------------------------------------------------------------------------------

Edward E. Cunningham
Chairman of the Board,
President and Chief Executive Officer

Tollie W. Rich, Jr.
Executive Vice President and
Chief Operating Officer

Emory J. Dunning, Jr., CPA
Senior Vice President, Treasurer and
Chief Financial Officer


                    Life Savings Bank, FSB Executive Officers
--------------------------------------------------------------------------------

Edward E. Cunningham
Chairman of the Board,
President and Chief Executive Officer

Tollie W. Rich, Jr.
Executive Vice President and
Chief Operating Officer

Nelson R. Arnold
Senior Vice President
Retail Banking Division

T. Frank Clements
Senior Vice President
Lending Division

Ralph T. Dempsey, Jr.
Senior Vice President
Loan Administration Division

Emory J. Dunning, Jr., CPA
Senior Vice President, Treasurer and
Chief Financial Officer

Edward M. Locke
Senior Vice President
Administrative Services Division

                                       63

<PAGE>
                             Stockholder Information

    Life Bancorp,  Inc. is a unitary savings and loan holding company conducting
business through its wholly-owned  subsidiary,  Life Savings Bank, FSB. The Bank
is a federally chartered,  SAIF-insured  savings institution  operating from its
headquarters located in Norfolk, Virginia and 20 full-service banking facilities
located in the cities of Norfolk, Chesapeake,  Portsmouth,  Suffolk and Virginia
Beach, Virginia. The Company's headquarters is located at the home office of the
Bank at 109 East Main Street, Norfolk, Virginia 23510.

    The Company's  common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock  Market(sm)  under the symbol "LIFB." On March 6, 1997, the Company
had 1,169 stockholders of record, excluding shares held in brokerage accounts.

    The Annual Meeting of Stockholders of Life Bancorp, Inc. will be held at the
Norfolk Waterside Marriott, 235 East Main Street, Norfolk, Virginia on April 24,
1997 at 10:00 a.m.

    The table below  shows the high,  low and last sale prices and the per share
dividends of the Company's common stock for each quarter of 1996 and 1995.

                           Market Price
Quarter                                             Dividends     Month end
Ended               High        Low       Last       Declared     Book Value
1994
December 31        $10 5/8    $ 8 1/8    $ 9 1/4                    $13.61
1995
March 31            12 1/4      8 7/8     12 1/8      $0.11          13.91
June 30             14 15/16   11 3/4     14           0.11          14.23
September 30        16  3/4    13 3/4     16           0.11          14.38
December 31         16  1/8    14 3/8     15           0.11          14.75
1996
March 31            15          14        14 1/2       0.11          14.74
June 30             14 5/8  13 7/8        14 1/8       0.11          14.73
September 30        16 1/4  14 1/8        16           0.11          14.77
December 31         18 3/8  15 7/8        18           0.11          15.33

                                [GRAPHIC DELETED]
--------------------------------------------------------------------------------
The original document contains a combination bar and line chart. The bar depicts
the quarterly  High and Low Market Prices  beginning  with the fourth quarter of
1994 through the fourth quarter of 1996. A line depicts the quarterly  Month end
Book Value.  The table has been modified to include the  additional  data points
for the chart.
--------------------------------------------------------------------------------
    In January  1997,  the Company  declared a  quarterly  dividend of $0.11 per
share on its common  stock.  Dividends are  customarily  paid on the last day of
February, May, August and November.

                              Shareholder Requests

    Requests  for annual  reports,  quarterly  reports and  related  stockholder
literature  should be directed to Investor  Relations,  Life Bancorp,  Inc., 109
East  Main  Street,   Norfolk,   Virginia  23510,   (757)   858-1136.   

Transfer Agent/Registrar  
   ChaseMellon Shareholder Services 
   85 Challenger Road, Overpeck Centre
   Ridgefield Park, NJ  07660
   (800) 851-9677

Independent Auditors
   Edmondson, LedBetter & Ballard, L.L.P.
   2200 Dominion Tower
   Norfolk, Virginia  23510

General Counsel
   Vandeventer, Black, Meredith & Martin, L.L.P.
   500 World Trade Center
   Norfolk, Virginia  23510-1699

Special Counsel
  Elias, Matz, Tiernan & Herrick L.L.P.
  734 15th Street, N.W., 12th Floor
  Washington, D.C.  20005


                                       64

<PAGE>
                   Banking Locations - Life Savings Bank, FSB

                                Corporate Offices
                              109 East Main Street
                             Norfolk, Virginia 23510

                                Operations Center
                       4530 East Virginia Beach Boulevard
                             Norfolk, Virginia 23502

                                Branch Facilities
                                 (757) 858-1000
--------------------------------------------------------------------------------


109 East Main Street
Norfolk, Virginia 23510

7420 Granby Street
Norfolk, Virginia 23505

728 West 21st Street
Norfolk, Virginia 23517

2336 East Little Creek Road
Norfolk, Virginia 23518

2008 Cromwell Drive
Norfolk, Virginia 23509

Military Circle, East Ring Road
Norfolk, Virginia  23502

4530 East Virginia Beach Boulevard
Norfolk, Virginia 23502

213 Battlefield Boulevard, South
Chesapeake, Virginia 23320

1400 Kempsville Road, Suite 134
Chesapeake, Virginia 23320

3921 Poplar Hill Road
Chesapeake, Virginia  23321

330 West Constance Road
Suffolk, Virginia 23434

3801 Pacific Avenue
Virginia Beach, Virginia 23451

6056 Indian River Road
Virginia Beach, Virginia 23464

601 Lynnhaven Parkway
Virginia Beach, Virginia 23452

1316 North Great Neck Road
Virginia Beach, Virginia 23454

2089 General Booth Boulevard
Virginia Beach, Virginia 23454

944 Independence Boulevard
Virginia Beach, Virginia 23455

501 South Independence Boulevard
Virginia Beach, Virginia 23452

3225 High Street
Portsmouth, Virginia 23707

6201 Portsmouth Boulevard
Portsmouth, Virginia 23701



                                       65

<PAGE>



                                    APPENDIX

    The cover of the 1996 Annual Report has eight photographs  representative of
Life Savings Bank's real estate lending in 1996. The  photographs are duplicated
in the report with an explanatory caption. The following list shows the location
of the pictures and includes the explanatory caption.

Page 4
                    TWA Reservation Center, Norfolk, Virginia

    Life Savings Bank provided  construction and permanent  financing to develop
40,000  square feet of office space for a  reservation  center for TWA Airlines.
The facility,  part of the Bank's Community  Reinvestment program, was developed
in  cooperation  with the City of Norfolk  Development  Authority,  the State of
Virginia Economic  Development  Department and private  developers.  The project
will generate in excess of 500 new jobs
in Hampton Roads.


Page 6
                   Gatling Pointe South, Smithfield, Virginia

    Life Savings Bank provided financing to develop 82 single family lots in the
first phase of this project.  The subdivision is a planned community marketed to
individual buyers and custom homebuilders.


Page 12
                   Courtyard by Marriott, Chesapeake, Virginia

    Life Savings Bank provided  construction and permanent financing for this 90
room hotel to be operated as a  Courtyard  by  Marriott.  The  facility,  in the
Greenbrier section of Chesapeake,  Virginia,  will generate approximately 30 new
jobs for the area.


Page 13
                 Five Columbus Center, Virginia Beach, Virginia

    Life Savings Bank provided  construction  and  permanent  financing to build
20,000 square feet of office space in the Pembroke Central Business  District of
Virginia Beach. The building is leased to 360o  Communications,  as its regional
headquarters,  housing their corporate offices and operations as well as a sales
center for cellular communications.


Page 14
                     New Kirn Building, Portsmouth, Virginia

    Life Savings Bank provided  financing to rehabilitate  22,750 square feet of
office space in the Olde Towne Historic  District of Portsmouth,  Virginia.  The
New Kirn Building, originally constructed in the 1920's, houses the headquarters
of the Portsmouth

                                       66

<PAGE>


Redevelopment and Housing Authority.  This loan is a part of the Bank's on-going
Community Reinvestment programs.


Page 15
                     300 Freemason Street, Norfolk, Virginia

     Life Savings Bank provided financing to renovate this property,  containing
9,200 square feet of office space, in an historic  restoration  area of Norfolk,
Virginia. The structure was originally built in the 1890's.


Page 22
                        Wexford Downs, Suffolk, Virginia

    Life Savings Bank provided  development and construction  financing for this
104 unit townhome community in the city of Suffolk,  Virginia. The townhomes are
to be  targeted to  first-time  homebuyers  and is a part of the Bank's  ongoing
Community Reinvestment programs.


Page 22
                    Leigh Medical Building, Norfolk, Virginia

    Life Savings  Bank  provided  financing  for this  medical  office  building
containing  25,370  square  feet,  the  facility is  adjacent  to Sentara  Leigh
Hospital in Norfolk, Virginia.



                                       67