SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20579

                                    FORM 10-Q


  X      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- -----    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                  March 31, 1999
                                -----------------------------------------------

                                       OR

- -----    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE  ACT OF 1934

For the transition period from                       to
                               ---------------------     ----------------------

Commission file number : 1-7184


                     B. F. SAUL REAL ESTATE INVESTMENT TRUST
- -------------------------------------------------------------------------------
             (Exact name of registrant as specified in the charter)


         Maryland                                        52-6053341
- -------------------------------------------------------------------------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)


   8401 Connecticut Avenue,
   Chevy Chase, Maryland                                       20815
- -------------------------------------------------------------------------------
(Address of principal executive office)                     (Zip Code)

                                 (301) 986-6000
- -------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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

         The  number of Common Shares of Beneficial Interest, $1 Par Value,
outstanding as of May 7, 1999, was 4,826,910.

                               TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements:

         (a)    Consolidated Balance Sheets at March 31, 1999 and
                     September 30, 1998

         (b)    Consolidated Statements of Operations for the three-month and
                     six-month periods ended March 31, 1999 and 1998

         (c)    Consolidated Statements of Comprehensive Income and Changes in
                     Shareholders' Deficit for the three-month and
                     six-month periods ended March 31, 1999 and 1998

         (d)    Consolidated Statements of Cash Flows for the six-month periods
                     ended March 31, 1999 and 1998

         (e)    Notes to Consolidated Financial Statements

Item 2.  Management's Discussion and Analysis of Financial Condition
                     and Results of Operations:

         (a)    Financial Condition
                     Real Estate
                     Banking

         (b)    Liquidity and Capital Resources
                     Real Estate
                     Banking

         (c)    Results of Operations
                     Three months ended March 31, 1999 compared to three months
                          ended March 31, 1998

                     Six months ended March 31, 1999 compared to Six months
                          ended March 31, 1998


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports On Form 8-K


Consolidated Balance Sheets
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================
                                                                                                   March 31     September 30
                                                                                                 -------------- --------------
(In thousands)                                                                                       1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
ASSETS
Real Estate
Income-producing properties
    Hotel                                                                                           $  169,968     $  165,805
    Office and industrial                                                                              111,004        110,257
    Other                                                                                                3,902          3,889
                                                                                                 -------------- --------------
                                                                                                       284,874        279,951
    Accumulated depreciation                                                                          (101,853)       (96,072)
                                                                                                 -------------- --------------
                                                                                                       183,021        183,879
Land parcels                                                                                            40,300         40,110
Construction in progress                                                                                25,653          8,694
Cash and cash equivalents                                                                               15,320         13,950
Other assets                                                                                            73,009         76,799
                                                                                                 -------------- --------------
                    Total real estate assets                                                           337,303        323,432
- ------------------------------------------------------------------------------------------------------------------------------
Banking
Cash and other deposits                                                                                313,022        836,456
Federal funds sold and securities purchased under agreements to resell                                  38,000        380,000
Loans held for sale                                                                                    159,697         56,287
Loans held for securitization and sale                                                                      --        125,000
Trading securities                                                                                       8,256         11,319
Investment securities (market value $44,614 and $44,528, respectively)                                  44,392         43,999
Mortgage-backed securities (market value $1,588,843 and $2,014,819, respectively)                    1,600,096      2,025,817
Loans receivable (net of allowance for losses of $58,414 and $60,157, respectively)                  4,830,818      2,533,957
Federal Home Loan Bank stock                                                                            50,180         49,036
Real estate held for investment or sale (net of allowance for losses of $87,006
    and $153,766, respectively)                                                                         57,789         69,025
Property and equipment, net                                                                            292,306        285,916
Goodwill and other intangible assets, net                                                               29,221         30,879
Interest only strips, net                                                                               10,404         13,508
Other assets                                                                                           335,537        259,950
                                                                                                 -------------- --------------
                    Total banking assets                                                             7,769,718      6,721,149
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                       $ 8,107,021    $ 7,044,581
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Real Estate
Mortgage notes payable                                                                              $  203,597     $  198,874
Notes payable - secured                                                                                200,000        200,000
Notes payable - unsecured                                                                               45,443         50,335
Deferred gains - real estate                                                                           112,883        112,883
Accrued dividends payable - preferred shares of beneficial interest                                     32,758         34,049
Other liabilities and accrued expenses                                                                  40,879         39,895
                                                                                                 -------------- --------------
                    Total real estate liabilities                                                      635,560        636,036
- ------------------------------------------------------------------------------------------------------------------------------
Banking
Deposit accounts                                                                                     5,245,202      4,888,230
Borrowings                                                                                             514,587        492,184
Federal Home Loan Bank advances                                                                      1,000,070        352,027
Other liabilities                                                                                      180,414        159,195
Capital notes -- subordinated                                                                          250,000        250,000
                                                                                                 -------------- --------------
                    Total banking liabilities                                                        7,190,273      6,141,636
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interest held by affiliates                                                                    72,228         72,242
Minority interest -- other                                                                             218,306        218,306
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                                    8,116,367      7,068,220
- ------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIT
Preferred shares of beneficial interest, $10.50 cumulative, $1 par value, 90 million shares
    authorized, 516,000 shares issued and outstanding, liquidation value $51.6 million                     516            516
Common shares of beneficial interest, $1 par value, 10 million shares authorized,
    6,641,598 shares issued                                                                              6,642          6,642
Paid-in surplus                                                                                         92,943         92,943
Deficit                                                                                                (67,615)       (81,936)
Net unrealized holding gains                                                                                16             44
                                                                                                 -------------- --------------
                                                                                                        32,502         18,209
Less cost of 1,814,688 common shares of beneficial interest in treasury                                (41,848)       (41,848)
                                                                                                 -------------- --------------
TOTAL SHAREHOLDERS' DEFICIT                                                                             (9,346)       (23,639)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                                        $ 8,107,021    $ 7,044,581
- ------------------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.



Consolidated Statements of Operations
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================
                                                                     For the Three Months             For the Six Months
                                                                        Ended March 31                  Ended March 31
                                                                -------------------------------- -----------------------------
(In thousands, except per share amounts)                             1999             1998           1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
REAL ESTATE
Income
Hotels                                                             $     17,713      $   15,672     $   35,775     $   30,878
Office and industrial properties                                          5,989           5,704         11,930         11,222
Other                                                                       820             791          1,507          1,816
                                                                ----------------  -------------- -------------- --------------
Total income                                                             24,522          22,167         49,212         43,916
- ------------------------------------------------------------------------------------------------------------------------------
Expenses Direct operating expenses:
    Hotels                                                               11,821          10,619         23,419         20,841
    Office and industrial properties                                      1,922           1,900          3,792          3,811
    Land parcels and other                                                 (141)            389            247            788
Interest expense                                                          9,927          10,902         20,121         21,016
Captalized interest                                                        (154)            (37)          (375)           (69)
Amortization of debt expense                                                 66             152            164            292
Depreciation                                                              2,905           2,830          5,781          5,489
Advisory, management and leasing fees - related parties                   2,245           2,089          4,505          4,132
General and administrative                                                  182             222            487            606
                                                                ----------------  -------------- -------------- --------------
Total expenses                                                           28,773          29,066         58,141         56,906
- ------------------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated entities                             1,626           1,357          2,773             18
Loss on sale of property                                                     --              --             (1)            --
- ------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE OPERATING LOSS                                         $     (2,625)     $   (5,542)    $   (6,157)    $  (12,972)
- ------------------------------------------------------------------------------------------------------------------------------
BANKING
Interest income
Loans                                                              $     94,633      $   73,816     $  170,576     $  148,311
Mortgage-backed securities                                               24,791          25,594         53,679         52,201
Trading securities                                                        1,033             638          1,602          1,110
Investment securities                                                       614             550          1,229            952
Other                                                                     2,903           5,709          7,590         11,341
                                                                ----------------  -------------- -------------- --------------
Total interest income                                                   123,974         106,307        234,676        213,915
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposit accounts                                                         34,891          45,511         72,119         94,290
Borrowings                                                               22,706           9,669         37,580         19,182
                                                                ----------------  -------------- -------------- --------------
Total interest expense                                                   57,597          55,180        109,699        113,472
                                                                ----------------  -------------- -------------- --------------
Net interest income                                                      66,377          51,127        124,977        100,443
Provision for loan losses                                                (6,616)        (16,612)       (10,389)       (51,674)
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                      59,761          34,515        114,588         48,769
- ------------------------------------------------------------------------------------------------------------------------------
Other income
Servicing and securitization income                                       7,070          65,618         13,582        165,196
Credit card fees                                                             --           9,372             --         23,130
Deposit servicing fees                                                   15,815          11,992         31,710         23,749
Gain on sales of trading securities, net                                  2,663             435          3,328            992
Gain (loss) on real estate held for investment or sale, net              32,422            (192)        32,373         (5,106)
Gain on sales of loans, net                                               3,751             626          3,995          1,302
Other                                                                     6,224           8,436         12,177         15,180
                                                                ----------------  -------------- -------------- --------------
Total other income                                                       67,945          96,287         97,165        224,443
- ------------------------------------------------------------------------------------------------------------------------------
Continued on following page.



Consolidated Statements of Operations (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================
                                                                     For the Three Months             For the Six Months
                                                                        Ended March 31                  Ended March 31
                                                                -------------------------------- -----------------------------
(In thousands, except per share amounts)                             1999             1998           1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
BANKING (Continued)
Operating expenses
Salaries and employee benefits                                     $     42,422      $   47,927     $   83,218     $   92,772
Loan                                                                      3,021           9,300          6,352         19,062
Property and equipment                                                    6,409           7,069         12,632         13,690
Marketing                                                                 2,937          20,423          5,871         40,738
Data processing                                                           4,052          10,931          8,377         21,480
Depreciation and amortization                                             8,263           8,330         16,307         16,219
Deposit insurance premiums                                                1,096           1,125          2,166          2,591
Amortization of goodwill and other intangible assets                        769             903          1,620          1,701
Other                                                                     9,066          12,088         18,222         22,820
                                                                ----------------  -------------- -------------- --------------
Total operating expenses                                                 78,035         118,096        154,765        231,073
- ------------------------------------------------------------------------------------------------------------------------------
BANKING OPERATING INCOME                                           $     49,671      $   12,706     $   56,988     $   42,139
- ------------------------------------------------------------------------------------------------------------------------------

TOTAL COMPANY
Operating income                                                   $     47,046      $    7,164     $   50,831     $   29,167
Income tax provision                                                     15,946             915         15,952          6,496
                                                                ----------------  -------------- -------------- --------------
Income before extraordinary item and minority interest                   31,100           6,249         34,879         22,671
Extraordinary item:
    Loss on early extinguishment of debt, net of taxes                       --          (9,335)            --         (9,601)
                                                                ----------------  -------------- -------------- --------------
Income before minority interest                                          31,100          (3,086)        34,879         13,070
Minority interest held by affiliates                                     (5,239)           (740)        (5,194)        (3,711)
Minority interest -- other                                               (6,327)         (6,327)       (12,656)       (12,656)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPANY NET INCOME (LOSS)                                    $     19,534      $  (10,153)    $   17,029     $   (3,297)
- ------------------------------------------------------------------------------------------------------------------------------


NET INCOME (LOSS) AVAILABLE TO COMMON
    SHAREHOLDERS                                                   $     18,180      $  (11,507)    $   14,321     $   (6,005)

NET INCOME (LOSS) PER COMMON SHARE
Income before extraordinary item and minority interest             $       6.17       $    1.01      $    6.67      $    4.14
Extraordinary item:
    Loss on early extinguishment of debt, net of taxes                       --           (1.93)            --          (1.99)
                                                                ----------------  -------------- -------------- --------------
Income before minority interest                                            6.17           (0.92)          6.67           2.15
Minority interest held by affiliates                                      (1.09)          (0.15)         (1.08)         (0.77)
Minority interest -- other                                                (1.31)          (1.31)         (2.62)         (2.62)
- ------------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS) PER COMMON SHARE                                 $       3.77      $    (2.38)     $    2.97     $    (1.24)
- ------------------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.



Consolidated Statements of Comprehensive Income and Changes in Shareholders' Deficit
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================

                                                                     For the Three Months             For the Six Months
                                                                        Ended March 31                  Ended March 31
                                                                -------------------------------- -----------------------------
(Dollars in thousands, except per share amounts)                     1999             1998           1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
COMPREHENSIVE INCOME

Net income (loss)                                                  $     19,534      $  (10,153)    $   17,029     $   (3,297)
Other comprehensive income:
    Net unrealized holding gains (losses)                                     7             121            (28)           420
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS)                                  $     19,541      $  (10,032)    $   17,001     $   (2,877)
- ------------------------------------------------------------------------------------------------------------------------------


CHANGES IN SHAREHOLDERS' DEFICIT

PREFERRED SHARES OF BENEFICIAL INTEREST
Beginning and end of period (516,000 shares)                        $       516       $     516      $     516      $     516
                                                                ----------------  -------------- -------------- --------------

COMMON SHARES OF BENEFICIAL INTEREST
Beginning and end of period (6,641,598 shares)                            6,642           6,642          6,642          6,642
                                                                ----------------  -------------- -------------- --------------

PAID-IN SURPLUS
Beginning and end of period                                              92,943          92,943         92,943         92,943
                                                                ----------------  -------------- -------------- --------------

DEFICIT
Beginning of period                                                     (85,795)       (137,140)       (81,936)      (142,642)
Net income (loss)                                                        19,534         (10,153)        17,029         (3,297)
Dividends:
    Real Estate Trust preferred shares of beneficial interest:
        Distributions payable ($2.62, $2.62, $5.25 and $5.25 per
            share, respectively)                                         (1,354)        (1,354)        (2,708)        (2,708)
                                                                ----------------  -------------- -------------- --------------
End of period                                                           (67,615)       (148,647)       (67,615)      (148,647)
                                                                ----------------  -------------- -------------- --------------

ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of period                                                           9             (97)            44           (396)
Net unrealized holding gains (losses)                                         7             121            (28)           420
                                                                ----------------  -------------- -------------- --------------
End of period                                                                16              24             16             24
                                                                ----------------  -------------- -------------- --------------

TREASURY SHARES
Beginning and end of period (1,814,688 shares)                          (41,848)        (41,848)       (41,848)       (41,848)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT                                        $     (9,346)     $  (90,370)    $   (9,346)    $  (90,370)
- ------------------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.



Consolidated Statements of Cash Flows
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================
                                                                                                      For the Six Months
                                                                                                        Ended March 31
                                                                                                 -----------------------------
(In thousands)                                                                                       1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
CASH FLOWS FROM OPERATING ACTIVITIES
Real Estate
Net loss                                                                                            $   (3,745)    $  (18,142)
Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
    Depreciation                                                                                         5,781          5,489
    Early extiguishment of debt, net of taxes                                                               --          9,601
    (Increase) decrease in accounts receivable and accrued income                                          588         (1,385)
    Increase in deferred tax asset                                                                      (2,504)        (4,502)
    Increase (decrease) in accounts payable and accrued expenses                                         1,517         (9,266)
    Decrease in tax sharing receivable                                                                   6,610          2,670
    Amortization of debt expense                                                                           643            292
    Equity in earnings of unconsolidated entities                                                       (2,773)           (18)
    Other                                                                                               20,412          2,579
                                                                                                 -------------- --------------
                                                                                                        26,529        (12,682)
                                                                                                 -------------- --------------
Banking
Net income                                                                                              20,774         14,845
Adjustments to reconcile net income to net cash provided by (used in)
    operating activities:
    Amortization of premiums, discounts and net deferred loan fees                                       4,370          5,315
    Depreciation and amortization                                                                       16,307         16,219
    Amortization of goodwill and other intangible assets                                                    --          1,708
    Provision for loan losses                                                                           10,389         51,674
    Capitalized interest on real estate under development                                               (1,642)          (994)
    Proceeds from sales of trading securities                                                          401,681        238,047
    Net fundings of loans held for sale and/or securitization                                         (520,011)      (275,059)
    Proceeds from sales of loans held for sale and/or securitization                                    22,993      1,113,785
    Gain on sales of real estate held for sale                                                         (31,267)        (1,158)
    Provision for losses on real estate held for investment or sale                                         --          6,086
    Gain on sales of trading securities, net                                                            (3,328)          (992)
    (Increase) decrease in interest-only strips                                                          3,104        (41,771)
    Decrease in servicing assets                                                                         1,679          7,532
    (Increase) decrease in goodwill and other intangible assets                                          1,665        (23,870)
    Increase in other assets                                                                           (70,572)      (196,305)
    Increase (decrease) in other liabilities                                                             7,745        (17,983)
    Minority interest held by affiliates                                                                 5,194          3,711
    Minority interest - other                                                                            4,875          4,875
    Decrease in tax sharing payable                                                                     (6,610)        (2,670)
    Other                                                                                               (7,401)         5,946
                                                                                                 -------------- --------------
                                                                                                      (140,055)       908,941
                                                                                                 -------------- --------------
Net cash provided by (used in) operating activities                                                   (113,526)       896,259
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Real Estate
Capital expenditures - properties                                                                      (21,986)        (6,621)
Property acquisitions                                                                                       --        (26,184)
Equity investment in unconsolidated entities                                                             1,500            935
Other                                                                                                        1             --
                                                                                                 -------------- --------------
                                                                                                       (20,485)       (31,870)
                                                                                                 -------------- --------------
Banking
Net proceeds from redemption of Federal Home Loan Bank stock                                            19,043          2,504
Net proceeds from sales of real estate                                                                  29,114          9,643
Net fundings of loans receivable                                                                      (654,952)    (1,234,696)
Principal collected on mortgage-backed securities                                                      424,086        533,091
Purchases of Federal Home Loan Bank stock                                                              (20,187)            --
Purchases of investment securities                                                                        (394)       (34,009)
Purchases of loans receivable                                                                       (1,496,079)      (670,830)
Purchases of property and equipment                                                                    (22,953)       (32,668)
Disbursements for real estate held for investment or sale                                               (5,456)        (6,134)
Other                                                                                                   (7,616)        (1,345)
                                                                                                 -------------- --------------
                                                                                                    (1,735,394)    (1,434,444)
                                                                                                 -------------- --------------
Net cash used in investing activities                                                               (1,755,879)    (1,466,314)
- ------------------------------------------------------------------------------------------------------------------------------
Continued on following page.



Consolidated Statements of Cash Flows (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
==============================================================================================================================
                                                                                                      For the Six Months
                                                                                                        Ended March 31
                                                                                                 -----------------------------
(In thousands)                                                                                       1999           1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
CASH FLOWS FROM FINANCING ACTIVITIES
Real Estate
Proceeds from mortgage financing                                                                    $    9,838     $   55,779
Principal curtailments and repayments of mortgages                                                      (5,115)       (30,310)
Proceeds from issuance of secured notes                                                                     --        214,100
Repayments of secured notes                                                                                 --       (175,000)
Proceeds from sales of unsecured notes                                                                   1,833          4,898
Repayments of unsecured notes                                                                           (6,725)        (3,428)
Costs of obtaining financings                                                                             (505)        (6,502)
Loan prepayment fees                                                                                        --        (10,055)
Dividends paid - preferred shares of beneficial interest                                                (4,000)        (3,600)
                                                                                                 -------------- --------------
                                                                                                        (4,674)        45,882
                                                                                                 -------------- --------------
Banking
Proceeds from customer deposits and sales of certificates of deposit                                21,580,112     12,129,400
Customer withdrawals of deposits and payments for maturing certificates of deposit                 (21,223,140)   (12,011,488)
Net increase in securities sold under repurchase agreements                                             25,675        200,280
Advances from the Federal Home Loan Bank                                                             1,578,325        258,255
Repayments of advances from the Federal Home Loan Bank                                                (930,282)      (357,674)
Proceeds from other borrowings                                                                      12,356,831      6,279,389
Repayments of other borrowings                                                                     (12,360,105)    (6,278,729)
Cash dividends paid on preferred stock                                                                  (4,875)        (4,875)
Cash dividends paid on common stock                                                                    (26,000)        (6,500)
Other                                                                                                   13,474              6
                                                                                                 -------------- --------------
                                                                                                     1,010,015        208,064
                                                                                                 -------------- --------------
Net cash provided by financing activities                                                            1,005,341        253,946
- ------------------------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                                             (864,064)      (316,109)
Cash and cash equivalents at beginning of period                                                     1,230,406        670,139
                                                                                                 -------------- --------------
Cash and cash equivalents at end of period                                                          $  366,342     $  354,030
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
    Cash paid during the period for:
        Interest (net of amount capitalized)                                                        $  100,903     $  143,537
        Income taxes paid (refunded)                                                                    94,504          5,088
        Shares of Saul Centers, Inc. common stock                                                        1,652          3,231
        Limited partnership units of Saul Holdings Limited Partnership                                   2,980             --
    Cash received during the period from:
        Dividends on shares of Saul Centers, Inc. common stock                                           1,652          1,439
        Distributions from Saul Holdings Limited Partnership                                             2,980          2,727

Supplemental disclosures of noncash activities:
    Rollovers of notes payable - unsecured                                                               3,194          2,130
    Loans held for sale exchanged for trading securities                                               397,064        241,825
    Loans held for sale and/or securitization transferred to trading securities                             --          9,203
    Loans receivable transferred to (from) loans held for sale and/or securitization                  (125,000)       984,930
    Loans made in connection with the sale of real estate                                               29,260          3,974
    Loans receivable transferred to real estate acquired in settlement of loans                            889          2,278
    Loans receivable exchanged for mortgage-backed securities held to maturity                           1,792        607,829

- ------------------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. In the opinion of management, the consolidated financial statements reflect
all adjustments necessary for a fair presentation of the Trust's financial
position and results of operations. All such adjustments are of a normal
recurring nature. These financial statements and the accompanying notes should
be read in conjunction with the Trust's audited consolidated financial
statements included in its Form 10-K for the fiscal year ended September 30,
1998. The results of operations for interim periods are not necessarily
indicative of results to be expected for the year.

2. The accompanying financial statements include the accounts of B.F.Saul Real
Estate Investment Trust and its wholly owned subsidiaries (the "Real Estate
Trust"), which are involved in the ownership and development of income-producing
properties. The accounts of the Trust's 80%-owned banking subsidiary, Chevy
Chase Bank, F.S.B., and its subsidiaries ("Chevy Chase" or the "Bank") have also
been consolidated. Accordingly, the accompanying financial statements reflect
the assets, liabilities, operating results, and cash flows for two business
segments: Real Estate and Banking. All significant intercompany balances and
transactions have been eliminated.

3. The Real Estate Trust voluntarily terminated its qualification as a real
estate investment trust under the Internal Revenue Code during fiscal 1978. As a
result of the Trust's acquisition of an additional 20% equity interest in the
Bank in June 1990, the Bank became a member of the Trust's affiliated group
filing consolidated federal income tax returns. The current effect of the
Trust's consolidation of the Bank's operations into its federal income tax
return results in the use of the Trust's net operating losses and net operating
loss carryforwards to reduce the federal income taxes the Bank would otherwise
owe.

4. BANKING:

LOANS HELD FOR SALE:

Loans held for sale is composed of the following:

                                  March 31, September 30,
(In thousands)                       1999        1998
                                 ---------- -------------
Single-family residential        $ 156,231   $  49,502
Home improvement and related
    loans                            3,466       6,785
                                 ----------  ----------
                                 $ 159,697   $  56,287
                                 ==========  ==========


LOANS HELD FOR SECURITIZATION AND SALE:

At September 30, 1998, loans held for securitization and sale totaled $125,000
and was composed of automobile loans. At March 31, 1999, there were no loans
held for securitization and sale.

LOANS RECEIVABLE:

                                      March 31,     September 30,
(In thousands)                           1999            1998
                                 ---------------- ----------------
Single-family residential          $   3,271,833    $   1,772,784
Home equity                              211,889          135,122
Real estate construction and
    ground                               331,669          209,247
Commercial real estate and
    multifamily                           75,694           75,877
Commercial                               373,365          279,416
Automobile                               741,977          232,826
Home improvement and related
    loans                                 88,457           60,570
Overdraft lines of credit and
   other consumer                         31,130           33,484 
                                 ---------------- ----------------
                                       5,126,014        2,799,326 

Less:
  Undisbursed portion of loans           254,669          207,921
  Net deferred loan origination
    costs                                (17,887)          (2,709)
  Allowance for loan losses               58,414           60,157 
                                 ---------------- ----------------
                                         295,196          265,369 
                                 ---------------- ----------------
   Total                          $    4,830,818   $    2,533,957 
                                 ================ ================

REAL ESTATE HELD FOR INVESTMENT OR SALE:

The Bank's real estate held for investment is carried at the lower of aggregate
cost or net realizable value. The Bank's real estate acquired in settlement of
loans or real estate owned ("REO") is considered to be held for sale and is
carried at the lower of cost or fair value (less estimated selling costs).

Real estate held for investment or sale is composed of the following:

                                      March 31,     September 30,
(In thousands)                           1999            1998
                                 ---------------- ----------------

Real estate held for investment     $      3,819   $      3,819
Real estate held for sale                140,976        218,972 
                                 ---------------- ----------------
   Subtotal                              144,795        222,791 
                                 ---------------- ----------------

Less:
 Allowance for losses on real
  estate held for investment                 202            202
 Allowance for losses on real
  estate held for sale                    86,804        153,564 
                                 ---------------- ----------------
   Subtotal                               87,006        153,766 
                                 ---------------- ----------------

   Total real estate held for
      investment or sale             $    57,789    $    69,025 
                                 ================ ================

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS

The principal business conducted by the Trust and its wholly-owned subsidiaries
is the ownership and development of income-producing properties. The Trust owns
80% of the outstanding common stock of Chevy Chase Bank, F.S.B.("Chevy Chase" or
the "Bank"). At March 31, 1999, the Bank's assets accounted for approximately
96% of the Trust's consolidated assets. The Trust recorded net income of $17.0
million for the six-month period ended March 31, 1999 compared to a net loss of
$3.3 million for the six-month period ended March 31, 1998.

The Trust has prepared its financial statements and other disclosures on a fully
consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes B.F.
Saul Real Estate Investment and its subsidiaries, including Chevy Chase and
Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real Estate
Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy Chase's
subsidiaries. The operations conducted by the Real Estate Trust are designated
as "Real Estate," while the business conducted by the Bank and its subsidiaries
is identified by the term "Banking."

FINANCIAL CONDITION

REAL ESTATE

The number of properties in the Real Estate Trust's investment portfolio at
March 31, 1999, which consisted primarily of hotels, office and industrial
projects and land parcels, was unchanged from the number at September 30, 1998.

The ten hotel properties owned by the Real Estate Trust throughout the first
six-month periods of fiscal 1999 and 1998 experienced average occupancy rates of
63.9% and 63.3%, respectively, and average room rates of $82.14 and $76.35
respectively. Six of these hotels registered improved occupancies and eight
registered higher average room rates in the current period. Overall, the hotel
portfolio experienced an average occupancy rate of 63.0% and an average room
rate of $83.85 during the six-month period ended March 31, 1999. In December
1997, the Real Estate Trust purchased a 308-room Holiday Inn hotel located in
Arlington, Virginia, near the Ronald Reagan Washington National Airport and the
Real Estate Trust's Howard Johnsons hotel. In August 1998, the Real Estate Trust
opened its newly-constructed 95-room Marriott TownePlace Suites hotel located
near Washington Dulles Airport.

The Real Estate Trust's office and industrial portfolio was 98% leased at March
31, 1999, compared to leasing rates of 100% and 99% at September 30, 1998 and at
March 31, 1998, respectively. At March 31, 1999, the office and industrial
portfolio had a total gross leasable area of 1.3 million square feet, of which
161,000(12.7%) and 179,000(14.1%), are subject to leases whose terms expire in
the balance of fiscal 1999 and in fiscal 2000, respectively.

BANKING

General. The Bank recorded operating income of $49.7 million during the quarter
ended March 31, 1999, compared to operating income of $12.7 million in the prior
corresponding quarter. The increase in income for the current quarter was
primarily the result of a gain of $31.6 million recognized on the sale of one of
the Bank's REO properties. The Loudoun County, Virginia property was a community
in the pre-development stage consisting of 2,000 acres of land. Also
contributing to the increased income were an increase in single-family loan
interest income and decreases in the provision for loan losses and operating
expenses which partially offset the loss of revenues attributable to the Bank's
credit card portfolio which was sold on September 30, 1998.

Servicing and securitization income decreased $58.5 million (or 89.2%) during
the current quarter primarily as a result of decreased securitization activity
and decreased credit card servicing fees due to the prior sale of the credit
card portfolio. The Bank did not securitize and sell any loan receivables during
the quarter ended March 31, 1999. During the quarter ended March 31, 1998, the
Bank securitized and sold $123.5 million, $151.0 million and $19.7 million of
credit card, automobile and home equity loan receivables, respectively, and
recognized gains of $1.8 million, $8.6 million and $1.0 million, respectively,
on these transactions. In addition, credit card loan servicing fees totaling
$31.1 million for the quarter ended March 31, 1998 were eliminated as a result
of the September 30, 1998 sale of the credit card portfolio.

At March 31, 1999, the Bank's tangible, core, tier 1 risk-based and total
risk-based regulatory capital ratios were 6.89%, 6.89%, 9.90% and 15.71%,
respectively. The Bank's regulatory capital ratios exceeded the requirements
under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") as well as the standards established for "well-capitalized"
institutions under the prompt corrective action regulations issued pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
See "Capital."

During the quarter ended March 31, 1999, the Bank declared and paid out of the
retained earnings of the Bank, a cash dividend on its Common Stock in the amount
of $300 per share.

Asset Quality. Non-Performing Assets. The following table sets forth information
concerning the Bank's non-performing assets at the dates indicated. The figures
shown are after charge-offs and, in the case of REO, after all valuation
allowances.


Non-Performing Assets
(Dollars in thousands)

                                                                          March 31,         December 31,        September 30,
                                                                            1999                1998                1998
                                                                      ------------------   ----------------    ----------------
                                                                                                                  
Non-performing assets:
  Non-accrual loans:
    Residential                                                       $           6,145    $         7,498     $         8,106
    Consumer                                                                      5,327              7,262               4,501
                                                                      ------------------   ----------------    ----------------
      Total non-accrual loans (1)                                                11,472             14,760              12,607
                                                                      ------------------   ----------------    ----------------

  Real estate owned                                                             140,977            214,719             218,972
  Allowance for losses on real estate owned                                     (86,804)          (153,564)           (153,564)
                                                                      ------------------   ----------------    ----------------
    Real estate owned, net                                                       54,173             61,155              65,408
                                                                      ------------------   ----------------    ----------------

Total non-performing assets                                           $          65,645    $        75,915     $        78,015
                                                                      ==================   ================    ================

Troubled debt restructurings                                          $          11,764    $        11,770     $        11,800
                                                                      ==================   ================    ================

Allowance for losses on loans                                         $          58,414    $        60,157     $        60,157
Allowance for losses on real estate held for investment                             202                202                 202
Allowance for losses on real estate owned                                        86,804            153,564             153,564
                                                                      ------------------   ----------------    ----------------

  Total allowances for losses                                         $         145,420    $       213,923     $       213,923
                                                                      ==================   ================    ================




Ratios:

  Non-performing assets, net to total assets (2)                                  0.09%              0.21%               0.26%

  Allowance for losses on real estate loans to non-accrual
    real estate loans (1)                                                       267.75%            220.74%             204.18%

  Allowance for losses on consumer loans to
    non-accrual consumer loans (1)                                              609.65%            469.86%             758.08%

  Allowance for losses on loans to non-accrual loans (1)                        509.19%            407.57%             477.17%

  Allowance for losses on loans to total loans receivable (3)                     1.16%              1.40%               2.17%

(1) Before deduction of allowances for losses.
(2) Non-performing assets, net are presented after all allowances for losses on
    loans and real estate held for investment or sale.
(3) Includes loans receivable and loans held for sale and/or securitization,
    before deduction of allowance for losses.


Non-performing assets totaled $65.6 million, after valuation allowances on REO
of $86.8 million, at March 31, 1999, compared to $75.9 million, after valuation
allowances on REO of $153.6 million, at December 31, 1998. In addition to the
valuation allowances on REO, the Bank maintained $58.4 million of valuation on
allowances on its loan portfolio at March 31, 1999. The $10.3 million decrease
in non-performing assets for the current quarter was attributable to net
decreases in REO and non-accrual loans of $7.0 million and $3.3 million,
respectively. See "Non-accrual Loans" and "REO."

Non-accrual Loans. The Bank's non-accrual loans totaled $11.5 million at March
31, 1999, as compared to $14.8 million at December 31, 1998. At March 31, 1999,
non-accrual loans consisted of $6.2 million of real estate loans and $5.3
million of consumer loans compared to non-accrual real estate loans of $7.5
million and non-accrual consumer loans of $7.3 million at December 31, 1998. The
$3.3 million decrease in non-accrual consumer loans was attributable to
decreased delinquencies in the Bank's sub-prime automobile loan portfolio which
reflects steps management has taken designed to reduce losses in this portfolio,
including expansion of collection efforts and adjustments to underwriting
criteria.

REO. At March 31, 1999, the Bank's REO totaled $54.2 million, after valuation
allowances on such assets of $86.8 million as set forth in the following table.
The principal component of REO consists of four planned unit developments (the
"Communities"), all of which are under active development. Only commercial
ground remains in two of the four Communities.


                                                                              Balance                     Balance
                                                                              Before          All          After         Percent
                                  Number          Gross         Charge       Valuation     Valuation     Valuation         of
(Dollars in thousands)         of Properties     Balance         -Offs      Allowances    Allowances     Allowances       Total
                               -------------  -------------  -------------  -----------  -------------  -------------  ------------
                                                                                                  
Communities                          4             $156,721       $ 32,509      $124,212      $ 77,627      $ 46,585        86.0%

Residential ground                   3                6,358            493         5,865         3,179         2,686         5.0%

Commercial ground                    3               17,714          7,645        10,069         5,800         4,269         7.9%

Single-family
residential properties               8                  930             99           831             -           831         1.5%

Unallocated valuation
allowance                            -                -              -              -              198          (198)       (0.4%)
                               -------------  -------------  -------------  -----------  ------------- --------------  ------------

   Total REO                        18             $181,723       $ 40,746     $140,977       $ 86,804      $ 54,173       100.0%
                               =============  =============  =============  ===========  ============= ==============  ============


During the three months ended March 31, 1999, REO decreased $7.0 million, which
was primarily attributable to the sale of one community in the predevelopment
stage, consisting of approximately 2,000 acres in Loudoun County, Virginia. Also
contributing to the decline were additional sales in the Communities and other
properties, partially offset by additional capitalized costs.

During the three months ended March 31, 1999, the Bank received revenues of
$37.3 million from the sale of the pre-development stage community, and $6.6
million from dispositions of 83 residential lots or units in the Communities
($4.2 million), approximately 4.2 acres of commercial land in one of the
Communities ($0.4 million) and various single-family residential properties
($2.0 million).

At March 31, 1999, the Bank had an executed contract to sell one residential
ground property at its approximate book value of $0.9 million.

Delinquent Loans. At March 31, 1999, delinquent loans totaled $30.0 million (or
0.6% of loans) compared to $35.4 million (or 0.8% of loans) at December 31,
1998. The following table sets forth information regarding the Bank's delinquent
loans at March 31, 1999.

                                Principal Balance
                        ------------------------------
                                    Non-               Total as a
                        Mortgage  Mortgage             Percentage
(Dollars in thousands)    Loans    Loans       Total    of Loans (1)
                        --------  --------  ----------   ------
Loans delinquent for:

30-59 days..........    $  3,794  $ 19,834  $   23,628     0.5%
60-89 days..........       1,975     4,349       6,324     0.1%
                        --------  --------  ----------   ------
 Total................  $  5,769  $ 24,183  $   29,952     0.6%
                        ========  ========  ==========   ======


(1) Includes loans held for sale, before deduction of allowance for loan losses
and deferred loan origination costs.

Mortgage loans classified as delinquent 30-89 days consists entirely of
single-family permanent residential mortgage loans and home equity loans. Total
delinquent mortgage loans decreased from $7.4 million at December 31, 1998 to
$5.8 million at March 31, 1999.

Non-mortgage loans delinquent 30-89 days decreased to $24.2 million at March 31,
1999 from $28.0 million at December 31, 1998, primarily as a result of decreased
delinquencies in the sub-prime segment of the automobile portfolio.

Troubled Debt Restructurings. At March 31, 1999 and December 31, 1998, loans
accounted for as troubled debt restructurings totaled $11.8 million, and
included one commercial permanent loan with a principal balance of $11.7 million
and one commercial collateralized loan with a principal balance of $0.1 million.
The Bank had commitments to lend $0.1 million of additional funds on loans that
have been restructured.

Real Estate Held for Investment. At March 31, 1999 and December 31, 1998, real
estate held for investment consisted of two properties with an aggregate book
value of $3.6 million, net of valuation allowances of $0.2 million.

Allowances for Losses. The following tables show loss experience by asset type
and the components of the allowance for losses on loans and the allowance for
losses on real estate held for investment or sale. These tables reflect
charge-offs taken against assets during the periods indicated and may include
charge-offs taken against assets which the Bank disposed of during such periods.


Analysis of Allowance for and Charge-offs of Loans
(Dollars in thousands)

                                                                     Six Months Ended                        Three Months
                                                                        March 31,                                Ended
                                                           -------------------------------------               March 31,
                                                                 1999                 1998                       1999
                                                           ---------------   -------------------     -------------------------

                                                                                                                 
Balance at beginning of period                             $       60,157     $         105,679       $                60,157
                                                           ---------------   -------------------     -------------------------

Provision for loan losses                                          10,389                51,674                         6,616
                                                           ---------------   -------------------     -------------------------

Charge-offs:
  Single-family residential and home equity                          (316)                 (570)                         (108)
  Credit card                                                           -               (52,016)                            -
  Consumer                                                        (12,576)               (7,364)                       (8,609)
                                                           ---------------   -------------------     -------------------------
      Total charge-offs                                           (12,892)              (59,950)                       (8,717)
                                                           ---------------   -------------------     -------------------------

Recoveries:
  Single-family residential                                            33                    18                             4
  Credit card                                                           -                 5,998                             -
  Consumer                                                            727                   579                           354
                                                           ---------------   -------------------     -------------------------
      Total recoveries                                                760                 6,595                           358
                                                           ---------------   -------------------     -------------------------

Charge-offs,  net of recoveries                                   (12,132)              (53,355)                       (8,359)
                                                           ---------------   -------------------     -------------------------

Balance at end of period                                   $       58,414     $         103,998       $                58,414
                                                           ===============   ===================     =========================




Provision for loan losses to average loans  (1) (2) (3)             0.51%                 3.83%                         0.58%
Net loan charge-offs to average loans (1) (2) (3)                   0.60%                 3.96%                         0.73%
Ending allowance for losses on loans to total
  loans (2) (3)                                                     1.16%                 3.84%                         1.16%






(1) Annualized.
(2) Includes loans held for sale and/or securitization.
(3) Before deduction of allowance for losses.



Components of Allowance for Losses on Loans by Type
(Dollars in thousands)

                                      March 31,                         December 31,                       September 30,
                                        1999                                1998                               1998
                           --------------------------------    --------------------------------   --------------------------------
                                             Percent of                          Percent of                         Percent of
                                              Loans to                            Loans to                           Loans to
                              Amount         Total Loans          Amount         Total Loans         Amount         Total Loans
                           --------------  ----------------    -------------   ----------------   --------------  ----------------
                                                                                                          

Balance at end of
      period allocated to:


Single-family residential  $       1,769          68.2 %       $      1,822          68.7 %       $       1,822          65.7 %

Home equity                          631           4.2                  676           5.0                   676           4.9

Commercial real estate
      and multifamily             10,830           1.5               10,828           1.8                10,828           2.7

Real estate construction
      and ground                   3,222           4.0                3,225           3.4                 3,225           3.9

Commercial                         3,623           5.0                3,623           5.6                 3,623           6.3

Automobile                        27,400          14.7               29,044          12.4                29,044          12.9

Home improvement and
      related loans                3,403           1.8                3,403           2.3                 3,403           2.4

Overdraft lines of credit
    and other consumer             1,674           0.6                1,674           0.8                 1,674           1.2

Unallocated                        5,862             -                5,862             -                 5,862             -
                           --------------                      -------------                      --------------

    Total                  $      58,414         100.0         $     60,157         100.0         $      60,157         100.0
                           ==============                      =============                      ==============




Real Estate Held for Investment or Sale
(Dollars in thousands)


Activity in Allowance for Losses
                                                                                                                           
                                                                  Six Months Ended                        Three Months
                                                                      March 31,                              Ended
                                                      ------------------------------------------           March 31,
                                                            1999                    1998                      1999
                                                      -----------------      -------------------      ---------------------
                                                                                                              

Balance at beginning of period:
  Real estate held for investment                     $            202        $             198        $               202
  Real estate held for sale                                    153,564                  140,738                    153,564
                                                      -----------------      -------------------      ---------------------
    Total                                                      153,766                  140,936                    153,766
                                                      -----------------      -------------------      ---------------------

Provision for real estate losses:
  Real estate held for investment                                    -                        3                          -
  Real estate held for sale                                          -                    6,083                          -
                                                      -----------------      -------------------      ---------------------
    Total                                                            -                    6,086                          -
                                                      -----------------      -------------------      ---------------------

Charge-offs:
  Real estate held for sale:
     Communities                                               (66,760)                                            (66,760)
     Commercial ground                                               -                   (2,371)                         -
                                                      -----------------      -------------------      ---------------------

    Total charge-offs on real estate
       held for investment or sale                             (66,760)                  (2,371)                   (66,760)
                                                      -----------------      -------------------      ---------------------

Balance at end of period:
  Real estate held for investment                                  202                      201                        202
  Real estate held for sale                                     86,804                  144,450                     86,804
                                                      -----------------      -------------------      ---------------------
    Total                                             $         87,006        $         144,651        $            87,006
                                                      =================      ===================      =====================




Components of Allowance for Losses
                                                         March 31,              December 31,             September 30,
                                                            1999                    1998                      1998
                                                      -----------------      -------------------      ---------------------

Allowance for losses on real estate
  held for investment                                 $            202        $             202        $               202
                                                      -----------------      -------------------      ---------------------

Allowance for losses on real estate held for sale:
  Communities                                                   77,627                  144,641                    144,641
  Residential ground                                             3,179                    3,123                      3,123
  Commercial ground                                              5,800                    5,800                      5,800
                                                      -----------------      -------------------      ---------------------
      Total ground                                              86,606                  153,564                    153,564
                                                      -----------------      -------------------      ---------------------

  Unallocated                                                      198                        -                          -
                                                      -----------------      -------------------      ---------------------

     Total allowance for losses on real
       estate held for investment or sale             $         87,006        $         153,766        $           153,766
                                                      =================      ===================      =====================


At March 31, 1999 and December 31, 1998, the Bank's total valuation allowances
for losses on loans and real estate held for investment or sale was $145.4
million and $213.9 million, respectively. The $68.5 million decrease was
primarily attributable to a charge-off of $65.8 million upon the sale of the
pre-development stage community.

The allowance for losses on loans secured by real estate and real estate held
for investment or sale totaled $103.5 million at March 31, 1999, which
constituted 70.3% of total non-performing real estate assets, before valuation
allowances. During the three months ended March 31, 1999, the Bank recorded net
charge-offs of $66.9 million on these assets. The allowance for losses on real
estate held for sale at March 31, 1999 is in addition to approximately $40.7
million of cumulative charge-offs previously taken against assets remaining in
the Bank's portfolio at March 31, 1999.

At March 31, 1999, the combined allowance for losses on consumer loans
(automobile, home improvement and related loans, overdraft lines of credit and
other consumer loans) decreased to $32.5 million from $34.1 million at December
31, 1998. The ratios of the allowance for losses on consumer loans to
non-performing consumer loans and to outstanding consumer loans were 609.7% and
3.8%, respectively, at March 31, 1999 compared to 469.9% and 5.2%, respectively,
at December 31, 1998.

Asset and Liability Management. The following table presents the interest rate
sensitivity of the Bank's interest-earning assets and interest-bearing
liabilities at March 31, 1999, which reflects management's estimate of mortgage
loan prepayments and amortization and provisions for adjustable interest rates.
Adjustable and floating rate loans are included in the period in which their
interest rates are next scheduled to adjust, and prepayment rates are assumed
for the Bank's loans based on recent actual experience. Statement savings and
passbook accounts with balances under $20,000 are classified based upon
management's assumed attrition rate of 17.5%, and those with balances of $20,000
or more, as well as all NOW accounts, are assumed to be subject to repricing
within six months or less.


Interest Rate Sensitivity Table (Gap)
(Dollars in thousands)

                                                      More than        More than         More than
                                                      Six Months        One Year       Three Years
                                      Six Months       through          through          through         More than
                                       or Less         One Year       Three Years       Five Years      Five Years        Total
                                     -------------  --------------  ---------------  ---------------  --------------  --------------
                                                                                                              
As of March 31, 1999
Real estate loans:
  Adjustable-rate                    $    636,024    $    763,291    $      74,468    $         213    $          -    $  1,473,996
  Fixed-rate                               89,791          79,175          291,841          246,081       1,336,261       2,043,149
  Home equity credit lines
    and second mortgages                  229,279           2,210            7,827            6,405          26,249         271,970
Commercial                                158,538           8,551           28,441           20,926          34,737         251,193
Consumer and other                        166,137         136,177          356,894          170,186          19,530         848,924
Loans held for sale                       159,697               -                -                -               -         159,697
Mortgage-backed securities                554,513         225,274          526,331           76,166         217,812       1,600,096
Trading securities                          8,256               -                -                -               -           8,256
Other investments                         205,390               -           44,392                -               -         249,782
                                     -------------  --------------  ---------------  ---------------  --------------  --------------
  Total interest-earning assets         2,207,625       1,214,678        1,330,194          519,977       1,634,589       6,907,063
Total non-interest earning assets               -               -                -                -         862,655         862,655
                                     -------------  --------------  ---------------  ---------------  --------------  --------------
  Total assets                       $  2,207,625    $  1,214,678    $   1,330,194    $     519,977    $  2,497,244    $  7,769,718
                                     =============  ==============  ===============  ===============  ==============  ==============

Deposits:
  Fixed maturity deposits            $    952,004    $    300,822    $     172,177    $      58,870    $          -    $  1,483,873
  NOW, statement and passbook
      accounts                          1,661,224          44,930          149,646          101,853         217,061       2,174,714
  Money market deposit accounts         1,100,516               -                -                -               -       1,100,516
Borrowings:
  Capital notes - subordinated                  -               -                -                -         250,000         250,000
  Other                                   716,795             191            7,868          715,792          74,011       1,514,657
                                     -------------  --------------  ---------------  ---------------  --------------  --------------
  Total interest-bearing liabilities    4,430,539         345,943          329,691          876,515         541,072       6,523,760
Total non-interest bearing
    liabilities                                 -               -                -                -         810,513         810,513
Stockholders' equity                            -               -                -                -         435,445         435,445
                                     -------------  --------------  ---------------  ---------------  --------------  --------------
  Total liabilities & stockholders'
      equity                         $  4,430,539    $    345,943    $     329,691    $     876,515    $  1,787,030    $  7,769,718
                                     =============  ==============  ===============  ===============  ==============  ==============

Gap                                  $ (2,222,914)   $    868,735    $   1,000,503    $    (356,538)   $  1,093,517
Cumulative gap                       $ (2,222,914)   $ (1,354,179)   $    (353,676)   $    (710,214)   $    383,303
Adjustment for interest rate caps (1)$    100,000    $          -    $           -    $           -    $          -
Adjusted cumulative gap              $ (2,122,914)   $ (1,354,179)   $    (353,676)   $    (710,214)   $    383,303
Adjusted cumulative gap as a
    percentage of total assets              (27.3)%         (17.4)%           (4.6)%           (9.1)%           4.9 %

(1) At March 31, 1999, the Bank had $200,000 notional amount of interest rate
caps. The adjustment reflects the average notional amount outstanding until the
cap expires June 30, 1999.


The interest sensitivity "gap" shown in the table represents the sum of all
interest-earning assets minus all interest-bearing liabilities subject to
repricing within the same period. The one-year gap, adjusted for the effect of
the Bank's interest rate caps, as a percentage of total assets, was a negative
17.4% at March 31, 1999 compared to a negative 28.0% at December 31, 1998. The
improvement in the Bank's one-year gap during the quarter ended March 31, 1999
reflected the Bank's efforts to replace short-term borrowings with borrowings of
greater duration. The Bank continues to consider a variety of strategies to
manage its interest rate risk position.

Capital. At March 31, 1999, the Bank was in compliance with all of its
regulatory capital requirements under FIRREA, and its capital ratios exceeded
the ratios established for "well-capitalized" institutions under OTS prompt
corrective action regulations.

The following table shows the Bank's regulatory capital levels at March 31, 1999
in relation to the regulatory requirements in effect at that date. The
information below is based upon the Bank's understanding of the regulations and
interpretations currently in effect and may be subject to change.


Regulatory Capital
(Dollars in thousands)

                                                                                       Minimum                      Excess
                                                           Actual                Capital Requirement               Capital
                                               ----------------------------   -------------------------  ---------------------------
                                                                  As a %                      As a %                       As a %
                                                   Amount        of Assets        Amount     of Assets      Amount       of Assets
                                               -------------     ----------   -------------  ----------  ------------    -----------
                                                                                                       
Stockholders' equity per financial statements  $    463,193
  Minority interest in REIT Subsidiary (1)          144,000
  Net unrealized holding gains (2)                      (21)
                                               -------------
                                                    607,172
Adjustments for tangible and core capital:
  Intangible assets                                 (59,874)
  Non-allowable minority interest in
    REIT Subsidiary (1)                             (10,872)
  Non-includable subsidiaries  (3)                   (3,915)
                                               -------------
     Total tangible capital                         532,511          6.89%    $    116,009       1.50%   $   416,502          5.39%
                                               -------------     ==========   =============  ==========  ============    ===========
     Total core capital (4)                         532,511          6.89%    $    309,358       4.00%   $   223,153          2.89%
                                               -------------     ==========   =============  ==========  ============    ===========
     Tier 1 risk-based capital (4)                  532,511          9.90%    $    218,140       4.00%   $   314,371          5.90%
                                               -------------     ==========   =============  ==========  ============    ===========

Adjustments for total risk-based capital:
  Subordinated capital debentures                   250,000
  Allowance for general loan losses                  51,294
                                               -------------
     Total supplementary capital                    301,294
                                               -------------
     Total available capital                        833,805
  Equity investments (3)                             (6,531)
                                               -------------
     Total risk-based capital (4)              $    827,274         15.71%    $    436,279       8.00%   $   390,995          7.71%
                                               =============     ==========   =============  ==========  ============    ===========


(1) Eligible for inclusion in core capital in an amount up to 25% of the Bank's
core capital pursuant to authorization from the OTS.

(2) Pursuant to OTS policy,
net unrealized holding gains (losses) are excluded from regulatory capital.

(3) Reflects an aggregate offset of $0.6 million representing the allowance for
general loan losses maintained against the Bank's equity investments and
non-includable subsidiaries which, pursuant to OTS guidelines, is available as a
"credit" against the deductions from capital otherwise required for such
investments.

(4) Under the OTS "prompt corrective action" regulations, the standards for
classification as "well capitalized" are a leverage (or "core capital") ratio of
at least 5.0%, a tier 1 risk-based capital ratio of at least 6.0% and a total
risk-based capital ratio of at least 10.0%.


OTS capital regulations provide a five-year holding period (or such longer
period as may be approved by the OTS) for REO to qualify for an exception from
treatment as an equity investment. If an REO property is considered an equity
investment, its then-current book value is deducted from total risk-based
capital. In May 1999, the Bank received from the OTS an extension of the
holding periods for certain of its REO properties through May 14, 2000. The
following table sets forth the Bank's REO at March 31, 1999, after valuation
allowances of $86.8 million, by the fiscal year in which the property was
acquired through foreclosure.

     Fiscal Year               (In thousands)

     1990 (1) (2)...........   $   14,997
     1991 (2)...............       32,276
     1992 (2)...............          110
     1993 ..................            -
     1994 ..................            -
     1995 ..................        5,959
     1996 ..................            -
     1997 ..................            -
     1998 ..................          644
     1999 ..................          187
                               -----------
          Total REO.........   $   54,173
                               ===========
- -----------------------
(1) Includes REO with an aggregate net book value of $6.5 million, which the
Bank treats as equity investments for regulatory capital purposes.
(2) Includes REO, with an aggregate net book value of $40.9 million, for which
the Bank received an extension of the holding periods through May 14, 2000.


LIQUIDITY AND CAPITAL RESOURCES

REAL ESTATE

General. The Real Estate Trust's primary cash requirements fall into four
categories: operating expenses (exclusive of interest on outstanding debt),
capital improvements, interest on outstanding debt and repayment of outstanding
debt.

Historically, the Real Estate Trust's total cash requirements have exceeded the
cash generated by its operations. This condition is currently the case and is
expected to continue to be so for the foreseeable future. The Real Estate
Trust's internal sources of funds, primarily cash flow generated by its
income-producing properties, generally have been sufficient to meet its cash
needs other than the repayment of principal on outstanding debt, including
outstanding unsecured notes ("Unsecured Notes") sold to the public, the payment
of interest on its Senior Secured Notes (the "Secured Notes"), and the payment
of capital improvement costs. In the past, the Real Estate Trust funded such
shortfalls through a combination of external funding sources, primarily new
financings (including the sale of Unsecured Notes), refinancings of maturing
mortgage debt, asset sales, and dividends and tax sharing payments from the
Bank. See the Consolidated Statements of Cash Flows included in the Consolidated
Financial Statements in this report.

Liquidity. The Real Estate Trust's ability to meet its liquidity needs,
including debt service payments in the balance of fiscal 1999 and subsequent
years, will depend in significant part on its receipt of dividends from the Bank
and tax sharing payments from the Bank pursuant to the tax sharing agreement
among the Trust, the Bank, and their subsidiaries. The availability and amount
of tax sharing payments and dividends in future periods is dependent upon, among
other things, the Bank's operating performance and income, regulatory
restrictions and restrictions on such payments, and (in the case of tax sharing
payments), the continued consolidation of the Bank and the Bank's subsidiaries
with the Trust for federal income tax purposes.

The Real Estate Trust believes that the financial condition and operating
results of the Bank in recent periods, as well as the Bank's board resolution
adopted in connection with the release of its written agreement with the OTS,
should enhance prospects for the Real Estate Trust to receive tax sharing
payments and dividends from the Bank. In the first six months of fiscal 1999,
the Bank made a tax sharing payment of $6.6 million and dividend payments of
$20.8 million to the Real Estate Trust.

In recent years, the operations of the Trust have generated net operating losses
while the Bank has reported net income. It is anticipated that the Trust's
consolidation of the Bank's operations into the Trust's federal income tax
return will result in the use of the Trust's net operating losses to reduce the
federal income taxes the Bank would otherwise owe. If, in any future year, the
Bank has taxable losses or unused credits, the Trust would be obligated to
reimburse the Bank for the greater of (i) the tax benefit to the group using
such tax losses or unused tax credits in the group's consolidated federal income
tax returns or (ii) the amount of the refund which the Bank would otherwise have
been able to claim if it were not being included in the consolidated federal
income tax return of the group.

In fiscal 1994, the Real Estate Trust refinanced a significant portion of its
outstanding secured indebtedness with the proceeds of the issuance of $175.0
million aggregate principal amount of 11 5/8% Senior Secured Notes due 2002 (the
"1994 Notes"). In March 1998, the Real Estate Trust issued $200.0 million
aggregate principal amount of 9 3/4% Senior Secured Notes due 2008 (the "1998
Notes"). After providing for the retirement of the 1994 Notes, including a
prepayment premium of $10.0 million and debt issuance costs of approximately
$5.9 million, the Real Estate Trust realized approximately $9.1 million in new
funds. In addition, the Real Estate Trust received about $13.2 million in cash
which had been held as additional collateral by the indenture agent under the
1994 Notes. The 1998 Notes are secured by a first priority perfected security
interest in 8,000 shares (80%) of the issued and outstanding common stock of the
Bank, which constitute all of the Bank common stock held by the Real Estate
Trust. The 1998 Notes are nonrecourse obligations of the Real Estate Trust.

Through March 31, 1999, the Trust has purchased either in the open market or
through dividend reinvestment approximately 2.2 million shares of common stock
of Saul Centers (representing 17.0% of such company's outstanding common stock).
As of March 31, 1999, the market value of this unpledged stock was approximately
$32.2 million.

The Real Estate Trust is currently selling Unsecured Notes, with a maturity
ranging from one to ten years, primarily to provide funds to repay maturing
Unsecured Notes. To the degree that the Real Estate Trust does not sell new
Unsecured Notes in an amount sufficient to finance completely the scheduled
repayment of maturing Unsecured Notes, it will finance such repayments from
other sources of funds.

In fiscal 1995, the Real Estate Trust established a $15.0 million secured
revolving credit line with an unrelated bank. This facility was for an initial
two-year period subject to extension for one or more additional one-year terms.
In fiscal 1997, the facility was increased to $20.0 million and was renewed for
an additional two-year period. Interest is computed by reference to a floating
rate index. At March 31, 1999, there were no borrowings under this facility and
unrestricted availability on that date was $7.8 million.

In fiscal 1996, the Real Estate Trust established an $8.0 million secured
revolving credit line with an unrelated bank. This facility was for a one-year
term, after which any outstanding loan amount would amortize over a two-year
period. During fiscal 1997, the line of credit was increased to $10.0 million
and was extended for a year. During fiscal 1998, the credit was increased to
$20.0 million and was extended for an additional year. Interest is computed by
reference to a floating rate index. At March 31, 1999, there were no borrowings
under the facility and unrestricted availability was $3.3 million.

The maturity schedule for the Real Estate Trust's outstanding debt at March 31,
1999 for the balance of fiscal 1999 and subsequent years is set forth in the
following table:


                       Debt Maturity Schedule
                           (In thousands)
- -------------------------------------------------------------------
Fiscal             Mortgage   Notes Payable-  Notes Payable-
 Year               Notes        Secured        Unsecured     Total
- -------------------------------------------------------------------
1999 (1)           $  4,872    $    ---        $  6,230    $ 11,102
2000                 14,195         ---           8,893      23,088
2001                 16,453         ---           5,951      22,404
2002                 14,117         ---           6,266      20,383
2003                 14,982         ---           9,149      24,131
Thereafter          138,978     200,000           8,954     347,932
- -------------------------------------------------------------------
Total              $203,597    $200,000        $ 45,443    $449,040
===================================================================
(1)  April 1, 1999 - September 30, 1999

Of the $203.6 million of mortgage debt outstanding at March 31, 1999, $167.2
million was nonrecourse to the Real Estate Trust.

As the owner, directly and through two wholly-owned subsidiaries, of a limited
partnership interest in Saul Holdings Limited Partnership("Saul Holdings"), the
Real Estate Trust shares in cash distributions from operations and from capital
transactions involving the sale of properties. The partnership agreement of Saul
Holdings provides for quarterly cash distributions to the partners out of net
cash flow. During the six-month period ended March 31, 1999, the Real Estate
Trust received total cash distributions of $3.0 million from Saul Holdings.
Beginning in April 1998, the Real Estate Trust has chosen to reinvest its
quarterly distributions and obtain additional partnership units in Saul
Holdings.

Development and Capital Expenditures. In September 1997, the Real estate Trust
commenced development of a 95-unit extended stay hotel on a 3 acre parcel
located adjacent to its Hampton Inn and Holiday Inn near the Washington Dulles
International Airport in Sterling, Virginia. The new hotel was franchised as a
TownePlace Suites by Marriott and opened for business in August 1998.
Development costs were $5.8 million and were largely financed by a construction
loan of $4.5 million. The loan is for two years with two extension options for
two-year and one-year periods, respectively. The loan covered all costs except
for the land, fees to related parties, taxes and insurance.

On December 10, 1997, the Real Estate Trust purchased a 308-room Holiday Inn
located in Arlington, Virginia, near the Ronald Reagan Washington National
Airport and the Real Estate Trust's Howard Johnson Hotel. The purchase price was
$25.8 million. Also on December 10, 1997, the Real Estate Trust refinanced five
other hotels in its portfolio. Funds for the two transactions were provided by a
lender in the amount of $52.2 million. The new loans have a 15-year term, a
fixed interest rate of 7.57%, and amortization based on a 25-year schedule.

During the quarter ended June 30, 1998, the Real Estate Trust commenced
development of four new extended stay hotels:

      TownePlace  Suites by Marriott  containing 91 units located
      on 2 acre site  owned  by  the  Trust  in  Avenel  Business
      Park  in Gaithersburg, Maryland. Opening is scheduled for
      July 1, 1999.

      TownePlace  Suites by Marriott  containing 91 units located
      on part of a 9 acre site owned by the Real Estate Trust in
      the Arvida Park of Commerce in Boca Raton, Florida. Opening is
      scheduled for August 1, 1999.

      SpringHill Suites by Marriott containing 146 units located on
      part of a 9 acre site owned by the Real Estate Trust in the
      Arvida Park of Commerce in Boca Raton, Florida. Opening
      is scheduled for August 1, 1999.

      TownePlace Suites by Marriott containing 95 units located on
      a 3 acre site owned by the Real Estate Trust in Ft. Lauderdale
      Commerce  Center, Ft. Lauderdale, Florida. Opening is scheduled
      for September 4, 1999.

The projected costs for the four hotels aggregate $32 million and will largely
be funded by the proceeds of a three year bank loan in the amount of $25.9
million. The loan has two one-year renewal options.

During the quarter ended June 30, 1998, the Real Estate Trust also began
development of a 78,000 square foot single-story office/research and development
building located on a 7 acre site owned by the Real Estate Trust in Dulles North
Corporate Park, Sterling, Virginia. This project is adjacent to the Real Estate
Trust's Dulles North office building and near three of the Real Estate Trust's
hotel properties. The development cost is $6.6 million with bank financing of
$6.5 million for a five-year term and a two-year extension option. Leases for
approximately 76% of the space have been signed.

During the quarter ended September 30, 1998, the Real Estate Trust began the
conversion of its two hotels located in Crystal City, Arlington, Virginia. The
present 308-room Crystal City Holiday Inn will be converted into a Holiday Inn
Crown Plaza, while the present 279-room Howard Johnsons will be converted into a
Holiday Inn. The new brands are expected to position the hotels to generate
higher room rates and revenues along with improved occupancy levels consistent
with the overall market. The renovations are largely an acceleration of normal
capital improvement work as well as some exterior and interior signage, new
marketing materials and a facade upgrade at the Howard Johnson hotel. A
restaurant, which had been operated by an unaffiliated company, will also be
renovated. The incremental costs for the two conversions will be funded by the
Real Estate Trust in part from its internal resources and in part from its lines
of credit.

The Real Estate Trust believes that capital improvement costs for its
income-producing properties will be in range of $6.5 to $8.0 million per year
for the next several fiscal years.

Year 2000 Statement - Pursuant to The Year 2000 Information and
Readiness Disclosure Act.

The Real Estate Trust has reviewed all its financial and accounting systems, as
well as physical systems with embedded microprocessors, for the purpose of
assessing the impact of Year 2000 on both internally developed and externally
provided systems. The Real Estate Trust currently uses an IBM AS/400, which has
been certified by the manufacturer to be Year 2000 compliant. All software
purchased over the past five years has been certified by the various
manufacturers to be Year 2000 compliant. All internally developed software has
been modified to make it Year 2000 compliant. Property management systems for
shopping centers, office buildings, hotels, and construction and development
have been certified as Year 2000 compliant by applicable vendors. At present,
only one area of property management, apartments, has software which requires
replacement to meet Year 2000 compliance, and that replacement is scheduled to
be completed in May 1999. The Real Estate Trust had no information which would
suggest that its financial systems will not continue to function effectively
after the turn of the century.

Using the Building Owners and Manager Association's guidelines to identify
building systems, including physical systems with embedded microprocessors, and
critical services that might be vulnerable to the Year 2000 software problem,
the Real Estate Trust has contacted the manufacturer, supplier, or vendor
supporting the system and requested information regarding Year 2000 compliance.
The majority of the replies have indicated that the systems or services are Year
2000 compliant. We are presently assessing whether any of the internal systems
should be tested or whether further investigation is necessary. The Real Estate
Trust has no information which would suggest that any system will not continue
to function effectively after the turn of the century. Except with regard to
internally developed software, all information regarding Year 2000 compliance is
based on a republication (as defined the The Year 2000 Information and Readiness
Disclosure Act) of Year 2000 statements of disclosures made by others.

The Real Estate Trust believes that there is risk that its operations may be
affected by vendors and tenants who are unable to perform as contracted due to
their own Year 2000 exposure. It is very difficult to identify the most
reasonable likely worst case scenario at this time. Although the Real Estate
Trust's potential exposure is widespread, there is no know major direct
exposure. The Real State Trust's commercial leases contain provisions empowering
it to take certain actions to enforce its right to the timely payment of rent
regardless of the tenant's Year 2000 exposure. While it is not possible at this
time to determine the likely impact of these potential problems, the Real Estate
Trust will continue to evaluate these areas and develop contingency plans as
appropriate. The Real Estate estimates that its incremental cost to meet Year
2000 compliance is less than $250,000.

BANKING

Liquidity. The required liquidity level under OTS regulations at March 31, 1999
was 4.0%. The Bank's average liquidity ratio for the quarter ended March 31,
1999 was 8.6%, compared to 14.3% for the quarter ended December 31, 1998.

The Bank did not securitize and sell any loan receivables during the current
quarter. As part of its operating strategy, the Bank will continue to explore
opportunities to sell assets and to securitize and sell home equity, automobile
and home loan receivables to meet liquidity and other balance sheet objectives.
See Notes to the Consolidated Financial Statements.

The Bank is obligated under various recourse provisions (primarily related to
credit losses) related to the securitization and sale of receivables. As a
result of these recourse provisions, the Bank maintained restricted cash
accounts and overcollateralization of receivables amounting to $91.9 million and
$12.8 million, respectively, at March 31, 1999, and $98.2 million and $12.2
million, respectively, at December 31, 1998, both of which are included in other
assets in the Consolidated Balance Sheets. In addition, the Bank owned
subordinated automobile receivables-backed securities with carrying values of
$8.3 million and $9.6 million at March 31, 1999 and December 31, 1998,
respectively, which were classified as trading securities in the Consolidated
Balance Sheets.

The Bank is also obligated under various recourse provisions related to the swap
of single family residential loans for mortgage-backed securities issued by the
Bank. At March 31, 1999, recourse to the Bank under these arrangements was $10.3
million, consisting of restricted cash accounts of $5.4 million and
overcollateralization of receivables of $4.9 million.

There were no material commitments for capital expenditures at March 31, 1999.
During fiscal 1998, the Bank leased 3.5 acres of land at 7501 Wisconsin Avenue
in Bethesda, Maryland, on which the Bank intends to develop and occupy an office
building to use as its new corporate headquarters. Excavation of this site began
during April 1999 with construction set to begin in October 1999.

The Bank's liquidity requirements in fiscal 1999 and for years subsequent to
fiscal 1999 will continue to be affected both by the asset size of the Bank, the
growth of which will be constrained by capital requirements, and the composition
of the asset portfolio. Management believes that the Bank's primary sources of
funds will be sufficient to meet the Bank's foreseeable long-term liquidity
needs. The mix of funding sources utilized from time to time will be determined
by a number of factors, including capital planning objectives, lending and
investment strategies and market conditions.

YEAR 2000 ISSUES

As part of its Year 2000 program, the Bank charged $2.4 million and $2.3
million, respectively to expense during the six months ended March 31, 1999 and
the year ended September 30, 1998 and expects that an additional $4.3 million
and $1.2 million will be charged to expense during the remainder of fiscal 1999
and fiscal 2000, respectively. The Bank also expects to invest an additional
$5.4 million in equipment purchases, which will be amortized to expense over the
estimated useful lives of the equipment. The Bank's cost estimates are based on
variables and assumptions that could cause actual results to differ from these
projections.


RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 (the "1999  quarter") COMPARED
    TO THREE MONTHS ENDED MARCH 31, 1998 (the "1998 quarter")

REAL ESTATE

The Real Estate Trust recorded income before depreciation and amortization of
$346,000 and an operating loss of $2.6 million in the 1999 quarter compared to a
loss before depreciation and amortization of $2.6 million and an operating loss
of $5.5 million in the 1998 quarter. The decrease in the operating loss was
largely attributable to improved results from income-producing properties.

Income after direct operating expenses from hotel properties increased $839,000
(16.6%) in the 1999 quarter over the level achieved in the 1998 quarter.
$466,000 (10.3%) of this increase reflected improved results from the ten hotels
owned throughout both quarters and $373,000 (6.3%) reflected results from
acquisition properties. The increase in total revenue of $2,041,000 (13.0%)
exceeded the increase of $1,202,000 (11.3%) in direct operating expenses. For
the ten hotels owned throughout both periods, the increase in total revenue was
$1,241,000 (8.8%) and the increase in direct operating expenses was $775,000
(8.1%). The revenue increase was attributable to improved market conditions,
which permitted the Real Estate Trust to raise average room rates at eight
properties and average occupancy levels at six properties.

Income after direct operating expenses from office and industrial properties
increased $263,000 (6.9%) in the 1999 quarter compared to such income in the
1998 quarter. This increase reflected higher base rents in the current period.
Gross income in the 1999 quarter was $285,000 (5.0%) above its level in the 1998
quarter. Expenses increased by $22,000 (1.2%).

Other income increased $29,000 (3.7%) during the 1999 quarter due to higher
percentage income recorded on purchase leaseback investments.

Land parcels and other expense decreased $530,000 (136.2%) during the 1999
quarter due to the collection of a multi-year property tax refund at one land
parcel.

Interest expense decreased $975,000 (8.9%) in the 1999 quarter, primarily
because of lower bank borrowing expense ($452,000), lower senior secured debt
expense ($211,000) and lower mortgage interest ($257,000). The average balance
of the Real Estate Trust's outstanding borrowings increased to $440.5 million
for the 1999 quarter from $436.1 million for the 1998 quarter. The increase in
average borrowings was the result of mortgage loan refinancings and new issue of
$200.0 million of senior secured notes due 2008 and the retirement of $175.0
million of senior secured notes due 2002 during the 1998 quarter. The weighted
average cost of borrowings was 9.30% in the 1999 quarter compared to 10.31% in
the 1998 quarter.

Capitalized interest increased $117,000 (316.2%) during the 1999 quarter due to
the higher level of development activity in the current period.

Amortization of debt expense decreased $86,000 (56.6%) in the 1999 quarter,
primarily due to the lower costs experienced in the renewal of senior secured
debt.

Depreciation increased $75,000 (2.7%) in the 1999 quarter as a result of new
assets placed in service and the addition of two new hotels.

Advisory, management and leasing fees paid to related parties increased $156,000
(7.5%) in the 1999 quarter from their expense level in the 1998 quarter. The
monthly advisory fee in the 1999 quarter was $337,000 compared to $317,000 in
the 1998 quarter, which resulted in an aggregate increase of $58,000. Management
fees increased $98,000 (8.6%) in the current quarter, reflecting both higher
hotel sales and office rents on which the fees are based.

General and administrative expense decreased $40,000 (17.8%) in the 1999
quarter, principally as a result of lower legal and accounting expense.

Equity on earnings of unconsolidated entities reflected earnings of $1,626,000
in the 1999 quarter, an increase of $269,000 (19.8%) over the amount recorded in
the 1998 quarter. The improvement was due in part to increased period-to-period
earnings and a charge to earnings in the 1998 quarter which was caused by a
change in accounting method.

BANKING

Overview. The Bank recorded operating income of $49.7 million for the 1999
quarter compared to operating income of $12.7 million for the 1998 quarter. The
increase in income for the current quarter was primarily the result of a gain of
$31.6 million recognized on the sale of one of the Bank's REO properties. Also
contributing to the increased income were an increase in single-family loan
interest income and decreases in the provision for loan losses and operating
expenses which partially offset the loss of revenues attributable to the Bank's
credit card portfolio, which was sold on September 30, 1998. Although the credit
card program was historically a significant source of earnings for the Bank,
management believes that the Bank will be able to maintain profitability by
relying on its core deposit franchise as a significant source of low-cost funds,
and investing those funds in assets that, although offering lower yields than
credit cards, involve less credit risk and overhead costs. Nevertheless,
implementation of this strategy is a gradual process and the Bank's core
earnings for the current quarter have been adversely affected because the
immediate loss of earnings from the credit card program has not yet been fully
offset by corresponding reductions in operating expenses.

Net Interest Income. Net interest income, before the provision for loan losses,
increased $15.3 million (or 29.8%) in the 1999 quarter compared to the 1998
quarter. The Bank would have recorded additional interest income of $0.7 million
for the 1999 quarter if non-accrual assets and restructured loans had been
current in accordance with their original terms. Interest income of $0.1 million
was actually recorded on non-accrual assets and restructured loans during the
current quarter. The Bank's net interest income in future periods will continue
to be adversely affected by the Bank's non-performing assets. See "Financial
Condition - Asset Quality - Non-Performing Assets."

The following table sets forth, for the periods indicated, information regarding
the total amount of income from interest-earning assets and the resulting
yields, the interest expense associated with interest-bearing liabilities,
expressed in dollars and rates, and the net interest spread and net yield on
interest-earning assets.


Net Interest Margin Analysis
(Dollars in thousands)

                                                                           Three Months Ended March 31,
                                                -----------------------------------------------------------------------------------
                                                                  1999                                          1998
                                                -----------------------------------------  ----------------------------------------
                                                    Average                      Yield/        Average                      Yield/
                                                    Balances       Interest       Rate         Balances        Interest      Rate
                                                --------------- -------------- ----------  --------------- -------------- ---------
                                                                                                              
Assets:
  Interest-earning assets:
    Loans receivable, net (1)                   $    4,540,011  $      94,633      8.34 %  $    2,596,989  $      73,816    11.37 %
    Mortgage-backed securities                       1,698,616         24,791      5.84         1,828,866         25,594     5.60
    Federal funds sold and securities
      purchased under agreements to resell              50,176            601      4.79           210,012          2,923     5.57
    Trading securities                                  62,245          1,033      6.64            32,099            638     7.95
    Investment securities                               44,003            614      5.58            39,007            550     5.64
    Other interest-earning assets                      169,838          2,302      5.42           178,346          2,786     6.25
                                                --------------- --------------             --------------- --------------
      Total                                          6,564,889        123,974      7.55         4,885,319        106,307     8.70
                                                                -------------- ----------                  -------------- ---------

  Noninterest-earning assets:
    Cash                                               244,734                                    208,306
    Real estate held for investment or sale             63,305                                     87,370
    Property and equipment,  net                       289,668                                    283,320
    Goodwill and other intangible assets, net           29,701                                     24,494
    Other assets                                       274,303                                    604,205
                                                ---------------                            ---------------
      Total assets                              $    7,466,600                             $    6,093,014
                                                ===============                            ===============

Liabilities and stockholders' equity:
  Interest-bearing liabilities:
    Deposit accounts:
      Demand deposits                           $    1,120,073          2,947      1.05    $      982,949          5,073     2.06
      Savings deposits                               1,027,580          5,377      2.09         1,015,191          7,785     3.07
      Time deposits                                  1,468,742         17,582      4.79         1,725,884         23,177     5.37
      Money market deposits                          1,090,268          8,985      3.30           983,261          9,476     3.85
                                                ---------------   ------------             ---------------    -----------
      Total deposits                                 4,706,663         34,891      2.97         4,707,285         45,511     3.87
    Borrowings                                       1,623,698         22,706      5.59           525,081          9,669     7.37
                                                --------------- --------------             --------------- --------------
      Total liabilities                              6,330,361         57,597      3.64         5,232,366         55,180     4.22
                                                                -------------- ----------                  -------------- ---------
  Noninterest-bearing items:
    Noninterest-bearing deposits                       490,799                                    251,207
    Other liabilities                                   80,648                                    118,116
    Minority interest                                  144,000                                    144,000
    Stockholders' equity                               420,792                                    347,325
                                                ---------------                            ---------------
      Total liabilities and stockholders'
          equity                                $    7,466,600                             $    6,093,014
                                                ===============                            ===============

Net interest income                                             $      66,377                               $     51,127
                                                                ==============                             ==============
Net interest spread (2)                                                            3.91 %                                    4.48 %
                                                                               ==========                                 =========
Net yield on interest-earning assets (3)                                           4.04 %                                    4.18 %
                                                                               ==========                                 =========
Interest-earning assets to interest-bearing
    liabilities                                                                  103.70 %                                   93.37 %
                                                                               ==========                                 =========

- -----------------------------------------------------------------------------------------------------------------------------------
(1)    Includes loans held for sale and/or securitization. Interest on
       non-accruing loans has been included only to the extent reflected in the
       Consolidated Statements of Operations; however, the loan balance is
       included in the average amount outstanding until transferred to real
       estate acquired in settlement of loans.
(2)    Equals weighted average yield on total interest-earning assets less
       weighted average rate on total interest-bearing liabilities.
(3)    Equals annualized net interest income divided by the average balances of
       total interest-earning assets.


The following table presents certain information regarding changes in interest
income and interest expense of the Bank during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (change in
volume multiplied by old rate); changes in rate (change in rate multiplied by
old volume); and changes in rate and volume.

Volume and Rate Changes in Net Interest Income
(Dollars in thousands)

                                        Three Months Ended March 31, 1999
                                                   Compared to
                                        Three Months Ended March 31, 1998
                                               Increase (Decrease)
                                              Due to Change in (1)
                                     ----------------------------------------
                                                                      Total
                                        Volume          Rate         Change
                                     -----------    -----------    ----------

Interest income:
  Loans (2)                          $  130,795     $ (109,978)    $  20,817
  Mortgage-backed securities             (5,982)         5,179          (803)
  Federal funds sold and securities
    purchased under agreements to
    resell                               (1,961)          (361)       (2,322)
  Trading securities                      1,052           (657)          395
  Investment securities                     102            (38)           64
  Other interest-earning assets            (128)          (356)         (484)
                                     -----------    -----------    ----------
      Total interest income             123,878       (106,211)       17,667
                                     -----------    -----------    ----------


Interest expense:
  Deposit accounts                           (6)       (10,614)      (10,620)
  Borrowings                             28,446        (15,409)       13,037
                                     -----------    -----------    ----------
      Total interest expense             28,440        (26,023)        2,417
                                     -----------    -----------    ----------



Increase in net interest income      $   95,438     $  (80,188)    $  15,250
                                     ===========    ===========    ==========



(1)  The net change attributable to the combined impact of volume and rate has
     been allocated in proportion to the absolute value of the change due to
     volume and the change due to rate.
(2)  Includes loans held for sale and/or securitization.


Interest income in the 1999 quarter increased $17.7 million (or 16.6%) from the
level in the 1998 quarter as a result of higher average balances of loans
receivable, which was offset by lower average yields on loans receivable. Higher
average balances of real estate loans, consumer loans and commercial loans more
than offset the elimination of $1.0 billion in average credit card loans
resulting from the sale of the credit card portfolio.

The Bank's net yield on interest-earning assets decreased slightly to 4.04% in
the 1999 quarter from 4.18% in the 1998 quarter. The decrease in the net yield
primarily reflected the decline in the yield on loans resulting from the
elimination of higher yielding credit card loans. Partially offsetting this
decline was an increase in the average balances of earning assets which were
funded with proceeds received from the sale of the credit card portfolio and
related operations on September 30, 1998. Average interest-earning assets as a
percentage of average interest bearing liabilities increased to 103.70% for the
1999 quarter compared to 93.37% for the 1998 quarter.

Interest income on loans, the largest category of interest-earning assets,
increased by $20.8 million (or 28.2%) from the 1998 quarter primarily because of
higher average balances. The Bank did not securitize and sell any receivables in
the three months ended March 31, 1999, which contributed to the higher average
balances. Lower average yields earned on the loan portfolio (due to the effect
of the sale of the credit card portfolio) partially offset the positive effect
of the higher average balances.

Higher average balances of the Bank's single-family residential loans, which
increased $2.2 billion (or 213.1%), resulted in a $37.1 million (or 197.4%)
increase in interest income from such loans. Lower average yields on
single-family residential loans partially offset the effects of the higher
average balances. Average balances of automobile loans, commercial loans and
real estate construction loans increased $416.9 million, $122.5 million and
$104.4 million, respectively, and contributed to a $10.3 million, $1.9 million
and $1.8 million increase in interest income from such loans, respectively.
Lower average yields on these loans partially offset the effects of the higher
average balances. Average balances of home equity loans increased $76.6 million,
which, when coupled with an increase in its average yield, resulted in an $1.5
million (or 58.2%) increase in interest income from such loans.

The average yield on the loan portfolio in the 1999 quarter decreased 303 basis
points (from 11.37% to 8.34%) from the average yield in the 1998 quarter. The
decline in the net yield for the 1999 quarter resulted from the sale of the
credit card portfolio on September 30, 1998.

Interest income on mortgage-backed securities decreased $0.8 million (or 3.1%)
primarily because of lower average balances. The effect of the lower average
balances of $130.2 million was partially offset by an increase in the average
interest rates on these securities from 5.60% to 5.84%.

Interest expense on deposits decreased $10.6 million (or 23.3%) during the 1999
quarter due to decreased average rates. The 90 basis point reduction in the
average rate on deposits (from 3.87% to 2.97%) resulted from a shift in the
deposit mix from certificates of deposits to lower yielding demand deposits
coupled with market conditions during fiscal year 1998, which led to the Bank's
reducing the rates it pays on deposits.

The decrease in interest expense on deposits was more than offset by an increase
in interest expense on borrowings. Higher average balances of Federal Home Loan
Bank advances ($698.6 million) and repurchase agreement transactions ($367.1
million) primarily resulted in a $13.0 million (or 134.8%) increase in interest
expense on borrowings. This amount was partially offset by a 178 basis point
reduction in the average rate on borrowings (to 5.59% from 7.37%).

Provision for Loan Losses. The Bank's provision for loan losses decreased to
$6.6 million in the 1999 quarter from $16.6 million in the 1998 quarter. The
$10.0 million decrease was primarily due to the elimination of provisions for
losses on credit card loans resulting from the sale of the credit card portfolio
on September 30, 1998. See "Financial Condition - Asset Quality - Allowances for
Losses."

Other Income. Other (non-interest) income decreased to $67.9 million in the 1999
quarter from $96.3 million in the 1998 quarter. The $28.4 million (or 29.4%)
decrease was primarily attributable to a decrease in servicing and
securitization income. Also contributing to the decrease in other income was the
elimination of credit card fees. Partially offsetting these decreases were
increases in deposit servicing fees and gain on real estate held for investment
or sale.

Servicing and securitization income decreased $58.5 million (or 89.2%) during
the 1999 quarter primarily as a result of decreased securitization activity and
the elimination of credit card loan servicing fees. The Bank did not securitize
and sell any loan receivables during the 1999 quarter. During the 1998 quarter,
the Bank securitized and sold $123.5 million, $151.0 million and $19.7 million
of credit card, automobile and home equity loan receivables, respectively, and
recognized gains of $1.8 million, $8.6 million and $1.0 million, respectively,
on these transactions. In addition, credit card loan servicing fees totaling
$31.1 million for the 1998 quarter were eliminated as a result of the September
30, 1998 sale of the credit card portfolio.

The $32.6 million increase in gain (loss) on real estate held for investment or
sale was primarily attributable to the $31.6 million gain on sale of one of the
communities located in Loudoun County, Virginia and, to a lesser extent, a
decrease of $0.8 million in the provision for losses on such assets. See
"Financial Condition - Asset Quality - Allowances for Losses."

Deposit servicing fees increased $3.8 million (or 31.9%) during the 1999 quarter
primarily due to increased fees recognized for servicing deposit accounts and
fees generated through the Bank's ATM network.

Operating Expenses. Operating expenses for the 1999 quarter decreased $40.1
million (or 33.9%) from the level in the 1998 quarter. The sale of the Bank's
credit card operations was primarily responsible for decreases in marketing
expenses ($17.5 million), loan expenses ($6.3 million) and data processing
expenses ($6.9 million) during the 1999 quarter. Salaries and employee benefits
decreased $5.5 million (or 11.5%) also as a result of the sale. Additions of
staff to the Bank's consumer lending department and branch operations partially
offset the decrease of salaries and employee benefits.


SIX MONTHS ENDED MARCH 31, 1999 (the "1999 period") COMPARED TO
    SIX MONTHS ENDED MARCH 31, 1998 (the "1998 period")

REAL ESTATE

The Real Estate Trust recorded a loss before depreciation and amortization of
$212,000 and an operating loss of $6.2 million in the 1999 period compared to a
loss before depreciation and amortization of $7.2 million and an operating loss
of $13.0 million in the 1998 period. The decrease in the operating loss was
largely attributable to improved results from income-producing properties.

Income after direct operating expenses from hotels increased $2,319,000 (23.1%)
in the 1999 period over the level achieved in the 1998 period. $1,074,000
(11.3%) of this increase reflected improved results from ten hotels owned
throughout both periods and $1,245,000 reflected results from two acquisition
properties. The increase in total revenue of $4,897,000 (15.9%) exceeded the
increase of $2,578,000 (12.4%) in direct operating expenses. For the ten hotels
owned throught both periods, the increase in total revenue was $1,913,000
(6.6%). The revenue increase was attributable to improved market conditions
which permitted the Real Estate Trust to raise average room rates and occupancy
levels.

Income after direct operating expenses from office and industrial properties
increased $727,000 (9.8%) in the 1999 period compared to such income in the 1998
period. The increase was caused by higher gross income of $708,000 (6.3%) due to
an increase in the amount of rent received. Expenses for the current period were
$19,000 (0.5%) below last year, largely due to a refund of real estate taxes at
one property.

Other income decreased $309,000 (17.0%) during the 1999 period due to a lower
level of interest earnings.

Land parcels and other expense decreased $541,000 (68.7%) during the 1999
period, largely due to the collection of a multi-year property refund at one
land parcel, and the elimination of carrying costs of a property on which the
Real Estate Trust had terminated its ground lease.

Interest expense decreases $895,000 (4.3%) in the 1999 period, primarily because
of decreases in bank borrowing expense ($419,000), interest costs on senior
secured debt ($414,000), and lower mortgage interest ($70,000). Average balances
of the Real Estate Trust's outstanding borrowings increased to $444.0 million
for the 1999 period from $421.1 million for the 1998 period. The increase in
average borrowings occurred as a result of mortgage loan refinancings and new
issue of $200.0 million of senior secured notes due 2008 and the retirement of
$175.0 million of senior secured notes due 2002 during the 1998 period. The
weighted average cost of borrowings was 9.29% in the 1999 period compared to
10.24% in the 1998 period.

Capitalized interest increased $306,000 (443.5%) during the 1999 period due to
the higher level of development activity in the current period.

Amortization of debt expense decreased $128,000 (43.8%) in the 1999 period,
primarily due to the lower costs experienced in the renewal of senior secured
debt.

Depreciation increased $292,000 (5.3%) in the 1999 period as a result of new
assets placed in service and the additions of two new hotels.

Advisory, management and leasing fees paid to related parties increased $373,000
(9.0%) in the 1999 period from their expense level in the 1998 period. The
monthly advisory fee in the 1999 period was $337,000 compared to $317,000 in the
prior period, which resulted in an aggregate increase of $117,000. Management
and leasing fees increased $256,000 (11.5%) in the current period, reflecting
both higher hotel sales and office rents on which fees are based.

General and administrative expense decreased $119,000 (19.6%) in the 1999
period, principally as a result of lower legal and accounting expense.

Equity in earnings of unconsolidated entities reflected earnings of $2,773,000
for the 1999 period and earnings of $18,000 for the 1998 period. The lower
earnings in the 1998 period were attributable to nonrecurring charges for losses
on sales of interest rate protection agreements and losses on early
extinguishment of debt.


BANKING

Overview. The Bank recorded operating income of $57.0 million for the 1999
period compared to operating income of $42.1 million for the 1998 period. The
increase in income for the 1999 period was primarily the result of a gain of
$31.6 million recognized on the sale of one of the Bank's REO properties which
was partially offset by the effects of the sale of the Bank's credit card
portfolio on September 30, 1998. Although the credit card program was
historically a significant source of earnings for the Bank, management believes
that the Bank will be able to maintain profitability by relying on its core
deposit franchise as a significant source of low-cost funds, and investing those
funds in assets that, although offering lower yields than credit cards, involve
less credit risk and overhead costs. Nevertheless, implementation of this
strategy is a gradual process and the Bank's core earnings for the current
period have been adversely affected because the immediate loss of earnings from
the credit card program has not yet been fully offset by corresponding
reductions in operating expenses. Decreases in credit card interest income
($70.8 million), credit card fees ($23.1 million) and servicing and
securitization income ($151.6 million) during the 1999 period were partially
offset by increases in single-family loan interest income ($62.4 million) and
gain on real estate held for investment or sale ($37.5 million) and decreases in
the provision for loan losses ($41.3 million) and operating expenses ($76.2
million).

Net Interest Income. Net interest income, before the provision for loan losses,
increased $24.5 million (or 24.4%) in the 1999 period. The Bank would have
recorded additional interest income of $1.4 million for the 1999 period if
non-accrual assets and restructured loans had been current in accordance with
their original terms. Interest income of $0.1 million was actually recorded on
non-accrual assets and restructured loans during the 1999 period. The Bank's net
interest income in future periods will continue to be adversely affected by the
Bank's non-performing assets. See "Financial Condition - Asset Quality -
Non-Performing Assets."

The following table sets forth, for the periods indicated, information regarding
the total amount of income from interest-earning assets and the resulting
yields, the interest expense associated with interest-bearing liabilities,
expressed in dollars and rates, and the net interest spread and net yield on
interest-earning assets.


Net Interest Margin Analysis
(Dollars in thousands)

                                                                                 Six Months Ended March 31,
                                              --------------------------------------------------------------------------------------
                                                                1999                                         1998
                                              -----------------------------------------   ------------------------------------------
                                                  Average                      Yield/          Average                      Yield/
                                                  Balances       Interest       Rate           Balances       Interest       Rate
                                              --------------- -------------- ----------   ---------------- -------------- ----------
                                                                                                               
Assets:
  Interest-earning assets:
    Loans receivable, net (1)                 $    4,008,650  $     170,576      8.51 %   $     2,585,733  $     148,311     11.47 %
    Mortgage-backed securities                     1,812,352         53,679      5.92           1,860,605         52,201      5.61
    Federal funds sold and securities
      purchased under agreements to resell            71,697          1,782      4.97             211,968          5,950      5.61
    Trading securities                                46,226          1,602      6.93              29,848          1,110      7.44
    Investment securities                             44,001          1,229      5.59              33,406            952      5.70
    Other interest-earning assets                    212,114          5,808      5.48             173,470          5,391      6.22
                                              --------------- --------------              ---------------- --------------
      Total                                        6,195,040        234,676      7.58           4,895,030        213,915      8.74
                                                              -------------- ----------                    -------------- ----------

  Noninterest-earning assets:
    Cash                                             237,986                                      207,290
    Real estate held for investment or sale           65,087                                       90,693
    Property and equipment,  net                     286,660                                      279,114
    Goodwill and other intangible assets, net         30,089                                       19,178
    Other assets                                     247,794                                      543,113
                                              ---------------                             ----------------
      Total assets                            $    7,062,656                              $     6,034,418
                                              ===============                             ================

Liabilities and stockholders' equity:
  Interest-bearing liabilities:
    Deposit accounts:
      Demand deposits                         $    1,089,050          6,144      1.13     $       956,239         10,901      2.28
      Savings deposits                             1,022,143         11,097      2.17           1,003,942         16,315      3.25
      Time deposits                                1,490,806         36,980      4.96           1,758,738         47,952      5.45
      Money market deposits                        1,062,361         17,898      3.37             977,130         19,122      3.91
                                              ---------------   ------------              ----------------   ------------
      Total deposits                               4,664,360         72,119      3.09           4,696,049         94,290      4.02
    Borrowings                                     1,286,277         37,580      5.84             516,406         19,182      7.43
                                              --------------- --------------              ---------------- --------------
      Total liabilities                            5,950,637        109,699      3.69           5,212,455        113,472      4.35
                                                              -------------- ----------                    -------------- ----------
  Noninterest-bearing items:
    Noninterest-bearing deposits                     463,233                                      241,395
    Other liabilities                                 75,737                                       99,168
    Minority interest                                144,000                                      144,000
    Stockholders' equity                             429,049                                      337,400
                                              ---------------                             ----------------
      Total liabilities and stockholders'
          equity                              $    7,062,656                              $     6,034,418
                                              ===============                             ================

Net interest income                                           $     124,977                                $     100,443
                                                              ==============                               ==============
Net interest spread (2)                                                          3.89 %                                       4.39 %
                                                                             ==========                                   ==========
Net yield on interest-earning assets (3)                                         4.04 %                                       4.11 %
                                                                             ==========                                   ==========
Interest-earning assets to interest-bearing
    liabilities                                                                104.11 %                                      93.91 %
                                                                             ==========                                   ==========

- ------------------------------------------------------------------------------------------------------------------------------------
(1)    Includes loans held for sale and/or securitization. Interest on
       non-accruing loans has been included only to the extent reflected in the
       Consolidated Statements of Operations; however, the loan balance is
       included in the average amount outstanding until transferred to real
       estate acquired in settlement of loans.
(2)    Equals weighted average yield on total interest-earning assets less
       weighted average rate on total interest-bearing liabilities.
(3)    Equals annualized net interest income divided by the average balances of
       total interest-earning assets.


The following table presents certain information regarding changes in interest
income and interest expense of the Bank during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (change in
volume multiplied by old rate); changes in rate (change in rate multiplied by
old volume); and changes in rate and volume.

Volume and Rate Changes in Net Interest Income
(Dollars in thousands)

                                         Six Months Ended March 31, 1999
                                                   Compared to
                                         Six Months Ended March 31, 1998
                                               Increase (Decrease)
                                              Due to Change in (1)
                                     ----------------------------------------
                                                                     Total
                                        Volume         Rate          Change
                                     -----------    ----------    -----------

Interest income:
  Loans (2)                          $  119,107     $ (96,842)    $   22,265
  Mortgage-backed securities             (3,213)        4,691          1,478
  Federal funds sold and securities
    purchased under agreements to
    resell                               (3,555)         (613)        (4,168)
  Trading securities                        708          (216)           492
  Investment securities                     330           (53)           277
  Other interest-earning assets           1,945        (1,528)           417
                                     -----------    ----------    -----------
      Total interest income             115,322       (94,561)        20,761
                                     -----------    ----------    -----------


Interest expense:
  Deposit accounts                         (628)      (21,543)       (22,171)
  Borrowings                             30,449       (12,051)        18,398
                                     -----------    ----------    -----------
      Total interest expense             29,821       (33,594)        (3,773)
                                     -----------    ----------    -----------



Increase in net interest income      $   85,501     $ (60,967)    $   24,534
                                     ===========    ==========    ===========





- -----------------------------------------------------------------------------
(1)  The net change attributable to the combined impact of volume and rate
     has been allocated in proportion to the absolute value of the change
     due to volume and the change due to rate.
(2)  Includes loans held for sale and/or securitization.

Interest income in the 1999 period increased $20.8 million (or 9.7%) from the
level in the 1998 period as a result of higher average balances of loans
receivable, which was offset by lower average yields on loans receivable. Higher
average balances of real estate loans, consumer loans and commercial loans more
than offset the elimination of $1.1 billion in average credit card loans.

The Bank's net yield on interest-earning assets decreased slightly to 4.04% in
the 1999 period from 4.11% in the 1998 period. The decrease in the net yield
primarily reflected the decline in the yield on loans resulting from the
elimination of higher yielding credit card loans. Partially offsetting this
decline was an increase in the average balances of earning assets which were
funded with proceeds received from the sale of the credit card portfolio and
related operations on September 30, 1998. Average interest-earning assets as a
percentage of average interest bearing liabilities increased to 104.1% for the
1999 period compared to 93.9% for the 1998 period.

Interest income on loans, the largest category of interest-earning assets,
increased by $22.3 million (or 15.0%) from the 1998 period primarily because of
higher average balances. The Bank did not securitize and sell any receivables in
the 1999 period, which contributed to the higher average balances. Lower average
yields earned on the loan portfolio (due to the effect of the sale of the credit
card portfolio) partially offset the positive effect of the higher average
balances.

Higher average balances of the Bank's single-family residential loans, which
increased $1.8 billion (or 185.9%), resulted in a $62.4 million (or 169.9%)
increase in interest income from such loans. Lower average yields on
single-family residential loans partially offset the effects of the higher
average balances. Average balances of automobile loans, home equity loans,
commercial loans and real estate construction loans increased $292.0 million,
$87.4 million, $97.6 million and $80.8 million, respectively, and contributed to
a $19.0 million, $2.9 million, $3.3 million and $3.0 million increase in
interest income from such loans, respectively. Lower average yields on these
loans partially offset the effects of the higher average balances.

The average yield on the loan portfolio in the 1999 period decreased 296 basis
points (to 8.51% from 11.47%) from the average yield in the 1998 period. The
decline in the net yield for the current period resulted from the sale of the
credit card portfolio on September 30, 1998. During the 1998 period, average
credit card loans totaled $1.1 billion with an average yield of 13.46%.

Interest income on mortgage-backed securities increased $1.5 million (or 2.8%)
primarily because of higher average yields. The effect of the $48.3 million
decrease in average balances was more than offset by an increase in the average
interest rates on these securities from 5.61% to 5.92%.

Interest expense on deposits decreased $22.2 million (or 23.5%) during the
current period due to decreased average rates and balances. The 93 basis point
reduction in the average rate on deposits (from 4.02% to 3.09%) resulted from a
shift in the deposit mix from certificates of deposits to lower yielding demand
deposits coupled with market conditions during fiscal year 1998, which led to
the Bank's reducing the rates it pays on deposits.

The decrease in interest expense on deposits was partially offset by an increase
in interest expense on borrowings. Higher average balances of Federal Home Loan
Bank advances ($449.5 million) and repurchase agreement transactions ($282.2
million) primarily resulted in a $18.4 million (or 95.9%) increase in interest
expense on borrowings. This amount was partially offset by a 159 basis point
reduction in the average rate on borrowings (to 5.84% from 7.43%).

Provision for Loan Losses. The Bank's provision for loan losses decreased to
$10.4 million in the 1999 period from $51.7 million in the 1998 period. The
$41.3 million decrease was primarily due to the elimination of provisions for
losses on credit card loans resulting from the sale of the credit card portfolio
on September 30, 1998. See "Financial Condition - Asset Quality - Allowances for
Losses."

Other Income. Other (non-interest) income decreased to $97.2 million in the 1999
period from $224.4 million in the 1998 period. The $127.2 million (or 56.7%)
decrease was primarily attributable to a decrease in servicing and
securitization income. Also contributing to the decrease in other income was the
elimination of credit card fees. Partially offsetting these decreases were
increases in deposit servicing fees and gain on real estate held for investment
or sale.

Servicing and securitization income decreased $151.6 million (or 91.8%) during
the 1999 period primarily as a result of decreased securitization activity and
the elimination of credit card loan servicing fees. The Bank did not securitize
and sell any loan receivables during the 1999 period. During the 1998 period,
the Bank securitized and sold $458.5 million, $381.1 million and $181.4 million
of credit card, automobile and home equity loan receivables, respectively, and
recognized gains of $6.3 million, $17.6 million and $5.1 million, respectively,
on these transactions. In addition, credit card loan servicing fees amounting to
$91.0 million and unrealized gains on credit card interest-only strips
receivable of $11.5 million for the 1998 period were eliminated as a result of
the September 30, 1998 sale of the Bank's credit card portfolio.

The $37.5 million increase in gain (loss) on real estate held for investment or
sale was primarily attributable to the $31.6 million gain on sale of one of the
communities located in Loudoun County, Virginia and, to a lesser extent, a
decrease of $6.1 million in the provision for losses on such assets. See
"Financial Condition - Asset Quality - Allowances for Losses."

Deposit servicing fees increased $8.0 million (or 33.5%) during the 1999 period
primarily due to increased fees recognized for servicing deposit accounts and
fees generated through the Bank's ATM network.

Operating Expenses. Operating expenses for the 1999 period decreased $76.3
million (or 33.0%) from the level in the 1998 period. The sale of the Bank's
credit card operations was primarily responsible for decreases in marketing
expenses ($34.9 million), loan expenses ($12.7 million) and data processing
expenses ($13.1 million) in the 1999 period. Salaries and employee benefits
decreased $9.6 million (or 10.3%) also as a result of the sale. Additions of
staff to the Bank's consumer lending department and branch operations partially
offset the decrease of salaries and employee benefits.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Information required by this Item is included in Item 2 " Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                     PART II

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits required by Item 601 of Regulation S-K are set forth below.

  EXHIBITS                         DESCRIPTION
  ----------  ------------------------------------------------------------------
  3.    (a)   Amended and Restated Declaration of Trust filed with the
              Maryland State Department of Assessments and Taxation on June 22,
              1990 as filed as Exhibit 3(a) to Registration Statement No.
              33-34930 is hereby incorporated by reference.

        (b)   Amendment to Amended and Restated Declaration of Trust reflected
              in Secretary Certificate filed with the Maryland State Department
              of Assessments and Taxation on June 26, 1990 as filed as Exhibit
              3(b) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

        (c)   Amended and Restated By-Laws of the Trust dated as of February 28,
              1991 as filed as Exhibit T3B to the Trust's Form T-3 Application
              for Qualification of Indentures under the Trust Indenture Act of
              1939 (File No. 22-20838) is hereby incorporated by reference.

  4.    (a)   Indenture dated as of September 1, 1992 with respect to the
              Trust's Notes due from One to Ten Years from Date of Issue filed
              as Exhibit 4(a) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

        (b)   First Supplemental Indenture dated as of January 16, 1997 with
              respect to the Trust's Notes due from One to Ten Years from Date
              of Issue filed as Exhibit 4(b) to Registration Statement No.
              33-34930 is hereby incorporated by reference.

        (c)   Indenture with respect to the Trust's Senior Notes Due from One
              Year to Ten Years from Date of Issue as filed as Exhibit 4 (a) to
              Registration Statement No. 33-19909 is hereby incorporated by
              reference.

        (d)   First Supplemental Indenture with respect to the Trust's Senior
              Notes due from One Year to Ten Years from Date of Issue as filed
              as Exhibit T-3C to the Trust's Form T-3 Application for
              Qualification of Indentures under the Trust Indenture Act of 1939
              (File No. 22-20838) is hereby incorporated by reference.

        (e)   Indenture with respect to the Trust's Senior Notes due from One
              Year to Ten Years from Date of Issue as filed as Exhibit 4 (a) to
              Registration Statement No. 33-9336 is hereby incorporated by
              reference.

  EXHIBITS                         DESCRIPTION
  ----------  ------------------------------------------------------------------

        (f)   Fourth Supplemental Indenture with respect to the Trust's Senior
              Notes due from One Year to Ten Years from Date of Issue as filed
              as Exhibit 4(a) to Registration Statement No. 2-95506 is hereby
              incorporated by reference.

        (g)   Third Supplemental Indenture with respect to the Trust's Senior
              Notes due from One Year to Ten Years from Date of Issue as filed
              as Exhibit 4(a) to Registration Statement No. 2-91126 is hereby
              incorporated by reference.

        (h)   Second Supplemental Indenture with respect to the Trust's Senior
              Notes due from One Year to Ten Years from Date of Issue as filed
              as Exhibit 4(a) to Registration Statement No. 2-80831 is hereby
              incorporated by reference.

        (i)   Supplemental Indenture with respect to the Trust's Senior Notes
              due from One Year to Ten Years from Date of Issue as filed as
              Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
              incorporated by reference.

        (j)   Indenture with respect to the Trust's Senior Notes due from One
              Year to Five Years from Date of Issue as filed as Exhibit T-3C to
              the Trust's Form T-3 Application for Qualification of Indentures
              under the Trust Indenture Act of 1939 (File No. 22-10206) is
              hereby incorporated by reference.

        (k)   Indenture dated as of March 25, 1998 between the Trust and Norwest
              Bank Minnesota, National Association, as Trustee, with respect to
              the Trust's 9 3/4% Series B Senior Secured Notes due 2008, as
              filed as Exhibit 4(a) to Registration Statement No. 333-49937 is
              hereby incorporated by reference.

        (l)   Second Supplemental Indenture dated as of January 13, 1999 with
              respect to the Trust's Notes due from One to Ten Years from Date
              of Issuance as filed as Exhibit 4(l) to Registration Statement No.
              333-70753 is hereby incorporated by reference.

  10.   (a)   Advisory Contract with B.F. Saul Advisory Company effective 
              October 1, 1982 filed as Exhibit 10(a) to Registration Statement 
              No. 2-80831 is hereby incorporated by reference.

        (b)   Commercial Property Leasing and Management Agreement effective
              October 1, 1982 between the Trust and Franklin Property Company as
              filed as Exhibit 10(b) to Registration Statement No. 2-80831 is
              hereby incorporated by reference.

        (c)   Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy
              Chase Savings Bank F.S.B. and certain of their subsidiaries filed
              as Exhibit 10(c) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

  EXHIBITS                         DESCRIPTION
  ----------  ------------------------------------------------------------------

        (d)   Agreement dated June 28, 1990 among the Trust, B.F. Saul Company,
              Franklin Development Co., Inc., The Klingle Corporation and
              Westminster Investing Corporation relating to the transfer of
              certain shares of Chevy Chase Savings Bank, F.S.B. and certain
              real property to the Trust in exchange for preferred shares of
              beneficial interest of the Trust subsidiaries filed as Exhibit
              10(d) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

        (e)   Regulatory Capital Maintenance/Dividend Agreement dated May 17,
              1988 among B.F. Saul Company, the Trust and the Federal Savings
              and Loan Insurance Corporation as filed as Exhibit 10(e) to the
              Trust's Annual Report on Form 10-K (File No. 1-7184) for the
              fiscal year ended September 30, 1991 is hereby incorporated by
              reference

        (f)   Amendment to Commercial Property Leasing and Management Agreement
              between the Trust and Franklin Property Company dated as of
              December 31, 1992 (Amendment No. 5), July 1, 1989 (Amendment No.
              4), October 1, 1986 (Amendment No. 3), January 1, 1985 (Amendment
              No. 2) and July 1, 1984 (Amendment No. 1) subsidiaries filed as
              Exhibit 10(o) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

        (g)   Advisory Contract between B.F. Saul Advisory Company and Dearborn
              Corporation dated as of December 31, 1992 filed as Exhibit 10(p)
              to Registration Statement No. 33-34930 is hereby incorporated by
              reference.

        (h)   Commercial Property Leasing and Management Agreement between
              Dearborn Corporation and Franklin Property Company dated as of
              December 31, 1992 filed as Exhibit 10(q) to Registration Statement
              No. 33-34930 is hereby incorporated by reference.

        (i)   Registration Rights and Lock-Up Agreement dated August 26, 1993 by
              and among Saul Centers, Inc. and the Trust, Westminster Investing
              Corporation, Van Ness Square Corporation, Dearborn Corporation,
              Franklin Property Company and Avenel Executive Park Phase II, Inc.
              as filed as Exhibit 10.6 to Registration Statement No. 33-64562 is
              hereby incorporated by reference.

        (j)   Exclusivity and Right of First Refusal Agreement dated August 26,
              1993 among Saul Centers, Inc., the Trust, B. F. Saul Company,
              Westminster Investing Corporation, Franklin Property Company, Van
              Ness Square Corporation, and Chevy Chase Savings Bank, F.S.B. as
              filed as Exhibit 10.7 to Registration Statement No. 33-64562 is
              hereby incorporated by reference.

  EXHIBITS                         DESCRIPTION
  ----------  ------------------------------------------------------------------

        (k)   First Amended and Restated Reimbursement Agreement dated as of
              August 1, 1994 by and among Saul Centers, Inc., Saul Holdings
              Limited Partnership, Saul Subsidiary I Limited Partnership, Saul
              Subsidiary II Limited Partnership, Avenel Executive Park Phase II,
              Inc., Franklin Property Company, Westminster Investing
              Corporation, Van Ness Square Corporation, Dearborn Corporation and
              the Trust as filed as Exhibit 10(l) to the Trust's Annual Report
              on Form 10-K (File No. 1-7184) for the fiscal year ended September
              30, 1995 is hereby incorporated by reference.

        (l)   Registration Rights Agreement dated as of March 25, 1998 among the
              Trust, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner Smith
              Incorporated and Friedman, Billings, Ramsey & Co., Inc. as filed
              as Exhibit 4(c) to Registration Statement No. 333-49937 is hereby
              incorporated by reference.

        (m)   Bank Stock Registration Rights Agreement dated as of March 25,
              1998 between the Trust and Norwest Bank Minnesota, National
              Association, as Trustee, filed as Exhibit 4(d) to Registration
              Statement No. 333-49937 is hereby incorporated by reference.

        (n)   Written Agreement dated September 30, 1991 between the Office of
              Thrift Supervision and Chevy Chase Savings Bank, F.S.B. filed as
              Exhibit 10(f) to Registration Statement No. 33-34930 is hereby
              incorporated by reference.

        (o)   Amendment to Written Agreement dated October 29, 1993 between the
              Office of Thrift Supervision and Chevy Chase Savings Bank, F.S.B.
              filed as Exhibit 10(u) to Registration Statement No. 33-34930 is
              hereby incorporated by reference.

   *27.       Financial Data Schedules.
- -------------------
*Filed herewith.

        (b)    The Registrant did not file any reports on Form 8-K during the
               fiscal quarter covered by this report.






                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                B. F. SAUL REAL ESTATE INVESTMENT TRUST
                                -----------------------------------------------
                                (Registrant)



Date: May 17, 1999              Stephen R. Halpin, Jr.
      -----------------         -----------------------------------------------
                                Stephen R. Halpin, Jr.
                                Vice President and Chief Financial Officer


Date: May 17, 1999              Ross E. Heasley
      -----------------         -----------------------------------------------
                                Ross E. Heasley
                                Vice President and Principal Accounting Officer