UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    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                  December 31, 2001
                                -----------------------------------------------

                                       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 February 14, 2002, was 4,826,910.


                               TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited):

         (a)    Consolidated Balance Sheets at December 31, 2001 and
                     September 30, 2001

         (b)    Consolidated Statements of Operations for the three-month
                     periods ended December 31, 2001 and 2000

         (c)    Consolidated Statements of Comprehensive Income and Changes in
                     Shareholders' Equity (Deficit) for the three-month
                     periods ended December 31, 2001 and 2000

         (d)    Consolidated Statements of Cash Flows for the three-month
                     periods ended December 31, 2001 and 2000

         (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 December 31, 2001 compared to
                          three months ended December 31, 2000



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)
===========================================================================================================================
                                                                                               December 31   September 30
                                                                                               ------------- --------------
(In thousands)                                                                                     2001          2001
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Real Estate
Income-producing properties
    Hotel                                                                                        $  254,532     $  254,165
    Office and industrial                                                                           157,797        157,653
    Other                                                                                             2,825          2,825
                                                                                               ------------- --------------
                                                                                                    415,154        414,643
    Accumulated depreciation                                                                       (136,248)      (131,659)
                                                                                               ------------- --------------
                                                                                                    278,906        282,984
Land parcels                                                                                         40,972         40,835
Construction in progress                                                                             16,394         15,681
Cash and cash equivalents                                                                            12,368         13,860
Note receivable and accrued interest -- related party                                                 7,787          7,787
Other assets                                                                                         81,791         86,983
                                                                                               ------------- --------------
                    Total real estate assets                                                        438,218        448,130
---------------------------------------------------------------------------------------------------------------------------
Banking
Cash and other deposits                                                                             480,546        409,995
Loans held for sale                                                                                 502,576        246,083
Loans held for securitization and sale                                                              730,000        282,000
Investment securities (market value $45,866 and $46,181, respectively)                               46,078         45,794
Trading securities                                                                                    8,180          6,690
Mortgage-backed securities (market value $1,342,436 and $1,489,835, respectively)                 1,349,529      1,474,495
Loans and leases receivable (net of allowance for losses of $66,018 and $63,018, respectively)    7,293,813      8,018,495
Federal Home Loan Bank stock                                                                         93,937        113,030
Real estate held for investment or sale (net of allowance for losses of $86,504 and $85,354,
 respectively)                                                                                       30,295         31,704
Property and equipment, net                                                                         450,785        437,795
Goodwill and other intangible assets, net                                                            26,458         27,058
Interest only strips, net                                                                            48,396         47,146
Other assets                                                                                        238,852        248,181
                                                                                               ------------- --------------
                    Total banking assets                                                         11,299,445     11,388,466
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                   $ 11,737,663   $ 11,836,596
---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Real Estate
Mortgage notes payable                                                                           $  324,721     $  325,750
Notes payable - secured                                                                             200,000        202,500
Notes payable - unsecured                                                                            52,932         50,717
Deferred gains - real estate                                                                        113,045        113,045
Accrued dividends payable - preferred shares of beneficial interest                                  20,657         19,303
Other liabilities and accrued expenses                                                               27,639         36,874
                                                                                               ------------- --------------
                    Total real estate liabilities                                                   738,994        748,189
---------------------------------------------------------------------------------------------------------------------------
Banking
Deposit accounts                                                                                  7,461,205      7,562,470
Borrowings                                                                                          665,271        282,350
Federal Home Loan Bank advances                                                                   1,803,734      2,240,598
Other liabilities                                                                                   457,519        403,190
Capital notes -- subordinated                                                                       250,000        250,000
                                                                                               ------------- --------------
                    Total banking liabilities                                                    10,637,729     10,738,608
---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interest held by affiliates                                                                 88,682         86,310
Minority interest -- other                                                                          218,307        218,307
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                                11,683,712     11,791,414
---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
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                                                                                              (6,591)       (11,401)
Accumulated other comprehensive income (loss)                                                         2,289         (1,670)
                                                                                               ------------- --------------
                                                                                                     95,799         87,030
Less cost of 1,814,688 common shares of beneficial interest in treasury                             (41,848)       (41,848)
                                                                                               ------------- --------------
TOTAL SHAREHOLDERS' EQUITY                                                                           53,951         45,182
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                     $ 11,737,663   $ 11,836,596
---------------------------------------------------------------------------------------------------------------------------
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
                                                                                                    Ended December 31
                                                                                               ----------------------------
(In thousands, except per share amounts)                                                           2001          2000
---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE
Income
Hotels                                                                                           $   19,861     $   23,337
Office and industrial (including $1,184 and $825
    of rental income from banking segment, respectively)                                              9,674          9,971
Other                                                                                                   423            731
                                                                                               ------------- --------------
Total income                                                                                         29,958         34,039
---------------------------------------------------------------------------------------------------------------------------
Expenses Direct operating expenses:
    Hotels                                                                                           13,741         15,108
    Office and industrial properties                                                                  2,618          2,553
    Land parcels and other                                                                              315            367
Interest expense                                                                                     12,622         12,865
Capitalized interest                                                                                   (170)          (879)
Amortization of debt expense                                                                            220            191
Depreciation                                                                                          4,589          3,898
Advisory, management and leasing fees - related parties                                               3,001          2,833
General and administrative                                                                              720            701
                                                                                               ------------- --------------
Total expenses                                                                                       37,656         37,637
---------------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated entities                                                         2,602          1,884
Gain on sale of property                                                                                 --          2,545
---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE OPERATING INCOME (LOSS)                                                              $   (5,096)     $     831
---------------------------------------------------------------------------------------------------------------------------
BANKING
Interest income
Loans and leases                                                                                 $  148,186     $  177,030
Mortgage-backed securities                                                                           21,719         16,554
Trading securities                                                                                      815            289
Investment securities                                                                                   485            695
Other                                                                                                 2,578          4,014
                                                                                               ------------- --------------
Total interest income                                                                               173,783        198,582
---------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposit accounts                                                                                     46,252         67,625
Borrowings                                                                                           34,370         45,393
                                                                                               ------------- --------------
Total interest expense                                                                               80,622        113,018
                                                                                               ------------- --------------
Net interest income                                                                                  93,161         85,564
Provision for loan and lease losses                                                                 (17,920)       (15,923)
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                                                  75,241         69,641
---------------------------------------------------------------------------------------------------------------------------
Other income
Servicing and securitization income                                                                  13,422         14,499
Deposit servicing fees                                                                               28,245         24,978
Gain (loss) on sales of trading securities, net                                                       5,066         (1,800)
Loss on real estate held for investment or sale, net                                                   (913)          (880)
Gain on sales of loans, net                                                                           1,583          3,246
Other                                                                                                10,012          6,673
                                                                                               ------------- --------------
Total other income                                                                                   57,415         46,716
---------------------------------------------------------------------------------------------------------------------------
Continued on following page.

Consolidated Statements of Operations (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
===========================================================================================================================
                                                                                                  For the Three Months
                                                                                                    Ended December 31
                                                                                               ----------------------------
(In thousands, except per share amounts)                                                           2001          2000
---------------------------------------------------------------------------------------------------------------------------
BANKING (Continued)
Operating expenses
Salaries and employee benefits                                                                   $   48,340     $   50,817
Loan                                                                                                  9,639          6,489
Property and equipment (including $1,184 and $825
    of rental expense paid to real estate segment, respectively)                                     12,503          8,426
Marketing                                                                                             2,858          3,623
Data processing                                                                                       8,230          6,244
Depreciation and amortization                                                                         8,801          8,406
Deposit insurance premiums                                                                              334            346
Amortization of goodwill and other intangible assets                                                    601            598
Other                                                                                                13,915         12,755
                                                                                               ------------- --------------
Total operating expenses                                                                            105,221         97,704
---------------------------------------------------------------------------------------------------------------------------
BANKING OPERATING INCOME                                                                         $   27,435     $   18,653
---------------------------------------------------------------------------------------------------------------------------

TOTAL COMPANY
Operating income                                                                                 $   22,339     $   19,484
Income tax provision                                                                                  7,464          4,691
                                                                                               ------------- --------------
Income before minority interest                                                                      14,875         14,793
Minority interest held by affiliates                                                                 (2,382)        (1,454)
Minority interest -- other                                                                           (6,329)        (6,329)
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMPANY NET INCOME                                                                         $    6,164     $    7,010
---------------------------------------------------------------------------------------------------------------------------


NET INCOME AVAILABLE TO COMMON
    SHAREHOLDERS                                                                                 $    4,810     $    5,656

NET INCOME PER COMMON SHARE
Income before minority interest                                                                   $    2.80      $    2.78
Minority interest held by affiliates                                                                  (0.49)         (0.30)
Minority interest -- other                                                                            (1.31)         (1.31)
---------------------------------------------------------------------------------------------------------------------------

NET INCOME PER COMMON SHARE                                                                       $    1.00      $    1.17
---------------------------------------------------------------------------------------------------------------------------

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

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

                                                                                                  For the Three Months
                                                                                                    Ended December 31
                                                                                               ----------------------------
(Dollars in thousands)                                                                             2001          2000
---------------------------------------------------------------------------------------------------------------------------


COMPREHENSIVE INCOME

Net income                                                                                       $    6,164     $    7,010
Other comprehensive income:
    Net unrealized holding gains (losses)                                                             3,959           (417)
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME                                                                       $   10,123     $    6,593
---------------------------------------------------------------------------------------------------------------------------


CHANGES IN SHAREHOLDERS' EQUITY

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

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

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

DEFICIT
Beginning of period                                                                                 (11,401)       (49,642)
Net income                                                                                            6,164          7,010
Dividends:
    Real Estate Trust preferred shares of beneficial interest:
        Distributions payable                                                                        (1,354)        (1,354)
                                                                                               ------------- --------------
End of period                                                                                        (6,591)       (43,986)
                                                                                               ------------- --------------

ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of period                                                                                  (1,670)            --
Net unrealized holding losses                                                                         3,959           (417)
                                                                                               ------------- --------------
End of period                                                                                         2,289           (417)
                                                                                               ------------- --------------

TREASURY SHARES
Beginning and end of period (1,814,688 shares)                                                      (41,848)       (41,848)
---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                                                       $   53,951     $   13,850
---------------------------------------------------------------------------------------------------------------------------
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 Three Months
                                                                                                    Ended December 31
                                                                                               ----------------------------
(In thousands)                                                                                     2001          2000
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Real Estate
Net income (loss)                                                                                $   (3,363)    $    1,193
Adjustments to reconcile net income (loss) to net cash provided by (used in)
  operating activities:
    Depreciation                                                                                      4,589          3,898
    Gain on sale of property                                                                             --         (2,545)
    (Increase) decrease in accounts receivable and accrued income                                     3,203         (1,334)
    Increase in deferred tax asset                                                                   (1,733)          (362)
    Decrease in accounts payable and accrued expenses                                                (9,413)       (11,740)
    Amortization of debt expense                                                                        460            437
    Equity in earnings of unconsolidated entities                                                    (2,602)        (1,884)
    Dividends and tax sharing payments                                                                8,900          3,200
    Other                                                                                               417            522
                                                                                               ------------- --------------
                                                                                                        458         (8,615)
                                                                                               ------------- --------------
Banking
Net income                                                                                            9,527          5,817
Adjustments to reconcile net income to net cash provided by (used in)
    operating activities:
    Amortization (accretion) of premiums, discounts and net deferred loan fees                        5,208           (171)
    Depreciation and amortization                                                                     8,801          8,406
    Provision for loan and lease losses                                                              17,920         15,923
    Capitalized interest on real estate under development                                                --           (867)
    Proceeds from sales of trading securities                                                       314,946         76,502
    Net fundings of loans held for sale and/or securitization                                      (745,009)      (177,854)
    Proceeds from sales of loans held for sale and/or securitization                                415,001        118,950
    (Gain) loss on sales of real estate held for sale                                                    24           (471)
    Provision for losses on real estate held for investment or sale                                   1,050          1,050
    (Gain) loss on sales of trading securities, net                                                  (5,066)         1,800
    Increase in interest-only strips                                                                 (1,250)        (1,156)
    Increase in servicing assets                                                                     (6,427)          (394)
    Amortization of goodwill and other intangible assets                                                603            564
    (Increase) decrease in other assets                                                              20,733           (921)
    Decrease in other liabilities                                                                   (34,495)       (11,325)
    Minority interest held by affiliates                                                              2,382          1,454
    Minority interest - other                                                                         2,438          2,438
    Other                                                                                            21,773         20,454
                                                                                               ------------- --------------
                                                                                                     28,159         60,199
                                                                                               ------------- --------------
Net cash provided by operating activities                                                            28,617         51,584
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Real Estate
Capital expenditures - properties                                                                    (1,361)       (11,619)
Property acquisitions                                                                                    --        (15,159)
Property sales                                                                                           --          7,287
Note receivable and accrued interest -- related party
  Repayments                                                                                             --            750
Equity investment in unconsolidated entities                                                            735            904
Other                                                                                                    25              1
                                                                                               ------------- --------------
                                                                                                       (601)       (17,836)
                                                                                               ------------- --------------
Banking
Net proceeds from redemption of Federal Home Loan Bank stock                                         28,528          1,530
Proceeds from sale of loans                                                                              --          2,493
Net proceeds from sales of real estate                                                                3,812          4,406
Net principal collected (fundings) of loans and leases receivable                                   599,906       (256,641)
Principal collected on mortgage-backed securities                                                   124,168         76,755
Purchases of Federal Home Loan Bank stock                                                            (9,435)        (8,796)
Purchases of investment securities                                                                     (298)           (10)
Purchases of loans receivable                                                                      (608,407)      (176,041)
Purchases of property and equipment                                                                 (21,821)       (25,404)
Disbursements for real estate held for investment or sale                                            (2,407)        (7,773)
Other                                                                                                 2,170          1,036
                                                                                               ------------- --------------
                                                                                                    116,216       (388,445)
                                                                                               ------------- --------------
Net cash provided by (used in) investing activities                                                 115,615       (406,281)
---------------------------------------------------------------------------------------------------------------------------
Continued on following page.

Consolidated Statements of Cash Flows (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
===========================================================================================================================
                                                                                                  For the Three Months
                                                                                                    Ended December 31
                                                                                               ----------------------------
(In thousands)                                                                                     2001          2000
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Real Estate
Proceeds from mortgage financing                                                                 $    1,025     $   10,339
Principal curtailments and repayments of mortgages                                                   (2,054)        (2,820)
Proceeds from secured note financings                                                                    --         13,000
Repayments of secured note financings                                                                (2,500)        (4,500)
Proceeds from sales of unsecured notes                                                                4,532          2,300
Repayments of unsecured notes                                                                        (2,317)        (1,443)
Costs of obtaining financings                                                                           (35)           (98)
                                                                                               ------------- --------------
                                                                                                     (1,349)        16,778
                                                                                               ------------- --------------
Banking
Proceeds from customer deposits and sales of certificates of deposit                             11,868,189     10,538,051
Customer withdrawals of deposits and payments for maturing certificates of deposit              (11,969,454)   (10,443,737)
Net increase in securities sold under repurchase agreements                                         375,365        100,425
Advances from the Federal Home Loan Bank                                                          2,665,125        604,660
Repayments of advances from the Federal Home Loan Bank                                           (3,101,989)      (452,800)
Net increase (decrease) in other borrowings                                                           7,536         (9,880)
Cash dividends paid on preferred stock                                                               (2,438)        (2,438)
Cash dividends paid on common stock                                                                  (5,000)        (4,000)
Other                                                                                                88,842        (11,324)
                                                                                               ------------- --------------
                                                                                                    (73,824)       318,957
                                                                                               ------------- --------------
Net cash provided by (used in) financing activities                                                 (75,173)       335,735
---------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                                 69,059        (18,962)
Cash and cash equivalents at beginning of period                                                    423,855        446,362
                                                                                               ------------- --------------
Cash and cash equivalents at end of period                                                       $  492,914     $  427,400
---------------------------------------------------------------------------------------------------------------------------

Components of cash and cash equivalents at end of year as presented in the
consolidated balance sheets:
    Real Estate
        Cash and cash equivalents                                                                $   12,368     $    8,456
    Banking
        Cash and other deposits                                                                     480,546        393,944
        Federal funds sold and securities purchased under agreements to resell                           --         25,000
                                                                                               ------------- --------------
    Cash and cash equivalents at end of period                                                   $  492,914     $  427,400
---------------------------------------------------------------------------------------------------------------------------

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
        Interest (net of amount capitalized)                                                     $  101,939     $  124,229
        Income taxes paid (refunded)                                                                (23,714)            70
        Shares of Saul Centers, Inc. common stock                                                     2,079          1,005
    Cash received during the year from:
        Dividends on shares of Saul Centers, Inc. common stock                                        1,181          1,005
        Distributions from Saul Holdings Limited Partnership                                          1,632          1,632

Supplemental disclosures of noncash activities:
    Rollovers of notes payable - unsecured                                                            1,796          1,081
    Loans held for sale exchanged for trading securities                                            311,370         78,302
    Loans receivable transferred to loans held for securitization and sale                          934,085        165,000
    Loans receivable transferred to real estate acquired in settlement of loans                       1,102            172




---------------------------------------------------------------------------------------------------------------------------
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,
2001. 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 transactions,
except as disclosed elsewhere in the financial statements, have been eliminated
in consolidation. Tax sharing and dividend payments between the Real Estate
Trust and the bank are presented gross in the Consolidated Statements of Cash
Flows.

3. The 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:

                                                 December 31,      September 30,
                                                     2001               2001
                                                ---------------    ---------------

Single-family residential loans                     $  468,014         $  233,359
Automobile loans                                        22,620                  -
Home improvement and related loans                      11,942             12,724
                                                ---------------    ---------------
Total                                               $  502,576         $  246,083
                                                ===============    ===============

LOANS HELD FOR SECURITIZATION AND SALE:

At December 31, 2001, loans held for securitization and sale totaled $730,000
and were composed of $600,000 of single-family loans and $130,000 of automobile
loans. At September 30, 2001, loans held for securitization and sale totaled
$282,000 and were composed of automobile loans.

NOTE 5 - LOANS AND LEASES RECEIVABLE:

Loans and leases receivable is composed of the following:

                                                              December 31,        September 30,
                                                                  2001                2001
                                                             ----------------    ----------------

Single-family residential                                        $  3,886,212        $  4,555,814
Home equity                                                           425,137             372,095
Real estate construction and ground                                   455,170             472,489
Commercial real estate and multifamily                                 30,568              30,703
Commercial                                                          1,387,183           1,376,582
Automobile                                                            322,512             361,930
Subprime automobile                                                   363,963             420,658
Automobile leases                                                   1,115,215           1,124,106
Home improvement and related loans                                     99,560             100,494
Overdraft lines of credit and other consumer                           37,733              36,356
                                                             ----------------    ----------------
                                                                    8,123,253           8,851,227
                                                             ----------------    ----------------

Less:
Undisbursed portion of loans                                          809,165             812,325
Unearned discounts and net deferred loan origination costs            (45,743)           (42,611)
Allowance for losses on loans and leases                               66,018              63,018
                                                             ----------------    ----------------
                                                                      829,440             832,732
                                                             ----------------    ----------------
Total                                                            $  7,293,813        $  8,018,495
                                                             ================    ================

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:

                                                         December 31,         September 30,
                                                             2001                  2001
                                                        ---------------       ---------------
 Real estate held for investment (net of
  allowance for losses of $202 for both periods)             $     925             $     925

 Real estate held for sale (net of allowance
  for losses of $86,302 and $85,152, respectively)              29,370                30,779
                                                        ---------------       ---------------

 Total real estate held for investment or sale              $   30,295            $   31,704
                                                        ===============       ===============

Item 2. MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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 Real Estate Trust's investment portfolio at December 31, 2001, consisted
primarily of hotels, office projects, and land parcels. During the quarter ended
December 31, 2001, the Real Estate Trust's hotel portfolio included 18
properties containing 3,578 available rooms.

The Real Estate Trust was directly affected by the terrorist attacks of
September 11, because of its concentration of hotels in the Washington, DC
metropolitan area, one of the sites of the attacks. Eleven of the Real Estate
Trust's eighteen hotels are located in the Washington, DC metropolitan area. In
addition, five of these eleven hotels are within minutes from either Washington
Reagan National airport or Dulles International airport, and thus, were more
directly affected by the sharp decline in air travel. The two hotels located
close to Reagan National were especially affected by Reagan National's prolonged
closure and current limited flight schedule.

Consequently, the hotel portfolio experienced an average occupancy rate of 54%
and an average room rate of $84.68 during the quarter ended December 31, 2001,
compared to an average occupancy of 64% and an average room rate of $92.30
during the same period in the prior year. For the sixteen hotels owned
throughout both periods, the average occupancies were 54% and 66%, and the
average rates were $81.04 and $92.10. REVPAR (revenue per available room) for
the sixteen hotels was $43.47 for the quarter ended December 31, 2001, a 28.0%
decrease from REVPAR for the quarter ended December 31, 2000 of $60.41.

The Real Estate Trust has developed strategies to manage its hotel operations
through this downturn. The Real Estate Trust has focused on reducing its direct
operating expenses related to the hotels and has reduced its hotel capital
expenditure budget for 2002.

Office space in the Real Estate Trust's office property portfolio was 87% leased
at December 31, 2001, compared to a leasing rate of 98% at December 31, 2000.
The decline in leasing rate is primarily due to the Trust placing into service,
during December 2001, an 81,000 square foot building that remains unleased. At
December 31, 2001, the Real Estate Trust's office property portfolio consisted
of 13 properties and had a total gross leasable area of 1,878,000 square feet,
of which 141,000 square feet (7.5%) and 206,000 square feet (11.0%) are subject
to leases expiring in fiscal 2002 and fiscal 2003.

BANKING

General. The Bank's assets at the end of the current quarter were $11.3 billion,
a decrease of $89.9 million from September 30, 2001. Total loans and leases
decreased $20.2 million during the quarter to $8.5 billion at December 31, 2001.
This decrease was primarily due to the securitization and sale of $236.1 million
of automobile loan receivables, which was partially offset by increases in
residential and home equity loans. The Bank recorded operating income of $27.4
million during the quarter ended December 31, 2001, compared to operating income
of $18.7 million in the prior corresponding quarter. Increased net interest
income and other (non-interest) income were partially offset by increases in
operating expense and provision for loan and lease losses.

At December 31, 2001, the Bank's tangible, core, tier 1 risk-based and total
risk-based regulatory capital ratios were 5.55%, 5.55%, 7.00% and 10.70%,
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 December 31, 2001, the Bank declared and paid out of
retained earnings a cash dividend on its Common Stock in the amount of $500 per
share.

During the December quarter, the amount of delinquent and non-performing loans
in the Bank's various portfolios increased as a result of seasonal trends and
adverse general economic conditions. The levels of delinquent and non-performing
loans could increase further if general economic conditions do not improve.

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

Non-Performing Assets
(Dollars in thousands)



                                                                           December 31,         September 30,        December 31,
                                                                               2001                  2001                2000
                                                                        ------------------    ------------------   -----------------
 Non-performing assets:
      Non-accrual loans:
          Residential                                                    $         11,338      $          7,314     $         5,464
          Subprime automobile                                                      14,816                13,379              13,043
          Other consumer                                                            6,882                 7,028               6,246
                                                                        ------------------    ------------------   -----------------
              Total non-accrual loans (1)                                          33,036                27,721              24,753
                                                                        ------------------    ------------------   -----------------

      Real estate owned                                                           115,672               115,931             134,077
      Allowance for losses on real estate owned                                   (86,302)              (85,152)            (81,789)
                                                                        ------------------    ------------------   -----------------
          Real estate owned, net                                                   29,370                30,779              52,288
                                                                        ------------------    ------------------   -----------------

 Total non-performing assets                                             $         62,406      $         58,500     $        77,041
                                                                        ==================    ==================   =================

 Allowance for losses on loans and leases                                $         66,018      $         63,018     $        54,518
 Allowance for losses on real estate held for investment                              202                   202                 202
 Allowance for losses on real estate owned                                         86,302                85,152              81,789
                                                                        ------------------    ------------------   -----------------

      Total allowances for losses                                        $        152,522      $        148,372     $       136,509
                                                                        ==================    ==================   =================




 Ratios:

      Non-performing assets, net to total assets (2)                                N/M                  N/M                  0.20%

      Allowance for losses on real estate loans to non-accrual
        real estate loans (1)                                                      70.96%                70.86%             149.96%

      Allowance for losses on consumer loans and leases to
        non-accrual consumer loans (1)(3)                                         207.58%               230.55%             190.93%

      Allowance for losses on loans and leases
         to non-accrual loans (1)                                                 199.84%               227.33%             220.25%

      Allowance for losses on loans and leases to total loans
         and leases receivable (4)                                                  0.77%                 0.73%               0.62%



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

Non-performing assets totaled $62.4 million, after valuation allowances on REO
of $86.3 million, at December 31, 2001, compared to $58.5 million, after
valuation allowances on REO of $85.2 million, at September 30, 2001. In addition
to the valuation allowances on REO, the Bank maintained $66.0 million and $63.0
million of valuation allowances on its loan and lease portfolio at December 31,
2001 and September 30, 2001, respectively. The $3.9 million increase in
non-performing assets for the current quarter was attributable to an increase in
non-accrual loans of $5.3 million, partially offset by a net decrease in REO of
$1.4 million. See "Non-accrual Loans" and "REO."

Non-accrual Loans. The Bank's non-accrual loans totaled $33.0 million at
December 31, 2001, as compared to $27.7 million at September 30, 2001. At
December 31, 2001, non-accrual loans consisted of $11.3 million of non-accrual
residential real estate loans and $21.7 million of non-accrual consumer and
other loans, compared to non-accrual residential real estate loans of $7.3
million and non-accrual consumer and other loans of $20.4 million at September
30, 2001. The increase in non-accrual residential real estate loans was largely
the result of adverse economic conditions.

REO. At December 31, 2001, the Bank's REO totaled $29.4 million, after valuation
allowances on such assets of $86.3 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 properties remain in two of the four Communities.



                     Number                         Balance                 Balance    Percent
                     of         Gross    Charge-     Before                  After       of
                    Properties  Balance            Valuation   Valuation   Valuation
                                          Offs     Allowances  Allowances  Allowances   Total
                    ---------------------------------------------------------------------------
                        4      $ 136,353 $ 32,509  $   103,844  $  80,982   $   22,862   77.8%
Communities

Residential ground      2          3,614        -        3,614      1,689        1,925    6.6%

Commercial ground       1          9,580    2,732        6,848      3,631        3,217   11.0%

Single-family
residential
properties              4          1,451       85        1,366          -        1,366    4.6%
                    ---------------------------------------------------------------------------

   Total REO           11      $ 150,998 $ 35,326  $   115,672  $  86,302   $   29,370  100.0%
                    ===========================================================================

During the three months ended December 31, 2001, REO decreased $1.4 million
primarily as a result of additional sales in the communities and other
properties and additional provisions for losses.

During the three months ended December 31, 2001, the Bank received revenues of
$3.5 million from the disposition of 82 residential lots or units in the
Communities ($3.4 million) and various single-family residential properties
($0.1 million). In addition, the Bank provided $1.1 million for losses on one of
its properties.

Delinquent Loans. At December 31, 2001, delinquent loans totaled $117.5 million,
or 1.4% of loans, compared to $111.2 million, or 1.3% of loans, at September 30,
2001. The following table sets forth information regarding the Bank's delinquent
loans at December 31, 2001.

                                           Principal Balance
                                        (Dollars in Thousands)
                      ------------------------------------------------------------
                                         Subprime       Other                        Total as a
                      Real Estate       Automobile      Consumer                     Percentage
                         Loans            Loans           Loans          Total       of Loans
                                                                                        (1)
                      -------------    -------------    -----------    -----------   -----------

Loans delinquent for:
30-59 days......         $   11,734       $   57,836      $  16,561       $ 86,131          1.0%
60-89 days......              7,037           18,978          5,375         31,390          0.4%
                      -------------    -------------    -----------    -----------   -----------
  Total............      $   18,771       $   76,814      $  21,936      $ 117,521          1.4%
                      =============    =============    ===========    ===========   ===========
--------------------------
(1)     Includes loans held for sale and/or securitization, before deduction of
        valuation allowances, unearned premiums and discounts and deferred loan
        origination fees (costs).

Real estate loans classified as delinquent 30-89 days consists entirely of
single-family permanent residential mortgage loans and home equity loans. Total
delinquent real estate loans increased to $18.8 million at December 31, 2001,
from $16.0 million at September 30, 2001, largely as a result of adverse
economic conditions coupled with traditional seasonal delinquencies.

Total delinquent subprime automobile loans increased to $76.8 million at
December 31, 2001, from $72.7 million at September 30, 2001, largely as a result
of adverse economic conditions coupled with traditional seasonal
delinquencies. Effective November 9, 2000, the Bank stopped the origination of
subprime automobile loans. The Bank continues its collection efforts on the
existing portfolio.

Other consumer loans delinquent 30-89 days decreased slightly to $21.9 million
at December 31, 2001 from $22.5 million at September 30, 2001.

Troubled Debt Restructurings. At December 31, 2001 and September 30, 2001, the
Bank had no troubled debt restructurings.

Real Estate Held for Investment. At December 31, 2001 and September 30, 2001,
real estate held for investment consisted of one property with book value of
$1.1 million, before 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 leases 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 Chargeoffs of Loans and Leases
(Dollars in thousands)



                                                                  Three Months Ended              Year Ended
                                                                     December 31,                September 30,
                                                           ---------------------------------
                                                                 2001              2000              2001
                                                           ---------------  ----------------    ---------------

 Balance at beginning of period                             $      63,018    $       54,018      $      54,018
                                                           ---------------  ----------------    ---------------

 Provision for loan and lease losses                               17,920            15,923             67,852
                                                           ---------------  ----------------    ---------------

 Chargeoffs:
               Single-family residential and home equity             (208)             (170)              (786)
               Subprime automobile                                (12,449)          (13,342)           (49,749)
               Other                                               (5,209)           (3,719)           (17,685)
                                                           ---------------  ----------------    ---------------
                   Total chargeoffs                               (17,866)          (17,231)           (68,220)
                                                           ---------------  ----------------    ---------------

 Recoveries:
               Single-family residential and home equity               35                 3                 80
               Subprime automobile                                  2,351             1,404              7,104
               Other                                                  560               401              2,184
                                                           ---------------  ----------------    ---------------
                   Total recoveries                                 2,946             1,808              9,368
                                                           ---------------  ----------------    ---------------

 Chargeoffs,  net of recoveries                                   (14,920)          (15,423)           (58,852)
                                                           ---------------  ----------------    ---------------

 Balance at end of period                                   $      66,018    $       54,518      $      63,018
                                                           ===============  ================    ===============




 Provision for loan and lease losses to average loans
   and leases (1) (2)                                               0.84%             0.75%              0.78%
 Net loan and lease chargeoffs to average loans
   and leases (1) (2)                                               0.70%             0.73%              0.68%
 Ending allowance for losses on loans and leases to total
   loans and leases (2) (3)                                         0.77%             0.62%              0.73%











 (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 and Leases by Type
(Dollars in thousands)




                                                             December 31,                              September 30,
                                         ------------------------------------------------------
                                                  2001                        2000                         2001
                                         --------------------------  --------------------------   -------------------------
                                                       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                $     2,817        57.9 %   $     2,714        58.3 %    $    2,686        55.9 %

Home equity                                      465         5.0             420         3.3             448         4.4

Commercial real estate and multifamily           190         0.4             640         0.4             197         0.4

Real estate construction and ground            4,574         2.9           4,420         3.5           1,852         3.1

Commercial                                    11,180         9.2           9,494         7.5           9,135         9.0

Automobile                                     5,395         5.6           6,534        11.0           7,034         7.5

Automobile leases                              4,630        13.0           2,000         7.5           6,000        13.1

Subprime automobile                           32,000         4.3          25,782         7.0          32,000         4.9

Home improvement and related loans             2,321         1.3           2,023         1.1           1,523         1.3

Overdraft lines of credit and
    other consumer                               695         0.4             491         0.4             491         0.4

Unallocated                                    1,751           -               -           -           1,652           -

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

    Total                                $    66,018                 $    54,518                  $   63,018
                                         ============                ============                 ===========




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



 Activity in Allowance for Losses

                                                           Three Months Ended                   Year Ended
                                                              December 31,                    September 30,
                                                ----------------------------------------
                                                       2001                  2000                  2001
                                                ------------------    ------------------    ------------------

 Balance at beginning of period:
      Real estate held for investment            $            202      $            202      $            202
      Real estate held for sale                            85,152                80,752                80,752
                                                ------------------    ------------------    ------------------
        Total                                              85,354                80,954                80,954
                                                ------------------    ------------------    ------------------

 Provision for real estate losses:
      Real estate held for sale                             1,050                 1,050                 4,200
                                                ------------------    ------------------    ------------------
        Total                                               1,050                 1,050                 4,200
                                                ------------------    ------------------    ------------------

 Chargeoffs net of recoveries:

      Real estate held for sale:
         Communities                                          100                   (13)                  200
                                                ------------------    ------------------    ------------------
         Total net (chargeoffs) recoveries                    100                   (13)                  200
                                                ------------------    ------------------    ------------------

 Balance at end of period:
      Real estate held for investment                         202                   202                   202
      Real estate held for sale                            86,302                81,789                85,152
                                                ------------------    ------------------    ------------------
        Total                                    $         86,504      $         81,991      $         85,354
                                                ==================    ==================    ==================





 Components of Allowance for Losses
                                                              December 31,                    September 30,
                                                ----------------------------------------
                                                       2001                  2000                  2001
                                                ------------------    ------------------    ------------------

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

 Allowance for losses on real estate held
  for sale:
      Residential ground                                    1,689                 1,689                 1,689
      Commercial ground                                     3,631                 3,631                 3,631
      Communities                                          80,982                76,469                79,832
                                                ------------------    ------------------    ------------------
        Total                                              86,302                81,789                85,152
                                                ------------------    ------------------    ------------------

         Total allowance for losses on real
           estate held for investment or sale    $         86,504      $         81,991      $         85,354
                                                ==================    ==================    ==================

At December 31, 2001, the Bank's total valuation allowances for losses on loans
and leases and real estate held for investment or sale was $152.5 million, an
increase from $148.4 million at September 30, 2001. Management reviews the
adequacy of the valuation allowances on loans and leases and real estate using a
variety of measures and tools including historical loss performance, delinquency
status, internal risk ratings, current economic conditions and current
underwriting policies and procedures. Using this analysis, management determines
a range of acceptable valuation allowances. Management believes that the overall
level of the allowance is appropriate.

The allowance for losses on loans secured by real estate and real estate held
for investment or sale totaled $94.6 million at December 31, 2001, which
constituted 74.4% of total non-performing real estate assets, before valuation
allowances. During the three months ended December 31, 2001, the Bank recorded
net charge-offs of $0.1 million on these assets. The allowance for losses on
real estate held for sale at December 31, 2001 is in addition to approximately
$35.3 million of cumulative charge-offs previously taken against assets
remaining in the Bank's portfolio at December 31, 2001.

At both December 31, 2001 and September 30, 2001, the combined allowance for
losses on consumer loans and leases, including automobile, subprime automobile,
home improvement and related loans, overdraft lines of credit and other consumer
loans was $45.0 and $47.0 million, respectively. The decline in the allowance
for losses on consumer loans and leases is primarily attributable to declining
loan balances following recent automobile securitizations and sales. Net
chargeoffs of consumer and other loans totaled $14.7 million for the three
months ended December 31, 2001 compared to $15.3 million for the three months
ended December 31, 2000. The modest decline in net chargeoffs is attributable to
declining subprime automobile loan balances partially offset by adverse economic
conditions coupled with seasonal delinquencies.

Asset and Liability Management. The following table presents the interest rate
sensitivity of the Bank's interest-earning assets and interest-bearing
liabilities at December 31, 2001, which reflects loan amortization and
management's estimate of loan prepayments. Variable rate loans are assumed to
mature in the period in which their interest rates are next scheduled to adjust.
Prepayment rates for the Bank's loans are based on recent actual and market
experience. Statement savings 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 December 31, 2001 Real estate loans:
    Adjustable-rate                         $   1,875,131  $     273,697  $      514,032  $   232,589  $    161,796  $    3,057,245
     Fixed-rate                                    91,762         61,074         231,268      170,713       519,202       1,074,019
     Home equity credit lines and second
      mortgages                                   363,918         13,683          41,131       26,030        63,184         507,946
 Commercial                                       621,836         21,467          67,887       45,463        25,540         782,193
 Consumer and other                               373,332        297,673         958,848      240,148        68,427       1,938,428
 Loans held for sale                              502,576                     -        -            -             -         502,576
 Loans held for securitization and sale           730,000                 -            -            -             -         730,000
 Mortgage-backed securities                       205,512        174,197         250,761      173,365       545,694       1,349,529
 Trading securities                                 8,180              -               -            -             -           8,180
 Other investments                                270,035              -          46,078            -             -         316,113
                                            -------------- -------------- --------------- ------------ ------------- ---------------

    Total interest-earning assets               5,042,282        841,791       2,110,005      888,308     1,383,843      10,266,229
 Total non-interest earning assets                      -              -               -            -     1,051,934       1,051,934
                                            -------------- -------------- --------------- ------------ ------------- ---------------

     Total assets                           $   5,042,282  $     841,791  $    2,110,005  $   888,308  $  2,435,777  $   11,318,163
                                            ============== ============== =============== ============ ============= ===============

 Deposits:
    Fixed maturity deposits                 $   1,800,390  $     539,228  $      205,128  $    56,411  $          -  $    2,601,157
     NOW, statement and passbook accounts       1,981,603         43,728         145,643       99,128       211,254       2,481,356
     Money market deposit accounts              1,712,459              -               -            -             -       1,712,459
 Borrowings:
     Capital notes - subordinated                       -              -               -      150,000       100,000         250,000
     Other                                        866,219            775       1,355,575      147,553        99,096       2,469,218
                                            -------------- -------------- --------------- ------------ ------------- ---------------
    Total interest-bearing liabilities          6,360,671        583,731       1,706,346      453,092       410,350       9,514,190
 Minority interest                                      -              -               -            -       144,000         144,000
 Total non-interest bearing liabilities                 -              -               -            -     1,123,539       1,123,539
 Stockholders' equity                                   -              -               -            -       536,434         536,434
                                            -------------- -------------- --------------- ------------ ------------- ---------------
     Total liabilities and stockholders'
      equity                                $   6,360,671  $     583,731  $    1,706,346  $   453,092  $  2,214,323  $   11,318,163
                                            ============== ============== =============== ============ ============= ===============

 Gap                                        $  (1,318,389) $     258,060  $      403,659  $   435,216  $    973,493
 Cumulative gap                             $  (1,318,389) $  (1,060,329) $     (656,670) $  (221,454) $    752,039
  Adjusted cumulative gap as a percentage
                of total assets                    (11.6)%         (9.4)%          (5.8)%       (2.0)%         6.6 %


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, as a percentage of total
assets, was a negative 9.4% at December 31, 2001 compared to a negative 13.3% at
September 30, 2001. The improvement in the Bank's one-year gap during this
period reflects an increase in production of adjustable-rate mortgage loans with
repricing terms of less than one-year, partially offset by an increase in money
market deposit accounts and short-term borrowings with maturity of one year or
less. The Bank continues to consider a variety of strategies to manage its
interest rate risk position.

Capital. At December 31, 2001, 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 December 31,
2001, 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   $      536,434
    Minority interest in REIT Subsidiary (1)           144,000
    Accumulated other comprehensive income (2)          (2,862)
                                                ---------------
                                                       677,572

Adjustments for tangible and core capital:
    Intangible assets                                  (47,491)
    Non-includable subsidiaries  (3)                    (1,415)
    Non-qualifying purchased/originated loan
     servicing rights                                   (3,290)
                                                ---------------
       Total tangible capital                          625,376       5.55%   $      168,953       1.50%    $     456,423      4.05%
                                                ---------------  ==========  ===============  ==========   ============== ==========

       Total core capital (4)                          625,376       5.55%   $      450,541       4.00%    $     174,835      1.55%
                                                ---------------  ==========  ===============  ==========   ============== ==========

       Tier 1 risk-based capital (4)                   625,376       7.00%   $      312,688       4.00%    $     312,688      3.00%
                                                ---------------  ==========  ===============  ==========   ============== ==========

Adjustments for total risk-based capital:
    Subordinated capital debentures                    250,000
    Allowance for general loan and lease losses         66,018
                                                ---------------
       Total supplementary capital                     316,018
                                                ---------------
       Total available capital                         941,394
    Equity investments (3)                              (1,583)
                                                ---------------
       Total risk-based capital (4)             $      939,811      10.70%   $      714,370       8.00%    $     225,441      2.70%
                                                ===============  ==========  ===============  ==========   ============== ==========


(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, accumulated other comprehensive income is excluded
from regulatory capital.
(3) Reflects an aggregate offset of $.2 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. The following table sets forth the Bank's REO at December 31, 2001,
after valuation allowances of $86.3 million, by the fiscal year in which the
property was acquired through foreclosure.

          Fiscal Year        (In thousands)
          -----------        --------------
          1990                  $    4,408  (1) (2)
          1991                      18,454  (2)
          1992                           -
          1993                           -
          1994                           -
          1995                       5,142  (2)
          1996                           -
          1997                           -
          1998                           -
          1999                           -
          2000                           -
          2001                         287
          2002                       1,079
                             --------------
          Total REO            $    29,370
                             ==============
-----------------------
(1) Includes REO, with an aggregate net book value of $1.6 million, which the
    Bank treats as equity investments for regulatory capital purposes.
(2) Includes REO, with an aggregate net book value of $26.4 million, for which
    the Bank received an extension of the holding periods through December 19,
    2002.

Although the Bank stopped originating subprime automobile loans in November 9,
2000, the Bank's subprime automobile lending portfolio at December 31, 2001
continued to exceed 25% of its Tier 1 capital. As a result, the Bank remains
potentially subject to the OTS guidance for subprime lending, including
increased capital requirements of 1 1/2 to 3 times the amount required for
non-subprime assets of the same type.


LIQUIDITY AND CAPITAL RESOURCES

REAL ESTATE

The Real Estate Trust's cash flow from operating activities has been
historically insufficient to meet all of its cash flow requirements. The Real
Estate Trust's internal source 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 sold to the public, the payment of interest on its
indebtedness, 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, the sale of unsecured notes,
refinancing of maturing mortgage debt, proceeds from asset sales, and dividends
and tax sharing payments from the bank. For the foreseeable future, the Real
Estate Trust's ability to generate positive cash flow from operating activities
and to meet its liquidity needs, including debt service payments, repayment of
debt principal and capital expenditures, will continue to depend on these
available external sources. Dividends received from the bank are a component of
funding sources available to the Real Estate Trust. The availability and amount
of dividends in future periods is dependent upon, among other things, the bank's
operating performance and income, and regulatory restrictions on such payments.

The Real Estate Trust believes that the financial condition and operating
results of the bank in recent periods should enhance prospects for the Real
Estate Trust to receive tax sharing payments and dividends from the bank. During
the quarter ended December 31, 2001, the bank made tax sharing payments totaling
$4.9 million and a dividend payment of $4.0 million to the Real Estate Trust.
Tax sharing and dividend payments received by the Real Estate Trust are
presented as cash flows from operating activities in the Consolidated Statements
of Cash Flows.

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.

During the quarter ended December 31, 2001, the Trust has purchased through
dividend reinvestment 112,000 shares of common stock of Saul Centers and as of
December 31, 2001 owned approximately 3,141,000 shares representing 21.6% of
such company's outstanding common stock. As of December 31, 2001, the market
value of these shares was approximately $67.1 million. Substantially all these
shares have been pledged as collateral with the Real Estate Trust's credit line
banks.

As the owner, directly and through two wholly-owned subsidiaries, of a limited
partnership interest in Saul Holdings Limited Partnership ("Saul Holdings
Partnership") 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 Partnership provides for quarterly cash distributions
to the partners out of net cash flow. During the quarter ended December 31,
2001, the Real Estate Trust received total cash distributions of $1.6 million
from Saul Holdings Partnership. Substantially all of the Real Estate Trust's
ownership interest in Saul Holdings Partnership has been pledged as collateral
with the Real Estate Trust's lines of credit banks.

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 $175.0 million aggregate principal amount of 11
5/8% Senior Secured Notes issued in 1994 (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, or 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.

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 outstanding unsecured notes as they mature, it will finance such
repayments from other sources of funds.

In fiscal 1995, the Real Estate Trust established a $15.0 million revolving
credit line with an unrelated bank. This facility was for an inital 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. In September, 1999, this facility was increased to
$50.0 million and its term was set at three years with provisions for extending
the term annually. The current maturity date for this line is September 29,
2002. This facility is secured by a portion of the Real Estate Trust's ownership
in Saul Holdings Partnership and Saul Centers. Interest is computed by reference
to a floating rate index. At December 31, 2001 the Real Estate Trust had no
outstanding borrowings under the facility and unrestricted availability was
$42.6 million.

In fiscal 1996, the Real Estate Trust established an $8.0 million revolving
credit line with an unrelated bank, secured by a portion of the Real Estate
Trust's ownership interest in Saul Holdings Partnership. This facility was
initially 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
line of credit was increased to $20.0 million and was extended for an additional
year. In July 2000, the line of credit was further increased to $25.0 million.
The current maturity date for this line is July 31, 2002. Interest is computed
by reference to a floating rate index. At December 31, 2001, the Real Estate
Trust had no outstanding borrowings and unrestricted availability was $25.0
million.

The maturity schedule for the Real Estate Trust's outstanding debt at December
31, 2001 for the balance of fiscal 2002 and subsequent years is set forth in the
following table:

                             Debt Maturity Schedule
                                 (In thousands)

                                    Notes Payable- Notes Payable-
    Fiscal Year      Mortgage Note      Secured      Unsecured       Total
-------------------- -------------- -------------- -------------- -----------
       2002 (1)            $31,443         $   --        $ 5,725     $37,168
       2003                 27,940             --         11,777      39,717
       2004                  9,008             --         11,542      20,550
       2005                 13,651             --          8,980      22,631
       2006                 94,406             --          5,528      99,934
    Thereafter             148,273        200,000          9,380     357,653
                     -------------- -------------- -------------- -----------
       Total              $324,721       $200,000        $52,932    $577,653
                     ============== ============== ============== ===========

(1)  January 1, 2001 - September 30, 2002

Of the $324.7 million of mortgage debt outstanding at December 31, 2001, $296.3
million was nonrecourse to the Real Estate Trust.

DEVELOPMENT AND CAPITAL EXPENDITURES

On June 29, 2000, the Real Estate Trust purchased a 6.17 acre site in the
Loudoun Tech Center, a 246-acre business park located in Loudoun County,
Virginia, for $1.1 million. The site was purchased for the purpose of developing
an 81,000 square foot office/flex building to be known as Loudoun Tech Phase I.
The cost of development is projected to be $8.4 million and will be financed by
a $7.4 million construction loan, which has a five-year term, a floating
interest rate and one two-year renewal option. Construction of the base
building was completed in December 2000, and the building was placed in service
during December 2001. No leases have been signed as yet for space in the
building.

During the quarter ended September 30, 2000, the Real Estate Trust began the
development of a 100,000 square foot office/flex building located on an 8.3 acre
site in Dulles North Corporate Park near other Real Estate Trust projects. The
new building will be known as Dulles North Building Four. Development costs are
projected to be $10.8 million and will be financed with the proceeds of a $9.5
million construction loan, which has a three-year term, a floating interest rate
and two one-year renewal options. Construction of the base building has been
completed. The Real Estate Trust has negotiated a lease with a tenant for the
entire building and occupancy is expected during the third quarter of fiscal
2002.

The Real Estate Trust believes that the capital improvement costs for its
income-producing properties will be in the range of $9.0 to $11.0 million per
year for the next several years.

BANKING

Liquidity. The Bank's average liquidity ratio for the quarter ended December 31,
2001, was 9.1% compared to 7.7% for the quarter ended December 31, 2000.

The Bank securitized and sold automobile loan receivables of $236.1 million
during the current quarter. At December 31, 2001, the Bank is considering the
securitization and sale of approximately $600 million of single-family loan
receivables, all of which are outstanding at December 31, 2001. The Bank is also
considering the securitization and sale of approximately $350 million of
automobile loan receivables, including $130 million of receivables outstanding
at December 31, 2001 and $220 million of receivables that the Bank expects to
become available through additional fundings during the six months ending June
30, 2001. As part of its operating strategy, the Bank continues to explore
opportunities to sell assets and to securitize and sell single-family, home
equity, automobile and home loan receivables to meet liquidity and other balance
sheet objectives. 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
$26.0 million and $29.6 million, respectively, at December 31, 2001, and $24.3
million and $28.5 million, respectively, at September 30, 2001, 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 $0.9 million and $1.2 million at December 31, 2001 and
September 30, 2001, 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 December 31, 2001, recourse to the Bank under these arrangements was
$6.3 million, consisting of restricted cash accounts of $3.9 million and
overcollateralization of receivables of $2.4 million.

The Bank is also obligated under a recourse provision related to the servicing
of certain of its residential mortgage loans. At December 31, 2001 and September
30, 2001 recourse to the Bank under this arrangement totaled $3.4 million.

There were no material commitments for capital expenditures at December 31,
2001.

The Bank's liquidity requirements in fiscal 2002, and for years subsequent to
fiscal 2002, 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.


RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED
 DECEMBER 31,2000

REAL ESTATE

The Real Estate Trust recorded a loss before depreciation and amortization of
$287,000 and an operating loss of $5.1 million in the three-month period ended
December 31, 2001 (the "2002 quarter") compared to income before depreciation
and amortization of $4.9 million and operating income of $831,000 in the
three-month period ended December 31, 2000, (the "2001 quarter"). The changes
reflect declining results in operations of hotels, office and industrial
properties, and higher interest expense. Additionally, in the 2001 quarter the
Trust recognized approximately $2.5 million in gains from the sale of two
properties.

Income after direct operating expenses from hotels decreased $2.1 million
(25.6%) in the 2002 quarter over the level achieved in the 2001 quarter. Results
from the sixteen hotels owned throughout both quarters, decreased by $3.3
million, while results from newly developed properties amounted to $1.3 million.
The decrease in total revenue of $3,476,000 (14.9%) was offset somewhat by the
decrease of $1,367,000 (9.0%) in direct operating expenses. For the sixteen
hotels owned throughout both periods, the decrease in total revenue was
$5,754,000 (24.9%) and the decrease in direct operating expenses was $2,496,000
(16.7%). The revenue decrease was attributable to declining market conditions
resulting from the effects of the September 11 terrorist attacks and the slowing
economy.

Income after direct operating expenses from office and industrial properties
decreased $363,000 (4.9%) in the 2002 quarter over the 2001 quarter. $448,000 of
this decrease reflected reduced results from the ten office properties owned
throughout both quarters, and $85,000 relected results from two new properties.
Gross income decreased $297,000 (3.0%), while expenses increased $65,000 (2.6%).
For the ten office properties owned throughout both periods, the decrease in
total revenue was $281,000 (3.0%) and the increase in direct operating expenses
was $167,000 (7.0%). The downturn was due to leased space turning over in the
current period.

Interest expense increased $253,000 (2.1%) in the 2002 quarter because of higher
average borrowings. Average balances of the Real Estate Trust's outstanding
borrowings increased to $579.8 million for the 2002 quarter from $533.6 million
for the 2001 quarter. Average interest rates in the 2002 and 2001 quarters were
9.00% and 9.54%, respectively.

Capitalized interest decreased $213,000 (66.5%) in the 2002 quarter due to lower
level of development activity in the current period.

Amortization of debt expense increased $29,000 (14.9%) in the 2002 quarter,
primarily due to costs incurred in connection with obtaining additional mortgage
loans.

Depreciation increased $691,000 (17.7%) in the 2002 quarter, largely as a result
of new income-producing assets placed in service.

Advisory, management and leasing fees paid to related parties increased $168,000
(5.9%) in the 2002 quarter from their level in the 2001 quarter. The monthly
advisory fees were $475,000 in the 2002 quarter, compared to $363,000 in the
2001 quarter, an increase aggregating $337,000 (30.9%). Management and leasing
fees decreased $169,000 (9.7%) in the current quarter, reflecting lower hotel
sales and office rents on which the fees are based.

General and administrative expense increased $20,000 (2.8%) in the 2002 quarter,
primarily due to increases in legal of $189,000 (122.6%) and accounting of
$48,000 (35.8%) offset by a decrease of $217,000 in other administrative
expenses.

Equity in earnings of unconsolidated entities reflected earnings of $2,602,000
in the 2002 quarter as compared to earnings of $1,884,000 in the 2001 quarter,
an increase of $718,000 (38.1%).

BANKING

Overview. The Bank recorded operating income of $27.4 million for the 2002
quarter compared to operating income of $18.7 million for the 2001 quarter.
Increased net interest income and other (non-interest) income were partially
offset by increases in operating expense and provision for loan and lease
losses.

Net Interest Income. Net interest income, before the provision for loan and
lease losses, increased $7.6 million (or 8.9%) in the 2002 quarter compared to
the 2001 quarter. There was no interest income recorded during the 2002 quarter
on non-accrual assets and restructured loans. The Bank would have recorded
interest income of $1.1 million for the 2002 quarter if non-accrual assets and
restructured loans had been current in accordance with their original terms. 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 December 31,
                                               -------------------------------------------------------------------------------------
                                                                   2001                                       2000
                                               ------------------------------------------ ------------------------------------------
                                                   Average                      Yield/       Average                       Yield/
                                                  Balances        Interest       Rate        Balances        Interest       Rate
                                               --------------   -----------   ----------- -------------    -----------   -----------
Assets:
  Interest-earning assets:
   Loans and leases receivable, net (1)        $   8,518,506    $  148,186       6.96 %   $  8,449,912     $  177,030       8.38 %
   Mortgage-backed securities                      1,419,951        21,719       6.12        1,010,792         16,554       6.55
   Federal funds sold and securities
     purchased under agreements to resell             16,250            81       1.99           47,196            783       6.64
   Trading securities                                 59,962           815       5.44           15,598            289       7.41
   Investment securities                              45,579           485       4.26           45,655            695       6.09
   Other interest-earning assets                     228,433         2,497       4.37          183,589          3,231       7.04
                                               --------------   -----------               -------------    -----------
    Total                                         10,288,681       173,783       6.76        9,752,742        198,582       8.14
                                                                -----------   -----------                  -----------   -----------

  Noninterest-earning assets:
   Cash                                              251,586                                   292,376
   Real estate held for investment or sale            31,813                                    55,354
   Property and equipment,  net                      443,739                                   369,777
   Goodwill and other intangible assets, net          26,845                                    25,057
   Other assets                                      274,589                                   265,568
                                               --------------                             -------------
    Total assets                               $  11,317,253                              $ 10,760,874
                                               ==============                             =============
Liabilities and stockholders' equity:
  Interest-bearing liabilities:
   Deposit accounts:
    Demand deposits                            $   1,403,886         1,176       0.34     $  1,239,997          2,605       0.84
    Savings deposits                                 907,234         2,321       1.02          875,575          3,953       1.81
    Time deposits                                  2,782,351        34,180       4.91        3,072,505         48,694       6.34
    Money market deposits                          1,644,349         8,575       2.09        1,196,844         12,373       4.14
                                               --------------   -----------               -------------    -----------
    Total deposits                                 6,737,820        46,252       2.75        6,384,921         67,625       4.24
   Borrowings                                      2,886,795        34,370       4.76        2,910,380         45,393       6.24
                                               --------------   -----------               -------------    -----------
    Total liabilities                              9,624,615        80,622       3.35        9,295,301        113,018       4.86
                                                                -----------   -----------                  -----------   -----------
  Noninterest-bearing items:
   Noninterest-bearing deposits                      807,420                                   616,447
   Other liabilities                                 229,392                                   233,911
   Minority interest                                 144,000                                   144,000
   Stockholders' equity                              511,826                                   471,215
                                               --------------                             -------------
    Total liabilities and stockholders' equity $  11,317,253                              $ 10,760,874
                                               ==============                             =============

Net interest income                                             $   93,161                                 $   85,564
                                                                ===========                                ===========
Net interest spread (2)                                                          3.41 %                                     3.28 %
                                                                              ===========                                ===========
Net yield on interest-earning assets (3)                                         3.62 %                                     3.51 %
                                                                              ===========                                ===========
Interest-earning assets to interest-bearing liabilities                        106.90 %                                   104.92 %
                                                                              ===========                                ===========

------------------------------------------------------------------------------------------------------------------------------------
(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 December 31, 2001
                                                                                  Compared to
                                                                     Three Months Ended December 31, 2000
                                                                              Increase (Decrease)
                                                                             Due to Change in (1)
                                                  ----------------------------------------------------------------------------
                                                                                                                 Total
                                                          Volume                      Rate                       Change
                                                  ---------------------      ---------------------       ---------------------

Interest income:
        Loans (2)                                 $              9,652       $            (38,496)       $            (28,844)
        Mortgage-backed securities                              11,924                     (6,759)                      5,165
        Federal funds sold and securities
          purchased under agreements  to resell                   (339)                      (363)                       (702)
        Trading securities                                       1,043                       (517)                        526
        Investment securities                                       (1)                      (209)                       (210)
        Other interest-earning assets                            3,553                     (4,287)                       (734)
                                                  ---------------------      ---------------------       ---------------------
            Total interest income                               25,832                    (50,631)                    (24,799)
                                                  ---------------------      ---------------------       ---------------------


Interest expense:
        Deposit accounts                                        22,954                    (44,327)                    (21,373)
        Borrowings                                                (364)                   (10,659)                    (11,023)
                                                  ---------------------      ---------------------       ---------------------
            Total interest expense                              22,590                    (54,986)                    (32,396)
                                                  ---------------------      ---------------------       ---------------------


Increase in net interest income                   $              3,242       $              4,355        $              7,597
                                                  =====================      =====================       =====================





------------------------------------------------------------------------------------------------------------------------------
(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 2002 quarter decreased $24.8 million (or 12.5%) from the
level in the 2001 quarter as a result of lower average yields on loans and
leases receivable, which was partially offset by increases in the average
balances of loans and leases receivable of $68.6 million and mortgage-backed
securities of $409.2 million.

The Bank's net interest spread increased to 3.41% in the 2002 quarter from 3.28%
in the 2001 quarter. The 13 basis point increase primarily reflected a decrease
in the average cost of interest-bearing liabilities at a greater rate than the
rate of decrease in the average yield of interest-earning assets. Average
interest-earning assets as a percentage of average interest bearing liabilities
increased to 106.90% for the 2002 quarter compared to 104.92% for the 2001
quarter.

Interest income on loans and leases, the largest category of interest-earning
assets, decreased $28.8 million from the 2001 quarter primarily because of lower
average yields. The average yield on the loan and lease portfolio decreased 142
basis points (from 8.38% to 6.96%) from the 2001 quarter. Lower average yields,
as well as lower average balances on the Bank's single-family residential loans
and construction loans, resulted in a $14.9 million (or 16.6%) and a $3.4
million (or 46.4%) decrease in interest income, respectively, from those loans.
In addition, lower average yields on commercial loans, home equity loans and
automobile loans contributed to decreases of $2.8 million (or 21.8%), $1.5
million (or 21.0%) and $6.6 million (or 11.8%), respectively, from those loans.
Partially offsetting the decrease in interest income were increases in the
average balances of commercial loans, home equity loans and automobile loans.

Interest income on mortgage-backed securities increased $5.2 million (or 31.2%)
primarily because of higher average balances. The effect of the $409.2 million
increase in average balances was partially offset by an decrease in the average
interest rates on those securities from 6.55% to 6.12%.

Interest expense on deposits decreased $21.4 million (or 31.6%) during the 2002
quarter, due to decreased average rates. The 149 basis point decrease in the
average rate on deposits (from 4.24% to 2.75%) resulted from a decline in market
rates on which the deposit rates are based. The Bank has also reduced the use
of higher cost brokered deposits as an alternative funding source in the 2002
quarter compared to the 2001 quarter.

Interest expense on borrowings decreased $11.0 million (or 24.3%) in the 2002
quarter over the 2001 quarter. The average balances on Federal Home Loan Bank
advances decreased by $80.3 million, or 3.9%, and the average rate on such
borrowings fell (from 5.83% to 5.12%), resulting in a reduction of $4.7 million
in interest expense. Also contributing to the decrease in interest expense on
borrowings were decreases in average yield in securities sold under repurchase
agreements (from 6.57% to 2.24%) and in other borrowings (from 5.92% to 1.45%),
which contributed to $4.5 million and $1.9 million decrease in interest expense,
respectively. Partially offsetting the decreased expense on borrowings were
increases in the average balances of $50.5 and $6.3 million in securities sold
under repurchase agreements and other borrowings, respectively.

Provision for Loan and Lease Losses. The Bank's provision for loan and lease
losses increased to $17.9 million in the 2002 quarter from $15.9 million in the
2001 quarter. The $2.0 million increase primarily reflected adverse economic
conditions. See "Financial Condition - Asset Quality - Allowances for Losses."

Other Income. Other non-interest income increased to $57.4 million in the 2002
quarter from $46.7 million in the 2001 quarter. The $10.7 million (or 22.9%)
increase was primarily attributable to an increase in the net gain on trading
securities, deposit servicing fees and other income. Partially offsetting this
increase was a decrease in gain on sales of loans and servicing and
securitization income.

The $6.9 million increase in the net gain on trading securities was primarily
due to $4.8 million in gains on sales of mortgage-backed securities related to
mortgage banking activities and a $1.9 million unrealized gain in market value
of the Bank's interest in other securities.

Deposit servicing fees increased $3.3 million (or 13.1%) during the 2002 quarter
primarily due to fees generated from the continued expansion of the Bank's
branch and ATM network.

Operating Expenses. Operating expenses for the 2002 quarter increased $7.5
million (or 7.7%) from the 2001 quarter. Loan expenses increased $3.2 million,
primarily due to an increase in the amortization of capitalized mortgage
servicing rights. Property and equipment expenses increased by $4.1 million due
primarily to increased rent expense and related property taxes associated with
the Bank's new headquarters.

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

  EXHIBITS                         DESCRIPTION
  ----------  ------------------------------------------------------------------
   3.          ORGANIZATIONAL DOCUMENTS

       (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.          INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
               INDENTURES

       (a)     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
               333-49937 is hereby incorporated by reference.

       (b)     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 No. 33-19909 is hereby incorporated by reference.

       (c)     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.

       (d)     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.

       (e)     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.

       (f)     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.

       (g)     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.

       (h)     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.

       (i)     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

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

       (k)     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.

       (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.         MATERIAL CONTRACTS

       (a)     Amended and Restated Advisory Contract by and among the Trust,
               B.F. Saul Company and B.F. Saul Advisory Company effective
               October 1, 1992, as amended, as filed as Exhibit 10(a) to the
               Trust's Annual Report on Form 10-K (File No. 1-7184) for the
               fiscal year ended September 30, 2001 is hereby incorporated by
               reference.

       (b)     Assignment and Guaranty Agreement effective May 1 , 1972 by and
               among the Trust, B.F. Saul Company and B.F. Saul Advisory
               Company, as filed as Exhibit 10(b) to the Trust's Annual Report
               on Form 10-K (File No. 1-7184) for the fiscal year ended
               September 30, 2001 is hereby incorporated by reference.

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

       (d)     Amendments to Commercial Property Leasing and Management
               Agreement between the Trust and B.F. Saul 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) filed
               as Exhibit 10(o) to Registration Statement No. 33-34930 is hereby
               incorporated by reference.

       (e)     Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy
               Chase 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.

       (f)     First Amendment to Tax Sharing Agreement effective May 16, 1995
               among the Trust, Chevy Chase Bank F.S.B. and certain of their
               subsidiaries, as filed as Exhibit 10(f) to the Trust's Annual
               Report on Form 10-K (File No. 1-7184) for the fiscal year ended
               September 30, 2001 is hereby incorporated by reference.

       (g)     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 Bank, F.S.B. and certain
               real property to the Trust in exchange for Preferred Shares of
               the Trust filed as Exhibit 10(d) to Registration Statement
               No. 33-34930 is hereby incorporated by reference.

       (h)     Regulatory Capital Maintenance/Dividend Agreement dated May 17,
               1988 among B.F. Saul Company, the Trust and the Federal Savings
               and Loan Insurance Corporation 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.

       (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,
               L.L.C., B.F. Saul 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)     First Amendment to Registration Rights and Lock-Up Agreement
               dated September 29, 1999 by and among Saul Centers, Inc., 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(b)
               to the Trust's Annual Report on Form 10-K (File No. 1-7184) for
               the fiscal year ended September 30, 2001 is hereby incorporated
               by reference.

       (k)     Exclusivity and Right of First Refusal Agreement dated August 26,
               1993 among Saul Centers, Inc., the Trust, B.F. Saul Company,
               Westminster Investing Corporation, B.F. Saul 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
               hereby incorporated by reference.

       (l)     Fourth Amended and Restated Reimbursement Agreement dated as of
               April 25, 2000 by and among Saul Centers, Inc., Saul Holdings
               Limited Partnership, Saul Subsidiary I Limited Partnership, Saul
               Subsidiary II Limited Partnership, Saul QRS, Inc.,  B.F. Saul
               Property Company, Westminster Investing Corporation, Van Ness
               Square Corporation, Dearborn, L.L.C., Avenel Executive Park
               Phase II, L.L.C., and the Trust, as filed as Exhibit 10(k) to the
               Trust's Quarterly Report on Form 10-Q (File No. 1-7184) for the
               fiscal quarter ended March 31, 2000 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, as filed as Exhibit 4(d) to Registration
               Statement No. 333-49937 is hereby incorporated by reference.

 *     (n)     Note Administration Fee Agreement dated as of February 8, 2002,
               between the Trust and B.F. Saul Advisory Company L.L.C.


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

 * 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 requirement 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: February 14, 2002         Stephen R. Halpin, Jr.
      -----------------         ---------------------------------------
                                Stephen R. Halpin, Jr.
                                Vice President and Chief Financial Officer


Date: February 14, 2002         Bill D. Tzamaras
      -----------------         ---------------------------------------
                                Bill D. Tzamaras
                                Vice President and Principal Accounting Officer