<PAGE>   1
   
    
 
OVERVIEW
 
     The reported results of Metropolitan Financial Corp. ("Metropolitan" or the
"Corporation") primarily reflect the operations of Metropolitan Savings Bank of
Cleveland (the "Bank"). Metropolitan's results of operations are dependent on a
variety of factors, including the general interest rate environment, competitive
conditions in the industry, governmental policies and regulations and conditions
in the markets for financial assets. Like most financial institutions, the
primary contributor to Metropolitan's income is net interest income, the
difference between the interest Metropolitan earns on interest-earning assets,
such as loans and securities, and the interest Metropolitan pays on
interest-bearing liabilities, such as deposits and borrowings. Metropolitan's
operations are also affected by noninterest income, such as loan servicing fees,
service charges on deposit accounts, gains or losses from sales of loans and
securities and loan option income. Metropolitan's principal operating expenses,
aside from interest expense, consist of compensation and employee benefits,
occupancy costs, and other general and administrative expenses.
 
     Average Balances and Yields.  The following table presents, for the periods
indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates, and the net interest margin. Net interest margin refers to net interest
income divided by total interest-earning assets and is influenced by the level
and relative mix of interest-earning assets and interest-bearing liabilities.
All average balances are daily average balances. Nonaccruing loans are
considered in average loan balances. The average balance of mortgage-backed
securities and securities are presented at historical cost.
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                 ---------------------------------------------------------------------------------------------
                                             1997                            1996                            1995
                                 -----------------------------   -----------------------------   -----------------------------
                                 AVERAGE               AVERAGE   AVERAGE               AVERAGE   AVERAGE               AVERAGE
                                 BALANCE    INTEREST    RATE     BALANCE    INTEREST    RATE     BALANCE    INTEREST    RATE
                                 --------   --------   -------   --------   --------   -------   --------   --------   -------
                                                                        (IN THOUSANDS)
<S>                              <C>        <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>
INTEREST-EARNING ASSETS:
Loans receivable...............  $673,809   $61,230     9.09%    $574,502   $50,268     8.75%    $458,423   $39,963     8.72%
Mortgage-backed securities
  available for sale...........   101,160     6,947     6.87       43,734     2,890     6.61       39,342     2,493     6.34
Other..........................    18,923     1,169     6.18       20,417     1,294     6.34       14,610       979     6.70
                                 --------   -------              --------   -------              --------   -------
Total interest-earning
  assets.......................   793,892    69,346     8.73      638,653    54,452     8.53      512,375    43,435     8.48
                                            -------                         -------                         -------
Nonearning assets..............    44,727                          37,021                          31,881
                                 --------                        --------                        --------
Total assets...................  $838,619                        $675,674                        $544,256
                                 ========                        ========                        ========
INTEREST-BEARING LIABILITIES:
Deposits.......................  $636,777    34,120     5.36     $532,100    28,132     5.29     $439,286    23,522     5.35
Borrowings.....................   117,150     7,583     6.47       73,899     4,984     6.74       48,066     3,294     6.85
                                 --------   -------              --------   -------              --------   -------
Total interest-bearing
  liabilities..................   753,927    41,703     5.53      605,999    33,116     5.46      487,352    26,816     5.50
                                            -------     ----                -------     ----                -------     ----
Noninterest-bearing
  liabilities..................    51,674                          42,924                          35,032
Shareholders' equity...........    33,018                          26,751                          21,872
                                 --------                        --------                        --------
Total liabilities and
  shareholders' equity.........  $838,619                        $675,674                        $544,256
                                 ========                        ========                        ========
Net interest income and
  interest rate spread.........             $27,643     3.20%               $21,336     3.07%               $16,619     2.98%
                                            =======     ====                =======     ====                =======     ====
Net interest margin............                         3.48%                           3.34%                           3.24%
Average interest-earning assets
  to average interest-bearing
  liabilities..................    105.30%                         105.39%                         105.13%
</TABLE>
 
     Rate and Volume Variances.  Net interest income is affected by changes in
the level of interest-earning assets and interest-bearing liabilities and
changes in yields earned on assets and rates paid on liabilities. The following
table sets forth, for the periods indicated, a summary of the changes in
interest earned and interest paid resulting from changes in average asset and
liability balances and changes in average rates. Changes attributable
   

                                        36
    
<PAGE>   2

to the combined impact of volume and rate have been allocated proportionately
to change due to volume and change due to rate.
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                   ---------------------------------------------------------------------
                                             1997 VS. 1996                       1996 VS. 1995
                                          INCREASE (DECREASE)                 INCREASE (DECREASE)
                                   ---------------------------------   ---------------------------------
                                    TOTAL    CHANGE DUE   CHANGE DUE    TOTAL    CHANGE DUE   CHANGE DUE
                                   CHANGE    TO VOLUME     TO RATE     CHANGE    TO VOLUME     TO RATE
                                   -------   ----------   ----------   -------   ----------   ----------
                                                              (IN THOUSANDS)
<S>                                <C>       <C>          <C>          <C>       <C>          <C>
INTEREST INCOME ON:
Loans receivable.................  $10,962    $ 8,962       $2,000     $10,305    $10,157       $  148
Mortgage-backed securities.......    4,057      3,940          117         397        287          110
Other............................     (125)       (93)         (32)        315        365          (50)
                                   -------    -------       ------     -------    -------       ------
Total interest income............   14,894    $12,809       $2,085      11,017    $10,809       $  208
                                   -------    =======       ======     -------    =======       ======
INTEREST EXPENSE ON:
Deposits.........................    5,988    $ 5,603       $  385       4,610    $ 4,903       $ (293)
Borrowings.......................    2,599      2,792         (193)      1,690      1,741          (51)
                                   -------    -------       ------     -------    -------       ------
Total interest expense...........    8,587    $ 8,395       $  192       6,300    $ 6,644       $ (344)
                                   -------    =======       ======     -------    =======       ======
Increase in net interest
  income.........................  $ 6,307                             $ 4,717
                                   =======                             =======
</TABLE>
 
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
 
     Net Income.  Net income for 1997 was $5.8 million, or $0.82 per common
share, an increase of $4.3 million from 1996. Net income for 1996 was $1.5
million, or $0.24 per common share. The increase was primarily a result of the
increase in net interest income and the $1.9 million after tax Savings
Association Insurance Fund ("SAIF") assessment in 1996 which was not repeated in
1997. Excluding the one-time SAIF assessment, net income for 1996 was $3.5
million, or $0.54 per common share.
 
     Interest Income.  Total interest income increased 27.4% to $69.3 million
for 1997 as compared to $54.5 million for 1996. The increase was due to a 24.3%
increase in average interest-earning assets between the years and a 187.2%
increase in prepayment penalties to $1.1 million in 1997 from $0.4 million in
1996. Average earning assets increased as a result of Metropolitan's strategy of
increasing assets as long as assets with acceptable portfolio characteristics
are available. Prepayment penalties on multifamily and commercial real estate
loans increased when payoffs increased in response to declining interest rates
during the second half of 1997. The weighted average yield on interest-earning
assets increased to 8.73% during 1997 as compared to 8.53% during 1996. The
increase in prepayment penalties accounted for 9 basis points of the 20 basis
point increase. The remainder was primarily due to the increase in the weighted
average rate on loans receivable which went up due to increases in consumer and
business loans relative to real estate loans.
 
     Interest Expense.  Total interest expense increased 25.9% to $41.7 million
for 1997 as compared to $33.1 million for 1996. Interest expense increased
primarily because the average balance of interest-bearing liabilities increased
24.4%. The average balance of interest-bearing liabilities grew at this rate in
order to fund the growth of interest-earning assets discussed above.
Metropolitan's cost of funds increased to 5.53% in 1997 as compared to 5.46% in
1996 because the rates on new borrowings and new deposits were higher than the
weighted average rate of interest-bearing liabilities for 1996.
 
     Net Interest Margin.  Metropolitan's net interest margin rose 14 basis
points to 3.48% for 1997 compared to 3.34% for 1996. While overall interest
rates on loans and deposits declined during 1997, Metropolitan experienced
increases in yields on interest-earning assets due to prepayment penalties and
changes in asset mix and experienced increased liability costs due to an effort
to lengthen liability maturities to reduce the risk of declining net interest
income from rising rates. The increased yields in 1997 more than offset the
increased cost of liabilities.
   
 
                                        37
    
<PAGE>   3
 
     Provision for Loan Losses.  The provision for loan losses increased 43.1%
to $2.3 million in 1997 as compared to $1.6 million in 1996. The increase was
related to the increase in total loans and management's estimate of the adequacy
of the allowance for losses on loans. Total loans (including loans held for
sale) increased 9.5% to $707.9 million at December 31, 1997 from $646.5 million
at the same date a year earlier. The allowance for losses on loans at December
31, 1997 was $5.6 million, or 0.79% of total loans, as compared to $4.2 million,
or 0.64% of total loans, at the same date in 1996. Management's estimate of the
adequacy of the allowance for losses on loans is based upon an analysis of
factors such as historical loan loss experience, the status of impaired loans,
economic conditions affecting real estate markets, and regulatory
considerations.
 
     Noninterest Income.  Total noninterest income increased 9.8% to $4.1
million in 1997 as compared to $3.8 million in 1996. Net loan servicing income
increased 7.4% to $1.3 million in 1997 as compared to $1.2 million in 1996. The
increase in net loan servicing fees was a result of Metropolitan's strategy of
increasing non-credit based fee income. The portfolio of loans serviced for
others increased to $1.2 billion at December 31, 1997 compared to $1.1 billion
at the same date a year earlier as a result of securitization of $93.0 million
of multifamily loans with the Federal National Mortgage Association ("FNMA")
during the third quarter of 1997. Purchases of loan servicing rights and
origination of loan servicing on one- to four-family mortgages during 1997
approximately offset payoffs and amortization of existing loans serviced.
Metropolitan remains committed to this line of business and will only acquire
the rights to service portfolios where the loan characteristics and pricing are
consistent with management's long-term profitability objectives.
 
     Service charges on deposit accounts increased 26.7% to $716,000 in 1997 as
compared to $565,000 in 1996. The primary reason for the increase was the
overall growth in deposit accounts and greater fee income derived from various
accounts due to increased business levels.
 
     Gain on sale of loans was $488,000 in 1997 as compared to $203,000 in 1996.
This income was dependent upon the amount of loans sold, secondary market
pricing, and the value allocated to mortgage servicing rights, and these
variables were in turn directly affected by prevailing interest rates. As such,
the primary reason for the increase in these gains was the sale of residential
fixed rate loans into a favorable market during the year. The proceeds of loans
sold were $65.5 million during 1997 as compared to $55.5 million in 1996.
 
     Gain on sale of securities was $92,000 in 1997 as compared to $134,000 in
1996. During 1997, Metropolitan sold securities with a principal balance
outstanding of $16.6 million including FNMA preferred stock, a FNMA note, and
U.S. Treasury Notes. In 1996, $3.6 million of mortgage-backed securities were
sold at a gain of $134,000. Metropolitan does not actively purchase
mortgage-backed securities for resale; however, the existing portfolio of
mortgage-backed securities is monitored for opportunities to improve the yield,
manage interest rate risk, and increase profits, and as a result, certain
mortgage-backed securities have been sold.
 
     Loan option income was $320,000 in 1997 as compared to $696,000 in 1996.
This income was dependent upon the amount of loans for which options were
written and the price negotiated, both of which are affected by market
conditions. During 1997, Metropolitan purchased $10.6 million of loans and sold
nonrefundable options to purchase those same loans at a specified price within a
specified time period, as compared to $16.7 million of loans purchased for
options in 1996.
 
     Other income increased 26.7% to $1.2 million in 1997 as compared to $1.0
million in 1996. This increase was primarily due to increased fee income earned
on investment services, rental income at retail sales office locations, and fee
income from credit cards.
 
     Noninterest Expense.  Total noninterest expense decreased 3.3% to $20.1
million in 1997 as compared to $20.8 million in 1996. Noninterest expense in
1996 included a $2.9 million one-time assessment to recapitalize the SAIF.
Increases in other expense categories in 1997 as compared to 1996 related
primarily to growth in assets, the increase in retail sales offices and
personnel.
 
     Personnel related expenses increased $2.0 million in 1997, or 23.1%, from
1996. The increase was the result of increased staffing due to the growth of the
Bank, the payment of incentives for loan and deposit production, the addition to
staff for loan production, and the effects of merit increases. To the extent
that the number of retail sales offices continues to grow and loan production
increases, management anticipates increases in personnel costs will continue in
the near future.
   

                                        38
    
<PAGE>   4

     Occupancy and equipment expense increased 23.5% to $3.0 million in 1997 as
compared to $2.5 million in 1996. These increases were generally the result of
additional full service retail offices, remodeling of certain other retail sales
offices, and expanded space at the corporate headquarters. At the present time,
two new retail sales offices are planned for 1998 and additional sites are under
consideration for 1999.
 
     Federal deposit insurance expense decreased $3.6 million to $0.6 million
for 1997 as compared to $4.2 million for 1996 primarily as a result of the
one-time assessment to recapitalize the SAIF in 1996. The one-time SAIF
assessment was $2.9 million and represented 65.7 basis points of deposits held
as of March 31, 1995. The remaining decrease was attributable to a decline in
insurance premiums paid made possible by the previously mentioned SAIF
recapitalization.
 
     Data processing expense decreased 26.3% to $441,000 in 1997 from $599,000
in 1996. The primary reason for the decrease was a discount on processing fees
from the Bank's primary data services provider in mid-1997. This discount on
fees will extend until mid-1998 when fees will be returned to their normal range
prior to the discount.
 
     Other operating expenses increased $0.4 million to $3.9 million for 1997 as
compared to $3.5 million for 1996. The increase was primarily due to increased
credit card servicing costs as a result of the increased size of the credit card
portfolio, increased depreciation on newly acquired computer technology, and
increased legal fees related to delinquent loans.
 
     Provision for Income Taxes.  The provision for income taxes increased to
$3.5 million in 1997 as compared to $1.1 million in 1996 due to the increase in
income before taxes. The effective tax rate was 37.6% for 1997 and 41.6% for
1996. The effective tax rate in 1997 was significantly lower because expenses
which are not deductible for tax purposes, such as amortization of intangibles,
were less significant in relationship to pre-tax income compared to 1996 as a
result of the unfavorable effect the one-time assessment to recapitalize the
SAIF had on pre-tax income in 1996. This more than offset the fact that
Metropolitan incurred significant state income tax and was subject to a higher
federal tax rate in 1997.
 
     As a result of legislation enacted during 1996, savings associations like
the Bank will no longer be able to calculate their deduction for bad debts using
the percentage of taxable income method. Instead, savings associations will
generally be required to compute their deduction based on specific charge-offs
during the taxable year. While this change, effective for the tax year 1996,
will affect the timing of payments, it will not affect the comparability of
results among years.
 
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
     Net Income.  Net income for 1996 was $3.5 million, or $0.54 per common
share, excluding the one-time assessment mandated by legislation to recapitalize
the SAIF. Net income including the SAIF assessment was $1.5 million, or $0.24
per common share as compared to $3.5 million, or $0.57 per common share for
1995. The decrease was primarily a result of the $1.9 million after tax, or
$0.30 per common share, SAIF assessment.
 
     Interest Income.  Total interest income increased 25.4% to $54.5 million
for 1996 as compared to $43.4 million for 1995. This increase primarily resulted
from a 24.6% increase in average interest-earning assets between the years. The
average balance of loans increased $116.1 million, which was a result of
Metropolitan's strategy of increasing assets when quality loans with acceptable
portfolio characteristics are available. Metropolitan originated $263.4 million
and purchased $126.9 million in loans in 1996, as compared to $161.9 million and
$103.7 million, respectively, for 1995. The weighted average yield on
interest-earning assets increased to 8.53% during 1996 as compared to 8.48%
during 1995.
 
     Net Interest Margin.  Metropolitan's net interest margin rose 10 basis
points to 3.34% for 1996 as compared to 3.24% for 1995, as a result of a modest
decline in interest rates paid for funds and an increase in the yield earned on
assets. Rates paid on deposits and other borrowings decreased in response to
lower market interest rates. The rate earned on interest-earning assets
increased slightly due to the change in mix of interest-earning assets.
   

                                       39
    

<PAGE>   5
 
     Interest Expense.  Total interest expense increased 23.5% to $33.1 million
for 1996 as compared to $26.8 million for 1995. Interest expense increased due
to a higher average balance of interest-bearing liabilities outstanding which
was only partially offset by a lower cost of funds during 1996. The average
balance of interest-bearing liabilities increased $118.6 million in 1996
compared to 1995 in order to fund the growth of interest-earning assets
discussed above.
 
     Metropolitan's cost of funds decreased to 5.46% in 1996 as compared to
5.50% in 1995 generally due to the lower overall level of interest rates.
Metropolitan's increased use of wholesale borrowings, whose cost was lower than
the incremental cost of time deposits, permitted the overall cost of deposits to
decline despite the significant growth experienced during 1996.
 
     Provision for Loan Losses.  The provision for loan losses increased 70.5%
to $1.6 million in 1996 as compared to $959,000 in 1995. The increase was
related to the increase in total loans and management's estimate of the adequacy
of the allowance for losses on loans. Total loans (including loans held for
sale) increased 34.0% to $650.9 million at December 31, 1996 from $482.6 million
at the same date a year earlier. The allowance for losses on loans at December
31, 1996 was $4.2 million, or 0.64% of total loans, as compared to $2.8 million,
or 0.57% of total loans, at the same date in 1995, while net charge-offs were
only $225,000, or 0.04% of average loans during 1996. Management's estimate of
the adequacy of the allowance for losses on loans is based upon an analysis of
factors such as historical loan loss experience, the status of impaired loans,
economic conditions affecting real estate markets, and regulatory
considerations.
 
     Noninterest Income.  Total non-interest income decreased 10.7% to $3.8
million in 1996 as compared to $4.2 million in 1995. Net loan servicing income
increased 12.7% to $1.2 million in 1996 as compared to $1.1 million in 1995. The
increase in net loan servicing fees was a result of Metropolitan's strategy of
increasing non-credit based fee income. Although the portfolio of loans serviced
for others declined due to normal runoff to $1.1 billion at December 31, 1996
compared to $1.2 billion at the same date a year earlier, the average balance of
loans serviced during the year was actually higher in 1996 as opposed to 1995.
Metropolitan remains committed to this business and continues to evaluate new
acquisitions. Metropolitan will only acquire the rights to service portfolios
where the loan characteristics and pricing are consistent with management's
long-term profitability objectives.
 
     Gain on sale of loans was $203,000 in 1996 as compared to $444,000 in 1995.
This income was dependent upon the amount of loans sold, secondary market
pricing, and the value allocated to mortgage servicing rights and these
variables were in turn directly affected by prevailing interest rates. The
proceeds of loans sold were $55.5 million during 1996 as compared to $59.8
million in 1995. The volume of loans sold was greater in 1995 compared to 1996
due to a greater market demand for fixed rate loans in 1995. These loans were
sold in the secondary market in order to manage interest rate risk.
 
     Gain on sale of securities was $134,000 in 1996 as compared to $389,000 in
1995. During 1996, Metropolitan sold mortgage-backed securities available for
sale with a principal balance outstanding of $3.6 million at a gain of $133,000.
In 1995, $29.1 million of mortgage-backed securities were sold at a gain of
$389,000. The decline in net gains was a result of the reduced volume of sales
which was consistent with availability. Metropolitan does not actively purchase
mortgage-backed securities for resale; however, the existing portfolio of
mortgage-backed securities is monitored for opportunities to improve the yield,
manage interest rate risk and increase profits, and as a result certain
mortgage-backed securities have been sold.
 
     Loan option income was $696,000 in 1996 as compared to $559,000 in 1995.
This income was dependent upon the amount of loans for which options were
written and the price negotiated, both of which were affected by market
conditions. During 1996, Metropolitan purchased $16.7 million of loans and sold
nonrefundable options to purchase those same loans at a specified price within a
specified time period, as compared to $16.2 million of loans purchased for
options in 1995.
 
     Loan credit discount income decreased to $0 in 1996 from $640,000 in 1995.
Since 1993, Metropolitan has purchased multifamily and commercial real estate
loans, often at a discount due to Metropolitan's assessment of credit risk and
the value of the underlying collateral. These collateral discounts are not
recognized in income over the life of the loan. When the loans paid off,
Metropolitan received the full contractual principal due, and any 
   

                                       40
    
<PAGE>   6
discount related to management's initial estimate of deficiency in collateral
values was recognized as noninterest income. Metropolitan had no loan credit
discount income in 1996 and does not expect this source of noninterest income to
be recurring.
 
     Other income increased 41.6% to $1.0 million in 1996 as compared to $0.7
million in 1995. This increase was primarily due to an increase in automated
teller machine ("ATM") fees due to increases in transactions fees and the number
of ATM transactions, an increase in credit fees due to the increase in the
credit card portfolio and increased credit card transactions, and an increase in
miscellaneous fee income due to the increased size and number of retail sales
offices.
 
     Noninterest Expense.  Total non-interest expense increased 46.9% to $20.8
million in 1996 as compared to $14.2 million in 1995. Personnel related expenses
increased $1.9 million, or 27.1% in 1996 as compared to 1995. The increase was
attributable to two additional full service retail sales offices open in the
1996 period, the payment of incentives for loan and deposit production, the
addition to staff of several loan production officers, the full effect of
additions to staff in various departments late in 1995 and the effects of merit
increases.
 
     Federal deposit insurance expense increased $3.1 million to $4.2 million
for 1996 as compared to $1.1 million for 1995 primarily as a result of the
one-time assessment to recapitalize the SAIF. The SAIF assessment was $2.9
million and represented 65.7 basis points of deposits held as of March 31, 1995.
The remaining increase was attributable to an increase in insurance premiums
paid and was a result of increased deposit levels.
 
     Other operating expenses increased $1.0 million to $3.5 million for 1996 as
compared to $2.5 million for 1995, which represented a 42.4% increase in 1996 as
compared to 1995. The increase was primarily due to increased credit card
servicing costs as a result of the increased size of the credit card portfolio,
increased business development expenses incurred to generate loan and deposit
growth, an employee benefits consulting project aimed at making Metropolitan's
salary and benefit structure competitive with that of its peers, and increases
in other general and administrative expenses as a result of the increased number
of full service retail offices.
 
     Provision for Income Taxes.  The provision for income taxes decreased 49.2%
to $1.1 million in 1996 as compared to $2.2 million in 1995 due to the decline
in income before taxes. The effective tax rate was 41.6% for 1996 and 37.8% for
1995. The effective tax rate in 1996 was higher because expenses which are not
deductible for tax purposes, such as amortization of intangibles, have increased
in relationship to pre-tax income as a result of the unfavorable effect the
one-time assessment to recapitalize the SAIF had on pre-tax income.
 
ASSET QUALITY
 
     Nonperforming Assets.  Metropolitan's goal is to maintain the above average
asset quality of its loan portfolio through conservative lending policies and
prudent underwriting. Detailed reviews of the loan portfolio are undertaken
regularly to identify potential problem loans or trends early and to provide for
adequate estimates of potential losses. In performing these reviews,
Metropolitan's management considers, among other things, current economic
conditions, portfolio characteristics, delinquency trends, and historical loss
experiences. Metropolitan normally considers loans to be nonperforming when
payments are 90 days or more past due or when the loan review analysis indicates
that repossession of the collateral may be necessary to satisfy the loan. In
addition, Metropolitan considers loans to be impaired when, in management's
opinion, it is probable that the borrower will be unable to meet the contractual
terms of the loan. When loans are classified as nonperforming, an assessment is
made as to the collectibility of the unpaid interest. Interest determined to be
uncollectible is reversed from interest income and future interest income is
recorded only if the loan principal and interest due is considered collectible
and is less than the estimated fair value of the underlying collateral.
   

                                       41
    
<PAGE>   7
 
     The table below sets forth the amounts and categories of Metropolitan's
nonperforming assets as of the dates indicated. At December 31, 1997, all loans
classified by management as impaired were also classified as nonperforming.
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                           --------------------------
                                                            1997      1996      1995
                                                           ------    ------    ------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Nonaccrual loans.........................................  $2,763    $4,923    $3,103
Loans past due greater than 90 days, still accruing......     384       271       204
                                                           ------    ------    ------
Total nonperforming loans................................   3,147     5,194     3,307
Real estate owned........................................   2,037       177       258
                                                           ------    ------    ------
Total nonperforming assets...............................  $5,184    $5,371    $3,565
                                                           ======    ======    ======
Nonperforming loans to total loans.......................    0.44%     0.80%     0.69%
Nonperforming assets to total assets.....................    0.56%     0.70%     0.60%
</TABLE>
 
     Real estate owned increased $1.9 million to $2.0 million at December 31,
1997 from a year earlier while total nonperforming assets declined $0.2 million
over the same period. This reflects the progression of nonperforming loans at
December 31, 1996 to real estate owned during 1997. Two properties accounted for
the majority of this increase, a strip shopping center in the Philadelphia,
Pennsylvania area valued at $1.0 million and a commercial condominium warehouse
near Chicago, Illinois valued at $0.5 million. Metropolitan is actively
marketing both properties through local real estate agents and no losses are
expected.
 
     In addition to the nonperforming assets included in the table above,
Metropolitan identifies potential problem loans which are still performing but
have a weakness which causes Metropolitan to classify those loans as substandard
for regulatory purposes. There was $4.9 million of loans in this category at
December 31, 1997. The largest loan in that category was a $4.0 million
participation in a $9.0 million loan secured by a water park in Southern
California. The loan was 30 days past due at December 31, 1997 and the borrower
is in the process of refinancing the loan and obtaining more working capital. If
the borrower does not refinance this property with another lender, then the
borrower's ability to repay the loan will be contingent on the operating success
of the park during 1998, its first full year of operation.
 
     Allowance for Losses on Loans.  The provision for loan losses and allowance
for losses on loans is based on an analysis of individual loans, prior loss
experience, growth in the loan portfolio, changes in the mix of the loan
portfolio and other factors including current economic conditions. See Note 1 of
Notes to Consolidated
 
   

                                       42
    
<PAGE>   8
 
Financial Statements. The following table sets forth an analysis of
Metropolitan's allowance for losses on loans at the dates indicated.
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                           --------------------------
                                                            1997      1996      1995
                                                           ------    ------    ------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
BALANCE AT BEGINNING OF PERIOD...........................  $4,175    $2,765    $1,911
CHARGE-OFFS:
One- to four-family......................................      32        22        23
Multifamily..............................................     494       119        --
Commercial real estate...................................      --        --        27
Construction and land....................................      --        --        --
Consumer.................................................     363        95        56
Business.................................................      10        --        --
                                                           ------    ------    ------
Total charge-offs........................................     899       236       106
                                                           ------    ------    ------
RECOVERIES:
One- to four-family......................................      --        --         1
Multifamily..............................................      --        --        --
Commercial real estate...................................      --        --        --
Construction and land....................................      --        --        --
Consumer.................................................       6        11        --
Business.................................................      --        --        --
                                                           ------    ------    ------
Total recoveries.........................................       6        11         1
                                                           ------    ------    ------
Net charge-offs..........................................     893       225       105
Provision for loan losses................................   2,340     1,635       959
                                                           ------    ------    ------
BALANCE AT END OF PERIOD.................................  $5,622    $4,175    $2,765
                                                           ======    ======    ======
Net charge-offs to average loans.........................    0.13%     0.04%     0.02%
Provision for loan losses to average loans...............    0.35%     0.28%     0.21%
   
Allowance for losses on loans to total non-performing
  loans at end of period.................................  178.60%    77.73%    83.61%
    
Allowance for losses on loans to total loans at end of
  period.................................................    0.79%     0.64%     0.57%
</TABLE>
 
     The allowance for losses on loans as a percentage of total loans was 0.79%
at December 31, 1997 as compared to 0.64% at December 31, 1996 and 0.57% at
December 31, 1995. In each period, the provision for loan losses and allowance
for losses on loans were based on an analysis of individual loans, prior and
current loss experience, overall growth in the portfolio and current economic
conditions. Charge-offs increased during 1997 to $0.9 million compared to $0.2
million in 1996 and $0.1 million in 1995. This increase was the result of
overall growth in the loan portfolio, an expansion of consumer loan activity
into higher risk loans and the fact that multifamily loans carry larger average
balances than single-family loans so that a small number of multifamily loans
charged off can result in a significant write-off in dollars. Based on this
activity, Metropolitan increased the provision for losses on loans which
resulted in an increase in the allowance for losses on loans of $1.4 million in
both 1997 and 1996.
 
COMPARISON OF DECEMBER 31, 1997 AND DECEMBER 31, 1996 FINANCIAL CONDITION
 
     Total assets amounted to $925.0 million at December 31, 1997, as compared
to $769.1 million at December 31, 1996, an increase of $155.9 million, or 20.3%.
The increase in assets was funded primarily with
   
                                       43
    
<PAGE>   9

deposit growth of $115.7 million, an increase in Federal Home Loan Bank of
Cincinnati ("FHLB") advances and other borrowings of $34.0 million, and an
increase in shareholders' equity of $6.4 million.
 
     Securities decreased by $6.8 million, or 51.1%, to $6.4 million. Securities
available for sale are maintained by Metropolitan to meet the liquidity
maintenance requirement of the subordinated notes maturing January 1, 2005
("1995 Subordinated Notes") and as a way to enhance earnings by improving the
return on idle cash, or taking advantage of changes in the level of interest
rates to generate gains or maintain profitable yields. See "Liquidity and
Capital Resources." During 1997, the Bank sold U.S. Treasury notes, FNMA
preferred stock, and a FNMA note. Some of these proceeds were reinvested in
mortgage-backed securities at a higher yield.
 
     Mortgage-backed securities increased $86.5 million to $143.2 million at
December 31, 1997. The increase was primarily due to the securitization of $93.0
million of multifamily loans with FNMA in the third quarter, the purchase of
$10.4 million of Federal Home Loan Mortgage Corporation ("FHLMC") securities,
and the securitization of $5.4 million of originated one- to four-family
mortgage loans, also with FHLMC.
 
     Loans held for sale increased $5.3 million to $14.2 million at December 31,
1997, primarily as a result of the increased balance of commercial real estate
loans for which Metropolitan had pending sales. From time to time, Metropolitan
sells multifamily or commercial real estate loans in order to reduce interest
rate risk, maintain an appropriate balance of the different types of loans in
the loan portfolio or to free up capital for other types of growth. When sales
are planned, the loans involved are reclassified to held for sale. These pending
sales were completed in January, 1998 for a gain.
 
     Loans receivable increased $56.2 million, or 8.8% to $693.7 million. This
increase was consistent with Metropolitan's overall strategy of increasing
assets while adhering to prudent underwriting standards and preserving its
adequately capitalized status. The following increases by loan category were
experienced: one- to four-family loans -- $31.9 million; commercial real estate
loans -- $30.9 million; consumer loans -- $14.4 million; construction and land
loans (net of loans in process) -- $29.6 million; and business loans -- $34.0
million. Multifamily loans decreased $82.1 million as a result of the
multifamily loan securitization of $93.0 million discussed above.
 
     Premises and equipment increased $2.6 million, or 22.9%, to $13.9 million.
This increase was primarily the result of a retail sales office opening in 1997
and the purchase of computer hardware and software used in the retail sales
office network.
 
     Deposits totaled $737.8 million at December 31, 1997, an increase of $115.7
million, or 18.6%, over the balance at December 31, 1996. The increase resulted
from management's marketing efforts, growth at new retail sales office, and
paying competitive rates to increase certificate of deposit balances.
 
     Borrowings increased $34.0 million to $135.9 million at December 31, 1997,
as compared to $101.9 million at December 31, 1996. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits and the
increased availability of collateral after the multifamily loan securitization,
management chose to fund a portion of the loan growth discussed above with
wholesale funds. Reverse repurchase agreements were the predominant source of
the increased borrowings.
 
     Shareholders' equity increased $6.4 million, or 21.2%, to $36.7 million,
due largely to the retention of net income.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Liquidity.  The term "liquidity" refers to Metropolitan's ability to
generate adequate amounts of cash to meet its needs, for funding loan
originations, loan purchases, deposit withdrawals, maturities of borrowings and
operating expenses. Metropolitan's primary sources of internally generated funds
are principal repayments and payoffs of loans, cash flows from operations and
proceeds from sales of assets. External sources of funds include increases in
deposits, borrowings and the public sale or private placement of debt or equity
issues by the Corporation.

     In addition to debt or equity issues, the Corporation's primary source of
funds is dividends from the Bank, which are subject to restrictions imposed by
federal bank regulatory agencies. At December 31, 1997 the
   

                                       44
    
<PAGE>   10

Corporation had liquid assets of $2.1 million and had $2.5 million available to
borrow on a line of credit of $4.0 million with the Huntington National Bank.
Currently the Corporation's primary use of funds is for interest payments on its
existing debt. The covenants associated with the 1995 Subordinated Notes require
the Corporation to maintain liquid assets sufficient to pay six months interest,
or approximately $675,000. Funds could also be used to fund additional capital
contributions to the Bank, other operating expenses, purchase investment
securities or the acquisition of other assets.
 
     Sources of funds for the Bank such as loan repayments and deposits flows
are greatly influenced by prevailing interest rates, economic conditions and
competition. Other sources of funds such as borrowings and maturities of
securities are more reliable or predictable. The Bank currently has a $50
million Cash Management Line of Credit with the FHLB which is available to meet
liquidity needs. There was no outstanding balance on that line as of December
31, 1997. Metropolitan regularly reviews cash flow needed to fund its operations
and believes that the aforementioned resources are adequate for its foreseeable
requirements.
 
     At December 31, 1997, $86.9 million, or 18.2%, of Metropolitan's
certificates of deposits were in the form of accounts of $100,000 and over. If a
large number of these certificates of deposits matured at approximately the same
time and were not renewed, there could be an adverse effect on Metropolitan's
liquidity. Metropolitan monitors maturities to attempt to minimize any potential
adverse effect on liquidity.
 
     When evaluating sources of funds, Metropolitan considers the cost of
various alternatives such as local retail deposits, FHLB advances and other
wholesale borrowings. One option considered and utilized in the past has been
the acceptance of out-of-state time deposits from individuals and entities,
predominantly credit unions. These deposits typically have balances of $90,000
to $100,000 and have a term of one year or more. They are not accepted through
brokers. At December 31, 1997, approximately $57.7 million of certificates of
deposits, or 12.1% of Metropolitan's accounts, were held by these individuals
and entities. If Metropolitan were unable to replace these deposits upon
maturity, there could be an adverse effect on Metropolitan's liquidity.
Metropolitan monitors maturities to attempt to minimize any potential adverse
effect on liquidity.
 
     Historically, the Bank has been subject to a regulatory liquidity
requirement. In November 1997 liquidity regulations were significantly changed.
These new regulations require that the Bank maintain liquid assets equal to at
least 4% of the liquidity base on a monthly basis. Liquid assets generally
include all unpledged cash in banks, investment securities maturing within five
years and securities issued by the Government National Mortgage Association
("GNMA"), FNMA, or FHLMC regardless of maturity. The liquidity base includes
amounts due banks and deposits and borrowings maturing in less than one year.
The Bank's liquidity ratio for December 1997 was 14.6%. This ratio is
substantially above the minimum because the new regulations are less restrictive
than the old regulations and because Metropolitan added significantly to its
portfolio of mortgage-backed securities with the $93.0 million multifamily loan
securitization during the third quarter of 1997.
 
     Capital.  Total shareholders' equity of the Corporation at December 31,
1997 was $36.7 million, an increase of $6.4 million or 21.2% from equity of
$30.2 million at December 31, 1996. The increase was due to net income of $5.8
million and an increase in unrealized gains on securities available for sale,
net of tax, of $0.6 million. No dividends were paid in 1997, 1996 or 1995. Terms
of the subordinated notes maturing December 31, 2001 ("1993 Subordinated Notes")
prohibit the payment of dividends until those notes are paid off. The terms of
the 1995 Subordinated Notes prohibit the payment of dividends unless total
equity divided by total assets is greater than 7%. The Corporation raised $3.3
million in additional capital in 1996 through an initial public offering of
common stock. Sources of future capital for the Corporation could include, but
would not be limited to, earnings of the Corporation or additional offerings of
equity securities.
 
     The Office of Thrift Supervision ("OTS") imposes capital requirements on
savings associations. Savings associations are required to meet three minimum
capital standards: (i) a leverage requirement, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. Such standards must be
no less stringent than those applicable to national banks. In addition, the OTS
is authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.

     The OTS leverage requirement expressly requires that core capital be
maintained in an amount not less than 3% of adjusted total assets. The OTS has
taken the position, however, that the Prompt Corrective Action
   

                                       45
    

<PAGE>   11

regulatory scheme has effectively raised the leverage ratio requirement for all
but the most highly rated savings associations to 4%. Core capital is defined to
include shareholders' equity less intangibles other than qualifying supervisory
goodwill and certain qualifying intangibles, less investments in subsidiaries
engaged in activities not permissible for national banks.
 
     Under the tangible capital requirement, tangible capital (defined as core
capital less all intangible assets, except a limited amount of qualifying
purchased mortgage servicing rights ("PMSR") must be maintained in an amount
equal to at least 1.5% of adjusted total assets. Adjusted total assets, for the
purpose of the tangible capital ratio, include total assets less all intangible
assets except qualifying PMSRs.
 
     The risk-based capital requirement is calculated based on the risk weight
assigned to on-balance sheet assets and off-balance sheet commitments, which
ranges from 0% to 100% of the book value of the asset and is based upon the risk
inherent in the asset. The risk weights assigned by the OTS for principal
categories of assets are (i) 0% for cash and securities issued by the U.S.
Government or unconditionally backed by the full faith and credit of the U.S.
Government; (ii) 20% for securities (other than equity securities) issued by
U.S. Government sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, FNMA or FHLMC except for those
classes with residual characteristics or stripped mortgage-related securities;
(iii) 50% for prudently underwritten permanent one- to four-family first lien
mortgage loans not more than 90 days delinquent and having a loan to value ratio
of not more that 80% at origination unless insured to such ratio by an insurer
approved by FNMA or FHLMC, certain qualifying multifamily first lien mortgage
loans and residential construction loans; and (iv) 100% for all other loans and
investments, including consumer loans, commercial loans, repossessed assets and
loans more than 90 days delinquent. The risk-based requirement mandates total
capital of 8.0% of risk-weighted assets. Total capital consists of core capital,
as defined above, and supplementary capital. Supplementary capital consists of
certain permanent and maturing capital instruments that do not qualify as core
capital and general valuation loan and lease loss allowances up to a maximum of
1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the
risk-based requirement only to the extent of core capital.
 
     The Bank's regulatory capital ratios at December 31, 1997 were in excess of
the capital requirements specified by OTS regulations as shown by the following
table:
 
<TABLE>
<CAPTION>
                                      TANGIBLE CAPITAL        CORE CAPITAL        RISK-BASED CAPITAL
                                      -----------------      ---------------      -------------------
                                                          (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>        <C>        <C>       <C>          <C>
CAPITAL AMOUNT:
     Actual.......................    $49,901     5.43%      $50,215    5.47%      $54,343      8.39%
     Required.....................     13,777     1.50        36,738    4.00        51,836      8.00
                                      -------     ----       -------    ----       -------      ----
     Excess.......................    $36,124     3.93%      $13,477    1.47%      $ 2,507      0.39%
                                      =======     ====       =======    ====       =======      ====
</TABLE>
 
The Bank's primary sources of capital are the earnings of the Bank and
additional capital investments from the Corporation. The Corporation follows the
strategy of contributing additional capital to the Bank as growth occurs to
maintain risk based capital at "well capitalized" or "adequately capitalized"
levels as defined by OTS regulations.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Metropolitan, like other financial institutions, is subject to direct and
indirect market risk. Direct market risk exists from changes in interest rates.
To the extent that interest-bearing assets and interest-bearing liabilities
mature at different intervals, changes in market interest rates can result in
increases or decreases in net interest income. This is also known as interest
rate risk. Indirect market risk exists to the extent that Metropolitan has a
concentration of loans secured by similar assets and the market for those assets
deteriorates. Metropolitan manages that risk of decline in the value of a class
of collateral by maintaining diversity by type of collateral, geographic area,
industry for corporate borrowers, and by size of loan. In addition, Metropolitan
always gives consideration to the credit worthiness of the borrower in addition
to depending on the value of the collateral when underwriting loans. Direct
exposure to interest rate risk is more significant than indirect market risk and
Metropolitan has created a system for monitoring this risk which includes
periodic quantitative analysis.
   

                                       46
    
<PAGE>   12
 
     The Bank's Asset and Liability Committee, which includes representatives of
senior management, monitors the level and relative mix of its interest-earning
assets and interest-bearing liabilities. The Bank, like many financial
institutions, currently has exposure to declines in net interest income from
rising interest rates. The steps being taken by the Bank to reduce interest rate
risk from rising interest rates include: (i) focusing on originating and
purchasing adjustable rate assets for portfolio; (ii) the sale of fixed rate
one- to four-family loans with servicing retained; (iii) focusing on shortening
the term of fixed rate lending by increasing the percent of the fixed rate loan
portfolio represented by consumer loans; (iv) increasing business lending which
will generally result in loans with adjustable rates and shorter terms; (v)
increasing the loan servicing portfolio; (vi) emphasizing transaction account
deposit products which are less susceptible to repricing in a rising interest
rate environment; (vii) maintaining competitive pricing on longer term
certificates of deposit; and (viii) utilizing term advances and other borrowings
rather than short-term funds.
 
     As part of its effort to monitor and manage interest rate risk, the Bank
uses the Net Portfolio Value ("NPV") methodology adopted by the OTS as part of
OTS capital regulations. Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and
outgoing cash flows on interest-bearing and other liabilities. The application
of the methodology attempts to quantify interest rate risk as the change in NPV
which would result from theoretical instantaneous and sustained parallel shifts
of 100 basis points in market interest rates.
 
     Presented below, as of December 31, 1997 and 1996, is an analysis of the
Bank's interest rate risk measured by the NPV methodology. The table also
contains the policy limits set by the Board of Directors of the Bank established
with consideration of the dollar impact of various rate changes and the Bank's
capital position.
 
<TABLE>
<CAPTION>
                                                 DECEMBER 31, 1997        DECEMBER 31, 1996
                                               ----------------------   ----------------------
                                                           PERCENTAGE               PERCENTAGE
CHANGES IN INTEREST RATE      BOARD LIMIT      CHANGE IN   CHANGE IN    CHANGE IN   CHANGE IN
     (BASIS POINTS)        PERCENTAGE CHANGE      NPV         NPV          NPV         NPV
------------------------   -----------------   ---------   ----------   ---------   ----------
                                    (DOLLARS IN THOUSANDS)
<S>                        <C>                 <C>         <C>          <C>         <C>
          +400                    (65)%        $(27,474)      (36)%     $(26,596)      (44)%
          +300                    (45)          (20,131)      (27)       (19,790)      (33)
          +200                    (25)          (12,743)      (17)       (12,853)      (21)
          +100                    (15)           (5,829)       (8)        (6,302)      (10)
          -100                    (15)            5,631         7          6,294        10
          -200                    (25)           13,381        18         14,644        24
          -300                    (45)           25,415        33         26,402        44
          -400                    (65)           40,157        53         40,742        68
</TABLE>
 
     As illustrated in the table, Metropolitan's NPV is unfavorably affected in
the rising rate scenarios. This occurs principally because the interest paid on
deposits would increase more rapidly than rates earned on assets because
deposits generally have shorter periods to maturity. In addition, the fixed rate
assets in the loan portfolio will only reprice as the loans are repaid and new
loans at market rates are made. Furthermore, even for the adjustable rate
assets, repricing may lag behind the rate change due to contractual time frames.
At December 31, 1997 and 1996, the Bank was within the Board-established limits
for various changes in interest rates, and the Bank's sensitivity to rising
interest rates has decreased from 1996 to 1997. The modest improvement in
interest rate sensitivity, from 1996 to 1997, was a result of: (i) slightly
lower overall interest rates; (ii) a shortening of the average term of fixed
rate assets; and (iii) a lengthening of the average term of time deposits and
borrowings.
 
     The principal strategy used by Metropolitan to mitigate the risk of decline
in net interest income from increases in interest rates has been to build a
portfolio of adjustable rate interest-earning assets. At December 31, 1997,
63.4% of the total loan portfolio had adjustable rates. In order to remain
competitive in the mortgage loan market and meet customer needs, Metropolitan
also offers a variety of fixed rate products. Metropolitan has managed its
investment in fixed rate loans in several ways in order to minimize interest
rate risk. It has long been Metropolitan's policy to sell the majority of its
fixed rate one- to four-family loan production in the secondary market. At
December 31, 1997, Metropolitan had only 7.7% of its total loans comprised of
fixed rate residential one- to four-family loans. Within the remaining fixed
rate portfolio, Metropolitan has focused on short-term loan types. Fixed rate
multifamily and commercial real estate loans comprised 14.7% of total loans at
December 31,
   

                                       47
    

<PAGE>   13

1997, and had a weighted average contractual term to maturity of approximately
five years. Fixed rate consumer loans, with a weighted average contractual term
of maturity of approximately eight years, comprised 8.0% of total loans at
December 31, 1997. These are contractual terms to maturity and, for various
reasons, consumers often repay loans before their contractual maturity, thereby
shortening the effective term to maturity.
 
     As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, as a result of
competition, the interest rates on certain assets and liabilities may fluctuate
in advance of changes in market interest rates, while interest rates on other
types of assets and liabilities may lag behind changes in market rates. Further,
in the event of a change in interest rates, expected rates of repayment on
assets and early withdrawal levels from certificates of deposit would likely
deviate from those scheduled. Finally, the NPV approach is a measure of how long
term value changes with changes in interest rates and assumes no responses by
management to changes in rates. Changes in interest rates may affect near-term
net interest income to a greater or lesser extent than those changes affect NPV.
Despite its limitations, management considers NPV the best method for monitoring
interest rate risk since core repricing and maturity relationships are very
clearly seen. The clarity of the risk relations is enhanced by the simplicity of
the rate changes and the fact that all rates, short-term and long-term, change
by the same degree.
 
YEAR 2000
 
     The year 2000 issue refers to computer programs being written using two
digits rather than four to define an applicable year. Any of a company's
hardware, date-driven automated equipment or computer programs that have a
two-digit field to define the year may recognize a date using "00" as the year
1900 rather than the year 2000. This faulty recognition could result in a system
failure, disruption of operations, or inaccurate information or calculations.
Similar to other companies, Metropolitan faces the challenge of ensuring that
all computer-related functions will work properly in the year 2000 and beyond.
As a result, Metropolitan has addressed this issue by forming a task force to
plan for and implement any changes necessary to ensure year 2000 compliance. The
task force has identified four major areas where it will concentrate its
efforts: (i) the service bureau that services the majority of Metropolitan's
customer accounts; (ii) the various software vendors whose software is used by
Metropolitan; (iii) critical vendors Metropolitan uses that are dependent upon
data processing; and (iv) major loan customers to ensure that their revenues
will continue uninterrupted. A time line has been established and the task force
and its subcommittees will progress through assessment planning, implementation
and testing during 1998. Metropolitan believes the plans currently in place will
be adequate to provide quality service to customers without interruption. In
management's opinion, any related incremental costs will not have a material
impact on the financial condition, operations, or cash flows of the Corporation.
 
RECENT ACCOUNTING DEVELOPMENTS
 
     In December 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 127, Deferral of the
Effective Date of Certain Provisions of SFAS No. 125. This statement defers
provisions of SFAS No. 125 related repurchase agreements, securities lending and
other similar transactions for one year. Metropolitan adopted these provisions
prospectively as of January 1, 1998. The adoption of this statement will not
have a material impact on the financial position or results of operations of the
Bank or the Corporation.

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting certain changes in equity
that are not included in net income but are a component of comprehensive income.
The change in unrealized gains or losses on securities available for sale is an
example of a component of comprehensive income that would be relevant to
Metropolitan. This statement will be effective for Metropolitan beginning with
interim financial statements in 1998. This statement will result in additional
disclosures but will have no impact on the financial position or results of
operations of the Corporation.
 
     In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This statement requires disclosure of
financial and descriptive information about operating segments of a business in
annual and interim financial reports to shareholders. This statement will be
effective for the 1998 
   

                                       48
    
<PAGE>   14

annual report but will not be required or included in 1998 interim financial
reports. This statement may require additional disclosures but will not have any
impact on the financial position or results of operations of the Bank or the
Corporation.
 
IMPACT OF INFLATION AND CHANGING PRICES
 
     The consolidated financial statements and notes included herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of Metropolitan's operations.
 
     In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are influenced by changes in the inflation
rate, they do not change at the same rate or in the same magnitude as the
inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as changes in monetary and fiscal policies.
Metropolitan's ability to match the interest rate sensitivity of its financial
assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of changes in
interest rates on its financial performance.
 
FORWARD LOOKING STATEMENTS
 
     Certain statements contained in this report that are not historical facts
are forward looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans," "expects,"
"believes," and similar expressions as they relate to Metropolitan or its
management are intended to identify such forward looking statements.
Metropolitan's actual results, performance or achievements may materially differ
from those expressed or implied in the forward looking statements. Risks and
uncertainties that could cause or contribute to such material differences
include, but are not limited to, general economic conditions, interest rate
environment, competitive conditions in the financial services industry, changes
in law, governmental policies and regulations, and rapidly changing technology
affecting financial services.
 
   

                                       49
    
<PAGE>   15
   
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    

 
                      Crowe, Chizek and Company LETTERHEAD
 
                         REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Shareholders
Metropolitan Financial Corp.
Mayfield Heights, Ohio
 
     We have audited the accompanying consolidated statements of financial
condition of Metropolitan Financial Corp. as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metropolitan
Financial Corp. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
 
                                          /s/ Crowe, Chizek and Company LLP
                                          CROWE, CHIZEK AND COMPANY LLP
 
Cleveland, Ohio
February 20, 1998
   
 
                                       50
    
<PAGE>   16
 
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
                           DECEMBER 31, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                  1997            1996
                                                              ------------    ------------
<S>                                                           <C>             <C>
ASSETS
Cash and due from banks (Note 12)...........................  $ 14,152,785    $  7,777,868
Interest-bearing deposits in other banks....................     1,961,183       2,744,709
Securities purchased under resale agreements................     6,396,720       6,000,000
                                                              ------------    ------------
  Cash and cash equivalents.................................    22,510,688      16,522,577
Securities available for sale (Note 2)......................     1,705,879      13,173,458
Securities held to maturity (Note 2)........................     4,740,000
Mortgage-backed securities available for sale (Notes 2 and
  8)........................................................   143,166,654      56,672,294
Loans held for sale.........................................    14,230,130       8,972,946
Loans receivable, net (Notes 3 and 8).......................   693,654,608     637,492,935
Federal Home Loan Bank stock, at cost (Note 8)..............     5,349,700       3,988,600
Accrued interest receivable.................................     5,752,161       4,790,661
Premises and equipment, net (Note 4)........................    13,927,911      11,332,239
Real estate owned, net (Note 5).............................     2,037,465         177,300
Intangible assets...........................................     2,986,539       3,238,839
Loan servicing rights (Note 6)..............................     9,223,974       8,050,837
Prepaid expenses and other assets...........................     5,698,912       4,663,157
                                                              ------------    ------------
     Total assets...........................................  $924,984,621    $769,075,843
                                                              ============    ============
LIABILITIES
Noninterest-bearing deposits (Notes 6 and 7)................  $ 46,234,027    $ 30,850,882
Interest-bearing deposits (Note 7)..........................   691,547,834     591,253,635
Borrowings (Note 8).........................................   135,869,673     101,873,673
Accrued interest payable....................................     3,272,815       4,120,163
Other liabilities...........................................    11,399,016      10,733,121
                                                              ------------    ------------
  Total liabilities.........................................   888,323,365     738,831,474
                                                              ------------    ------------
Commitments (Notes 4 and 12)
SHAREHOLDERS' EQUITY (Note 13)
Common stock, no par value, 20,000,000 shares authorized,
  7,051,270 shares issued and outstanding
Additional paid-in capital..................................    11,101,383      11,101,383
Retained earnings...........................................    24,269,873      18,466,986
Unrealized gain on securities available for sale, net of
  tax.......................................................     1,290,000         676,000
                                                              ------------    ------------
  Total shareholders' equity................................    36,661,256      30,244,369
                                                              ------------    ------------
     Total liabilities and shareholders' equity.............  $924,984,621    $769,075,843
                                                              ============    ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.
   
                                       51
    
<PAGE>   17
 
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                         1997           1996           1995
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
INTEREST INCOME
  Interest and fees on loans........................  $61,230,083    $50,267,618    $39,963,189
  Interest on mortgage-backed securities............    6,946,824      2,890,437      2,492,744
  Interest and dividends on other investments.......    1,169,208      1,293,828        979,566
                                                      -----------    -----------    -----------
     Total interest income..........................   69,346,115     54,451,883     43,435,499
                                                      -----------    -----------    -----------
INTEREST EXPENSE
  Interest on deposits..............................   34,120,452     28,131,837     23,521,751
  Interest on borrowings............................    7,582,855      4,984,212      3,294,520
                                                      -----------    -----------    -----------
     Total interest expense.........................   41,703,307     33,116,049     26,816,271
                                                      -----------    -----------    -----------
NET INTEREST INCOME.................................   27,642,808     21,335,834     16,619,228
Provision for loan losses (Note 3)..................    2,340,000      1,635,541        958,573
                                                      -----------    -----------    -----------
Net interest income after provision for loan
  losses............................................   25,302,808     19,700,293     15,660,655
                                                      -----------    -----------    -----------
NONINTEREST INCOME
  Loan servicing income, net........................    1,292,719      1,203,779      1,067,767
  Service charges on deposit accounts...............      715,657        564,654        426,175
  Net gain on sale of loans.........................      488,104        202,621        444,313
  Net gain on sale of securities....................       92,338        133,706        388,581
  Loan option income................................      320,464        695,798        559,256
  Loan credit discount income.......................                                    640,262
  Other operating income............................    1,231,524        972,057        697,361
                                                      -----------    -----------    -----------
     Total noninterest income.......................    4,140,806      3,772,615      4,223,715
                                                      -----------    -----------    -----------
NONINTEREST EXPENSE
  Salaries and related personnel costs..............   10,671,192      8,669,705      6,819,383
  Occupancy and equipment expense...................    3,044,220      2,464,926      2,134,862
  Federal deposit insurance premiums (Note 17)......      595,268      4,211,869      1,132,125
  Marketing expense.................................      685,954        694,898        542,838
  State franchise taxes.............................      542,577        461,127        306,518
  Data processing expense...........................      441,335        599,150        586,260
  Amortization of intangibles.......................      262,659        255,720        220,115
  Other operating expenses..........................    3,905,522      3,481,610      2,445,150
                                                      -----------    -----------    -----------
     Total noninterest expense......................   20,148,727     20,839,005     14,187,251
                                                      -----------    -----------    -----------
INCOME BEFORE INCOME TAXES..........................    9,294,887      2,633,903      5,697,119
Provision for income taxes (Note 9).................    3,492,000      1,095,000      2,154,700
                                                      -----------    -----------    -----------
NET INCOME..........................................  $ 5,802,887    $ 1,538,903    $ 3,542,419
                                                      ===========    ===========    ===========
Basic earnings per share (Note 1)...................  $      0.82    $      0.24    $      0.57
                                                      ===========    ===========    ===========
Diluted earnings per share (Note 1).................  $      0.82    $      0.24    $      0.57
                                                      ===========    ===========    ===========
Weighted average shares for basic earnings per
  share.............................................    7,051,270      6,384,604      6,251,270
Effect of dilutive stock options....................       11,726              0              0
                                                      -----------    -----------    -----------
Weighted average shares for diluted earnings per
  share.............................................    7,062,996      6,384,604      6,251,270
                                                      ===========    ===========    ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
   
                                       52
    
<PAGE>   18
 
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                             UNREALIZED
                                                                                GAIN/
                                                                              (LOSS) ON
                                                ADDITIONAL                   SECURITIES         TOTAL
                                       COMMON     PAID-IN      RETAINED       AVAILABLE     SHAREHOLDERS'
                                       STOCK      CAPITAL      EARNINGS       FOR SALE         EQUITY
                                       ------   -----------   -----------   -------------   -------------
<S>                                    <C>      <C>           <C>           <C>             <C>
Balance, January 1, 1995.............  $ 100    $ 7,801,283   $13,385,664    $ (907,070)     $20,279,977
Net income...........................                           3,542,419                      3,542,419
Change in unrealized gain/(loss) on
  securities available for sale, net
  of tax.............................                                         1,644,019        1,644,019
                                       -----    -----------   -----------    ----------      -----------
Balance, December 31, 1995...........    100      7,801,283    16,928,083       736,949       25,466,415
Net income...........................                           1,538,903                      1,538,903
Issuance of 400,000 shares of common
  stock, net of costs................             3,300,000                                    3,300,000
Change in stated value of common
  stock..............................   (100)           100
Change in unrealized gain/(loss) on
  securities available for sale, net
  of tax.............................                                           (60,949)         (60,949)
                                       -----    -----------   -----------    ----------      -----------
Balance, December 31, 1996...........      0     11,101,383    18,466,986       676,000       30,244,369
Net income...........................                           5,802,887                      5,802,887
Change in unrealized gain/(loss) on
  securities available for sale, net
  of tax.............................                                           614,000          614,000
                                       -----    -----------   -----------    ----------      -----------
Balance, December 31, 1997...........  $   0    $11,101,383   $24,269,873    $1,290,000      $36,661,256
                                       =====    ===========   ===========    ==========      ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
   
                                       53
    
<PAGE>   19
 
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                       1997            1996            1995
                                                   -------------   -------------   -------------
<S>                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income.....................................  $   5,802,887   $   1,538,903   $   3,542,419
  Adjustments to reconcile net income to net cash
     provided by operating activities
       Net amortization and depreciation.........      4,533,303       3,022,358       2,036,614
       Net gain on sale of securities............        (92,338)       (133,706)       (388,581)
       Provision for loan and REO losses.........      2,340,000       1,677,541         973,573
       Deferred tax provision....................     (1,131,325)       (183,303)         (9,326)
       Loans originated for sale.................    (36,731,553)    (35,235,545)    (45,327,774)
       Loans purchased for sale..................    (10,654,255)    (16,675,331)    (16,210,821)
       Proceeds from sale of loans...............     51,402,212      43,410,896      59,830,616
       Repayments on loans held for sale.........         39,180         809,737
       Net loss on sale of premises, equipment
          and real estate owned..................        104,608         113,428           3,307
       FHLB stock dividend.......................       (348,800)       (264,100)       (216,200)
       Changes in other assets...................       (865,930)     (2,980,967)     (2,618,437)
       Changes in other liabilities..............       (561,078)      1,051,576       6,588,239
                                                   -------------   -------------   -------------
          Net cash provided by (used in)
            operating activities.................     13,836,911      (3,848,513)      8,203,629
                                                   -------------   -------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Disbursement of loan proceeds..................   (288,659,170)   (218,376,200)   (117,432,139)
  Purchases of:
     Loans.......................................   (103,062,046)   (110,565,748)    (86,134,911)
     Mortgage-backed securities..................     (6,364,379)    (13,570,050)
     Securities available for sale...............     (5,101,096)    (13,336,840)    (23,464,948)
     Securities held to maturity.................     (4,740,000)
     Mortgage loan servicing rights..............     (2,055,908)       (732,262)     (5,329,415)
     FHLB stock..................................     (1,012,300)       (155,800)     (1,041,300)
     Premises and equipment......................     (3,713,528)     (4,506,250)     (4,869,739)
  Proceeds from maturities and repayments of:
     Loans.......................................    208,024,684     140,245,124      96,163,166
     Mortgage-backed securities..................     18,111,121       7,189,624       3,525,478
     Securities available for sale...............                      6,051,195       2,000,000
  Proceeds from sale of:
     Loans.......................................     14,088,337      12,106,490
     Mortgage-backed securities..................                      3,636,772      29,142,705
     Securities available for sale...............     16,582,643      16,690,055       7,000,000
     Premises, equipment and real estate owned...        551,043       1,250,813         102,678
  Additional investment in real estate owned.....        (88,481)
  Premium paid for credit card relationships.....        (10,359)       (306,146)
                                                   -------------   -------------   -------------
     Net cash used for investing activities......   (157,449,439)   (174,379,223)   (100,338,425)
                                                   -------------   -------------   -------------
</TABLE>
 

                                  (Continued)
   
                                       54
    
<PAGE>   20
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
 
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                       1997            1996            1995
                                                   -------------   -------------   -------------
<S>                                                <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in deposit accounts.................  $ 115,604,639   $ 118,279,840   $  67,369,745
  Proceeds from borrowings.......................    115,219,000     101,500,000      60,000,000
  Repayment of borrowings........................    (76,223,000)    (53,000,000)    (22,480,000)
  Net activity on lines of credit................     (5,000,000)      6,500,000      (6,150,000)
  Proceeds from issuance of stock................                      3,300,000
                                                   -------------   -------------   -------------
     Net cash provided by financing activities...    149,600,639     176,579,840      98,739,745
                                                   -------------   -------------   -------------
Net change in cash and cash equivalents..........      5,988,111      (1,647,896)      6,604,949
Cash and cash equivalents at beginning of year...     16,522,577      18,170,473      11,565,524
                                                   -------------   -------------   -------------
Cash and cash equivalents at end of year.........  $  22,510,688   $  16,522,577   $  18,170,473
                                                   =============   =============   =============
Supplemental disclosures of cash flow
  information:
  Cash paid during the period for:
     Interest....................................  $  42,550,655   $  33,546,947   $  23,979,013
     Income taxes................................      4,871,000       1,587,000       2,749,000
  Transfer from loans receivable to other real
     estate......................................      2,282,807       1,325,948         326,709
  Transfer from loans receivable to loans held
     for sale....................................      9,678,044
  Loans securitized..............................     98,324,696      14,458,129      53,795,086
</TABLE>
 
          See accompanying notes to consolidated financial statements.
   
                                       55
    
<PAGE>   21
 
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Metropolitan Financial Corp. ("Metropolitan" or the "Corporation") is an
Ohio corporation organized for operation as a savings and loan holding company.
The accounting policies of the Corporation conform to generally accepted
accounting principles and prevailing practices within the banking and thrift
industry. A summary of the more significant accounting policies follows:
 
     CONSOLIDATION POLICY:  The Corporation and its subsidiaries, MetroCapital
Corporation and Metropolitan Savings Bank of Cleveland (the "Bank"), and its
wholly-owned subsidiaries, Kimberly Construction Company, Incorporated, and
Metropolitan Savings Service Corporation and its wholly-owned subsidiary
Metropolitan Securities Corporation are included in the accompanying
consolidated financial statements. All significant intercompany balances have
been eliminated.
 
     INDUSTRY SEGMENT INFORMATION:  Metropolitan Financial Corp. is a savings
and loan holding company engaged in the business of originating and purchasing
multifamily and nonresidential real estate loans primarily in Ohio, New Jersey,
Michigan, California, Kentucky and Pennsylvania and one-to-four family
residential real estate loans primarily in Northeast Ohio. The majority of the
Corporation's income is derived from commercial and retail lending activities.
 
     USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS:  In preparing
financial statements, management must make estimates and assumptions. These
estimates and assumptions affect the amounts reported for assets, liabilities,
revenues and expenses as well as affecting the disclosures provided. Future
results could differ from current estimates. Areas involving the use of
management's estimates and assumptions primarily include the allowance for
losses on loans, the valuation of loan servicing rights, the value of loans held
for sale, fair value of certain securities, the carrying value and amortization
of intangibles, the determination and carrying value of impaired loans, and the
fair value of financial instruments. Estimates that are more susceptible to
change in the near term include the allowance for losses on loans, the valuation
of servicing rights, the value of loans held for sale and the fair value of
securities.
 
     FAIR VALUES OF FINANCIAL INSTRUMENTS:  Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed in Note 15. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on- and
off-balance sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
 
     STATEMENT OF CASH FLOWS:  For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from depository institutions,
interest bearing deposits, investments purchased with an initial maturity of
three months or less, overnight repurchase agreements and federal funds sold.
Generally, federal funds and overnight repurchase agreements are sold for
one-day periods. The Corporation reports net cash flows for deposit transactions
and deposits made with other financial institutions.
 
     SECURITIES:  The Corporation classifies debt and mortgage-backed securities
as held to maturity or available for sale. The Corporation classifies marketable
equity securities as available for sale.
 
     Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts.
 
     Securities classified as available for sale are those that management
intends to sell or that could be sold for liquidity, investment management, or
similar reasons, even if there is not a present intention for such a sale.
   
 
                                       56
    
<PAGE>   22
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
Securities available for sale are carried at fair value with unrealized gains
and losses included as a separate component of shareholders' equity, net of tax.
Gains or losses on dispositions are based on net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method.
 
     LOANS:  All loans are held for investment unless specifically designated as
held for sale. When the Bank originates or purchases loans, it makes a
determination whether or not to classify loans as held for sale. The Bank
re-evaluates its intention to hold or sell loans at each balance sheet date
based on the current environment and, if appropriate, reclassifies loans as held
for sale. Sales of loans are dependent upon various factors including interest
rate movements, deposit flows, the availability and attractiveness of other
sources of funds, loan demand by borrowers, and liquidity and capital
requirements.
 
     Loans held for investment are stated at the principal amount outstanding
adjusted for amortization of premiums and accretion of discounts using the
interest method. At December 31, 1997 and 1996, management had the intent and
the Bank had the ability to hold all loans being held for investment for the
foreseeable future.
 
     Loans held for sale are recorded at the lower of cost or market. When the
Bank purchases real estate loans and simultaneously writes an option giving the
holder the right to purchase those loans, those loans are designated as held for
sale. Gains and losses on the sale of loans are determined by the identified
loan method and are reflected in operations at the time of the settlement of the
sale.
 
     ALLOWANCE FOR LOSSES ON LOANS:  Because some loans may not be repaid in
full, an allowance for losses on loans is maintained. Increases to the allowance
are recorded by a provision for loan losses charged to expense. Estimating the
risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loans, the whole allowance is available for any loan charge-offs that
occur. A loan is charged off against the allowance by management as a loss when
deemed uncollectible, although collection efforts continue and future recoveries
may occur.
 
     Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by allocating a
portion of the allowance for losses on loans to such loans. If these allocations
require an increase in the allowance for losses on loans, such increase is
reported as a provision for loan losses. Management excludes all consumer loans
and residential single family loans with balances less than $200,000 from its
review for impairment. All impaired loans are placed on nonaccrual status.
 
     REAL ESTATE OWNED:  Real estate owned is comprised of properties acquired
through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.
These properties are recorded at fair value, less estimated selling costs. Any
reduction from carrying value of the related loan to fair value at the time of
acquisition is accounted for as a loan loss. Any subsequent reduction in fair
value is reflected in a valuation allowance account through a charge to income.
Expenses to carry real estate owned are charged to operations as incurred.
 
     PREMISES AND EQUIPMENT:  Premises and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets for
financial reporting purposes. For tax purposes, depreciation on certain assets
is computed using accelerated methods. Maintenance and repairs are charged to
expense as incurred and improvements are capitalized.
   
 
                                       57
    
<PAGE>   23
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     Long-term assets are reviewed for impairment when events indicate their
carrying amount may not be recoverable from future undiscounted cash flows. If
impaired, the assets are recorded at fair value based on discounted cash flows.
 
     INTANGIBLE ASSETS:  Intangible assets resulting from the acquisition of the
Bank are being amortized to expense on a straight-line basis over a period of 25
years beginning in July 1987. This amount is a reduction from the Bank's
shareholders' equity in calculating tangible capital for regulatory purposes.
 
     LOAN SERVICING RIGHTS:  Effective January 1, 1995, the Corporation adopted
Statement of Financial Accounting Standards (SFAS) No. 122 "Accounting for
Mortgage Servicing Rights." This statement requires lenders who sell or
securitize originated loans and retain servicing rights to recognize as separate
assets the rights to service mortgage loans for others. Effective January 1,
1997, SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" superseded SFAS No. 122 and was adopted by
the Corporation. SFAS No. 125 provided new guidance on the determination of the
value of mortgage servicing rights and when to recognize the sale of loans
without changing the concept of assigning value to mortgage servicing rights
when a loan is sold or securitized and the servicing is retained. Both
statements were adopted prospectively.
 
     Purchased mortgage servicing rights are initially valued at cost. When
loans are sold or securitized and servicing rights are retained, those rights
are valued by allocating the book value of the loans between the loans or
securities and the servicing rights based on the relative fair value of each.
Servicing rights that have been capitalized are amortized in proportion to and
over the period of estimated servicing income. Servicing rights are assessed for
impairment periodically by estimating the future net servicing income of the
portfolio based on management's estimate of remaining loan lives. For purposes
of measuring impairment, management stratifies loans by loan type, interest
rate, and investor.
 
     INTEREST INCOME ON LOANS:  Interest on loans is accrued over the term of
the loans based upon the principal outstanding. Management reviews loans
delinquent 90 days or more to determine if interest accrual should be
discontinued based on the estimated fair market value of the collateral. The
carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value.
 
     LOAN FEES AND COSTS:  Origination and commitment fees received for loans,
net of direct origination costs, are deferred and amortized to interest income
over the contractual life of the loan using the level yield method. The net
amount deferred is reported in the consolidated statements of financial
condition as a reduction of loans.
 
     LOAN OPTION INCOME:  The Bank purchases real estate loans for sale and
simultaneously writes an option giving the holder the option to purchase those
loans at a specified price within a specified time period. At the time the
transaction is complete the Bank recognizes a non-refundable fee in income.
 
     INCOME TAXES:  The Corporation and its subsidiaries are included in the
consolidated federal income tax return of the Corporation. Income taxes are
provided on a consolidated basis and allocated to each entity based on its
proportionate share of consolidated income. Deferred income taxes are provided
on items of income or expense that are recognized for financial reporting
purposes in periods different than when those items are recognized for income
tax purposes. A valuation allowance, if needed, reduces deferred tax assets to
the amount expected to be realized.
 
     STOCK OPTIONS:  As of January 1, 1996, Metropolitan adopted SFAS No. 123,
"Accounting for Stock-based Compensation," which encourages a fair-value based
accounting method for stock based compensation arrangements. Metropolitan has
elected to disclose pro forma net income and earnings per share amounts as
   
                                       58
    
<PAGE>   24
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
permitted by this statement. For the periods presented, no expense has been
recognized as the market price of the common shares exceeds the price on the
grant date.
 
     TRUST DEPARTMENT ASSETS AND INCOME:  Property held by the Corporation in a
fiduciary or other capacity for its trust customers is not included in the
accompanying consolidated financial statements since such items are not assets
of the Corporation.
 
     EARNINGS PER SHARE:  The accounting standard for computing earnings per
share was revised for 1997, and all earnings per share data previously reported
have been restated to follow the new standard.
 
     Basic and diluted earnings per share are computed based on weighted average
shares outstanding during the period. Basic earnings per share has been computed
by dividing net income by the weighted average shares outstanding. Diluted
earnings per share has been computed by dividing net income by the diluted
weighted average shares outstanding. Diluted weighted average shares were
calculated assuming the exercise of stock options less the treasury shares
assumed to be purchased from the proceeds using the average market price of the
Corporation's stock. All per share information has been retroactively adjusted
to reflect the effect of the stock dividends and stock splits.
 
     FINANCIAL STATEMENT PRESENTATION:  Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 1997
presentation.
 
NOTE 2 -- SECURITIES
 
     The amortized cost, gross unrealized gains and losses, and fair values of
investment securities at December 31, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                           1997
                                 --------------------------------------------------------
                                                   GROSS         GROSS
                                  AMORTIZED      UNREALIZED    UNREALIZED        FAIR
                                     COST          GAINS         LOSSES         VALUE
                                 ------------    ----------    ----------    ------------
<S>                              <C>             <C>           <C>           <C>
AVAILABLE FOR SALE
  Mutual funds.................  $  1,705,879                                $  1,705,879
  Mortgage-backed securities...   141,148,819    $2,077,015     $(59,180)     143,166,654
                                 ------------    ----------     --------     ------------
                                  142,854,698     2,077,015      (59,180)     144,872,533
HELD TO MATURITY
  Tax-exempt municipal bond....     4,740,000                                   4,740,000
                                 ------------    ----------     --------     ------------
                                 $147,594,698    $2,077,015     $(59,180)    $149,612,533
                                 ============    ==========     ========     ============
</TABLE>
 
<TABLE>
<CAPTION>
                                                           1996
                                 --------------------------------------------------------
                                                   GROSS         GROSS
                                  AMORTIZED      UNREALIZED    UNREALIZED        FAIR
                                     COST          GAINS         LOSSES         VALUE
                                 ------------    ----------    ----------    ------------
<S>                              <C>             <C>           <C>           <C>
AVAILABLE FOR SALE
  U.S. Treasury securities.....  $  6,093,443    $   40,176     $(69,244)    $  6,064,375
  Mutual funds.................     2,009,083                                   2,009,083
  FNMA preferred stock.........     5,000,000       100,000                     5,100,000
                                 ------------    ----------     --------     ------------
     Total investment
       securities..............    13,102,526       140,176      (69,244)      13,173,458
  Mortgage-backed securities...    55,719,015       954,642       (1,363)      56,672,294
                                 ------------    ----------     --------     ------------
                                 $ 68,821,541    $1,094,818     $(70,607)    $ 69,845,752
                                 ============    ==========     ========     ============
</TABLE>
   
 
                                       59
    
<PAGE>   25
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     The amortized cost and fair value of debt securities at December 31, 1997,
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                           AMORTIZED          FAIR
                                                              COST           VALUE
                                                          ------------    ------------
<S>                                                       <C>             <C>
Securities held to maturity due after ten years.........  $  4,740,000    $  4,740,000
Mortgage-backed securities available for sale...........   141,148,819     143,166,654
                                                          ------------    ------------
  Total debt securities.................................  $145,888,819    $147,906,654
                                                          ============    ============
</TABLE>
 
     Proceeds from the sale of mortgage-backed securities available for sale
were $3,636,772 in 1996 and $29,142,705 in 1995. Proceeds from the sale of
securities available for sale were $16,582,643 in 1997, $16,690,055 in 1996, and
$7,000,000 in 1995. Gross gains realized on those sales were $102,955 in 1997,
$133,706 in 1996 and $475,587 in 1995. Gross losses of $10,617 and $87,006 were
realized in 1997 and 1995, respectively.
 
     Certain securities with a carrying value of $76,606,671 and a market value
of $77,760,890 at December 31, 1997, were pledged to secure reverse repurchase
agreements. Other securities with carrying values of $107,047 and $2,196,169 and
market values of $114,166 and $2,214,834 were pledged to the State of Ohio to
enable Metropolitan to engage in trust activities and the Federal Reserve Bank
to enable Metropolitan to receive treasury, tax and loan payments, respectively.
   
 
                                       60
    
<PAGE>   26
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
NOTE 3 -- LOANS RECEIVABLE
 
     The composition of the loan portfolio at December 31, 1997 and 1996 is as
follows:
 
<TABLE>
<CAPTION>
                                                               1997
                                           --------------------------------------------
                                            ORIGINATED      PURCHASED         TOTAL
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Real estate loans
  Construction loans
     Residential single family...........  $ 67,985,876                    $ 67,985,876
     Commercial..........................    19,200,000                      19,200,000
     Land................................    29,076,961                      29,076,961
     Loans in process....................   (46,833,171)                    (46,833,171)
                                           ------------                    ------------
       Construction loans, net...........    69,429,666                      69,429,666
  Permanent loans
     Residential single family...........   127,227,343    $ 19,458,082     146,685,425
     Multifamily.........................    89,689,810     104,759,993     194,449,803
     Commercial..........................    51,605,536     114,987,215     166,592,751
     Other...............................       565,795                         565,795
                                           ------------    ------------    ------------
       Total real estate loans...........   338,518,150     239,205,290     577,723,440
Consumer loans...........................    45,758,041      22,832,076      68,590,117
Business loans and other loans...........    57,496,142                      57,496,142
                                           ------------    ------------    ------------
  Total loans............................  $441,772,333    $262,037,366     703,809,699
                                           ============    ============
Discount on loans, net...................                                      (425,466)
Deferred loan fees, net..................                                    (4,107,746)
Allowance for losses on loans............                                    (5,621,879)
                                                                           ------------
                                                                           $693,654,608
                                                                           ============
</TABLE>
   
 
                                       61
    
<PAGE>   27
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
<TABLE>
<CAPTION>
                                                               1996
                                           --------------------------------------------
                                            ORIGINATED      PURCHASED         TOTAL
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Real estate loans
  Construction loans
     Residential single family...........  $ 47,999,248                    $ 47,999,248
     Commercial..........................     9,825,000                       9,825,000
     Land................................    13,735,638                      13,735,638
     Loans in process....................   (31,758,069)                    (31,758,069)
                                           ------------                    ------------
       Construction loans, net...........    39,801,817                      39,801,817
  Permanent loans
     Residential single family...........    91,358,204    $ 23,399,646     114,757,850
     Multifamily.........................   165,202,852     111,341,902     276,544,754
     Commercial..........................    43,006,141      92,629,301     135,635,442
     Other...............................       137,538                         137,538
                                           ------------    ------------    ------------
       Total real estate loans...........   339,506,552     227,370,849     566,877,401
Consumer loans...........................    38,601,020      15,577,578      54,178,598
Business loans and other loans...........    23,507,560                      23,507,560
                                           ------------    ------------    ------------
  Total loans............................  $401,615,132    $242,948,427     644,563,559
                                           ============    ============
Discount on loans, net...................                                      (559,593)
Deferred loan fees, net..................                                    (2,336,016)
Allowance for losses on loans............                                    (4,175,015)
                                                                           ------------
                                                                           $637,492,935
                                                                           ============
</TABLE>
 
     Loans with adjustable rates, included above, totaled $485,259,000 and
$465,306,000 at December 31, 1997 and 1996, respectively.
 
     Metropolitan's real estate loans are secured by property in the following
states:
 
<TABLE>
<CAPTION>
                                               1997      1996
                                               ----      ----
<S>                                            <C>       <C>
Ohio.........................................   60%       62%
California...................................   11         8
Michigan.....................................    5         7
Pennsylvania.................................    5         6
Other........................................   19        17
                                               ---       ---
                                               100%      100%
                                               ===       ===
</TABLE>
 
     Activity in the allowance for losses on loans is as follows:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                 --------------------------------------
                                                    1997          1996          1995
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Balance at beginning of year...................  $4,175,015    $2,764,664    $1,910,714
Provision for loan losses......................   2,340,000     1,635,541       958,573
Net charge-offs................................    (893,136)     (225,190)     (104,623)
                                                 ----------    ----------    ----------
Balance at end of year.........................  $5,621,879    $4,175,015    $2,764,664
                                                 ==========    ==========    ==========
</TABLE>
   
 
                                       62
    
<PAGE>   28
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     Management analyzes loans on an individual basis and considers a loan to be
impaired when it is probable that all principal and interest amounts will not be
collected according to the loan contract based on current information and
events. Loans which are past due two payments or less and that management feels
are probable of being paid current within 90 days are not considered to be
impaired loans.
 
     Information regarding impaired loans is as follows at December 31:
 
<TABLE>
<CAPTION>
                                                                1997         1996
                                                              --------    ----------
<S>                                                           <C>         <C>
Balance of impaired loans...................................  $516,498    $3,495,006
Less portion for which no allowance for losses on loans is
  allocated.................................................   516,498     2,773,777
                                                              --------    ----------
Portion of impaired loan balance for which an allowance for
  losses on loans is allocated..............................  $      0    $  721,229
                                                              ========    ==========
Portion of allowance for losses on loans allocated to the
  impaired loan balance.....................................  $      0    $  241,269
                                                              ========    ==========
</TABLE>
 
     Information regarding impaired loans is as follows for the year ended
December 31:
 
<TABLE>
<CAPTION>
                                                                1997         1996
                                                              --------    ----------
<S>                                                           <C>         <C>
Average investment in impaired loans during the year........  $944,283    $4,220,286
                                                              ========    ==========
Interest income recognized during impairment................  $ 16,691    $   48,146
                                                              ========    ==========
Interest income recognized on cash basis during the year....  $ 16,691    $   48,146
                                                              ========    ==========
</TABLE>
 
     The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with Metropolitan's and the Bank's directors,
officers, significant shareholders and associates on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the time for comparable transactions with other persons, and that do not involve
more than the normal risk of collectibility or present other unfavorable terms.
Loans to such related parties totaled $1,296,000 and $1,372,000 at December 31,
1997 and 1996, respectively.
 
NOTE 4 -- PREMISES AND EQUIPMENT
 
     Premises and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               1997           1996
                                                            -----------    -----------
<S>                                                         <C>            <C>
Land......................................................  $ 2,752,946    $ 2,969,274
Office buildings..........................................    5,334,323      3,684,536
Leasehold improvements....................................    2,783,785      2,329,573
Furniture, fixtures and equipment.........................    6,389,966      4,899,961
Construction in progress..................................      458,515        678,209
                                                            -----------    -----------
  Total...................................................   17,719,535     14,561,553
Accumulated depreciation..................................    3,791,624      3,229,314
                                                            -----------    -----------
                                                            $13,927,911    $11,332,239
                                                            ===========    ===========
</TABLE>
 
     Depreciation expense was $978,193, $683,718, and $519,533 for the years
ended December 31, 1997, 1996 and 1995, respectively.
   
 
                                       63
    
<PAGE>   29
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     The Bank leases certain of its branches and corporate headquarters space
under lease agreements whose lease terms are renewable periodically. Rent
expense for the years ended December 31, 1997, 1996 and 1995 was $923,395,
$874,164, and $839,849, respectively.
 
     The future minimum annual rental commitments as of December 31, 1997 for
all noncancelable leases are as follows:
 
<TABLE>
<S>                                                <C>
1998.............................................  $  960,133
1999.............................................     917,775
2000.............................................     914,973
2001.............................................     172,702
2002.............................................     118,424
Thereafter.......................................     344,161
                                                   ----------
                                                   $3,428,168
                                                   ==========
</TABLE>
 
NOTE 5 -- REAL ESTATE OWNED
 
     Activity in the allowance for loss on real estate owned is as follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                       ------------------------------
                                                        1997       1996        1995
                                                       -------    -------    --------
<S>                                                    <C>        <C>        <C>
Balance at beginning of year.........................  $57,000    $15,000    $      0
Provision for loss...................................        0     42,000      15,000
Charge-offs..........................................  (57,000)         0           0
                                                       -------    -------    --------
Balance at end of year...............................  $     0    $57,000    $ 15,000
                                                       =======    =======    ========
</TABLE>
 
NOTE 6 -- LOAN SERVICING
 
     Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                       --------------------------------
                                                            1997              1996
                                                       --------------    --------------
<S>                                                    <C>               <C>
Mortgage loan portfolios serviced for
  FHLMC..............................................  $  656,816,894    $  713,289,564
  FNMA...............................................     507,345,160       353,863,253
  Other..............................................      26,023,287        35,361,907
                                                       --------------    --------------
                                                       $1,190,185,341    $1,102,514,724
                                                       ==============    ==============
</TABLE>
 
     Custodial balances maintained in noninterest-bearing deposit accounts with
the Bank in connection with the foregoing loan servicing were approximately
$18,894,000 and $12,895,000 at December 31, 1997 and 1996, respectively.
   
 
                                       64
    
<PAGE>   30
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     Following is an analysis of the changes in loan servicing rights acquired
for the year ended December 31:
 
<TABLE>
<CAPTION>
                                                               1997           1996
                                                            -----------    -----------
<S>                                                         <C>            <C>
Balance at beginning of year..............................  $ 7,286,403    $ 8,587,831
Additions.................................................    2,055,908        732,262
Amortization..............................................   (1,682,793)    (2,033,690)
                                                            -----------    -----------
Balance at end of year....................................  $ 7,659,518    $ 7,286,403
                                                            ===========    ===========
</TABLE>
 
Following is an analysis of the changes in loan servicing rights originated for
the year ended December 31:
 
<TABLE>
<CAPTION>
                                                                 1997         1996
                                                              ----------    ---------
<S>                                                           <C>           <C>
Balance at beginning of year................................  $  764,434    $ 541,727
Additions...................................................   1,157,451      333,507
Amortization................................................    (357,429)    (110,800)
                                                              ----------    ---------
Balance at end of year......................................  $1,564,456    $ 764,434
                                                              ==========    =========
</TABLE>
 
     The Corporation did not have a valuation allowance associated with loan
servicing rights at any time during the years ended December 31, 1997, 1996, and
1995.
 
NOTE 7 -- DEPOSITS
 
     Deposits consist of the following:
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                       --------------------------------------------------
                                                1997                       1996
                                       -----------------------    -----------------------
                                          AMOUNT       PERCENT       AMOUNT       PERCENT
                                       ------------    -------    ------------    -------
<S>                                    <C>             <C>        <C>             <C>
Noninterest-bearing deposits.........  $ 46,234,027        6%     $ 30,850,882        5%
                                       ============               ============
Interest-bearing checking accounts --
  2.08% to 3.20%.....................  $ 43,080,404        6      $ 39,363,322        6
Passbook savings and statement
  savings -- 2.72% to 5.46%..........   170,442,615       23       176,430,162       29
Certificates of deposit..............   478,024,815       65       375,460,151       60
                                       ------------      ---      ------------      ---
     Total interest-bearing
       deposits......................  $691,547,834       94      $591,253,635       95
                                       ============      ---      ============      ---
                                       $737,781,861      100%     $622,104,517      100%
                                       ============      ===      ============      ===
</TABLE>
   
 
                                       65
    
<PAGE>   31
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     At December 31, 1997, scheduled maturities of certificates of deposit are
as follows:
 
<TABLE>
<CAPTION>
                 YEAR                                   WEIGHTED AVERAGE
                ENDED                      AMOUNT        INTEREST RATE
                -----                   ------------    ----------------
<S>                                     <C>             <C>
1998..................................  $334,571,633          5.82%
1999..................................   115,282,966          6.16%
2000..................................    22,906,179          6.93%
2001..................................     3,185,158          5.91%
2002..................................     1,783,722          6.05%
Thereafter............................       295,157          6.95%
                                        ------------
                                        $478,024,815          5.96%
                                        ============
</TABLE>
 
   
     The aggregate amount of certificates of deposit with balances of $100,000
or more was approximately $86,884,000 and $58,516,000 at December 31, 1997 and
1996, respectively. The Bank also accepts out-of-state time deposits from
individuals and entities, predominantly credit unions. At December 31, 1997,
approximately $57.7 million of time deposits, or 12.1% of Metropolitan's time
deposits, were held by these entities. At December 31, 1996, approximately $61.5
million of time deposits, or 16.4% of Metropolitan's time deposits, were held by
these entities.
    
 
     Related party deposits totaled $1,116,000 and $2,164,000 at December 31,
1997 and 1996, respectively.
 
NOTE 8 -- BORROWINGS
 
     Borrowings consisted of the following:
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                          ----------------------------
                                                              1997            1996
                                                          ------------    ------------
<S>                                                       <C>             <C>
Federal Home Loan Bank advances (5.7% and 5.5% at
  December 31, 1997 and 1996, respectively).............  $ 41,000,000    $ 59,500,000
Reverse repurchase agreements (5.7% and 5.6% at December
  31, 1997 and 1996, respectively)......................    74,496,000      23,500,000
Commercial bank line of credit (8.5% at December 31,
  1997 -- variable rate)................................     1,500,000
Subordinated debt maturing December 31, 2001 (10% fixed
  rate).................................................     4,873,673       4,873,673
Subordinated debt maturing January 1, 2005 (9.625% fixed
  rate).................................................    14,000,000      14,000,000
                                                          ------------    ------------
                                                          $135,869,673    $101,873,673
                                                          ============    ============
</TABLE>
   
 
                                       66
    
<PAGE>   32
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     At December 31, 1997, scheduled payments on borrowings are as follows:

   
<TABLE>
<CAPTION>
                 YEAR                                   WEIGHTED AVERAGE
                ENDED                      AMOUNT        INTEREST RATE
                -----                   ------------    ----------------
<S>                                     <C>             <C>
1998..................................  $ 42,417,556          5.64%
1999..................................    23,367,566          5.70%
2000..................................       402,764          9.25%
2001..................................     8,431,787          8.85%
2002..................................    47,250,000          5.77%
Thereafter............................    14,000,000         10.48%
                                        ------------
                                        $135,869,673          6.40%
                                        ============
</TABLE>
    
 
     Federal Home Loan Bank advances are collateralized by FHLB stock and
one-to-four family first mortgage loans with an aggregate carrying value of
approximately $147,000,000 and $89,250,000 at December 31, 1997 and 1996,
respectively. In addition, Metropolitan also has a $50,000,000 cash management
line with the Federal Home Loan Bank which at December 31, 1997 was unused.
 
     The Corporation has a commercial line of credit agreement with the
Huntington National Bank. The maximum borrowing under the line is $4,000,000.
The line has a revolving term until May, 1998, at which time any then
outstanding balance converts to a term loan with quarterly principal payments
based on a 60-month amortization with a balloon payment due at maturity in May,
2001. As collateral for the loan, the largest shareholder, Robert Kaye, has
agreed to pledge a portion of his common shares in an amount at least equal to
200% of any outstanding balance. At December 31, 1997, the outstanding balance
under this agreement was $1,500,000.
 
     In 1993 and early 1994, the Corporation issued subordinated notes ("1993
subordinated notes") totaling $4,873,673. Interest on the notes is paid
quarterly and principal will be repaid when the notes mature December 31, 2001.
Total issuance costs of approximately $185,000 were incurred and are being
amortized on a straight line basis over the life of the notes. The notes are
unsecured. The notes may be redeemed prior to maturity by paying a prepayment
premium. The prepayment premium is 6% through October 25, 1998 and decreases by
1% during each year following that date.
 
     During 1995, the Corporation issued subordinated notes ("1995 subordinated
notes") totaling $14,000,000. Interest on the notes is paid quarterly and
principal will be repaid when the notes mature January 1, 2005. Total issuance
costs of approximately $1,170,000 are being amortized on a straight line basis
over the life of the notes. The notes are unsecured. The notes may not be
redeemed prior to December 1, 1998. From that date through November 30, 1999,
the notes may be redeemed by paying a 3.0% premium. From December 1, 1999
through November 30, 2000, the notes may be redeemed by paying a 1.5% premium.
Thereafter, the notes may be redeemed at par.
   
 
                                       67
    
<PAGE>   33
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     The following tables set forth certain information about borrowings during
the periods indicated.

   
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                            --------------------------
                                                               1997           1996
                                                            -----------    -----------
<S>                                                         <C>            <C>
MAXIMUM MONTH-END BALANCES:
FHLB advances.............................................  $73,700,000    $75,150,000
1993 subordinated notes...................................    4,873,673      4,873,673
1995 subordinated notes...................................   14,000,000     14,000,000
Commercial bank line of credit............................    4,000,000
Reverse repurchase agreements.............................   74,496,000     23,500,000
</TABLE>
    
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                            --------------------------
                                                               1997           1996
                                                            -----------    -----------
<S>                                                         <C>            <C>
AVERAGE BALANCE:
FHLB advances.............................................  $59,324,587    $50,545,916
1993 subordinated notes...................................    4,873,673      4,873,673
1995 subordinated notes...................................   14,000,000     14,000,000
Commercial bank line of credit............................      113,699
Reverse repurchase agreements.............................   38,843,324      4,479,839
</TABLE>
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                               DECEMBER 31,
                                                              --------------
                                                              1997     1996
                                                              -----    -----
<S>                                                           <C>      <C>
WEIGHTED AVERAGE INTEREST RATE:
FHLB advances...............................................   5.65%    5.43%
1993 subordinated notes.....................................  10.47    10.47
1995 subordinated notes.....................................  10.48    10.48
Commercial bank line of credit..............................   8.98
Reverse repurchase agreements...............................   5.73     5.61
</TABLE>
 
NOTE 9 -- INCOME TAXES
 
     The provision for income taxes consists of the following components:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                ---------------------------------------
                                                   1997           1996          1995
                                                -----------    ----------    ----------
<S>                                             <C>            <C>           <C>
Current tax provision:
  Federal expense.............................  $ 4,478,325    $1,278,303    $2,164,026
  State expense...............................      145,000
                                                -----------    ----------    ----------
     Total current expense....................    4,623,325     1,278,303     2,164,026
Deferred federal benefit......................   (1,131,325)     (183,303)       (9,326)
                                                -----------    ----------    ----------
                                                $ 3,492,000    $1,095,000    $2,154,700
                                                ===========    ==========    ==========
</TABLE>
   
 
                                       68
    
<PAGE>   34
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     Deferred income taxes are provided for temporary differences. The
components of the Corporation's net deferred tax asset (liability) consist of
the following:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                 1997         1996
                                                              ----------    ---------
<S>                                                           <C>           <C>
Deferred tax assets
  Deferred loan fees........................................  $  124,872    $ 196,538
  Loan servicing rights.....................................     426,811      377,977
  Bad debt deduction........................................   1,051,179       99,990
  Other.....................................................      19,859       17,530
                                                              ----------    ---------
                                                               1,622,721      692,035
                                                              ----------    ---------
Deferred tax liabilities
  Debt issuance costs.......................................                 (359,542)
  Employment contract.......................................    (100,891)    (104,768)
  Depreciation expense......................................     (95,103)     (59,370)
  Stock dividends on FHLB stock.............................    (290,287)    (163,526)
  Other.....................................................      (1,162)        (876)
                                                              ----------    ---------
                                                                (487,443)    (688,082)
                                                              ----------    ---------
     Net deferred tax asset.................................  $1,135,278    $   3,953
                                                              ==========    =========
</TABLE>
 
     A reconciliation from income taxes at the statutory rate to the effective
provision for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                 --------------------------------------
                                                    1997          1996          1995
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Statutory rate.................................          35%           34%           34%
Income taxes at statutory rate.................  $3,253,210    $  895,527    $1,937,020
Officer's life premium.........................       9,610        30,441        55,185
Amortization of purchased intangibles..........      92,051        97,962       134,414
Tax exempt income..............................     (64,286)
Current state expense..........................      94,250
Utilization of capital loss carryforward.......     (35,000)
Business expense limitation....................      62,684        67,368        41,753
Other..........................................      79,481         3,702       (13,672)
                                                 ----------    ----------    ----------
  Provision for income taxes...................  $3,492,000    $1,095,000    $2,154,700
                                                 ==========    ==========    ==========
</TABLE>
 
     Taxes attributable to security's gains and (losses) totaled $(2,682),
$45,460 and $121,548 for the years ended December 31, 1997, 1996 and 1995,
respectively.
 
     Prior to January 1, 1996, the Bank was able to use the
percentage-of-taxable income method of computing its tax bad debt deduction if
it was more favorable than the specific charge-off method. During 1996,
legislation was passed which removed the option of using the percentage of
taxable income method of computing the tax bad debt deduction. The change was
retroactive to 1988 with the additional tax due over a six year period beginning
in 1996, 1997, or 1998 based on the current level of loan activity. The changes
to the tax liability
   

                                       69
    
<PAGE>   35
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
related to 1995 and prior years did not result in any additional tax expense in
1996 because deferred taxes had been provided on the benefit of the percentage
of taxable income method of computing the bad debt deduction in each of those
years.
 
NOTE 10 -- SALARY DEFERRAL -- 401(K) PLAN
 
     The Corporation maintains a 401(k) plan covering substantially all
employees who have attained the age of 21 and have completed one year of service
with the Corporation. This is a salary deferral plan, which calls for matching
contributions by the Corporation based on a percentage (50%) of each
participant's voluntary contribution (limited to a maximum of eight percent (8%)
of a covered employee's annual compensation). In addition to the Corporation's
required matching contribution, a contribution to the plan may be made at the
discretion of the Board of Directors. Employee voluntary contributions are
vested at all times, whereas employer contributions vest 20% per year through
year five at which time employer contributions are fully vested. The
Corporation's matching contributions were $166,895, $126,599 and $96,902 for the
years ended December 31, 1997, 1996 and 1995, respectively. No discretionary
contributions have been made by the Corporation for the periods presented.
 
NOTE 11 -- STOCK OPTION PLAN
 
     On October 28, 1997, the Board of Directors of Metropolitan adopted,
subject to the approval of Metropolitan's shareholders, the Metropolitan
Financial Corp. 1997 Stock Option Plan for key employees and officers of the
Corporation. The Plan is intended to encourage their continued employment with
Metropolitan and to provide them with additional incentives to promote the
development and long-term financial success of Metropolitan.
 
     Subject to adjustment under certain circumstances, the maximum number of
Common Shares that may be issued under the plan is 650,000, which reflects an
adjustment for the 2-for-1 stock split completed in December, 1997. The Plan
provides for the grant of options, which may qualify as either incentive stock
options or nonqualified options. Grants of options will be made by the
Compensation and Organization Committee of the Board of Directors.
 
     The exercise price of an option, whether an incentive stock option or a
nonqualified option, will not be less than the fair market value of the Common
Shares on the date of grant. On October 28, 1997, the Compensation and
Organization Committee of the Board of Directors approved grants of 80,000
incentive stock options and 320,000 nonqualified options.
 
     An option may be exercised in one or more installments at the time or times
provided in the option instrument. Generally, options granted to employees will
become exercisable with respect to one-half of the Common Shares covered by the
option on the third anniversary, and one-fourth of the Common Shares covered by
the option on the fourth and fifth anniversaries of the date of grant. Options
granted under the Plan will expire no later than ten years after grant in the
case of an incentive stock option and ten years and one month after grant in the
case of a nonqualified option.
   
 
                                       70
    
<PAGE>   36
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
     A summary of option activity is presented below:
 
STOCK OPTION ACTIVITY:
 
<TABLE>
<CAPTION>
                                                                 1997
                                        -------------------------------------------------------
                                        INCENTIVE STOCK OPTIONS        NONQUALIFIED OPTIONS
                                        -----------------------     ---------------------------
                                        SHARES     OPTION PRICE     SHARES       OPTION PRICE
                                        ------     ------------     -------     ---------------
<S>                                     <C>        <C>              <C>         <C>
<S>                                     <C>        <C>              <C>         <C>
Outstanding at beginning of year...          0                            0
Granted............................     80,000       $  10.13       320,000     $10.13 - $11.14
Exercised..........................          0                            0
Forfeited..........................          0                            0
                                        ------                      -------     ---------------
Outstanding at end of year.........     80,000       $  10.13       320,000     $10.13 - $11.14
                                        ======                      =======
Closing stock price on date of
  grant............................                  $  10.13                   $         10.13
Assumptions used:
  Expected option life.............                  10 years                           5 years
  Risk-free interest rate..........                      5.97%                             5.75%
  Expected stock price
     volatility....................                     33.00%                            33.00%
  Expected dividends...............                         0                                 0
Estimated fair value of options
  granted:
  Granted at $10.13................                  $   4.55                   $          2.53
  Granted at $11.14................                                             $          1.77
 
PRO FORMA DISCLOSURES:
 
     For purposes of providing the required disclosures under SFAS No. 123,
"Accounting for Stock Based Compensation," the Black Scholes option pricing
model was used to estimate the value of these options. The Black Scholes model
was developed to estimate the fair value of equity options. Had compensation
costs been determined in accordance with SFAS No. 123, net income and earnings
per share would be affected as summarized in the schedule below (In thousands,
except per share data):
 
Net income -- as reported...........  $5,803
Net income -- pro forma.............   5,614
 
Basic and diluted earnings per
  share -- as reported..............  $ 0.82
Basic and diluted earnings per
  share -- pro forma................    0.79
</TABLE>
 
NOTE 12-- COMMITMENTS AND CONTINGENCIES
 
     FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. The Bank can be a party
to financial instruments with off-balance-sheet risk in the normal course of
business to meet financing needs of its customers. These financial instruments
include commitments to make loans. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for
commitments to make loans is represented by the contractual amount of those
instruments. The Bank follows the same credit policy to make such commitments as
is followed for those loans recorded in the financial statements.
 
     As of December 31, 1997, the Bank had fixed and variable rate commitments
to originate and/or purchase loans (at market rates) of approximately
$22,343,000 and $49,443,000, respectively. In addition, the Bank had
   
 
                                       71
    
<PAGE>   37
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
firm commitments to sell fixed rate loans totaling $2,210,000 at December 31,
1997. Metropolitan's commitments to originate and purchase loans are for loans
at rates ranging from 6.5% to 16% and commitment periods up to one year.
 
     During 1997 and 1996, the Corporation purchased approximately $12,816,000
and $16,675,000 of mortgage loans and sold non-refundable options to a third
party to purchase these same loans at a later date. The Corporation recognized a
gain of $320,464, $695,798, and $559,256 on the sale of these options during the
years ended December 31, 1997, 1996, and 1995, respectively. At December 31,
1997, all options had been exercised and there were no loans held for sale in
connection with outstanding purchase options. At December 31, 1996, loans with a
carrying value of $6,409,841 were held for sale in connection with outstanding
purchase options.
 
     RESERVE REQUIREMENTS. The Bank is required to maintain $2,955,000 of cash
on hand or on deposit with the Federal Reserve to meet regulatory reserve
requirements at December 31, 1997. These funds do not earn interest.
 
     LIQUIDITY REQUIREMENT. The Corporation is required to maintain cash or
short-term investments equal to six months interest on the 1995 subordinated
notes or approximately $675,000 as a condition of the indenture agreement
related to the 1995 subordinated notes.
 
NOTE 13 -- RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS
 
     In connection with the initial public offering of stock completed in
October, 1996, the Board of Directors approved a 3,125,635-for-1 stock split,
effected in the form of a stock dividend during October 1996. In addition, the
Board of Directors approved a 2-for-1 stock split in the fourth quarter, 1997,
increasing the number of shares outstanding to 7,051,270.
 
     Prior to 1996, the Bank was permitted, under the Internal Revenue Code, to
determine taxable income after deducting a provision for bad debts in excess of
such provision recorded in the financial statements. Accordingly, retained
earnings at December 31, 1997 and 1996, includes approximately $2,883,000 for
which no provision for federal income taxes has been made. If this portion of
retained earnings is used in the future for any purpose other than to absorb bad
debts, it will be added to future taxable income.
 
     The Bank is subject to regulatory capital requirements administered by
federal regulatory agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
 
     The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:

<TABLE>
<CAPTION>
                                                          CAPITAL TO RISK-
                                                          WEIGHTED ASSETS
                                                       ----------------------         TIER 1 CAPITAL
                                                         TOTAL       TIER 1      TO ADJUSTED TOTAL ASSETS
                                                       ---------   ----------    ------------------------
<S>                                                    <C>         <C>           <C>
Well capitalized.....................................      10%          6%                   5%
Adequately capitalized...............................       8%          4%                   4%
Undercapitalized.....................................       6%          3%                   3%
</TABLE>


   
 
                                       72
    
<PAGE>   38
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
 
     At year end, the Bank's actual capital levels (in thousands) and minimum
required levels were:
 
<TABLE>
<CAPTION>
                                                                                 MINIMUM REQUIRED
                                                                                    TO BE WELL
                                                                                   CAPITALIZED
                                                           MINIMUM REQUIRED        UNDER PROMPT
                                                             FOR CAPITAL            CORRECTIVE
                                           ACTUAL         ADEQUACY PURPOSES     ACTION REGULATIONS
                                      ----------------    ------------------    ------------------
                                      AMOUNT     RATIO     AMOUNT     RATIO      AMOUNT     RATIO
                                      -------    -----    --------    ------    --------    ------
<S>                                   <C>        <C>      <C>         <C>       <C>         <C>
1997
Total capital (to risk weighted
  assets)...........................  $54,343    8.39%    $51,836      8.0%     $64,796     10.0%
Tier 1 (core) capital (to risk
  weighted assets)..................  $50,215    7.75%    $25,918      4.0%     $38,877      6.0%
Tier 1 (core) capital (to adjusted
  total assets).....................  $50,215    5.47%    $36,738      4.0%     $45,923      5.0%
Tangible capital (to adjusted total
  assets)...........................  $49,901    5.43%    $13,777      1.5%         N/A
 
1996
Total capital (to risk weighted
  assets)...........................  $45,761    8.46%    $43,274      8.0%     $54,093     10.0%
Tier 1 (core) capital (to risk
  weighted assets)..................  $42,592    7.87%    $21,637      4.0%     $32,456      6.0%
Tier 1 (core) capital (to adjusted
  total assets).....................  $42,592    5.58%    $30,545      4.0%     $38,181      5.0%
Tangible capital (to adjusted total
  assets)...........................  $42,342    5.54%    $11,454      1.5%         N/A
</TABLE>
 
     The Bank at year-end 1997 was categorized as adequately capitalized. At
December 31, 1997, the most restrictive regulatory constraint on the payment of
dividends from the Bank to the holding company and the retention of the
adequately capitalized status was the total capital (to risk weighted capital)
ratio. Management is not aware of any event or circumstances after December 31,
1997 that would change the capital category.
 
     A savings association which fails to meet one or more of the applicable
capital requirements is subject to various regulatory limitations and sanctions,
including a prohibition on growth and the issuance of a capital directive by the
Office of Thrift Supervision ("OTS") requiring the following: an increase in
capital; reduction of rates paid on savings accounts; cessation of or
limitations on deposit-taking and lending; limitations on operational
expenditures; an increase in liquidity; and such other actions deemed necessary
or appropriate by the OTS. In addition, a conservator or receiver may be
appointed under certain circumstances.
 
     The appropriate federal banking agency has the authority to reclassify a
well-capitalized institution as adequately capitalized, and to treat an
adequately capitalized or undercapitalized institution as if it were in the next
lower capital category, if it is determined, after notice and an opportunity for
a hearing, to be in an unsafe or unsound condition or to have received and not
corrected a less-than-satisfactory rating for any of the categories of asset
quality, management, earnings or liquidity in its most recent examination. As a
result of such classification or determination, the appropriate federal banking
agency may require an adequately capitalized or under-capitalized institution to
comply with certain mandatory and discretionary supervisory actions. A
significantly undercapitalized savings association may not be reclassified,
however, as critically undercapitalized.
   
 
                                       73
    
<PAGE>   39
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 

     The terms of the 1993 subordinated notes prohibit the Corporation from
paying any cash dividends on common stock until those notes are paid off. The
terms of the 1995 subordinated notes and related indenture agreement along with
the Huntington National Bank line of credit prohibit the Corporation from paying
cash dividends unless the Corporation's ratio of tangible equity to total assets
exceeds 7.0%.
 
NOTE 14 -- RELATED PARTY TRANSACTIONS
 
     In the years ended December 31, 1997, 1996 and 1995 the Corporation
expensed $96,000 per year for management fees relating to services provided by
an affiliate.
 
     Certain directors and executive officers of the Corporation and its
subsidiaries hold an interest in the 1993 subordinated notes. The aggregate
interest in the subordinated debt held by related parties totaled $1,265,284 at
December 31, 1997 and 1996. In addition, the Corporation's 401(k) salary
deferral plan held a $400,000 interest in the subordinated debt at December 31,
1997 and 1996.
 
NOTE 15 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
 
     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Corporation disclose the estimated fair values of its
financial instruments. The following table shows those values and the related
carrying values. Items which are not financial instruments are not included.
 
<TABLE>
<CAPTION>
                                      DECEMBER 31, 1997                 DECEMBER 31, 1996
                                ------------------------------    ------------------------------
                                  CARRYING         ESTIMATED        CARRYING         ESTIMATED
                                   AMOUNT         FAIR VALUE         AMOUNT         FAIR VALUE
                                -------------    -------------    -------------    -------------
<S>                             <C>              <C>              <C>              <C>
Cash and equivalents..........  $  22,510,688    $  22,510,688    $  16,522,577    $  16,522,577
Securities....................      6,445,879        6,445,879       13,173,458       13,173,458
Mortgage-backed securities....    143,166,654      143,166,654       56,672,294       56,672,294
Loans, net....................    707,884,738      732,123,284      646,465,881      658,869,077
Federal Home Loan Bank stock..      5,349,700        5,349,700        3,988,600        3,988,600
Loan servicing rights.........      9,223,974       11,707,000        8,050,837        8,830,101
Accrued interest receivable...      5,752,161        5,752,161        4,790,661        4,790,661
Demand and savings deposits...   (260,223,821)    (260,223,821)    (246,644,366)    (246,644,366)
Time deposits.................   (478,024,815)    (478,415,186)    (375,460,151)    (376,934,368)
Borrowings....................   (135,869,673)    (135,692,553)    (101,873,673)     (99,724,946)
Accrued interest payable......     (3,272,815)      (3,272,815)      (4,120,163)      (4,120,163)
</TABLE>
 
     While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Corporation to
have disposed of such items at December 31, 1997, the estimated fair values
would necessarily have been realized at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1997 should not necessarily be considered to apply at subsequent dates.

     For purposes of the above disclosures of estimated fair value, the
following assumptions were used. The estimated fair value for cash and
equivalents, accrued interest receivable and accrued interest payable is
considered to approximate cost due to the short term nature of these
instruments. The estimated fair value for securities and mortgage-backed
securities is based on quoted market values for the individual securities or for
equivalent securities. Loans were segregated into three main groups: those with
adjustable rates, those with fixed rates which are held for sale and those with
fixed rates held for investment. For the loans held for sale, the fair value was
estimated based on quoted market price. The fixed and adjustable rate loans held
for investment were further divided between those secured by one- to four-family
real estate and those secured by multifamily and 
   
 
                                       74
    
<PAGE>   40
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
commercial real estate. For these loans, estimated fair value was determined
using a discounted cash flow analysis. The estimated fair value of Federal Home
Loan Bank stock is considered to approximate cost since it may be redeemed at
par under certain circumstances. The carrying amount of loan servicing rights
includes loan servicing rights acquired and loan servicing rights originated
after the adoption of SFAS No. 122. The estimated fair value of the servicing
rights is based on an independent appraisal in 1997 and a discounted cash flow
analysis in 1996. The estimated fair value of demand and savings deposits, which
have no stated maturity, is equal to the amount payable. The estimated fair
value for certificates of deposit, Federal Home Loan Bank advances and the
subordinated debt is based on estimates of the rate the Corporation would pay on
such deposits, advances and debt, applied for the time period until maturity
using a discounted cash flow analysis. The estimated fair value of commitments
is not materially different than the nominal value.
 
     Other assets and liabilities of the Corporation that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the trained work force, customer goodwill and
similar items.
   
 
                                       75
    
<PAGE>   41
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
NOTE 16 -- CONDENSED FINANCIAL INFORMATION
 
     Below is condensed financial information of Metropolitan Financial Corp.
(parent company only). In this information, the parent's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of the
subsidiaries since acquisition. This information should be read in conjunction
with the consolidated financial statements.
 
                              PARENT COMPANY ONLY
                       STATEMENTS OF FINANCIAL CONDITION
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                 1997           1996
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
Cash and due from banks.....................................  $   349,563    $   180,112
Securities available for sale...............................    1,705,879      2,009,083
Loans receivable............................................       50,000         50,000
Investment in Metropolitan Savings Bank.....................   54,234,523     46,383,503
Intangible assets...........................................       50,601         54,090
Prepaid expenses and other assets...........................    1,198,148      1,198,757
                                                              -----------    -----------
          Total assets......................................  $57,588,714    $49,875,545
                                                              ===========    ===========
LIABILITIES
Borrowings..................................................  $20,373,673    $18,873,673
Other liabilities...........................................      553,785        757,503
                                                              -----------    -----------
  Total liabilities.........................................   20,927,458     19,631,176
                                                              -----------    -----------
SHAREHOLDERS' EQUITY
Common stock................................................
Additional paid-in capital..................................   11,101,383     11,101,383
Retained earnings...........................................   24,269,873     18,466,986
Unrealized gain on securities available for sale, net of
  tax.......................................................    1,290,000        676,000
                                                              -----------    -----------
  Total shareholders' equity................................   36,661,256     30,244,369
                                                              -----------    -----------
          Total liabilities and shareholders' equity........  $57,588,714    $49,875,545
                                                              ===========    ===========
</TABLE>
   
 
                                       76
    
<PAGE>   42
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
                              PARENT COMPANY ONLY
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              1997         1996         1995
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Interest on loans and securities.........................  $  107,505   $   97,909   $    7,211
Interest on borrowings...................................   1,997,341    1,982,259      958,804
                                                           ----------   ----------   ----------
Net interest expense.....................................  (1,889,836)  (1,884,350)    (951,593)
Noninterest income
  Dividends from Metropolitan Savings Bank...............   1,500,000    1,400,000      850,000
  Other operating income.................................       3,647        1,541       89,845
                                                           ----------   ----------   ----------
          Total noninterest income                          1,503,647    1,401,541      939,845
                                                           ----------   ----------   ----------
Noninterest expense
  Amortization of intangibles............................       3,490        3,490        3,490
  State franchise taxes..................................      21,111       24,672        4,833
  Other operating expenses...............................     246,244      249,507      315,424
                                                           ----------   ----------   ----------
          Total noninterest expense                           270,845      277,669      323,747
                                                           ----------   ----------   ----------
Income before income taxes...............................    (657,034)    (760,478)    (335,495)
     Federal income tax benefit..........................    (723,000)    (702,000)    (361,000)
                                                           ----------   ----------   ----------
Net income before equity in undistributed net income of
  Metropolitan Savings Bank..............................      65,966      (58,478)      25,505
Equity in undistributed net income of Metropolitan
  Savings Bank...........................................   5,736,921    1,597,381    3,516,914
                                                           ----------   ----------   ----------
Net income...............................................  $5,802,887   $1,538,903   $3,542,419
                                                           ==========   ==========   ==========
</TABLE>
   
 
                                       77
    
<PAGE>   43
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
                              PARENT COMPANY ONLY
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1997          1996          1995
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income...........................................  $5,802,887    $1,538,903    $3,542,419
  Adjustments to reconcile net income to net cash
     provided by operating activities:
  Equity in undistributed net income of Metropolitan
     Savings Bank......................................  (5,736,921)   (1,597,381)   (3,516,914)
  Amortization.........................................       3,490         3,490         3,490
  Change in other assets and liabilities...............    (203,209)      351,706      (950,460)
                                                         ----------    ----------    ----------
     Net cash from operating activities................    (133,753)      296,718      (921,465)
                                                         ----------    ----------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sales of securities....................     400,000     7,428,600
  Purchase of securities available for sale............     (96,796)   (8,335,440)   (1,102,243)
  Capital contributions to Metropolitan Savings Bank...  (1,500,000)   (7,300,000)   (4,520,000)
                                                         ----------    ----------    ----------
     Net cash from investing activities................  (1,196,796)   (8,206,840)   (5,622,243)
                                                         ----------    ----------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from borrowings.............................                              19,000,000
  Repayment of borrowings..............................                              (8,280,000)
  Net activity on lines of credit......................   1,500,000
  Proceeds from issuance of stock......................                 3,300,000
                                                         ----------    ----------    ----------
  Net cash from financing activities...................   1,500,000     3,300,000    10,720,000
                                                         ----------    ----------    ----------
     Net change in cash and cash equivalents...........     169,451    (4,610,122)    4,176,292
Cash and cash equivalents at beginning of year.........     180,112     4,790,234       613,942
                                                         ----------    ----------    ----------
Cash and cash equivalents at end of year...............  $  349,563    $  180,112    $4,790,234
                                                         ==========    ==========    ==========
</TABLE>
 
NOTE 17 -- FEDERAL DEPOSIT INSURANCE PREMIUMS
 
     On September 30, 1996, legislation was enacted which required the Federal
Deposit Insurance Corporation to impose a special assessment on Savings
Association Insurance Fund ("SAIF") insured deposits in order to recapitalize
the SAIF and provide an opportunity to mitigate the premium disparity between
SAIF and Bank Insurance Fund insured deposits. The assessment of 65.7 basis
points on deposits as of March 31, 1995 resulted in the Bank paying $2,927,800,
which was expensed September 30, 1996.
   
 
                                       78
    
<PAGE>   44
                 METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                       DECEMBER 31, 1997, 1996, AND 1995
 
NOTE 18 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                             FOR THE THREE MONTHS ENDED:
                                                   -----------------------------------------------
                                                   MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31
                                                   --------   -------   ------------   -----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>        <C>       <C>            <C>
1997
Interest income..................................  $16,123    $16,492     $17,540        $19,192
Net interest income..............................    6,438      6,523       6,983          7,699
Provision for loan losses........................      585        585         585            585
Net income.......................................    1,211      1,293       1,489          1,810
Basic earnings per share.........................  $  0.17    $  0.18     $ 0 .21        $  0.26
Diluted earnings per share.......................  $  0.17    $  0.18     $ 0 .21        $  0.23
1996
Interest income..................................  $12,184    $12,804     $14,008        $15,456
Net interest income..............................    4,551      4,988       5,389          6,408
Provision for loan losses........................      307        379         650            300
Net income (loss)................................      716        865      (1,129)         1,087
Basic earnings (loss) per share..................  $  0.11    $  0.14     $ (0.18)       $  0.17
Diluted earnings (loss) per share................  $  0.11    $  0.14     $ (0.18)       $  0.17
</TABLE>
   
 
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