<PAGE>   1
                                                                      Exhibit 13


                         Consolidated Financial Statements              
                                                                        
                         CAPITAL HOLDINGS, INC. AND                     
                         SUBSIDIARIES                                   
                                                                        
                                                                        
                                                                        
                         Years Ended December 31, 1998, 1997 and 1996   
                         with Report of Independent Auditors            
                         

<PAGE>   2
                     Capital Holdings, Inc. and Subsidiaries

                        Consolidated Financial Statements

                  Years Ended December 31, 1998, 1997 and 1996


                                    CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                                    <C>
Report of Independent Auditors..........................................................................1

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets.............................................................................2
Consolidated Statements of Income.......................................................................3
Consolidated Statements of Shareholders' Equity.........................................................4
Consolidated Statements of Cash Flows...................................................................5
Notes to Consolidated Financial Statements..............................................................6
</TABLE>


<PAGE>   3





                         Report of Independent Auditors


Board of Directors and Shareholders
Capital Holdings, Inc.


We have audited the accompanying consolidated balance sheets of Capital
Holdings, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Capital Holdings,
Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.






January 15, 1999


                                        1
<PAGE>   4




                   Capital Holdings, Inc. and Subsidiaries

                         Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                            DECEMBER 31
                                                         1998           1997
                                                     ---------------------------
<S>                                                  <C>            <C>         
Assets
Cash and due from banks                              $ 18,262,969   $ 15,291,951
Federal funds sold                                     11,000,000      8,000,000
                                                     ---------------------------
Cash and cash equivalents                              29,262,969     23,291,951

Investment securities available-for-sale, at fair
   value (amortized cost $181,529,214 in 1998
   and $165,465,350 in 1997)                          184,583,020    167,520,873

Loans                                                 578,369,916    469,036,091
Less allowance for loan losses                          8,145,982      6,947,377
                                                     ---------------------------
Net loans                                             570,223,934    462,088,714

Bank premises and equipment                             9,751,447      9,548,218
Interest receivable and other assets                    7,806,606      7,090,107
                                                     ---------------------------
TOTAL ASSETS                                         $801,627,976   $669,539,863
                                                     ===========================
LIABILITIES AND SHAREHOLDERS' EQUITY 
Liabilities:
   Deposits:
     Interest bearing                                $606,571,823   $529,791,363
     Noninterest bearing                               56,494,624     49,869,745
                                                     ---------------------------
   Total deposits                                     663,066,447    579,661,108

Short-term borrowings                                  72,016,334     30,295,269
Interest payable and other liabilities                  8,122,982      9,036,804
                                                     ---------------------------
Total liabilities                                     743,205,763    618,993,181

Shareholders' equity:
   Common stock, no par value, $.50 stated value;
     3,000,000 shares authorized,
     2,016,408 shares issued and
     outstanding (1,991,922 in 1997)                    1,008,204        995,961
   Capital in excess of stated value                   34,201,997     33,179,413
   Retained earnings                                   21,197,999     15,014,646
   Accumulated other comprehensive income               2,014,013      1,356,662
                                                     ---------------------------
Total shareholders' equity                             58,422,213     50,546,682
                                                     ---------------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $801,627,976   $669,539,863
                                                     ===========================
</TABLE>

See accompanying notes.



                                       2
<PAGE>   5



                     Capital Holdings, Inc. and Subsidiaries

                        Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                 YEAR ENDED DECEMBER 31
                                          1998           1997            1996
                                      -------------------------------------------
<S>                                   <C>            <C>             <C>         
INTEREST INCOME
Loans, including fees                 $ 43,725,781   $ 36,924,103    $ 29,899,157
Securities:
   Taxable                              10,594,117      9,671,309       8,914,952
   Exempt from federal income tax          710,187        697,916         682,893
Federal funds sold                         537,377        299,661         141,916
                                      -------------------------------------------
Total interest income                   55,567,462     47,592,989      39,638,918

INTEREST EXPENSE
Deposits                                29,022,126     25,651,782      20,450,873
Short-term borrowings                    2,728,797      1,373,872       1,854,351
                                      -------------------------------------------
Total interest expense                  31,750,923     27,025,654      22,305,224
                                      -------------------------------------------
Net interest income                     23,816,539     20,567,335      17,333,694

Provision for loan losses                1,230,000      1,005,000         980,000
                                      -------------------------------------------
Net interest income after provision
   for loan losses                      22,586,539     19,562,335      16,353,694

OTHER INCOME
Securities gains (losses)--net              63,555         (1,797)        (55,434)
Other                                    1,617,848      1,207,137         929,727
                                      -------------------------------------------
Total other income                       1,681,403      1,205,340         874,293

OTHER EXPENSES
Salaries and employee benefits           6,610,813      5,669,559       4,632,241
FDIC and other insurance                    69,651         62,199           2,000
Other                                    5,853,786      5,020,232       4,186,868
                                      -------------------------------------------
Total other expenses                    12,534,250     10,751,990       8,821,109
                                      -------------------------------------------
Income before provision for federal
   income tax                           11,733,692     10,015,685       8,406,878
Provision for federal income tax         3,805,000      3,234,000       2,681,000
                                      -------------------------------------------
NET INCOME                            $  7,928,692   $  6,781,685    $  5,725,878
                                      ===========================================

Net income per share:
   Basic                              $       3.96   $       3.57    $       3.04
   Diluted                                    3.89           3.43            2.94
</TABLE>


See accompanying notes.



                                       3
<PAGE>   6




                     Capital Holdings, Inc. and Subsidiaries

                 Consolidated Statements of Shareholders' Equity


<TABLE>
<CAPTION>                                                                  
                                                                                             Accumulated  
                                                           Capital in                           Other             Total
                                             Common        Excess of         Retained       Comprehensive     Shareholders'
                                              Stock       Stated Value       Earnings          Income            Equity
                                            ---------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>             <C>            
Balance at January 1, 1996                  $   888,864  $  27,136,543    $   6,878,138    $   1,232,517    $   36,136,062
Net income                                                                    5,725,878                          5,725,878
Net unrealized loss on securities          
   available-for-sale,                     
   net of tax effect of $361,000                                                                (701,708)         (701,708)
                                                                                                         -----------------
Comprehensive income                                                                                            41,160,232
Exercise of 447 common stock options       
  at $10.78 per share                               223          4,595                                               4,818
Issuance of 13,010 shares of common        
   stock at $33.50 per share                      6,505        429,330                                             435,835
Common stock dividend, 106,324 shares            53,162      3,322,625       (3,386,568)                           (10,781)
                                            ------------------------------------------------------------------------------
Balance at December 31, 1996                    948,754     30,893,093        9,217,448          530,809        41,590,104
Net income                                                                    6,781,685                          6,781,685
Net unrealized gain on securities          
   available-for-sale,                     
   net of tax effect of $425,000                                                                 825,853           825,853
                                                                                                         -----------------
Comprehensive income                                                                                            49,197,642
Exercise of 83,987 common stock options,   
   including tax benefit                         41,994      1,833,508                                           1,875,502
Issuance of 10,427 shares of commons stock        5,213        452,812                                             458,025
Cash dividend--$.51 per share                                                  (984,487)                          (984,487)
                                            ------------------------------------------------------------------------------
Balance at December 31, 1997                    995,961     33,179,413       15,014,646        1,356,662        50,546,682
Net income                                                                    7,928,692                          7,928,692
Net unrealized gain on securities          
   available-for-sale,                     
   net of tax effect of $342,000                                                                 657,351           657,351
                                                                                                         -----------------
Comprehensive income                                                                                            59,132,725
Exercise of 8,556 common stock options,    
   including tax benefit                          4,278        193,114                                             197,392
Issuance of 15,930 shares of common stock         7,965        829,470                                             837,435
Cash dividend--$.87 per share                                                (1,745,339)                        (1,745,339)
                                            ------------------------------------------------------------------------------
                                                                       
Balance at December 31, 1998                $ 1,008,204   $ 34,201,997    $  21,197,999    $   2,014,013   $    58,422,213
                                            ==============================================================================
</TABLE>


See accompanying notes.


                                       4

<PAGE>   7





                     Capital Holdings, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31
                                                                    1998              1997              1996
                                                             ---------------------------------------------------
<S>                                                            <C>              <C>               <C>           
OPERATING ACTIVITIES
Net income                                                     $    7,928,692   $    6,781,685    $    5,725,878
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Provision for loan losses                                      1,230,000        1,005,000           980,000
     Depreciation and amortization                                    706,252          469,909           301,854
     Amortization and accretion of security premiums
       and discounts                                                  (46,746)         (73,781)          (54,105)
     (Gain) loss on sale of investment securities                     (63,555)           1,797            55,434
     Deferred income tax credit                                      (345,000)         (71,200)         (333,200)
     Changes in assets and liabilities:
       Interest receivable and other assets                          (712,431)      (1,114,366)         (450,990)
       Interest payable and other liabilities                      (1,059,133)       3,636,133           851,910
                                                             ---------------------------------------------------
Total adjustments                                                    (290,613)       3,853,492         1,350,903
                                                             ---------------------------------------------------
Net cash provided by operating activities                           7,638,079       10,635,177         7,076,781

INVESTING ACTIVITIES
Purchases of available-for-sale securities                        (76,970,518)     (48,375,145)      (63,954,536)
Net increase in loans                                            (109,365,220)     (88,875,776)      (55,369,471)
Purchase of bank premises and equipment                              (909,481)      (4,007,742)       (1,829,085)
Proceeds from sales of available-for-sale securities               53,691,672       28,999,960        35,432,969
Proceeds from maturities of available-for-sale securities           7,325,283       12,386,884         8,874,359
                                                             ---------------------------------------------------
Net cash used in investing activities                            (126,228,264)     (99,871,819)      (76,845,764)

FINANCING ACTIVITIES
Net increase in deposits                                           83,405,339      108,918,016        63,121,569
Net increase (decrease)  in short-term borrowings                  41,721,065      (12,035,291)        7,127,852
Issuance of common stock                                            1,034,827        2,333,527           440,653
Cash dividends paid                                                (1,600,028)        (645,860)          (10,781)
                                                             ---------------------------------------------------
Net cash provided by financing activities                         124,561,203       98,570,392        70,679,293
                                                             ---------------------------------------------------
Increase in cash and cash equivalents                               5,971,018        9,333,750           910,310
Cash and cash equivalents at beginning of year                     23,291,951       13,958,201        13,047,891
                                                             ---------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                       $   29,262,969   $   23,291,951    $   13,958,201
                                                             ===================================================
SUPPLEMENTAL DISCLOSURES
Interest paid                                                  $   31,273,946   $   26,386,253    $   22,119,961
                                                             ===================================================
Income taxes paid                                              $    4,026,000   $    3,325,000    $    2,975,000
                                                             ===================================================
NONCASH OPERATING ACTIVITIES
Change in deferred income taxes on net unrealized
  gains or losses on available-for-sale securities             $      342,416   $      425,439    $     (361,482)
                                                             ===================================================
NONCASH INVESTING ACTIVITIES
Change in net unrealized gain (loss) on
  available-for-sale securities                                $    1,001,283   $    1,251,292    $   (1,063,190)
                                                             ===================================================
</TABLE>

See accompanying notes.



                                       5
<PAGE>   8







                     Capital Holdings, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1998


1.     ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Capital Holdings,
Inc. (the Company) and its wholly-owned subsidiaries, Capital Bank, N.A. (the
Bank) and CBNA Building Company (CBNA). The Bank conducts business in the
western part of Lucas County and a portion of the extreme northwest part of Wood
County in northwestern Ohio as a national banking association and focuses on
corporate, executive and professional customers, with the primary emphasis on
deposits from and commercial loans to businesses and professionals. All
significant intercompany balances and transactions have been eliminated.

The Bank is subject to the regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities.

CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company has
defined cash equivalents as due from banks and federal funds sold with a
maturity of three months or less at date of purchase. The carrying amounts
reported in the balance sheet for cash and cash equivalents approximate those
assets' fair values.

SECURITIES AVAILABLE-FOR-SALE

Management determines the appropriate classification of investment securities at
the time of purchase. If the Company has the positive intent and ability to hold
debt securities to maturity and designates them as held-to-maturity, such
securities are stated at amortized cost. Available-for-sale securities are
stated at fair value, with the unrealized gains and losses, net of income tax,
reported as a separate component of shareholders' equity. The Company has no
trading securities.

The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. The cost of securities sold is based on the specific identification
method.



                                       6
<PAGE>   9

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

1.     ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

Currently, the Company invests only in on-balance-sheet derivative securities as
part of the overall asset and liability management process. All such securities
owned at December 31, 1998 and 1997 are issued by U. S. Government sponsored
agencies and represent approximately .2% and .7%, respectively, of total assets.

LOANS AND REVENUE RECOGNITION

The Bank grants commercial, real estate and consumer loans to customers
primarily in northwest Ohio. Interest on loans is accrued by using the simple
interest method on the principal amounts outstanding. Loan origination and
commitment fees are being deferred and amortized over the estimated life of the
related loans as a yield adjustment.

ALLOWANCE FOR LOAN LOSSES

Inherent to the preparation of financial statements in conformity with generally
accepted accounting principles is the use of accounting estimates. These
estimates are used, when uncertainties exist regarding future events, to
determine the balances in asset and liability accounts. Most significantly, the
Bank uses estimates in determining the value of the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses
charged to operating expense. Loans are charged off against the allowance for
loan losses when management believes that the loan is impaired or the
collectibility of the principal is unlikely. The allowance is the estimated
amount that management believes will be adequate to absorb potential losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans. The evaluations take into consideration such factors as
changes in the composition and size of the loan portfolio, overall portfolio
quality, review of specific problem loans, current economic conditions and
industry guidelines. While management believes it uses the best information
available to make evaluations, future adjustments to the allowance for loan
losses may be necessary in circumstances that differ substantially from
assumptions in making the evaluations.

Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.




                                       7
<PAGE>   10
                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued



1.     ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

DEPRECIATION

Depreciation of bank premises and equipment is determined using straight-line
rates over estimated useful lives.

DEPOSITS

Interest is paid on customers' deposits at varying rates and periods depending
on the extent, if any, of minimum balance and holding period requirements.

RETIREMENT PLANS

The Bank maintains a retirement savings plan for substantially all employees.
Within certain limitations, contributions can be made by participants on a
pre-tax basis, and the Bank may contribute an amount equal to a certain
percentage, as determined annually by the Board of Directors, of the
participants' semi-monthly contributions. The plan provides for discretionary
profit sharing contributions as determined by the Bank's management. The Company
also maintains a Supplemental Executive Retirement Plan for certain key
management employees. Total expense under these plans in 1998, 1997 and 1996 was
approximately $354,000, $394,000 and $257,000, respectively.

REPORTING COMPREHENSIVE INCOME

As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement has no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement 130.



                                       8
<PAGE>   11

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


1.     ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

OPERATING SEGMENT

On January 1, 1998, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), became effective. Statement 131 established standards for the reporting of
information about operating segments and related disclosures about products and
services, geographic areas and major customers. The Company operates primarily
in one business segment as a focused commercial business lender. The Company
offers a full set of commercial lending products and services through one
banking office and a comprehensive courier program that enhances customer
service. The Company's primary sources of revenue are interest income and fees
from its investments and commercial loan products.

REPORTING DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, establishes accounting and reporting standards for hedging
activities and derivative instruments. The Statement is effective for fiscal
years beginning after June 15, 1999. The Company will adopt Statement 133 as of
January 1, 2000. The impact of adopting this statement is not expected to be
material.

2.     CASH AND DUE FROM BANKS

At December 31, 1998 and 1997, approximately $1,478,000 and $3,687,000,
respectively, was restricted due to requirements of the Federal Reserve Board to
maintain certain average reserve balances.



                                       9
<PAGE>   12

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


3.     INVESTMENT SECURITIES

The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>

                                                         December 31, 1998
                               ---------------------------------------------------------------------
                                                       Gross            Gross
                                   Amortized        Unrealized        Unrealized          Fair
                                      Cost             Gains            Losses            Value
                               ---------------------------------------------------------------------
<S>                               <C>               <C>               <C>              <C>          
Debt securities:
   U. S. Government and
     agency obligations           $ 143,884,327     $  2,275,426      $  152,189       $ 146,007,564
   Corporate                         15,875,541          313,204           8,652          16,180,093
   Municipal                         14,445,974          628,059             339          15,073,694
   Mortgage-backed                    1,662,772            4,343           6,046           1,661,069
                               ---------------------------------------------------------------------
                                    175,868,614        3,221,032         167,226         178,922,420
Other securities                      5,660,600                                            5,660,600
                               ---------------------------------------------------------------------

TOTAL                             $ 181,529,214     $  3,221,032      $  167,226       $ 184,583,020
                               =====================================================================
</TABLE>
<TABLE>
<CAPTION>


                                                         December 31, 1997
                               ---------------------------------------------------------------------
                                                       Gross            Gross
                                   Amortized        Unrealized        Unrealized          Fair
                                      Cost             Gains            Losses            Value
                               ---------------------------------------------------------------------
<S>                               <C>                <C>              <C>              <C>          
Debt securities:
   U. S. Government and
     agency obligations           $ 128,850,936      $ 1,463,782      $  291,451       $ 130,023,267
   Corporate                         15,421,610          200,902           8,481          15,614,031
   Municipal                         13,497,064          541,136                          14,038,200
   Mortgage-backed                    3,101,840            4,026          17,961           3,087,905
                               ---------------------------------------------------------------------
                                    160,871,450        2,209,846         317,893         162,763,403
Other securities                      4,593,900          163,570                           4,757,470
                               ---------------------------------------------------------------------

Total                             $ 165,465,350      $ 2,373,416      $  317,893       $ 167,520,873
                               =====================================================================
</TABLE>

The carrying value of securities  available-for-sale  that are pledged to 
secure  securities  sold under  agreements to repurchase and other deposits 
was  $116,696,000  and $107,076,000 at December 31, 1998 and 1997, respectively.



                                       10
<PAGE>   13

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


3.     INVESTMENT SECURITIES--CONTINUED

Sales of investment securities resulted in realized gains and losses for the
year ended December 31 as follows:
<TABLE>
<CAPTION>

                                          1998            1997            1996
                                     ---------------------------------------------
<S>                                    <C>            <C>             <C>         
Securities gains                       $     72,457   $     24,899    $     37,987
Securities losses                            (8,902)       (26,696)        (93,421)
                                     ---------------------------------------------

NET GAIN (LOSS)                        $     63,555   $     (1,797)   $    (55,434)
                                     =============================================
</TABLE>

The amortized cost and fair value of investment securities at December 31, 1998
by contractual maturity are shown below. The contractual maturity is utilized
below except for mortgage-backed securities which use expected maturities based
on prepayment trends at the date of acquisition. Expected maturities 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>             
Debt securities, excluding 
 mortgage-backed securities:
     Due in one year or less                            $      12,953,694    $     13,047,609
     Due after one year through five years                    104,326,643         106,104,982
     Due after five years through ten years                    56,437,436          57,540,836
     Due after ten years                                          488,069             567,924
                                                     ----------------------------------------
                                                              174,205,842         177,261,351
Mortgage-backed securities:
     Due in one year or less                                    1,430,542           1,432,173
     Due after ten years                                          232,230             228,896
                                                     ----------------------------------------
                                                                1,662,772           1,661,069
                                                     ----------------------------------------
Total debt securities                                         175,868,614         178,922,420

Other securities                                                5,660,600           5,660,600
                                                     ----------------------------------------

TOTAL                                                   $     181,529,214    $    184,583,020
                                                     ========================================
</TABLE>

                                       11
<PAGE>   14

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

4.     LOANS

The carrying amount of loans, classified by type, at December 31 are as follows:
<TABLE>
<CAPTION>
                                                               1998                  1997
                                                     ------------------------------------------
<S>                                                     <C>                   <C>              
Commercial                                              $     124,643,361     $     103,060,887
Real estate:
   Residential--first mortgage                                121,358,239           104,659,213
   Commercial--owner occupied                                 118,559,796            99,537,241
   Commercial--investment                                     182,888,352           130,107,734
   Consumer                                                    27,260,608            27,848,835
   Other                                                        4,570,835             4,507,631
                                                     ------------------------------------------
                                                              579,281,191           469,721,541
Less deferred loan fees                                           911,275               685,450
                                                     ------------------------------------------
                                                              578,369,916           469,036,091
Less allowance for loan losses                                  8,145,982             6,947,377
                                                     ------------------------------------------
                                                        $     570,223,934     $     462,088,714
                                                     ==========================================
</TABLE>

Transactions affecting the allowance for loan losses for the year ended December
31 are summarized below:
<TABLE>
<CAPTION>
                                                   1998               1997               1996
                                           ------------------------------------------------------
<S>                                         <C>               <C>               <C>           
  Balance--January 1                           $    6,947,377    $   5,942,377     $    4,960,000
  Provision for loan losses                         1,230,000        1,005,000            980,000
  Net (charge offs)  recoveries                       (31,395)                              2,377
                                           ------------------------------------------------------
                                               $    8,145,982    $   6,947,377     $    5,942,377
                                           ======================================================
</TABLE>

The Bank has granted loans to certain directors of the Company and to their
affiliates. Such loans are made in the ordinary course of business at the Bank's
normal credit terms including interest rates and collateralization, and do not
represent more than a normal risk of collection. Loans to directors, executive
officers and related individuals and entities totaled approximately $16,528,000
and $15,205,000 at December 31, 1998 and 1997, respectively. During 1998,
$12,172,000 of new loans were made and collections and repayments totaled
$10,849,000. The Bank had no material impaired loans at December 31, 1998, 1997
and 1996.



                                       12
<PAGE>   15

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

5.     BANK PREMISES AND EQUIPMENT

Major classes of bank premises and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
                                                            1998                1997
                                                     --------------------------------------
<S>                                                     <C>                 <C>            
Cost:
   Land and improvements                                $     2,098,382     $     2,076,648
   Buildings and improvements                                 6,831,900           6,765,301
   Equipment                                                  2,553,194           1,866,464
   Furniture and fixtures                                       821,393             797,373
                                                     --------------------------------------
                                                             12,304,869          11,505,786
   Less accumulated depreciation                              2,553,422           1,957,568
                                                     --------------------------------------

                                                        $     9,751,447     $     9,548,218
                                                     ======================================
</TABLE>

6.     DEPOSITS

The carrying amounts of deposits, classified by type, at December 31 are as
follows:
<TABLE>
<CAPTION>
                                                                 1998                  1997
                                                       ------------------------------------------
<S>                                                       <C>                   <C>              
Noninterest bearing demand                                $      56,494,624     $      49,869,745
Interest checking                                               214,565,048           146,291,238
Savings                                                          17,898,867            17,296,887
Certificates of deposit of $100,000 or more                     218,687,386           206,451,627
Other time deposits                                             155,420,522           159,751,611
                                                       ------------------------------------------

                                                          $     663,066,447     $     579,661,108
                                                       ==========================================

</TABLE>

The maturity distribution of certificates of deposit issued in amounts of
$100,000 and over and outstanding at December 31, 1998 is:
<TABLE>
<CAPTION>

<S>                                                              <C>             
Three months or less                                             $     97,329,393
Over three and through six months                                      36,632,228
Over six and through twelve months                                     47,462,342
Over twelve months                                                     37,263,423
                                                              -------------------
                                                                 $    218,687,386
                                                              ===================


</TABLE>

                                       13
<PAGE>   16

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

7.     SHORT-TERM BORROWINGS

Short-term borrowings, which are comprised of various types of funds at December
31 are summarized below:
<TABLE>
<CAPTION>
                                                                    1998              1997
                                                             -----------------------------------
<S>                                                             <C>              <C>            
Securities sold under agreements to repurchase                  $   14,625,863   $    14,395,269
Advances from FHLB                                                  53,900,000        15,900,000
Other                                                                3,490,471
                                                             -----------------------------------
TOTAL SHORT-TERM BORROWINGS                                     $   72,016,334   $    30,295,269
                                                             ===================================
</TABLE>

At December 31, 1998 and 1997, the Company had $24,260,000 and $36,200,000,
respectively, of unused lines of credit to obtain short-term financing.

The maximum amount of securities sold under agreements to repurchase during 1998
was $22,068,000 and the average for the year was $17,790,000. The underlying
securities were under the Company's control.

Advances from the Federal Home Loan Bank have mortgage loans pledged as
collateral of $80,850,000 and $23,850,000 at December 31, 1998 and 1997,
respectively.

Other short-term borrowings include demand notes issued by the Bank to the U.S.
Treasury under the Treasury's tax and loan note program.



                                       14
<PAGE>   17

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


8.     FEDERAL INCOME TAX

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
                                                                    1998             1997
                                                              -------------------------------
<S>                                                             <C>             <C>          
Deferred tax liabilities:
   Unrealized net holding gains on
     securities available for sale                              $   1,040,000   $     698,000
   Tax over book depreciation                                         164,000         126,000
   Other                                                              398,000         304,000
                                                              -------------------------------
Total deferred tax liabilities                                      1,602,000       1,128,000

Deferred tax assets:
   Allowance for loan losses                                        2,543,000       2,113,000
   Deferred loan fees                                                 105,000          57,000
   Other                                                               45,000          44,000
                                                              -------------------------------
Total deferred tax assets                                           2,693,000       2,214,000
                                                              -------------------------------
NET DEFERRED TAX ASSETS INCLUDED IN THE CAPTION "INTEREST
   RECEIVABLE AND OTHER ASSETS"                                 $   1,091,000   $   1,086,000
                                                              ===============================
</TABLE>

The provision (credit) for federal income tax for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
                                                          1998              1997             1996
                                                    ---------------------------------------------------
<S>                                                    <C>               <C>              <C>          
    Current                                            $   4,150,000     $   3,305,200    $   3,014,200
    Deferred                                                (345,000)          (71,200)        (333,200)
                                                    ---------------------------------------------------
    TOTAL                                              $   3,805,000     $   3,234,000    $   2,681,000
                                                    ===================================================
</TABLE>



                                       15
<PAGE>   18

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


8.     FEDERAL INCOME TAX--CONTINUED

The effective tax rate differs from the statutory tax rate for the following
reasons and by the following percentages:
<TABLE>
<CAPTION>

                                                              1998             1997            1996
                                                       --------------------------------------------
<S>                                                           <C>             <C>              <C>  
    Statutory tax rate                                        34.0%           34.0%            34.0%
    Increase (decrease) in tax resulting from:
       Interest on investments exempt from
         federal income tax                                   (1.9)           (2.4)            (2.8)
       Other                                                    .3              .7               .7
                                                       --------------------------------------------
    EFFECTIVE TAX RATE                                        32.4%           32.3%            31.9%
                                                       ============================================
</TABLE>

Income tax expense (benefit) related to gains and losses realized on the sale of
securities amounted to approximately, and $22,000, ($1,000), and ($19,000) for
1998, 1997 and 1996, respectively.

9.     CAPITAL STOCK

The Company has long-term incentive plans under which it has awarded stock
options to executive officers, directors and other key personnel. The Directors'
Stock Option Plan (the Plan) was established in 1995 and allows the Company to
grant directors options to purchase up to 159,000 common shares. Each option
granted under the plan is exercisable at the date of the grant and all options
issued terminate at the earlier of (1) one year following either the
discontinuance of service as a director, (2) change in control of the Company,
or (3) ten years from the date of grant. During 1998, 12,500 options were
granted to Directors under this plan. Options issued under the Plan are
automatically adjusted for common stock dividends. The Plan expires July 1,
2005.

The Company also has established, in 1988 and 1996, stock option plans under
which shares of common stock may be issued to key employees at prices not less
than market value at the date of grant. The option period is ten years from the
date of grant, and no options are exercisable until the fifth anniversary of the
grant. During 1998, 97,336 options were granted to key employees under these
plans. Options issued under these plans are automatically adjusted for common
stock dividends. These plans expire ten years from the date they were
established.



                                       16
<PAGE>   19

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


9.     CAPITAL STOCK--CONTINUED

The Company has elected to follow Accounting Principles Board Opinion No 25.
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 6.0%, 6.0% and 7.0%;
dividend yield of 2.0%, 2.0% and 6.0%; volatility factors of the expected market
price of the Company's common stock of .20, .20 and .21; and a weighted-average
expected life of the option of 7.5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
                                                        1998             1997              1996
                                                  ---------------- ----------------- ----------------
<S>                                                  <C>              <C>               <C>       
Proforma net income                                  $    7,274       $   6,639         $    5,706
Proforma basic earnings per share                    $    3.63        $    3.49         $     3.03
Proforma dilute earnings per share                   $    3.57        $    3.36         $     2.93
</TABLE>



                                       17
<PAGE>   20

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


9.     CAPITAL STOCK--CONTINUED

The following table summarizes stock options activity for 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                    Options
                                         -------------------------------
                                           Available                      Option Price Per
                                           for Grant     Outstanding         Share Range
                                         ---------------------------------------------------
<S>                                      <C>               <C>            <C>
Balance at January 1, 1996                  169,218           112,814       $10.78 to $27.36
Authorized                                  159,000
Granted                                     (22,619)           22,619       $29.95
Exercised                                                        (447)      $10.78
Forfeited                                     2,431            (2,431)      $10.78 to $33.50
                                         -------------------------------
Balance at December 31, 1996                308,030           132,555       $10.78 to $33.50
Granted                                     (27,850)           27,850       $37.50
Exercised                                                     (83,987)      $10.78 to $16.44
                                         -------------------------------
Balance at December 31, 1997                280,180            76,418       $10.78 to $37.50
Granted                                    (109,836)          109,836       $44.50 to $54.50
Exercised                                                      (8,556)      $10.78 to $47.00
Forfeited                                                        (200)      $47.00
                                         -------------------------------
BALANCE AT DECEMBER 31, 1998                170,344           177,498       $10.78 TO $54.50
                                         ===============================
EXERCISABLE--DECEMBER 31, 1998               47,634
                                         ===============
</TABLE>

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                       1998              1997              1996
                                                 -----------------------------------------------------
<S>                                                <C>              <C>               <C>           
Numerator for basic and diluted 
   earnings per share:
     Net income                                    $    7,928,692   $    6,781,685    $    5,725,878
                                                 =====================================================
Denominator:
   Denominator for basic earnings per
     share--weighted-average shares                     2,002,486        1,899,904         1,884,278

Effect of securities:
   Employee stock options                                  34,379           75,914            63,377
                                                 -----------------------------------------------------

Denominator for diluted earnings per
   share--adjusted weighted-average shares for
   assumed conversions                                  2,036,865        1,975,818         1,947,655
                                                 =====================================================

Basic earnings per share                           $         3.96     $       3.57      $       3.04
                                                 =====================================================

Diluted earnings per share                         $         3.89     $       3.43      $       2.94
                                                 =====================================================
</TABLE>



                                       18
<PAGE>   21

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

10.    OTHER EXPENSES

The components of other expenses for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
                                                       1998             1997              1996
                                               ---------------------------------------------------
<S>                                               <C>              <C>               <C>          
Postage, telephone and delivery                   $     788,379    $     689,346     $     643,439
Professional services                                   796,658          611,217           489,546
Taxes, other than income                                454,262          396,055           535,380
Other                                                 3,814,487        3,323,614         2,518,503
                                               ---------------------------------------------------

TOTAL OTHER EXPENSES                              $   5,853,786    $   5,020,232     $   4,186,868
                                               ===================================================
</TABLE>

11.    COMMITMENTS

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Loan commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition in the contract.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized, if any, in the balance sheet. The Bank's maximum
exposure to loan loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Collateral, such as
accounts receivable, securities, inventory, property and equipment, is obtained
based on management's credit assessment of the borrower.





                                       19
<PAGE>   22

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued



11.    COMMITMENTS--CONTINUED

Fair value of the Bank's off-balance-sheet instruments (commitments to extend
credit and standby letters of credit) is based on rates currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. At December 31, 1998 and
1997, the rates on existing off-balance-sheet instruments were substantially
equivalent to current market rates, considering the underlying credit standing
of the counterparties.

The Bank's maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at December 31 was as follows:
<TABLE>
<CAPTION>
                                                       1998
                                    ------------------------------------------
            EXPIRATION                      LOAN             STANDBY LETTERS
               DATE                      COMMITMENTS            OF CREDIT
------------------------------------------------------------------------------
<S>                                    <C>                    <C>             

1999                                   $    190,539,000       $     12,890,000
2000                                         17,797,000                290,000
2001 and beyond                              28,954,000              3,639,000
                                    ------------------------------------------

                                       $    237,290,000       $     16,819,000
                                    ==========================================

                                                       1997
                                    ------------------------------------------

1998                                   $    157,039,000       $      3,013,000
1999                                         13,172,000              2,983,000
2000 and beyond                              16,698,000              7,443,000
                                    ------------------------------------------

                                       $    186,909,000       $     13,439,000
                                    ==========================================
</TABLE>

Management does not anticipate any significant losses as a result of these
commitments.



                                       20
<PAGE>   23

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


12.    RETAINED EARNINGS AND REGULATORY CAPITAL

Bank regulatory agencies limit the transfer of assets in the form of dividends,
loans or advances from banks to the parent company. Under such limitations, the
amount available for payment of dividends to the Company without obtaining prior
approval of the Comptroller of the Currency was approximately $11,176,000 at
January 1, 1999. Additional 1999 earnings will also become available for
distribution. Restricted net assets of the Bank amounted to approximately
$31,850,000 or 55% of the Company's consolidated shareholders' equity at
December 31, 1998.

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the
Company and the Bank meet all capital adequacy requirements to which it is
subject.

As of December 31, 1998, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the institution's category.




                                       21
<PAGE>   24

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


12.    RETAINED EARNINGS AND REGULATORY CAPITAL--CONTINUED

The following schedule presents the Company's regulatory capital ratios as of
December 31:
<TABLE>
<CAPTION>
                                                       Total          Tier I         Tier I
                                                    Risk-Based      Risk-Based      Leverage
                                                      Capital        Capital         Capital
                                                  ----------------------------------------------
<S>                                              <C>             <C>             <C>
Minimum capital adequacy percentage                         8%              4%             4%
Percentage to be well capitalized                          10%              6%             5%
Actual percentage--December 31, 1998                     10.4%            9.1%           7.2%
Actual percentage--December 31, 1997                     11.1%            9.8%           7.7%

December 31, 1998:
   Required capital                                 $  49,559,000  $  24,779,000   $  31,333,000
   Capital to be well capitalized                      61,949,000     37,169,000      39,167,000
   Actual capital                                      64,157,000     56,408,000      56,408,000

December 31, 1997:
   Required capital                                 $  40,126,000  $  20,063,000   $  25,648,000
   Capital to be well capitalized                      50,158,000     30,095,000      32,059,000
   Actual capital                                      55,468,000     49,190,000      49,190,000
</TABLE>

13.    FAIR VALUE STATEMENT OF CONDITION

The Financial Accounting Standards Board Statement No. 107, Disclosures about
Fair Value of Financial Instruments (Statement No. 107) requires disclosure of
fair value information about financial instruments, whether or not recognized in
the statement of financial condition, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.




                                       22
<PAGE>   25

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued

13.    FAIR VALUE STATEMENT OF CONDITION--CONTINUED

The following is a comparative condensed consolidated statement of condition
based on carrying and estimated fair values as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
                                                                            1998
                                                          ------------------------------------------
                                                               CARRYING            ESTIMATED
                                                                 VALUE            FAIR VALUES
                                                          ------------------------------------------
<S>                                                         <C>                 <C>              
Assets:
   Cash and cash equivalents                                $     29,262,969    $      29,262,969
   Investment securities                                         184,583,020          184,583,020
   Loans, net                                                    570,223,934          573,013,603
                                                          ------------------------------------------
                                                                 784,069,923    $     786,859,592
                                                                                ====================
   Other assets                                                   17,558,053
                                                          ---------------------
TOTAL ASSETS                                                $    801,627,976
                                                          =====================
Liabilities and shareholders' equity:
   Deposits                                                 $    663,066,447    $     663,937,736
   Short-term borrowings                                          72,016,334           72,345,679
                                                          ------------------------------------------
                                                                 735,082,781    $     736,283,415
                                                                                ====================
   Other liabilities                                               8,122,982
                                                          ---------------------
                                                                 743,205,763
Shareholders' equity:                                             58,422,213
                                                          ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $    801,627,976
                                                          =====================
</TABLE>



                                       23
<PAGE>   26

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued


13.    FAIR VALUE STATEMENT OF CONDITION--CONTINUED
<TABLE>
<CAPTION>

                                                                            1997
                                                          -------------------------------------------
                                                                CARRYING             ESTIMATED
                                                                 VALUE              FAIR VALUES
                                                          -------------------------------------------
<S>                                                         <C>                  <C>              
Assets:
   Cash and cash equivalents                                $     23,291,951     $      23,291,951
   Investment securities                                         167,520,873           167,520,873
   Loans, net                                                    462,088,714           464,062,180
                                                          -------------------------------------------
                                                                 652,901,538     $     654,875,004
                                                                                 ====================
   Other assets                                                   16,638,325
                                                          ----------------------
TOTAL ASSETS
                                                            $    669,539,863
                                                          ======================
Liabilities and shareholders' equity:
   Deposits                                                 $    579,661,108     $     579,851,786
   Short-term borrowings                                          30,295,269            30,295,269
                                                          -------------------------------------------
                                                                 609,956,377     $     610,147,055
                                                                                 ====================
   Other liabilities                                               9,036,804
                                                          ----------------------
                                                                 618,993,181
Shareholders' equity                                              50,546,682
                                                          ----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $    669,539,863
                                                          ======================
</TABLE>




14.    CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
<TABLE>
<CAPTION>
                                                                         DECEMBER 31
                                                                  1998                  1997
                                                          ------------------------------------------
<S>                                                          <C>                   <C>              
CONDENSED BALANCE SHEETS
Assets:
   Cash                                                      $         704,696     $       1,500,001
   Investment in and advances to subsidiaries                       57,551,207            49,033,260
   Other assets                                                        650,250               352,048
                                                          ------------------------------------------
TOTAL ASSETS                                                 $      58,906,153     $      50,885,309
                                                          ==========================================
Liabilities and shareholders' equity:
   Other liabilities--dividends payable                       $        483,940     $         338,627
   Shareholders' equity                                             58,422,213            50,546,682
                                                          ------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $      58,906,153     $      50,885,309
                                                          ==========================================
</TABLE>


                                       24
<PAGE>   27

                     Capital Holdings, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements--Continued



14.    CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY--CONTINUED
<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31
                                                            ----------------------------------------------------
                                                                  1998              1997               1996
                                                            ----------------------------------------------------
<S>                                                           <C>               <C>               <C>           
CONDENSED STATEMENTS OF INCOME
Dividend from subsidiary                                                        $   4,000,000     $   10,000,000
Interest and fee income                                         $   945,661           675,810                450
Gain on securities                                                   41,732
Expenses                                                            811,338           769,870             87,489
                                                            ----------------------------------------------------
Income before equity in undistributed
   net income of subsidiaries                                       176,055         3,905,940          9,912,961
Increase (decrease) in undistributed
   net income of subsidiaries                                     7,752,637         2,875,745         (4,187,083)
                                                            ----------------------------------------------------
NET INCOME                                                    $   7,928,692     $   6,781,685     $    5,725,878
                                                            ====================================================
CONDENSED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income                                                    $   7,928,692     $   6,781,685     $    5,725,878
Adjustments to reconcile net income to net cash provided
  by (used in) operating activities:
Equity in undistributed net income of subsidiaries               (7,752,637)       (2,875,745)         4,187,083
(Increase) decrease in other assets                                (434,159)          209,159                450
Gain on sale of investments                                         (41,732)
                                                            ----------------------------------------------------
Net cash provided by (used in) operating activities                (299,836)        4,115,099          9,913,411

INVESTING ACTIVITIES
Increase in note receivable from subsidiary                                        (4,000,000)       (10,000,000)
Investment in subsidiaries                                                           (722,615)
Proceeds from sale and maturities of securities                      69,732
Purchase of investment securities                                                    (150,500)          (257,500)
                                                            ----------------------------------------------------
Net cash used in investing activities                                69,732        (4,873,115)       (10,257,500)

FINANCING ACTIVITIES
Issuance of common stock                                          1,034,826         2,333,527            440,653
Payment of dividends                                             (1,600,027)         (645,860)           (10,781)
                                                            ----------------------------------------------------
Net cash (used in) provided by financing activities                (565,201)        1,687,667            429,872
                                                            ----------------------------------------------------
(Decrease) increase in cash                                        (795,305)          929,651             85,783
Cash at beginning of year                                         1,500,001           570,350            484,567
                                                            ----------------------------------------------------
CASH AT END OF YEAR                                           $     704,696     $   1,500,001     $      570,350
                                                            ====================================================
</TABLE>



                                       25