<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
                  ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                          COMMISSION FILE NO.: 0-26744
 
                  _____________PATRIOT BANK CORP._____________
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                                           <C>
                        PENNSYLVANIA                              23-2820537
------------------------------------------------------------  -------------------
      (State or other jurisdiction of incorporation or         (I.R.S. Employer
                       organization)                          Identification No.)
</TABLE>
 
<TABLE>
<S>                                                                <C>
     HIGH AND HANOVER STREETS, POTTSTOWN, PENNSYLVANIA               19464
------------------------------------------------------------       ----------
          (Address of principal executive offices)                 (Zip Code)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 323-1500
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
                                      None
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                           Common Stock, no par value
                                (Title of class)
 
     The registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes __X__ . No _________ .
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is $58,746,708 and is based upon the last sales price of $10.125 per
share as quoted on The Nasdaq Stock Market for March 9, 1999.
 
     As of March 9, 1999, the Registrant had 6,180,618 shares outstanding
(excluding treasury shares).
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
10-K.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>           <C>                                                           <C>
PART I
 
Item 1.       Business....................................................    1
 
Item 2.       Properties..................................................    8
 
Item 3.       Legal Proceedings...........................................    8
 
Item 4.       Submission of Matters to a Vote of Security Holders.........    8
 
Item 4A.      Executive Officers of the Registrant........................    8
 
PART II
 
Item 5.       Market for Registrant's Common Equity and Related
                Stockholder Matters.......................................    9
 
Item 6.       Selected Financial Data.....................................   10
 
Item 7.       Management's Discussion and Analysis of Financial Condition
                and Results of Operations.................................   12
 
Item 7A.      Quantitative and Qualitative Disclosures About Market
                Risk......................................................   30
 
Item 8.       Financial Statements and Supplementary Data.................   30
 
Item 9.       Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure..................................   62
 
PART III
 
Item 10.      Directors and Executive Officers of the Registrant..........   62
 
Item 11.      Executive Compensation......................................   62
 
Item 12.      Security Ownership of Certain Beneficial Owners and
                Management................................................   62
 
Item 13.      Certain Relationships and Related Transactions..............   62
 
PART IV
 
Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form
                8-K.......................................................   63
 
SIGNATURES................................................................   64
</TABLE>
 
<PAGE>

                                     PART I
 
ITEM 1.  BUSINESS
 
GENERAL
 
     Patriot Bank Corp. (the "Company") is a Pennsylvania corporation and is the
holding company for Patriot Bank (the "Bank") and Patriot Investment Company
("PIC"). The Company is a bank holding company and is subject to regulation by
the Board of Governors of the Federal Reserve System (the "FRB"), the Federal
Deposit Insurance Corporation (the "FDIC") and the Securities and Exchange
Commission (the "SEC"). Originally organized as a Delaware corporation, the
Company became a Pennsylvania corporation as a result of its consolidation with
First Lehigh Corporation on January 22, 1999. The Company's executive offices
are located at the administrative offices of the Bank at High and Hanover
Streets, Pottstown, Pennsylvania 19464.
 
     The Bank was originally chartered in 1938. In 1991, the Bank's predecessor
converted from a federally-chartered mutual savings bank to a
Pennsylvania-chartered mutual savings bank and changed its name to Patriot
Savings Bank. In August 1995, the Bank converted from a Pennsylvania-chartered
mutual savings bank to a federally-chartered mutual savings bank. On December 1,
1995, the Company acquired the Bank as part of the Bank's conversion from a
mutual to stock form of ownership (the "Conversion"). In connection with the
Conversion, the Bank changed its name to Patriot Bank. On May 23, 1997, the Bank
converted to a Pennsylvania-chartered commercial bank. The Bank conducts
business through its network of 18 community banking offices located in
Montgomery, Berks, Lehigh, Northampton and Chester Counties, Pennsylvania. As a
result of its acquisition of First Lehigh Bank, certain of the Bank's deposits
are insured by the Savings Association Insurance Fund ("SAIF") and certain of
its deposits are insured by the Bank Insurance Fund ("BIF") administered by the
FDIC. At December 31, 1998, the Bank had total assets of $786.4 million,
deposits of $377.8 million and stockholder's equity of $41.8 million.
 
     The Bank is a community-oriented financial services provider whose business
primarily consists of attracting retail deposits from the general public and
small businesses and originating commercial, consumer, and mortgage loans in the
Bank's market area. In addition to its lending activities, the Bank also invests
in investment and mortgage-backed securities. The Bank uses advances from the
Federal Home Loan Bank of Pittsburgh ("FHLB") and repurchase agreements as
sources of funds.
 
     The Bank's revenues are derived principally from interest on loans,
interest on investment and mortgage-backed securities and other fees and service
charges. The Bank's primary sources of funds are deposits, FHLB advances,
repurchase agreements, interest on loans and investment and mortgage-backed
securities and principal repayments.
 
     PIC is a Delaware investment corporation that was incorporated by the
Company on September 10, 1996. Its primary business consists of maintaining an
investment portfolio. At December 31, 1998, PIC had total assets of $199.9
million, liabilities of $176.4 million, and stockholder's equity of $23.5
million.
 
MARKET AREA AND COMPETITION
 
     The Company is located approximately 45 miles northwest of Philadelphia,
Pennsylvania and its market consists primarily of Montgomery, Berks, Lehigh,
Northampton, Bucks, and Chester counties, Pennsylvania. The segment of the
markets served by the Company is primarily industrially oriented and
demographically is comprised of middle income and upper income households.
 
     The Company faces significant competition both in originating loans and
attracting deposits. The Company's competitors are other financial services
providers operating within its primary market area, some of which are larger and
have greater financial resources than the Company. The Company's competition for
loans and deposits comes principally from commercial banks, savings and loan
associations, savings banks, credit unions, and mortgage banking companies (some
of which are
 
                                       1
<PAGE>

subsidiaries of major financial institutions). In addition, the Company faces
increasing competition for deposits from non-bank institutions such as brokerage
firms and insurance firms with products such as money market funds, mutual funds
and annuities. Competition may increase as a result of the continuing reduction
in the effective restrictions on interstate operations of financial
institutions.
 
     Management considers the Company's reputation for financial strength,
superior customer service, convenience and product offerings as a competitive
advantage in attracting and retaining customers.
 
SUBSIDIARY ACTIVITIES
 
     The Company has two wholly-owned subsidiaries: The Bank and PIC. The Bank
has three wholly-owned subsidiaries: Marathon Management Company, Inc.
("Marathon"), Patriot Investments and Insurance Company ("PIIC"), and Patriot
Commercial Leasing Co., Inc. ("PCLC"). Marathon provides title insurance
services through a joint venture partnership. At December 31, 1998, Marathon had
total assets of $135,000. PIIC markets certain nondeposit investment products.
At December 31, 1998, PIIC had total assets of $89,000. PCLC is a commercial
leasing company. At December 31, 1998, PCLC had total assets of $46.1 million.
 
PERSONNEL
 
     As of December 31, 1998, the Bank had 162 full-time and 20 part-time
employees, none of whom was covered by a collective bargaining agreement.
Management believes that the Bank has good relations with its employees and
there are no pending or threatened labor disputes with its employees.
 
REGULATION AND SUPERVISION
 
     GENERAL.  The Company, as a bank holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
FRB under the Bank Holding Company Act, as amended (the "BHCA"). In addition,
the activities of Pennsylvania-chartered commercial banks, such as the Bank, are
governed by the Pennsylvania Banking Code and the Federal Deposit Insurance Act
("FDI Act").
 
     The Bank is subject to extensive regulation, examination and supervision by
the Pennsylvania Department of Banking ("PDB"), as its primary regulator, and
the FDIC, as the deposit insurer. The Bank is a member of the Federal Home Loan
Bank ("FHLB") System. Certain of the Bank's deposits are insured by the BIF
while most of its deposit accounts are insured by the SAIF. The Bank must file
reports with the PDB and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other banking
institutions. The PDB and/or the FDIC conduct periodic examinations to test the
Bank's safety and soundness and compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulatory requirements and policies, whether by the FRB, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. Certain of the regulatory requirements applicable to the Bank
and to the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to banking institutions and
their holding companies set forth in this Form 10-K does not purport to be a
complete description of such statutes and regulations and their effects on the
Bank and the Company.
 
     HOLDING COMPANY REGULATION.  The Company is a bank holding company
registered under the BHCA. As a bank holding company, the Company's activities
and those of the Bank are limited to the business of banking and activities
closely related or incidental to banking.
 
                                       2
<PAGE>

     The BHCA prohibits a bank holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another banking institution or holding company thereof, without prior
written approval of the FRB; acquiring or retaining, with certain exceptions,
more than 5% of a nonsubsidiary company engaged in activities other than those
permitted by the BHCA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC.
 
     Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support the
bank, i.e., to downstream funds to the bank. This support may be required at
times when, absent such policy, the bank holding company might not otherwise
provide such support. Any capital loans by a bank holding company to its
subsidiary bank are subordinate in right of payment to deposits and to certain
other indebtedness of the bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of its subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
 
     CAPITAL REQUIREMENTS.  The FRB has adopted risk-based capital guidelines
for bank holding companies, such as the Company. The required minimum ratio of
total capital to risk-weighted assets (including off-balance sheet activities,
such as standby letters of credit) is 8.0%. At least half of the total capital
is required to be "Tier 1 capital," consisting principally of common
stockholders' equity, noncumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less goodwill.
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, perpetual preferred stock, and a limited amount of
the general loan loss allowance.
 
     In addition to the risk-based capital guidelines, the FRB established
minimum leverage ratio (Tier 1 capital to average total assets) guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
3% for those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing significant growth
or expansion. All other bank holding companies are required to maintain a
leverage ratio of at least 1% to 2% above the 3% stated minimum. The Company is
in compliance with these guidelines. The Bank is subject to similar capital
requirements adopted by the FDIC.
 
     The risk-based capital standards are required to take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities.
 
     Under the FRB prompt corrective action regulations, the FRB is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of undercapitalization.
Generally, a bank holding company is considered "well capitalized" if its ratio
of total capital to risk-weighted assets is at least 10%, its ratio of Tier I
(core) capital to risk-weighted assets is at least 6%, its ratio of core capital
to total assets is at least 5%, and it is not subject to any order or directive
by the FRB to meet a specific capital level. A bank holding company generally is
considered "adequately capitalized" if its ratio of total capital
to risk-weighted assets is at least 8%, its ratio of Tier I (core) capital to
risk-weighted assets is at least 4%, and its ratio of core capital to total
assets is at least 4% (3% if the institution receives the highest CAMEL rating).
A bank holding company that has lower ratios of capital are categorized as
"undercapitalized," "significantly under capitalized," or "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the FRB within 45 days of the date a bank
receives notice that it is "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
become immediately applicable to an undercapitalized institution, including, but
not limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The FRB could also take any one of a number
of discretionary supervisory actions, including the issuance of a
 
                                       3
<PAGE>

capital directive and the replacement of senior executive officers and
directors. At December 31, 1998, both the Company and the Bank were "well
capitalized."
 
     INSURANCE OF DEPOSIT ACCOUNTS.  Although most of the deposits of the Bank
are presently insured by the SAIF, certain of its deposits are insured by the
BIF (the deposit insurance fund that covers most commercial bank deposits). Both
the BIF and the SAIF are statutorily required to maintain a 1.25% of insured
reserve deposits ratio. Both the BIF and the SAIF currently exceed the 1.25%
ratio. Therefore, most institutions, including the Bank, presently pay no
deposit insurance premiums. The FDIC must assess deposit insurance premiums if
the 1.25% ratio is not met, and may impose premiums on under capitalized or
unsafe institutions.
 
     While most banks do not pay deposit insurance, all institutions are
assessed for payment of the FICO bonds. Through 1999, BIF deposits are assessed
for FICO payments at a rate that is one-fifth of the rate assessed on SAIF
deposits. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000 or the date the BIF and
SAIF are merged. The FDIC resets the FICO assessment rate each calendar quarter.
The current annual rate is 1.22 basis points for BIF deposits, and 6.10 basis
points for SAIF deposits.
 
     Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
 
     LOANS TO ONE BORROWER.  Applicable regulations limit the dollar amount of
loans that the Bank may have outstanding to any one borrower, or group of
affiliated borrowers, to 15% of the capital and surplus of the Bank. As of
December 31, 1998, this limitation was equal to $6.3 million. There are
exceptions from the limitation for certain secured loans, depending upon the
amount and type of collateral.
 
     LIMITATION ON CAPITAL DISTRIBUTIONS.  Dividend payments by the Bank to the
Company are subject to the Pennsylvania Banking Code of 1965 and the FDI Act.
Under the Pennsylvania Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDI Act, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking laws,
the Bank would be limited to approximately $22.2 million of dividends in 1999
plus an additional amount equal to the Bank's net profit for 1999, up to the
date of any such dividend declaration.
 
     State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Bank to pay dividends to the Company.
 
     INTERSTATE BANKING.  The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Law"), amended various federal
banking laws to provide for nationwide interstate banking, interstate bank
mergers and interstate branching. The interstate banking provisions allow for
the acquisition by a bank holding company of a bank located in another state.
 
     TRANSACTIONS WITH RELATED PARTIES.  The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the Bank. The aggregate amount of covered transactions with all
affiliates is limited to 20% of the Bank's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally provides
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with
 
                                       4
<PAGE>

non-affiliated companies. In addition, banks are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no bank may purchase the securities of any affiliate other
than a subsidiary.
 
     The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to insiders based, in part, on
the Bank's capital position and requires certain board approval procedures to be
followed.
 
     ENFORCEMENT.  Under the FDI Act, the FDIC has primary enforcement
responsibility over state nonmember banks and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Federal law also establishes criminal penalties for certain violations.
 
     STANDARDS FOR SAFETY AND SOUNDNESS.  The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final rule establishes
deadlines for the submission and review of such safety and soundness compliance
plans when such plans are required.
 
     FEDERAL RESERVE SYSTEM.  The Federal Reserve Board regulations require
depositary institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). During
fiscal 1998, the Federal Reserve Board regulations generally required that
reserves be maintained against aggregate transaction accounts as follows: for
accounts aggregating $47.8 million or less (subject to adjustment by the Federal
Reserve Board) the reserve requirement is 3%; and for accounts aggregating
greater than $47.8 million, the reserve requirement is $1.434 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $47.8 million. The first
$4.7 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) were exempted from the reserve requirements. The Bank is
in compliance with the foregoing requirements. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve Board may be used to
satisfy liquidity requirements imposed by the FDIC.
 
                                       5
<PAGE>

FEDERAL AND STATE TAXATION
 
FEDERAL TAXATION
 
     GENERAL.  The Company and its subsidiaries report their income on a
consolidated basis using the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Company. For its 1998 taxable year, the Company is subject to a maximum
federal income tax rate of 34%.
 
     BAD DEBT RESERVES.  As a commercial bank, the Bank is permitted to
recognize bad debt expense based on actual experience. Prior to its conversion
to a commercial bank in May 1997, the Bank was a thrift institution. For fiscal
years beginning prior to December 31, 1995, thrift institutions which qualified
under certain definitional tests and other conditions of the Internal Revenue
Code of 1986 (the "Code") were permitted to use certain favorable provisions to
calculate their deductions from taxable income for annual additions to their bad
debt reserve. A reserve could be established for bad debts on qualifying real
property loans (generally secured by interests in real property improved or to
be improved) under (i) the Percentage of Taxable Income Method (the "PTI
Method") or (ii) the Experience Method. The reserve for nonqualifying loans was
computed using the Experience Method.
 
     The Small Business Job Protection Act of 1996 (the "1996 Act"), as modified
by the Taxpayer Relief Act of 1997 (the "1997 Act"), requires savings
institutions to recapture (i.e., take into income) certain portions of their
accumulated bad debt reserves. The 1996 Act repeals the reserve method of
accounting for bad debts effective for tax years beginning after 1995. Thrift
institutions that would be treated as small banks are allowed to utilize the
Experience Method applicable to such institutions, while thrift institutions
that are treated as large banks (those generally exceeding $500 million in
assets) are required to use only the specific charge-off method. Thus, the PTI
Method of accounting for bad debts is no longer available for any financial
institution.
 
     A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS. Any
Section 481(a) adjustment required to be taken into income with respect to such
change generally will be taken into income ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject to
the residential loan requirement.
 
     Under the residential loan requirement provision, the recapture required by
the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's current taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.
 
     Under the 1996 Act, for its current and future taxable years, the Bank is
permitted to make additions to its tax bad debt reserves. In addition, since the
Banks tax bad debt reserves as of December 31, 1987 exceeded its tax bad debt
reserves as of December 31, 1995 it is not required to recapture any income.
 
     DISTRIBUTIONS.  Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.
 
                                       6
<PAGE>

     The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Bank makes a non-dividend distribution
to the Company, approximately one and one-half times the amount of such
distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Banks does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves.
 
     CORPORATE ALTERNATIVE MINIMUM TAX.  The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on a corporation's alternative minimum
taxable income ("AMTI") at a rate of 20% if this rate exceeds the corporation's
income tax rate for the taxable year. The excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method is treated as a preference
item for purposes of computing the AMTI. Only 90% of AMTI can be offset by net
operating loss carryovers. AMTI is increased by an amount equal to 75% of the
amount by which the Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this preference and prior to reduction for net
operating losses). In addition, for taxable years beginning after December 31,
1986 and before January 1, 1996, an environmental tax of .12% of the excess of
AMTI (with certain modifications) over $2.0 million is imposed on corporations,
including the Bank, whether or not an Alternative Minimum Tax ("AMT") is paid.
The Bank does not expect to be subject to the AMT, but may be subject to the
environmental tax liability.
 
     DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS.  The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company owns more than 20% of the stock of a corporation
distributing a dividend, 80% of any dividends received may be deducted.
 
STATE TAXATION
 
     COMMONWEALTH OF PENNSYLVANIA.  The Bank is subject to a "Bank Shares Tax"
which is imposed on every bank having capital stock located within Pennsylvania.
The Bank Shares Tax is based on the value of the bank's shares as of the
preceding January 1st. The taxable amount is computed by adding the book value
of capital stock paid in, the book value of the surplus and the book value of
undivided profits, and then deducting from that total an amount equal to the
percentage that the book value of the bank's federal obligations and state
obligations bears to the book value of the bank's total assets. This value is
calculated on the basis of the current year and the preceding five years, but,
if a bank has not been in existence for six years, the taxable amount is
computed by adding the value for the number of years that the bank has been in
existence and dividing the resulting sum by that number of years. The Bank
Shares Tax rate is 1.25% of the taxable amount. Banks subject to the Bank Shares
Tax are exempt from all other corporate taxes imposed by Pennsylvania.
 
     Corporations doing business in Pennsylvania and not subject to Bank Shares
Tax are subject to Pennsylvania Corporate Net Income Tax ("CNIT"). The CNIT is
an annual excise tax and is measured by the Corporation's taxable income as
determined under the Code. When a domestic or foreign corporation's entire
business is not transacted wholly within Pennsylvania, such taxable income must
allocated and apportioned to determine that portion subject to the CNIT. The
CNIT rate is 9.99%. Pennsylvania also subjects such corporations to the
Pennsylvania Capital Stock and Foreign Franchise Tax.
 
     Prior to January 22, 1999, the Company was subject to the Pennsylvania CNIT
and the Pennsylvania Capital Stock and Foreign Franchise Tax because it was a
foreign corporation doing business in Pennsylvania. The Company's Pennsylvania
CNIT will be calculated on an unconsolidated basis and adjusted to reflect the
appropriate allocation and apportionment requirements. After January 22, 1999,
the Company is subject to the Pennsylvania Capital Stock Tax and CNIT.
 
                                       7
<PAGE>

ITEM 2.  PROPERTIES
 
     The Bank has 18 banking offices, three (3) of which are located in
Montgomery County, four (4) of which are located in Berks County, five (5) of
which are located in Lehigh County, four (4) of which are located in Northampton
County, and two (2) of which are located in Chester County, Pennsylvania. The
Bank owns 9 and leases 9 of the banking office properties.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is a defendant in various legal actions arising from normal
business activities. Management believes that those actions are either without
merit or that the ultimate liability, if any, resulting from such actions will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     On December 10, 1998, a special meeting of the shareholders of the Company
was held to adopt and approve an Agreement and Plan of Consolidation (the
"Plan") with First Lehigh Corporation. The shareholders of the Company approved
and adopted the Plan by a vote of 3,460,056 for and 111,153 against. There were
7,548 abstentions and 70,740 broker nonvotes. On January 22, 1999, the
consolidation was completed and the Company and First Lehigh Corporation
consolidated to form a new Pennsylvania corporation under the name "Patriot Bank
Corp."
 
ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Certain information, including principal occupation during the past five
years, relating to the principal executive officers of the Company, as of March
15, 1999, is set forth below:
 
          James B. Elliott -- Age 58. Mr. Elliott was elected Chairman of the
     Company in July 1998. Mr. Elliott is the President of Stratecon, Inc.
 
          Joseph W. Major -- Age 43. Mr. Major was elected President and Chief
     Executive Officer of the Company and the Bank in July 1998. Prior to that
     Mr. Major was President and Chief Operating Officer of the Company and the
     Bank since September 1995 and Chief Executive Officer of the Bank since
     April 1997. Prior to his appointment at the Company and the Bank, Mr. Major
     was a partner in the firm of Mauger & Major.
 
          Richard A. Elko -- Age 37. Mr. Elko was elected Executive Vice
     President and Chief Financial Officer of the Company and the Bank in
     January 1996. Prior to his appointment at the Company and the Bank, Mr.
     Elko was Corporate Controller at Sovereign Bancorp, Inc.
 
          Joni S. Naugle -- Age 40. Ms. Naugle was elected as Chief Operating
     Officer of the Company and the Bank in December 1998. Prior to that Ms.
     Naugle was a Senior Vice President for Marketing and Retail Sales at
     Sovereign Bank from 1979 to April 1998 and a consultant from April 1998 to
     December 1998.
 
          Kevin R. Pyle -- Age 32. Mr. Pyle has been Chief Credit Officer of the
     Bank since March 1996. Prior thereto he was a commercial lending officer of
     Berks County Bank.
 
          James G. Blume -- Age 33. Mr. Blume was elected as Controller of the
     Company and Patriot Bank in March 1997. Prior to that Mr. Blume was the
     Accounting Manager of the Company and Patriot Bank. Prior to that Mr. Blume
     was senior staff accountant at Sovereign Bank until March 1996.
 
          Robert G. Phillips -- Age 47. Mr. Phillips was elected Treasurer of
     the Company and the Bank in August 1995. Prior thereto, Mr. Phillips was
     Treasurer of the Bank.
 
          Diane M. Davidheiser -- Age 41. Ms. Davidheiser was elected Corporate
     Secretary of the Company and the Bank in September 1998. Prior to that Ms.
     Davidheiser was an investor relations specialist and corporate
     administration assistant at Patriot Bank since 1987.
 
                                       8
<PAGE>

                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's common stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market System under the symbol "PBIX." At March 9,
1999, the total number of holders of record of the Company's common stock was
899.
 
     The following table sets forth the high and low bid and asked information
of the Company's common stock to the extent available as reported by NASDAQ.
Such prices have been adjusted to reflect all stock dividends paid during 1998
and 1997.
 
<TABLE>
<CAPTION>
                                 1998                                                     1997
------------------------------------------------------         -------------------------------------------------
                      BID                    ASKED                               BID                   ASKED
                ----------------      -----------------                    ----------------      ------------------
QTR             HIGH        LOW       HIGH         LOW          QTR        HIGH        LOW       HIGH          LOW
---             -----      -----      -----       -----         ---        -----      -----      -----        -----
<S>             <C>        <C>        <C>        <C>           <C>        <C>        <C>        <C>        <C>
1st            16 1/2     13 13/32    16 51/64    13 51/64    1st        10 22/32    8 18/32     11 10/32    9
2nd            17         13 13/64    17 1/4      13 19/32    2nd        11 18/32    9 1/2       11 30/32    9 26/32
3rd            16         11 3/4      16 1/4      12 1/8      3rd        14 26/32    11 18/32    15 10/32    11 26/32
4th            12 7/8      9          13 1/16     10          4th        16 20/32    13 6/32     17          13 12/32
</TABLE>
 
     The bid quotations reflect interdealer quotations, do not include retail
mark ups, mark downs or commissions, and may not necessarily represent actual
transactions. The bid information as stated is, to the knowledge of management
of the Company, the best approximate value at the time indicated.
 
DIVIDEND INFORMATION.
 
     Dividends on the Company's Common Stock are generally payable in February,
May, August, and November.
 
     Set forth below are the cash dividends paid by the Company during 1998 and
1997. Such dividends have been adjusted to reflect all stock dividends paid
during such years.
 
<TABLE>
<CAPTION>
                                                      1998        1997
                                                      -----       -----
<S>                                                   <C>         <C>
First Quarter.......................................  $.066       $.055
Second Quarter......................................  $.068       $.058
Third Quarter.......................................  $.070       $.062
Fourth Quarter......................................  $.075       $.064
</TABLE>
 
     For certain limitations on the ability of the Bank to pay dividends to the
Company, See Part I, Item I "Business -- Regulation and Supervision --
Limitation on Capital Distributions" and Note 18 at Item 8 "Financial Statements
and Supplementary Data" hereof.
 
                                       9
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
 
                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 
     The selected consolidated financial and other data and management's
discussion and analysis set forth below is derived in part from, and should be
read in conjunction with, the Consolidated Financial Statements and Notes
thereto, contained elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                                                     ----------------------------------------------------
                                                       1998       1997       1996       1995       1994
                                                     --------   --------   --------   --------   --------
                                                                        (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>        <C>        <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.......................................  $980,761   $852,083   $529,165   $268,869   $221,035
Investment and mortgage-backed securities
  available for sale...............................   386,380    343,125    159,148     47,646     33,025
Investment and mortgage-backed securities
  held to maturity.................................    29,639     62,516     72,710      3,917      8,669
Loans held for sale................................     5,576      4,095         --         --         --
Loans and leases receivable........................   509,080    422,209    280,184    194,250    168,974
Allowance for credit losses........................    (4,087)    (2,512)    (1,830)    (1,702)    (1,720)
Deposits...........................................   377,796    289,528    239,514    201,618    189,938
Borrowings.........................................   549,321    508,884    231,595     10,000     10,000
Stockholders' equity...............................    42,260     46,533     53,117     54,110     17,868
</TABLE>

<TABLE>
<CAPTION>
 
                                                                 FOR YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------
                                                       1998       1997       1996       1995       1994
                                                     --------   --------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>        <C>        <C>        <C>         <C>
SELECTED OPERATING DATA:
Interest Income....................................  $ 63,107   $ 50,249   $ 29,594   $ 17,168   $ 15,498
Interest Expense...................................    46,236     35,807     17,502      9,549      8,125
                                                     --------   --------   --------   --------   --------
Net interest income before provision for credit
  losses...........................................    16,871     14,442     12,092      7,619      7,373
Provision for credit losses........................     1,200        915        305         60         56
                                                     --------   --------   --------   --------   --------
Net interest income after provision for credit
  losses...........................................    15,671     13,527     11,787      7,559      7,317
Non-interest income................................     3,873      2,330        637        518        674
Non-interest expense...............................    14,267     11,158      9,198      6,151      6,090
                                                     --------   --------   --------   --------   --------
Income before income taxes.........................     5,277      4,699      3,226      1,926      1,901
Income taxes.......................................     1,222      1,326      1,251        734        717
                                                     --------   --------   --------   --------   --------
Net income.........................................  $  4,055   $  3,373   $  1,975   $  1,192   $  1,184
                                                     ========   ========   ========   ========   ========
Diluted earnings per share (1).....................  $   0.78   $   0.59   $   0.31
                                                     ========   ========   ========
Net income before special charge (2)...............                        $  2,811
                                                                           ========
Diluted earnings per share before special charge
  (1) (2)..........................................                        $   0.44
                                                                           ========
</TABLE>
 
                                       10
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA--(CONTINUED)

           SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA, CONTINUED
 
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                                              ------------------------------------------
                                                               1998     1997     1996     1995     1994
                                                              ------   ------   ------   ------   ------
<S>                                                           <C>      <C>      <C>      <C>      <C>
PERFORMANCE RATIOS (3):
Return on Average Assets....................................    0.45%    0.49%    0.48%    0.50%    0.54%
Return on Average Assets before special charge (2)..........      --       --     0.68       --       --
Return on Average Equity....................................    8.72     7.22     3.71     5.40     6.59
Return on Average Equity before special charge (2)..........      --       --     5.28       --       --
Average interest rate spread (4)............................    1.98     2.10     2.95     3.29     3.33
Net interest margin (5).....................................    2.01     2.14     3.01     3.39     3.45
Average interest-earning assets to average interest bearing
  liabilities...............................................  103.72   104.85   113.69   109.20   107.16
Total non-interest expense to average assets (9)............    1.58     1.56     1.93     2.65     2.75
Dividend payout ratio (1)...................................   35.91    40.31    45.91       --       --
 
REGULATORY CAPITAL RATIOS (6):
Tier 1 capital to average assets (7)........................    5.37%    7.90%    9.97%   20.14%    8.46%
Tier 1 capital to Risk-adjusted assets (7)..................   10.00    12.92    20.28    34.27    13.98
Total risk adjusted capital to risk-adjusted assets (7).....   12.46    14.54    20.98    35.35    15.33
 
ASSET QUALITY RATIOS (8):
Non-performing assets as a percent of total assets..........    0.11     0.15     0.12     0.29     0.45
Non-performing loans as a percent of loans receivable.......    0.21     0.26     0.20     0.30     0.43
Allowance for credit losses as a percent of loans
  receivable................................................    0.79     0.59     0.65     0.88     1.01
Allowance for credit losses as a percent of non-performing
  loans.....................................................  362.63   225.90   321.94   292.94   234.94
</TABLE>
 
------------------
(1) Patriot completed its initial public offering on December 1, 1995.
    Therefore, earnings per share and dividend payout ratio are not applicable
    for years prior to 1996.
(2) Special charge representing the special deposit insurance assessment levied
    against all SAIF member financial institutions in 1996 by the FDIC to
    recapitalize its SAIF fund.
(3) All ratios are based on average monthly balances during the indicated
    periods.
(4) The average interest rate spread represents the difference between the
    weighted average yield on total assets and the weighted average cost of
    total liabilities and equity.
(5) The net interest margin represents tax-equivalent net interest income as a
    percent of average interest-earning assets.
(6) For definitions and further information relating to regulatory capital
    requirements, see footnote 18 of the consolidated financial statements.
(7) Regulatory capital ratios for 1996 and years prior are calculated under OTS
    guidelines, 1998 and 1997 ratios are calculated using FDIC guidelines due to
    the conversion to a state chartered commercial bank.
(8) Non-performing assets consist of non-performing loans and real estate owned
    (REO). Non-performing loans consist of non-accrual loans, while REO consists
    of real estate acquired through foreclosure and real estate acquired by
    acceptance of a deed in lieu of foreclosure.
(9) Calculated prior to a special charge, of $836,000 tax effected, representing
    the special deposit insurance assessment levied against all SAIF member
    financial institutions in 1996 by the FDIC to recapitalize its SAIF fund.
 
                                       11
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
     In addition to historical information, this discussion and analysis of
Patriot Bank Corp. and Subsidiaries (Patriot) contains forward-looking
statements. The forward-looking statements contained in this discussion and
analysis are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date of this report. Patriot undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date of this report.
 
     Patriot's financial results include the following significant events:
 
     CAPITAL TRANSACTIONS.  Patriot became a publicly owned company on December
1, 1995, when it issued 3,769,125 shares of common stock and raised net proceeds
of $36,652,000. On September 22, 1997, and November 21, 1996, Patriot paid
special 20% stock dividends. On May 14, 1998, Patriot distributed a 25% stock
split. For comparative purposes, per share amounts, as presented herein, have
been adjusted to reflect the stock split/dividends. During 1996, 1997 and 1998
Patriot repurchased 338,000, 1,246,000, and 538,000 shares of its common stock
at a cost of $6,892,000, $13,554,000 and $2,517,000, respectively.
 
     LEASING ACQUISITION.  On November 6, 1998, Patriot completed its
acquisition of Keystone Financial Leasing Company (KFL). KFL is a small-ticket
commercial leasing company with total assets of $43,327,000 including lease
receivables of $42,764,000. KFL was purchased for $6,258,000 in cash plus
contingent consideration based upon future revenues of KFL. The acquisition was
accounted for as a purchase. Goodwill arising from the transaction totaled
$2,267,000.
 
     RETIREMENT.  Effective June 30, 1998, Patriot's former chairman retired.
Patriot satisfied its contractual obligation related to the former chairman,
which resulted in a special non-recurring charge of $961,000.
 
     DEPOSIT SALE.  On November 21, 1997, Patriot completed the sale of
$10,350,000 of deposits and a branch office. Patriot received a 7.5% premium on
the deposits and recognized a net gain of $885,000.
 
     TRUST PREFERRED SECURITIES.  On June 5, 1997, Patriot issued $19 million of
10.30% trust preferred securities. The trust preferred securities, subject to
certain limitations, qualify as tier 1 capital for regulatory purposes.
 
                                       12
<PAGE>

      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
 
     SUMMARY.  For the year ended December 31, 1998, Patriot reported net income
of $4,055,000 or $.78 diluted earnings per share compared to net income of
$3,373,000 or $.59 diluted earnings per share for the year ended December 31,
1997. This represents an increase in net income of 20% and an increase in
diluted earnings per share of 32%. Return on average equity was 8.72% for 1998
compared to 7.22% for 1997.
 
     NET INTEREST INCOME.  Net interest income for 1998 was $16,871,000 compared
to $14,442,000 in 1997. This represents an increase of 17% and is primarily due
to an increase in average balances. Average balances increased throughout 1998
as Patriot grew its assets to more fully utilize the capital raised in the stock
conversion. Much of Patriot's asset growth resulted from the origination of
commercial loans and the acquisition of KFL. Additionally, Patriot maintained a
larger investment and mortgage-backed securities portfolio throughout 1998 than
in prior years Patriot's asset growth was funded through deposit growth and
borrowings.
 
     As a result of the maintenance of a larger investment and mortgage-backed
securities portfolio, the funding of that portfolio with borrowings and jumbo
deposits, stock repurchases and the issuance of the trust preferred securities,
Patriot's net interest margin (net interest income on a fully tax equivalent
basis as a percentage of average interest-earning assets) decreased as
anticipated to 2.01% in 1998 from 2.14% in 1997.
 
     Interest on loans was $35,242,000 for 1998 compared to $27,008,000 for
1997. The average balance of loans was $455,167,000 with an average yield of
7.74% compared to an average balance of $348,186,000 with an average yield of
7.76% in 1997. The increase in average balance was due to increased originations
of commercial loans and the acquisition of KFL. Also, the average balance of
mortgage loans was higher in 1998 than in 1997 because the mortgage loan
portfolio grew from $191,729,000 at December 31, 1996, to $298,755,000 at
December 31, 1997, whereas, in 1998 the mortgage loan portfolio was maintained
at just over $300,000,000 as most mortgage loan originations were sold. The
slight decrease in average yield is primarily a result of generally lower
interest rates.
 
     Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $27,521,000 for 1998 compared to $23,048,000 for 1997. The
average balance of the investment portfolio was $417,037,000 with an average
yield of 6.84% for 1998 compared to an average balance of $336,718,000 with an
average yield of 6.96% for 1997. The increase in average balance was due to the
purchase of investment and mortgage-backed securities. The decrease in average
yield is primarily a result of the effect of generally lower interest rates on
adjustable rate securities and new securities purchases.
 
     Interest on total deposits was $17,382,000 for 1998 compared to $13,405,000
for 1997. The average balance of total deposits was $350,262,000 with an average
cost of 4.96% for 1998 compared to an average balance of $275,811,000 with an
average cost of 4.86% for 1997. The increase in average balance was the result
of aggressive marketing of core deposits (money market, checking and savings
accounts) and an increase in Patriot's jumbo deposit program. The increase in
average yield was the result of jumbo deposits comprising a higher percentage of
total deposits. Patriot uses jumbo deposits attracted through individuals and
brokerages as an alternative to borrowings. Total brokered deposits approximated
$103,023,000 and $41,477,000 at December 31, 1998 and 1997, respectively. The
average balance of retail deposits (total deposits less jumbo deposits) was
$247,239,000 with an average cost of 4.47% for 1998 compared to an average
balance of $234,334,000 with an average cost of 4.58% for 1997. The increase in
average balance and the decrease in cost of Patriot's retail deposits was the
result of emphasis placed on core deposits and less emphasis on retail
certificates of deposit.
 
     Interest on borrowings was $28,851,000 in 1998 compared to $22,402,000 in
1997. The average balance of borrowings was $498,124,000 with an average cost of
5.79% for 1998 compared to an average balance of $382,357,000 with an average
cost of 5.86% for 1997. The increase in average balance was due to the use of
borrowings to fund the growth in the balance sheet. The decrease in
 
                                       13
<PAGE>

average cost was due to generally lower interest rates offsetting the cost of
the trust preferred securities.
 
     SPREAD ANALYSIS.  The following table sets forth Patriot's average balances
and the yields on those balances for the years ended December 31, 1998, 1997 and
1996. The yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods shown,
except where noted otherwise. The yields and costs include fees, which are
considered adjustments to yields.
 
<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED DECEMBER 31,
                                  ------------------------------------------------------------------------------------------
                                              1998                           1997                           1996
                                  ----------------------------   ----------------------------   ----------------------------
                                  AVERAGE               YIELD/   AVERAGE               YIELD/   AVERAGE               YIELD/
                                  BALANCE    INTEREST    RATE    BALANCE    INTEREST    RATE    BALANCE    INTEREST    RATE
                                  --------   --------   ------   --------   --------   ------   --------   --------   ------
                                                                        (IN THOUSANDS)
<S>                               <C>        <C>        <C>      <C>        <C>        <C>      <C>        <C>        <C>
ASSETS:
  Interest-earning assets:
    Interest earning deposits...  $ 11,381   $   344     3.02%   $  5,522   $   193     3.49%   $  3,207   $   116     3.62%
    Investment and
      mortgage-backed
      securities(1).............   417,037    27,521     6.84%    336,718    23,048     6.96%    165,159    11,049     6.69%
    Loans receivable, net(2)....   455,167    35,242     7.74%    348,186    27,008     7.76%    234,726    18,429     7.85%
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
    Net interest-earning
      assets....................   883,585    63,107     7.25%    690,426    50,249     7.34%    403,092    29,594     7.34%
    Non-interest-earning
      assets....................    18,236        --       --      16,635        --       --       7,018        --       --
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
        Total assets............  $901,821   $63,107     7.11%   $707,061   $50,249     7.16%   $410,110   $29,594     7.22%
                                  ========   =======     ====    ========   =======     ====    ========   =======     ====
 
LIABILITIES AND EQUITY:
  Interest-bearing liabilities:
    Savings deposits............  $116,381   $ 3,488     2.99%   $ 93,902   $ 2,632     2.80%   $ 82,354   $ 2,120     2.57%
    Certificates of deposits....   233,881    13,894     5.94%    181,909    10,773     5.92%    136,010     7,775     5.72%
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
        Total deposits..........   350,262    17,382     4.96%    275,811    13,405     4.86%    218,364     9,895     4.53%
    Borrowings(3)...............   501,605    28,854     5.76%    382,357    22,402     5.86%    136,200     7,607     5.57%
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
        Total interest-bearing
          liabilities...........   851,867    46,236     5.43%    658,168    35,807     5.44%    354,564    17,502     4.94%
    Non-interest-bearing
      liabilities...............     3,436        --       --       2,188        --       --       2,300        --       --
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
        Total liabilities.......   855,303    46,236     5.41%    660,356    35,807     5.42%    356,864    17,502     4.90%
    Equity......................    46,518        --       --      46,705        --       --      53,246        --       --
                                  --------   -------     ----    --------   -------     ----    --------   -------     ----
        Total liabilities and
          equity................  $901,821   $46,236     5.13%   $707,061   $35,807     5.06%   $410,110   $17,502     4.27%
                                  ========   =======     ====    ========   =======     ====    ========   =======     ====
  Net interest rate spread(4)...                         1.98%                          2.10%                          2.95%
                                                         ====                           ====                           ====
  Net interest margin(5)........                         2.01%                          2.14%                          3.01%
  Ratio of interest-earning
    assets to interest-bearing
    liabilities.................    103.72%                        104.90%                        113.69%
</TABLE>
 
------------------
(1) Includes securities available for sale and held to maturity and unamortized
    discounts and premiums.
 
(2) Amount is net of deferred loan and lease fees, loans in process, discounts
    and premiums, and allowance for credit losses and includes loans held for
    sale and non-performing loans and leases for which the accrual of interest
    has been discontinued.
 
(3) Includes short-term, long-term and trust preferred borrowings.
 
(4) Net interest rate spread represents the difference between the average yield
    on total assets and the average cost of total liabilities and equity.
 
(5) Net interest margin represents the tax-equivalent net interest income
    divided by average interest-earning assets. Net interest margin was
    increased by .11% in 1998 and .06% in 1997 and unaffected for 1996 due to
    tax equivalent calculations.
 
                                       14
<PAGE>

     RATE/VOLUME ANALYSIS.  The following table presents the extent to which net
interest income changed due to changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities during the
periods indicated. Information is provided in each category with respect to
changes attributable to changes in rate (changes in rate multiplied by prior
volume), and the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionally to the changes due to volume
and the changes due to rate.
 
<TABLE>
<CAPTION>
                                     YEAR ENDED DECEMBER 31, 1998   YEAR ENDED DECEMBER 31, 1997
                                        COMPARED TO YEAR ENDED         COMPARED TO YEAR ENDED
                                          DECEMBER 31, 1997              DECEMBER 31, 1996
                                     ----------------------------   ----------------------------
                                         INCREASE (DECREASE)            INCREASE (DECREASE)
                                                DUE TO                         DUE TO
                                      VOLUME     RATE      NET       VOLUME     RATE      NET
                                     --------   ------   --------   --------   ------   --------
                                                           (IN THOUSANDS)
<S>                                  <C>        <C>      <C>        <C>        <C>      <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits..........      180      (29)       151         81       (4)        77
Investment and mortgage-backed
  securities.......................    5,326     (853)     4,473     11,737      262     11,999
Loans..............................    8,283      (49)     8,234      8,804     (225)     8,579
                                     -------    -----    -------    -------    -----    -------
  Total interest-earning assets....   13,789     (931)    12,858     20,622       33     20,655
                                     -------    -----    -------    -------    -----    -------
INTEREST-BEARING LIABILITIES:
Deposits...........................    3,751      226      3,977      3,023      487      3,510
Borrowings.........................    6,867     (415)     6,452     14,404      391     14,795
                                     -------    -----    -------    -------    -----    -------
  Total interest-bearing
     liabilities...................   10,618     (189)    10,429     17,427      878     18,305
                                     -------    -----    -------    -------    -----    -------
Net change in net interest
  income...........................  $ 3,171    $(742)   $ 2,429    $ 3,195    $(845)   $ 2,350
                                     =======    =====    =======    =======    =====    =======
</TABLE>
 
     PROVISION FOR CREDIT LOSSES.  The provision for credit losses was
$1,200,000 for 1998 compared to $915,000 for 1997. The increase in the provision
is a reflection of the growth of Patriot's loan portfolio and the higher
percentage of commercial loans and leases as a percentage of total loans. See
"Credit Quality" for a detailed discussion of Patriot's asset quality.
 
The following table sets forth the activity in the allowance for credit losses
for the years indicated:
 
<TABLE>
<CAPTION>
                                                 AT OR FOR THE YEAR ENDED DECEMBER 31,
                                               ------------------------------------------
                                                1998     1997     1996     1995     1994
                                               ------   ------   ------   ------   ------
                                                             (IN THOUSANDS)
<S>                                            <C>      <C>      <C>      <C>      <C>
Allowance, beginning of year.................  $2,512   $1,830   $1,702   $1,720   $1,665
Charge-offs:
     Residential.............................     114       17       13       76       --
     Commercial..............................     253       --       98       --       --
     Home equity and consumer................     145      259       66        5        5
                                               ------   ------   ------   ------   ------
           Total charge-offs.................     512      276      177       81        5
                                               ------   ------   ------   ------   ------
Recoveries:
     Residential.............................      --        2       --       --       --
     Commercial..............................      --       31       --       --       --
     Home equity and consumer................       9       10       --        3        4
                                               ------   ------   ------   ------   ------
           Total recoveries..................       9       43       --        3        4
                                               ------   ------   ------   ------   ------
Net charge-offs..............................     503      233      177       78        1
Acquired allowance...........................     878       --       --       --       --
Provision charged to operations..............   1,200      915      305       60       56
                                               ------   ------   ------   ------   ------
Allowance, end of year.......................  $4,087   $2,512   $1,830   $1,702   $1,720
                                               ======   ======   ======   ======   ======
Net charge-offs to average loans.............     .11%     .07%     .08%     .05%      --%
Allowance for credit losses as a percentage
  of year-end total loans....................     .79%     .59%     .65%     .88%    1.01%
</TABLE>
 
     NON-INTEREST INCOME.  Total non-interest income was $3,873,000 for 1998
compared to $2,330,000 for 1997. The increase was primarily due to an increased
emphasis on recurring non-
 
                                       15
<PAGE>

interest income including loan and deposit fees, ATM fees and mortgage banking
activities. Non-interest income in 1998 included securities gains of $1,850,000.
Non-interest income in 1997 included a gain of $885,000 recognized from the
deposit sale and securities gains of $438,000.
 
     NON-INTEREST EXPENSE.  Total non-interest expense was $14,267,000 for 1998
compared to $11,158,000 for 1997. Non-interest expense in 1998 included an
infrequent charge of $961,000 related to the retirement of Patriot's former
chairman. The increase in recurring non-interest expense was the result of
increased salary and employee benefit costs and occupancy and equipment costs,
both related to Patriot's expanded operations. Patriot's efficiency ratio was
68.77% in 1998 compared to 66.52% in 1997.
 
     INCOME TAX PROVISION.  The income tax provision was $1,222,000 for 1998
compared to $1,326,000 for 1997. The effective tax rate was 23.16% for 1998
compared to 28.22% for 1997. The decrease in the effective tax rate is the
result of Patriot's tax planning strategies which include investments in
tax-exempt securities. Also, on May 22, 1997, Patriot's primary operating
subsidiary, Patriot Bank, converted its banking charter from a federally
chartered savings bank to a state chartered commercial bank. Prior to Patriot
Bank's charter conversion, it was subject to state income taxes. Patriot Bank's
state tax expense is currently a franchise tax and, therefore, is no longer
based on income and is considered a non-interest expense.
 
                              FINANCIAL CONDITION
 
     LOAN PORTFOLIO.  Patriot's primary loan products are commercial loans and
leases, home equity loans on existing owner-occupied residential real estate,
and fixed-rate and adjustable-rate mortgage loans. Patriot also offers
residential construction loans and other consumer loans.
 
     COMMERCIAL.  Patriot originates commercial loans with an emphasis on small
businesses, professionals and entrepreneurs within Patriot's local markets. Most
of Patriot's commercial loan relationships have exposure of $500,000 or less.
Commercial loans are generally secured by real estate and personal guarantees.
As a result of the KFL acquisition, Patriot acquired $42,764,000 in small-
ticket commercial leases. The acquired portfolio is representative of Patriot's
ongoing business in which Patriot originates small-ticket commercial leases to
business located in Pennsylvania and other contiguous states. The leases are
considered financing leases for financial accounting purposes.
 
     CONSUMER.  Patriot offers variable rate (based upon prime rate) home equity
lines of credit and fixed-rate home equity loans, which are generally secured by
single-family, owner-occupied residential properties. Patriot also offers a
variety of other consumer loans, which primarily consist of installment loans
secured by automobiles, credit cards, unsecured lines of credit and other loans
secured by deposit accounts.
 
     MORTGAGE.  Patriot offers both fixed-rate and adjustable-rate mortgage
loans secured by one- to four-family residences, primarily owner-occupied,
located in Patriot's primary market area. Patriot generally underwrites its
first mortgage loans in accordance with underwriting standards set by the
Federal Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage
Association (FNMA). Patriot also originates residential construction loans. Most
of the mortgage loans originated by Patriot are sold into the secondary markets.
Patriot generally only retains certain adjustable rate and balloon mortgages in
its portfolio.
 
     At December 31, 1998, Patriot's total loan portfolio was $509,080,000
compared to a total loan portfolio of $422,209,000 at December 31, 1997. The
increase in the loan portfolio was primarily the result of an emphasis placed on
commercial lending relationships and the acquisition of KFL.
 
                                       16
<PAGE>

     The following table sets forth the composition of Patriot's loan portfolio
in dollar amounts and in percentages of the respective portfolios at the dates
indicated:
<TABLE>
<CAPTION>
                                                            AT DECEMBER 31,
                                 ---------------------------------------------------------------------
                                        1998                     1997                     1996
                                 -------------------      -------------------      -------------------
                                            PERCENT                  PERCENT                  PERCENT
                                  AMOUNT    OF TOTAL       AMOUNT    OF TOTAL       AMOUNT    OF TOTAL
                                 --------   --------      --------   --------      --------   --------
                                                            (IN THOUSANDS)
<S>                              <C>        <C>           <C>        <C>           <C>        <C>
Mortgage Portfolio
Residential mortgages..........  $300,232     58.73%      $294,716     69.41%      $190,849     67.54%
Construction...................     5,267      1.03          4,039      0.95          3,210      1.14
 
Consumer Portfolio
Home equity....................    64,807     12.67         75,439     17.77         72,480     25.65
Other consumer loans...........     4,336      0.85          3,909      0.92          2,546      0.90
 
Commercial Portfolio
Commercial loans...............    92,367     18.06         46,166     10.87         13,491      4.77
Commercial leases..............    44,301      8.66            334      0.08             --        --
                                 --------    ------       --------    ------       --------    ------
Total loans, gross.............   511,310    100.00%       424,603    100.00%       282,576    100.00%
Deferred loan fees.............    (2,230)                  (2,394)                  (2,392)
Allowance for credit losses....    (4,087)                  (2,512)                  (1,830)
                                 --------                 --------                 --------
     Total loans, net..........  $504,993                 $419,697                 $278,354
                                 ========                 ========                 ========
</TABLE>

<TABLE> 
<CAPTION>
 
                                               AT DECEMBER 31,
                                 --------------------------------------------
                                        1995                     1994
                                 -------------------      -------------------
                                            PERCENT                  PERCENT
                                  AMOUNT    OF TOTAL       AMOUNT    OF TOTAL
                                 --------   --------      --------   --------
                                                (IN THOUSANDS)
<S>                              <C>        <C>           <C>        <C>
Mortgage Portfolio
Residential mortgages..........  $131,352     66.86%      $108,203     63.41%
Construction...................     1,712      0.87            374      0.22
 
Consumer Portfolio
Home equity....................    57,969     29.50         56,914     33.35
Other consumer loans...........     2,159      1.10          1,391      0.82
 
Commercial Portfolio
Commercial loans...............     3,288      1.67          3,760      2.20
Commercial leases..............        --        --             --        --
                                 --------    ------       --------    ------
     Total loans, gross........   196,480    100.00%       170,642    100.00%
Deferred loan fees.............    (2,230)                  (1,668)
Allowance for credit losses....    (1,702)                  (1,720)
                                 --------                 --------
     Total loans, net..........  $192,548                 $167,254
                                 ========                 ========
</TABLE>
 
     The following table details Patriot's loan originations for the years
indicated:
 
<TABLE>
<CAPTION>
                                                        FOR THE PERIOD ENDED DECEMBER 31,
                                                        ---------------------------------
                                                          1998        1997        1996
                                                        ---------   ---------   ---------
<S>                                                     <C>         <C>         <C>
Mortgage..............................................  $ 98,067    $143,864    $ 76,733
Consumer..............................................    25,428      42,227      39,794
Commercial............................................    67,204      46,665      14,148
Commercial Leases.....................................     6,202         397          --
                                                        --------    --------    --------
Total Originations....................................  $196,901    $233,153    $130,675
                                                        ========    ========    ========
</TABLE>
 
                                       17
<PAGE>

     LOAN MATURITY.  The following table sets forth the maturity schedule for
Patriot's loan portfolio (excluding residential mortgages and consumer loans):
 
<TABLE>
<CAPTION>
                                                      AMOUNTS AT DECEMBER 31, 1998, MATURING
                                               ----------------------------------------------------
                                                             AFTER ONE YEAR
                                               IN ONE YEAR    THROUGH FIVE      AFTER
                                                 OR LESS         YEARS        FIVE YEARS    TOTAL
                                               -----------   --------------   ----------   --------
                                                                  (IN THOUSANDS)
<S>                                            <C>           <C>              <C>          <C>
Loan Maturity Schedule:
Commercial loans.............................    $21,717        $52,923        $13,653     $ 88,293
Commercial leases............................     14,443            641         29,217     $ 44,301
Residential construction loans...............         84          4,784            399        5,267
Other construction loans.....................      1,772          2,111            191        4,074
                                                 -------        -------        -------     --------
     Total...................................    $38,016        $60,459        $43,460     $141,935
                                                 =======        =======        =======     ========
Fixed rates..................................    $26,026        $56,748        $42,898     $125,672
Adjustable rates.............................     11,990          3,711            562       16,263
                                                 -------        -------        -------     --------
     Total...................................    $38,016        $60,459        $43,460     $141,935
                                                 =======        =======        =======     ========
</TABLE>
 
     CREDIT QUALITY.  Patriot's Asset Review and Credit Administration
Committees establish acceptable credit risks to be undertaken, the policies and
procedures to be used to control credit risk and the corrective actions to be
taken when credit challenges are encountered. These committees also review
credit quality on a monthly basis, classify assets in accordance with applicable
management guidelines and regulations, make recommendations to Patriot's Board
of Directors with regard to placing assets on non-accrual status, charge-offs
and write-downs and the appropriate level of credit reserves.
 
     Patriot accrues interest on all loans until management determines that the
collection of interest is doubtful. In no event does Patriot continue accruing
interest on loans contractually past due 90 days or more. Upon discontinuance of
interest accrual, all unpaid accrued interest is reversed.
 
     Patriot generally requires appraisals on an annual basis on foreclosed
properties. Patriot generally conducts inspections on foreclosed properties on
at least a quarterly basis.
 
     At December 31, 1998 non-performing assets were $1,127,000 or 0.11% of
total assets compared to $1,274,000 or .15% of total assets at December 31,
1997. Patriot has controlled its level of non-performing assets by quickly
identifying problem assets and resolving them in an expedient manner. Patriot
had no restructured loans within the meaning of SFAS No. 15 and no potential
problem loans within the meaning of the Securities and Exchange Commission Guide
3 at December 31, 1998.
 
                                       18
<PAGE>

     The following table sets forth information regarding non-performing assets:
 
<TABLE>
<CAPTION>
                                                          AT DECEMBER 31,
                                          -----------------------------------------------
                                           1998      1997      1996      1995      1994
                                          -------   -------   -------   -------   -------
                                                          (IN THOUSANDS)
<S>                                       <C>       <C>       <C>       <C>       <C>
Non-accrual loans:
Residential mortgages...................  $   494   $   524   $   411   $   494   $   498
Commercial..............................      159       128         6        10        16
Commercial leases.......................       75        --        --        --        --
Home equity and consumer................      212       125       151        77       215
                                          -------   -------   -------   -------   -------
     Total non-accrual loans greater
        than 90 days....................      940       777       568       581       729
                                          -------   -------   -------   -------   -------
Residential mortgages...................       98       328        --        --        --
Home equity and consumer................       31         7        --        --        --
                                          -------   -------   -------   -------   -------
     Total non-accrual loans less than
        90 days.........................      129       335        --        --        --
                                          -------   -------   -------   -------   -------
     Total non-performing loans.........    1,069     1,112       568       581       729
REO.....................................       58       162        74       195       265
                                          -------   -------   -------   -------   -------
     Total non-performing assets........  $ 1,127   $ 1,274   $   642   $   776   $   994
                                          =======   =======   =======   =======   =======
Allowance for credit losses as a percent
  of loans receivable...................      .79%      .59%      .65%      .88%     1.01%
Allowance for credit losses as a percent
  of total non-performing loans.........   362.63    225.90    321.94    292.94    235.94
Non-performing loans as a percent of
  total loans receivable................      .21       .26       .20       .30       .43
Non-performing assets as a percent of
  total assets..........................      .11       .15       .12       .29       .45
</TABLE>
 
     ALLOWANCE FOR CREDIT LOSSES.  The adequacy of the allowance for credit
losses is based on management's evaluation of the risks inherent in its loan and
lease portfolio and the general economy. Management makes a quarterly
determination as to an appropriate provision from earnings necessary to maintain
an allowance for credit losses that is adequate to cover estimated losses with
respect to loans and leases receivable which are deemed probable and estimable
based on information currently known to management. The amount charged to
earnings is based upon several factors, including a continuing review of
delinquent, classified and non-accrual loans and leases, large loans and leases,
and overall portfolio quality, regular examination and review of the loan
portfolio by regulatory authorities, analytical review of loan and lease
charge-off experience, delinquency rates, other relevant historical and peer
statistical ratios, and management's judgment with respect to local and general
economic conditions and their impact on the existing loan and lease portfolio.
Although management believes the allowance is adequate to protect against future
losses arising out of its existing loan and lease portfolio, actual losses are
dependent on future events and, as such, further additions to the allowance may
be necessary. Patriot will continue to monitor and modify its allowance for
credit losses as conditions dictate. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review Patriot's
allowance for credit losses. Such agencies may require the company to make
additional provisions for estimated credit losses based upon their judgments
about information available to them at the time of their examination.
 
     During 1998 Patriot's loan and lease portfolio grew from $422,209,000 at
December 31, 1997, to $509,080,000. Almost all of this growth was in Patriot's
commercial loan and lease portfolio. Management deemed it appropriate to add
$1,200,000 to Patriot's allowance to adequately address this growth. Included in
Patriot's loan growth was the lease portfolio acquired in the KFL acquisition
and its related credit reserves of $878,000. Management deemed this acquired
reserve to be adequate and consistent with its reserving methodology and
philosophy.
 
                                       19
<PAGE>

     The following table sets forth management's allocation of the allowance for
credit losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
                        ------------------------------------------------------------------------------------------------------
                                      1998                               1997                               1996
                        --------------------------------   --------------------------------   --------------------------------
                                              PERCENT OF                         PERCENT OF                         PERCENT OF
                                               LOANS IN                           LOANS IN                           LOANS IN
                                 PERCENT OF      EACH               PERCENT OF      EACH               PERCENT OF      EACH
                                 ALLOWANCE     CATEGORY             ALLOWANCE     CATEGORY             ALLOWANCE     CATEGORY
                                  TO TOTAL     TO TOTAL              TO TOTAL     TO TOTAL              TO TOTAL     TO TOTAL
                        AMOUNT   ALLOWANCE      LOANS      AMOUNT   ALLOWANCE      LOANS      AMOUNT   ALLOWANCE      LOANS
                        ------   ----------   ----------   ------   ----------   ----------   ------   ----------   ----------
                                                                    (IN THOUSANDS)
<S>                     <C>      <C>          <C>          <C>      <C>          <C>          <C>      <C>          <C>
Residential             $1,273      31.15%       59.76%    $1,253      49.88%       72.24%    $ 895       48.87%       69.27%
  mortgages...........
Commercial loans and
  leases..............  2,131       52.13        26.72       629       25.04         8.70       261       14.28         4.18
Home equity and
  consumer............    683       16.72        13.52       630       25.08        19.06       674       36.85        26.55
                        ------     ------       ------     ------     ------       ------     ------     ------       ------
  Total valuation
    allowances........  $4,087     100.00%      100.00%    $2,512     100.00%      100.00%    $1,830     100.00%      100.00%
                        ======     ======       ======     ======     ======       ======     ======     ======       ======
</TABLE>
 
<TABLE>
<CAPTION>
 
                                                  AT DECEMBER 31,
                        -------------------------------------------------------------------
                                      1995                               1994
                        --------------------------------   --------------------------------
                                              PERCENT OF                         PERCENT OF
                                               LOANS IN                           LOANS IN
                                 PERCENT OF      EACH               PERCENT OF      EACH
                                 ALLOWANCE     CATEGORY             ALLOWANCE     CATEGORY
                                  TO TOTAL     TO TOTAL              TO TOTAL     TO TOTAL
                        AMOUNT   ALLOWANCE      LOANS      AMOUNT   ALLOWANCE      LOANS
                        ------   ----------   ----------   ------   ----------   ----------
<S>                     <C>      <C>          <C>          <C>      <C>          <C>
Residential                         
  mortgages...........  $1,265      74.32%       67.73%   $1,212       70.47%       63.63%
Commercial Loans and
  leases..............     33        1.94         1.67        52        3.02         2.20
Home equity and
  consumer............    404       23.74        30.60       456       26.51        34.17
                        ------     ------       ------     ------     ------       ------
  Total valuation
    allowances........  $1,702     100.00%      100.00%    $1,720     100.00%      100.00%
                        ======     ======       ======     ======     ======       ======
</TABLE>
 
     CASH AND CASH EQUIVALENTS.  Cash and cash equivalents at December 31, 1998,
were $30,487,000 compared to $9,014,000 at December 31, 1997. The increase in
cash and cash equivalents was primarily due to the receipt of principal
repayments on mortgage-backed securities.
 
     SECURITIES.  Investment securities consist of US Treasury and government
agency securities, corporate debt and equity securities. Mortgage-backed
securities consist of securities generally insured by either the FHLMC, FNMA or
the Government National Mortgage Association (GNMA). Collateralized mortgage
obligations consist of securities issued by the FHLMC, FNMA or private issuers.
 
     Total investment and mortgage-backed securities at December 31, 1998, were
$416,019,000 compared to $405,641,000 at December 31, 1997. The slight increase
in investment and mortgage-backed securities was part of management's strategy
to maintain the investment portfolio at just over $400,000,000 for most of 1998,
as management chose to grow Patriot's balance sheet with commercial loans and
leases. The composition of investment and mortgage-backed securities changed
during 1998 as adjustable rate collateralized mortgages prepaid and were
replaced primarily with new purchases of fixed rate collateralized
mortgage-backed securities with average lives of less than five years.
 
                                       20
<PAGE>

     The following table sets forth certain information regarding the amortized
cost and market value of investment and mortgage-backed securities at the dates
indicated:
 
<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                         ------------------------------------------------------------------
                                                 1998                   1997                   1996
                                         --------------------   --------------------   --------------------
                                         AMORTIZED    MARKET    AMORTIZED    MARKET    AMORTIZED    MARKET
                                           COST       VALUE       COST       VALUE       COST       VALUE
                                         ---------   --------   ---------   --------   ---------   --------
                                                                   (IN THOUSANDS)
<S>                                      <C>         <C>        <C>         <C>        <C>         <C>
AVAILABLE FOR SALE:
  Investment securities:
    US Treasury and government agency
      securities.......................  $ 40,568    $ 40,699   $ 19,884    $ 20,086   $  5,023    $  4,990
    Corporate securities...............    19,102      20,715     17,493      18,767         --          --
    Equity securities..................    60,823      63,979     48,168      52,553     23,797      24,492
  Mortgage-backed securities:
    FHLMC..............................     6,122       6,157     11,287      11,501     14,582      14,709
    FNMA...............................    43,554      43,470     20,163      20,254     25,118      25,124
    GNMA...............................     7,114       7,206     12,592      12,871     14,498      14,751
  Collateralized mortgage obligations:
    FHLMC..............................   104,751     106,256     75,085      75,784     37,928      37,639
    FNMA...............................    89,855      89,294    118,778     118,844     31,654      31,502
    Other..............................     8,560       8,604     12,522      12,465      5,976       5,941
                                         --------    --------   --------    --------   --------    --------
      Total investment and
         mortgage-backed securities
         available for sale............  $380,449    $386,380   $335,972    $343,125   $158,576    $159,148
                                         ========    ========   ========    ========   ========    ========
 
HELD TO MATURITY:
  Investment securities:
    US Treasury and government agency
      securities.......................  $    900    $    908   $  1,035    $  1,034   $  1,911    $  1,892
    Corporate securities...............     1,502       1,560      1,502       1,544      2,506       2,533
  Collateralized mortgage obligations:
    FHLMC..............................     1,176       1,190      1,801       1,804         --          --
    FNMA...............................     7,509       7,517      9,775       9,887         --          --
    Other..............................    18,552      18,734     48,403      48,548     68,293      68,297
                                         --------    --------   --------    --------   --------    --------
      Total investment and
         mortgage-backed securities
         held to maturity..............  $ 29,639    $ 29,909   $ 62,516    $ 62,817   $ 72,710    $ 72,722
                                         ========    ========   ========    ========   ========    ========
</TABLE>
 
                                       21
<PAGE>

     The following table sets forth certain information regarding the carrying
value, weighted average yield and contractual maturities of the Patriot's
investment and mortgage-backed securities as of December 31, 1998.
<TABLE>
<CAPTION>
                                                                  MORE THAN ONE YEAR    MORE THAN FIVE YEARS
                                             ONE YEAR OR LESS        TO FIVE YEARS          TO TEN YEARS
                                            -------------------   -------------------   ---------------------
                                                       WEIGHTED              WEIGHTED               WEIGHTED
                                            CARRYING   AVERAGE    CARRYING   AVERAGE    CARRYING     AVERAGE
                                             VALUE      YIELD      VALUE      YIELD       VALUE       YIELD
                                            --------   --------   --------   --------   ---------   ---------
                                                                     (IN THOUSANDS)
<S>                                         <C>        <C>        <C>        <C>        <C>         <C>
AVAILABLE FOR SALE:
Investment securities:
U.S. Treasury and government securities...  $     --       --%    $    --        --%    $     54       5.60%
Corporate securities......................        --       --          --        --           --         --
Equity securities.........................        --       --          --        --           --         --
Mortgage-backed securities:
FHLMC.....................................       157     6.68         732      6.68        1,113       6.61
FNMA......................................     2,964     6.45       5,501      6.42        8,438       6.42
GNMA......................................       138     7.32         548      6.96          913       6.94
Collateralized mortgage obligations:
FHLMC.....................................     1,455     6.64       6,885      6.64       11,571       6.65
FNMA......................................     1,305     6.48       6,148      6.48       10,150       6.49
Other.....................................       138     6.69         654      6.69        1,105       6.69
                                            --------    -----     -------     -----     --------      -----
  Total available for sale................  $  6,157     6.53%    $20,468      6.54%    $ 33,344       6.55%
                                            ========    =====     =======     =====     ========      =====
HELD TO MATURITY:
Investment securities:
U.S. Treasury and government securities...  $     --       --%    $   650      5.60%    $    250       5.30%
Corporate securities......................        --       --       1,502      6.92           --         --
Collateralized mortgage obligations:
FHLMC.....................................         1     6.70         102      6.70          173       6.70
FNMA......................................       149     6.80         465      6.80          791       6.80
Other.....................................       250     6.51       1,791      6.88        3,054       6.89
                                            --------    -----     -------     -----     --------      -----
  Total held to maturity:.................  $    400     6.62%    $ 4,510      6.70%    $  4,268       6.77%
                                            ========    =====     =======     =====     ========      =====
</TABLE>

<TABLE>
 <CAPTION>
 
                                            MORE THAN TEN YEARS   NO STATED MATURITY            TOTAL
                                            -------------------   -------------------   ---------------------
                                                       WEIGHTED              WEIGHTED               WEIGHTED
                                            CARRYING   AVERAGE    CARRYING   AVERAGE    CARRYING     AVERAGE
                                             VALUE      YIELD      VALUE      YIELD       VALUE       YIELD
                                            --------   --------   --------   --------   ---------   ---------
                                                                     (IN THOUSANDS)
<S>                                         <C>        <C>        <C>        <C>        <C>         <C>
AVAILABLE FOR SALE:
Investment securities:
U.S. Treasury and government securities...  $ 40,645     6.71%    $    --        --%    $ 40,699       6.71%
Corporate securities......................    20,715     8.92          --        --       20,715       8.92
Equity securities.........................     2,620     8.97      61,359      5.52       63,979       5.66
Mortgage-backed securities:
FHLMC.....................................     4,155     6.49          --        --        6,157       6.54
FNMA......................................    26,567     6.55          --        --       43,470       6.50
GNMA......................................     5,607     6.90          --        --        7,206       6.92
Collateralized mortgage obligations:
FHLMC.....................................    86,345     6.70          --        --      106,256       6.69
FNMA......................................    71,691     6.50          --        --       89,294       6.49
Other.....................................     6,707     6.69          --        --        8,604       6.69
                                            --------    -----     -------     -----     --------      -----
  Total available for sale................  $265,052     6.83%    $61,359      5.52%    $386,380       6.58%
                                            ========    =====     =======     =====     ========      =====
HELD TO MATURITY:
Investment securities:
U.S. Treasury and government securities...  $     --       --%    $    --        --%    $    900       5.52%
Corporate securities......................        --       --          --        --        1,502       6.92
Collateralized mortgage obligations:
FHLMC.....................................       900     6.70          --        --        1,176       6.70
FNMA......................................     6,104     6.80          --        --        7,509       6.80
Other.....................................    13,457     6.91          --        --       18,552       6.90
                                            --------    -----     -------     -----     --------      -----
  Total held to maturity:.................  $ 20,461     6.87%    $    --        --%    $ 29,639       6.82%
                                            ========    =====     =======     =====     ========      =====
</TABLE>
 
                                       22
<PAGE>

     Investments in equity securities that have readily determinable fair values
and all investments in debt securities are classified as either held to maturity
and reported at amortized cost, available for sale and reported at fair value
with unrealized gains and losses reported in a separate component of
stockholders' equity, or trading securities and reported at fair value with
unrealized gains and losses included in earnings.
 
     The following table represents the securities of single issuers (other than
obligations of the United States and its political subdivisions, agencies and
corporations) having an aggregate book value in excess of 10% of Patriot's
stockholder's equity which were held at December, 31 1998:
 
<TABLE>
<CAPTION>
                                                           AT DECEMBER 31, 1998
                                                              (IN THOUSANDS)
ISSUER                                                CARRYING VALUE      FAIR VALUE
------                                                --------------      ----------
<S>                                                   <C>                 <C>
FHLMC Preferred Stock...............................     $34,959           $36,790
FHLB Stock..........................................     $18,607           $18,607
GE Capital Mortgage Services, Inc...................     $ 4,939           $ 4,963
</TABLE>
 
     OTHER ASSETS.  Premises and equipment at December 31, 1998 were $10,259,000
compared to $8,542,000 at December 31, 1997. The increase was due to the
expansion and relocation of Patriot's mortgage banking operation, the KFL
acquisition and continued investments in technology. Accrued interest receivable
at December 31, 1998 was $4,114,000 compared to $4,119,000 at December 31, 1997.
The decrease is associated with general decreases in interest rates coupled with
the purchase of zero-coupon investment securities. Other assets at December 31,
1998 were $6,988,000 compared to $813,000 at December 31, 1997. The increase is
related to receivables created by timing differences of prepayments on
investment securities and prepaid costs associated with the First Lehigh
acquisition.
 
     DEPOSITS.  Deposits are generally attracted from within Patriot's primary
market area through the offering of various deposit instruments, including
checking accounts, money market accounts, savings accounts, certificates of
deposit and retirement savings plans. Patriot also solicits jumbo deposits from
various sources.
 
       Total deposits at December 31, 1998 were $377,796,000 compared to
$289,528,000 at December 31, 1997. $30,160,000 of that increase was the result
of aggressive marketing of money market and other transaction-based deposit
accounts. The remaining $58,108,000 of that increase came from Patriot's jumbo
deposit program. Patriot uses jumbo deposits as an alternative to borrowings.
 
     The following table sets forth the distribution of average deposit accounts
for the periods indicated and the weighted average yield on each category of
deposit presented:
 
<TABLE>
<CAPTION>
                                                          FOR THE YEAR ENDED DECEMBER 31,
                       ------------------------------------------------------------------------------------------------------
                                     1998                               1997                               1996
                       --------------------------------   --------------------------------   --------------------------------
                                  PERCENT OF                         PERCENT OF                         PERCENT OF
                                    TOTAL      WEIGHTED                TOTAL      WEIGHTED                TOTAL      WEIGHTED
                                   AVERAGE     AVERAGE                AVERAGE     AVERAGE                AVERAGE     AVERAGE
                       AVERAGE     DEPOSITS     YIELD     AVERAGE     DEPOSITS     YIELD     AVERAGE     DEPOSITS     YIELD
                       --------   ----------   --------   --------   ----------   --------   --------   ----------   --------
                                                                   (IN THOUSANDS)
<S>                    <C>        <C>          <C>        <C>        <C>          <C>        <C>        <C>          <C>
Money market           $ 62,749      17.91%      4.45%    $ 42,425      15.38%      4.29%    $ 33,829      15.49%      4.02%
  deposits...........
Passbook deposits....    23,772       6.79       2.42       27,149       9.84       2.61       27,444      12.57       2.38
NOW deposits.........    21,452       6.12       0.56       18,399       6.67       0.55       17,502       8.02       0.58
Demand deposits......     8,408       2.40       0.00        5,929       2.15       0.00        3,579       1.64       0.00
Retail certificates
  of deposit.........   130,858      37.37       5.78      140,432      50.92       5.77      133,969      61.35       5.71
                       --------     ------       ----     --------     ------       ----     --------     ------       ----
Total retail
  deposits...........   247,239      70.59       4.47      234,334      84.96       4.58      216,323      99.07       4.51
Jumbo certificates of
  deposit............   103,023      29.41       6.15       41,477      15.04       6.44        2,041       0.93       6.69
                       --------     ------       ----     --------     ------       ----     --------     ------       ----
  Total deposits.....  $350,262     100.00%      4.96%    $275,811     100.00%      4.86%    $218,364     100.00%      4.53%
                       ========     ======       ====     ========     ======       ====     ========     ======       ====
</TABLE>
 
                                       23
<PAGE>

     At December 31, 1998, the Company had $96,163,000 in certificate of deposit
accounts in amounts of $100,000 or more maturing as follows:
 
<TABLE>
<S>                                                          <C>
Three months or less.......................................  $23,181
Over three through six months..............................   10,577
Over six through 12 months.................................   14,429
Over 12 months.............................................   47,976
                                                             -------
  Total....................................................  $96,163
                                                             =======
</TABLE>
 
     BORROWINGS.  Patriot utilizes borrowings as a source of funds for its
growth strategy and its asset/liability management. Patriot is eligible to
obtain advances from the Federal Home Loan Bank (FHLB) upon the security of the
FHLB common stock it owns and certain of its residential mortgages and
mortgage-backed securities, provided certain standards related to
creditworthiness have been met. FHLB advances are made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. The maximum amount that the FHLB will advance to member institutions
fluctuates from time to time in accordance with the policies of the FHLB.
Patriot also uses repurchase agreements as a funding source. Repurchase
agreements are generally short-term obligations collateralized by government
agency and other securities.
 
     The following table presents certain information regarding borrowed funds:
 
<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                  ------------------------------------------------------------
                                         1998                 1997                 1996
                                  ------------------   ------------------   ------------------
                                             AVERAGE              AVERAGE              AVERAGE
                                  BALANCE     RATE     BALANCE     RATE     BALANCE     RATE
                                  --------   -------   --------   -------   --------   -------
                                                         (IN THOUSANDS)
<S>                               <C>        <C>       <C>        <C>       <C>        <C>
FHLB advances...................  $360,198     5.25%   $275,200     5.78%   $210,000    5.64%
Repurchase Agreements...........   170,123     5.43     214,684     5.89      21,595    6.22
Trust Preferred.................    19,000    10.30      19,000    10.80          --      --
                                  --------    -----    --------    -----    --------    ----
Total borrowings outstanding....  $549,321     5.48%   $508,884     6.01%   $231,595    5.69%
                                  ========    =====    ========    =====    ========    ====
Short-term (less than 1 year)...  $235,123     5.47%   $385,684     5.84%   $145,595    5.72%
Long-term (over 1 year).........   314,198     5.49%    123,200     6.55%     86,000    5.65
                                  --------    -----    --------    -----    --------    ----
     Total borrowings
        outstanding.............  $549,321     5.48%   $508,884     6.01%   $231,595    5.69%
                                  ========    =====    ========    =====    ========    ====
</TABLE>
 
     STOCKHOLDERS' EQUITY.  Total stockholders' equity was $42,260,000 at
December 31, 1998 compared to $46,533,000 at December 31, 1997. The decrease was
a result of the repurchase of common stock, cash dividends paid and a decrease
in the net unrealized gain on investment and mortgage-backed securities
available for sale offset somewhat by the retention of earnings.
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
     LIQUIDITY.  Patriot's primary sources of funds are deposits, principal and
interest payments on loans, principal and interest payments on investment and
mortgage-backed securities, FHLB advances and repurchase agreements. While
maturities and scheduled amortization of loans and investment and
mortgage-backed securities are predictable sources of funds, deposit inflows and
loan and mortgage-backed security prepayments are greatly influenced by economic
conditions, general interest rates and competition. Therefore, Patriot manages
its balance sheet to provide adequate liquidity based upon various economic,
interest rate and competitive assumptions and in light of profitability
measures.
 
     During 1998, significant liquidity was provided by financing activities,
particularly long-term FHLB advances and deposits. Maturities of investment and
mortgage-backed securities also provided significant liquidity during 1997. The
funds provided by these activities were used to repay previous borrowings as
long-term FHLB advances and deposits were used to extend the maturity of many of
Patriot's borrowings. Funds were also invested into new loans and investment and
mortgage-backed securities, and used to fund the repurchase of Patriot's common
stock.
 
                                       24
<PAGE>

     At December 31, 1998, Patriot had outstanding loan commitments of
$41,674,000. Patriot anticipates that it will have sufficient funds available to
meet its loan origination commitments. Certificates of deposit which are
scheduled to mature in one year or less from December 31, 1998 totaled
$168,451,000. Based upon historical experience, Patriot expects that
substantially all of the maturing certificates of deposit will be retained at
maturity. See "Year 2000 Compliance" for a discussion regarding the possible
impact of Year 2000 issues on Patriot's liquidity.
 
     CAPITAL RESOURCES.  FDIC regulations currently require companies to
maintain a minimum leverage capital ratio of not less than 3% of tier 1 capital
to total adjusted assets and not less than 4% of risk-adjusted assets, and a
minimum risk-based capital ratio (based upon credit risk) of not less than 8%.
The FDIC requires a minimum leverage capital requirement of 3% for institutions
rated composite 1 under the CAMEL rating system. For all other institutions, the
minimum leverage capital requirement is 3% plus at least an additional 1% to 2%,
(100 to 200) basis points. At December 31, 1998, Patriot Bank's and Patriot Bank
Corp.'s capital ratios exceeded all requirements to be considered well
capitalized. The following table sets forth the capital ratios of Patriot Bank
Corp., Patriot Bank and the current regulatory requirements at December 31,
1998:
 
<TABLE>
<CAPTION>
                                                                                 TO BE WELL
                                                              FOR CAPITAL     CAPITALIZED UNDER
                                                               ADEQUACY       PROMPT CORRECTIVE
                                              ACTUAL           PURPOSES            ACTION
                                          ---------------   ---------------   -----------------
                                          AMOUNT    RATIO   AMOUNT    RATIO    AMOUNT    RATIO
                                          -------   -----   -------   -----   --------   ------
<S>                                       <C>       <C>     <C>       <C>     <C>        <C>
As of December 31, 1998
  Total capital (to risk weighted
     assets)
     Patriot Bank Corp..................  $60,050   12.46%  $38,551     8%    $48,189      10%
     Patriot Bank.......................   43,553   10.15%   34,341     8%     42,926      10%
  Tier I capital (to risk-weighted
     assets)
     Patriot Bank Corp..................   48,184   10.00%   19,275     4%     28,913       6%
     Patriot Bank.......................   38,641    9.00%   17,170     4%     25,756       6%
  Tier I capital (to average assets)
     Patriot Bank Corp..................   48,184    5.37%   38,448     4%     44,848       5%
     Patriot Bank.......................   38,641    5.78%   29,632     4%     33,411       5%
</TABLE>
 
     MANAGEMENT OF INTEREST RATE RISK.  The principal objective of Patriot's
interest rate risk management function is to evaluate the interest rate risk
included in certain on and off balance sheet accounts, determine the level of
risk appropriate given Patriot's business focus, operating environment, capital
and liquidity requirements and performance objectives, and manage the risk
consistent with Board approved guidelines. Through such management, Patriot
seeks to reduce the vulnerability of its net interest income to changes in
interest rates. Patriot monitors its interest rate risk as such risk relates to
its operating strategies. Patriot's Board of Directors has established an
Asset/Liability Committee comprised of senior management, which is responsible
for reviewing its asset/liability and interest rate position and making
decisions involving asset/liability considerations. The Asset/Liability
Committee meets regularly and reports trends and Patriot's interest rate risk
position to the Board of Directors.
 
     The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, therefore, a negative gap theoretically would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates, a
negative gap position would theoretically tend to result in an increase in net
interest income while a positive gap would tend to affect net interest income
adversely.
 
                                       25
<PAGE>

     Patriot pursues several actions designed to control its level of interest
rate risk. These actions include increasing the percentage of the loan portfolio
consisting of short-term and adjustable-rate loans through increased
originations of these loans, acquiring short-term and adjustable-rate mortgage-
backed securities, and undertaking to lengthen the maturities of deposits and
borrowings. At December 31, 1998, Patriot's total interest-bearing liabilities
maturing or repricing within one year exceeded its total net interest-earning
assets maturing or repricing in the same time period by $65,113,000 representing
a one-year cumulative "gap," as defined above, as a percentage of total assets
of negative 6.64%.
 
     The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998, which are
anticipated, based upon certain assumptions, to reprice or mature in each of the
future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at December
31, 1998, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be repaid and/or repriced as a result of contractual amortization
and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and
as a result of contractual rate adjustments on adjustable-rate loans.
 
<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31, 1998
                                         -------------------------------------------------------------------------------
                                                    MORE THAN
                                                    3 MONTHS    MORE THAN   MORE THAN   MORE THAN
                                         3 MONTHS      TO       6 MONTHS    1 YEAR TO   3 YEARS TO   MORE THAN
                                         OR LESS    6 MONTHS    TO 1 YEAR    3 YEARS     5 YEARS      5 YEARS     TOTAL
                                         --------   ---------   ---------   ---------   ----------   ---------   -------
<S>                                      <C>        <C>         <C>         <C>         <C>          <C>         <C>
INTEREST EARNING ASSETS(1):
  Interest earning deposits............   29,443          --          --          --          --           --     29,443
  Investment and mortgage-backed
    securities, net(2)(5)..............  113,703      21,215      36,615      35,326      61,782      147,378    416,019
  Loans receivable, net(3)(5)..........   77,365      32,540      67,488      98,984     146,204       87,988    510,569
                                         -------     -------     -------     -------     -------      -------    -------
      Total interest-earning assets....  220,511      53,755     104,103     134,310     207,986      235,366    956,031
  Non-interest-earning assets..........                                                                24,730     24,730
                                         -------     -------     -------     -------     -------      -------    -------
      Total assets.....................  220,511      53,755     104,103     134,310     207,986      260,096    980,761
INTEREST-BEARING LIABILITIES:
  Money market and passbook savings
    accounts(6)........................    9,774       9,774      19,548      36,763       3,557       17,613     97,029
  Demand and NOW accounts..............      892         892       1,783       3,566       7,132       23,908     37,363
  Certificate accounts.................   58,621      41,883      67,947      41,481      23,857        9,615    243,404
  Borrowings...........................  215,368      17,000         -0-      52,000     170,000       94,953    549,321
                                         -------     -------     -------     -------     -------      -------    -------
      Total interest-bearing
        liabilities....................  284,655      69,549      89,278     133,810     204,546      145,279    927,117
  Non-interest-bearing liabilities.....                                                                11,384     11,384
  Equity...............................                                                                42,260     42,260
                                         -------     -------     -------     -------     -------      -------    -------
      Total liabilities and equity.....  284,655      69,549      89,278     133,810     204,546      198,923    980,761
  Interest sensitivity gap(4)..........  (64,144)    (15,794)     14,825         500       3,440       61,173
  Cumulative interest sensitivity
    gap................................  (64,144)    (79,938)    (65,113)    (64,613)    (61,173)          --
  Cumulative interest sensitivity gap
    as a percent of total assets.......    -6.54%      -8.15%      -6.64%      -6.59%      -6.24%        0.00%
  Cumulative interest-earning assets as
    a percent of cumulative
    interest-bearing liabilities.......    77.47%      77.43%      85.32%      88.81%      92.18%      103.12%
</TABLE>
 
------------------
(1) Interest-earning assets are included in the period in which the balances are
    expected to be repaid and/ or repriced as a result of anticipated
    prepayments, scheduled rate adjustments, and contractual maturities.
 
(2) Includes assets available for sale and held to maturity.
 
(3) For purposes of the gap analysis, loans receivable includes non-performing
    loans and is reduced for the allowance for estimated loan losses, and
    unamortized discounts and deferred loan fees.
 
(4) Interest sensitivity gap represents the difference between total
    interest-earning assets and total interest-bearing liabilities.
 
(5) Annual prepayment rates for loans and mortgage-backed securities range from
    11% to 38%.
 
(6) Money market savings accounts, passbook accounts and NOW accounts are
    assumed to have decay rates between 5% and 40% annually.
 
                                       26
<PAGE>

     In addition to gap analysis, Patriot utilizes income simulation modeling in
measuring its interest rate risk and managing its interest rate sensitivity.
Income simulation considers not only the impact of changing market interest
rates on forecasted net interest income, but also other factors such as yield
curve relationships, the volume and mix of assets and liabilities, customer
preferences and general market conditions.
 
     Through the use of income simulation modeling Patriot has calculated an
estimate of net interest income for the year ending December 31, 1999, based
upon the assets, liabilities and off-balance sheet financial instruments in
existence at December 31, 1998. Patriot has also estimated changes to that
estimated net interest income based upon immediate and sustained changes in
interest rates ("rate shocks"). Rate shocks assume that all interest rates
increase or decrease on the first day of the period modeled and remain at that
level for the entire period. The following table reflects the estimated
percentage change in estimated net interest income for the year ending December
31, 1999.
 

                RATE SHOCK TO INTEREST RATES         % CHANGE
                 ----------------------------        --------
                             +2%                      (11.8%)
                             +1%                       (5.5%)
                             -1%                        2.6%
                             -2%                        3.7%

 
     Patriot's management believes that the assumptions utilized in evaluating
Patriot's estimated net interest income are reasonable; however, the interest
rate sensitivity of Patriot's assets, liabilities and off-balance sheet
financial instruments as well as the estimated effect of changes in interest
rates on estimated net interest income could vary substantially if different
assumptions are used or actual experience differs from the experience on which
the assumptions were based.
 
                              YEAR 2000 COMPLIANCE
 
     STATE OF READINESS.  Pursuant to its strategic business plan, Patriot has
made significant investments in new technology over the last two years. As a
result of these investments, the primary systems used by Patriot are believed to
be Year 2000 compliant. Management has substantially completed a comprehensive
program to analyze, test and proactively address all of Patriot's systems to
ensure Year 2000 compliance. Management has also substantially completed the
process of evaluating significant customer and vendor relationships as well as
liquidity, given the potential for concern among deposit customers resulting in
decreased deposit balances, to assess risks and make appropriate contingency
plans.
 
     RISKS.  Year 2000 issues result from the inability of many computer
programs or computerized equipment to accurately calculate, store or use data as
the year 2000 approaches. Banking, by its nature, is a very data processing
intensive industry. These potential shortcomings could result in a system
failure or miscalculations causing disruptions of operation, including among
other things, a temporary inability to process transactions, track important
customer information, provide convenient access to this information, or engage
in normal business operations.
 
     CONTINGENCY PLANS.  Patriot believes that the consequences of incomplete or
untimely resolution of its Year 2000 issues do not represent a known material
event or uncertainty that is reasonably likely to affect its future financial
results, or cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition. If
compliance is not achieved in a timely manner by Patriot or any of its
significant related third parties, be it a supplier of services or customer, the
Year 2000 issue could possibly have a material effect on Patriot's operations
and financial position. Contingency plans are also being developed in the event
of any unanticipated interruptions in Patriots' mission critical systems.
Business continuation plans for critical business applications are being
developed. These plans include adequate staffing on site during the Year 2000
date change to quickly repair any errant applications. In addition, in the event
of any problems the Company would follow its current computer outage business
continuation plans until such problems are corrected.
 
                                       27
<PAGE>

     COST.  The cost of the project and the date on which Patriot plans to
complete both Year 2000 modifications and system conversions are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties. Management currently estimates the
cost of its Year 2000 plan including performing tests, documenting results and
making modifications where necessary to be approximately $145,000 of which
$46,000 has been expensed prior to December 31, 1998.
 
                                 QUARTERLY DATA
 
     The following table presents selected quarterly consolidated financial
data:
 
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                      -----------------------------------------------------------------------------------------
                                      DEC. 31,   SEPT. 30,   JUNE 30,   MARCH 31,   DEC. 31,   SEPT. 30,   JUNE 30,   MARCH 31,
                                        1998       1998        1998       1998        1997       1997        1997       1997
                                      --------   ---------   --------   ---------   --------   ---------   --------   ---------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>        <C>         <C>        <C>         <C>        <C>         <C>        <C>
Total interest income...............  $16,697     $15,720    $15,571     $15,119    $14,860     $13,746    $11,323     $10,320
Total interest expense..............   12,147      11,802     11,364      10,923     11,138      10,143      7,730       6,796
                                      -------     -------    -------     -------    -------     -------    -------     -------
Net interest income.................    4,550       3,918      4,207       4,196      3,722       3,603      3,593       3,524
Provision for credit losses.........      325         325        300         250        455         235        120         105
                                      -------     -------    -------     -------    -------     -------    -------     -------
Net interest income after provision
  for credit losses.................    4,225       3,593      3,907       3,946      3,267       3,368      3,473       3,419
Other income........................      836         841      1,532         664      1,274         575        256         225
Other expenses......................    3,672       3,111      4,131       3,353      3,405       2,859      2,521       2,373
                                      -------     -------    -------     -------    -------     -------    -------     -------
Income before income taxes..........    1,389       1,323      1,308       1,257      1,136       1,084      1,208       1,271
Income tax provision................      341         283        300         298        242         253        370         461
                                      -------     -------    -------     -------    -------     -------    -------     -------
Net income..........................  $ 1,048     $ 1,040    $ 1,008     $   959    $   894     $   831    $   838     $   810
                                      =======     =======    =======     =======    =======     =======    =======     =======
Diluted earnings per share..........  $  0.21     $  0.20    $  0.19     $  0.18    $  0.17     $  0.15    $  0.14     $  0.13
Dividends per share.................  $  .075     $  .070    $  .068     $  .066    $  .064     $  .062    $  .058     $  .055
Market Prices -- High...............  $ 13.06     $ 16.25    $ 17.25     $ 16.80    $ 17.00     $ 15.30    $ 11.91     $ 11.33
                 Low................  $  9.00     $ 11.75    $ 13.20     $ 13.41    $ 13.20     $ 11.59    $  9.50     $  8.59
</TABLE>
 
      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
 
     SUMMARY.  For the year ended December 31, 1997, Patriot reported net income
of $3,373,000 or $.59 diluted earnings per share compared to net income of
$1,975,000 or $.31 diluted earnings per share for the year ended December 31,
1996. This represents an increase in net income of 71% and an increase in
earnings per share of 90%. Return on average equity was 7.22% for 1997 compared
to 3.71% for 1996.
 
     The 1996 results include a special after-tax charge of $836,000 ($1,338,000
before-tax) representing the special deposit insurance assessment levied against
all SAIF member financial institutions by the FDIC to recapitalize its SAIF
fund. Excluding the special charge, Patriot reported net income of $2,811,000 or
$.44 diluted earnings per share for 1996.
 
     NET INTEREST INCOME.  Net interest income for 1997 was $14,442,000 compared
to $12,092,000 in 1996. This represents an increase of 19% and is primarily due
to an increase in average balances. Average balances increased throughout 1997
as Patriot grew its assets to more fully utilize the capital raised in its stock
conversion. Much of Patriot's asset growth resulted from the origination of
commercial, consumer and mortgage loans. Additionally, Patriot purchased
investment and mortgage-backed securities.
 
     As a result of these growth strategies, stock repurchases and the issuance
of the trust preferred securities. Patriot's net interest margin (net interest
income as a percentage of average interest-earning assets) decreased as
anticipated to 2.14% from 3.01% in 1996.
 
                                       28
<PAGE>

     Interest on loans was $27,008,000 for 1997 compared to $18,429,000 for
1996. The average balance of loans was $348,186,000 with an average yield of
7.76% compared to an average balance of $234,726,000 with an average yield of
7.85% for 1996. The increase in average balance is due to an emphasis placed on
commercial loans, residential mortgage loans and home equity loans during 1997.
The decrease in average yield is primarily a result of an emphasis on short-term
and adjustable-rate loans, many of which are originated with teaser rates.
 
     Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $23,048,000 for 1997 compared to $11,409,000 in 1996. The
average balance of the investment portfolio was $336,718,000 with an average
yield of 6.96% for 1997 compared to an average balance of $165,159,000 with an
average yield of 6.69% for 1996. The increase in average balance and the
increase in average yield was due to the purchase of higher yielding investment
and mortgage-backed securities. The majority of securities purchased in 1997
were adjustable rate collateralized mortgage obligations with interest rates
tied to one month LIBOR.
 
     Interest on total deposits was $13,405,000 for 1997 compared to $9,895,000
for 1996. The average balance of total deposits was $275,811,000 with an average
cost of 4.86% for 1997 compared to an average balance of $218,364,000 with an
average cost of 4.53% for 1996. The increase in average balance was the result
of aggressive marketing of money market and other transaction-based deposit
accounts, the opening of two new community banking offices and an increase in
Patriot's jumbo deposit program offset somewhat by the sale of $10,350,000 of
deposits. The increase in average yield was the result of a higher percentage of
jumbo deposits offset by the emphasis on transaction-based deposit accounts.
 
     Interests on borrowings was $22,402,000 in 1997 compared to $7,607,000 in
1996. The average balance of borrowings was $382,357,000 with an average cost of
5.86% for 1997 compared to an average balance of $136,200,000 with an average
cost of 5.57% for 1996. The increase in average balance was due to the use of
borrowings to fund the growth in the balance sheet. The increase in average cost
was due to higher balances of long-term borrowings and due to the issuance of
the trust preferred securities.
 
     PROVISION FOR CREDIT LOSSES.  The provision for loan losses was $915,000
for 1997 compared to $305,000 for 1996. The increase in the provision is a
reflection of the growth of Patriot's loan portfolio and the origination of more
commercial and consumer loans.
 
     NON-INTEREST INCOME.  Total non-interest income was $2,330,000 for 1997
compared to $637,000 for 1996. The increase was primarily due to an increased
emphasis on recurring non-interest income including loan and deposit fees, ATM
fees and mortgage banking gains. Non-interest income in 1997 also includes a
gain of $885,000 recognized from the deposit sale and net gains of $438,000
associated with the sale of investment securities.
 
     NON-INTEREST EXPENSE.  Total non-interest expense was $11,158,000 for 1997
compared to $9,198,000 for 1996. The increase in non-interest expense was the
result of increased salary and employee benefit costs and occupancy and
equipment costs, both related to Patriot's expanded operations and non-income
based tax expense. Non-interest expense in 1996 also includes the special charge
of $1,338,000 for the special deposit insurance assessment levied against all
SAIF member financial institutions by the FDIC to recapitalize its SAIF fund.
 
     INCOME TAX PROVISION.  The income tax provision was $1,326,000 for 1997
compared to $1,251,000 for 1996. The effective tax rate was 28.22% for 1997
compared to 38.78% for 1996. The decrease in the effective tax rate is the
result of Patriot's tax planning strategies, which include investments in
tax-exempt securities. Also, prior to Patriot Bank's charter conversion, it was
subject to state income taxes. Patriot Bank's state tax expense is now
considered a non-interest expense.
 
                                       29
<PAGE>

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
     The discussion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 1999
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Management of Interest Rate Risk" in Item 7 hereof, is
incorporated herein by reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                 MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING
 
To Our Stockholders:
 
     The management of Patriot Bank Corp. (the Corporation) is responsible for
the preparation, integrity, and fair presentation of its published financial
statements. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, as such, include
amounts that are based on judgments and estimates of management.
 
     There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
structure can only provide reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the degree of
effectiveness of an internal control structure may vary over time.
 
     Management assessed the Corporation's internal control structure over
financial reporting presented in conformity with generally accepted accounting
principles. This assessment was based on criteria for effective internal control
over financial reporting described in "Internal Control-Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management believes the Corporation maintained an
effective internal control structure over financial data, presented in
accordance with generally accepted accounting principles.
 
     Management is also responsible for compliance with the federal laws and
regulations concerning dividend restrictions and loans to insiders designated by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation
as safety and soundness laws and regulations.
 
     The Corporation assessed its compliance with the designated laws and
regulations relating to safety and soundness. Based on this assessment,
management believes that Patriot Bank Corp. complied, in all material respects,
with the designated laws and regulations related to safety and soundness for the
year ended December 31, 1998.
 
/s/ Joseph W. Major                        /s/ Richard A. Elko
-------------------------                  --------------------------------
Joseph W. Major                            Richard A. Elko
Chief Executive Officer                    Chief Financial Officer
 
                                       30
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Patriot Bank Corp.:
 
We have audited the accompanying consolidated balance sheet of Patriot Bank
Corp. and Subsidiaries (the "Company") as of December 31, 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows for the year then ended. 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 audit. The accompanying
consolidated balance sheet of the Company as of December 31, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the two year period then ended were audited by other
auditors whose report thereon dated January 21, 1998, expressed an unqualified
opinion on those statements.
 
We conducted our audit 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 audit provides a reasonable basis for our opinion.
 
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
 
KPMG LLP
January 13, 1999, except as to Note2 which is as of January 22, 1999
 
                                       31
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Patriot Bank Corp.
 
We have audited the accompanying consolidated balance sheets of Patriot Bank
Corp. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of Patriot Bank Corp.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
We conducted our audit 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 consolidated financial position of Patriot
Bank Corp. and Subsidiaries as of December 31, 1997 and the consolidated results
of their operations and their consolidated cash flows for each of the two years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
 
/s/ Grant Thornton LLP
---------------------------------
Grant Thornton LLP

Philadelphia, Pennsylvania
January 21, 1998
 
                                       32
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1997
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
ASSETS
Cash and due from banks.....................................  $  1,044   $  2,597
Interest-earning deposits in other financial institutions...    29,443      6,417
                                                              --------   --------
     Total cash and cash equivalents........................    30,487      9,014
Securities available for sale...............................   386,380    343,125
Securities held to maturity (market value of $29,909 and
  $62,817 at December 31, 1998 and 1997, respectively)......    29,639     62,516
Loans held for sale.........................................     5,576      4,095
Loans and leases receivable, net of allowances for credit
  loss of $4,087 and $2,512 at December 31, 1998 and 1997,
  respectively..............................................   504,993    419,697
Premises and equipment, net.................................    10,259      8,542
Accrued interest receivable.................................     4,114      4,119
Real estate owned...........................................        58        162
Goodwill....................................................     2,267         --
Other assets................................................     6,988        813
                                                              --------   --------
     Total assets...........................................  $980,761   $852,083
                                                              ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits....................................................  $377,796   $289,528
FHLB Advances...............................................   360,198    275,200
Securities sold under repurchase agreements.................   170,123    214,684
Trust preferred debt securities.............................    19,000     19,000
Advances from borrowers for taxes and insurance.............     4,747      3,135
Other liabilities...........................................     6,637      4,003
                                                              --------   --------
     Total liabilities......................................   938,501    805,550
                                                              ========   ========
Preferred stock, $0.01 par value, 2,000,000 shares
  authorized, none issued at December 31, 1998 and 1997,
  respectively..............................................        --         --
Common stock, $0.008 par value, 10,000,000 shares
  authorized, 7,034,927 and 7,033,029 shares issued at
  December 31, 1998 and 1997, respectively..................        56         56
Additional paid-in capital..................................    60,348     59,926
Common stock acquired by ESOP, 411,352 and 437,061 shares at
  cost at December 31, 1998 and 1997, respectively..........    (2,285)    (2,428)
Common stock acquired by MRP, 154,116 and 200,411 shares at
  amortized cost at December 31, 1998 and 1997,
  respectively..............................................      (971)    (1,285)
Retained earnings...........................................     4,220      1,680
Treasury stock acquired, 2,122,309 and 1,584,944 shares at
  cost at December 31, 1998 and 1997, respectively..........   (22,963)   (16,071)
Accumulated other comprehensive income......................     3,855      4,655
                                                              --------   --------
     Total stockholders' equity.............................    42,260     46,533
                                                              --------   --------
     Total liabilities and stockholders' equity.............  $980,761   $852,083
                                                              ========   ========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       33
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1998      1997      1996
                                                           -------   -------   -------
<S>                                                        <C>       <C>       <C>
INTEREST INCOME
  Interest-earning deposits..............................  $   344   $   193   $   116
  Securities.............................................   27,521    23,048    11,049
  Loans and leases.......................................   35,242    27,008    18,429
                                                           -------   -------   -------
     Total interest income...............................   63,107    50,249    29,594
                                                           -------   -------   -------
INTEREST EXPENSE
  Deposits...............................................   17,382    13,405     9,895
  Short-term borrowings..................................   16,379    15,648     5,965
  Long-term borrowings...................................   12,475     6,754     1,642
                                                           -------   -------   -------
Total interest expense...................................   46,236    35,807    17,502
                                                           -------   -------   -------
  Net interest income before provision for credit
     losses..............................................   16,871    14,442    12,092
  Provision for credit losses............................    1,200       915       305
                                                           -------   -------   -------
  Net interest income after provision for credit
     losses..............................................   15,671    13,527    11,787
                                                           -------   -------   -------
NON-INTEREST INCOME
  Service fees, charges and other operating income.......    1,406       830       526
  Gain on the sale of branch deposits and facility.......       --       885        --
  Gain (loss) on sale of real estate acquired through
     foreclosure.........................................        1        (9)       16
  Gain (loss) on sale of securities available for sale...    1,850       438       (28)
  Mortgage banking activities............................      616       186       123
                                                           -------   -------   -------
     Total non-interest income...........................    3,873     2,330       637
                                                           -------   -------   -------
NON-INTEREST EXPENSE
  Salaries and employee benefits.........................    8,741     6,741     4,115
  Occupancy and equipment................................    2,187     1,952       978
  Professional services..................................      634       258       225
  Federal deposit insurance premiums.....................      196       132     1,814
  Information Services...................................      146       167       373
  Advertising............................................      552       551       397
  Deposit processing.....................................      388       307       253
  Other operating expenses...............................    1,423     1,050     1,043
                                                           -------   -------   -------
     Total non-interest expense..........................   14,267    11,158     9,198
                                                           -------   -------   -------
     Income before income taxes..........................    5,277     4,699     3,226
  Income taxes...........................................    1,222     1,326     1,251
                                                           -------   -------   -------
     Net income..........................................  $ 4,055   $ 3,373   $ 1,975
                                                           =======   =======   =======
  Earning per share -- basic.............................  $  0.83   $  0.62   $  0.31
                                                           =======   =======   =======
  Earnings per share -- diluted..........................  $  0.78   $  0.59   $  0.31
                                                           =======   =======   =======
     Dividends per share.................................  $  0.28   $  0.24   $  0.14
                                                           =======   =======   =======
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       34
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                                 ADDITIONAL                                                 OTHER
                            NUMBER OF   COMMON    PAID-IN                         RETAINED   TREASURY   COMPREHENSIVE
                            SHARES(1)   STOCK     CAPITAL      ESOP       MRP     EARNINGS    STOCK        INCOME        TOTAL
                            ---------   ------   ----------   -------   -------   --------   --------   -------------   -------
<S>                         <C>         <C>      <C>          <C>       <C>       <C>        <C>        <C>             <C>
BALANCE AT JANUARY 1,
 1996.....................    4,373       38       36,700      (2,714)       --    19,893         --          193        54,110
Common stock issued.......      168        1        1,731          --        --        --         --           --         1,732
Common stock acquired by
 MRP......................     (168)      --           --          --    (1,732)       --         --           --        (1,732)
Amortization of MRP.......       --       --           --          --       194        --         --           --           194
Treasury stock
 purchased................     (235)      --           --          --        --        --     (2,517)          --        (2,517)
Stock dividend 20%........      826        8       10,530          --        --   (10,538)        --           --            --
Release of ESOP shares....       21       --           53         143        --        --         --           --           196
Change in unrealized gains
 on securities available
 for sale, net of taxes...       --       --           --          --        --        --         --          132           132
Net income................       --       --           --          --        --     1,975         --           --         1,975
Cash dividends paid.......       --       --           --          --        --      (973)        --           --          (973)
                             ------      ---      -------     -------   -------   -------    --------      ------       -------
BALANCE AT DECEMBER 31,
 1996.....................    4,985      $47      $49,014     $(2,571)  $(1,538)  $10,357    $(2,517)      $  325       $53,117
                             ------      ---      -------     -------   -------   -------    --------      ------       -------
Common stock issued.......        6       --          102          --        --        --         --           --           102
Common stock acquired by
 MRP......................       (6)      --           --          --      (102)       --         --           --          (102)
Treasury stock
 purchased................   (1,037)      --           --          --        --        --    (13,554)          --       (13,554)
Stock dividend 20%........      789        9       10,645          --        --   (10,654)        --           --            --
Release and amortization
 of MRP...................       48       --           --          --       355        --         --           --           355
Release of ESOP shares....       26       --          165         143        --        --         --           --           308
Change in unrealized gains
 on securities available
 for sale, net of taxes...       --       --           --          --        --        --         --        4,330         4,330
Net income................       --       --           --          --        --     3,373         --           --         3,373
Cash dividends paid.......       --       --           --          --        --    (1,396)        --           --        (1,396)
                             ------      ---      -------     -------   -------   -------    --------      ------       -------
BALANCE AT DECEMBER 31,
 1997.....................    4,811      $56      $59,926     $(2,428)  $(1,285)  $ 1,680    $(16,071)     $4,655       $46,533
                             ------      ---      -------     -------   -------   -------    --------      ------       -------
Common stock issued.......        2       --           46          --        --        --         --           --            46
Common stock acquired by
 MRP......................       (2)      --           --          --       (46)       --         --           --           (46)
Treasury stock
 purchased................     (538)      --           --          --        --        --     (6,892)          --        (6,892)
Stock split 25%...........       --       --           --          --        --        --         --           --            --
Release and amortization
 of MRP...................       48       --          156          --       360        --         --           --           516
Release of ESOP shares....       26       --          220         143        --        --         --           --           363
Change in unrealized gains
 on securities available
 for sale, net of taxes...       --       --           --          --        --        --         --         (800)         (800)
Net income................       --       --           --          --        --     4,055         --           --         4,055
Cash dividends paid.......       --       --           --          --        --    (1,515)        --           --        (1,515)
                             ------      ---      -------     -------   -------   -------    --------      ------       -------
BALANCE AT DECEMBER 31,
 1998.....................    4,347      $56      $60,348     $(2,285)  $  (971)  $ 4,220    $(22,963)     $3,855       $42,260
                             ======      ===      =======     =======   =======   =======    ========      ======       =======
</TABLE>
 
------------------
(1) All per share data restated to reflect stock split.
 
        The accompanying notes are an integral part of these statements.
 
                                       35
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1997       1996
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
  Net Income................................................  $  4,055   $  3,373   $  1,975
  Adjustments to reconcile net income to net cash provided
    by operating activities
    Amortization and accretion of
      Deferred loan origination fees........................      (126)      (145)      (464)
      Premiums and discounts................................    (1,228)       (94)       (39)
      MRP shares............................................       360        355        194
      Goodwill..............................................        26         --         --
    Provision for credit losses.............................     1,200        915        305
    Release of ESOP shares..................................       363        308        196
    (Gain) loss on sale of securities.......................    (1,805)      (438)        28
    (Gain) loss on sale of real estate owned................        (1)         9        (16)
    Write down of real estate owned.........................        97         --         --
    Gain on sale of deposits................................        --       (885)        --
    Depreciation of premises and equipment..................     1,027        762        259
    Mortgage loans originated for sale......................   (42,988)   (13,753)        --
    Mortgage loans sold.....................................    41,507      9,658         --
    Decrease (increase) in deferred income taxes............       315       (139)      (277)
    Decrease (increase) in accrued interest receivable......         5     (1,470)    (1,444)
    Increase in other assets................................    (5,742)    (1,134)       (71)
    (Decrease) increase in other liabilities................      (998)     1,563      1,077
                                                              --------   --------   --------
      Net cash (used by) provided by operating activities...    (3,933)    (1,115)     1,723
                                                              --------   --------   --------
INVESTING ACTIVITIES
    Loan originations & principal payments on loans, net....   (45,381)  (142,265)   (85,643)
    Proceeds from the sale of securities -- available for
      sale..................................................     8,475      4,280      3,918
    Proceeds from the maturity of securities -- available
      for sale..............................................   167,326     26,740     16,784
    Proceeds from the maturity of securities -- held to
      maturity..............................................    32,877     10,194      5,625
    Purchase of securities -- available for sale............  (216,846)  (208,017)  (132,012)
    Purchase of securities -- held to maturity..............        --         --    (74,418)
    Proceeds from sale of real estate owned.................        83         50        131
    Purchase of premises and equipment......................    (2,496)    (1,880)    (4,533)
    Purchase of leasing company.............................    (6,585)        --         --
    Proceeds from sale of premises and equipment............        --        300         --
                                                              --------   --------   --------
      Net cash used by investing activities.................   (62,547)  (310,598)  (270,148)
                                                              --------   --------   --------
FINANCING ACTIVITIES
    Net increase in deposits................................    87,896     60,361     37,896
    Decrease from sale of deposits..........................        --     (9,462)        --
    (Repayment of) proceeds from short term borrowings......  (169,561)   171,089    135,595
    Proceeds from long term borrowings......................   226,415     87,200     86,000
    Repayment of long term borrowings.......................   (50,002)        --         --
    Net proceeds from trust preferred stock.................        --     19,000         --
    Increase in advances from borrowers for taxes and
      insurance.............................................     1,612        636        721
    Cash paid for dividends.................................    (1,515)    (1,396)      (973)
    Purchase of treasury stock..............................    (6,892)   (13,554)    (2,517)
                                                              --------   --------   --------
      Net cash provided by financing activities.............    87,953    313,874    256,722
                                                              --------   --------   --------
    Net increase (decrease) in cash and cash equivalents....    21,473      2,161    (11,703)
Cash and cash equivalents at beginning of year..............     9,014      6,853     18,556
                                                              --------   --------   --------
Cash and cash equivalents at end of year....................  $ 30,487   $  9,014   $  6,853
                                                              ========   ========   ========
Supplemental disclosures
    Cash paid for interest on deposits......................  $ 17,367   $ 13,368   $  9,888
    Cash paid for income taxes..............................  $    937   $  1,982   $  1,161
    Transfers from loans to real estate owned...............  $     75   $    167   $     31
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       36
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                             1998         1997         1996
                                                            -------      -------      -------
<S>                                                         <C>          <C>          <C>
Net Income................................................  $4,055       $3,373       $1,975
Other comprehensive income, net of tax
  Unrealized gains (losses) on securities
     Unrealized holding gains (losses) arising during the
        period............................................   1,050        4,768          160
     Less: Reclassification adjustment for gains included
        in net income.....................................  (1,850)        (438)         (28)
                                                            ------       ------       ------
Comprehensive income (loss)...............................  $3,255       $7,703       $2,107
                                                            ======       ======       ======
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       37
<PAGE>
                       PATRIOT BANK CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The following is a description of the significant accounting policies of
Patriot Bank Corp. and Subsidiaries (Patriot). Such accounting and reporting
policies conform with generally accounting principles and predominant practices
within the financial institution industry.
 
     Patriot, through its subsidiaries, offers a broad range of lending,
depository and related financial services to small businesses and consumers
primarily through 18 community banking offices located in Berks, Chester,
Montgomery, Northampton and Lehigh counties in Pennsylvania and through direct
mail and various electronic and telephonic means.
 
     Patriot Bank principally competes with other banking and financial
institutions in its primary market communities. Commercial banks, savings banks,
savings and loan associations, credit unions and money market funds actively
compete for deposits and loans. Such institutions, as well as consumer finance
and insurance companies, may be considered competitors of Patriot with respect
to one or more of the services they render.
 
A. BASIS OF FINANCIAL PRESENTATION
 
     The accompanying financial statements include the accounts of the parent
company, Patriot Bank Corp. and its subsidiaries: Patriot Bank and its
subsidiaries, Marathon Management Company, Patriot Investment & Insurance
Company, Patriot Commercial Leasing Company, Inc., and Patriot Investment
Company. All material intercompany balances and transactions have been
eliminated in consolidation. In preparing the consolidated financial statements,
management makes estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates. The principal estimates that are particularly susceptible to
significant change in the near term relate to the allowance for possible credit
losses, mortgage servicing rights, and other real estate owned.
 
     The evaluation of the adequacy of the allowance for credit losses includes,
among other factors, an analysis of historical loss rates, by category, applied
to current loan and lease totals. However, actual losses may be higher or lower
than historical trends, which vary. Actual losses on specified problem loans and
leases, which also are provided for in the evaluation, may vary from estimated
loss percentages, which are established based upon a limited number of potential
loss classifications.
 
     In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting of Comprehensive Income," which is effective for years
beginning after December 15, 1997. This new standard requires entities
presenting a complete set of financial statements to include details of
comprehensive income. Comprehensive income consists of net income or loss for
the current period and income, expenses, gains, and losses that bypass the
income statement and are reported directly in a separate component of equity.
The required disclosure of Comprehensive Income have been presented in these
financial statements.
 
     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for all periods
beginning after December 15, 1997. SFAS 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Patriot's
1998 annual financial statements include the required disclosures for a business
that is managed as one operating segment.

                                       38
<PAGE>
 
                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                DECEMBER 31, 1998
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

     In February 1998, the FASB issued SFAS No. 132 , "Employer's Disclosures
about Pensions and other Postretirement Benefits." This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when FASB Statements No 97, "Employers' Accounting for
Pensions," No. 88, "Employers' Benefits," and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," were issued. This statement
requires changes in disclosures and does not effect the earnings, financial
condition, or equity of the Corporation. This statement is effective for fiscal
years beginning after December 15, 1997.
 
     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of certain exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment; (b) a hedge of the exposure to variable cash flows of a forecasted
transaction; or (c) a hedge of foreign currency exposure. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier adoption is permitted. Patriot has not yet determined the impact, if
any, of this statement, including if applicable, its provisions for the
potential reclassifications of certain investment securities, on earnings,
financial condition or equity.
 
     In October 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement
requires that after the securitizaion of a mortgage loan held for sale, an
entity engaged in mortgage banking activities classify any retained
mortgage-backed securities based on the ability and intent to sell or hold those
investments, except that a mortgage banking enterprise must classify as trading
any retained mortgage-backed securities that it commits to sell before or during
the securitization process. This statement is effective for the first fiscal
quarter beginning after December 15, 1998, with earlier adoption permitted. This
statement provides a one-time opportunity for an enterprise to reclassify, based
on the ability and intent on the date of adoption of this statement,
mortgage-backed securities and other beneficial interest retained after
securitization of mortgage loans held for sale from the trading category, except
for those with commitments in place. Patriot has not yet determined the impact,
if any, of this statement, including if applicable, its provisions for the
potential reclassifications of certain investment securities, on earnings,
financial condition or equity.
 
B. CASH AND CASH DUE FROM BANKS
 
     Cash and cash equivalents are defined as cash on hand, cash items in
process of collection and amounts due from banks. Interest-earning deposits
consist of deposit accounts with the Federal Home Loan Bank (FHLB) of Pittsburgh
and deposits with other financial institutions generally having maturities of
three months or less.
 
                                       39
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

C. SECURITIES
 
     Securities for which Patriot has the intent and ability to hold to maturity
are classified as held to maturity and reported at amortized cost. Securities
expected to be held for an indefinite period of time are classified as available
for sale and are carried at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity, net of estimated
income taxes. Securities that are bought and held principally for the purpose of
selling are classified as trading and reported at fair value, with unrealized
gains and losses included in earnings. Patriot has no securities held for
trading. Gains or losses on the sales of securities are recognized at trade date
utilizing the specific identification method.
 
D. LOANS HELD FOR SALE
 
     Loans held for resale consist of residential mortgage loans originated by
Patriot. They are recorded at the lower of cost or estimated fair value on an
aggregate basis.
 
E. LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES
 
     Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at unpaid principal
balances and net of deferred loan origination fees and discounts. Interest is
accrued and credited to operations based upon the principal amount of loans
outstanding. Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on Patriot's historical prepayment
experience.
 
     Direct finance leases have terms ranging from three to five years. Under
direct finance lease accounting, the balance sheet includes the gross minimum
lease payments receivable, unguaranteed estimated residual values of the leased
equipment, and capitalized indirect costs, reduced by unearned lease income. The
capitalized initial direct cost incurred in underwriting and acquiring the
leases.
 
     The lease residual values represent the proceeds from the sale of leased
equipment at the end of the initial term of the lease and are determined on the
basis of analyses prepared by Patriot based upon professional appraisals,
historical experience and industry data. Management reviews the estimated
residual values on a periodic basis, and impairments in value, if any, are
recognized as an immediate charge to income.
 
     An allowance for credit losses is maintained at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks in the loan and lease portfolio. Management's periodic
evaluation of the adequacy of the allowance for credit losses is based upon
evaluation of individual loans and leases, the overall risk characteristics of
the various portfolio segments, past loss experience, current and projected
financial status and creditworthiness of its borrowers, the adequacy of
collateral, the level and nature of non-performing loans, current economic
conditions, the results of the most recent regulatory examination (which was in
September of 1998) and other relevant factors. This evaluation is inherently
subjective. While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the assumptions used in making the evaluations. In
addition, various regulatory agencies as an integral part of their examination
process, periodically review the allowance for credit losses. Such agencies may
require Patriot to recognize additions to the allowance for credit losses based
on their judgments of information which is available to them at the time of
their examinations.

 
                                       40
<PAGE>
                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
 
     Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Impairment is based on the fair value of the collateral
when the creditor determines that foreclosure is probable.

     Large groups of smaller-balance homogeneous loans are collectively
evaluated for impairment. Those loans include residential mortgage, home equity
and consumer loans. Patriot's impaired loans at and during the years ended
December 31, 1998, 1997 and 1996 were not significant.
 
     Uncollectible interest on loans and leases that are contractually past due
ninety days or greater is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is reestablished, in which case the loan is
returned to accrual status.
 
F. PREMISES AND EQUIPMENT
 
     Land is carried at cost. Buildings, leasehold improvements and furniture,
fixtures and equipment are carried at cost less accumulated depreciation.
Depreciation is provided for by the straight-line method over the estimated
useful lives of the assets.
 
G. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
   EXTINGUISHMENTS OF LIABILITIES
 
     On January 1, 1997 Patriot adopted SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," as
amended by SFAS No. 127, which provides accounting guidance on transfers of
financial assets, servicing of financial assets and extinguishments of
liabilities. Adoption of this new statement did not have a material impact on
Patriot's consolidated financial position or results of operations.
 
H. EMPLOYEE BENEFIT PLANS
 
     Patriot has certain employee benefit plans covering substantially all
employees. Patriot accrues costs as incurred.
 
I. INCOME TAXES
 
     Deferred income taxes are determined based on the differences between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when the differences reverse. Deferred
tax expense is the result of changes in deferred tax assets and liabilities. The
principal differences between assets and liabilities for financial statement and
tax return purposes is the allowance for credit losses.
 
J. EARNINGS PER SHARE
 
     Basic earnings per share excludes dilution and is computed by dividing
income available to common shares by the weighted average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock. Prior periods'
earnings per share calculations have been restated to reflect the 1998 25% stock
split and the 1997 and 1996 20% stock dividends.
 
                                       41
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

K. GOODWILL
 
     Goodwill represents the excess of the purchase price over the estimated
fair value of identifiable net assets acquired through purchase acquisitions and
is included in other assets. The amortization of goodwill is on a straight-line
basis over 15 years, which is the estimated period to be benefited.
 
L. RECLASSIFICATIONS
 
     Certain prior period amounts have been reclassified to conform with the
current year's presentation. These reclassifications had no effect on net
income.
 
NOTE 2 -- BUSINESS COMBINATIONS
 
     On November 6, 1998, Patriot purchased Keystone Financial Leasing ("KFL"),
a small-ticket commercial leasing company with $43,327,000 million in total
assets. Patriot paid $6,585,000 in cash at closing and will pay additional cash
consideration based upon future revenues of KFL. Such future consideration will
not exceed $5,465,000. The acquisition was accounted for as a purchase, and
accordingly, the results of operations for KFL have been included in Patriot's
consolidated statement of income since the date of acquisition. The transaction
added $2,273,000 of tax deductible goodwill to Patriot's balance sheet. The
balance of this goodwill at December 31, 1998 was $2,247,000.
 
     A summary of unaudited pro forma combined financial information for the
year ended December 31, 1998 as if the KFL acquisition occurred at the beginning
of 1998 is as follows:
 
<TABLE>
<CAPTION>
                                            PATRIOT        KFL        PROFORMA
                                          -----------   ----------   -----------
<S>                                       <C>           <C>          <C>
Net interest income.....................  $16,871,000   $2,130,000   $19,001,000
Non-interest income.....................    3,873,000      257,000     4,130,000
Net income..............................    4,055,000       68,000     4,123,000
Diluted earnings per share..............          .78          .01           .79
</TABLE>
 
     Proforma information on KFL for 1997 and 1996 was not material.
 
     On January 22, 1999, Patriot completed the acquisition of First Lehigh
Corporation ("First Lehigh"), a commercial banking company with $104,478,000 in
total assets and $93,905,000 in total deposits. Patriot issued 1,640,000 shares
of common stock for all the outstanding common and preferred stock of First
Lehigh. The transaction had a total value of $21,047,000. The acquisition was
accounted for as a purchase, and accordingly, the results of operations of First
Lehigh will be included in Patriot's consolidated statement of income from the
date of acquisition.
 
NOTE 3 -- RESTRICTIONS ON CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS
 
     Patriot is required to maintain certain average reserve balances as
established by the Federal Reserve Board. The amounts of those reserve balances
for the reserve computation periods, which included December 31, 1998 and 1997,
were $905,000 and $1,583,000, respectively.
 
                                       42
<PAGE>
                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 4 -- SECURITIES
 
     The amortized cost and estimated fair value of investment and
mortgage-backed securities are as follows:
 
<TABLE>
<CAPTION>
                                                                      1998
                                                ------------------------------------------------
                                                              GROSS        GROSS
                                                AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
                                                  COST        GAINS         LOSS      FAIR VALUE
                                                ---------   ----------   ----------   ----------
                                                                 (IN THOUSANDS)
<S>                                             <C>         <C>          <C>          <C>
AVAILABLE FOR SALE:
  Investment securities:
     U.S. Treasury and government agency
        securities............................  $ 40,568      $  176       $   45      $ 40,699
     Corporate debt securities................    19,102       1,705           92        20,715
     FHLMC Preferred Stock....................    34,959       1,831           --        36,790
     FHLB Stock...............................    18,607          --           --        18,607
     Equity securities........................     7,257       1,528          203         8,582
  Mortgage-backed securities:
     FHLMC....................................     6,122          52           17         6,157
     FNMA.....................................    43,554         171          255        43,470
     GNMA.....................................     7,114          97            5         7,206
  Collateralized mortgage obligations:
     FHLMC....................................   104,751       1,505           --       106,256
     FNMA.....................................    89,855         668        1,229        89,294
     GE Capital Mortgage Services, Inc........     4,939          24           --         4,963
     Other....................................     3,621          20           --         3,641
                                                --------      ------       ------      --------
     Total securities available for sale......  $380,449      $7,777       $1,846      $386,380
                                                ========      ======       ======      ========
HELD TO MATURITY:
  Investment securities:
     U.S. Treasury and government agency
        securities............................  $    900      $    8       $   --      $    908
     Corporate debt securities................     1,502          58           --         1,560
  Collateralized mortgage obligations:
     FHLMC....................................     1,176          14           --         1,190
     FNMA.....................................     7,509           8           --         7,517
     Other....................................    18,552         185            3        18,734
                                                --------      ------       ------      --------
     Total securities held to maturity........  $ 29,639      $  273       $    3      $ 29,909
                                                ========      ======       ======      ========
</TABLE>
 
                                       43
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 4 -- SECURITIES -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                      1997
                                                ------------------------------------------------
                                                              GROSS        GROSS
                                                AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
                                                  COST        GAINS         LOSS      FAIR VALUE
                                                ---------   ----------   ----------   ----------
                                                                 (IN THOUSANDS)
<S>                                             <C>         <C>          <C>          <C>
AVAILABLE FOR SALE:
  Investment securities:
     U.S. Treasury and government agency
        securities............................  $ 19,884      $  202        $ --       $ 20,086
     Commerce Bancorp, Inc. debt security.....     5,000         276          --          5,276
     Corporate debt securities................    12,493         998          --         13,491
     FHLMC Stock..............................    30,031       1,245          --         31,276
     FHLB Stock...............................    13,760          --          --         13,760
     Equity securities........................     4,377       3,140          --          7,517
  Mortgage-backed securities:
     FHLMC....................................    11,287         214          --         11,501
     FNMA.....................................    20,163         185          94         20,254
     GNMA.....................................    12,592         279          --         12,871
  Collateralized mortgage obligations:
     FHLMC....................................    75,085         806         107         75,784
     FNMA.....................................   118,778         503         437        118,844
     Securitized Asset Sales, Inc.............     4,934          --          81          4,853
     GE Capital Mortgage Services, Inc........     7,476          24          --          7,500
     Other....................................       112          --          --            112
                                                --------      ------        ----       --------
  Total securities available for sale.........  $335,972      $7,872        $719       $343,125
                                                ========      ======        ====       ========
HELD TO MATURITY:
  Investment securities:
     U.S. Treasury and government agency
        securities............................  $  1,035      $    4        $  5       $  1,034
     Corporate debt securities................     1,502          42          --          1,544
  Collateralized mortgage obligations:
     FHLMC....................................     1,801           3          --          1,804
     FNMA.....................................     9,775         112          --          9,887
     Capstead Securities Corp. IV.............     6,055          24          --          6,079
     CMC Securities Corporation...............     6,377          64          --          6,441
     Other....................................    35,971         150          93         36,028
                                                --------      ------        ----       --------
  Total securities held to maturity...........  $ 62,516      $  399        $ 98       $ 62,817
                                                ========      ======        ====       ========
</TABLE>
 
                                       44
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 4 -- SECURITIES -- (CONTINUED)

     The amortized cost and estimated fair value of investment and
mortgage-backed securities at December 31, 1998, 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>
                                          HELD TO MATURITY      AVAILABLE FOR SALE
                                         -------------------   --------------------
                                         AMORTIZED    FAIR     AMORTIZED     FAIR
                                           COST       VALUE      COST       VALUE
                                         ---------   -------   ---------   --------
                                                       (IN THOUSANDS)
<S>                                      <C>         <C>       <C>         <C>
Securities
Due in one year or less................   $   400    $   497   $  7,414    $  6,157
Due after one year through five
  years................................     4,510      4,580     20,245      20,468
Due after five years through ten
  years................................     4,268      4,281     32,981      33,344
Due after ten years....................    20,461     20,551    261,486     265,052
Equity securities......................        --         --     58,323      61,359
                                          -------    -------   --------    --------
Total securities.......................   $29,639    $29,909   $380,449    $386,380
                                          =======    =======   ========    ========
</TABLE>
 
     For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the contractual maturities. The mortgage-backed securities may mature
earlier than their contractual maturities because of principal prepayments.
 
     Proceeds from sales of investment and mortgage-backed securities and the
realized gross gains and losses from those sales are as follows:
 
<TABLE>
<CAPTION>
                                                         AVAILABLE FOR SALE
                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------
                                                   1998         1997         1996
                                                  ------       ------       ------
                                                           (IN THOUSANDS)
<S>                                               <C>          <C>          <C>
Proceeds from sales.............................  $8,475       $4,280       $3,918
                                                  ======       ======       ======
Gross realized gains............................   1,912          438           75
Gross realized losses...........................     (62)          --         (103)
                                                  ------       ------       ------
Net realized gain (loss)........................  $1,850       $  438       $  (28)
                                                  ======       ======       ======
</TABLE>
 
     Securities having an aggregate amortized cost of $3,043,388, $335,000, and
$412,000 were pledged to secure public deposits at December 31, 1998, 1997 and
1996, respectively.
 
                                       45
<PAGE>
                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 5 -- LOANS AND LEASES RECEIVABLE
 
     Loans and leases receivable are summarized as follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                        -----------------------
                                                          1998           1997
                                                        --------       --------
<S>                                                     <C>            <C>
Mortgage Portfolio
Residential mortgages.................................  $300,232       $294,716
Construction..........................................     5,267          4,039
Consumer Portfolio
Home equity...........................................    64,807         75,439
Other consumer loans..................................     4,336          3,909
Commercial Portfolio
Commercial loans......................................    92,367         46,166
Commercial leases.....................................    44,301            334
                                                        --------       --------
Total loans, gross....................................   511,310        424,603
Deferred loan origination fees........................    (2,230)        (2,394)
Allowance for credit losses...........................    (4,087)        (2,512)
                                                        --------       --------
Total loans, net......................................  $504,993       $419,697
                                                        ========       ========
</TABLE>
 
     Patriot services a $43,100,000 portfolio of sold loans with corresponding
originated mortgage servicing rights totaling $413,000.
 
     Patriot's loan portfolio is principally concentrated in the eastern
Pennsylvania and New Jersey geographic areas.
 
     Activity in the allowance for credit losses is summarized as follows:
 
<TABLE>
<CAPTION>
                                                     1998        1997        1996
                                                    ------      ------      ------
                                                            (IN THOUSANDS)
<S>                                                 <C>         <C>         <C>
Balance at beginning of year......................  $2,512      $1,830      $1,702
Provision for possible credit losses..............   1,200         915         305
Acquired allowance................................     878          --          --
Loans charged off.................................    (512)       (276)       (177)
Recoveries........................................       9          43          --
                                                    ------      ------      ------
Balance at end of year............................  $4,087      $2,512      $1,830
                                                    ======      ======      ======
</TABLE>
 
     Non-performing loans, consisting of all loans 90 days past due and certain
other loans for which the accrual of interest has been discontinued, were
$1,069,000 and $1,112,000 at December 31, 1998 and 1997, respectively. Interest
income that would have been recorded under the original terms of such loans and
the interest income actually recognized are summarized as follows:
 
<TABLE>
<CAPTION>
                                                        1998       1997       1996
                                                        ----       ----       ----
                                                              (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Interest income that would have been recorded.........  $152       $71        $53
Interest income recognized............................  (108)      (21)       (17)
                                                        ----       ---        ---
Interest income foregone..............................  $ 44       $50        $36
                                                        ====       ===        ===
</TABLE>
 
                                       46
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 6 -- PREMISES AND EQUIPMENT
 
     Premises and equipment are summarized as follows:
 
<TABLE>
<CAPTION>
                                                   ESTIMATED
                                                  USEFUL LIVES       1998         1997
                                                  ------------      -------      ------
                                                                      (IN THOUSANDS)
<S>                                               <C>               <C>          <C>
Land............................................        --          $ 1,255      $1,255
Buildings.......................................     30-40            6,927       6,051
Furniture, fixtures and equipment...............       3-7            5,857       4,059
Leasehold improvements..........................        15              742         655
                                                                    -------      ------
                                                                     14,781      12,020
Less accumulated depreciation...................                     (4,522)     (3,478)
                                                                    -------      ------
                                                                    $10,259      $8,542
                                                                    =======      ======
</TABLE>
 
NOTE 7 -- DEPOSITS
 
     Deposits and their average rates are summarized as follows:
 
<TABLE>
<CAPTION>
                                                  1998                 1997
                                           ------------------   ------------------
                                                      AVERAGE              AVERAGE
                                           BALANCE     RATE     BALANCE     RATE
                                           --------   -------   --------   -------
                                                       (IN THOUSANDS)
<S>                                        <C>        <C>       <C>        <C>
Transaction deposits.....................  $ 23,961    0.58%    $ 16,908    0.61%
Money market deposits....................    74,613    4.36       51,696    4.44
Savings deposits.........................    22,416    2.39       24,510    2.38
Non-interest-bearings demand deposits....    13,402    0.00       11,117    0.00
                                           --------    ----     --------    ----
Total transaction, money market, savings
  and demand deposits....................   134,392    2.92      104,231    2.86
Certificates of deposit..................   243,404    5.67      185,297    5.87
                                           --------    ----     --------    ----
Total....................................  $377,796    4.69%    $289,528    4.79%
                                           ========    ====     ========    ====
</TABLE>
 
     The aggregate amount of certificates of deposit with minimum denominations
of $100,000 or more totaled approximately $96,163,000 and $41,788,000 at
December 31, 1998 and 1997, respectively. At December 31, 1998 and 1997, Patriot
has one brokerage firm which has placed certificates of deposits at the bank,
totaling approximately $80,831,000 and $30,490,000, respectively.
 
     At December 31, 1998 scheduled maturities of certificates of deposit were
as follows:
 

         1999..............................................  $168,451
         2000..............................................    41,821
         2001..............................................    20,043
         2002..............................................     2,287
         2003..............................................     1,529
         Thereafter........................................     9,273
                                                             --------
                                                             $243,404
                                                             ========
 
                                       47
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 8 -- FHLB ADVANCES
 
A. SHORT TERM
 
     Short-term advances from the FHLB have maturities of less than one year.
These advances are collateralized by FHLB stock and certain first mortgage loans
and mortgage-backed securities. Short-term borrowings are summarized as follows:
 
<TABLE>
<CAPTION>
                                                    1998       1997
                                                   -------   --------
                                                     (IN THOUSANDS)
<S>                                                <C>       <C>
Balance at year-end..............................  $65,000   $171,000
Maximum amount outstanding at any month-end
  during the period..............................  $68,000   $213,000
Average amount outstanding during each period....  $63,983   $155,042
Weighted average interest rate on short-term
  borrowings.....................................     5.81%      5.76%
</TABLE>
 
B. LONG TERM
 
     At December 31, 1998 and 1997, long-term advances from the FHLB totaling
$295,198,000 and $104,200,000 have maturities of one to ten years. These
advances are collateralized by FHLB stock and certain first mortgage loans and
mortgage-backed securities.
 
     At December 31, 1997, the outstanding long-term borrowings mature as
follows (in thousands):
 

      2000..............................................  $ 50,000
      2001..............................................         0
      2002..............................................    60,000
      2003..............................................   110,000
      Thereafter........................................    75,198
                                                          --------
                                                          $295,198
                                                          ========
 
                                       48

<PAGE>
                      PATRIOT BANK CORP. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 9 -- SECURITIES SOLD UNDER SHORT-TERM REPURCHASE AGREEMENTS
 
     Patriot enters into sales of securities under agreements to repurchase.
These transactions are reflected as a liability on the accompanying Consolidated
Balance Sheets. At December 31, 1998 and 1997, all of the agreements were to
repurchase identical securities.
 
     Short-term repurchase agreements generally have maturities of less than one
year. These repurchase agreements are collateralized by certain mortgage-backed,
agency and corporate securities. Short-term repurchase agreements are summarized
as follows:
 
<TABLE>
<CAPTION>
                                                            1998       1997
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Balance at year-end.....................................  $170,123   $214,684
Maximum amount outstanding at any month-end during the
  period................................................  $242,131   $221,962
Average amount outstanding during each period...........  $221,113   $115,593
Weighted average interest rate on short-term
  borrowings............................................      5.73%      5.77%
Investment and mortgage-backed securities underlying the
  agreements at year-end:
  Carrying value........................................  $179,534   $227,629
  Estimated fair value..................................  $179,534   $227,629
</TABLE>
 
NOTE 10 -- TRUST PREFERRED SECURITIES
 
     On May 29, 1997, Patriot issued $19,000,000 of 10.30% junior subordinated
debentures to Patriot Capital Trust I, a Delaware Business Trust, in which
Patriot owns all of the common equity. The trust issued $19,000,000 of preferred
securities to investors, secured by the junior subordinated debentures and the
guarantee of Patriot. Although the junior subordinated debentures will be
treated as debt of Patriot, they currently qualify for Tier I capital treatment,
subject to certain limitations, under risk-based capital guidelines of the
Federal Reserve. The Trust Preferred Securities are callable by the Company on
or after July 1, 2007, or earlier in the event the deduction of related interest
for federal income taxes is prohibited, treatment as Tier I capital is no longer
permitted or certain other contingencies arise. The Trust Preferred Securities
must be redeemed upon maturity of the debentures in 2027.
 
NOTE 11 -- BRANCH SALE
 
     On November 21, 1997 Patriot completed the sale of a community banking
office and $10,350,000 of deposits from that office at a 7.5% premium. Patriot
recognized a gain from the sale of the deposits and the physical facility of
approximately $885,000.
 
                                       49
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 12 -- INCOME TAXES
 
     Applicable income taxes in the consolidated statements of income are as
follows:
 
<TABLE>
<CAPTION>
                                                   1998         1997         1996
                                                  ------       ------       ------
                                                           (IN THOUSANDS)
<S>                                               <C>          <C>          <C>
Current
  Federal.......................................  $  892       $1,301       $1,306
  State.........................................      15          109          222
  APIC from Stock Compensation..................      --           55           --
                                                  ------       ------       ------
Total current...................................     907        1,465        1,528
                                                  ------       ------       ------
Deferred
  Federal.......................................     215          (39)        (277)
  State.........................................     100         (100)          --
                                                  ------       ------       ------
Total deferred..................................     315         (139)        (277)
                                                  ------       ------       ------
Applicable income taxes.........................  $1,222       $1,326       $1,251
                                                  ======       ======       ======
Effective tax rate..............................    23.2%        28.2%        38.8%
                                                  ======       ======       ======
</TABLE>
 
     The income tax provision reconciled to taxes computed at the statutory
federal rate is as follows:
 
<TABLE>
<CAPTION>
                                                      1998        1997        1996
                                                      -----       -----       -----
<S>                                                   <C>         <C>         <C>
Federal tax expense at statutory rate...............   34.0%       34.0%       34.0%
Adjustment resulting from:
  State tax, net of federal tax benefit.............     --          .8         2.3
  Tax-exempt interest and dividend income...........  (12.2)       (9.0)       (1.4)
  ESOP expense......................................    1.4         1.2         0.6
  Other.............................................     --        (0.8)        1.3
                                                      -----       -----       -----
Income taxes........................................   23.2%       28.2%       38.8%
                                                      =====       =====       =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                            1998          1997
                                                           -------       -------
<S>                                                        <C>           <C>
Deferred tax assets
  Deferred loan fees.....................................  $    92       $   184
  Allowance for credit losses............................    1,091           854
  Uncollectible interest.................................       15            18
  Non-qualified pension plan.............................       12            14
  MRP expense............................................       66            66
  State NOL carryovers...................................       --           100
  Reserves...............................................        6            11
                                                           -------       -------
     Total deferred tax assets...........................  $ 1,282       $ 1,247
                                                           =======       =======
Deferred tax liabilities
  Depreciation...........................................  $   523       $   368
  Discount accretion.....................................      217           134
  Gain on sale of loans..................................       --            48
  Originated mortgage servicing rights...................      141            --
  Bad debt recapture.....................................       19            --
  Unrealized gain on securities available for sale.......    2,076         2,498
                                                           -------       -------
     Total deferred tax liabilities......................    2,976         3,048
                                                           -------       -------
     Net deferred tax (liability) asset..................  $(1,694)      ($1,801)
                                                           =======       =======
</TABLE>
 
                                       50
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 12 -- INCOME TAXES -- (CONTINUED)

     Based on management's evaluation of the likelihood of realization, no
valuation allowance has been provided against deferred tax benefits.
 
     The Small Business Job Protection Act of 1996 ("Act"), enacted on August
20,1996, provides for the repeal of the tax bad debt deduction computed under
the percentage of taxable income method. The repeal of the use of this method is
effective for tax years beginning after December 31, 1995. Prior to the change
in law, the Bank had qualified under the provisions of the Internal Revenue Code
which permitted it to deduct from taxable income an allowance for bad debts
based on 8% of taxable income.
 
     Upon repeal, the Bank is required to recapture into income, over a six-year
period, the portion of its tax bad debt reserves that exceed its base year
reserves (i.e., tax reserves for tax years beginning before 1988). The base year
tax reserves, which may be subject to recapture if the Bank ceases to qualify as
a bank for federal income tax purposes are restricted with respect to certain
distributions. The Bank's total tax bad-debt reserves at December 31, 1998, are
approximately $4,103,000, of which $4,046,000 represents the base year amount
and $57,000 is subject to recapture.
 
NOTE 13 -- EARNINGS PER SHARE
 
     CAPITAL TRANSACTIONS.  Patriot became a publicly owned company on December
1, 1995 when it issued 3,769,125 shares of common stock and raised net proceeds
of $36,652,000. On September 22, 1997 and November 21, 1996 Patriot paid special
20% stock dividends. On May 14, 1998 Patriot distributed a 25% stock split. For
comparative purposes, per share amounts, as presented herein, have been adjusted
to reflect the stock split/dividends. During 1996, 1997 and 1998 Patriot
repurchased 282,684, 1,302,260, and 537,365 shares of its common stock at a cost
of $6,892,000, $13,554,000 and $2,517,000, respectively.
 
     Patriot's calculation of earnings per share is as follows:
 
<TABLE>
<CAPTION>
                                                   FOR YEAR ENDED DECEMBER 31, 1998
                                             ---------------------------------------------
                                               INCOME            SHARES          PER-SHARE
                                             (NUMERATOR)      (DENOMINATOR)       AMOUNT
                                             -----------      -------------      ---------
<S>                                          <C>              <C>                <C>
BASIC EPS
  Net Income available to common
     stockholders..........................    $4,055             4,916            $0.83
EFFECT OF DILUTIVE SECURITIES
  Dilutive Options.........................        --               305             (.05)
                                               ------             -----            -----
DILUTED EPS
  Net income available to common
     Stockholders plus assumed
     conversions...........................    $4,055             5,221            $0.78
                                               ======             =====            =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                   FOR YEAR ENDED DECEMBER 31, 1997
                                             ---------------------------------------------
                                               INCOME            SHARES          PER-SHARE
                                             (NUMERATOR)      (DENOMINATOR)       AMOUNT
                                             -----------      -------------      ---------
<S>                                          <C>              <C>                <C>
BASIC EPS
  Net Income available to common
     Stockholders..........................    $3,373             5,438            $0.62
EFFECT OF DILUTIVE SECURITIES
  Dilutive Options.........................        --               255             (.03)
                                               ------             -----            -----
DILUTED EPS
  Net income available to common
     Stockholders plus assumed
     conversions...........................    $3,373             5,693            $0.59
                                               ======             =====            =====
</TABLE>
 
                                       51
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 13 -- EARNINGS PER SHARE -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                   FOR YEAR ENDED DECEMBER 31, 1996
                                             ---------------------------------------------
                                               INCOME            SHARES          PER-SHARE
                                             (NUMERATOR)      (DENOMINATOR)       AMOUNT
                                             -----------      -------------      ---------
<S>                                          <C>              <C>                <C>
BASIC EPS
  Net Income available to common
     stockholders..........................    $1,975             6,310            $0.31
EFFECT OF DILUTIVE SECURITIES
  Dilutive Options.........................        --                76               --
                                               ------             -----            -----
DILUTED EPS
  Net income available to common
     Stockholders plus assumed
     conversions...........................    $1,975             6,386            $0.31
                                               ======             =====            =====
</TABLE>
 
NOTE 14 -- EMPLOYEE BENEFIT PLANS
 
A. 401(K) PLAN
 
     Patriot maintains a 401(k) plan covering all of its employees who have
attained age 21 and have completed at least one year of service. Effective
January 1, 1997, the 401(k) plan has been amended whereby all eligible employees
will receive a contribution to the plan equal to 3% of their base salary prior
to January 1, 1997. Subsequent to January 1997 Patriot will contribute 100% of
an employee's contribution up to 3% of base salary and 50% of an employee's
contribution between 3% and 6% of base salary. Prior to 1997, Patriot
contributed 50% of an employee's contribution, up to 6% of salary. Patriot's
contributions were $218,000, $143,000, and $35,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
 
B. EMPLOYEE STOCK OWNERSHIP PLAN
 
     In 1995, Patriot established an internally leveraged Employee Stock
Ownership Plan (ESOP) for eligible employees who have completed one year of
service with Patriot or its subsidiaries. In December 1995, the ESOP borrowed
$3,015,000 from Patriot to purchase 434,000 (as adjusted for subsequent stock
dividends and stock split) newly issued shares of common stock. Patriot makes
contributions to the ESOP equal to the ESOP's debt service less any dividends
received by the ESOP. Any dividends received by the ESOP are used to pay debt
service. The ESOP shares are pledged as collateral for its debt. As the debt is
repaid, shares are released from collateral and allocated to qualifying
employees based on the proportion of debt service paid in the year. Patriot
accounts for its ESOP in accordance with Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans." Accordingly, the debt of the
ESOP is recorded as debt and the shares pledged as collateral are reported as
unearned ESOP shares in the consolidated Balance Sheets. As shares are released
from collateral, Patriot reports compensation expense equal to the current
market price of the shares, and the allocated shares are included in outstanding
shares for earnings per share computations. Dividends on allocated ESOP shares
are recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation expense was $360,000, 308,000 and $194,000 in 1998, 1997 and 1996,
respectively. The ESOP shares as of December 31, 1998 were as follows:
 

         Allocated shares........................     131,000
         Unreleased shares.......................     412,000
                                                   ----------
         Total ESOP shares.......................     543,000
                                                   ==========
         Fair value of unreleased shares.........  $4,833,000
                                                   ==========

 
                                       52
<PAGE>

                     PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998

NOTE 14 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
 
C. STOCK-BASED COMPENSATION
 
     Patriot maintains a Management Recognition Plan (MRP). The MRP provides
that up to 271,000 shares of common stock may be granted, at the discretion of
the Board, to key directors and officers at no cost to the individuals. Patriot
granted 241,000 shares in 1996 and 10,000 shares in 1998 in the form of
restricted stock payable over five years from the date of grant. The recipients
of the restricted stock are entitled to all voting and other stockholder rights,
except that the shares, while restricted, may not be sold, pledged or otherwise
disposed of and are required to be held in escrow. In the event the recipient
terminates association with Patriot for reasons other than death, disability or
change in control, the recipient forfeits all rights to the allocated shares
under restriction which are canceled and revert to Patriot for reissuance under
the plan. Shares acquired by the MRP were newly issued shares and were recorded
at the date of award based on the market value of shares. Shares acquired by the
MRP, which are shown as a separate component of stockholders' equity, are being
amortized to expense over the five-year vesting period. As shares are vested
during this five-year period, Patriot records compensation expense equal to the
shares being amortized. For the years ended December 31, 1998, 1997 and 1996,
$359,000, $355,000 and $194,000 were amortized to expense. At December 31, 1998,
18,000 shares were reserved for future grants under the plan.
 
     Patriot maintains a stock option plan. Patriot's employee stock option plan
is accounted for under the intrinsic value method of APB Opinion No. 25.
Accordingly, Patriot is required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 "Accounting for Stock-Based Compensation," had been applied. The
plan permits the grant of options to employees and directors for up to 542,000
shares of common stock. The options have a term of 10 years and vest over a
five-year period. The exercise price of each option equals the market price of
Patriot's stock on the date of grant. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS No. 123, Patriot's 1998, 1997 and 1996 net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                   1998                       1997
                                         ------------------------   ------------------------
                                         AS REPORTED   PRO-FORMA    AS REPORTED   PRO-FORMA
                                         -----------   ----------   -----------   ----------
<S>                                      <C>           <C>          <C>           <C>
Net income.............................  $4,055,000    $3,685,000   $3,373,000    $3,110,000
Earnings per share -- basic............  $     0.83    $     0.75   $     0.62    $     0.58
Earnings per share -- diluted..........  $     0.78    $     0.71   $     0.59    $     0.54
</TABLE>
 
                                                   1996
                                         ------------------------
                                         AS REPORTED   PRO-FORMA
                                         -----------   ----------
Net income.............................  $1,975,000    $ 1,841000
Earnings per share -- basic............  $     0.31    $     0.29
Earnings per share -- diluted..........  $     0.31    $     0.29
 
                                       53
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 14 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)

A summary status of Patriot's option plans as of December 31, 1997 and 1996 and
the charges during the years ending on those dates is presented below:
 
<TABLE>
<CAPTION>
                                           1998                    1997                    1996
                                    ------------------      ------------------      ------------------
                                              WEIGHTED                WEIGHTED                WEIGHTED
                                              AVERAGE                 AVERAGE                 AVERAGE
                                    SHARES     PRICE        SHARES     PRICE        SHARES     PRICE
                                    -------   --------      -------   --------      -------   --------
<S>                                 <C>       <C>           <C>       <C>           <C>       <C>
Outstanding, beginning of year...   646,250    $ 7.26       637,500    $ 7.19            --        --
Granted..........................    31,500     13.66         8,750     13.10       637,500    $ 7.19
Exercised........................     6,800      7.19            --        --            --        --
Canceled.........................    11,450     11.29            --        --            --        --
                                    -------    ------       -------    ------       -------    ------
Outstanding at year-end..........   659,500    $ 7.49       646,250    $ 7.26       637,500    $ 7.19
                                    =======    ======       =======    ======       =======    ======
Options exercisable at
  year-end.......................   248,200                 127,500                      --
                                                            =======                 =======
Weighted average fair value of
  options granted during the
  year...........................              $ 4.40                  $ 5.34                  $ 2.74
                                               ======                  ======                  ======
</TABLE>
 
     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model as follows:
 
                                                  1998       1997       1996
                                                  -----      -----      -----
Assumptions:
  Dividend yield............................       2.40%      2.40%      2.40%
  Expected volatility.......................      34.71%     33.30%     22.90%
  Risk-free interest rate...................       6.00%      6.47%      6.50%
 
     The following table summarizes information about non-qualified options
outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                 -------------------------------------------------      -------------------------------
                     NUMBER           WEIGHTED                              NUMBER
                 OUTSTANDING AT       AVERAGE          WEIGHTED         OUTSTANDING AT      WEIGHTED
   RANGE OF       DECEMBER 31,       REMAINING         AVERAGE           DECEMBER 31,       AVERAGE
EXERCISE PRICES       1998        CONTRACTUAL LIFE  EXERCISE PRICE           1998        EXERCISE PRICE
---------------  --------------   ----------------  --------------      --------------   --------------
<S>              <C>              <C>               <C>                 <C>              <C>
         $7.19      628,000          7.5 years          $ 7.19             248,200           $ 7.19
 $12.00-$15.88       31,500          9.5 years          $13.66                  --           $13.66
</TABLE>
 
D. EMPLOYEE STOCK PURCHASE PLAN
 
     In 1998, Patriot implemented an Employee Stock Purchase Plan ("ESPP") which
permits eligible employees to purchase Patriot common stock directly from
Patriot through payroll deduction. Purchases of common stock are made at 90% of
the market value of Patriot common stock on the last day of each quarter.
Purchases are limited annually to $25,000 fair market value and shares are
issued from treasury stock. In 1998, Patriot recorded expense of $2,430 related
to the ESPP.
 
E. PENSION PLAN
 
     Effective December 31, 1996, the Board of Directors approved the
termination of Patriot's non-contributory defined benefit pension plan.
Previously, the plan covered substantially all full time employees meeting
certain eligibility requirements. As a result of this termination, all
participating employees became fully vested under the plan. Distributions of the
participants' vested benefits took place in the fourth quarter of 1997. Such
distributions were in the form of cash payouts and rollovers
 
                                       54
<PAGE>
 
                     PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 14 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)

into Patriot's 401(k) plan. In accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Pension Plans and for
Terminated Benefits", both a settlement and curtailment had occurred. For the
year ended December 31, 1997, the loss associated with the settlement and
curtailment of this plan was not significant. No gain or loss was recognized for
the year ended December 31, 1996.
 
NOTE 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
           OF CREDIT RISK
 
     Patriot 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,
including commitments to extend credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated Balance Sheets. The contract or notional amounts
of those instruments reflect the extent of Patriot's involvement in particular
classes of financial instruments.
 
     Patriot's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. Patriot
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. Unless noted otherwise, Patriot
requires collateral to support financial instruments with credit risk.
 
     The contractual or notional amounts of outstanding loan commitments as of
December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                              VARIABLE         TOTAL
                                              FIXED RATE        RATE        COMMITMENTS
                                              COMMITMENTS    COMMITMENTS    OUTSTANDING
                                              -----------   -------------   -----------
                                                           (IN THOUSANDS)
<S>                                           <C>           <C>             <C>
Financial instruments whose contract amounts
  represent credit risk
  Mortgage loans............................    $3,074         $   705        $ 3,779
  Consumer and other loans..................     1,291          22,318         23,609
  Commercial lines of credit................        --           9,381          9,381
  Commercial leases.........................     1,200              --          1,200
  Construction loans........................     3,705              --          3,705
                                                ------         -------        -------
                                                $9,270         $32,404        $41,674
                                                ======         =======        =======
Financial instruments whose notional or
  contract amounts exceed the amount of the
  credit risk
  Interest rate cap.........................        --          50,000         50,000
  Interest rate floor.......................        --          50,000         50,000
</TABLE>
 
     Fees received in connection with these commitments are recognized as income
over the life of the commitment or the life of the loan.
 
     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Patriot evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Patriot upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral for commitments generally includes
residential or other real estate.
 
                                       55
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
           OF CREDIT RISK -- (CONTINUED)

     Interest rate cap and floor agreements are instruments used by Patriot to
manage its interest rate risk and serve as a cash flow hedge for certain short
term borrowings. An interest rate cap is an agreement whereby the seller of the
cap contractually agrees to pay the buyer the difference between the actual
interest rate and strike rate per the cap contract, if the actual rate is higher
than the strike rate. An interest rate floor is an agreement whereby the seller
of the floor contractually agrees to pay the buyer the difference between the
actual interest rate and the strike rate of the floor contract, if the actual
rate is lower than the strike rate. Patriot's interest rate cap and floor are
due to terminate on December 25, 2001. The index used for agreements is the one
month London Inter Bank Offering Rate (LIBOR).
 
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
 
A. LEASE COMMITMENTS
 
     Patriot is committed to various operating leases related to branch
facilities having initial or remaining terms in excess of one year. The minimum
annual rental commitments under these leases outstanding at December 31, 1998
are as follows:
 

         1999.....................................  $ 424,589
         1999.....................................    466,389
         2000.....................................    485,005
         2001.....................................    504,589
         2002.....................................    425,527
         Thereafter...............................  3,460,539
                                                    ---------
                                                    5,771,638
                                                    =========

 
     Total rental expense for all leases for the year ended December 31, 1998,
1997 and 1996 totaled $260,038, $184,516 and $54,815, respectively.
 
B. OTHER
 
     Patriot is a defendant in various legal actions arising from normal
business activities. Management believes that those actions are without merit or
that the ultimate liability, if any, resulting from such actions will not have a
material adverse effect on Patriot's consolidated financial position, results of
operations, or stockholders' equity.
 
NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     Patriot is required to disclose the estimated fair value of Patriot's
assets and liabilities considered to be financial instruments. As with most
financial institutions, the majority of Patriot's assets and liabilities are
considered financial instruments as defined in SFAS No. 107. However, many of
such instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction. Also, it is Patriot's
general practice and intent to hold the preponderance of its financial
instruments to maturity and not to engage in trading or sales activities.
Therefore, Patriot has used significant estimates and present value calculations
to prepare this disclosure. Changes in the assumptions or methodologies used to
estimate fair value may affect the estimated amounts.
 
     Estimates of fair value are made at a specific point in time based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any
 
                                       56
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
           INSTRUMENTS -- (CONTINUED)

premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. For a
substantial portion of the Company's financial instruments, no quoted market
exists. Therefore, estimates of fair value are necessarily based on a number of
significant assumptions (many of which involve events outside the control of
management). Such assumptions include assessments of current economic
conditions, perceived risks associated with these financial instruments and
their counterparties, future expected loss experience, and other factors. Given
the uncertainties surrounding these assumptions, the reported fair values
represent estimates only, and therefore cannot be compared to the historical
accounting model. Use of different assumptions or methodologies are likely to
result in significantly different fair value estimates.
 
     The estimated fair values presented neither include nor give effect to the
values associated with the Company's banking, or other business, existing
customer relationships, extensive branch banking network, property, equipment,
goodwill, or certain tax implications related to the realization of unrealized
gains or losses. Also, the fair value of non-interest bearing demand deposits,
savings, and NOW accounts and money market deposit accounts is equal to the
carrying amount because these deposits have no stated maturity. Obviously, this
approach to estimating fair value excludes the significant benefit that results
from the low-cost funding provided by such deposit liabilities, as compared to
alternative sources of funding. As a consequence, the fair value of individual
assets and liabilities may not be reflective of the fair value of a banking
organization that is a going concern.
 
     Fair values have been estimated using data which management considered the
best available. Fair value of financial instruments actively traded in a
secondary market has been estimated using quoted market prices. The fair value
of loans receivable has been estimated using present value cash flow, discounted
at an interest rate that gives effect to estimated prepayment risk and credit
loss factors. Fair value of financial instrument liabilities with no stated
maturities has been estimated to equal the carrying amount. Fair value of
financial instrument liabilities with stated maturities has been estimated using
present value cash flow, discounted at a rate approximating current market rates
for similar assets and liabilities. The resulting estimated fair values and
carrying amounts at December 31, 1998 and 1997, respectively were as follows:
 
<TABLE>
<CAPTION>
                                              1998                        1997
                                      --------------------        --------------------
                                      ESTIMATED                   ESTIMATED
                                        FAIR      CARRYING          FAIR      CARRYING
                                        VALUE      AMOUNT           VALUE      AMOUNT
                                      ---------   --------        ---------   --------
                                                      (IN THOUSANDS)
<S>                                   <C>         <C>                   <C>         <C>
Financial Assets:
Cash and cash equivalents....         $ 30,487    $ 30,487        $  9,014    $  9,014
Investment and
  mortgage-backed securities
  available for sale.........          386,380     386,380         343,125     343,125
Investment and
  mortgage-backed securities
  held to maturity...........           29,909      29,639          62,817      62,516
  Total Loans receivable
     (net)...................          516,292     514,656         426,557     426,304
 
Financial Liabilities:
  Deposits with no stated
     maturities..............          134,392     134,392         104,231     104,231
  Deposits with stated
     maturities..............          247,079     243,404         185,532     185,297
  Borrowings.................          546,779     549,321         516,149     508,301
</TABLE>
 
                                       57
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
           INSTRUMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
                                          ESTIMATED                         ESTIMATED
                               NOTIONAL     FAIR      CARRYING   NOTIONAL     FAIR      CARRYING
                                AMOUNT      VALUE      AMOUNT     AMOUNT      VALUE      AMOUNT
                                ------    --------    --------    ------    --------    --------                                  
<S>                            <C>        <C>         <C>        <C>        <C>         <C>
Off-balance sheet items:
  Commitments to extend
     credit..................   49,663          --          --    49,663          --          --
  Caps and floors............   50,000        (281)        237    50,000           5         317
</TABLE>
 
NOTE 18 -- REGULATORY MATTERS
 
     Patriot is 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 Patriot's
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Patriot must meet specific
capital guidelines that involve quantitative measures of Patriots assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Patriot's capital amounts 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 Patriot Bank Corp and Patriot Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and core capital (as defined in
the regulations) to risk-weighted assets, and of core capital to adjusted
assets. Management believes, as of December 31, 1998, that Patriot meets all
capital adequacy requirements to which it is subject.
 
     As of December 31, 1998, the most recent notification from the Department
of Banking of the Commonwealth of Pennsylvania categorized Patriot Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, Patriot Bank must maintain minimum total
risk-based, core risk-based and core leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institutions category.
 
<TABLE>
<CAPTION>
                                                            REQUIRED TO BE
                                                              ADEQUATELY          REQUIRED TO BE
                                           ACTUAL             CAPITALIZED        WELL CAPITALIZED
                                       ---------------      ---------------      -----------------
                                       AMOUNT    RATIO      AMOUNT    RATIO       AMOUNT    RATIO
                                       -------   -----      -------   -----      --------   ------
                                                             (IN THOUSANDS)
<S>                                    <C>       <C>        <C>       <C>        <C>        <C>
As of December 31, 1998
  Total capital (to risk weighted
     assets)
     Patriot Bank Corp...............  $60,050   12.46%     $38,551     8%       $48,189      10%
     Patriot Bank....................   43,553   10.15%      34,341     8%        42,926      10%
  Tier I capital (to risk-weighted
     assets)
     Patriot Bank Corp...............   48,184   10.00%      19,275     4%        28,913       6%
     Patriot Bank....................   38,641    9.00%      17,170     4%        25,756       6%
  Tier I capital (to average assets)
     Patriot Bank Corp...............   48,184    5.37%      38,448     4%        44,848       5%
     Patriot Bank....................   38,641    5.78%      29,632     4%        33,411       5%
</TABLE>
 
     Patriot Bank is subject to regulations of certain regulatory agencies and,
accordingly, is periodically examined by such regulatory authorities. As a
consequence of the regulation of banking activities, Patriot Bank's operations
are susceptible to changes in legislation and regulations.
 
                                       58
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 18 -- REGULATORY MATTERS -- (CONTINUED)

     The following schedule summarizes the actual capital balances and ratios of
Patriot Bank at December 31, 1997:
 
<TABLE>
<CAPTION>
                                                            REQUIRED TO BE
                                                              ADEQUATELY          REQUIRED TO BE
                                           ACTUAL             CAPITALIZED        WELL CAPITALIZED
                                       ---------------      ---------------      -----------------
                                       AMOUNT    RATIO      AMOUNT    RATIO       AMOUNT    RATIO
                                       -------   -----      -------   -----      --------   ------
                                                             (IN THOUSANDS)
<S>                                    <C>       <C>        <C>       <C>        <C>        <C>
As of December 31, 1997
  Total capital (to risk weighted
     assets)
     Patriot Bank Corp...............  $62,807   14.54%     $34,567     8%       $43,208      10%
     Patriot.........................   44,100   10.77%      32,748     8%        40,936      10%
  Tier I capital (to risk-weighted
     assets)
     Patriot Bank Corp...............   55,837   12.92%      17,283     4%        25,925       6%
     Patriot.........................   41,588   10.16%      16,374     4%        24,561       6%
  Tier I capital (to average assets)
     Patriot Bank Corp...............   55,837    7.90%      28,282     4%        35,353       5%
     Patriot.........................   41,588    6.12%      27,204     4%        34,005       5%
</TABLE>
 
     In conformity with Patriot's charter, a "liquidation account" was
established for Patriot Bank at the time of its conversion to the stock form of
ownership. In the unlikely event of a complete liquidation of Patriot Bank,
holders of savings accounts with qualifying deposits, who continue to maintain
their savings accounts, would be entitled to a distribution from the
"liquidation account" in an amount equal to the then current adjusted savings
account balance before any liquidation distribution could be made with respect
to capital stock. The balance in the "liquidation account" was $10,792,000 at
December 31, 1998. This amount may not be utilized for the payment of cash
dividends to the holding company.
 
     LIMITATION ON CAPITAL DISTRIBUTIONS.  Dividend payments by the Bank to the
Company are subject to the Pennsylvania Banking Code of 1965 and the FDI Act.
Under the Pennsylvania Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDI Act, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking laws,
the Bank would be limited to approximately $22.2 million of dividends in 1999
plus an additional amount equal to the Bank's net profit for 1999, up to the
date of any such dividend declaration.
 
                                       59
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION
 
     Condensed financial information for Patriot Bank Corp. is as follows:
 
     CONDENSED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                  ---------------------
                                                   1998          1997
                                                  -------       -------
                                                     (IN THOUSANDS)
<S>                                               <C>           <C>
Assets
  Cash and cash equivalents.....................  $    16       $    89
  Loans to subsidiaries.........................       49           499
  Investment in subsidiaries....................   62,547        66,517
  Other assets..................................      649           586
                                                  -------       -------
        Total assets............................  $63,261       $67,691
                                                  =======       =======
Liabilities and stockholders' equity
  Other liabilities.............................  $ 2,001       $ 2,158
  Trust Preferred Securities....................   19,000        19,000
  Stockholders' equity..........................   42,260        46,533
                                                  -------       -------
        Total liabilities and stockholders'
           equity...............................  $63,261       $67,691
                                                  =======       =======
</TABLE>
 
     CONDENSED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                      ------------------------
                                                       1998     1997     1996
                                                      ------   ------   ------
                                                           (IN THOUSANDS)
<S>                                                   <C>      <C>      <C>
Interest income.....................................  $   27   $  161   $  824
Other Income........................................      --        5       --
                                                      ------   ------   ------
        Total Income................................  $   27      166      824
Interest expense....................................   2,231    1,187       --
Other Expense.......................................   3,397      875      531
                                                      ------   ------   ------
        Total Expense...............................   5,628    2,062      531
Income (loss) before income taxes and undistribute
  earnings of subsidiaries..........................  (5.601)  (1,896)     293
Income taxes (benefit) expense......................    (967)    (527)     111
                                                      ------   ------   ------
Income (loss) before undistributed earnings of
  subsidiaries......................................  (4,634)  (1,369)     182
Earnings of subsidiaries............................   8,689    4,742    1,793
                                                      ------   ------   ------
        Net income..................................  $4,055   $3,373   $1,975
                                                      ======   ======   ======
</TABLE>
 
                                       60
<PAGE>

                      PATRIOT BANK CORP. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 1998
 
NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION -- (CONTINUED)

       CONDENSED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                    1998      1997      1996
                                                   -------   -------   -------
                                                         (IN THOUSANDS)
<S>                                                <C>       <C>       <C>
Cash flows from operating activities
  Net income.....................................  $ 4,055   $ 3,373   $ 1,975
  Adjustments to reconcile net income to net cash
     provided by operating activities
     Earnings from subsidiaries..................   (8,689)   (4,742)   (1,793)
     Dividends from subsidiaries.................   23,600    13,615     5,000
     Change in other assets......................      (63)     (121)      462
     Change in other liabilities.................     (157)    1,564       530
     MRP/ESOP Plans..............................      879       663       390
                                                   -------   -------   -------
        Net cash provided by operating
           activities............................   19,625    14,352     5,739
                                                   -------   -------   -------
Cash flows from investing activities
  Investment in subsidiary.......................  (11,741)  (17,814)  (20,581)
  Loans to subsidiary............................      450      (499)   18,214
                                                   -------   -------   -------
        Net cash used in investing activities....  (11,291)  (18,313)   (2,367)
                                                   -------   -------   -------
Cash flows from financing activities
  Net proceeds from trust preferred securities...       --    19,000        --
     Cash dividends paid to stockholders.........   (1,515)   (1,396)     (973)
     Purchase of treasury stock..................   (6,892)  (13,554)   (2,517)
                                                   -------   -------   -------
        Net cash provided by financing
           activities............................   (8,407)    4,050    (3,490)
Increase (decrease) in cash and cash
  equivalents....................................      (73)       89      (118)
Cash and cash equivalents at beginning of year...       89        --       118
                                                   -------   -------   -------
Cash and cash equivalents at end of year.........  $    16   $    89   $    --
                                                   =======   =======   =======
</TABLE>
 
                                       61
<PAGE>

ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     On February 26, 1998, the Board of Directors of the Company engaged KPMG
LLP as the Company's independent auditors for the fiscal year ending December
31, 1998. The Company interviewed several independent accounting firms before
selecting KPMG LLP. The decision to change the Company's accountants was
recommended by the Audit Committee of the Company's Board of Directors.
 
     The Company did not have any disagreements with the Company's former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure during the Company's last
two fiscal years or any subsequent interim period. The prior accountant's
reports on the Company's financial statements for the years ended December 31,
1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
 
     The Company did not consult with KPMG LLP on any matter during the two
years prior to the engagement of KPMG LLP.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information relating to executive compensation and directors'
compensation is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999,
excluding the Stock Performance Graph and Compensation Report.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 22, 1999.
 
                                       62
<PAGE>

                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(A) 1. FINANCIAL STATEMENTS.
 
     Consolidated financial statements are omitted because the required
information is either not applicable, not required or is shown in the respective
financial statements or in the notes thereto.
 
2. FINANCIAL STATEMENT SCHEDULES.
 
     Financial statement schedules are omitted because the required information
is either not applicable, not required or is shown in the respective financial
statements or in the notes thereto.
 
(3) EXHIBITS
 
     (a) The following exhibits are filed as part of this report.
 
<TABLE>
<C>     <S>
   3.1  Certificate of Incorporation of the Patriot Bank Corp.
        (Incorporated by reference to Exhibit 3.1 to Patriot Bank
        Corp.'s Registration Statement No. 33-96530 on Form S-1.)
   3.2  Bylaws of the Patriot Bank Corp. (Incorporated by reference
        to Exhibit 3.2 to Patriot Bank Corp.'s Registration
        Statement No. 35-96530 on Form S-1.)
  10.1  Employment Agreement between Patriot Bank Corp. and Joseph
        W. Major dated May 23, 1997. (Incorporated by reference to
        Exhibit 10.1 to Patriot Bank Corp.'s Annual Report on Form
        10-K for the year ended December 31, 1997.)***
  10.2  Amended and Restated Employment Agreement between Patriot
        Bank Corp. and Gary N. Gieringer dated June 30, 1998.***
  10.3  Employment Agreement between Patriot Bank Corp. and Richard
        A. Elko dated May 23, 1997. (Incorporated by reference to
        Exhibit 10.3 to Patriot Bank Corp.'s Annual Report on Form
        10-K for the year ended December 31, 1997.)***
  10.4  Change in Control Agreement between Patriot Bank Corp. and
        Paulette A. Strunk dated May 23, 1997. (Incorporated by
        reference to Exhibit 10.4 to Patriot Bank Corp.'s Annual
        Report on Form 10-K for the year ended December 31,
        1997.)***
  10.5  Change in Control Agreement between Patriot Bank Corp. and
        Robert G. Philips dated May 23, 1997. (Incorporated by
        reference to Exhibit 10.5 to Patriot Bank Corp.'s Annual
        Report on Form 10-K for the year ended December 31,
        1997.)***
  10.6  Employment Agreement between Patriot Bank and Joseph W.
        Major dated May 23, 1997. (Incorporated by reference to
        Exhibit 10.6 to Patriot Bank Corp.'s Annual Report on Form
        10-K for the year ended December 31, 1997.)***
  10.7  Employment Agreement between Kevin R. Pyle and Patriot Bank
        dated March 1, 1998.***
  10.8  Employment Agreement between Richard A. Elko and Patriot
        Bank dated May 23, 1997. (Incorporated by reference to
        Exhibit 10.8 to Patriot Bank Corp.'s Annual Report on Form
        10-K for the year ended December 31, 1997.)***
  10.9  Change in Control Agreement between Paulette A. Strunk and
        Patriot Bank dated May 23, 1997. (Incorporated by reference
        to Exhibit 10.9 to Patriot Bank Corp.'s Annual Report on
        Form 10-K for the year ended December 31, 1997.)***
 10.10  Change in Control Agreement between Robert G. Philips and
        Patriot Bank dated May 23, 1997. (Incorporated by reference
        to Exhibit 10.10 to Patriot Bank Corp.'s Annual Report on
        Form 10-K for the year ended December 31, 1997.)***
 10.11  The Patriot Bank Corp. 1996 Stock-Based Incentive Plan.
        (Incorporated by reference to Patriot Bank Corp.'s Proxy
        Statement for the 1996 Annual Meeting of Stockholders filed
        April 26, 1996).***
 10.12  Employment Agreement between Joni S. Naugle and Patriot Bank
        dated December 1, 1998.***
  21.0  Subsidiaries.
  23.1  Consent of Grant Thornton LLP
  23.2  Consent of KPMG LLP
  27.0  Financial Data Schedule
  99.0  Proxy Statement for the 1999 Annual Meeting of Stockholders
        (filed herewith)
</TABLE>
 
------------------
*** Denotes a management contract or a compensatory plan or arrangement.
 
(B) REPORTS ON FORM 8-K.
 
None.
 
                                       63
<PAGE>

                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
 

                                           PATRIOT BANK CORP
 
Dated: March 19, 1999                      By /s/ JOSEPH W. MAJOR
                                              ----------------------------------
                                              Joseph W. Major
                                              President and Chief
                                              Executive Officer

 
     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
 
             NAME                           TITLE                      DATE
             ----                           -----                      ----

/s/ JAMES B. ELLIOTT             Chairman of the Board            March 19, 1999
--------------------------
James B. Elliott
 
/s/ JOSEPH W. MAJOR              President and Chief Executive    March 19, 1999
--------------------------       Officer and Director
Joseph W. Major                  
 
/s/ RICHARD A. ELKO              Executive Vice President         March 19, 1999
--------------------------       and Chief Financial Officer
Richard A. Elko                  and Director
                                 
 
/s/ SAMUEL N. LANDIS             Director                         March 19, 1999
--------------------------
Samuel N. Landis
 
/s/ LARRY V. THREN               Director                         March 19, 1999
--------------------------
Larry V. Thren
 
/s/ JAMES A. BENTLEY, JR.        Director                         March 19, 1999
--------------------------
James A. Bentley, Jr.
 
/s/ JAMES G. BLUME               Controller, Chief                March 19, 1999
--------------------------       Accounting Officer
James G. Blume                   

 
                                       64