UNITED FINANCIAL HOLDINGS, INC.
                                AND SUBSIDIARIES

          CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

                        December 31, 1998, 1997 and 1996




































<PAGE>
                         UNITED FINANCIAL HOLDINGS, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page

Report of Independent Certified Public Accountants............................1

Consolidated Balance Sheets at December 31, 1998 and 1997.....................2

Consolidated Statements of Earnings for the years ended
December 31, 1998, 1997 and 1996..............................................3

Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996..............................................5

Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996..............................................6

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..............................................7

Notes to Consolidated Financial Statements....................................9




































<PAGE>
                     REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
United Financial Holdings, Inc.
St. Petersburg, Florida

We have audited the consolidated  balance sheets of United  Financial  Holdings,
Inc. and Subsidiaries  (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, comprehensive income, stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 1998. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits of the consolidated  financial  statements 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.

Our audits of the  consolidated  financial  statements  referred to above,  were
conducted  for the purpose of forming an opinion on the  consolidated  financial
statements taken as a whole. The consolidating  balance sheet as of December 31,
1998 and the consolidating statement of earnings for the year ended December 31,
1998,  are  presented for purposes of  additional  analysis of the  consolidated
financial  statements rather than to present the financial  position and results
of operations of the individual  companies.  The  consolidating  information has
been subjected to the audit procedures  applied in the audit of the consolidated
financial  statements  and, in our  opinion,  is fairly  stated in all  material
respects in relation to the consolidated financial statements taken as a whole.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of United
Financial Holdings,  Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended  December 31, 1998 in conformity
with generally accepted accounting principles.



    /s/Grant Thornton, LLP
________________________________
Grant Thornton, LLP


Tampa, Florida
January 29, 1999







                                                                           F-1
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                         CONSOLIDATED BALANCE SHEETS
                                                        DECEMBER 31,
                                                    1998             1997
  ASSETS                                       ------------     -------------
Cash and due from banks                      $    7,966,757    $    7,336,809
Federal funds sold                                4,011,000         7,441,000
Trading securities                                  157,354                 -
Securities held to maturity, market value
of $11,435,699 and $10,212,426, respectively     11,205,629        10,097,258
Securities available for sale, at market         14,527,487        11,472,052
Loans, net                                      116,545,851        94,821,324
Premises and equipment, net                       9,274,501         9,541,801
Federal Home Loan Bank stock                        433,500           364,900
Federal Reserve Bank stock                          158,800           153,750
Accrued interest receivable                         995,458           950,042
Intangible assets, less accumulated amortization
of $1,642,935 and $1,570,288, respectively        1,451,031         1,336,494
Other real estate owned                           1,015,255                 -
Other assets                                      4,159,556         3,803,254
                                               ------------      ------------
     Total Assets                              $171,902,179      $147,318,684
                                               ============      ============
   LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
  Demand                                      $  27,741,896     $  28,384,616
  NOW and money market                           48,550,267        36,031,184
  Savings                                         4,686,318         5,245,222
  Time, $100,000 and over                        11,462,762         9,692,130
  Other time                                     46,654,262        50,865,952
                                               ------------      ------------
     Total Deposits                             139,095,505       130,219,104
Securities sold under agreements to repurchase    8,795,715         1,080,745
Accrued interest payable                            391,769           396,184
Convertible subordinated debentures                 630,000           630,000
Long-term debt                                       33,750         2,678,152
Other liabilities                                 2,184,334         1,823,337
                                               ------------       -----------
     Total Liabilities                          151,131,073       136,827,522
Company-obligated Mandatory Redeemable Capital Securities of Subsidiary
Trust Holding Solely Subordinated Debentures
Of The Company                                    6,000,000                -
STOCKHOLDERS' EQUITY
  7% convertible  preferred  stock,  $10 par value; 150,000 shares authorized;
  20,850 and 23,350 shares issued and outstanding at
  December 31, 1998 and 1997, respectively          208,500           233,500
  Common stock, $.01 par value; 20,000,000 shares authorized; 4,045,563 and 
  3,444,318 shares issued & outstanding at
  December 31, 1998 & 1997, respectively             40,455            34,443
  Paid-in capital                                 9,192,103         5,789,932
  Common stock subscription receivable             (393,260)                -
  Accumulated other comprehensive income            141,313            57,499
  Retained earnings                               5,581,995         4,375,788
                                                 ----------        ----------
    Total stockholders' equity                   14,771,106        10,491,162
                                                 ----------        ----------
    Total liabilities and stockholders' equity $171,902,179      $147,318,684
                                               ============      ============
The accompanying notes are an integral part of these statements.        F - 2
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF EARNINGS


                                        FOR THE YEARS ENDED DECEMBER 31,
                                      1998             1997           1996
                                   -----------      ------------   ------------
Interest income
  Loans and loan fees             $ 10,381,551      $  8,960,703   $  8,121,249
  Securities
  U.S. Treasury                        552,623           598,549        316,369
Obligations of other U.S. Government
  agencies and corporations            880,517           746,786        702,235
Obligations of states
  and political subdivisions           104,137            39,570         54,670
Other                                  207,938           151,612        180,517
Federal funds sold and securities purchased under
  reverse repurchase agreements        532,014           295,297        220,028
                                  ------------      ------------   ------------
   Total interest income            12,658,780        10,792,517      9,595,068

Interest expense
  NOW and money market               1,563,767           794,997        541,882
  Savings                               96,920            96,656        107,523
  Time deposits, $100,000 and over     534,471           419,007        241,685
  Other time                         2,668,754         2,603,631      2,314,600
  Long-term debt                       250,057           130,547        124,544
  Subordinated debentures issued
    to subsidiary trust                 28,198                 -              -
  Federal funds purchased and securities sold under
    agreements to repurchase           126,152            56,248         89,338
                                  ------------      ------------   ------------
 Total interest expense              5,268,319         4,101,086      3,419,572
                                  ------------      ------------   ------------
   Net interest income               7,390,461         6,691,431      6,175,496

Provision for loan losses              752,000            90,000        150,000
                                  ------------      ------------   ------------
   Net interest income after
    provision for loan losses        6,638,461         6,601,431      6,025,496

Other income

  Service charges on deposit accts     706,839           674,637        555,747
  Trust & investment mgmnt income    2,355,156         1,886,534      1,229,136
  Net trading account profit            87,354                 -              -
  Gain on sales of loans               239,498           289,720        424,611
  Gain on sale of held to 
   maturity security                    78,498                 -              -
  Loan servicing fees                  147,881           164,368        153,153
  Income on cash value life insurance  136,728                 -              -
  All other fees and income            336,549           224,993        209,446
                                  ------------      ------------   ------------
          Total other income         4,088,503         3,240,252      2,572,093



(Continued on F - 4)
The accompanying notes are an integral part of these statements.          F - 3
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF EARNINGS

                                        FOR THE YEARS ENDED DECEMBER 31,
                                      1998             1997           1996
                                   -----------      ------------   ------------
Other expense
  Salaries and employee benefits  $  4,630,580      $  4,047,859     $3,723,903
  Occupancy expense                    522,472           514,374        387,256
  Furniture and equipment expense      512,000           494,360        423,224
  Data processing expense              436,767           417,522        375,339
  Legal and professional fees          120,702           176,778        152,766
  Amortization of intangible assets     79,443            66,802        111,208
  Marketing and business development   301,611           265,472        236,608
  Directors fees                       190,662           198,750        142,645
  Telephone expense                    171,535           149,367        115,270
  Stationery, printing and supplies    137,092           151,327        141,062
  Postage expense                       90,373            79,834         71,760
  Headquarter relocation expense             -           138,314              -
  Securities writedown                       -           255,000              -
  Other operating expenses             765,849           616,236        345,081
                                   -----------      ------------   ------------
                                     7,959,086         7,571,995      6,226,122
                                   -----------      ------------   ------------
    Earnings before income taxes     2,767,878         2,269,688      2,371,467

Income tax expense (benefit)
  Current                            1,192,177           957,932        952,448
  Deferred                            (181,607)          (97,986)       (61,000)
                                   -----------      ------------   ------------
                                     1,010,570           859,946        891,448
                                   -----------      ------------   ------------

          NET EARNINGS            $  1,757,308      $  1,409,742   $  1,480,019
                                   ===========      ============   ============

Earnings Per Share:

  Basic                           $        .49      $         .41  $        .47
  Diluted                         $        .46      $         .38  $        .40

















The accompanying notes are an integral part of these statements.          F - 4
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                        FOR THE YEARS ENDED DECEMBER 31,
                                      1998             1997           1996
                                  ------------      ------------   ------------

Net earnings                      $  1,757,308      $  1,409,742   $  1,480,019
Other comprehensive income
  Unrealized holding gains (losses)    126,991            18,642       (103,639)
  Income tax (expense) benefit related to items of other
    comprehensive income               (43,177)           (7,015)        38,999
                                  ------------      ------------   ------------

Comprehensive income              $  1,841,122      $  1,421,369   $  1,415,379
                                  ============      ============   ============











































The accompanying notes are an integral part of these statements.          F - 5
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                 7%          6%
                                              Convertible Convertible
                                      Common  Preferred   Preferred   Paid-In
                                      STOCK   STOCK       STOCK       CAPITAL

Balance at December 31, 1995          $26,361 $ 982,500   $ 125,140  $4,588,669
  Net Earnings                              -         -           -           -
  2% Common Stock dividend                669         -           -     265,230
  Conversion of 6% Pref to Common Stk     996         -    (125,140)    124,098
  Conversion of 7% Pref to Common Stk   6,192  (749,000)          -     742,698
  Dividends on Common Stock                 -         -           -           -
  Dividends on Preferred Stock              -         -           -           -
  Accum other comprehensive income          -         -           -           -
  Issuance of Common Stock for cash        90         -           -      16,872
                                     --------  --------   ---------   ---------

Balance at December 31, 1996           34,308   233,500           -   5,737,567
  Net Earnings                              -         -           -           -
  Dividends on Common Stock                 -         -           -           -
  Dividends on Preferred Stock              -         -           -           -
  Accumulated other comprehensive income    -         -           -           -
  Issuance of Common Stock for cash       135         -           -      52,365
                                     --------  --------   ---------   ---------

Balance at December 31, 1997           34,443   233,500           -   5,789,932
  Net Earnings                              -         -           -           -
  Conversion of 7% Pref to Common Stock   210   (25,000)          -      24,770
  Dividends on Common Stock                 -         -           -           -
  Dividends on Preferred Stock              -         -           -           -
  Accumulated other comprehensive income    -         -           -           -
  Issuance of Common Stock in IPO       5,077         -           -   2,799,334
  Performance shares issued               320         -           -     263,787
  Issuance of Common Stock for cash       405         -           -     314,280
                                     --------  --------   ---------   ---------

Balance at December 31, 1998          $40,455 $ 208,500   $       -  $9,192,103
                                     ======== =========   =========  ==========

















(Continued on F - 6b)
The accompanying notes are an integral part of this statement.           F - 6a
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                    Accumu-
                                    lated
                                    Other    Stock
                                    Compre-  Sub-
                                    hensive  scription  Retained
                                    Income   Receivable Earnings    TOTAL

Balance at December 31, 1995        $110,512 $       -  $2,653,700  $ 8,486,882
  Net Earnings                             -          -  1,480,019    1,480,019
  2% Common Stock dividend                 -          -   (266,858)        (959)
  Conversion of 6% Pref to Common Stock    -          -          -          (46)
  Conversion of 7% Pref to Common Stock    -          -          -         (110)
  Dividends on Common Stock                -          -   (383,018)    (383,018)
  Dividends on Preferred Stock             -          -    (43,435)     (43,435)
  Accum other comprehensive income   (64,640)         -          -      (64,640)
  Issuance of Common Stock for cash        -          -          -       16,962
                                   ---------  ---------  ---------    ---------

Balance at December 31, 1996          45,872          -  3,440,408    9,491,655
  Net Earnings                             -          -  1,409,742    1,409,742
  Dividends on Common Stock                -          -   (458,017)    (458,017)
  Dividends on Preferred Stock             -          -    (16,345)     (16,345)
  Accum other comprehensive income    11,627          -          -       11,627
  Issuance of Common Stock for cash        -          -          -       52,500
                                   ---------  ---------  ---------   ----------

Balance at December 31, 1997          57,499          -  4,375,788   10,491,162
  Net Earnings             -              -           -  1,757,308    1,757,308
  Conversion of 7% Pref to Common Stock   -           -          -          (20)
  Dividends on Common Stock               -           -   (535,631)    (535,631)
  Dividends on Preferred Stock            -           -    (15,470)     (15,470)
  Accum other comprehensive income   83,814           -          -       83,814
  Issuance of Common Stock in IPO         -    (393,260)         -    2,411,151
  Performance shares issued               -           -          -      264,107
  Issuance of Common Stock for cash       -           -          -      314,685
                                   ---------  ---------   ---------  ----------

Balance at December 31, 1998       $141,313   $(393,260) $5,581,995 $14,771,106
                                   =========  =========  ========== ===========
















The accompanying notes are an integral part of this statement.          F - 6b
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            FOR THE YEARS ENDED DECEMBER 31,
                                             1998         1997         1996
                                         ------------  -----------  -----------
Cash flows from operating activities:
    Net earnings                         $ 1,757,308   $ 1,409,742  $ 1,480,019
    Adjustments to reconcile net
      earnings to net cash provided
      by (used in) operating activities
        Provision for loan losses            752,000        90,000      150,000
        Provision for depreciation and
        amortization                         650,669       566,344      500,994
        Unrealized gain on trading
          securities                         (87,354)            -            -
        Gain on sale of held to
          maturity security                  (78,498)            -            -
        Writedown of investment security           -       255,000            -
        Write-off of leasehold improvements        -       130,065            -
        Accretion of securities discount     (58,715)      (44,317)     (35,062)
        Amortization of unearned loan fees  (149,954)      (64,941)    (104,663)
        Amortization of securities premiums   26,125        38,874       58,804
        Gain on sales of loans              (372,500)     (422,831)    (424,611)
        Increase in interest receivable      (45,416)     (171,487)     (25,317)
        (Decrease) increase in int payable    (4,415)       59,399       37,793
        Increase in other assets          (1,558,741)   (2,641,922)    (118,290)
        Decrease in other liabilities        360,997       276,211      211,633
                                         -----------   -----------  -----------
        Net cash provided by (used in)
             operating activities          1,191,506      (519,863)   1,731,300

Cash flows from investing activities:

  Purchase of Federal Reserve Bank stock
    and FHLB stock                          (73,650)      (46,100)     (13,500)
  Net decrease (increase) in Fed
   funds sold                              3,430,000      (380,000)  (4,665,000)
  Principal repayments of held to
   maturity securities                       580,646       388,715      678,419
  Proceeds from sale of held to
   maturity security                         110,906             -            -
  Principal repayments of available
   for sale securities                       900,182       494,729    1,106,893
  Proceeds from maturities of
   available for sale securities           3,260,000     4,491,876    1,199,781
  Proceeds from maturities of
   held to maturity securities             4,567,408     4,987,969    2,840,219
  Purchases of available for
   sale securities                        (7,153,908)   (6,937,869)  (3,518,560)
  Purchases of held to maturity
   securities                             (6,304,138)   (6,526,492)  (3,588,175)
  Proceeds from sales of loans             3,243,766     3,969,174    5,598,856
  Net increase in loans                  (25,197,839)  (19,130,218) (10,384,509)
  Capital expenditures                      (310,722)   (4,185,913)  (2,836,673)
                                         ------------  -----------  -----------
  Net cash used in investing activities  (22,947,349)  (22,874,129) (13,582,249)
(Continued on F - 8)
The accompanying notes are an integral part of this statement.           F - 7
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                         FOR THE YEARS ENDED DECEMBER 31,
                                       1998            1997            1996
                                    ------------    ------------   -----------
Cash flows from financing activities:
  Acquisition of Eickhoff,
    Pieper & Willoughby             $        -     $          - $       (62,819)
  Cash paid in lieu of fractional
    share - 2% stock dividend                -             (565)
  Cash paid in lieu of fractional
    shares - 6% pref stock conversion        -                -            (46)
  Net increase in demand deposits, NOW accounts, money market
     accounts and savings accounts  11,317,459        10,754,834     12,994,380
  Net (decrease) increase in
     certificates of deposit        (2,441,058)       11,319,353      2,316,607
  Net increase (decrease)in securities sold under
    agreements to repurchase         7,714,970          (688,114)      (995,537)
  Increase in borrowings                     -         2,004,202         75,000
  Repayment of long-term debt       (2,644,402)         (140,000)      (136,250)
  Issuance of  Company-obligated mandatory redeemable capital
    securities  of subsidiary trust holding solely subordinated
    debentures of the Company        6,000,000                 -              -
  Issuance of common stock           2,989,923            52,500         16,962
  Dividend paid on preferred stock     (15,470)          (16,345)       (43,435)
  Dividend paid on common stock       (535,631)         (458,017)      (383,018)
                                  ------------       -----------    -----------
   Net cash provided by
    financing activities            22,385,791        22,828,413     13,781,279
                                  ------------       -----------    -----------
Net increase (decrease) in cash
    and cash equivalents               629,948          (565,579)     1,930,330
Cash and cash equivalents at
    beginning of year                7,336,809         7,902,388      5,972,058
                                  ------------       -----------    -----------
Cash and cash equivalents at
    end of year                   $  7,966,757      $  7,336,809   $  7,902,388
                                  ============      ============   ============
Cash paid during the year for:
  Interest                        $  5,263,904      $  4,041,687   $  3,381,780
  Income taxes                    $  1,108,451      $    927,817   $    961,579

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Reclassification of loans to
 foreclosed real estate           $  1,253,160      $    408,113   $    541,085
                                  ============      ============   ============
Reclassification of foreclosed
 real estate to loans             $    262,500      $    124,000   $    369,000
                                  ============      ============   ============
Non-cash portion of the acquisition price of Eickhoff, Pieper
 & Willoughby was the issuance of convertible subordinated
 debentures                       $                 $              $    630,000
                                  ============      ============   ============
Performance shares issued         $    264,107      $              $           
                                  ============      ============   ============


The accompanying notes are an integral part of these statements         F - 8
<PAGE>
                United Financial Holdings, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

United  Financial  Holdings,  Inc. (the  "Company") is a registered bank holding
company  formed  in 1982,  the  principal  subsidiary  of which is  United  Bank
("Bank"),  a Florida-chartered  commercial bank headquartered in St. Petersburg,
Florida. The Bank was founded in 1979 and is a community-oriented,  full service
commercial  bank with four branch offices  serving the southern  Pinellas County
area of the State of Florida.

Following is a summary of the  significant  accounting  policies  that have been
consistently applied in the preparation of the consolidated financial statements
of United Financial Holdings, Inc. and Subsidiaries.

1.     PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements include the accounts of United Financial
Holdings, Inc. (the "Company") and its Subsidiaries,  the Bank, Eickhoff, Pieper
& Willoughby  ("EPW"),  United Trust  Company  ("Trust") and UFH Capital Trust I
("UFHCT"),  after all significant  intercompany  accounts and transactions  have
been  eliminated.  United Trust was formed on November 30, 1997. On December 31,
1997, the Bank  transferred all assets of the trust division to the newly formed
United Trust Company.

2.     CASH AND CASH EQUIVALENTS

For the purpose of  presentation in the  Consolidated  Statements of Cash Flows,
cash and cash equivalents includes cash on hand and non-interest bearing amounts
due from correspondent banks.

3.     USE OF ESTIMATES IN FINANCIAL STATEMENTS

In  preparing  financial   statements  in  conformity  with  generally  accepted
accounting  principles,  management  makes estimates and assumptions that affect
the reported  amounts of assets and  liabilities  and  disclosures of contingent
assets and liabilities at the date of the financial  statements,  as well as the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results could differ from those estimates.

4.     SECURITIES

The Company's  investment  securities are classified in the following categories
and accounted for as follows:











(Continued on F - 10)
                                                                        F - 9
<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

o   TRADING SECURITIES.  Government and corporate bonds and corporate securities
    held  principally  for  resale in the near term are  classified  as  trading
    securities  and recorded at their fair  values.  The Company had one trading
    security,  which was transferred  from securities  available for sale during
    the year ended  December  31,  1998,  at which time book value  approximated
    market value. The security has an unrealized gain of $87,354 at December 31,
    1998. The Company had no trading securities for the years ended December 31,
    1997 and 1996.

o   SECURITIES  HELD TO  MATURITY.  Bonds,  notes and  debentures  for which the
    Company has the positive intent and ability to hold to maturity are reported
    at cost,  adjusted for  amortization  of premiums and accretion of discounts
    which are recognized in interest  income using the interest  method over the
    period  to  maturity.  Such  securities  may be sold or  transferred  to the
    available for sale or trading securities  classification only as a result of
    isolated,  non-recurring,  or  unusual  changes in  circumstances  which the
    Company could not have reasonably anticipated, such as a change in statutory
    or regulatory requirements regarding investment limitations or a significant
    deterioration in a security issuer's credit-worthiness.

o   SECURITIES  AVAILABLE  FOR SALE.  Securities  available  for sale consist of
    bonds,  notes,  debentures,  and certain equity securities not classified as
    trading  securities  nor as securities  held to maturity,  which may be sold
    prior to maturity as part of  asset/liability  management  or in response to
    other  factors,  are  carried at fair value  with any  valuation  adjustment
    reported in a separate  component of  stockholders'  equity,  net of the tax
    effect.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities  below their cost that are other than  temporary  are  recognized  as
writedowns of the individual securities to their fair value. Such writedowns are
included  in earnings as  realized  losses.  The Company had a writedown  of one
investment  security  totaling  $255,000  for the year ended  December 31, 1997.
There were no such writedowns during 1998 and 1996.

Gains and losses on the sale of  securities  available  for sale are  determined
using the specific-identification method.

5.     LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans  receivable  that  management  has the intent and  ability to hold for the
foreseeable   future  or  until  maturity  or  pay-off  are  reported  at  their
outstanding   principal   balance.   These  receivables  are  adjusted  for  any
charge-offs,  the allowance  for loan losses,  and any deferred fees or costs on
originated loans and un-amortized premiums or discounts on purchased loans.

Loan origination fees and certain direct  origination  costs are capitalized and
recognized  as an adjustment to the related  loan's  yield,  generally  over the
contractual life of the loan.





(Continued on F - 11)
                                                                        F - 10
<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accrual of interest on impaired loans is discontinued  when, in management's
opinion,  the borrower may be unable to meet  payments as they become due.  When
interest  accrual is  discontinued,  all unpaid  accrued  interest is  reversed.
Interest income is subsequently  recognized only to the extent cash payments are
received.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on the Bank's  past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the  borrower's  ability  to  repay,  the  estimated  value  of  any  underlying
collateral, and current economic conditions.

6.     ACCOUNTING FOR IMPAIRMENT OF LOANS

The  Company's  measurement  of impaired  loans  includes  those loans which are
non-performing  and have been placed on non-accrual status and those loans which
are performing  according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness.

Residential  mortgages and consumer  loans and leases  outside the scope of SFAS
No. 114 are collectively evaluated for impairment.

7.     PREMISES AND EQUIPMENT

Premises and  equipment  are stated at cost less  accumulated  depreciation  and
amortization.   Depreciation  and  amortization  are  provided  for  in  amounts
sufficient to relate the cost of  depreciable  assets to  operations  over their
estimated service lives.  Leasehold improvements are amortized over the lives of
the  respective  leases or the service lives of the  improvements,  whichever is
shorter.  The straight-line method of depreciation is followed for substantially
all assets for financial  reporting  purposes,  but accelerated methods are used
for tax purposes.

8.     OTHER REAL ESTATE OWNED (ORE)

Other  real  estate  owned is  initially  recorded  at fair value at the date of
foreclosure,  less estimated  selling costs.  Costs relating to development  and
improvement of property are  capitalized,  whereas costs relating to the holding
of property are expensed.

Valuations  are   periodically   performed  by  management,   or  obtained  from
independent appraisers,  and an allowance for loss is established by a charge to
operations if the value of the property  declines  below its original  estimated
fair value.









(Continued on F - 12)
                                                                        F - 11
<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

If a sale of real estate owned  results in a gain,  the gain is accounted for in
accordance  with FASB  Statement  No. 66,  ACCOUNTING  FOR SALES OF REAL ESTATE.
Accordingly,  gains may be deferred or  recognized  currently  depending  on the
terms of the sale. Losses are charged to operations as incurred.

9.     INTANGIBLE ASSETS

Intangible assets include core deposit premiums paid to acquire certain customer
deposit  bases  and the  remaining  excess  of cost  over  net  tangible  assets
acquired.  These assets are being amortized on a straight-line  basis over their
estimated lives of 10-40 years.

10.    INCOME TAXES

Deferred income tax assets and liabilities are computed annually for differences
between  the  consolidated  financial  statements  and tax basis of  assets  and
liabilities  that will  result in  taxable or  deductible  amounts in the future
based  on  enacted  tax  laws and  rates  applicable  to  periods  in which  the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established  when necessary to reduce deferred tax assets to the amount expected
to be  realized.  Income tax  expense is the tax payable or  refundable  for the
period  plus or minus the change  during the period in net  deferred  assets and
liabilities.

11.    STOCK BASED COMPENSATION

The Company  accounts for its stock-based  compensation  plans under  Accounting
Principles  Board  Opinion No. 25,  ACCOUNTING  FOR STOCK  ISSUED TO  EMPLOYEES.
Effective in 1996, the Company  adopted the  disclosure  option of SFAS No. 123,
ACCOUNTING  FOR  STOCK-BASED  COMPENSATION,  which  requires that  companies not
electing to account for stock-based compensation as prescribed by the statement,
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted. Additionally,  certain other disclosures are required with
respect to stock  compensation and the assumptions used are to determine the pro
forma effects of SFAS No. 123.

12.    LOAN FEES

Net loan fees and processing  costs are deferred and amortized over the lives of
the loans using the interest method of amortization.

13.    ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

The  Company   periodically   reviews  its  long-lived  assets  for  impairment.
Impairment  losses on  long-lived  assets  are  recognized  when  indicators  of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts.  The Company did not
record any impairment losses during the years ended December 31, 1998 and 1997.






(Continued on F - 13)
                                                                       F - 12
<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

14.   ACCOUNTING   FOR  TRANSFERS   AND   SERVICING  OF  FINANCIAL   ASSETS  AND
EXTINGUISHMENT OF LIABILITIES

The FASB has issued SFAS No. 125,  ACCOUNTING  FOR  TRANSFERS  AND  SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES,  which was effective for the
Company's fiscal year beginning January 1, 1997. SFAS No. 125 provides standards
for  distinguishing  transfers of financial assets that are sales from transfers
that are  secured  borrowings.  A  transfer  of  financial  assets  in which the
transferor  surrenders  control over those assets is accounted  for as a sale to
the extent that consideration other than beneficial interests in the transferred
assets is received in exchange.  After a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred,  derecognizes  financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.

15.    REPORTING COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 establishes standards for reporting and display of comprehensive income.
A specific reporting format is not required,  provided the financial  statements
show the amount of total comprehensive  income for the period. Those items which
are not  included  in net  income  are  required  to be shown  in the  financial
statements with  appropriate  footnote  disclosure and the aggregate  balance of
such  items must be shown  separately  from  retained  earnings  and  additional
paid-in  capital in the equity  section of the  balance  sheet.  SFAS No. 130 is
effective for fiscal years beginning  after December 15, 1997.  Reclassification
of financial  statements for earlier  periods is required.  The Company  adopted
SFAS No. 130 effective January 1, 1998.

16.    DISCLOSURES ABOUT BUSINESS SEGMENTS

In June 1997,  the FASB adopted SFAS No. 131,  DISCLOSURES  ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION.  SFAS No. 131 establishes  standards for the
way the Company reports information about operating segments in annual financial
statements  and  requires  reporting  of selected  information  about  operating
segments in interim  financial  reports.  SFAS No. 131 is effective  for periods
beginning after December 15, 1997.  Management has  implemented  SFAS No. 131 in
the year  ended  December  31,  1997  and  believes  its  trust  operations  and
investment  advisory  activities  are immaterial to the  consolidated  financial
statements in terms of their  respective  assets,  revenues,  profit or loss and
other operating data.













(Continued on F - 14)
                                                                       F - 13
<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

17.    EARNINGS PER SHARE

In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128
simplified  the method for computing and  presenting  earnings per share ("EPS")
previously  required by APB Opinion No. 15,  EARNINGS PER SHARE,  and makes them
comparable to international EPS standards. SFAS No. 128 is effective for periods
ending after December 15, 1997, and requires restatement of all prior period EPS
data and has been  implemented by the Company.  It replaces the  presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income  statement  for all  entities
with complex capital  structures and requires a reconciliation  of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

18.      RECLASSIFICATIONS

Certain  reclassifications  have been  made to the  December  31,  1997 and 1996
balances to conform to the December 31, 1998 presentation.

19.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES.  SFAS No. 133 requires entities to recognize all derivatives
in their financial  statements as either assets or liabilities  measured at fair
value.  SFAS No. 133 also  specified  new  methods  of  accounting  for  hedging
transactions,  prescribes  the items and  transactions  that may be hedged,  and
specifies  detailed  criteria  to be met to  qualify  for hedge  accounting.  On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category. SFAS No. 133 is effective for fiscal
years  beginning  after June 15, 1999. The adoption of SFAS No. 133 for the year
ended December 31, 2000 is not expected to have a material impact on the results
of operations for the Company.

NOTE B - ACQUISITIONS

On September  30,  1995,  the Company  purchased  100% of the stock of Fiduciary
Services Corp.  ("FSC") for $450,000,  issuing 150,000 shares at $3.00 per share
of common stock of the Company plus a contingent  payment of performance  shares
based upon net earnings of the trust department through 2001. The acquisition of
FSC was  accounted  for as a purchase.  The purchase  price was allocated to net
tangible  assets  acquired based upon their  estimated  fair market values.  The
performance  shares will be recorded as additional  purchase price.  Included in
intangible  assets  is  $395,706  of excess  of cost  over net  tangible  assets
acquired.  Pro  forma  information  is  not  presented,  as  the  effect  of the
acquisition is immaterial to the financial statements.









(Continued on F - 15)
                                                                       F - 14
<PAGE>

NOTE B - ACQUISITIONS

On  January  31,  1996,  the  Company  completed  the  acquisition  of  EPW,  an
independent  investment  management firm. The acquisition was facilitated by the
issuance of $630,000, 8% convertible subordinated debentures,  plus a contingent
payment of  performance  shares based upon net earnings of EPW through 2001. The
performance shares will be recorded as compensation.

For the above  acquisitions,  the Company has reserved from its  authorized  but
unissued  Common Stock,  225,000 shares as performance  shares and 32,013 shares
have  been  paid out as of  December  31,  1998,  of which  20,808  shares  were
accounted for as additional  consideration  and 11,205 shares were accounted for
as compensation.

NOTE C - INITIAL PUBLIC OFFERING

On December 16, 1998, the Company  completed an Initial Public Offering (IPO) in
which it issued  507,705  shares of common  stock at a price of $7.25 per share.
The common stock trades on the NASDAQ Small Cap Market under the symbol  "UFHI".
Concurrent  with the common  stock  offering,  the  Company  issued  through UFH
Capital Trust I, 1,349,920 shares of $5.00 par value Trust Preferred  securities
with a coupon rate of 9.40%. The Trust Preferred  securities trade on the NASDAQ
Small Cap Market under the symbol  "UFHIP".  Proceeds from the offering  totaled
$9,554,011 net of underwriting fees and Trust Preferred costs of $876,450.

NOTE D - UFH CAPITAL TRUST I

On December  16,  1998,  UFH Capital  Trust I  ("UFHCT"),  a Delaware  statutory
business  trust  created  by  the  Company,   issued  $6,749,600  (including  an
overallotment  of $749,600 that closed on January 14, 1999) of 9.40%  Cumulative
Trust  Preferred  Securities  ("Securities")  which will mature on December  10,
2028,  subject to earlier  redemption  in certain  circumstances.  The principal
asset  of UFHCT is a  $6,959,200  subordinated  debenture  of the  Company.  The
subordinated  debenture bears interest at the rate of 9.40% and matures December
16, 2028,  subject to earlier redemption in certain  circumstances.  The Company
owns all of the common securities of UFHCT.

The Securities,  the assets of UFHCT, and the common securities issued by UFHCT,
are redeemable in whole or in part on or after December 10, 2003 or at any time,
in whole (but not in part) within 180 days  following the  occurrence of certain
events.  The Securities are included in Tier I Capital for regulatory  purposes,
subject to certain limitations.

The  obligations  of the Company with respect to the issuance of the  Securities
constitute  a full  and  unconditional  guarantee  by  the  Company  of  UFHCT's
obligation with respect to the Securities.










(Continued on F - 16)
                                                                      F - 15
<PAGE>

NOTE D - UFH CAPITAL TRUST I

Subject to certain  exceptions  and  limitations,  the Company may, from time to
time, defer subordinated  debenture  interest payments,  which would result in a
deferral of  distribution  payments on the related  securities and, with certain
exceptions,  prevent the Company from declaring and paying cash distributions on
the Company's  common stock or debt securities that rank pari passu or junior to
the subordinated debentures.


NOTE E -               UNITED FINANCIAL HOLDINGS, INC.
                              (Parent Only)
                       CONDENSED FINANCIAL INFORMATION

The Bank, EPW, Trust and UFHCT are wholly-owned subsidiaries of United Financial
Holdings,  Inc.  The majority of the  Company's  assets are  represented  by its
investment  in the Bank and its primary  source of income is dividends  from the
Bank.

During 1989,  the Company  authorized  the issuance of 150,000 shares of $10 par
value  cumulative,  convertible,  7% preferred stock. The shares are convertible
into common shares at $1.19 per share.

Following is condensed financial information of the Company.

                                                      December 31,
                                        1998             1997           1996
                                   ------------    -------------  -------------
BALANCE SHEETS

   Cash and cash equivalent        $  4,451,859    $    203,278   $     245,940
   Trading securities                   157,354               -               -
   Due from subsidiaries                192,432         197,014         144,886
   Investment in Bank                13,617,578      10,428,370       9,881,984
   Investment in EPW                    136,275         102,723          70,360
   Investment in United Trust         2,646,885       2,360,985               -
   Investment in UFH Cap Trust I        209,600               -               -
   Intangible assets                    546,230         561,063         631,886
   Receivable from UFH Cap Trust I      774,476               -               -
   Other assets                         120,530         125,291          83,676
                                   ------------    ------------    ------------
                                   $ 22,853,219    $ 13,978,724    $ 11,058,732
                                   ============    ============    ============













(Continued on F - 17)
                                                                       F - 16
<PAGE>

NOTE E                 UNITED FINANCIAL HOLDINGS, INC.
                             (Parent Only)
                      CONDENSED FINANCIAL INFORMATION

                                                      December 31,
                                        1998             1997           1996
                                   ------------     ------------  -------------
   Note payable                    $          -     $  2,629,402  $     750,200
   Convertible subordinated
      debentures                        630,000          630,000        630,000
   Junior subordinated debentures
       issued to UFH Cap Trust I      6,959,200                -              -
   Other liabilities                    492,913          228,160        186,877
   Stockholders' equity              14,771,106       10,491,162      9,491,655
                                   ------------     ------------   ------------
                                   $ 22,853,219     $ 13,978,724   $ 11,058,732
                                   ============     ============   ============

STATEMENTS OF EARNINGS
   Equity in earnings of Bank      $  1,767,421     $  1,492,207   $  1,535,539
   Equity in earnings of EPW             48,551          107,363         65,553
   Equity in earnings of United Trust    95,599                -              -
   Unrealized gain on trading            87,354                -              -
   Other income                         100,345           26,611          1,470
   Interest expense                    (275,116)        (125,699)      (119,407)
   Other expense                       (144,123)        (156,235)       (34,991)
                                   ------------     ------------   ------------
   Earnings before income taxes       1,680,031        1,344,247      1,448,164
   Income tax benefit                    77,277           65,495         31,855
                                   ------------     ------------   ------------
Net Earnings                       $  1,757,308     $  1,409,742   $  1,480,019
                                   ============     ============   ============























(Continued on F - 18)
                                                                       F - 17
<PAGE>

NOTE F - SECURITIES

At December 31, 1998 and 1997, the carrying value and estimated  market value of
investments in debt and equity securities were as follows:

                               Carrying
                                 Value        Gross      Gross
                              (Amortized   Unrealized  Unrealized    Estimated
                                 Cost)       Gains       Losses    Market Value
                              -----------  ----------  ----------  -----------
December 31, 1998
Securities held to maturity:
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies   $ 5,975,832  $  227,918  $   31,563  $  6,172,187
Obligations of State and
  political subdivisions        1,179,373      13,869      10,174     1,183,068
Mortgage-backed securities      3,448,531      22,630          92     3,471,069
Corporate obligations             501,893       7,482           -       509,375
Other                             100,000           -           -       100,000
                              -----------  ----------  ----------   -----------
Total                         $11,205,629  $  271,899  $   41,829   $11,435,699
                              ===========  ==========  ==========   ===========

                             Historical     Gross        Gross       Carrying
                             Amortized    Unrealized   Unrealized     Value
                               Cost          Gains       Losses   (Market Value)
                            -----------  -----------  -----------  ------------
Securities available for sale:
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies $ 8,747,092  $  139,132   $         -  $  8,886,224
Obligations of State and
  policical subdivisions      1,444,917      55,011             -     1,499,928
Mortgage-backed securities    3,035,227      31,795           577     3,066,445
Equity securities             1,086,140           -        11,250     1,074,890
                            -----------  -----------  -----------  ------------
Total                       $14,313,376  $  225,938   $    11,827  $ 14,527,487
                            ===========  ===========  ===========  ============


















(Continued on F - 19)
                                                                       F - 18
<PAGE>

NOTE F - SECURITIES

                               Carrying
                                 Value        Gross      Gross
                              (Amortized   Unrealized  Unrealized    Estimated
                                 Cost)       Gains       Losses    Market Value
                              -----------  ----------  ----------  -----------
December 31, 1997
Securities held to maturity:
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies   $ 6,903,071  $   57,023  $   39,655  $  6,920,439
Obligations of State and 
  political subdivisions          628,967       17,987         464       646,490
Mortgage-backed securities      1,428,889        9,016       1,588     1,436,317
Corporate obligations           1,036,331       72,849           -     1,109,180
Other                             100,000            -           -       100,000
                              -----------  ----------  ----------   -----------
Total                         $10,097,258  $   156,875 $   41,707  $ 10,212,426
                              ===========  =========== ==========   ===========

                             Historical     Gross        Gross       Carrying
                             Amortized    Unrealized   Unrealized     Value
                               Cost          Gains       Losses   (Market Value)
                            -----------  -----------  -----------  ------------
Securities available for sale:
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies $ 9,436,599  $    76,140  $     1,714  $  9,511,025
Mortgage-backed securities    1,792,192       13,899        1,204     1,804,887
Equity securities               156,140            -            -       156,140
                            -----------  -----------  -----------  ------------
Total                       $11,384,931  $    90,039  $     2,918  $ 11,472,052
                              ===========  =========== ==========   ===========

Proceeds from the sale of investments in debt  securities  totaled  $110,906 for
the year ended  December 31,  1998 with a resulting  gain of  $78,498,  which is
included in other  service  charges,  fees and income.  The sale of this held to
maturity  debt  security  during the year ended  December  31, 1998 was due to a
significant  deterioration  in the  issuer's  credit-worthiness.  There  were no
proceeds  from  sales of  investments  in debt  securities  for the years  ended
December 31, 1997 and 1996.

The amortized cost and estimated market value of debt securities at December 31,
1998, by contractual  maturity,  are shown below.  Actual  maturities may differ
from contractual  maturities due to borrowers having the right to call or prepay
obligations with or without call or prepayment penalties.









(Continued on F - 20)
                                                                       F - 19
<PAGE>

NOTE F - SECURITIES

                 Securities Held To Maturity     Securities Available For Sale
                   Carrying                                    Carrying
                     Value    Estimated          Historical     Value
                  (Amortized  Market      Avg    Amortized     (Market    Avg
                     Cost)    Value       Yield    Cost         Value)    Yield
                  --------------------------------------------------------------
Due in one year
 or less          $   229,952 $   230,930  5.92% $ 2,495,235 $ 2,512,813  6.610%
Due after one year
  through five
  years           $ 3,533,389   3,598,650  6.206%  4,255,009   4,362,831  6.332%
Due after five
  years through
  ten years         3,468,533   3,620,000  6.59%   3,441,763   3,510,508  6.466%
Due after ten years   525,224     515,050  4.620%          -           -      -
Mortgage-backed
 securities         3,448,531   3,471,069  7.206%  3,035,227   3,066,445  6.774%

Equity securities           -          -           1,086,140   1,074,890  2.277%
                  ----------- -----------        -----------  ----------
  Total           $11,205,629 $11,435,699        $14,313,374 $14,527,487
                  =========== ===========        =========== ===========

Investment securities with a carrying value (which approximates market value) of
approximately  $13,447,000  and  $2,809,000  at  December  31,  1998  and  1997,
respectively,  were  pledged to secure  public funds and  securities  sold under
agreements to repurchase.



























(Continued on F - 21)
                                                                       F - 20
<PAGE>

NOTE G - LOANS

Major classifications of loans were as follows:
                                                     DECEMBER 31,
                                                1998                1997
                                            -------------      -------------
 Real estate mortgage                       $  78,013,492      $  60,583,746
 Commercial                                    34,903,429         30,536,261
 Installment and other                          6,240,676          5,869,534
                                            -------------      -------------
                                              119,157,597         96,989,541

 Less:  Allowance for loan losses               1,983,753          1,647,355
        Unearned fees                             627,993            520,862
                                            -------------      -------------

 Loans, net                                  $116,545,851      $  94,821,324
                                            =============      =============

Changes in the allowance for loan losses were as follows:

                                          FOR THE YEARS ENDED DECEMBER 31,
                                          1998          1997         1996
                                        -----------  -----------  -----------
  Balance at beginning of year          $ 1,647,355  $ 1,609,785  $ 1,526,695
  Provision charged to operating
     expenses                               752,000       90,000      150,000
  Recoveries on loans previously
     charged off                             10,536       38,510        1,600
  Loans charged off                        (426,138)     (90,940)     (68,510)
                                        -----------  -----------  -----------

  Balance at end of year                $ 1,983,753  $ 1,647,355  $ 1,609,785
                                        ===========  ===========  ===========

Changes in unearned fees were as follows:
  Balance at beginning of year          $   520,862  $   341,439  $   279,206
  Points deferred on loans                  257,085      244,364      166,896
  Points recognized in income              (149,954)     (64,941)    (104,663)
                                        -----------  -----------  -----------

Balance at end of year                  $   627,993  $   520,862  $    341,439
                                        ===========  ===========  ============

Impaired loans were as follows:
                                                   DECEMBER 31,
                                           1998          1997          1996
                                       ------------   -----------   -----------
  Balance at end of period             $  4,001,964   $   400,049   $   372,352
  Average balance during period           2,808,974       440,927       224,119
  Total related allowance for losses        602,000        13,000             -
  Interest income recognized on
   impaired loans                            86,700             -             -



(Continued on F - 22)
                                                                       F - 21
<PAGE>

NOTE G - LOANS

The only loans sold by the Bank during  1998,  1997 and 1996 were SBA loans.  In
accordance  with  SFAS No.  125,  ACCOUNTING  FOR  TRANSFERS  AND  SERVICING  OF
FINANCIAL  ASSETS  AND  EXTINGUISHMENT  OF  LIABILITIES,  a  servicing  asset is
recorded when the Bank sells the SBA loans. The book value of such assets, which
the Bank  believes  approximates  the fair value of such assets at December  31,
1998,   1997  and  1996  was  $141,000,   $78,000  and  $83,000,   respectively.
Amortization expense relating to such servicing assets of $13,000 and $2,000 was
recorded for 1998 and 1997, respectively. The Company periodically reviews these
assets for  impairment.  No valuation for  impairment of these assets was deemed
necessary for the periods presented.

NOTE H - PREMISES AND EQUIPMENT

Major classifications of premises and equipment are as follows:
                                                        DECEMBER 31,
                                                  1998            1997
                                             ------------     ------------
  Land                                       $  1,396,779     $  1,396,779
  Land improvements                                64,746           59,673
  Leasehold improvements                          115,812          113,998
  Building and building improvements            7,404,878        7,392,139
  Furniture, fixtures and equipment             2,666,993        2,460,523
  Construction in progress                              -            1,294
                                             ------------     ------------
                                               11,649,208       11,424,406
Less accumulated depreciation & amortization    2,374,707        1,882,605
                                             ------------     ------------
                                             $  9,274,501     $  9,541,801
                                             ============     ============

Depreciation  of premises and  equipment  and  amortization  of  leaseholds  was
$576,515,  $501,475 and $390,680 for the years ended December 31, 1998, 1997 and
1996, respectively.





















(Continued on F - 23)
                                                                       F - 22
<PAGE>

NOTE I - INCOME TAXES

The tax effects of temporary  differences that give rise to significant portions
of the  deferred  tax  assets  and  deferred  tax  liabilities,  consist  of the
following:

                                                        DECEMBER 31,
                                                  1998            1997
                                             -------------    -------------
Deferred tax assets
  Allowance for loan losses                  $    680,000     $    543,000
  Deferred loan fees                              158,000          120,000
  Deferred compensation                           118,000           75,000
  Net operating loss carryforward (1)              34,000           59,000
                                             -------------    -------------
                                                  990,000          797,000

Deferred tax liabilities
  Fixed assets                                    133,000           36,000
  Securities available for sale                    81,000           30,000
                                             -------------    -------------
                                                  214,000           66,000

Net deferred tax asset, included with
  other assets                               $    776,000     $    731,000
                                             ============     ============

(1)     Relates  to net  operating  losses  of two  acquired  subsidiaries.  The
        acquisitions  resulted in ownership  changes for purposes of Section 382
        of the Internal Revenue Code of 1986, as amended.  Consequently, the net
        operating loss carryforwards are subject to a yearly limitation on their
        utilization  and can  only  be  applied  against  future  income  of the
        acquired subsidiaries. Such operating loss carryforwards at December 31,
        1998 are approximately  $90,000 and begin to expire in 2010. The Company
        believes  that it will obtain the future income to fully utilize the net
        operating  loss  carryforwards,  thus no  valuation  allowance  has been
        recorded.

Management  believes  that it is more likely than not that the net  deferred tax
asset will be  realized  and,  therefore,  a  valuation  allowance  has not been
recorded against the deferred asset at December 31, 1998, 1997 and 1996.















(Continued on F - 24)
                                                                       F - 23
<PAGE>

NOTE I - INCOME TAXES

The  Company's  effective  tax rate varies from the  statutory  rate of 34%. The
reasons for this difference are as follows:

                                           FOR THE YEARS ENDED DECEMBER 31,
                                         1998            1997             1996
                                      ----------      ----------     ----------
Computed "expected" tax provision     $  941,000      $  771,700     $  806,300
Tax exempt interest income               (14,800)         (7,500)        (9,300)
Goodwill amortization                     24,000          22,100         23,100
State taxes net of federal benefit        70,600          58,600         60,100
Other, net                               (10,230)         15,046         11,248
                                      ----------      ----------     ----------
   Total                              $1,010,570      $  859,946     $  891,448
                                      ==========      ==========     ==========

NOTE J - DEPOSITS

At December 31, 1998, the scheduled maturities of time deposits are as follows:

             1999                                        $47,948,931
             2000                                          4,524,333
             2001                                          1,870,560
             2002                                          3,017,798
             2003                                            755,402
                                                         -----------
                                                         $58,117,024
                                                         ===========

NOTE K - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The  Company  enters  into  retail  repurchase  agreements  with  certain of its
customers.  These agreements mature daily. All securities  collateralizing these
agreements  were under the Company's  control for each  respective  time period.
Information  concerning  securities  sold  under  agreements  to  repurchase  is
summarized as follows:

                                              YEAR ENDED DECEMBER 31,
                                        1998            1997            1996

Average balance                      $3,983,959      $2,029,453      $3,291,662
Average interest rate                     3.55%           2.49%           2.62%
Maximum month-end balance            $8,795,715      $2,860,141      $6,977,300

The average  rate was  determined  by dividing  the total  interest  paid by the
average outstanding borrowings.









(Continued on F - 25)
                                                                       F - 24
<PAGE>

NOTE K - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities underlying the agreements are as follows:
                                                      AT DECEMBER 31,
                                                   1998            1997
                                                --------------------------
Carrying value                                  $8,644,000      $2,809,000
Estimated fair value                             8,804,000       2,809,000


NOTE L -  LONG-TERM  DEBT

Long-term  debt of the  Company consists of the following:
                                                            DECEMBER 31,
                                                       1998             1997
                                                    ---------------------------
Note payable to an unrelated bank providing
for quarterly  principal payments of $3,750
and quarterly  interest  payments at 8.5% 
fixed, due in 2001. The note is collateralized
by certain pieces of data processing equipment.
                                                     $  33,750    $     48,750

Note payable to an unrelated  bank  providing
for monthly  interest  payments at prime (8.50%
at December  31, 1997) and  ninety-five  (95)
consecutive  monthly principal  payments are
due  beginning on December 1, 1999.  The loan
agreement requires a security  interest in the
Bank's  common stock and  contains  certain
restrictive  covenants.  The Company  repaid
this note payable in December 1998, with a
portion of the proceeds from the IPO.
                                                              -       2,629,402

8%  Convertible   Subordinated   Debentures
issued  in  conjunction  with  the acquisition
of EPW. The holder can convert to common stock
at $4.12 per share at any time. Upon conversion,
the common stock issued cannot be traded for a
period of two  years.  Interest  is payable
semi-annually  and the  debentures  mature 
January 31, 2006. The debentures are callable
by the Company,  in whole or part, as follows:












(Continued on F - 26)
                                                                       F - 25
<PAGE>

NOTE L - LONG-TERM DEBT

                                                          DECEMBER 31,
                                                      1998             1997
                                                 -----------     -----------
     YEAR                           PRICE
     2001                           103%
     2002                           102%
     2003                           101%
     2004 and thereafter            100%             630,000         630,000
                                                  ----------      ----------
                                                  $  663,750      $3,308,152
                                                  ==========      ==========

The annual  principal  reductions of the long-term  debt during each of the next
five years ended December 31 are as follows:
          1999                                    $   15,000
          2000                                        15,000
          2001                                         3,750
          2002                                             -
          2003                                             -
          Thereafter                                 630,000
                                                  ----------
                                                  $  663,750
                                                  ==========

NOTE M - REGULATORY MATTERS

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

In addition to the minimum  capital  requirement  detailed  above,  the Bank has
committed to maintain a minimum  Tier One  Leverage  Ratio (as defined) of 7% in
exchange for permission to exceed the Office of Comptroller's (the "Department")
maximum  investment  in land and  buildings  as  expressed  as a  percentage  of
capital.  As of December 31, 1998, the Bank's Tier One Leverage Ratio was 7.89%,
above the minimum agreed to by the Department.










(Continued on F - 27)
                                                                       F - 26
<PAGE>

NOTE M - REGULATORY MATTERS

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

As of December 31, 1998 and 1997, the most recent  notification from the Federal
Reserve categorized the Bank as well capitalized under the regulatory  framework
for prompt corrective  action.  To be categorized as well capitalized,  the Bank
must maintain minimum total risk-based,  Tier I risk-based,  and Tier I leverage
ratios as set forth in the table.  There are no  conditions or events since that
notification that management believes have changed the institution's category.

The Bank's  actual  capital  amounts and ratios as of  December  31, 1998 are as
follows (dollars in thousands):

                                                               To Be Well
                                             Minimum          Capitalized Under
                                             For Capital      Prompt Corrective
                                             Adequacy         Action
                            Actual           Purposes         Provisions
                            Amount    Ratio  Amount   Ratio   Amount   Ratio
                            --------  -----  -------- -----   -------  --------
Stockholders' equity and
ratio to total assets       $ 13,617  8.06%
Intangible assets               (404)
                            --------
Tangible capital and ratio
to adjusted total assets    $ 13,213  7.52%  $ 2,636  1.5%
                            ========         =======

Tier I (core) capital and
ratio to adjusted total
assets                      $ 13,073  7.44%  $ 5,272  3.0%     $ 8,787  5.0%
                            ========         =======           =======

Tier I capital and ratio to
risk weighted assets        $ 13,073  9.52%  $ 4,118  3.0%     $ 8,236  6.0%
                            --------         =======           =======

Tier II capital - allowance
for loan and lease losses   $  1,719
                            --------
Total risk-based capital
and ratio to risk-
weighted assets             $ 14,792 10.78%  $10,981  8.0%      $13,727 10.0%
                            ========         =======            =======
Total Assets                $168,837
                            ========
Adjusted total assets       $175,739
                            ========
Risk-weighted assets        $137,267
                            ========
(Continued on F - 28)
                                                                       F - 27
<PAGE>

NOTE M - REGULATORY MATTERS

The Bank's  actual  capital  amounts and ratios as of  December  31, 1997 are as
follows (dollars in thousands):

                                                               To Be Well
                                             Minimum          Capitalized Under
                                             For Capital      Prompt Corrective
                                             Adequacy         Action
                            Actual           Purposes         Provisions
                            Amount    Ratio  Amount   Ratio   Amount   Ratio
                            --------  -----  -------- ------  -------  -------

Stockholders' equity and
ratio to total assets       $ 10,428  7.22%
Intangible asssets              (418)
                            --------
Tangible capital and ratio
to adjusted ttotal assets   $ 10,010  6.80%  $  2,206  l.5%
                            ========         ========
Tier I (core) capital and
ratio to adjusted total
assets                      $  9,953  6.77%  $  4,412  3.0%   $  7,354  5.0%
                            ========         ========         ========

Tier I capital and ratio to
risk weighted asets         $  9,953  8.90%  $  3,356  3.0%   $  6,713  6.0%
                            --------         ========         ========

Tier II capital - allowance
for loan and lease losses  $   1,402
                           ---------

Total risk-based capital
and ratio to risk-
weighted assets            $  11,355  10.15% $  8,950  8.0%   $  11,187 10.0%
                           =========         ========         =========

Total Assets               $144,482
                           ========

Adjusted total assets      $147,074
                           ========

Risk-weighted assets       $111,878
                           ========










(Continued on F - 29)
                                                                       F - 28
<PAGE>

NOTE N - CONCENTRATIONS OF RISK

All of the Company's loans,  commitments,  and commercial and standby letters of
credit have been granted to customers who are  substantially  all located in the
Company's  market area. The majority of customers are depositors of the Company.
The  concentrations  of  credit  by type of loan  are set  forth  in Note D. The
distribution of commitments to extend credit  approximates  the  distribution of
loans  outstanding.  Commercial  and  standby  letters  of credit  were  granted
primarily to commercial borrowers.  The Company, as a matter of policy, does not
extend credit to any single borrower or group of related  borrowers in excess of
its legal  lending  limit.  At December  31, 1998 and 1997,  less than 4% of the
Company's loans are unsecured.

At  December  31,  1998,  the  Company  held  deposits  for a customer  equal to
approximately  10% of total deposits.  Such deposits were invested in short-term
investments.  At December 31, 1997, no single customer represented more than 10%
of total deposits.

NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES

OFF BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These  financial  instruments  include  commitments to extend credit and standby
letters of credit.  Such  financial  instruments  are recorded in the  financial
statements  when they become  payable.  Those  instruments  involve,  to varying
degrees,  elements  of credit  and  interest  rate risks in excess of the amount
recognized  in the balance  sheet.  The  contract  or notional  amounts of those
instruments  reflect the extent of  involvement  the  Company has in  particular
classes of financial instruments.

The  Company's  exposure to credit loss in the event of  non-performance  by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit is represented by the  contractual or notional amount
of those  instruments.  The  Company  uses the same  credit  policies  in making
commitments  and  conditional   obligations  as  it  does  for  on-balance-sheet
instruments.

Unless  noted  otherwise,  the  Company  does not  require  collateral  or other
security to support financial  instruments with  off-balance-sheet  credit risk.
The contract or notional amounts are as follows:

                                                          DECEMBER 31,
                                                     1998              1997
                                                 -----------------------------
Commitments to extend credit                     $20,182,057       $16,644,892
Standby letters of credit and financial
guarantees written                               $ 1,595,882       $ 1,663,578







(Continued on F - 30)
                                                                       F - 29
<PAGE>

NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES

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. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future cash  requirements.  The  Company  evaluates  each  customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed  necessary  by  the  Company  upon  extension  of  credit,  is  based  on
management's credit evaluation.

Standby letters of credit are conditional  commitments  issued by the Company to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial  paper,  bond financing,  and similar  transactions.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in  extending  loan  facilities  to  customers.   The  Company  generally  holds
residential  or  commercial  real estate,  accounts  receivable,  inventory  and
equipment as collateral  supporting  those  commitments for which  collateral is
deemed necessary.

LITIGATION

The  Company is party to  certain  litigation  encountered  in the course of its
normal  operations,   a  portion  of  which  involves  actions  brought  against
borrowers,  generally  involving  foreclosure  proceedings.  In some  instances,
borrowers or interested  parties have filed or threatened  suit in  retaliation.
Management,  after  consulting  with legal  counsel,  believes that it has valid
defenses and intends to vigorously  defend these  matters.  Management is of the
opinion that an unfavorable  outcome,  if any, would not have a material  effect
upon the consolidated financial statements.

OPERATING LEASES

The Company also has operating  leases  covering  certain  office  equipment and
office facilities expiring at various times through 2004.

The minimum  annual  rentals under these leases as of December 31, 1998,  are as
follows:

      Year                                    Amount
      ----                                 ---------
      1999                                 $  81,229
      2000                                    72,887
      2001                                    73,866
      2002                                    66,500
      2002                                    27,690
      Thereafter                              53,634
                                           ---------

 Total minimum lease payments              $ 375,806
                                           =========



(Continued on F - 31)
                                                                       F - 30
<PAGE>

NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES

The Company's  rent expense was  $102,342,  $189,096 and $232,325 for
the years ended  December 31,  1998, 1997 and 1996, respectively.

NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS

The  assumptions  used in the  estimation  of the fair  value  of the  Company's
financial instruments are detailed below. Where quoted prices are not available,
fair  values  are  based on  estimates  using  discounted  cash  flows and other
valuation  techniques.  The use of  discounted  cash flows can be  significantly
affected by the assumptions  used,  including the discount rate and estimates of
future  cash  flows.  The  following  disclosures  should  not be  considered  a
surrogate  of the  liquidation  value of the  Company,  but rather  represent  a
good-faith   estimate  of  the  increase  or  decrease  in  value  of  financial
instruments held by the Company since purchase, origination or issuance.

The Company, in estimating the fair value of its financial instruments, used the
following methods and assumptions:

    Cash and due from banks and interest bearing deposits with other banks: Fair
    value equals the carrying value of such assets.

    Investment  securities and investment  securities  available for sale:  Fair
    values for investment securities are based on quoted market prices.

    Federal  funds  sold:  Due to the  short-term  nature of these  assets,  the
    carrying values of these assets approximate their fair value.

    Loans:  For variable rate loans,  those repricing within six months or less,
    fair values are based on carrying values. Fixed rate commercial loans, other
    installment  loans, and certain real estate mortgage loans were valued using
    discounted cash flows. The discount rate used to determine the present value
    of these loans was based on interest  rates  currently  being charged by the
    Company on comparable loans as to credit risk and term.

    Off-balance-sheet   instruments:  The  Company's  loan  commitments,   which
    approximate  $21,800,000  and  $18,300,000  at  December  31, 1998 and 1997,
    respectively,  are  negotiated  at current  market rates and are  relatively
    short-term in nature and, as a matter of policy, the Company generally makes
    commitments  for fixed  rate  loans for  relatively  short  periods of time.
    Therefore,   the  estimated   value  of  the  Company's   loan   commitments
    approximates the fees charged for entering into the commitments.













(Continued on F - 32)
                                                                       F - 31
<PAGE>

NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS

    Deposit liabilities:  The fair values of demand deposits are, as required by
    SFAS 107,  equal to the carrying  value of such  deposits.  Demand  deposits
    include non-interest-bearing demand deposits, savings accounts, NOW accounts
    and money market demand  accounts.  Discounted  cash flows have been used to
    value fixed rate term deposits.  The discount rate used is based on interest
    rates  currently  being offered by the Company on comparable  deposits as to
    amount and term.

    Short-term  borrowings:  The  carrying  value of  Federal  funds  purchased,
    securities  sold  under   agreements  to  repurchase  and  other  short-term
    borrowings approximate their carrying values.

    Long-term  debt:  The  carrying  value  of  the  Company's   long-term  debt
    approximates  its fair value since the interest  rates on these  instruments
    approximate market interest rates.

    Cumulative  trust  preferred  securities:  Fair value for  cumulative  trust
    preferred securities are based on quoted market prices.

                                            FOR THE YEARS ENDED
Financial Instruments              DECEMBER 31, 1998        DECEMBER 31, 1997
                                 ----------------------  ----------------------
                                  Carrying   Estimated    Carrying   Estimated
                                  Amount     Fair Value    Amount    Fair Value
Assets:                              (In Thousands)           (In Thousands)
                                 ----------------------   ---------------------
 Cash and due from banks          $  7,967     $  7,967   $  7,337     $  7,337
 Federal funds sold                  4,011        4,011      7,441        7,441
 Trading securities                    157          157          -            -
 Securities held to maturity        11,206       11,436     10,097       10,212
 Securities available for sale      14,527       14,527     11,472       11,472
 Loans                             119,158      119,694     96,989       97,042
 Federal Home Loan Bank stock          434          434        365          365
 Federal Reserve Bank stock            159          159        154          154

Liabilities:

 Demand deposits                    27,742       27,742     28,385       28,385
 NOW and money market               48,550       48,550     36,031       36,031
 Savings                             4,686        4,686      5,245        5,245
 Time, $100,000 and over            11,463       11,492      9,692        9,752
 Other time                         46,654       46,789     50,866       51,074
 Securities sold under agreements
 to repurchase                       8,796        8,796      1,081        1,081
 Long-term debt                        664          664      3,308        3,308
 Cumulative trust preferred
 securities                          6,000        6,000          -            -
 Off balance sheet items                 -          218          -          183






(Continued on F - 33)
                                                                       F - 32
<PAGE>
NOTE Q - RELATED PARTIES

The  Bank  has  entered  into  transactions  with  its  directors,   significant
stockholders and their affiliates  ("related  parties").  Such transactions were
made in the  ordinary  course of  business on  substantially  the same terms and
conditions,  including interest rates and collateral, as those prevailing at the
same time for comparable  transactions  with other customers and did not, in the
opinion of  management,  involve more than normal  credit risk or present  other
unfavorable  features.  The  aggregate  amount of loans to such related  parties
approximated  $5,277,500,  $4,462,400 and $4,952,000 at December 31, 1998,  1997
and 1996, respectively.

During  November  1997, an affiliate of one of the Company's  directors  entered
into an  exclusive  right to a lease  agreement  (the  "Lease  Agreement")  with
Imaginative Investments,  Inc., a subsidiary of the Company and the owner of the
real property  covering the Company'  principal  executive office (the "Owner").
Pursuant to the Lease Agreement,  the Owner granted to such entity the exclusive
right to lease 17,918 square feet of the Company's  principal  executive  office
for a total of $246,373 or $13.75 per rental square foot with annual escalations
of 3%, and three to five year lease terms in return for a commission of 3% if no
outside  broker is used and 6% in the event an outside broker is used. The Lease
Agreement  commenced  July 14, 1997 and terminated at midnight on July 14, 1998.
As of December 31, 1998, the space was 100% leased.

During  March  1997,  an  affiliate  of  one  of the  Company's  directors  (the
"Manager")  entered  into  a  property  Management  Agreement  with  Imaginative
Investments, Inc., a subsidiary of the Company, pursuant to which the Manager is
employed to act as the sole and exclusive manager in the leasing,  operation and
management of the Company's  principal executive offices for total consideration
of  approximately  $17,000.  The Owner is  required  to  maintain  comprehensive
general public liability insurance in the amount of $2,000,000 naming as insured
parties the Owner,  Manager and such other parties as the Owner may direct.  The
Manager  must  maintain  its own  insurance  to protect  itself from any and all
claims under any workers' compensation laws or other employer's liability laws.

NOTE R - PROFIT-SHARING PLAN

The   Company  has  a  defined   contribution   profit-sharing   plan   covering
substantially all employees.  Contributions are determined annually by the Board
of  Directors.  The Company  contributed  $110,000,  $99,996 and $75,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan was amended
in 1993 to include an Employee  Stock  Ownership  Plan (ESOP)  provision.  As of
December 31, 1998, the ESOP owned 135,606 shares of the Company's  common stock.
During 1998,  the ESOP  purchased an additional  34,443 newly issued shares from
the Company and 15,300 shares from existing shareholders.  The purchase price of
the newly  issued  stock  was  $8.25 as  determined  by an  outside  independent
appraisal.










(Continued on F - 34)
                                                                       F - 33
<PAGE>

NOTE R - PROFIT-SHARING PLAN

The  Company  sponsors a deferred  compensation  401(k)  Plan for the benefit of
eligible  full-time  employees.  The 401(k)  Plan,  which is  voluntary,  allows
employees  to  contribute  up to 10 percent of their  total  compensation  (or a
maximum of $10,000 as limited by federal  regulations)  on a pre-tax basis.  The
Company  makes a matching  contribution  of 100 percent of the first $500 and 40
percent  thereafter,  up to the  maximum  amount  allowed  by the  401(k)  Plan.
Employee  contributions to the 401(k) Plan were $184,204,  $173,262 and $135,472
for the  years  ended  December  31,  1998,  1997 and  1996,  respectively.  The
Company's matching  contribution was $92,857,  $86,927 and $74,207 for the years
ended December 31, 1998, 1997 and 1996, respectively.

NOTE S - STOCKHOLDERS' EQUITY

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted  earnings  per share (EPS)  computations.  Options to purchase
481,380 shares of common stock at $7.96 a share, 495,000 shares at $7.96 a share
and  27,000  shares  at $4.49 a share  at  December  31,  1998,  1997 and  1996,
respectively,  were not included in the  computation  of diluted EPS because the
options exercise price was not less than the value of the common shares based on
an  independent  appraisal.  All these  options have various lives and expire in
1999 and beyond.













(Continued on F - 35A)
                                                                       F - 34
<PAGE>
                                        FOR THE YEAR ENDED DECEMBER 31,
                                                      1998 
                                   ----------------------------------------  
                                                    Weighted         Per     
                                                    Average          Share   
                                     Earnings       Shares           Amount  
                                    -----------------------------------------
Basic EPS
 Net earnings available to
 common stockholders               $ 1,741,838      3,523,364        $.49  
                                                                     ======
Effect of dilutive securities

Incremental shares from
assumed exercise or
conversion of:
Convertible debt                       31,434         152,790              
Preferred stock                        15,470         185,508              
Stock options                               -               -              
                                   ----------       ---------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions                        $ 1,788,742      3,861,662        $.46   
                                   ===========      =========        ======== 
































(Continued on F - 35b)
                                                                       F - 35a
<PAGE>

NOTE S - STOCKHOLDERS' EQUITY

                                        FOR THE YEAR ENDED DECEMBER 31,
                                                      1997
                                   ------------------------------------------
                                                    Weighted         Per     
                                                    Average          Share   
                                   Earnings         Shares           Amount  
                                   ------------------------------------------
Basic EPS
 Net earnings available to
 common stockholders               $ 1,393,397      3,432,768        $.41  
                                                                     ======
Effect of dilutive securities

Incremental shares from
assumed exercise or
conversion of:
   Convertible debt                     31,434        152,790 
   Preferred stock                      16,345        196,947 
   Stock options                             -          3,207 
                                   -----------      ---------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions                        $ 1,441,176      3,785,712        $.38    
                                   ===========      =========        ========

                                        FOR THE YEAR ENDED DECEMBER 31,
                                                      1996
                                   ----------------------------------------  
                                                    Weighted         Per     
                                                    Average          Share   
                                   Earnings         Shares           Amount
                                   ------------------------------------------
Basic EPS
 Net earnings available to
 common stockholders               $ 1,436,584      3,026,619        $.47
                                                                     ======
Effect of dilutive securities

Incremental shares from
assumed exercise or
conversion of:
   Convertible debt                     28,815        140,652
   Preferred stock                      43,435        592,236
   Stock options                             -          1,899
                                   -----------     ----------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions                        $ 1,508,834      3,761,406        $.40
                                   ===========      =========        ======



(Continued on F - 36)
                                                                       F - 35b
<PAGE>

NOTE S - STOCKHOLDERS' EQUITY

During  the year  ended  December  31,  1997,  the  Company  adopted  the United
Financial Holdings,  Inc. Stock Option and Incentive  Compensation Plan ("Plan")
under which 468,000  shares of common stock were  reserved.  Under the Plan, the
Company may grant its Board of Directors and certain  officers  incentive  stock
options or non-qualified  stock options to purchase a specified number of shares
of common  stock at a price not less than fair market value on the date of grant
and for a term not to exceed  10  years.  The  options  granted  to the Board of
Directors are 100% vested and the remaining options vest and become  exercisable
at 20%  increments  after  each  anniversary  date  beginning  after the  second
anniversary date.  During 1997,  156,000 and 312,000 options were granted to the
Company's Board of Directors and eligible executive officers,  respectively,  at
$7.94 per share,  the estimated fair value of the Company's  common stock at the
grant date. As such, no compensation expense was recorded in connection with the
grant of such options.








































(Continued on F - 36b)
                                                                       F - 36a
<PAGE>

NOTE S - STOCKHOLDERS' EQUITY

                                                           Weighted
                                  Number    Range of       Average    Aggregate
                                  of        Per Share      Per Share  Option
                                  Shares    Option Price   Price      Price
                                  ---------------------------------------------
Outstandings at Dec. 31, 1995       9,000    $      1.96   $ 1.96     $ 17,640
Options granted                    54,000      3.89-8.25     6.21      335,340
Options exercised                  (9,000)             -    (1.96)     (17,640)
Options forfeited                       -              -        -            -
                                  -------    -----------   ------    ----------

Outstandings at Dec. 31, 1996      54,000      3.89-8.25     6.21      335,340
Options granted                   468,000           7.94     7.94    3,715,920
Options exercised                 (13,500)             -    (3.89)     (52,515)
Options forfeited                       -              -        -            -
                                  -------    -----------   ------    ----------

Outstandings at Dec. 31, 1997     508,500      3.89-8.25     7.88    3,998,745
Options granted                         -              -        -            -
Options exercised                  (6,000)             -    (5.08)     (30,480)
Options forfeited                 (21,120)     5.08-7.94    (6.92)    (146,150)
                                  -------    -----------   ------    ----------

Outstandings at Dec. 31, 1998     481,380    $ 7.63-8.25   $ 7.94    $3,822,115
                                  =======    ===========   ======    ==========

The weighted-average remaining contractual life of the outstanding stock options
at December  31, 1998,  1997 and 1996 was 103 months,  114 months and 30 months,
respectively.

These options are exercisable as follows:

                                                                      Weighted
                                                                      Average
Year Ending                                          Number of        Exercise
December 31,                                         Shares           Price
-------------------------------------------------------------------------------
 1999                                                457,680           $7.94
 2000                                                 18,600            7.94
 2001                                                  4,200            7.94
 2002                                                    900            7.94
                                                     -------           -----
                                                     481,380           $7.94
                                                     =======            ====










(Continued on F - 37)
                                                                       F - 36b
<PAGE>

NOTE S - STOCKHOLDERS' EQUITY

In order to  calculate  the fair value of the  options,  it was assumed that the
risk-free  interest  rate was 6.0%,  the dividend  yield would be 1.68% over the
exercise  period,  the expected life of the options would be the entire exercise
period and stock volatility would approximate zero due to a thinly traded market
for the  stock.  The  following  information  pertains  to the fair value of the
options at December 31, 1998, 1997 and 1996.

                                         FOR THE YEARS ENDED DECEMBER 31,
                                          1998          1997          1996
                                     -----------    -----------   -----------
Weighted average-grant-date
Fair  value of options issued
during the year                      $      NIL     $   705,120   $       NIL
                                     ===========    ===========   ===========

 Pro forma net earnings              $ 1,668,356    $ 1,402,329   $ 1,480,019
                                     ===========    ===========   ===========

 Pro forma basic earnings per share  $      .48     $       .41   $       .47
                                     ===========    ===========   ===========

NOTE T  - EXECUTIVE COMPENSATION

The Company has  employment  contracts  with certain  executive  officers of the
Company,  providing for a total annual payment equal to their annual base salary
plus bonuses.  These  contracts are in effect until  termination (as defined) of
the related  employee.  If the  Company,  for other than just cause (as defined)
terminates the employee,  the affected  employee shall receive,  for a period of
twelve months,  continuing compensation equal to his compensation for the twelve
month period immediately prior to termination.

The Company has  established  a  non-qualified  defined  benefit  plan  covering
certain executive  employees.  The Plan specifies that upon reaching age 65, the
employee will receive an annual benefit (paid  monthly)  ranging from 40 percent
to 60 percent of their annual  salary,  for 240 months.  The Company will accrue
the present value of the estimated  future  retirement  payments over the period
from  the  date of  each  agreement  to the  retirement  date of the  respective
executive  officer.  To fund these benefit plans,  the Company  purchased single
premium cash value life insurance policies with current cash surrender values of
$2.32 million, which have been capitalized and included in other assets.

NOTE U  - STOCK SPLIT

The Board of Directors  declared a  three-for-one  common stock split  effective
July 1, 1998 issued on July 31, 1998.  All amounts have been restated to reflect
this stock split.





























                                                                       F - 37
<PAGE>
                             SUPPLEMENTAL SCHEDULES
                United Financial Holdings, Inc. and Subsidiaries
                    SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
                                December 31, 1998

                              United 
                              Financial
                              Holdings,    United
                              Inc.         Bank           EPW         Trust
                           ----------------------------------------------------
     ASSETS
Cash and due from banks    $ 4,451,859  $ 7,955,151  $    284,958  $     99,044
Federal funds sold                   -    4,011,000             -             -
Trading securities             157,354            -             -             -
Securities held to maturity,
  market value of $11,435,699        -   11,205,629             -             -
Securities available for
  sale, at market                    -   13,117,469             -     1,860,018
Loans, net                           -  116,545,851             -             -
Premises and equipment, net          -    9,120,661        59,910        93,930
Federal Home Loan Bank stock         -      433,500             -             -
Federal Reserve Bank stock           -      158,800             -             -
Accrued interest receivable          -      977,647             -        17,811
Intangible assets, less
  accumulated amortization of
  $1,642,935                   546,230      403,682             -       501,119
Other real estate owned              -    1,015,255             -           -  
Other assets                17,697,776    3,892,806        51,814        94,406
                           -----------  -----------  ------------  ------------
  Total assets             $22,853,219 $168,837,451  $    396,682  $  2,666,328
                           =========== ============  ============  ============


                                                     Eliminating   Consolidated
                                UFHCT      Total       Entries       Total
                           ----------------------------------------------------
    ASSETS  (continued)
Cash and due from banks    $        -  $ 12,791,012  $ (4,824,255) $  7,966,757
Federal funds sold                  -     4,011,000             -     4,011,000
Trading securities                  -       157,354             -       157,354
Securities held to maturity,
   market value of $11,435,699      -    11,205,629             -    11,205,629
Securities available for sale,
  at market                         -    14,977,487      (450,000)   14,527,487
Loans, net                          -   116,545,851             -   116,545,851
Premises and equipment, net         -     9,274,501             -     9,274,501
Federal Home Loan Bank stock        -       433,500             -       433,500
Federal Reserve Bank stock          -       158,800             -       158,800
Accrued interest receivable    29,074     1,024,532       (29,074)      995,458
Intangible assets, less
 accumulated Amortization
 of $1,642,935                      -     1,451,031             -     1,451,031
Other real estate owned             -     1,015,255             -     1,015,255
Other assets                6,983,200    28,720,002   (24,560,446)    4,159,556
                           ----------  ------------  ------------  ------------
  Total assets             $7,012,274  $201,765,954  $(29,863,775) $171,902,179
                           ==========  ============  ============  ============
(Continued on F - 39a)
                                                                       F - 38
<PAGE>
                             SUPPLEMENTAL SCHEDULES
                United Financial Holdings, Inc. and Subsidiaries
                    SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
                               December 31, 1998

                            United 
                            Financial
                            Holdings,    United
                            Inc.         Bank           EPW         Trust
                         ------------------------------------------------------
Deposits
  Demand                 $          -            - $ 32,566,151 $             -
  NOW and money market              -   48,550,267            -               -
  Savings                           -    4,686,318            -               -
  Time, $100,000 and over           -   11,912,762            -               -
  Other time                        -   46,654,262            -               -
                         ------------ ------------  -----------    ------------
      Total deposits                -  144,369,760            -               -
Securities sold under
agreements to repurchase            -    8,795,715            -               -
Accrued interest payable       54,274      338,371            -               -
Convertible subordinated
 debentures                   630,000            -            -               -
Long-term debt              6,959,200            -       33,750               -
Other liabilities             438,639    1,716,027      226,657          19,442
                         ------------ ------------  ------------  -------------
      Total liabilities  $  8,082,113 $155,219,873  $   260,407  $       19,442
Company-obligated Mandatory 
 Redeemable Capital Securities
 of SubsidiaryTrust Holding
 Solely Subordinated Debentures
 Of The Company                     -            -            -               -
STOCKHOLDERS' EQUITY
7% convertible preferred
  stock, $10 par value; 
  150,000 shares authorized;
  20,850 shares issued and
  outstanding at
    December 31, 1998         208,500            -            -               -
Common stock, $.01 par value;
  20,000,000 shares authorized;
  4,045,563 shares issued and
  outstanding at
  December 31, 1998            40,455      750,000        38,539      1,000,000
Paid-in capital             9,192,103    6,042,746       775,813      1,425,992
Common stock subscription
  receivable                 (393,260)           -             -              -
Accumulated other
  comprehensive income        141,313      128,861             -         12,453
Retained earnings           5,581,995    6,695,971      (678,077)       208,441
                         ------------ ------------  ------------    -----------
     Total stockholders'
                           14,771,106   13,617,578       136,275      2,646,886
                         ------------ ------------  ------------    -----------
     Total liabilities
     and stockholders'
     equity              $ 22,853,219 $168,837,451  $    396,682    $ 2,666,328
                         ============ ============  ============    ===========
(Continued on F - 39b)                                               F - 39a
<PAGE>
                           SUPPLEMENTAL SCHEDULES
                United Financial Holdings, Inc. and Subsidiaries
                    SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
                               December 31, 1998
                                                     Eliminating   Consolidated
                            UFHCT         Total        Entries       Total
                         ------------------------------------------------------
Deposits
  Demand                 $          - $  32,566,151 $  (4,824,255) $ 27,741,896
  NOW and money market              -    48,550,267             -    48,550,267
  Savings                           -     4,686,318             -     4,686,318
  Time, $100,000 and over           -    11,912,762      (450,000)   11,462,762
  Other time                        -    46,654,262             -    46,654,262
                         ------------  ------------  ------------- ------------
      Total deposits                -   144,369,760    (5,274,255)  139,095,505

Securities sold under
agreements to repurchase            -     8,795,715             -     8,795,715
Accrued interest payable       28,198       420,843       (29,074)      391,769
Convertible subordinated
 debentures                         -       630,000             -       630,000
Long-term debt                      -     6,992,950    (6,959,200)       33,750
Other liabilities             774,476     3,175,241      (990,907)    2,184,334
                         ------------ -------------  ------------  ------------
      Total liabilities       802,674   164,384,509   (13,253,436)  151,131,073

Company-obligated Mandatory 
 Redeemable Capital Securities
 of SubsidiaryTrust Holding
 Solely Subordinated Debentures
 Of The Company             6,000,000     6,000,000             -     6,000,000
STOCKHOLDERS' EQUITY
7% convertible preferred
  stock, $10 par value; 
  150,000 shares authorized;
  20,850 shares issued and
  outstanding at
    December 31, 1998               -       208,500             -       208,500
Common stock, $.01 par value;
  20,000,000 shares authorized;
  4,045,563 shares issued and
  outstanding at
  December 31, 1998           209,600     2,038,594    (1,998,139)       40,455
Paid-in capital                     -    17,436,654    (8,244,551)    9,192,103
Common stock subscription
  receivable                        -      (393,260)            -      (393,260)
Accumulated other
  comprehensive income              -       282,627      (141,314)      141,313
Retained earnings                   -    11,808,330    (6,226,335)    5,581,995
                         ------------  ------------   ------------ ------------
     Total stockholders'
     equity                   209,600    31,381,445   (16,610,339)   14,771,106
                         ------------  ------------  ------------- ------------
     Total liabilities
     and stockholders'
     equity              $  7,012,274  $201,765,954  $(29,863,775) $171,902,179
                         ============  ============  ============  ============

(Continued on F - 40a)                                               F - 39b
<PAGE>
                           Supplemental Schedules
                United Financial Holdings, Inc. and Subsidiaries
                SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
                      For the Year Ended December 31, 1998

                            United 
                            Financial
                            Holdings,    United
                            Inc.         Bank          EPW         Trust
                          -----------------------------------------------------
Interest income
  Loans and loan fees     $         - $10,381,551  $          - $             -

  Securities
    U.S. Treasury                   -     552,623             -               -
    Obligations of other
    U.S. Government agencies
    and corporations                -     786,035             -          94,482
    Obligations of states
    and political
    subdivisions                    -     104,137             -               -
    Other                       3,694     205,120             -          76,129
    Federal funds sold
    and securities
    purchased under
    reverse repurchase
    agreements                      -     532,014             -               -
                          ----------- -----------  ------------  --------------
      Total interest
      income                    3,694  12,561,480             -         170,611

Interest expense
  NOW and money market              -   1,563,767             -               -
  Savings                           -      96,920             -               -
  Time deposits, $100,000
  and over                          -     547,074             -               -
  Other time                        -   2,668,754             -               -
  Long-term debt                                                               
  Subordinated debentures
    issued to subsidiary trust 29,074           -             -               -
  Federal funds purchased and
   securities sold under
   agreementsto repurchase          -     189,678             -               -
                          ----------- -----------  ------------  --------------
    Total interest expense    275,117   5,066,193         4,014               -
                          ----------- -----------  ------------  --------------
    Net interest income      (271,423)  7,495,287        (4,014)        170,611

    Provision for
    loan losses                     -     752,000             -               -
                          ----------- -----------  ------------  --------------
    Net interest income
    after provision
    for loan losses          (271,423)  6,743,287        (4,014)        170,611




(Continued on F - 40b)                                               F - 40a
<PAGE>
                             Supplemental Schedules
                United Financial Holdings, Inc. and Subsidiaries
                SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
                      For the Year Ended December 31, 1998


                                                     Eliminating   Consolidated
                            UFHCT         Total        Entries       Total
                          -----------------------------------------------------
Interest income
  Loans and loan fees     $         - $10,381,551  $          -  $   10,381,551

  Securities
    U.S. Treasury                   -     552,623             -         552,623
    Obligations of other
    U.S. Government agencies
    and corporations                -     880,517             -         880,517
    Obligations of states
    and political
    subdivisions                    -     104,137             -         104,137
    Other                      29,074     314,017      (106,079)        207,938
    Federal funds sold
    and securities
    purchased under
    reverse repurchase
    agreements                      -     532,014             -         532,014
                          ----------- -----------  ------------  --------------
      Total interest
      income                   29,074  12,764,859      (106,079)     12,658,780

Interest expense
  NOW and money market              -   1,563,767             -       1,563,767
  Savings                           -      96,920             -          96,920
  Time deposits, $100,000
  and over                          -     547,074       (12,603)        534,471
  Other time                        -   2,668,754             -       2,668,754
  Long-term debt                    -     250,057             -         250,057
  Subordinated debentures
    issued to subsidiary
    trust 29,074               29,074      58,148       (29,950)         28,198
  Federal funds purchased
   and securities sold under
   agreementsto repurchase          -     189,678       (63,526)        126,152
                          ----------- -----------  ------------  --------------
    Total interest expense     29,074   5,374,398      (106,079)      5,268,319
                          ----------- -----------  ------------  --------------
    Net interest income             -   7,390,461             -       7,390,461

    Provision for
    loan losses                     -     752,000             -         752,000
                          ----------- -----------  ------------  --------------
    Net interest income
    after provision
    for loan losses                 -   6,638,461             -       6,638,461




(Continued on F - 41a)                                               F - 40b
<PAGE>
                             Supplemental Schedules

                United Financial Holdings, Inc. and Subsidiaries
                SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
                      For the Year Ended December 31, 1998

                            United 
                            Financial
                            Holdings,    United
                            Inc.         Bank          EPW         Trust
                          -----------------------------------------------------
Other income

  Service charges on
  deposit accounts        $         - $   706,839  $          - $             -
  Trust and investment
  management income                 -   1,447,113       956,043               -
  Net trading account
  profit                       87,354           -             -               -
  Equity in Earnings of
  Subsidiaries              1,755,877           -             -               -
  Other service charges,
  fees and income           1,340,192     938,879             -               -
                          ----------- -----------  ------------  --------------

    Total other income      3,183,423   1,645,718     1,447,113         956,043

Other expenses

  Salaries and employee
  benefits                          -   3,164,589       976,701         489,290
  Occupancy expense                 -     451,699        69,341          55,807
  Furniture and equipment
  expense                           -     403,283        58,632          50,085
  Data processing expense           -     311,315        41,239          84,213
  Legal and professional fees  25,016      94,466           945             275
  Amortization of intangible
  assets                       38,805      14,725         1,040          24,873
  Other operating expenses     80,301   1,211,952       208,736         246,133
                          ----------- -----------  ------------  --------------
                              144,122   5,652,029     1,356,634         950,676

    Earnings before
    income taxes            2,767,878   2,736,976        86,465         175,978

Income tax expense
   (benefit)                1,010,570     969,555        37,914          71,073
                          ----------- -----------  ------------  --------------

    NET EARNINGS          $ 1,757,308 $ 1,767,421  $     48,551  $      104,905
                          =========== ===========  ============  ==============







(Continued on F - 41b)                                               F - 41a
<PAGE>
                             Supplemental Schedules

                United Financial Holdings, Inc. and Subsidiaries
                SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
                      For the Year Ended December 31, 1998

                                                     Eliminating   Consolidated
                            UFHCT         Total        Entries       Total
                          -----------------------------------------------------
Other income

  Service charges on
  deposit accounts        $         - $   706,839  $          - $       706,839
  Trust and investment
  management income                 -   2,403,156       (48,000)      2,355,156
  Net trading account
  profit                            -      87,354             -          87,354
  Equity in Earnings of
  Subsidiaries                      -   1,755,877    (1,755,877)              -
  Other service charges,
  fees and income                   -   2,279,071    (1,339,917)        939,154
                          ----------- -----------  ------------  --------------

    Total other income              -   7,232,297    (3,143,794)      4,088,503

Other expenses

  Salaries and employee
  benefits                          -   4,630,580             -       4,630,580
  Occupancy expense                 -     576,847       (54,375)        522,472
  Furniture and equipment
  expense                           -     512,000             -         512,000
  Data processing expense           -     436,767             -         436,767
  Legal and professional fees       -     120,702             -         120,702
  Amortization of intangible
  assets                            -      79,443             -          79,443
  Other operating expenses          -   1,747,122       (90,000)      1,657,122
                          ----------- -----------  ------------  --------------
                                    -   8,103,461      (144,375)      7,959,086

    Earnings before
    income taxes                    -   5,767,297    (2,999,419)      2,767,878

Income tax expense
   (benefit)                        -   2,089,112    (1,078,542)      1,010,570
                          ----------- -----------  ------------  --------------

    NET EARNINGS          $         - $ 3,678,185  $  1,920,877  $    1,757,308
                          =========== ===========  ============  ==============







                                                                       F - 41b