UNITED FINANCIAL HOLDINGS, INC. FORM 10-KSB
                                   FORM 10-KSB

                       Fiscal Year Ended December 31, 1998
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Item Number in
 FORM 10-KSB...........................................................PAGE No.
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                                     PART I
1. Description of Business ...................................................3 

2. Description of Property ..................................................21

3. Legal Proceedings. .......................................................22

4. Submission of Matters to a Vote of Security-Holders ......................22


                                     PART II

5. Market for Common Equity and Related Stockholder Matters..................22

6. Management's Discussion and Analysis or Plan of Operation.................23

7. Consolidated Financial Statements.........................................54

8. Changes in and Disagreements with Accountants on Accounting
   and Financial Disclosure..................................................54


                                    PART III

9. Directors, Executive Officers, Promoters and Control Persons
   Compliance with Section 16(a) of the Exchange Act.........................54

10. Executive Compensation...................................................54

11. Security Ownership of Certain Beneficial Owners and Management...........54

12. Certain Relationships and Related Transactions...........................55

13. Exhibits and Reports on Form 8-K.........................................55












                                       2
<PAGE>
                                     PART I
ITEM 1.  DESCRIPTION OF BUSINESS
GENERAL
      United  Financial  Holdings,  Inc. (the  "Company")  is a registered  bank
holding company formed in 1982, the principal subsidiary of which is United Bank
and  Trust   Company  (the  "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.  The Bank
provides  a broad  range  of  traditional  banking  services  with  emphasis  on
commercial  loans and loans under the lending program of the U.S. Small Business
Administration  (the "SBA").  The Company's  operations  include three  business
segments:  commercial banking, trust services, and investment advisory services,
which constituted 91.2%, 5.9% and 2.9%, respectively,  of the Company's 1998 net
income before taxes and corporate  overhead.  At December 31, 1998,  the Company
had  consolidated  total assets of $171.9 million,  net loans of $116.5 million,
deposits of $139.1 million and stockholders' equity of $14.8 million. .

      The  Bank  is a  community-oriented  full  service,  commercial  bank  and
currently  operating  from four branch  offices  serving the  southern  Pinellas
County area of the State of Florida.  It offers  consumer and commercial  loans,
ATM cards,  credit cards,  and a full range of deposit  account types  including
demand deposits,  NOW accounts,  money market accounts,  savings  accounts,  and
certificates  of deposit.  The primary  focus of the Bank's  commercial  lending
activities  is on loans to small and medium sized  businesses  and  professional
firms. The Bank's commercial loans include loans secured by real estate or other
assets,  loans made under the SBA's  lending  program and secured and  unsecured
loans to small  businesses.  The Company believes the Bank is one of the largest
originators,  among similarly sized financial institutions,  of SBA loans in the
State of Florida (measured by dollar volume of loans originated).

      The  Company's  other  operating  subsidiaries  are  Eickhoff,  Pieper,  &
Willoughby,  Inc., an investment  advisory firm registered  under the Investment
Advisers Act of 1940 ("EPW")  headquartered in Tampa, Florida, with an office in
Jacksonville,  Florida,  and United Trust  Company,  a  Florida-chartered  trust
company  ("United  Trust")  registered  with the  Department  and located in St.
Petersburg,  Florida.  EPW offers investment  management  services to corporate,
municipal and high net worth individual clients throughout the State of Florida.
As of December 31,  1998,  EPW had $328.7  million in assets  under  management.
United  Trust is a wholesale  provider of data  processing,  administrative  and
accounting support and asset custody services to professionals holding assets in
trust (primarily legal and accounting firms).  United Trust also provides retail
trust and investment management services to individual and corporate clients. As
of December 31, 1998, United Trust had $269.7 million in assets under trust.

BACKGROUND
      In 1986 a group of  investors,  headed by Neil W.  Savage,  the  Company's
President  and  Chief  Executive  Officer  and the  Bank's  Chairman  and  Chief
Executive  Officer,  acquired  control of the  Company,  then known as  Pinellas
Bancshares  Corporation.  The Company's  name was changed to its present name in
1995 and the Bank's name was changed from United Bank of Pinellas to its present
name that same year.

      In September 1995 the Company  purchased FSC, a trust data  processing and
accounting service for  professionals,  and merged this entity into the Company.
In January  1996,  the Company  acquired  EPW. The Company  formed  United Trust
during the fourth quarter of 1997 and effective  December 31, 1997,  transferred
all of the Bank's trust assets to United Trust.
                                       3
<PAGE>
RECENT DEVELOPMENTS

      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".  Prior to the IPO, the stock was not  regularly  traded on any organized
market or stock exchange. 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 an annual dividend 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.

      On January 4, 1999,  the Bank completed the purchase of a bank branch site
at 7490 Bryan Dairy Road in Pinellas  Park for  $400,000.  The Bank has received
regulatory  approval to establish  its fifth  banking  location at this site and
intends to have this branch open during the second quarter of 1999.

BUSINESS STRATEGY
      The principal  elements of the Company's business strategy are to increase
its  market  share in its  existing  business  segments  and to seek  out  niche
business  segments  in which the Company  can  compete  effectively  in order to
create new sources of  non-interest  income and  increase  traditional  interest
income from new lending  opportunities.  The Company has sought to implement its
strategy of  increasing  its market share in its existing  business  segments by
expanding the Bank's market coverage  through DE NOVO branching,  increasing the
Bank's emphasis on originating loans secured by real estate and other assets for
its own portfolio, pursuing small business secured and unsecured lending for its
own portfolio,  and continuing to originate a high volume of SBA loans, both for
its own portfolio and for sale in the secondary market. A primary element of the
Company's  business strategy as a community  banking  organization is to seek to
provide  customers with a level of personalized  service exceeding that provided
by its competitors, including the local banking operations of large regional and
national banking companies.

      The Company has sought to add new sources of  non-interest  income through
the  creation of United  Trust,  which  receives  fees for the  wholesale  trust
services  it offers  to legal and  accounting  firms  and the  retail  trust and
investment  management services it offers to other clients,  and the acquisition
of EPW, which  generates fee income from the investment  management  services it
offers  to  corporate,  municipal  and high net  worth  individual  clients.  By
expanding the range of trust and investment  management  services it offers, the
Company  seeks to  differentiate  itself from other  similarly  sized  community
banking  organizations  operating in the Company's market.  While pursuing these
strategies,  management  remains committed to improving asset quality,  managing
interest rate risk,  enhancing  profitability  and  maintaining  its status as a
well-capitalized institution for regulatory capital purposes.

      The results of the Company's business strategy have been substantial asset
and revenue growth. The Company's total assets have increased from approximately
$106.6  million at December 31, 1995 to $171.9 million at December 31, 1998. The
Company's  consolidated  net revenues  increased  from $7.1 million for the year
ended  December 31, 1995 to $11.5 million for the year ended  December 31, 1998.
During  this  period of asset and  revenue  growth,  the  Company's  net  income
increased from $1.5 million for the year ended December 31, 1995 to $1.8 million
for the year ended December 31, 1998.


                                       4
<PAGE>
      The Company intends to continue  selectively adding branches in its market
area, and recently  completed its purchase of a new branch site. The Company has
no current plans to add Bank branches outside of the Pinellas County market. The
Company's current goal is to try and open one new branch each year. Accordingly,
in  the  future,  the  Company  may  consider  strategic  expansion  though  the
acquisition of other banks or bank branches or by DE NOVO branching.  Similar to
the Company's previous efforts that resulted in it establishing United Trust and
acquiring   EPW,  the  Company  may  consider   from  time  to  time   expansion
opportunities  into  other  business  lines  that  might  add to  the  Company's
non-interest  income and the acquisition or development of other businesses that
the Company considers  complementary to its existing business.  For example, the
Company  recently  commenced  efforts to consider  the  feasibility  of making a
minority  investment in an existing or new property casualty  insurance company.
From time to time,  the  Company may  commence  similar  exploratory  efforts to
evaluate the  possibility  of acquiring or  establishing  similar or  additional
lines of business.

MARKET AREA
      Currently,  the Bank has four offices located in southern Pinellas County,
Florida,  which is the Bank's  primary  market area.  The population of Pinellas
County  was  estimated  to be  888,000  on April 1,  1997 by the  University  of
Florida's  Bureau of  Economic  and  Business  Research.  This  compares  with a
population  of  852,000  at the 1990  census  and  729,000  at the 1980  census.
Pinellas  County has been a retirement and tourism  destination  for many years,
and over 25% of its  population  is over 65 years of age,  compared with a state
wide average of 18.6%.

      According to information published by the Florida Bankers Association,  as
of December 31, 1997,  Pinellas  County was the fourth largest county in Florida
in terms of bank and thrift deposits,  with total deposits of $12.2 billion,  or
6.49% of the state's total deposits.  There is a significant seasonal population
increase during the months of November to April of each year; seasonal residents
are not included in the cited population  statistics.  The Company believes that
while the  population  of  Pinellas  County will  continue to grow,  the rate of
growth is likely to be lower  than the  population  growth  rate of the State of
Florida as a whole,  and is likely to slow due to the nature of the market area.
As a peninsula surrounded on the south, east and west by water,  Pinellas County
has limited room for future  development.  The local  economy is dependent  upon
service industries,  manufacturing, tourism, and medical facilities as its major
sources of employment and commerce.

      United Trust's primary market for retail business is also Pinellas County.
Its  wholesale  services  are  marketed  more  widely  to the  Tampa  Bay  Area,
consisting of Pinellas,  Hillsborough,  Pasco and Manatee Counties.  EPW markets
its services to high net worth  individuals  and to commercial and  governmental
clients  throughout  the State of Florida and  secondarily  in the  Southeastern
United States.

      Pinellas County is a highly  competitive  market for financial,  trust and
investment  services.  The  Bank  faces  competition  for  deposits  from  other
commercial  banks,  thrift  institutions,  money market funds and credit unions.
Competition  for  loans of the  types  originated  by the  Bank is also  strong.
Management  believes that Pinellas County is considered an attractive  market by
financial  institutions  seeking to obtain  deposits,  as  evidenced  by the 293
offices of commercial banks and thrift institutions  existing in Pinellas County
at December 31, 1997.


                                       5
<PAGE>
OPERATING STRATEGY
      Management of the Company  believes that the  consolidation of the banking
industry and the emergence of large regional and national bank holding companies
has created opportunities for locally-owned and operated financial  institutions
to effectively compete for customers who desire a level of personalized  banking
services that the large banking organizations may not be able to offer. The Bank
was organized as a community  financial  institution owned and managed by people
who are actively  involved in the Bank's local market area and  committed to the
area's economic growth and development. With local ownership and management, the
Company  believes  that the Bank can be more  responsive to the banking needs of
the community it serves and can tailor its services to meet its customers' needs
rather than  providing  the  standardized  services  that  larger  bank  holding
companies tend to offer.

      Local ownership and operation allows the Bank faster,  more responsive and
flexible decision-making which may not be available at the branch offices of the
large bank holding  companies  which  constitute  the majority of the  financial
institution offices located in the Bank's market area.

      The principal business of the Bank is to attract deposits from the general
public  and  to  invest  those  funds  in  various  types  of  loans  and  other
interest-earning   assets.   The  Bank's  earnings  depend  primarily  upon  the
difference  between (i) the interest  and fees  received by the Bank from loans,
the securities held in its investment portfolio, and other investments; and (ii)
expenses  incurred by the Bank in connection  with  obtaining  funds for lending
(including interest paid on deposits and other borrowings) and expenses relating
to day-to-day operations.

      The  Bank's  customers  are  primarily  individuals   (including  seasonal
residents),   professionals  and  small  and  medium  size  businesses,  located
predominantly  in  Pinellas  County,  Florida.  The Bank  seeks to  develop  new
business  through  an ongoing  program of  personal  calls on both  present  and
potential customers.  As a local independent bank, the Bank utilizes traditional
local  advertising  media as well as direct mailings,  telephone  contacts,  and
brochures to promote the Bank and develop loans and deposits.  In addition,  the
Bank's  directors all have worked or lived in or near the Bank's market area for
a number  of  years,  contributing  to the  Bank's  image as a  locally-oriented
independent institution, which management believes is an important factor to its
targeted customer base.

SOURCES OF FUNDS
      The primary  source of funds for  lending,  investment  and other  general
business  purposes  is  deposit  accounts.  Other  sources  of  funds  are  loan
repayments,  proceeds  from the sale of loans  and  investment  securities,  and
borrowings.  The Bank expects that loan repayments  will be a relatively  stable
source  of  funds,  while  levels  of  deposits  maintained  at the Bank will be
significantly  influenced by general interest rate and money market  conditions.
Generally,   the  Company  may  use  short-term  borrowings  to  compensate  for
reductions in sources of funds normally available,  while longer term borrowings
may be used to support expanded lending activities. Management believes that the
Company's  funding  requirements  can  be met  through  retail  deposits  in the
Company's  local  market  area  without  reliance  on  brokered  deposits.   For
additional discussion of asset and liability management policies and strategies,
see "Liquidity and Asset/Liability Management."




                                       6
<PAGE>
      As of December 31, 1998, the scheduled  maturities of deposits of $100,000
or more were as follows (dollars in thousands):

Three months or less.......................................... $       4,466
Over three through six months.................................         1,482
Six through twelve months.....................................         4,594
Over twelve months............................................           921
                                                               -------------
                                                               $      11,463
                                                               =============

      The Bank offers a full range of deposit services,  including  checking and
other transaction  accounts,  savings accounts and time deposits.  The following
table  sets  forth the  principal  types of  deposit  accounts  offered  and the
aggregate amounts of such accounts at December 31, 1998 (dollars in thousands):

                                       Weighted                     Percent
                                       Average                      of Total
                                       Interest Rate     Amount     Deposits
                                       ==============   =========   ========
      Non-interest bearing.............     0.00%       $  27,742     19.9%
      NOW and Money Market accounts....     3.11           48,550     34.9%
      Savings..........................     2.05            4,687      3.4$
      Time deposits with original
       maturities of:

         One year or less..............     5.04           47,949     34.5%
         Over 1 year through 5 years...     5.78           10,168      7.3%
                                                         --------    -----
           Total time deposits.........     5.15           58,117     41.8%
                                                         --------    -----
           Total deposits..............     3.48%        $139,096    100.0%
                                                         ========    =====

   At December  31,  1998,  scheduled  maturities  of time  deposits  were as
follows (dollars in thousands):

Period Ended December 31,                                       Percent of
                                                 Time             Time
                                                Deposits        Deposits
                                              ----------       -----------
      1999.............................       $   47,949            82.5%
      2000-2001........................            6,395            11.0%
      2002-2006........................            3,773             6.5%
                                              ----------        ---------
        Total time deposits............       $   58,117           100.0%
                                              ==========        =========











                                       7
<PAGE>

LENDING ACTIVITIES
      The primary source of income  generated by the Bank is interest  earned on
loans held in the Bank's loan portfolio.  The Bank's lending  activities include
commercial,  real estate and consumer  loans.  During 1998, the Bank's net loans
increased $21.7 million.

      COMMERCIAL  LOANS.  The Bank offers  commercial  loans for working capital
purposes,  business  expansion,  seasonal needs,  acquisition of equipment,  and
other  business  needs.  Collateral  pledged to secure  these  loans may include
equipment,  accounts  receivable,  or  other  assets.  The Bank  often  requires
personal guarantees of these loans.


      SBA LOANS.  The SBA lending program was established by Congress in 1953 to
assist new and  established  small  businesses in obtaining  necessary  capital.
Under this program, the SBA guarantees up to 90% of the principal balance of the
loan,  subject to a maximum  guarantee per loan of $750,000,  thereby removing a
portion of the credit risk to the lending  financial  institution  and generally
enabling  lenders to offer loans under this program at more attractive  interest
rates for borrowers than other available financing.  The SBA loans originated by
the  Company  typically  have  SBA  guarantees  for 60% to 90% of the  principal
balance of the loan.  The  existence  of a secondary  market for the  guaranteed
portion of the SBA loans provides the Bank an opportunity to sell the guaranteed
portion  of the loans and  obtain  additional  liquidity  and  income.  The Bank
typically  services such loans and receives  servicing fees with respect to such
loans.

      The only loans sold by the Bank during 1998, 1997 and 1996 were SBA loans.
When  the Bank  sells an SBA loan and  retains  the  servicing  of the  loan,  a
servicing  asset is recorded.  The book value of such assets,  which the Company
believes  approximates  the fair value of such  assets,  at December  31,  1998,
December 31, 1997,  and December 31, 1996 was $141 thousand,  $78 thousand,  and
$83 thousand,  respectively.  Amortization  expense  relating to such  servicing
assets  of $13  thousand  and $2  thousand  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.

     At December  31,  1996,  the Bank had $7.0  million of SBA loans,  of which
approximately  27.0%  was  guaranteed  by the SBA.  During  1996,  the Bank sold
guaranteed  portions of its SBA loans  totaling  $5.2  million.  At December 31,
1997, the Bank had $5.7 million of SBA loans, of which  approximately  19.0% was
guaranteed by the SBA. During 1997, the Bank sold guaranteed portions of its SBA
loans  totaling $3.7 million.  . At December 31, 1998, the Bank had $6.6 million
of SBA loans,  of which  approximately  22.0% was guaranteed by the SBA.  During
1998, the Bank sold guaranteed  portions of its SBA loans totaling $2.9 million.
The Bank recognized gains on the sale of SBA loans during 1996, 1997 and 1998 of
$425  thousand,  $290  thousand  and $239  thousand  respectively,  and had loan
servicing fees on SBA loans during 1996,  1997 and 1998 of $153  thousand,  $164
thousand and $144 thousand respectively.

      REAL ESTATE LOANS.  The Bank offers  commercial  and, on a limited  basis,
residential real estate loans. Commercial real estate loans are made for general
corporate purposes, construction and expansion of facilities.  Residential loans
are made in the form of fixed and variable rate mortgages and home equity loans.


                                       8
<PAGE>
      The following tables set forth information  concerning the loan portfolio,
based on total  dollars and percent of portfolio,  by collateral  type as of the
dates indicated (dollars in thousands):

                                                       AT DECEMBER 31,
                                                 1998        1997        1996
                                               -------      -------    --------
Real estate mortgage loans:

Commercial real estate ..................      $60,693      $44,547     $38,074
One-to-four family residential ..........        7,075        7,482       6,716
Multifamily residential .................        6,673        5,485       2,898
Construction and land development .......        3,572        3,071       1,795
                                               -------      -------     -------
  Total real estate mortgage loans ......       78,013       60,585      49,483

Commercial loans ........................       34,904       30,536      25,239
Consumer loans ..........................        4,438        3,998       3,831
Other loans .............................        1,803        1,871       2,661
                                               -------      -------     -------
  Gross loans ...........................      119,158       96,990      81,214
Allowances for loan losses ..............       (1,984)      (1,648      (1,610)
Unearned fees ...........................         (628)        (521)       (341)
                                               --------     -------     -------
Total loans net of allowance and unearned fees $116,546     $ 94,821    $79,263
                                               ========     ========    =======


                                                       AT DECEMBER 31,
                                                 1998        1997        1996
                                               -------      -------    --------
Real estate mortgage loans:
    Commercial real estate ...........          50.9%        45.9%       46.9%
    One-to-four family residential ...           5.9          7.7         8.2
    Multifamily residential ..........           5.6          5.7         3.6
    Construction and land development            3.1          3.2         2.2
                                                ----         ----        ----
    Total real estate mortgage loans            65.5         62.5        60.9
    Commercial loans..................          29.3         31.5        31.1
    Consumer loans....................           3.7          4.1         4.7
    Other Loans.......................           1.5          1.9         3.3
                                               -----        -----       -----
    Gross loans.......................         100.0%       100.0%      100.0%
                                               =====        =====       =====

      The following table sets forth the contractual amortization of real estate
and commercial loans at December 31, 1998 and December 31, 1997. Loans having no
stated  schedule of repayments and no stated maturity are reported as due in one
year or less. The table also sets forth the dollar amount of loans  scheduled to
mature after one year, according to their interest rate characteristics (dollars
in thousands):







                                       9
<PAGE>
                                     DECEMBER 31, 1998     DECEMBER 31, 1997
                                    -------------------     -------------------
                                    Real                   Real
                                    Estate    Commercial   Estate    Commercial
                                    --------- ----------   --------- ----------
Amounts due:
  One year or less...............   $  27,448  $ 24,751    $  29,645  $  22,250
  After one through five years...      40,433     9,722       30,409      7,518
  More than five years...........      10,132       431          531        768
                                    ---------- --------    ---------  ---------
      Total......................   $  78,013  $ 34,904    $  60,585  $  30,536
                                    =========  ========    =========  =========

Interest rate terms on amounts due after one year:

  Adjustable.....................   $  29,195  $  3,042    $  20,774  $   3,489
  Fixed..........................      21,370     7,111       10,166      4,797
                                    ---------  --------    ---------  ---------
      Total......................   $  50,565  $ 10,153    $  30,940  $   8,286
                                    =========  ========    =========  =========

INVESTMENT MANAGEMENT SERVICES

      EPW offers investment  management  services to high net worth individuals,
corporate pension and profit sharing plans,  charitable entities,  and state and
local  government  pension plans.  EPW receives fees for its services which vary
according to the amount of assets in the account under  management.  EPW markets
its services throughout the State of Florida.

TRUST SERVICES

      United Trust offers  wholesale  trust services that include  on-line trust
account information  processing,  asset custody and investment support services.
These  services  are  offered  to  legal  and  accounting  firms  and  to  other
custodians.  United Trust also offers retail trust services including investment
management,  probate and custodian  services  which are marketed  principally to
customers of the Bank and EPW and clients of local attorneys and accountants.

CREDIT ADMINISTRATION

      The loan  approval  process  consists of a combination  of individual  and
committee loan authority.  Individual lending authority is based upon experience
and is broken down into  secured and  unsecured  requests.  The  Officers'  Loan
Committee (the "Officers' Loan Committee") is made up of commercial  lenders and
credit  administration  personnel.  The Officers' Loan  Committee  currently has
final  approval on all  unsecured  credit for  $50,000 to  $500,000  and secured
credits for $150,000 to $500,000.  The General Loan Committee (the "General Loan
Committee") is made up of four non-employee directors, the Chairman of the Board
of  Directors of the Company  ("Board of  Directors")  and the  President of the
Bank. The General Loan Committee has final approval authority for all loans from
$500,000  to the legal  lending  limit of the Bank,  except for loans  involving
directors  of the Bank  which  must be  approved  by a vote of the full Board of
Directors  with the interested  director not present during the loan  discussion
and vote.




                                       10
<PAGE>
      The Company  has a policies  and  procedures  manual  that  addresses  the
specific  underwriting  guidelines for specific types of credits.  Any deviation
from  these  guidelines  is  considered  to be a policy  exception  that must be
outlined during the approval process and voted upon by the appropriate committee
or approved by a loan officer with sufficient lending authority.  The guidelines
are reviewed and approved by the Board of Directors on an annual basis.

      The  Company's  lending  philosophy  is to extend  credit to businesses or
individuals in the Bank's market area who  demonstrate  sufficient  cash flow to
repay the debt and whose track record  indicate they are borrowers with whom the
Bank desires to establish an ongoing lending relationship.

      The loan portfolio is under continued review in order to monitor potential
credit deterioration.  Loans are graded at their inception by the loan officers.
Credit administration reviews existing credits on an on-going basis. The Company
also  employs an  independent  third-party  loan review  company  which  reviews
specific  larger size credits on a quarterly  basis.  This  quarterly  review is
presented to the General Loan Committee for its further review.

ASSET QUALITY

      ALLOWANCE/PROVISION  FOR  LOAN  LOSSES.  The  allowance  for  loan  losses
represents  management's estimate of an amount adequate to provide for potential
losses  within the  existing  loan  portfolio.  The  allowance  is based upon an
ongoing  quarterly  assessment of the probable  estimated losses inherent in the
loan portfolio, and to a lesser extent, unused commitments to provide financing.

      The  methodologies  for  assessing  the  appropriateness  of the allowance
consists of several key elements,  which include:  1) the formula allowance;  2)
review of the underlying  collateral on specific  loans;  and 3) historical loan
losses.  The  formula  allowance  is  calculated  by  applying  loss  factors to
outstanding  loans and unused  commitments,  in each case based on the  internal
risk  grade of those  loans.  Changes  in risk  grades  of both  performing  and
non-performing  loans affect the amount of the formula allowance.  On the larger
criticized  or  classified  credits,  a review is  conducted  of the  underlying
collateral  which secures each credit. A worse case scenario review is conducted
on  those  loans to  calculate  the  amount,  if any,  of  potential  loss.  The
historical  loan loss method is a review of the last six years of actual losses.
The loss percentage is calculated and applied to the current  outstanding  loans
in total.

Various  conditions  which would affect the loan  portfolio are also  evaluated.
General economic and business  conditions that affect the portfolio are reviewed
including:   1)  credit  quality  trends   including  trends  in  past  due  and
non-performing  loans;  2)  collateral  values in general;  3) loan  volumes and
concentration;   4)  recent  loss  experience  in  particular  segments  of  the
portfolio;  5) duration  and  strength of the current  business  cycle;  6) bank
regulatory  examination  results;  and 7) findings of the  external  loan review
process.  Senior  management  and the Directors'  General Loan Committee  review
these conditions quarterly. If any of these conditions presents a problem to the
loan portfolio, an additional allocation may be recommended.







                                       11
<PAGE>
      The following table sets forth information  concerning the activity in the
allowance for loan losses during the periods indicated (dollars in thousands):

                                               AT DECEMBER 31,
                                           1998           1997          1996
                                          ------        ------         ------
Allowance at beginning of period          $1,647        $1,610         $1,527
Charge-offs:
  Real estate loans ............             195             -              -
  Commercial loans .............             212            52             38
  Consumer loans ...............              19            39             31
                                          ------        ------         ------
      Total charge-offs ........             426            91             69
Recoveries:
  Real estate loans ............               -             -              -
  Commercial loans .............               9            38              1
  Consumer loans ...............               2             -              1
                                          ------        ------         ------
      Total recoveries .........              11            38              2
Net charge-offs ................             415            53             67
Provision for loan losses ......             752            90            150
                                          ------        ------         ------
Allowance at end of period .....          $1,984        $1,647         $1,610
                                          ======        ======         ======

      The following  table presents  information  regarding the Company's  total
allowance  for loan losses as well as its general  allocation  of such amount to
the  various  loan  categories  based upon  management's  estimates  (dollars in
thousands).

                              DECEMBER 31,       DECEMBER 31,     DECEMBER 31,
                                  1998              1997             1996
                            ----------------  ----------------  --------------
ALLOWANCE ALLOCATION                 Percen-          Percent-       Percent-
                                     age              age            age
                                     of Loan          of Loan        of Loan
                                     Port-            Port-          Port-
                            Amount   folio    Amount  folio  Amount  folio
                           --------  ------  -------  ------ ------- --------
Performing/not classified:
Commercial Loans..........  $  485    27%     $  368    31%  $  324      30%
Real Estate Loans.........     607    59         459    53      406      55
Consumer Loans............     121     7          92     9       81      10
                            ------  ----      ------  ----   ------    ----
Subtotal..................   1,213    93         919    93      811      95

Non-performing/ classified:
Marginal..................      29     3           2     5        -       0
Substandard...............     677     4         483     2      221       5
Doubtful..................      51     0           -     0        -       0
Loss......................       -     0           -     0        -       0
                            ------  ----      ------  ----   ------    ----
Subtotal..................     757     8         485     7      221       5
Unallocated...............      14     0         243     0      578       0
                            ------  ----      ------  ----   ------    ----
Total.....................  $1,984   100%     $1,647  100%   $1,610    100%
                            ======  ====      ======  ====   ======    ====

                                       12
<PAGE>
      NONPERFORMING ASSETS.  Nonperforming assets include (i) loans which are 90
days or more  past  due and have  been  placed  into  non-accrual  status,  (ii)
accruing loans that are 90 days or more delinquent that are deemed by management
to be adequately secured and in the process of collection,  and (iii) ORE (I.E.,
real estate acquired through  foreclosure or deed in lieu of  foreclosure).  All
delinquent  loans are reviewed on a regular basis and are placed on  non-accrual
status  when,  in the  opinion of  management,  the  possibility  of  collecting
additional  interest is deemed  insufficient  to warrant further  accrual.  As a
matter of  policy,  interest  is not  accrued  on loans past due 90 days or more
unless the loan is both well secured and in process of  collection.  When a loan
is placed in non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged  against current  income.  Additional  interest
income on such loans is recognized only when received.

      The following  table sets forth  information  regarding the  components of
nonperforming assets at the dates indicated (dollars in thousands):

                                               AT DECEMBER 31,
                                        1998         1997           1996
                                      --------     ---------      ---------
Real estate loans.................    $  2,820     $     374      $     330
Commercial loans..................       1,181            26             42
Consumer loans....................           -             -              -
                                      --------     ---------      ---------
   Total non-accrual loans(1).....       4,001           400            372
Other Real Estate.................       1,015             -              -
Accruing Loans 90 days past due..          449           251              -
                                      --------     ---------      ---------
   Total nonperforming assets.....    $  5,465     $     651      $     372
                                      ========     =========      =========

(1)   $1,439 of the non-accrual  loans as of December 31, 1998 are being paid on
      a monthly basis on a pre-judgment stipulation,  and interest and principal
      are being recorded as received on a cash basis.

COMPETITION

      The banking industry in general, and the Bank's market area in particular,
are  characterized  by  significant  competition  for both  deposits and lending
opportunities.  In its market  area,  the Bank  competes  with other  commercial
banks,  thrift  institutions,  credit unions,  finance companies,  mutual funds,
insurance  companies,  brokerage and investment banking firms, and various other
non-bank providers of financial services.  Competition for deposits may have the
effect of increasing the rates of interest the Bank will pay on deposits,  which
would  increase the Bank's cost of funds and possibly  reduce its net  earnings.
Competition  for loans may have the effect of lowering  the rate of interest the
Bank will receive on its loans,  which would lower the Bank's return on invested
assets and possibly reduce its net earnings. Many of the Bank's competitors have
been in existence for a  significantly  longer period of time than the Bank, are
larger and have greater  financial and other  resources and lending  limits than
the Bank, and may offer certain services that the Bank does not provide.







                                       13
<PAGE>
      There are  approximately 293 branch offices of commercial banks and thrift
institutions operating in Pinellas County. In order to compete effectively,  the
Bank  seeks  to  differentiate   its  services  from  those  offered  by  larger
institutions,  including the branch  offices of large regional and national bank
holding companies. The Bank seeks to provide banking products and services which
are customized to its market area and target customers on a personalized  basis,
which management  believes cannot be matched by many of the larger  institutions
that tend to offer many banking  products and services on an  impersonal  basis.
Management  believes  that,  as  the  banking  industry  has  undergone  further
consolidation, the opportunity to attract customers seeking personalized service
has been  enhanced.  The Bank seeks to tailor its  products  and services to its
specific  geographic market and targeted  customers,  and to thereby attract the
business of professionals,  entrepreneurs,  and small to medium sized commercial
businesses  while continuing to provide  exceptional  banking services to all of
its customers. The profitability of the Bank depends upon its ability to compete
effectively in its market area. While management  believes that the Bank's local
ownership,  community  oriented  operating  philosophy and personalized  service
enhances  the Bank's  ability to  compete  in its market  area,  there can be no
assurance that the Bank will be able to continue to compete  effectively or that
competitive  factors  will not have an adverse  effect on the  Bank's  operating
results or financial condition.

EMPLOYEES

      At  December  31,  1998,  the  Company  had 87  full-time  and 6 part-time
employees,  none of whom were  represented by a union or subject to a collective
bargaining  agreement.  The Company believes its relations with its employees to
be good.

SUPERVISION AND REGULATION

      The Company and the Bank are extensively  regulated under both federal and
state law.  The  following  is a brief  summary of certain  statutes,  rules and
regulations affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the  particular  statutory  and  regulatory  provisions
referenced  below and is not  intended to be an  exhaustive  description  of the
statutes or  regulations  applicable  to the  Company's  business.  Supervision,
regulation and  examination  of the Company and the Bank by the bank  regulatory
agencies are intended  primarily for the  protection  of depositors  rather than
shareholders.

REGULATION OF THE COMPANY. The Company is a bank holding company registered with
the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHC
Act").  As such,  the  Company is subject to the  supervision,  examination  and
reporting  requirements  of the  BHC  Act and  the  regulations  of the  Federal
Reserve.

      The BHC Act  requires  every  bank  holding  company  to obtain  the prior
approval of the Federal  Reserve  before:  (i) it may acquire direct or indirect
ownership  or  control  of  any  voting  shares  of  any  bank  if,  after  such
acquisition, the bank holding company will directly or indirectly own or control
more  than  5% of  the  voting  shares  of  the  bank;  (ii)  it or  any  of its
subsidiaries,  other than a bank,  may acquire all or  substantially  all of the
assets of the bank;  or (iii) it may merge or  consolidate  with any other  bank
holding company.  Similar federal  statutes  require bank holding  companies and
other companies to obtain the prior approval of the Office of Thrift Supervision
("OTS") before acquiring ownership or control of a savings association.

                                       14
<PAGE>
      The BHC Act further  provides that the Federal Reserve may not approve any
transaction  that would result in a monopoly or would be in  furtherance  of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking  in any  section  of the  United  States,  or the effect of which may be
substantially  to  lessen  competition  or to tend to create a  monopoly  in any
section of the  country,  or that in any other  manner  would be in restraint of
trade,  unless the  anti-competitive  effects of the  proposed  transaction  are
clearly  outweighed by the public  interest in meeting the convenience and needs
of the community  served.  The Federal  Reserve is also required to consider the
financial  and  managerial  resources  and future  prospects of the bank holding
companies and banks  concerned and the  convenience and needs of the communities
to be served.  Consideration of financial resources generally focuses on capital
adequacy,  and  consideration  of  convenience  and needs  issues  includes  the
parties'  performance  under the Community  Reinvestment Act of 1977, as amended
(the "CRA").

      The BHC Act,  as  amended  by the  interstate  banking  provisions  of the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
"Interstate  Banking  Act"),  authorizes  (i) the  Company,  and any other  bank
holding company located in Florida to acquire a bank located in any other state,
and (ii) any bank  holding  company  located  outside  Florida  to  acquire  any
Florida-based  bank,  regardless  of state law to the  contrary,  in either case
subject   to  certain   deposit-percentage,   aging   requirements,   and  other
restrictions.  The Interstate  Banking Act also generally provides that national
and state-chartered banks may branch interstate through acquisitions of banks in
other  states,  unless  a state  has  "opted  out" of the  interstate  branching
provisions of the Interstate  Banking Act prior to June 1, 1997. Neither Florida
nor  any  other  state  in the  southeastern  United  States  has  "opted  out".
Accordingly,  the Company would have the ability to acquire a bank in a state in
the Southeast and thereafter  consolidate  all of its bank  subsidiaries  into a
single bank with interstate branches.

      The BHC Act  generally  prohibits  the Company from engaging in activities
other  than  banking  or  managing  or  controlling  banks or other  permissible
subsidiaries  and from acquiring or retaining  direct or indirect control of any
company engaged in any activities other than those activities  determined by the
Federal  Reserve to be so closely  related to banking or managing or controlling
banks as to be a proper incident thereto.

      In determining whether a particular  activity is permissible,  the Federal
Reserve must consider whether the performance of such an activity reasonably can
be expected to produce  benefits  to the  public,  such as greater  convenience,
increased  competition,  or gains in efficiency,  that outweigh possible adverse
effects,  such  as  undue  concentration  of  resources,   decreased  or  unfair
competition, conflicts of interest, or unsound banking practices. The investment
management,  data processing,  administrative  and accounting  support and asset
custody  services  offered by EPW and United Trust have been  determined  by the
Federal Reserve to be permissible activities of bank holding companies.  The BHC
Act does not place territorial  limitations on permissible nonbanking activities
of bank holding companies.  Despite prior approval,  the Federal Reserve has the
power to order a bank holding company or its non-bank  subsidiaries to terminate
any activity or to terminate its ownership or control of any subsidiary  when it
has  reasonable  cause to believe  that  continuation  of such  activity or such
ownership  or  control  constitutes  a  serious  risk to the  financial  safety,
soundness, or stability of any bank subsidiary of the holding company.



                                       15
<PAGE>
      Under Federal Reserve policy,  bank holding  companies are expected to act
as a source of financial  strength and support to their subsidiary  banks.  This
support may be required at times when,  absent such Federal Reserve policy,  the
holding  company may not be inclined  to provide  it. In  addition,  any capital
loans by a bank holding  company to any bank subsidiary are subordinate in right
of payment to deposits  and to certain  other  indebtedness  of such  subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.

REGULATION OF THE BANK. The Bank is organized as a Florida-chartered  commercial
bank and is regulated and supervised by the Department. In addition, the Bank is
regulated  and  supervised by the Federal  Reserve,  which serves as its primary
federal  regulator and, to a lesser extent,  by the FDIC as the administrator of
the fund that insures the Bank's deposits.  Accordingly,  the Department and the
Federal Reserve conduct regular examinations of the Bank, reviewing the adequacy
of the loan loss  reserves,  quality  of loans  and  investments,  propriety  of
management practices, compliance with laws and regulations, and other aspects of
the Bank's operations. In addition to these regular examinations,  the Bank must
furnish to the Federal Reserve quarterly reports  containing  detailed financial
statements and schedules.

      Federal and Florida banking laws and  regulations  govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital, issuances
of  securities,  payment of dividends,  and  establishment  of branches.  As its
primary  federal  regulator,   the  Federal  Reserve  has  authority  to  impose
penalties,  initiate  civil and  administrative  actions  and take  other  steps
intended to prevent the Bank from engaging in unsafe or unsound  practices.  The
Bank is a member of the BIF and,  as such,  deposits  in the Bank are insured by
the FDIC to the maximum extent permissible by law.

      The Bank is subject to the  provisions of the CRA. Under the CRA, the Bank
has a continuing and affirmative  obligation  consistent with its safe and sound
operation  to help meet the credit  needs of its entire  communities,  including
low- and  moderate-income  neighborhoods.  The CRA does not  establish  specific
lending  requirements or programs for financial  institutions  nor does it limit
the Bank's  discretion  to develop the types of products  and  services  that it
believes are best suited to their  particular  communities,  consistent with the
CRA. The CRA requires the  appropriate  federal bank  regulatory  agency (in the
case of the Bank,  the  Federal  Reserve),  in  connection  with  their  regular
examinations,  to assess a financial  institution's record in meeting the credit
needs of the  community  serviced  by it,  including  low-  and  moderate-income
neighborhoods.   A  federal   banking   agency's   assessment   of  a  financial
institution's  CRA  record  is  made  available  to the  public.  Further,  such
assessment is required whenever the institution  applies to, among other things,
establish a new branch that will accept deposits, relocate an existing office or
merge or  consolidate  with, or acquire the assets of or assume the  liabilities
of, a federally-regulated  financial institution.  In the case where the Company
applies  for  approval  to acquire a bank or other  bank  holding  company,  the
federal regulator  approving the transaction will also assess the CRA records of
the Bank.  The Bank  received a  "Satisfactory"  CRA  rating in its most  recent
examination.





                                       16
<PAGE>
      In April 1995, the federal banking  agencies adopted  amendments  revising
their  CRA  regulations,   with  a  phase-in  schedule   applicable  to  various
provisions. Among other things, the amended CRA regulations,  which became fully
effective on July 1, 1997,  substitute  for the prior  process-based  assessment
factors a new  evaluation  system  that will  rate an  institution  based on its
actual  performance in meeting  community  needs. In particular,  the system now
focuses on three tests: (i) a lending test, to evaluate the institution's record
of making loans in its service areas;  (ii) an investment  test, to evaluate the
institution's record of investing in community development projects; and (iii) a
service test,  to evaluate the  institution's  delivery of services  through its
branches  and other  offices.  The amended CRA  regulations  also clarify how an
institution's CRA performance will be considered in the application process. The
Company  does not  anticipate  that the  revised CRA  regulations  will have any
material impact on the Bank's operations or its CRA rating.

DEPOSIT  INSURANCE.  The Bank is subject to FDIC deposit insurance  assessments.
The  Bank  is  also  subject  to a  risk-based  assessment  system  for  insured
depository  institutions  that  takes into  account  the risks  attributable  to
different  categories and  concentrations of assets and liabilities.  The system
assigns an institution to one of three capital categories: (i) well capitalized,
(ii) adequately capitalized, and (iii) undercapitalized.  An institution is also
assigned, by the FDIC, to one of three supervisory subgroups within each capital
group. The supervisory  subgroup to which an institution is assigned is based on
a  supervisory  evaluation  provided  to the FDIC by the  institution's  primary
federal  regulator  and  information  the FDIC  determines to be relevant to the
institution's  financial  condition and the risk posed to the deposit  insurance
funds  (which  may  include,   if  applicable,   information   provided  by  the
institution's state supervisor).  An institution's  insurance assessment rate is
then determined based on the capital category and supervisory  category to which
it  is  assigned.  Under  the  risk-based  assessment  system,  there  are  nine
assessment  risk  classifications  (i.e.,  combinations  of  capital  groups and
supervisory   subgroups)  to  which  different  assessment  rates  are  applied.
Assessment  rates on deposits for an institution in the highest  category (i.e.,
"well capitalized" and "healthy") are less than assessment rates on deposits for
an institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern").

      In addition to FDIC  insurance  assessments,  the Bank is also  subject to
assessments  used to pay interest on bonds issued by the  Financing  Corporation
(the "FICO") under the Deposit  Insurance Funds Act (the "Funds Act").  Prior to
enactment of the Funds Act, only insurance payments by SAIF-member  institutions
were available to satisfy FICO's interest payment  obligations.  Through the end
of 1999, the FICO assessment rate on BIF-assessable  deposits is required by the
statute to be one-fifth of the SAIF rate. Thereafter,  FICO assessment rates for
members of both insurance funds will presumably be equalized.

      Currently,  the FICO assessment rate for BIF-assessable  deposits is 0.013
percent (or 1.3 basis points) and the FICO  assessment  rate for SAIF assessable
deposits is 0.0648  percent (or 6.48 basis  points).  In 1998,  the Bank's total
FICO  payment  obligation  was  $16,200,  all of which was  attributable  to the
BIF-assessable deposits.

The Bank has no SAIF assessable deposits.





                                       17
<PAGE>
CAPITAL  REQUIREMENTS.  The Company and the Bank are required to comply with the
capital adequacy standards  established by the Federal Reserve.  There are three
basic measures of capital  adequacy for banks that have been  promulgated by the
Federal Reserve;  two risk-based measures and a leverage measure. All applicable
capital  standards must be satisfied for a bank holding company and a bank to be
considered in compliance.

      The risk-based  capital standards are designed to make regulatory  capital
requirements  more sensitive to differences in risk profile among banks and bank
holding companies,  to account for off-balance-sheet  exposure,  and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet  items are
assigned to broad risk categories,  each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total  risk-weighted  assets
and off-balance-sheet items.

      The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters  of  credit)  is 8.0%.  At  least  half of Total  Capital  (i.e.,  4% of
risk-weighted  assets) must  comprise  common stock,  minority  interests in the
equity accounts of consolidated subsidiaries,  noncumulative perpetual preferred
stock,  and a limited  amount of  cumulative  perpetual  preferred  stock,  less
goodwill and certain other intangible  assets ("Tier 1 Capital").  The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss  reserves  ("Tier 2 Capital").  In addition,  the Federal  Reserve has
established minimum leverage ratio guidelines for bank holding companies.  These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible  assets, of 3% for banks that meet certain
specified  criteria,  including having the highest  regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 3%, plus an additional  cushion of 100 to 200 basis points. The guidelines
also provide that bank holding companies  experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.  Furthermore,  the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital  leverage ratio"  (deducting all intangibles) and other
indicators  of capital  strength in  evaluating  proposals  for expansion or new
activities.

      The FDIC Improvement Act of 1991 ("FDICIA")  contains  "prompt  corrective
action" provisions  pursuant to which banks are to be classified into one of the
five categories based upon capital adequacy,  ranging from "well capitalized" to
"critically undercapitalized", and which require (subject to certain exceptions)
the  appropriate  federal banking agency to take prompt  corrective  action with
respect to an  institution  which becomes  "significantly  undercapitalized"  or
"critically undercapitalized".













                                       18
<PAGE>
      The Federal Reserve has issued final  regulations to implement the "prompt
corrective action" provisions of FDICIA. In general,  the regulations define the
five capital categories as follows:  (i) an institution is "well capitalized" if
it  has a  total  risk-based  capital  ratio  of 10%  or  greater,  has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater
and is not  subject  to any  written  capital  order  or  directive  to meet and
maintain a specific capital level for any capital measures;  (ii) an institution
is "adequately  capitalized" if it has a total risk-based capital ratio of 8% or
greater,  has a Tier 1  risk-based  capital  ratio of 4% or  greater,  and has a
leverage ratio of 4% or greater;  (iii) an institution is  "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv)  an  institution  is  "significantly  undercapitalized"  if it has a  total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less  than 3% or a  leverage  ratio  that is less  than  3%;  and (v) an
institution is "critically  undercapitalized"  if its "tangible equity" is equal
to or less than 2% of its total  assets.  The  Federal  Reserve  also,  after an
opportunity for a hearing,  has authority to downgrade an institution from "well
capitalized"   to  "adequately   capitalized"   or  to  subject  an  "adequately
capitalized"  or  "undercapitalized"  institution  to  the  supervisory  actions
applicable to the next lower category,  for supervisory concerns.  The degree of
regulatory  scrutiny  of  a  financial   institution  will  increase,   and  the
permissible  activities of the institution  will decrease,  as it moves downward
through the  capital  categories.  Institutions  that fall into one of the three
undercapitalized  categories may be required to (i) submit a capital restoration
plan;  (ii) raise  additional  capital;  (iii)  restrict  their growth,  deposit
interest  rates,  and other  activities;  (iv) improve  their  management;  (iv)
eliminate  management  fees;  or (vi) divest  themselves of all or part of their
operations.  Bank holding companies  controlling  financial  institutions can be
called upon to boost the  institutions'  capital and to partially  guarantee the
institutions'  performance  under their  capital  restoration  plans.  While the
Company's  capital levels have been in excess of those required to be maintained
by a "well capitalized" financial institution, rapid growth, poor loan portfolio
performance,  or poor earnings  performance,  or a combination of these factors,
could change the Company's  capital position in a relative short period of time,
making an additional capital infusion necessary.

      As a condition of receiving approval from the Department to exceed certain
regulatory  investment  limitations  in order to invest in its new  headquarters
building,  the Bank  agreed to  maintain a minimum  Tier 1 Leverage  ratio of 7%
during the period of time that such investment  limitations are exceeded. If the
Bank's  Tier 1 Leverage  ratio  falls below 7%, the Bank is required to increase
its  capital by an amount  sufficient  to reach the 7% minimum  ratio  within 90
days. As of December 31, 1998, the Bank's Tier 1 Leverage ratio was 7.98%.

      DIVIDENDS. As a Florida-chartered  commercial bank, the Bank is subject to
the laws of Florida as to the payment of dividends.  Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the total
of all dividends  declared by a bank in any calendar year will exceed the sum of
the  bank's net  profits  for that year and its  retained  net  profits  for the
preceding two years.







                                       19
<PAGE>
      Under Federal law, if, in the opinion of the federal banking regulator,  a
bank or thrift under its  jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which,  depending on the financial  condition of the
depository institution, could include the payment of dividends), such regulation
may require,  after notice and hearing,  that such institution  cease and desist
from such  practice.  The federal  banking  agencies have  indicated that paying
dividends that deplete a depository  institution's capital base to an inadequate
level  would be an  unsafe  and  unsound  banking  practice.  Under  the  Prompt
Corrective  Action  regulations  adopted  by the  federal  banking  agencies,  a
depository  institution  may not pay any  dividend  to its  holding  company  if
payment  would  cause  it  to  become  undercapitalized  or  if  it  already  is
undercapitalized.

      FEDERAL RESERVE SYSTEM. The Federal Reserve  regulations  require banks to
maintain   non-interest-earning  reserves  against  their  transaction  accounts
(primarily  NOW  and  regular  checking  accounts).   The  new  Federal  Reserve
regulations,  effective  December 16, 1997,  generally  require that reserves be
maintained against aggregate  transaction  accounts as follows: (i) for accounts
aggregating $47.8 million or less (subject to adjustment by the Federal Reserve)
the reserve requirement is 3%; and (ii) for accounts greater than $47.8 million,
the reserve  requirement  is $1.434 million plus 10.0% (subject to adjustment by
the  Federal  Reserve  between  8%  and  14%)  against  that  portion  of  total
transaction  accounts  in excess of $47.8  million.  The first  $4.7  million of
otherwise  reservable  balances  (subject to adjustments by the Federal Reserve)
are exempted from the reserve  requirements.  As of December 31, 1998,  the Bank
was in compliance with the foregoing  requirements.  The balances  maintained to
meet the  reserve  requirements  imposed by the  Federal  Reserve may be used to
satisfy  liquidity  requirements  imposed by the  Department.  Because  required
reserves   must  be   maintained   in  the  form  of  either   vault   cash,   a
noninterest-bearing  account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve,  the effect of this reserve requirement is to
reduce the Bank's interest-earning assets.

      LIQUIDITY.  Under  Florida  banking  regulations,  the Bank is required to
maintain  a  daily  liquidity  position  equal  to at  least  15% of  its  total
transaction  accounts and 8% of its total  nontransaction  accounts,  less those
deposits of public funds for which security has been pledged as provided by law.
The Bank may satisfy its  liquidity  requirements  with cash on hand  (including
cash items in process of  collection),  deposits held with the Federal  Reserve,
demand   deposits   due  from   correspondent   banks,   Federal   funds   sold,
interest-bearing  deposits  maturing in 31 days or less and the market  value of
certain unencumbered,  rated,  investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The Federal Reserve also reviews the Bank's liquidity position as part of
its   examination   and  imposes   similar   requirements   on  the  Bank.   Any
Florida-chartered  commercial  bank  that  fails to  comply  with its  liquidity
requirements  generally may not further diminish  liquidity either by making any
new loans (other than by discounting or purchasing  bills of exchange payable at
sight) or by paying  dividends.  At  December  31,  1998,  the Bank's net liquid
assets  exceeded  the  minimum  amount  required  under the  applicable  Florida
regulations.







                                       20
<PAGE>
      MONETARY POLICY AND ECONOMIC  CONTROLS.  The banking  business is affected
not only by general economic  conditions,  but also by the monetary  policies of
the Federal  Reserve.  Changes in the  discount  rate on member bank  borrowing,
availability of borrowing at the "discount window", open market operations,  the
imposition  of changes in reserve  requirements  against  bank  deposits and the
imposition of and changes in reserve  requirements against certain borrowings by
banks  and their  affiliates  are some of the  instruments  of  monetary  policy
available to the Federal Reserve.  The monetary  policies have had a significant
effect on the operating results of commercial banks and are expected to continue
to do so in the  future.  The  monetary  policies  of the  Federal  Reserve  are
influenced by various factors, including inflation,  unemployment and short- and
long-term changes in the international  trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Bank cannot be predicted.

      FUTURE LEGISLATION.  Various legislation,  including proposals to overhaul
the bank regulatory system and expand the powers of bank holding  companies,  is
from time to time  introduced in Congress.  Such  legislation may change banking
statutes and the operating  environment of the Company and its bank and non-bank
subsidiaries in substantial and  unpredictable  ways. There is no assurance that
any  legislation  will be enacted and, if enacted,  the ultimate effect that any
such  potential  legislation  or  implementing  regulations  would have upon the
financial condition or results of operations of the Company.

CHANGES IN ACCOUNTING STANDARDS

      The Financial  Accounting  Standards  Board ("FASB")  recently  adopted or
issued  proposals  and  guidelines  that may have a  significant  impact  on the
accounting  practices  of  commercial   enterprises  in  general  and  financial
institutions in particular.

     In June,  1998 the FASB  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.

ITEM 2.    DESCRIPTION OF PROPERTY

      The principal executive offices of the Company,  the Bank and United Trust
are located in an office  building at 333 Third Avenue  North,  St.  Petersburg,
Florida 33701.  This facility was renovated in 1997, is owned by the Company and
has a total of five floors and approximately 47,400 square feet of usable space.
The Company and its subsidiaries  occupy a total of approximately  25,000 square
feet on the first two floors and a portion of the third  floor of the  building.
As of December  31,  1998,  the balance of the  building  was leased to tenants.
Adequate  parking,  lobby,  safe deposit boxes,  and  drive-thru  facilities are
provided to customers of the Bank at this location.




                                       21
<PAGE>
      The Bank has additional  branch locations at 5801 North 49th Street (North
Office),  5601 North Park Street (Five Towns  Office),  and 6500 Gulf  Boulevard
(St. Pete Beach Office),  all in St.  Petersburg,  Florida.  Except for the Five
Towns Office, these facilities are owned by the Company and offer both lobby and
drive-thru banking facilities to the Bank's customers.  The Five Towns Office is
leased for a term expiring October 31, 2001, with four renewal options.

      Additionally,  on January 4, 1999,  the Bank  completed  the purchase of a
bank  branch  site at 7490  Bryan  Dairy  Road in  Pinellas  Park.  The Bank has
received  regulatory  approval to establish its fifth  banking  location at this
site and intends to have this branch open during the second  quarter of 1999. It
will  offer  lobby,  drive-thru  and  safe  deposit  facilities  to  the  Bank's
customers.

      EPW's main office is located in an office  building  in Tampa,  Florida in
which EPW leases  approximately  3,190 square feet of space  pursuant to a lease
expiring February 28, 2003, with no renewal option. EPW's Jacksonville,  Florida
office operates out of a private home owned by an officer of EPW.

ITEM 3.  LEGAL PROCEEDINGS

      The Company is a party to various legal proceedings in the ordinary course
of its business.  Based on information presently available,  management does not
believe that the ultimate outcome of such proceedings,  in the aggregate,  would
have a material adverse effect on the Company's financial  position,  results of
operations or liquidity.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         There  were  no  matters   submitted   to  a  vote  of  the   Company's
security-holders during the fourth quarter of its fiscal year ended December 31,
1998.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Shares are quoted on the Nasdaq SmallCap Market under
the  symbol  UFHI.  At the close of  business  on March  19,  1999,  there  were
outstanding  4,060,307 Common Shares which were held by approximately 350 record
and beneficial shareholders.

     The  following  table sets forth the high and low closing  sales prices for
the Common Shares as quoted by Nasdaq for the period indicated:

Year Ended December 31, 1998                    HIGH              LOW
Fourth Quarter (from December 11, 1998).......  $7.63             $7.25

Year Ended December 31, 1999:
First Quarter (through March 19, 1999)........  $7.75             $6.63

     Since 1995,  the Company has declared and paid  quarterly cash dividends on
the Common Stock to record holders of the Common Stock at each calendar  quarter
end,  payable  on the last day of the  following  month.  Starting  in the first
quarter of 1997,  such dividends were paid at the rate of $0.03-1/3 per share of
Common Stock until the third quarter of 1998, when a dividend of $0.04 per share
was declared
                                       22
<PAGE>
     The  Company is  primarily  a holding  company  with no  material  business
operations,  sources of income or assets of its own other than the shares of its
subsidiaries.   Because  substantially  all  of  the  Company's  operations  are
conducted through subsidiaries,  the Company's cash flow and, consequently,  its
ability to pay dividends or make other  distributions  is dependent  upon either
third-party  borrowings made by the Company or the cash flow of its subsidiaries
and the  payment  of funds by those  subsidiaries,  including  the Bank,  to the
Company  in the form of  loans,  dividends,  fees or  otherwise.  The  Company's
subsidiaries  are  separate  and  distinct  legal  entities  and  will  have  no
obligation, contingent or otherwise, to make any funds available, whether in the
form of  loans,  dividends  or  otherwise.  Regulatory  limitations  on the Bank
restrict its ability to make loans or distributions to the Company.

Recent Sales of Unregistered Securities and Use of Proceeds.

         Recent  Sales of  Unregistered  Securities.  On October 31,  1998,  the
Company  issued 18,000 shares of its common stock to certain  officers of United
Trust and EPW pursuant to an incentive stock plan established in connection with
the acquisitions by the Company of Fiduciary  Services Corp. and EPW. The number
of shares  issued  pursuant  to the  incentive  stock plan is  dependent  on the
consolidated revenues generated by United Trust and EPW. Under the plan, no cash
or additional consideration was received by the Company pursuant to the issuance
of such shares.  Additionally,  on December 31, 1998,  the Company  issued 6,000
shares of its common stock  pursuant to the exercise of stock  options by Harold
J. Winner, a director and officer of the Company,  for total cash  consideration
of $30,500.

         The shares of capital stock issued in the foregoing  transactions  were
offered and sold in reliance upon the exemption from registration  under Section
4(2) of the Securities Act of 1933 (the "Securities  Act") as transactions by an
issuer not  involving  any  public  offering  or were  otherwise  exempt  from a
requirement  to be registered  under the  Securities  Act. The recipients of the
securities  issued  represented  their  intentions to acquire the securities for
investment  only  and not  with a view to or for  sale in  connection  with  any
distribution   thereof  and  appropriate  legends  were  affixed  to  the  share
certificates issued in the foregoing transactions.

         Use of  Proceeds.  On December  10,  1998,  UFH  Capital  Trust I ("UFH
Capital"),  a  Delaware  statutory  business  trust,  all of the  common  equity
interests  of  which  are  owned  by  the  Company,   and  the  Company's  joint
Registration  Statement  on Form SB-2 (Nos.  333-60431  and  333-60431-01)  (the
"Registration  Statement")  became  effective,  registering  the initial  public
offering by the Company of 450,000  shares of the Company's  common  stock,  par
value  $.01 per  share,  and up to  1,200,000  shares of 9.4%  Cumulative  Trust
Preferred  Securities with a liquidation  amount of $5 per share (the "Preferred
Securities"),  representing  preferred  undivided  beneficial  interests  in the
assets of UFH Capital. Furthermore, pursuant to such Registration Statement, the
Company registered up to an additional 67,500 shares of its common stock and UFH
Capital registered up to an additional 180,000 shares of Preferred Securities in
the event that the managing underwriter for the offering, William R. Hough & Co.
(the  "Underwriter"),  exercised  its option to  purchase  such  shares to cover
over-allotments.   The  aggregate  offering  price  of  the  450,000  shares  of
registered  common stock was $3,262,500 and the aggregate  offering price of the
1,200,000 shares of registered Preferred Securities was $6,000,000, all of which
was sold on the  commencement  of the initial  public  offering on December  10,
1998.


                                       23
<PAGE>
         The  aggregate  offering  price of the 67,500  shares of the  Company's
common stock and 180,000 shares of UFH Capital's Preferred Securities registered
to cover the  Underwriter's  over-allotment  options was $489,375 and  $900,000,
respectively.  On January 8, 1999, the Underwriter  exercised its over-allotment
options  with  respect to 57,705  shares of the 67,500  shares of the  Company's
common stock and 149,920 shares of the 180,000 shares of UFH Capital's Preferred
Securities   for  an  aggregate   offering   price  of  $418,361  and  $749,600,
respectively.

         All of the gross proceeds  received by UFH Capital from the offering of
the of the  Preferred  Securities  and certain  other funds of UFH Capital  were
invested in an  equivalent  amount of the  Company's  9.4%  Junior  Subordinated
Debentures (the "Junior Subordinated  Debentures")  totaling  $6,959,200,  which
were  issued by the  Company  to UFH  Capital.  All of the  Junior  Subordinated
Debentures were registered as part of the Registration Statement. In addition, a
guarantee  of  the  Company  relating  to  the  Preferred  Securities  was  also
registered  as  part  of the  Registration  Statement.  The  Company's  and  UFH
Capital's  initial  public  offerings  terminated  on January 8, 1999,  upon the
exercise of the Underwriter's  over-allotment  option with respect to the Common
Stock and the Preferred Securities.

         Underwriting discounts and commissions for the 507,705 shares of common
stock sold by the Company in the initial public offering  totaled  $220,852.  In
addition,  in view of the fact that the  proceeds  of the sale of the  1,349,920
shares of Preferred  Securities  were used to purchase  the Junior  Subordinated
Debentures  of the Company,  the Company  agreed to pay to the  Underwriter,  as
compensation  for arranging the investment  therein of such  proceeds,  $.20 per
Preferred  Security,  resulting in an aggregate  payment to the  Underwriter  of
$269,984.  Furthermore, in connection with the offerings of the Common Stock and
the Preferred  Securities and the sale of the Junior Subordinated  Debentures by
the  Company  to  UFH  Capital,  the  Company  paid  approximately  $401,149  in
underwriter's  and other expenses  related to the offerings,  resulting in total
estimated expenses of approximately  $891,985. No finder's fees were paid by the
Company with respect to the initial  public  offerings.  After  deducting  total
estimated  expenses,  the  Company  received  approximately  $9,538,476  in  net
proceeds from the offerings.

         None of the Company's expenses paid in connection with the issuance and
distribution of its common stock and the Preferred  Securities in the registered
offerings,  and  none  of the net  offering  proceeds,  were  paid  directly  or
indirectly to directors or officers of the Company or their associates,  persons
owning 10% or more of the Company's common stock, or affiliates of the Company.

         From December 10, 1998,  through December 31, 1998,  approximately $2.7
million of the  estimated net offering  proceeds of $9,538,476  were used by the
Company to repay debt to the lender under the Company's  senior credit  facility
and $1.5  million  was  contributed  to the  capital  of the Bank.  Rather  than
investing  the  remaining  $5.3 million in short term  obligations  between such
dates,  the remaining net offering  proceeds were  deposited into a non-interest
bearing demand  deposit  account of the Company  established  with the Bank. The
Bank in turn is  using  those  funds  to fund  its  assets,  such as  loans  and
overnight investments.






                                       24
<PAGE>
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1997

COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1998 AND DECEMBER 31, 1997

OVERVIEW

      Total  assets of the Company  were $171.9  million at December  31,  1998,
compared to $147.3 million at December 31, 1997, an increase of $24.6 million or
16.7%.  This increase was primarily the result of the Company's  internal growth
of earning assets (primarily loans) funded by an increase in deposits.

INVESTMENT SECURITIES

      Investment  securities,  consisting  of U.S.  Treasury and federal  agency
securities,  obligations of state and political subdivisions and mortgage-backed
and corporate debt securities, were $25.7 million at December 31, 1998, compared
to $21.6 million at December 31, 1997, an increase of $4.1 million or 19.0%.  At
December 31, 1998, the Company held certain securities totaling $14.5 million as
available for sale. These securities have been recorded at market value.

LOANS

      Total loans were $119.2  million at December 31,  1998,  compared to $97.0
million at December 31,  1997,  an increase of $22.2  million or 22.9%.  For the
same period,  real estate  mortgage  loans  increased by $17.4 million or 28.7%,
commercial  loans  increased  by $4.4  million  or 12.6%,  and all  other  loans
including  consumer  loans  increased  by $0.3  million or 5.1%.  Net loans were
$116.5  million at December 31, 1998,  compared to $94.8 million at December 31,
1997.

ALLOWANCE FOR LOAN LOSSES

      The  allowance  for loan losses  amounted to $2.0  million at December 31,
1998, compared to $1.6 million at December 31, 1997, an increase of $0.4 million
or 25.0%.  During 1998,  $426  thousand in loans were charged off, $752 thousand
was  added to the  allowance  for loan  losses  through a  provision,  which was
accounted for as an expense, reducing net income, and $10 thousand was recovered
from loans previously charged off.

NONPERFORMING ASSETS

      Nonperforming  assets were $5.5 million at December 31, 1998,  compared to
$.7 million at December  31,  1997.  Nonperforming  assets at December  31, 1998
consisted of nonperforming  loans of $4.0 million and other real estate owned of
$1.0 million.  A nonperforming  loan in the amount of $1.3 million is being paid
on a monthly basis on a pre-judgment  stipulation and interest and principal are
being recorded on a cash basis as received.  ORE owned consisted of one property
which has been  listed  for sale.  Management  believes  that this  property  is
carried at a value that is equal to its current market value.






                                       25
<PAGE>
BANK PREMISES AND EQUIPMENT

      Bank  premises  and  equipment  was $9.3  million at  December  31,  1998,
compared to $9.5  million at  December  31,  1997,  a decrease of $.2 million or
2.1%. This decrease was primarily due to depreciation of buildings and equipment
and amortization of leasehold improvements

DEPOSITS

      Total  deposits  were $139.1  million at December  31,  1998,  compared to
$130.2  million at December 31, 1997, an increase of $8.9 million or 6.8%.  From
December 31, 1997 to December 31, 1998, demand deposits  decreased $0.7 million,
NOW  and  money  market  deposits  increased  $12.6  million,  savings  deposits
decreased $0.5 million, time deposits of $100 thousand or greater increased $1.8
million, and other time deposits decreased $4.3 million.

LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES

      Long-term debt outstanding (excluding convertible subordinated debentures)
was $34 thousand at December 31, 1998,  compared to $2.7 million at December 31,
1997,  a decrease  of $2.6  million.  The  majority of the  decrease  was due to
repayment  of debt with a portion  of the  proceeds  from the  Company's  public
offering. The remaining debt is payable to an unrelated bank. In addition,  $630
thousand in convertible  subordinated  debentures were  outstanding  during both
periods.

MANDATORY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY TRUST

      In December 1998, the Company,  through a statutory business trust created
and owned 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  which  will  mature  on  December  10,  2028.  See  Note  D  of  the
Consolidated Financial Statements for additional information.

STOCKHOLDERS' EQUITY

      Stockholders'  equity was $14.8  million at December 31, 1998, or 8.61% of
total assets,  compared to $10.5  million,  or 7.13% of total assets at December
31,  1997.  At December  31, 1998,  the Bank's Tier I (core)  Capital  ratio was
7.44%,  its Tier I Risk-based  Capital ratio was 9.52%, and its Total Risk-based
Capital  ratio  was  10.78%.  The  capital  ratios  of the Bank at that date all
exceeded the minimum  regulatory  guidelines for an institution to be considered
"well  capitalized".  The increase in  stockholders'  equity was due to proceeds
from the Company's initial public offering and 1998 net income.














                                       26
<PAGE>
COMPARISON  OF RESULTS OF OPERATIONS  FOR THE YEARS ENDED  DECEMBER 31, 1998 AND
1997

OVERVIEW

      Net income for the year ended  December 31, 1998 was $1.8 million or $0.46
per share  diluted,  compared to $1.4 million or $0.38 per share diluted for the
same period in 1997.  On a pre-tax  basis,  United Trust earned $176 thousand in
1998 versus a loss of $114  thousand in 1997,  EPW's pre-tax  operating  profits
(before  deducting  $124  thousand  of costs  associated  with the  issuance  of
performance  shares)  increased to $210 thousand from $149 thousand  during this
period  and the Bank's  pre-tax  profits  increased  to $2.7  million  from $2.5
million during this same period.

BUSINESS SEGMENT INFORMATION

      The Company's  operations  include  three  business  segments:  commercial
banking,   trust  services   (operated  through  United  Trust)  and  investment
management  services  (operated  through EPW).  The following are the results of
operations  for these three  segments for the years ended  December 31, 1998 and
1997 (dollars in thousands).

                                              YEARS ENDED DECEMBER 31,
                                                       1998
                                      Commercial United            Company  
                                      Banking    Trust      EPW    Total
                                      --------  -------   -------  ---------
Interest Income ...................   $12,561   $   171   $     0    $12,732
Interest Expense ..................     5,066         0         4      5,070
                                      -------   -------   -------    -------
Net Interest Income ...............     7,495       171        (4)     7,662
Loan Loss Provision ...............       752         0         0        752
                                      -------   -------   -------    -------
Net Interest Income after loan loss     6,743       171        (4)     6,910
  Provision

Noninterest Income..................    1,646       956     1,447      4,049
General and Administrative ("G&A")      5,637       926     1,356      7,919
  Expenses..........................

Other noninterest expense...........        0         0         0          0
Amortization of goodwill............       15        25         1         41
                                      -------    ------    ------    -------
Total noninterest expense...........    5,652       951     1,357      7,960
                                      -------    ------    ------    -------
Net Income before taxes............   $ 2,737    $  176    $   86      2,999
                                      =======    ======    ======
Net Corporate Overhead expense......                                     232
Income tax expense..................                                   1,010
                                                                     -------
Net income..........................                                 $ 1,757
                                                                     =======






                                       27
<PAGE>
                                            YEARS ENDED DECEMBER 31,
                                                     1997
                                       Commercial United           Company
                                       Banking    Trust    EPW     Total
                                       -------   -------  ------   --------
Interest Income ...................    $10,785   $    0   $    0   $ 10,785
Interest Expense ..................      3,970        0        5      3,975
                                       -------   ------   ------    -------
Net Interest Income ...............      6,815        0       (5)     6,810
Loan Loss Provision ...............         90        0        0         90
                                       -------   ------   ------    -------
Net Interest Income after loan loss      6,725        0       (5)     6,720
  Provision

Noninterest Income..................     1,286      765    1,238      3,289
General and Administrative ("G&A")       5,124      852    1,084      7,060
  Expenses..........................

Other noninterest expense...........       384        9        0        393
Amortization of goodwill............        15       18        0         33
                                       -------   ------   ------    -------
Total noninterest expense...........     5,523      879    1,084      7,486
                                       -------   ------   ------    -------
Net Income before taxes.............   $ 2,488   $ (114)  $  149      2,523
                                       =======   ======   ======
Net Corporate Overhead expense......                                    253
Income tax expense..................                                    860
                                                                    -------
Net income..........................                                $ 1,410
                                                                    =======

      COMMERCIAL BANKING ACTIVITIES. The Company's commercial banking activities
are  conducted  through the Bank.  Net interest  income of the Bank for the year
ended December 31, 1998 was $7.5 million,  compared to $6.8 million for the same
period  in 1997,  a $0.7  million  or  10.3%  increase.  Based on the  Company's
analysis of its loan  portfolio and loan loss reserve,  the loan loss  provision
was increased  substantially to $752 thousand for 1998, compared to $90 thousand
for  1997.  Non-interest  income  for 1998 was $1.6  million,  compared  to $1.3
million  for 1997,  an  increase of $0.3  million or 23.1%.  Total  non-interest
expense was $5.7  million for 1998,  compared to $5.5  million for 1997,  a 3.6%
increase.  Net income  before taxes was $2.7 million for 1998,  compared to $2.5
million for 1997, an 8.0% increase.

      The Bank's net income before taxes in 1997 included several  non-recurring
noninterest  expenses.  In 1997,  the Bank took a  one-time  write-down  of $255
thousand in the value of a security held in portfolio and $138 thousand from the
write-off of leasehold  improvements  in a facility which was  abandoned.  Other
increases in general and  administrative  expenses were substantially due to the
full year impact from a new branch which was opened in September 1996,  expenses
associated  with  moving  into the new  headquarters  building,  and  additional
employees  hired for  accounting and credit  administration  functions and other
support operations.

     TRUSTACTIVITIES.  United  Trust  reported  net income  before taxes of $176
thousand  for the year  ended  December  31,  1998,  compared  to a loss of $114
thousand for 1997, an  improvement of $290 thousand.  This  improvement  was the
result of the increased volume of trust accounts.

                                       28
<PAGE>
     INVESTMENT  ADVISORY  ACTIVITIES.  Net income  before taxes for EPW was $86
thousand for the year ended December 31, 1998, compared to $149 thousand for the
same period of 1997, a $63 thousand decrease. In 1998, expenses of $124 thousand
were  incurred  due to the  issuance  of  "performance  shares"  pursuant to the
acquisition  agreement of EPW.  Income  before taxes  without this expense would
have been $210  thousand,  an increase of $61 thousand over 1997.  This increase
would have been  primarily  due to an  increase  in the  volume of assets  under
management  by EPW  resulting  from  higher  market  values of the assets  under
management.

ANALYSIS OF NET INTEREST INCOME

      Net interest income for the year ended December 31, 1998 was $7.4 million,
compared to $6.7  million for the same period in 1997,  a $0.7  million or 10.4%
increase.  Interest  income was $12.7  million for the year ended  December  31,
1998,  compared to $10.8  million for the same period in 1997, a $1.9 million or
17.4%  increase.  Interest  expense was $5.3 million for the year ended December
31,  1998,  compared to $4.1 million for the same period in 1997, a $1.2 million
or 29.3% increase.

      The   following   table   summarizes   the   average   yields   earned  on
interest-earning   assets  and  the  average  rates  paid  on   interest-bearing
liabilities  for the  years  ended  December  31,  1998  and  1997  (dollars  in
thousands):


































                                       29
<PAGE>
                                             YEARS  ENDED DECEMBER 31,
                                                       1998
                                         Average                   Average
                                         Balance      Interest     Rate   
                                        ---------    ---------   ----------
Summary of average rates/interest
earning assets: Interest earning assets:

  Loans, net(1) .....................   $102,197      $ 10,382      10.16%
  Securities:
  Investment securities - taxable ...     26,325         1,714       6.51
  Investment securities - non-taxable        570            31       8.63
  Federal funds sold ................      9,821           532       5.42
                                        --------      --------
  Total earning assets ..............    138,913        12,659       9.13%  
  Non-earning assets ................     22,711
                                        --------
Total average assets ................   $161,624
                                        ========

Interest bearing liabilities:

  NOW & money market .............      $ 50,328      $  1,564        3.11%
  Savings ........................         4,742            97        2.05 
  Time, $100,000 & over ..........         9,850           534        5.42 
  Time other .....................        49,455         2,669        5.40 
  Convertible subordinated
  debentures .....................           630            50        8.00
  Long-term debt .................         2,329           200        8.59
  Other borrowings ...............         5,036           154        3.06
                                        --------      -------- 
Total interest bearing liabilities       122,370         5,268        4.30

Non-Interest bearing liabilities:

  Deposits...........................     25,276
  Other..............................      2,152
  Stockholders' equity...............     11,826
                                        --------
  Total liabilities and stockholders'   $161,624
   equity............................   ========

  Net interest & net interest spread.                 $  7,391        4.82%
                                                      ========        ==== 
  Net interest margin................                                 5.33%
                                                                      ==== 












                                       30
<PAGE>
                                             YEARS  ENDED DECEMBER 31,
                                                       1997
                                          Average                     Average
                                          Balance      Interest       Rate 
                                         --------      --------      --------
Summary of average rates/interest
earning assets: Interest earning assets:

  Loans, net(1) .....................    $ 83,614      $  8,961       10.72%
  Securities:
  Investment securities - taxable ...      22,995         1,508        6.56
  Investment securities - non-taxable         494            29        9.09
  Federal funds sold ................       5,447           295        5.42
                                         --------      --------
  Total earning assets ..............     112,550        10,793        9.60%
  Non-earning assets ................      18,230
                                         --------
Total average assets ................    $130,780
                                         ========

Interest bearing liabilities:

  NOW & money market .............      $ 30,692       $    795        2.59%
  Savings ........................         4,774             97        2.02
  Time, $100,000 & over ..........         7,518            419        5.57
  Time other .....................        47,445          2,604        5.49
  Convertible subordinated
  debentures .....................           630             50        8.00
  Long-term debt .................         1,037             80        7.73
  Other borrowings ...............         2,638             56        2.13
                                        --------       --------
Total interest bearing liabilities        94,734          4,101        4.33

Non-Interest bearing liabilities:

  Deposits...........................     24,774
  Other..............................      1,380
  Stockholders' equity...............      9,892
                                        --------
  Total liabilities and stockholders'   $130,780
   equity............................   ========

  Net interest & net interest spread.                  $  6,692        5.27%
                                                       ========        ====
  Net interest margin................                                  5.96%
                                                                       ====


(1)   Includes non-accrual loans.









                                       31
<PAGE>
      The  following  table  reflects the change in net  interest  income due to
changes in the volume and rate of the Company's  assets and  liabilities for the
twelve month period ended December 31, 1998:

                                              Increase (Decrease)
Changes in net interest income                            Combination
(dollars in thousands)                  Volume    Rate    Rate/Volume Total
                                        ------    ------- ----------- ------
Interest earning assets:
  Loans, net ........................   $1,992    $ (467) $  (104)    $1,421
  Securities:
  Investment securities - taxable ...      218       (11)      (2)       206
  Investment securities - non-taxable        7        (2)      (3)         2
  Federal funds sold ................      237         -        -        237
                                        ------    ------    ------    ------
Total change in interest income .....    2,454      (480)    (108)     1,866

Interest bearing liabilities:
  NOW & money market.................      509       159      102        769
  Savings............................       (1)        1       (1)         -
  Time, $100,000 & over..............      130       (11)      (4)       115
  Time other.........................      110       (43)      (2)        65
  Convertible subordinated debentures.       -         -        -          -
  Long-term debt.....................      100        (9)      11        120
  Other Borrowings...................       51        24       22         98
                                        ------    ------    ------    ------
Total change in interest expense.....      899       139      129      1,167
                                        ------    ------    ------    ------

Increase (decrease) in net interest
 income..............................   $1,555    $ (619)   $(237)    $  699
                                        ======    ======    ======    ======


























                                       32
<PAGE>

NONINTEREST INCOME

      Noninterest  income for the year ended  December 31, 1998 was $4.1 million
compared  to $3.2  million  for the same  period in 1997,  an  increase  of $0.9
million or 28.1%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined  revenues  increased  $469 thousand  during this
period.  Income on cash value life insurance was $137 thousand in 1998 while all
other fees and commissions increased by $190 thousand.

      The following table indicates the components of noninterest income for the
years ended December 31, 1998 and 1997 (dollars in thousands):

                                            For the Years Ended
                                                December 31,       Increase/
                                             1998          1997    (Decrease)
                                          -----------  ----------- -----------
Service charges on deposit accounts...... $      707   $      675  $       32
Trust and investment management income...      2,355        1,886         469
Other service charges, fees, and income..        415          225         190
Loan servicing fees......................        148          164         (16)
Net trading account profit...............         87            -          87
Income on cash value life insurance......        137            -         137
Gain on sale of SBA loans................        239          290         (51)
                                          -----------  ----------- -----------

Total noninterest income................. $    4,088   $    3,240  $       848
                                          ===========  =========== ===========

NONINTEREST EXPENSE

      Total  noninterest  expense for the year ended  December 31, 1998 was $8.0
million,  compared to $7.6  million for the same period in 1997,  an increase of
$0.4 million or 5.3%.

The following table reflects the components of noninterest expense for the
years ended December 31, 1998 and 1997 (dollars in thousands):

                                            For the Years Ended
                                               December 31,          Increase/
                                             1998          1997      (Decrease)
                                          -----------  ----------- ------------
Salaries and employee benefits .......    $    4,631   $     4,048 $       583
Occupancy expense ....................           522           514           8
Furniture and equipment expense ......           512           494          18
Data processing expense ..............           437           418          19
Legal and professional fees ..........           121           177         (56)
Amortization of intangible assets.....            79            67          12
Advertising ..........................           265            37         302
Relocation expense ...................             -           138        (138)
Stationery and supplies...............           137           151         (14)
Directors fees .......................           191           199          (8)
Securities write-down.................             -           255        (255)
Other operating expenses..............         1,027           846         181
                                           ----------   ----------- -----------
Total noninterest expense.............     $   7,959    $    7,572  $      387
                                           =========    ==========  ==========

                                       33
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996

COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND DECEMBER 31, 1996

OVERVIEW

      Total  assets of the Company  were $147.3  million at December  31,  1997,
compared to $122.7 million at December 31, 1996, an increase of $24.6 million or
20.0%.  This increase was primarily the result of the Company's  internal growth
of earning assets (primarily loans) funded by an increase in deposits.

INVESTMENT SECURITIES

      Investment  securities,  consisting  of U.S.  Treasury and federal  agency
securities,  obligations of state and political subdivisions and mortgage-backed
and corporate debt securities, were $21.6 million at December 31, 1997, compared
to $18.7 million at December 31, 1996, an increase of $2.9 million or 15.3%.  At
December 31, 1997, the Company held certain securities totaling $11.5 million as
"available for sale". These securities have been recorded at market value.

LOANS

      Total loans were $97.0  million at December  31,  1997,  compared to $81.2
million at December 31,  1996,  an increase of $15.8  million or 19.4%.  For the
same period,  real estate  mortgage  loans  increased by $11.1 million or 22.5%,
commercial  loans  increased  by $5.3  million  or 21.0%,  and all  other  loans
including consumer loans were virtually unchanged.  Net loans were $94.8 million
at December 31, 1997, compared to $79.3 million at December 31, 1996.

ALLOWANCE FOR LOAN LOSSES

      The  allowance  for loan losses  amounted to $1.6  million at December 31,
1997, virtually unchanged from December 31, 1996. During 1997, $90.9 thousand in
loans were charged off, $90 thousand was added to the  allowance for loan losses
through a provision, which was accounted for as an expense, reducing net income,
and $38 thousand was recovered from loans previously charged off.

NONPERFORMING ASSETS

      Nonperforming  assets were $651 thousand at December 31, 1997, compared to
$372 thousand at December 31, 1996,  an increase of $279 thousand or 75.0%.  All
nonperforming assets consisted of nonperforming loans.

BANK PREMISES AND EQUIPMENT

      Bank  premises  and  equipment  was $9.5  million at  December  31,  1997,
compared to $6.0 million at December  31,  1996,  an increase of $3.5 million or
58.3%.  This increase was primarily due to the final funding of the building and
equipment related to the Company's new headquarters facility which opened in May
1997.








                                       34
<PAGE>

DEPOSITS

      Total  deposits  were $130.2  million at December  31,  1997,  compared to
$108.1  million at December 31, 1996, an increase of $22.1 million or 20.4%.  Of
the $22.1 million  increase,  $1.7 million was in demand deposits,  $8.5 million
was in NOW and money market deposits, $0.6 million was in savings deposits, $4.9
million was in time  deposits of  $100,000 or greater,  and $6.4  million was in
other time deposits.

LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES

      Long-term debt outstanding was $2.7 million at December 31, 1997, compared
to $0.8 million at December 31, 1996, an increase of $1.9 million. This increase
was due primarily to borrowings from a non-affiliated bank secured by the Bank's
common stock to fund the capitalization of United Trust.

STOCKHOLDERS' EQUITY

      Stockholders'  equity was $10.5  million at December 31, 1997, or 7.12% of
total assets, compared to $9.5 million, or 7.73% of total assets at December 31,
1996.  At December 31, 1997,  the Bank's Tier I (core)  Capital ratio was 6.77%,
its Tier I Risk-based  Capital ratio was 8.90%, and its Total Risk-based Capital
ratio was 10.15%.  The capital  ratios of the Bank at that date all exceeded the
minimum  regulatory  guidelines  for  an  institution  to  be  considered  "well
capitalized".

COMPARISON  OF RESULTS OF OPERATIONS  FOR THE YEARS ENDED  DECEMBER 31, 1997 AND
1996

OVERVIEW

      Net income for the year ended  December 31, 1997 was $1.4 million or $0.38
per share  diluted,  compared to $1.5 million or $0.40 per share diluted for the
same period in 1996. On a pre-tax basis, United Trust lost $114 thousand in 1997
and $421 thousand in 1996, EPW's pre-tax profits increased to $149 thousand from
$92 thousand during this period and the Bank's pre-tax profits  declined to $2.5
million from $2.8 million during this same period.

BUSINESS SEGMENT INFORMATION

      The Company's  operations  include  three  business  segments:  commercial
banking,   trust  services   (operated  through  United  Trust)  and  investment
management  services  (operated  through EPW).  The following are the results of
operations  for these three  segments for the years ended  December 31, 1997 and
1996 (dollars in thousands).












                                       35
<PAGE>
                                          YEARS ENDED DECEMBER 31, 1997
                                       Commercial  United          Company
                                         Banking    Trust   EPW    Total
                                       ---------- -------- ------ ---------
Interest Income.....................   $  10,785  $     0  $   0  $  10,785
Interest Expense....................       3,970        0      5      3,975
                                       ---------  -------  -----   --------
Net Interest Income.................       6,815        0     (5)     6,810
Loan Loss Provision.................          90        0      0         90
                                       ---------  -------  -----  ---------
Net Interest Income after loan loss        6,725        0     (5)     6,720
  provision.........................
Noninterest Income..................       1,286      765   1,238     3,289
General and Administrative ("G&A")         5,124      852   1,084     7,060
  expenses..........................
Other noninterest expense...........         384        9       0       393
Amortization of goodwill............          15       18       0        33
                                       ---------  -------   -----  --------
Total noninterest expense...........       5,523      879   1,084     7,486
                                       ---------  -------   -----  --------
Net Income before taxes.............   $   2,488  $  (114)  $ 149  $  2,523
                                       =========  =======   =====          
Net Corporate Overhead expense......                                    253
Income tax expense..................                                    860
                                                                   --------
Net income..........................                               $  1,410
                                                                   ========


                                          YEARS ENDED DECEMBER 31, 1996
                                       Commercial  United           Company
                                         Banking    Trust  EPW (1)  Total 
                                       ---------- -------- ------ ---------
Interest Income.....................   $   9,577  $     0  $    0  $  9,577
Interest Expense....................       3,278        0       5     3,283
                                       ---------  -------   ------  -------
Net Interest Income.................       6,299        0      (5)    6,294
Loan Loss Provision.................         150        0       0       150
                                       ---------  -------   ------  -------
Net Interest Income after loan loss        6,149        0      (5)    6,144
  provision.........................
Noninterest Income..................       1,251      381     936     2,568
General and Administrative ("G&A")         4,532      780     839     6,151
  expenses..........................
Other noninterest expense...........           0        0       0         0
Amortization of goodwill............          14       22       0        36
                                       ---------  -------   -----  --------
Total noninterest expense...........       4,546      802     839     6,187
                                       ---------  -------   -----  --------
Net Income before taxes.............   $   2,854  $  (421) $   92  $  2,525
                                       =========  =======   =====
Net Corporate Overhead expense......                                    154
Income tax expense..................                                    891
                                                                   --------
Net income..........................                               $  1,480
                                                                   ========
(1) For the eleven months ended December 31, 1996

                                       36
<PAGE>
      COMMERCIAL BANKING ACTIVITIES. The Company's commercial banking activities
are  conducted  through the Bank.  Net interest  income of the Bank for the year
ended December 31, 1997 was $6.8 million,  compared to $6.3 million for the same
period in 1996, a $0.5 million or 7.9% increase. Based on the Company's analysis
of its loan portfolio and loan loss reserve, the loan loss provision was reduced
$90 thousand  for 1997,  compared to $150  thousand for 1996, a 40.0%  decrease.
Non-interest  income for 1997 was $1.3  million,  compared  to $1.3  million for
1996.  Total  non-interest  expense was $5.5 million for 1997,  compared to $4.6
million for 1996, a 19.6% increase. Net income before taxes was $2.5 million for
1997, compared to $2.9 million for 1996, a 13.8% decrease.

      The decline in the Bank's net income before taxes in 1997 compared to 1996
was mainly due to increases in noninterest expenses. The principal components of
this increase were an increase in Company general and administrative expenses of
$592 thousand, a one time write-down of $255 thousand in the value of a security
held  in   portfolio,   and  $138  thousand  from  the  write-off  of  leasehold
improvements  in a facility which was abandoned.  Other increases in general and
administrative  expenses were  substantially  due to the full year impact from a
new branch which was opened in September 1996,  expenses  associated with moving
into  the  new  headquarters   building,  and  additional  employees  hired  for
accounting and credit administration functions and other support operations.

     TRUST  ACTIVITIES.  United  Trust  reported a net loss before taxes of $114
thousand  for the year  ended  December  31,  1997,  compared  to a loss of $421
thousand for 1996, an  improvement of $307 thousand.  This  improvement  was the
result of the increased volume of trust accounts.

      INVESTMENT ADVISORY  ACTIVITIES.  Net income before taxes for EPW was $149
thousand for the year ended December 31, 1997,  compared to $92 thousand for the
same  period of 1996,  a $57  thousand  or 61.9%  increase.  This  increase  was
primarily  due to an increase in the volume of assets  under  management  by EPW
resulting from higher market values of the assets under management.

ANALYSIS OF NET INTEREST INCOME

      Net interest income for the year ended December 31, 1997 was $6.7 million,
compared to $6.2  million for the same  period in 1996,  a $0.5  million or 8.2%
increase.  Interest  income was $10.8  million for the year ended  December  31,
1997,  compared to $9.6  million for the same period in 1996,  a $1.2 million or
12.5%  increase.  Interest  expense was $4.1 million for the year ended December
31,  1997,  compared to $3.4 million for the same period in 1996, a $0.7 million
or 20.6% increase.

      The   following   table   summarizes   the   average   yields   earned  on
interest-earning   assets  and  the  average  rates  paid  on   interest-bearing
liabilities  for the  years  ended  December  31,  1997  and  1996  (dollars  in
thousands):











                                       37
<PAGE>
                                          YEARS  ENDED DECEMBER 31,
                                                     1997
                                       Average                  Average
                                       Balance     Interest       Rate 
                                       ---------  ----------   ---------
Summary of average rates/interest
 earning assets:
Interest earning assets:
  Loans, net(1)......................  $  83,614  $    8,961       10.72% 
Securities:
  Investment securities - taxable....     22,995       1,508        6.56  
  Investment securities - non-taxable        494          29        9.09  
  Federal funds sold.................      5,447         295        5.42  
                                       ---------  ----------              
  Total earning assets...............    112,550      10,793        9.60% 
  Non-earning assets.................     18,230
                                       ---------
Total average assets.................  $ 130,780
                                       =========

Interest bearing liabilities:
  NOW & money market.................  $  30,692   $     795        2.59%
  Savings............................      4,774          97        2.02 
  Time, $100,000 & over..............      7,518         419        5.57 
  Time other.........................     47,445       2,604        5.49 
  Convertible subordinated debentures        630          50        8.00 
  Long-term debt.....................      1,037          80        7.73 
  Other borrowings...................      2,638          56        2.13 
                                       ---------  ----------             
Total interest bearing liabilities...     94,734       4,101        4.33 

Non-Interest bearing liabilities:
  Deposits...........................      24,774
  Other..............................       1,380
  Stockholders' equity...............       9,892
                                       ----------
  Total liabilities and stockholders'  $  130,780
   equity............................  ==========

  Net interest & net interest spread.             $    6,692          5.27%
                                                  ==========          ====
  Net interest margin................                                 5.96
                                                                      ====















                                       38
<PAGE>
                                          YEARS  ENDED DECEMBER 31,
                                                     1996
                                       Average                  Average
                                       Balance     Interest       Rate 
                                       ---------  ---------   ---------
Summary of average rates/interest
 earning assets:

Interest earning assets:
  Loans, net(1)......................  $  75,590  $   8,121      10.74%

Securities:
  Investment securities - taxable....     18,168      1,216       6.69
  Investment securities - non-taxable        659         38       9.22
  Federal funds sold.................      4,144        220       5.31
                                       ---------  ---------
  Total earning assets...............     98,561      9,595       9.76%
  Non-earning assets.................     13,774
                                       ---------
Total average assets.................  $ 112,335
                                       =========

Interest bearing liabilities:
  NOW & money market.................  $  23,938  $      542      2.26%
  Savings............................      4,977         108      2.16
  Time, $100,000 & over..............      4,307         242      5.61
  Time other.........................     43,089       2,315      5.37
  Convertible subordinated debentures        578          46      7.96
  Long-term debt.....................        886          78      8.80
  Other borrowings...................      3,959          89      2.26
                                       ---------  ----------
Total interest bearing liabilities...     81,733       3,420      4.18

Non-Interest bearing liabilities:

  Deposits...........................     20,421
  Other..............................      1,235
  Stockholders' equity...............      8,945
                                       ---------
  Total liabilities and stockholders'  $ 112,335
  equity.............................  =========

  Net interest & net interest spread.             $    6,175      5.58%
                                                  ==========      ====
  Net interest margin................                             6.27%
                                                                  ====

(1)   Includes non-accrual loans.










                                       39
<PAGE>
      The  following  table  reflects the change in net  interest  income due to
changes in the volume and rate of the Company's  assets and  liabilities for the
twelve month period ended December 31, 1997:


                                                Increase(Decrease)
                                        --------------------------------------
Changes in net interest income                            Combination
(dollars in thousands)                  Volume    Rate    Rate/Volume Total
                                        ------    ------  ----------- --------
Interest earning assets:
  Loans, net.........................   $  861    $  (24) $      2    $    839
  Securities:
  Investment securities - taxable....      323       (24)       (6)        293
  Investment securities - non-taxable.     (15)       (1)        6         (10)
  Federal funds sold.................       69         5         1          75
                                        ------    ------   -------     -------
Total change in interest income......    1,238       (44)        3       1,197

Interest bearing liabilities:
  NOW & money market.................      153        78        22         253
  Savings............................       (4)       (7)        -         (11)
  Time, $100,000 & over..............      180        (2)       (1)        177
  Time other.........................      234        50         5         289
  Convertible subordinated debentures.       4         -         -           4
  Long-term debt.....................       13        (9)       (2)          2
  Other Borrowings...................      (30)       (5)        2         (33)
                                        ------    ------   -------     -------
Total change in interest expense.....      550       105        26          681
                                        ------    ------   -------     --------

Increase (decrease) in net interest
  income.............................   $  688    $ (149)  $   (23)    $    516
                                        ======    =======  =======     ========

NONINTEREST INCOME

      Noninterest  income for the year ended  December 31, 1997 was $3.2 million
compared  to $2.5  million  for the same  period in 1996,  an  increase  of $0.7
million or 28.0%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined  revenues  increased  $657 thousand  during this
period. Service charge income on deposits also increased by $119 thousand during
this same period.  Gain on sale of SBA loans declined $135 thousand  during this
period.














                                       40
<PAGE>
      The following table indicates the components of noninterest income for the
years ended December 31, 1997 and 1996 (dollars in thousands):
                                              For the Years Ended
                                                  December 31,      Increase/
                                              1997        1996      (Decrease)
                                           ----------  ----------  -----------
Service charges on deposit accounts........$      675  $      556  $       119
Trust and investment management income.....     1,886       1,229          657
Other service charges, fees, and income....       225         209           16
Loan servicing fees........................       164         153           11
Gain on sale of SBA loans..................       290         425         (135)
                                           ----------  ----------  -----------
Total noninterest income.................. $    3,240  $    2,572  $       668
                                           ==========  ==========  ===========

NONINTEREST EXPENSE

      Total  noninterest  expense for the year ended  December 31, 1997 was $7.6
million,  compared to $6.2  million for the same period in 1996,  an increase of
$1.3  million or 22.6%.  The  increase is mainly due to the  inclusion of a full
year of  EPW's  operations  and the St.  Petersburg  Beach  branch  in the  1997
results,  versus the  inclusion  of only eleven and four  months of  operations,
respectively,  in  1996,  as well as the  expansion  of the  Bank's  facilities,
expansion of United Trust and EPW's operations and a one-time write-down of $255
thousand in the Bank's investment securities portfolio.

      The following table reflects the components of noninterest expense for the
years ended December 31, 1997 and 1996 (dollars in thousands):
                                           For the Years Ended
                                              DECEMBER 31,
                                                                    Increase/
                                         1997           1996        (Decrease)
                                     ------------   ------------   -----------
Salaries and employee benefits....   $      4,048   $      3,724   $       324
Occupancy expense.................            514            387           127
Furniture and equipment expense...            494            423            71
Data processing expense...........            418            375            43
Legal and professional fees.......            177            153            24
Amortization of intangible assets.             67            111           (44)
Advertising.......................            133            124             9
Relocation expense................            138              -           138
Stationery and supplies...........            150            141             9
Directors fees....................            199            143            56
Securities write-down.............            255              -            255
Other operating expenses..........            979            645            334
                                     ------------   ------------   ------------
Total noninterest expense.........   $      7,572   $      6,226   $      1,346
                                     ============   ============   ============










                                       41
<PAGE>
LIQUIDITY AND ASSET MANAGEMENT

      LIQUIDITY

      The  Investment  and  Asset/Liability  Committee of the Board of Directors
reviews the  Company's  liquidity,  which is its ability to generate  sufficient
cash to meet the funding needs of current loan demand, deposit withdrawals,  and
other  cash  demands.   The  primary  sources  of  funds  consist  of  deposits,
amortization  and prepayments of loans,  sales of investments,  other funds from
operations and the Company's  capital.  The Bank is a member of the Federal Home
Loan Bank of Atlanta  ("FHLB") and has the ability to borrow to  supplement  its
liquidity needs.

      When the  Company's  primary  sources of funds are not  sufficient to meet
deposit outflows,  loan originations and purchases and other cash  requirements,
the  Company  may  supplementally  borrow  funds  from the  FHLB and from  other
sources.  The FHLB acts as an additional  source of funding for banks and thrift
institutions that make residential mortgage loans.

      FHLB borrowings,  known as "advances",  are secured by the Bank's mortgage
loan  portfolio,  and the terms  and rates  charged  for FHLB  advances  vary in
response to general economic conditions.  As a shareholder of the FHLB, the Bank
is  authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will  consider  various  factors,  including  an  institution's  regulatory
capital  position,  net  income,  quality  and  composition  of assets,  lending
policies and practices,  and level of current  borrowings  from all sources,  in
determining the amount of credit to extend to an institution. As of December 31,
1998, the Company had no FHLB advances outstanding.

      A Florida  chartered  commercial  bank is required to maintain a liquidity
reserve of at least 15% of its total  transaction  accounts  and 8% of its total
nontransaction  accounts  less deposits of certain  public funds.  The liquidity
reserve  may consist of cash on hand,  cash on demand  with other  correspondent
banks and other investments and short-term  marketable  securities as determined
by the rules of the  Department,  such as federal  funds sold and United  States
securities  or securities  guaranteed by the United States or agencies  thereof.
The Company  complies with  applicable  liquidity  reserve  requirements.  As of
December 31, 1998,  the Bank had  liquidity of  approximately  $23.7  million or
approximately  15.4% of total deposits  combined with borrowings.  The Company's
primary  sources of funds consist of principal  payments on loans and investment
securities,  proceeds from sales and maturities of securities available for sale
and net  increases  in  deposits.  The  Company  uses its funds  principally  to
purchase   investment   securities  and  fund  existing  and   continuing   loan
commitments.  At December 31,  1998,  the Company had  commitments  to originate
loans totaling $21.8 million.  Scheduled  maturities of  certificates of deposit
during the 12 months  following  December  31,  1998 total  $47.9  million as of
December 31,  1998.  Management  believes the Company has adequate  resources to
fund all its  commitments,  and, if so desired,  that it can adjust the rates on
certificates  of  deposit  to  retain  deposits  in  a  changing   interest-rate
environment.







                                       42
<PAGE>
      ASSET/LIABILITY MANAGEMENT

      One of the primary objectives of the Company is to reduce  fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk,  the Board of Directors has  established  interest-rate  risk policies and
procedures  which delegate to the Investment and  Asset/Liability  Committee the
responsibility to monitor and report on interest-rate risk, devise strategies to
manage  interest-rate risk, monitor loan originations and deposit activity,  and
approve all pricing strategies.

      The  management  of  interest-rate  risk  is one of the  most  significant
factors  affecting the ability to achieve  future  earnings.  The measure of the
mismatch of assets maturing or repricing within certain periods, and liabilities
maturing or  repricing  within the same period,  is commonly  referred to as the
"gap" for such period. Controlling the maturity or repricing of an institution's
assets and  liabilities  in order to  minimize  interest  rate risk is  commonly
referred to as gap  management.  "Negative  gap" occurs when,  during a specific
time period, an institution's  liabilities are scheduled to reprice more rapidly
than its assets, so that,  barring other factors  affecting  interest income and
expense, in periods of rising interest rates the institution's  interest expense
would increase more rapidly than its interest income,  and in periods of falling
interest rates the  institution's  interest  expense would decrease more rapidly
than its interest income. "Positive gap" occurs when an institution's assets are
scheduled to reprice more rapidly than its liabilities,  so that,  barring other
factors  affecting  interest income and expense,  in periods of falling interest
rates,  the  institution's  interest income would decrease more rapidly than its
interest  expense,  and in periods of rising interest rates,  the  institution's
interest  income would  increase more rapidly than its interest  expense.  It is
common to focus on the one-year gap, which is the difference  between the dollar
amount of assets and the dollar  amount of  liabilities  maturing  or  repricing
within the next 12 months.

      To the  extent  market  conditions  permit,  the Bank  follows a  strategy
intended to protect its net  interest  income from  adverse  changes in interest
rates by maintaining  spreads through the  adjustability of its interest earning
assets  and its  interest  bearing  liabilities.  The Bank  employs  a number of
strategies  designed to protect its net interest income. The Bank calculates its
net interest  margin on a monthly basis and compares it to a quarterly  national
peer group  ratio.  Historically,  the Bank has enjoyed a higher than peer group
average  net  interest  margin  as  well as a  higher  margin  than  most of the
community banks operating in Pinellas County.

      Additionally,  the Investment  and  Asset/Liability  Committee  meets on a
quarterly  basis to review the most recent margin  analysis,  the Bank's overall
pricing  strategies,  and a monthly  gap  report  measuring  its  interest  rate
sensitivity position.

      The Bank is also a member  of the  FHLB.  Member  banks  have  access to a
variety of fixed and variable rate  borrowings,  ranging from overnight to up to
20 years or  longer.  Access to these  instruments  can permit the Bank to match
maturities  of  either  specific  groups  of  loans  or  larger,  single  loans.
Currently, the Bank has no FHLB advances outstanding.






                                       43
<PAGE>
      The  cumulative  one-year  gap at December  31, 1998 was a negative  $28.7
million or a negative  16.7%  (expressed as a percentage of total  assets).  The
exclusion of  approximately  $4.0 million of  non-accrual  loans  increased  the
negative gap by over 2%. The Company performs an income  simulation  analysis to
measure net interest income  volatility when the portfolio is subjected to a 200
basis point interest rate shock. Based on the results of this simulation and the
current interest rate environment  (taking into account  competitive pricing and
generally  declining interest rates), the Company believes that its gap position
as of December  31,  1998 was  appropriate,  and  currently  anticipates  that a
similar  negative gap position  will  continue in the  subsequent  one year time
period.

      The   following   table   presents   the   maturities   or   repricing  of
interest-earning  assets and interest-bearing  liabilities at December 31, 1998.
The balances shown have been derived based on the financial  characteristics  of
the various  assets and  liabilities.  Adjustable and  floating-rate  assets are
included  in the period in which  interest  rates are next  scheduled  to adjust
rather than their scheduled  maturity dates.  Fixed-rate  loans are shown in the
periods  in which  they are  scheduled  to be repaid  according  to  contractual
amortization and, where appropriate,  prepayment assumptions based on the coupon
rates in the portfolio have been used to adjust the repayment amounts. Repricing
of time deposits is based on their scheduled maturities.




































                                       41
<PAGE>
                          INTEREST SENSITIVITY ANALYSIS
                             (dollars in thousands)
                                                            Non-Rate
                                                            Sensitive
                0 to 3    4 to 6    7 to 12  13 to 60  60+    Assets/
                Months    Months    Months   Months   Months  Liabilities Total
                -------   -------   -------  -------  ------- ---------  -------
ASSETS:
  Federal funds
    sold........$  4,001 $      0  $       0  $     0 $      0   N/A   $  4,011
  Securities....   3,050    2,097      1,211   13,052    7,073   N/A     26,483
  Loans:(1) 
  Fixed.........   7,949    3,614      3,480   20,867    6,376   N/A     42,286
  Variable......  27,318    8,033      4,369   30,589    2,561   N/A     72,870
                -------- --------  ---------  ------- -------- -------- -------
Total rate
 sensitive
 assets.........$ 42,328 $ 13,744  $  9,060  $ 64,508 $ 16,010   N/A    $145,650
                ======== ========  ========  ======== ======== ======== ========

LIABILITIES:

  Interest
     demand.....$ 32,407 $      0  $      0  $      0 $      0 $ 16,143 $ 48,550
  Savings........  4,686        0         0         0        0        0    4,686
  Time deposits.. 14,585   11,234    22,130    10,168        0        0   58,117
  Other borrowings 8,796        0         0         0        0        0    8,796
  Long term debt..     4        4         8        18      630        0      664
                -------- -------- --------- --------- -------- -------- --------
Total rate
  sensitive
  liabilities.. $ 60,478 $ 11,238 $  22,138 $  10,186 $    630 $ 16,143 $120,813
                ======== ======== ========= ========= ======== ======== ========
Dollar gap....  $(18,150)$  2,506 $ (13,078)$  54,322 $ 15,380 $(16,143)$ 24,837
Cumulative
 Dollar gap..   $(18,150)$(15,644)$ (28,722)$  25,600 $ 40,980 $ 24,837 $ 24,837
Cumulative gap/
  total assets(2).(10.56)%  (9.10)%  (16.71)%   14.89%   23.84%   14.45%  14.45%

(1)   Excludes nonaccrual loans of approximately $4.0 million.
(2)   Calculated based on total assets of $171,902.

















                                       44
<PAGE>
      The following  table  summarizes the Company's  securities by maturity and
weighted  average yields at December 31, 1998.  Yields on tax exempt  securities
are  stated  at their  nominal  rates  and have not been  adjusted  for tax rate
differences.  Refer  to  Note  F -  Securities  in  the  Company's  Consolidated
Financial  Statements  for  additional   information  regarding  the  Securities
portfolio.

                                                    Within One Year
                                              Carrying            Average 
                                                Value              Yield  
                                            -----------         ----------
     At December 31, 1998:

Securities held to maturity:

U.S. Treasury securities and
  obligations of U.S.Government
  corporations and agencies                  $       0              0.00% 
Obligations of State and political
  Subdivisions                                     130              5.84% 
Corporate obligations                                0              0.00% 
Other                                              100              6.05% 
                                             ---------              ----- 
                                             $     230              5.93% 
Mortgage Backed Securities                                                
Total                                        $     230              5.93% 
                                             =========              ===== 

At December 31, 1998:
Securities available for
sale:

U.S. Treasury securities and
  obligations of U.S. Government
  corporations and agencies                  $   2,513              6.61% 

Obligations of State and political
  Subdivisions                                       0              0.00% 
                                             ---------              ----- 
                                             $   2,513              6.61% 
Mortgage Backed Securities                                                
 Equity Securities                                                        
                                             ---------              ----- 
Total                                        $   2,513              6.61% 
                                             =========              ===== 

































                                       45
<PAGE>
                                                  After One Year But
                                                   Within 5 Years  
                                              Carrying            Average
                                               Value               Yield 
                                            -----------          ----------
At December 31, 1998:
Securities held to maturity:

U.S. Treasury securities and
  obligations of U.S.Government
  corporations and agencies                 $    2,507              5.82%
Obligations of State and
  political Subdivisions                           524              6.66%
Corporate obligations                              502              7.62%
Other                                                0              0.00%
                                            ----------             ------
                                            $    3,533              6.21%
Mortgage Backed Securities  
    Total                                   $    3,533              6.21%
                                            ==========             ======

At December 31, 1998:

Securities available for
sale:
U.S. Treasury securities and
  obligations of U.S. Government
  corporations and agencies                 $    4,363              6.33% 
Obligations of State and
  policical Subdivisions                             0              0.00% 
                                            ----------              ----- 
                                            $    4,363              6.33% 
Mortgage Backed Securities
Equity Securities
                                            ----------              ----- 
Total                                       $    4,363              6.33% 
                                            ==========              ===== 





















                                       46
<PAGE>
                                                   After 5 Years But
                                                    Within 10 Years
                                              Carrying            Average 
                                                Value              Yield  
                                            -----------         ----------
At December 31, 1998:

Securities held to maturity:

U.S. Treasury securities and
  obligations of U.S.Government
  corporations and agencies                  $   3,469              6.59%
Obligations of State and
  political Subdivisions                             0              0.00%
Corporate obligations                                0              0.00%
Other                                                0              0.00%
                                             ---------              -----
                                             $   3,469              6.59%
Mortgage Backed Securities                                               
Total                                        $   3,469              6.59%
                                             =========              =====
At December 31, 1998:

Securities available for sale:

U.S. Treasury securities and
  obligations of U.S. Government
  corporations and agencies                  $   2,010              6.59%
Obligations of State and
  policical Subdivisions                         1,500              6.26%
                                             ---------              -----
                                             $   3,510              6.47%
Mortgage Backed Securities                                               
 Equity Securities                                                       
                                             ---------              -----
Total                                        $   3,510              6.47%
                                             =========              =====





















                                       47
<PAGE>
                                     After 10 Years             Total
                                  Carrying    Average     Carrying   Average
                                   Value       Yield       Value      Yield
                                 ---------   --------    ---------   --------
At December 31, 1998:

Securities held to maturity:

U.S. Treasury securities and
  obligations of U.S.Government
  corporations and agencies      $       0     0.00%     $   5,976     6.26%
Obligations of State and
  political Subdivisions               525     4.62%         1,179     5.66%
Corporate obligations                    0     0.00%           502     7.62%
Other                                    0     0.00%           100     6.05%
                                 ---------     ----      ----------    -----
                                 $     525     4.62%     $   7,757     6.25%
Mortgage Backed Securities                                   3,449     7.21%
Total                            $     525     4.62%     $  11,206     6.55%
                                 =========     ====      =========     ==== 

At December 31, 1998:
Securities available for
sale:

U.S. Treasury securities and
  obligations of U.S. Government
  corporations and agencies      $       0     0.00%     $   8,886     6.47%
Obligations of State and
  political Subdivisions                 0     0.00%         1,500     6.26%
                                 ---------     ----      ---------     ----
                                 $       0     0.00%     $  10,386     6.43%
Mortgage Backed Securities                                   3,066     6.77%
 Equity Securities                                           1,075     2.28%
                                 ---------     ----      ---------     ----
Total                            $       0     0.00%     $  14,527     6.20%
                                 =========     ====      =========     ====

YEAR 2000 CONSIDERATIONS

      During the next year, many businesses,  including  financial  institutions
such as the Company,  will face potentially  serious issues  associated with the
inability  of  certain  existing  data  processing   hardware  and  software  to
appropriately  recognize  calendar  dates  beginning in the year 2000. The "Year
2000" problem arose  because many existing  computer  programs use only the last
two  digits  to refer to a year.  Therefore,  these  computer  programs  may not
properly  recognize a year that begins with "20" instead of "19."  Additionally,
many  computer  programs that can only  distinguish  the final two digits of the
year may read entries for the year 2000 as the year 1900. For example,  computer
systems may compute payment, interest, delinquency or other figures important to
the  operations  of  financial  institutions  based on the  wrong  date.  If not
corrected, many computer applications,  including those owned by the Company and
third  parties  with  whom the  Company  does  business,  could  fail or  create
erroneous results,  thereby  potentially  impacting the operations and financial
performance  of the  Company.  Although  the  Company  is  currently  addressing
potential  Year 2000  problems,  there can be no assurance that its efforts will
prevent all potential  adverse  consequences  to the Company  resulting from the
Year 2000 problem.
                                       48
<PAGE>
      In 1997,  the Company  began the  process of  evaluating  its  information
technology for Year 2000 readiness. In April 1998, the Company adopted a formal,
comprehensive  Year 2000 Policy Statement  designed to identify and address Year
2000 issues that might impact the Company  (the "Year 2000  Plan").  The Company
has completed the "Awareness,"  "Inventory" and "Assessment"  phases of its Year
2000 Plan,  which are  designed  to appoint  and train a group of  employees  to
oversee and  implement  the Year 2000 Plan,  to provide for the inventory of the
software and hardware of the Company and others that should be assessed for Year
2000 problems,  and to provide further  assessment of the nature and size of the
Year 2000 issues that might  effect the  Company,  respectively.  The Company is
currently in the process of overseeing  its internal  efforts and the efforts of
third parties to timely and properly address the Year 2000 issues that have been
identified,  as well as testing and  validating the actions that have been taken
thus far to  address  those  issues.  It is  expected  that  those  testing  and
validation efforts will be completed by June 30, 1999.

      The Company outsources its principal data processing activities to a third
party and purchases most of its software  applications from third party vendors.
Additionally,  the Company  outsources  its trust  business data  processing and
custodial management activities to a third party. Each of the two foregoing data
processing  servicers  have  orally  advised the  Company  that it believes  its
systems  are Year 2000  compliant.  The Company is in the process of testing and
validating  those claims.  Based on these efforts to date, the Company  believes
that its vendors and significant  customers are actively addressing the problems
associated  with the Year 2000 issue and that the  Company  will be  prepared to
respond to Year 2000  problems as they  arise.  The Company is in the process of
finalizing  contingency  plans to address the most reasonably  likely worst case
scenario relating to the Year 2000 problem. The anticipated  completion date for
those  plans is by March 31,  1999.  If the  Company is unable for any reason to
timely  complete such a contingency  plan and problems  associated with the Year
2000 issue arise and are not  addressed as expected by the  Company,  as each of
the Company's  business  segments is very  dependent  upon  computer  systems to
effectively  conduct most of their business operations and fulfill most of their
obligations  to  third  parties,  the  Company's  business  operations  could be
significantly  disrupted  and the Company's  financial  condition and results of
operations could be significantly  adversely  affected.  The Company's Year 2000
efforts are ongoing and have not yet been completed.  Accordingly,  there can be
no  assurance  that the Company  will be prepared to timely  respond to all year
2000 issues that may arise.

      The  Company is also in the  process  of  identifying  Year 2000  problems
stemming from non-information  technology systems, such as microcontrollers used
to operate  security systems and elevators and embedded systems in its buildings
and equipment and other  infrastructure,  and establishing a program for testing
these systems for Year 2000 compliance.  However, the Company does not currently
anticipate  that it will  encounter  any  substantial  Year 2000  problems  with
respect to such  non-information  technology  systems,  and believes the cost to
remedy any such problems will not be material.










                                       49
<PAGE>
      The Company has not incurred material  testing,  compliance or replacement
costs  relating  to its Year  2000  investigation  to date.  The  Company  spent
approximately  $255,000  in 1998 and expects to spend  $280,000 in 1999  towards
technology  related  costs,  including  the  updating of software  and  hardware
systems to ensure Year 2000  compliance.  The  Company  does not expect to incur
additional  material  related  testing,  compliance or replacement  costs in the
future and does not believe that the potential non-compliance of its information
and  non-information  technology systems and programs present a material risk to
the  Company's   financial   condition  or  results  of   operations.   However,
non-material costs may be incurred due to short-term  disruptions resulting from
Year 2000 compliance problems, testing and replacement costs.

      Notwithstanding the foregoing,  there can be no assurance that the Company
will be  successful in  implementing  its Year 2000 Plan and that it will not be
adversely  affected  by the  failure  of  third  party  vendors  or  significant
customers to become Year 2000 compliant. Although the Company is taking steps to
identify and address Year 2000 problems,  if unexpected or unresolved  Year 2000
problems develop,  given the Company's  reliance on data processing  services to
maintain  customer  balances,  service  customer  accounts and to perform  other
record  keeping and service  oriented  functions  associated  with the Company's
three primary business segments,  the occurrence of any such events could have a
material impact on the Company's results of operations,  liquidity and financial
condition.

FORWARD LOOKING STATEMENTS

      This Form 10-KSB  contains  statements  that  constitute  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words  "believe,"  "estimate,"  "expect,"  "intend,"  "anticipate"  and  similar
expressions  and variations  thereof  identify  certain of such  forward-looking
statements,  which  speak  only as of the  dates on which  they were  made.  The
company   undertakes   no   obligation   to   publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events,  or  otherwise.  Readers  are  cautioned  that any such  forward-looking
statements  are not  guarantees  of future  performance  and  involve  risks and
uncertainties,  and  that  actual  results  may  differ  materially  from  those
indicated in the forward-looking statements as a result of various factors. Such
factors include competition,  general economic conditions,  potential changes in
interest  rates,  and changes in the value of real estate securing loans made by
the issuer.

FACTORS AFFECTING FUTURE RESULTS

IMPACT OF CHANGES IN REAL ESTATE VALUES

      A significant  portion of the Company's loan  portfolio  consists of loans
secured by real estate.  At December 31, 1998,  5.9% of the Company's loans were
secured by one-to-four  family  residential  real estate,  56.5% were secured by
commercial real estate and multifamily residential, 2.9% were construction loans
and the Company had other real estate ("ORE") acquired through  foreclosure with
a  book  value  of  $1.0  million.  The  properties  securing  these  loans  are
concentrated  in Florida.  Real estate values and real estate markets  generally
are  affected  by, among other  things,  changes in national,  regional or local
economic  conditions,  fluctuations  in interest rates and the  availability  of
loans to potential  purchasers,  changes in the tax laws and other  governmental


                                       50
<PAGE>
statutes,  regulations  and  policies  and acts of nature.  Any  decline in real
estate prices,  particularly in Florida, could significantly reduce the value of
the real estate  collateral  securing the Company's real estate loans,  increase
the level of the Company's  nonperforming loans, require write-downs in the book
value of its ORE, and have a material negative impact on the Company's financial
performance.

NONPERFORMING ASSETS

      The Company's ratio of  nonperforming  assets to total assets was 3.18% at
December 31,  1998,  which is above the average  level of other  similarly-sized
financial  institutions.  While the Company carefully manages its loan portfolio
with a view to minimizing its  nonperforming  assets,  there can be no assurance
that the Company's ratio of nonperforming assets to total assets will improve or
not increase, particularly if general economic conditions deteriorate.

ADEQUACY OF ALLOWANCE FOR LOAN LOSSES

      Industry  experience  indicates that a portion of the Company's loans will
become  delinquent  and a portion  of the loans will  require  partial or entire
charge-off.  Regardless of the  underwriting  criteria  utilized by the Company,
losses may be  experienced  as a result of various  factors beyond the Company's
control,  including,  among other things, changes in market conditions affecting
the value of properties and problems  affecting the credit of the borrower.  The
Company's  determination  of the  adequacy of its  allowance  for loan losses is
based  on  various   considerations,   including   an   analysis   of  the  risk
characteristics  of  various   classifications  of  loans,  previous  loan  loss
experience,  specific  loans which would have loan loss  potential,  delinquency
trends,  estimated fair value of the  underlying  collateral,  current  economic
conditions,  the view of the Company's  regulators,  and geographic and industry
loan concentration. If, however, delinquency levels were to increase as a result
of adverse general  economic  conditions,  especially in Florida,  the loan loss
reserve so determined by the Company may not be adequate. To the extent that the
Company's  loan losses  exceed its  allowance  for loan  losses,  the  Company's
results of  operations  would be adversely  affected.  There can be no assurance
that the Company's  allowance for loan losses will be adequate to cover its loan
losses or that the  Company  will not  experience  losses in its loan  portfolio
which may require significant  increases to the allowance for loan losses in the
future.

POTENTIAL IMPACT OF CHANGES IN INTEREST RATES

      The  Company's  profitability  is  dependent  to a large extent on its net
interest  income,  which  is the  difference  between  its  interest  income  on
interest-earning   assets  and  its   interest   expense   on   interest-bearing
liabilities.  The  Company,  like most  financial  institutions,  is affected by
changes in general  interest rate levels,  which are currently at relatively low
levels,  and by other economic  factors  beyond its control.  Interest rate risk
arises from mismatches  (i.e., the interest  sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate  sensitivity gap to total assets.  More assets
repricing or maturing  than  liabilities  over a given time frame is  considered
asset-sensitive  and is  reflected  as a  positive  gap,  and  more  liabilities
repricing  or  maturing  than  assets  over a given  time  frame  is  considered
liability-sensitive  and is  reflected  as a negative  gap.  An  asset-sensitive
position  (i.e.,  a positive gap) will  generally  enhance  earnings in a rising


                                       51
<PAGE>
interest  rate  environment  and will  negatively  impact  earnings in a falling
interest  rate  environment,  while  a  liability-sensitive  position  (i.e.,  a
negative  gap)  will  generally  enhance  earnings  in a falling  interest  rate
environment   and  negatively   impact   earnings  in  a  rising  interest  rate
environment. Fluctuations in interest rates are not predictable or controllable.
The  Company has  attempted  to  structure  its asset and  liability  management
strategies  to mitigate the impact on net  interest  income of changes in market
interest  rates.  At December  31, 1998,  the Company had a one year  cumulative
negative gap of 16.7%.  This negative one year gap position may, as noted above,
have a negative impact on earnings in a rising interest rate environment.

REGULATORY OVERSIGHT

      The Bank is subject to extensive  regulation,  supervision and examination
by the  Department as its  chartering  authority and primary  regulator,  by the
Federal Reserve as its federal regulator and by the FDIC as administrator of the
insurance fund that insures the Bank's deposits up to applicable  limits. As the
holding  company of the Bank, the Company is subject to regulation and oversight
by the Federal Reserve.  Such regulation and supervision  governs the activities
in which an institution may engage and is intended  primarily for the protection
of the FDIC insurance funds and  depositors.  Regulatory  authorities  have been
granted   extensive   discretion  in  connection  with  their   supervisory  and
enforcement   activities  and  regulations  have  been  implemented  which  have
increased capital  requirements,  increased insurance premiums and have resulted
in increased administrative,  professional and compensation expenses. Any change
in the regulatory structure or the applicable statutes or regulations could have
a material  impact on the  Company,  the Bank and their  operations.  Additional
legislation  and regulations may be enacted or adopted in the future which could
significantly  affect the powers,  authority and  operations of the Bank and the
Bank's  competitors  which in turn could have a material  adverse  affect on the
Bank and its operations.

DEPENDENCE ON EXISTING MANAGEMENT

     The Company's  business  depends in large part upon the availability of the
services of its senior  management,  including  Neil W. Savage,  Ward J. Curtis,
Jr.,  Harold J. Winner and William A.  Eickhoff.  If the services of any of such
senior  management  personnel  were to become  unavailable  to the Company,  the
Company's business and operating results could be adversely affected.  While the
Company  maintains  key man life  insurance  policies  on  certain of its senior
management  personnel,  naming  the  Company  as  beneficiary,  there  can be no
assurance that the proceeds of any such policies would adequately compensate the
Company for the loss of the services of any of such persons.  Neither Mr. Savage
nor Mr. Winner have entered into a non-competition agreement with the Company or
the Bank.  Although both Mr.  Eickhoff's and Mr. Curtis's  employment  contracts
contain   non-competition   clauses,  the  provisions  terminate  under  certain
conditions.

CONTROL BY EXISTING SHAREHOLDERS

      The  Company's  directors and  executive  officers  (and their  respective
affiliates  and  immediate  family  members)  own  approximately  49.6%  of  the
outstanding  Common  Stock.  As a result of such  ownership,  these persons will
likely be able to  effectively  control the election of the Company's  directors
and the outcome of matters requiring shareholder  approval,  and thereby control
the management and policies of the Company.


                                       52
<PAGE>
COMPETITION

     The  Company  competes  with  various  types  of  financial   institutions,
including  other  commercial  banks and savings  institutions,  and with finance
companies,  mortgage banking  companies,  money market mutual funds,  investment
advisory firms and companies and credit unions, many of which have substantially
greater financial  resources than the Company and, in some cases,  operate under
fewer regulatory constraints. 

ANTI-TAKEOVER CONSIDERATIONS

      The Company's articles of incorporation and bylaws and Florida law contain
certain  provisions  that may discourage or make more difficult any attempt by a
person or group to obtain  control of the  Company.  In  addition,  the board of
directors  of the  Company is  empowered  to issue from time to time one or more
series of Undesignated  Preferred Stock without shareholder approval,  the terms
of which could have the effect of delaying or  preventing a change in control of
the Company.

POSSIBLE VOLATILITY OF SHARE PRICE

      The market price of the Common Stock may experience  fluctuations that are
unrelated to the operating  performance of the Company.  The market price of the
Common Stock may be affected by conditions in the securities  markets  generally
as well as  developments  in the banking  industry or the United States or world
economy.  Any  securities  exchange on which the Common  Stock may be traded may
from time to time experience  significant price and volume fluctuations that may
be unrelated to the operating  performance of particular  companies.  The market
price of the Common Stock,  like the stock prices of many  publicly  traded bank
holding companies, may prove to be highly volatile.

RESTRICTIONS ON ABILITY TO PAY DIVIDENDS

      The Company is  primarily  a holding  company  with no  material  business
operations,  sources of income or assets of its own other than the shares of its
subsidiaries.   Because  substantially  all  of  the  Company's  operations  are
conducted through subsidiaries,  the Company's cash flow and, consequently,  its
ability to pay dividends or make other  distributions  is dependent  upon either
third-party  borrowings made by the Company or the cash flow of its subsidiaries
and the  payment  of funds by those  subsidiaries,  including  the Bank,  to the
Company  in the form of  loans,  dividends,  fees or  otherwise.  The  Company's
subsidiaries  are  separate  and  distinct  legal  entities  and  will  have  no
obligation, contingent or otherwise, to make any funds available, whether in the
form of  loans,  dividends  or  otherwise.  Regulatory  limitations  on the Bank
restrict its ability to make loans or distributions to the Company.













                                       53
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

The following  financial  statements  are contained on pages F-1 through F-41 of
this Report:

Report of Independent Certified Public Accountants;

Consolidated Balance Sheets - December 31, 1998 and 1997

Consolidated  Statements of Earnings - Years ended  December 31, 1998,  1997 and
1996;

Consolidated  Statements of  Comprehensive  Income - Years ended  December 31,
1998, 1997 and 1996;

Consolidated  Statement of  Stockholders'  Equity - Years ended  December 31,
1998, 1997 and 1996;

Consolidated  Statements of Cash Flows - Years ended  December 31, 1998,  1997
and 1996;

Notes to Consolidated Financial Statements

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Not Applicable.

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Information  required  by Item 9 of Form 10-KSB is  incorporated  herein by
reference to the  Registrant's  definitive  Proxy  Statement for the 1999 Annual
Meeting of  Shareholders  which will be filed with the  Securities  and Exchange
Commission  no later  than 120 days after the close of the  Registrant's  fiscal
year.

ITEM 10.  EXECUTIVE COMPENSATION

     Information  required by Item 10 of Form 10-KSB is  incorporated  herein by
reference to the  Registrant's  definitive  Proxy  Statement for the 1999 Annual
Meeting of  Shareholders  which will be filed with the  Securities  and Exchange
Commission  no later  than 120 days after the close of the  Registrant's  fiscal
year.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  required by Item 11 of Form 10-KSB is  incorporated  herein by
reference to the  Registrant's  definitive  Proxy  Statement for the 1999 Annual
Meeting of  Shareholders  which will be filed with the  Securities  and Exchange
Commission  no later  than 120 days after the close of the  Registrant's  fiscal
year.




                                       54
<PAGE>
ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information  required by Item 12 of Form 10-KSB is  incorporated  herein by
reference to the  Registrant's  definitive  Proxy  Statement for the 1999 Annual
Meeting of  Shareholders  which will be filed with the  Securities  and Exchange
Commission  no later  than 120 days after the close of the  Registrant's  fiscal
year.

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

     3.1  Amended and Restated Articles of Incorporation of the Company*

     3.2  Bylaws of the Company*

     4.1  Form  of  Indenture   with  respect  to  the  Company's   9.4%  Junior
          Subordinated Debentures*

     4.2  Form of Specimen Junior  Subordinated  Debenture  (included in Exhibit
          4.1)*

     4.3  Certificate of Trust of UFH Capital Trust I*

     4.4  Trust Agreement of UFH Capital Trust I*

     4.5  Form of Amended and Restated Trust Agreement of UFH Capital Trust I*

     4.6  Form of Certificate  for Cumulative  Trust  Preferred  Security of UFH
          Capital Trust I*

     4.7  Form of Guarantee Agreement for UFH Capital Trust I*

     4.8  Form of Agreement as to Expenses and Liabilities*

     4.9  Specimen of Common Stock to be registered hereunder*

     10.1 UFH Stock Option and Incentive Compensation Plan*

     10.2 Trust Department Stock Option Plan*

     10.3 Eickhoff, Pieper & Willoughby Stock Option Plan*

     10.4 Modification Agreement*

     10.5 Property Management  Agreement between Imaginative  Investments,  Inc.
          and the Southeast Companies of Tampa Bay, Inc.*

     10.6 Employment Agreement of Charles O. Lowe*

     10.7 Employment Agreement of Ward J. Curtis, Jr.*

     10.8 Employment Agreement of Harold J. Winner*

     10.9 Employment Agreement of John H. Pieper

     10.10 Employment Agreement of Neil W. Savage*


<PAGE>
     10.11 Employment Agreement of William A. Eickhoff*

     10.12 Salary Continuation Agreement of Harold J. Winner*

     10.13 Salary Continuation Agreement of Neil W. Savage*

     10.14Agreement between Willow Green Partnership,  LTD and Irwin Contracting
          relating to foreclosed property acquired by United Bank.

     10.15Pinellas  Bancshares  Corporation  8% Convertible  Debentures  held by
          Eickhoff & Pieper, a Florida General Partnership*

     10.16Loan Agreement  between  AmSouth f/k/a AmSouth Bank of Florida and UFH
          f/k/a Pinellas Bancshares Corporation*

     21   List of Subsidiaries*

     27   Financial Data Schedule

     *This  information  is  incorporated  herein by reference to the  Company's
     Registration Statement on Form SB-2 (Registration  Statement Nos. 333-60431
     and  333-60431-01)  and the  amendment  thereto  previously  filed with the
     Commission.

(b) Reports on Form 8-K
         There were no reports on Form 8-K filed  during the fiscal  year ending
December 31, 1998.































                                       56
<PAGE>
                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
9134,  the  Registrant  has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                UNITED FINANCIAL HOLDINGS, INC.
                                    /s/Neil W. Savage
Date:    March 23, 1999         By: _______________________________
                                    Neil W. Savage President and
                                    Chief Executive Officer

     In accordance  with the  Securities  Exchange Act of 1934,  this report has
been signed below by the following  persons on behalf of the  Registrant  and in
the capacities and on the dates indicated.

SIGNATURE                           TITLE                   DATE

/s/John B. Norrie
_________________________________   Chairman of the Board   March 23, 1999
John B. Norrie

/s/Neil W. Savage
_________________________________   President, Chief        March 23, 1999
Neil W. Savage                      Executive Officer
                                    and Director
                                    (Principal Executive
                                    Officer)

/s/Ronald E. Clampitt
_________________________________   Director                March 23, 1999
Ronald E. Clampitt

/s/Ward J. Curtis
_________________________________   Director                March 23, 1999
Ward J. Curtis

/s/David K. Davis
_________________________________   Director                March 23, 1999
David K. Davis

/s/William A. Eickhoff
_________________________________   Director                March 23, 1999
William A. Eickhoff

/s/Edward D. Foreman
_________________________________   Director                March 23, 1999
Edward D. Foreman

/s/Ian F. Irwin
_________________________________   Director                March 23, 1999
Ian F. Irwin

/s/Charles O. Lowe
_________________________________   Director                March 23, 1999
Charles O. Lowe


                                       57
<PAGE>

/s/Jack A. MaCris, M.D.
_________________________________   Director                March 23, 1999
Jack A. MaCris, M.D.

/s/Ronald R. Petrini
_________________________________   Director                March 23, 1999
Ronald R. Petrini

/s/John B. Wier, Jr.
_________________________________   Director                March 23, 1999
John B. Wier, Jr.

/s/Harold J. Winner
_________________________________   Director                March 23, 1999
Harold J. Winner

/s/C. Peter Bardin
_________________________________   Chief Financial Officer March 23, 1999
C. Peter Bardin                     (Principal Financial Officer)




































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