<PAGE>   1
                                                                      Exhibit 13

NSD Bancorp
--------------------------------------------------------------------------------

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      December 31,
                                                              ----------------------------
                                                                  1999            1998
------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
ASSETS
Cash and Due From Banks                                       $ 13,921,122    $ 19,778,095
Federal Funds Sold                                                 --            2,500,000
Investment Securities Available for Sale at Market Value
  (Amortized Cost of $105,667,201 at December 31, 1999 and
  $90,125,932 at December 31, 1998)                            103,253,784      92,789,341
Investment Securities Held to Maturity at Amortized Cost
  (Market Value of $3,621,208 at December 31, 1998)                --            3,437,580
Loans Held for Sale                                                630,777       3,995,483
Loans, Net of Deferred Fees                                    269,192,709     230,937,044
Unearned Income                                                 (1,947,108)     (1,984,393)
Reserve for Loan Losses                                         (3,088,257)     (2,756,502)
------------------------------------------------------------------------------------------
  Loans, Net                                                   264,157,344     226,196,149
Premises and Equipment, Net                                      2,850,773       2,728,434
Accrued Interest Receivable                                      2,209,494       2,115,343
Other Real Estate Owned and Assets Held for Sale                   262,160         306,620
Other Assets                                                     5,000,018       3,320,947
------------------------------------------------------------------------------------------
TOTAL ASSETS                                                  $392,285,472    $357,167,992
==========================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest Bearing                                         $ 60,429,536    $ 60,317,643
  Interest Bearing                                             229,010,123     219,797,517
------------------------------------------------------------------------------------------
  Total Deposits                                               289,439,659     280,115,160
Borrowed Funds:
  Federal Funds Purchased                                        3,700,000         --
  Advances from Federal Home Loan Bank and Other Borrowings     62,650,000      33,000,000
------------------------------------------------------------------------------------------
  Total Borrowed Funds                                          66,350,000      33,000,000
Accrued Interest Payable                                         4,534,488       4,977,580
Other Liabilities                                                1,612,063       6,680,887
------------------------------------------------------------------------------------------
Total Liabilities                                              361,936,210     324,773,627
Common Stock $1 Par Value; 10,000,000 shares authorized,
  2,873,405 issued and 2,788,097 outstanding at December
  31,1999 and 2,864,589 issued and 2,845,051 outstanding at
  December 31, 1998                                              2,873,405       2,604,172
Treasury Stock at cost, 85,308 shares at December 31, 1999
  and 17,762 shares at December 31, 1998                        (1,879,310)       (457,950)
Capital Surplus                                                 13,625,727       7,885,041
Accumulated Other Comprehensive Income                          (1,589,023)      1,757,851
Retained Earnings                                               17,318,463      20,605,251
------------------------------------------------------------------------------------------
Total Shareholders' Equity                                      30,349,262      32,394,365
------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                    $392,285,472    $357,167,992
==========================================================================================
</TABLE>

See notes to consolidated financial statements.

                                        4
<PAGE>   2

--------------------------------------------------------------------------------

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                  For the Years Ended December 31,
                                                              -----------------------------------------
                                                                 1999           1998           1997
-------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>
INTEREST INCOME
Loans, Including Fees                                         $19,975,531    $19,495,192    $19,506,012
Investment Securities
  Taxable                                                       5,982,224      3,774,062      3,636,691
  Tax-exempt                                                      245,929        257,182        443,534
  Dividends                                                       243,450        165,729        127,418
Interest Bearing Deposits                                          41,496         17,128          4,117
Federal Funds Sold                                                 30,505        691,750         94,966
-------------------------------------------------------------------------------------------------------
  Total Interest Income                                        26,519,135     24,401,043     23,812,738

INTEREST EXPENSE
Deposits                                                        8,816,154      8,889,771      9,129,539
Federal Funds Purchased and Repurchase Agreements                 143,045        --             140,883
FHLB Advances and Other Borrowings                              2,346,752      1,234,125        710,154
-------------------------------------------------------------------------------------------------------
    Total Interest Expense                                     11,305,951     10,123,896      9,980,576
Net Interest Income                                            15,213,184     14,277,147     13,832,162
Provision for Loan Losses                                         840,000        780,000        720,000
-------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses            14,373,184     13,497,147     13,112,162
-------------------------------------------------------------------------------------------------------

OTHER INCOME
Net Investment Securities Gains                                   265,822        233,027        220,250
Service Fees                                                      923,797        766,737        710,755
Other Operating Income                                            608,893        650,139        655,409
-------------------------------------------------------------------------------------------------------
  Total Other Income                                            1,798,512      1,649,903      1,586,414

OTHER EXPENSES
Salaries and Employee Benefits                                  4,440,821      4,273,754      4,153,371
Occupancy Expense                                                 831,442        846,579        783,068
Equipment and Supplies                                          1,110,108      1,023,837      1,043,300
Data Processing                                                   707,550        629,397        575,845
FDIC Insurance                                                     39,751         37,492         40,233
Advertising                                                       166,536        158,070        150,708
Other Operating Expenses                                        1,999,618      2,058,515      2,203,891
-------------------------------------------------------------------------------------------------------
  Total Other Expenses                                          9,295,826      9,027,644      8,950,416

Income Before Income Taxes                                      6,875,870      6,119,406      5,748,160
Provision for Income Taxes                                      2,311,322      1,951,715      1,843,450
-------------------------------------------------------------------------------------------------------

NET INCOME                                                      4,564,548      4,167,691      3,904,710
=======================================================================================================
Other Comprehensive Income, net of tax                         (3,346,874)      (148,831)       707,600
-------------------------------------------------------------------------------------------------------
Net Comprehensive Income                                      $ 1,217,674    $ 4,018,860    $ 4,612,310

NET INCOME PER COMMON SHARE (1)
Net Income--Basic                                                   $1.62          $1.46          $1.38
Net Income--Diluted                                                 $1.60          $1.44          $1.37
Common Dividends Declared and Paid Per Share                        $0.70          $0.62          $0.60
Weighted Average Shares Outstanding--Basic                      2,819,117      2,852,409      2,837,420
Weighted Average Shares Outstanding--Diluted                    2,845,773      2,896,279      2,857,511
</TABLE>

(1) Adjusted for a 10% stock dividend declared January 26, 1999, a 3-for-2 stock
    split in 1997 and a 5% stock dividend in 1997.

See notes to consolidated financial statements.

                                        5
<PAGE>   3

NSD Bancorp
--------------------------------------------------------------------------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   For the Years Ended December 31,
                                                              ------------------------------------------
                                                                  1999           1998           1997
--------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                    $  4,564,548   $  4,167,691   $  3,904,710
Adjustments to Net Income:
  Provision for Loan Losses                                        840,000        780,000        720,000
  Gain on Sale of Investment Securities Available for Sale        (265,822)      (233,027)      (220,250)
  Loss (Gain)on Sale of Other Assets                                29,855        (90,075)         6,250
  Gain on Loan Sales                                               (37,468)       --             --
  Loss (Gain) on Disposition of Premises and Equipment              63,449          6,270       (168,462)
  Depreciation and Amortization                                    641,981        623,339        644,399
  Net Premium Amortization                                          70,783         32,019         60,835
  (Benefit) Provision for Deferred Income Taxes                    (10,454)        23,289       (138,915)
  (Increase) Decrease in Accrued Interest Receivable               (94,151)         1,096       (124,043)
  (Decrease) Increase in Accrued Interest Payable                 (443,092)       194,493        231,294
  (Increase) Decrease in Other Assets                             (315,627)         7,309       (236,904)
  Deferred Loan Fees, Net                                           25,284        (65,969)       (18,430)
  (Decrease) Increase in Other Liabilities                      (4,830,996)     5,127,479         19,061
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                          238,290     10,573,914      4,679,545
--------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from Sale of Investment Securities Available for
    Sale                                                        10,957,629     11,028,644     13,938,578
  Proceeds from Repayments and Maturities of Investment
    Securities Available for Sale                               25,737,157     40,884,132     16,929,934
  Proceeds from Repayments and Maturities of Investment
    Securities Held to Maturity                                  1,171,667      1,856,000      4,041,000
  Purchases of Investment Securities                           (49,775,103)   (86,553,449)   (32,197,537)
  Proceeds from Sales of Other Real Estate Owned                   509,463        913,168        318,124
  Net (Increase) Decrease in Loans                             (32,209,819)       586,154    (22,958,922)
  Proceeds from Loan Sales                                      (3,746,811)       --             --
  (Purchases) Dispositions of Premises and Equipment, Net         (651,168)       (73,345)       318,388
--------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities                          (48,006,985)   (31,358,696)   (19,610,435)
--------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net Increase in Demand and Savings Accounts                    4,612,801      9,809,702      8,140,836
  Net Increase (Decrease) in Certificates of Deposit             4,711,698      1,578,844       (401,027)
  Net Increase (Decrease) in Federal Funds Purchased and
    Repurchase Agreements                                        3,700,000        --          (1,911,184)
  Proceeds from Borrowings                                      47,650,000     29,000,000     20,500,000
  Repayments of Borrowings                                     (18,000,000)   (11,000,000)   (15,060,000)
  Proceeds from the Exercise of Common Stock Options               133,996        257,354        117,247
  Cash Dividends Paid in Lieu of Fractional Shares                  (4,102)       --             (11,499)
  Treasury Stock Purchased                                      (1,421,360)      (457,950)       --
  Cash Dividends Paid                                           (1,971,311)    (1,763,469)    (1,698,741)
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                       39,411,722     27,424,481      9,675,632
--------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents                (8,356,973)     6,639,699     (5,255,258)
Cash and Cash Equivalents at Beginning of Year                  22,278,095     15,638,396     20,893,654
--------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                      $ 13,921,122   $ 22,278,095   $ 15,638,396
========================================================================================================
</TABLE>

For the years ended December 31, 1999, 1998 and 1997, the Corporation paid
interest of $11,749,044, $9,929,402 and $9,749,282 and income taxes of
$2,150,000, $1,957,715 and $1,811,450, respectively. Non-cash investing activity
consisted of transfers of loans in liquidation to foreclosed assets of
approximately $495,000, $763,000 and $261,000 during 1999, 1998, and 1997,
respectively, and also the transfer of $2,267,294 in held to maturity investment
securities to available for sale during 1999.

See notes to consolidated financial statements.

                                        6
<PAGE>   4

--------------------------------------------------------------------------------

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                                                         Other
                                              Common      Treasury       Capital     Comprehensive    Retained
                                              Stock         Stock        Surplus     Income (Loss)    Earnings
----------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>           <C>           <C>             <C>
BALANCE AT DECEMBER 31, 1996                $1,637,630       --        $ 6,266,182    $ 1,199,083    $18,217,358
Net Income                                      --           --            --             --           3,904,710
Stock Dividend                                  81,656       --          2,129,143        --          (2,210,799)
Stock Split                                    859,503       --           (859,503)       --             --
Cash Paid in Lieu of Fractional Shares          --           --            --             --             (11,499)
Cash Dividends Declared ($.60 per share)
  (1)                                           --           --            --             --          (1,698,741)
Stock Options Exercised, Net of Tax
  Benefit                                        8,210       --            109,038        --             --
Change in Unrealized Appreciation in
  Securities Available for Sale, net of
  tax                                           --           --            --             707,600        --
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                 2,586,999       --          7,644,860      1,906,683     18,201,029
Net Income                                      --           --            --             --           4,167,691
Cash Dividends Declared ($.62 per share)
  (1)                                           --           --            --             --          (1,763,469)
Stock Options Exercised, Net of Tax
  Benefit                                       17,173       --            240,181        --             --
Treasury Stock Purchased (17,762 shares)        --       $  (457,950)      --             --             --
Change in Unrealized Depreciation in
  Securities Available for Sale, net of
  tax                                           --           --            --            (148,832)       --
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                 2,604,172      (457,950)    7,885,041      1,757,851     20,605,251
Net Income                                      --           --            --             --           4,564,548
Stock Dividend                                 260,977       --          5,614,946        --          (5,875,923)
Cash Paid in Lieu of Fractional Shares          --           --            --             --              (4,102)
Cash Dividends Declared ($.70 per share)
  (1)                                           --           --            --             --          (1,971,311)
Stock Options Exercised, Net of Tax
  Benefit                                        8,256       --            125,740        --             --
Treasury Stock Purchased (67,546 shares)        --       $(1,421,360)      --             --             --
Change in Unrealized Depreciation in
  Securities Available for Sale, net of
  tax                                           --           --            --          (3,346,874)       --
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                $2,873,405   $(1,879,310)  $13,625,727    $(1,589,023)   $17,318,463
================================================================================================================
</TABLE>

(1) Adjusted for a 10% stock dividend declared January 26, 1999, a 3-for-2 stock
    split in 1997 and a 5% stock dividend in 1997.

See notes to consolidated financial statements.

                                        7
<PAGE>   5

NSD Bancorp
--------------------------------------------------------------------------------

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements of NSD Bancorp, Inc. (the "Corporation")
include the accounts of the Corporation and wholly owned subsidiary, NorthSide
Bank, a community bank operating ten branch offices located in western
Pennsylvania, and NorthSide Bank's wholly owned subsidiary, 100 Federal Street,
Inc. Material intercompany accounts and transactions have been eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and contingent liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INVESTMENT SECURITIES:

The investment securities portfolio consists of securities and short-term
investments which are purchased by the Corporation to enhance the overall yield
on earning assets and to contribute to the management of interest rate risk and
liquidity. Investments in debt and equity securities are classified into three
categories: securities held to maturity, securities available for sale and
trading securities.

The Corporation classifies securities as held to maturity when it has both the
ability and positive intent to hold securities to maturity. Securities held to
maturity are stated at cost adjusted for amortization of premium and accretion
of discount, computed primarily under the interest method.

Securities not classified as held to maturity are designated as available for
sale. These securities may be sold in response to changes in market interest
rates, changes in prepayment or extension risk, asset-liability management
decisions, income tax considerations or other circumstances identified by
management. Securities available for sale are recorded at estimated market
value, with the aggregate unrealized holding gains and losses reported, net of
tax effect, as a separate component of shareholders' equity.

The Corporation's investment policy specifically prohibits the existence of a
trading account portfolio.

On a periodic basis, management evaluates each security where amortized cost
exceeds realizable value. If the decline is judged to be other than temporary,
the cost of the security is written down to estimated net realizable value with
the write-down included in net securities gains (losses). Realized gains and
losses are computed principally under the specific identification method.

LOANS HELD FOR SALE:

At December 31, 1999 and December 31, 1998, loans held for sale were comprised
entirely of student loans. These loans are carried at the lower of cost or
market value obtained through secondary market bid quotations. Any realized
gains and losses on these loans are included in other operating income.

LOANS AND RESERVE FOR LOAN LOSSES:

Loans are stated at face value, net of unearned income and deferred fees.
Installment loan unearned income is recognized over the loan term using the
interest method. Interest on all other loans is recognized based on the
outstanding principal balance of the loans. The accrual of interest is
discontinued when, in management's judgment, it is determined that the
collectibility of interest, but not necessarily principal, is doubtful. When a
loan is classified as nonaccrual, all previously accrued and unpaid interest is
reversed. Interest receipts on nonaccrual loans are applied to principal. Net
loan fees are deferred and amortized over the term of the related loan using the
interest method.

                                        8
<PAGE>   6

--------------------------------------------------------------------------------

The reserve for loan losses is maintained at a level considered adequate by
management to provide for loan losses. The reserve is increased by provisions
charged to expense and reduced by loan losses net of recoveries. The amount of
reserve is based on management's evaluation of the loan portfolio as well as
prevailing and anticipated economic conditions, specific problem loans and other
factors.

Within the context of Statement of Financial Accounting Standards (SFAS) No.
114, "Accounting by Creditors for Impairment of a Loan," a loan is considered to
be impaired when, based upon current information and events, it is probable that
the Corporation will be unable to collect all amounts due for principal and
interest according to the contractual terms of the loan agreement. Impairment is
measured based on the present value of expected future cash flows discounted at
a loan's effective interest rate, or as a practical expedient, the observable
market price or, if the loan is collateral dependent, the fair value of the
underlying collateral. When the measurement of an impaired loan is less than the
recorded investment in the loan, the impairment is recorded in a specific
valuation allowance through a charge to provision for loan losses. This specific
valuation allowance is periodically adjusted for significant changes in the
amount or timing of expected future cash flows, observable market price or fair
value of the collateral. The valuation allowance, or reserve for impaired loan
losses, is part of the total reserve for loan losses. Upon disposition of an
impaired loan, any related allowance is reversed through a charge to the
impaired reserve for loan losses. Cash payments received on impaired loans are
recorded as a direct reduction of the loan principal. Subsequent amounts
collected are recognized as interest income. Impaired loans are not returned to
accruing status until all amounts due, both principal and interest, are current
and there has been a demonstrated, sustained payment history.

Generally, management considers all major nonaccrual loans and certain
renegotiated loans for impairment. The minimum period without payment that
typically can occur before a loan is considered for impairment is ninety days.
SFAS No. 114 does not apply to large groups of smaller balance, homogenous loans
that are collectively evaluated for impairment. The Corporation collectively
reviews leases and consumer loans under $50,000, and residential and commercial
real estate under $250,000 for impairment.

PREMISES AND EQUIPMENT:

Premises and equipment are carried at original cost less accumulated
depreciation. Premises and equipment are depreciated over their useful lives
using either the straight-line or an accelerated method. Leasehold improvements
are amortized over the term of the respective lease or the estimated useful life
of the improvement, whichever is shorter. Costs for maintenance and repairs are
expensed currently. Major improvements are capitalized. When premises and
equipment are disposed of, the accounts are relieved of the cost and accumulated
depreciation or amortization, and any resulting gains or losses are credited to
or charged against income.

FORECLOSED ASSETS:

Foreclosed assets are comprised of other real estate owned and repossessed
collateral, which are carried at the lower of the outstanding loan balance or
estimated fair value less estimated costs to sell at the date of foreclosure.

INCOME TAXES:

Deferred income taxes result from temporary differences between financial and
tax reporting. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using statutory tax rates.

INTANGIBLE ASSETS:

Included in other assets is a deposit premium of approximately $353,202 and
$529,803, net of accumulated amortization, at December 31, 1999 and 1998,
respectively. The premium is amortized using the straight-line method over a
five year period. The Corporation periodically evaluates the carrying value and
the remaining amortization period of the intangible asset for possible
impairment. Adjustments are recorded when the benefit of the related asset to
the Corporation decreases due to disposition of deposits relative to the deposit
premium.

                                        9
<PAGE>   7

NSD Bancorp
--------------------------------------------------------------------------------

CASH EQUIVALENTS:

The Corporation has defined cash equivalents as cash and due from banks and
federal funds sold.

EARNINGS PER SHARE:

The Corporation adopted SFAS No. 128, "Earnings Per Share," which was issued in
February, 1997. This statement requires the disclosure of basic and diluted
earnings per share and revised the method required to calculate these amounts.

Basic earnings per common share is calculated by dividing net income by the sum
of the weighted average number of shares of common stock outstanding during each
period. Diluted earnings per common share is calculated by dividing net income
by the sum of the weighted average number of shares of common stock outstanding
and the number of shares of common stock which would be issued assuming the
exercise of stock options during each period.

Basic and diluted earnings per share calculations include the retroactive effect
of a 10% stock dividend declared January 26, 1999, a 3-for-2 stock split in 1997
and a 5% stock dividend in 1997.

COMPREHENSIVE INCOME:

Components of comprehensive income are displayed in the income statement net of
income taxes. The Corporation currently has one component of other comprehensive
income which is the change in unrealized gains (losses) on securities available
for sale and is detailed as follows:

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                       --------------------------------------
                                                          1999          1998          1997
---------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>          <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
  period                                               $(4,811,004)   $   7,524    $1,292,371
Less: reclassification adjustment for gain realized
  in net income                                            265,822      233,027       220,250
---------------------------------------------------------------------------------------------
Net unrealized gains (losses)                           (5,076,826)    (225,503)    1,072,121
---------------------------------------------------------------------------------------------
Other Comprehensive Income                              (5,076,826)    (225,503)    1,072,121
Tax Expense (Benefit) at 34%                            (1,729,952)     (76,672)      364,521
---------------------------------------------------------------------------------------------
Other Comprehensive Income, net                        $(3,346,874)   $(148,831)   $  707,600
=============================================================================================
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS:

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It applies to all
entities and requires that any entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Under SFAS No. 133, the change in fair value is
reflected in the income statement or as an element of other comprehensive
income. SFAS No. 133, as amended by SFAS No. 137, is effective for all quarters
of all fiscal years beginning after June 15, 2000. Management is currently in
the process of evaluating the impact of this statement on the consolidated
financial statements.

RECLASSIFICATIONS:

For comparative purposes, reclassifications have been made to certain amounts
previously reported in the Consolidated Financial Statements.

                                       10
<PAGE>   8

--------------------------------------------------------------------------------

NOTE 2-INVESTMENT SECURITIES

A summary of investment securities available for sale is as follows:

<TABLE>
<CAPTION>
                                                       December 31, 1999
                                    --------------------------------------------------------
                                                       Gross Unrealized
                                                            Holding
                                                    ------------------------
                                     Amortized                                      Fair
                                        Cost          Gains         Losses         Value
--------------------------------------------------------------------------------------------
<S>                                 <C>             <C>           <C>           <C>
U.S. Treasury Securities            $  3,708,419    $   --        $   27,321    $  3,681,098
Obligations of U.S. Government
  Agencies                            34,290,634        --         1,547,835      32,742,799
Mortgage-Backed Securities            52,784,308         9,108     2,440,396      50,353,020
Obligations of State and Political
  Subdivisions                         4,126,696        20,965       253,381       3,894,280
Other Bonds                            7,110,881           510       269,861       6,841,530
Marketable Equity Securities           3,646,263     2,094,794        --           5,741,057
--------------------------------------------------------------------------------------------
                                    $105,667,201    $2,125,377    $4,538,794    $103,253,784
============================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                       December 31, 1998
                                    --------------------------------------------------------
                                                       Gross Unrealized
                                                            Holding
                                                    ------------------------
                                     Amortized                                      Fair
                                        Cost          Gains         Losses         Value
--------------------------------------------------------------------------------------------
<S>                                 <C>             <C>           <C>           <C>
U.S. Treasury Securities            $  5,225,749    $   30,280    $    2,823    $  5,253,206
Obligations of U.S. Government
  Agencies                            26,187,451        92,554        33,981      26,246,024
Mortgage-Backed Securities            49,140,324       170,208       319,857      48,990,675
Obligations of State and Political
  Subdivisions                           553,529         9,581        --             563,110
Other Bonds                            6,802,815        14,724       123,989       6,693,550
Marketable Equity Securities           2,216,064     2,826,712        --           5,042,776
--------------------------------------------------------------------------------------------
                                    $ 90,125,932    $3,144,059    $  480,650    $ 92,789,341
============================================================================================
</TABLE>

A summary of investment securities held to maturity is as follows:

<TABLE>
<CAPTION>
                                                       December 31, 1998
                                    --------------------------------------------------------
                                                       Gross Unrealized
                                                            Holding
                                                    ------------------------
                                     Amortized                                      Fair
                                        Cost          Gains         Losses         Value
--------------------------------------------------------------------------------------------
<S>                                 <C>             <C>           <C>           <C>
Obligations of State and Political
  Subdivisions                      $  3,187,580    $  162,355    $   --        $  3,349,935
Other Bonds                              250,000        21,273        --             271,273
--------------------------------------------------------------------------------------------
                                    $  3,437,580    $  183,628    $   --        $  3,621,208
============================================================================================
</TABLE>

During 1999, all investment securities previously classified as held to maturity
were transferred to available for sale as part of a strategy to enhance the
Corporation's liquidity position. Subsequent to the transfer to available for
sale, the Corporation sold $1,725,340 of securities that were previously
classified as held to maturity.

                                       11
<PAGE>   9

NSD Bancorp
--------------------------------------------------------------------------------

The amortized cost and estimated market value of the investment portfolio
available for sale at December 31, 1999, by contractual maturity, is shown
below. Mortgage-backed securities are presented in the schedule below at
contractual maturity without consideration given to scheduled repayments or
accelerated prepayments. Expected maturities will differ from contractual
maturities because borrowers have the right to call or prepay obligations with
or without call or prepayment penalties.

The contractual maturity of the investment portfolio available for sale is as
follows:

<TABLE>
<CAPTION>
                                                             December 31, 1999
                                                        ----------------------------
                                                         Amortized          Fair
                                                            Cost           Value
------------------------------------------------------------------------------------
<S>                                                     <C>             <C>
Within one year                                         $  1,029,587    $  1,025,448
After one year, within five years                         11,208,012      10,922,338
After five years, within ten years                        28,138,110      26,898,431
After ten years                                           65,291,492      64,407,567
------------------------------------------------------------------------------------
                                                        $105,667,201    $103,253,784
====================================================================================
</TABLE>

The fair value of securities is based on quoted market prices or bid quotations
received from securities dealers. Proceeds from the sale of available for sale
securities during 1999, 1998 and 1997 were $10,957,629, $11,028,644 and
$13,938,578, respectively. Gross gains of $278,156, $202,063 and $233,835 and
gross losses of $12,922, $319 and $21,444 were realized on sales of available
for sale securities in 1999, 1998 and 1997, respectively. Gross gains of $588,
$73,062 and $8,062 in 1999, 1998 and 1997, respectively, and gross losses of
$875 and $202 in 1998 and 1997 , respectively, were realized on calls of
investment securities. There were no gross losses realized on calls of
investment securities during 1999. Investment securities with a total par value
of $3,700,000 and $5,200,000 at December 31, 1999 and 1998, respectively, were
pledged as collateral for public and trust funds and long-term borrowings.

As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Corporation
is required to maintain a minimum investment in FHLB stock. The minimum amount
is calculated based on the level of assets, residential real estate loans and
outstanding FHLB advances. At December 31, 1999 and 1998, the Corporation held
$3,182,500 and $1,650,000, respectively, of FHLB stock.

NOTE 3-LOANS

Loans are summarized as follows:

<TABLE>
<CAPTION>
                                                                December 31,
                                                        ----------------------------
                                                            1999            1998
------------------------------------------------------------------------------------
<S>                                                     <C>             <C>
Consumer Loans to Individuals                           $108,847,393    $ 92,000,264
Mortgage:
  Nonresidential                                          47,730,294      28,060,867
  Residential                                             47,823,758      52,695,286
Commercial, Financial and Agricultural                    46,053,457      40,445,049
Lines of Credit                                            4,922,717       5,376,848
Lease Financing                                           13,399,797      11,910,754
Nonaccrual Loans                                             777,961         785,360
------------------------------------------------------------------------------------
Total Loans                                              269,555,377     231,274,428
Deferred Fees                                               (362,668)       (337,384)
------------------------------------------------------------------------------------
Total Loans, Net of Deferred Fees                       $269,192,709    $230,937,044
====================================================================================
</TABLE>

                                       12
<PAGE>   10

--------------------------------------------------------------------------------

At December 31, 1999 and 1998, the Corporation had $599,955 and $813,677,
respectively, in loans which were 90 days or more past due, but were still
accruing interest. If interest on loans classified as nonaccrual had been
recognized, such income would have approximated $78,836, $68,929 and $97,558 for
the years ended 1999, 1998 and 1997, respectively. The Corporation did not
record interest on any nonaccrual loans during 1999, 1998 or 1997.

The Corporation collectively reviews leases and consumer loans under $50,000 and
residential real estate and commercial real estate loans under $250,000. The
Corporation had no recorded investment in loans for which impairment had been
recognized in accordance with SFAS No. 114 as of December 31, 1999 or 1998.
There were no loans considered impaired that have been partially written down
through charge-offs. There was no recorded investment in loans for which
impairment was recognized at any time during 1999, however, the average recorded
investment in impaired loans was $217,468 in 1998. The Corporation did not
recognize any interest on impaired loans during 1999 or 1998.

NOTE 4-RESERVE FOR LOAN LOSSES

The following is a summary of activity in the reserve for loan losses:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                      --------------------------------------
                                                         1999          1998          1997
--------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>
Balance at Beginning of Year                          $2,756,502    $2,914,329    $2,578,504
Provision for Loan Losses                                840,000       780,000       720,000
Losses Charged Against Reserve                          (554,095)     (974,348)     (522,934)
Recoveries on Loans Previously Charged-Off                45,850        36,521       138,759
--------------------------------------------------------------------------------------------
Balance at End of Year                                $3,088,257    $2,756,502    $2,914,329
============================================================================================
</TABLE>

NOTE 5-PREMISES AND EQUIPMENT

Premises and equipment, at cost, consist of the following:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                           --------------------------
                                                              1999           1998
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Land                                                       $   472,801    $   671,987
Buildings                                                    1,943,873      1,943,873
Equipment                                                    3,257,556      2,828,916
Leasehold Improvements                                       1,018,463      1,006,763
-------------------------------------------------------------------------------------
                                                             6,692,693      6,451,539
Accumulated Depreciation                                    (3,841,920)    (3,723,105)
-------------------------------------------------------------------------------------
Premises and Equipment, Net                                $ 2,850,773    $ 2,728,434
=====================================================================================
</TABLE>

During 1999, equipment with a book value of $164,263 was rendered obsolete
primarily due to Year 2000 related issues. As a result, total losses on
disposals of $164,063 were recorded during 1999. In addition, the Corporation
sold land with a book value of $199,186 for $300,000 resulting in a gain of
$100,814 which has been included in other operating income in the Consolidated
Statement of Income. There were no significant gains or losses on disposals of
premises and equipment during 1998. During 1997, the Corporation sold land with
a book value of $325,908 for $492,908 resulting in a gain of $167,000 which is
included in other operating income in the Consolidated Statement of Income.
Depreciation expense, principally calculated using a straight-line method, was
$465,380, $434,271 and $440,764 in 1999, 1998 and 1997, respectively. The
Corporation leases certain offices under various operating leases.

                                       13
<PAGE>   11

NSD Bancorp
--------------------------------------------------------------------------------

These leases contain various renewal option periods extending through September,
2005. Certain leases require adjustment of the rent based on cost escalations.
The following is a summary of the future minimum lease payments under these
operating leases:

<TABLE>
<CAPTION>
   For the Year Ending December 31,
   --------------------------------
<S>                                      <C>
                 2000                    $  316,773
                 2001                       319,050
                 2002                       303,633
                 2003                       179,708
                 2004                        98,035
              thereafter                     34,640
                                         ----------
                                         $1,251,839
                                         ==========
</TABLE>

Rental expense under all operating leases was $274,854, $261,840 and $250,386
for the years ended December 31, 1999, 1998 and 1997, respectively.

NOTE 6-INCOME TAXES

The provision (benefit) for income taxes is composed of the following:

<TABLE>
<CAPTION>
                                                 For the Years Ended December 31,
                                              --------------------------------------
                                                 1999          1998          1997
------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>
Current
  Federal                                     $2,280,776    $1,909,711    $1,940,915
  State                                           41,000        18,715        41,450
Deferred                                         (10,454)       23,289      (138,915)
------------------------------------------------------------------------------------
                                              $2,311,322    $1,951,715    $1,843,450
====================================================================================
</TABLE>

Reconciliations of the federal statutory and effective tax rates are as follows:

<TABLE>
<CAPTION>
                                                     For the Years Ended December 31,
                                 ------------------------------------------------------------------------
                                         1999                      1998                      1997
                                 --------------------      --------------------      --------------------
                                   AMOUNT     PERCENT        Amount     Percent        Amount     Percent
---------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>          <C>          <C>          <C>
Federal Statutory Tax Rate       $2,337,795    34.0%       $2,080,598    34.0%       $1,954,374    34.0%
Tax-exempt Interest Income         (112,545)   (1.6)          (98,267)   (1.6)         (164,475)   (2.9)
Interest Expense Disallowed          12,742     0.2            11,174     0.2            17,779     0.3
State Income Taxes                   27,060     0.4            12,352     0.2            27,357     0.4
Other, Net                           46,270     0.6           (54,142)   (0.9)            8,415     0.2
---------------------------------------------------------------------------------------------------------
                                 $2,311,322    33.6%       $1,951,715    31.9%       $1,843,450    32.0%
=========================================================================================================
</TABLE>

                                       14
<PAGE>   12

--------------------------------------------------------------------------------

The tax effects of deductible and taxable differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities,
respectively, are as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                          --------------------------
                                                             1999            1998
------------------------------------------------------------------------------------
<S>                                                       <C>             <C>
Deferred Tax Assets:
  Net Unrealized Holding Losses on Securities Available
     for Sale                                             $  818,588      $   --
  Provision for Loan Losses                                  854,426         741,629
  Loan Origination Fees/Costs                                 25,882          34,510
  Other                                                      108,273          71,674
------------------------------------------------------------------------------------
     Gross Deferred Tax Assets                             1,807,169         847,813
Deferred Tax Liabilities:
  Net Unrealized Holding Gains on Securities Available
     for Sale                                                 --             905,559
  Bond Discount Accretion                                    153,848          95,643
  Depreciation                                                41,127          70,771
  Other                                                       10,288          15,432
------------------------------------------------------------------------------------
     Gross Deferred Tax Liabilities                          205,263       1,087,405
------------------------------------------------------------------------------------
     Net Deferred Tax Assets (Liabilities)                $1,601,906      $ (239,592)
====================================================================================
</TABLE>

Net deferred tax assets are classified as other assets and net deferred tax
liabilities are classified as other liabilities on the Consolidated Balance
Sheets.

NOTE 7-EMPLOYEE BENEFITS

The Corporation maintains a profit sharing retirement plan which covers
substantially all employees meeting minimum age and service requirements.
Expense for the profit sharing plan was $136,000 in 1999, $117,000 in 1998 and
$117,000 in 1997. During 1999, 1998 and 1997, respectively, the Corporation
expensed $59,159, $58,001, and $63,584 related to 401(k) plan matching
contributions.

Profit sharing assets are primarily invested in mutual funds which are selected
at the discretion of the employee. The plan was also invested in 10,538 shares
of NSD Bancorp, Inc. common stock with a market value of $184,415 at December
31, 1999. Total cash dividends received from plan investments in common stock of
the Corporation were $7,443 in 1999.

NOTE 8-STOCK OPTION PLANS

The Corporation has two fixed option plans. Under the 1994 Employee Stock Option
Plan, the Corporation may grant options to its employees for up to 212,837
shares of common stock. Under the 1994 Non-employee Director Stock Option Plan,
the Corporation may grant options to its non-employee directors for up to 70,945
shares of common stock. Under both plans, the exercise price of each option is
equal to the fair market price of the Corporation's common stock on the date of
grant with each option having a maximum term of 10 years. The total shares
reserved for issuance, options granted and the option exercise price per share
have been adjusted for the ten percent stock dividend declared January 26, 1999
for holders of record on February 2, 1999, the 3-for-2 stock split for holders
of record on December 1, 1997 and the five percent stock dividend for holders of
record on April 30, 1997, in accordance with the terms of both plans.

                                       15
<PAGE>   13

NSD Bancorp
--------------------------------------------------------------------------------

A summary of the status of the Corporation's two fixed stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years ending on those
dates is presented below:

<TABLE>
<CAPTION>
                                               1999                         1998                         1997
                                    --------------------------   --------------------------   --------------------------
                                              WEIGHTED-AVERAGE             Weighted-Average             Weighted-Average
FIXED OPTIONS                       SHARES     EXERCISE PRICE    Shares     Exercise Price    Shares     Exercise Price
------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>       <C>                <C>       <C>                <C>       <C>
Outstanding at Beginning of Year    105,772        $18.20        100,928        $14.12         87,356        $13.06
Granted                              24,650        $22.23         24,090        $31.90         25,405        $17.20
Exercised                             8,997        $14.89         18,889        $13.62          9,031        $12.98
Forfeited                             3,983        $20.26            357        $30.54          2,802        $12.65
------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year          117,442        $19.23        105,772        $18.20        100,928        $14.12
Options Exercisable at Year-End     117,442                      105,772                      100,928
Weighted-Average
Fair Value of Options Granted
  During the Year                                  $ 6.27                       $13.89                       $17.20
========================================================================================================================
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                        Options Outstanding and Exercisable
-----------------------------------------------------------------------------------
                                             Weighted-Average
                     Number Outstanding         Remaining
   Range of          and Exercisable at      Contractual Life      Weighted-Average
Exercise Prices           12/31/99              (in Years)          Exercise Price
-----------------------------------------------------------------------------------
<S>                  <C>                     <C>                   <C>
$12.51-$13.90              51,979                  5.6                  $13.10
 16.71-17.33               18,483                  7.5                   17.21
 22.15-22.73               24,650                  9.4                   22.22
 31.47-31.95               22,330                  8.6                   31.90
-----------------------------------------------------------------------------------
$12.51-$31.95             117,442                  7.2                  $19.23
===================================================================================
</TABLE>

On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock
Based Compensation." As permitted by SFAS No. 123, the Corporation has chosen to
apply Accounting Pronouncements Bulletin (APB) No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for options granted under
either Plan. Had compensation expense included stock option plan costs,
determined based on the fair value at the grant date for options granted under
these plans consistent with SFAS No. 123, proforma net income and earnings per
share would have been as follows:

<TABLE>
<CAPTION>
                                                              Reported      Proforma
-------------------------------------------------------------------------------------
<S>                                                          <C>           <C>
Net Income
     1999                                                    $4,564,548    $4,462,484
     1998                                                     4,167,691     3,940,793
     1997                                                     3,904,710     3,727,731
Basic Earnings Per Share
     1999                                                         $1.62         $1.58
     1998                                                          1.46          1.38
     1997                                                          1.38          1.31
Diluted Earnings Per Share
     1999                                                         $1.60         $1.57
     1998                                                          1.44          1.36
     1997                                                          1.37          1.30
=====================================================================================
</TABLE>

                                       16
<PAGE>   14

--------------------------------------------------------------------------------

For purposes of computing proforma results as if the above plans were accounted
for under the fair value method, the Corporation estimated the fair value of
stock options using the Black-Scholes options pricing model with dividends paid
every quarter at the current rate as of the date of the grant. The following
assumptions were used:

<TABLE>
<CAPTION>
                                            1999                      1998                      1997
                                    --------------------      --------------------      --------------------
                                    EMPLOYEE    DIRECTOR      Employee    Director      Employee    Director
------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>           <C>         <C>           <C>         <C>
Risk Free Interest Rate              6.44%       6.44%         5.56%       5.86%         6.15%       6.80%
Volatility                          51.55%       51.55%       46.05%       46.48%       87.00%       87.00%
Expected Lives                      7 YEARS     7 YEARS       7 Years     7 Years       7 Years     7 Years
============================================================================================================
</TABLE>

NOTE 9-TRANSACTIONS WITH RELATED PARTIES

In the ordinary course of business, the Corporation has transactions, including
loans, with the Corporation's employees, principal officers and directors and
their related interests. Approximately 74% of related party loans are with two
Board members. A summary of loan activity for directors, executive officers and
their associates with loan balances in excess of $60,000 is as follows:

<TABLE>
<CAPTION>
                                                              1999           1998
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Balance, January 1                                         $ 5,874,782    $ 5,919,061
New Loans                                                    5,551,399      1,392,957
Repayments                                                  (3,907,173)    (1,437,236)
-------------------------------------------------------------------------------------
Balance, December 31                                       $ 7,519,008    $ 5,874,782
=====================================================================================
</TABLE>

NOTE 10-COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE
        SHEET RISK

The Corporation incurs off-balance sheet risk in the normal course of business
in order to meet financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of credit which
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated financial statements.

At December 31, 1999, there are various outstanding commitments to extend credit
of approximately $39,960,090 and standby letters of credit of approximately
$454,242. The majority of standby letters of credit expire within the next
fifteen months. Commitments to extend credit are commitments to lend to a
customer as long as there is no violation of any condition established in the
loan agreement. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including normal business activities, bond financing and similar transactions.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Corporation requires
collateral supporting those commitments as deemed necessary.

The Corporation's exposure to credit loss in the event of nonperformance by the
other party is represented by the contractual amount of the financial instrument
for commitments to extend credit. The Corporation uses the same credit and
collateral policies in making commitments and conditional obligations as for all
other lending. Collateral for these types of commitments is similar to
collateral obtained on other commercial loans.

Additionally, the Corporation is subject to certain asserted and unasserted
potential claims encountered in the normal course of business. In the opinion of
management, neither the resolution of these claims nor the funding of

                                       17
<PAGE>   15

NSD Bancorp
--------------------------------------------------------------------------------

those credit commitments will have a material adverse effect on the
Corporation's consolidated financial position, results of operations or cash
flows.

NOTE 11-CONCENTRATIONS OF CREDIT

The Corporation grants commercial, residential and consumer loans primarily to
customers in the Western Pennsylvania area. The Corporation has a diversified
loan portfolio which is not dependent upon any particular economic sector.
Substantially all of the Corporation's investments in municipal securities are
obligations of state or political subdivisions located within Pennsylvania. As a
whole, the Corporation's loan and investment portfolios could be affected by the
general economic conditions of Pennsylvania. In addition, at December 31, 1999,
a significant portion of the Corporation's "cash and due from banks" and
"federal funds sold" are maintained with a large financial institution located
in southwestern Pennsylvania.

NOTE 12-FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:

CASH AND FEDERAL FUNDS SOLD:
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.

INVESTMENT SECURITIES:
The estimated fair value of securities and marketable equity securities is based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.

LOAN RECEIVABLES:
Fair values were estimated for loan portfolios with similar financial
characteristics by discounting contractual cash flows considering prepayments,
credit risk, overhead and other factors.

Assumptions regarding credit risk, cash flows and discount rates were
judgmentally determined using available market and internal information which
management believes to be reasonable. However, because there are no active
markets for many loan types, the Corporation has no basis to determine whether
the estimated fair value presented would be indicative of the value negotiated
in an actual sale.

DEPOSIT LIABILITIES:
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand as of December 31, 1999. The fair value
of the fixed-maturity certificates of deposit is estimated using the rates
currently offered as of December 31, 1999 for deposits of similar maturities.
Fair value estimates do not include the value of depositor relationships or the
value of the low-cost funding provided by deposits.

COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND FINANCIAL
GUARANTEES:
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.

The fair value of commitments, guarantees and letters of credit is insignificant
after considering the aforementioned factors.

                                       18
<PAGE>   16

--------------------------------------------------------------------------------

The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                      December 31,
                                           ------------------------------------------------------------------
                                                        1999                                1998
                                           -------------------------------      -----------------------------
                                              CARRYING            FAIR             Carrying           Fair
                                               AMOUNT            VALUE              Amount           Value
-------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>                <C>
Financial Assets:
  Cash and Federal Funds Sold                 $ 13,921          $ 13,921           $ 22,278         $ 22,278
  Investment Securities                        103,254           103,254             96,227           96,411
  Loans                                        267,876           267,181            232,948          239,729
     Less: Reserve for Loan Losses              (3,088)           --                 (2,757)          --
-------------------------------------------------------------------------------------------------------------
                                              $381,963          $384,356           $348,696         $358,418
=============================================================================================================

Financial Liabilities:
  Deposits                                    $289,440          $288,921           $280,115         $281,072
  Federal Home Loan Bank Borrowings             66,350            65,534             33,000           33,086
-------------------------------------------------------------------------------------------------------------
                                              $355,790          $354,455           $313,115         $314,158
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Financial Instruments:
Commitments to Extend Credit                  $ 39,960            --               $ 40,125           --
=============================================================================================================
</TABLE>

NOTE 13-REGULATORY RESTRICTIONS

The Corporation and the Bank are subject to the regulations of certain federal
and state agencies and undergo periodic examinations by such regulatory
authorities. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's and Bank's
financial statements. Neither the Corporation nor the Bank are subject to
written regulatory agreements.

Under capital adequacy regulatory guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital requirements
taking into consideration quantitative measures of assets, liabilities and
certain off-balance sheet items. Such measures are subject to qualitative
judgments by the regulators with regard to composition, risk weightings and
other factors.

Minimum regulatory risk-based capital ratios for tier I, total capital and
leverage are 4%, 8% and 4%, respectively. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's and the Bank's financial statements.
Management believes, as of December 31, 1999, that the Corporation and the Bank
meet all capital adequacy requirements to which it is subject.

The Corporation and Bank are considered to be well capitalized under the
regulatory framework for prompt corrective action. To be considered well
capitalized, an institution must maintain risk-based capital ratios for tier I,
total capital and leverage ratios of at least 6%, 10% and 5%, respectively.

                                       19
<PAGE>   17

NSD Bancorp
--------------------------------------------------------------------------------

The following represents tier I, total risk-based capital and leverage ratios
for the Corporation and also its subsidiary, NorthSide Bank, as of December 31,
1999 and 1998:

<TABLE>
<CAPTION>
                                                                                           To Be Well Capitalized
                                                                   For Capital Adequacy    Under Prompt Corrective
                                                   Actual                Purposes             Action Provisions
                                             -------------------   ---------------------   -----------------------
                                               Amount      Ratio      Amount      Ratio       Amount        Ratio
------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>     <C>            <C>      <C>             <C>
As of December 31, 1999:
  NSD Bancorp, Inc.
  -----------------
    Total Capital (to Risk Weighted Assets)  $35,615,997   12.71%  $22,410,357     8.00%    $28,012,946       n/a
    Tier I Capital (to Risk Weighted
      Assets)                                 31,585,083   11.28    11,205,178     4.00      16,807,768       n/a
    Tier I Capital (to Average Assets)        31,585,083    8.51    14,849,491     4.00      18,561,863       n/a
  NorthSide Bank
  --------------
    Total Capital (to Risk Weighted Assets)   34,853,175   12.47    22,363,333     8.00      27,954,167     10.00%
    Tier I Capital (to Risk Weighted
      Assets)                                 31,643,516   11.32    11,181,667     4.00      16,772,500      6.00
    Tier I Capital (to Average Assets)        31,643,516    8.57    14,756,788     4.00      18,445,985      5.00
As of December 31, 1998:
  NSD Bancorp, Inc.
  -----------------
    Total Capital (to Risk Weighted Assets)   34,135,234   14.02    19,480,103     8.00      24,350,128       n/a
    Tier I Capital (to Risk Weighted
      Assets)                                 30,106,711   12.36     9,740,052     4.00      14,610,077       n/a
    Tier I Capital (to Average Assets)        30,106,711    9.21    13,078,168     4.00      16,347,711       n/a
  NorthSide Bank
  --------------
    Total Capital (to Risk Weighted Assets)   31,993,021   13.36    19,157,406     8.00      23,946,758     10.00
    Tier I Capital (to Risk Weighted
      Assets)                                 29,095,457   12.15     9,578,703     4.00      14,368,055      6.00
    Tier I Capital (to Average Assets)        29,095,457    8.98    12,964,175     4.00      16,205,218      5.00
</TABLE>

Under regulations of the Federal Reserve, the Bank is required to maintain
certain average reserve balances which include both cash on hand and deposits
with the Federal Reserve. These deposits are included in cash and due from banks
in the accompanying Consolidated Balance Sheet. At December 31, 1999, the
Corporation was required to maintain $1,620,000 of such balances.

Dividends and loans to the Holding Company from NorthSide Bank are subject to
regulatory limitations. Dividends are limited to retained earnings of NorthSide
Bank. Loans must by collateralized by specific obligations and cannot exceed 10%
of NorthSide Bank's capital. The maximum amount available to the Holding Company
at December 31, 1999 from NorthSide Bank in the form of dividends and loans,
individually, was approximately $27.3 million and $3.2 million, respectively.

NOTE 14-STOCK DIVIDENDS AND STOCK SPLITS

On January 26, 1999, the Corporation's Board of Directors declared a stock
dividend payable on March 3, 1999 to shareholders of record at February 1, 1999.

On November 27, 1997, the Corporation's Board of Directors declared a 3-for-2
stock split payable on December 31, 1997 to shareholders of record at December
1, 1997.

On April 22, 1997, the Corporation's Board of Directors declared a stock
dividend payable on May 30, 1997 to shareholders of record at April 30, 1997.

Earnings per share and dividends per share amounts, appearing in these
consolidated financial statements, have been restated to reflect all of the
above described stock dividends and stock splits.

                                       20
<PAGE>   18

--------------------------------------------------------------------------------

NOTE 15-TREASURY STOCK

In September of 1998, the Corporation's Board of Directors authorized the
repurchase of up to 4.9% of the outstanding common stock of the Corporation, to
be made available for issuance pursuant to stock option plans and for general
corporate purposes. There were 67,546 and 17,762 shares purchased during 1999
and 1998, respectively.

NOTE 16-BORROWED FUNDS

Borrowed funds at December 31, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                            1999                           1998
                                 --------------------------      -------------------------
                                                 WEIGHTED                       Weighted
                                   BALANCE     AVERAGE RATE       Balance     Average Rate
------------------------------------------------------------------------------------------
<S>                    <C>       <C>           <C>               <C>          <C>
Advances Due In:       1999          --           --             $1,000,000       5.19%
                       2000      $15,650,000       5.20%
                       2002        6,000,000       5.58           8,000,000       5.50
                       2004        5,000,000       5.27
                       2008        9,000,000       5.06          24,000,000       4.67
                       2009       27,000,000       5.31
==========================================================================================
</TABLE>

Advances from the Federal Home Loan Bank (FHLB) are collateralized by qualifying
securities and loans. Qualifying collateral includes U.S. Treasury, obligations
of U.S. Government agencies and mortgage-backed securities and real estate loans
based upon the amount of outstanding advances. These advances are subject to
restrictions or penalties related to prepayments.

At December 31, 1999, the Corporation had approximately $65.0 million in
available credit under its collateralized borrowing agreement with the Federal
Home Loan Bank.

NOTE 17-CONDENSED FINANCIAL INFORMATION OF NSD BANCORP, INC. (PARENT COMPANY
        ONLY)

<TABLE>
<CAPTION>
                                                                     December 31,
----------------------------------------------------------------------------------------
BALANCE SHEET                                                    1999           1998
----------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
Assets
  Cash                                                        $   163,925    $   635,060
  Securities Available for Sale at Market Value (Amortized
     Cost of $377,208 at December 31, 1999 and $389,508 at
     December 31, 1998)                                         2,202,223      2,902,751
  Investment in Bank Subsidiary                                32,095,830     30,015,120
  Other Assets                                                      1,004        --
----------------------------------------------------------------------------------------
Total Assets                                                  $34,462,982    $33,552,931
----------------------------------------------------------------------------------------
Liabilities
  Accounts Payable                                            $   600,571        --
  Deferred Tax Liability                                          616,674    $   867,816
----------------------------------------------------------------------------------------
Total Liabilities                                               1,217,245        867,816
Shareholders' Equity                                           33,245,737     32,685,115
----------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                    $34,462,982    $33,552,931
========================================================================================
</TABLE>

                                       21
<PAGE>   19

NSD Bancorp
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME                                            1999            1998            1997
------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>
Cash Dividends from Bank Subsidiary                        $ 2,011,129     $ 1,766,404     $ 1,698,741
Dividends from Securities Available for Sale                    67,720          69,930          58,908
Net Investment Securities Gains                                202,893         201,942         179,391
Other Expenses                                                  71,654          96,260          78,534
------------------------------------------------------------------------------------------------------
Income Before Taxes and Equity in Undistributed Net
  Income of Bank Subsidiary                                  2,210,088       1,942,016       1,858,506
Provision for Income Taxes                                      17,000           5,395          11,450
------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Net Income of Bank
  Subsidiary                                                 2,193,088       1,936,621       1,847,056
Equity in Undistributed Net Income of Bank Subsidiary        2,371,460       2,231,070       2,057,654
------------------------------------------------------------------------------------------------------
Net Income                                                 $ 4,564,548     $ 4,167,691     $ 3,904,710
======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS                                        1999            1998            1997
------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income                                               $ 4,564,548     $ 4,167,691     $ 3,904,710
     Adjustments to Net Income:
       Equity in Undistributed Net Income of Subsidiary     (2,371,460)     (2,231,070)     (2,057,654)
       Decrease (Increase) in Other Assets                       1,004          66,932         (12,691)
       Gains on Investment Securities                         (202,893)       (201,942)       (179,391)
       Increase (Decrease) in Other Liabilities                585,066         (13,345)         26,514
------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                    2,576,265       1,788,266       1,681,488
------------------------------------------------------------------------------------------------------

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES
  Proceeds from Sale of Investment Securities Available
     for Sale                                                  215,193         228,517         191,380
------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from the Issuance of Common Stock                   133,996         257,354         117,247
  Cash Dividends Paid                                       (1,971,311)     (1,763,469)     (1,698,741)
  Treasury Stock Purchased                                  (1,421,360)       (457,950)        --
  Cash Dividends Paid in Lieu of Fractional Shares              (3,918)        --              (11,499)
------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities                       (3,262,593)     (1,964,065)     (1,592,993)
------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash                               (471,135)         52,718         279,875
Cash at Beginning of Year                                      635,060         582,342         302,467
------------------------------------------------------------------------------------------------------
Cash at End of Year                                        $   163,925     $   635,060     $   582,342
======================================================================================================
</TABLE>

                                       22
<PAGE>   20

--------------------------------------------------------------------------------

NOTE 18-EARNINGS PER SHARE

Income and shares in thousands:

<TABLE>
<CAPTION>
                                                        For the Years Ended December 31,
                             ---------------------------------------------------------------------------------------
                                        1999                          1998                          1997
                             ---------------------------   ---------------------------   ---------------------------
                                               PER SHARE                     Per Share                     Per Share
                             INCOME   SHARES    AMOUNT     Income   Shares    Amount     Income   Shares    Amount
--------------------------------------------------------------------------------------------------------------------
<S>                          <C>      <C>      <C>         <C>      <C>      <C>         <C>      <C>      <C>
Basic earnings per share:
  Income available to
    shareholders             $4,565    2,819     $1.62     $4,168    2,852     $1.46     $3,905    2,837     $1.38
Effect of dilutive
  securities:
  Stock options                --         27     --          --         44     --          --         21     --
--------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
  Income Available to
    shareholders             $4,565    2,846     $1.60     $4,168    2,896     $1.44     $3,095    2,858     $1.37
====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                          EARNINGS PER SHARE
                                                                          ------------------
<S>                                                                       <C>
1995                                                                            $1.29
1996                                                                             1.30
1997                                                                             1.38
1998                                                                             1.46
1999                                                                             1.62
</TABLE>

<TABLE>
<CAPTION>
                                                                          DIVIDENDS PER SHARE
                                                                          -------------------
<S>                                                                       <C>
1995                                                                             0.45
1996                                                                             0.51
1997                                                                             0.59
1998                                                                             0.62
1999                                                                             0.70
</TABLE>

                                       23
<PAGE>   21

NSD Bancorp
--------------------------------------------------------------------------------

NOTE 19-QUARTERLY EARNINGS SUMMARY (UNAUDITED)

Quarterly earnings for the years ended December 31, 1999 and 1998 are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                          1999
                                                 -------------------------------------------------------
                                                  March 31      June 30      September 30    December 31
--------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>           <C>             <C>
Interest Income                                      $6,208        $6,512         $6,666         $7,133
Interest Expense                                      2,584         2,744          2,903          3,075
--------------------------------------------------------------------------------------------------------
Net Interest Income                                   3,624         3,768          3,763          4,058
Provision for Loan Losses                               210           210            210            210
--------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan
  Losses                                              3,414         3,558          3,553          3,848
Other Income                                            391           493            418            496
Other Expenses                                        2,210         2,430          2,324          2,331
--------------------------------------------------------------------------------------------------------
Income Before Taxes                                   1,595         1,621          1,647          2,013
Income Taxes                                            549           522            542            698
--------------------------------------------------------------------------------------------------------
Net Income                                           $1,046        $1,099         $1,105         $1,315
========================================================================================================
Per Share: (1)
Net Income (basic)                                   $ 0.37        $ 0.39         $ 0.39         $ 0.47
Dividends                                            $0.170        $0.170         $0.170         $0.190
Weighted Average Shares Outstanding (basic)       2,840,248     2,833,257      2,812,601      2,790,361
========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                          1998
                                                 -------------------------------------------------------
                                                  March 31      June 30      September 30    December 31
--------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>           <C>             <C>
Interest Income                                      $5,989        $6,035         $6,126         $6,251
Interest Expense                                      2,524         2,489          2,531          2,580
--------------------------------------------------------------------------------------------------------
Net Interest Income                                   3,465         3,546          3,595          3,671
Provision for Loan Losses                               195           195            195            195
--------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan
  Losses                                              3,270         3,351          3,400          3,476
Other Income                                            397           431            349            473
Other Expenses                                        2,294         2,260          2,239          2,234
--------------------------------------------------------------------------------------------------------
Income Before Taxes                                   1,373         1,522          1,510          1,715
Income Taxes                                            423           497            486            546
--------------------------------------------------------------------------------------------------------
Net Income                                           $  950        $1,025         $1,024         $1,169
========================================================================================================
Per Share: (1)
Net Income (basic)                                   $ 0.33        $ 0.36         $ 0.36         $ 0.41
Dividends                                            $0.155        $0.155         $0.155         $0.155
Weighted Average Shares Outstanding (basic)       2,852,433     2,852,433      2,860,092      2,844,679
</TABLE>

---------------

(1) Adjusted for a 10% stock dividend declared January 26, 1999, a 3-for-2 stock
    split in 1997 and a 5% stock dividend in 1997.

                                       24
<PAGE>   22

--------------------------------------------------------------------------------

                           COMPARATIVE FINANCIAL DATA

<TABLE>
<CAPTION>
                                                         For the Years Ended December 31,
                                   ----------------------------------------------------------------------------
                                       1999            1998            1997            1996            1995
---------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>             <C>
EARNINGS
Interest Income                    $ 26,519,135    $ 24,401,043    $ 23,812,738    $ 21,501,582    $ 19,405,880
Interest Expense                     11,305,951      10,123,896       9,980,576       8,724,605       7,485,431
---------------------------------------------------------------------------------------------------------------
Net Interest Income                  15,213,184      14,277,147      13,832,162      12,776,977      11,920,449
Provision for Loan Losses               840,000         780,000         720,000         650,000         530,000
Other Income                          1,798,512       1,649,903       1,586,414       1,339,513       1,741,691
Other Expense                         9,295,826       9,027,644       8,950,416       8,152,657       7,958,632
---------------------------------------------------------------------------------------------------------------
Income Before Taxes                   6,875,870       6,119,406       5,748,160       5,313,833       5,173,508
Income Taxes                          2,311,322       1,951,715       1,843,450       1,624,344       1,500,556
---------------------------------------------------------------------------------------------------------------
Net Income                         $  4,564,548    $  4,167,691    $  3,904,710    $  3,689,489    $  3,672,952
===============================================================================================================

YEAR END BALANCES
---------------------------------------------------------------------------------------------------------------
Assets                             $392,285,472    $357,167,992    $320,329,570    $305,413,560    $259,132,930
Loans                               269,823,486     234,932,527     236,459,224     214,049,576     188,653,465
Investment Securities               103,253,784      96,226,921      63,466,743      64,985,502      54,658,490
Deposits                            289,439,659     280,115,160     268,726,614     260,986,805     220,243,135
Repurchase Agreements and Federal
  Funds Purchased                     3,700,000              --              --       1,911,184       1,822,433
FHLB Advances and Other
  Borrowings                         62,650,000      33,000,000      15,000,000       9,560,000       7,380,000
Shareholders' Equity                 30,349,262      32,394,365      30,339,571      27,320,253      24,863,854
Number of Shareholders                      409             431             453             448             454

AVERAGE BALANCES
---------------------------------------------------------------------------------------------------------------
Assets                             $371,682,636    $327,576,185    $312,219,530    $279,854,944    $248,746,561
Loans                               245,736,893     228,648,794     226,006,573     198,720,233     176,706,914
Investment Securities               104,678,538      68,665,948      66,767,405      60,999,113      52,489,567
Deposits                            283,363,352     265,197,427     261,385,203     240,125,300     215,564,206
Repurchase Agreements and Federal
  Funds Purchased                     2,753,907              --       2,558,518       1,897,694       1,665,397
FHLB Advances and Other
  Borrowings                         45,825,207      23,523,288      12,354,466       9,232,240       3,569,435
Shareholders' Equity                 31,625,424      31,729,974      28,739,768      26,008,987      23,627,621

PER SHARE DATA (1)
---------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share                  $1.62           $1.46           $1.38           $1.30           $1.29
Basic Weighted Average Shares
  Outstanding                         2,819,117       2,852,409       2,837,420       2,837,195       2,837,560
Diluted Earnings Per Share                $1.60           $1.44           $1.37           $1.30           $1.29
Diluted Weighted Average Shares
  Outstanding                         2,845,773       2,896,279       2,857,511       2,840,541       2,837,650
Dividends                                 $0.70           $0.62           $0.59           $0.51           $0.45
Book Value                               $10.89          $11.39          $10.66           $9.63           $8.76

RATIOS
---------------------------------------------------------------------------------------------------------------
Return on Average Assets                   1.23%           1.27%           1.25%           1.32%           1.48%
Return on Average Equity                  14.43           13.13           13.59           14.19           15.55
Net Interest Margin (2)                    4.37            4.69            4.81            5.01            5.31
Equity to Assets                           7.74            9.07            9.47            8.95            9.60
Dividend Payout Ratio                     43.19           42.31           43.50           39.53           35.32
</TABLE>

---------------

(1) Adjusted for a 10 % stock dividend declared January 26, 1999, a 3-for-2
    stock split in 1997 and a 5% stock dividend in 1997.

(2) Tax equivalent basis.

                                       25
<PAGE>   23

NSD Bancorp
--------------------------------------------------------------------------------

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
  NSD Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of NSD Bancorp,
Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income and other comprehensive income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of the Corporation for the year ended December 31, 1997
were audited by other auditors whose report, dated January 26, 1998, expressed
an unqualified opinion on those statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 1999 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of NSD Bancorp, Inc.
and subsidiary at December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 28, 2000

                                       26
<PAGE>   24

--------------------------------------------------------------------------------

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is an analysis of NSD Bancorp, Inc.'s (the
"Corporation's") financial condition and results of operations and should be
read in conjunction with the Consolidated Financial Statements.

RESULTS OF OPERATIONS FOR THE YEAR

Net income increased to $4,564,548 or $1.62 (basic) per share in 1999, from
$4,167,691 or $1.46 in 1998 and $3,904,710 or $1.38 in 1997. Contributing to the
increase in net income were increases in net interest income of $936,037, net
investment securities gains of $32,795, service fee income of $157,060 and a
decline in other operating expenses of $58,897 and occupancy expense of $15,137.
These contributions to the overall net income increase were offset by a decrease
in other operating income of $41,246 and increases in the provision for loan
losses of $60,000, salary and employee benefits of $167,067, equipment and
supplies of $86,271, data processing costs of $78,153, advertising of $8,466 and
the provision for income taxes of $359,607.

Contributing to the increase in 1998 net income over 1997 were increases in net
interest income of $444,985, net investment securities gains of $12,777 and
service fee income of $55,982 and decreases in equipment and supplies expense of
$19,463, FDIC insurance of $2,741 and other operating expenses of $145,376.
These contributions to the overall increase were offset by decreases in other
operating income of $5,270 and increases in the provision for loan losses of
$60,000, salary and employee benefits of $120,383, occupancy expense of $63,511,
data processing costs of $53,552, advertising of $7,362 and the provision for
income taxes of $108,265. Impacting 1997 earnings was a $289,000 loss recognized
on the merchant credit card portfolio and a $167,000 gain on the sale of land.

Return on average assets (ROA) was 1.23% for 1999 compared to 1.27% for 1998 and
1.25% for 1997. The decrease from 1998 to 1999 reflects the impact of a decline
in net interest margin from 4.69% in 1998 to 4.37%. The increase in ROA from
1997 to 1998 is primarily due to the effect on 1997 earnings of a loss on the
merchant credit card portfolio and a decline in net interest margin from 4.81%
in 1997 to 4.69% in 1998, offset by a gain on the sale of land. Return on
average equity (ROE) was 14.43% for 1999 compared to 13.13% for 1998 and 13.59%
for 1997. The increase in 1999 ROE reflects the overall increase in net income
and the impact on average equity of treasury stock purchases and a decline in
unrealized gains on investment securities available for sale. The decrease in
ROE from 1997 to 1998 is primarily due to net interest margin compression and
also higher average capital during 1998 compared to 1997.

NET INTEREST INCOME

The primary component of the Corporation's earnings is net interest income,
which is the difference between interest earned on loans, investments and other
earning assets and the interest expense on deposits and other interest bearing
liabilities which fund those assets. Tax-exempt securities and loans carry
pre-tax yields lower than comparable tax assets. Therefore, it is more
meaningful to analyze net interest income on a tax-equivalent basis.

Total tax-equivalent interest income increased $2,006,845 during 1999 as a
result of a $41,328,066 increase in average earning assets offset by a decline
in the average yield on earning assets from 7.95% in 1998 to 7.59% in 1999.
Interest expense on deposits decreased $73,616 due to a reduction in the average
cost of deposits to 3.91% in 1999 from 4.19% in 1998 partially offset by the
impact of a $13,205,232 increase in average outstanding balances. Interest
expense on borrowings increased $1,112,627 due almost entirely to an increase of
$22,301,919 in average outstanding levels offset by a decrease in the average
cost from 5.25% in 1998 to 5.12% in 1999.

Total tax-equivalent interest income increased $530,802 during 1998 as a result
of a $15,744,524 increase in average earning assets offset by a decline in the
average yield on earning assets from 8.19% in 1997 to 7.95% in 1998. Interest
expense on deposits decreased $239,769 as a result of a decrease in the average
cost of deposits to 4.19% in 1998 from 4.30% in 1997. Interest expense on
borrowings increased $523,971 due to an increase of

                                       27
<PAGE>   25

NSD Bancorp
--------------------------------------------------------------------------------

$11,168,822 in average outstanding levels offset by a decrease in the average
rate paid on such balances from 5.75% in 1997 to 5.25% in 1998.

Net tax-equivalent interest income was $15,384,499 at December 31, 1999,
compared to $14,559,710 at December 31, 1998 and $14,171,227 at December 31,
1997. This consistent improvement has been largely due to increases in average
earning assets which were $351,872,879 in 1999 compared to $310,544,813 and
$294,800,289 in 1998 and 1997, respectively.

To provide a more in-depth analysis of net interest income, the following
average balance sheet and net interest income analysis detail the contribution
of earning assets to overall net interest income and the impact of funding
costs. The rate/volume analysis shows the portions of the net change in interest
income due to changes in volume or rate on a tax equivalent basis using the
statutory federal income tax rate of 34%. Changes in net interest income due to
both rate and volume in the accompanying rate and volume analysis have been
allocated to changes due to volume and rate in proportion to the absolute amount
of the change in each.

                              RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                From 1998 to 1999                    From 1997 to 1998
                                       -----------------------------------   ---------------------------------
                                         Change in Income/                     Change in Income/
                                           Expense Due To                       Expense Due To
                                       ----------------------     Total      ---------------------     Total
                                         Volume       Rate        Change      Volume       Rate       Change
--------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>         <C>         <C>
Interest Earning Assets
  Loans
    Industrial Revenue and Tax-Exempt
      Financing                        $   40,775   $  (9,716)  $   31,059   $  43,278   $  (9,342)  $  33,936
    All Other Loans                     1,020,194    (560,354)     459,840     214,797    (248,016)    (33,219)
--------------------------------------------------------------------------------------------------------------
Total Loans                             1,060,969    (570,070)     490,899     258,075    (257,358)        717
  Investment Securities
    Taxable                             2,200,584     (30,711)   2,169,873     157,673      44,826     202,499
    Tax-Exempt                              6,810     (23,860)     (17,050)   (291,946)      9,594    (282,352)
--------------------------------------------------------------------------------------------------------------
Total Investment Securities             2,207,394     (54,571)   2,152,823    (134,273)     54,420     (79,853)
  Due From Banks                           14,597       9,771       24,368      13,087          67      13,154
  Federal Funds Sold                     (631,227)    (30,018)    (661,245)    587,009       9,775     596,784
--------------------------------------------------------------------------------------------------------------
Total Interest Earning Assets           2,651,733    (644,888)   2,006,845     723,898    (193,096)    530,802
Interest Bearing Liabilities
Interest Bearing Deposits Savings and
  Interest Bearing Demand Deposits        201,431    (186,339)      15,092      92,001     (59,643)     32,358
    Time Deposits                         105,203    (193,911)     (88,708)   (167,232)   (104,895)   (272,127)
--------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits           306,634    (380,250)     (73,616)    (75,231)   (164,538)   (239,769)
  Federal Funds Purchased and
    Repurchase Agreements                 143,045      --          143,045     (70,441)    (70,441)   (140,882)
  FHLB Advances and Other Borrowings    1,127,772     (15,145)   1,112,627     596,356     (72,385)    523,971
--------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits         1,577,451    (395,395)   1,182,056     450,684    (307,364)    143,320
--------------------------------------------------------------------------------------------------------------

Change in Net Interest Income          $1,074,282   $(249,493)  $  824,789   $ 273,214   $ 114,268   $ 387,482
==============================================================================================================
</TABLE>

(1) Tax exempt income on loans and investments and related yields are shown on a
    fully tax-equivalent basis computed using the statutory rate of 34%.

(2) For purposes of calculating loan yields, average loan balances include
    nonaccrual loans.

                                       28
<PAGE>   26

NSD BANCORP
--------------------------------------------------------------------------------

                   AVERAGE BALANCE SHEET/NET INCOME ANALYSIS
                        For the Years Ended December 31,
<TABLE>
<CAPTION>
                                           1999                                    1998                        1997
                           ------------------------------------    ------------------------------------    ------------
                             AVERAGE                    AVERAGE      Average                    Average      Average
                             BALANCE       INTEREST      YIELD       Balance       Interest      Yield       Balance
<S>                        <C>            <C>           <C>        <C>            <C>           <C>        <C>
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Loans
  Industrial Revenue and
    Tax Exempt             $  1,623,544   $   131,252     8.08%    $  1,047,119   $   100,193     9.57%    $    604,370
All Other Loans             244,113,349    19,888,904     8.15      227,601,675    19,429,064     8.54      225,402,203
-----------------------------------------------------------------------------------------------------------------------
      Total                 245,736,893    20,020,156     8.15      228,648,794    19,529,257     8.54      226,006,573
Investment Securities
  Taxable                   100,049,387     6,225,674     6.22       64,210,313     4,055,801     6.32       58,961,980
  Tax-Exempt                  4,629,151       372,619     8.05        4,455,635       389,669     8.75        7,795,425
-----------------------------------------------------------------------------------------------------------------------
      Total                 104,678,538     6,598,293     6.30       68,665,948     4,445,470     6.47       66,757,405
Due from Banks, Interest
  Earning                       843,174        41,496     4.92          571,441        17,128     3.00          134,777
Federal Funds Sold              614,274        30,505     4.97       12,658,630       691,750     5.46        1,901,534
-----------------------------------------------------------------------------------------------------------------------
      Total Earning
        Assets              351,872,879   $26,690,450     7.59      310,544,813   $24,683,605     7.95      294,800,289
Reserve for Loan Losses      (2,932,704)                             (2,804,488)                             (2,771,915)
Cash and Due From Banks      13,148,351                              11,058,342                              10,762,215
Premises and Equipment        2,581,996                               2,928,189                               3,368,864
Other Assets                  7,012,114                               5,849,328                               6,060,077
-----------------------------------------------------------------------------------------------------------------------
    TOTAL ASSETS           $371,682,636                            $327,576,184                            $312,219,530
=======================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Deposits
  Savings Deposits         $ 38,371,347   $   936,000     2.44%    $ 37,620,135   $   984,447     2.62%    $ 37,025,880
  Interest Checking and
    Money Market             92,061,809     2,656,810     2.89       82,908,733     2,593,271     3.13       80,482,448
  Time Deposits              95,162,556     5,223,344     5.49       91,861,612     5,312,052     5.78       94,732,134
-----------------------------------------------------------------------------------------------------------------------
      Total Interest
        Bearing Deposits    225,595,712     8,816,154     3.91      212,390,480     8,889,770     4.19      212,240,462
Federal Funds Purchased
  and Repurchase
  Agreements                  2,753,907       143,045     5.19          --            --          --          2,558,518
FHLB Advances and Other
  Borrowings                 45,825,207     2,346,752     5.12       23,523,288     1,234,125     5.25       12,354,466
-----------------------------------------------------------------------------------------------------------------------
      Total Interest
        Bearing
        Liabilities         274,174,826   $11,305,951     4.12      235,913,768   $10,123,895     4.29      227,153,446
Demand Deposits              57,767,640                              52,806,947                              49,144,741
Other Liabilities             8,114,746                               7,125,495                               7,181,575
Shareholders' Equity         31,625,424                              31,729,974                              28,739,768
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY     $371,682,636                            $327,576,184                            $312,219,530
=======================================================================================================================
Interest Spread                                           3.47%                                   3.66%
Interest Margin                                           4.37%                                   4.69%

<CAPTION>
                                   1997
                           ---------------------
                                         Average
                            Interest      Yield
<S>                        <C>           <C>
------------------------------------------------
ASSETS
Loans
  Industrial Revenue and
    Tax Exempt             $    66,257    10.96%
All Other Loans             19,462,283     8.63
------------------------------------------------
      Total                 19,528,540     8.64
Investment Securities
  Taxable                    3,853,302     6.54
  Tax-Exempt                   672,021     8.62
------------------------------------------------
      Total                  4,525,323     6.78
Due from Banks, Interest
  Earning                        3,974     2.94
Federal Funds Sold              94,966     4.99
------------------------------------------------
      Total Earning
        Assets             $24,152,803     8.19
Reserve for Loan Losses
Cash and Due From Banks
Premises and Equipment
Other Assets
------------------------------------------------
    TOTAL ASSETS
================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Deposits
  Savings Deposits         $   994,503     2.69%
  Interest Checking and
    Money Market             2,550,857     3.17
  Time Deposits              5,584,179     5.89
------------------------------------------------
      Total Interest
        Bearing Deposits     9,129,539     4.30
Federal Funds Purchased
  and Repurchase
  Agreements                   140,883     5.51
FHLB Advances and Other
  Borrowings                   710,154     5.75
------------------------------------------------
      Total Interest
        Bearing
        Liabilities        $ 9,980,576     4.39
Demand Deposits
Other Liabilities
Shareholders' Equity
------------------------------------------------
TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY
================================================
Interest Spread                            3.80%
Interest Margin                            4.81%
</TABLE>

(1) Tax exempt income on loans and investments and related yields are shown on a
    fully tax-equivalent basis computed using a statutory rate of 34%.

(2) For purposes of calculating loan yields, average loan balances include
    nonaccrual loans.

(3) Average yields on available for sale investment securities are calculated
    based on average estimated market values for the years 1999, 1998 and 1997.

                                       29
<PAGE>   27

NSD BANCORP
--------------------------------------------------------------------------------

PROVISION FOR LOAN LOSSES

The Corporation's provision for loan losses was $840,000 in 1999, $780,000 in
1998 and $720,000 in 1997. The increase in the provision for loan losses was
primarily related to the overall increase in average loans outstanding during
1999. Net charge-offs for 1999 were $508,245, compared to $937,827 and $384,175
for 1998 and 1997, respectively. There were no charge-offs to any individual
borrower that represented more than 10% of the annual total in 1999 and 1997,
however, approximately $361,000 of the total charge-off amount for 1998 was
attributable to one customer. For additional information, see the Non-Performing
Assets and Reserve for Loan Losses sections of this discussion.

OTHER INCOME

Other income increased $148,609 to $1,798,512 in 1999 from $1,649,903 in 1998.
Contributing to the improvement was an increase in net gains on the sale of
investment securities of $32,795. Service fees generated an additional $157,060
in revenue during 1999 primarily consisting of increases in overdraft and
checking account fees of $124,302 and $37,210, respectively. Other operating
income declined $41,246 in 1999. This decline was due largely to a $164,263 loss
recognized on the disposal of Year 2000 non-compliant computer hardware and
losses on other assets held for sale of $29,855 in 1999, compared to net gains
of $83,805 on the sale of assets in 1998. Offsetting the impact of the sale or
disposal of equipment and other assets was a $108,272 increase in ATM surcharge
fees as the Bank completed its first full year of assessing such charges and a
$37,468 gain recognized on the sale of student loans.

Other income increased $63,489 from $1,586,414 in 1997 to $1,649,903 in 1998.
This increase was attributable to an increase in net gains on the sale of
investment securities of $12,777 and an increase in service fees of $56,182
predominantly due to increased efforts in the collection of overdraft fees which
added $35,454 to income over 1997. These increases were offset by a decrease in
other operating income of $5,270 which was mainly attributable to a one-time
gain of $167,000 on the sale of land in 1997. Offsetting the 1997 gain was the
introduction in 1998 of ATM surcharge fees which added $117,000 in other income
for 1998 over 1997 and an increase in gains on the sale of other assets of
$83,987 over 1997.

OTHER EXPENSES

Total other expenses increased $268,182 from $9,027,644 in 1998 to $9,295,826 in
1999. Salary and employee benefits increased $167,067 to $ 4,440,821 in 1999
from $4,273,754 in 1998. Salary expense increased $105,484 due to normal
inflation adjustments which also resulted in a corresponding $10,461 increase in
the employer portion of payroll taxes. Included in 1999 expenses was a $23,929
increase in health insurance costs and an $18,578 increase in the contribution
to the employee profit sharing plan.

Occupancy expense decreased by $15,137 to $831,442 from $846,579 due to a
$74,691 decrease in real estate taxes corresponding to the sales of land in 1998
and 1999 and a reduction in 1999 expense accruals, offset by an escalation in
rent payments of $11,014, additional building maintenance of $25,076, an $8,195
increase in building insurance premiums and a $4,008 increase in utilities.
Equipment and supplies expense increased $86,271 during 1999 due primarily to
increases in depreciation expense, equipment maintenance contracts, equipment
rental, general office expense and stationery and supplies of $21,848, $6,054,
$8,886, $36,806 and $11,670, respectively. Data processing expense increased
$78,153 corresponding to the enhancement of core processing capabilities and
higher ATM network charges resulting from increased transaction volumes at
certain ATM locations. FDIC insurance expense increased by only $2,259 due to an
industry wide reduction in assessment rates offset by overall increases in
deposit levels. Advertising expense increased $8,466 to $166,536 in 1999 from
$158,070 in 1998.

Other operating expenses decreased $58,897 in 1999 to $1,999,618 from $2,058,515
in 1998 due to several factors. Asset recovery expense decreased $66,000 along
with the decline in overall loan delinquencies and also due to higher 1998
expenses resulting from recovery efforts related to one significant loan
relationship. Financial services expense declined by $56,283 in 1999 due in
large part to additional 1998 costs associated with the annual

                                       30
<PAGE>   28

--------------------------------------------------------------------------------

reporting process and also 1998 costs incurred for an independent review of the
corporation's risk management program. Education expense decreased $12,487 due
to nonrecurring 1998 costs for training on new computer applications and also
1998 costs associated with participation in a video training program. Shares tax
expense decreased $20,199 due to modified accrual methodology. Directors fees
declined by $15,799 due to a reduction in deferred compensation costs and also a
reduction in the number of board members during the year. Teller and ATM losses
declined $16,782 primarily resulting from a branch office robbery during 1998.
General losses were $31,655 lower in 1999 as the Bank experienced nonrecurring
deposit account losses in 1998. Offsetting these expense decreases was an
increase in telephone expense of $59,960 due to operation of parallel network
communication lines during Year 2000 related system replacements. Student loan
processing fee accruals increased $28,607 due to third party fee increases and
anticipated costs attributable to the sale of such loans and the subsequent
outsourcing of future loan originations. Correspondent banking service charges
increased $9,399 resulting from tighter investable fund management. State tax
expenses also increased $27,920 corresponding to overall corporate growth and
taxable earnings increases.

Total other expenses increased $77,228 from $8,950,416 in 1997 to $9,027,644 in
1998. Salary and benefits increased $120,383 to $4,273,754 in 1998 from
$4,153,371 in 1997. Salary expense increased $55,773 due to normal inflation
adjustments and growth of the organization. Employee health insurance premiums
also increased $31,449. An increase in the employer portion of payroll taxes of
$9,194 corresponded to the increase in salary expense and an increase in
temporary employee expense of $34,331 also contributed to the overall increase.

Occupancy expense increased $63,511 from $783,068 in 1997 to $846,579 in 1998.
This increase is due almost entirely to an increase in real estate tax expense
of $74,180 which represents the establishment of an accrual for estimated annual
real estate tax expense. A slight increase in building rent of $11,454 also
contributed to the overall increase offset by decreases in insurance expense and
building maintenance of $7,225 and $14,377, respectively. Equipment and supplies
expense decreased $19,463 during 1998 which is primarily the result of decreases
in equipment maintenance contracts, stationery and supplies expense and vehicle
expense of $23,745, $11,875 and $4,541, respectively, offset by increases in
equipment repair expense and general office expense of $22,136 and $3,774,
respectively. Data processing expense increased $53,552 to $629,397 in 1998 from
$575,845 in 1997 which was the result of an increase in contractual monthly
costs assessed by the Corporation's primary data processor and volume related
increases in ATM network charges. FDIC insurance expense decreased slightly to
$37,492 in 1998 from $40,233 in 1997 due to a decrease in premium on acquired
SAIF insured deposits. Advertising expense increased slightly to $158,070 in
1998 from $150,708 in 1997. Other operating expenses decreased $145,376 to
$2,058,515 in 1998 from $2,203,891 in 1997 due to a loss of approximately
$289,000 on the merchant credit card portfolio in 1997. Disregarding this loss,
other operating expenses increased approximately $144,000 over 1997. There were
several factors contributing to this amount. Most significant was a $25,460
increase to audit expense due to the cost of a 401(k) plan review and additional
accruals for anticipated charges. An increase in financial services expense of
$20,082 was due to establishing an annual report expense accrual and
correspondent bank service charges increased $10,521. The increase in average
shareholders' equity and average assets during 1998 resulted in additional
Pennsylvania shares tax of $20,436. With a more aggressive approach to reducing
loan delinquencies during 1998, the Corporation experienced a $12,712 increase
in asset recovery expenses. An increase in ATM losses of $10,150 can be largely
attributed to a branch office robbery during 1998. These increases were offset
by decreases in legal expense and deposit premium amortization of $26,624 and
$8,333, respectively.

INCOME TAXES

The Corporation recorded an income tax provision of $2,311,322, $1,951,715, and
$1,843,450 in 1999, 1998 and 1997, respectively. The increase in the tax
provision was the result of higher pretax earnings. The effective tax rates for
1999, 1998 and 1997 were 33.6%, 31.9% and 32.0%, respectively. These rates were
below the 34% statutory tax rate primarily due to the tax benefits from
tax-exempt interest income.

                                       31
<PAGE>   29

NSD BANCORP
--------------------------------------------------------------------------------

FINANCIAL CONDITION

The Corporation's total assets increased $35,117,480 from $357,167,992 at
December 31, 1998 to $392,285,472 at December 31, 1999. Securities available for
sale increased $10,464,443 while securities held to maturity decreased
$3,437,580. Loans held for sale decreased to $630,777 at December 31, 1999 from
$3,995,483 at December 31, 1998. The loans available for sale at December 31,
1999 and 1998 were entirely comprised of student loans. Net loans increased from
$226,196,149 at December 31, 1998 to $264,157,344 at December 31, 1999.

INVESTMENT SECURITIES

Investment securities available for sale increased $10,464,443 in 1999 to
$103,253,784 from $92,789,341 in 1998. Increases in Obligations of U.S.
Government agencies and mortgage-backed securities of $6,496,775 and $1,362,345,
respectively, were due to normal purchasing activity net of any sales, calls,
maturities and changes in unrealized gains. Obligations of state and political
subdivisions and other bonds available for sale increased $3,331,170 and
$147,980, respectively, largely due to the reclassification of all such
securities, which were previously classified as held to maturity, as available
for sale. All securities classified as held to maturity were transferred to the
available for sale category as part of a strategy designed to increase the
Corporation's liquidity position in a market that was favorable to the disposal
of such assets. Subsequent to the transfer to available for sale, the
Corporation sold $1,725,340 of securities that were previously classified as
held to maturity. It is the Corporation's policy to classify all future
purchases of like securities as available for sale. These increases were offset
by a decrease in U.S. Treasury securities of $1,572,108. The corporation
experienced a significant overall change in net, unrealized gains (losses) on
fixed income securities principally due to a dramatic shift in market pricing
during 1999 that continues to impact portfolio valuations. Although such
investment securities are categorized as available for sale, the portfolio is
managed based on yield and cash flow. Management considers this change in fair
value to be temporary in nature posing minimal impact to future profitability.
Investment securities held to maturity decreased $3,437,580 due to maturity and
call activity and also due to the transfer of all remaining securities to the
available for sale category. As a member of the Federal Home Loan Bank (FHLB),
the Corporation is required to maintain a minimum investment in FHLB stock which
is calculated based on the level of assets, residential real estate loans and
outstanding FHLB advances. Marketable equity securities increased $698,281
during 1999 almost entirely due to an increase in the level of FHLB stock held
by the Bank.

The following summarizes the book value (excluding net unrealized holding gains)
and weighted average yields of the Corporation's securities available for sale
at December 31, 1999 by contractual maturity. Mortgage backed securities are
presented in the schedule below at contractual maturity without consideration
given to scheduled repayments or accelerated prepayments.

<TABLE>
<CAPTION>
                                                      After One But        After Five But
                               Within One Year      Within Five Years     Within Ten Years       After Ten Years
                              ------------------   -------------------   -------------------   -------------------
                                Amount     Yield     Amount      Yield     Amount      Yield     Amount      Yield
------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>     <C>           <C>     <C>           <C>     <C>           <C>
U.S. Treasury Securities      $  989,587   5.71%   $ 2,718,832    5.62%      --         --         --         --
Obligations of U.S.
  Government Agencies             --        --       7,995,367    5.84   $24,772,192   6.46%   $ 1,523,075    7.51%
Mortgage-Backed Securities        --        --         --         --       3,317,793   6.83     49,466,514    6.59
Obligations of State and
  Political Subdivisions          40,000   9.70        243,813   10.12        48,125   9.32      3,794,759    7.34
Other Bonds                       --        --         250,000    7.63       --         --       6,860,881    6.79
Marketable Equity Securities      --        --         --         --         --         --       3,646,263    9.08
------------------------------------------------------------------------------------------------------------------
                              $1,029,587   5.87%   $11,208,012    5.92%  $28,138,110   6.51%   $65,291,492    6.82%
==================================================================================================================
</TABLE>

All yields represent weighted average yields computed on the basis of cost,
adjusted for amortization of premium and accretion of discount. For purposes of
calculating yields on obligations of state and political subdivisions and
marketable equity securities, taxable equivalent adjustments were included to
provide a basis for comparison. The

                                       32
<PAGE>   30

--------------------------------------------------------------------------------

taxable equivalent adjustments were calculated using the current statutory
federal income tax rate of 34%. For federal income tax purposes, corporations
were allowed to exclude 70% of certain dividend income in 1999.

LOANS

Loans net of deferred fees, increased $38,255,665 during 1999, from $230,937,044
at December 31, 1998 to $269,192,709 at December 31, 1999. Improved commercial
loan development efforts resulted in increases of $19,669,427 and $5,608,408,
respectively, in nonresidential mortgage and commercial, financial and
agricultural loans during 1999. Consumer loans outstanding increased $16,847,129
due, in large part, to improved auto industry sales volumes and also due to
enhanced business development efforts. Lease financing also increased $1,489,043
during the year due to improved business calling efforts. Offsetting these
increases was a decrease in residential mortgage loans primarily due to higher
prepayments resulting from the low rate environment throughout the year and also
a decline in consumer lines of credit of $454,131.

<TABLE>
<CAPTION>
                                                            December 31,
                            ----------------------------------------------------------------------------
                                1999            1998            1997            1996            1995
--------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>             <C>             <C>             <C>
Residential Mortgage Loans  $ 47,823,758    $ 52,695,286    $ 55,125,240    $ 56,641,022    $ 35,830,068
Nonresidential Mortgage
  Loans                       47,730,295      28,060,867      29,385,042      29,470,461      29,897,560
Commercial, Financial and
  Agricultural Loans          46,053,457      40,445,049      37,831,540      30,392,059      35,037,875
Consumer Loans to
  Individuals                108,847,393      92,000,264      95,357,873      80,107,845      67,709,305
Lines of Credit                4,922,717       5,376,848       5,487,417       5,433,560       5,681,628
Lease Financing               13,399,797      11,910,754       8,900,409       8,248,698       8,797,060
Nonaccrual Loans                 777,961         785,360       1,355,617       1,234,467         443,727
--------------------------------------------------------------------------------------------------------
    Total Loans              269,555,378     231,274,428     233,443,138     211,528,112     183,397,223
Deferred Fees                   (362,669)       (337,384)       (403,354)       (421,784)       (459,234)
--------------------------------------------------------------------------------------------------------
Loans, Net of Deferred
  Fees                       269,192,709     230,937,044     233,039,784     211,106,328     182,937,989
Unearned Income               (1,947,108)     (1,984,393)     (1,290,389)     (1,212,814)     (1,402,670)
--------------------------------------------------------------------------------------------------------
    Total Loans, Net of
       Unearned Income and
       Fees                  267,245,601     228,952,651     231,749,395     209,893,514     181,535,319
Reserve for Loan Losses       (3,088,257)     (2,756,502)     (2,914,329)     (2,578,504)     (2,676,352)
--------------------------------------------------------------------------------------------------------
Net Loans                   $264,157,344    $226,196,149    $228,835,066    $207,315,010    $178,858,967
========================================================================================================
</TABLE>

The following table shows the Corporation's loan maturities as of December 31,
1999 (in thousands).

<TABLE>
<CAPTION>
                                                              One Year    After One Year      After
                                                              and Less    To Five Years     Five Years
------------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>               <C>
Residential Mortgage Loans                                    $ 2,501        $ 7,998         $37,325
Nonresidential Mortgage Loans                                   3,536          9,290          34,904
Commercial, Financial and Agricultural Loans                   17,869         17,473           3,293
Consumer Loans to Individuals (net of unearned income)         28,788         68,049          12,010
Lease Financing (net of unearned income)                        2,375          6,810           2,268
------------------------------------------------------------------------------------------------------
</TABLE>

                                       33
<PAGE>   31

NSD BANCORP
--------------------------------------------------------------------------------

NON-PERFORMING ASSETS

At December 31, 1999, nonaccrual loans were $777,961 compared to $785,360 in
1998. Other real estate owned decreased $59,460 to $132,092 in 1999 from
$191,552 in 1998 primarily due to the net effect of property sales and the
revaluation of one property. Loans 90 days past due and still accruing interest
decreased $213,722 during 1999 and represent only .2% of net loans at December
31, 1999.

The current quality of the loan portfolio can be demonstrated by the following
table which details total non-performing loans and past due loans:

<TABLE>
<CAPTION>
                                                                December 31,
                                       --------------------------------------------------------------
                                          1999         1998         1997         1996         1995
-----------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>          <C>          <C>
Nonaccrual Loans                       $  777,961   $  785,360   $1,355,617   $1,234,467   $  443,727
Other Real Estate Owned                   132,092      191,552      182,133      371,982       43,966
Other Assets Held for Sale                130,068      115,069      187,283       60,705       31,775
-----------------------------------------------------------------------------------------------------
       Total Non-Performing Assets      1,040,121    1,091,981    1,725,033    1,667,154      519,468
Loans 90 Days Past Due and Still
  Accruing                                599,955      813,677    1,213,225      615,466      801,743
-----------------------------------------------------------------------------------------------------
       Total Non-Performing Assets
          and Past Due Loans           $1,640,076   $1,905,658   $2,938,258   $2,282,620   $1,321,211
=====================================================================================================
</TABLE>

RESERVE FOR LOAN LOSSES

The Corporation's policies provide for loan loss reserves to adequately protect
against potential unidentified and/or identified loan losses consistent with
sound and prudent banking practice. These policies consider historical data of
actual losses and loans classified by specific loan credit evaluation. They also
consider loan delinquency and economic conditions.

The Corporation follows a loan review program to evaluate the credit risk in its
loan portfolio for substantially all loans greater than $50,000. Through the
loan review process, the Corporation maintains a classified account list which,
along with the delinquency list of loans, helps management assess the overall
quality of the loan portfolio and the adequacy of the reserve for loan losses.
Loans classified as "substandard" are those loans with clear and defined
weaknesses such as highly leveraged positions, unfavorable financial ratios,
uncertain repayment sources or poor financial condition, which may jeopardize
recoverability of the asset. Loans classified as "doubtful" are those loans
which have characteristics similar to substandard accounts but with an increased
risk that a loss may occur, or at least a portion of the loan may require a
charge-off if immediately liquidated. Although loans classified as substandard
do not duplicate loans classified as doubtful, both substandard and doubtful
loans include some loans that are delinquent or on nonaccrual status. As of
December 31, 1999, substandard loans totaled $1,156,724 and doubtful loans
totaled $598,357. All substandard and doubtful loans were designated as
delinquent or nonaccrual as of December 31, 1999.

In addition to its classified account list and delinquency list of loans, the
Corporation maintains a separate "watch list" which further aids the Corporation
in monitoring its loan portfolio. Watch list loans show warning elements where
the present status portrays one or more deficiencies requiring attention in the
short run or pertinent ratios of the loan account have weakened to a point that
more frequent monitoring is warranted. These loans do not have all the
characteristics of a classified loan (substandard or doubtful) but do show
weakened elements as compared with those of a satisfactory credit. The
Corporation reviews these loans while assessing the adequacy of the reserve for
loan losses.

The corporation establishes specific reserves for potential problem loans as
determined by its loan review process described above. The specific reserves on
these loans are determined in accordance with Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan,"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures" taking into account the

                                       34
<PAGE>   32

--------------------------------------------------------------------------------

credit's current operating status, pledged collateral and plans of action for
resolving any deficiencies. The specific reserves are usually only considered
for the Corporation's commercial loan portfolio.

The Corporation maintains formula reserves for all loans not considered by the
specific reserve method. Formula reserves are calculated for each pool of
homogeneous loans based on a loan's risk rating, delinquency status and the
historical charge-off experience pertaining to each loan type. The loss factors
used in calculating formula reserves for substandard, doubtful and loss credits
are based upon management's judgment of inherent risks associated with these
classifications of loans. Formula reserves, relative to loan delinquency status,
are based on the type of loan and delinquency aging and are determined by
management's judgment of the inherent risk of loss from these delinquency
categories. The Corporation also establishes formula reserves for all loan types
based on the historical charge-off percentages for each homogeneous pool of
loans. The historical charge-off percentage used by the Corporation is based on
the two year cumulative losses for each homogeneous loan pool.

These formula reserves are based on the Corporation's historical charge-off
experience. If current charge-off levels deviate from the Corporation's
historical experience, the deviation will be reflected in the Corporation's
ongoing formula reserves and will adjust the allowance for loan losses
accordingly. The Corporation maintains an unallocated reserve taking into
consideration the following factors:

     - Concentrations of credit

     - Delinquency and nonaccrual trends

     - Local and national economic conditions

     - Changes in lending and collection practices

     - Trends in volume and terms of loans

     - Other external factors that could affect the ability of the Corporation's
       customers to repay their obligations

Management reviews these conditions to determine if any of these conditions is
evidenced by a specifically identified problem credit or portfolio segment.
Management's estimate of this condition may be reflected as a specific allowance
applicable to this credit or portfolio segment. Where any of these conditions is
not evidenced by a specifically identifiable problem credit or portfolio segment
as of the evaluation date, management's evaluation of the potential risk
concerning this condition is reflected in the unallocated allowance.

The composition of the corporation's allowance for loan losses are as follows at
December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                            -------------------------
                                                               1999           1998
-------------------------------------------------------------------------------------
<S>                                                         <C>            <C>
Specific Reserves                                           $   573,089    $  386,626
Formula Reserves                                              2,054,383     1,836,320
Unallocated Reserves                                            460,785       533,556
-------------------------------------------------------------------------------------
       Total                                                $ 3,088,257    $2,756,502
=====================================================================================
</TABLE>

Specific reserves increased $186,463 from $386,626 at December 31, 1998 to
$573,089 at December 31, 1999 largely due to an increase in classified loans
relating to four commercial loan relationships. Management believes that current
reserves appropriately reflect the level of risk and potential loss of these
credits. The reserve amount specified for these loans may change in the event
that there is evidence of an improvement or further deterioration in a
customer's ability to satisfy contractual requirements.

The formula reserve portion of the allowance for loan losses increased $218,063
to $2,054,383 at December 31, 1999 from $1,836,320 at December 31, 1998
corresponding to the overall increase in loans outstanding and most notably,
increases in commercial and installment loans.

The unallocated reserve portion of the allowance for loan losses decreased
$72,771 reflecting an overall improvement in loan delinquencies and favorable
local and national economic trends. Also contributing to this decrease has been
the improvement in collection practices. New loan volumes and loan terms appear
consistent with historical trends with regard to credit quality and
proportionate composition.

                                       35
<PAGE>   33

NSD BANCORP
--------------------------------------------------------------------------------

The following schedule sets forth the allocation of the reserve for loan losses
among individual loan categories. A portion is allocated to general risk to
protect the Corporation against potential yet undetermined losses and is based
on historical experience. The entire reserve for loan losses is available to
absorb future loan losses in any category. (In thousands)

<TABLE>
<CAPTION>
                                                              For the Years Ended December 31,
                                     ----------------------------------------------------------------------------------
                                          1999             1998             1997             1996             1995
                                     ----------------------------------------------------------------------------------
                                              % OF             % of             % of             % of             % of
                                     AMOUNT   TOTAL   Amount   Total   Amount   Total   Amount   Total   Amount   Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>
Commercial, Financial and
  Agricultural Loans                 $  948   30.7%   $  740   26.8%   $  926   31.8%   $  782   30.3%   $  969   36.2%
Real Estate Mortgage Loans              243    7.9       320   11.6       320   11.0       358   13.9       388   14.5
Installment Loans                     1,239   40.1       885   32.1       991   34.0       819   31.8       679   25.4
Lease Financing                         197    6.4       277   10.0       239    8.2       229    8.9       180    6.7
Allocation to General Risk              461   14.9       535   19.4       438   15.0       391   15.1       460   17.2
-----------------------------------------------------------------------------------------------------------------------
  Total                              $3,088           $2,757           $2,914           $2,579           $2,676
=======================================================================================================================
</TABLE>

The Corporation's net charge-offs by loan type and changes in the reserve for
loan losses for each of the past five years were as follows (in thousands):

<TABLE>
                                                           For the Years Ended December 31,
                                                  --------------------------------------------------
                                                   1999       1998       1997       1996       1995
----------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>        <C>        <C>        <C>
Reserve for Loan Losses at Beginning of Year      $2,757     $2,914     $2,579     $2,676     $2,282
Charge-offs:
  Commercial, Financial, and Agricultural Loans       78        455         78        546        155
  Real Estate Mortgage Loans                          40       --           30       --         --
  Installment Loans                                  386        483        367        261        322
  Lease Financing                                     50         36         48         36         29
----------------------------------------------------------------------------------------------------
     Total Charge-offs                               554        974        523        843        506
Recoveries:
  Commercial, Financial, and Agricultural Loans     --         --           94          5        329
  Real Estate Mortgage Loans                           1       --            2          2          2
  Installment Loans                                   42         34         42         89         38
  Lease Financing                                      2          3       --         --            1
----------------------------------------------------------------------------------------------------
     Total Recoveries                                 45         37        138         96        370
----------------------------------------------------------------------------------------------------
Net Charge-offs                                      509        937        385        747        136
Provision for Loan Losses                            840        780        720        650        530
----------------------------------------------------------------------------------------------------
Reserve for Loan Losses at End of Year            $3,088     $2,757     $2,914     $2,579     $2,676
====================================================================================================
Net Loan Charge-offs to Average Loans               0.21%      0.41%      0.17%      0.38%      0.08%
Loan Loss Reserve to Non-Performing Assets        296.91%    252.43%    168.94%    154.67%    515.21%
----------------------------------------------------------------------------------------------------
</TABLE>

                                       36
<PAGE>   34

--------------------------------------------------------------------------------

LIABILITIES

Total liabilities were $361,936,210 at December 31, 1999, an increase of
$37,162,583 from December 31, 1998. The increases in total deposits and total
borrowed funds of $9,324,499 and $33,350,000, respectively, were used to fund
loan growth and to increase the investment portfolio as part of an overall
leverage strategy.

DEPOSITS

Total deposits increased $9,324,499 from $280,115,160 at December 31, 1998 to
$289,439,659 at December 31, 1999. Noninterest bearing and interest bearing
deposits increased during 1999 by $111,893 and $9,212,606 due to continued
emphasis on the development of small business relationships and strategic retail
deposit promotions.

Average deposits and the average cost of deposits for the past three years were
as follows:

<TABLE>
<CAPTION>
                                         1999                     1998                     1997
                                ----------------------   ----------------------   ----------------------
                                  AVERAGE      AVERAGE     Average      Average     Average      Average
                                  BALANCE       RATE       Balance       Rate       Balance       Rate
--------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>       <C>            <C>       <C>            <C>
Noninterest Bearing Deposits    $ 57,767,640    --       $ 52,806,947    --       $ 49,144,741    --
Interest Bearing Deposits         92,061,809    2.89%      82,908,733    3.13%      80,482,448    3.17%
Savings Deposits                  38,371,347    2.44       37,620,135    2.62       37,025,880    2.69
Time Deposits                     95,162,556    5.49       91,861,612    5.78       94,732,134    5.90
--------------------------------------------------------------------------------------------------------
  Total Deposits                $283,363,352    3.11%    $265,197,427    3.35%    $261,385,203    3.49%
========================================================================================================
</TABLE>

At December 31, 1999, outstanding Certificates of Deposit are scheduled to
mature as follows (in thousands):

<TABLE>
<CAPTION>
                                                  $100,000 and over      Less than $100,000
-------------------------------------------------------------------------------------------
<S>                                               <C>                    <C>
Three Months or Less                                   $ 2,941                $12,912
Over Three Months Through Six Months                     3,263                 15,458
Over Six Months Through Twelve Months                    1,455                 13,130
Over Twelve Months                                       6,398                 42,930
-------------------------------------------------------------------------------------------
     Total                                             $14,057                $84,430
===========================================================================================
</TABLE>

FHLB ADVANCES AND OTHER BORROWED FUNDS

At December 31, 1999, the Corporation had outstanding borrowings of $66,350,000
of which $19,350,000 is due during 2000. The Corporation borrowed these funds to
provide liquidity for specific asset-liability management strategies. At
December 31, 1999 outstanding borrowings consisted of $3,700,000 in overnight
Federal Funds Purchased and $62,650,000 in advances from the Federal Home Loan
Bank which are collateralized by qualifying securities and loans and are subject
to restrictions or penalties related to prepayments.

                                       37
<PAGE>   35

NSD BANCORP
--------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY

Consolidated shareholders' equity decreased $2,045,103 from $32,394,365 at
December 31, 1998 to $30,349,262 at December 31, 1999. This decrease was the
result of earnings retention, the issuance of new shares of common stock for the
exercise of employee/director stock options offset by a decrease in net
unrealized holding gains on securities available for sale and dividends paid to
shareholders.

The Corporation continues to maintain a strong capital position. Risk-based
capital ratios exceed current regulatory requirements. The Corporation's Tier I
risk-based capital ratio at December 31, 1999 was 11.28% compared to 12.36% at
December 31, 1998. The Corporation's total risk-based capital ratio at December
31, 1999 was 12.71% compared to 14.02% at December 31, 1998. Regulatory
requirements for Tier I and total risk-based capital ratios are 4.00% and 8.00%,
respectively.

SALES PRICE AND CASH DIVIDENDS PER SHARE

The following table sets forth the high and low sale prices and cash dividends
declared for the Corporation's common stock as reported by the NASDAQ National
Market system. Prices and dividends set forth below have been adjusted to
reflect a 10% stock dividend declared January 26, 1999 and payable on March 3,
1999 to shareholders of record on February 2, 1999.

<TABLE>
<CAPTION>
                                                 Sales Price     Cash Dividends
                                               ---------------      Declared
                                                High     Low       Per Share
-------------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>
1999
First Quarter                                  $24.55   $21.25       $0.170
Second Quarter                                  25.88    20.25        0.170
Third Quarter                                   23.00    19.00        0.170
Fourth Quarter                                  22.06    15.50        0.190

1998
First Quarter                                  $31.95   $27.90       $0.155
Second Quarter                                  32.63    27.00        0.155
Third Quarter                                   32.85    23.40        0.155
Fourth Quarter                                  26.10    22.50        0.155
-------------------------------------------------------------------------------
</TABLE>

MARKET RISK

The Corporation operates as a traditional commercial banking institution
investing in securities and loans with funding primarily provided by retail
deposits and wholesale borrowings. The primary source of revenue is the net
spread between interest earned on investments and the cost of related funding.
Inherent in this business is market risk or the risk of an adverse impact on
earnings from changes in market interest rates. Other types of market risks such
as foreign currency exchange rate risk and commodity price risk do not arise in
the normal course of the Corporation's business activities. The Corporation has
an asset/liability management process in place to monitor and control risks
associated with changing interest rates and the potential impact on future
financial performance. Management's objective is to provide an optimum return
while maintaining an appropriate mix of earning assets and funding sources
consistent with acceptable exposure to market risk. Ultimately, the Corporation
seeks to produce consistent profitability in all interest rate environments.

Simulation modeling enables management to quantify the extent of the
Corporation's interest rate exposure by forecasting how net interest income, and
consequently net income, varies under alternative interest rate scenarios based
on the Corporation's current position. At December 31, 1999, a simulation
analysis assuming a one-time 200 basis point increase in interest rates, results
in a negative impact of approximately 2.75% or approximately $463,000 on
projected net interest income over a one-year period. Conversely, a 200 basis
point decrease in interest rates resulted in a projected increase in net
interest income of 2.2% or approximately $369,000 over the same

                                       38
<PAGE>   36

--------------------------------------------------------------------------------

period. These findings are the result of normal projected growth in interest
earning assets and interest related liability levels based on the Corporation's
position at December 31, 1999. The results reflect the impact of a relatively
short repricing or rate adjustment period of the Corporation's loan products and
the effect of investment security prepayments matched with the relative short
term nature of interest sensitive deposit and borrowing liabilities. In a rising
rate environment, the increased cost of funding would be offset by increases in
yields on prime rate, LIBOR and Treasury indexed loans and securities and the
repricing of significant cash flow in the consumer loan portfolio. In a
declining rate environment, the declining yield on loans and securities due to
prepayments and index adjustments would be offset by a shortening of deposit
maturities and the repricing of a significant interest bearing demand deposit
portfolio. In any event, a sudden, substantial and protracted shift in interest
rates may adversely impact the Corporation's earnings to the extent that
interest rates on interest earning assets and interest bearing liabilities
change at varying frequencies and market forces may limit the ability to
appropriately respond to such changes.

Interest rate risk is also analyzed by comparing the maturity and repricing
relationships between interest earning assets and interest bearing liabilities
at specific points in time or "GAP" analysis. Management, however, recognizes
that a simplified GAP analysis may not adequately reflect the degree to which
assets and liabilities with similar repricing characteristics react to changes
in market interest rates. In addition, repricing characteristics identified
under a specific GAP position may vary significantly under different interest
rate environments. Therefore, simulation modeling is also performed to evaluate
the extent and direction of the Corporation's interest rate exposure under
upward and downward changes in interest rates.

Based upon historical trends, the Corporation has typically considered all
demand and savings deposits as core deposits and relatively non-rate sensitive.
The following table has been prepared, as required, presenting interest bearing
demand deposits and savings deposits as repricing within the earliest period. As
a result, the table reflects a negative, or liability sensitive, cumulative
interest GAP position of $131,159 in the first one-year GAP. Results of
simulation modeling and historical experience indicate, however that the overall
potential effect on net interest income should not have an adverse result on
future financial performance.

The following table summarizes the Corporation's interest rate sensitivity or
GAP position, which is the estimated aggregate maturity/repricing structure of
interest earning assets and interest bearing liabilities, at December 31, 1999
(in thousands):

<TABLE>
<CAPTION>
                                         3 months    Over 3 to   Over 6 to   Over 1 to    Over 5
                                          or less    6 months    12 months    5 Years     Years      Total
------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>         <C>         <C>         <C>        <C>
Loans, Net of Unearned Income            $  25,523   $  12,245   $  24,756   $162,733    $ 39,532   $264,789
Securities Available for Sale               18,798       2,687       4,883     21,436      55,451    103,255
Noninterest Earning Assets                  --          --          --          --         24,242     24,242
------------------------------------------------------------------------------------------------------------
  Total Assets                           $  44,321   $  14,932   $  29,639   $184,169    $119,225   $392,286
============================================================================================================
Interest Bearing Demand Deposits         $  91,985      --          --          --          --      $ 91,985
Savings Deposits                            37,659      --          --          --          --        37,659
Time Deposits (less than) $100,000          13,931   $  15,490   $  13,187   $ 40,903    $  2,328     85,839
Time Deposits (greater than or equal
to) $100,000                                 2,920       2,131       1,398      5,522         677     12,648
Other Borrowed Funds                        19,350      14,000       8,000     25,000       --        66,350
Other Liabilities                           --          --          --          --         67,456     67,456
Shareholders' Equity                        --          --          --          --         30,349     30,349
------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders'
  Equity                                 $ 165,845   $  31,621   $  22,585   $ 71,425    $100,810   $392,286
============================================================================================================
Period GAP                               $(121,524)  $ (16,689)  $   7,054   $112,744    $ 18,415
Cumulative GAP                           $(121,524)  $(138,213)  $(131,159)  $(18,415)   $  --
------------------------------------------------------------------------------------------------------------
</TABLE>

                                       39
<PAGE>   37

NSD BANCORP
--------------------------------------------------------------------------------

YEAR 2000 CONSIDERATIONS

In 1997, the Corporation initiated the process of analyzing its information
systems and vendor supplied application systems to identify and resolve any year
2000 issues concerning its business or operations. Senior management approached
this initiative with the highest of priorities. With oversight from the Board of
Directors, the Corporation aggressively pursued appropriate solutions and
assurances with regard to compliance of all applications affected by the year
2000. As of December 31, 1998, the Corporation had completed its assessment of
all hardware, software, core business applications and data exchange interfaces
and began the process of renovating systems and applications and validating year
2000 readiness. Management achieved compliance for all critical systems and
substantially all non-critical systems by the end of the second quarter of 1999
and has experienced no negative impact due to Year 2000 issues.

Non-information technology systems such as the elevator, HVAC, security systems
etc., were reviewed to determine if there were any significant year 2000 issues.
Any non-compliant system or related equipment had either already been replaced
or was in the process of being replaced before the year 2000.

It is estimated that the total cumulative cost to the Corporation resulting from
this process was approximately $750,000 which included costs associated with
modifying existing systems, purchasing or leasing certain hardware and software
and the acceleration of depreciation on items which were disposed prematurely
due to noncompliance. The majority of such costs were incurred during 1999.
Purchased hardware and software has been capitalized in accordance with normal
policy. Personnel and all other costs related to this process were expensed as
incurred.

Management believes that there are no remaining uncertainties or contingencies
related to Year 2000 issues. There are no additional foreseeable costs that will
be incurred beyond those already experienced by the Corporation. Although the
Corporation believes that it has addressed all year 2000 compliance issues, any
unforeseen system failures could result in a compromise in the Corporation's
ability to service customers and could have a potentially adverse impact on NSD
Bancorp's financial condition or results of operations. A Contingency and
Business Resumption Plan has been developed to help insure that the Corporation
is prepared in the event of an automated information system failure and to
address liquidity concerns due to possible public demands for cash.

LIQUIDITY AND CASH FLOWS

Liquidity is the ability to generate cash flows or obtain funds at a reasonable
cost to satisfy customer credit needs and the requirements of depositors. Liquid
assets include cash, federal funds sold, investments maturing in less than one
year and loan repayments. The Corporation's ability to obtain deposits and
purchase funds at reasonable rates determines its liability liquidity. As a
result of liquid asset management and the ability to generate liquidity through
deposit funding, management feels that the Corporation maintains overall
liquidity sufficient to satisfy customer needs. In the event that such measures
are not sufficient, the Corporation has established alternative sources of funds
in the form of wholesale borrowings and repurchase agreements.

Operating activities provided net cash of $238,290 during 1999, compared to
$10,573,914 and $4,679,545 for 1998 and 1997, respectively. The primary source
of operating cash flows for 1999 was net income adjusted for the effect of
noncash expenses such as the provision for loan losses, depreciation of premises
and equipment and amortization of intangible assets.

                                       40
<PAGE>   38

--------------------------------------------------------------------------------

Investing activities used cash of $48,006,985 during 1999, compared to
$31,358,696 and $19,610,435 for 1998 and 1997, respectively. In 1999, cash was
used to fund loan growth, as well as, the purchase of investment securities
available for sale as part of the Corporation's leverage strategy. In 1998, a
significant portion of borrowings were invested in investment securities
available for sale as part of an overall leverage strategy. Proceeds from the
sales, repayments and maturities of investment securities available for sale and
held to maturity were reinvested primarily in investment securities available
for sale. Cash flows from investing activities were primarily used to fund
growth in the loan portfolio during 1997.

Financing activities provided cash of $39,411,722, $27,424,481 and $9,675,632
during 1999,1998 and 1997, respectively. During 1999 and 1998, increases in
demand and savings accounts, time deposits and borrowings provided cash while
cash was used by the repayment of borrowings, the payment of cash dividends and
the purchase of treasury stock. During 1997, an increase in demand deposits,
savings deposits and borrowings provided cash while cash was used by payments of
cash dividends, repayment of repurchase agreements and a slight decrease in
certificates of deposit. Net proceeds from borrowings were used to fund growth
in the investment portfolio during 1998 and to fund loan growth during 1997.

Certain information in this discussion and other statements contained in this
report which are not historical facts may be forward-looking statements that
involve risks and uncertainties. Such statements are subject to important
factors that could cause actual results to differ materially from those
contemplated by such statements, including without limitation, the effect of
changing regional and national economic conditions; changes in interest rates;
credit risks of commercial, real estate, consumer and other lending activities;
changes in federal and state regulations; the presence in the Corporation's
market area of competitors with greater financial resources than the Corporation
or other unanticipated external developments materially impacting the
Corporation's operational and financial performance.

                                       41