<PAGE>

                                                                      Exhibit 13

                       LOGO    LAUREL CAPITAL GROUP, INC.

INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------

KPMG Letterhead

<Table>
<S>                                                          <C>
One Mellon Center                                            Telephone 412 391 9710
Pittsburgh, PA 15219                                         Fax 412 391 8963
</Table>

THE BOARD OF DIRECTORS AND STOCKHOLDERS
LAUREL CAPITAL GROUP, INC.:

We have audited the accompanying consolidated statements of financial condition
of Laurel Capital Group, Inc. and subsidiary as of June 30, 2002 and 2001 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Laurel Capital
Group, Inc. and subsidiary at June 30, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2002 in conformity with accounting principles generally accepted
in the United States of America.

                                         /s/ KPMG LLP

Pittsburgh, Pennsylvania
August 9, 2002

Footnote graphic
KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is
a member of KPMG International, a Swiss association.
                                        6
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------
At June 30, 2002 and 2001

<Table>
<Caption>
(in thousands, except for per share data)                       2002        2001
----------------------------------------------------------------------------------
<S>                                                           <C>         <C>
ASSETS
Cash                                                          $  1,051    $  1,045
Interest-earning deposits with other institutions               32,812       8,669
Investment securities available for sale (note 2)               39,156      39,762
Investment securities held to maturity (market value of
  $12,127 and $14,129) (note 2)                                 11,909      13,937
Mortgage-backed securities available for sale (note 3)           7,998       9,998
Mortgage-backed securities held to maturity (market value of
  $41 and $152) (note 3)                                            40         150
Loans receivable, held for sale (note 4)                         1,371       1,701
Loans receivable                                               180,125     178,667
Allowance for loan losses                                       (1,803)     (1,759)
----------------------------------------------------------------------------------
  Loans receivable, net (notes 4 and 5)                        178,322     176,908
Federal Home Loan Bank stock (note 6)                            1,637       1,706
Real estate owned                                                  131         290
Accrued interest receivable:
  Loans                                                            915         960
  Interest-earning deposits and investments                        537         687
  Mortgage-backed securities                                        40          56
Office properties and equipment, net of accumulated
  depreciation (note 7)                                          1,184       1,271
Prepaid expenses and sundry assets                                 958         872
----------------------------------------------------------------------------------
     Total Assets                                             $278,061    $258,012
----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Savings deposits (note 8)                                    225,419     205,636
  FHLB advances (note 9)                                        21,620      21,626
  Advance deposits by borrowers for taxes and insurance          2,506       2,850
  Accrued interest payable on savings deposits                     522         563
  Accrued income taxes (note 10)                                   289         130
  Other accrued expenses and sundry liabilities                  1,152       1,069
----------------------------------------------------------------------------------
     Total Liabilities                                         251,508     231,874
----------------------------------------------------------------------------------
Stockholders' Equity (note 11)
  Common stock, $.01 par value; 5,000,000 shares authorized;
     2,356,401 and 2,348,863 shares issued, respectively            24          23
  Additional paid-in capital                                     5,389       5,322
  Treasury stock, at cost (473,675 and 389,895 shares,
     respectively)                                              (7,157)     (5,553)
  Retained earnings                                             28,103      26,427
  Accumulated other comprehensive income, net of tax $456
     and $171, respectively                                        632         331
  Stock held in deferred compensation trust                       (438)       (412)
----------------------------------------------------------------------------------
     Total Stockholders' Equity                                 26,553      26,138
----------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Equity               $278,061    $258,012
----------------------------------------------------------------------------------
</Table>

See accompanying notes to consolidated financial statements.

                                        7
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the years ended June 30, 2002, 2001 and 2000

<Table>
<Caption>
(in thousands, except for per share data)                2002          2001          2000
--------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>
Interest income:
  Loans receivable                                    $   13,066    $   13,642    $   11,967
  Mortgage-backed securities                                 518           769           836
  Investment securities:
    Taxable                                                1,054         1,405         1,379
    Tax-exempt                                             1,500         2,415         2,342
  Interest-earning deposits                                  312           149            86
--------------------------------------------------------------------------------------------
    Total interest income                                 16,450        18,380        16,610
Interest expense:
  Savings deposits (note 8)                                7,540         8,282         7,291
  FHLB advances (note 9)                                   1,275         1,974         1,290
--------------------------------------------------------------------------------------------
    Total interest expense                                 8,815        10,256         8,581
--------------------------------------------------------------------------------------------
Net interest income before provision for loan losses       7,635         8,124         8,029
Provision for loan losses                                     18            18            18
--------------------------------------------------------------------------------------------
Net interest income after provision for loan losses        7,617         8,106         8,011
--------------------------------------------------------------------------------------------
Other income:
  Service charges                                            822           740           765
  Gain on the sale of investment securities
    available for sale                                        55            82            --
  Gain on the sale of loans held for sale                     21            14            12
  Other operating income                                      68            70            63
  Other non-operating income                                  --           325            --
--------------------------------------------------------------------------------------------
    Total other income                                       966         1,231           840
--------------------------------------------------------------------------------------------
Operating expenses:
  Compensation and employee benefits (note 12)             2,042         2,022         1,880
  Premises and occupancy costs                               556           550           569
  Federal insurance premiums                                  37            38            72
  Net loss on real estate owned                               34            --            32
  Data processing expense                                    238           219           207
  Professional fees                                          135           155           214
  Other operating expenses                                 1,039         1,051           945
--------------------------------------------------------------------------------------------
    Total operating expenses                               4,081         4,035         3,919
--------------------------------------------------------------------------------------------
Income before income taxes                                 4,502         5,302         4,932
--------------------------------------------------------------------------------------------
Provision for income taxes (note 10):
  Federal                                                  1,167         1,388         1,298
  State                                                      260           275           226
--------------------------------------------------------------------------------------------
    Total income taxes                                     1,427         1,663         1,524
--------------------------------------------------------------------------------------------
  Net income                                          $    3,075    $    3,639    $    3,408
--------------------------------------------------------------------------------------------
Earnings per share (note 1):
  Basic
    Net income                                        $     1.59    $     1.85    $     1.62
    Average number of shares outstanding               1,937,545     1,963,365     2,107,711
--------------------------------------------------------------------------------------------
  Diluted
    Net income                                        $     1.51    $     1.79    $     1.56
    Average number of shares outstanding               2,037,607     2,036,609     2,180,490
--------------------------------------------------------------------------------------------
Dividends paid per share                              $     0.72    $     0.68    $     0.64
--------------------------------------------------------------------------------------------
</Table>

See accompanying notes to consolidated financial statements.

                                        8
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the years ended June 30, 2002, 2001 and 2000

<Table>
<Caption>
                                                                    Accumulated
                                                                       Other
                                                                   Comprehensive    Stock Held
                               Additional                             Income       in Deferred        Total
                       Common   Paid-in     Treasury    Retained      (Loss)       Compensation   Stockholders'
   (in thousands)      Stock    Capital       Stock     Earnings    Net of Tax        Trust           Equity
<S>                    <C>     <C>          <C>         <C>        <C>             <C>            <C>
----------------------------------------------------------------------------------------------------------------
Balance, June 30,
  1999                    $23      $5,197     $(2,270)   $22,070           $(190)         $(300)         $24,530
Comprehensive income:
  Net income               --          --          --      3,408              --             --            3,408
  Other comprehensive
    loss, net of tax
    of $(420)              --          --          --         --            (817)            --             (817)
----------------------------------------------------------------------------------------------------------------
Total comprehensive
  income (loss)            --          --          --      3,408            (817)            --            2,591
Stock options
  exercised (4,974
  shares)                  --          27          --         --              --             --               27
Dividends paid             --          --          --     (1,358)             --             --           (1,358)
Treasury stock
  purchased (176,550
  shares)                  --          --      (2,441)        --              --             --           (2,441)
Stock purchased by
  deferred
  compensation trust       --          --          --         --              --           (103)            (103)
----------------------------------------------------------------------------------------------------------------
Balance, June 30,
  2000                    $23      $5,224     $(4,711)   $24,120         $(1,007)         $(403)         $23,246
Comprehensive income:
  Net income               --          --          --      3,639              --             --            3,639
  Other comprehensive
    income, net of
    tax of $632            --          --          --         --           1,225             --            1,338
  Reclassification
    adjustment, net
    of tax of $58          --          --          --         --             113             --               --
----------------------------------------------------------------------------------------------------------------
Total comprehensive
  income                   --          --          --      3,639           1,338             --            4,977
Stock options
  exercised (19,591
  shares)                  --          98          --         --              --             --               98
Dividends paid             --          --          --     (1,332)             --             --           (1,332)
Treasury stock
  purchased (61,225
  shares)                  --          --        (842)        --              --             --             (842)
Stock purchased by
  deferred
  compensation trust       --          --          --         --              --             (9)              (9)
----------------------------------------------------------------------------------------------------------------
Balance, June 30,
  2001                    $23      $5,322     $(5,553)   $26,427            $331          $(412)         $26,138
Comprehensive income:
  Net income               --          --          --      3,075              --             --            3,075
  Other comprehensive
    income, net of
    tax of $152            --          --          --         --             298             --              298
  Reclassification
    adjustment, net
    of tax of $1           --          --          --         --               3             --               --
----------------------------------------------------------------------------------------------------------------
Total comprehensive
  income                   --          --          --      3,075             301             --            3,373
Stock options
  exercised (7,538
  shares)                   1          67          --         --              --             --               68
Dividends paid             --          --          --     (1,399)             --             --           (1,399)
Treasury stock
  purchased (83,780
  shares)                  --          --      (1,604)        --              --             --           (1,604)
Stock purchased by
  deferred
  compensation trust       --          --          --         --              --            (26)             (26)
----------------------------------------------------------------------------------------------------------------
Balance, June 30,
  2002                    $24      $5,389     $(7,157)   $28,103            $632          $(438)         $26,550
----------------------------------------------------------------------------------------------------------------
</Table>

See accompanying notes to consolidated financial statements.
                                        9
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
For the years ended June 30, 2002, 2001 and 2000

<Table>
<Caption>
(in thousands)                                                    2002        2001        2000
<S>                                                           <C>         <C>         <C>
----------------------------------------------------------------------------------------------
Net income:                                                   $  3,075    $  3,639    $  3,408
  Adjustments to reconcile net income to net cash provided
   by operating activities:
    Depreciation                                                   190         195         206
    Provision for loan losses                                       18          18          18
    Net loss on the sale of real estate owned                       22           1          18
    Net gain on the sale of investment securities available
      for sale                                                     (55)        (82)         --
    Gain on the sale of loans held for sale                        (21)        (14)        (12)
    Net amortization (accretion) of deferred loan fees/costs        11        (113)       (104)
    Origination of loans held for sale                            (747)       (860)       (805)
    Proceeds from the sale of loans held for sale                1,098         687         865
    Decrease (increase) in accrued interest receivable             211          28        (322)
    (Decrease) increase in accrued interest payable                (41)        159         (96)
    Other--net                                                    (123)       (191)        (23)
----------------------------------------------------------------------------------------------
      Net cash provided by operating activities                  3,638       3,467       3,153
----------------------------------------------------------------------------------------------
Investing activities:
  Purchase of investment securities held to maturity           (16,409)         --     (13,523)
  Purchase of investment securities available for sale          (1,910)     (1,691)     (4,264)
  Purchase of mortgage-backed securities available for sale     (2,038)         --      (1,000)
  Sale (purchase) of FHLB stock                                     69         (35)       (394)
  Principal repayments and maturities of investment
    securities held to maturity                                 18,445       8,000       4,050
  Principal repayments and maturities of investment
    securities available for sale                                2,664       1,260          --
  Proceeds from the sale of investment securities available
    for sale                                                       358       1,097          --
  Principal repayments and maturities of mortgage-backed
    securities available for sale                                4,133       1,230       1,737
  Principal repayments and maturities of mortgage-backed
    securities held to maturity                                    110         247         675
  Increase in loans                                             (1,644)     (7,801)    (18,263)
  Proceeds from the sale of real estate owned                      338         218         557
  Net additions to office properties and equipment                (103)        (53)       (161)
----------------------------------------------------------------------------------------------
      Net cash provided (used) by investing activities           4,013       2,472     (30,586)
----------------------------------------------------------------------------------------------
Financing activities:
  Net increase in demand and club accounts                       6,559         216       3,387
  Net increase in time deposit accounts                         13,224      12,757       7,158
  Net (decrease) increase in FHLB advances                          (6)    (11,798)     13,395
  (Decrease) increase in advance deposits by borrowers for
    taxes and Insurance                                           (344)       (242)         72
  Stock options exercised                                           68          98          27
  Acquisition of treasury stock                                 (1,604)       (842)     (2,441)
  Dividends paid                                                (1,399)     (1,332)     (1,358)
----------------------------------------------------------------------------------------------
      Net cash provided (used) by financing activities          16,498      (1,143)     20,240
----------------------------------------------------------------------------------------------
Net change in cash and cash equivalents                         24,149       4,796      (7,193)
Cash and cash equivalents at beginning of period                 9,714       4,918      12,111
----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                    $ 33,863    $  9,714    $  4,918
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
----------------------------------------------------------------------------------------------
Cash paid during the period for:
  Interest on savings deposits                                $  7,581    $  8,123    $  7,387
  Interest on FHLB advances                                      1,275       1,904       1,344
  Income taxes                                                   1,454       1,836       1,579
Transfer of loans to real estate owned                             201         493         204
Cash paid during the period for interest includes interest credited on deposits of $6,507,
$7,052, and $6,455 for the years ended June 30, 2002, 2001, and 2000, respectively.
----------------------------------------------------------------------------------------------
</Table>

See accompanying notes to consolidated financial statements.

                                       10
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATION AND USE OF ESTIMATES
     Laurel Capital is a registered bank holding company pursuant to the Bank
     Holding Company Act of 1956, as amended. Laurel Capital's only significant
     asset is the stock of its wholly-owned subsidiary, Laurel Savings Bank, a
     Pennsylvania-chartered state savings bank. The Bank conducts business
     through its six offices located in Allegheny and Butler counties.

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

CONSOLIDATION
     The consolidated financial statements include the accounts of Laurel
     Capital Group, Inc. and its wholly-owned subsidiary, Laurel Savings Bank,
     after elimination of inter-company accounts and transactions.

INVESTMENT AND MORTGAGE-BACKED SECURITIES
     Statement of Financial Accounting Standards ("SFAS") No. 115 requires that
     investments be classified as either: (1) Securities Held to
     Maturity -- debt securities that the Company has the positive intent and
     ability to hold to maturity and reported at amortized cost; (2) Trading
     Securities -- debt and equity securities bought and held principally for
     the purpose of selling them in the near term and reported at fair value,
     with unrealized gains and losses included in the current period earnings;
     or (3) Securities Available for Sale -- debt and equity securities not
     classified as either Securities Held to Maturity or Trading Securities and
     reported at fair value, with unrealized gains and losses included in
     accumulated other comprehensive income. The cost of securities sold is
     determined on a specific identification basis.

REAL ESTATE OWNED
     Real estate owned consists of properties acquired through foreclosure and
     are recorded at the lower of cost (principal balance of the former mortgage
     loan plus costs of obtaining title and possession) or fair value at the
     date of acquisition. Costs relating to development and improvement of the
     property are capitalized, whereas costs of holding such real estate are
     expensed as incurred. Additional write-downs are charged to income, and the
     carrying value of the property reduced, when the fair value of the
     property, less costs to sell, is less than the carrying value.

PROVISIONS FOR LOAN LOSSES
     Provisions for loan losses are charged to operations in amounts that result
     in an allowance appropriate, in management's judgment, to cover probable
     losses inherent in the loan portfolio. Management's judgment takes into
     consideration general economic conditions, diversification of loan
     portfolios, historic loss experience, identified credit problems,
     delinquency levels and adequacy of collateral. Although management believes
     it has used the best information available to it in making such
     determinations, and that the present allowance for loan losses is adequate,
     future adjustments to the allowance may be necessary, and net income may be
     adversely affected if circumstances differ substantially from the
     assumptions used in determining the level of the allowance. In addition, as
     an integral part of their periodic examination, certain regulatory agencies
     review the adequacy of the Bank's allowance for loan losses and may direct
     the Bank to make additions to the allowance based on their judgments about
     information available to them at the time of their examination.
Note continued

                                       11
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

OFFICE PROPERTIES AND EQUIPMENT
     Depreciation is computed on the straight-line method over the estimated
     useful lives of the related assets.

INTEREST ON SAVINGS
     Interest on savings deposits is accrued and charged to expense monthly and
     is paid or credited in accordance with the terms of the respective
     accounts.

CASH AND CASH EQUIVALENTS
     For purposes of reporting cash flows, the Company has defined cash and cash
     equivalents as cash and interest-earning deposits with other institutions.

LOANS
     Loans receivable are stated at unpaid principal balances net of the
     allowance for loan losses and net of deferred loan fees and discounts. In
     accordance with SFAS Nos. 114 and 118, the Bank considers all one-to-four
     family residential mortgage loans and all consumer loans (as presented in
     Note 4) to be smaller homogeneous loans. As such, these loans are
     collectively evaluated for impairment. Loans within the scope of these
     statements are considered impaired when, based on current information and
     events, it is probable that all principal and interest will not be
     collected in accordance with the contractual terms of the loans. Management
     determines the impairment of loans based on knowledge of the borrower's
     ability to repay the loan according to the contractual agreement, the
     borrower's repayment history and the fair value of collateral for certain
     collateral dependent loans. Pursuant to SFAS 114, management does not
     consider an insignificant delay or insignificant shortfall to impair a
     loan. Management has determined that a delay less than 90 days will be
     considered an insignificant delay and that an amount less than $5,000 will
     be considered an insignificant shortfall. The Bank does not apply SFAS 114
     using major risk calculations but on a loan by loan basis. All loans are
     charged off when management determines that principal and interest are not
     collectible.

     Any excess of the Bank's recorded investment in the loans over the measured
     value of the loans in accordance with SFAS 114 is provided for in the
     allowance for loan losses. The Bank reviews its loans for impairment on a
     quarterly basis.

     The accrual of interest on all loans is discontinued when, in management's
     opinion, the borrower may be unable to meet payments as they become due or
     when the loan becomes 90 days past due, whichever occurs first. When
     interest accrual is discontinued, all unpaid accrued interest is reserved.
     Such interest ultimately collected is credited to income in the period of
     recovery or applied to reduce principal if there is sufficient doubt about
     the collectibility of principal. Consumer loans more than 120 days or 180
     days delinquent (depending on the nature of the loan) are generally
     required to be written off.

     The Company is a party to financial instruments with off-balance sheet risk
     (commitments to extend credit) in the normal course of business to meet the
     financing needs of its customers. Commitments to extend credit are
     agreements to lend to a customer as long as there is no violation of any
     condition established in the commitment. Commitments generally have fixed
     expiration dates or other termination clauses and may require payment of a
     fee. Since some of the commitments are expected to expire without being
     drawn upon, the total commitment amount does not necessarily represent
     future cash requirements. The Company evaluates each customer's credit
     worthiness on a case-by-case basis using the same credit policies in making
     commitments and conditional obligations as it does for on-balance sheet
     instruments. The amount of collateral obtained, if deemed necessary by the
     Company upon extension of credit, is based on management's credit
     evaluation of the counter-party.

     Loans receivable classified as held for sale are recorded in the financial
     statements at the lower of cost or market.
Note continued

                                       12
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

INCOME TAXES
     The Company utilizes the asset and liability method of accounting for
     income taxes. Under the asset and liability method, deferred tax assets and
     liabilities are recognized for the future tax consequences attributable to
     differences between the financial statement carrying amounts of existing
     assets and liabilities and their respective tax bases and operating loss
     and tax credit carry forwards. Deferred tax assets and liabilities are
     measured using enacted tax rates expected to apply to taxable income in the
     years in which those temporary differences are expected to be recovered or
     settled. The effect on deferred tax assets and liabilities of a change in
     tax rates is recognized in income in the period that includes the enactment
     date.

EARNINGS PER SHARE ("EPS")
     Basic EPS is computed by dividing income available to common stockholders
     by the weighted average number of common shares outstanding for the period.
     Diluted EPS reflects the potential dilution that could occur if securities
     or other contracts to issue common stock were exercised or converted into
     common stock or resulted in the issuance of common stock that then shared
     in the earnings of the entity.

The following table sets forth the computation of basic and diluted earnings per
share:

<Table>
<Caption>
                                                                   June 30,
                                                  2002               2001               2000
-----------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                <C>
Basic earnings per share:
  Net income                                   $    3,075         $    3,639         $    3,408
  Weighted average shares outstanding           1,937,545          1,963,365          2,107,711
  Earnings per share                           $     1.59         $     1.85         $     1.62
Diluted earnings per share:
  Net income                                   $    3,075         $    3,639         $    3,408
  Weighted average shares outstanding           1,937,545          1,963,365          2,107,711
  Dilutive effect of employee stock options       100,062             73,244             72,779
-----------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding     2,037,607          2,036,609          2,180,490
  Earnings per share                           $     1.51         $     1.79         $     1.56
-----------------------------------------------------------------------------------------------
</Table>

COMPREHENSIVE INCOME
     The Company reports comprehensive income in accordance with SFAS No. 130
     which establishes standards for reporting and display of comprehensive
     income and its components (revenues, expenses, gains and losses) in a full
     set of general purpose financial statements. SFAS No. 130 requires that all
     items that are required to be recognized under accounting standards as
     components of comprehensive income be reported in a financial statement
     that is displayed with the same prominence as other financial statements.
     SFAS No. 130 requires that an enterprise (a) classify items of other
     comprehensive income by their nature in a financial statement and (b)
     display the accumulated balance of other comprehensive income separately
     from retained earnings and additional paid-in capital in the equity section
     of a statement of financial position. For the fiscal years ended June 30,
     2002, 2001 and 2000, the Company's total comprehensive income was $3,376,
     $4,977 and $2,591, respectively. Total comprehensive income is comprised of
     net income of $3,075, $3,639 and $3,408, respectively, and other
     comprehensive income (loss) of $301, $1,338 and $(817), net of tax,
     respectively. Other comprehensive income consists of unrealized gains and
     losses on investment securities and mortgage-backed securities available
     for sale.

                                       13
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(2) INVESTMENT SECURITIES

Investment securities held to maturity are comprised of the following:

<Table>
<Caption>
                                                           Gross              Gross
                                        Amortized        Unrealized         Unrealized         Market
                          Face/Par         Cost         Appreciation       Depreciation        Value
--------------------------------------------------------------------------------------------------------
<S>                     <C>            <C>            <C>                <C>                <C>
AT JUNE 30, 2002:
  Corporate notes and
     commercial paper        $11,900        $11,909               $218               $ --        $12,127
--------------------------------------------------------------------------------------------------------
AT JUNE 30, 2001:
  Corporate notes and
     commercial paper        $13,945        $13,937               $226                $34        $14,129
--------------------------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                                       Amortized    Market
                                                            Face/Par        Cost     Value
<S>                                                         <C>        <C>         <C>
------------------------------------------------------------------------------------------
At June 30, 2002, the contractual maturities of
 the debt securities held to maturity are:
  Due in 12 months or less                                   $ 4,400     $ 4,412   $ 4,416
  Due after one year through five years                        2,500       2,500     2,532
  Due after five years through ten years                       2,000       2,000     2,005
  Due after ten years                                          3,000       2,997     3,174
------------------------------------------------------------------------------------------
                                                             $11,900     $11,909   $12,127
------------------------------------------------------------------------------------------
</Table>

Note continued

                                       14
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

Investment securities available for sale are comprised of the following:

<Table>
<Caption>
                                                                          Gross             Gross
                                                    Amortized        Unrealized        Unrealized       Market
                                      Face/Par           Cost      Appreciation      Depreciation        Value
<S>                             <C>            <C>            <C>               <C>               <C>
--------------------------------------------------------------------------------------------------------------
AT JUNE 30, 2002:
  Municipal obligations                $19,100        $18,232              $534               $40      $18,726
  Federal National Mortgage
    Association preferred stock            250            250                 3                --          253
  Federal Home Loan Mortgage
    Corporation preferred stock            750            750                28                --          778
  Federal National Mortgage
    Association stock                      631            631               120                14          737
  Federal Home Loan Mortgage
    Corporation stock                      514            514               107                 9          612
  SLM Student Loan Trust                   220            207                13                --          220
  Shay Financial Services ARM
    Fund                                17,845         17,845                --                15       17,830
--------------------------------------------------------------------------------------------------------------
                                       $39,310        $38,429              $805               $78      $39,156
--------------------------------------------------------------------------------------------------------------
AT JUNE 30, 2001:
  Municipal obligations                $21,275        $20,335              $286              $230      $20,391
  Federal National Mortgage
     Association preferred
     stock                                 250            250                 1                --          251
  Federal Home Loan Mortgage
     Corporation preferred
     stock                                 750            750                 6                --          756
  Federal National Mortgage
     Association stock                     249            249               176                --          425
  Federal Home Loan Mortgage
     Corporation stock                     199            199               141                --          340
  SLM Student Loan Trust                   461            445                16                --          461
  Standard Insurance Company
     stock                                   4              4                 4                --            8
  Shay Financial Services ARM
     Fund                               17,179         17,179                --                49       17,130
--------------------------------------------------------------------------------------------------------------
                                       $40,367        $39,411              $630              $279      $39,762
--------------------------------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                                       Amortized         Market
                                                       Face/Par          Cost            Value
<S>                                                 <C>            <C>               <C>
---------------------------------------------------------------------------------------------------
At June 30, 2002, the contractual maturities of
 the debt securities available for sale are:
  Due after five years through ten years                   $   410           $   394        $   411
  Due after ten years                                       18,910            18,045         18,535
---------------------------------------------------------------------------------------------------
                                                           $19,320           $18,439        $18,946
---------------------------------------------------------------------------------------------------
</Table>

The Federal National Mortgage Association preferred and common stock, Federal
Home Loan Mortgage Corporation preferred and common stock, Standard Insurance
Company stock and Shay Financial Services ARM Fund have no stated maturity.

Proceeds from the sale of investment securities available for sale during 2002,
2001 and 2000 were $358, $1,097 and $--, respectively.

Gross gains of $55, $82 and $-- were realized on these sales in 2002, 2001 and
2000, respectively.

There were no realized losses in 2002, 2001 and 2000.
Note continued

                                       15
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(3) MORTGAGE-BACKED SECURITIES

Mortgage-backed securities held to maturity are comprised of the following:

<Table>
<Caption>
                                                   Gross                  Gross
                             Amortized          Unrealized             Unrealized           Market
At June 30, 2002                Cost           Appreciation           Depreciation           Value
-----------------     -------------------------------------------------------------------------------
<S>                         <C>             <C>                    <C>                    <C>
Federal National Mortgage
  Association REMIC                 $ 40                    $ 1                   $ --           $ 41
Federal Home Loan Mortgage
  Corporation REMIC                   --                     --                     --             --
-----------------------------------------------------------------------------------------------------
                                    $ 40                    $ 1                   $ --           $ 41
-----------------------------------------------------------------------------------------------------
At June 30, 2001
-----------------------------------------------------------------------------------------------------
Federal National Mortgage
 Association REMIC                  $ 57                    $ 2                   $ --           $ 59
Federal Home Loan Mortgage
  Corporation REMIC                   93                     --                     --             93
-----------------------------------------------------------------------------------------------------
                                    $150                    $ 2                   $ --           $152
-----------------------------------------------------------------------------------------------------
</Table>

Mortgage-backed securities available for sale are comprised of the following:

<Table>
<Caption>
                                                   Gross                  Gross
                             Amortized          Unrealized             Unrealized           Market
At June 30, 2002                Cost           Appreciation           Depreciation           Value
-----------------------------------------------------------------------------------------------------
<S>                         <C>             <C>                    <C>                    <C>
Government National
  Mortgage Association            $2,034                   $ 79                   $ --         $2,113
Federal National Mortgage
  Association                      2,597                     94                     --          2,691
Federal Home Loan Mortgage
  Corporation                      1,523                     25                     --          1,548
Federal Home Loan Mortgage
  Corporation REMIC                  824                     16                     --            840
Federal National Mortgage
  Association REMIC                  789                     17                     --            806
-----------------------------------------------------------------------------------------------------
                                  $7,767                   $231                   $ --         $7,998
-----------------------------------------------------------------------------------------------------
At June 30, 2001
-----------------------------------------------------------------------------------------------------
Government National
 Mortgage Association             $3,424                   $ 92                   $ --         $3,516
Federal National Mortgage
  Association                      3,027                     19                      9          3,037
Federal Home Loan Mortgage
  Corporation                        818                     15                     --            833
Federal Home Loan Mortgage
  Corporation REMIC                2,578                     34                     --          2,612
-----------------------------------------------------------------------------------------------------
                                  $9,847                   $160                   $  9         $9,998
-----------------------------------------------------------------------------------------------------
</Table>

Prepayments may shorten the lives of these mortgage-backed securities.

There were no sales of mortgage-backed securities available for sale during
2002, 2001 and 2000.

                                       16
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(4) LOANS RECEIVABLE

Loans receivable is comprised of the following:

<Table>
<Caption>
                                                                               June 30,
                                                                  2002             2001
<S>                                                           <C>              <C>
---------------------------------------------------------------------------------------
First mortgage loans:
  Conventional:
     1 to 4 family dwellings                                  $131,336         $130,010
     Multi-family dwellings                                      3,202            2,892
     Commercial                                                  4,496            5,051
---------------------------------------------------------------------------------------
                                                               139,034          137,953
     Guaranteed or insured                                          23               29
---------------------------------------------------------------------------------------
Total long term with monthly amortization                      139,057          137,982
  Construction and development loans                             9,687           10,763
---------------------------------------------------------------------------------------
                                                               148,744          148,745
Less: Loans in process                                          (4,719)          (6,160)
    Deferred loan costs (fees)                                      79              (66)
---------------------------------------------------------------------------------------
                                                               144,104          142,519
---------------------------------------------------------------------------------------
Commercial loans                                                 1,560            1,707
Consumer loans:
  Loans secured by savings accounts                                227              251
  Installment loans                                             34,234           34,190
---------------------------------------------------------------------------------------
                                                                36,021           36,148
---------------------------------------------------------------------------------------
                                                               180,125          178,667
Less: Allowance for loan losses                                 (1,803)          (1,759)
---------------------------------------------------------------------------------------
                                                              $178,322         $176,908
---------------------------------------------------------------------------------------
</Table>

At June 30, 2002 and 2001, the Company had a commitment to sell its guaranteed
student loan portfolio totaling $1,371 and $1,701, respectively. Outstanding
commitments to originate loans:

<Table>
<Caption>
                                                                      June 30,
                                                                  2002             2001
---------------------------------------------------------------------------------------
<S>                                                           <C>              <C>
First mortgage loans:
  Fixed rates (6.5% to 8.25% and 6.625% to 7.25%)             $  1,498         $  2,008
  Variable rates                                                   239              457
---------------------------------------------------------------------------------------
                                                                 1,737            2,465
Other loans - fixed rates                                        1,051              509
Unused lines of credit                                           5,253            4,353
---------------------------------------------------------------------------------------
                                                              $  8,041         $  7,327
---------------------------------------------------------------------------------------
</Table>

The Company's customers have unused lines of credit as follows: secured (home
equity), builder lines of credit and all other lines of credit. The amount
available at June 30, 2002 for each type was $3,925, $485 and $843,
respectively. The amount available at June 30, 2001 for each type was $3,165,
$351 and $837, respectively. The interest rate for each loan is based on the
prevailing market conditions at the time of funding.

The Company serviced loans for others of $307, $456 and $481 at June 30, 2002,
2001 and 2000, respectively. These loans serviced for others are not assets of
the Company and are appropriately excluded from the Company's financial
statements. Fidelity bond and errors and omission insurance coverage is
maintained with respect to these loans.

At June 30, 2002, 99.9 % of the Company's net mortgage loan portfolio was
secured by properties located in Pennsylvania. The Company does not believe it
has significant concentrations of credit risk to any one group of borrowers
given its underwriting and collateral requirements.
                                       17
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(5) ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses are as follows:

<Table>
<S>                                                           <C>
--------------------------------------------------------------------
Balance at June 30, 1999                                      $1,866
Provision for losses                                              18
Charge-offs                                                      (99)
Recoveries                                                        13
--------------------------------------------------------------------
Balance at June 30, 2000                                      $1,798
Provision for losses                                              18
Charge-offs                                                      (75)
Recoveries                                                        18
--------------------------------------------------------------------
Balance at June 30, 2001                                      $1,759
Provision for losses                                              18
Charge-offs                                                      (20)
Recoveries                                                        46
--------------------------------------------------------------------
Balance at June 30, 2002                                      $1,803
--------------------------------------------------------------------
</Table>

Management believes that the allowance for loan losses is appropriate at June
30, 2002. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions and other factors. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgements about information
available to them at the time of their examination.

At June 30, 2002 and 2001, there were no loans that are considered to be
impaired under SFAS 114. The average recorded investment in impaired loans
during the fiscal years ended June 30, 2001 and 2000 was approximately $57 and
$85, respectively. For the fiscal year ended June 30, 2000, the Company
recognized interest income on impaired loans of $3 which was recognized using
the cash basis of income recognition.

Non-accrual loans at June 30, 2002, 2001 and 2000 were approximately $287, $523
and $560, respectively. The foregone interest on these loans for the fiscal
years ended June 30, 2002, 2001 and 2000 was approximately $25, $42 and $64,
respectively. The amount of interest income on such loans actually included in
income in fiscal 2002, 2001 and 2000 was $15, $20 and $11, respectively. There
were no commitments to lend additional funds to borrowers whose loans were in
non-accrual status.

(6) FEDERAL HOME LOAN BANK STOCK

The Company is a member of the Federal Home Loan Bank ("FHLB") System. As a
member, the Company maintains an investment in the capital stock of the FHLB of
Pittsburgh, at cost, in an amount not less than the greater of 1% of its
qualifying assets, as defined by the FHLB of Pittsburgh, or 5% of its
outstanding advances, if any, from the FHLB of Pittsburgh as calculated at
December 31 of each year.
Note continued

                                       18
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(7) OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment are summarized by major classifications as
follows:

<Table>
<Caption>
                                                                     June 30,
                                                                 2002            2001
<S>                                                           <C>             <C>
-------------------------------------------------------------------------------------
Land and land improvements                                    $   412         $   412
Office buildings and improvements                               2,166           2,129
Furniture, fixtures and equipment                               1,058             991
-------------------------------------------------------------------------------------
  Total, at cost                                                3,636           3,532
Less accumulated depreciation                                  (2,452)         (2,261)
-------------------------------------------------------------------------------------
                                                              $ 1,184         $ 1,271
-------------------------------------------------------------------------------------
</Table>

Depreciation expense for the periods ended June 30, 2002, 2001 and 2000 was
$190, $195 and $206, respectively.

(8) SAVINGS DEPOSITS

Savings deposit balances and interest rates are summarized as follows:

<Table>
<Caption>
                                                     Weighted Average
                               Interest Rate           Interest Rate
                                     at                 at June 30,                June 30,
                               June 30, 2002          2002       2001           2002       2001
<S>                        <C>                      <C>        <C>            <C>        <C>
-------------------------------------------------------------------------------------------------
Demand and club accounts                0.75%           0.75%      2.13%      $ 32,534   $ 30,401
Money market deposit
  accounts                         0 to 1.26            1.07       2.25         17,200     15,756
NOW deposits                       0 to 0.25            0.16       0.98         33,159     30,177
-------------------------------------------------------------------------------------------------
                                                                                82,893     76,334
-------------------------------------------------------------------------------------------------
Time deposits:                  1.01 to 2.00                                     6,048          0
                                2.01 to 3.00                                    20,288          0
                                3.01 to 4.00                                    16,644      2,211
                                4.01 to 5.00                                    34,551     24,967
                                5.01 to 6.00                                    28,409     38,432
                                6.01 to 7.00                                    34,020     60,481
                                7.01 to 8.00                                     2,566      3,211
-------------------------------------------------------------------------------------------------
                                                        4.72       5.80        142,526    129,302
-------------------------------------------------------------------------------------------------
                                                        3.20%      4.28%      $225,419   $205,636
-------------------------------------------------------------------------------------------------
</Table>

At June 30, 2002 and 2001, time deposits with balances in excess of $100,000
amounted to $5.0 million and $4.1 million, respectively.

The contractual maturity of time deposits is as follows:

<Table>
<Caption>
                                                                      June 30,
                                                                  2002             2001
<S>                                                           <C>              <C>
---------------------------------------------------------------------------------------
Under 12 months                                               $ 77,822         $ 64,031
12 months to 24 months                                          37,964           39,569
24 months to 36 months                                           8,164           13,766
36 months to 48 months                                           2,704            2,290
48 months to 60 months                                           4,082            2,429
Over 60 months                                                  11,790            7,217
---------------------------------------------------------------------------------------
                                                              $142,526         $129,302
---------------------------------------------------------------------------------------
</Table>

Note continued

                                       19
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

Interest expense by deposit category is as follows:

<Table>
<Caption>
                                                               Years ended June 30,
                                                      2002             2001             2000
<S>                                                  <C>              <C>              <C>
---------------------------------------------------------------------------------------------
Passbook and club accounts                           $  423           $  629           $  651
Money market deposit accounts                           279              350              354
NOW accounts                                            173              282              276
Time deposits                                         6,665            7,021            6,010
---------------------------------------------------------------------------------------------
                                                     $7,540           $8,282           $7,291
---------------------------------------------------------------------------------------------
</Table>

(9) FEDERAL HOME LOAN BANK ADVANCES

FHLB advances are summarized as follows:

<Table>
<Caption>
                                                     Interest              June 30,
Due date                                               Rate           2002         2001
<S>                                                  <C>             <C>          <C>
-----------------------------------------------------------------------------------------
February 20, 2008                                         5.48%      $ 3,000      $ 3,000
December 18,2008                                          5.15         3,000        3,000
June 30, 2010                                             6.18        10,500       10,500
December 1, 2010                                          5.64         5,000        5,000
November 13, 2015                                         6.51           120          126
-----------------------------------------------------------------------------------------
                                                                     $21,620      $21,626
-----------------------------------------------------------------------------------------
</Table>

Under a blanket collateral pledge agreement, the Bank has pledged as collateral
for advances from the FHLB of Pittsburgh certain qualifying collateral, such as
mortgage-backed securities and loans, with weighted collateral values determined
by the FHLB of Pittsburgh equal to at least the unpaid amount of outstanding
advances.

The Bank has an available line of credit with the FHLB of Pittsburgh equal to
its maximum borrowing capacity less any outstanding advances. As of June 30,
2002 this was approximately $113 million. There are no commitment fees
associated with this line of credit. When used, interest is charged at the
FHLB's posted rates, which change daily, and the loan can be repaid at any time.
The Bank has yet to use this credit line and has no plans to do so in the
immediate future.

(10) INCOME TAXES

Total income tax expense for the years ended June 30, 2002, 2001 and 2000
consisted of:

<Table>
<Caption>
                                                           2002        2001        2000
<S>                                                       <C>         <C>         <C>
----------------------------------------------------------------------------------------
Current:
  Federal                                                 $1,219      $1,434      $1,358
  State                                                      260         275         226
----------------------------------------------------------------------------------------
                                                           1,479       1,709       1,584
----------------------------------------------------------------------------------------
Deferred:
  Federal                                                    (52)        (46)        (60)
----------------------------------------------------------------------------------------
                                                          $1,427      $1,663      $1,524
----------------------------------------------------------------------------------------
</Table>

Note continued

                                       20
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

Total income tax provision for the years ended June 30, 2002, 2001 and 2000 was
allocated as follows:

<Table>
<Caption>
                                                           2002        2001        2000
<S>                                                       <C>         <C>         <C>
----------------------------------------------------------------------------------------
Income                                                    $1,427      $1,663      $1,524
Stockholders' equity:
  Accumulated other comprehensive income (loss)              153         690        (420)
----------------------------------------------------------------------------------------
                                                          $1,580      $2,353      $1,104
----------------------------------------------------------------------------------------
</Table>

A reconciliation from the expected statutory income tax rate to the actual
effective tax rate expressed as a percentage of pre-tax income for the years
ended June 30, 2002, 2001 and 2000 is as follows:

<Table>
<Caption>
                                                             2002      2001      2000
<S>                                                          <C>       <C>       <C>
-------------------------------------------------------------------------------------
Expected federal tax rate                                    34.0%     34.0%     34.0%
State taxes, net of federal tax benefit                       3.8       3.4       3.0
Other, net                                                    0.5      (0.4)
Tax exempt income, net                                       (6.6)     (5.6)     (5.9)
-------------------------------------------------------------------------------------
                                                             31.7%     31.4%     30.9%
-------------------------------------------------------------------------------------
</Table>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities and the related
valuation allowances as of June 30, 2002 and 2001 are as follows:

<Table>
<Caption>
                                                              2002        2001
<S>                                                           <C>        <C>
-------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
  Deferred loan fees                                          $  60      $   80
  Loan loss reserve                                             595         531
  Other                                                         215         186
-------------------------------------------------------------------------------
  Gross deferred tax assets                                     870         797
  Valuation allowance                                            --          --
-------------------------------------------------------------------------------
  Net deferred tax asset                                        870         797
DEFERRED TAX LIABILITIES:
  Property, plant and equipment                                (102)        (97)
  Prepaid expense                                               (38)        (22)
  Investment securities                                        (325)       (172)
-------------------------------------------------------------------------------
Gross deferred tax liability                                   (465)       (291)
-------------------------------------------------------------------------------
Net deferred tax asset                                        $ 405      $  506
-------------------------------------------------------------------------------
</Table>

The Company has determined that no valuation reserve is necessary for any
deferred tax asset since it is more likely than not that the deferred tax assets
will be realized through carryback to taxable income in prior years, future
reversals of existing differences and to a lesser extent, through future taxable
income. SFAS 109 treats tax basis bad debt reserves established after 1987 as
temporary differences on which deferred income taxes have been provided.
Deferred taxes are not required to be provided on tax bad debt reserves recorded
in 1987 and prior years (base year bad debt reserves). Approximately $2,217 of
the balances in retained earnings at June 30, 2002 represent base year bad debt
deductions for tax purposes only. No provision for federal income tax has been
made for such amount. Should amounts previously claimed as bad debt deduction be
used for any purpose other than to absorb bad debts (which is not anticipated),
tax liabilities will be incurred at the rate then in effect.

(11) STOCKHOLDERS' EQUITY

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly
Note continued
                                       21
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain amounts and ratios (set forth in the table below)
of total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average assets (as
defined). As of June 30, 2002, the Bank meets all capital adequacy requirements
to which it is subject.

As of June 30, 2002, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table below. There are no conditions or events since that notification that
management believes have changed the Bank's category.

The following table sets forth certain information concerning the Bank's
regulatory capital at June 30, 2002 and 2001.

<Table>
<Caption>
                                             JUNE 30, 2002                   JUNE 30, 2001
                                                Tier I    Tier II               Tier I    Tier II
                                      Tier I     Risk-     Risk-      Tier I     Risk-     Risk-
                                       Core      Based     Based       Core      Based     Based
                                      Capital   Capital   Capital     Capital   Capital   Capital
<S>                                   <C>       <C>       <C>         <C>       <C>       <C>
--------------------------------------------------------------------------------------------------
Equity capital (1)                    $25,499   $25,499   $27,372     $24,626   $24,626   $24,626
Plus general valuation allowances (2)                       1,774                           1,735
Plus allowable unrealized gains                                99                             126
--------------------------------------------------------------------------------------------------
    Total regulatory capital           25,499    25,499    27,372      24,626    24,626    26,487
Minimum required capital               10,749     5,678    11,356      10,230     5,552    11,104
--------------------------------------------------------------------------------------------------
    Excess regulatory capital         $14,750   $19,821   $16,016     $14,396   $19,074   $15,383
--------------------------------------------------------------------------------------------------
Minimum required capital to be well
  capitalized under Prompt
  Corrective Action Provisions        $13,437   $ 8,515   $14,192     $12,788   $ 8,327   $13,878
--------------------------------------------------------------------------------------------------
Regulatory capital as a percentage (3)   9.49%    17.97%    19.29%       9.63%    17.74%    19.09%
Minimum required capital percentage      4.00      4.00      8.00        4.00      4.00      8.00
--------------------------------------------------------------------------------------------------
    Excess regulatory capital
       percentage                        5.49%    13.97%    11.29%       5.63%    13.74%    11.09%
--------------------------------------------------------------------------------------------------
Minimum required capital percentage
  to be well capitalized under
  Prompt Corrective Action
  Provisions                             5.00%     6.00%    10.00%       5.00%     6.00%    10.00%
--------------------------------------------------------------------------------------------------
</Table>

(1) Represents equity capital of the Bank as reported to the Federal Financial
    Institutions Examination Council on Form 041 for the quarters ended June 30,
    2002 and 2001.

(2) Limited to 1.25% of risk-weighted assets.

(3) Tier I capital is calculated as a percentage of adjusted total average
    assets of $268,734 and $255,754 at June 30, 2002 and 2001, respectively.
    Tier I and Tier II risk-based capital are calculated as a percentage of
    adjusted risk-weighted assets of $141,922 and $138,782 at June 30, 2002 and
    2001, respectively.

(12) EMPLOYEE BENEFIT PLANS

The Company sponsors a defined contribution plan in which substantially all
employees participate. The plan requires employer contributions of five percent
of total compensation of each participant. Employees are also permitted to make
contributions. Total plan expense was $75, $75 and $73 during fiscal 2002, 2001,
and 2000, respectively.
Note continued
                                       22
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

The Bank sponsors a nonqualified deferred compensation plan for key officers of
the Bank. This plan is structured as a "rabbi trust." The amount of compensation
to be deferred under the plan is determined each year by the officers.

(13) STOCK COMPENSATION PROGRAMS

In fiscal 1988, the Company adopted an Employee Stock Compensation Program under
which shares of common stock could be issued. Under the 1988 Program, each
eligible participant may be granted options to purchase common stock at an
amount equal to or less than the fair market value of the shares at the time of
the grant of the option. There are no remaining shares available to be granted
under the terms of the 1998 Program.

In fiscal 1994, the Company adopted the 1993 Key Employee Stock Compensation
Program ("1993 Employee Program") and the 1993 Directors' Stock Option Plan
("1993 Directors Plan"). Under the 1993 Employee Program, each eligible
participant may be granted options to purchase common stock at an amount equal
to or less than the fair market value of the shares at the time of the grant of
the options. At June 30, 2002, there were 10,825 remaining shares available to
be granted as determined by the Program Administrators. Under the 1993
Directors' Plan, each person who served as a non-employee Director of the
Company immediately following the adjournment of the 1994 annual meeting was
granted as of such date an option to purchase 1,405 shares of common stock
exercisable at a price equal to the fair market value on the date of the grant.
There are no remaining shares available to be granted under the terms of the
1993 Directors' Plan.

In fiscal 1997, the Company adopted the 1996 Key Employee Stock Compensation
Program ("1996 Employee Program") and the 1996 Directors' Stock Option Plan
("1996 Directors' Plan"). Under the 1996 Employee Program, each eligible
participant may be granted options to purchase common stock at an amount equal
to or less than the fair market value of the shares at the time of the grant of
the options. During fiscal 1999, options to purchase 52,500 shares of common
stock were granted to key employees at a price equal to the fair market value on
the date of the grant. Such stock options will be vested and exercisable over
four years at the rate of 25% per year. At June 30, 2002, there were 35,511
remaining shares available to be granted as determined by the Program
Administrators. Under the 1996 Directors' Plan, each person who served as a
non-employee director of the Company immediately following the adjournment of
the 1996 annual meeting was granted as of such date an option to purchase 4,722
shares of common stock exercisable at a price equal to the fair market value on
the date of the grant. All of the 28,332 options granted under the 1996
Directors' Plan have vested and are exercisable. There are no remaining shares
available to be granted under the terms of the 1996 Directors' Plan.

In fiscal 2001, the Company adopted the 2000 Stock Compensation Program ("2000
Plan"). Under the 2000 Plan, each eligible participant may be granted options to
purchase common stock at an amount equal to or less than the fair market value
of the shares at the time of the grant of the options. During fiscal 2001, each
person who served as a non-employee director of the Company immediately
following the adjournment of the 2000 annual meeting was granted as of such date
an option to purchase 3,953 shares of common stock exercisable at a price equal
to the fair market value on the date of the grant. At June 30, 2002 there were
71,161 remaining shares available to be granted as determined by the Program
Administrators.
Note continued

                                       23
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

Each option granted under all six stock option plans will expire no later than
10 years from the date on which the option was or is granted. For the periods
presented, options granted for all plans were granted at the fair market value
at the date of the grant.
<Table>
<Caption>
                                      Average       1993       Average       1993       Average    1996     Average    1996
                           1988       Exercise    Employee     Exercise    Director     Exercise Employee   Exercise Director
                         Program       Price      Program       Price        Plan        Price   Program     Price     Plan
-----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>            <C>       <C>            <C>       <C>            <C>      <C>        <C>      <C>
June 30, 1999                56,679   $6.54           98,967   $9.53           43,855   $12.97   52,500     $15.75   28,332
Granted                          --      --               --      --            4,236   14.69        --        --        --
Exercised                    (4,532)   5.15             (142)   8.44             (300)   7.91        --        --        --
Forfeited                    (5,935)     --               --      --               --      --    (1,000)       --        --
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2000                46,212   $6.63           98,825   $9.53           47,791   $13.15   51,500     $15.75   28,332
Granted                          --      --               --      --               --      --        --        --        --
Exercised                   (17,824)   4.60             (562)   8.44           (1,205)   9.30        --        --        --
Forfeited                      (843)     --               --      --               --      --        --        --        --
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2001                27,545   $7.91           98,263   $9.54           46,586   $13.25   51,500     $15.75   28,332
Granted                          --      --               --      --               --      --        --        --        --
Exercised                    (5,126)   7.64           (1,062)   8.44             (350)  10.67    (1,000)    15.75        --
Forfeited                    (2,437)     --             (420)     --               --      --    (2,000)       --        --
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2002                19,982   $7.96           96,781   $9.55           46,236   $13.27   48,500     $15.75   28,332
-----------------------------------------------------------------------------------------------------------------------------
Actual contractual
 life remaining in
 years                          1.6                      2.4                      4.5               6.9                 4.4
Option price per
 share                 $7.38-$11.00             $8.44-$10.92             $7.38-$18.00                       $15.75   $10.59
Options available to
 be granted at June
 30, 2002                        --                   10,825                       --            35,511                  --
-----------------------------------------------------------------------------------------------------------------------------

<Caption>
                       Average         Average
                       Exercise 2000   Exercise
                        Price   Plan    Price
<S>                    <C>      <C>    <C>
June 30, 1999          $10.59    --       --
Granted                   --     --       --
Exercised                 --     --       --
Forfeited                 --     --       --
--------------------------------------------------
June 30, 2000          $10.59    --       --
Granted                   --    23,718 $14.00
Exercised                 --     --       --
Forfeited                 --     --       --
--------------------------------------------------
June 30, 2001          $10.59   23,718 $14.00
Granted                   --     --       --
Exercised                 --     --       --
Forfeited                 --     --       --
--------------------------------------------------
June 30, 2002          $10.59   23,718 $14.00
--------------------------------------------------
Actual contractual
 life remaining in
 years                          8.3
Option price per
 share                          $14.00
Options available to
 be granted at June
 30, 2002                       71,161
--------------------------------------------------
</Table>

There were no options granted during fiscal 2002.  Options granted during fiscal
2001 under the 2000 Plan had a weighted-average fair value of $2.25 using a
Black-Scholes option valuation model. The fair value of options granted during
fiscal 2000 under the 1993 Directors' Plan was $2.71.

At June 30, 2002, 2001 and 2000, 256,964, 247,006 and 242,759 shares were
immediately exercisable at average prices of $11.68, $11.29 and $10.37,
respectively.

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS 123 establishes a fair value
based method of accounting for stock-based compensation plans. Effective for
fiscal years beginning after December 15, 1995, SFAS 123 allows companies to
expense an estimated fair value of stock options or to continue to measure
compensation expense for stock option plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities that elect to continue to measure compensation expense based on APB No.
25 must provide pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied. The Company has elected to
continue to measure compensation cost using the intrinsic value method
prescribed by APB No. 25. Had the Company used
Note continued

                                       24
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

the fair value method, net income and earnings per share would have been as
follows (In thousands, except per share data):

<Table>
<Caption>
                                                                     June 30,
                                                           2002        2001        2000
----------------------------------------------------------------------------------------
<S>                                                       <C>         <C>         <C>
Net income
  As reported                                             $3,075      $3,639      $3,408
  Pro forma                                               $3,020      $3,589      $3,351
----------------------------------------------------------------------------------------
Basic earnings per share
  As reported                                             $ 1.59      $ 1.85      $ 1.62
  Pro forma                                               $ 1.56      $ 1.83      $ 1.59
----------------------------------------------------------------------------------------
Diluted earnings per share
  As reported                                             $ 1.51      $ 1.79      $ 1.56
  Pro forma                                               $ 1.48      $ 1.76      $ 1.53
</Table>

The fair value for these options was estimated at the date of grant using a
Black-Scholes Option Valuation Model with the following weighted-average
assumptions for 2001 and 2000, respectively: risk-free interest rates of 5.54%
and 6.12%; dividend yields of 4.9% and 4.8%; volatility factors of the expected
market price of the Company's common stock of 20.8% and 22.9%; and a
weighted-average expected life of the options of 7 years.

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

                                       25
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                  Three Month Periods Ended
2001/2002:                           September 30    December 31    March 31    June 30
<S>                                  <C>             <C>            <C>         <C>
----------------------------------------------------------------------------------------
Interest income                             $4,359         $4,096      $3,988     $4,007
Interest expense                             2,429          2,271       2,049      2,066
----------------------------------------------------------------------------------------
Net interest income before
  provision for loan losses                  1,930          1,825       1,939      1,941
Provision for loan losses                        5              4           5          4
Other income                                   240            298         212        216
Operating expenses                             992          1,010       1,045      1,034
----------------------------------------------------------------------------------------
Income before income taxes                   1,173          1,109       1,101      1,119
Provision for income taxes                     369            350         351        357
----------------------------------------------------------------------------------------
Net income                                   $ 804          $ 759       $ 750      $ 762
----------------------------------------------------------------------------------------
Earnings per share:
  Basic                                     $ 0.41         $ 0.39      $ 0.39     $ 0.40
  Diluted                                   $ 0.39         $ 0.37      $ 0.37     $ 0.38
----------------------------------------------------------------------------------------
Dividends per share                         $ 0.18         $ 0.18      $ 0.18     $ 0.18
----------------------------------------------------------------------------------------
2000/2001:
----------------------------------------------------------------------------------------
Interest income                             $4,590         $4,674      $4,612     $4,504
Interest expense                             2,553          2,679       2,549      2,475
----------------------------------------------------------------------------------------
Net interest income before
  provision for loan losses                  2,037          1,995       2,063      2,029
Provision for loan losses                        5              4           4          5
Other income                                   206            599         195        231
Operating expenses                           1,023          1,023       1,021        968
----------------------------------------------------------------------------------------
Income before income taxes                   1,215          1,567       1,233      1,287
Provision for income taxes                     372            511         374        406
----------------------------------------------------------------------------------------
Net income                                   $ 843         $1,056       $ 859      $ 881
----------------------------------------------------------------------------------------
Earnings per share:
  Basic                                     $ 0.43         $ 0.54      $ 0.44     $ 0.45
  Diluted                                   $ 0.41         $ 0.52      $ 0.42     $ 0.43
----------------------------------------------------------------------------------------
Dividends per share                         $ 0.17         $ 0.17      $ 0.17     $ 0.17
----------------------------------------------------------------------------------------
</Table>

As a result of rounding, the sum of quarterly amounts may not equal the annual
amounts.

(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the Consolidated Statement of Financial Condition. SFAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company. The carrying
amounts reported in the Consolidated Statement of Financial Condition
approximate fair value for the following financial instruments; cash, money
market investments, interest-earning deposits with other institutions,
investment securities and mortgage-backed securities available for sale, FHLB
stock, loans held for sale and all deposits except time deposits.

At June 30, 2002 and 2001, the estimated fair value of investment securities
held to maturity exceeded the net carrying value by approximately $218 and $192,
respectively. At June 30, 2002 and 2001 the estimated fair value of
mortgage-backed securities held to maturity exceeded the net carrying value by
approximately $1 and $2, respectively. Estimated fair values are based on quoted
market prices, dealer

                                       26
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

quotes, and prices obtained from independent pricing services. Refer to Notes 2
and 3 herein for the detail on breakdowns by type of investment and
mortgage-backed securities.

The fair value of loans exceeded the carrying value by approximately $5,775 and
$3,602 at June 30, 2002 and 2001, respectively. Loans with comparable
characteristics including collateral and repricing structures were segregated
for valuation purposes. Each loan pool was separately valued utilizing a
discounted cash flow analysis. Projected monthly cash flows were discounted to
present value using a market rate for comparable loans. Characteristics of
comparable loans included remaining term, coupon interest and estimated
prepayment speeds.

The carrying amounts and estimated fair values of deposits are as follows:

<Table>
<Caption>
                                          At June 30, 2002                    At June 30, 2001
                                      Carrying       Estimated            Carrying       Estimated
                                       Amount        Fair Value            Amount        Fair Value
<S>                                 <C>            <C>                  <C>            <C>
-----------------------------------------------------------------------------------------------------
Non-interest-bearing:
  Demand accounts                       $ 11,520         $ 11,520           $ 10,022         $ 10,022
Interest-bearing:
  Now and MMDA accounts                   38,839           38,839             35,911           35,911
  Passbook accounts                       32,534           32,534             30,401           30,401
  Time deposits                          142,526          144,590            129,302          130,490
-----------------------------------------------------------------------------------------------------
Total Deposits                          $225,419         $227,483           $205,636         $206,824
-----------------------------------------------------------------------------------------------------
</Table>

The fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market. Fair values for time deposits are estimated using
a discounted cash flow calculation that applies contractual cost currently being
paid in the existing portfolio to current market rates being offered locally for
deposits of similar remaining maturities. The mark-to-market valuation
adjustment for the time deposit portfolio consists of the present value of the
difference of these two cash flows, discounted at the assumed market rate of the
corresponding maturity.

The carrying amounts and estimated fair values of borrowed funds are as follows:

<Table>
<Caption>
                                          At June 30, 2002                    At June 30, 2001
                                      Carrying       Estimated            Carrying       Estimated
                                       Amount        Fair Value            Amount        Fair Value
<S>                                 <C>            <C>                  <C>            <C>
-----------------------------------------------------------------------------------------------------
Borrowed funds:
  FHLB advances                         $ 21,620         $ 23,588           $ 21,626         $ 22,429
-----------------------------------------------------------------------------------------------------
</Table>

The fair value of borrowed funds is based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently offered for
advances of similar remaining maturities.

There is no material difference between the carrying value and the estimated
fair value of the Company's off-balance sheet items which totaled $8.0 million
and $7.3 million at June 30, 2002 and 2001, respectively, and are primarily
comprised of unfunded loan commitments which are generally priced at market at
the time of funding.

Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. Because no market exists for
a significant portion of the Company's financial instruments, fair value
estimates are based on judgements regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

                                       27
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(16) LAUREL CAPITAL GROUP, INC.
       (PARENT COMPANY ONLY) FINANCIAL INFORMATION

<Table>
<Caption>
                                                              June 30,     June 30,
STATEMENT OF FINANCIAL CONDITION                                2002         2001
<S>                                                           <C>          <C>
------------------------------------------------------------------------------------
ASSETS
Cash                                                           $   378      $ 1,179
Other assets                                                       114           --
Investment in Laurel Savings Bank                               26,132       24,957
------------------------------------------------------------------------------------
     Total assets                                              $26,624      $26,136
------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other accrued expenses                                         $    71      $    (2)
------------------------------------------------------------------------------------
                                                                    71           (2)
------------------------------------------------------------------------------------
Stockholders' equity                                            26,553       26,138
------------------------------------------------------------------------------------
     Total liabilities and stockholders' equity                $26,624      $26,136
------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                              For the year ended
                                                       ---------------------------------
                                                       June 30,    June 30,    June 30,
STATEMENT OF OPERATIONS                                  2002        2001        2000
<S>                                                    <C>         <C>         <C>
----------------------------------------------------------------------------------------
Dividends from subsidiary                                $2,270      $2,833      $3,860
Other income                                                 --          --          --
Equity in undistributed income of Laurel Savings Bank       900         903        (377)
----------------------------------------------------------------------------------------
                                                          3,170       3,736       3,483
----------------------------------------------------------------------------------------
Operating expenses                                          138         141         113
----------------------------------------------------------------------------------------
Income before income taxes                                3,032       3,595       3,370
Provision (credit) for income taxes                         (43)        (44)        (38)
----------------------------------------------------------------------------------------
Net income                                               $3,075      $3,639      $3,408
----------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                   June 30,    June 30,    June 30,
STATEMENT OF CASH FLOWS                              2002        2001        2000
<S>                                                <C>         <C>         <C>
------------------------------------------------------------------------------------
Net income                                             3,075       3,639       3,408
Undistributed income of Laurel Savings Bank             (900)       (903)        377
  Adjustments to reconcile net income to net cash
     provided by operating activities:
       Other -- net                                      (41)        (72)         75
------------------------------------------------------------------------------------
  Net cash provided by operating activities            2,134       2,664       3,860
------------------------------------------------------------------------------------
Financing activities:
  Acquisition of treasury stock                       (1,604)       (842)     (2,441)
  Stock options exercised                                 68          98          27
  Dividends paid                                      (1,399)     (1,332)     (1,358)
------------------------------------------------------------------------------------
  Net cash used by financing activities               (2,935)     (2,076)     (3,772)
------------------------------------------------------------------------------------
Net change in cash and cash equivalents                 (801)        588          88
Cash and cash equivalents at the beginning of the
  period                                             $ 1,179     $   591     $   503
------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the
  period                                             $   378     $ 1,179     $   591
------------------------------------------------------------------------------------
</Table>

                                       28
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

(17) CONTINGENT LIABILITIES

The Company is subject to a number of asserted and unasserted potential claims
in the normal course of business. In the opinion of management, after
consultation with legal counsel, the resolution of these claims will not have a
material adverse effect on the Company's financial position, liquidity or
results of operation.

(18) EVENT SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)

On September 12, 2002, the Company announced it had entered into a definitive
agreement to acquire SFSB Holding Company and Stanton Federal Savings Bank. As
of June 30, 2002, SFSB Holding Company had total assets of $53.5 million,
deposits of $42.7 million and stockholders' equity of $7.1 million. Pending
approval of by SFSB Holding Company's stockholders and applicable regulatory
authorities, the transaction is expected to be completed in the first quarter of
calendar year 2003.

                                       29
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

SELECTED FIVE YEAR FINANCIAL DATA
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)

FINANCIAL CONDITION DATA:

<Table>
<Caption>
                                                         June 30,
                                   2002        2001        2000        1999        1998
<S>                              <C>         <C>         <C>         <C>         <C>
-----------------------------------------------------------------------------------------
Total assets                     $278,061    $258,012    $254,073    $231,474    $220,986
Loans, net                        178,322     176,908     169,521     151,390     151,124
Loans held for sale                 1,371       1,701       1,514       1,562       1,633
Mortgage-backed securities held
  to maturity                          40         150         397       1,072       1,051
Mortgage-backed securities
  available for sale                7,998       9,998      10,947      11,868      11,554
Investment securities held to
  maturity                         11,909      13,937      21,931      12,439      14,003
Investment securities available
  for sale                         39,156      39,762      38,665      35,549      25,539
Money market investments               --          --          --       3,711       3,532
Deposits                          225,419     205,636     192,663     182,118     175,390
FHLB advances                      21,620      21,626      33,424      20,029      17,033
Stockholders' equity               26,553      26,138      23,246      24,530      23,506
</Table>

OPERATING DATA:

<Table>
<Caption>
                                                For the year ended June 30,
                                   2002        2001        2000        1999        1998
<S>                               <C>         <C>         <C>         <C>         <C>
-----------------------------------------------------------------------------------------
Interest income                   $16,450     $18,380     $16,610     $15,652     $15,765
Interest expense                    8,815      10,256       8,581       8,067       8,069
-----------------------------------------------------------------------------------------
Net interest income before
  provision for loan losses         7,635       8,124       8,029       7,585       7,696
Provision for loan losses              18          18          18          18          18
-----------------------------------------------------------------------------------------
Net interest income after
  provision for loan losses         7,617       8,106       8,011       7,567       7,678
Net gain on investments, loans
  and mortgage-backed
  securities available for
  sale                                 76          96          12         313         218
Other income                          890       1,135         828         707         764
Operating expenses                  4,081       4,035       3,919       3,743       3,897
-----------------------------------------------------------------------------------------
Income before income taxes          4,502       5,302       4,932       4,844       4,763
Income tax expense                  1,427       1,663       1,524       1,661       1,712
-----------------------------------------------------------------------------------------
Net income                        $ 3,075     $ 3,639     $ 3,408     $ 3,183     $ 3,051
-----------------------------------------------------------------------------------------
Diluted earnings per share        $  1.51     $  1.79     $  1.56     $  1.39     $  1.32
-----------------------------------------------------------------------------------------
</Table>

STATISTICAL PROFILE:

<Table>
<Caption>
                                                          June 30,
                                    2002        2001        2000        1999        1998
<S>                                 <C>         <C>         <C>         <C>         <C>
-----------------------------------------------------------------------------------------
Return on average assets             1.18%       1.42%       1.43%       1.41%       1.43%
Return on average equity            11.50%      14.73%      14.27%      13.04%      13.58%
Average equity to average assets
  ratio                             10.24%       9.63%      10.03%      10.84%      10.49%
Dividend payout ratio               47.68%      37.99%      41.03%      43.17%      33.33%
-----------------------------------------------------------------------------------------
</Table>

                                       30
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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

OVERVIEW

During fiscal 2002, the unprecedented interest rate cuts by the Federal Reserve
Board resulted in compression of net interest rate spreads and decreased net
interest income for the Company as well as for most financial institutions.
Despite these negative influences, the Company continued its goal of long-term
profitable growth with an increase in assets of $20.0 million or 7.8%. Earnings
remained strong, despite the interest rate environment, with net income of $3.1
million or $1.51 per share on a diluted basis compared to $3.6 million or $1.79
per share on a diluted basis for fiscal 2001 and $3.4 million or $1.56 per share
for fiscal 2000.

The Company continued to report returns on average assets (ROA) and average
equity (ROE) that exceeded industry averages. The ROA for fiscal 2002, 2001 and
2000 was 1.18%, 1.42% and 1.43%, respectively. The ROE for fiscal 2002, 2001 and
2000 was 11.50%, 14.73% and 14.27%, respectively.

The Company's ongoing emphasis on controlling its non-interest expenses has
resulted in a low ratio of such expenses to total average assets and a low
efficiency ratio. Based on review of various economic and industry publications,
these ratios for the Company continue to exceed the industry averages of
similarly sized institutions.

Total loan origination during fiscal 2002 amounted to a record $66.2 million or
a 59.3% increase compared to fiscal 2001. Mortgage lending activity increased
during fiscal 2002 as compared to the prior year and was concentrated more on
the origination of fixed-rate mortgages due to the interest rate environment. In
addition, consumer lending activity increased by 58.9% during the same time
period.

The Company continues its efforts to further diversify its assets by emphasizing
loans and investments having relatively shorter terms and/or adjustable rates
such as secured home equity line-of-credit loans and consumer installment loans.
All known trends, events, uncertainties and current recommendations by the
regulatory authorities that would have a material effect on the Company's
liquidity, capital resources and results of operations have been considered in
the following discussion and analysis.

ASSET AND LIABILITY MANAGEMENT

The principal determinant of the exposure of the Company's earnings to interest
rate risk is the timing difference between the re-pricing or maturity of the
Company's interest-earning assets and the re-pricing or maturity of its
interest-bearing liabilities. The Company's vulnerability to interest rate risk
exists to the extent that its interest-bearing liabilities, consisting of
customer deposits and borrowings, mature or re-price more rapidly or on a
different basis than its interest-earning assets, which consist primarily of
intermediate or long-term real estate loans and investment and mortgage-backed
securities. The objective of interest rate risk management is to control the
effects that interest rate fluctuations have on net interest income and on the
net present value of the Company's interest-earning assets and interest-bearing
liabilities. Management and the Board are responsible for managing interest rate
risk and employing risk management policies that monitor and limit exposure to
interest rate risk. Interest rate risk is measured using net interest margin
simulation and asset/liability net present value sensitivity analyses. These
analyses provide a range of potential impacts on net interest income and
portfolio equity caused by interest rate movements.

The Company uses financial modeling to measure the impact of changes in interest
rates on the net interest margin and portfolio equity, ROE. Assumptions used by
the Office of Thrift Supervision are made regarding loan prepayments and
amortization rates of passbook and NOW account withdrawal rates. In addition,
certain financial instruments may provide customers with a degree of
"optionality," whereby a shift in interest rates may result in customers
changing to an alternative financial instrument, such as from a variable to
fixed rate loan product. Thus, the effects of changes in future interest rates
on these assumptions may cause actual results to differ from simulated results.

The Company has established various parameters regarding its net interest margin
and portfolio equity assuming a 200 basis point ("bp") parallel increase or
decrease in interest rates. Net interest margin represents net interest income
as a percentage of average interest-earning assets while portfolio equity is the
net present value of the Company's existing assets and liabilities at a certain
date. Assuming a 200 bp increase in rates, the estimated net interest margin may
not change by more than 15% for a one-year
                                       31
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

period and portfolio equity may not decrease by more than 45% of total
stockholder's equity. Conversely, if interest rates drop 200 bp, the estimated
net interest margin may not change by more than 10% for a one-year period and
portfolio equity may not decrease by more than 20% of total stockholders'
equity.

The following table illustrates the simulated impact of a 100 basis point or 200
basis point upward or downward movement in interest rates on net interest
income, return on average equity and diluted earnings per share. This analysis
was calculated assuming that interest-earning asset levels at June 30, 2002
remained constant. The impact of the rate movements was developed by simulating
the effect of rates changing over a twelve-month period from the June 30, 2002
levels.

<Table>
                                                   Increase                    Decrease
Simulated impact in the next 12 months      -----------------------   ---------------------------
  Compared with June 30, 2002:              +100 bp      +200 bp        -100 bp        -200 bp
                                            --------   ------------   ------------   ------------
<S>                                         <C>        <C>            <C>            <C>
  Net interest income increase/(decrease)       4.30%          3.50%        (7.50)%       (15.00)%
  Return on average equity
     increase/(decrease)                          54bp          107bp        (230)bp        (461)bp
  Diluted earnings per share
     increase/(decrease)                       $0.07          $0.14        $(0.30)        $(0.61)
                                            --------     ----------     ----------     ----------
</Table>

The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or re-price within that time period. The interest rate
sensitivity gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or re-pricing within a given time period.
A gap is considered positive when the amount of interest rate sensitive assets
exceeds interest rate sensitive liabilities. A gap is considered negative when
the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets. During a period of rising interest rates, a negative gap would
tend to adversely affect net interest income, while a positive gap would tend to
result in an increase in net interest income. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income, while a positive gap would tend to adversely affect net
interest income. The following table presents a summary of the Company's gap
position at June 30, 2002. In preparing the table below, adjustable-rate loans
are included in the period in which the interest rates are next scheduled to
adjust rather than in the period in which the loans mature. In addition, the
assumptions used by the Office of Thrift Supervision for regulatory purposes
have been made with respect to loan prepayments and contractual amortization
rates and passbook and NOW account withdrawal rates. The above assumptions may
not be indicative of the actual prepayments and withdrawals which may be
experienced by the Company.

                                       32
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

<Table>
<Caption>
                                       3
                                    Months        4-12        1-5      Over 5
Interest Sensitivity Period         or Less      Months      Years      Years      Total
<S>                                <C>          <C>         <C>        <C>        <C>
------------------------------------------------------------------------------------------
Rate sensitive assets:
  Loans and mortgage-backed
     securities                      $21,591    $ 41,315    $84,887    $41,741    $189,534
  Investment securities               36,321      19,248      2,720     24,238      82,527
------------------------------------------------------------------------------------------
Total rate sensitive assets          $57,912    $ 60,563    $87,607    $65,979    $272,061
------------------------------------------------------------------------------------------
Rate sensitive liabilities:
Deposits:
  Certificates of deposit            $22,865    $ 54,958    $52,914    $11,789    $142,526
  NOW and money funds                  8,351      14,309     12,302      3,877      38,839
  Passbooks                            1,424       3,887     13,291     13,932      32,534
------------------------------------------------------------------------------------------
     Total deposits                  $32,640    $ 73,154    $78,507    $29,598    $213,899
Borrowings                            10,500       8,000      3,000        120      21,620
------------------------------------------------------------------------------------------
Total rate sensitive liabilities     $43,140    $ 81,154    $81,507    $29,718    $235,519
------------------------------------------------------------------------------------------
Interest sensitivity gap:
  Interval                            14,772     (20,591)     6,100     36,261      36,542
  Cumulative                         $14,772    $ (5,819)   $   281    $36,542    $     --
------------------------------------------------------------------------------------------
Ratio of cumulative gap to total
  assets                                5.31%      (2.09)%     0.10%     13.14%
------------------------------------------------------------------------------------------
</Table>

The Company targets its one year gap to be in the range of 10.0% to (10.0)%. At
June 30, 2002 and 2001, the Company's one year gap was (2.09)% and .21%,
respectively. As part of its effort to minimize the impact changes in interest
rates have on operating results, the Company continues to emphasize the
origination of interest-earning assets with adjustable rates and shorter
maturities and to extend the terms of its interest-bearing liabilities. The
Company also maintains a high level of liquid assets, which includes assets
available for sale, that could be reinvested at higher yields if interest rates
were to rise. Management believes its asset and liability strategies reduce the
Company's vulnerability to fluctuations in interest rates.

                                       33
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

FINANCIAL CONDITION

The Company's consolidated assets totaled approximately $278.1 million at June
30, 2002, an increase of $20.0 million or 7.8% from June 30, 2001. The growth in
assets was primarily the result of an increase in interest-earning deposits with
other institutions. The growth was funded primarily from increases in savings
deposits and income generated from current earnings. The Company continually
seeks to increase its level of profitability while maintaining its asset
quality. This emphasis on earnings and asset quality has resulted in a .12%
ratio of non-performing assets to total assets at June 30, 2002.

The following table presents an analysis of the Company's average balance sheet,
net interest income and average yields earned on its interest-earning assets and
average rates paid on its interest-bearing liabilities for the periods and as of
the date indicated. Information is based on average daily balances during the
periods presented which management believes is representative of the operations
of the Company.

<Table>
<Caption>
                           At                                           Year Ended June 30,
                        June 30,               2002                            2001                            2000
                          2002     ---------------------------------------------------------------------------------------------
                        Average                          Average                         Average                         Average
                         Yield/    Average                Yield    Average                Yield    Average                Yield
                          Rate     Balance    Interest    Rate     Balance    Interest    Rate     Balance    Interest    Rate
<S>                     <C>        <C>        <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>
--------------------------------------------------------------------------------------------------------------------------------
Interest-earning
 assets:
 Mortgage loans (1)         7.14%  $140,737   $10,365       7.36%  $138,503   $10,662       7.70%  $121,733   $ 9,169       7.53%
 Consumer and other
   loans (1)                7.43     35,902     2,702       7.53     36,964     2,980       8.06     35,348     2,798       7.92
--------------------------------------------------------------------------------------------------------------------------------
Total loans                 7.19    176,639    13,066       7.40    175,467    13,642       7.77    157,081    11,967       7.62
 Mortgage-backed
   securities               6.36      8,606       518       6.02     10,963       769       7.01     12,275       836       6.81
 Investment
   securities               4.42     52,201     2,554       4.89     60,243     3,820       6.34     60,544     3,721       6.15
 Interest-bearing
   deposits                 1.56     15,936       312       1.96      3,056       149       4.88      1,607        86       5.35
--------------------------------------------------------------------------------------------------------------------------------
Total
 interest-earning
 assets                     5.99%   253,382    16,450       6.49%   249,729    18,380       7.36%   231,507    16,610       7.17%
Non-interest-earning
 assets                               7,702                           6,748                           6,610
--------------------------------------------------------------------------------------------------------------------------------
Total assets                       $261,084                        $256,477                        $238,117
--------------------------------------------------------------------------------------------------------------------------------
Interest-bearing
 liabilities:
 Savings deposits           3.37   $195,666   $ 7,540       3.85%  $184,656   $ 8,282       4.49%  $177,201   $ 7,291       4.11%
 Borrowings                 5.82     21,623     1,275       5.90     31,927     1,974       6.18     22,736     1,290       5.67
--------------------------------------------------------------------------------------------------------------------------------
Total
 interest-bearing
 liabilities                3.60%   217,289   $ 8,815       4.06%   216,583   $10,256       4.74%   199,937   $ 8,581       4.29%
Non-interest-bearing
 liabilities                         17,063                          15,193                          14,302
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities                   234,352                         231,776                         214,239
Stockholders' equity                 26,732                          24,701                          23,878
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
 stockholders' equity              $261,084                        $256,477                        $238,117
--------------------------------------------------------------------------------------------------------------------------------
Net earning assets                 $ 36,093                        $ 33,146                        $ 31,570
Net interest
 income/average
 interest rate spread       2.40%             $ 7,635       2.43%             $ 8,124       2.62%             $ 8,029       2.88%
Net yield on
 interest-earning
 assets                                                     3.01%                           3.25%                           3.47%
Average
 interest-earning
 assets as a percent
 of average interest-
 bearing liabilities                 116.61%                          115.3%                          115.8%
--------------------------------------------------------------------------------------------------------------------------------
</Table>

(1)Includes loans on which the Company has discontinued accruing interest.

                                       34
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENT SECURITIES AVAILABLE FOR
SALE

The Company's investment securities held to maturity totaled $11.9 million at
June 30, 2002 which was a decrease of $2.0 million or 14.6% compared to the
level at June 30, 2001. The decrease was primarily due to higher yielding
investments being called during fiscal 2002 as a result of the decline in
interest rates during the period. The Company primarily invests in government
agency and corporate notes and municipal bonds. Investment securities available
for sale totaled $39.2 million at June 30, 2002 or a decrease of $600,000
compared to June 30, 2001. The decrease was primarily due to the calling of
various municipal bonds during the year.

MORTGAGE-BACKED SECURITIES HELD TO MATURITY AND MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE

The total of all mortgage-backed securities was $8.0 million at June 30, 2002, a
decrease of $2.1 million or 20.79% compared to the level at June 30, 2001. This
decrease was primarily due to principal repayments on all mortgage-backed
securities during the year.

LOAN PORTFOLIO

Loans receivable increased $1.4 million or 0.8% to $178.3 million during the
fiscal year ended June 30, 2002 as compared to an increase of $7.4 million or
4.4% for the fiscal year ended June 30, 2001. Mortgage loan origination in
fiscal years 2002 and 2001 amounted to $44.4 million and $27.9 million,
respectively. The Company originated primarily fixed-rate loans in fiscal 2002
due to the interest rate environment in the Company's market area. Of the total
amount of mortgage and construction loans originated in fiscal 2002, $29.5
million or 66.5% were fixed-rate mortgages as compared to $16.2 million or 58.3%
in fiscal 2001. Adjustable-rate mortgage and construction loan origination
totaled $14.9 million or 33.5% of total mortgage and construction loans
originated in fiscal 2002 as compared to $11.6 million or 41.7% of total
mortgage and construction loans originated in fiscal 2001.

Consumer loan origination, including home equity and other installment loans,
totaled $21.8 million in fiscal 2002, $13.7 million in fiscal 2001 and $16.4
million in fiscal 2000. The Company has recently placed a greater emphasis on
other installment lending including home equity loans, personal loans, auto
loans and other secured lines of credit due to the shorter term and generally
higher yield associated with such loans.

DEPOSIT PORTFOLIO

Savings deposits increased $19.8 million to $225.4 million during fiscal 2002.
This increase was due to the combined result of $13.3 million of net deposit
growth and interest credited of approximately $6.5 million. Deposit increases
occurred primarily in certificate of deposit accounts and NOW/checking accounts.

For the years ended June 30, 2002, 2001 and 2000, the Company had certificates
of deposit with remaining terms to maturity of three (3) to ten (10) years
aggregating $18.6 million, $11.9 million and $10.1 million, respectively. As
part of its asset and liability planning, the Company attempts to attract
longer-term deposits, thereby reducing the interest rate sensitivity of its
interest-bearing liabilities.

BORROWINGS

Borrowings, consisting of FHLB advances, remained consistent at $21.6 million
from June 30, 2001 to June 30, 2002. The Company was able to maintain its
current borrowings without the need to borrow additional funds from the FHLB due
to the large amount of deposit growth during the same period.

STOCKHOLDERS' EQUITY

Stockholders' equity increased $500,000 or 1.6% to $26.6 million at June 30,
2002 compared to $26.1 million at June 30, 2001. This increase primarily
resulted from an increase in other comprehensive income of $300,000 and net
income of $3.1 million. These increases were partially offset by the
                                       35
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

repurchase of $1.6 million of the Company's common stock and the payment of cash
dividends of $1.4 million. Under regulations adopted by the Federal Deposit
Insurance Corporation ("FDIC"), the Company is required to maintain Tier I
(Core) capital equal to at least 4% of the Company's adjusted total assets and
Tier II (Supplementary) risk-based capital equal to at least 8% of the
risk-weighted assets. At June 30, 2002, the Company exceeded all of its
regulatory capital requirements. See "Liquidity and Capital Resources."

RESULTS OF OPERATIONS

The results of operations of the Company depend substantially on its net
interest income, which is determined by the interest rate spread between the
Company's interest-earning assets and interest-bearing liabilities and the
relative amounts of such assets and liabilities.

RATE/VOLUME ANALYSIS

The following table presents certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes attributable to (1) changes in
rate (change in rate multiplied by old volume), (2) changes in volume (changes
in volume multiplied by old rate), and (3) changes in rate-volume (change in
rate multiplied by the change in volume). Changes in net interest income due to
both volume and rate were combined with the changes of each based on their
proportionate amounts.

                                       36
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

<Table>
<Caption>
                                                               Fiscal 2002
                                                         Compared to Fiscal 2001
                                                        Increase (Decrease) due to
----------------------------------------------------------------------------------------------
                                                                         Rate/
                                             Rate       Volume          Volume          Total
----------------------------------------------------------------------------------------------
<S>                                         <C>        <C>             <C>             <C>
Interest income on interest-earning assets:
  Mortgage loans                            $  (463)      $  172           $  (7)      $  (298)
  Consumer loans                               (198)         (86)              6          (278)
  Mortgage-backed securities                   (109)        (165)             23          (251)
  Investment securities                        (872)        (510)            116        (1,266)
  Interest-earning deposits                     (89)         628            (376)          163
----------------------------------------------------------------------------------------------
     Total                                   (1,731)          39            (238)       (1,930)
----------------------------------------------------------------------------------------------
Interest expense on interest-bearing
  liabilities:
  Deposits                                   (1,166)         494             (70)         (742)
  Borrowings                                    (91)        (638)             30          (699)
----------------------------------------------------------------------------------------------
     Total                                   (1,257)        (144)            (40)       (1,441)
----------------------------------------------------------------------------------------------
Net change in net interest income           $  (474)       $ 183           $(198)      $  (489)
----------------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                               Fiscal 2001
                                                         Compared to Fiscal 2000
                                                        Increase (Decrease) due to
----------------------------------------------------------------------------------------------
                                                                         Rate/
                                             Rate       Volume          Volume          Total
----------------------------------------------------------------------------------------------
<S>                                         <C>        <C>             <C>             <C>
Interest income on interest-earning assets:
  Mortgage loans                            $   202       $1,263           $  28       $ 1,493
  Consumer loans                                 52          128               2           182
  Mortgage-backed securities                     25          (89)             (3)          (67)
  Investment securities                         118          (18)             (1)           99
  Interest-earning deposits                      (8)          78              (7)           63
----------------------------------------------------------------------------------------------
     Total                                      389        1,362              19         1,770
----------------------------------------------------------------------------------------------
Interest expense on interest-bearing
  liabilities:
  Deposits                                      656          307              28           991
  Borrowings                                    116          521              47           684
----------------------------------------------------------------------------------------------
     Total                                      772          828              75         1,675
----------------------------------------------------------------------------------------------
Net change in net interest income           $  (383)       $ 534           $ (56)      $    95
----------------------------------------------------------------------------------------------
</Table>

                                       37
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

INTEREST INCOME ON LOANS AND LOANS HELD FOR SALE

Interest on loans and loans held for sale decreased by $576,000 or 4.2% in
fiscal 2002 primarily due to a decrease in the average yield earned on the
portfolio from 7.77% during fiscal 2001 to 7.40% during fiscal 2002. The
decrease in the average yield was partially offset by a $1.2 million increase in
the average balance of the portfolio during the same period. The average balance
of the mortgage loan portfolio increased by $2.2 million or 1.6% and the average
balance of the consumer loan portfolio decreased by $1.0 million or 2.9% during
fiscal 2002. The decrease in the average yield during fiscal 2002 was primarily
due to increased origination of mortgage loans that had lower rates of interest
due to the competitive interest rates in the Company's market area. Interest on
loans and loans held for sale increased by $1.7 million or 14.0% in fiscal 2001
primarily due to an $18.4 million increase in the average balance of the
portfolio, particularly the mortgage loan portfolio. Additionally, the average
yield earned on the portfolio increased from 7.62% during fiscal 2000 to 7.77%
during fiscal 2001. The average balance of the mortgage loan portfolio increased
by $16.8 million or 13.8% and the average balance of the consumer loan portfolio
increased by $1.6 million or 4.6% during fiscal 2001. The increase in the
average yield during fiscal 2001 was primarily due to increased origination of
fixed rate mortgage loans that had higher rates of interest due to the interest
rates in the Company's market area.

INTEREST INCOME ON MORTGAGE-BACKED SECURITIES HELD TO MATURITY AND
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

Interest income on all mortgage-backed securities decreased by $251,000 or 32.6%
during fiscal 2002 primarily due to a $2.4 million or 21.5% decrease in the
average outstanding balance of the portfolio. Also contributing to this decrease
was a decrease in the average yield from 7.01% in fiscal 2001 to 6.02% in fiscal
2002. During fiscal 2001, interest income on all mortgage-backed securities
decreased by $67,000 or 8.0% primarily due to a $1.3 million or 10.7% decrease
in the average outstanding balance of the portfolio. This decrease was partially
offset by an increase in the average yield from 6.81% in fiscal 2000 to 7.01% in
fiscal 2001.

INTEREST INCOME ON INVESTMENTS HELD TO MATURITY AND INVESTMENTS AVAILABLE FOR
SALE

Interest on investments held to maturity and investments available for sale
decreased by $1.3 million or 33.1% during fiscal 2002 primarily due to a
decrease in the average yield on these investments from 6.34% in fiscal 2001 to
4.89% in fiscal 2002. Also contributing to the decrease was an $8.0 million or
13.3% decrease in the average outstanding balance of such securities during the
same period. The decrease in the average yield in fiscal 2002 was primarily due
to increased repayment on higher yielding investment securities as well as
decreases in market interest rates. During fiscal 2001, interest on investments
held to maturity and investments available for sale increased by $99,000 or 2.7%
primarily due to an increase in the average yield from 6.15% in fiscal 2000 to
6.34% in fiscal 2001. This increase was partially offset by a $301,000 or .5%
decrease in the average outstanding balance of such securities. The increase in
the average yield in fiscal 2001 resulted primarily from the purchase of
investments late in fiscal 2000 when market interest rates were on the rise.

INTEREST INCOME ON INTEREST-EARNING DEPOSITS

Interest on deposits, consisting of interest-earning deposits maintained with
the FHLB of Pittsburgh, increased $163,000 or 109.4% during fiscal 2002 compared
to fiscal 2001 and increased $63,000 or 73.3% during fiscal 2001 compared to
fiscal 2000. The increase in fiscal 2002 was primarily due to a $12.9 million or
421.5% increase in the average outstanding balance. This increase was slightly
offset by a decrease in the average yield from 4.88% in fiscal 2001 to 1.96% in
fiscal 2002. The increase in the average outstanding balance during fiscal 2002
was primarily due to excess liquidity as a result of increased deposits. The
increase in fiscal 2001 was primarily due to a $1.4 million or 90.2% increase in
the average outstanding balance. This increase was partially offset by a
decrease in the average yield from 5.35% in fiscal year 2000 to 4.88% in fiscal
year 2001. The increase in the average outstanding balance during fiscal 2001
was primarily due to excess liquidity as a result of increased deposits and
decreased loan origination.
                                       38
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

INTEREST EXPENSE ON SAVINGS DEPOSITS

Interest expense on savings deposits decreased by $742,000 or 9.0% in fiscal
2002 primarily due to a decrease in the average yield from 4.49% in fiscal 2001
to 3.85% in fiscal 2002. This decrease was partially offset by an $11.0 million
or 6.0% increase in the average outstanding balance during the same period.
During fiscal 2001, interest expense on savings deposits increased by $991,000
or 13.6% primarily due to a $7.5 million or 4.2% increase in the average
outstanding balance. Additionally, the average rate paid on deposits increased
from 4.11% in fiscal year 2000 to 4.49% in fiscal year 2001 primarily due to an
increase in certificates of deposit which typically have a higher rate of
interest. The increase in the average balance of deposits during both fiscal
2002 and 2001 was predominantly a result of current market conditions.

INTEREST EXPENSE ON BORROWINGS

Interest on borrowings decreased $699,000 or 35.4% in fiscal 2002 primarily due
to a $10.3 million or 32.3% decrease in the average outstanding balance of FHLB
advances. In addition, the average rate paid on borrowings decreased from 6.18%
in fiscal 2001 to 5.90% in fiscal 2002. The decrease in the average outstanding
balance during fiscal 2002 was due to the repayment of short-term borrowings.
During fiscal 2001, interest on borrowings increased $684,000 or 53.0% primarily
due to a $9.2 million or 40.4% increase in the average outstanding balance of
FHLB advances. Additionally, the average rate paid on borrowings increased from
5.67% in fiscal 2000 to 6.18% in fiscal 2001. The Company used the funds
borrowed during fiscal 2001 primarily to originate loans and purchase investment
securities.

NET INTEREST INCOME

Net interest income decreased by $489,000 or 6.0% in fiscal 2002 as compared to
fiscal 2001 and increased by $95,000 or 1.2% in fiscal 2001 as compared to the
prior fiscal year. The decrease in fiscal 2002 was primarily due to the decrease
in the average yield on interest-earning assets from 7.36% in fiscal 2001 to
6.49% in fiscal 2002. This decrease was partially offset by a decrease in the
average yield on interest-bearing liabilities from 4.74% in fiscal 2001 to 4.06%
in fiscal 2002. The increase in fiscal 2001 was primarily due to the increase in
the average outstanding balances of the loan portfolio and interest-earning
deposits with other institutions. This increase was partially offset by the
decrease in the average outstanding balances of the mortgage-backed security and
investment security portfolios and the increase in the average outstanding
balances of savings deposits and borrowings.

Interest-earning assets as a percent of interest-bearing liabilities amounted to
116.6%, 115.3% and 115.8% at June 30, 2002, 2001 and 2000, respectively, and the
average interest rate spread was 2.43%, 2.62% and 2.88% for fiscal 2002, 2001
and 2000, respectively. The Company's average interest rate spread has decreased
from 2.88% in fiscal 2000 to 2.43% in fiscal 2002 primarily due to decreases in
the average rates paid on the Company's interest-earning assets. The Company's
net interest income continued to exceed its total other expenses in fiscal 2002
and 2001, and the Company intends to continue to manage its assets and
liabilities in order to maintain its net interest income at levels in excess of
total other expenses.

PROVISION FOR LOAN LOSSES

Financial institutions are subject to the risk of loan losses as one of the
costs of lending. While the Company recognizes as losses all loans which are
determined to be uncollectible, experience dictates that at any point in time,
losses may exist in the portfolio which cannot be specifically identified. As a
result, a provision for such unidentifiable losses is established and charged
against current earnings to represent management's best estimate of such
probable losses. The provision for loan losses amounted to $18,000 for each of
fiscal 2002, 2001 and 2000. Such provisions were the result of an analysis of
the allowance for loan losses performed in connection with a review of the
Company's loan portfolio.

At June 30, 2002, 2001 and 2000, the allowance for loan losses was approximately
$1.8 million. This amount represented 1.0%, 1.0% and 1.1%, respectively, of the
total loan portfolio at such dates.

Management conducts a review, at least quarterly, to determine that the
allowance for loan losses is appropriate to absorb estimated loan losses. In
determining the appropriate level of the allowance for loan
                                       39
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

losses, consideration is given to general economic conditions, diversification
of loan portfolios, historic loss experience, identified credit problems,
delinquency levels and adequacy of collateral. In consideration of the above,
management has assessed the risks in the loan portfolio and has determined that
no significant changes have occurred during the fiscal year ended June 30, 2002.
Thus, the level of the allowance for loan losses is substantially unchanged from
June 30, 2001. Although management believes that the current allowance for loan
losses is appropriate, future additions to the reserve may be necessary due to
changes in economic conditions and other factors. In addition, as an integral
part of their periodic examination, certain regulatory agencies review the
adequacy of the Bank's allowance for loan losses and may direct the Bank to make
additions to the allowance based on their judgement. No such additions were
required to be made during the Bank's most recent examination.

OTHER INCOME

Fees and service charges increased by $82,000 or 11.1% to $822,000 in fiscal
2002 and decreased by $25,000 or 3.3% to $740,000 in fiscal 2001. The increase
in fiscal 2002 was primarily due to the higher fees realized from various
products and services offered by the Company combined with increased loan
origination during the year. The decrease in fiscal 2001 was primarily due to
decreased loan underwriting fees as a result of decreased loan origination
during the current period and a decrease in late charge fee income.

During fiscal 2002, the Company realized net gains of $76,000 on the sale of
investments, mortgage-backed securities and loans in its available for sale
portfolio. Gains of $55,000 were recorded on the sale of investment securities
available for sale and gains of $21,000 were recorded on the sale of loans held
for sale. During fiscal 2001, the Company realized net gains of $96,000 on the
sale of investments, mortgage-backed securities and loans in its available for
sale portfolio. Gains of $82,000 were recorded on the sale of investment
securities available for sale and gains of $14,000 were recorded on the sale of
loans held for sale.

Other operating income, which primarily consists of miscellaneous income and
rents, was $68,000, $70,000 and $63,000 in fiscal 2002, 2001 and 2000,
respectively. The decrease in fiscal 2002 was primarily the result of a decrease
in rental income during the current year partially offset by an increase in
miscellaneous income.

Other non-operating income decreased $325,000 or 100.0% in fiscal 2002 compared
to an increase of $325,000 or 100.0% in fiscal 2001. This fluctuation was the
result of the settlement of litigation and an insurance claim during fiscal year
2001.

OPERATING EXPENSES

Compensation and employee benefits, which is the largest component of total
operating expenses, increased by $20,000 or 1.0% in fiscal 2002 and increased by
$142,000 or 7.6% in fiscal 2001. The increase in fiscal 2002 was primarily due
to normal salary and benefit increases which was partially offset due to changes
in staffing during the year and increased deferred costs associated with
increased loan origination. The increase in fiscal 2001 was primarily due to
normal salary and benefit increases.

Premises and occupancy expense increased $6,000 or 1.1% in fiscal 2002 and
decreased by $19,000 or 3.3% in fiscal 2001. The increase in fiscal 2002 was
primarily due to an increase in office building repairs and maintenance and
insurance partially offset by a decrease in furniture, fixtures and equipment
expenses, light, heat and utilities expense and depreciation expense. The
decrease in fiscal 2001 was primarily due to a decrease in furniture, fixtures
and equipment expenses, office building repairs and maintenance and depreciation
expense partially offset by an increase in light, heat and utilities expense and
office building taxes.

Federal insurance premiums decreased by $1,000 or 2.6% in fiscal 2002 and
$34,000 or 47.2% in fiscal 2001. The decrease in both fiscal 2002 and fiscal
2001 was due to the lowering of the rate paid by SAIF insured institutions to
support the interest payments on the Financing Corporation ("FICO") Bonds. The
amount of the premium is based upon the average amount of deposits outstanding.

                                       40
<PAGE>

                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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

For fiscal 2002, the Company had net losses of $34,000 from its real estate
owned ("REO"). There were no such losses during fiscal 2001.

Data processing expenses increased by $19,000 or 8.7% in fiscal 2002 and
increased $12,000 or 5.8% in fiscal 2001. The increases in both fiscal 2002 and
2001 were the result of increased pricing.

Professional fees decreased by $25,000 or 16.1% in fiscal 2002 and decreased by
$59,000 or 27.6% in fiscal 2001. The decrease in both fiscal 2002 and 2001 was
primarily due to reduced legal fees incurred with regard to litigation brought
by the Company against another financial institution.

INCOME TAXES

Income taxes decreased $236,000 or 14.2% in fiscal 2002 and increased $139,000
or 9.1% in fiscal 2001. The decrease in fiscal 2002 was predominately a result
of the decrease in income before taxes. The increase in fiscal 2001 was
primarily due to an increase in pre-tax income for fiscal 2001 as compared to
fiscal 2000.

NET INCOME

Net income decreased $564,000 or 15.5% in fiscal 2002 and increased $231,000 or
6.8% in fiscal 2001. The decrease in fiscal 2002 was due to a $489,000 decrease
in net interest income, a $265,000 decrease in other income and a $46,000
increase in operating expenses partially offset by a $236,000 decrease in income
tax expense. The increase in fiscal 2001 was due to a $95,000 increase in net
interest income and a $391,000 increase in other income partially offset by a
$116,000 increase in operating expenses and a $139,000 increase in income tax
expense.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets increased from $254.1 million at June 30, 2000 to $258.0
million at June 30, 2001 and to $278.1 million at June 30, 2002. Stockholders'
equity increased from $23.2 million at June 30, 2000 to $26.1 million at June
30, 2001 and increased to $26.6 million at June 30, 2002. At June 30, 2002,
stockholders' equity amounted to 9.55% of the Company's total assets under
generally accepted accounting principles ("GAAP").

The Company is currently required to maintain Tier I (Core) capital equal to at
least 4.0% of its adjusted total assets and Tier II (Supplementary) risk-based
capital equal to at least 8.0% of its risk-weighted assets. At June 30, 2002,
the Company substantially exceeded all of these requirements with Tier I and
Tier II ratios of 9.49% and 19.29%, respectively.

During the fiscal years ended June 30, 2002, 2001 and 2000, the Company had
positive cash flows from operating activities. Cash and cash equivalents
increased $24.1 million, increased $4.8 million and decreased by $7.2 million
for the fiscal years ended June 30, 2002, 2001 and 2000, respectively. See
Consolidated Statements of Cash Flows.

Cash flows from operating activities for the periods covered by the Consolidated
Statements of Cash Flows have been primarily related to net income and
operations. Operating activities provided $3.6 million in cash in fiscal 2002,
$3.5 million of cash in fiscal 2001 and $3.2 million in fiscal 2000.

Investing activities provided cash on a net basis of $4.0 million in fiscal 2002
and $2.5 million in fiscal 2001 and used cash on a net basis of $30.6 million in
fiscal 2000. For fiscal 2002 cash was provided primarily due to $25.4 million of
investments maturing or being called which was partially offset by $20.4 million
of investment purchases during the same period. For fiscal 2001 cash was
provided primarily due to $8.0 million of investments held to maturity being
called during the period which was greater than cash used to originate loans and
purchase investment securities and mortgage-backed securities. For fiscal 2000
cash was used primarily due to the amount of loans originated and the purchase
of investment securities and mortgage-backed securities which were greater than
cash provided by the sales, maturities and periodic principal payments received
on investments and loans.

Cash flows from financing activities for the periods covered by the Consolidated
Statements of Cash Flows have been primarily related to changes in deposits and
borrowings. Financing activities provided
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                       LOGO    LAUREL CAPITAL GROUP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

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$16.5 million of cash in fiscal 2002 due to a net increase of $19.8 million in
deposit accounts which was partially offset by dividends paid of $1.4 million
and $1.6 million of treasury stock acquired. Financing activities used $1.1
million of cash in fiscal 2001 due to a net decrease in FHLB advances of $11.8
million, $1.3 million of cash dividends paid and $842,000 of treasury stock
acquired. These decreases were partially offset by a $12.8 million increase in
deposit accounts. Financing activities generated $20.2 million of cash in fiscal
2000 due to a net increase of $13.4 million in FHLB advances, $10.5 million in
deposits, $72,000 in advance deposits by borrowers for taxes and insurance and
$27,000 from stock options exercised. These increases were partially offset by
$2.4 million of treasury stock acquired and $1.4 million of cash dividends paid.

The Company's primary source of funds consists of deposits bearing market rates
of interest, loan repayments and current earnings. Also, advances from the FHLB
of Pittsburgh may be used on short-term basis to compensate for savings outflows
or on a long-term basis to support lending and investment activities.

The Company uses its capital resources principally to meet its on going
commitments to fund maturing certificates of deposit and deposit withdrawals,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. At June 30, 2002, the Company had commitments to originate
loans totaling $8.0 million. Scheduled maturities of certificates of deposit
during fiscal 2003 totaled $78.0 million at June 30, 2002. Management believes
that by evaluating competitive instruments and pricing in its market area, the
Company can generally retain a substantial portion of its maturing certificates
of deposit.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effect of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, since
such prices are affected by inflation to a larger extent than interest rates.

RECENT ACCOUNTING DEVELOPMENTS

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of; however, it retains many of the
fundamental provisions of that statement.

SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in APB No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity.

SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Early application is encouraged. The
provisions of SFAS No. 144 generally are to be applied prospectively. The
adoption of SFAS No. 144 is not expected to have a material effect on the
financial position, results of operations or liquidity of the Company.

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