<PAGE>   1
 
                                                                     Exhibit 13


   

                       LOGO    LAUREL CAPITAL GROUP, INC.
 
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
 
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, 1998 and 1997, 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, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
 
                                                                            LOGO
 
Pittsburgh, Pennsylvania
August 11, 1998
    
 
                                        6
<PAGE>   2
   
    

 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------
At June 30, 1998 and 1997
 
<TABLE>
<CAPTION>
(in thousands, except per share data)                           1998        1997
----------------------------------------------------------------------------------
<S>                                                           <C>         <C>
ASSETS
Cash                                                          $    753    $    406
Money market investments                                         3,532       9,086
Interest-earning deposits with other institutions                7,092       5,843
Investment securities available for sale (note 2)               25,539      15,494
Investment securities (market value of $14,097 and $15,504)
  (note 2)                                                      14,003      15,494
Mortgage-backed securities available for sale (note 3)          11,554      13,259
Mortgage-backed securities (market value of $1,068 and
  $1,230) (note 3)                                               1,051       1,220
Loans receivable, held for sale (note 4)                         1,633       1,827
Loans receivable, net of unearned discounts of $7 and $34      152,976     146,613
Allowance for possible loan losses                              (1,852)     (1,943)
----------------------------------------------------------------------------------
  Loans receivable, net (notes 4 and 5)                        151,124     144,670
Federal Home Loan Bank Stock (note 6)                            1,277       1,277
Real estate owned                                                  143          --
Accrued interest receivable:
  Loans                                                            854         894
  Interest-earning deposits and investments                        406         505
  Mortgage-backed securities                                        73          86
Office properties and equipment, net of accumulated
  depreciation (note 7)                                          1,322       1,267
Prepaid expenses and sundry assets                                 630         659
----------------------------------------------------------------------------------
     Total Assets                                             $220,986    $211,987
----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Savings deposits (note 8)                                   $175,390    $175,019
  FHLB Advances (note 9)                                        17,033      11,044
  Advance deposits by borrowers for taxes and insurance          3,143       3,154
  Accrued interest payable on savings deposits                     523         533
  Accrued income taxes (note 10)                                   169         289
  Other accrued expenses and sundry liabilities                  1,222         686
----------------------------------------------------------------------------------
     Total Liabilities                                         197,480     190,725
----------------------------------------------------------------------------------
Stockholders' Equity (note 11)
  Common stock, $.01 par value; 5,000,000 shares authorized;
     2,305,055 and 2,277,913 shares issued, respectively            23          23
  Additional paid-in capital                                     4,823       4,682
  Treasury stock, at cost (113,670 shares)                      (1,626)     (1,626)
  Retained earnings                                             20,200      18,095
  Unrealized gains on securities available for sale, net of
     tax                                                           290         206
  Stock held in deferred compensation trust                       (204)       (118)
----------------------------------------------------------------------------------
     Total Stockholders' Equity                                 23,506      21,262
----------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Equity               $220,986    $211,987
----------------------------------------------------------------------------------
</TABLE>
 
See accompanying notes to consolidated financial statements.
 
                                        7
<PAGE>   3
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the years ended June 30, 1998, 1997, and 1996
 
<TABLE>
<CAPTION>
(in thousands, except per share data)                    1998          1997          1996
--------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>
Interest income:
  Loans                                               $   11,819    $   11,835    $   11,964
  Mortgage-backed securities                                 970         1,036           953
  Investments                                              2,660         2,311         1,683
  Interest-earning deposits                                  316           160           185
--------------------------------------------------------------------------------------------
    Total interest income                                 15,765        15,342        14,785
Interest expense:
  Savings deposits (note 8)                                7,349         7,182         7,018
  Borrowings (note 9)                                        720           533           301
--------------------------------------------------------------------------------------------
    Total interest expense                                 8,069         7,715         7,319
--------------------------------------------------------------------------------------------
Net interest income before provision for possible
  loan losses                                              7,696         7,627         7,466
Provision for possible loan losses                            18            30            30
--------------------------------------------------------------------------------------------
Net interest income after provision for possible
  loan losses                                              7,678         7,597         7,436
--------------------------------------------------------------------------------------------
Other income:
  Service charges                                            595           476           405
  Net gain on sales of investments and
    mortgage-backed securities available for sale            186           113            85
  Gain on the sale of loans held for sale                     32            12             7
  Other operating income                                     169           116           130
--------------------------------------------------------------------------------------------
    Total other income                                       982           717           627
--------------------------------------------------------------------------------------------
Operating expenses:
  Compensation and employee benefits (note 12)             1,734         1,750         1,693
  Premises and occupancy costs                               498           491           466
  Federal insurance premiums                                 109           149           374
  Special SAIF assessment                                     --         1,059            --
  Net (income) loss on real estate owned                      (5)          (31)            5
  Data processing expense                                    255           252           249
  Professional fees                                          487           178           244
  Other operating expenses                                   819           803           746
--------------------------------------------------------------------------------------------
    Total operating expenses                               3,897         4,651         3,777
--------------------------------------------------------------------------------------------
Income before income taxes                                 4,763         3,663         4,286
--------------------------------------------------------------------------------------------
Provision for income taxes (note 10)
  Federal                                                  1,383         1,091         1,319
  State                                                      329           253           302
--------------------------------------------------------------------------------------------
    Total income taxes                                     1,712         1,344         1,621
--------------------------------------------------------------------------------------------
  Net income                                          $    3,051    $    2,319    $    2,665
--------------------------------------------------------------------------------------------
Earnings per share(note 1)
  Basic
    Net income                                        $     1.40    $     1.03    $     1.18
    Average number of shares outstanding               2,176,893     2,247,021     2,256,238
--------------------------------------------------------------------------------------------
  Diluted
    Net income                                        $     1.32    $     1.00    $     1.15
    Average number of shares outstanding               2,312,389     2,325,658     2,323,455
--------------------------------------------------------------------------------------------
Dividends paid per share                              $     0.44    $     0.29    $     0.19
--------------------------------------------------------------------------------------------
</TABLE>
 
See accompanying notes to consolidated financial statements.
 
                                        8
<PAGE>   4
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the years ended June 30, 1998, 1997, and 1996
 
<TABLE>
<CAPTION>
                                                                      Unrealized
                                                                        Gains
                                                                     (Losses) on     Stock Held
                                 Additional                           Securities    in Deferred        Total
                         Common   Paid-in     Treasury    Retained    Available     Compensation   Stockholders'
    (in thousands)       Stock    Capital       Stock     Earnings     for Sale        Trust           Equity
-----------------------------------------------------------------------------------------------------------------
<S>                      <C>     <C>          <C>         <C>        <C>            <C>            <C>
Balance, June 30, 1995      $15      $4,539          --    $14,217           $147             --          $18,918
Stock options exercised
  (30,613 shares)            --         107          --         --             --             --              107
Dividends paid               --          --          --       (446)            --             --             (446)
Unrealized losses on
  securities available
  for sale                   --          --          --         --            (98)            --              (98)
Stock purchased by
  deferred compensation
  trust                      --          --          --         --             --            (60)             (60)
Net income                   --          --          --      2,665             --             --            2,665
-----------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996      $15      $4,646          --    $16,436            $49           ($60)         $21,086
Stock options exercised
  (8,913 shares)             --          44          --         --             --             --               44
Dividends paid               --          --          --       (660)            --             --             (660)
Treasury stock
  purchased (113,670
  shares)                    --          --      (1,626)        --             --             --           (1,626)
Unrealized gains on
  securities available
  for sale                   --          --          --         --            157             --              157
Stock purchased by
  deferred compensation
  trust                      --          --          --         --             --            (58)             (58)
Net income                   --          --          --      2,319             --             --            2,319
-----------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997      $15      $4,690     ($1,626)   $18,095           $206          ($118)         $21,262
Stock options exercised
  (27,227 shares)            --         141          --         --             --             --              141
Retroactive effect of
  stock issued as a
  result of stock split
  declared on December
  18, 1997                    8          (8)         --         --             --             --               --
Dividends paid               --          --          --       (946)            --             --             (946)
Unrealized gains on
  securities available
  for sale                   --          --          --         --             84             --               84
Stock purchased by
  deferred compensation
  trust                      --          --          --         --             --            (86)             (86)
Net income                   --          --          --      3,051             --             --            3,051
-----------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998      $23      $4,823     ($1,626)   $20,200           $290          ($204)         $23,506
-----------------------------------------------------------------------------------------------------------------
</TABLE>
 
See accompanying notes to consolidated financial statements.
 
                                        9
<PAGE>   5
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the years ended June 30, 1998, 1997, and 1996
 
<TABLE>
<CAPTION>
(in thousands)                                                    1998        1997        1996
<S>                                                           <C>         <C>         <C>
----------------------------------------------------------------------------------------------
Net income:                                                   $  3,051    $  2,319    $  2,665
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation                                                   149         139         117
    Provision for possible loan losses                              18          30          30
    Net gain on the sale of real estate owned                      (16)        (42)        (10)
    Net gain on the sale of investments and mortgage-backed
      securities available for sale                               (186)       (113)        (85)
    Gain on the sale of loans held for sale                        (32)        (12)         (7)
    Amortization of deferred loan fees                            (214)       (166)       (234)
    Origination of loans held for sale                            (881)       (907)       (966)
    Proceeds from the sale of loans held for sale                1,107         719         550
    Decrease (increase) in accrued interest receivable             152        (266)        (71)
    (Decrease) increase in accrued interest payable                (10)        (41)         53
    Other--net                                                     304         278          78
----------------------------------------------------------------------------------------------
      Net cash provided by operating activities                  3,442       1,938       2,120
----------------------------------------------------------------------------------------------
Investing activities:
  Purchase of investment securities                            (19,160)    (12,994)    (10,157)
  Purchase of investment securities available for sale         (14,567)     (5,156)    (10,571)
  Purchase of mortgage-backed securities                            --          --        (900)
  Purchase of mortgage-backed securities available for sale         --        (600)     (5,216)
  Purchase of FHLB stock                                            --          (2)        (15)
  Proceeds from investment maturities                           22,347       7,950      10,500
  Proceeds from the sale of investment securities available
    for sale                                                     3,240       1,053         349
  Proceeds from the sale of mortgage-backed securities
    available for sale                                              --          --         703
  Principal repayments of investment and mortgage-backed
    securities
    available for sale                                           1,616       1,459       1,655
  Principal repayments of investment and mortgage-backed
    securities                                                     169         326       1,261
  Increase in loans                                             (6,591)     (1,002)       (394)
  Proceeds from the sale of real estate owned                      206         261         105
  Net additions to office properties and equipment                (204)       (160)       (180)
----------------------------------------------------------------------------------------------
      Net cash used by investing activities                    (12,944)     (8,865)    (12,860)
----------------------------------------------------------------------------------------------
Financing activities:
  Net increase (decrease) in demand and club accounts            1,341       2,256      (1,086)
  Net (decrease) increase in time deposit accounts                (970)      8,080       2,461
  Net increase in FHLB advances                                  5,989       4,717       4,327
  Decrease in advance deposits by borrowers for taxes and
    insurance                                                      (11)       (167)        (77)
  Stock options exercised                                          141          44         107
  Acquisition of treasury stock                                     --      (1,626)         --
  Dividends paid                                                  (946)       (660)       (446)
----------------------------------------------------------------------------------------------
      Net cash provided by financing activities                  5,544      12,644       5,286
----------------------------------------------------------------------------------------------
Net change in cash and cash equivalents                         (3,958)      5,717      (5,454)
Cash and cash equivalents at beginning of period                15,335       9,618      15,072
----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                    $ 11,377    $ 15,335    $  9,618
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
----------------------------------------------------------------------------------------------
Cash paid during the period for:
  Interest on savings deposits                                $  7,359    $  7,223    $  6,997
  Interest on FHLB advances                                        611         503         295
  Income taxes                                                   1,839       1,216       1,581
Transfer of loans to real estate owned                             333          --         227
Transfer of investment securities to available for sale             --          --       1,402
Transfer of mortgage-backed securities to available for sale        --          --       6,461
Cash paid during the period for interest includes interest credited on deposits of $6,449,
$6,270 and $6,105 for the years ended June 30, 1998, 1997 and 1996, respectively.
----------------------------------------------------------------------------------------------
</TABLE>
 
See accompanying notes to consolidated financial statements.
 
                                       10
<PAGE>   6
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
(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. The 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 the Laurel
     Capital Group, Inc. and its wholly-owned subsidiary, Laurel Savings Bank,
     after elimination of intercompany 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 as a separate component of
     stockholders' equity. 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 POSSIBLE LOAN LOSSES
     Provisions for possible loan losses are charged to operations in amounts
     that result in allowances sufficient, in management's judgment, to cover
     anticipated losses based on past and expected future loss experience and
     economic conditions.
 
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, interest-earning deposits with other institutions, and
     money market investments.
 
                                       11
<PAGE>   7
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
LOANS
     Loans receivable are stated at unpaid principal balances net of the
     allowance for possible 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.
 
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 carryforwards. 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
     In February 1997, the FASB released SFAS No. 128, "Earnings Per Share."
     SFAS No. 128 establishes standards for computing and presenting earnings
     per share ("EPS") and applies to entities with publicly held common stock
     or potential common stock. SFAS No. 128 simplifies the standards for
     computing earnings per share previously found in APB Opinion No. 15,
     "Earnings Per Share," and makes them
                                       12
<PAGE>   8
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
     comparable to international EPS standards. It replaces the presentation of
     primary EPS with a presentation of basic EPS. It also requires dual
     presentation of basic and diluted EPS on the face of the income statement.
     Basic EPS excludes dilution and 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. Diluted EPS
     is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15.
     The Company adopted SFAS No. 128 as of December 31, 1997 and all prior
     period per share amounts have been restated. In addition, all weighted
     average share and per share amounts reflect the three-for-two stock split
     paid on January 16, 1998.
 
The following table sets forth the computation of basic and diluted earnings per
share:
 
<TABLE>
<CAPTION>
                                                                   June 30,
                                                  1998               1997               1996
-----------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                <C>
Basic earnings per share:
  Net income                                   $    3,051         $    2,319         $    2,665
  Weighted average shares outstanding           2,176,893          2,247,021          2,256,238
  Earnings per share                           $     1.40         $     1.03         $     1.18
 
Diluted earnings per share:
  Net income                                   $    3,051         $    2,319         $    2,665
  Weighted average shares outstanding           2,176,893          2,247,021          2,256,238
  Dilutive effect of employee stock options       135,496             78,637             67,217
-----------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding     2,312,389          2,325,658          2,323,455
  Earnings per share                           $     1.32         $     1.00         $     1.15
-----------------------------------------------------------------------------------------------
</TABLE>
 
RECLASSIFICATION
     Certain items previously reported have been reclassified to conform with
     the current year's reporting format.
 
(2) INVESTMENT SECURITIES
 
Investment securities 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, 1998:
  Corporate notes and
     commercial paper        $14,000        $14,003                $94                 --        $14,097
--------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997:
 Corporate notes and
   commercial paper          $15,000        $15,494                $37                $27        $15,504
--------------------------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                       Amortized   Market
                                                            Face/Par     Cost       Value
<S>                                                         <C>        <C>         <C>
------------------------------------------------------------------------------------------
At June 30, 1998, the contractual maturities of the debt securities are:
  Due after one year through five years                     $ 1,500     $ 1,500    $ 1,507
  Due after five years through ten years                      6,500       6,498      6,515
  Due after ten years                                         6,000       6,005      6,075
------------------------------------------------------------------------------------------
                                                            $14,000     $14,003    $14,097
------------------------------------------------------------------------------------------
</TABLE>
 
Note continued
 
                                       13
<PAGE>   9
 
                       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, 1998:
  Municipal
     obligations             $ 8,990        $ 8,914               $190               $ 37        $ 9,067
  Federal National
     Mortgage
     Association pre-
     ferred stock                250            250                 13                 --            263
  Federal Home Loan
     Mortgage
     Corporation
     preferred stock             250            250                 15                 --            265
  Federal National
     Mortgage
     Association stock           610            610                 10                 13            607
  Federal Home Loan
     Mortgage
     Corporation stock           925            925                 31                 15            941
  Shay Financial
     Services ARMs
     Fund                     14,444         14,444                 --                 48         14,396
--------------------------------------------------------------------------------------------------------
                             $25,469        $25,393               $259               $113        $25,539
--------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997:
  Corporate notes and
     commercial paper        $ 1,500        $ 1,500               $  3                 $2        $ 1,501
  Municipal
     obligations               4,600          4,541                102                  5          4,638
  Federal National
     Mortgage
     Association pre-
     ferred stock                250            250                  9                 --            259
  Federal Home Loan
     Mortgage
     Corporation stock           250            250                  4                 --            254
  Shay Financial
     Services ARMs
     Fund                      8,832          8,832                 10                 --          8,842
--------------------------------------------------------------------------------------------------------
                             $15,432        $15,373               $128                 $7        $15,494
--------------------------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        Amortized   Market
                                                             Face/Par     Cost      Value
<S>                                                          <C>        <C>         <C>
------------------------------------------------------------------------------------------
At June 30, 1998, the contractual maturities of the debt securities available for
 sale are:
  Due after ten years                                         $8,990     $8,914     $9,067
------------------------------------------------------------------------------------------
</TABLE>
 
The Federal National Mortgage Association preferred and common stock, Federal
Home Loan Mortgage Corporation preferred and common stock, Shay Financial
Services ARMs Fund have no stated maturity.
 
Proceeds from the sale of investment securities available for sale during 1998,
1997 and 1996 were $3,240, $1,053 and $349, respectively.
 
Gross gains of $186, $113 and $37 were realized on these sales in 1998, 1997 and
1996, respectively.
 
There were no realized losses in 1998, 1997 and 1996.
 
During fiscal 1996, the Company transferred investment securities with a fair
market value of approximately $1.4 million to its available for sale portfolio
in accordance with the FASB's one-time opportunity to reclassify debt and equity
securities under SFAS 115.
 
                                       14
<PAGE>   10
 
                       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 were comprised of the following:
 
<TABLE>
<CAPTION>
                                                   Gross                  Gross
                             Amortized          Unrealized             Unrealized           Market
     At June 30, 1998           Cost           Appreciation           Depreciation           Value
-----------------------------------------------------------------------------------------------------
<S>                         <C>             <C>                    <C>                    <C>
Federal National Mortgage
  Association REMIC                  151                      4                     --            155
Federal Home Loan Mortgage
  Corporation REMIC                  900                     13                     --            913
-----------------------------------------------------------------------------------------------------
                                  $1,051                    $17                    $--         $1,068
-----------------------------------------------------------------------------------------------------
At June 30, 1997
-----------------------------------------------------------------------------------------------------
Federal National Mortgage
 Association REMIC                 $ 200                    $ 6                    $--          $ 206
Federal Home Loan Mortgage
  Corporation REMIC                  900                      5                     --            905
Other                                120                     --                      1            119
-----------------------------------------------------------------------------------------------------
                                  $1,220                    $11                    $ 1         $1,230
-----------------------------------------------------------------------------------------------------
</TABLE>
 
Mortgage-backed securities available for sale were comprised of the following:
 
<TABLE>
<CAPTION>
                                                   Gross                  Gross
                             Amortized          Unrealized             Unrealized           Market
     At June 30, 1998           Cost           Appreciation           Depreciation           Value
-----------------------------------------------------------------------------------------------------
<S>                         <C>             <C>                    <C>                    <C>
Government National
  Mortgage Association           $ 3,973                   $154                    $--        $ 4,127
Federal National Mortgage
  Association                      3,424                     71                     --          3,495
Federal Home Loan Mortgage
  Corporation                        183                      6                     --            189
Federal National Mortgage
  Association REMIC                  228                     --                      1            227
Federal Home Loan Mortgage
  Corporation REMIC                3,454                     62                     --          3,516
-----------------------------------------------------------------------------------------------------
                                 $11,262                   $293                    $ 1        $11,554
-----------------------------------------------------------------------------------------------------
At June 30, 1997
-----------------------------------------------------------------------------------------------------
Government National
 Mortgage Association            $ 4,900                   $182                    $ 2        $ 5,080
Federal National Mortgage
  Association                      4,050                     16                     34          4,032
Federal Home Loan Mortgage
  Corporation                        307                      7                     --            314
Federal National Mortgage
  Association REMIC                  284                      3                     --            287
Federal Home Loan Mortgage
  Corporation REMIC                3,526                     20                     --          3,546
-----------------------------------------------------------------------------------------------------
                                 $13,067                   $228                    $36        $13,259
-----------------------------------------------------------------------------------------------------
</TABLE>
 
Prepayments may shorten the lives of these mortgage-backed securities.
 
There were no sales of mortgage-backed securities during 1998 and 1997. Proceeds
from the sale of mortgage-backed securities available for sale during 1996 were
$703. Gross gains of $48 were recorded in 1996.
 
                                       15
<PAGE>   11
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
(4) LOANS RECEIVABLE
 
Loans receivable are comprised of the following:
 
<TABLE>
<CAPTION>
                                                                               June 30,
                                                                  1998             1997
<S>                                                           <C>              <C>
---------------------------------------------------------------------------------------
First mortgage loans:
  Conventional:
     1 to 4 family dwellings                                  $114,905         $113,986
     Multi-family dwellings                                      2,474            2,740
     Commercial                                                  6,391            5,676
---------------------------------------------------------------------------------------
                                                               123,770          122,402
  Guaranteed or insured                                             67               76
---------------------------------------------------------------------------------------
Total long term with monthly amortization                      123,837          122,478
  Construction and development loans                             4,341            3,079
---------------------------------------------------------------------------------------
                                                               128,178          125,557
Less: Allowance for possible losses                             (1,274)          (1,358)
      Loans in process                                          (1,953)          (1,634)
      Deferred loan fees                                          (615)            (860)
---------------------------------------------------------------------------------------
                                                               124,336          121,705
---------------------------------------------------------------------------------------
Consumer loans:
  Home improvement loans (net of unearned discounts
     of $7 and $34)                                                 92              291
  Mobile home loans                                                 --              747
  Loans secured by savings accounts                                335              288
  Installment loans                                             26,289           21,226
  Commercial loans                                                 650              998
---------------------------------------------------------------------------------------
                                                                27,366           23,550
Less: Allowance for possible losses                               (578)            (585)
---------------------------------------------------------------------------------------
                                                                26,788           22,965
---------------------------------------------------------------------------------------
                                                              $151,124         $144,670
---------------------------------------------------------------------------------------
</TABLE>
 
At June 30, 1998 and 1997, the Company had a commitment to sell its guaranteed
student loan portfolio totaling $1,633 and $1,827, respectively.
 
Outstanding commitments to originate loans:
 
<TABLE>
<CAPTION>
                                                                        June 30,
                                                                  1998                1997
-------------------------------------------------------------------------------------------
<S>                                                           <C>                    <C>
First mortgage loans:
  Fixed rates (6.50% to 7.75% and 7.625% to 8.25%)                  $1,626           $  498
  Variable rates                                                       407              523
-------------------------------------------------------------------------------------------
                                                                     2,033            1,021
Other loans--fixed rates                                               617              264
Unused lines of credit                                               5,050            5,049
-------------------------------------------------------------------------------------------
                                                                    $7,700           $6,334
-------------------------------------------------------------------------------------------
</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, 1998 for each type was $3,221, $933 and $896,
respectively. The amount available at June 30, 1997 for each type was $2,473,
$1,558 and $1,018, 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 $1,118, $1,229 and $1,289 at June 30,
1998, 1997 and 1996, 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.
Note continued
 
                                       16
<PAGE>   12
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
At June 30, 1998, over 99.7% 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.
 
(5) ALLOWANCE FOR POSSIBLE LOSSES ON LOANS
 
Changes in the allowances for possible losses on loans are as follows:
 
<TABLE>
<CAPTION>
                                                                                   First
                                                              Consumer            Mortgage
                                                                Loans              Loans
---------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>
  Balance at June 30, 1995                                             $515            $1,378
  Provision for losses                                                   16                14
  Charge-offs                                                           (51)              (30)
  Recoveries                                                             56                 1
---------------------------------------------------------------------------------------------
  Balance at June 30, 1996                                             $536            $1,363
  Provision for losses                                                   20                10
  Charge-offs                                                           (39)              (15)
  Recoveries                                                             68                --
---------------------------------------------------------------------------------------------
  Balance at June 30, 1997                                             $585            $1,358
  Provision for losses                                                   11                 7
  Charge-offs                                                           (61)              (91)
  Recoveries                                                             43                --
---------------------------------------------------------------------------------------------
  Balance at June 30, 1998                                             $578            $1,274
---------------------------------------------------------------------------------------------
</TABLE>
 
Management believes that the allowance for losses on loans was adequate at June
30, 1998. 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 losses on loans. Such agencies may require the Company
to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
 
At June 30, 1998 and 1997, the recorded investment in loans that are considered
to be impaired under SFAS 114 were $285 and $482, respectively. Included in the
amount at June 30, 1998 is $103 of impaired loans for which the related
allowance for credit losses is $4 and $182 of impaired loans that as a result of
write-downs do not have an allowance for credit losses. Included in the amount
at June 30, 1997 is $104 of impaired loans for which the related allowance for
credit loses is $2 and $335 of impaired loans that as a result of write-down do
not have an allowance for credit losses. The average recorded investment in
impaired loans during the fiscal years ended June 30, 1998, 1997 and 1996 was
approximately $358, $437 and $449, respectively. For the fiscal years ended June
30, 1998, 1997 and 1996, the Company recognized interest income on those
impaired loans of $5, $2 and $6, respectively, which was recognized using the
cash basis of income recognition.
 
Non-accrual loans at June 30, 1998, 1997 and 1996 were approximately $561, $915
and $612, respectively. The foregone interest on these loans for the fiscal
years ended June 30, 1998, 1997 and 1996 was approximately $37, $65 and $40,
respectively. The amount of interest income on such loans actually included in
income in fiscal 1998, 1997 and 1996 was $28, $27 and $31, 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.
 
                                       17
<PAGE>   13
 
                       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,
                                                               1998            1997
<S>                                                           <C>             <C>
-------------------------------------------------------------------------------------
Land and land improvements                                    $   333         $   226
Office buildings and improvements                               2,123           2,118
Furniture, fixtures and equipment                                 579             487
-------------------------------------------------------------------------------------
  Total, at cost                                                3,035           2,831
Less accumulated depreciation                                  (1,713)         (1,564)
-------------------------------------------------------------------------------------
                                                              $ 1,322         $ 1,267
-------------------------------------------------------------------------------------
</TABLE>
 
Depreciation expense for the periods ended June 30, 1998, 1997 and 1996 was
$149, $139 and $117, respectively.
 
(8) SAVINGS DEPOSITS
 
Savings deposit balances and interest rates are summarized as follows:
 
<TABLE>
<CAPTION>
                                                        Weighted Average
                               Interest Range            Interest Rate
                                     at                   at June 30,                    June 30,
                               June 30, 1998              1998           1997         1998       1997
<S>                        <C>                     <C>                   <C>        <C>        <C>
-------------------------------------------------------------------------------------------------------
  Demand and club
     accounts                       1.00 to 2.50%         2.48%          2.48%      $ 29,531   $ 27,690
  Money market deposit
     accounts                       2.09 to 2.33%         2.23           2.38         16,444     18,043
  NOW deposits                         0 to 1.50%         1.01           1.11         24,916     23,819
-------------------------------------------------------------------------------------------------------
                                                                                      70,891     69,552
-------------------------------------------------------------------------------------------------------
TIME DEPOSITS:                      4.01 to 5.00%                                     19,698     26,525
                                     5.01 to 6.00                                     61,640     37,213
                                     6.01 to 7.00                                     19,777     29,327
                                     7.01 to 8.00                                      1,112      7,722
                                     8.01 to 9.00                                      2,272      3,891
                                    9.01 to 10.00                                         --        789
-------------------------------------------------------------------------------------------------------
                                                          5.65           5.86       $104,499   $105,467
-------------------------------------------------------------------------------------------------------
                                                          4.14%          4.32%      $175,390   $175,019
-------------------------------------------------------------------------------------------------------
</TABLE>
 
At June 30, 1998 and 1997, time deposits with balances in excess of $100,000
amounted to $2.0 million and $3.6 million, respectively.
 
The contractual maturity of time deposits is as follows:
 
<TABLE>
<CAPTION>
                                                                      June 30,
                                                                1998             1997
<S>                                                           <C>              <C>
---------------------------------------------------------------------------------------
Under 12 months                                               $ 53,730         $ 67,772
12 months to 24 months                                          26,041           18,960
24 months to 36 months                                          13,314            7,799
36 months to 48 months                                           2,254            3,453
48 months to 60 months                                           4,036            2,248
Over 60 months                                                   5,124            5,235
---------------------------------------------------------------------------------------
                                                              $104,499         $105,467
---------------------------------------------------------------------------------------
</TABLE>
 
Note continued
 
                                       18
<PAGE>   14
 
                       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,
                                                       1998             1997             1996
<S>                                                   <C>              <C>              <C>
----------------------------------------------------------------------------------------------
Passbook and club accounts                            $  690           $  696           $  703
Money market deposit accounts                            416              437              463
NOW accounts                                             251              242              221
Time deposits                                          5,992            5,807            5,631
----------------------------------------------------------------------------------------------
                                                      $7,349           $7,182           $7,018
----------------------------------------------------------------------------------------------
</TABLE>
 
(9) FEDERAL HOME LOAN BANK ADVANCES
 
FHLB advances are summarized as follows:
 
<TABLE>
<CAPTION>
                                                       Interest             June 30,
                      Due Date                           Rate           1998        1997
-----------------------------------------------------------------------------------------
<S>                                                    <C>             <C>         <C>
July 15, 1997                                               5.66           --      $  900
July 17, 1997                                               5.67           --       2,000
August 4, 1997                                              5.94           --       1,000
August 20, 1997                                             5.72           --       1,000
August 22, 1997                                             5.67           --       1,000
January 30, 1998                                            5.67           --       1,000
September 16, 1998                                          5.61       $  900          --
August 9, 1999                                              6.11        2,000       2,000
November 24, 2000                                           5.80          793          --
February 14, 2002                                           5.48        2,000       2,000
December 31, 2002                                           5.38        6,200          --
January 23, 2008                                            4.94        2,000          --
February 20, 2008                                           5.48        3,000          --
November 13, 2015                                           6.51          140         144
</TABLE>
 
At June 30, 1998, the Bank had seven fixed rate advances from the FHLB of
Pittsburgh. Fixed rate advances are subject to a prepayment fee in the event the
advances are repaid prior to maturity. The prepayment fee is equal to the
present value of the difference between cash flows generated by the advance at
the advance rate from the date of prepayment until the original maturity date
and an advance of the same amount at the interest rate posted by the FHLB on the
date of prepayment for an advance of comparable maturity.
 
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 a line of credit with the FHLB of Pittsburgh (Flexline), which is
approximately $12.6 million, and expires on March 25, 1999. There are no
commitment fees associated with this line of credit and the FHLB of Pittsburgh
may reduce or terminate the line at any time. When used, interest is charged at
the FHLB's posted rates, which change daily, and the loan can be repaid at any
time but in no event later than March 25, 1999. The Bank has yet to use this
credit line and has no plans to do so in the immediate future. However, funds
remain available up to the $12.6 million commitment at daily rates posted by the
FHLB.
 
                                       19
<PAGE>   15
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
(10) INCOME TAXES
 
Total income tax expense for the years ended June 30, 1998, 1997 and 1996
consisted of:
 
<TABLE>
<CAPTION>
                                                           1998        1997        1996
----------------------------------------------------------------------------------------
<S>                                                       <C>         <C>         <C>
Current:
  Federal                                                 $1,322      $1,156      $1,230
  State                                                      329         253         302
----------------------------------------------------------------------------------------
                                                          $1,651      $1,409      $1,532
----------------------------------------------------------------------------------------
Deferred:
  Federal                                                 $   61      $  (65)     $   89
----------------------------------------------------------------------------------------
                                                          $1,712      $1,344      $1,621
----------------------------------------------------------------------------------------
</TABLE>
 
Total income tax provision for the years ended June 30, 1998, 1997 and 1996 was
allocated as follows:
 
<TABLE>
<CAPTION>
                                                               1998     1997        1996
-----------------------------------------------------------------------------------------
<S>                                                           <C>      <C>         <C>
Income                                                        $1,712   $1,344      $1,621
Stockholders' equity:
  Unrealized gains (losses) on investment securities              43       81         (54)
-----------------------------------------------------------------------------------------
                                                              $1,755   $1,425      $1,567
-----------------------------------------------------------------------------------------
</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, 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                              1998      1997      1996
--------------------------------------------------------------------------------------
<S>                                                           <C>       <C>       <C>
Expected federal tax rate                                     34.0%     34.0%     34.0%
State taxes, net of federal tax benefit                       4.6       4.6        4.6
Other, net                                                    (2.7)     (1.9)      (.8)
--------------------------------------------------------------------------------------
                                                              35.9%     36.7%     37.8%
--------------------------------------------------------------------------------------
</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 allowance as of June 30, 1998 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                  1998          1997
--------------------------------------------------------------------------------------
<S>                                                             <C>           <C>
DEFERRED TAX ASSETS:
  Deferred loan fees                                               $ 168         $ 209
  Tax vs. book loan loss reserve                                     362           326
  Writedown of investments                                            --             8
  Other                                                               91           142
--------------------------------------------------------------------------------------
  Gross deferred tax assets                                        $ 621         $ 685
  Valuation allowance                                                 --            --
--------------------------------------------------------------------------------------
  Net deferred tax asset                                           $ 621         $ 685
DEFERRED TAX LIABILITIES:
  Investment Securities                                            $(149)        $(106)
  Property, plant & equipment                                        (92)          (93)
  Prepaid expense                                                    (20)          (22)
--------------------------------------------------------------------------------------
  Gross deferred tax liability                                      (261)         (221)
--------------------------------------------------------------------------------------
  Net deferred tax asset                                           $ 360         $ 464
--------------------------------------------------------------------------------------
</TABLE>
 
Note continued
 
                                       20
<PAGE>   16
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
     The Bank 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 income at June 30, 1998,
     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 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). Management, believes, as of June 30, 1998,
     that the Bank meets all capital adequacy requirements to which it is
     subject.
 
     As of June 30, 1998, the most recent notification from the Federal Deposit
     Insurance Corporation 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. There are
     no conditions or events since that notification that management believes
     have changed the institution's category. Note continued
 
                                       21
<PAGE>   17
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
The following table sets forth certain information concerning the Company's
regulatory capital at June 30, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                       JUNE 30, 1998                        JUNE 30, 1997
                                         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)           $23,131    $23,131      $23,131      $21,028    $21,028      $21,028
Less unrealized securities
  gains                         (290)      (290)        (290)        (206)      (206)        (206)
Plus general valuation
  allowances (2)                  --         --        1,445           --         --        1,352
---------------------------------------------------------------------------------------------------
    Total regulatory
       capital                22,841     22,841       24,286       20,822     20,822       22,174
Minimum required capital       8,753      4,623        9,245        8,403      4,327        8,655
---------------------------------------------------------------------------------------------------
    Excess regulatory
       capital               $14,088    $18,218      $15,041      $12,419    $16,495      $13,519
---------------------------------------------------------------------------------------------------
Minimum required capital to
  be well capitalized under
  Prompt Corrective Action
  Provisions                 $10,504    $ 6,456      $10,760      $10,504    $ 6,456      $10,760
---------------------------------------------------------------------------------------------------
Regulatory capital as a
  percentage (3)               10.44%     19.83%       21.09%        9.91%     19.35%       20.61%
Minimum required capital
  percentage                    4.00       4.00         8.00         4.00       4.00         8.00
---------------------------------------------------------------------------------------------------
    Excess regulatory
       capital percentage       6.44%     15.83%       13.09%        5.91%     15.35%       12.61%
---------------------------------------------------------------------------------------------------
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 FDIC and the
    Department of Banking on Form 033 for the quarter ended June 30, 1998 and
    1997.
 
(2) Limited to 1.25% of risk adjusted assets.
 
(3) Tier I capital is calculated as a percentage of adjusted total average
    assets of $218,837 and $210,082 at June 30, 1998 and 1997, respectively.
    Tier I and Tier II risk-based capital are calculated as a percentage of
    adjusted risk-weighted assets of $115,158 and $107,596 at June 30, 1998 and
    1997, respectively.
 
                                       22
<PAGE>   18
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
(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 $70, $69 and $65
     during fiscal 1998, 1997, and 1996, respectively.
 
     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 can 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. At June 30, 1998, there were 937
     remaining shares available to be granted as determined by the Program
     Administrators.
 
     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, 1998, there
     were 10,405 remaining shares available to be granted as determined by the
     Program Administrators. Under the 1993 Directors' Plan, each person who
     serves as a non-employee Director of the Company immediately following the
     last adjournment of such annual meeting shall be 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. At June 30, 1998
     there were 12,667 remaining shares available to be granted under the terms
     of the 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. At June 30, 1998, there
     were 85,011 remaining shares available to be granted as determined by the
     Program Administrators. Under the 1996 Directors' Plan, each person who
     serves as a non- employee director of the Company immediately following the
     last adjournment of the 1996 annual meeting shall be 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. Such stock
     options to directors will be vested and exercisable over three years at the
     rate of 33.3% per year. At June 30, 1998, 18,888 shares of the 28,332
     granted during fiscal 1997 were vested and exercisable. At June 30, 1998
     there were no remaining shares available to be granted under the terms of
     the plan.
 
     Each option granted under all five 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. Note continued
 
                                       23
<PAGE>   19
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                     Average           1993       Average       1993       Average      1996     Average      1996
                              1988   Exercise        Employee     Exercise    Director     Exercise   Employee   Exercise   Director
                            Program    Price         Program       Price      Program       Price     Program     Price     Program
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>           <C>            <C>       <C>           <C>      <C>          <C>        <C>
June 30, 1995               118,480   $ 5.03           60,175     $ 8.45      21,074       $ 7.63
Granted                       4,042    10.92           51,750      10.72       9,838        10.67
Exercised                   (26,865)    2.91             (937)      8.45      (2,811)        7.38
Forfeited                        --       --               --         --          --           --
------------------------------------------------------------------------------------------------------------------------------------
June 30, 1996                95,657     5.87          110,988       9.51      28,101         8.72        --          --           --
Granted                          --       --               --         --       8,430        10.59        --          --       28,332
Exercised                    (7,020)    4.25             (487)      8.45      (1,405)        7.38        --          --           --
Forfeited                      (937)    7.62               --         --      (4,216)        8.65        --          --           --
------------------------------------------------------------------------------------------------------------------------------------
June 30, 1997                87,700     5.98          110,501       9.51      30,910         9.30        --          --       28,332
Granted                          --       --               --         --       8,430        18.00        --          --           --
Exercised                   (22,953)    4.41           (1,464)      8.78      (2,810)        9.29        --          --           --
Forfeited                        --       --               --         --          --           --        --          --           --
------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998                64,747   $ 6.54          109,037      $ 9.52      36,530       $11.31       --          --       28,332
------------------------------------------------------------------------------------------------------------------------------------
Actual contractual
 life remaining in
 years                          4.8                       6.8                     7.6                                            8.4
Option price per
 share                 $2.73-$11.00              $8.44-$10.92            $7.38-$18.00                                         $10.59
Options available to
 be granted at June
 30, 1998                       937                    10,405                  12,667                85,011                       --
------------------------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
                       Average
                       Exercise
                        Price
<S>                    <C>
June 30, 1995
Granted
Exercised
Forfeited
-------------------------------
June 30, 1996             --
Granted                $10.59
Exercised                 --
Forfeited                 --
-------------------------------
June 30, 1997          10.59
Granted                   --
Exercised                 --
Forfeited                 --
-------------------------------
June 30, 1998          $10.59
-------------------------------
Actual contractual
 life remaining in
 years
Option price per
 share
Options available to
 be granted at June
 30, 1998
-------------------------------
</TABLE>
 
Using a Black-Scholes option valuation model, the weighted-average fair value of
options granted during fiscal 1998 under the 1993 Director Program was $4.18.
The fair value of options granted during fiscal 1997 under the 1993 and 1996
Director Programs was $4.15. The fair value of options granted during fiscal
1996 under the 1988 and 1993 Employee Programs was $4.18 and the fair value of
options granted under the 1993 Director Program was $4.08.
 
At June 30, 1998, 1997, and 1996, 223,723, 223,944 and 210,642 shares were
immediately exercisable at average prices of $9.00, $8.05 and $7.61,
respectively.
 
In October, 1995, the FASB issued Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). 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 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
                                                               1998      1997      1996
----------------------------------------------------------------------------------------
<S>                                                           <C>       <C>       <C>
Net income
  As reported                                                 $3,051    $2,319    $2,665
  Pro Forma                                                   $3,010    $2,293    $2,495
----------------------------------------------------------------------------------------
Basic earnings per share
  As reported                                                  $1.40     $1.03     $1.18
  Pro Forma                                                    $1.38     $1.02     $1.11
----------------------------------------------------------------------------------------
Diluted earnings per share
  As reported                                                  $1.32     $1.00     $1.15
  Pro Forma                                                    $1.30     $0.99     $1.07
----------------------------------------------------------------------------------------
</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 1998 and 1997, respectively: risk-free interest rates of 5.63%
and 6.51%; dividend yields of 2.6% and 2.3%; volatility factors of the expected
market price of the Company's common stock of 18.6% and 17.2%; and a
weighted-average expected life of the options of 7 years. The pro forma net
income and earnings per share amounts in the table above reflect only options
granted in
Note continued
 
                                       24
<PAGE>   20
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
fiscal 1998, 1997 and 1996. Therefore, the full impact of calculating the cost
for stock options under the fair value method of SFAS 123 is not reflected in
the pro forma net income and earnings per share amounts presented above because
compensation cost is reflected over the options' vesting periods and
compensation cost for options granted prior to July 1, 1996 is not considered.
 
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
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.
 
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                   Three Month Periods Ended
1997/1998:                                September 30    December 31    March 31    June 30
<S>                                      <C>             <C>            <C>         <C>
--------------------------------------------------------------------------------------------
  Interest income                               $3,918         $3,904      $3,970     $3,973
  Interest expense                               2,021          2,034       2,011      2,003
--------------------------------------------------------------------------------------------
  Net interest income before provision
    for possible loan losses                     1,897          1,870       1,959      1,970
  Provision for possible loan losses                 8              2           4          4
  Other income                                     225            224         324        209
  Operating expenses                               883          1,033         956      1,025
--------------------------------------------------------------------------------------------
  Income before income taxes                     1,231          1,059       1,323      1,150
  Provision for income taxes                       454            387         489        382
--------------------------------------------------------------------------------------------
  Net income                                     $ 777          $ 672       $ 834      $ 768
--------------------------------------------------------------------------------------------
  Earnings per share:
    Basic                                       $  .36         $  .31      $  .38     $  .35
    Diluted                                     $  .34         $  .29      $  .36     $  .33
--------------------------------------------------------------------------------------------
  Dividends per share                           $  .09         $  .09      $  .13     $  .13
--------------------------------------------------------------------------------------------
1996/1997:
--------------------------------------------------------------------------------------------
  Interest income                               $3,773         $3,823      $3,831     $3,916
  Interest expense                               1,868          1,912       1,942      1,993
--------------------------------------------------------------------------------------------
  Net interest income before provision
    for possible loan losses                     1,905          1,911       1,889      1,923
  Provision for possible loan losses                 8              7           8          7
  Other income                                     168            234         143        172
  Operating expenses                             1,972            900         873        906
--------------------------------------------------------------------------------------------
  Income before income taxes                        93          1,238       1,151      1,182
  Provision for income taxes                        25            462         421        436
--------------------------------------------------------------------------------------------
  Net income                                     $  68          $ 776       $ 730      $ 746
--------------------------------------------------------------------------------------------
  Earnings per share:
    Basic                                       $  .03         $  .34      $  .32     $  .34
    Diluted                                     $  .03         $  .33      $  .31     $  .32
--------------------------------------------------------------------------------------------
  Dividends per share                           $  .07         $  .07      $  .07     $  .07
--------------------------------------------------------------------------------------------
</TABLE>
 
As a result of rounding, the sum of quarterly amounts may not equal the annual
amounts.
 
                                       25
<PAGE>   21
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Statement of Financial Accounting Standards 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 Laurel Capital Group, Inc. 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
available for sale, Federal Home Loan Bank stock and all deposits except time
deposits.
 
At June 30, 1998, the fair market value of both investments and mortgage-backed
securities exceeded the net carrying value by approximately $94 and $17,
respectively. At June 30, 1997, the fair market value of investments and
mortgage-backed securities both exceeded the net carrying value by approximately
$10. Estimated fair values are based on quoted market prices, dealer 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 and loans held for sale exceeded the carrying value by
approximately $4,713 and $3,293 at June 30, 1998 and 1997, 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 at June 30, 1998 and
1997 were as follows:
 
<TABLE>
<CAPTION>
                                            June 30, 1998                       June 30, 1997
                                      Carrying       Estimated            Carrying       Estimated
                                       Amount        Fair Value            Amount        Fair Value
<S>                                 <C>            <C>                  <C>            <C>
-----------------------------------------------------------------------------------------------------
Noninterest-bearing:
  Demand accounts                       $  8,002         $  8,002           $  6,274         $  6,274
Interest-bearing:
  NOW and MMDA accounts                   33,358           33,358             35,588           35,588
  Passbook accounts                       29,531           29,531             27,690           27,690
  Time deposits                          104,499          104,244            105,467          104,740
-----------------------------------------------------------------------------------------------------
Total Deposits                          $175,390         $175,135           $175,019         $174,292
-----------------------------------------------------------------------------------------------------
</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 at June 30,
1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                            June 30, 1998                       June 30, 1997
                                      Carrying       Estimated            Carrying       Estimated
                                       Amount        Fair Value            Amount        Fair Value
<S>                                 <C>            <C>                  <C>            <C>
-----------------------------------------------------------------------------------------------------
Borrowed funds:
  FHLB advances                          $17,033          $17,090            $11,044          $11,028
-----------------------------------------------------------------------------------------------------
</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.
Note continued
                                       26
<PAGE>   22
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
There is no material difference between the carrying value and the estimated
fair value of the Company's off-balance sheet items which totaled $7.7 million
and $6.3 million at June 30, 1998 and 1997, 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 estimate.
 
(16) LAUREL CAPITAL GROUP, INC.
       (PARENT COMPANY ONLY) FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                              June 30,     June 30,
STATEMENT OF FINANCIAL CONDITION                                1998         1997
------------------------------------------------------------------------------------
<S>                                                           <C>          <C>
ASSETS
Cash                                                            $   338     $   213
Other equity investments                                           284          182
Investment in Laurel Savings Bank                               23,131       21,029
------------------------------------------------------------------------------------
  Total assets                                                 $23,753       $21,424
------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other accrued expenses                                         $   247       $   162
------------------------------------------------------------------------------------
                                                                   247          162
------------------------------------------------------------------------------------
Stockholders' equity                                            23,506       21,262
------------------------------------------------------------------------------------
  Total liabilities and stockholders' equity                   $23,753       $21,424
------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                     June 30,     June 30,     June 30,
STATEMENT OF OPERATIONS                                1998         1997         1996
----------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>
Income before equity in undistributed earnings of
  subsidiary--dividends from subsidiary                 $ 930      $2,301          $ 120
Other equity income                                      102           95           87
Equity in undistributed income of Laurel Savings
  Bank                                                 2,104           13        2,531
----------------------------------------------------------------------------------------
                                                       3,136        2,409        2,738
----------------------------------------------------------------------------------------
Other operating expenses                                  71           86           63
----------------------------------------------------------------------------------------
Income before income taxes                             3,065        2,323        2,675
Provision for income taxes                                14            4           10
----------------------------------------------------------------------------------------
Net income                                            $3,051        $2,319        $2,665
----------------------------------------------------------------------------------------
</TABLE>
 
Note continued
 
                                       27
<PAGE>   23
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
 
<TABLE>
<CAPTION>
                                                    June 30,     June 30,     June 30,
STATEMENT OF CASH FLOWS                               1998         1997         1996
---------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>
Net income                                            $ 3,051     $ 2,319       $ 2,665
Undistributed income of Laurel Savings Bank           (2,104)         (13)      (2,531)
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Other--net                                          (17)          (5)         (14)
---------------------------------------------------------------------------------------
     Net cash provided by operating activities           930        2,301          120
---------------------------------------------------------------------------------------
Financing activities:
  Acquisition of treasury stock                           --       (1,626)          --
  Stock options exercised                                141           44          107
  Dividends paid                                        (946)        (660)        (446)
---------------------------------------------------------------------------------------
  Net cash used by financing activities                 (805)      (2,242)        (339)
---------------------------------------------------------------------------------------
Net change in cash and cash equivalents                  125           59         (219)
---------------------------------------------------------------------------------------
Cash and cash equivalents at the beginning of the
  period                                             $   213       $   154      $   373
Net change during the period                             125           59         (219)
---------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period   $   338       $   213      $   154
---------------------------------------------------------------------------------------
</TABLE>
 
(17) STOCK SPLIT
 
On December 18, 1997, the Company's Board of Directors declared a three-for-two
stock split payable on January 16, 1998 to stockholders of record on January 2,
1998. An amount equal to the par value of the shares issued has been transferred
from additional paid-in-capital to common stock. The number of shares and per
share amounts have been restated to reflect this distribution.
 
(18) 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.
 
                                       28
<PAGE>   24
 
                       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,
                                   1998        1997        1996        1995        1994
-----------------------------------------------------------------------------------------
<S>                              <C>         <C>         <C>         <C>         <C>
Total assets                     $220,986    $211,987    $196,947    $188,916    $177,729
Loans, net                        151,124     144,670     143,532     143,091     130,213
Loans held for sale                 1,633       1,827       1,627       1,205         604
Mortgage-backed securities          1,051       1,220       1,546       8,222      14,371
Mortgage-backed securities
  available for sale               11,554      13,259      14,021       4,892          --
Investment securities              14,003      15,494       9,948       9,655       5,818
Investment securities available
  for sale                         25,539      15,494      11,639       2,057       8,004
Money market investments            3,532       9,086       6,291      12,085       9,729
Deposits                          175,390     175,019     164,683     163,308     157,179
FHLB advances                      17,033      11,044       6,327       2,000          --
Stockholders' equity               23,506      21,262      21,086      18,918      16,482
</TABLE>
 
OPERATING DATA:
 
<TABLE>
<CAPTION>
                                                         June 30,
                                   1998        1997        1996        1995        1994
-----------------------------------------------------------------------------------------
<S>                               <C>         <C>         <C>         <C>         <C>
Interest income                   $15,765     $15,342     $14,785     $13,834     $13,258
Interest expense                    8,069       7,715       7,319       6,347       5,989
-----------------------------------------------------------------------------------------
Net interest income before
  provision for possible loan
  losses                            7,696       7,627       7,466       7,487       7,269
Provision for possible loan
  losses                               18          30          30         100         135
-----------------------------------------------------------------------------------------
Net interest income after
  provision for possible loan
  losses                            7,678       7,597       7,436       7,387       7,134
Net gain (loss) on
  investments, loans and
  mortgage-backed securities
  available for sale                  218         125          92         (31)       (147)
Other income                          764         592         535         513         521
Operating expenses                  3,897       4,651       3,777       3,752       3,602
-----------------------------------------------------------------------------------------
Income before income taxes          4,763       3,663       4,286       4,117       3,906
Income tax expense                  1,712       1,344       1,621       1,604       1,562
-----------------------------------------------------------------------------------------
Net income before cumulative
  effect of change in
  accounting principle              3,051       2,319       2,665       2,513       2,344
Cumulative effect of change in
  accounting principle                 --          --          --          30         500
-----------------------------------------------------------------------------------------
Net income                        $ 3,051     $ 2,319     $ 2,665     $ 2,543     $ 2,844
-----------------------------------------------------------------------------------------
Diluted earnings per share
  before cumulative effect of
  change in accounting
  principle                       $  1.32     $  1.00     $  1.15     $  1.10     $  1.03
Cumulative effect of change in
  accounting principle                 --          --          --         .01         .22
-----------------------------------------------------------------------------------------
Diluted earnings per share        $  1.32     $  1.00     $  1.15     $  1.11     $  1.25
-----------------------------------------------------------------------------------------
</TABLE>
 
STATISTICAL PROFILE:
 
<TABLE>
<CAPTION>
                                                          June 30,
                                    1998        1997        1996        1995        1994
-----------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>         <C>         <C>
Return on average assets             1.43%       1.13%       1.39%       1.41%       1.62%
Return on average equity            13.58%      10.82%      13.29%      14.33%      18.57%
Average equity to average assets
  ratio                             10.49%      10.47%      10.43%       9.85%       8.71%
Dividend payout ratio               33.33%      29.33%      16.81%      12.61%       9.06%
-----------------------------------------------------------------------------------------
</TABLE>
 
                                       29
<PAGE>   25
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
OVERVIEW
 
In fiscal 1998, the Company achieved its highest level of earnings with a
recorded net income of $3.1 million or $1.32 per share on a diluted basis
compared to $2.3 million or $1.00 per share for fiscal 1997 and $2.7 million or
$1.15 per share for fiscal 1996. The net income for fiscal 1997 includes a
special one-time after tax charge of $636,000 or $0.27 per share to recapitalize
the SAIF.
 
The Company continued to report strong returns on average assets (ROA) and
average equity (ROE). The ROA for fiscal 1998, 1997 and 1996 was 1.43%, 1.13%
and 1.39%, respectively. The ROE for fiscal 1998, 1997 and 1996 was 13.58%,
10.82% and 13.29%, respectively. Excluding the special one-time SAIF charge, the
ROA and ROE for fiscal 1997 would have been 1.44% and 13.79% respectively. Also
during fiscal 1998, the Company experienced continued growth in assets and
equity.
 
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 the
continued outperformance by the Company relative to such ratio for national
thrift industry averages of similarily sized institutions.
 
Total loan origination during fiscal 1998 was a record $44.5 million or a 46.2%
increase compared to fiscal 1997. Mortgage lending activity increased during
fiscal 1998 as compared to the prior year and was concentrated more on the
origination of fixed rate mortgages due to current conditions in the Company's
market area. In addition, consumer lending activity increased by 13.5% during
the same time period due to the Company's continued emphasis on consumer
lending.
 
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 Company's vulnerability to interest rate risk exists to the extent that its
interest-bearing liabilities, consisting of customer deposits and borrowings,
mature or reprice 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 principal determinant of the exposure of the Company's earnings to interest
rate risk is the timing difference between the repricing or maturity of the
Company's interest-earning assets and the repricing or maturity of its
interest-bearing liabilities. If the maturities of such assets and liabilities
were perfectly matched, and if the interest rates borne by its assets and
liabilities were equally flexible and moved concurrently, neither of which is
the case, the impact on net interest income of rapid increases or decreases in
interest rates would be minimized.
 
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. 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 a 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.
                                       30
<PAGE>   26
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
The Company has established the following guidelines for assuming interest rate
risk:
 
Net interest margin simulation - Given a +/-200 basis point parallel shift in
interest rates, the estimated net interest margin may not change by more than
10% for a one-year period. Portfolio equity simulation - Portfolio equity is the
net present value of the Company's existing assets and liabilities. Given a +200
basis point change in interest rates, portfolio equity may not decrease by more
than 50% of total shareholders' equity. Given a -200 basis point change in
interest rates, portfolio equity may not decrease by more than 20% of total
shareholders' 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 earnings per share. This analysis was done
assuming that interest-earning asset levels at June 30, 1998 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, 1998 levels. There has
been no material changes in the Company's asset and liability position or market
value of portfolio equity during fiscal 1998.
 
Interest Rate Simulation Sensitivity Analysis
--------------------------------------------------------------------------------
                            Movements in interest rates from June 30, 1998 rates
 
<TABLE>
                                              Increase              Decrease
Simulated impact in the next 12 months   -------------------   -------------------
      Compared with June 30, 1998:       +100 bp    +200 bp    -100 bp    -200 bp
                                         --------   --------   --------   --------
<S>                                      <C>        <C>        <C>        <C>
  Net interest revenue
     increase/(decrease)                   3.3%        1.2%      (4.0)%     (9.2)%
  Return on average equity
     increase/(decrease)                   117bp        42bp     (141)bp    (325)bp
  Earnings per share
     increase/(decrease)                  $.11        $.04      $(.14)     $(.32)
                                           ---        ----      -----      -----
</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 reprice within that time period. The interest rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing 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, 1998. 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.
 
                                       31
<PAGE>   27
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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                    $31,076     $ 42,898    $56,577    $36,663    $167,214
  Investment securities             16,118       14,396      2,500     15,075      48,089
-----------------------------------------------------------------------------------------
Total rate sensitive assets        $47,194     $ 57,294    $59,077    $51,738    $215,303
-----------------------------------------------------------------------------------------
Rate sensitive liabilities:
Deposits:
  Certificates of deposit          $19,517     $ 34,213    $45,645    $ 5,124    $104,499
  NOW and money funds                7,198       12,188     10,093      4,251      33,730
  Passbooks                          1,350        3,684     12,597     11,901      29,532
-----------------------------------------------------------------------------------------
     Total deposits                $28,065     $ 50,085    $68,335    $21,276    $167,761
Borrowings                           9,100        2,000      5,793        140      17,033
-----------------------------------------------------------------------------------------
Total rate sensitive liabilities   $37,165     $ 52,085    $74,128    $21,416    $184,794
-----------------------------------------------------------------------------------------
Interest sensitivity GAP:
  Interval                          10,029        5,209    (15,051)    30,322          --
  Cumulative                       $10,029     $ 15,238    $   187    $30,509    $ 30,509
-----------------------------------------------------------------------------------------
Ratio of cumulative GAP to total
  assets                              4.54%        6.90%     -0.08%     13.81%
-----------------------------------------------------------------------------------------
</TABLE>
 
The Company targets its one year gap to be in the range of +10.0% to -10.0%. At
June 30, 1998 and 1997, the Company's one year gap was 6.90% and -5.56%,
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.
 
FINANCIAL CONDITION
 
The Company's consolidated assets totaled approximately $221.0 million at June
30, 1998, an increase of $9.0 million or 4.3% from June 30, 1997. The growth in
assets was primarily the result of increases in investment securities available
for sale, loans receivable and interest-bearing deposits with other institutions
which were partially offset by a decrease in money market investment securities,
mortgage-backed securities and mortgage-backed securities available for sale and
investment securities. The growth was funded primarily from increases in Federal
Home Loan Bank Advances and savings deposits and income generated from current
earnings.
 
                                       32
<PAGE>   28
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
The following table presents the average daily balances of interest-earning
assets and interest-bearing liabilities for the years ended June 30, 1998, 1997
and 1996, which management believes is representative of the operations of the
Company.
 
<TABLE>
<CAPTION>
                                                              Year Ended June 30,
                    (in thousands)                        1998        1997        1996
----------------------------------------------------------------------------------------
<S>                                                     <C>         <C>         <C>
Interest-earning assets:
  Mortgage loans1                                       $121,266    $122,406    $122,487
  Consumer and other loans1                               25,637      24,401      21,959
----------------------------------------------------------------------------------------
Total loans                                              146,903     146,807     144,446
  Mortgage-backed securities                              13,567      14,658      13,029
  Investment securities                                   42,688      35,513      26,717
  Interest-bearing deposits                                5,853       3,029       3,366
----------------------------------------------------------------------------------------
Total interest-earning assets                           $209,011    $200,007    $187,558
----------------------------------------------------------------------------------------
Interest-bearing liabilities:
  Passbook and club accounts                            $ 27,685    $ 27,830    $ 28,163
  NOW and money market deposit accounts                   34,608      34,763      34,081
  Certificates of deposit                                104,205     100,969      95,788
  Borrowings                                              12,998       9,353       5,122
----------------------------------------------------------------------------------------
Total interest-bearing liabilities                      $179,496    $172,915    $163,154
----------------------------------------------------------------------------------------
Net earning assets                                      $ 29,515    $ 27,092    $ 24,404
----------------------------------------------------------------------------------------
Average interest-earning assets as a percent of
  average interest-bearing liabilities                     116.4%      115.7%      115.0%
----------------------------------------------------------------------------------------
</TABLE>
 
1Includes loans on which the Company has discontinued accruing interest.
 
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 an increase in net income from $2.3 million, before cumulative
effect of change in accounting principal for fiscal 1994 to $3.0 million for
fiscal 1998 and a continued decrease in the ratio of non-performing assets to
total assets from .35 % at June 30, 1994 to .32% at June 30, 1998. The Company
has continued to focus its efforts on more evenly matching the maturities and/or
repricing characteristics of its interest-earning assets and interest-bearing
liabilities in order to minimize fluctuations that may occur due to changes in
market interest rates.
 
                                       33
<PAGE>   29
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
INVESTMENT SECURITIES AND INVESTMENT SECURITIES AVAILABLE FOR SALE
 
The Company's investment securities totaled $14.0 million at June 30, 1998, a
decrease of $1.5 million or 9.2% compared to June 30, 1997. The decrease was
primarily due to $20.7 million of investment securities which matured or were
called during fiscal 1998 which were partially offset by purchases of $19.2
million of securities during the period. The Company primarily invests in
government and corporate notes and bonds. Investment securities available for
sale totaled $25.5 million at June 30, 1998, or an increase of $10.0 million
compared to June 30, 1997. The increase was primarily due to the purchases of
approximately $5.0 million of an ARMs fund and approximately $4.4 of municipal
bonds. The increase in purchases of investment securities available for sale was
primarily due to the investment of the funds generated from the increases in
FHLB advances and savings deposits.
 
MORTGAGE-BACKED SECURITIES AND MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE
 
The total of all mortgage-backed securities was $12.6 million at June 30, 1998,
a decrease of $1.9 million or 12.9% compared to June 30, 1997. This decrease was
primarily due a reduction in the volume of purchases of these securities in
fiscal 1998 as compared to fiscal 1997. During fiscal 1998, the Company
purchased none of these securities compared to approximately $600,000 of
adjustable-rate mortgage-backed securities in the prior fiscal year.
 
LOAN PORTFOLIO
 
Loans receivable increased $6.5 million or 4.5% to $151.1 million during the
fiscal year ended June 30, 1998, as compared to an increase of $1.1 million or
 .8% for the fiscal year ended June 30, 1997. Mortgage loan originations in
fiscal years 1998 and 1997 amounted to $27.0 million, and $15.0 million,
respectively. The Company originated primarily fixed rate loans in fiscal 1998
due to current conditions in the Bank's market area. Of the total amount of
mortgage and construction loans originated in fiscal 1998, $16.3 million or
60.3% were fixed-rate mortgages as compared to $5.2 million or 34.6% in fiscal
1997. Adjustable-rate mortgage and construction loan originations totaled $10.7
million or 39.7% in fiscal 1998 as compared to $9.8 million or 65.4% in fiscal
1997.
 
Consumer loan originations, including home equity and other installment loans,
totaled $17.5 million in fiscal 1998, $15.4 million in fiscal 1997, and $13.2
million in fiscal 1996. The Company has placed a greater emphasis on other
installment lending, including home equity loans, personal loans, auto loans and
other secured lines of credit.
 
DEPOSIT PORTFOLIO
 
Savings deposits increased $371,000 to $175.4 million during fiscal 1998. This
increase was due to the combined result of $6.0 million of net deposit outflows
and interest credited of approximately $6.4 million. Deposit increases occurred
in passbook accounts and NOW/checking accounts partially offset by decreases in
money market accounts and certificate of deposit accounts.
 
For the years ended June 30, 1998, 1997 and 1996, the Company had certificates
of deposit with remaining terms to maturity of three (3) to ten (10) years
aggregating $11.4 million, $10.9 million and $14.1 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 Federal Home Loan Bank advances, increased from $11.0
million at June 30, 1997 to $17.0 million at June 30, 1998. The Company used the
additional funds as part of its asset and liability management strategy.
 
                                       34
<PAGE>   30
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
STOCKHOLDERS' EQUITY
 
Stockholders' equity increased $2.2 million or 10.6% to $23.5 million at June
30, 1998 compared to $21.3 million at June 30, 1997. This increase resulted from
net income of $3.0 million, $141,000 of stock options exercised plus $85,000 of
unrealized gains on investments available for sale. These increases were reduced
by the payment of cash dividends of $946,000 on the Company's common stock and
the purchase of $86,000 of the Company's stock held in a deferred compensation
trust. 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,
1998, 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. The following table sets forth
the average yields earned on the Company's interest-earning assets and the
average rates paid on its interest-bearing liabilities for the periods
indicated, the weighted average yields and the rates at June 30, 1998, the
resulting average interest rate spreads, and the net yield on interest-earning
assets.
 
<TABLE>
<CAPTION>
                                               At
                                            June 30,             Year Ended June 30,
                                              1998         1998         1997         1996
<S>                                         <C>            <C>          <C>          <C>
------------------------------------------------------------------------------------------
Average yield on1:
  Mortgage loans                               7.54%        7.97%        7.97%        8.15%
  Consumer loans                               8.36         8.40         8.50         9.01
------------------------------------------------------------------------------------------
Total loans                                    7.69         8.05         8.06         8.28
  Mortgage-backed securities                   7.15         7.15         7.07         7.31
  Investment securities                        5.98         6.23         6.51         6.30
  Interest-earning deposits                    6.11         5.40         5.28         5.50
------------------------------------------------------------------------------------------
Total interest-earning assets                  7.24         7.54         7.67         7.88
------------------------------------------------------------------------------------------
Average rates paid on1:
  Passbook and club accounts                   2.48         2.49         2.50         2.50
  NOW and money market accounts                1.83         1.93         1.95         2.01
  Certificates of deposit                      5.65         5.75         5.75         5.88
  Borrowings                                   5.48         5.54         5.66         5.88
------------------------------------------------------------------------------------------
Total interest-bearing liabilities             4.43         4.50         4.46         4.49
------------------------------------------------------------------------------------------
Average interest rate spread                   2.81%        3.04%        3.21%        3.39%
------------------------------------------------------------------------------------------
Net yield on interest-earning assets2           N/A         3.68%        3.82%        3.98%
------------------------------------------------------------------------------------------
</TABLE>
 
1Average yields and rates are calculated by dividing the interest income or
 expense for the period by the average daily balance which, with respect to
 loans and loans held for sale, includes loans on which the Company has
 discontinued accruing interest. The weighted averages at June 30, 1998 are
 based on the weighted average contractual rates.
 
2Net interest income divided by average interest-earning assets.
 
                                       35
<PAGE>   31
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
 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.
 
<TABLE>
<CAPTION>
                                                                     Fiscal 1998
                                                               Compared to Fiscal 1997
                                                             Increase (Decrease) Due to
---------------------------------------------------------------------------------------------
                                                                          Rate/
                                               Rate      Volume          Volume         Total
---------------------------------------------------------------------------------------------
<S>                                            <C>      <C>             <C>             <C>
Interest income on interest-earning assets:
  Mortgage loans                               $  (3)        $(91)           $ --       $ (94)
  Consumer loans                                 (26)         105              (1)         78
  Mortgage-backed securities                      12          (77)             (1)        (66)
  Investment securities                          (98)         467             (20)        349
  Interest-earning deposits                        4          149               3         156
---------------------------------------------------------------------------------------------
     Total                                      (111)         553             (19)        423
---------------------------------------------------------------------------------------------
Interest expense on interest-bearing
  liabilities:
  Deposits                                        37          129               1         167
  Borrowings                                     (11)         202              (4)        187
---------------------------------------------------------------------------------------------
     Total                                        26          331              (3)        354
---------------------------------------------------------------------------------------------
Net change in net interest income              $(137)        $222            $ 16       $  69
---------------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     Fiscal 1997
                                                               Compared to Fiscal 1996
                                                             Increase (Decrease) Due to
---------------------------------------------------------------------------------------------
                                                                          Rate/
                                               Rate      Volume          Volume         Total
---------------------------------------------------------------------------------------------
<S>                                            <C>      <C>             <C>             <C>
Interest income on interest-earning assets:
  Mortgage loans                               $(219)       $  (7)           $ --       $(226)
  Consumer loans                                (111)         220             (12)         97
  Mortgage-backed securities                     (32)         119              (4)         83
  Investment securities                           56          554              18         628
  Interest-earning deposits                       (7)         (19)              1         (25)
---------------------------------------------------------------------------------------------
     Total                                      (313)         867               3         557
---------------------------------------------------------------------------------------------
Interest expense on interest-bearing
  liabilities:
  Deposits                                       (79)         246              (3)        164
  Borrowings                                     (11)         252              (9)        232
---------------------------------------------------------------------------------------------
     Total                                       (90)         498             (12)        396
---------------------------------------------------------------------------------------------
Net change in net interest income              $(223)        $369            $ 15       $ 161
---------------------------------------------------------------------------------------------
</TABLE>
 
                                       36
<PAGE>   32
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
INTEREST INCOME ON LOANS AND LOANS HELD FOR SALE
 
Interest on loans and loans held for sale decreased by $16,000 or .1% in fiscal
1998 primarily due to a decrease in the average yield earned on the portfolio
from 8.06% during fiscal 1997 to 8.05% during fiscal 1998. The average balance
of the mortgage loan portfolio decreased by $1.1 million or .9% and the average
balance of the consumer loan portfolio increased by $1.2 million or 5.1% during
fiscal 1998. Interest on loans and loans held for sale decreased by $129,000 or
1.1% in fiscal 1997 primarily due to a decrease in the average yield earned on
the portfolio from 8.28% during fiscal 1996 to 8.06% during fiscal 1997. The
average balance of the mortgage loan portfolio decreased by $81,000 or .1% and
the average balance of the consumer loan portfolio increased by $2.4 million or
11.1% during fiscal 1997. The decrease in the average yield during fiscal 1997
was primarily due to increased originations of adjustable-rate mortgage loans
which generally have lower initial rates of interest compared to fixed rate
loans and the increased originations of home equity loans and auto loans that
have lower rates of interest due to the competitive interest rates in the
Company's market area.
 
INTEREST INCOME ON MORTGAGE-BACKED SECURITIES AND
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
 
Interest income on mortgage-backed securities decreased $66,000 or 6.4% during
fiscal 1998 primarily due to a $1.1 million decrease in the average outstanding
balance. This decrease was partially offset by an increase in the average yield
from 7.07% in fiscal 1997 to 7.15% in fiscal 1998. The decrease in the average
outstanding balance was primarily due to repayments of the loans underlying the
mortgage-backed securities. In addition, the Company purchased no such
securities during fiscal 1998. Interest income on mortgage-backed securities
increased $83,000 or 8.7% during fiscal 1997 primarily due to a $1.6 million
increase in the average outstanding balance. The increase in the average
outstanding balance was due to the purchase of $5.2 million of these securities
during the third and fourth quarters of fiscal 1996. The yield on
mortgage-backed securities decreased from 7.31% in fiscal 1996 to 7.07% in
fiscal 1997.
 
INTEREST INCOME ON INVESTMENTS AND INVESTMENTS AVAILABLE FOR SALE
 
Interest on investments and investments available for sale consisting primarily
of U.S. Government and agency securities, high-grade corporate notes, mutual
funds, municipal bonds and FHLB stock, increased by $349,000 or 15.1% during
fiscal 1998 primarily due to an $7.2 million increase in the average balance of
these securities. This increase was partially offset by a decrease in the
average yield on these investments from 6.51% in fiscal 1997 to 6.23% in fiscal
1998. Interest on investments and investments available for sale, increased by
$628,000 or 37.3% during fiscal 1997 primarily due to an $8.8 million increase
in the average balance of these securities. In addition, the average yield on
these investments increased from 6.30% in fiscal 1996 to 6.51% in fiscal 1997.
The increase in the average outstanding balance during both fiscal 1998 and 1997
was primarily due to the increased purchases of these securities with the funds
generated from the increases in savings deposits and FHLB advances.
 
                                       37
<PAGE>   33
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
INTEREST INCOME ON INTEREST-EARNING DEPOSITS
 
Interest on deposits, consisting of interest-bearing deposits maintained with
the FHLB of Pittsburgh, increased $156,000 or 97.5% during fiscal 1998 compared
to fiscal 1997 and decreased by $25,000 or 13.5% during fiscal 1997 compared to
fiscal 1996. The increase in fiscal 1998 was primarily due to a $2.8 million
increase in the average outstanding balance of these deposits. In addition, the
average yield increased from 5.28% in fiscal 1997 to 5.40% in fiscal 1998. The
decrease in fiscal 1997 was primarily due to a $337,000 decrease in the average
outstanding balance of these deposits. In addition, the average yield decreased
from 5.50% in fiscal 1996 to 5.28% in fiscal 1997.
 
INTEREST EXPENSE ON SAVINGS DEPOSITS
 
Interest expense on savings deposits increased by $167,000 or 2.3% in fiscal
1998 primarily due to a $2.9 million increase in the average outstanding balance
of savings deposits. The average rate paid on deposits rose slightly from 5.39%
in fiscal 1997 to 5.41% in fiscal 1998. Interest expense on savings deposits
increased by $164,000 or 2.3% in fiscal 1997 primarily due to a $5.5 million
increase in the average balance of savings deposits. This increase was partially
offset by a decrease in the average rate paid on deposits from 4.44% in fiscal
1996 to 4.39% in fiscal 1997. The increase in the average balance of deposits
during both fiscal 1998 and 1997 was primarily due to increased marketing of the
Company's certificate of deposit and checking products.
 
INTEREST EXPENSE ON BORROWINGS
 
Interest on borrowings increased $187,000 or 35.1% in fiscal 1998 primarily due
to a $3.6 million increase in the average outstanding balance. In addition, the
average rate paid on borrowings decreased from 5.66% in fiscal 1997 to 5.54% in
fiscal 1998. Interest expense on borrowings increased $232,000 in fiscal 1997
primarily due to a $4.2 million increase in the average outstanding balance
which was partially offset by a decrease in the average rate paid on borrowings
from 5.88% in fiscal 1996 to 5.66% in fiscal 1997. The increased borrowings
during fiscal 1998 and 1997 were used by the Company as part of its asset and
liability strategy.
 
NET INTEREST INCOME
 
Net interest income increased by $69,000 or .9% in fiscal 1998 as compared to
fiscal 1997 and increased by $161,000 or 2.2% in fiscal 1997 over the prior
fiscal year. The increase in fiscal 1998 was primarily due to increases in the
average outstanding balances of investments available for sale, loans receivable
and interest-earning deposits with other institutions partially offset by
increases in the average outstanding balances of deposit accounts and
borrowings. The increase in fiscal 1997 was primarily due to the increases in
the average outstanding balance of investments and investments available for
sale, loans receivable and mortgage-backed securities and mortgage-backed
securities available for sale. These increases were partially offset by
increases in the average outstanding balance of savings deposits and borrowings.
 
Interest-earning assets as a percent of interest-bearing liabilities amounted to
116.4%, 115.7% and 115.0% at June 30, 1998, 1997 and 1996, respectively, and the
average interest rate spread was 3.04%, 3.21% and 3.39% for fiscal 1998, 1997
and 1996, respectively. The Company's average interest rate spread has decreased
from 3.39% in fiscal 1996 to 3.04% in fiscal 1998 primarily due to decreases in
the average rates earned on the Company's loan portfolio. The Company's net
interest income continued to exceed its total other expenses in fiscal 1998 and
1997, 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.
 
                                       38
<PAGE>   34
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
PROVISION FOR POSSIBLE LOAN LOSSES
 
Financial institutions are subject to the risk of possible 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
potential losses. The provision for possible loan losses for fiscal 1998, 1997
and 1996 amounted to $18,000, $30,000 and $30,000, respectively.
 
At June 30, 1998, 1997 and 1996, the allowance for possible loan losses was
approximately $1.9 million or 1.2%, 1.3% and 1.3%, respectively of the total
loan portfolio. As a percentage of non-performing loans (loans delinquent 90
days and over, net of specific reserves) the allowances for possible loan losses
were 330.1%, 212.4%, and 310.3% at June 30, 1998, 1997 and 1996, respectively.
 
A review is conducted at least quarterly by management to determine that the
allowance for possible loan losses is adequate to absorb estimated loan losses.
Additionally, steps have been taken to strengthen and improve the Company's
overall underwriting, collection and recovery procedures. These steps are
expected to limit or reduce the level of loan losses in the future. In
determining the level of allowances for possible loan losses required,
consideration is given to general economic conditions, diversification of loan
portfolios, historical loss experience, identified credit problems, delinquency
levels and adequacy of collateral. Although management believes that the current
allowance for possible loan losses is adequate, future additions to the reserves
may be necessary due to changes in economic conditions. In addition, as an
integral part of their periodic examination, the various regulatory agencies
review the adequacy of the Company's allowances for possible loan losses. An
agency may require the Company to make additions to the allowances based on
their judgement. No such additions were required to be made during the Company's
most recent examination.
 
During fiscal 1996, the Company adopted FASB Statement No. 114 "Accounting by
Creditors for Impairment of a Loan." FAS 114 defines the term "impaired loan"
and gives the creditor ways to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective interest
rate, (2) the observable market price of the impaired loan or (3) the fair value
of the collateral of a collateral dependent loan. The adoption of FAS 114 has
not been material to the Company's operations.
 
OTHER INCOME
 
Fees and service charges increased by $119,000 or 25.0% in fiscal 1998 and by
$71,000 or 17.5% in fiscal 1997. The increase in both fiscal 1998 and 1997 was
primarily due to increases in the fees and service charges earned on the Bank's
NOW accounts.
 
During fiscal 1998, the Company realized net gains of $218,000 on investments,
mortgage-backed securities and loans in its available for sale portfolio. Gains
of $186,000 and $32,000 were recorded on the sale of investment securities and
loans, respectively. During fiscal 1997, the Company realized net gains of
$125,000 on investments, mortgage-backed securities and loans available for
sale. Gains of $113,000 and $12,000 were recorded on the sale of investment
securities and loans, respectively.
 
Other operating income, which primarily consists of miscellaneous fees, rents,
and other income, was $169,000, $116,000 and $130,000 in fiscal 1998, 1997 and
1996, respectively. The increase in fiscal 1998 was primarily due to an increase
in ATM fees. The decrease in fiscal 1997 was primarily due to a decrease in
other non-operating income resulting from a settlement of litigation received by
the Company in fiscal 1996.
 
Total other income increased $265,000 or 37.0% in fiscal 1998 and by $90,000 or
14.4% in fiscal 1997. The increases in both fiscal 1998 and 1997 were primarily
due to the increases in fees and service charges and gains on the sale of
investment securities and loans available for sale.
 
                                       39
<PAGE>   35
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
OPERATING EXPENSES
 
Compensation and employee benefits, which is the largest component of total
operating expenses, decreased by $16,000 or .9% in fiscal 1998 and increased by
$57,000 or 3.4% in fiscal 1997. The decrease in fiscal 1998 was primarily due to
an increase in the deferral of compensation costs associated with the
origination of loans as a result of the increased loan originations during
fiscal 1998. These deferred costs will be written off over future periods based
on the life of the loans. The decrease in fiscal 1998 was partially offset by
normal salary and benefit increases. The increase in fiscal 1997 was primarily
due to normal salary and benefit increases.
 
Premises and occupancy expense increased by $7,000 or 1.4% in fiscal 1998 and by
$25,000 or 5.4% in fiscal 1996. The increase in fiscal 1998 was primarily due to
increases in repairs and maintenance and furniture, fixture and equipment
depreciation which were partially offset by decreases in insurance and
furniture, fixture and equipment expenses. The increase in fiscal 1997 was
primarily due to increases in furniture, fixture and equipment depreciation and
expenses and office building depreciation.
 
Federal insurance premiums decreased by $40,000 or 26.9% in fiscal 1998 and
increased by $834,000 or 223.0% in fiscal 1997. The decrease in fiscal 1998 and
the increase in fiscal 1997 were due to the FDIC's one-time special assessment
to recapitalize the SAIF. In fiscal 1997 the Company incurred a $1.1 million
pre-tax charge as a result of this assessment however, the premium rate for
federal deposit insurance decreased to approximately 6.5 basis points in January
of 1997 from 23 basis points as a result of the recapitalization of the SAIF.
The amount of the premium is based upon the average amount of deposits
outstanding.
 
In fiscal 1998, the Company had a net gain of $5,000 from its real estate owned
("REO"). In fiscal 1997 and 1996, the Company had a net gain of $31,000 and a
net loss of $5,000, respectively.
 
Data processing expenses increased by $3,000 or 1.2% in both fiscal 1998 and
1997. The increase in both fiscal 1998 and 1997 was primarily attributable to
increases in certain service bureau charges.
 
Professional fees increased by $309,000 in fiscal 1998 and decreased by $66,000
in fiscal 1997. The increase in fiscal 1998 was primarily due to legal fees
incurred in litigation brought by the Bank against another financial
institution.
 
INCOME TAXES
 
Income taxes increased $368,000 or 27.4% in fiscal 1998 and decreased $277,000
or 17.1% in fiscal 1997 over the comparable prior years. The increase in fiscal
1998 was primarily due to higher pre-tax income partially offset by a decrease
in the Company's effective tax rate. The decrease in fiscal 1997 was primarily
due to lower pre-tax income as a result of the $1.1 million one-time special
FDIC assessment.
 
NET INCOME
 
Net income increased $732,000 or 31.6% in fiscal 1998 and decreased $346,000 or
13.0% in fiscal 1997 primarily due to the $1.1 million pre-tax special one-time
SAIF assessment in fiscal 1997. Excluding that assessment, net income increased
$96,000 or 3.3% in fiscal 1998 and $290,000 or 10.9% in fiscal 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Company's assets increased from $196.9 million at June 30, 1996 to $212.0
million at June 30, 1997, and to $221.0 million at June 30, 1998. Stockholders'
equity increased from $21.1 million at June 30, 1996 to $21.3 million at June
30, 1997, and $23.5 million at June 30, 1998. At June 30, 1998, stockholders'
equity amounted to 10.6% 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, 1998,
the Company substantially exceeded all of these requirements with Tier I and
Tier II ratios of 10.44% and 21.09%, respectively.
 
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company had
positive cash flows from operating activities. Cash and cash equivalents
decreased by $4.0 million, increased by $5.7 million, decreased by
 
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<PAGE>   36
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
$5.5 million for the fiscal years ended June 30, 1998, 1997 and 1996,
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 $3.4 million of cash in fiscal 1998,
$1.9 million in fiscal 1997 and $2.1 million in fiscal 1996.
 
Investing activities used cash on a net basis of $12.9 million in fiscal 1998,
$8.9 million in fiscal 1997 and $12.9 million in fiscal 1996. This was 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 generated $5.5 million of cash in fiscal 1998
due to a net increase of $6.0 million in FHLB advances, $371,000 in deposits and
$141,000 from stock options exercised. These increases were partially offset by
$946,000 of cash dividends paid and a decrease of $11,000 in advance deposits by
borrowers for taxes and insurance. Financing activities generated $12.6 million
of cash in fiscal 1997, due to a net increase of $5.3 million in FHLB advances,
$10.3 million in deposits and $44,000 from stock options exercised. These
increases were partially offset by $1.6 million of treasury stock acquired,
$660,000 of cash dividends paid and a decrease of $167,000 in advance deposits
by borrowers for taxes and insurance.
 
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, 1998, the Company had commitments to originate
loans totalling $7.7 million. Scheduled maturities of certificates of deposit
during fiscal 1999 totaled $53.7 million at June 30, 1998. 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.
 
YEAR 2000
 
The Company outsources its primary data processing functions. A challenging
problem exists as the millennium ("year 2000") approaches as many computer
systems worldwide do not have the capability of recognizing the year 2000 or
years thereafter.
 
The Company has established a management committee to identify all of its
functions potentially affected by the year 2000, and to ensure that
re-programming or replacement of the affected systems will be completed by
December 31, 1998, thus allowing adequate time for testing. The Company has also
contacted its largest borrowers to determine if they will be materially affected
by potential year 2000 problems. To date, the Company has received confirmations
from its primary vendors that corrections are being made and testing has begun
to address and correct the issues associated with the year 2000 problem. The
Company is formulating contingency plans for its major functions in the event
systems fail.
 
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<PAGE>   37
 
                       LOGO    LAUREL CAPITAL GROUP, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
 
The Company does not anticipate that the year 2000 issue will pose any
significant operational problems or will have any material impact on its results
of operations. The Company anticipates replacement of various hardware and
software during fiscal 1999 at a cost of approximately $300,000 that will be
depreciated over future periods. However, if the modifications and conversions
are not completed timely, the year 2000 problem may have a material impact on
the operations of the Company.
 
RECENT ACCOUNTING DEVELOPMENTS
 
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 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. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
 
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
31, 1997. Management does not anticipate that the adoption of this standard will
have a material impact on the Company's reporting.
 
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