SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


[ X ] Annual Report  pursuant to Section 13 or 15(d) of the Securities  Exchange
      Act of 1934 (fee required) For the fiscal year ended December 31, 2000.

                                       OR

[   ] Transition Report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the transition period from ________ to _________.


                         Commission File Number 0-11526

                           FIRST COLONIAL GROUP, INC.
       -----------------------------------------------------------------
                (Name of Registrant as Specified in its charter)

         Pennsylvania                                     23-2228154
-----------------------------------         ----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

76 South Main Street, Nazareth, Pennsylvania                      18064
--------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip Code)

         Registrant's telephone number, including area code 610-746-7300

      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, $5.00 Par Value
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required  to be filed by Section  13 or 15 (d) of the  Securities  Exchange  Act
during the  preceeding 12 months (or for such shorter period that the registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                               Yes X        No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
                [ X ]

<PAGE>

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant is $26,491,563. (1)

     The number of shares of the  Issuer's  common  stock,  par value  $5.00 per
share, outstanding as of March 26, 2001 was 1,967,919.


                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain portions of the Company's Proxy Statement to be filed in connection
with its 2001 Annual Meeting of  Shareholders  are  incorporated by reference in
Part III of this report.

     Other documents incorporated by reference are listed in the Exhibit Index.











     (1) The  aggregate  dollar  amount of the voting stock set forth equals the
number of shares of the registrant's  Common Stock  outstanding,  reduced by the
amount of Common Stock held by executive  officers,  directors and  shareholders
owning in excess of 10% of the registrant's Common Stock, multiplied by the last
sale price for the  registrant's  Common  Stock on March 26,  2001.  Includes an
aggregate of 226,149 shares, with an aggregate market value of $3,674,921,  held
by the Trust  Department of Nazareth  National Bank & Trust Company in Trust for
persons other than executive  officers,  directors and 10%  shareholders  of the
registrant.  The  information  provided  shall  in no  way  be  construed  as an
admission  that any  officer,  director  or 10%  shareholder  may be  deemed  an
affiliate of the registrant or that such person is the  beneficial  owner of the
shares  reported  as  being  held  by him,  and any  such  inference  is  hereby
disclaimed.  The  information  provided  herein is  included  solely  for record
keeping purposes of the Securities and Exchange Commission.

<PAGE>

                                     PART I

Item 1.     Business

Forward Looking Information

     The information  contained in this Annual Report  contains  forward looking
statements (as such term is defined in the  Securities  Exchange Act of 1934 and
the regulations thereunder), including, without limitation, statements as to the
allowance  and provision for possible  loan losses,  future  interest  rates and
their effect on the Company's financial condition or results of operations,  the
classification  of  the  Company's  investment   portfolio,   statements  as  to
litigation  and the  amount  of  reserves,  and other  statements  which are not
historical facts or as to the Company's,  the Bank's or management's intentions,
plans,  beliefs,  expectations or opinions.  Such forward looking  statement are
subject to risks and  uncertainties and may be affected by various factors which
may cause actual results to differ  materially from those in the forward looking
statements including,  without limitation, the effect of economic conditions and
related uncertainties, the effect of interest rates on the Company and the Bank,
Federal  and  state  government  regulation,  competition,  and the  results  of
litigation. These and other risks, uncertainties and other factors are discussed
elsewhere in this Annual Report on Form 10-K.

Investment Considerations

     In analyzing  whether to make or to continue an  investment in the Company,
investors should consider, among other factors, the following:

     Economic  Conditions  and  Related  Uncertainties.  Commercial  banking  is
affected,  directly  and  indirectly,  by  local,  domestic,  and  international
economic  and  political  conditions,  and by  governmental  monetary and fiscal
policies.  Conditions  such  as  inflation,  recession,  unemployment,  volatile
interest rates, tight money supply, real estate values,  international conflicts
and other  factors  beyond  the  Company's  control,  may  adversely  affect the
potential  profitability  of the Company.  Any future  rises in interest  rates,
while increasing the income yield on the Company's earning assets, may adversely
affect loan demand and the cost of funds and, consequently, the profitability of
the Company.  Any future  decreases in interest  rates may adversely  affect the
Company's  profitability because such decreases may reduce the amounts which the
Company  may  earn  on  its  assets.  Economic  downturns  could  result  in the
delinquency of outstanding loans.  Management does not expect any one particular
factor to affect the Company's  results of operations.  However,  a downtrend in
several areas, including real estate,  construction and consumer spending, could
have an adverse impact on the Company's ability to remain profitable.

     Effect of Interest  Rates on the Bank and the Company.  The  operations  of
financial  institutions  such as the Company are  dependent to a large degree on
net interest income which is the difference  between  interest income from loans
and   investments  and  interest   expense  on  deposits  and   borrowings.   An
institution's  net interest income is significantly  affected by market rates of
interest which in turn are affected by prevailing  economic  conditions,  by the
fiscal and monetary  policies of the federal  government  and by the policies of
various regulatory agencies. At December 31, 2000, total interest earning assets
maturing  or  repricing  within  one year was less than total  interest  bearing
liabilities  maturing or  repricing  during the same time period by  $7,418,000,
representing a negative cumulative one year gap of 96%.  If interest rates rise,

<PAGE>

the Company could experience a decrease in net interest income. The Company also
has interest rate risk if interest rates decline. This risk is the result of the
investment in U. S. Agency securities that have call features. If interest rates
decline,  $54,420,000  of these  securities  could be called;  thus reducing net
interest income. Like all financial institutions, the Company's balance sheet is
affected by  fluctuations  in interest  rates.  Volatility in interest rates can
also result in disintermediation, which is the flow of funds away from financial
institutions  into direct  investments,  such as U. S.  Government and corporate
securities and other investment vehicles, including mutual funds, which, because
of the absence of federal insurance premiums and reserve requirements, generally
pay  higher  rates  of  return  than  financial   institutions.   See  "Item  7.
Management's  Discussion of Financial Condition and Results of Operations",  and
"Item 7.A. Quantitative and Qualitative Disclosure About Market Risk".

     Federal and State Government Regulations. The operations of the Company and
the Bank are  heavily  regulated  and will be  affected  by  present  and future
legislation and by the policies established from time to time by various federal
and state regulatory  authorities.  In particular,  the monetary policies of the
Federal Reserve Board have had a significant  effect on the operating results of
banks in the past,  and are  expected to continue to do so in the future.  Among
the  instruments  of  monetary  policy  used by the  Federal  Reserve  Board  to
implement  its  objectives  are  changes in the  discount  rate  charged on bank
borrowings and changes in the reserve  requirements on bank deposits.  It is not
possible to predict what changes,  if any, will be made to the monetary policies
of the Federal Reserve Board or to existing federal and state legislation or the
effect that such changes may have on the future business and earnings  prospects
of the Company.

     During the past several years,  significant  legislative attention has been
focused on the regulation and deregulation of the financial  services  industry.
Non-bank financial  institutions,  such as securities brokerage firms, insurance
companies  and money market funds,  have been  permitted to engage in activities
which compete directly with traditional bank business.

     Accounting  Standards.  The  operations  of the  Company  and the  Bank are
affected by accounting  standards issued by the Financial  Accounting  Standards
Board  ("FASB")  which the Company is required  to adopt.  The  adoption of such
standards  can have the effect of reducing the  Company's  earnings and capital.
Information  on current FASB  standards  that affect the Company can be found in
the Notes to  Consolidated  Financial  Statements  contained  under the caption,
"Item 8. Financial Statements and Supplementary Data".

     Competition.  The Company faces strong  competition  from many other banks,
savings institutions and other financial  institutions which have branch offices
or  otherwise  operate  in the  Company's  market  area,  as well as many  other
companies now offering a range of financial services.  Most of these competitors
have  substantially  greater  financial  resources than the Company  including a
larger capital base which allows them to attract  customers seeking larger loans
than the Bank is able to make. In addition,  many of the Bank's competitors have
higher legal lending limits than does the Bank. Particularly intense competition
exists for sources of funds  including  savings and retail time deposits and for
loans,  deposits and other  services  that the Bank  offers.  As a result of the
recent  repeal  of  the  Glass-Steagall  Act  which  separated   commercial  and
investment banking industries, all banking organizations, including the Company,
are likely to face an increase in competition.  See "Supervision and Regulation"
- "Recent Regulation".

<PAGE>

     Allowance  for Loan Losses.  The Company has  established  an allowance for
loan losses which management  believes to be adequate to offset potential losses
on the  Company's  existing  loans.  However,  there  is no  precise  method  of
predicting  loan losses.  There can be no assurance that any future  declines in
real  estate  market  conditions,  general  economic  conditions  or  changes in
regulatory  policies  will not require the Company to increase its allowance for
loan losses through a charge to earnings resulting in reduced profitability.

     Dividends.  While  the Board of  Directors  presently  intends  to follow a
policy  of  paying  cash  dividends,   the  dividend  policy  will  be  reviewed
periodically  in light of future  earnings,  regulatory  restrictions  and other
considerations.  No assurance can be given, therefore,  that cash dividends will
be paid in the future. See the information  contained under the caption in "Item
5. Market for Registrant's Common Equity and Related Stockholder Matters".

     Market for Common Stock.  While the Company's common stock is listed on the
Nasdaq Stock Market, there is no assurance that an active trading market for the
Company's  common stock will exist at a  particular  time.  See the  information
contained  under the caption in "Item 5. Market for  Registrant's  Common Equity
and Related Stockholder Matters".

     "Anti-Takeover"    and    "Anti-Greenmail"    Provisions   and   Management
Implications.  The Articles of the Company presently contain certain  provisions
which may be deemed to be "anti-takeover" and "anti-greenmail" in nature in that
such  provisions may deter,  discourage or make more difficult the assumption of
control of the Company by another  corporation or person through a tender offer,
merger,  proxy contest or similar  transaction  or series of  transactions.  The
overall effects of the "anti-takeover" and "anti-greenmail" provisions may be to
discourage,  make more costly or more  difficult,  or prevent a future  takeover
offer,  prevent  shareholders from receiving a premium for their securities in a
takeover offer,  and enhance the possibility that a future bidder for control of
the Company  will be required to act through  arms-length  negotiation  with the
Company's  Board  of  Directors.   Copies  of  the  Company's  Articles  of  the
Incorporation are on file with the SEC and Pennsylvania Department of State.

     Stock Not an Insured  Deposit.  Investments  in the shares of the Company's
common  stock are not  deposits  insured  against  loss by the FDIC or any other
entity.

     Bespeaks Caution Doctrine. Investor should be aware that the U. S. Court of
Appeals  for the Third  Circuit  in In Re:  Donald J.  Trump  Casino  Securities
Litigation  Taj Mahal,  (No.  92-5350  filed  October 14, 1993)  adopted a legal
doctrine  entitled the "Bespeaks  Caution  Doctrine" which may prevent them from
recovering from the Company based upon material  misrepresentations or omissions
contained  in the  Company's  disclosure  documents  to  the  extent  that  such
documents contained sufficient cautionary statements to apprise investors of the
risks of an  investment in the Company's  securities.  The foregoing  investment
considerations  may have the effect of bringing this document,  as well as other
Company  disclosure  documents,  within  the  purview of the  "Bespeaks  Caution
Doctrine".

<PAGE>

General

     First  Colonial  Group,  Inc.  (the  "Company) is a  Pennsylvania  business
corporation which is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the  "Holding  Company  Act").  The Company was
incorporated on December 30, 1982 for the purpose of acquiring Nazareth National
Bank and Trust  Company  (the  "Bank") and thereby  enabling the Bank to operate
within a bank  holding  company  structure.  The  Company  became an active bank
holding  company on November 25, 1983 when it acquired  the Bank.  The Bank is a
wholly-owned  subsidiary of the Company.  In July, 1986, the Company established
another wholly-owned subsidiary,  First C. G. Company, Inc. This subsidiary is a
Delaware  business  corporation  formed for the purpose of  investing in various
types of securities.

     The Company's  principal  activities  consist of owning and supervising the
Bank, which engages in a full service  commercial and consumer banking and trust
business. The Company, through the Bank, derives substantially all of its income
from the furnishing of banking and  banking-related  services.  The Bank has its
principal   banking  office  as  well  as  three  branch  offices  in  Nazareth,
Pennsylvania.   It  also   presently  has  two  branch   offices  in  Bethlehem,
Pennsylvania,  three  branch  offices  in  Easton,  Pennsylvania,  one branch in
Brodheadsville,  Pennsylvania,  two branches in Stroudsburg,  Pennsylvania,  one
branch  in  East  Stroudsburg,   Pennsylvania,   one  branch  in  Mount  Pocono,
Pennsylvania, one branch in Allentown,  Pennsylvania, one branch in Trexlertown,
Pennsylvania,   and  one  branch  in  Whitehall,   Pennsylvania.  The  Bank  has
twenty-seven automated teller machines (ATMs), one at each branch office (except
the Mount Pocono branch which has two and the Main Street  Nazareth branch which
has none), four  free-standing  drive-up  machines at the Northampton  Crossings
Shopping  Center,  Easton,   Pennsylvania  and  free-standing  machines  at  its
operation center,  The First Colonial  Building in the Bethlehem  Business Park,
Hanover  Township,   Pennsylvania,   at  St.  Luke's  Hospital,  Fountain  Hill,
Pennsylvania,  at C. F. Martin & Company in Nazareth,  Pennsylvania, at the Best
Western Hotel in Stroudsburg,  Pennsylvania,  and at the Redner's mini-market on
Airport Road in Allentown, Pennsylvania.

     The Company is a legal  entity  separate and  distinct  from the Bank.  The
rights of the  Company,  and thus the  rights  of the  Company's  creditors  and
shareholders,  to participate in  distributions of the assets or earnings of the
Bank,  are  necessarily  subject to the prior  claims of  creditors of the Bank,
except to the extent  that  claims of the  Company  itself as a creditor  may be
recognized.  Such claims on the Bank by creditors other than the Company include
obligations relating to federal funds purchased and certain other borrowings, as
well as deposit liabilities.

     The Company directs the policies and coordinates the financial resources of
the Bank.  The Company  provides and performs  various  technical,  advisory and
auditing  services for the Bank,  coordinates  the Bank's  general  policies and
activities, and participates in the Bank's major business decisions.

     As of December 31, 2000 the Company,  on a  consolidated  basis,  had total
assets of $442,708,000,  total deposits of $353,190,000, and total shareholders'
equity of $34,188,000.

<PAGE>

Nazareth National Bank and Trust Company

     History and Business

     The Bank was incorporated under the laws of the United States of America as
a national  bank in 1897 under its present name.  Since that time,  the Bank has
operated  as a banking  institution  doing  business  at  several  locations  in
Northampton County, Monroe County and Lehigh County, Pennsylvania. The Bank is a
member of the Federal Reserve System.

     As of December 31, 2000, the Bank had total assets of  $442,708,000,  total
deposits of $353,190,000  and total  shareholders'  equity of  $34,188,000.  Its
deposits  are  insured by the Bank  Insurance  Fund  ("BIF")  maintained  by the
Federal  Deposit  Insurance  Corporation  (the  "FDIC")  to the  maximum  extent
permitted by law.

     The Bank engages in a full  service  commercial  and  consumer  banking and
trust  business.  The  Bank,  with its main  office  at 76  South  Main  Street,
Nazareth,  Pennsylvania,  also provides  services to its  customers  through its
branch  network  of  seventeen  full  service  banks,  which  includes  drive-in
facilities at most locations, ATMs at each branch office (except the Main Street
Nazareth  branch) and  bank-by-mail  services.  Nine of the Bank's full  service
offices  are  located in  Northampton  County,  Pennsylvania.  Five  offices are
located in Monroe  County,  Pennsylvania.  Three  offices  are located in Lehigh
County,  Pennsylvania.  The Bank  also has free  standing  ATMs  located  in its
Operations  Center,  the First Colonial Building in the Bethlehem Business Park,
Hanover  Township,  Pennsylvania,  in the lobby of St.  Luke's  Hospital  in the
Borough of Fountain Hill, Pennsylvania, at the C. F. Martin & Company, Nazareth,
Pennsylvania,  in the Best Western Hotel in  Stroudsburg,  Pennsylvania,  in the
Redner's mini-market in Allentown, Pennsylvania, and four free-standing drive-up
ATM's at Northampton Crossings Shopping Center, Lower Nazareth Township, Easton,
Pennsylvania.

     The Bank's services include  accepting time,  demand and savings  deposits,
including NOW accounts (Flex Checking),  regular savings accounts,  money market
accounts,  fixed rate  certificates of deposit and club accounts,  including the
Vacation  Club,  the College  Club(R) and the  Christmas  Club.  The Bank offers
Mastercard(R)  and VISA(R),  as well as a Constant Cash account (a  pre-approved
line of credit  activated by writing checks against a checking  account) and the
First Colonial Club(R) and Quality  Checking(R)  (deposit package programs which
provide checking accounts with other services  including credit card protection,
discount travel,  shopping services and other related financial  services).  Its
services  also include  making  secured and  unsecured  commercial  and consumer
loans,  financing  commercial  transactions  either directly or through regional
industrial development corporations, making construction and mortgage loans, and
renting safe deposit facilities.  Additional services include making residential
mortgage loans (both fixed rate and variable rate), home equity lines of credit,
loans to purchase  manufactured  homes,  revolving  credit loans with  overdraft
checking protection,  small business loans, student loans, recreational vehicles
and new and used car and truck loans.

     The Bank's business loans include  seasonal credit and collateral loans and
term loans as well as accounts receivable and inventory  financing.  Most of the
Bank's  commercial  customers are small to medium size  businesses  operating in
Northampton,  Lehigh and Monroe Counties,  Pennsylvania,  with concentrations in
the Nazareth,  Allentown,  Bethlehem,  Brodheadsville,  Easton,  and Stroudsburg
areas of Pennsylvania.

<PAGE>

     Trust  services  provided by the Bank  include  services  as  executor  and
trustee under wills and deeds,  as guardian,  custodian and as trustee and agent
for pension, profit sharing and other employee benefit trusts as well as various
investment,  pension and estate planning  services.  Trust services also include
service as transfer  agent and  registrar of stock and bond issues and as escrow
agent.  In addition,  the Bank provides  discount  brokerage  through an outside
supplier of this service, and various tax services.

     The Bank has a relatively  stable  deposit  base and no material  amount of
deposits is obtained from a single  depositor or group of depositors  (including
Federal,  state  and  local  governments).  The  Bank  has not  experienced  any
significant seasonal fluctuations in the amount of its deposits.

     Competition

     All phases of the Bank's business are highly competitive. The Bank's market
area is the primary trade area of Northampton  and Lehigh Counties (known as the
Lehigh  Valley),  and Monroe County,  Pennsylvania  with  concentrations  in the
Nazareth, Allentown, Bethlehem,  Brodheadsville,  Easton, and Stroudsburg areas.
In order to keep pace with its  competition  and the continuing  growth of these
areas,  the Bank  may,  in the  future,  consider  establishing  additional  new
branches,  although  no  assurance  can be given that any new  branches  will be
opened or if opened, that they will be successful.  The Bank competes with local
commercial  banks as well as other  commercial banks with branches in the Bank's
market area. The Bank considers its major competition to be Ambassador/Lafayette
Bank,  headquartered  in  Easton,  Pennsylvania,   with  branches  in  Nazareth,
Bethlehem   and   Allentown,   Pennsylvania,   Vista  Bank,   headquartered   in
Phillipsburg,  New Jersey with branches in Easton,  Pennsylvania,  and Bethlehem
Pennsylvania; First Union Bank, headquartered in Charlotte, North Carolina, with
branch offices in Easton,  Bethlehem,  Stroudsburg and Allentown,  Pennsylvania;
Summit Bancorporation,  headquartered in Princeton, New Jersey, with branches in
Bethlehem,  Easton and Allentown,  Pennsylvania;  and PNC Bank  headquartered in
Pittsburgh,   Pennsylvania,   with   branches   in   Nazareth,   Brodheadsville,
Stroudsburg, Easton and Allentown, Pennsylvania.

     The Bank, along with other commercial  banks,  competes with respect to its
lending  activities,  as well as in  attracting  demand  deposits,  with savings
banks, savings and loan associations,  insurance companies, regulated small loan
companies,  credit  unions  and  the  issuers  of  commercial  paper  and  other
securities,  such as shares in money market  funds.  The Bank also competes with
insurance  companies,  investment  counseling  firms,  mutual  funds  and  other
business firms and individuals in the corporate trust and investment  management
services.  Many of the Bank's  competitors have financial  resources larger than
the Bank's.

     As a result of the recent repeal of the  Glass-Steagall Act which separated
the commercial and investment banking industries,  all banking organizations are
likely to face an increase in competition.  See  "Supervision  and Regulation" -
"Recent Regulation".

     Management  believes  that  the  Bank is  generally  competitive  with  all
competing  financial  institutions in its service areas with respect to interest
rates paid on time and savings deposits, service charges on deposit accounts and
interest rates charged on loans.

<PAGE>

First C. G. Company, Inc.

     In July 1986, the Company established a wholly-owned  subsidiary,  First C.
G.  Company,  Inc.,  a Delaware  corporation,  for the purpose of  investing  in
various types of securities.  As of December 31, 2000, First C. G. Company, Inc.
had total  assets of  $4,455,000,  of which  $2,962,000  was  invested in common
stocks  and  $1,377,000  in loans to the Bank's  ESOP and most of the  remaining
assets were in interest-bearing bank deposits. The total shareholders' equity at
December 31, 2000 was $4,343,000.

Supervision and Regulation

     Bank  holding  companies  and banks are  extensively  regulated  under both
federal and state law. The  regulatory  framework is intended  primarily for the
protection of  depositors,  other  customers and the federal  deposit  insurance
funds  and not for the  protection  of  shareholders.  To the  extent  that  the
following  information  describes  statutory and  regulatory  provisions,  it is
qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory  provisions.  Any change in applicable laws or regulations may have a
material effect on the business and prospects of the Company and the Bank.

     The Company

     The  Company  is  registered  as a "bank  holding  company"  under the Bank
Holding Act of 1956, as amended (the "Holding Company Act"), and is,  therefore,
subject to  supervision  and regulation by the Board of Governors of the Federal
Reserve Board (the "Federal  Reserve  Board").  The Company is also regulated by
the Pennsylvania Department of Banking.

     Under the Holding  Company Act, the Company is required to secure the prior
approval of the Federal  Reserve Board before it can merge or  consolidate  with
any other bank holding company or acquire all or substantially all of the assets
of any bank or acquire  direct or  indirect  ownership  or control of any voting
shares  of any bank that is not  already  majority  owned by it,  if after  such
acquisition,  it would directly or indirectly own or control more than 5% of the
voting shares of such bank. See "Interstate Banking".

     The Company is  generally  prohibited  under the  Holding  Company Act from
engaging in, or acquiring  direct or indirect  ownership or control of more than
5% of the voting shares of any company engaged in non-banking  activities unless
the Federal Reserve Board, by order or regulation,  has found such activities to
be so closely  related to banking or  managing or  controlling  banks as to be a
proper incident thereto. In making such determination, the Federal Reserve Board
considers  whether the performance of these activities by a bank holding company
can  reasonably  be expected to produce  benefits to the public  which  outweigh
possible adverse effects. The Federal Reserve Board has by regulation determined
that certain activities including, among others, operating a mortgage,  finance,
credit card or factoring company; performing certain data processing operations;
providing investment and financial advice; acting as insurance agent for certain
types of credit-related  insurance;  leasing personal property on a full-payout,
non operating  basis;  and,  certain stock  brokerage  and  investment  advisory
services,  are  closely  related to banking  within the  meaning of the  Holding
Company Act.

<PAGE>

     Satisfactory  financial  condition,  particularly  with  regard to  capital
adequacy,  and  satisfactory  Community  Reinvestment  Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions. The
Bank currently is rated "satisfactory" under the Community Reinvestment Act.

     Under the policy of the Federal  Reserve Board with respect to bank holding
company  operations,  a bank  holding  company is deemed to serve as a source of
financial  strength  to its  subsidiary  depository  institutions  and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. Under the Federal Deposit Insurance Corporation  Improvement
Act of 1991 (the "1991 Act"),  a bank  holding  company is required to guarantee
that any  "undercapitalized"  (as such term is defined in the  statute)  insured
depository  institution  subsidiary  will  comply  with the terms of any capital
restoration  plan filed by such subsidiary with its appropriate  federal banking
agency to the  lesser of (i) an amount  equal to 5% of the  institution's  total
assets at the time the institution became  undercapitalized,  or (ii) the amount
which is necessary (or would have been necessary) to bring the institution  into
compliance with all capital  standards as of the time the institution  failed to
comply with such capital restoration plan.

     Under the Holding  Company  Act,  the Company is required to file  periodic
reports and other information  concerning its operations with, and is subject to
examination by, the Federal  Reserve Board. In addition,  under the Banking Code
of 1965, the Pennsylvania Department of Banking has the authority to examine the
books,  records  and  affairs of any  Pennsylvania  bank  holding  company or to
require any documentation deemed necessary to ensure compliance with the Banking
code.

     The  Company  is under the  jurisdiction  of the  Securities  and  Exchange
Commission and various state securities  commissions for matters relating to the
offering  and sale of its  securities,  and is  subject  to the  Securities  and
Exchange  Commission's  rules and  regulations  relating to periodic  reporting,
reporting to shareholders, proxy solicitation and insider trading.

     There are various legal restrictions on the extent to which the Company and
its non-bank  subsidiary can borrow or otherwise  obtain credit from its banking
subsidiary.  In general,  these restrictions require that any such extensions of
credit must be secured by  designated  amounts of specified  collateral  and are
limited,  as to any one of the  Company  of  such  non-bank  subsidiary,  to ten
percent of the lending bank's  capital stock and surplus,  and as to the Company
and its  non-bank  subsidiary  in the  aggregate,  to 20 percent of such lending
bank's  capital  stock and  surplus.  Further,  a bank  holding  company and its
subsidiaries  are  prohibited  from engaging in certain tie-in  arrangements  in
connection with any extension of credit, lease or sale of property or furnishing
of services.

<PAGE>

     The Bank

     The Bank, as a national bank, is subject to The National Bank Act. The Bank
is also subject to the supervision of, and is regularly  examined by, the Office
of the  Comptroller  of the  Currency  of the United  States  (the "OCC") and is
required to furnish  quarterly  reports to the OCC.  The  approval of the OCC is
required for the  establishment  of  additional  branch  offices by any national
bank, subject to applicable state law restrictions.  Under current  Pennsylvania
law,  banking  institutions  located  in  Pennsylvania,  such as the  Bank,  may
establish  branches within any county in the Commonwealth,  subject to the prior
regulatory approval.

     As a  national  bank,  the Bank is a member of the FDIC and a member of the
Federal Reserve System and,  therefore,  is subject to additional  regulation by
these agencies.  Some of the aspects of the lending and deposit  business of the
Bank which are regulated by these agencies  include personal  lending,  mortgage
lending and reserve requirements. The operations of the Bank are also subject to
numerous Federal,  state and local laws and regulations which set forth specific
restrictions  and  procedural  requirements  with  respect to interest  rates on
loans, the extension of credit, credit practices, the disclosure of credit terms
and discrimination in credit transactions.

     The Bank is subject to certain  limitations on the amount of cash dividends
it can pay.  See "Note R -  Regulatory  Matters"  in the  Notes to  Consolidated
Financial Statements which appears elsewhere herein.

     The OCC has authority under the Financial  Institutions  Supervisory Act to
prohibit  national  banks from  engaging  in any  activity  which,  in the OCC's
opinion,   constitutes  an  unsafe  or  unsound  practice  in  conducting  their
businesses.  The Federal Reserve Board has similar authority with respect to the
Company and the Company's non-bank subsidiary.

     Substantially  all of the deposits of the Bank are insured up to applicable
limits by the Bank Insurance Fund ("BIF") of the FDIC and are subject to deposit
insurance  assessments to maintain the BIF. The insurance  assessments are based
upon a matrix that takes into  account a bank's  capital  level and  supervisory
rating.  Effective  January 1, 1996, the FDIC reduced the insurance  premiums it
charged on bank deposits  insured by the BIF to the statutory  minimum of $2,000
annually  for  "well-capitalized"  banks.  On September  30,  1996,  the Deposit
Insurance  Funds Act of 1996  ("DIFA")  was enacted  and signed  into law.  DIFA
reduced the amount of FDIC insurance premiums for savings  association  deposits
acquired by banks to the same levels assessed for deposits  insured by BIF. DIFA
further  provides  for  assessments  to be  imposed  on all  insured  depository
institutions  with  respect  to  deposits  to pay  for  the  cost  of  Financing
Corporation  bonds;  however,  banks  were  assessed  for this  purpose  at only
one-fifth the rate of the assessment on savings  associations until December 31,
1999. As a result of these changes,  the deposit insurance  assessment for banks
and for thrifts has been nearly equalized and have been identical for comparably
rated  institutions since January 1, 2000, at which time banks shared equally in
the FICO assessment and the BIF and SAIF funds were merged.

<PAGE>

     Capital Regulation

     The  Company  and the  Bank  are  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  Company's  financial  condition  and results of
operation.  Under capital adequacy  guidelines and the regulatory  framework for
prompt  corrective  action,  the Company and the Bank must meet specific capital
guidelines  that involve  quantitative  measures of the Company's and the Bank's
assets,  liabilities,  and certain  off-balance-sheet  items as calculated under
regulatory  accounting  practices.  The Company's and the Bank's capital amounts
and classification  are also subject to qualitative  judgments by the regulators
about components, risk weightings, and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain  minimum amounts and ratios of Tier
1  capital  of at  least  4% and  total  capital,  Tier 1 and  Tier  2, of 8% of
risk-adjusted  assets  and of Tier 1  capital  from 3% to 5% of  average  assets
(leverage  ratio).  The 3% leverage ratio is a minimum for the top-rated banking
organizations  without any supervisory,  financial or operational  weaknesses or
deficiencies  and other banking  organizations  are expected to maintain leveral
capital  ratios 100 to 200 basis  points  above the minimum  depending  on their
financial  condition.  Tier 1 capital includes common  shareholders'  equity and
qualifying  perpetual  preferred  stock  together  with  related  surpluses  and
retained  earnings.  Tier 2 capital may be comprised  of limited life  preferred
stock, qualifying debt instruments,  and the allowance for possible loan losses.
Management believes,  as of December 31, 1999 that the Company and the Bank meet
all capital adequacy requirements to which they are subject.

     The  following  tables  provide a comparison  of the  Company's  and Bank's
capital amounts,  risk-based  capital ratios and leverage ratios for the periods
indicated.

<PAGE>

CAPITAL RATIOS
<TABLE>
                                                                  To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At December 31, 2000        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $35,733   15.16%   $18,862   8.00%      ---    ---
  Bank                      $31,161   13.03%   $19,127   8.00%  $23,909  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,313   14.13%   $ 9,431   4.00%      ---    ---
  Bank                      $28,750   12.02%   $ 9,564   4.00%  $14,345   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $33,313   8.00%    $16,654   4.00%      ---    ---
  Bank                      $28,750   6.95%    $16,557   4.00%  $20,697   5.00%
</TABLE>


<TABLE>
                                                                   To Be Well
                                                                  Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At December 31, 1999        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $34,329   16.67%   $16,477   8.00%      ---    ---
  Bank                      $30,831   15.00%   $16,446   8.00%  $20,557  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,892   15.48%   $ 8,239   4.00%      ---    ---
  Bank                      $28,194   13.71%   $ 8,223   4.00%  $12,334   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $31,892   8.32%    $15,324   4.00%      ---    ---
  Bank                      $28,194   7.41%    $15,210   4.00%  $19,012   5.00%

</TABLE>

<PAGE>

     Interstate Banking

     On  September  29, 1994,  the  President  signed into law the  "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act").
Among other things, the Interstate Act permits bank holding companies to acquire
banks in any state after September 29, 1995.  Beginning June 1, 1997, a bank may
merge with a bank in another  state so long as both states have not opted out of
interstate branching between the date of enactment of the Interstate Act and May
31, 1997.  States may enact laws opting out of interstate  branching before June
1, 1997,  subject to certain  conditions.  States may also enact laws permitting
interstate  merger  transactions  before June 1, 1997 and host states may impose
conditions on a branch  resulting  from an interstate  merger  transaction  that
occurs  before  June 1, 1997,  if the  conditions  do not  discriminate  against
out-of-state banks, are not preempted by Federal law and do not apply or require
performance  after  May 31,  1997.  Pennsylvania  has  enacted  a law  opting in
immediately  to  interstate  merger  and  interstate   branching   transactions.
Interstate  acquisitions  and  mergers  would both be subject,  in  general,  to
certain  concentration  limits and state entry rules  relating to the age of the
bank.

     Under the Interstate Act, the Federal  Deposit  Insurance Act is amended to
permit the responsible Federal regulatory agency to approve the acquisition of a
branch  of an  insured  bank by an  out-of-state  bank or bank  holding  company
without the acquisition of the entire bank or the  establishment  of a "de novo"
branch  only if the law of the state in which  the  branch  is  located  permits
out-of-state  banks to acquire a branch of a bank without  acquiring the bank or
permits  out-of-state  banks to establish "de novo" branches.  Pennsylvania  has
enacted such a law.

     Recent Legislation

     On November  12, 1999 the  Gramm-Leach-Bliley  Act (the "Act")  became law,
repealing  the  1933  Glass-Steagall  Act's  separation  of the  commercial  and
investment  banking  industries.   The  Act  expands  the  range  of  nonbanking
activities  a bank  holding  company may engage in,  while  preserving  existing
authority for bank holding  companies to engage in  activities  that are closely
related  to  banking.  The new  legislation  creates a new  category  of holding
company called a "Financial Holding Company", a subset of bank holding companies
that  satisfy the  following  criteria:  (1) all of the  depository  institution
subsidiaries  must be well  capitalized  and well  managed;  and (2) the holding
company must have made an effective  election to be a financial  holding company
to engage in activities that would not have been permissible  before the Act. In
order  for the  election  to be  effective,  all of the  depository  institution
subsidiaries  must  have a CRA  rating of  "satisfactory"  or better at its most
recent  examination.  The Company has not yet elected to be a financial  holding
company.  Financial  holding  companies  may engage in any activity  that (i) is
financial  in  nature  or  incidental  to  such  financial  activity  or (ii) is
complementary  to a financial  activity and does not pose a substantial  risk to
the safety and soundness of  depository  institutions  or the  financial  system
generally.  The Act specifies  certain  activities that are financial in nature.
These activities include - acting as principal, agent or broker for insurance; -
underwriting,  dealing  in or making a market  in  securities;  and -  providing
financial and investment  advice. The Federal Reserve Board and the Secretary of
the  Treasury  have  authority  to  decide  whether  other  activities  are also
financial in nature or  incidental  to financial  activity,  taking into account
changes in  technology,  changes in the  banking  marketplace,  competition  for
banking services and so on.

<PAGE>

     These new financial activities authorized by the Act may also be engaged in
by a "financial subsidiary" of a national or state bank, except for insurance or
annuity  underwriting,  insurance  company  portfolio  investments,  real estate
investment and development,  and merchant banking,  which must be conducted in a
financial  holding  company.  In order for the new  financial  activities  to be
engaged in by a  financial  subsidiary  of a  national  or state  bank,  the Act
requires  each of the parent  bank (and its  sister-bank  affiliate)  to be well
capitalized and well managed;  the aggregate  consolidated assets of all of that
bank's  financial  subsidiaries  may  not  exceed  the  lesser  of  45%  of  its
consolidated  total  assets  or $50  billion;  the  bank  must  have at  least a
satisfactory  CRA rating;  and, if that bank is one of the 100 largest  national
banks, it must meet certain financial rating or other comparable requirements.

     The Act  establishes  a system of  financial  regulation,  under  which the
federal  banking  agencies  will  regulate the banking  activities  of financial
holding companies and bank's financial subsidiaries, the Securities and Exchange
Commission  will  regulate  their  securities  activities  and  state  insurance
regulators will regulate their insurance  activities.  The Act also provides new
protections against the transfer and use by financial institutions of consumers'
nonpublic, personal information.

     National Monetary Policy

     In addition to being affected by general economic conditions,  the earnings
and growth of the Bank and,  therefore,  the earnings and growth of the Company,
are affected by the policies of regulatory  authorities,  including the OCC, the
Federal Reserve Board and the FDIC. An important function of the Federal Reserve
Board is to regulate the money supply,  credit  conditions  and interest  rates.
Among  the  instruments  used to  implement  these  objectives  are open  market
operations in United States Government securities, setting the discount rate and
changes in reserve  requirements  against bank deposits.  These  instruments are
used in varying  combinations  to influence  overall growth and  distribution of
credit,  bank loans,  investments  and  deposits,  and their use may also affect
interest rates charged on loans or paid on deposits.

     The monetary policies and regulations of the Federal Reserve Board have had
a significant  effect on the operating  results of commercial  banks in the past
and are  expected  to  continue  to do so in the  future.  The  effects  of such
policies  upon the future  business,  earnings and growth of the Company and the
Bank cannot be predicted.

     Fair Value of Financial Instruments

     The Financial  Accounting  Standards  Board  ("FASB")  issued  statement of
financial accounting standards (SFAS) No. 107,  "Disclosures About Fair Value of
Financial  Instruments",  which  requires all entities to disclose the estimated
fair value of its assets and liabilities considered to be financial instruments.
Financial instruments consist primarily of securities,  loans and deposits.  The
Company has provided these  disclosures as of December 31, 2000 and 1999 in Note
T of the Notes to Consolidated Financial Statements contained under the caption,
"Item 8. Financial Statements and Supplementary Data".

<PAGE>

     Accounting for Investment Securities

     The  Company  classifies  its debt and  marketable  securities  into  three
categories: trading, available-for-sale, and held-to-maturity as provided by the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 115,  "Accounting  for Certain  Investments  in Debt and Equity  Securities"
(SFAS No. 115).  Trading  securities are measured at fair value with  unrealized
holding  gains and  losses  included  in  income.  The  Company  had no  trading
securities in 2000 and 1999. Available-for-sale securities are stated separately
on  the  financial  statements  and  are  discussed  in  the  following  section
"Securities  Available-for-Sale".  Held-to-maturity  securities  are  carried at
amortized  cost  and  identified  as  investment  securities  in  the  financial
statements. The classification of securities can be found in Note B of the Notes
to  Consolidated  Financial  Statements  contained  under the caption,  "Item 8.
Financial Statements and Supplementary Data".

     Employees

     As of December 31, 2000 the Company had  approximately  211  employees,  of
whom  43 were  part-time.  The  Company  considers  its  relationship  with  its
employees to be good.

     Additional Information

     The tables listed below, which are set forth on pages 17 through 22 herein,
contain  unaudited  information  relevant to the business of the Company and the
Bank:

           Investment Securities
           Investment Securities Yield by Maturity
           Loan Portfolio by Type
           Loan Maturities and Interest Sensitivity
           Allocation of the Allowance for Possible Loan Losses
           Percentage of Total Loans in each Category to Total Loans
           Average Deposit Balances by Major Classification
           Maturities of Certificates of Deposit of $100,000 or more

<PAGE>

                              INVESTMENT SECURITIES

Summary of  Available-for-Sale  and Held-to-Maturity  Securities at December 31,
(Dollars in Thousands)

<TABLE>
                                             2000
Available-for-Sale Securities                 Carrying Amount
                                  Amortized      at Fair
                                    Cost          Value
<S>                              <C>           <C>
U. S. Treasury                    $  4,011      $  4,022
U. S. Government Agency             79,145        79,099
State and Political Subdivisions    28,210        28,253
Mortgage-Backed Securities          44,110        44,129
Equity Securities                    8,496         8,526
                                   -------       -------
     Total                        $163,972      $164,029
</TABLE>

<TABLE>
                                             1999
Available-for-Sale Securities                 Carrying Amount
                                  Amortized      at Fair
                                    Cost          Value
<S>                              <C>           <C>
U. S. Treasury                    $  4,001      $  3,992
U. S. Government Agency             53,112        49,747
State and Political Subdivisions    29,147        27,879
Mortgage-Backed Securities          47,332        46,030
Equity Securities                    5,312         4,708
                                   -------       -------
     Total                        $138,904      $132,356
</TABLE>

<TABLE>
                                            1998
Available-for-Sale Securities                 Carrying Amount
                                  Amortized      at Fair
                                    Cost          Value
<S>                               <C>           <C>
U. S. Treasury                     $ 7,026       $ 7,125
U. S. Government Agency             24,482        24,441
State and Political Subdivisions    27,860        28,466
Mortgage-Backed Securities          33,322        33,141
Equity Securities                    4,900         5,216
                                   -------       -------
     Total                         $97,590       $98,389
</TABLE>

<PAGE>

<TABLE>
                                             2000
Held-to-Maturity Securities    Carrying Amount  Approximate
                                 at Amortized      Fair
                                     Cost         Value
<S>                               <C>          <C>
U. S. Government Agencies          $ 7,937      $ 7,903
State and Political Subdivisions     8,016        7,991
Mortgage-Backed Securities           4,019        4,012
                                   -------      -------
     Total                         $19,972      $19,906
</TABLE>

<TABLE>
                                               1999
Held-to-Maturity Securities    Carrying Amount  Approximate
                                at Amortized        Fair
                                     Cost          Value
<S>                               <C>          <C>
U. S. Government Agency            $ 6,894      $ 6,588
State and Political Subdivisions     7,974        7,583
Mortgage-Backed Securities           5,019        4,952
                                   -------       -------
     Total                         $19,887      $19,123
</TABLE>

<TABLE>
                                           1998
Held-to-Maturity Securities    Carrying Amount  Approximate
                                at Amortized       Fair
                                     Cost         Value
<S>                               <C>          <C>
U. S. Government Agency            $ 4,992      $ 5,026
State and Political Subdivisions     6,770        6,943
Mortgage-Backed Securities           5,961        5,951
                                   -------      -------
     Total                         $17,723      $17,920
</TABLE>

<PAGE>

                     INVESTMENT SECURITIES YIELD BY MATURITY

     The maturity  distribution  and weighted  average  yield of the  investment
portfolio  of the Company at December 31, 2000 are  presented  in the  following
table. Weighted average yields on tax-exempt obligations have been computed on a
fully taxable  equivalent  basis  assuming a tax rate of 34%. All average yields
were  calculated on the book value of the related  securities.  Equity and other
securities  having no stated maturity have been included in the "After 10 Years"
category.

     Available-for-Sale and Held-to-Maturity Investment Securities Yield by
                         Maturity, at December 31, 2000

<TABLE>

AVAILABLE-FOR-SALE
AT FAIR VALUE                                   After 1 But       After 5 But
(Dollars in Thousands)     Within One Year     Within 5 Years    Within 10 Years
                            Amount   Yield      Amount   Yield    Amount   Yield
<S>                      <C>         <C>      <C>        <C>    <C>       <C>
U. S. Treasury            $ 2,000     5.69 %   $ 2,023    6.05 % $    --    -- %
U. S. Government Agency        --       --      13,053    6.86     36,742  6.80
Mortgage-backed Securities      1     9.00         250    5.93      6,028  6.34
State and Political
 Subdivisions                 145     6.29       1,465    6.98     10,357  7.00
Equity Securities              --       --          --      --         --   --
                            -----     ----     -------    ----    -------  ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES              $ 2,146     5.73 %   $16,791    6.76 %  $53,127  6.79%
                            =====     ====     =======    ====    =======  ====
Average Of Avail-for-Sale
 Securities in years         0.20                 3.41               7.79
                             ====                 ====               ====
</TABLE>

<TABLE>

AVAILABLE-FOR-SALE
AT FAIR VALUE
(Dollars in Thousands)           After 10 Years             Total
                                 Amount   Yield         Amount    Yield
<S>                           <C>        <C>          <C>        <C>

U. S. Treasury                 $   --       -- %      $  4,023    5.87 %
U. S. Government Agency         26,462    7.27          76,257    6.97
Mortgage-backed Securities      40,692    6.83          46,971    6.76
State and Political
 Subdivisions                   16,285    7.30          28,252    7.17
Equity Securities                8,526    6.07           8,526    6.07
                                 -----    ----         -------    ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES                   $91,965    6.97 %      $164,029    6.87 %
                               =======    ====         =======    ====
Average Of Avail-for-Sale
 Securities in years             19.58                   13.85
                                 =====                   =====
</TABLE>

<PAGE>

<TABLE>

HELD-TO-MATURITY
AT AMORTIZED COST                                After 1 But       After 5 But
(Dollars in Thousands)     Within One Year     Within 5 Years    Within 10 Years
                            Amount   Yield    Amount    Yield   Amount   Yield
<S>                      <C>        <C>      <C>        <C>     <C>      <C>
U. S. Government Agency   $   --       -- %   $    --      -- %  $ 5,125  7.04 %
Mortgage-backed Securities     3     6.50         303    6.57        671  6.63
State and Political
 Subdivisions                201     7.59       1,938    6.99      1,913  7.00
                          ------     ----     -------    ----    -------  ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES              $  204     7.57 %   $ 2,241    6.94 %  $ 7,709  7.00%
                           =====     ====     =======    ====    =======  ====
Average Of Held-to-Maturity
 Securities in years        0.54                 3.60               8.10
                            ====                 ====               ====
</TABLE>

<TABLE>

HELD-TO-MATURITY
AT AMORTIZED COST
(Dollars in Thousands)           After 10 Years             Total
                                 Amount   Yield         Amount    Yield
<S>                           <C>        <C>          <C>        <C>
U. S. Government Agency        $ 2,812    7.61 %      $  7,937    7.24 %
Mortgage-backed Securities       3,043    5.93           4,020    6.10
State and Political
 Subdivisions                    3,963    8.77           8,015    7.89
                                 -----    ----         -------    ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES                   $ 9,818    7.56 %      $ 19,972    7.27 %
                               =======    ====         =======    ====
Average Of Held-to-Maturity
 Securities in years             18.54                   12.65
                                 =====                   =====
</TABLE>

<PAGE>

                             LOAN PORTFOLIO BY TYPE

     The loan  portfolio by type is summarized  in the  following  table for the
years ended December 31, 2000, 1999, 1998, 1997 and 1996.

<TABLE>
Loan Portfolio by Type
(Dollars in Thousands) For the Year Ended December 31,
                                   2000      1999      1998      1997      1996
-------------------------------------------------------------------------------
<S>                           <C>       <C>       <C>       <C>       <C>
Real Estate - Residential      $128,862  $112,870  $119,914  $138,539  $134,013
Real Estate - Construction        5,923     6,737    11,689    12,361    10,923
Real Estate - Commercial         27,206    26,809    29,587    34,579    39,421
Consumer/Installment             53,062    45,886    40,184    35,914    28,870
Commercial (non-Real Estate)
    and Agricultural             10,214     9,538    10,900     9,086     8,715
State and Political Subdivisions  2,089     1,096     1,178       944       906
Other                                19        13        10        20        28
                              -------------------------------------------------
TOTAL GROSS LOANS               227,375   202,949   213,462   231,443   222,876

Unearned Income                    (431)     (691)   (1,025)   (1,856)   (2,759)
                              -------------------------------------------------
Total Loans                     226,944   202,258   212,437   229,587   220,117

Allowance for Possible
    Loan Losses                  (2,411)   (2,437)   (2,691)   (2,664)   (2,532)
                              -------------------------------------------------
NET LOANS                      $224,533  $199,821  $209,746  $226,923  $217,585
                              =================================================
</TABLE>

     At December 31, 2000 there were no  categories  of loans  exceeding  10% of
total loans which are not otherwise  disclosed as the categories of loans listed
in the above table.

<PAGE>

LOANS MATURITIES AND INTEREST SENSITIVITY

     The maturity ranges of items in the loan portfolio  (excluding  residential
mortgages of 1 to 4 family  residences  and consumer  loans) of the Bank and the
amount of loans with  predetermined  interest rates and floating  interest rates
due after one year,  as of December 31, 2000,  are  summarized  in the table set
forth below.  The  determination  of maturities  included in the table are based
upon contract terms.  Demand loans that do not have a defined repayment term are
reported  as  maturing  within  one year.  In  situations  where a  rollover  is
appropriate,  the Bank's  policy in this  regard is to  evaluate  the credit for
collectibility  consistent with the normal loan evaluation process.  This policy
is used primarily in evaluating  ongoing customers' use of their lines of credit
with the Bank that are at  floating  interest  rates.  Management  continues  to
emphasize  the  granting of  floating  interest  rate loans to better  match the
interest sensitivity of deposits.

Loan Maturity and Interest Sensitivity
<TABLE>
                                   Due in     Due in       Due in
As of December 31, 2000           One Year    One to        Over
      (Dollars in Thousands)      or Less   Five Years   Five Years     Total
-------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>          <C>
Real Estate - Construction       $ 2,033     $1,209      $ 2,681      $ 5,923
Real Estate - Commercial          15,024      9,086        3,096       27,206
Commercial (Non-Real Estate)
     and Agricultural              6,215      2,445        1,554       10,214
                                  ------     ------      -------      -------
     TOTAL                       $23,272    $12,740      $ 7,331      $43,343
                                  ======    =======      =======      =======
Loan Maturity After 1 Year With:
     Predetermined Interest Rate            $ 5,176     $ 4,028
     Floating Interest Rate                   7,564       3,303
                                             ------      ------
        TOTAL                               $12,740     $ 7,331
                                            =======     =======
</TABLE>

<PAGE>

     The following  table  details the  Allocation of the Allowance for Possible
Loan Losses by the various loan  categories.  The allocation is not  necessarily
indicative  of the  categories  in which future loan losses will occur,  and the
entire allowance is available to absorb losses in any category of loans.

              ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
                                               As of December 31,
                                2000      1999       1998       1997       1996
-------------------------------------------------------------------------------
Loan Categories                              (Dollars in Thousands)
<S>                         <C>        <C>        <C>        <C>        <C>
 Commercial                  $  779     $  901     $1,350     $1,183     $  663
 Real Estate- Construction       --         --          4          6          7
 Real Estate - Residential      281        212        128        191        198
 Consumer/Installment           964        764        738        785        811
 Unallocated                    387        560        471        499        853
                             ------     ------     ------     ------     ------
      TOTAL                  $2,411     $2,437     $2,691     $2,664     $2,532
                             ======     ======     ======     ======     ======
</TABLE>

            PERCENTAGE OF TOTAL LOANS IN EACH CATEGORY TO TOTAL LOANS

<TABLE>
                                              As of December 31,
                                2000      1999      1998      1997       1996
   ----------------------------------------------------------------------------
Loan Categories                            (Dollars in Thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
 Commercial                    17.38 %   18.46 %   19.52 %   19.28 %   22.02 %
 Real Estate - Construction     2.61      3.32      5.48      5.34      4.90
 Real Estate - Residential     56.67     55.61     56.18     59.86     60.13
 Consumer/Installment          23.34     22.61     18.82     15.52     12.95
                               -----     -----     -----     -----     -----
      TOTAL                   100.00 %  100.00 %  100.00 %  100.00 %  100.00 %
                              ======    ======    ======    ======    ======
</TABLE>

<PAGE>

     The average  balances of deposits for each of the years ended  December 31,
2000, 1999 and 1998 are presented in the following table.

                AVERAGE DEPOSIT BALANCES BY MAJOR CLASSIFICATION
<TABLE>
                                     For the Year Ended December 31,
                                 2000             1999              1998
                            Average         Average           Average
                            Balance  Rate   Balance   Rate    Balance   Rate
                                         (Dollars in Thousands)
<S>                      <C>       <C>    <C>       <C>      <C>       <C>
Demand Deposits
   Non-Interest Bearing   $ 43,893   --- % $ 41,337   --- %   $ 35,254   --- %
   Interest Bearing         53,151  1.01     52,395  1.18       48,988  1.15
Money Market Deposits       13,461  2.79     13,827  2.76       14,366  2.81

Savings & Club Accounts     62,834  2.22     63,199  2.06       61,177  2.21
Certificates of Deposit
   under $100,000          157,164  5.60    139,076  5.26      124,823  5.59
Certificates of Deposit
   of $100,000 or more       5,886  5.18      5,040  4.01        4,700  3.72
                            ------  ----     ------  ----       ------  ----
      Total Deposits      $336,389         $314,874           $289,308
                          ========         ========           ========
</TABLE>

            MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
                                                    At December 31,
(Dollars in Thousands)                          2000              1999
                                       -----------------------------------
<S>                                          <C>               <C>
Three Months or Less                          $3,564            $  252
Over Three, Through Six Months                 2,656               471
Over Six, Through Twelve Months                1,577             2,547
Over Twelve Months                               429             1,835
                                       -----------------------------------

     TOTAL                                    $8,226            $5,105
                                       ===================================
</TABLE>

     There were no brokered deposits at December 31, 2000 and 1999.

<PAGE>

Item 2.  Description of Property

     The principal  banking office of the Bank and the executive  offices of the
Bank and the  Company  are  located  at 76 South Main  Street in the  Borough of
Nazareth, Northampton County, Pennsylvania, which building is owned by the Bank.
In  addition,  the Bank owns  additional  properties  located at 29 South  Broad
Street,  Nazareth,  Pennsylvania  (Mortgage and  Installment  Loan Center);  553
Nazareth Drive,  Nazareth,  Pennsylvania  (Branch  Office);  33 S. Broad Street,
Nazareth  (Branch Office),  2000 Sullivan Trail,  Easton,  Pennsylvania  (Branch
Office),  3864 Adler Place,  Bethlehem  Business Park,  Bethlehem,  Pennsylvania
(First   Colonial   Building,   Computer  and   Operations   Center),   Rt.  209
Brodheadsville,  Pennsylvania (Branch Office), and 3856 Easton-Nazareth  Highway
(Route 248),  Lower  Nazareth  Township,  Easton,  Pennsylvania  (free-standing,
drive-up ATM location).

     The Bank also leases  facilities  for its branch office  located at 44 East
Broad Street,  Bethlehem,  Pennsylvania;  its branch office located at 4510 Bath
Pike in Hanover Township (Bethlehem), Pennsylvania; its branch office located at
101 South Third Street, Easton, Pennsylvania;  its branch office located at 1125
N. Ninth Street,  Stroudsburg,  Pennsylvania;  its branch office  located at 713
Main Street,  Stroudsburg,  Pennsylvania;  its branch office located in the Hall
Square  Retirement  Center,  175 W. North Street,  Nazareth,  Pennsylvania;  its
branch office  located within  Redner's  Supermarket,  Airport Road,  Allentown,
Pennsylvania;  and  its  branch  office  located  within  Redner's  Supermarket,
Northampton  Crossings Shopping Center,  Lower Nazareth Township,  Pennsylvania;
its  branch  office  located  within  Wal-Mart's  at 355  Lincoln  Avenue,  East
Stroudsburg,  Pennsylvania;  its branch office located within  Wal-Mart's at 500
Route 940, Mt. Pocono, Pennsylvania;  its branch office located within the Giant
Supermarket, 2540 McArthur Road, Whitehall,  Pennsylvania; and its branch office
located  within the Giant  Supermarket,  6900 Hamilton  Boulevard,  Trexlertown,
Pennsylvania..

Item 3.  Legal Proceedings

     The Company has reserved $2.48 million  against  asserted claims and claims
which have been or may be asserted  against the Bank in connection  with certain
pre-need funeral trust funds. Most of the claims arise from Trusts, in which the
Company  was  allegedly  directed  by funeral  directors  to invest in a private
placement  annuity issued by EA  International  Trust.  The Bank has settled the
asserted claims for the amount reserved.

     From  time-to-time,  the  Company  and the  Bank  are  parties  to  routine
litigation incidental to their business.

<PAGE>

     Neither the Company, the Bank nor any of their properties is subject to any
other material legal proceedings, nor are any such proceedings known to be
contemplated by any governmental authorities.

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

     No matter was submitted to a vote of shareholders during the fourth quarter
of the fiscal year covered by this report.

Item 4.1:  Executive Officers of the Registrant

     The following table sets forth certain information, as of March 30, 2000,
concerning the executive officers of the Company and certain executive officers
of the Bank who are not also Directors.

                              Positions                    Positions
 Name/Age                   with the Company               with the Bank

Reid L. Heeren         Treasurer since January,       Executive Vice President
59 (a)                  1987; Vice President since    and Chief Financial
                        April, 1985                   Officer since August, 1997
                                                      Senior Vice President and
                                                      Chief Financial Officer
                                                      since January, 1987;
                                                      Cashier since
                                                      November, 1984

Tomas J. Bamberger        None                        Executive Vice President
68 (b)                                                and Senior Loan Officer
                                                      since September, 1997

Robert M. McGovern        None                        Executive Vice President,
61 (d)                                                Senior Trust Officer
                                                      since February, 1999

<PAGE>


(a) Mr. Heeren was previously Senior Vice President, Chief Financial Officer and
Cashier of the Bank from January 1987 to August 1997 and Vice President, Finance
of the Bank from November,  1984 to January, 1987. Prior to November,  1984, Mr.
Heeren was employed by the American  Bank and Trust  Company,  headquartered  in
Reading,  Pennsylvania,  as Vice President for Financial Management  (September,
1982 to  November,  1984) and was Vice  President,  Community  Banking,  Chester
County, Pennsylvania (March, 1982 to September, 1982).

(b) Mr.  Bamberger  was  previously  Executive  Vice  President  and Senior Loan
Officer of First Valley  Bank/Summit  Bank (PA) from  February 1984 to September
1997. Prior to that, he was Senior Vice President and Senior Loan Officer of the
First National Bank of Allentown from March 1982 to February 1984. Mr. Bamberger
started his banking  career in October 1967 at Girard Bank in  Philadelphia.  He
was a Vice President and Divisional  Manager in commercial  lending when he left
in February 1982.

(c) Mr.  McGovern was previously  Vice President and Senior Trust  Specialist of
First Union National Bank from April 1998 to February  1999.  Prior to that, Mr.
McGovern was Vice  President/Trust  of CoreStates  Bank from 1996 to 1998.  From
1985 until 1996, Mr.  McGovern was employed by Meridian  Bank,  most recently as
Vice President until it was acquired by CoreStates Bank in 1996.

<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
------   ---------------------------------------------------------------------

     First  Colonial  Group,  Inc.  common stock  trades on the Nasdaq  National
Market under the trading  symbol FTCG.  In newspaper  listings,  First  Colonial
Group,  Inc. shares are frequently listed as "First Colnl" or "First Col Group".
At the close of business on December 31, 2000,  there were 772  shareholders  of
record.

     The  declaration  and payment of dividends is at the sole discretion of the
Board of  Directors,  and their  amount  depends  upon the  earnings,  financial
condition,  and capital  needs of the  Company  and the Bank and  certain  other
factors including restrictions arising from Federal banking laws and regulations
(see  "Note R -  Regulatory  Matters"  in the "Notes to  Consolidated  Financial
Statements")  and a certain loan agreement (see "Note H - Long-Term Debt" in the
"Notes to Consolidated Financial Statements").

     The following table sets forth for the periods  indicated high and low sale
prices  reported for the  Company's  common stock and the  respective  dividends
declared per common  share.  The last sale price was $13.50 in December 2000 and
$16.55 in December 1999. Stock prices and dividends per share have been restated
to  reflect  the 5% stock  dividends  of June 2000 and June 1999 (see  "Note S -
Equity  Transactions"  in  the  "Notes  to  Consolidated  Financial  Statements"
contained in "Item 8. Financial Statements and Supplementary Data").

<TABLE>
-------------------------------------------------------------------------------
                                                              Cash Dividends
                             High              Low               Declared
-------------------------------------------------------------------------------
<S>                       <C>               <C>                <C>
1999
     First Quarter         $26.30            $20.87             $ 0.1724
     Second Quarter         22.86             19.72               0.1724
     Third Quarter          23.10             17.62               0.1810
     Fourth Quarter         19.05             16.37               0.1810
                                                                 -------
     TOTAL                                                      $ 0.7068
-------------------------------------------------------------------------------
2000
     First Quarter         $18.69            $14.05             $ 0.1810
     Second Quarter         16.33             12.26               0.1810
     Third Quarter          17.00             12.00               0.1900
     Fourth Quarter         16.50             12.75               0.1900
                                                                 -------
     TOTAL                                                      $ 0.7420
-------------------------------------------------------------------------------
</TABLE>

     The Company did not sell any of its equity securities during 2000 that were
not registered under the Securities Act.

<PAGE>

Item 6.       Selected Financial Data

                        Consolidated Financial Highlights
<TABLE>
--------------------------------------------------------------------------------
(Dollars in Thousands,                                         Percentage Change
except per share data)              2000       1999      1998   2000/99  1999/98
--------------------------------------------------------------------------------
<S>                            <C>        <C>        <C>        <C>      <C>
At Year-End

  Assets                        $ 443,051  $ 391,889  $ 358,496  13.1 %    9.3 %
  Deposits                        353,190    324,480    294,549   8.8     10.2
  Loans                           226,944    202,258    212,437  12.2     (4.8)
  Shareholders' Equity             33,521     28,243     31,717  18.7    (11.0)

For the Year

  Net Interest Income           $  15,340  $  14,904 $   14,496   2.9 %    2.8 %
  Net Income                        2,072      3,282      3,032 (36.9)     8.2

Per Share *
  Basic Net Income              $    1.09  $    1.75 $     1.60 (37.8)%    9.4 %
  Diluted Net Income                 1.09       1.74       1.59 (37.5)     9.4
  Dividends Paid                     0.74       0.70       0.67   5.7      4.5
  Book Value                        17.08      15.28      18.17  11.8    (15.9)

Financial Ratios

  Return on Average Assets           .50%       .86%       .86%
  Return on Average Equity          7.04%     10.90%      9.79%
  Tier I Capital
    to Average Assets (Leverage)    8.00%      8.32%      8.60%

</TABLE>
* Per share data have been  restated to reflect the 5% stock  dividends  of June
  2000, June 1999 and June 1998.

<PAGE>


Item 7.       Management's Discussion and Analysis of Financial Condition and
              Results of Operations

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


     The  following  financial  review and  analysis  are  intended to assist in
understanding  and evaluating  the major changes in the financial  condition and
earnings  performance  of First  Colonial  Group,  Inc. (the  "Company")  with a
primary focus on the analysis of operating  results for the years ended December
31,  2000,  1999 and 1998.  The  Company's  consolidated  earnings  are  derived
primarily from the  operations of Nazareth  National Bank and Trust Company (the
"Bank") and First C. G. Company,  Inc.  ("First C. G."). The  information  below
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements  and  accompanying  notes  thereto,  and other  detailed  information
appearing  elsewhere in this report.  Additional  financial  information  can be
found in the  Company's  Form 10-K report,  a copy of which may be obtained upon
request.  During the two most recent fiscal years, there have been no changes in
or  disagreements  with the Company's  accountants  on accounting  and financial
disclosure. The information concerning share and per share data included in this
discussion  has been  restated to reflect the 5% stock  dividends  of June 2000,
1999 and 1998.

                           Forward Looking Statements

     The information  contained in this Annual Report  contains  forward looking
statements (as such term is defined in the  Securities  Exchange Act of 1934 and
the regulations  thereunder),  including,  without limitation,  statements as to
future loan and deposit  volumes,  the allowance and provision for possible loan
losses,  future  interest  rates and their  effect  on the  Company's  financial
condition  or  results  of  operations,  the  classification  of  the  Company's
investment  portfolio,  statements as to litigation  and the amount of reserves,
and other statements which are not historical facts or as to the Company's,  the
Bank's or management's  intentions,  plans,  beliefs,  expectations or opinions.
Such forward looking  statements are subject to risks and  uncertainties and may
be  affected  by  various  factors  which may  cause  actual  results  to differ
materially  from those in the  forward  looking  statements  including,  without
limitation,  the effect of economic  conditions and related  uncertainties,  the
effect  of  interest  rates on the  Company  and the  Bank,  Federal  and  state
government  regulation,  competition,  and the results of litigation.  These and
other risks, uncertainties and other factors are discussed in this Annual Report

<PAGE>

or in the Company's  Annual Report on Form 10-K for the year ended  December 31,
2000, a copy of which may be obtained  from the Company upon request and without
charge (except for the exhibits thereto).

                         Financial Performance Summary

     In 2000,  First Colonial Group recorded net income of $2,072,000.  The 2000
net income was $1,210,000 or 36.9% lower than 1999 net income of $3,282,000. The
Company's net income in 1998 was  $3,032,000.

     The basic earnings per share were $1.09,  $1.75 and $1.60 in 2000, 1999 and
1998, respectively.  The diluted earnings per share were $1.09 in 2000, $1.74 in
1999 and $1.59 in 1998.  Diluted earnings per share include the effect of common
stock  equivalents  such as options  (see Note P of the  "Notes to  Consolidated
Financial Statements").

     The Company's return on average assets was .50% in 2000 as compared to .86%
in 1999 and .86% in 1998.  The  return on average  equity was 7.04%,  10.90% and
9.79% in 2000, 1999 and 1998, respectively.

     The  principal  factor  affecting  the  decline in  earnings  in 2000 was a
$2,272,000 or 15.5% increase in total other expenses.  Included in this increase
in expenses  was an addition of  $1,012,000  to the special  reserve for Funeral
Trust  litigation  (see  discussion  on Liquidity and Capital  Resources).  Also
affecting  earnings was a decrease of $389,000 or 69.1% in net gains on the sale
of  securities  and a  $98,000  or  62.4%  decline  on the  gains on the sale of
residential real estate loans. These reductions in income were offset in part by
increases  of $436,000 or 2.9% in net  interest  income and $454,000 or 12.5% in
other income,  exclusive of the net gains on the sales of investment  securities
and real  estate  loans  held-for-sale.  Also  impacting  earnings in 2000 was a
reduction of $659,000 or 71% in Federal income taxes.

     The change in 1999  earnings  was the result of a $408,000  increase in net
interest  income and an increase of $175,000 in other  income,  exclusive of net
gains on the sale of securities and  mortgages,  a decrease in the provision for
possible  loan  losses of $75,000  and a reduction  in Federal  income  taxes of
$102,000.  Offsetting the earnings  increases were a decline in net gains on the
sale of securities and mortgage loans of $400,000 and higher operating  expenses
of $110,000.

     The Company continued to achieve growth in total assets and deposits. Total
assets at December 31, 2000 were  $443,051,000  as compared to  $391,889,000  at
year end 1999. This was an increase of $51,162,000 or 13.1%.  During 2000, total
deposits grew by 8.8% or $28,710,000 to a year-end total of $353,190,000.  Total

<PAGE>


deposits  at  December  31,  1999 were  $324,480,000.  Total  loans  amounted to
$226,944,000 and $202,258,000 at December 31, 2000 and 1999,  respectively.  The
loan increase in 2000 was $24,686,000 or 12.2%.


<PAGE>


<TABLE>

-------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(Dollars in Thousands,
except per share data)
For the Year Ended
December 31,                     2000      1999       1998       1997      1996
-------------------------------------------------------------------------------
<S>                        <C>       <C>        <C>        <C>        <C>
CONSOLIDATED SUMMARY OF INCOME:
 Interest Income             $ 29,287  $ 26,353   $ 25,367   $ 25,444  $ 23,135
 Interest Expense              13,947    11,449     10,871     10,831     9,578
                            --------- ---------  ---------  --------- ---------
 Net Interest Income           15,340    14,904     14,496     14,613    13,557
 Provision for Possible
   Loan Losses                    375       375        450        605       670
 Gains (Losses) on the
   Sale of Mortgage Loans          59       157        398        178       (30)
 Other Income, Excluding
   Securities and Loan
   Sale Gains                   4,089     3,635      3,460      3,044     2,364
 Securities Gains, Net            174       563        722        601       308
 Other Expense                 16,945    14,673     14,563     13,252    11,571
                            --------- ---------  ---------  --------- ---------
 Income Before Income Taxes     2,342     4,211      4,063      4,579     3,958
 Income Taxes                     270       929      1,031      1,296     1,136
                            --------- ---------  ---------  --------- ---------
   Net Income                 $ 2,072   $ 3,282    $ 3,032    $ 3,283    $2,822
                            --------- ---------  ---------  --------- ---------
 Cash Dividends Paid          $ 1,406   $ 1,321   $  1,275   $  1,139   $ 1,011
 Cash Dividends Paid Per Share   0.74      0.70       0.67       0.61      0.55
 Dividends Paid to Net Income   67.86%    40.25%     42.05%     34.69%    35.82%

PER SHARE DATA:
  Basic Income                $  1.09   $  1.75    $  1.60    $  1.74    $ 1.52
  Diluted Net Income             1.09      1.74       1.59       1.74      1.52
  Basic  Average Common
    Shares Outstanding      1,899,702 1,875,320  1,895,304  1,876,078 1,853,222
  Dilutive Average Common
    Shares Outstanding      1,901,823 1,878,777  1,903,543  1,881,667 1,856,356

CONSOLIDATED BALANCE SHEET DATA:
 Total Assets                $443,051  $391,889   $358,496   $346,738  $322,352
 Loans (Net of
  Unearned Discount)          226,944   202,258    212,437    229,587   220,117
 Mortgage Loans
  Held-for-Sale                   ---       ---        603        759       721
 Deposits                     353,190   324,480    294,549    282,255   267,668
 Securities Sold Under
  Agreements to Repurchase      7,215     1,730      5,094      8,804     3,795
 Debt (Short-Term
  and Long-Term)               39,695    30,000     20,000     18,390    18,512
 Shareholders' Equity          33,521    28,243     31,717     30,357    26,805
 Book Value Per Share           17.08     15.28      18.17      17.49     16.37

SELECTED CONSOLIDATED RATIOS:
 Net Income To:
  Average Total Assets           0.50%     0.86%      0.86%      0.97%     0.92%
  Average Shareholders' Equity   7.04%    10.90%      9.79%     11.67%    11.16%

 Tier 1 Capital
  to Average Assets (Leverage)   8.00%     8.32%      8.60%      8.33%     8.35%
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

CONSOLIDATED  COMPARATIVE STATEMENT ANALYSIS
(Dollars in Thousands) For the Year
Ended December 31,

<TABLE>
                         2000                1999                   1998
                        Int   Avg           Int    Avg             Int    Avg
                 Avg    Inc/ Yield/   Avg   Inc/  Yield/    Avg    Inc/  Yield/
                 Bal    Exp  Rate     Bal   Exp    Rate     Bal    Exp    Rate
<S>        <C>       <C>   <C>    <C>    <C>      <C>  <C>       <C>     <C>
ASSETS
INT-EARNING
ASSETS
 Int-Bearing
  Balances
  with Banks $  2,281  $ 141 6.18%  $3,928 $   196  4.99% $  3,060 $  176  5.75%
 Fed Funds
  Sold            328     23 7.01      975      47  4.82       641     34  5.30
 Inv Sec
  Taxable     139,283  9,440 6.78  107,054   6,829  6.38    80,939  5,002  6.18
  Non-Tax(1)   30,142  2,374 7.88   31,668   2,787  7.22    26,155  1,923  7.35
  Loans(1(2)  214,856 18,171 8.46  212,993  17,817  8.36   219,357 18,910  8.62
  Allow for
  Loan Losses  (2,474)  ---  ---    (2,669)   ---   ---     (2,710)   ---   ---
             -------- ------      --------  ------        -------- ------
  Net Loans   212,382 18,171 8.56  210,324  17,817  8.47   216,647 18,910  8.73
             -------- ------      --------  ------        -------- ------
   Total Int-
   Earn
   Assets     384,416 30,149 7.84  353,949  27,176  7.68   327,442 26,045  7.95
  Non-Int
   Earn Assets 31,926   ---  ---    29,513    ---   ---     25,419    ---   ---
             -------- ------      --------  ------        -------- ------
  TOTAL ASSETS,
  INTEREST
  INCOME     $416,342 30,149 7.24 $383,102  27,176  7.09  $352,861 26,045  7.38
             -------- ------      --------  ------        -------- ------
LIABILITIES
INTEREST-BEARING
LIABILITIES
 Int-Bearing
 Deposits
  Demand
  Deposits   $ 53,151    536 1.01 $ 52,395     619  1.18  $ 48,988    562  1.15
  Money
  Market
  Deposits     13,461    375 2.79   13,827     382  2.76    14,366    404  2.81
  Savings &
  Club
  Deposits     62,834  1,392 2.22   63,199   1,304  2.06    61,177  1,350  2.21
  CD's over
  $100,000      5,886    305 5.18    5,040     202  4.01     4,700    175  3.72
  All Other
  Time Dep    157,164  8,806 5.60  139,076   7,312  5.26   124,823  6,975  5.59
             -------- ------      --------  ------        -------- ------
   Total Int-
   Bearing
   Deposits   292,496 11,414 3.90  273,537   9,819  3.59   254,054  9,466  3.73

 Securities
 Sold Under
 Agreements
 to Repurchase  7,226    332 4.59    5,994     194  3.24     5,821    210  3.61
 Other Short-
 Term
 Borrowings     3,994    256 6.41    1,721      89  5.17       974     55  5.65
 Long-Term
 Debt          31,377  1,945 6.20   23,534   1,347  5.72    18,631  1,140  6.12
             -------- ------      --------  ------        -------- ------
  Total Int-
  Bearing
  Liabilities 335,093 13,947 4.16  304,786  11,449  3.76   279,480 10,871  3.89

<PAGE>

NON-INTEREST
BEARING
LIABILITIES
 Non-Int-
 Bearing
 Deposits      43,893   ---  ---    41,337    ---   ---     35,254    ---   ---
 Other Liab     7,913   ---  ---     6,843    ---   ---      7,157    ---   ---
             -------- ------      --------  ------        -------- ------
 TOTAL LIAB   386,899 13,947 3.60  352,966  11,449  3.24   321,891 10,871  3.38
 SHAREHOLDERS'
 EQUITY        29,443   ---  ---    30,136   ---     ---    30,970    ---   ---
             -------- ------      --------  ------        -------- ------
 TOTAL LIAB &
  SHAREHOLDERS'
  EQUITY,
  INTEREST
  EXPENSE    $416,342 13,947 3.35 $383,102  11,449  2.99  $352,861 10,871  3.08
             -------- ------      --------  ------        -------- ------

NET INTEREST
INCOME              $ 16,202               $15,727                $15,174
                    --------               -------                -------
 Net Interest
 Spread (3)                  3.68                   3.92                   4.06

 Effect of
 Int-Free
 Sources
 Used to
 Fund Earnings
 Assets                      0.53                   0.52                   0.57

NET INTEREST
MARGIN (4)                   4.21%                  4.44%                  4.63%
                             ----                   ----                   ----

</TABLE>

(1) The indicated  interest income and average yields are presented on a taxable
equivalent  basis.  The  taxable  equivalent   adjustments  included  above  are
$862,000, $823,000 and $678,000 for the years 2000, 1999 and 1998, respectively.
The effective tax rate used for the taxable equivalent adjustment was 34%.

(2) Loan fees of $285,000,  $212,000  and  $358,000 for th years 2000,  1999 and
1998,  respectively,  are included in interest  income.  Average  loan  balances
include  non-accruing  loans and  average  loans  held-for-sale  of  $1,237,000,
$2,581,000 and $3,736,000 for 2000, 1999 and 1998, respectively.

(3)  Net  interest  spread  is  the  arithmetic   difference  between  yield  on
interest-earning assets and the rate paid on interest-bearing liabilities.

(4) Net interest  margin is computed by dividing net interest  income by average
interest-earning assets.

<PAGE>


                                Average Balances

     The  "Consolidated  Comparative  Statement  Analysis"  table  sets  forth a
comparison of average daily balances,  interest income and interest expense on a
fully taxable  equivalent  basis and interest  rates  calculated  for each major
category  of  interest-earning  assets  and  interest-bearing  liabilities.  For
purposes of this analysis,  the  computations in the  "Consolidated  Comparative
Statement Analysis" were prepared using the Federal statutory rate of 34%; there
are no state or local taxes on income  applicable  to the  Company.  For further
information relating to the effective income tax rate of the Company, see Note J
of the "Notes to Consolidated  Financial  Statements".  Interest income on loans
included  loan fees of  $285,000,  $212,000  and  $358,000  for the years  ended
December 31, 2000, 1999 and 1998, respectively.

                               Net Interest Income

     Net interest income is the difference between the interest income on loans,
investments and other interest-earning assets, and the interest paid on deposits
and other  interest-bearing  liabilities.  Net  interest  income is the  primary
source of earnings for the Company.  Therefore,  changes in this category can be
essential to the overall net income of the Company.  The net interest income, on
a fully taxable equivalent basis,  amounted to $16,202,000 for 2000, an increase
of $475,000 over  $15,727,000  in 1999. As shown in the  "Rate/Volume  Analysis"
table,  the increase in net interest  income in 2000 was  attributable to higher
net interest  income of $485,000 due to changes in volume and a reduction in net
interest income of $10,000 due to changes in rates.  The  volume-related  change
resulted primarily from increases in investment  securities and average balances
for  loans  (see   discussions   on  "Loan   Portfolio"   and  "Mortgage   Loans
Held-for-Sale"),  partially offset by an increase in time deposits and debt. The
rate-related change was primarily the result of the increase of interest paid on
time deposits and debt,  offset in part by increases in the interest rate earned
on investments and loans.

     Net interest income, on a fully taxable equivalent basis, in 1999 increased
$553,000  over the 1998 figure of  $15,174,000.  This increase was the result of
growth in investments, reduced in part by a decrease in loans and an increase in
time  deposits.  Also  affecting 1999 was the decrease in interest rates paid on
deposits and debt,  and an increase in the interest rate earned on  investments,
offset in part by a decline in the interest rates earned on loans.

     The net interest margin, a measure of net interest income  performance,  is
determined by dividing net interest income by total interest-earning assets. The
net interest  margin was 4.21% for 2000,  4.44% for 1999 and 4.63% for 1998. The
decrease  in  2000 was the result  of the 0.4% increase in the average rate paid

<PAGE>


on  interest-bearing  liabilities  being greater than the 0.16%  increase in the
average  interest  rate  earned on  interest-earning  assets.  The  result was a
decline in the interest spread, the difference of interest earned on assets less
the interest paid on deposits and debt. The interest spread was 3.68%, 3.92% and
4.06% for 2000,  1999 and 1998,  respectively.  The  impact on  earnings  by the
reduction  in the  interest  spread  was  diminished  in part by the  $2,556,000
increase in 2000 of non-interest-bearing deposits.


<PAGE>


The following  table sets forth a "Rate/Volume  Analysis",  which  segregates in
detail the major factors that  contributed to the changes in net interest income
for the years ended  December 31, 2000 and 1999,  as compared to the  respective
previous periods,  into amounts  attributable to both rate and volume variances.
In calculating the variances, the changes were first segregated into (1) changes
in volume (change in volume times the old rate), (2) changes in rates (change in
rate times the old volume) and (3) changes in rate/volume (changes in rate times
the change in volume).  The changes in rate/volume  have been allocated in their
entirety  to  the  change  in  rates.   The  interest  income  included  in  the
"Rate/Volume  Analysis"  table has been adjusted to a fully  taxable  equivalent
amount using the Federal statutory tax rate of 34%. Non-accruing loans have been
used in the daily average  balances to determine  changes in interest income due
to  volume.  Loan fees  included  in the  interest  income  calculation  are not
material.

RATE/VOLUME ANALYSIS
(Dollars in Thousands) (Fully Taxable Equivalent)

<TABLE>
                             Increase (Decrease) in Year Ended December 31,
                                2000 to 1999                1999 to 1998
                               Change Due to:              Change Due To:
                            TOTAL   RATE   VOLUME       TOTAL   RATE    VOLUME
                            -----    ---    -----       -----  -----    -----
<S>                      <C>     <C>     <C>         <C>     <C>     <C>
Interest Income
  Interest-Bearing Balances
   With Banks              $  (55) $  27  $   (82)     $   20  $ (30)  $   50
  Federal Funds Sold          (24)     7      (31)         13     (5)      18
  Investment Securities     2,698    680    2,018       2,191    146    2,045
  Loans                       354    180      174      (1,093)  (580)    (513)
                            -----    ---    -----       -----  -----    -----
  Total Interest Income     2,973    894    2,079       1,131   (469)   1,600
                            -----    ---    -----       -----  -----    -----
Interest Expense
  Demand Deposits,
  Savings & Clubs              (2)    (2)       -         (11)  (102)      91
  Time Deposits             1,597    610      987         364   (442)     806
  Securities Sold Under
   Agreements to Repurchase   138     98       40         (16)   (22)       6
  Short-Term Borrowings       167     49      118          34     (8)      42
  Long-Term Borrowings        598    149      449         207    (93)     300
                            -----    ---    -----       -----  -----    -----
  Total Interest Expense    2,498    904    1,594         578   (667)   1,245
                            -----    ---    -----       -----  -----    -----
  Increase in Net
  Interest Income          $  475  $ (10)  $  485      $  553 $  198   $  355
</TABLE>


<PAGE>


                                   Market Risk

     As a financial institution,  the Company's primary component of market risk
is interest rate  volatility.  Fluctuations in interest will  ultimately  impact
both the  level  of  income  and  expense  recorded  on a large  portion  of the
Company's assets and liabilities,  and the market value of all  interest-earning
assets,  other than those which possess a short term to maturity.  Since most of
the Company's  interest-bearing  assets and liabilities are located at the Bank,
the  majority of the  Company's  interest  rate risk is at the Bank level.  As a
result, most interest rate risk management  procedures are performed at the Bank
level (see discussion on "Interest Rate Sensitivity").

     The  Company  and the  Bank  operate  as a  community  banking  institution
primarily in the counties of Northampton,  Lehigh and Monroe, Pennsylvania. As a
result of its location and nature of  operations,  the Company is not subject to
foreign  currency  exchange or commodity  price risk. The Bank makes real estate
loans  primarily in the counties  adjacent to its operations and thus is subject
to risks associated with those local  economies.  The Bank holds a concentration
of  residential  real estate loans (56.8% of total loans) and  commercial  loans
supported  by real  estate  (12% of  total  loans)  in its  loan  portfolio.  In
addition,  49.3% of the Bank's consumer,  installment loans are for recreational
vehicles.  These loans  represent 11.5% of total loans (see Note Q of the "Notes
to Consolidated Financial Statements").  These loans are subject to interest and
economic risks. The Bank also originates  residential real estate loans for sale
in  the  secondary  market.   Such  loans  are  identified  as  "Mortgage  Loans
Held-for-Sale"  on the Company's  Balance Sheet and are subject to interest rate
risk (see  discussion on "Mortgage Loans  Held-for-Sale").  The Company does not
own any trading assets and does not have any hedging  transactions in place such
as  interest  rate  swaps  (see  discussions  on  "Investment   Securities"  and
"Securities Available-for-Sale").

                            Interest Rate Sensitivity

     Interest rate  sensitivity is a measure of the extent to which net interest
income would change due to changes in the level of interest rates. The objective
of interest rate sensitivity  management is to reduce a company's  vulnerability
to future interest rate  fluctuations  and to enhance  consistent  growth of net
interest  income.  The  Bank's   Asset/Liability   Management   Committee  meets
semi-monthly  to  examine,  among  other  subjects,  interest  rates for various
products and interest sensitivity.

     Rate sensitivity  arises from the difference  between the volumes of assets
which are  rate-sensitive  as compared to the volumes of  liabilities  which are
rate-sensitive. A comparison of interest-rate-sensitive assets to interest-rate-

<PAGE>


sensitive  liabilities is monitored by the Bank on a regular basis using several
time periods. The mismatch of assets and liabilities in a specific time frame is
referred to as interest sensitivity gap. Generally,  in an environment of rising
interest  rates, a negative gap (interest  sensitive  liabilities  being greater
than  interest  sensitive  assets in a given  period of time) will  decrease net
interest income, and in an environment of falling interest rates, a negative gap
will increase net interest income.

     Assets and  liabilities  are  allocated to a specific  time period based on
their scheduled  repricing date or on an historical basis. At December 31, 2000,
assets of  $162,221,000  (37% of total  assets)  were  subject to interest  rate
changes  within one year.  This  compares  to assets  subject to  interest  rate
changes within one year of $157,197,000 (40% of total assets) at the end of 1999
and $143,809,000 (40% of total assets) at the end of 1998.  Liabilities  subject
to rate change within one year were $169,639,000,  $163,662,000 and $175,047,000
in 2000,  1999 and 1998,  respectively.  A negative  one-year  gap  position  of
$7,418,000  existed as of December 31, 2000.  The gap  positions at December 31,
1999 and 1998 were negative $6,465,000 and negative  $31,238,000,  respectively.
The  ratio  of  rate-sensitive  assets  to  rate-sensitive  liabilities  for the
one-year  time frame was .96 at the end of 2000,  compared  to .96 at the end of
1999 and .82 at the end of 1998.  The  "Interest  Sensitivity  Analysis"  in the
following table presents a sensitivity gap analysis of the Company's  assets and
liabilities at December 31, 2000 for five time-intervals. The Company's negative
gap  position for the  one-year  time frame  increased in 2000 as a result of an
increase in  interest-bearing  demand deposits and short-term  borrowings with a
maturity of one year or less and a reduction of loan  maturities.  The change in
the deposit mix was due to the sale of  longer-term  certificates  of deposit to
customers.  The  change  in loan  maturities  was  due in  part  to the  sale of
residential   mortgage  loans.   Management  intends  to  continue  to  purchase
adjustable  rate  securities,  make adjustable  rate loans,  market  longer-term
certificates  of deposit  and sell  fixed-rate  mortgage  loans to  maintain  an
acceptable gap position.


<PAGE>

Interest Sensitivity Analysis

<TABLE>
                      0-90   91-180   181-365        1-5        Over
                      Days    Days      Days        Years     5 years    Total
<S>               <C>     <C>       <C>         <C>       <C>         <C>
Interest-Bearing
Deposits with Banks $    95  $   ---  $    ---   $    ---   $    ---    $    95
Inv Securities       43,828   11,114    16,377     60,893     51,789    184,001
Loans                34,036   14,992    24,041     99,630     51,834    224,533
Other Assets         17,738      ---       ---        ---     16,684     34,422
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $95,697  $26,106  $ 40,418   $160,523   $120,307   $443,051
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing
  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 48,748   $ 48,748
Int-Bearing
 Deposits            33,266   50,511    67,952     48,355    104,358    304,442
Securities Sold
 Under Agreements
 to Repurchase        7,215      ---       ---        ---        ---      7,215
Short-Term Debt       5,695      ---       ---        ---        ---      5,695
Long-Term Debt        5,000      ---       ---     17,000     12,000     34,000
Other                   ---      ---       ---        ---      9,430      9,430
Capital                 ---      ---       ---        ---     33,521     33,521
                    ------- --------  --------    -------   --------   --------
  TOTAL LIABILITIES
  AND CAPITAL      $ 51,176  $50,511 $  67,952    $65,355   $208,057   $443,051
                    ------- --------  --------    -------   --------   --------
Net Interest
  Sensitivity Gap  $ 44,521 $(24,405)$(27,534)    $95,168   $(87,750)  $    ---

Cumulative Int
  Sensitivity Gap  $ 44,521 $ 20,116 $ (7,418)    $87,750   $    ---   $    ---

Cumulative Gap

  RSA/RSL            187.0%   119.8%    95.6%      137.3%     100.0%
</TABLE>

(1)  Historically, non-interest-bearing deposits reflect insignificant change in
     deposit trends and,  therefore,  the Company classifies these deposits over
     five years.

<PAGE>

     While using the interest  sensitivity  gap analysis is a useful  management
tool because it  considers  the  quantity of assets and  liabilities  subject to
repricing in a given time period, it does not consider the relative  sensitivity
to  market   interest-rate   changes   that  are   characteristic   of   various
interest-rate-sensitive  assets and liabilities.  Consequently,  even though the
Company currently has a negative gap position because of the unequal sensitivity
of these assets and liabilities, management believes that this position will not
materially impact earnings in a changing rate environment.  For example, changes
in the prime rate on variable commercial loans may not result in an equal change
in the rate of money market deposits or short-term  certificates  of deposit.  A
simulation  model is therefore  used to estimate the impact of various  changes,
both upward and  downward,  in market  interest  rates and volumes of assets and
liabilities  on the Bank's net income.  This model  produces  an  interest  rate
exposure report that forecasts  changes in the market value of portfolio  equity
under  alternative  interest  rate  environments.  The market value of portfolio
equity  is  defined  as the  present  value of the  Company's  existing  assets,
liabilities  and  off-balance  sheet  instruments.  The calculated  estimates of
changes in the market  value of  portfolio  equity at December  31,  2000 are as
follows:

<PAGE>

-------------------------------------------------------
at December 31, 2000
-------------------------------------------------------
<TABLE>
                                   Percent of Change
                                    in Market Value
     Changes in Rate              of Portfolio Equity
---------------------------      ----------------------
<S> <C>                                <C>
    + 400 basis points                   (17.7)%
    + 300 basis points                    (9.5)%
    + 200 basis points                    (2.1)%
    + 100 basis points                     3.9 %
        Flat Rate                          0.0
    - 100 basis points                    (8.8)%
    - 200 basis points                   (21.6)%
    - 300 basis points                   (36.5)%
    - 400 basis points                   (54.2)%

-------------------------------------------------------
</TABLE>


     The  assumptions  used in  evaluating  the  vulnerability  of the Company's
earnings  and  capital to changes in  interest  rates are based on  management's
consideration  of past  experience,  current  position  and  anticipated  future
economic  conditions.  The interest rate sensitivity of the Company's assets and
liabilities as well as the estimated  effect of changes in interest rates on the
market  value  of  portfolio  equity  could  vary   substantially  if  different
assumptions are used or actual experience  differs from the assumptions on which
the calculations were based.


<PAGE>


                        Service Charges and Other Income

     Service  charge income on deposit  accounts  amounted to $2,019,000 in 2000
compared to  $1,682,000 in 1999 and  $1,594,000  in 1998.  In 2000,  the service
charges on deposit accounts  increased by $337,000 or 20% over 1999 and the 1999
increase  over 1998 was  $88,000 or 5.5%.  The  increases  in 2000 and 1999 were
primarily  the  result of  increases  in the  number  of  deposit  accounts  and
increases  in  some  deposit-related  fees,  including  charges  for  the use by
non-depositors  of the Bank's  automated  teller  machines  and the Bank's debit
card.

     In 2000, the Company had a gain on the sale of mortgage loans of $59,000 as
compared to a gain of $157,000 in 1999. In 1998, there was a gain on the sale of
mortgage loans of $398,000 (see discussion on "Mortgage Loans Held-for-Sale").

     Other  operating  income was  $825,000 in 2000,  as compared to $707,000 in
1999. This was an increase of $118,000 or 16.7%. Other operating income for 1998
was $641,000.

                    Investment Management and Trust Division

     Revenue from the Bank's Investment Management and Trust Division operations
was  $1,245,000  in 2000,  as compared to  $1,246,000  in 1999.  The  Investment
Management and Trust Division revenue for 1999 increased by 1.7% or $21,000 over
the  1998  revenue  of  $1,225,000.  Trust  assets  are held by the Bank for its
customers in a fiduciary or agency  capacity,  and thus, are not included in the
financial statements of the Company.  Fees are assessed by the Trust Division to
some  customers  based on the market value of the assets held in the  customers'
account.  As a result,  changing  market values will impact the revenues  earned
from Trust operations.

                                 Other Expenses

     Salaries  and  employee  benefits   represent  a  significant   portion  of
non-interest  expense.  These  expenses,  amounting to $7,437,000,  increased by
$657,000 or 9.7% in 2000 compared to $6,780,000 in 1999.  These expenses in 1999
amounted to an increase  of  $395,000  or 6.2% over the  $6,385,000  reported in
1998.   The  increase  in  2000  was  primarily  due  to  salary   increases  of
approximately  3.5%, the addition of staff related to the new branches opened in
Mount Pocono, Whitehall and Trexlertown during the year and a cash bonus paid to
non-officer  employees,  reduced in part by staff  reductions  during the fourth
quarter in Operations and  Administration.  Salary expense in 1999 increased due
to normal salary increases of  approximately  3.5%, the addition of staff in the
Trust Division, and the opening of the Stroudsburg branch.

<PAGE>


     Occupancy and equipment expenses were $2,392,000 in 2000 which was $221,000
or 10.2% greater than the 1999 amount of $2,171,000. The 1999 amount was $53,000
greater  than the 1998  occupancy  and  equipment  expense  of  $2,118,000.  The
increase in 2000 was primarily due to the  establishment  of the new branches in
Mount  Pocono,  Whitehall  and  Trexlertown  and a  complete  year of  occupancy
expenses for the Stroudsburg branch opened in 1999. The increase in 1999 was the
result of the Stroudsburg branch and new equipment relating to the Y2K issue.

     Other  operating  expenses (such as the provision for the special  reserve,
the write-down of other real estate owned,  advertising,  publicity,  litigation
costs,  deposit insurance  premiums,  data processing fees,  legal,  accounting,
supplies, postage and telephone) in 2000 were $7,116,000, compared to $5,722,000
in 1999 and  $6,060,000  in 1998.  The increase of  $1,394,000 or 24.4% in other
operating  expense during 2000 was primarily due to a provision of $1,012,000 to
the special reserve for Funeral Trust litigation, a $184,000 write-down of other
real estate  owned,  the  deductible  of  $100,000  on losses due to theft,  and
increases  in  consulting  fees of  $79,000,  supplies  of  $54,000,  legal  and
litigation  expenses of  $54,000,  data  processing  fees of $40,000 and Federal
Deposit  Insurance  premiums of $36,000,  offset in part by  reductions  in some
other  expenses.  The decrease in 1999 of $338,000 or 5.6% was the result of the
$943,000  decrease to the special reserve for Trust operations offset in part by
increases  of  $251,000  in legal  and  litigation  expenses,  $190,000  in data
processing fees and $95,000 in consulting fees. The Company's  advertising costs
are expensed as incurred. Advertising costs were $546,000, $574,000 and $597,000
for the years ended December 31, 2000,  1999 and 1998,  respectively  (see Notes
A.14 and I of the "Notes to Consolidated Financial Statements").

                              Investment Securities

     The  Company  classifies  its debt and  marketable  securities  into  three
categories: trading, available-for-sale, and held-to-maturity as provided by the
Financial Accounting Standards Board Statement of Financial Accounting Standards
(SFAS)  No.  115,  "Accounting  for  Certain  Investments  in  Debt  and  Equity
Securities".  Trading  securities  are measured at fair value,  with  unrealized
holding  gains and  losses  included  in  income.  The  Company  had no  trading
securities in 2000 and 1999. Available-for-sale securities are stated separately
on   the   financial   statements  and  are  discussed  in the following section

<PAGE>

"Securities  Available-for-Sale".  Held-to-maturity  securities  are  carried at
amortized  cost  and  identified  as  investment  securities  in  the  financial
statements  (see  Notes  A.2  and B of  the  "Notes  to  Consolidated  Financial
Statements").

     Held-to-maturity  securities  totaled  $19,972,000 at December 31, 2000 and
$19,887,000 at December 31, 1999. The Company has the intent and ability to hold
these  securities  until  maturity.  The  fair  value of  these  securities  was
$19,906,000 and $19,123,000 at December 31, 2000 and 1999, respectively.

     The  Company,  at December 31, 2000 and 1999,  did not hold any  securities
identified as derivatives  in the form of  Collateralized  Mortgage  Obligations
(CMOs),  Planned  Amortization  Class  (PAC),  Real Estate  Mortgage  Investment
Conduits  (REMICs),  Stripped-Mortgage-Backed  Securities,  interest rate swaps,
futures or options. The Company held adjustable rate mortgage-backed  securities
issued by U. S. Government  Agencies  totaling  $19,980,000 at December 31, 2000
($16,937,000  in  available-for-sale  and  $3,043,000 in  held-to-maturity)  and
$19,904,000  at  December  31,  1999  ($16,147,000  in  available-for-sale   and
$3,757,000 in held-to-maturity).  The interest rates on most of these securities
are tied to various  indexes,  are  subject to various  caps,  and are  adjusted
annually. The Company also held fixed rate mortgage-backed  securities issued by
U. S. Government Agencies totaling $28,168,000 at December 31, 2000 ($27,191,000
in  available-for-sale  and $977,000 in  held-to-maturity)  and  $31,145,000  at
December  31,  1999  ($29,882,000  in   available-for-sale   and  $1,263,000  in
held-to-maturity).

                          Securities Available-for-Sale

     The Company had $164,029,000 of securities  available-for-sale  at December
31, 2000,  as compared to  $132,356,000  at December  31, 1999.  At December 31,
2000, the net unrealized  gain on these  securities was $37,000,  net of the tax
effect of $20,000. There was a net unrealized loss of $4,322,000, net of the tax
effect of $2,226,000 on the available-for-sale  securities at December 31, 1999.
The net unrealized gain or loss is included in  shareholders'  equity (see Notes
A.2 and B of the "Notes to Consolidated Financial Statements").

     These  securities are being held to meet the liquidity needs of the Company
and to provide  flexibility  to  support  earnings  in  changing  interest  rate
environments.  The  tax-free  municipal  securities  in  the  available-for-sale
category  will also be used to assist in  managing  the  Company's  Federal  tax
position.   While   management   has  the  intent   and  the   ability  to  hold
available-for-sale securities on a long-term basis or to maturity, they may sell

<PAGE>

these securities under certain  circumstances.  Such occurrences  could include,
but are not limited to, meeting current liquidity needs, adjusting maturities or
repricing  periods to reduce  interest rate risk,  reducing  Federal  Income Tax
liability,  improving  current or future interest income,  adjusting  risk-based
capital position,  changing  portfolio  concentrations,  and providing funds for
increased   loan   demand  or   deposit   withdrawals.   Upon  the  sale  of  an
available-for-sale security, the actual gain or loss is included in income.

     During  2000,  $8,120,000  of  securities   available-for-sale  were  sold,
resulting  in a total net gain of  $174,000,  which was  recorded  in income and
includes net gains on equity  securities  sold by First C. G. of  $157,000.  The
securities sold were primarily U. S. Treasury,  U. S. Agency and municipal bonds
held by the Bank and equity securities held by First C. G. The sales by the Bank
were executed to provide liquidity and improve future interest income. The sales
of  equity  securities  by First C. G.  were made to  recognize  certain  gains,
reposition  the equity  portfolio  and provide funds for the loans to the Bank's
Employee  Stock  Ownership  Plan  (see  Note K of  the  "Notes  to  Consolidated
Financial  Statements").  Securities  purchased  by the Company in 2000  totaled
$47,959,000. Included in these purchases were $32,106,000 in U. S. Agency bonds,
$8,281,000  in U. S.  Agency  mortgage-backed  bonds,  $3,732,000  in  municipal
securities,   $3,011,000  in  U.  S.  Treasury  bonds  and  $829,000  in  equity
securities.  The securities sold in 1999 totaling  $16,295,000 were primarily U.
S.  Treasury,  U. S.  Agency  mortgage-backed  bonds held by the Bank and equity
securities held by First C. G. The 1999 sales resulted in net gains of $563,000.
These gains include net gains of $401,000 on equity  securities sold by First C.
G. The sales were made to provide  liquidity  to fund a  $1,000,000  loan to the
Bank's  Employee  Stock  Ownership  Plan,  improve future income and invest in a
broader  list of equity  securities.  Security  purchases  in 1999  amounted  to
$78,709,000  which were  primarily  U. S. Agency  mortgage-backed  bonds,  U. S.
Agency fixed rate bonds, municipal securities and U. S. Treasury bonds. In 1998,
a net  gain on  security  transactions  of  $722,000  was  recorded  on sales of
$11,342,000.

                                 Loan Portfolio

     At December 31, 2000, total loans (net of unearned discounts of $431,000 in
2000 and $691,000 in 1999) of $226,944,000  were  $24,686,000,  or 12.2% greater
than  the  1999 amount of  $202,258,000.   The  increase  in  loans  in 2000 was

<PAGE>


primarily the result of an increase of $15,992,000 or 14.2% in residential  real
estate loans,  an increase of $7,176,000 or 15.6% in consumer loans, an increase
of  $1,675,000 or 15.7% in commercial  and municipal  loans,  and an increase of
$397,000 or 1.5% in commercial real estate loans partially offset by an $814,000
or 12.1% decrease in real estate construction loans.

            Loans Outstanding at December 31
            by Major Category are as follows:

<TABLE>

--------------------------------------------------------
Dollars in Thousands at Dec. 31,      2000         1999
--------------------------------------------------------
<S>                             <C>          <C>

Real Estate Residential          $ 128,862    $ 112,870
Real Estate Construction             5,923        6,737
Real Estate Commercial              27,206       26,809
Consumer                            53,062       45,886
Municipal                            2,089        1,096
Commercial & Other                  10,233        9,551
                                  ---------    ---------
   Total                           227,375      202,949

Unearned Discount                     (431)        (691)
                                  ---------    ---------

Net                              $ 226,944    $ 202,258
--------------------------------------------------------
</TABLE>

     The Company's primary geographic area for its lending  activities  includes
Monroe, Northampton and Lehigh counties, Pennsylvania.

     Making loans to businesses  and  individuals  entails risks to the Company,
including  ascertaining  cash flows,  evaluating the credit history,  assets and
liabilities of a potential  borrower,  and  determining the value of the various
types of collateral  pledged as security.  Lending involves  determining  risks,
managing those risks and charging an appropriate interest rate to compensate for
taking such risks,  and to cover the cost of funds (see  previous  discussion on
"Market Risk").

     The loan to  deposit  ratio was  64.3% at  December  31,  2000 and 62.3% at
December 31, 1999. Additional information concerning loans is shown in Note C of
the "Notes to Consolidated Financial Statements".

                          Mortgage Loans Held-for-Sale

     Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or estimated fair value. Gains and losses
on  sales of loans  are also  accounted  for in  accordance  with  Statement  of
Financial   Accounting  Standard  (SFAS)  No.  134,   "Accounting  for  Mortgage
Securities Retained After the Securitizations of Mortgage Loans Held-for-Sale by
a Mortgage  Banking  Enterprise".  This new  statement  requires  that an entity
engaged in mortgage  banking  activities  classify the retained  mortgage-backed
security  or  other  interest,  which  resulted  from the  securitizations  of a
mortgage  loan  held-for-sale  based upon its ability and intent to sell or hold
these investments.

     In  2000,  management  continued  a  program  to  sell  some  of its  newly
originated  residential real estate  loans in the secondary market.  The purpose

<PAGE>


of these  sales was to reduce the  Company's  interest  rate risk and to provide
funds to support a higher level of loan originations.

     The sales of residential real estate loans in the secondary market for 2000
amounted to $7,718,000.  All of these loans were  originated in 2000. A net gain
of $59,000 was recorded on the total amount of loans sold. At December 31, 2000,
there were no residential real estate loans identified as held-for-sale.

     In 1999, the Company  originated  $17,091,000  of  residential  real estate
loans  which  were sold in the  secondary  market.  In  addition,  during  1999,
$20,977,000  of  residential  real estate loans  originated  in prior years were
sold. A net gain of $157,000 was  recognized on the total loans sold in 1999. At
December 31, 1999,  there were no  residential  real estate loans  identified as
held-for-sale.

     During  1998,  the  Company  had a net  gain  of  $398,000  on the  sale of
$42,879,000 of residential real estate loans.  The other operating  expenses for
1998 include an unrealized  loss of $1,000 on mortgage  loans  held-for-sale  of
$603,000 at year-end 1998.

     The Company intends to continue to originate  residential real estate loans
in 2001 and to sell some of these  loans in the  secondary  market.  The Company
services all of the  residential  mortgage loans sold and plans to continue this
practice.

                              Non-Performing Loans

     The following discussion relates to the Bank's  non-performing loans, which
consist of loans on a  non-accrual  basis and accruing  loans which are past due
ninety days or more.

     Accrual of interest is  discontinued  on a loan when  management  believes,
after considering economic and business conditions and collection efforts,  that
the borrower's financial condition is such that the collection of interest is in
doubt.  The Company  recognizes  these loans as  non-accrual,  but considers the
principal to be  substantially  collectible  because the loans are  protected by
adequate  collateral or other resources.  Payments received on non-accrual loans
are  applied to  principal  until such time as the  principal  is paid off.  Any
additional payments are then recognized as interest income.

     Loans on non-accrual  status totaled  $1,048,000 at December 31, 2000. This
balance  represented a $263,000 decrease in non-accrual loans during 2000 due to
the  collection  efforts  on certain  commercial,  residential  real  estate and
consumer loans.  Management believes there is sufficient collateral to cover any
possible losses on these loans.

<PAGE>

     The Company did not have any  significantloans  that  qualify as  "Troubled
Debt  Restructuring"  as defined by SFAS No. 15,  "Accounting  for  Debtors  and
Creditors for Troubled Debt Restructuring", at December 31, 2000 and 1999.

<PAGE>


The table "Non-Accrual Loans" shows the balance and the effect non-accrual loans
have had on interest income for each of the periods indicated.

Non-Accrual Loans

<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands)
at December 31,            2000        1999       1998        1997        1996
-------------------------------------------------------------------------------
<S>                    <C>         <C>        <C>         <C>         <C>
Non-accrual loans on
  a cash basis          $ 1,048     $ 1,311    $ 1,245     $   813     $ 1,440

Non-accrual loans
  as a percentage
  of total loans            .46%        .65%       .59%        .35%        .65%

Interest which would
  have been recorded
  at original rate      $    38     $    56    $   144     $    64     $   210

Interest that was
  reflected in income        42          35         23         111          40

Net impact on
  interest income       $     4     $   (21)   $  (121)    $    47     $  (170)
-------------------------------------------------------------------------------
</TABLE>

     Set forth below are the amounts of loans  outstanding as of the end of each
of the  periods  indicated  that  are 90 days  and  over  past due and are on an
accrual basis and are not included in the table above.  Management  continues to
accrue  interest  on these  loans  since they are  secured and in the process of
collection and are expected to be eventually paid in full.

Accruing Loans Past Due 90 Days or More

<TABLE>
--------------------------------------------------------------------------------
(Dollars in Thousands)
at December 31,              2000      1999      1998       1997       1996
--------------------------------------------------------------------------------
<S>                      <C>        <C>       <C>       <C>        <C>

Accruing loans past due
  90 days or more         $ 1,469    $1,491    $1,021    $   802    $   986

Accruing loans past due
  90 days or more
  as a percentage
  of total loans             .65%      .74%      .48%       .35%       .45%

--------------------------------------------------------------------------------
</TABLE>

<PAGE>


     The Company  measures  impairment  of a loan based on the present  value of
expected  future cash flows  discounted at the loan's  effective  interest rate,
except  that as a practical  expedient,  impairment  may be measured  based on a
loan's  observable market price, or the fair value of the collateral if the loan
is collateral  dependent.  Regardless of the measurement method, a creditor must
measure  impairment  based on the fair value of the collateral when the creditor
determines that  foreclosure is probable.  SFAS No. 118 allows  creditors to use
existing methods for recognizing interest income on impaired loans.

     The Company has  identified  a loan as  impaired  when it is probable  that
interest and principal will not be collected  according to the contractual terms
of the loan agreement. The accrual of interest is discontinued in such loans and
no income is recognized until all recorded amounts of interest and principal are
recovered in full.

     Loan  impairment is measured by estimating  the expected  future cash flows
and discounting them at the respective effective interest rate or by valuing the
underlying collateral.  The recorded investment in these loans and the valuation
for credit losses  related to loan  impairment at December 31, 2000 and 1999 are
as follows:

<TABLE>
------------------------------------------------------------
(Dollars in Thousands)
  at December 31,                       2000       1999
------------------------------------------------------------
<S>                                    <C>         <C>

Principal amount of impaired loans      $339        $370
Accrued interest                         ---         ---
Deferred loan costs                        1         ---
                                     -------     -------
                                         340         370
Less valuation allowance
  at December 31,                        (78)        (74)
                                     --------    --------
                                        $262        $296
------------------------------------------------------------
</TABLE>

     The activity in the allowance account for credit losses related to impaired
loans is as follows:

<TABLE>
-----------------------------------------------------------------
(Dollars in Thousands)
  for the year                               2000        1999
-----------------------------------------------------------------
<S>                                         <C>        <C>

Valuation allowance at January 1,            $ 74       $303
Provision for loan impairment                  39        ---
Direct charge-offs                            ---       (161)
Recoveries                                    ---        ---
Transfers to Unallocated Reserve              (35)       (68)
                                          -------    -------
Valuation allowance at December 31,          $ 78       $ 74

-----------------------------------------------------------------
</TABLE>

     Total cash collected on impaired loans during 2000 was $201,000, of which
$159,000 was credited to the principal balance outstanding on such loans, and
$42,000 was recognized as interest income.

     Total cash collected on impaired  loans during 1999 was $267,000,  of which
$232,000 was credited to the  principal  balance  outstanding  on such loans and
$35,000 was recognized as interest income. Interest that would have been accrued
on impaired  loans was $38,000 and $56,000 in 2000 and 1999,  respectively.  The
valuation  allowance  for  impaired  loans of $78,000 at  December  31, 2000 and
$74,000 at December 31, 1999 is included in the  "Allowance  for  Possible  Loan
Losses"  which  amounts to  $2,411,000  and  $2,437,000 at December 31, 2000 and
1999, respectively.

<PAGE>

     Shown in the following  table is the amount of "Other Real Estate Owned" as
of the end of each of the  periods  indicated  and  recorded  as an asset on the
Company's books as the result of the foreclosure of certain  non-performing real
estate loans.

OTHER REAL ESTATE OWNED
<TABLE>
-----------------------------------------------------------------
(Dollars in
 Thousands)
 at December 31,       2000     1999      1998      1997     1996
-----------------------------------------------------------------
<S>                  <C>       <C>      <C>      <C>     <C>

Other Real Estate     $ 325    $ 571     $ 636     $ 284    $ 585
  Owned
-----------------------------------------------------------------
</TABLE>

                             Allowance and Provision
                            for Possible Loan Losses

     The allowance for possible loan losses  constitutes the amount available to
absorb estimated losses within the loan portfolio.  As of December 31, 2000, the
allowance  for possible  loan losses was  $2,411,000 as compared to the December
31, 1999 amount of  $2,437,000  and the December 31, 1998 amount of  $2,691,000.
The  allowance  for  possible  loan  losses  as  a  percentage  of  total  loans
outstanding as of December 31, 2000 was 1.06%. This compares to 1.20% at the end
of 1999 and 1.27% at the end of 1998. The decrease in the allowance for possible
loan  losses  of  $26,000  was  the  result  of  management's  review  of  loans
outstanding (see discussion on "Loan Portfolio") and  non-performing  loans (the
sum of  non-accrual  loans  and  accruing  loans  past  due 90 days or  more) of
$2,517,000  as of December 31, 2000 as compared to $2,802,000 as of December 31,
1999 (see tables on "Non-Accrual  Loans" and "Accruing Loans Past Due 90 Days or
More").  Net  charge-offs as detailed in the table  "Allowance for Possible Loan
Losses" were $401,000 in 2000 or $228,000 less than the 1999 amount of $629,000.
The 2000  charge-offs  were the  result of losses on  commercial,  consumer  and
residential  real estate loans.  The net  charge-offs in 1999 were primarily the
result  of losses on  commercial,  consumer  and  residential  loans.  Net loans
charged-off in 1998 were $423,000.  The ratio of net loan charge-offs to average
loans outstanding was .19%, .30% and .19% in 2000, 1999 and 1998, respectively.

     The provision for loan losses was $375,000 for the years ended December 31,
2000 and December 31, 1999 and $450,000 for the year ended December 31, 1998. In
1999, the decrease in the provision was $75,000 from 1998.

     The allowance for possible loan losses is  established  through a provision
for  possible  loan losses  charged to expenses.  Loans are charged  against the
allowance   for  possible  loan  losses  when   management   believes  that  the
collectibility  of the principal is unlikely.  The risk  characteristics  of the
loan portfolio are managed through various control  processes,  including credit
evaluations  of  individual  borrowers,  periodic  reviews,  diversification  by
industry, and  the establishment  of lending  targets to various segments of the

<PAGE>


portfolio.  Risk  is  further  mitigated  through  the  application  of  lending
procedures such as the holding of adequate  collateral and the  establishment of
contractual  guarantees.  Management  believes  that  these  procedures  provide
adequate  assurances  against  the  adverse  impact  from  any  event  or set of
conditions,  and that the level of the  allowance  for  possible  loan losses is
sufficient to meet the present and potential  risk  characteristics  of the loan
portfolio, including the current level of non-performing and past-due loans.

     The  allowance  for loan losses is evaluated  based on an assessment of the
losses inherent in the loan portfolio.  This assessment  results in an allowance
consisting of two components, allocated and unallocated. The allocated component
of the allowance for loan losses  reflects  possible  losses  resulting from the
analysis of  individual  loans,  pools of loans and  commitments.  The  specific
allowance allocations for individual loans is based on an analysis of individual
loans  where  the  internal  credit  rating  is  at  or  below  a  predetermined
classification.  The general  allocation  for pools of loans and  commitments is
based on historical loss experience adjusted for current trends in areas such as
lending policies,  economic  conditions,  delinquencies and concentrations.  The
historical  loss  factor is  determined  using  actual loss  experience  and the
related  internal risk rating of loans charged off. The  unallocated  portion of
the allowance is a function of the total allowance and the allocated  portion of
the  allowance.  The  analysis  of the  allowance  is  performed  quarterly  and
historical factors are updated periodically based on actual experience.

<PAGE>

<TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
-------------------------------------------------------------------------------
(Dollars in Thousands)
For the Year Ended December 31,      2000      1999      1998      1997     1996
-------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>       <C>      <C>
Allowance for Loan Losses
at Beginning of Year             $  2,437  $  2,691  $  2,664  $  2,532 $  2,443

Loans Charged-Off by Category:
   Commercial                          17       255       133       249      365
   Real Estate - Construction          --        --        --        --       --
   Real Estate - Residential          219       147        59        20       31
   Consumer/Installment               325       330       348       301      271
   Other                               --        --        --        --       --
                                 --------  --------  --------  --------  -------
Total Loans Charged-Off               561       732       540       570      667
                                 --------  --------  --------  --------  -------
Loans Recovered by Category:
   Commercial                           5        30        42        19       39
   Real Estate - Construction          --        --        --        --       --
   Real Estate - Residential          100        29         1         1       --
   Consumer/Installment                55        44        74        77       47
   Other                               --        --        --        --       --
                                 --------  --------  --------  -------- --------
Total Loans Recovered                 160       103       117        97       86
                                 --------  --------  --------  -------- --------
Net Loans Charged-Off                 401       629       423       473      581
                                 --------  --------  --------  -------- --------
Provision Charged to Expense          375       375       450       605      670
                                 --------  --------  --------  -------- --------
Allowance for Loan Losses
 at End of Period                $  2,411  $  2,437  $  2,691  $  2,664 $  2,532
                                 ========  ========  ========  ======== ========

Total Loans
   Average                       $214,856  $212,993  $217,191  $228,245 $206,378
   Year-End                      $226,944  $202,258  $212,437  $229,587 $220,117

Net Loans Charged Off to:
   Average Loans                     .19%      .30%      .19%      .21%    .28%
   Loans at Year-End                 .18%      .31%      .20%      .21%    .26%
   Allowance for Possible
     Loan Losses at Year-End       16.63%    25.81%    15.72%    17.76%  22.95%
   Provision for Possible
     Loan Losses                  106.93%   167.73%    94.00%    78.18%  86.72%

Allowance for Possible Loan Losses at Year-End to:

   Average Loans                    1.12%     1.14%     1.24%     1.17%   1.23%
   Loans at Year-End                1.06%     1.20%     1.27%     1.16%   1.15%

-------------------------------------------------------------------------------
</TABLE>


<PAGE>

                                    Deposits

     Deposits  are the  primary  source of the  Company's  funds.  During  2000,
deposits increased by $28,710,000 or 8.8% to a total of $353,190,000 at December
31, 2000, from a total of $324,480,000  at December 31, 1999.  Average  deposits
for 2000 were $336,389,000,  an increase of $21,515,000 or 6.8% over the average
total deposits for 1999 of $314,874,000. Contributing to the increase in average
deposits was the  acquisition  of  approximately  $10,000,000 in deposits as the
result of the purchase of the  Whitehall and  Trexlertown  branches from another
financial  institution.  There was no premium paid for the  acquisition of these
deposits.  Also  contributing  to the  growth  in  deposits  were  increases  in
certificates of deposit and checking products in response to marketing campaigns
to attract these types of deposits.  The deposit growth in checking deposits and
certificates  of deposits  was  partially  offset by a small  decline in savings
accounts and money market accounts. The continued growth of deposits held by the
Company and the banking  industry in general could be adversely  affected by the
flow of funds into other banks, credit unions, mutual funds and other investment
options.

     The Bank's time deposits,  excluding certificates of deposit over $100,000,
increased in 2000 with average balances of  $157,164,000,  which was $18,088,000
or 13.0%  higher than the 1999  average  balance of  $139,076,000.  Non-interest
bearing  deposits  averaged  $43,893,000  in 2000 as compared to  $41,337,000 in
1999, an increase of  $2,556,000 or 6.2%. In addition,  there was an increase in
average  interest-bearing  demand deposits of $756,000 or 1.4% to $53,151,000 in
2000 from  $52,395,000  in 1999,  and an  increase  in average  certificates  of
deposit  over  $100,000  which  averaged  $5,886,000  in  2000  as  compared  to
$5,040,000 in 1999, an increase of $846,000 or 16.8%.  Partially offsetting this
growth was a $366,000 or 2.6%  decline in average  money  market  deposits and a
decline of $365,000 or 0.6% in savings and club  deposits.  Average money market
deposits  were  $13,461,000  and  $13,827,000  in 2000 and  1999,  respectively.
Average  savings  and club  deposits  were  $62,834,000  in 2000 as  compared to
$63,199,000 in 1999.

                              Short-Term Borrowings

     The Bank had  securities  sold  under  agreements  to  repurchase  totaling
$7,215,000 at December 31, 2000 and  $1,730,000 at December 31, 1999. The Bank's
short-term (overnight) borrowing at December 31, 2000 from the Federal Home Loan
Bank amounted to $5,695,000 against a line of credit of $25,000,000.  There were
no short-term borrowings from the Federal Home Loan Bank outstanding at December
31, 1999. At December 31, 2000 and 1999,  there were no short-term borrowings in

<PAGE>


the  form  of  Federal  funds  purchased,   or  Federal  Reserve  Bank  discount
borrowings.  Additional  information  relating to short-term  borrowings  can be
found in Note G of the "Notes to Consolidated Financial Statements".

                         Liquidity and Capital Resources

     Liquidity is a measure of the  Company's  ability to raise funds to support
asset  growth,  meet deposit  withdrawal  and other  borrowing  needs,  maintain
reserve  requirements and otherwise operate the Company on an ongoing basis. The
Company  manages its assets and  liabilities to maintain  liquidity and earnings
stability.  Among the sources of asset  liquidity are money market  investments,
short-term investment securities, and funds received from the repayment of loans
and short-term borrowings. At year-end 2000, cash, due from banks, Federal funds
sold  and  interest-bearing   deposits  with  banks  totaled  $17,833,000,   and
securities maturing within one year totaled $2,345,000.  At year-end 1999, cash,
due from banks,  Federal  funds sold and  interest-bearing  deposits  with banks
totaled $21,861,000, and securities maturing within one year were $2,249,000.

     The  Bank  is a  member  of the  Federal  Home  Loan  Bank  of  Pittsburgh,
Pennsylvania.  The Bank had  interest-bearing  deposits at the Federal Home Loan
Bank of Pittsburgh in the amount of $94,000 at December 31, 2000, and $5,548,000
at December 31, 1999. These deposits are included in  interest-bearing  deposits
with  banks  on  the  Company's  financial  statements.  As  a  result  of  this
relationship,  the Bank places most of its short-term  funds at the Federal Home
Loan Bank of Pittsburgh  in place of other banks.  The Federal Home Loan Bank of
Pittsburgh provides the Bank with a line of credit in the amount of $25,000,000,
of which $19,305,000 was available at December 31, 2000.

     The Bank had four  long-term  loans  from the  Federal  Home  Loan  Bank of
Pittsburgh  totaling  $34,000,000 at December 31, 2000 and four long-term  loans
totaling $30,000,000 at December 31, 1999. The loans outstanding at December 31,
2000 were originated in 2000, 1999, 1998 and 1996 with the proceeds used to fund
the growth in residential  real estate loans and the investment  portfolio.  The
loans are for $5,000,000 originated in December, 1996 and due December, 2001, at
a variable  rate at LIBOR plus 3 basis  points  (6.895% at December  31,  2000),
$7,000,000 originated in October, 1998 and due October, 2008, at a fixed rate of
4.86% until October, 2003, at which time the rate may be converted at the option
of the lender to a  variable  rate of LIBOR  plus 15 basis  points,  $10,000,000
originated in August,  1999,  and due in August,  2004, at a fixed rate of 6.06%
until August 2001,  at which time the rate may be converted at the option of the
lender to a variable  rate of  LIBOR plus 15 basis points, in the LIBOR  rate is

<PAGE>


is 7.5% or higher and  $12,000,000  originated in August 2000, and due in August
2010,  at a fixed rate of 6.23% until August 2000, at which time the rate may be
converted at the option of the lender to a variable  rate of LIBOR plus 15 basis
points,  if the LIBOR rate is 8.0% or higher.  If the lender elects to convert a
fixed rate loan to a variable  rate,  the Bank may prepay the loan  converted in
full at the time of  conversion  without a penalty.  The Bank had an  additional
loan from the  Federal  Home Loan Bank at  December  31,  1999 in the  amount of
$8,000,000  that was paid in full in August 2000.  This loan was  originated  in
1996  and had a fixed  interest  rate of  5.89%  (see  Note H of the  "Notes  to
Consolidated Financial Statements").

     Cash flows for the year ended December 31, 2000, consisted of cash provided
by financing activities of $42,738,000 and cash provided by operating activities
of $4,053,000 offset in part by cash used in investing activities of $45,325,000
resulting in a net increase in cash and cash equivalents of $1,466,000. The cash
provided by financing activities was comprised of a net increase in certificates
of deposit of $16,636,000,  a net increase in interest and non-interest  bearing
demand and  savings  deposits  of  $12,074,000,  a net  increase  in  repurchase
agreements  of  $5,485,000,  an  increase  in  short-term  (overnight)  debt  of
$5,695,000, a net increase in long-term debt of $4,000,000 and proceeds from the
sale of common stock of $313,000.  Partially offsetting these increases were the
payment of cash  dividends of $1,406,000  and a net increase to the ESOP debt of
$57,000. The cash provided by operating activities was comprised  principally of
the proceeds from mortgage loan sales of  $7,718,000,  net income of $2,072,000,
an increase in other  liabilities  of  $1,181,000  which  includes a  $1,012,000
increase in the special reserve for Funeral Trust  litigation,  depreciation and
amortization of $1,120,000,  an increase in accrued interest payable of $794,000
and the  provision  for  possible  loan losses of  $375,000,  reduced in part by
mortgage  loans  originated  for sale of  $7,718,000,  an  increase  in  accrued
interest income of $781,000,  net investment  securities  gains of $174,000,  an
increase  of  $389,000  in deferred  taxes,  a net  increase in other  assets of
$439,000 and net gains on the sale of mortgage  loans of $59,000.  The cash used
in  investing   activities   was   primarily  for  the  purchase  of  securities
available-for-sale  in the amount of  $45,625,000,  the  purchase of  securities
held-to-maturity  in the  amount  of  $2,334,000,  a net  increase  in  loans of
$25,949,000  and the  purchase  of  premises  and  equipment  in the  amount  of
$703,000.  These  cash  uses were  partially  offset  by the  proceeds  from the
maturities of securities  available-for-sale  of $13,747,000,  proceeds from the
sales of   securities   available-for-sale  of  $8,294,000,  proceeds  from  the

<PAGE>


maturities of securities  held-to-maturity  of $1,128,000  and a net decrease in
interest-bearing deposits with banks of $5,494,000.

     The Company  recognizes  the  importance of  maintaining  adequate  capital
levels to support  sound,  profitable  growth  and to  encourage  depositor  and
investor  confidence.  Shareholders' equity at December 31, 2000 was $33,521,000
as compared to  $28,243,000  at December 31, 1999,  an increase of $5,278,000 or
18.7%.   This  increase  was  attributable  to  an  increase  of  $4,358,000  in
accumulated  other  comprehensive   income  (see  Note  A.6  of  the  "Notes  to
Consolidated  Financial  Statements"),  and  increases of  $1,283,000 in paid in
capital  and  $572,000 in common  stock.  The  increases  in paid in capital and
common  stock  was the  result  of the sale of  common  shares  pursuant  to the
Dividend  Reinvestment  Plan and the 5% stock  dividend.  These  increases  were
partially  offset by an $878,000  reduction in retained  earnings as a result of
the payment of cash  dividends and the 5% stock  dividend.  Total  shareholders'
equity,  exclusive of accumulated other comprehensive income was $33,484,000 and
$32,564,000 at December 31, 2000 and 1999, respectively. This was an increase of
$920,000 or 2.8%. The accumulated  other  comprehensive  income was comprised of
the unrealized gains or losses on securities available-for-sale.  The unrealized
gain on securities  available-for-sale  at December 31, 2000 amounted to $37,000
(net of tax effect of $20,000). Included in shareholders' equity at December 31,
1999 was $4,321,000  (net of tax effect of  $2,226,000) of unrealized  losses on
securities     available-for-sale     (see     discussion     on     "Securities
Available-for-Sale").

     The Company paid a 5% stock  dividend on its common  stock from  authorized
but unissued shares on June 22, 2000 to all  shareholders of record at the close
of  business on June 2, 2000.  On June 24,  1999,  the  Company  paid a 5% stock
dividend  on its  common  stock  from  authorized  but  unissued  shares  to all
shareholders  of record at the close of  business  on June 4, 1999.  The Company
also paid a 5% stock dividend on June 25, 1998 to shareholders of record on June
5, 1998.  Fractional shares on the stock dividends were paid in cash. The number
of average shares and per share  information in this report has been restated to
reflect these 5% stock dividends.

     The Company  maintains a Dividend  Reinvestment and Stock Purchase Plan. In
2000,  21,646 new  common  shares  were  purchased  pursuant  to this Plan at an
average  price of $14.44 for total  proceeds of  $313,000.  In 1999,  15,814 new
common shares were purchased  pursuant to the Plan at an average price of $19.98
per share. The total proceeds were $316,000.

     A  Non-Employee  Directors  Stock Option Plan was adopted by the Company in
1994. This  plan provides  for the  awarding  of  stock options to the Company's

<PAGE>


or the awarding of stock options to the  Company's  non-employee  directors.  In
2000,  options to purchase  2,680  shares of the  Company's  common  stock at an
average price of $16.43 were granted to certain non-employee  directors.  During
2000,  options for 1,340 shares of the Company's common stock issued pursuant to
the plan were  exercised at an average  price of $12.69 per share.  During 1999,
options  for  8,037  shares  of the  Company's  common  stock  were  granted  to
non-employee  directors at a price of $20.77 per share. A non-employee  director
exercised  options for 1,340 shares of the Company's  common stock at a price of
$12.69 per share in 1999.

     The Company  also has a Stock  Option Plan that was adopted in 1986 and the
1996 Stock  Option Plan that was adopted in 1996 which  provide for the granting
of options to acquire the Company's common stock for officers and key employees.
No new options may be issued under the 1986 Stock Option Plan.  In 2000 and 1999
no  options  were  issued  under the 1996 Stock  Option  Plan.  No options  were
exercised  under these plans in 2000 and 1999.  On January 19, 2001,  options to
purchase  39,500 shares of the Company's  common stock at a price of $17.41 were
issued to certain officers under the 1996 Stock Option Plan.

     The  Company's  stock  option  plans are  accounted  for  under  Accounting
Principles  Board (APB) Opinion 25,  "Accounting  for Stock Issued to Employees"
and its related  interpretations.  This  accounting  method is  permitted  under
Financial  Accounting  Standards  Board standard SFAS No. 123,  "Accounting  for
Stock-Based  Compensation",  which  allows an entity to use a  fair-value  based
method for valuing stock-based  compensation which measures compensation cost at
the  grant  date  based on the fair  value of the  award.  Compensation  is then
recognized  over the  service  period,  which is  usually  the  vesting  period.
Alternatively, the Standard permits entities to continue accounting for employee
stock options and similar  instruments  under Accounting  Principles Board (APB)
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees"  and its related
interpretations.  Entities  that continue to account for stock options using APB
Opinion  No. 25 are  required  to make pro forma  disclosures  of net income and
earnings per share, as if the fair-value  based method of accounting  defined in
SFAS No. 123 had been applied.  The  Company's  stock option plans are accounted
for under APB Opinion No. 25. Additional  information  relating to the Company's
Stock Option Plans can be found in Notes A.9 and N of the "Notes to Consolidated
Financial Statements".

     The  Company  and the  Bank  are  subject  to  various  regulatory  capital
requirements  administered  by the  Federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate   certain  mandatory a nd possible

<PAGE>

additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect  on  the  Company's  financial  statements.  Additional
information  relating  to the  Company's  and Bank's  capital  requirements  and
capital  ratios can be found in Note R of the "Notes to  Consolidated  Financial
Statements".

     The Company, in March 2001, settled claims by a group of funeral directors,
against the Bank in connection with certain  pre-need  funeral trusts which were
allegedly  directed by funeral  directors to be invested in a private  placement
annuity.  In 1998,  the Company  established  a reserve of $1.5 million  against
these possible claims. The Company added an additional  $960,000 to this reserve
as of December 31, 2000.  The reserve  balance,  as of December 31, 2000 equaled
$2.48  million.  The Company  expects the reserve to be  sufficient to cover the
settlement.  The Company has incurred  legal  expenses in regard to these claims
during 2000, 1999 and 1998. The Company will continue to incur significant legal
expenses in regard to these claims  during 2001,  primarily in the first quarter
(see Note O of the "Notes to Consolidated Financial Statements").

                     Impact of Inflation and Changing Prices

     The  majority  of assets and  liabilities  of a financial  institution  are
monetary in nature and,  therefore,  differ  greatly  from most  commercial  and
industrial  companies  that  have  significant  investments  in fixed  assets or
inventories.  However,  inflation does have an important impact on the growth of
total assets in the banking  industry and the resulting need to increase  equity
capital  at  higher  than  normal  rates  in order to  maintain  an  appropriate
equity-to-assets  ratio.  Another  significant  effect of  inflation is on other
expenses, which tend to rise during periods of general inflation.

     Management believes the most significant impact on financial results is the
Company's  ability to react to  changes in  interest  rates (see  discussion  on
"Market Risk" and "Interest Rate Sensitivity").

                            Earnings Per Common Share

     The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128,  "Earnings Per Share" in 1997. SFAS No. 128 eliminates
primary and fully diluted earnings per share and requires  presentation of basic
and  diluted  earnings  per  share in  conjunction  with the  disclosure  of the
methodology used in computing such earnings per share.  Basic earnings per share
excludes  dilution  and is  computed  by  dividing  income  available  to common
shareholders  by the  weighted-average  common  shares  outstanding  during  the
period.  Diluted  earnings per share takes into account the  potential  dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised and  converted into  common  stock. Prior  periods' earnings per share

<PAGE>

calculations  have been  restated to reflect  the  adoption of SFAS No. 128 (see
Note A.12 and P of the "Notes to Consolidated Financial Statements").

                   Revenue Recognition in Financial Statements

     In December,  1999,  the Securities  and Exchange  Commission  (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101),  "Revenue  Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views on applying generally
accepted accounting  principles to revenue recognition in financial  statements.
On June  26,  2000,  the SEC  issued  SAB 101B to defer  the  effective  date of
implementation  of SAB 101 until no later  than the  fourth  fiscal  quarter  of
fiscal years beginning after December 31, 1999. The Company is required to adopt
SAB 101 by June 30, 2001. The Company does not expect the adoption of SAB 101 to
have a material impact on the consolidated financial statements.

                          Accounting for the Impairment
                              of Long-Lived Assets

     The Company has adopted the Financial  Accounting Standards Board Statement
of Financial  Accounting Standard (SFAS) No. 121, "Accounting for the Impairment
of  Long-Lived  Assets  and for  Long-Lived  Assets to be  Disposed  Of",  which
provides  guidance on when to recognize and how to measure  impairment losses of
long-lived assets and certain  intangibles and how to value long-lived assets to
be  disposed  of. The  adoption  of SFAS No. 121 had no  material  effect on the
Company's consolidated financial position or results of operations.

                     Accounting for Transfers and Servicing of
                    Financial Assets and Extinguishments of
                                  Liabilities

     In September  2000, the Financial  Accounting  Standards  Board has adopted
SFAS No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities",  which replaces SFAS No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
revises the standards for accounting for the securitizations and other transfers
of financial  assets and  collateral.  This new standard also  requires  certain
disclosures,  but carries over most of the  provisions  of SFAS 125. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring  after  March 31,  2001.  However,  for  recognition  and
reclassification  of collateral and for disclosures  relating to securitizations
transactions  and collateral this statement is effective for fiscal years ending
after  December  15,  2000 with  earlier  application  not  allowed and is to be
applied prospectively.  The adoption of this statement is not expected to have a
material impact on the Company's consolidated financial statements.

                         Reporting Comprehensive Income

     On January 1, 1998, the Company adopted  Statement of Financial  Accounting
Standards  (SFAS)  No. 130, "Reporting  Comprehensive  Income".   SFAS  No.  130

<PAGE>

requires entities  presenting a complete set of financial  statements to include
details of comprehensive income.  Comprehensive income consists of net income or
loss for the current period and income,  expenses,  gains and losses that bypass
the income  statement  and are  reported  directly  in a separate  component  of
equity. The Company's financial statements have been reclassified to reflect the
provision of SFAS No. 130 (see Note A.6 of the "Notes to Consolidated  Financial
Statements").

       Disclosures About Segments of an Enterprise and Related Information

     The  Statement  of  Financial  Accounting  Standards  Board  (SFAS) No. 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial  statements and requires that those
enterprises  report selected  information about operating segments in subsequent
interim financial reports issued to shareholders.  It also establishes standards
for related disclosure about products and services,  geographic areas, and major
customers.  The statement  requires  that a public  business  enterprise  report
financial and descriptive  information about its reportable  operating segments.
Operating  segments  are  components  of  an  enterprise  about  which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision  maker in  deciding  how to  allocate  resources  and assess
performance.  The  statement  also  requires  that public  enterprises  report a
measure of segment profit or loss,  certain  specific  revenue and expense items
and segment assets. It also requires that information be reported about revenues
derived from the  enterprises'  products or services,  or about the countries in
which the enterprises earn revenues and hold assets,  and about major customers,
regardless of whether that information is used in making operating decisions.

     The Company has one reportable  segment,  "Community  Banking".  All of the
Company's  activities  are  interrelated,  and each  activity is  dependent  and
assessed based on how each of the activities of the Company supports the others.
For example,  commercial  lending is  dependent  upon the ability of the Bank to
fund itself with retail  deposits and other  borrowings  and to manage  interest
rate  and  credit  risk.  This  situation  is  also  similar  for  consumer  and
residential mortgage lending.  Accordingly,  all significant operating decisions
are based  upon  analysis  of the  Company  as one  operating  segment  or unit.
Accounting for Derivative Instruments and Hedging Activities

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standard No. 133, ("SFAS 133") "Accounting for

<PAGE>

Derivative  Instruments and Hedging Activities" as amended in June, 1999 by SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB  Statement No. 133", and in June,  2000, by SFAS 138,
"Accounting for Certain Derivative  Instruments and Certain Hedging Activities,"
(collectively   SFAS  133).  SFAS  133  requires  that  entities  recognize  all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
condition and measure those instruments at fair value. Under SFAS 133, an entity
may designate a derivative as a hedge of exposure to either changes in: (a) fair
value of a recognized asset or liability or firm commitment, (b) cash flows of a
recognized  or  forecasted  transaction,  or  (c)  foreign  currencies  of a net
investment  in  foreign   operations,   firm   commitments,   available-for-sale
securities or a forecasted transaction.  Depending upon the effectiveness of the
hedge and/or the transaction being hedged,  and changes in the fair value of the
derivative  instrument  is either  recognized  in earnings in the current  year,
deferred to future periods, or recognized in other comprehensive income. Changes
in the  fair  value  of all  derivative  instruments  not  recognized  as  hedge
accounting are recognized in current year earnings. SFAS 133 is required for all
fiscal  quarters or fiscal  years  beginning  after June 15,  2000.  The Company
adopted SFAS 133 effective  July 1, 2000. No adjustment was required as a result
of the change in accounting principle.

     Statement of Financial  Accounting  Standards  No. 119,  "Disclosure  About
Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS
119") requires  disclosures  about financial  instruments,  which are defined as
futures,  forwards,  swap and option  contracts and other financial  instruments
with similar characteristics. On the balance sheet, receivables and payables are
excluded from this definition. The Company did not hold any derivative financial
instruments as defined by SFAS 119 at December 31, 2000, 1999 or 1998.

<PAGE>

Item 7.A      Quantitative and Qualitative Disclosure About Market Risks

              Contained in Item 7 "Management's Discussion and Analysis of
              Financial Condition And Results of Operation".

Item 8.       Financial Statements and Supplementary Data

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
First Colonial Group, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheets of First
Colonial Group,  Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated  statements of income,  changes in shareholders' equity and
cash flows for each of the three years in the period  ended  December  31, 2000.
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  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of First Colonial
Group,  Inc.  and  Subsidiaries  as of  December  31,  2000  and  1999,  and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2000,  in  conformity
with accounting principles generally accepted in the United States of America.



Philadelphia, Pennsylvania
March 8, 2001

<PAGE>

FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands) At December 31,                   2000           1999
-------------------------------------------------------------------------------
<S>                                                  <C>            <C>
ASSETS
    Cash and Due From Banks                           $ 17,738       $ 14,272
    Federal Funds Sold                                     ---          2,000
                                                      --------       --------
       Total Cash and Cash Equivalents                  17,738         16,272
    Interest-Bearing Deposits With Banks                    95          5,589
    Investments Securities Held-to-Maturity
      (Fair Value:  2000 - $19,906; 1999 - $19,123)     19,972         19,887
    Investment Securities Available-for-Sale           164,029        132,356
    Total Loans                                        226,944        202,258
    Less:  Allowance for Possible Loan Losses           (2,411)        (2,437)
                                                      --------       --------
    Net Loans                                          224,533        199,821
    Premises and Equipment, Net                          6,832          7,116
    Accrued Interest Income                              3,826          3,045
    Other Real Estate Owned                                325            571
    Other Assets                                         5,701          7,232
                                                      --------       --------
      TOTAL ASSETS                                   $ 443,051      $ 391,889
                                                     =========      =========
LIABILITIES
    Deposits
      Non-Interest-Bearing Deposits                   $ 48,748       $ 41,813
      Interest-Bearing Deposits
        (Includes Certificates of Deposit in Excess
          of $100:  2000 - $8,008; 1999 - $5,105)      304,442        282,667
                                                      --------       --------
    Total Deposits                                     353,190        324,480
    Securities Sold Under Agreements to Repurchase       7,215          1,730
    Short-Term Debt                                      5,695            ---
    Long-Term Debt                                      34,000         30,000
    Accrued Interest Payable                             5,002          4,208
    Other Liabilities                                    4,428          3,228
                                                      --------       --------
      TOTAL LIABILITIES                                409,530        363,646
                                                      --------       --------
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $5.00 a share
    Authorized:  500,000 shares, none issued              ---            ---
Common Stock, Par Value $5.00 a share
    Authorized:  10,000,000 shares
    Issued: 1,962,699 shares in 2000 and
            1,848,437 shares in 1999                     9,814          9,242
Additional Paid-In Capital                              16,957         15,674
Retained Earnings                                        8,090          8,968
Employee Stock Ownership Plan Debt                      (1,377)        (1,320)
Accumulated Other Comprehensive Income (Loss)               37         (4,321)
                                                      --------        -------
    TOTAL SHAREHOLDERS' EQUITY                          33,521         28,243
                                                      --------        -------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 443,051      $ 391,889
                                                     =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>

-------------------------------------------------------------------------------
(Dollars in Thousands, except per share data)
  For the Year Ended December 31,                2000       1999       1998
-------------------------------------------------------------------------------
<S>                                           <C>       <C>         <C>
INTEREST INCOME
     Interest and Fees on Loans                $18,116   $ 17,772    $18,885
     Interest on Investment Securities
       Taxable                                   9,440      6,829      5,002
       Tax-Exempt                                1,567      1,509      1,269
     Interest on Deposits with Banks and
       Federal Funds Sold                          164        243        211
                                               -------    -------    -------
         Total Interest Income                  29,287     26,353     25,367
                                               -------    -------    -------
INTEREST EXPENSE
     Interest on Deposits                       11,414      9,819      9,466
     Interest on Short-Term Borrowings             588        283        265
     Interest on Long-Term  Debt                 1,945      1,347      1,140
                                               -------    -------    -------
         Total Interest Expense                 13,947     11,449     10,871
                                               -------    -------    -------
NET INTEREST INCOME                             15,340     14,904     14,496
     Provision for Possible Loan Losses            375        375        450
                                               -------    -------    -------
     Net Interest Income After Provision
       for Possible Loan Losses                 14,965     14,529     14,046
                                               -------    -------    -------
OTHER INCOME
     Trust Revenue                               1,245      1,246      1,225
     Service Charges on Deposit Accounts         2,019      1,682      1,594
     Investment Securities Gains, Net              174        563        722
     Gains on Sale of Mortgage Loans                59        157        398
     Other Operating Income                        825        707        641
                                               -------    -------    -------
         Total Other Income                      4,322      4,355      4,580
                                               -------    -------    -------
OTHER EXPENSES
     Salaries and Employee Benefits              7,437      6,780      6,385
     Net Occupancy and Equipment Expense         2,392      2,171      2,118
     Other Operating Expenses                    7,116      5,722      6,060
                                               -------    -------    -------
         Total Other Expenses                   16,945     14,673     14,563
                                               -------    -------    -------
Income Before Income Taxes                       2,342      4,211      4,063
Income Taxes                                       270        929      1,031
                                               -------    -------    -------
NET INCOME                                     $ 2,072    $ 3,282    $ 3,032
                                               =======    =======    =======
PER SHARE DATA
     Net Income - Basic                         $ 1.09     $ 1.75     $ 1.60
     Net Income - Diluted                       $ 1.09     $ 1.74     $ 1.59
     Cash Dividends                             $ 0.74     $ 0.70     $ 0.67
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>

FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands)                                     Accumulated
                           Add.                              Other
                Common   Paid-In Retained Treas.  ESOP    Comprehensive
                 Stock   Capital Earnings Stock   Debt       Income     Total
-------------------------------------------------------------------------------
<S>            <C>      <C>       <C>    <C>   <C>        <C>        <C>
Balance at
 Jan 1, 1998    $8,277   $11,014  $10,250 $(94) $ (390)    $ 1,300    $30,357
   1998
Comprehensive
 Income
  Net Income                        3,032                               3,032
  Change in
   Unrealized
   Sec Gains,
   (Losses), Net                                              (773)      (773)
                                                                       ------
Total
 Comprehen-
 sive Income                                                            2,259
Sale of
 Common
 Stock
 under
 Dividend
 Reinv
 Plan
 (7,611
 shares)            38       195                                          233
Sale of
 Treas Stock
 under Div
 Reinv Plan
 (2,779 shs)                                        94                     94
Cash Div Paid                      (1,275)                             (1,275)
Stock Div
 of 5%
 (82,701 shs)      414     2,564   (2,978)                                ---
Cash Pd in Lieu
 of Fractional
 Shares                                (6)                                 (6)
ESOP Loan
 Pymt                                              455                    455
Loan to ESOP                                      (500)                  (500)
Unall ESOP
 Shares
 Committed
 to
 Employees
 (5,353 shs)                 100                                          100
               -------   -------  ------- ----- ------      ------    -------
Balance at
 Dec 31, 1998    8,729    13,873   9,023     --   (435)        527     31,717
   1999
Comprehensive
 Income
  Net Income                       3,282                                3,282
 Change in
  Unrealized
  Sec Gains
  (Losses), Net                                             (4,848)    (4,848)
                                                                      --------
Total Comprehen-
 sive Income (Loss)                                                    (1,566)
Sale of
 Common
 Stock
 under
 Dividend
 Reinv
 Plan
 (14,732
 shares)            74       242                                          316
Sale of
 Common Stock
 under
 Directors
 Stock Option
 Plan (496)
 shares)             2         2                                            4
Cash
 Dividends
 Paid                             (1,321)                              (1,321)
Stock
 Dividend
 of 5%
 (87,484
 shares)           437     1,575  (2,012)                                 ---
Cash Pd in
 Lieu of
 Fractional
 Shares                               (4)                                  (4)
ESOP Loan
 Pymt                                              115                    115
Loan to ESOP                                    (1,000)                (1,000)
Unall ESOP
 Shares
 Committed
 to
 Employees
 (3,691
 shares)                     (18)                                         (18)
               -------   -------  ------- ----- ------      ------    -------
Balance at
 Dec 31, 1999    9,242    15,674    8,968   --- (1,320)     (4,321)    28,243
   2000
Comprehensive
 Income
  Net Income                        2,072                               2,072
 Change in
  Unrealized
  Gains
  (Losses), Net                                              4,358      4,358
                                                                       ------
Total
 Comprehen-
 sive Income                                                            6,430
Sale of
 Common
 Stock
 under
 Dividend
 Reinv
 Plan
 (21,177
 shares)           106       207                                          313
Sale of
 Common
 Stock
 under
 Directors
 Stk Option
 Plan
 (332
 shares)             2                                                      2
Cash
 Dividends
 Paid                              (1,406)                             (1,406)
Stock
 Dividend
 of 5%
 (92,752
 shares)           464     1,078   (1,542)                               ---
Cash Pd in
 Lieu of
 Fractional
 Shares                                (2)                                 (2)
ESOP Loan
 Payment                                           115                    115
 Loan to ESOP                                     (172)                  (172)
Unallocated
 ESOP Shares
 Committed
 to Employees
 (6,334 shares)               (2)                                          (2)
                ------   -------   ------   ---  -----        ----    -------
Balance
 at Dec
  31, 2000      $9,814   $16,957   $8,090  $-- $(1,377)    $    37    $33,521
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands)
 For the Year Ended December 31,                    2000       1999       1998
-------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C>
OPERATING ACTIVITIES
  Net Income                                     $ 2,072    $ 3,282   $ 3,032
  Adjustments to Reconcile Net Income to
  Net Cash Provided by Operating Activities
      Provision for Possible Loan Losses             375        375       450
      Depreciation and Amortization                1,120      1,027     1,004
      Accretion of Security Discounts               (430)      (267)      (78)
      Amortization of Security Premiums              239        251       242
      Deferred Taxes                                (389)        90      (395)
      Amortization of Deferred Fees on Loans         479         12      (136)
      (Gain) Loss on Sale of
       Other Real Estate Owned                      (119)       (39)        4
      Loss from Writedown of Other
       Real Estate Owned                             184         --        --
      Investment Securities Gains, Net              (174)      (563)     (722)
      Gain on Sale of Mortgage Loans                 (59)      (157)     (398)
      Mortgage Loans Originated for Sale          (7,718)   (37,460)  (42,723)
      Mortgage Loan Sales                          7,718     38,068    42,879
      Changes in Assets and Liabilities
           Increase in Accrued Interest Income      (781)      (503)     (310)
           Increase in Accrued Interest Payable      794        672        70
           Increase in Other Assets                 (439)      (970)     (740)
           Increase in Other Liabilities           1,181         71       397
                                                --------   --------   -------
Net Cash Provided by Operating Activities          4,053      3,889     2,576
                                                --------   --------   -------
INVESTING ACTIVITIES
  Proceeds from Maturities of
    Securities Available-for-Sale                 13,747     15,331    29,744
  Proceeds from Maturities of Securities
    Held-to-Maturity                               1,128      3,622     9,403
  Proceeds from Sales of Securities
    Available-for-Sale                             8,294     16,858    11,094
  Proceeds from Sales of Securities
    Held-to Maturity                                  --        ---       248
  Purchase of Securities Available-for-Sale      (45,625)   (72,150)  (66,712)
  Purchase of Securities Held-to-Maturity         (2,334)    (6,559)   (9,722)
  Net Decrease (Increase) in Interest-Bearing
    Deposits With Banks                            5,494     (2,288)   (2,906)
  Net (Increase) Decrease in Loans               (25,949)     9,412    16,614
  Purchase of Premises and Equipment                (703)    (1,143)     (494)
  Proceeds from Sale of Other Real Estate Owned      623        382       290
                                                --------   --------   -------
Net Cash Used in Investing Activities            (45,325)   (36,535)  (12,441)
                                                --------    -------   -------
FINANCING ACTIVITIES
  Net Increase in Interest and Non-Interest Bearing
      Demand Deposits and Savings Accounts        12,074      2,058    10,669
  Net Increase in Certificates of Deposit         16,636     27,873     1,625
  Net Increase in Long-Term Debt                   4,000     10,000     1,610
  Net Increase in ESOP Debt                          (57)      (885)      (45)
  Net Increase (Decrease) in
    Repurchase Agreements                          5,485     (3,364)   (3,710)
  Increase in Short-Term Debt                      5,695         --        --
  Proceeds from Issuance of Common Stock             313        302       333
  Proceeds from Sale of Treasury Stock                --         --        94
  Cash Dividends Paid                             (1,406)    (1,321)   (1,275)
  Cash in Lieu of Fractional Shares                   (2)        (4)       (6)
                                                --------    -------   -------
Net Cash Provided by Financing Activities         42,738     34,659     9,295
                                                --------    -------   -------
Increase (Decrease) in Cash and Cash Equivalents   1,466      2,013      (570)
Cash and Cash Equivalents, January 1,             16,272     14,259    14,829
                                                --------    --------  -------
Cash and Cash Equivalents, December 31,         $ 17,738   $ 16,272  $ 14,259
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts  presented in the tables are in thousands,  except per share
data.)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

First  Colonial  Group,  Inc. (the  "Company") is a one bank holding  company of
Nazareth  National  Bank  and  Trust  Company  (the  "Bank").  The  Bank  is  an
independent  community bank providing  retail and  commercial  banking  services
through its seventeen  offices in  Northampton,  Lehigh,  and Monroe counties in
northeastern Pennsylvania.

The Bank competes with other banking and financial  institutions  in its primary
market   communities,    including   financial   institutions   with   resources
substantially greater than its own. Commercial banks, savings banks, savings and
loan  associations,  credit unions and money market funds  actively  compete for
savings and time deposits and for various types of loans. Such institutions,  as
well as consumer finance and insurance companies,  may be considered competitors
of the Bank with respect to one or more of the services it renders.

The Company and the Bank are subject to regulations of certain state and Federal
agencies and,  accordingly,  they are periodically  examined by those regulatory
agencies.  As a consequence  of the extensive  regulation of commercial  banking
activities, the Bank's business is particularly susceptible to being affected by
state and  Federal  legislation  and  regulation  which  may have the  effect of
increasing the cost of doing business.

1.  Basis of Financial Statement Presentation

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries,  the Bank and First C. G. Company,  Inc. All
significant inter-company balances and transactions have been eliminated.

     In preparing the consolidated financial statements,  management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and  expenditures
for the periods. Therefore, actual results could differ significantly from those
estimates.

     The principal  estimate that is  particularly  susceptible  to  significant
change in the near term relates to the allowance for loan losses. The evaluation
of the  adequacy of the  allowance  for loan losses  includes an analysis of the
individual loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
the capability of specific  borrowers to pay specific loan obligations,  as well
as current loan  collateral  values.  However,  actual losses on specific loans,
which also are encompassed in the analysis, may vary from estimated losses.

<PAGE>

     The Company has one reportable  segment,  "Community  Banking".  All of the
Company's  activities  are  interrelated,  and each  activity is  dependent  and
assessed based on how each of the activities of the Company supports the others.
For example,  commercial  lending is  dependent  upon the ability of the Bank to
fund itself with retail  deposits and other  borrowings  and to manage  interest
rate  and  credit  risk.  This  situation  is  also  similar  for  consumer  and
residential mortgage lending.  Accordingly,  all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.

     In December,  1999,  the Securities  and Exchange  Commission  (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101),  "Revenue  Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views on applying generally
accepted accounting  principles to revenue recognition in financial  statements.
On June  26,  2000,  the SEC  issued  SAB 101B to defer  the  effective  date of
implementation  of SAB 101 until no later  than the  fourth  fiscal  quarter  of
fiscal years beginning after December 31, 1999. The Company is required to adopt
SAB 101 by June 30, 2001. The Company does not expect the adoption of SAB 101 to
have a material impact on the consolidated financial statements.

 2.  Investment Securities

     As required by Statement of Financial  Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities",  the Company
classifies debt and marketable equity  securities in three categories:  trading,
available-for-sale and held-to-maturity. Trading securities are measured at fair
value, with unrealized  holding gains and losses included in income. The Company
does   not   have   any   securities    classified   as   trading    securities.
Available-for-sale  securities are measured at fair value, with unrealized gains
and  losses,  net of tax  effect,  reported  in  equity.  Investment  securities
held-to-maturity are principally debt securities and are carried at cost, net of
unamortized  premiums and  discounts,  which are  recognized in interest  income
using the  interest  method  over the period to  maturity.  The  Company has the
positive  intent  and  ability  to hold  such  securities  until  maturity.  The
Company's  classification of its investment  securities into these categories is
detailed in "Note B - Investment Securities".

     Gains or  losses  on  disposition  are  based on the net  proceeds  and the
adjusted   carrying   amount  of  the  securities   sold,   using  the  specific
identification method.

<PAGE>

3.  Mortgage Loans Held-for-Sale

     Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or estimated fair value. Gains and losses
on the sales of loans are also  accounted for in  accordance  with SFAS No. 134,
"Accounting  for  Mortgage  Securities  Retained  after the  Securitizations  of
Mortgage  Loans  Held-for-Sale  by a  Mortgage  Banking  Enterprise".  This  new
statement  requires  that an  entity  engaged  in  mortgage  banking  activities
classify the retained mortgage-backed security or other interest, which resulted
from the securitizations of a mortgage loan held-for-sale based upon its ability
and intent to sell or hold these investments.

4.  Loans and Allowance for Possible Loan Losses

     Loans  receivable  that the  Company has the intent and ability to hold for
the  foreseeable  future or until maturity or payoff are stated at the amount of
unpaid  principal,  reduced by unearned  discount and an allowance  for possible
loan losses.  Interest  income on loans is accrued using  various  methods which
approximate a constant yield.

     Certain   origination   and  commitment   fees,  and  certain  direct  loan
origination  costs are deferred and amortized over the  contractual  life of the
related loans. This results in an adjustment of the yield on the related loan.

     Accrual of interest is  discontinued  on a loan when  management  believes,
after considering economic and business conditions and collection efforts,  that
the  borrower's  financial  condition  is such that  collection  of  interest is
doubtful. Upon such discontinuance, all unpaid accrued interest is reversed.

     The allowance for possible loan losses is  established  through a provision
for loan losses charged to expenses. Loans are charged against the allowance for
possible  loan  losses  when  management  believes  that the  collectibility  of
principal is unlikely.  The allowance is an amount that management believes will
be adequate  to absorb  possible  loan losses on existing  loans that may become
uncollectible,  based on  evaluations of the  collectibility  of loans and prior
loan loss experience.  The evaluations take into  consideration  such factors as
changes  in the  nature  and  volume of the loan  portfolio,  overall  portfolio
quality,  review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay.

<PAGE>

     As required by SFAS No. 114,  "Accounting  by Creditors for Impairment of a
Loan", as amended by SFAS No. 118,  "Accounting by Creditors for Impairment of a
Loan - Income  Recognition and  Disclosures",  the Company  measures  impairment
based on the present  value of  expected  future  cash flows  discounted  at the
loan's  effective  interest  rate,  except  that,  as  a  practical   expedient,
impairment may be measured  based on the  observable  market price of a loan, or
the  fair  value of the  collateral  if the loan is  collateral  dependent.  The
Company  measures  impairment  based on the fair value of the collateral when it
determines that foreclosure is probable (see Note D).

5.  Premises and Equipment

     Premises and equipment are stated at cost less accumulated depreciation and
amortization.  Depreciation  of  buildings  and land  improvements  is  computed
principally on the straight-line  method,  and for equipment,  principally on an
accelerated method, over the estimated useful lives of the assets.

 6.  Comprehensive Income

     On  January  1,  1998  the  Company   adopted  SFAS  No.  130,   "Reporting
Comprehensive Income". This standard requires entities presenting a complete set
of  financial   statements   to  include   details  of   comprehensive   income.
Comprehensive  income  consists of net income or loss for the current period and
income,  expenses,  gains,  and losses that bypass the income  statement and are
reported directly in a separate component of equity.  These financial statements
have been reclassified to reflect the provisions of SFAS No. 130.

<PAGE>

The income tax effects allocated to comprehensive income are as follows:

<TABLE>
-------------------------------------------------------------------------------
For the Year Ended December 31,      Before Tax       Tax         Net of Tax
                                       Amount       Expense         Amount
                                    -------------------------------------------
                                                   (Credit)
<S>                                 <C>          <C>             <C>

2000
-----------------------------------
Unrealized Gains on Securities:
  Unrealized Holding Gains
    Arising During Period            $  6,778     $ (2,305)       $  4,473
  Less:  Reclassification
    Adjustment for Gains
    Realized in Net Income               (174)          59            (115)
                                    -------------------------------------------
Other Comprehensive Income, Net      $  6,604     $ (2,246)       $  4,358
                                    -------------------------------------------

1999
-----------------------------------
Unrealized Losses on Securities:
  Unrealized Holding Losses
    Arising During Period            $ (7,910)    $ (2,690)       $ (5,220)
  Less:  Reclassification
    Adjustment for Gains
    Realized in Net Income                563          191             372
                                    -------------------------------------------
Other Comprehensive Loss, Net        $ (7,347)    $ (2,499)       $ (4,848)
                                    -------------------------------------------

1998
-----------------------------------
Unrealized Losses on Securities:
  Unrealized Holding Losses
    Arising During Period            $ (1,894)    $   (644)       $ (1,250)
  Less:  Reclassification
    Adjustment for Gains
    Realized in Net Income                722          245             477
                                    -------------------------------------------
Other Comprehensive Loss, Net        $ (1,172)    $   (399)       $   (773)
                                    -------------------------------------------
</TABLE>

<PAGE>

 7.  Accounting for Derivative Instruments and
     Hedging Activities

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
No.  133,  ("SFAS  133")  "Accounting  for  Derivative  Instruments  and Hedging
Activities"  as amended in June,  1999 by SFAS 137,  "Accounting  for Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement  No. 133",  and in June,  2000, by SFAS 138,  "Accounting  for Certain
Derivative Instruments and Certain Hedging Activities", (collectively SFAS 133).
SFAS 133 requires that entities  recognize all  derivatives  as either assets or
liabilities   in  the  statement  of  financial   condition  and  measure  those
instruments at fair value.  Under SFAS 133 an entity may designate as a hedge of
exposure to either changes in: (a) fair value of a recognized asset or liability
or firm commitment,  (b) cash flows of a recognized for forecasted  transaction,
or (c)  foreign  currencies  of a net  investment  in foreign  operations,  firm
commitments,   available-for-sale   securities  or  a  forecasted   transaction.
Depending  upon the  effectiveness  of the hedge  and/or the  transaction  being
hedged,  any changes in the fair value of the  derivative  instrument  is either
recognized  in earnings  in the current  year,  deferred to future  periods,  or
recognized  in other  comprehensive  income.  Changes  in the fair  value of all
derivative  instruments  not  recognized as hedge  accounting  are recognized in
current year  earnings.  SFAS 133 is required for all fiscal  quarters or fiscal
years  beginning  after June 15, 2000.  The Company  adopted SFAS 133  effective
January  1,  2001.  No  adjustment  was  required  as a result of the  change in
accounting principle.

     Statement of Financial  Accounting  Standards  No. 119,  "Disclosure  About
Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS
119") requires  disclosures  about financial  instruments,  which are defined as
futures,  forwards,  swap and option  contracts and other financial  instruments
with similar  characteristics.  On balance  sheet  receivables  and payables are
excluded from this definition. The Company did not hold any derivative financial
instruments as defined by SFAS 119 at December 31, 2000, 1999 or 1998.

 8.  Income Taxes

     Under the  liability  method  called for in SFAS No. 109,  "Accounting  for
Income Taxes",  whereby deferred tax assets and liabilities are determined based
on the  difference  between the financial  statement and tax bases of assets and
liabilities  as  measured  by the enacted tax rates which will be in effect when
these  differences  reverse.  Deferred  tax  expense is the result of changes in
deferred tax assets and liabilities.

<PAGE>

9.  Stock Option Plans

     Under Stock  Option  Plans,  options to acquire  shares of common stock are
granted to certain officers, key employees and directors.

     The  Company's  Stock  Option Plans are  accounted  for under SFAS No. 123,
"Accounting  for  Stock-Based  Compensation".  This  standard  contains  a  fair
value-based   method  for  valuing   stock-based   compensation  which  measures
compensation  cost at the  grant  date  based  on the fair  value of the  award.
Compensation is then  recognized  over the service period,  which is usually the
vesting  period.  Alternatively,  the  Standard  permits  entities  to  continue
accounting for employee stock options and similar  instruments under APB Opinion
No. 25.  Entities  that  continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based  method of accounting  defined in SFAS No. 123
had been applied.  The Company's  stock option plans are accounted for under APB
Opinion No. 25.

10.  Employee Benefit Plans

     The  Company  has  established  an  Employee  Stock  Ownership  Plan (ESOP)
covering eligible employees with one year of service as defined by the ESOP. The
Company  accounts for its ESOP in accordance  with  Statement of Position  (SOP)
93-6,  "Employer's Accounting for Employee Stock Ownership Plans", issued by the
Accounting  Standards  Division of the American  Institute  of Certified  Public
Accountants  (AICPA).  SOP 93-6 is applied to shares  acquired by the ESOP after
December 31, 1992.  For issuances of stock to the ESOP after  December 15, 1989,
but prior to December 31, 1992, the shares allocated method is used to recognize
expense in the Company's financial  statements.  For issuances of stock prior to
December 15, 1989,  the Company will  continue the cash  contribution  method of
recognizing  expense to the extent that it exceeds the  cumulative  expense that
would be recognized under the shares allocated method.

     Employees who qualify may elect to participate in a deferred salary savings
401(k) plan. The Company contributes $.50 for each $1.00 up to the first 5% that
each employee contributes.  The Company also has an executive  compensation plan
which provides  additional  death,  medical and  retirement  benefits to certain
officers.

<PAGE>

     The Company has a deferred compensation plan involving the Directors of the
Company.  This plan provides  defined annual  payments for 15 years beginning at
age 65 or death in exchange for the Directors deferring the payment of a portion
of their fees.

     The Company  records the cost of  post-retirement  medical  benefits on the
accrual  basis as  employees  render  service to earn the benefits and records a
liability for the unfunded accumulated  post-retirement benefit obligation.  The
transition  obligation,  representing the unfunded and unrecognized  accumulated
past-service benefit obligation for all plan participants,  will be amortized on
a straight-line basis over a 20-year period.

11.  Trust Assets and Revenue

     Assets  held by the Trust  Department  of the Bank in  fiduciary  or agency
capacities for its customers are not included in the  accompanying  consolidated
balance  sheets  since  such  assets are not  assets of the  Company.  Operating
revenue and expenses of the Trust Department are included under their respective
captions in the accompanying  consolidated statements of income and are recorded
on the accrual basis.

12.  Per Share Information

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards (SFAS) No. 128, "Earnings Per Share".  SFAS No. 128 eliminates primary
and fully  diluted  earnings  per share and requires  presentation  of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing  such earnings per share.  Basic  earnings per share  excludes
dilution and is computed by dividing income available to common  shareholders by
the  weighted-average  common  shares  outstanding  during the  period.  Diluted
earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. Share and per share amounts have been retroactively  restated
to  reflect  the three 5% stock  dividends  in June  2000,  1999 and  1998.  13.
Statement of Cash Flows

     The Company  considers  cash, due from banks and Federal funds sold as cash
equivalents for the purposes of the Consolidated Statements of Cash Flows.

     Cash paid for interest was $13,153,000,  $10,777,000 and  $10,801,000,  for
the years ended December 31, 2000,  1999 and 1998,  respectively.  Cash paid for
taxes was $500,000 in 2000, $1,060,000 in 1999 and $1,458,000 in 1998.

<PAGE>

14.  Advertising Costs

     The Company expenses advertising costs as incurred.

15.  Transfer and Servicing of Assets and
      Extinguishments of Liabilities

     In September,  2000, the Financial  Accounting  Standards Board has adopted
SFAS No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities",  which replaces SFAS No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
and revises the  standards  for  accounting  for the  securitizations  and other
transfers of financial  assets and  collateral.  This new standard also requires
certain  disclosures,  but carries over most of the provisions of SFAS 125. SFAS
140  is  effective  for   transfers  and  servicing  of  financial   assets  and
extinguishments  of liabilities  occurring  after March 31, 2001.  However,  for
recognition and  reclassification of collateral and for disclosures  relating to
securitizations  transactions  and  collateral  this  statement is effective for
fiscal years ending after December 15, 2000 with earlier application not allowed
and is to be  applied  prospectively.  The  adoption  of this  statement  is not
expected  to have a  material  impact on the  Company's  consolidated  financial
statements.

16.  Reclassifications

     Certain  reclassifications of prior years amounts have been made to conform
to the 2000 presentation.


<PAGE>

NOTE B - INVESTMENT SECURITIES

     The  amortized  cost,  unrealized  gains and losses,  and fair value of the
Company's  available-for-sale  and  held-to-maturity  securities at December 31,
2000 and 1999 are summarized as follows.

<TABLE>
                                                     2000

Available-for-Sale Securities                  Gross        Gross
                                  Amortized  Unrealized   Unrealized    Fair
                                    Cost       Gains        Losses      Value
<S>                               <C>       <C>           <C>         <C>

U. S. Treasury                    $  4,011   $    13       $    (2)   $  4,022
U. S. Government Agency             79,145       672          (718)     79,099
State and Political Subdivisions    28,210       233          (190)     28,253
Mortgage-Backed Securities          44,110       309          (290)     44,129
Equity Securities                    8,496       417          (387)      8,526
                                   -------   -------       -------     -------
     Total                        $163,972   $ 1,644       $(1,587)   $164,029
</TABLE>

<TABLE>

                                                     1999

Available-for-Sale Securities                  Gross        Gross
                                  Amortized  Unrealized   Unrealized    Fair
                                    Cost       Gains        Losses      Value
<S>                               <C>       <C>           <C>         <C>

U. S. Treasury                    $  4,001   $     4       $   (13)   $  3,992
U. S. Government Agency             53,112        --        (3,365)     49,747
State and Political Subdivisions    29,147        16        (1,284)     27,879
Mortgage-Backed Securities          47,332        36        (1,338)     46,030
Equity Securities                    5,312        68          (672)      4,708
                                   -------   -------       -------     -------
     Total                        $138,904   $   124       $(6,672)   $132,356
</TABLE>

<TABLE>

                                                     2000

Held-to-Maturity Securities                    Gross        Gross
                                  Amortized  Unrealized   Unrealized    Fair
                                    Cost       Gains        Losses      Value
<S>                               <C>       <C>           <C>         <C>

U. S. Government Agency            $ 7,937   $    15       $   (49)    $ 7,903
State and Political Subdivisions     8,016        45           (70)      7,991
Mortgage-Backed Securities           4,019        23           (30)      4,012
                                   -------   -------       -------     -------
     Total                         $19,972   $    83       $  (149)    $19,906
</TABLE>

<TABLE>

                                                     1999

Held-to-Maturity Securities                    Gross        Gross
                                  Amortized  Unrealized   Unrealized    Fair
                                    Cost       Gains        Losses      Value
<S>                               <C>       <C>           <C>         <C>

U. S. Government Agency            $ 6,894   $    --       $  (306)    $ 6,588
State and Political Subdivisions     7,974        10          (401)      7,583
Mortgage-Backed Securities           5,019        13           (80)      4,952
                                   -------   -------       -------     -------
     Total                         $19,887   $    23       $  (787)    $19,123
</TABLE>

     At December 31, the equity  securities in the  available-for-sale  category
include  Federal  Reserve  Bank  stock in the  amount  of  $258,000  in 2000 and
$259,000 in 1999,  and Federal Home Loan Bank stock in the amount of  $2,306,000
in 2000 and $2,265,000 in 1999 which are carried at cost.


<PAGE>

     The following table lists the maturities of debt securities at December 31,
2000, classified as available-for-sale and held-to-maturity. Expected maturities
will differ from contractual  maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

MATURITIES OF DEBT SECURITIES

<TABLE>
At December 31, 2000              Available-For-Sale        Held-To-Maturity
                                 Carrying       Fair       Carrying      Fair
                                   Value       Value         Value      Value
                                -----------  ---------     ---------  --------
<S>                             <C>         <C>           <C>        <C>
Due in one year or less         $  2,146    $  2,145       $   200    $   202
Due after one year
   through five years             16,330      16,541         1,939      1,942
Due after five years
   through ten years              50,029      49,941         7,040      7,056
Due after ten years               42,861      42,747         6,774      6,694
                                 -------     -------       -------     -------
                                 111,366     111,374        15,953     15,894

Mortgage-Backed Securities        44,110      44,129         4,019      4,012
Equity Securities                  8,496       8,526           --          --
                                 -------     -------       -------     -------
Total Investments               $163,972    $164,029       $19,972    $19,906

</TABLE>

     Investment  securities with a carrying amount of $7,651,000 and $13,950,000
at  December  31, 2000 and 1999,  respectively,  were  pledged to secure  public
deposits,  to qualify for fiduciary  powers and for other  purposes  required or
permitted by law. There were no securities  held other than U. S. Treasury or U.
S.  Agencies  from  a  single  issuer  which   represented   more  than  10%  of
shareholders'  equity.  Proceeds  from sales of  investments  in debt and equity
securities  during  2000,  1999  and  1998  were  $8,294,000,   $16,858,000  and
$11,342,000,  respectively.  Gross gains of $252,000 and gross losses of $78,000
were  realized on those sales in 2000.  Gross gains of $716,000 and gross losses
of $153,000 were realized on the sales in 1999. In 1998,  gross  realized  gains
were $740,000 and gross realized losses were $18,000.


<PAGE>

     NOTE C - LOANS Major classifications of loans at December 31, 2000 and 1999
are as follows.

<TABLE>

                                             2000                    1999
<S>                                       <C>                    <C>
Real Estate/Residential                    $128,862               $ 112,870
Real Estate/Construction                      5,923                   6,737
Real Estate/Commercial                       27,206                  26,809
Consumer/Installment                         53,062                  45,886
Commercial (Non-Real Estate)
   and Agricultural                          10,214                   9,538
State and Political Subdivisions              2,089                   1,096
Other                                            19                      13
                                           --------               ---------
    Total Gross Loans                       227,375                 202,949
       Less:  Unearned Discount                (431)                   (691)
                                           --------               ---------
Total Loans                                $226,944               $ 202,258
</TABLE>

     The Company  makes loans to its directors  and  executive  officers.  These
loans were made in the  ordinary  course of business at  substantially  the same
terms and conditions as those with other borrowers.

     An analysis of the 2000 activity of these loans follows.
<TABLE>
<S>     <C>                             <C>

          Balance, January 1, 2000       $ 1,040
            New loans                        116
            Repayments                       425
                                         -------
          Balance, December 31, 2000     $   731
</TABLE>

<PAGE>


NOTE D - ALLOWANCE FOR POSSIBLE LOAN LOSSES

Transactions in the allowance for possible loan losses were as follows.

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                    2000           1999          1998
-------------------------------------------------------------------------------
<S>                                     <C>            <C>           <C>

Beginning Balance                        $ 2,437        $ 2,691       $ 2,664

  Provisions charged to
    charged to operating expenses            375            375           450
  Recoveries                                 160            103           117
  Loans charged-off                         (561)          (732)         (540)
                                         -------        -------       -------
Ending Balance                           $ 2,411        $ 2,437       $ 2,691
</TABLE>

     There were loans  totaling  $1,048,000 on which the accrual of interest has
been  discontinued  or reduced at December 31, 2000.  During 2000, an average of
$1,147,000 of loans was on non-accrual status. Non-accrual loans at December 31,
1999 amounted to $1,311,000 and averaged  $1,091,000  during 1999. Loans 90 days
and over past due and still accruing totaled $1,469,000 at December 31, 2000 and
$1,491,000 at December 31, 1999.

     The  recorded  investment  in impaired  loans was  $339,000,  $370,000  and
$524,000  at December  31,  2000,  1999 and 1998,  respectively.  The  valuation
allowance for credit losses related to impaired loans is a part of the allowance
for possible loan losses. The total valuation allowance was $78,000, $74,000 and
$303,000 at December 31, 2000, 1999 and 1998, respectively. The average recorded
investment in impaired loans during the years ended December 31, 2000,  1999 and
1998 was  approximately  $317,000,  $469,000  and  $897,000,  respectively.  All
impaired  loans  were on a  non-accrual  status.  Income  on  impaired  loans is
recognized  by the Company on a cash  basis.  The  Company  recognized  interest
income of approximately $42,000,  $35,000 and $23,000 on impaired loans in 2000,
1999 and 1998, respectively.

<PAGE>


NOTE E - PREMISES AND EQUIPMENT
         Major classifications of these assets at December 31, 2000 and 1999 are
summarized as follows.
<TABLE>

-------------------------------------------------------------------------------
                                    Estimated
                                Useful Lives           2000            1999
-------------------------------------------------------------------------------
<S>                                                <C>             <C>
Land                                ---             $   939         $   939
Premises                         10-20 years          7,556           7,370
Equipment                         3-10 years          6,900           6,408
                                                     ------           -----
                                                     15,395          14,717
Accumulated depreciation
  and amortization                                   (8,563)         (7,601)
                                                     ------         -------
Total Premises and Equipment                        $ 6,832         $ 7,116
</TABLE>

     Depreciation  and amortization  expense amounted to $987,000,  $912,000 and
$908,000 in 2000, 1999 and 1998, respectively.

NOTE F - DEPOSIT MATURITIES

         At December 31, 2000, the schedule of maturities of certificates of
deposit is as follows:
<TABLE>
<S>                <C>      <C>
                    2001     $ 137,452
                    2002        23,769
                    2003         8,852
                    2004         1,915
                    2005         1,008
              Thereafter           224
                             ---------
                             $ 173,220
</TABLE>

<PAGE>

NOTE G - SHORT-TERM BORROWINGS

     Short-term debt consists of the following Federal Home Loan Bank advances:
<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                        2000        1999        1998
-------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Balance outstanding at December 31,         $ 5,695     $    --     $    --
Maximum amount outstanding at
  any month-end during the year             $11,255     $12,425     $ 1,422
Average amount outstanding                  $ 3,994     $ 1,721     $   974
Average interest rate during the year         6.41%       5.17%       5.65%
</TABLE>

     The Federal Home Loan Bank of  Pittsburgh  provides the Bank with a line of
credit in the amount of  $25,000,000,  of which  $19,305,000  was  available  at
December 31, 2000.

     There were no short-term borrowings in the form of Federal Reserve Discount
borrowings and Federal Funds purchased at December 31, 2000, 1999 and 1998.

     Securities sold under agreements to repurchase consist of the following:

<TABLE>
--------------------------------------------------------------------------------
Year Ended December 31,                        2000        1999        1998
--------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Balance outstanding at December 31,         $ 7,215     $ 1,730     $ 5,094
Maximum amount outstanding at
  any month-end during the year             $12,950     $ 8,682     $ 8,166
Average amount outstanding                  $ 7,226     $ 5,994     $ 5,821
Average interest rate during the year         4.59%       3.24%       3.61%
</TABLE>

<PAGE>


NOTE H - LONG-TERM DEBT

     The Company had  long-term  borrowings  from the Federal  Home Loan Bank of
Pittsburgh totaling $34,000,000 at December 31, 2000 and $30,000,000 at December
31,  1999.  These  loans will  mature in one to ten eight  years.  The  weighted
average interest rate on these loans was 6.0% and 5.78% at December 31, 2000 and
1999, respectively.

     The  Company  also  has an  obligation  as a party  to the  Employee  Stock
Ownership Plan debt, which is discussed in Note K. The principal payments due on
the Company's debt at December 31, 2000 are as follows.

<TABLE>
--------------------------------------------------------------------------------
                             ESOP Debt         FHLB Debt         Total Debt
--------------------------------------------------------------------------------
<S>                         <C>             <C>               <C>

2001                         $  142          $  5,000          $  5,142
2002                            142                 -               142
2003                            142                 -               142
2004                            142            10,000            10,142
2005                            142                 -               142
2006 and beyond                 627            19,000            19,627
                              -----          --------          --------

Total                        $1,337          $ 34,000          $ 35,337
--------------------------------------------------------------------------------
</TABLE>

NOTE I- OTHER OPERATING EXPENSES

     Other operating expenses consists of the following:

<TABLE>
-------------------------------------------------------------------------------
                                            2000        1999         1998
-------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>
Advertising                               $  546      $  574       $  597
Consulting Fees                           $  588      $  511       $  416
Data Processing Services                  $  813      $  773       $  583
Litigation Costs and Legal Fees           $  723      $  669       $  418
Loan Collection                           $  240      $  298       $  346
Printing, Stationery and Supplies         $  320      $  318       $  328
Provisions for Trust Reserve              $1,012      $   57       $1,000
All Other                                 $2,874      $2,522       $2,372
                                          ------      ------       ------
Total Other Operating Expenses            $7,116      $5,722       $6,060
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

NOTE J- INCOME TAXES

     Income tax expense (benefit) is as follows.
<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                2000        1999        1998
-------------------------------------------------------------------------------
<S>                                  <C>       <C>          <C>
Federal
    Current                           $ 659     $   840      $ 1,426
    Deferred (benefit)                 (389)         89         (395)
                                      -----     -------      -------
    Total                             $ 270     $   929      $ 1,031
-------------------------------------------------------------------------------
</TABLE>

     The income tax provision  reconciled to the tax computed  statutory Federal
rate is as follows.
<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                  2000           1999            1998
-------------------------------------------------------------------------------
<S>                                  <C>            <C>             <C>
Federal tax expense
  at statutory rate                   $   796        $ 1,432         $ 1,385
Increase (decrease)
  in taxes resulting from:
    Tax-exempt investment
      securities income                  (582)          (569)           (363)
    Tax-exempt interest
      on loans                            (37)           (29)            (23)
Other, net                                 93             95              32
                                      -------        -------         -------
Applicable Income Taxes               $   270        $   929         $ 1,031
</TABLE>

     Deferred tax assets and liabilities consist of the following.

<TABLE>
------------------------------------------------------------------------
At December 31,                                     2000           1999
------------------------------------------------------------------------
<S>                                             <C>         <C>
Deferred Tax Assets:
   Unrealized Securities Losses                  $    --        $ 2,226
   Loan Loss Reserve                                 514            523
   Deferred Compensation                             428            429
   Post-Retirement Benefits                           75             71
   Depreciation                                       74             64
   Miscellaneous Reserves                            931            531
   Other                                             152            120
                                                 -------        -------
     Total                                       $ 2,174        $ 3,964
                                                 -------        -------
Deferred Tax Liability:
   Unrealized Securities Gains                   $    20        $    --
                                                 -------        -------
    Total                                        $    20        $    --
                                                 -------        -------
Net                                              $ 2,154        $ 3,964
------------------------------------------------------------------------
</TABLE>


<PAGE>


NOTE K - EMPLOYEE STOCK OWNERSHIP PLAN

     The Company  maintains  an  Employee  Stock  Ownership  Plan (ESOP) for the
benefit of eligible employees.

     In October 2000, the ESOP borrowed  $71,875 from the Company's  subsidiary,
First C. G.,  payable over ten years.  The proceeds  from this loan were used to
purchase  shares  from the  market.  In  December  2000,  the ESOP  borrowed  an
additional  $100,000 from the Company's  subsidiary,  First C. G.,  payable over
five years.  The  proceeds  from this loan were used to purchase the shares from
the account of a former  employee  pursuant to the  provisions of the Plan.  The
interest on these loans is at the Bank's prime rate (an  interest  rate of 9.50%
at December  31,  2000).  The  balance on these loans was $71,875 and  $100,000,
respectively at December 31, 2000.

     In 1999, the ESOP borrowed $1,000,000 from the Company's subsidiary,  First
C. G.,  payable over six years.  The interest rate on this loan is at the Bank's
prime rate (an interest rate of 9.50% at December 31, 2000 and 8.50% at December
31,  1999).  The balance  outstanding  on this loan was $900,000 at December 31,
2000 and $950,000 at December 31, 1999. The proceeds from this loan were used to
purchase shares from the market.

     In 1998, the ESOP borrowed $500,000 from the Company's subsidiary, First C.
G. The interest  rate on this loan is at the bank's prime rate (an interest rate
of 9.50% at  December  31,  2000 and 8.50% at December  31,  1999).  The balance
outstanding  on this loan was  $305,000  at December  31,  2000 and  $370,000 at
December 31, 1999.

     These  obligations  have been  recorded as a liability  on the books of the
Company and are collateralized by stock of the Bank. Interest expense represents
the actual  interest  paid by the ESOP.  The interest  incurred on ESOP debt was
$121,000,  $85,000 and $40,000 for the years ended  December 31, 2000,  1999 and
1998, respectively.

     Compensation expense related to the ESOP amounted to $238,000, $210,000 and
$310,000 for the years ended December 31, 2000, 1999 and 1998, respectively.  As
provided by SOP 93-6, the ESOP compensation  expense includes a $2,000 credit in
2000 and a $20,000  credit in 1999 and an expense of $100,000 in 1998,  which is
the fair market value of the shares  related to the loans that were allocated to
the  employees  during these years.  The number of shares  released was 6,334 in
2000, 3,972 in 1999 and 5,902 in 1998.

<PAGE>

     Dividends on unallocated shares used for debt service were $41,000, $45,000
and $19,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

     The total  shares held by the ESOP were 297,166 and 291,667 at December 31,
2000 and 1999, respectively. ESOP shares have been restated to reflect the three
5% stock dividends of June, 2000, 1999 and 1998.

NOTE L - OTHER BENEFIT PLANS

     Employees who qualify may elect to participate in a deferred salary savings
401(k) plan. A participating  employee may contribute a maximum of 12% of his or
her  compensation.  The Company  will  contribute  $.50 for each $1.00 up to the
first 5% that each employee contributes. Company payments are charged to current
operating  expenses.  These  contributions were $91,000,  $86,000 and $75,000 in
2000, 1999 and 1998, respectively.

     The  Company  also  has an  executive  compensation  plan  (the  "Officers'
Supplemental  Retirement  Plan") which provides  additional  death,  medical and
retirement benefits to certain officers.

     The  Company has a deferred  compensation  plan (the  "Deferred  Directors'
Plan")  involving  Directors of the Company.  The plan requires  defined  annual
payments  for five to fifteen  years  beginning  at age 65 or death.  The annual
benefit  is based  upon the amount  deferred  plus  interest.  The  Company  has
recorded the deferred compensation liabilities using the present value method.

<PAGE>


     The following table sets forth the changes in benefit  obligations and plan
assets of the Officers' Supplemental Retirement Plan and the Deferred Directors'
Plan.

     Actuarial present value of benefit obligations is as follows.

<TABLE>
                                              Officers'        Deferred
                                            Supplemental       Directors'
                                          Retirement Plan         Plan

At December 31,                            2000     1999     2000     1999
<S>                                      <C>      <C>      <C>      <C>
Benefit obligation at beginning of year   $ 227    $ 200    $ 468    $ 491
Service cost                                 46       43        -       -
Interest cost                                27       18       30       32
Actual (gain) loss                           88      (34)      (2)      (2)
Benefits paid                                 -        -      (53)     (53)
                                          -----    -----    -----    -----
Benefits obligation at end of year          388      227      443      468

Change in plan assets:
Fair value of plan assets at beginning
  of year                                     -        -        -        -
Actual return on plan assets                  -        -        -        -
Employer contribution                         -        -       53       53
Benefits paid                                 -        -      (53)     (53)
                                          -----    -----    -----    -----
Fair value of plan assets at end of year      -        -        -        -

Funded status                              (388)    (227)    (443)    (468)
Unrecognized net transition asset            (3)      (4)       -        -
Unrecognized net actuarial (gain) loss     (161)    (260)      35       37
Unrecognized prior service cost               -        -        -        -
Adjustment to recognize
  additional minimum liability               --       --      (35)     (37)
                                          -----    -----    -----    -----
Accrued benefit cost                      $(552)   $(491)   $(443)   $(468)
</TABLE>


     The  weighted  average  assumed  discount  rates  used in  determining  the
actuarial  present value of the projected  benefit  obligation were 7.0% in 2000
and 6.75% in 1999 and 6.50% in 1998 for the  Officers'  Supplemental  Retirement
Plan,  and 7.0% in 2000,  1999 and 1998 for the Deferred  Directors'  Plan.  The
weighted average expected  long-term rate of return on assets was 8.0% for 2000,
1999 and 1998 for the Officers' Supplemental Retirement Plan and 9.0% in each of
those years for the  Deferred  Directors'  Plan.  The  weighted  average rate of
increase in future compensation levels used in determining the actuarial present
value for the Officers' Supplemental  Retirement Plan was 6.0% in 2000, 1999 and
1998.

<PAGE>

     Components of the net periodic benefit costs is as follows for both plans.
<TABLE>
--------------------------------------------------------------------------------
OFFICERS' SUPPLEMENTAL RETIREMENT PLAN

at December 31,                             2000        1999         1998
--------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Service cost                                $ 46        $ 43         $ 37
Interest cost                                 27          18           15
Net amortization and
  deferral of prior service costs            (12)        (21)         (15)
                                            ----        ----          ---
Net Periodic Benefit Cost                   $ 61        $ 40          $37
</TABLE>

DEFERRED DIRECTORS' PLAN
<TABLE>
at December 31,                             2000        1999         1998
--------------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>
Service cost                                $  -        $  -         $ --
Interest cost                                 30          32           34
Net amortization and
  deferral of prior service costs             --          --           --
                                            ----        ----          ---
Net Periodic Benefit Cost                   $ 30        $ 32         $ 34

--------------------------------------------------------------------------------
</TABLE>

NOTE M - POST-RETIREMENT BENEFIT

     The Company sponsors a post-retirement plan that covers a certain number of
retired employees and a limited group of current  employees.  This plan provides
medical  insurance  benefits to a group of  previously  qualified  retirees  and
spouses and to current full-time  employees who were 60 years of age or older on
January 1, 1992 and who have retired from the Company after attaining age 65 and
are fully vested in the ESOP at the time of  retirement.  This plan is currently
unfunded.

     As permitted by SFAS No. 106, the Company  elected to delay the recognition
of the transition obligation by aggregating $308,000,  which arose from adopting
SFAS No. 106, and amortize this amount on a  straight-line  basis over 20 years.
This  election is recorded in the  financial  statements  as a component  of net
periodic post-retirement benefit cost.

     The  components  of the net  periodic  post-retirement  benefit cost are as
follows.

<TABLE>
-------------------------------------------------------------------------------
POST-RETIREMENT PLAN
Year Ended December 31,                    2000            1999           1998
-------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>
Interest cost                              $  9          $   11         $   11
Amortization of transition
  obligation                                  3               7              6
                                           -----           -----          -----
Net Periodic Benefit Cost                  $ 12            $ 18           $ 17
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

     The assumptions  used to develop the net periodic  post-retirement  benefit
cost are as follows.
<TABLE>
-------------------------------------------------------------------------------
                                           2000            1999           1998
-------------------------------------------------------------------------------
<S>                                      <C>             <C>            <C>
Discount Rate                             7.00%           6.75%          6.50%
Medical care cost
  trend rate                              8.50%           8.50%          8.50%
-------------------------------------------------------------------------------
</TABLE>

     The  medical  care  cost  trend  rate  used  in the  actuarial  computation
ultimately  is reduced to 8.0% in the year 2001 and 6.0% in 2005 and  subsequent
years.  This was  accomplished  using 0.5% decrements  through the year 2005 and
later.

     The table of actuarially  computed plan assets and benefit  obligations for
the Company is presented below.

<TABLE>


POST-RETIREMENT PLAN                            2000          1999
<S>                                           <C>           <C>
Change in benefit obligation:
Benefit obligation at beginning of year        $ 174         $ 164
Service cost                                       -             -
Interest cost                                      8            11
Actual gain                                        -             -
Change due to change in experience               (40)           13
Change due to change in assumption                 -             2
Benefits paid                                    (14)          (16)
                                               -----         -----
Benefits obligation at end of year               128           174
                                               -----         -----
Change in plan assets:
Fair value of plan assets at beginning
  of year                                          -             -
Actual return on plan assets                       -             -
Employer contribution                              -             -
Benefits paid                                      -             -
                                               -----         -----
Fair value of plan assets at end of year           -             -

Funded status                                   (128)         (174)
Unrecognized net transition obligation           185           201
Unrecognized net gain                           (122)          (93)
                                               -----         -----
Accrued benefit cost                           $ (65)        $ (66)
</TABLE>

     The effect of a one percentage point increase in each future year's assumed
medical care cost trend rate, holding all other assumptions constant, would have
been to increase the net periodic post-retirement benefit cost by $9,000 and the
accrued post-retirement benefit cost by $1,000.

<PAGE>

     Health care benefits are provided to certain retired employees. The cost of
providing these benefits was approximately $13,000, $16,000 and $20,000 in 2000,
1999 and 1998,  respectively.  The cost is accrued  over the service  periods of
employees expected to receive benefits.

NOTE N - STOCK OPTIONS

     The  Company  adopted a Stock  Option  Plan in 1996 that was similar to the
Stock Option Plan established in 1986. Under the Stock Option Plans,  options to
acquire shares of common stock may be granted to the officers and key employees.
The Stock  Option  Plans  provide for the granting of options at the fair market
value of the  Company's  common stock at the time the options are granted.  Each
option granted under the Stock Option Plans may be exercised  within a period of
ten years from the date of grant. However, no option may be exercised within one
year from date of grant.  In 2000 and 1999,  no options were awarded  under this
plan.  On January 19, 2001 options to purchase  39,500  shares of the  Company's
common  stock at a price of $17.41  per share were  issued to  certain  officers
under this plan. The aggregate  number of shares which may be issued under these
plans are 330,055 shares of common stock.

     The  Non-Employee  Directors Stock Option Plan provides for the awarding of
stock options to the Company's Directors. Pursuant to this Plan, on May 1, 1994,
each non-employee director of the Company was automatically granted an option to
purchase 1,340 shares of the Company's  common stock at the fair market value of
the Company's common stock of $12.69 per share. In addition, on May 1, 1999, the
fifth  anniversary  of the initial  option  grant,  persons  who  continue to be
non-officer  directors  were each granted  additional  options to purchase 1,340
shares of the Company's common stock at a price of $20.08. The Plan additionally
provides that any  non-employee  director who is first elected or appointed as a
director of the Company or any subsidiary  after May 1, 1994,  shall, as of that
date of such  election  or  appointment,  automatically  be granted an option to
purchase 1,340 shares of the Company's  common stock.  Such persons who continue
to be non-officer directors shall also be granted additional options to purchase
1,340 shares of the Company's common stock on the fifth  anniversary of the date
they were first elected or appointed to the Board of Directors. In 2000, options
to purchase 2,680 shares of the Company's  common stock at a price of $16.43 per
share were granted to certain non-employee  directors pursuant to the provisions
of this plan. Options to purchase 8,037 shares at a price of $20.77 were granted

<PAGE>

1999 to  non-employee  directors.  The  aggregate  number of shares which may be
issued under the  Non-Employee  Directors  Stock Option Plan is 26,800 shares of
common stock.

     Had compensation cost for the Plans been determined based on the fair value
of the options at the grant dates  consistent  with the method  required by SFAS
No. 123, "Accounting for Stock-Based Compensation", the Company's net income and
earnings  per share would have been reduced to the pro forma  amounts  indicated
below.

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                       2000        1999        1998
-------------------------------------------------------------------------------
<S>                        <C>             <C>         <C>         <C>
Net Income                  As reported     $ 2,072     $ 3,282     $ 3,032
                             Pro forma      $ 1,937     $ 3,194     $ 3,015

Basic earnings per share    As reported      $ 1.09      $ 1.75      $ 1.60
                             Pro forma       $ 1.01      $ 1.70      $ 1.59

Diluted earnings per share  As reported      $ 1.09      $ 1.74      $ 1.59
                             Pro forma       $ 1.01      $ 1.69      $ 1.58
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  options-  pricing model with the following  weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield
of 2.8% for all years; expected volatility of 27.0%, 39.0% and 39.0%;  risk-free
interest rates of 6.07%, 6.3% and 5.7%; and expected lives of 10 years.

     A summary of the status of the Company's  Employee Stock Option Plans as of
December 31, 2000,  1999 and 1998,  and changes during the years ending on those
dates is presented below.

<PAGE>

EMPLOYEE STOCK OPTION PLAN
<TABLE>
Year Ended December 31,                        2000
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         61,746    $  25.57
Granted                                     ---         ---
Expired                                     ---         ---
                                         ------    --------
Outstanding at end of year               61,746    $  25.57

Options exercisable at year-end          40,042    $  23.71
Weighted average fair value of
   options granted during the year                 $    ---
</TABLE>

<TABLE>

Year Ended December 31,                        1999
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         62,903    $  25.69
Granted                                     ---         ---
Expired                                  (1,157)      31.96
                                         ------    --------
Outstanding at end of year               61,746    $  25.57

Options exercisable at year-end          26,439    $  21.88
Weighted average fair value of
   options granted during the year                 $    ---
</TABLE>

<TABLE>

Year Ended December 31,                        1998
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         29,332    $  18.50
Granted                                  34,150       31.96
Expired                                    (579)      31.96
                                         ------    --------
Outstanding at end of year               62,903    $  25.69

Options exercisable at year-end          12,837    $  16.20
Weighted average fair value of
   options granted during the year                 $  31.96
</TABLE>


<PAGE>

     The  following  table  summarizes  information  concerning  employee  stock
options outstanding at December 31, 2000:
<TABLE>
-------------------------------------------------------------
                     Options outstanding
-------------------------------------------------------------
                                  Weighted
                                   Average          Weighted
                                  Remaining         Average
    Range of         Number       Contractual       Exercise
Exercise Price    Outstanding     Life (years)        Price
--------------    -----------     -----------       ---------
<S><C>               <C>             <C>            <C>
    $ 13.12           7,338           3.98           $ 13.12
    $ 20.30          21,995           6.44           $ 20.30
    $ 31.96          32,413           7.02           $ 31.96
                     ------
                     61,746
</TABLE>


<TABLE>
-------------------------------------------------
                 Options Exercisable
--------------------------------------------------
                                         Weighted
                                         Average
            Number                       Exercise
          Exercisable                     Price
          -----------                    --------
<S>          <C>                         <C>
              7,338                       $ 13.12
             16,497                       $ 20.30
             16,207                       $ 31.96
             ------
             40,042
</TABLE>


A summary of the status of the  Company's  Non-Employee  Directors  Stock Option
Plan as of December  31, 2000 and 1999,  and changes  during the years ending on
those dates are presented below.

NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
<TABLE>
Year Ended December 31,                        2000
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         17,413    $  16.56
Granted                                   2,680       16.43
Exercised                                (1,340)      12.69
Expired                                  (1,340)      20.08
                                         ------    --------
Outstanding at end of year               17,413    $  16.56

Options exercisable at year-end           9,714    $  14.36
Weighted average fair value of
   options granted during the year                 $  16.43
</TABLE>

<TABLE>

Year Ended December 31,                        1999
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         10,716    $  12.91
Granted                                   8,037       20.77
Exercised                                (1,340)      12.69
Expired                                     ---         ---
                                         ------    --------
Outstanding at end of year               17,413    $  16.56

Options exercisable at year-end           9,045    $  12.87
Weighted average fair value of
   options granted during the year                 $  20.77
</TABLE>

<TABLE>

Year Ended December 31,                        1998
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         10,716    $  12.91
Granted                                     ---         ---
Exercised                                   ---         ---
Expired                                     ---         ---
                                         ------    --------
Outstanding at end of year               10,716    $  12.91

Options exercisable at year-end           9,380    $  12.80
Weighted average fair value of
   options granted during the year                 $    ---
</TABLE>

The following table  summarizes  information  concerning  non-employee  director
options outstanding at December 31, 2000.

<TABLE>
------------------------------------------------------------------
                        Options outstanding
------------------------------------------------------------------
                                       Weighted
                                        Average          Weighted
                                       Remaining         Average
         Range of         Number       Contractual       Exercise
     Exercise Price    Outstanding     Life (years)        Price
     --------------    -----------     -----------       ---------
<S><C>                   <C>              <C>            <C>
    $12.34 - $16.43       10,717           5.34           $ 13.85
    $20.08 - $22.14        6,696           8.38           $ 20.90
                           -----
                          17,413
</TABLE>


<TABLE>
-------------------------------------------------
                 Options Exercisable
--------------------------------------------------
                                         Weighted
                                         Average
            Number                       Exercise
          Exercisable                     Price
          -----------                    --------
<S>          <C>                         <C>
              8,040                       $ 12.99
              1,674                       $ 20.90
             ------
              9,714
</TABLE>

<PAGE>

NOTE O - COMMITMENTS AND CONTINGENCIES

     The Company has non-cancelable  operating lease agreements in excess of one
year with respect to various buildings and equipment.  The minimum annual rental
commitments at December 31, 2000 are payable as follows.

<TABLE>
--------------------------------------------
       Operating Leases
--------------------------------------------
<S>                      <C>
2001                      $   546
2002                          529
2003                          516
2004                          527
2005                          476
2006 and beyond             1,258
                          -------
Total                     $ 3,852
--------------------------------------------
</TABLE>

     The total rental expense was $479,000,  $397,000 and $378,000 in 2000, 1999
and 1998, respectively.

     The Company has reserved $2.48 million  against  asserted claims and claims
which have been or may be asserted  against the Bank in connection  with certain
pre-need funeral trust funds. Most of the claims arise from Trusts, in which the
Company  was  allegedly  directed  by funeral  directors  to invest in a private
placement  annuity issued by EA  International  Trust.  The Bank has settled the
asserted claims for the amount reserved.

<PAGE>


NOTE P - EARNINGS PER SHARE

<TABLE>
-------------------------------------------------------------------------------
                                            Income     Average Shares  Per Share
For the Year Ended December 31,           (numerator)  (denominator)    Amount
                                          -------------------------------------
<S>                                       <C>           <C>           <C>
2000
------------------------------------------
Net Income                                 $ 2,072

Basic Earnings Per Share
  Income Available to Common Shareholders  $ 2,072       1,899,702     $ 1.09

Effect of Dilutive Securities
 Stock Options                                               2,121
                                          -------------------------------------

Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options         $ 2,072       1,901,823     $ 1.09
                                          -------------------------------------

1999
------------------------------------------
Net Income                                $ 3,282

Basic Earnings Per Share
  Income Available to Common Shareholders $ 3,282        1,875,320     $ 1.75

Effect of Dilutive Securities
 Stock Options                                               3,457
                                          -------------------------------------
Diluted Earnings Per Share
   Income Available to Common Shareholders
   plus Assumed Exercise of Options       $ 3,282        1,878,777     $ 1.74
                                          -------------------------------------

1998
------------------------------------------
Net Income                                $ 3,032

Basic Earnings Per Share
  Income Available to Common Shareholders $ 3,032        1,895,304     $ 1.60

Effect of Dilutive Securities
  Stock Options                                              8,239
                                          -------------------------------------
Diluted Earnings Per Share
   Income Available to Common Shareholders
   plus Assumed Exercise of Options       $ 3,032        1,903,543     $ 1.59
                                          -------------------------------------
</TABLE>

Average common shares  outstanding in 2000, 1999 and 1998 do not include 55,174,
59,428 and 27,407, respectively,  of average weighted unallocated shares held by
the ESOP. The exclusion of these  unallocated  shares held by the ESOP is due to
the Company's  adoption of SOP 93-6.  Share and per share  information have been
retroactively  restated to reflect the three 5% stock  dividends of June,  2000,
1999 and 1998.

<PAGE>


NOTE Q - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
                 CONCENTRATIONS OF CREDIT RISK

     The Bank is a party to financial instruments with off-balance-sheet risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These  financial  instruments  include  commitments to extend credit and standby
letters of credit.  Those instruments  involve, to varying degrees,  elements of
credit risk in excess of the amount  recognized in the balance sheet. The Bank's
exposure  to credit loss in the event of  non-performance  by the other party to
the financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual  notional amount of those  instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations as it does for on-balance-sheet instruments.

     The  contract or notional  amounts as of December  31, 2000 and 1999 are as
follows.
<TABLE>

      Financial instruments whose contract amounts represent credit risk:
                                            2000          1999
<S>                                     <C>           <C>
        Commitments to extend credit     $ 31,773      $ 36,119
        Standby letters of credit        $  2,222      $  2,164
</TABLE>

     Commitments  to extend credit are  agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit,  is based on management's
credit evaluation.

     Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily issued to support contracts entered into by customers. Most guarantees
extend for one year.  The credit risk  involved in issuing  letters of credit is
essentially the same as that involved in extending loan facilities to customers.

<PAGE>

     When  deemed   necessary,   collateral  held  by  the  Bank  for  financial
instruments varies, but may include personal or commercial real estate, accounts
receivable,   inventory,  equipment,   certificates  of  deposit  or  marketable
securities.  The  extent of  collateral  held for any one  financial  instrument
ranges up to 100%.  The average  collateral  held on financial  instruments  was
67.0% as of December 31, 2000.

     The Bank grants commercial,  real estate and installment loans to customers
primarily in Northampton, Monroe and Lehigh Counties, Pennsylvania. Although the
Bank has a diversified  loan  portfolio,  a substantial  portion of its debtors'
ability to honor their  contracts is dependent upon the economy of  Northampton,
Monroe and Lehigh Counties.

     At  December  31,  2000,  the  Bank  had  residential   real  estate  loans
outstanding totaling $128,862,000, which was 56.8% of total loans. The Bank also
had real estate  related  commercial  loans  outstanding  at  December  31, 2000
totaling $27,206,000, which was 12.0% of total loans. Loans to various borrowers
for land development  totaling  $2,153,000 are included in the Bank's total real
estate commercial  loans.  These loans represented 7.9% of the total real estate
related commercial loans. Loans to individuals for recreational vehicles totaled
$26,165,000 at December 31, 2000. This was 11.5% of total loans and 49.3% of the
Bank's consumer and installment loans which totaled  $53,062,000 at December 31,
2000.

NOTE R - REGULATORY MATTERS

     The Bank, as a National Bank, is subject to the dividend  restrictions  set
forth by the Comptroller of the Currency. Under such restrictions,  the Bank may
not,  without the prior  approval of the  Comptroller  of the Currency,  declare
dividends in excess of the sum of the current year's  earnings (as defined) plus
the retained  earnings (as defined) from the prior two years. The dividends,  as
of December 31, 2000,  that the Bank could declare,  without the approval of the
Comptroller of the Currency, amounted to approximately $2,092,000.

     Restrictions on cash and due from bank accounts are placed upon the banking
subsidiary by the Federal Reserve Bank.  Certain amounts of reserve balances are
required  to be on hand or on deposit  at the  Federal  Reserve  Bank based upon
deposit levels and other factors. The average and year-end amount of the reserve
balance for 2000 was approximately $6,706,000 and $7,421,000,  respectively. For
1999, the average  reserve  balance was  $6,150,000 and the year-end  amount was
$6,558,000.

     The  Company  and the  Bank  are  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

<PAGE>

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

     Quantitative  measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain  minimum amounts and ratios of Tier
I  capital  of at  least  4% and  total  capital,  Tier I and  Tier  2, of 8% of
risk-adjusted  assets  and of Tier 1 capital  of at least 4% of  average  assets
(leverage  ratio).  Tier 1 capital  includes  common  shareholders'  equity  and
qualifying  perpetual  preferred  stock  together  with  related  surpluses  and
retained  earnings.  Tier 2 capital may be comprised  of limited life  preferred
stock, qualifying subordinated debt instruments,  and the allowance for possible
loan losses.  Management believes that, as of December 31, 2000, the Company and
the Bank met all capital adequacy requirements to which they were subject.

     As of December  15,  2000,  the most recent  notification  from the Federal
Deposit  Insurance  Corporation  categorized the Bank as adequately  capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as adequately capitalized, the Bank must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions  or events since that  notification  that  management  believes  have
changed the institution's category.

<PAGE>

     The  following  table  provides a comparison  of the  Company's  and Bank's
capital amounts,  risk-based  capital ratios and leverage ratios for the periods
indicated

CAPITAL RATIOS
<TABLE>
                                                                  To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At December 31, 2000        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $35,733   15.16%   $18,862   8.00%      ---    ---
  Bank                      $31,161   13.03%   $19,127   8.00%  $23,909  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,313   14.13%   $ 9,431   4.00%      ---    ---
  Bank                      $28,750   12.02%   $ 9,564   4.00%  $14,345   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $33,313   8.00%    $16,654   4.00%      ---    ---
  Bank                      $28,750   6.95%    $16,557   4.00%  $20,697   5.00%
</TABLE>


<TABLE>
                                                                   To Be Well
                                                                  Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At December 31, 1999        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $34,329   16.67%   $16,477   8.00%      ---    ---
  Bank                      $30,831   15.00%   $16,446   8.00%  $20,557  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,892   15.48%   $ 8,239   4.00%      ---    ---
  Bank                      $28,194   13.71%   $ 8,223   4.00%  $12,334   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $31,892   8.32%    $15,324   4.00%      ---    ---
  Bank                      $28,194   7.41%    $15,210   4.00%  $19,012   5.00%

</TABLE>

<PAGE>

NOTE S - EQUITY TRANSACTIONS

     The Company paid a 5% stock  dividend on its common  stock from  authorized
but unissued shares on June 22, 2000 to all  shareholders of record at the close
of  business on June 2, 2000.  On June 24,  1999,  the  Company  paid a 5% stock
dividend  on its  common  stock  from  authorized  but  unissued  shares  to all
shareholders  of record at the close of  business  on June 4, 1999.  The Company
also paid a 5% stock dividend on June 25, 1998 to shareholders of record on June
5, 1998.  Fractional  shares on these  stock  dividends  were paid in cash.  The
number of shares and earnings per share as stated in the following discussion of
the shares issued under the Dividend  Reinvestment  and Stock Purchase Plan have
been restated to reflect these 5% stock dividends.

     A Dividend  Reinvestment  and Stock Purchase Plan was  established in 1988.
The Plan provides the holders of common stock with a method to invest their cash
dividends and voluntary  cash payments of not less than $100 or more than $1,000
per quarter in additional shares of the Company's common stock. Under this plan,
shares are sold,  in general,  at a discounted  price of 5% below the average of
the high bid and asked price for the  Company's  common stock on the trading day
immediately  preceding the  investment  date. In 2000,  21,646 common new shares
were purchased pursuant to the Dividend  Reinvestment and Stock Purchase Plan at
an average  cost of $14.44 per share for total  proceeds of  $313,000.  In 1999,
15,814 common shares were purchased  pursuant to the Dividend  Reinvestment  and
Stock Purchase Plan at an average cost of $19.98 for proceeds of $316,000.

<PAGE>

NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No.  107,  "Disclosures  About Fair Value of  Financial  Instruments",
requires  disclosure of the estimated fair value of their assets and liabilities
considered to be financial  instruments.  For the Company, as for most financial
institutions,  the  majority  of  its  assets  and  liabilities  are  considered
financial instruments as defined in SFAS No. 107. However, many such instruments
lack an available trading market as characterized by a willing buyer and willing
seller engaging in an exchange  transaction.  Also, it is the Company's  general
practice   and   intent  to  hold  its   financial   instruments   (other   than
available-for-sale)   to  maturity  and  to  not  engage  in  trading  or  sales
activities.  Therefore,  the  Company  had to use  significant  estimations  and
present value calculations to prepare this disclosure.

<PAGE>

     Changes in the  assumptions or  methodologies  used to estimate fair values
may materially affect the estimated amounts.  Also, management is concerned that
there may not be reasonable  comparability  between institutions due to the wide
range of  permitted  assumptions  and  methodologies  in the  absence  of active
markets.  This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.

     Fair values have been estimated using data which management  considered the
best  available,  as  generally  provided  in the  Company's  FRY-9C  Regulatory
Reports, and estimation methodologies deemed suitable for the pertinent category
of financial instrument. The estimation methodologies and resulting fair values,
and recorded carrying amounts at December 31, 2000 and 1999 were as follows.

<PAGE>

     Fair value of loans and deposits with floating  interest rates is generally
presumed to approximate the recorded carrying  amounts.  Fair value of financial
instruments  actively  traded in a  secondary  market has been  estimated  using
quoted market prices.

<TABLE>
                                         2000                     1999
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value   Amount
<S>                            <C>       <C>            <C>       <C>
Cash and cash equivalents        $  17,738 $  17,738      $  16,272 $  16,272
Investment securities              183,935   184,001        151,479   152,243

</TABLE>

     Fair  value  of  financial  instruments  with  stated  maturities  has been
estimated  using  present value cash flow,  discounted  at a rate  approximating
current  market for  similar  assets and  liabilities.  Fair value of  financial
instrument liabilities with no stated maturities has been estimated to equal the
carrying amount (the amount payable on demand).

<TABLE>

                                         2000                     1999
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value   Amount
<S>                            <C>       <C>            <C>        <C>
Assets:
 Interest-bearing deposits
  with banks                     $      95 $      95       $  5,589  $  5,589
Liabilities:
 Deposits with stated
  maturities                       173,828   173,220        154,771   156,584
 Deposits with no stated
  maturities                       139,252   179,971        167,691   167,896
 Securities sold under
  agreements to repurchase           7,215     7,215          1,730     1,730
 Short-term debt                     5,695     5,695             --        --
 Long-term debt                     34,068    34,000         29,519    30,000
</TABLE>

     The fair value of the net loan portfolio has been  estimated  using present
value cash flow, discounted at the approximate current market rates adjusted for
non-interest  operating costs and giving  consideration to estimated  prepayment
risk and credit loss factors.

<TABLE>
                                         2000                     1999
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value    Amount
<S>                            <C>        <C>           <C>        <C>
Total loans                      $233,994   $226,944      $199,738   $202,258
</TABLE>
     There  is no  material  difference  between  the  carrying  amount  and the
estimated fair value of off-balance-sheet items totaling $33,995,000 at December
31, 2000 and $38,283,000 at December 31, 1999 which were primarily  comprised of
unfunded loan  commitments  which are generally  priced at market at the time of
funding.
<PAGE>

     The Company's remaining assets and liabilities are not considered financial
instruments.  No disclosure of the relationship  value of the Company's deposits
is required by SFAS No. 107

NOTE U - QUARTERLY FINANCIAL DATA (Unaudited)

     The  following  represents  summarized  quarterly  financial  data  of  the
Company,  which,  in  the  opinion  of  management,   reflects  all  adjustments
(comprising only normal recurring  accruals)  necessary for a fair presentation.
Net income per share of common stock has been restated to reflect  retroactively
the 5% stock dividends of June, 2000, June, 1999 and June, 1998.

QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands)
except per share data
<TABLE>
                                             Three Months Ended
      2000                      Dec. 31     Sept. 30     June 30     March 31
<S>                            <C>          <C>         <C>          <C>

Interest  income                $7,791       $7,471      $7,169       $6,856
Net interest income              3,946        3,851       3,837        3,706
Provision for possible
 loan losses                       125          125         125           --
Net gain on sale
of securities and mortgages         20           56         110           47
Income (loss) before income taxes (150)         724         744        1,024
Net income                      $   54       $  603      $  619       $  796
Basic net income per share      $ 0.03       $ 0.32      $ 0.32       $ 0.42
Diluted net income per share    $ 0.03       $ 0.32      $ 0.32       $ 0.42
</TABLE>

<TABLE>

     1999                      Dec. 31     Sept. 30     June 30     March 31
<S>                            <C>          <C>         <C>          <C>

Interest  income                $6,705       $6,934      $6,490       $6,224
Net interest income              3,683        3,980       3,685        3,556
Provision for possible
 loan losses                       125           --         125          125
Net gain on sale
of securities and mortgages          9           59         358          294
Income before income taxes         845        1,161       1,208          997
Net income                      $  687       $  885      $  925       $  785
Basic net income per share      $ 0.37       $ 0.47      $ 0.50       $ 0.42
Diluted net income per share    $ 0.37       $ 0.47      $ 0.49       $ 0.42
</TABLE>


<PAGE>

NOTE V  -  FIRST COLONIAL GROUP, INC.
(PARENT COMPANY ONLY)
<TABLE>
-----------------------------------------------------------------------
CONDENSED BALANCE SHEETS
December 31,                                   2000               1999
-----------------------------------------------------------------------
<S>                                       <C>                <C>
ASSETS

  Cash and Due from Banks                  $     31           $     14
  Interest-Bearing Deposits
    with Banks                                  609                369
  Loan to Banking Subsidiary                  1,000              1,000
  Investment in Banking
    Subsidiary                               28,937             24,544
  Investment in Other
    Subsidiary                                4,343              3,680
  Other Assets                                   20                 35
                                           ---------          ---------
    TOTAL ASSETS                           $ 33,521           $ 29,642

LIABILITIES

  Long-Term Debt                           $  1,377           $  1,320
  Other Liabilities                              42                 79
                                            --------          ---------
    TOTAL LIABILITIES                         1,419              1,399
SHAREHOLDERS' EQUITY                         33,521             28,243
                                           ---------          ---------
  TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY                     $ 34,940           $ 29,642
</TABLE>

<PAGE>

<TABLE>

-------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
For the Year Ended December 31,             2000          1999         1998
-------------------------------------------------------------------------------
<S>                                     <C>             <C>        <C>
INCOME

  Dividends from Subsidiaries            $ 1,405        $1,321      $   688
  Interest on Loan
    to Subsidiary                             97            85           89
  Interest on Deposits
    with Banks                                13             6            5
                                         -------         ------      ------
      TOTAL INCOME                         1,515         1,412          782
                                         -------         ------      ------
EXPENSES

  Interest on Long-Term Debt                 121           105           39
  Other Expenses                              39            81           94
                                         -------         -----       ------
     TOTAL EXPENSES                          160           186          133
                                         -------         -----       ------
Income Before Taxes and
  Equity in Undistributed Net
  Earnings of Subsidiaries                 1,355         1,226          649
Federal Income Tax (Credit)                  (17)          (32)         (12)
                                         -------         -----       ------
Income Before Equity in
  Undistributed Net Earnings
  of Subsidiaries                          1,372         1,258          661
Equity in Undistributed Net
  Earnings of Subsidiaries                   700         2,024        2,371
                                         -------       -------      -------
  NET INCOME                             $ 2,072       $ 3,282      $ 3,032
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
-------------------------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
For the Year Ended December 31,           2000            1999           1998
-------------------------------------------------------------------------------
<S>                                    <C>             <C>            <C>
OPERATING ACTIVITIES
  Net Income                            $ 2,072         $ 3,282        $ 3,032
  Adjustments to Reconcile
    Net Income to Net Cash
    Provided by Operating
      Activities:
 Distribution in Excess
      of Undistributed Net
      Earnings of Subsidiaries             (687)         (2,005)        (2,467)
Changes in Assets and
  Liabilities:
  (Increase) Decrease in
    Interest-Bearing Deposits
    with Banks                             (240)           (239)           774
  (Increase) Decrease in
    Other Assets                             15             (22)            (1)
  Increase (Decrease) in
    Other Liabilities                       (47)              1             28
                                        -------         -------          ------
NET CASH PROVIDED BY
  OPERATING ACTIVITIES                    1,113           1,017          1,366
                                        -------         -------         ------
INVESTING ACTIVITIES
  Capital Contribution to
    Bank Subsidiary                           -               -           (500)
                                        --------         -------         ------
NET CASH PROVIDED BY
  INVESTING ACTIVITIES                        -               -           (500)
                                        --------         -------         ------
FINANCING ACTIVITIES
  Increase in Long-Term Debt                  57            885             45
  Increase in ESOP Debt                      (57)          (885)           (45)
  Proceeds from the Sale of
    Treasury Stock                             -              -             94
  Proceeds from Issuance
    of Common Stock                          312            302            333
  Cash Dividends Paid                     (1,406)        (1,321)        (1,275)
  Cash in Lieu of
    Fractional Shares                         (2)            (4)            (6)
                                        --------         ------         -------
NET CASH USED IN
  FINANCING ACTIVITIES                    (1,096)        (1,023)          (854)
                                        --------         ------         -------
Increase (Decrease) in Cash
  and Cash Equivalent                         17             (6)            12
Cash and Cash Equivalent,
  January 1,                                  14             20              8
                                        --------         ------         -------
Cash and Cash Equivalent,
  December 31,                          $     31         $   14         $   20

-------------------------------------------------------------------------------
</TABLE>

<PAGE>

                              INVESTOR INFORMATION


First Colonial Group, Inc.
76 South Main Street
Nazareth, PA   18064

ANNUAL SHAREHOLDERS' MEETING

     The annual shareholders' meeting will be held on Thursday,  May 17, 2001 at
9 a.m. at the Bethlehem Holiday Inn, Routes 22 and 512, Bethlehem,  Pennsylvania
18017.

REGISTRAR AND TRANSFER AGENT

     The  registrar  and  transfer  agent is  Nazareth  National  Bank and Trust
Company.  Shareholders  seeking assistance with stock  registration,  lost stock
certificates  or  dividend  information  should  contact  Maria A. Keller at the
following address or by telephone at (610) 746-7317.

                  Nazareth National Bank
                  Trust Department
                  76 South Main Street
                  Nazareth, PA   18064

STOCK INFORMATION

     First Colonial  Group,  Inc. common stock trades on the Nasdaq Stock Market
under the trading symbol FTCG. In newspaper listings, First Colonial Group, Inc.
shares are frequently listed as "First Colnl" or "First Col Group". At the close
of business on December 31, 2000, there were 772 shareholders of record.

     The  declaration  and payment of dividends is at the sole discretion of the
Board of  Directors,  and their  amount  depends  upon the  earnings,  financial
condition,  and capital  needs of the  Company  and the Bank and  certain  other
factors including restrictions arising from Federal banking laws and regulations
(see  "Note R -  Regulatory  Matters"  in the "Notes to  Consolidated  Financial
Statements")  and a certain loan agreement (see "Note H- Long-Term  Debt" in the
"Notes to Consolidated Financial Statements").

     The following table sets forth for the periods  indicated high and low sale
prices  reported for the  Company's  common stock and the  respective  dividends
declared per common share. The last sale price in December,  2000 was $13.50 and
in December,  1999 was $16.55.  Stock prices and  dividends  per share have been
restated to reflect the 5% stock dividends of June 2000 and June 1999.

<PAGE>

<TABLE>
1999

<S>                  <C>             <C>            <C>
     First Quarter     $26.30          $20.87         $ 0.1724
     Second Quarter     22.86           19.72           0.1724
     Third Quarter      23.10           17.62           0.1810
     Fourth Quarter     19.05           16.37           0.1810
                                                      --------
     TOTAL                                            $ 0.7068
</TABLE>

<TABLE>
2000

<S>                  <C>             <C>            <C>
     First Quarter     $18.69          $14.05         $ 0.1810
     Second Quarter     16.33           12.26           0.1810
     Third Quarter      17.00           12.00           0.1900
     Fourth Quarter     16.50           12.75           0.1900
                                                      --------
     TOTAL                                            $ 0.7420
</TABLE>

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

     Shareholders  may  participate  in  the  Dividend  Reinvestment  and  Stock
Purchase Plan. The plan provides that  additional  shares of common stock may be
purchased with  reinvested  cash dividends and with voluntary cash payments at a
5% discount from market.  A description of the plan and  additional  information
may be obtained by writing to:

                  Nazareth National Bank
                  Trust Department
                  76 South Main Street
                  Nazareth, PA   18064

INVESTMENT CONSIDERATIONS

     In analyzing  whether to make or to continue an  investment in the Company,
investors should  consider,  among other factors,  the information  contained in
this Annual Report and certain  investment  considerations and other information
described in the Company's Form 10-K for the year ended December 31, 2000.

FORM 10-K

     Shareholders,  analysts  and  others  seeking a copy of Form  10-K  without
charge  (except for exhibits) or additional  financial  information  about First
Colonial Group, Inc. should send a written request to:

                  Reid L. Heeren, Vice President
                  First Colonial Group, Inc.
                  76 South Main Street
                  Nazareth, PA   18064

MARKET MAKERS

     The following  investment brokerage houses currently make a market in First
Colonial  Group,  Inc.  common  stock:  F.  J.  Morrissey  & Co.,  Inc.;  Monroe
Securities, Inc.; Ryan, Beck & Co.; and Spear Leeds & Kellogg Capital Markets.

<PAGE>

Item 9.       Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure

                  None

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

     The information  contained  under the captions  "Election Of Directors" and
"Compliance  with Section 16 (a) of the Securities  Exchange Act of 1934" in the
Company's  2000 Proxy  Statement and "Executive  Officers of the  Registrant" in
Item 4.1 of this Form 10-K is incorporated herein by reference therefrom.

Item 11.      Executive Compensation

     The information contained under the caption "Executive Compensation" in the
Company's 2000 Proxy Statement is incorporated herein by reference therefrom.

Item 12.      Security Ownership of Certain Beneficial Owners and Management

     The  information   contained  under  the  caption  "Voting  Securities  and
Principal Holders Thereof" in the Company's 2000 Proxy Statement is incorporated
herein by reference therefrom.

Item 13.      Certain Relationships and Related Transactions

     The information  contained  under the caption  "Certain  Relationships  and
Related  Transactions"  in the Company's  2000 Proxy  Statement is  incorporated
herein by reference therefrom.

<PAGE>

                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K

       (a)    Documents Filed as Part of this Report:

1. Financial  Statements:  The Consolidated  Financial Statements of the Company
and the Report of Independent  Certified Public Accountants  thereon,  as listed
below,  have been filed under "Item 8, Financial  Statements  and  Supplementary
Data".

         Report of Independent Certified Public Accountants

         Consolidated Balance Sheets for the Years Ended
         12/31/00 and 12/31/99

         Consolidated Statements of Income and Comprehensive Income
         for the Years Ended 12/31/00, 12/31/99 and 12/31/98

         Consolidated Statement of Changes in Shareholders' Equity
         for the Years Ended  12/31/00, 12/31/99 and 12/31/98

         Consolidated Statements of Cash Flows for the Years Ended
         12/31/00, 12/31/99 and 12/31/98

         Notes to Consolidated Financial Statements

<PAGE>

2.     Exhibits:

       Number       Title                                              Page No.
       ------       -----                                              --------

         3.1 (7)    Restated Articles of Incorporation of the Company,
                    as amended.

         3.2 (7)    Bylaws of the Company, as amended.

         4.1 (1)    Specimen Common Stock Certificate of the Company.

      * 10.1 (1)    Deferred Compensation Plan for Directors.

        10.2        Intentionally omitted.

      * 10.3 (1)    Form of Executive Benefit Program Agreement.

      * 10.4 (6)    Employee Stock Ownership Plan.

        10.5 (1)    Loan Agreement (including Exhibits thereto),
                    dated October 5, 1984, by and between the
                    Company and Commonwealth Bank and Trust Company, N.A.

      * 10.6 (3)    First Colonial Group, Inc. Stock Option Plan.

        10.7        Intentionally Omitted

      * 10.8 (8)    Restated Optional Deferred Salary Plan (401(k)).

      * 10.9 (10)   1994 Stock Option Plan for Non-Employee Directors,
                    as amended

       *10.10       Severance Agreement dated January 1, 2001 by and between
                    the Bank and S. Eric Beattie

       *10.11       Severance Agreement dated January 1, 2001 by and between
                    the Bank and Reid L. Heeren

       *10.12 (9)   Severance agreement dated July 19, 1994 by and between
                    the Bank and Arthur Williams

       *10.12.1 (12) Amendment No. 1 to Severance Agreement by and between
                     the Board and Arthur Williams

<PAGE>

        Number      Title                                             Page No.
        ------      -----                                             --------
       *10.14 (10)  Amendment No. 1 dated September 27, 1994 to the
                    Bank's Employee Stock Ownership Plan

       *10.15 (10)  Amendment No. 1 dated September 22, 1994 to the
                    Optional Deferred Salary Plan (401K)

       *10.16 (11)  Amendment Number 1 to the 1994 Stock Option Plan
                    for Non-Employee Directors

       *10.17 (11)  1996 Employee Stock Option Plan

       *10.18       Severance Agreement dated January 1, 2001 by and between
                    the Board and Tomas J. Bamberger

        10.19 (14)  Loan Agreement dated April 22, 1998 by and between
                    First C. G. Company and the Employee Stock Ownership
                    Plan

        10.20       Severance Agreement dated January 1, 2001 by and between
                    the Board and Robert McGovern

        10.21 (16)  Loan Agreement dated February 8, 1999 by and between
                    First C. G. Company and the Employee Stock Ownership Plan

        10.22       Loan Agreement dated October 19, 2000 by and between
                    First C. G. Company and the Employee Stock Ownership Plan

        10.23       Loan Agreement dated December 22, 2000 by and between
                    First C. G. Company and the Employee Stock Ownership Plan

        21.1 (3)    Subsidiaries of the Company.

        23.1        Consent of Accountants.

        27.1        Financial Data Schedule

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

*  Represents  a  Management   Contract  or  Compensatory   Plan,   Contract  or
   Arrangement.

<PAGE>

(1)  Incorporated by reference from the Company's Registration Statement on Form
     S-1 (Registration No. 33-4908), as filed on April 16, 1986.

(2)  Incorporated by reference from the Company's Registration Statement on Form
     S-1 (Registration No. 33-20319), as filed on February 25, 1988.

(3)  Incorporated  by reference  from the  Company's  Annual Report on Form 10-K
     (File No. 0-11526) for the fiscal year ended December 31, 1986.

(4)  Incorporated  by reference  from the  Company's  Annual Report on Form 10-K
     (File No. 0-11526) for the fiscal year ended December 31, 1988.

(5)  Incorporated  by reference  from the Company's  Current  Report on Form 8-K
     dated June 20, 1989 (File No. 0-11526).

(6)  Incorporated  by reference  from the  Company's  Annual Report on Form 10-K
     (File No. 0-11526) for the fiscal year ended December 31, 1991.

(7)  Incorporated by reference from the Company's Registration Statement on Form
     S-1 (Registration No. 33-64816), as filed on June 22, 1993.

(8)  Incorporated  by reference from the Company's  Annual Report on Form 10-KSB
     (File No. 0-11526) for the fiscal year ended December 31, 1993.

(9)  Incorporated  by  reference  from the  Company's  Quarterly  Report on Form
     10-QSB (File No. 0-11526) for the quarter ended June 30, 1994.

(10) Incorporated  by reference from the Company's  Annual Report on Form 10-KSB
     (File No. 0-11526) for the fiscal year ended December 31, 1994.

(11) Incorporated  by reference from the Company's  Annual Report on Form 10-KSB
     (File No. 0-11526) for the fiscal year ended December 31, 1995.

(12) Incorporated  by reference by the  Company's  Annual  Report on Form 10-KSB
     (File No. 0-11526) for the fiscal year ended December 31, 1996.

(13) Incorporated  by reference by the  Company's  Annual  Report on Form 10-KSB
     (File No. 0-11526) for the fiscal year ended December 31, 1997.

(14) Incorporated by reference by the Company's Annual Report on Form 10-K (File
     No. 0-11526) for the fiscal year ended December 31, 1998.

(15) Incorporated by reference from the Company's  Quarterly Report on Form 10-Q
     (File No. 0-11526) for the quarter ended June 30, 1999.

(16) Incorporated  by reference  from the  Company's  Annual Report on Form 10-K
     (File No. 0-11526) for the fiscal year ended December 31, 1999.

<PAGE>

(b)    Reports on Form 8-K

     No reports  on Form 8-K were filed in the fourth  quarter of the year ended
December 31, 2000.

<PAGE>

                                   SIGNATURES

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

                                            FIRST COLONIAL GROUP, INC.

Dated:  March 30, 2001                      By:  /s/  S. Eric Beattie
                                            ------------------------------------
                                                  S. ERIC BEATTIE, President
                                                  and Chief Executive Officer


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


By:       /s/ Richard Stevens, III
          -----------------------------------------------------------
          RICHARD STEVENS, III
          Chairman of the Board
          and Director
          March 30, 2001

By:       /s/  S. Eric Beattie
          -----------------------------------------------------------
          S. ERIC BEATTIE
          President, Chief Executive Officer
          and Director (Principal Executive Officer)
          March 30, 2001

By:       /s/  Reid L. Heeren
          -----------------------------------------------------------
          REID L. HEEREN
          Executive Vice President and Treasurer
          (Principal Financial Officer and
          Principal Accounting Officer)
          March 30, 2001

By:       /s/  Robert J. Bergren
          -----------------------------------------------------------
          ROBERT J. BERGREN
          Director
          March 30, 2001

<PAGE>

By:       /s/ Christian F. Martin, IV
          -----------------------------------------------------------
          CHRISTIAN F. MARTIN, IV
          Director
          March 30, 2001

By:       /s/  Gordon B. Mowrer
          -----------------------------------------------------------
          GORDON B. MOWRER
          Director
          March 30, 2001

By:       /s/ Daniel B. Mulholland
          -----------------------------------------------------------
          DANIEL B. MULHOLLAND
          Director
          March 30, 2001

By:       /s/ Charles J. Peischl
          -----------------------------------------------------------
          CHARLES J. PEISCHL, ESQUIRE
          Director
          March 30, 2001

By:       /s/ John H. Ruhle, Jr.
          -----------------------------------------------------------
          JOHN H. RUHLE, JR.
          Director
          March 30, 2001

By:       /s/ Maria Zumas Thulin
          -----------------------------------------------------------
          MARIA Z. THULIN
          Director
          March 30, 2001