SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                    FORM 10-K

 Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
     of 1934 for (fee required) for the fiscal year ended December 31, 1999.
                                       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
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       (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.

<PAGE>

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant is $25,269,474. (1)

     The number of shares of the  Issuer's  common  stock,  par value  $5.00 per
share, outstanding as of March 24, 2000 was 1,853,270.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain portions of the Company's Proxy Statement to be filed in connection
with its 2000 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 24,  2000.  Includes an
aggregate of 211,521 shares, with an aggregate market value of $3,463,656,  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,  statements or estimates  concerning the
effect of the "Year 2000" issues on the  Company's  systems and software and the
Company's  plans with regard to "Year 2000"  issues and other  statements  as to
management's 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,
results of  litigation  and the time,  expense  and  unanticipated  problems  in
addressing the Year 2000 issue.  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, 1999 total interest earning assets

<PAGE>

maturing  or  repricing  within  one year was less than total  interest  bearing
liabilities  maturing or  repricing  during the same time period by  $6,465,000,
representing a negative cumulative one year gap of .96%. If interest rates rise,
the  Company  could  experience  a decrease  in 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".

     Risks  associated  with  Funeral  Trust  Litigation.  A  group  of  funeral
directors  have asserted  certain  claims  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.  The  Company  has
incurred legal expenses in regard to these claims during 1999 and 1998. In 1998,
the Company established a reserve of $1.5 million against these possible claims.
The reserve  balance,  as of December 31, 1999 equaled  $994,000 with respect to
unsettled claims. The Bank has been advised that it has significant  defenses to
these claims and intends to  vigorously  defend  against  such claims.  However,
there is no  assurance  that the  Bank  will be  successful.  The  Company  will
continue to incur  significant  legal expenses in regard to these claims and any
settlement of this case could exceed the reserve amount and thus have a negative
impact on the Company's  future  earnings and financial  condition (see "Item 3.
Legal Proceedings",  "Item 7. Management's  Discussion and Analysis of Financial
Condition and Results of  Operations"  and Note N of the "Notes to  Consolidated
Financial Statements" in "Item 8. Financial Statements and Supplementary Data").

     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".

<PAGE>

     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.

     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.

     Year 2000  Compliance.  The Company  has  adopted a "Year 2000  Policy" and
conducted a  comprehensive  review of its  computer  systems and  operations  to
identify the areas that could be affected by the Year 2000 issue. The issue with
respect to Year 2000 is whether  systems will properly  recognize date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize  such  information  could  generate  erroneous  data or cause complete
system failures. The Company did not experience any material problems related to
Year 2000  during the first two  months of 2000.  The Bank had all of its branch
offices  open for  business  on  January  1,  2000  with all  systems  operating

<PAGE>

normally.  The Company's  estimates the costs  incurred to prepare for Year 2000
compliance  were  $1,066,000;  however,  there can be no assurance that the 2000
year problem will not have an adverse effect on the future  financial  condition
and  results of  operations  of the  Company.  See  "Management  Discussion  and
Analysis of Financial  Condition and Results of Operations - Year 2000" in "Item
7. Management's Discussion of Financial Condition and Results of Operations".

     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".

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 and one branch in Allentown,  Pennsylvania. The Bank has twenty-two
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 and at a hardware store in Nazareth,
Pennsylvania.

<PAGE>

     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, 1999 the Company,  on a  consolidated  basis,  had total
assets of $391,889,000,  total deposits of $324,480,000, and total shareholders'
equity of $28,243,000.

<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, 1999, the Bank had total assets of  $389,579,000,  total
deposits of $324,919,000  and total  shareholders'  equity of  $24,544,000.  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 fifteen 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.  One office is 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 a
hardware store in Nazareth,  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,  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, 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,  Twin Rivers  Bank,  headquartered  in Easton,  Pennsylvania  with
branches  in  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, 1999, First C. G. Company, Inc.
had total  assets of  $3,859,000,  of which  $2,185,000  was  invested in common
stocks and  $1,320,000  in a loan to the Bank's  ESOP and most of the  remaining
assets were in other tax-exempt and taxable securities and interest-bearing bank
deposits. The total shareholders' equity at December 31, 1999 was $3,680,000.

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.

<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 S -  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  are  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 will be identical for  comparably
rated institutions after January 1, 2000, at which time banks will share equally
in the FICO assessment and the BIF and SAIF funds will be 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, 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   8.11%    $15,726   4.00%      ---    ---
  Bank                      $28,194   7.20%    $15,655   4.00%  $19,568   5.00%

</TABLE>

CAPITAL RATIOS

<TABLE>

                                                                  To Be Well
                                                                  Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions

(Dollars in Thousands)
 At December 31, 1998        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,555   16.97%   $15,819   8.00%      ---    ---
  Bank                      $29,450   15.02%   $15,684   8.00%  $19,605  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $30,938   15.64%   $ 7,906   4.00%      ---    ---
  Bank                      $26,596   13.57%   $ 7,842   4.00%  $11,763   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $30,938   8.60%    $14,114   4.00%      ---    ---
  Bank                      $26,596   7.47%    $13,951   4.00%  $17,439   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;  (2) the holding company
must file with the Federal  Reserve Board a  declaration  that it elects to be a
financial  holding  company  to engage in  activities  that  would not have been
permissible  before  the  Act;  and  (3)  all  of  the  depository   institution
subsidiaries  must have a CRA  rating of  "satisfactory"  or  better.  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.

     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

<PAGE>

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.

     The Act has only recently became law.  Regulations of the banking  agencies
implementing the legislative changes can be expected in the near future.  Except
for the increase in  competitive  pressures  faced by all banking  organizations
that is a  likely  consequence  of the Act,  the  legislation  and  implementing
regulations  are likely to have a more  immediate  impact on large  regional and
national  institutions than on community-based  institutions engaged principally
in traditional banking activities.  Because the legislation permits bank holding
companies to engage in activities  previously  prohibited altogether or severely
restricted  because of the risks they posed to the banking system,  implementing
regulations can be expected to impose strict and detailed prudential  safeguards
on  affiliations  among banking and  nonbanking  companies in a holding  company
organization.  Additionally,  because the legislation  allows various affiliates
within  a single  holding  company  organization  to  serve a  broader  array of
customers'  financial goals,  including their banking,  insurance and investment
goals,  implementing  regulations can be expected to impose strict safeguards on
sharing  of  customer   information   among   affiliated   entities   within  an
organization.

     The  foregoing  discussion is qualified in its entirety be reference to the
statutory  provisions  of the Act and the  implementing  regulations  which  are
adopted by various government  agencies pursuant to the Act. The exact impact of
the Act on the Company and its subsidiaries, if any, cannot be predicted at this
time.

     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.

<PAGE>

     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, 1999 and 1998 in Note
U of the Notes to Consolidated Financial Statements contained under the caption,
"Item 8. Financial Statements and Supplementary Data".

     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 1999 and 1998. 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, 1999 the Company had  approximately  213  employees,  of
whom  39 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 18 through 23 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>
                                             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>

<TABLE>
                                             1997
Available-for-Sale Securities                 Carrying Amount
                                  Amortized      at Fair
                                    Cost          Value
<S>                               <C>           <C>
U. S. Treasury                     $ 9,008       $ 9,066
U. S. Government Agency             14,512        14,556
State and Political Subdivisions    16,865        17,330
Mortgage-Backed Securities          26,791        26,812
Equity Securities                    3,878         5,260
                                   -------       -------
     Total                         $71,054       $73,024
</TABLE>

<PAGE>

<TABLE>
                                               1999
Held-to-Maturity Securities    Carrying Amount  Approximate
                                at Amortized        Fair
                                     Cost          Value
<S>                               <C>          <C>
U. S. Treasury                     $   ---      $   ---
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. Treasury                     $   ---      $   ---
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>

<TABLE>
                                               1997
Held-to-Maturity Securities    Carrying Amount  Approximate
                                 at Amortized      Fair
                                     Cost         Value
<S>                               <C>          <C>
U. S. Treasury                     $   ---      $   ---
U. S. Government Agency              6,008        6,051
State and Political Subdivisions     3,169        3,233
Mortgage-Backed Securities           8,579        8,662
                                   -------      -------
     Total                         $17,756      $17,946
</TABLE>

<PAGE>

                     INVESTMENT SECURITIES YIELD BY MATURITY

         The maturity  distribution and weighted average yield of the investment
portfolio  of the Company at December 31, 1999 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, 1999

<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            $ 2,004     6.22 %   $ 1,989    5.69 % $    --    -- %
U. S. Government Agency        --       --       5,086    5.90     26,085  6.50
Mortgage-backed Securities    196     5.50         315    5.99      3,911  6.24
State and Political
 Subdivisions                  --       --       1,295    7.23      8,234  7.03
Other Debt Securities          --       --          --      --        491  6.74
Equity Securities              --       --          --      --         --   --
                            -----     ----     -------    ----    -------  ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES              $ 2,200     6.15 %   $ 8,685    6.05 %  $38,721  6.59%
                            =====     ====     =======    ====    =======  ====
Average Of Avail-for-Sale
 Securities in years         0.53                 3.36               9.16
                             ====                 ====               ====
</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                 $   --       -- %      $  3,993    5.95 %
U. S. Government Agency         20,580    7.07          51,751    6.70
Mortgage-backed Securities      41,607    6.70          46,029    6.65
State and Political
 Subdivisions                   15,855    7.11          25,384    7.09
Other Debt Securities              ---      --             491    6.74
Equity Securities                4,708    4.17           4,708    4.17
                                 -----    ----         -------    ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES                   $82,750    6.74 %      $132,356    6.64 %
                               =======    ====         =======    ====
Average Of Avail-for-Sale
 Securities in years             20.42                   15.54
                                 =====                   =====
</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   $   --       -- %   $ 1,000    7.03 %  $ 4,124  6.98 %
Mortgage-backed Securities    --       --         433    6.59        830  6.64
State and Political
 Subdivisions                245     6.81         912    7.48      2,200  7.00
Equity Securities             --       --          --      --         --    --
                          ------     ----     -------    ----    -------  ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES              $  245     6.81 %   $ 2,345    7.12 %  $ 7,154  6.95%
                           =====     ====     =======    ====    =======  ====
Average Of Held-to-Maturity
 Securities in years        0.53                 4.24               8.64
                            ====                 ====               ====
</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        $ 1,770    7.34 %      $  6,894    7.08 %
Mortgage-backed Securities       3,756    5.93           5,019    6.11
State and Political
 Subdivisions                    4,617    8.56           7,974    7.95
Equity Securities                   --      --              --      --
                                 -----    ----         -------    ----
 TOTAL AVAILABLE-FOR-SALE
  SECURITIES                   $10,143    7.37 %      $ 19,887    7.18 %
                               =======    ====         =======    ====
Average Of Held-to-Maturity
 Securities in years             19.58                   13.60
                                 =====                   =====
</TABLE>

<PAGE>

                             LOAN PORTFOLIO BY TYPE

     The loan  portfolio by type is summarized  in the  following  table for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995.

<TABLE>

(Dollars in Thousands) For the Year Ended December 31,
                                   1999      1998      1997      1996      1995
-------------------------------------------------------------------------------
<S>                           <C>       <C>       <C>       <C>       <C>
Real Estate - Residential      $112,870  $119,914  $138,539  $134,013  $122,293
Real Estate - Construction        6,737    11,689    12,361    10,923     4,959
Real Estate - Commercial         26,809    29,587    34,579    39,421    35,316
Consumer/Installment             45,886    40,184    35,914    28,870    27,685
Commercial (non-Real Estate)
    and Agricultural              9,538    10,900     9,086     8,715     5,403
State and Political Subdivisions  1,096     1,178       944       906     1,290
Other                                13        10        20        28        13
                              -------------------------------------------------
TOTAL GROSS LOANS               202,949   213,462   231,443   222,876   196,959

Unearned Income                    (691)   (1,025)   (1,856)   (2,759)   (3,829)
                              -------------------------------------------------
Total Loans                     202,258   212,437   229,587   220,117   193,130

Allowance for Possible
    Loan Losses                  (2,437)   (2,661)   (2,664)   (2,532)   (2,443)
                              -------------------------------------------------
NET LOANS                      $199,821  $209,746  $226,923  $217,585  $190,687
                              =================================================
</TABLE>

     At December 31, 1999 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, 1999,  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.

<TABLE>
                                   Due in     Due in       Due in
As of December 31, 1999           One Year    One to        Over
      (Dollars in Thousands)      or Less   Five Years   Five Years     Total
-------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>          <C>
Real Estate - Construction       $ 3,108     $1,062      $ 2,567      $ 6,737
Real Estate - Commercial          15,899      8,735        2,175       26,809
Commercial (Non-Real Estate)
     and Agricultural              6,148      2,155        1,235        9,538
                                  ------     ------      -------      -------
     TOTAL                       $25,155    $11,952      $ 5,977      $43,084
                                  ======    =======      =======      =======
Loan Maturity After 1 Year With:
     Predetermined Interest Rate            $ 4,738     $ 4,674
     Floating Interest Rate                   7,214       1,303
                                             ------      ------
        TOTAL                               $11,952     $ 5,977
                                            =======     =======
</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.

<TABLE>
                                               As of December 31,
                                1999      1998       1997       1996       1995
-------------------------------------------------------------------------------
Loan Categories                              (Dollars in Thousands)
<S>                         <C>        <C>        <C>        <C>        <C>
 Commercial                  $  901     $1,350     $1,183     $  663     $1,049
 Real Estate- Construction       --          4          6          7          3
 Real Estate - Residential      212        128        191        198        184
 Consumer/Installment           764        738        785        811        534
 Unallocated                    560        471        499        853        673
                             ------     ------     ------     ------     ------
      TOTAL                  $2,437     $2,691     $2,664     $2,532     $2,443
                             ======     ======     ======     ======     ======
</TABLE>

            PERCENTAGE OF TOTAL LOANS IN EACH CATEGORY TO TOTAL LOANS

<TABLE>
                                              As of December 31,
                                1999      1998      1997      1996       1995
   ----------------------------------------------------------------------------
Loan Categories                            (Dollars in Thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
 Commercial                    18.46 %   19.52 %   19.28 %   22.02 %   21.33 %
 Real Estate - Construction     3.32      5.48      5.34      4.90      2.52
 Real Estate - Residential     55.61     56.18     59.86     60.13     62.09
 Consumer/Installment          22.61     18.82     15.52     12.95     14.06
                               -----     -----     -----     -----     -----
      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,
1999, 1998 and 1997 are presented in the following table.

                AVERAGE DEPOSIT BALANCES BY MAJOR CLASSIFICATION
<TABLE>
                                     For the Year Ended December 31,
                                 1999             1998              1997
                            Average         Average           Average
                            Balance  Rate   Balance   Rate    Balance   Rate
                                         (Dollars in Thousands)
<S>                      <C>       <C>    <C>       <C>      <C>       <C>
Demand Deposits

   Non-Interest Bearing   $ 41,337   --- % $ 35,254   --- %   $ 31,074   --- %
   Interest Bearing         52,395  1.18     48,988  1.15       45,338  1.17
   Money Market Deposits    13,827  2.76     14,366  2.81       14,380  2.81

Savings & Club Accounts     63,199  2.06     61,177  2.21       62,746  2.44
Certificates of Deposit
   under $100,000          139,076  5.26    124,823  5.59      118,846  5.58
Certificates of Deposit
   of $100,000 or more       5,040  4.01      4,700  3.72        5,014  4.19
                            ------  ----     ------  ----       ------  ----
      Total Deposits      $314,874         $289,308           $277,398
                          ========         ========           ========
</TABLE>

            MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
                                                    At December 31,
(Dollars in Thousands)                          1999              1998
                                       -----------------------------------
<S>                                          <C>               <C>
Three Months or Less                          $  252            $  821
Over Three, Through Six Months                   471             1,380
Over Six, Through Twelve Months                2,547             1,508
Over Twelve Months                             1,835             1,017
                                       -----------------------------------

     TOTAL                                    $5,105            $4,726
                                       ===================================
</TABLE>

There were no brokered deposits at December 31, 1999 and 1998.

<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;  and its branch office located within  Wal-Mart's at
500 Route 940, Mt. Pocono, Pennsylvania.

Item 3.  Legal Proceedings

     The Company has reserved  $994,000 against unsettled claims which have been
or may be asserted  against the Bank in connection with certain pre-need funeral
trust funds which were allegedly directed by funeral directors to be invested in
a private placement annuity issued by EA International Trust. As of December 31,
1999, nine funeral directors whose funds were invested in this annuity commenced
suit against the Bank;  if all funeral  directors  whose funds were  invested in
this annuity were to pursue claims,  the Bank's  maximum  exposure for unsettled
claims would be approximately $4.1 million principal loss plus punitive damages,
interest,  costs  and  attorney  fees.  The Bank has  been  advised  that it has
significant  defenses to these claims and intends to vigorously  defend  against
such claims.  The Bank has  discontinued  its involvement in this annuity and is
pursuing  indemnification  for some or all of  these  possible  losses  from its
insurance carriers and from EA International Trust.

<PAGE>

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

     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 58 (a)  Treasurer since January,       Executive Vice President
                        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 58 (b) None                        Executive Vice President
                                                      and Senior Loan Officer
                                                      since September, 1997

Arthur Williams 54 (c)    None                        Executive Vice President,
                                                      Administration since
                                                      August, 1997; Senior Vice
                                                      President, Administration
                                                      since November, 1988.

Robert M. McGovern 61 (d) None                        Executive Vice President,
                                                      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.  Williams was previously  Senior Vice President,  Administration  of the
Bank from November, 1988 to August, 1997 and Vice President of the Bank, serving
as branch administrator with business development and commercial lending duties,
from April 1985 to November,  1988. Prior to April 1985, Mr. Williams was a Vice
President of United Penn Bank, serving as Regional Administrator of its Northern
Region (March 1980 to March 1985).

(d) 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 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, 1999, there were 726 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 G - 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 $17.375 in December 1999 and
$27.738  in  December  1998.  Stock  prices  and  dividends  per share have been
restated to reflect the 5% stock dividends of June 1999 and June 1998 (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>
1998
     First Quarter         $33.56            $31.07             $ 0.1724
     Second Quarter         34.76             31.74               0.1724
     Third Quarter          34.29             25.48               0.1810
     Fourth Quarter         28.33             25.48               0.1810
                                                                 -------

     TOTAL                                                      $ 0.7068
-------------------------------------------------------------------------------
1999
     First Quarter         $27.62            $21.91             $ 0.1810
     Second Quarter         24.00             20.71               0.1810
     Third Quarter          24.25             18.50               0.1900
     Fourth Quarter         20.00             17.19               0.1900
                                                                 -------

     TOTAL                                                      $ 0.7420
-------------------------------------------------------------------------------
</TABLE>

     The Company did not sell any of its equity securities during 1999 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)              1999       1998      1997   1999/98  1998/97
--------------------------------------------------------------------------------
<S>                            <C>        <C>        <C>        <C>      <C>
At Year-End

  Assets                        $ 391,889  $ 358,496  $ 346,738   9.3 %    3.4%
  Deposits                        324,480    294,549    282,255  10.2      4.4
  Loans                           202,258    212,437    229,587  (4.8)    (7.5)
  Shareholders' Equity             28,243     31,717     30,357 (11.0)     4.5

For the Year

  Net Interest Income           $  14,904  $  14,496 $   14,613   2.8 %   (0.8)%
  Net Income                        3,282      3,032      3,283   8.2     (7.6)

Per Share *
  Basic Net Income              $    1.84  $    1.68 $     1.83   9.5 %   (8.2)%
  Diluted Net Income                 1.83       1.67       1.83   9.6     (8.7)
  Dividends Paid                     0.74       0.70       0.64   5.7      9.4
  Book Value                        15.28      18.17      17.49 (15.9)     3.9

Financial Ratios

  Return on average assets           .86%       .86%       .97%
  Return on average equity         10.90%      9.79%     11.67%
  Average shareholders' equity

    to average assets               8.11%      8.60%      8.33%

</TABLE>

<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  is  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,  1999,  1998 and 1997.  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 1999,
June 1998, and May 1997.

                           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 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,  statements or estimates  concerning the
effect of the "Year 2000" issues on the  Company's  systems and software and the
Company's  plans with regard to "Year 2000"  issues and other  statements  as to
management's 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,
results  of  itigation,  and  the  time, expense  and  unanticipated problems in

<PAGE>

unanticipated problems in addressing the Year 2000 issue. These and other risks,
uncertainties  and other  factors are  discussed in this Annual Report or in the
Company's  Annual  Report on Form 10-K for the year ended  December  31, 1999, a
copy of which may be obtained  from the Company upon request and without  charge
(except for the exhibits thereto).

                          Financial Performance Summary

     In 1999,  First Colonial Group recorded net income of $3,282,000.  The 1999
net income is $250,000 or 8.2%  higher than 1998 net income of  $3,032,000.  Net
income in 1998 included a provision expense of $1,000,000 to the special reserve
for possible losses  resulting from specific  pre-need  funeral trusts which the
Bank had been directed to invest in a private placement  annuity.  The Company's
net  income  in  1998,  exclusive  of this  special  reserve,  would  have  been
$3,692,000. Net income in 1997 was $3,283,000.

     The basic earnings per share were $1.84,  $1.68 and $1.83 in 1999, 1998 and
1997, respectively.  The diluted earnings per share were $1.83 in 1999, $1.67 in
1998 and $1.83 in 1997.  Diluted earnings per share include the effect of common
stock  equivalents  such as options (see Note A.13 of the "Notes to Consolidated
Financial  Statements").  The basic and diluted earnings per share, exclusive of
the special reserve in 1998, would have been $2.04.

     The Company's return on average assets was .86% in 1999 as compared to .86%
in 1998 and .97% in 1997.  The return on average  equity was  10.90%,  9.79% and
11.67% in 1999, 1998 and 1997, respectively.

     The Company continued to achieve growth in total assets and deposits. Total
assets at December 31, 1999 were  $391,889,000  as compared to  $358,496,000  at
year end 1998.  This is an increase of  $33,393,000  or 9.3%.  During 1998 total
deposits grew by 10.2% or $29,931,000 to a year-end total of $324,480,000. Total
deposits  at  December  31,  1998 were  $294,549,000.  Total  loans  amounted to
$202,258,000 and $212,437,000 at December 31, 1999 and 1998,  respectively.  The
loan decrease in 1999 was  $10,179,000  or 4.8%.  This decrease is attributed in
part  to the  sale  of  $38,068,000  of  residential  real  estate  loans  and a
$4,140,000 or 10.2% decline in commercial loans during 1999.

     The principal  factors  affecting  earnings in 1999 were a $408,000 or 2.8%
increase  in net  interest  income,  higher  other  income of  $175,000  or 5.1%
exclusive of net gains on the sales of securities and  mortgages,  a decrease in
the  provision  for  possible loan losses of $75,000 and  a reduction in Federal

<PAGE>

income taxes of $102,000.  These  earnings  improvement  factors were  partially
reduced by a decline in net gains on the sales of securities  and mortgage loans
of $400,000 and higher operating expenses of $110,000.

     The change in 1998 earnings was the result of a $757,000  increase in other
income,  a decrease in the  provision for possible loan losses of $155,000 and a
$265,000  reduction in Federal income taxes.  Offsetting the earnings  increases
were a decline in net interest income of $117,000 and higher operating  expenses
of $1,311,000, including the provision for the special reserve of $1,000,000.


<PAGE>



<TABLE>

-------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(Dollars in Thousands,
except per share data)
For the Year Ended
December 31,                     1999      1998       1997       1996      1995
-------------------------------------------------------------------------------
<S>                        <C>       <C>        <C>        <C>        <C>
CONSOLIDATED SUMMARY OF INCOME:
 Interest Income             $ 26,353  $ 25,367   $ 25,444   $ 23,135  $ 21,896
 Interest Expense              11,449    10,871     10,831      9,578     9,252
                            --------- ---------  ---------  --------- ---------
 Net Interest Income           14,904    14,496     14,613     13,557    12,644
 Provision for Possible
   Loan Losses                    375       450        605        670     1,798
 Gains (Losses) on the
   Sale of Mortgage Loans         157       398        178        (30)       22
 Other Income, Excluding
   Securities and Loan

   Sale Gains                   3,635     3,460      3,044      2,364     2,230
 Securities Gains, Net            563       722        601        308        22
 Other Expense                 14,673    14,563     13,252     11,571    11,204
                            --------- ---------  ---------  --------- ---------
 Income Before Income Taxes
   and Cumulative Effect of

   Accounting Method Change     4,211     4,063      4,579      3,958     1,916
 Applicable Income Taxes          929     1,031      1,296      1,136       515
                            --------- ---------  ---------  --------- ---------
   Net Income                 $ 3,282   $ 3,032    $ 3,283    $ 2,822    $1,401
                            --------- ---------  ---------  --------- ---------
 Cash Dividends Paid          $ 1,321   $ 1,275   $  1,139   $  1,011   $   972
 Cash Dividends Paid Per Share   0.74      0.70       0.64       0.58      0.56
 Dividends Paid to Net Income   40.25%    42.05%     34.69%     35.82%    69.38%

PER SHARE DATA:
  Basic Income                $  1.84   $  1.68    $  1.83    $  1.60    $ 0.80
  Diluted Net Income             1.83      1.67       1.83       1.60      0.80
  Basic  Average Common
    Shares Outstanding      1,786,019 1,805,051  1,786,741  1,764,973 1,741,319
  Dilutive Average Common
    Shares Outstanding      1,789,311 1,812,898  1,792,064  1,767,958 1,741,732

CONSOLIDATED BALANCE SHEET DATA:
 Total Assets                $391,889  $358,496   $346,738   $322,352  $298,514
 Loans (Net of
  Unearned Discount)          202,258   212,437    229,587    220,117   193,130
 Mortgage Loans
  Held-for-Sale                   ---       603        759        721     1,006
 Deposits                     324,480   294,549    282,255    267,668   254,102
 Securities Sold Under
  Agreements to Repurchase      1,730     5,094      8,804      3,795     6,096
 Debt (Short-Term
  and Long-Term)               30,000    20,000     18,390     18,512     7,643
 Shareholders' Equity          28,243    31,717     30,357     26,805    24,767
 Book Value Per Share           15.28     18.17      17.49      16.37     16.04

SELECTED CONSOLIDATED RATIOS:
 Net Income To:
  Average Total Assets           0.86%     0.86%      0.97%      0.92%     0.48%
  Average Shareholders' Equity  10.90%     9.79%     11.67%     11.16%     5.98%

 Average Shareholders'
  Equity to Average Assets       8.11%     8.60%      8.33%      8.35%     8.20%
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

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

<TABLE>
                         1999                1998                   1997
                        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 $  3,928  $ 196 4.99%  $3,060 $   176  5.75% $  1,252 $   71  5.67%
 Fed Funds
  Sold            975     47 4.82      641      34  5.30        18      1  5.56
 Inv Sec
  Taxable     107,054  6,829 6.38   80,939   5,002  6.18    69,876  4,592  6.57
  Non-Tax(1)   31,668  2,787 7.22   26,155   1,923  7.35    16,653  1,268  7.62
  Loans(1(2)  212,993 17,817 8.36  219,357  18,910  8.62   229,205 19,972  8.71
  Allow for
  Loan Losses  (2,669)  ---  ---    (2,710)   ---   ---     (2,614)   ---   ---
             -------- ------      --------  ------        -------- ------
  Net Loans   210,324 17,817 8.47  216,647  18,910  8.73   226,591 19,972  8.81
             -------- ------      --------  ------        -------- ------
   Total Int-
   Earn
   Assets     353,949 27,176 7.68  327,442  26,045  7.95   314,390 25,904  8.24
  Non-Int
   Earn Assets 29,153   ---  ---    25,419    ---   ---     24,391    ---   ---
             -------- ------      --------  ------        -------- ------
  TOTAL ASSETS,
  INTEREST
  INCOME     $383,102 27,176 7.09 $352,861  26,045  7.38  $338,781 25,904  7.65
             -------- ------      --------  ------        -------- ------
LIABILITIES
INTEREST-BEARING
LIABILITIES
 Int-Bearing
 Deposits
  Demand
  Deposits   $ 52,395    619 1.18 $ 48,988     562  1.15  $ 45,338    532  1.17
  Money
  Market
  Deposits     13,827    382 2.76   14,366     404  2.81    14,380    404  2.81
  Savings &
  Club
  Deposits     63,199  1,304 2.06   61,177   1,350  2.21    62,746  1,530  2.44
  CD's over
  $100,000      5,040    202 4.01    4,700     175  3.72     5,014    210  4.19
  All Other
  Time Dep    139,076  7,312 5.26  124,823   6,975  5.59   118,846  6,636  5.58
             -------- ------      --------  ------        -------- ------
   Total Int-
   Bearing
   Deposits   273,537  9,819 3.59  254,054   9,466  3.73   246,324  9,312  3.78

 Securities
 Sold Under
 Agreements
 to Repurchase  5,994    194 3.24    5,821     210  3.61     6,459    240  3.72
 Other Short-
 Term
 Borrowings     1,721     89 5.17      974      55  5.65     2,325    132  5.68
 Long-Term
 Debt          23,534  1,347 5.72   18,631   1,140  6.12    18,422  1,147  6.23
             -------- ------      --------  ------        -------- ------
  Total Int-
  Bearing
  Liabilities 304,786 11,449 3.76  279,480  10,871  3.89   273,530 10,831  3.96

<PAGE>

NON-INTEREST
BEARING
LIABILITIES
 Non-Int-
 Bearing
 Deposits      41,337   ---  ---    35,254    ---   ---     31,074    ---   ---
 Other Liab     6,843   ---  ---     7,157    ---   ---      6,054    ---   ---
             -------- ------      --------  ------        -------- ------
 TOTAL LIAB   352,966 11,449 3.24  321,891  10,871  3.38   310,658 10,831  3.49
 SHAREHOLDERS'
 EQUITY        30,136   ---  ---    30,970   ---     ---    28,123    ---   ---
             -------- ------      --------  ------        -------- ------
 TOTAL LIAB &
  SHAREHOLDERS'
  EQUITY,
  INTEREST
  EXPENSE    $383,102 11,449 2.99 $352,861  10,871  3.08  $338,781 10,831  3.20

NET INTEREST
INCOME              $ 15,727               $15,174                $15,073
                    --------               -------                -------
 Net Interest
 Spread (3)                  3.92                   4.06                   4.28

 Effect of
 Int-Free
 Sources
 Used to
 Fund Earnings
 Assets                      0.52                   0.57                   0.51

NET INTEREST
MARGIN (4)                   4.44%                  4.63%                  4.79%
                             ----                   ----                   ----

</TABLE>

(1) The indicated  interest income and average yields are presented on a taxable
equivalent  basis.  The  taxable  equivalent   adjustments  included  above  are
$678,000,  $460,000 and $349,000 for the years 1998, 1997and 1996, respectively.
The effective tax rate used for the taxable equivalent adjustment was 34%.

(2) Loan fees of $358,000,  $377,000  and $303,000 for the years 1998,  1997 and
1996,  respectively,  are included in interest  income.  Average  loan  balances
include  non-accruing  loans and  average  loans  held-for-sale  of  $3,726,000,
$1,781,000 and $2,212,000 for 1998, 1997 and 1996, 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 averaging
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 I
of the "Notes to Consolidated  Financial  Statements".  Interest income on loans
includes  loan fees of  $212,000,  $358,000  and  $377,000  for the years  ended
December 31, 1999, 1998 and 1997, 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 $15,727,000 for 1999, an increase
of $553,000 over  $15,174,000  in 1998. As shown in the  "Rate/Volume  Analysis"
table,  the increase in net interest  income in 1999 was  attributable to higher
net  interest  income from changes in volume of $355,000 and changes in rates of
$198,000.  The  volume-related  change  resulted  primarily  from  increases  in
investment  securities  partially offset by decreased average balances for loans
(see discussions on "Loan Portfolio" and "Mortgage Loans  Held-for-Sale") and an
increase in time deposits.  The rate-related  change was primarily the result of
the  decrease  of  interest  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.

     Net interest income, on a fully taxable equivalent basis, in 1998 increased
$101,000  over the 1997 figure of  $15,073,000.  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 1998 was the decrease in interest rates earned on
loans and  investments  exceeding  the  decrease on the  interest  rates paid on
interest-bearing liabilities.

     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 4.44% for 1999,  4.63% for 1998 and 4.79% for 1997. The
decrease in 1999 was the result of the 0.27% decrease in the average rate earned
on interest-earning  assets being greater than the 0.13% decrease in the average

<PAGE>

interest rate paid on interest-bearing  liabilities. 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 3.92%,  4.06% and
4.28% for 1999,  1998 and 1997,  respectively.  The  impact on  earnings  by the
reduction  in the  interest  spread  was  diminished  in part by the  $6,083,000
increase in 1999 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, 1999 and 1998,  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,
                                1999 to 1998                1998 to 1997
                               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              $   20  $ (30) $    50      $  105  $   2   $  103
  Federal Funds Sold           13     (5)      18          33     (2)      35
  Investment Securities     2,191    146    2,045       1,065   (328)   1,393
  Loans                    (1,093)  (580)    (513)     (1,062)  (146)    (916)
                            -----    ---    -----       -----  -----    -----
  Total Interest Income     1,131   (469)   1,600         141   (474)     615
                            -----    ---    -----       -----  -----    -----
Interest Expense
  Demand Deposits,

  Savings & Clubs             (11)  (102)      91        (150)  (192)      42
  Time Deposits               364   (442)     806         304     (9)     313
  Securities Sold Under
   Agreements to Repurchase   (16)   (22)       6         (30)    (6)     (24)
  Short-Term Borrowings        34     (8)      42         (77)     -      (77)
  Long-Term Borrowings        207    (93)     300          (7)   (20)      13
                            -----    ---    -----       -----  -----    -----
  Total Interest Expense      578   (667)   1,245          40   (227)     267
                            -----    ---    -----       -----  -----    -----
  Increase in Net

  Interest Income          $  553  $ 198   $  355      $  101 $ (247)  $  348
</TABLE>

<PAGE>

                        Service Charges and Other Income

     Service  charge income on deposit  accounts  amounted to $1,682,000 in 1999
compared to  $1,594,000 in 1998 and  $1,349,000  in 1997.  In 1999,  the service
charges on deposit accounts  increased by $88,000 or 5.5% over 1999 and the 1998
increase  over 1997 was $245,000 or 18.2%.  The  increases in 1999 and 1998 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 1999,  the Company had a gain on the sale of mortgage  loans of $157,000
as compared to a gain of  $398,000  in 1998.  In 1997,  there was also a gain of
$178,000 (see discussion on "Mortgage Loans Held-for-Sale")

     Other  operating  income was  $707,000 in 1999,  as compared to $641,000 in
1998.  Other operating income for 1997 was $645,000.  Investment  Management and
Trust Division

     Revenue from the Bank's Investment Management and Trust Division operations
was $1,246,000 in 1999, representing an increase of $21,000 or 1.7% over revenue
of $1,225,000 in 1998. The Investment  Management and Trust Division revenue for
1998 increased by 16.7% or $175,000 over the 1997 revenue of  $1,050,000.  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.  The
increase in 1999 and 1998 Trust  revenue  was the result of the  addition of new
accounts and increased market values. 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 $6,780,000,  increased by
$395,000 or 6.2% in 1999 compared to $6,385,000 in 1998.  These expenses in 1998
amounted to an increase  of  $352,000  or 5.8% over the  $6,033,000  reported in
1997.   The  increase  in  1999  was  primarily  due  to  salary   increases  of
approximately  3.5%,  the addition of staff  related to the new branch opened in
Stroudsburg  during the year and increases in the Trust Division  staff.  Salary
expense in 1998 increased due to normal salary increases of approximately 4% and
the addition of staff in the Lending Division.

<PAGE>

     Occupancy and equipment  expenses were $2,171,000 in 1999 which was $53,000
greater  than the 1998 amount of  $2,118,000.  The 1998 amount was $60,000  less
than the 1997  occupancy and equipment  expense of  $2,178,000.  The increase in
1999 was primarily due to the establishment of the new branch in Stroudsburg and
new equipment  related to the Y2K issue.  The decrease in 1998 was the result of
cost control measures which offset the added expenses of a new teller system and
Trust system.

     Other  operating  expenses (such as the provision for the special  reserve,
advertising,  publicity,  litigation  costs,  deposit insurance  premiums,  data
processing fees,  legal,  accounting,  supplies,  postage and telephone) in 1999
were  $5,722,000,  compared to  $6,060,000 in 1998 and  $5,041,000 in 1997.  The
decrease  of  $338,000  or 5.6% in  other  operating  expense  during  1999  was
primarily due to a $943,000 decrease in the provision 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
increase in 1998 of  $1,019,000  or 20.2% was the result of the provision to the
special  reserve for Trust  Operations of  $1,000,000  and higher legal and loan
collection  costs.  The  Company's  advertising  costs are expensed as incurred.
Advertising  costs were  $574,000,  $597,000  and  $524,000  for the years ended
December  31,  1999,  1998 and 1997,  respectively  (see Notes A.15 and H of the
"Notes to Consolidated Financial Statements").

                              Investment Securitie

     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 1999 and 1998. 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  (see  Notes  A.2  and B of  the  "Notes  to  Consolidated  Financial
Statements").

     Held-to-maturity  securities  totaled  $19,887,000 at December 31, 1999 and
$17,723,000 at December 31, 1998. The Company has the intent and ability to hold

<PAGE>

these  securities  until  maturity.  The  fair  value of  these  securities  was
$19,123,000 and $17,920,000 at December 31, 1999 and 1998, respectively.

     The  Company,  at December 31, 1999 and 1998,  did not hold any  securities
identified as derivatives  in the form of  Collateralized  Mortgage  Obligations
(CMOs),  Planned  Amortization  Class  (PAC),  Real Estate  Mortgage  Investment
Conducts  (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  $19,904,000 at December 31, 1999
($16,147,000  in  available-for-sale  and  $3,757,000 in  held-to-maturity)  and
$19,844,000  at  December  31,  1998  ($15,776,000  in  available-for-sale   and
$4,068,000 in held-to-maturity).  The interest rates on most of these securities
are tied to various  indexes,  are subject to various caps, and adjust annually.
The  Company  also held fixed rate  mortgage-backed  securities  issued by U. S.
Government  Agencies  totaling  $31,145,000 at December 31, 1999 ($29,882,000 in
available-for-sale  and  $1,263,000  in  held-to-maturity)  and  $19,258,000  at
December  31,  1998  ($17,365,000  in   available-for-sale   and  $1,893,000  in
held-to-maturity).

                          Securities Available-for-Sale

     The Company had $132,356,000 of securities  available-for-sale  at December
31, 1999, as compared to $98,389,000 at December 31, 1998. At December 31, 1999,
the net  unrealized  loss on these  securities  was  $4,322,000,  net of the tax
effect of $2,226,000.  There was a net unrealized  gain of $527,000,  net of the
tax effect of  $272,000 on the  available-for-sale  securities  at December  31,
1998. 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
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

<PAGE>

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  1999,  $16,295,000  of  securities  available-for-sale  were  sold,
resulting  in a total net gain of  $563,000,  which was  recorded  in income and
includes net gains on equity  securities  sold by First C. G. of  $401,000.  The
securities  sold were  primarily U. S.  Treasury,  U. S. Agency  mortgage-backed
bonds 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 a $1,000,000 loan to the Bank's Employee Stock Ownership Plan (see Note J of
the "Notes to Consolidated Financial  Statements").  Securities purchased by the
Company  in  1999  totaled   $78,275,000.   Included  in  these  purchases  were
$36,323,000  in U. S.  Agency  fixed  rate  bonds,  $3,086,000  in U. S.  Agency
adjustable  rate  bonds,  $27,690,000  in U. S.  Agency  mortgage-backed  bonds,
$8,016,000 in municipal securities, $215,000 in public housing bonds, $1,000,000
in U. S. Treasury  bonds,  $494,000 in corporate  bonds and $1,451,000 in equity
securities.  The securities sold in 1998 totaling  $10,620,000 were primarily U.
S. Treasury,  U. S. Agency and mortgage-backed bonds held by the Bank and equity
securities held by First C. G. The 1998 sales resulted in net gains of $722,000.
These gains include net gains of $694,000 on equity  securities held by First C.
G. The sales  were made to  provide  liquidity  to fund a  $500,000  loan to the
Bank's  Employee  Stock  Ownership  Plan,  improve future income and invest in a
broader  list of equity  securities.  Security  purchases  in 1998  amounted  to
$76,280,000  which were  primarily  U. S. Agency  mortgage-backed  bonds,  U. S.
Agency fixed rate bonds, municipal securities and U. S. Treasury bonds. In 1997,
a net  gain on  security  transactions  of  $601,000  was  recorded  on sales of
$13,279,000.

                                 Loan Portfolio

     At December 31, 1999, total loans (net of unearned discounts of $691,000 in
1999 and $1,025,000 in 1998) of $202,258,000 were $10,179,000, or 4.8% less than
the 1998 amount of $212,437,000.  The decline in loans in 1999 was primarily the
result of a decrease of $7,044,000 or 5.9% in  residential  real estate loans, a
decrease of $4,952,000 or 42.4% in real estate construction loans, a decrease of

<PAGE>

$2,778,000 or 9.4% in commercial  real estate loans and a decrease of $1,441,000
or 11.9% in commercial and municipal loans  partially  offset by a $5,702,000 or
14.2% increase in consumer loans.

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

<TABLE>

--------------------------------------------------------
Dollars in Thousands at Dec. 31,      1999         1998
--------------------------------------------------------
<S>                             <C>          <C>

Real Estate Residential          $ 112,870    $ 119,914
Real Estate Construction             6,737       11,689
Real Estate Commercial              26,809       29,587
Consumer                            45,886       40,184
Municipal                            1,096        1,178
Commercial & Other                   9,551       10,910
                                  ---------    ---------
   Total                           202,949      213,462

Unearned Discount                     (691)      (1,025)
                                  ---------    ---------

Net                              $ 202,258    $ 212,437
--------------------------------------------------------
</TABLE>

     The decline in residential real estate loans was the result of management's
decision  to sell  $20,977,000  of these loans  originated  in the prior year to
reduce the Bank's interest rate risk and  concentration  in these types of loans
(see discussion on "Mortgage Loans Held-for-Sale").

     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  62.3% at  December  31,  1999 and 72.1% at
December 31, 1998. Additional information concerning loans is shown in Note C of
the "Notes to Consolidated Financial Statements".

                          Mortgage Loans Held-for-Sale

     In 1999,  management  continued  a  program  of  selling  most of its newly
originated residential real estate loans in the secondary market. The purpose of
this plan is 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 1999
amounted  to  $38,068,000.  The  amount of these  loans  originated  in 1999 was
$17,091,000,  with the remaining  $20,977,000 being originated in prior years of
which $603,000 was identified as held-for-sale at December 31, 1998. The sale of
prior years loans in excess of those  identified  as  held-for-sale  was done to
restructure  the loan portfolio,  reducing  interest rate  risk and the level of

<PAGE>

concentration  in  residential  real estate  loans.  A net gain of $157,000  was
recorded on the total amount of loans sold. At December 31, 1999,  there were no
residential real estate loans identified as held-for-sale.

     In 1998, the Company  originated  $21,316,000  of  residential  real estate
loans  which  were sold in the  secondary  market.  In  addition,  during  1998,
$21,564,000  of  residential  real estate loans  originated  in prior years were
sold. A net gain of $398,000 was  recognized on the total loans sold in 1998. At
December 31, 1998,  $603,000 of residential real estate loans were identified as
held-for-sale.  Included in other  operating  expenses in 1998 is an  unrealized
loss of $1,000 on these loans.

     During  1997,  the  Company  had a net  gain  of  $178,000  on the  sale of
$10,754,000 of residential real estate loans.  The other operating  expenses for
1997 include an unrealized  loss of $13,000 on mortgage loans  held-for-sale  of
$759,000 at year-end 1997.

     The Company intends to continue to originate  residential real estate loans
in 2000 and to sell some of these  loans in the  secondary  market.  The Company
services all of the  residential  mortgage  oans 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.

     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.  Loans on
non-accrual  status  totaled  $1,311,000  at December  31,  1999.  This  balance
represents  a $66,000  increase  in  non-accrual  loans  during  1999 due to the
deterioration of 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  significant  loans that  qualify as "Troubled
Debt  Restructuring"  as defined by SFAS No. 15,  "Accounting  for  Debtors  and
Creditors for Troubled Debt Restructuring", at December 31, 1999 and 1998.

<PAGE>

Non-Accrual Loans

<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands)
at December 31,            1999        1998       1997        1996        1995
-------------------------------------------------------------------------------
<S>                    <C>         <C>        <C>         <C>         <C>

Non-accrual loans on
  a cash basis          $ 1,311     $ 1,245    $   813     $ 1,440     $ 2,181

Non-accrual loans
  as a percentage

  of total loans            .65%        .59%       .35%        .65%       1.13%

Interest which would
  have been recorded
  at original rate      $    56     $   144    $    64     $   210     $   214

Interest that was

  reflected in income        35          23        111          40          44

Net impact on

  interest income       $    21     $  (121)   $    47     $  (170)    $  (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,              1999      1998      1997       1996       1995
--------------------------------------------------------------------------------
<S>                      <C>        <C>       <C>       <C>        <C>

Accruing loans past due
  90 days or more         $ 1,491    $1,021    $  802    $   986    $ 1,115

Accruing loans past due
  90 days or more
  as a percentage
  of total loans             .74%      .48%      .35%       .45%       .58%

--------------------------------------------------------------------------------
</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, 1999 and 1998 are
as follows:

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

Principal amount of impaired loans      $370        $524
Accrued interest                         ---         ---
Deferred loan costs                      ---         ---
                                     -------     -------
                                         370         524
Less valuation allowance

  at December 31,                        (74)       (303)
                                     --------    --------
                                        $296        $221
------------------------------------------------------------
</TABLE>

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

<TABLE>
-----------------------------------------------------------------
(Dollars in Thousands)
  for the year ended                         1999        1998
-----------------------------------------------------------------
<S>                                         <C>        <C>

Valuation allowance at January 1,            $303       $138
Provision for loan impairment                 ---        294
Direct charge-offs                           (161)      (129)
Recoveries                                    ---        ---
Transfers to Unallocated Reserve              (68)       ---
                                          -------    -------
Valuation allowance at December 31,          $ 74       $303

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

     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.

     Total cash collected on impaired  loans during 1998 was $506,000,  of which
$483,000 was credited to the  principal  balance  outstanding  on such loans and
$23,000 was recognized as interest income. Interest that would have been accrued
on impaired loans was $56,000 and $144,000 in 1999 and 1998,  respectively.  The
valuation  allowance  for  impaired  loans of $74,000 at  December  31, 1999 and
$303,000 at  December 31, 1998 is  included  in the "Allowance for Possible Loan

<PAGE>

Losses"  which  amounts to  $2,437,000  and  $2,691,000 at December 31, 1999 and
1998, respectively.

     Shown in the following  table is the amount of "Other Real Estate Owned" as
of the  end of  each  of the  periods  indicated  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,       1999     1998      1997      1996     1995
-----------------------------------------------------------------
<S>                  <C>       <C>      <C>      <C>     <C>

Other Real Estate     $ 571    $ 636     $ 284     $ 595    $ 364
  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, 1999, the
allowance  for possible  loan losses was  $2,437,000 as compared to the December
31, 1998 amount of  $2,691,000  and the December 31, 1997 amount of  $2,664,000.
The  allowance  for  possible  loan  losses  as  a  percentage  of  total  loans
outstanding as of December 31, 1999 was 1.20%. This compares to 1.27% at the end
of 1998 and 1.16% at the end of 1997. The decrease in the allowance for possible
loan  losses  of  $254,000  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
$2,802,000  as of December 31, 1999 as compared to $2,266,000 as of December 31,
1998 (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  $629,000  in 1999 or  $206,000  greater  than the 1998  amount of
$423,000. The 1999 charge-offs were the result of losses on commercial, consumer
and  residential  real estate loans.  The net charge-offs in 1998 were primarily
the result of losses on commercial,  consumer and residential  loans.  Net loans
charged-off in 1997 were $473,000.  The ratio of net loan charge-offs to average
loans outstanding was .30%, .19% and .21% in 1999, 1998 and 1997, respectively.

     The  provision  for loan  losses for the year ended  December  31, 1999 was
$375,000  as  compared  to  $450,000  for the year ended  December  31, 1998 and
$605,000 for the year ended  December  31, 1997.  The decrease in 1999 from 1998
was $75,000. In 1998, the decrease in the provision was $155,000 from 1997.

     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

<PAGE>

industry,  and the  establishment  of lending targets to various segments of the
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,      1999      1998      1997      1996     1995
-------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>       <C>      <C>
Allowance for Loan Losses
at Beginning of Year             $  2,691  $  2,664  $  2,532  $  2,443 $  2,187

Loans Charged-Off by Category:
   Commercial                         255       133       249       365      161
   Real Estate - Construction          --        --        --        --       --
   Real Estate - Residential          147        59        20        31       --
   Consumer/Installment               330       348       301       271      319
   Other                               --        --        --        --    1,278
                                 --------  --------  --------  --------  -------
Total Loans Charged-Off               732       540       570       667    1,758
                                 --------  --------  --------  --------  -------
Loans Recovered by Category:
   Commercial                          30        42        19        39      105
   Real Estate - Construction          --        --        --        --       --
   Real Estate - Residential           29         1         1        --       --
   Consumer/Installment                44        74        77        47       97
   Other                               --        --        --        --       14
                                 --------  --------  --------  -------- --------
Total Loans Recovered                 103       117        97        86      216
                                 --------  --------  --------  -------- --------
Net Loans Charged-Off                 629       423       473       581    1,542
                                 --------  --------  --------  -------- --------
Provision Charged to Expense          375       450       605       670    1,798
                                 --------  --------  --------  -------- --------
Allowance for Loan Losses
 at End of Period                $  2,437  $  2,691  $  2,664  $  2,532 $  2,443
                                 ========  ========  ========  ======== ========

Total Loans
   Average                       $212,993  $217,191  $228,245  $206,378 $190,874
   Year-End                      $202,258  $212,437  $229,587  $220,117 $193,130

Net Loans Charged Off to:
   Average Loans                     .30%      .19%      .21%      .28%    .81%
   Loans at Year-End                 .31%      .20%      .21%      .26%    .80%
   Allowance for Possible
     Loan Losses at Year-End       25.81%    15.72%    17.76%    22.95%  63.12%
   Provision for Possible
     Loan Losses                  167.73%    94.00%    78.18%    86.72%  85.76%

Allowance for Possible Loan Losses at Year-End to:

   Average Loans                    1.14%     1.24%     1.17%     1.23%   1.28%
   Loans at Year-End                1.20%     1.27%     1.16%     1.15%   1.26%

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

<PAGE>

                                    Deposits

     Deposits  are the  primary  source of the  Company's  funds.  During  1999,
deposits  increased  by  $29,931,000  or  10.2% to a total  of  $324,480,000  at
December 31, 1999, from a total of  $294,549,000  at December 31, 1998.  Average
deposits for 1999 were $314,874,000, an increase of $25,566,000 or 8.8% over the
average total deposits for 1998 of $289,308,000. Contributing to the increase in
average  deposits was the strong  growth of checking  deposits both interest and
non-interest  bearing as consumers  responded to a marketing campaign to attract
these types of deposits  and  continued  growth in  certificates  of deposit and
savings  accounts.  The deposit  growth in checking  deposits,  certificates  of
deposit and savings  accounts was  partially  offset by a small decline in 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 credit unions, mutual funds and other investment options.

     The Bank's time deposits, excluding certificates of deposit under $100,000,
increased in 1999 with average balances of  $139,076,000,  which was $14,253,000
or 11.4%  higher than the 1998  average  balance of  $124,823,000.  Non-interest
bearing  deposits  averaged  $41,337,000  in 1999 as compared to  $35,254,000 in
1998, an increase of $6,083,000 or 17.3%. In addition,  there was an increase in
average interest-bearing demand deposits of $3,407,000 or 7.0% to $52,395,000 in
1999 from  $48,988,000 in 1998, an increase in average savings and club deposits
of  $2,022,000  or 3.3% from an  average  balance of  $61,177,000  in 1998 to an
average  balance of $63,199,000 in 1999 and an increase in average  certificates
of deposit  over  $100,000  which  averaged  $5,040,000  in 1999 as  compared to
$4,700,000 in 1998, an increase of $340,000 or 7.2%.  Partially  offsetting this
growth was a $539,000 or 3.8% decline in average money market deposits.  Average
money  market  deposits  were  $13,827,000  and  $14,366,000  in 1999 and  1998,
respectively.

                              Short-Term Borrowings

     The Bank had  securities  sold  under  agreements  to  repurchase  totaling
$1,730,000 at December 31, 1999 and $5,094,000 at December 31, 1998. At December
31, 1999 and 1998,  there were no  short-term  borrowings in the form of Federal
funds purchased,  Federal Reserve Bank discount  borrowings or Federal Home Loan
Bank borrowings. Additional information relating to short-term borrowings can be
found in Note F of the "Notes to Consolidated Financial Statements".

<PAGE>

                         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 1999, cash, due from banks, Federal funds
sold  and  interest-bearing   deposits  with  banks  totaled  $21,861,000,   and
securities maturing within one year totaled $2,249,000.  At year-end 1998, cash,
due from banks,  Federal  funds sold and  interest-bearing  deposits  with banks
totaled $17,560,000, and securities maturing within one year were $4,493,000.

     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  $5,548,000  at  December  31,  1999,  and
$3,193,000 at December 31, 1998. 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,
all of which was available at December 31, 1999.

     The Bank had four  long-term  loans  from the  Federal  Home  Loan  Bank of
Pittsburgh  totaling  $30,000,000 at December 31, 1999 and three long-term loans
totaling $20,000,000 at December 31, 1998. The loans outstanding at December 31,
1999 were  originated in 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 $8,000,000  originated in August, 1996, and due August, 2000, at a fixed
rate of 5.89%, $5,000,000 originated in December,  1996 and due December,  2001,
at a variable  rate at LIBOR plus 3 basis points  (6.26% at December 31,  1999),
$7,000,000 originated in October, 1998 and due October, 2008, at a fixed rate of
4.86%  until  December,  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  and
$10,000,000 originated in August, 1999, and due in August, 2004, at a fixed rate
of 6.06% until August 21,  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,  if the
LIBOR rate is 7.5% 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

<PAGE>

of  conversion  without  a  penalty.  The Bank had an  additional  loan from the
Federal Home Loan Bank at December 31, 1997 in the amount of $5,000,000 that was
paid in full in November, 1998. This loan was originated in 1996 and had a fixed
interest  rate of 5.96%  (see  Note G of the  "Notes to  Consolidated  Financial
Statements").

     Cash flows for the year ended December 31, 1999, consisted of cash provided
by financing activities of $34,659,000 and cash provided by operating activities
of $3,889,000 offset in part by cash used in investing activities of $36,535,000
resulting in a net increase in cash and cash equivalents of $2,013,000. The cash
provided by financing activities was comprised of a net increase in certificates
of deposit of $27,873,000,  a net increase in long-term debt of  $10,000,000,  a
net increase in interest and non-interest bearing demand and savings deposits of
$2,058,000,  and  proceeds  from  the  sale  of  common  stock  to the  Dividend
Reinvestment Plan of $302,000.  Partially  offsetting these increases were a net
decrease in repurchase  agreements of $3,364,000,  the payment of cash dividends
of $1,321,000 and a net increase to the ESOP debt of $885,000. The cash provided
by operating activities was comprised  principally of the proceeds from mortgage
loan  sales  of  $38,068,000,   net  income  of  $3,282,000,   depreciation  and
amortization of $1,027,000,  an increase in accrued interest payable of $672,000
and the  provision  for  possible  loan losses of  $375,000,  reduced in part by
mortgage loans  originated for sale of  $37,460,000,  net investment  securities
gains of $563,000,  a net  increase in other assets of $970,000,  an increase in
accrued  interest income of $503,000 and net gains on the sale of mortgage loans
of  $157,000.  The cash  used in  investing  activities  was  primarily  for the
purchase of  securities  available-for-sale  in the amount of  $72,150,000,  the
purchase  of  securities  held-to-maturity  in the amount of  $6,559,000,  a net
increase in interest-bearing  deposits with banks of $2,288,000 and the purchase
of premises  and  equipment  in the amount of  $1,143,000.  These cash uses were
partially offset by the proceeds from the sales of securities available-for-sale
of $16,858,000, proceeds from the maturities of securities available-for-sale of
$15,331,000,  proceeds from the  maturities of  securities  held-to-maturity  of
$3,622,000 and a net decrease in loans of $9,412,000.

     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, 1999 was $28,243,000
as compared to  $31,717,000  at December 31, 1998, a decrease of  $3,474,000  or
11.0%. This decrease was attributable to a  decline of $4,848,000 in accumulated

<PAGE>

other comprehensive income (see Note A.7 of the "Notes to Consolidated Financial
Statements"),  and a net increase of $885,000 in ESOP debt. These decreases were
partially offset by retained  earnings and the sale of common shares pursuant to
the  Dividend  Reinvestment  Plan.  Total  shareholders'  equity,  exclusive  of
accumulated  other  comprehensive  income was  $32,564,000  and  $31,190,000  at
December 31, 1999 and 1998,  respectively.  This is an increase of $1,374,000 or
4.4%. The accumulated other comprehensive  income is comprised of the unrealized
gains or losses  on  securities  available-for-sale.  The  unrealized  losses on
securities  available-for-sale  at December 31, 1999 amounted to $4,322,000 (net
of tax effect of $2,226,000).  Included in shareholders'  equity at December 31,
1998 was  $527,000  (net of tax  effect of  $272,000)  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 24, 1999 to all  shareholders of record at the close
of  business on June 4, 1999.  On June 25,  1998,  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 5, 1998.  The Company
also paid a 5% stock dividend on June 19, 1997 to  shareholders of record on May
30, 1997. 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
1999,  15,061 new  common  shares  were  purchased  pursuant  to this Plan at an
average price of $20.99 for total proceeds of $316,000.  In 1998,  10,910 common
shares were  purchased  pursuant  to the Plan at an average  price of $29.98 per
share.  The total  proceeds were $327,000.  New common shares  purchased in 1998
totaled  7,992 at an  average  price of $29.15 for  proceeds  of  $233,000.  The
remaining purchase of 2,918 shares were from Treasury shares at an average price
of $33.21 for proceeds of $94,000.

     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
non-employee  directors.  In 1999,  options  to  purchase  7,654  shares  of the
Company's common stock at an average price of $21.81 were granted.  During 1999,
options for 1,276 shares of the  Company's  common stock issued  pursuant to the
plan were  exercised  at an average  price of $13.32 per share.  No options were
issued or exercised under this Plan in 1998. During 1997, options for 957 shares

<PAGE>

of the Company's  common stock were  exercised by a  non-employee  director at a
price of $13.32 per share.

     The Company also has a "Stock Option Plan" that was  originally  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. In 1999, no options were issued under this plan. In 1998, options
to purchase 32,524 shares of the Company's common stock at a price of $33.56 per
share were granted to certain  officers.  No options were  exercised  under this
plan in 1999 and 1998.  During 1997,  options to purchase  20,948  shares of the
Company's  common  stock at a price of $21.31  were issued  under this plan.  In
1997,  options to purchase  6,330  shares of the  Company's  common stock issued
pursuant  to the 1986 Plan were  exercised  at an  average  price of $14.93  per
share.

     The  Company  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.10  and M 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  and  possibly
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".

<PAGE>

     A group of funeral  directors have asserted certain claims 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.  The Company
has incurred  legal  expenses in regard to these claims during 1999 and 1998. In
1998, the Company  established a reserve of $1.5 million  against these possible
claims.  The reserve  balance,  as of December  31, 1999 equaled  $994,000  with
respect to unsettled  claims.  The Bank has been advised that it has significant
defenses to these claims and intends to vigorously  defend  against such claims.
However,  there is no assurance  that the Bank will be  successful.  The Company
will continue to incur  significant legal expenses in regard to these claims and
any  settlement  of this case could  exceed the  reserve  amount and thus have a
negative impact on the Company's  future  earnings and financial  condition (see
Note N 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.  As  discussed
previously,  management  is  attempting  to  maintain  an  essentially  balanced
position between  interest-sensitive  assets and liabilities in order to protect
against wide interest-rate fluctuations.

                                    Year 2000

     The Company has adopted a Year 2000 policy to address the "Year 2000" Issue
concerning the inability of certain  information systems and automated equipment
to properly  recognize and process dates containing the Year 2000 and beyond. If
not  corrected,   these  systems  and  equipment  could  produce  inaccurate  or
unpredictable  results  commencing on January 1, 2000.  The Company,  similar to
most financial services providers,  is particularly  vulnerable to the potential
impact  of the Year  2000  Issue due to the  nature  of  financial  information.
Potential impacts to the Company may arise from software, computer hardware, and
other  equipment  both within the  Company's  direct  control and outside of the
Company's ownership,  yet with which the Company electronically or operationally
interfaces.

<PAGE>

     In  order to  address  the Year  2000  Issue,  the  Company  developed  and
implemented  a five phase  compliance  plan  divided  into the  following  major
components:  (1) Awareness; (2) Assessment;  (3) Renovation;  (4) Validation and
Testing;  and (5)  Implementation.  The Company completed all phases of the plan
prior to year-end 1999.

     The  Company  had  identified  its  mission-critical  systems as those that
affect the Company's  ability to process  banking  transactions  and its general
accounting  systems.  Such systems include deposit,  loan and trust  accounting,
check and deposit processing and branch teller equipment.

     The Company  purchases  most of its computer  software  from major  outside
providers of bank software. A significant component of the Year 2000 plan was to
install the Year 2000 compliant  software  provided by these vendors and also to
test these  supplied  systems.  The  Company's  major  software  providers  have
informed the Company  that,  based on tests they have  conducted and continue to
conduct,  they believe their  respective  systems to be Year 2000 compliant.  In
addition,  the  Company  conducted  its own tests on these  systems  provided by
vendors.  The Company also has some internally  generated  programmed  software.
This software was corrected for Year 2000.

     The Company has  reviewed  the impact of Year 2000 on other  equipment  and
systems such as heating, air conditioning, telecommunications, electric service,
vaults,  photocopiers,  personal  computers,  printers and other equipment where
necessary.  Some of this equipment,  such as personal computers,  were replaced.
Other items such as vaults, heating, air conditioning, photocopiers and printers
were  tested  and  found  "not  date  sensitive".  The  Company's  providers  of
telecommunications   and  electric  service  were  contacted.   These  providers
indicated they do not expect any interruption of service in the Year 2000.

     Other  important  segments  of the Year 2000 plan  were to  identify  those
suppliers and customers  whose  possible  lack of Year 2000  preparedness  might
expose  the  Company  to   financial   loss.   Included  in  this   process  was
communications  to all the Company's  customers and  identification  of loan and
deposit  customers  whose  failure to address the Year 2000 Issue  might  impact
their  banking  relationship.  As a result of this  communication,  the  Company
identified  those  customers who may be affected by the Year 2000.  Risk factors
were  assigned  to  these  customers.   The  Company  has  not  experienced  any
significant   loss  as  a  result  of  these   risks.   The  Company   initiated
communications with  all of its significant suppliers to determine the extent to

<PAGE>

which the Company is  vulnerable  to those third  parties'  failure to remediate
their own Year 2000 issues.

     The Company developed contingency plans to address any or all systems that,
despite all  testing,  still did not  operate  correctly  in the Year 2000.  The
contingency  plans  provide for manual and personal  computer  based  systems to
process  checks,  deposits  and loan  transactions.  The Company  increased  its
inventories  of the  various  required  supplies,  such as new  account and loan
forms,  deposit withdrawal forms and other pre-printed  forms,  available at the
Company's Main Office and branch  offices.  Alternative  communications  systems
were  established  and  alternative  power source was installed at the Company's
Operations Center.

     The Company spent $215,000 and $496,000 on Year 2000 compliance  matters in
1999 and 1998, respectively.  As of December 31, 1999, $1,066,000 has been spent
on this  project.  These  expenses are  comprised of the  replacement  of branch
teller and new account systems for $645,000,  replacement of personal  computers
for $231,000,  the installation of an alternative electrical power source at the
Company's  Operations  Center for $90,000,  the replacement of automatic  teller
machines for $28,000,  replacement of mortgage  lending software for $19,000 and
enhancements  to banking  systems of $21,000 and trust  systems of  $12,000.  In
addition, the Company spent $20,000 on communications to its customers regarding
Year 2000 issues. The expenses related to Year 2000 were financed by the general
revenues of the  Company  and are  included  in the  Company's  other  operating
expenses in the Company's financial statement.

     The Company does not anticipate any additional Year 2000 related  expenses.
No significant projects have been delayed as a result of the Company's Year 2000
effort.

     Financial  institution  regulators have intensively  focused upon Year 2000
exposures, issuing guidance concerning the responsibilities of senior management
and directors.  Year 2000 testing and  certification is being addressed as a key
safety and soundness  issue in conjunction  with regulatory  exams.  The Federal
banking agencies have highly  prioritized Year 2000 compliance in order to avoid
major disruptions to the operations of financial  institutions and the country's
financial systems when the new century begins.

     The  Federal   banking   agencies  have  conducted  Year  2000   compliance
examinations.  The failure to  implement  an adequate  Year 2000  program can be
identified as an unsafe and unsound banking  practice.  The Company and the Bank
are subject to regulation and  supervision  by the Federal  Reserve Bank and the
Comptroller of the Currency which regularly  conducts  reviews of the safety and
soundness  of  the  Company's  operations,  including  the Company's progress in

<PAGE>

becoming  Year  2000  compliant.   The  regulatory   agencies  have  established
examination    procedures   which   contain   three   categories   of   ratings:
"Satisfactory",  "Needs  Improvement" and  "Unsatisfactory".  Institutions  that
receive  a  Year  2000  rating  of  Unsatisfactory  may  be  subject  to  formal
enforcement action, supervisory agreements, cease and desist orders, civil money
penalties,  or the  appointment of a conservator.  In addition,  Federal banking
agencies  will be  taking  into  account  Year  2000  compliance  programs  when
reviewing  applications  and may deny an application  based on Year 2000 related
issues.  Failure by the Company to adequately prepare for Year 2000 issues could
negatively impact the Company's banking operations,  including the imposition of
restrictions upon its operations by the Comptroller of the Currency.

     The Company did not experience any material  problems  related to Year 2000
during the month of January,  2000.  The Bank had all of its branch offices open
for  business  on  January  1, 2000 with all  systems  operating  normally.  The
potential  full  effect,  if any,  of the Year 2000  issue on the  Company,  its
customers and its business partners,  including other banks, the Federal Reserve
Bank and other Federal  agencies,  will not be fully  determined until later. If
problems  related to the Year 2000 arise  within the  Company or  entities  with
which the Company  conducts  business,  the  Company's  revenues  and  financial
condition could be adversely impacted.

                            Earnings Per Common Share

     The Company  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
calculations  have been  restated to reflect  the  adoption of SFAS No. 128 (see
Note A.13 of the "Notes to 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

<PAGE>

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

     The Company has adopted the Financial  Accounting Standards Board Statement
of Financial  Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", as amended by
SFAS No. 127,  which  provides  accounting  guidance on  transfers  of financial
assets,  servicing of financial assets and  extinguishment of liabilities.  This
statement is effective for transfers of financial assets, servicing of financial
assets and  extinguishments  of liabilities  occurring  after December 31, 1996.
Adoption of this statement had no material impact on the Company's  consolidated
financial position or results of operations.

                         Reporting Comprehensive Income

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

       Disclosures About Segments of an Enterprise and Related Information

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information".  SFAS No. 131 established standards for the
method that public business  enterprises report selected  information  regarding
operating  segments in financial reports issued to shareholders.  The disclosure
information  required consists of a measure of segment profit and loss,  certain
revenue and expense items and segment assets based upon  specified  quantitative
thresholds,  as it is reported  internally to the chief operating decision maker
on both an interim and annual basis. The statement is effective for fiscal years
beginning   after  December  15,  1997.   Management  has  determined  that  the
Corporation consists of one segment: community banking.

<PAGE>

          Accounting for Derivative Instruments and Hedging Activities

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities"  which was effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 must be adopted  prospectively
and  retroactive  application  is not  permitted.  SFAS No. 133 will require the
Company to record all derivatives on the balance sheet at fair value. Changes in
derivative  fair values will either be  recognized in earnings as offsets to the
changes in the value of related hedged assets,  liabilities and firm commitments
or  for  forecasted  transactions,  deferred  and  recorded  as a  component  of
accumulated other  comprehensive  income (loss) in stockholder' equity until the
hedged  transactions  occur and are  recognized  in  earnings.  The  ineffective
portion  of a hedging  derivative's  change in fair  value  will be  immediately
recognized in earnings.  In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative  Instruments  and Hedging  Activities - Deferral of the Effective
Date of FASB Statement No. 133".  SFAS No. 133 is now effective for fiscal years
beginning  after June 15,  2000.  The  Company  expects to adopt SFAS No. 133 on
January 1, 2001 and does not believe  the effect of  adopting  SFAS No. 133 will
have any material effect on its  consolidated  financial  position or results of
operations.

                      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, 1999, June, 1998 and May, 1997.

<PAGE>

QUARTERLY FINANCIAL DATA (Unaudited)

Dollars in Thousands,
except per share data
<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 (loss) 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      $ 0.39       $ 0.48      $ 0.52       $ 0.44
Diluted net income per share    $ 0.39       $ 0.49      $ 0.51       $ 0.44
</TABLE>

<TABLE>

                                             Three Months Ended

      1998                      Dec. 31     Sept. 30     June 30     March 31
<S>                            <C>          <C>         <C>          <C>

Interest  income                $6,234       $6,393      $6,355       $6,385
Net interest income              3,504        3,643       3,650        3,699
Provision for possible
 loan losses                       112          113         113          112
Net gain (loss) on sale
of securities and mortgages        350          135         495          140
Income before income taxes         630        1,175       1,219        1,039
Net income                      $  498       $  871      $  895       $  768
Basic net income per share      $ 0.27       $ 0.48      $ 0.50       $ 0.43
Diluted net income per share    $ 0.27       $ 0.48      $ 0.49       $ 0.43
</TABLE>

<PAGE>

Item 7.A      Quantitative and Qualitative Disclosure About Market Risks

                                  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 (55.6% of total loans) and  commercial  loans
supported  by real  estate  (13.2%  of total  loans) in its loan  portfolio.  In
addition,  56.2% of the Bank's consumer,  installment loans are for recreational
vehicles.  These loans  represent 12.7% of total loans (see Note P 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, 1999,
assets of  $157,197,000  (40% 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 $143,809,000 (40% of total assets) at the end of 1998
and $151,613,000 (44% of total assets) at the end of 1997.  Liabilities  subject
to rate change within one year were $163,662,000,  $175,047,000 and $166,220,000
in 1999,  1998 and 1997,  respectively.  A negative  one-year  gap  position  of
$6,465,000  existed as of December 31, 1999.  The gap  positions at December 31,
1998 and 1997 were negative $31,238,000 and negative $14,607,000,  respectively.
The  ratio  of  rate-sensitive  assets  to  rate-sensitive  liabilities  for the
one-year  time frame was .96 at the end of 1999,  compared  to .82 at the end of
1998 and .91 at the end of 1997.  The  "Interest  Sensitivity  Analysis"  in the
following table presents a sensitivity gap analysis of the Company's  assets and
liabilities at December 31, 1999 for five time-intervals. The Company's negative
gap  position  for the one year time  frame  decreased  in 1999 as a result of a
decrease in interest-bearing demand deposits 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 $ 5,589  $   ---  $    ---   $    ---   $    ---    $ 5,589
Federal Funds Sold    2,000      ---       ---        ---        ---      2,000
Inv Securities       17,925   11,245    26,255     72,126     24,692    152,243
Loans Held-for-Sale     ---      ---       ---        ---        ---        ---
Loans                48,573    9,122    22,216     61,981     57,929    199,821
Other Assets         14,272      ---       ---        ---     17,964     32,236
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $88,359  $20,367  $ 48,471   $134,107   $100,585   $391,889
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing

  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 41,813   $ 41,813
Int-Bearing
 Deposits            99,506   18,747    30,679     72,286     61,449    282,667
Securities Sold
 Under Agreements

 to Repurchase        1,730      ---       ---        ---        ---      1,730
Long-Term Debt        5,000      ---     8,000     17,000        ---     30,000
Other                   ---      ---       ---        ---      7,436      7,436
Capital                 ---      ---       ---        ---     28,243     28,243
                    ------- --------  --------    -------   --------   --------
  TOTAL LIABILITIES
  AND CAPITAL      $106,236  $18,747 $  38,679    $89,286   $138,941   $391,889
                    ------- --------  --------    -------   --------   --------
Net Interest

  Sensitivity Gap  $(17,877)$  1,620 $   9,792    $44,821   $(38,356)  $    ---

Cumulative Int

  Sensitivity Gap  $(17,877)$(16,257)$ (6,465)    $38,356   $    ---   $    ---

Cumulative Gap

  RSA/RSL             83.2%    87.0%    96.1%      115.2%     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 as 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 value at December 31, 1999 are as follows:

<PAGE>

-------------------------------------------------------------------------------
Dollars in Thousands at December 31, 1999
-------------------------------------------------------------------------------
<TABLE>
                                    Market Value of               Percent of
     Changes in Rate               Portfolio Equity                 Change
---------------------------      ----------------------      ------------------
<S> <C>                                <C>                        <C>

    + 400 basis points                  10,122                     (58.6)%
    + 300 basis points                  13,469                     (44.9)
    + 200 basis points                  16,962                     (30.6)
    + 100 basis points                  20,611                     (15.6)
        Flat Rate                       24,425                       ---
    - 100 basis points                  28,466                      16.5
    - 200 basis points                  32,503                      33.1
    - 300 basis points                  36,202                      48.2
    - 400 basis points                  39,538                      61.9

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

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, 1999 and 1998, and the
related consolidated statement of earnings,  changes in stockholders' equity and
comprehensive  income,  and cash flows for each of the three years in the period
ended December 31, 1999. 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 audit.

         We conducted our audits in accordance with generally  accepted auditing
standards. Those standards required 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, 1999 and 1998, and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  1999,  in  conformity
with generally accepted accounting principles.

/S/  GRANT THORNTON LLP




Philadelphia, Pennsylvania
January 14, 2000
<PAGE>


FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
-------------------------------------------------------------------------------
(Dollars in Thousands) At December 31,                   1999           1998
-------------------------------------------------------------------------------
<S>                                                  <C>            <C>
ASSETS
    Cash and Due From Banks                           $ 14,272       $ 12,259
    Federal Funds Sold                                   2,000          2,000
                                                      --------       --------
       Total Cash and Cash Equivalents                  16,272         14,259
    Interest-Bearing Deposits With Banks                 5,589          3,301
    Investments Securities
      (Fair Value:  1999 - $19,123; 1998 - $17,920)     19,887         17,723
    Securities Available-for-Sale at Fair Value        132,356         98,389
    Mortgage Loans Held-for-Sale                             -            603
    Total Loans, Net of Unearned Discount              202,258        212,437
    Less:  Allowance for Possible Loan Losses           (2,437)        (2,691)
                                                      --------       --------
    Net Loans                                          199,821        209,746
    Premises and Equipment, Net                          7,116          6,885
    Accrued Interest Income                              3,045          2,542
    Other Real Estate Owned                                571            636
    Other Assets                                         7,232          4,412
                                                      --------       --------
      TOTAL ASSETS                                   $ 391,889      $ 358,496
                                                     =========      =========
LIABILITIES
    Deposits
      Non-Interest-Bearing Deposits                   $ 41,813       $ 38,885
      Interest-Bearing Deposits
        (Includes Certificates of Deposit in Excess
          of $100:  1999 - $5,105; 1998 - $4,726)      282,667        255,664
                                                      --------       --------
    Total Deposits                                     324,480        294,549
    Securities Sold Under Agreements to Repurchase       1,730          5,094
    Long-Term Debt                                      30,000         20,000
    Accrued Interest Payable                             4,208          3,536
    Other Liabilities                                    3,228          3,600
                                                      --------       --------
      TOTAL LIABILITIES                                363,646        326,779
                                                      --------       --------
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: 1,848,437 shares in 1999 and
            1,745,725 shares in 1998                     9,242          8,729
Additional Paid-In Capital                              15,674         13,873
Retained Earnings                                        8,968          9,023
Employee Stock Ownership Plan Debt                      (1,320)          (435)
Accumulated Other Comprehensive Income (Loss)           (4,321)           527
                                                      --------        -------
    TOTAL SHAREHOLDERS' EQUITY                          28,243         31,717
                                                      --------        -------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 391,889      $ 358,496
                                                     =========      =========
</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,                1999       1998       1997
-------------------------------------------------------------------------------
<S>                                           <C>       <C>         <C>
INTEREST INCOME
     Interest and Fees on Loans                $17,772   $ 18,885    $19,943
     Interest on Investment Securities
       Taxable                                   6,829      5,002      4,592
       Tax-Exempt                                1,509      1,269        837
     Interest on Deposits with Banks and
       Federal Funds Sold                          243        211         72
                                               -------    -------    -------
         Total Interest Income                  26,353     25,367     25,444
                                               -------    -------    -------
INTEREST EXPENSE
     Interest on Deposits                        9,819      9,466      9,312
     Interest on Short-Term Borrowings             283        265        372
     Interest on Long-Term  Debt                 1,347      1,140      1,147
                                               -------    -------    -------
         Total Interest Expense                 11,449     10,871     10,831
                                               -------    -------    -------
NET INTEREST INCOME                             14,904     14,496     14,613
     Provision for Possible Loan Losses            375        450        605
                                               -------    -------    -------
     Net Interest Income After Provision
       for Possible Loan Losses                 14,529     14,046     14,008
                                               -------    -------    -------
OTHER INCOME
     Trust Revenue                               1,246      1,225      1,050
     Service Charges on Deposit Accounts         1,682      1,594      1,349
     Investment Securities Gains, Net              563        722        601
     Gains on Sale of Mortgage Loans               157        398        178
     Other Operating Income                        707        641        645
                                               -------    -------    -------
         Total Other Income                      4,355      4,580      3,823
                                               -------    -------    -------
OTHER EXPENSES
     Salaries and Employee Benefits              6,780      6,385      6,033
     Net Occupancy and Equipment Expense         2,171      2,118      2,178
     Other Operating Expenses                    5,722      6,060      5,041
                                               -------    -------    -------
         Total Other Expenses                   14,673     14,563     13,252
                                               -------    -------    -------
Income Before Income Taxes                       4,211      4,063      4,579
Applicable Income Taxes                            929      1,031      1,296
                                               -------    -------    -------
NET INCOME                                     $ 3,282    $ 3,032    $ 3,283
                                               =======    =======    =======
PER SHARE DATA
     Basic Net Income                           $ 1.84     $ 1.68     $ 1.83
     Diluted Net Income                         $ 1.83     $ 1.67     $ 1.83
     Cash Dividends                             $ 0.74     $ 0.70     $ 0.64
</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, 1997    $7,803   $ 9,212   $9,975 $(20) $ (512)    $   347    $26,805
   1997
Comprehensive
 Income
  Net Income                        3,283                               3,283
  Change in
   Unrealized
   Sec Gains,
   Net                                                         953        953
                                                                       ------
Total
 Comprehen-
 sive Income                                                            4,236
Sale of
 Common
 Stock
 under
 Dividend
 Reinv
 Plan
 (10,036
 shares)            50       204                                          254
Sale of
 Common Stock
 under Stock
 Option Plan
 (6,610 shs)        33        74                                          107
Purchase of
 Treasury Stock
 (3,279 shs)                                (107)                        (107)
Sale of
 Treasury Stock
 under Div
 Reinv Plan
 (1,361)                                      33                           33
Cash Div Paid                      (1,139)                             (1,139)
Stock Div
 Paid of 5%
 (78,132 shs)      391     1,474   (1,865)                                ---
Cash in Lieu
 of Fractional
 Shares                                (4)                                 (4)
ESOP Loan
 Pymt                                              122                    122
Unall ESOP
 Shares
 Committed
 to
 Employees
 (4,415 shs)                  50                                           50
               -------   -------  ------- ----- ------      ------    -------
Balance at
 Dec 31, 1997    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
 Dividend
 Reinv Plan
(2,779
 shares)                                     94                            94
Cash
 Dividends
 Paid                             (1,275)                              (1,275)
Stock
 Dividend
 of 5%
 (82,701
 shares)           414     2,564  (2,978)                                 ---
Cash 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
 shares)                     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
  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
 Stk 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 in
 Lieu of
 Fractional
 Shares                                (4)                                 (4)
ESOP Loan
 Payment                                           115                    115
 Loan to ESOP                                   (1,000)                (1,000)
Unallocated
 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
</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,                    1999       1998       1997
-------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C>
OPERATING ACTIVITIES
  Net Income                                     $ 3,282    $ 3,032   $ 3,283
  Adjustments to Reconcile Net Income to
  Net Cash Provided by Operating Activities
      Provision for Possible Loan Losses             375        450       605
      Depreciation and Amortization                1,027      1,004       884
      Accretion of Security Discounts               (267)       (78)      (70)
      Amortization of Security Premiums              251        242       124
      Deferred Taxes                                  90       (395)     (277)
      Amortization of Deferred Fees on Loans          12       (136)     (170)
      (Gain) Loss on Sale of
       Other Real Estate Owned                       (39)         4       (54)
      Investment Securities Gains, Net              (563)      (722)     (601)
      Gain on Sale of Mortgage Loans                (157)      (397)     (178)
      Mortgage Loans Originated for Sale         (37,460)   (42,723)  (27,183)
      Mortgage Loan Sales                         38,068     42,879    27,145
      Changes in Assets and Liabilities
           Increase in Accrued Interest Income      (503)      (310)     (212)
           Increase in Accrued Interest Payable      672         70       261
           Increase in Other Assets                 (970)      (740)     (545)
           Increase in Other Liabilities              71        396       625
                                                --------   --------   -------
Net Cash Provided by Operating Activities          3,889      2,576     3,637
                                                --------   --------   -------
INVESTING ACTIVITIES
  Proceeds from Maturities of
    Securities Available-for-Sale                 15,331     29,744    13,986
  Proceeds from Maturities of Securities
    Held-to-Maturity                               3,622      9,403     8,047
  Proceeds from Sales of Securities
    Available-for-Sale                            16,858     11,094    13,279
  Proceeds from Sales of Securities
    Held-to Maturity                                  --        248        --
  Purchase of Securities Available-for-Sale      (72,150)   (66,712)  (40,485)
  Purchase of Securities Held-to-Maturity         (6,559)    (9,722)   (5,838)
  Net Increase in Interest-Bearing
    Deposits With Banks                           (2,288)    (2,906)     (110)
  Net (Increase) Decrease in Loans                 9,412     16,614   (10,130)
  Purchase of Premises and Equipment              (1,143)      (494)   (1,126)
  Proceeds from Sale of Other Real Estate Owned      382        290       900
                                                --------   --------   -------
Net Cash Used in Investing Activities            (36,535)   (12,441)  (21,477)
                                                --------    -------   -------
FINANCING ACTIVITIES
  Net Increase in Interest and Non-Interest Bearing
      Demand Deposits and Savings Accounts         2,058     10,669     3,804
  Net Increase in Certificates of Deposit         27,873      1,625    10,783
  Net Increase in Long-Term Debt                  10,000      1,610        --
  Net Increase in ESOP Debt                         (885)       (45)       --
  Net Increase (Decrease) in
    Repurchase Agreements                         (3,364)    (3,710)    5,009
  Proceeds from Issuance of Common Stock             302        333       361
  Purchase of Treasury Stock                          --         --      (107)
  Proceeds from Sale of Treasury Stock                --         94        33
  Cash Dividends Paid                             (1,321)    (1,275)   (1,139)
  Cash in Lieu of Fractional Shares                   (4)        (6)       (4)
                                                --------    -------   -------
Net Cash Provided by Financing Activities         34,659      9,295    18,740
                                                --------    -------   -------
Increase (Decrease) in Cash and Cash Equivalents   2,013       (570)      900
Cash and Cash Equivalents, January 1,             14,259     14,829    13,929
                                                --------    --------  -------
Cash and Cash Equivalents, December 31,         $ 16,272   $ 14,259  $ 14,829
</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 thirteen  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.  Principles  of  Consolidation

     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.

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

<PAGE>

and losses, net of tax effect, reported in equity.  Held-to-maturity  securities
are carried at  amortized  cost,  and 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".

     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.

     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.

3.  Mortgage Loans Held-for-Sale

     Mortgage loans  held-for-sale are carried at the lower of aggregate cost or
fair value. Unrealized losses are included in other operating expenses. Realized
gains and losses from  mortgage  loan sales are included in total other  income.
Interest  and fee income  earned  during the  holding  period  are  included  in
interest and fees on loans.

4.  Loans and Allowance for Possible Loan Losses

     Loans 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.

     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.  Loan Fees and Related Costs

     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.

 6. 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.

 7.  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>

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)
                                    -------------------------------------------

1997

-----------------------------------
Unrealized Gains on Securities
  Unrealized Holding Gains

    Arising During Period            $  2,045     $    695        $  1,350
  Less:  Reclassification
    Adjustment for Gains

    Realized in Net Income                601          204             397
                                    -------------------------------------------

Other Comprehensive Income, Net      $  1,444     $    491        $    953
                                    -------------------------------------------
</TABLE>

<PAGE>

 8.  Accounting for Derivative Instruments and
      Hedging Activities

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities"  which was effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 must be adopted  prospectively
and  retroactive  application  is not  permitted.  SFAS No. 133 will require the
Company to record all derivatives on the balance sheet at fair value. Changes in
derivative  fair values will either be  recognized in earnings as offsets to the
changes in the value of related hedged assets,  liabilities and firm commitments
or  for  forecasted  transactions,  deferred  and  recorded  as a  component  of
accumulated other comprehensive  income (loss) in stockholders' equity until the
hedged  transactions  occur and are  recognized  in  earnings.  The  ineffective
portion  of a hedging  derivative's  change in fair  value  will be  immediately
recognized in earnings.  In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative  Instruments  and Hedging  Activities - Deferral of the Effective
Date of FASB Statement No. 133".  SFAS No. 133 is now effective for fiscal years
beginning  after June 15,  2000.  The  Company  expects to adopt SFAS No. 133 on
January 1, 2001 and does not believe  the effect of  adopting  SFAS No. 133 will
have any material effect on its  consolidated  financial  position or results of
operations.

 9.  Income Taxes

     The  Company,  in  accordance  with SFAS No.  109,  "Accounting  for Income
Taxes", computes the tax expense using the liability method 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.  The principal types of differences  between assets and liabilities
for financial  statement and tax return purposes are  accumulated  depreciation,
loan origination fees, provision for possible loan losses,  unrealized gains and
deferred expenses.

10.  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  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 SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 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

<PAGE>

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 (see Note M).

11.  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 (see Note J).

     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 (see Note K).

     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 (see Note K).

     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 (see Note L).

12.  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

<PAGE>

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.

13.  Per Share Information

     The Company  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
calculations  have been restated to reflect the adoption of SFAS No. 128.  Basic
and diluted earnings per share are calculated as follows. There is no difference
between  basic and diluted  earnings  per share for the year ended  December 31,
1997.

<PAGE>

<TABLE>
-------------------------------------------------------------------------------
                                            Income     Average Shares  Per Share

For the Year Ended December 31,           (numerator)  (denominator)    Amount
                                          -------------------------------------
<S>                                       <C>           <C>           <C>

1999

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

Basic Earnings Per Share

  Income Available to Common Shareholders  $ 3,282       1,786,019     $ 1.84

Effect of Dilutive Securities

 Stock Options                                               3,292
                                          -------------------------------------

Diluted Earnings Per Share
  Income Available to Common Shareholders

  plus Assumed Exercise of Options         $ 3,282       1,789,311     $ 1.83
                                          -------------------------------------

1998

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

Basic Earnings Per Share

  Income Available to Common Shareholders $ 3,032        1,805,051     $ 1.68

Effect of Dilutive Securities

 Stock Options                                               7,847
                                          -------------------------------------

Diluted Earnings Per Share
   Income Available to Common Shareholders

   plus Assumed Exercise of Options       $ 3,032        1,812,898     $ 1.67
                                          -------------------------------------

1997

------------------------------------------
Net Income                                $ 3,283

Basic Earnings Per Share

  Income Available to Common Shareholders $ 3,283        1,786,741     $ 1.83

Effect of Dilutive Securities

  Stock Options                                              5,323
                                          -------------------------------------

Diluted Earnings Per Share
   Income Available to Common Shareholders

   plus Assumed Exercise of Options       $ 3,283        1,792,064     $ 1.83
                                          -------------------------------------
</TABLE>

Average common shares  outstanding in 1999, 1998 and 1997 do not include 56,598,
26,102 and 29,346, 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  (see  Note  A.11).  Share  and per  share
information  have been restated to reflect the 5% stock dividends of June, 1999,
June, 1998 and May, 1997.

<PAGE>

14.  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 $10,777,000,  $10,801,000 and  $10,570,000,  for
the years ended December 31, 1999,  1998 and 1997,  respectively.  Cash paid for
taxes was $1,060,000 in 1999, $1,458,000 in 1998 and $1,465,000 in 1997.

15.  Advertising Costs

     The Company expenses advertising costs as incurred.

16.  Transfer and Servicing of Assets and
      Extinguishments of Liabilities

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and  Extinguishments  of  Liabilities",  as amended by SFAS No.
127,  which  provides  accounting  guidance on transfers  of  financial  assets,
servicing  of  financial  assets,  and  extinguishments  of  liabilities.   This
statement is effective for transfers of financial assets, servicing of financial
assets, and  extinguishments  of liabilities  occurring after December 31, 1996.
There is no material impact on the Company's  consolidated financial position or
results of operations as a result of the adoption of this statement.

17.  Disclosures About Segments of an Enterprise
       and Related Information

     In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information".  SFAS No. 131 established standards for the
method that public business  enterprises report selected  information  regarding
operating  segments in financial reports issued to shareholders.  The disclosure
information  required consists of a measure of segment profit and loss,  certain
revenue and expense items and segment assets based upon  specified  quantitative
thresholds,  as it is reported  internally to the chief operating decision maker
on both an interim and annual basis. The statement is effective for fiscal years
beginning   after  December  15,  1997.   Management  has  determined  that  the
Corporation consists of one segment: community banking.

18. Stock  Dividends

     On June 24, 1999, the Company paid a 5% stock dividend to  shareholders  of
record on June 4, 1999. Fractional shares were paid in cash based on the closing
price of $23.312 per share on the record date.  Stock  dividends of 5% each were
also paid in 1997 and 1998. Net income per share and average shares  outstanding
have been restated to reflect these stock dividends.

<PAGE>

19.  Reclassifications

     Certain  reclassifications of prior years amounts have been made to conform
to the 1999 presentation.

NOTE B - INVESTMENT SECURITIES

     The Company  classifies  debt and  marketable  equity  securities  in three
categories:  trading,  available-for-sale  and  held-to-maturity  as required by
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  1999,  1998  and  1997.
Available-for-sale  securities are measured at fair value, with unrealized gains
and losses  reported,  net of tax,  as a component  in equity.  Held-to-maturity
securities are carried at amortized cost.

     Available-for-sale  securities had unrealized  holding losses of $4,322,000
(net of the tax credit of $2,226,000)  in 1999 and  unrealized  holding gains of
$527,000 (net of the tax effect of $272,000) in 1998. At December 31, the equity
securities in the available-for-sale category include Federal Reserve Bank stock
in the amount of $259,000 in 1999 and  $256,000 in 1998,  and Federal  Home Loan
Bank stock in the amount of $2,265,000 in 1999 and  $1,835,000 in 1998 which are
carried at cost.

     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,
1999 and 1998 are summarized as follows.

<PAGE>

<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   $ 2,124       $ 6,672    $132,356
</TABLE>

<TABLE>

                                                     1998

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

U. S. Treasury                     $ 7,026   $    99       $    --     $ 7,125
U. S. Government Agency             24,482        94           135      24,441
State and Political Subdivisions    27,860       721           115      28,466
Mortgage-Backed Securities          33,322        85           266      33,141
Equity Securities                    4,900       519           203       5,216
                                   -------   -------       -------     -------
     Total                         $97,590   $ 1,518       $   719     $98,389
</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>

<TABLE>

                                                     1998

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

U. S. Government Agency            $ 4,992   $    35       $     1     $ 5,026
State and Political Subdivisions     6,770       179             6       6,943
Mortgage-Backed Securities           5,961        39            49       5,951
                                   -------   -------       -------     -------
     Total                         $17,723   $   253       $    56     $17,920
</TABLE>

<PAGE>

     The following table lists the maturities of debt securities at December 31,
1999 and 1998, 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, 1999              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         $  2,001    $  2,004       $   245    $   245
Due after one year
   through five years              8,509       8,370         1,912      1,902
Due after five years
   through ten years              36,703      34,809         6,324      6,104
Due after ten years               39,047      36,435         6,387      5,920
                                 -------     -------       -------     -------
                                  86,260      81,618        14,868     14,171

Mortgage-Backed Securities        47,332      46,030         5,019      4,952
Equity Securities                  5,312       4,708           --          --
                                 -------     -------       -------     -------
Total Investments               $138,904    $132,356       $19,887    $19,123

</TABLE>

<TABLE>
At December 31, 1998              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          $ 4,019     $ 4,043       $   250    $   251
Due after one year
   through five years              4,973       5,092           760        777
Due after five years
   through ten years              19,865      20,094         7,131      7,207
Due after ten years               30,511      30,803         3,621      3,734
                                 -------     -------       -------    -------
                                  59,368      60,032        11,762     11,969

Mortgage-Backed Securities        33,322      33,141         5,961      5,951
Equity Securities                  4,900       5,216           --         --
                                 -------     -------       -------    -------
Total Investments                $97,590     $98,389       $17,723    $17,920
                                 =======     =======       =======    ======
</TABLE>

     Investment securities with a carrying amount of $13,950,000 and $12,262,000
at  December  31, 1999 and 1998,  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  1999,  1998  and  1997  were  $16,858,000,  $11,342,000  and
$13,279,000,  respectively. Gross gains of $716,000 and gross losses of $153,000
were  realized on those sales in 1999.  Gross gains of $740,000 and gross losses
of $18,000 were realized on the sales in 1998.  In 1997,  gross  realized  gains
were $615,000 and gross realized losses were $14,000.

<PAGE>

NOTE C - LOANS

     Major  classifications  of  loans  at  December  31,  1999  and 1998 are as
follows.

<TABLE>

                                             1999                    1998
-------------------------------------------------------------------------------
<S>                                       <C>                    <C>

Real Estate/Residential                    $112,870               $ 119,914
Real Estate/Construction                      6,737                  11,689
Real Estate/Commercial                       26,809                  29,587
Consumer/Installment                         45,886                  40,184
Commercial (Non-Real Estate)
   and Agricultural                           9,538                  10,900
State and Political Subdivisions              1,096                   1,178
Other                                            13                      10
                                           --------               ---------

    Total Gross Loans                       202,949                 213,462
       Less:  Unearned Discount                (691)                 (1,025)
                                           --------               ---------

Total Loans                                $202,258               $ 212,437
</TABLE>

     Included in total gross loans are unamortized loan fees totaling $1,230,416
at  December  31,  1999 and  $293,000 at  December  31,  1998.  There were loans
totaling  $1,311,000 on which the accrual of interest has been  discontinued  or
reduced at December 31, 1999. During 1999, an average of $1,091,000 of loans was
on  non-accrual  status.  Non-accrual  loans at December  31,  1998  amounted to
$1,245,000 and averaged  $1,560,000 during 1998. Loans 90 days and over past due
and still  accruing  totaled  $1,491,000 at December 31, 1999 and  $1,021,000 at
December 31, 1998.

<PAGE>

NOTE D - ALLOWANCE FOR POSSIBLE LOAN LOSSES

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

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                    1999           1998          1997
-------------------------------------------------------------------------------
<S>                                     <C>            <C>           <C>

Beginning Balance                        $ 2,691        $ 2,664       $ 2,532

Additions
  Provisions for loan losses
    charged to operating expenses            375            450           605
  Recoveries                                 103            117            97
                                         -------        -------       -------
    Total Additions                          478            567           702
Deductions
  Loans charged-off                         (732)          (540)         (570)
                                         -------       --------      --------

Ending Balance                           $ 2,437        $ 2,691       $ 2,664
</TABLE>

     The recorded  investment  in impaired  loans as defined by SFAS No. 114 was
$370,000,   $524,000  and  $523,000  at  December  31,  1999,   1998  and  1997,
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 $74,000,  $303,000  and  $138,000 at December 31, 1999,  1998 and
1997, respectively. The average recorded investment in impaired loans during the
year ended December 31, 1999, 1998 and 1997 was approximately $469,000, $897,000
and $612,000,  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  $35,000,  $23,000  and
$111,000 on impaired loans in 1999, 1998 and 1997, respectively.

NOTE E - PREMISES AND EQUIPMENT

Major  classifications  of  these  assets  at  December  31,  1999  and 1998 are
summarized as follows.

<TABLE>
-------------------------------------------------------------------------------
                                    Estimated

                                Useful Lives           1999            1998
-------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>

Land                                ---             $   939         $   939
Premises                         10-20 years          7,370           6,963
Equipment                         3-10 years          6,408           5,768
                                                     ------           -----
                                                     14,717          13,670
Accumulated depreciation

  and amortization                                   (7,601)         (6,785)
                                                     ------         -------

Total Premises and Equipment                        $ 7,116         $ 6,885
</TABLE>

     Depreciation  and amortization  expense amounted to $912,000,  $908,000 and
$857,000 in 1999, 1998 and 1997, respectively.

<PAGE>

NOTE F - SHORT-TERM BORROWINGS
<TABLE>
-------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK BORROWINGS
Year Ended December 31,                        1999        1998        1997
-------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Balance outstanding at December 31,         $    --     $    --     $    --
Maximum amount outstanding at
  any month-end during the year             $12,425     $ 1,422     $ 6,890
Average amount outstanding                  $ 1,721     $   974     $ 1,217
Average interest rate during the year         5.19%       5.65%       5.85%
</TABLE>

     The Federal Home Loan Bank of  Pittsburgh  provides the Bank with a line of
credit in the amount of $25,000,000,  all of which was available at December 31,
1999.

     There were no short-term borrowings in the form of Federal Reserve Discount
borrowings and Federal Funds purchased at December 31, 1999, 1998 and 1997.

<TABLE>
--------------------------------------------------------------------------------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Year Ended December 31,                        1999        1998          1997
--------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Balance outstanding at December 31,         $ 1,730     $ 5,094     $ 8,804
Maximum amount outstanding at
  any month-end during the year             $ 8,682     $ 8,166     $14,290
Average amount outstanding                  $ 5,994     $ 5,821     $ 6,459
Average interest rate during the year         3.24%       3.61%       3.72%
</TABLE>

<PAGE>

NOTE G - LONG-TERM DEBT

     The Company had  long-term  borrowings  from the Federal  Home Loan Bank of
Pittsburgh totaling $30,000,000 at December 31, 1999 and $20,000,000 at December
31, 1998.  These loans will mature in eight months to eight years.  The weighted
average  interest  rate on these loans was 5.78% and 5.41% at December  31, 1999
and 1998,  respectively.  The Company also has an  obligation  as a party to the
Employee Stock Ownership Plan debt,  which is discussed in Note J. The principal
payments due on the Company's debt at December 31, 1999 are as follows.

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

2000                         $  115          $  8,000          $  8,115
2001                            115             5,000             5,115
2002                            115                 -               115
2003                            115                 -               115
2004                            115            10,000            10,115
2005 and beyond                 745             7,000             7,745
                              -----          --------          --------

Total                        $1,320          $ 30,000          $ 31,320
--------------------------------------------------------------------------------
</TABLE>

NOTE H- OTHER OPERATING EXPENSES

     The  following  items which are greater than 1% of the  aggregate of "Total
Interest  Income"  and "Total  Other  Income" are  included in "Other  Operating
Expenses" for the respective years indicated.

<TABLE>
-------------------------------------------------------------------------------
                                             1999        1998         1997
-------------------------------------------------------------------------------
<S>                                        <C>         <C>          <C>
Advertising                                 $ 574       $ 597        $ 524
Consulting Fees                             $ 511       $ 416        $ 430
Data Processing Services                    $ 773       $ 583        $ 607
Litigation Costs and Legal Fees             $ 669       $ 418        $ 237
Loan Collection                             $ 298       $ 346        $ 240
Printing, Stationery and Supplies           $ 318       $ 328        $ 363
Provisions for Trust Reserve                $  57     $ 1,000        $ 500
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

NOTE I- INCOME TAXES

     The Company uses the liability method of accounting for income taxes.

     Applicable income tax expense  (benefit) in the consolidated  statements of
income is as follows.

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                1999        1998        1997
-------------------------------------------------------------------------------
<S>                                  <C>       <C>          <C>
Federal

    Current                           $ 840     $ 1,426      $ 1,573
    Deferred (benefit)                   89        (395)        (277)
                                      -----     -------      -------
    Total                             $ 929     $ 1,031      $ 1,296
-------------------------------------------------------------------------------
</TABLE>

     The income tax provision  reconciled to the tax computed  statutory Federal
rate is as follows.

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                  1999           1998            1997
-------------------------------------------------------------------------------
<S>                                  <C>            <C>             <C>
Federal tax expense
  at statutory rate                   $ 1,432        $ 1,385         $ 1,557
Increase (decrease)
  in taxes resulting from:
    Tax-exempt investment
      securities income                  (569)          (363)           (261)
    Tax-exempt interest
      on loans                            (29)           (23)            (16)
Other, net                                 95             32              16
                                      -------        -------         -------
Applicable Income Taxes               $   929        $ 1,031         $ 1,296
</TABLE>

     Deferred tax assets and liabilities consist of the following.

<TABLE>
------------------------------------------------------------------------
At December 31,                                     1999           1998
------------------------------------------------------------------------
<S>                                             <C>         <C>
Deferred Tax Assets:
   Unrealized Securities Losses                  $ 2,226        $    --
   Loan Loss Reserve                                 523            648
   Deferred Compensation                             429            432
   Post-Retirement Benefits                           71             64
   Deferred Loan Fees                                 34             50
   Depreciation                                       64             47
   Miscellaneous Reserves                            531            537
   Other                                              86             49
                                                 -------        -------
                                                 -------        -------
     Total                                       $ 3,964        $ 1,827
                                                 -------        -------

Deferred Tax Liability:
   Unrealized Securities Gains                   $    --        $   272
   Other                                              --             --
                                                 -------        -------
                                                 -------        -------
    Total                                        $    --        $   272
                                                 -------        -------

Net                                              $ 3,964        $ 1,555
------------------------------------------------------------------------
</TABLE>

     Based on  management's  evaluation  of the  likelihood of  realization,  no
valuation allowance has been provided.

<PAGE>

     NOTE J - EMPLOYEE STOCK  OWNERSHIP  PLAN The Company  maintains an Employee
Stock Ownership Plan (ESOP) for the benefit of eligible employees.

     In 1999, the ESOP borrowed $1,000,000 from the Company's subsidiary,  First
C. G.,  payable  over twenty  years.  The interest on this loan is at the Bank's
prime rate (an interest rate of 8.50% at December 31, 1999). The balance on this
loan was $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.,  payable  over six years.  The  interest  rate on this loan is at the Bank's
prime rate (an interest rate of 8.50% at December 31, 1999 and 7.75% at December
31,  1998).  The balance  outstanding  on this loan was $370,000 at December 31,
1999 and $435,000 at December 31, 1998. The proceeds from this loan were used to
purchase  shares from retiring  employees and to pay off the balance on the 1993
loan of $358,000.

     In 1993, the ESOP borrowed $650,000 from a bank payable over ten years. The
interest  rate on this loan was that bank's  prime rate plus 1.25% (an  interest
rate of 9.75% at December 31, 1997).  The balance  outstanding  on this loan was
$390,000 at December 31, 1997.  During 1997,  the ESOP made the final  principal
payments on two additional loans.

     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
$85,000,  $40,000 and $41,000 for the years ended  December 31,  1999,  1998 and
1997, respectively.

     Compensation expense related to the ESOP amounted to $210,000, $310,000 and
$275,000 for the years ended December 31, 1999, 1998 and 1997, respectively.  As
provided by SOP 93-6 (see Note A.10), the ESOP  compensation  expense includes a
$20,000  credit in 1999 and an expense of  $100,000 in 1998 and $50,000 in 1997,
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
3,783 in 1999, 5,621 in 1998 and 4,867 in 1997.

     Dividends on unallocated shares used for debt service were $45,000, $19,000
and $23,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

<PAGE>

     The total  shares held by the ESOP were 277,778 and 236,135 at December 31,
1999 and 1998,  respectively.  ESOP shares have been  restated to reflect the 5%
stock dividends of June, 1999, June, 1998 and May, 1997.

     NOTE K - 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  $86,000,  $75,000  and  $84,000  in 1999,  1998  and  1997,
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 15 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  funded  status  of  the  Officers'
Supplemental  Retirement  Plan and the Deferred  Directors' Plan and the amounts
recognized in the Company's balance sheets at December 31, 1999 and 1998.

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

At December 31,                            1999     1998     1999     1998
<S>                                      <C>      <C>      <C>      <C>
Accumulated benefit obligation, all of
 which is vested                          $ 170    $ 146    $ 468    $ 491

Projected benefit obligation
  for service rendered to date            $(227)   $(200)   $(468)   $(491)
Plan assets at fair value                    --       --       --       --
                                          -----    -----    -----    -----
Projected benefit obligation
  in excess of plan assets                 (227)    (200)    (468)    (491)
Unrecognized net (gain) loss from past
  experience different from that
  assumed and effects of changes
  in assumptions                           (260)    (247)      37       38
Prior service cost not yet recognized
  in net periodic pension cost               --       --       --       --
Unrecognized net assets at December 31,
  being recognized over 15 years             (4)      (4)      --       --
Adjustment to recognize
  additional minimum liability               --       --      (37)     (38)
                                          -----    -----    -----    -----
Accrued Pension Cost                      $(491)   $(451)   $(468)   $(491)
</TABLE>

     The  weighted  average  assumed  discount  rates  used in  determining  the
actuarial present value of the projected  benefit  obligation were 6.75% in 1999
and  6.50% in 1998 and 7.0% in 1997 for the  Officers'  Supplemental  Retirement
Plan.  The  weighted  average  assumed  discount  rate used in  determining  the
actuarial  present value of the projected  benefit  obligation  for the Deferred
Directors'  Plan was 7.0% in 1999,  7.0% in 1998 and 7.5% in 1997.  The weighted
average expected  long-term rate of return on assets was 8.0% for 1999, 1998 and
1997 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 1999, 1998 and 1997.

<PAGE>

<TABLE>
--------------------------------------------------------------------------------
OFFICERS' SUPPLEMENTAL RETIREMENT PLAN

at December 31,                             1999        1998         1997
--------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Service cost - benefits
  earned during the period                  $ 43        $ 37         $ 10
Interest cost on projected
  benefit obligation                          18          15           11
Net amortization and
  deferral                                   (21)        (15)         (19)
                                            ----        ----          ---
Net Periodic Pension Cost                   $ 40        $ 37          $ 2
</TABLE>

DEFERRED DIRECTORS' PLAN
<TABLE>
at December 31,                             1999        1998         1997
--------------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>
Service cost - benefits
  earned during the period                   $ -         $ -         $ --
Interest cost on projected
  benefit obligation                          32          34           36
Net amortization and
  deferral                                    --          --           --
                                            ----        ----          ---
Net Periodic Pension Cost                   $ 32        $ 34         $ 36

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

<PAGE>

NOTE L - 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 Company has determined the actuarially computed expense associated with
this  benefit  for  1999,  1998 and 1997.  The  components  of the net  periodic
post-retirement benefit cost for the years ended December 31 were as follows.

<TABLE>
-------------------------------------------------------------------------------
Year Ended December 31,                    1999            1998           1997
-------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>
Service cost - benefits
  earned during the period                 $  -           $   -          $   -
Interest cost on accumulated
  benefit obligation                         11              11             14
Amortization of transition
  obligation                                  7               6              8
                                           -----           -----          -----
Net periodic post-
  retirement benefit cost                  $ 18            $ 17           $ 22
-------------------------------------------------------------------------------
</TABLE>

     The assumptions  used to develop the net periodic  post-retirement  benefit
cost and the accrued post-retirement benefit cost were as follows.

<TABLE>
-------------------------------------------------------------------------------
                                           1999            1998           1997
-------------------------------------------------------------------------------
<S>                                      <C>             <C>            <C>
Discount Rate                             6.75%           6.50%          7.00%
Medical care cost
  trend rate                              8.50%           8.50%         10.00%
-------------------------------------------------------------------------------
</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.

<PAGE>

<TABLE>
----------------------------------------------------------------
at December 31,                            1999            1998
----------------------------------------------------------------
<S>                                      <C>             <C>
Accumulated post-retirement benefit obligation:

    Retirees                              $ 173           $ 164
    Active, eligible employees                -               -
    Active, not-yet-eligible
      employees                               -               -
                                          ------          ------
Accumulated post-retirement
  benefit obligation                        173             164
Plan assets at fair value                     -               -
Accumulated benefit obligation
  in excess of plan assets                  173             164
Unrecognized transition
  obligation                               (201)           (216)
Unrecognized net gain                        94             117
                                          ------          ------
Accrued post-retirement
  benefit cost                            $  66           $  65
----------------------------------------------------------------
</TABLE>

     At December 31, 1999, $207,000 of the accrued  post-retirement benefit cost
is included in "Total Other  Liabilities".  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 $12,000 and the accrued post-retirement benefit
cost by $1,000.

     Health care benefits are provided to certain retired employees. The cost of
providing these benefits was approximately $16,000, $20,000 and $22,000 in 1999,
1998 and 1997,  respectively.  The cost is accrued  over the service  periods of
employees  expected to receive benefits.  Past-service costs are being amortized
principally over 30 years.

NOTE M - 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 1999, no options were awarded under this plan. In

<PAGE>

1998, options to purchase 32,524 shares of the Company's common stock at a price
of $33.56 per share were awarded.  The  aggregate  number of shares which may be
issued under these plans are 317,196 shares of common stock.

     In 1994, a Non-Employee  Directors Stock Option Plan was adopted. This 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 1,275 shares of the Company's common
stock at the fair  market  value of the  Company's  common  stock of $13.32  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 1,275 shares of the Company's  common stock at a
price of $21.81. 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  1,275  shares of the  Company's
common stock.  Such persons who continue to be non-officer  directors shall also
be granted  additional  options to purchase 1,275 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.  The  aggregate  number of shares which may be issued
under the  Non-Employee  Directors  Stock Option Plan is 25,524 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,                       1999        1998        1997
-------------------------------------------------------------------------------
<S>                        <C>             <C>         <C>         <C>
Net Income                  As reported     $ 3,282     $ 3,032     $ 3,283
                             Pro forma      $ 3,194     $ 3,015     $ 3,265

Basic earnings per share    As reported      $ 1.84      $ 1.68      $ 1.83
                             Pro forma       $ 1.79      $ 1.67      $ 1.82

Diluted earnings per share  As reported      $ 1.83      $ 1.67      $ 1.83
                             Pro forma       $ 1.78      $ 1.66      $ 1.82
</TABLE>

<PAGE>

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 1999, 1998 and 1997, respectively: dividend yield
of 2.8%, 2.8% and 2.1%; expected volatility of 39.0%, 39.0% and 39.0%; risk-free
interest rates of 6.3%, 5.7% and 6.7%; and expected lives of 10 years.

     A summary of the status of the Company's  Employee Stock Option Plans as of
December 31, 1999,  1998 and 1997,  and changes during the years ending on those
dates is  presented  below.  The  number of shares and price per share have been
restated to reflect the 5% stock  dividends of June,  1999,  June, 1998 and May,
1997.

<PAGE>

-------------------------------------------------------------------------------
EMPLOYEE STOCK OPTION PLAN
<TABLE>
Year Ended December 31,                        1999
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         59,908    $  26.97
Granted                                     ---         ---
Exercised                                   ---         ---
Expired                                   1,102       33.56
                                         ------    --------
Outstanding at end of year               58,806    $  26.85

Options exercisable at year-end          32,898
Weighted average fair value of
   options granted during the year                      N/A
</TABLE>

<TABLE>

Year Ended December 31,                        1998
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         27,935    $  19.43
Granted                                  32,524       33.56
Exercised                                   ---         ---
Expired                                     551       33.56
                                         ------    --------
Outstanding at end of year               59,908    $  26.97

Options exercisable at year-end          12,223
Weighted average fair value of
   options granted during the year                 $  33.56
</TABLE>

<TABLE>

Year Ended December 31,                        1997
                                                   Weighted
                                                    Average
                                                   Excercise
                                         Shares      Price
<S>                                     <C>       <C>
Outstanding at beginning of year         13,317    $  14.30
Granted                                  20,948       21.31
Exercised                                 6,330       14.93
Expired                                     ---         ---
                                         ------    --------
Outstanding at end of year               27,935    $  19.43

Options exercisable at year-end           5,240
Weighted average fair value of
   options granted during the year                 $  21.31
</TABLE>

     The following  information  applies to options  outstanding at December 31,
1999.

<TABLE>
-------------------------------------------------------------------------------
EMPLOYEE STOCK OPTION PLAN
-------------------------------------------------------------------------------
<S>                                                   <C>
     Number outstanding                                     58,806
     Range of exercise prices                          $13.78 to $33.56
     Weighted-average exercise price                       $26.85
     Weighted-average remaining contractual life         7.46 years
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

A summary of the status of the  Company's  Non-Employee  Directors  Stock Option
Plan as of December  31, 1999 and 1998,  and changes  during the years ending on
those dates are presented  below.  The number of shares and price per share have
been restated to reflect the 5% stock  dividends of June,  1999,  June, 1998 and
May, 1997.

NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
<TABLE>

Year Ended December 31,                       1999
                                                  Weighted
                                                   Average
                                                  Excercise
                                        Shares      Price
<S>                                     <C>      <C>
Outstanding at beginning of year        10,206    $  13.56
Granted                                  7,654       21.81
Exercised                                1,276       13.32
Expired                                    ---        ---
                                         -----    --------
Outstanding at end of year              16,584    $  17.39

Options exercisable at year-end          8,611
Weighted average fair value of
   options granted during the year                $  21.81
</TABLE>

<TABLE>

Year Ended December 31,                       1998
                                                  Weighted
                                                   Average
                                                  Excercise
                                        Shares      Price
<S>                                     <C>      <C>
Outstanding at beginning of year        10,206    $  13.56
Granted                                    ---        ---
Exercised                                  ---        ---
Expired                                    ---        ---
                                         -----    --------
Outstanding at end of year              10,206    $  13.56

Options exercisable at year-end          8,929
Weighted average fair value of
   options granted during the year                    N/A
</TABLE>

<TABLE>

Year Ended December 31,                       1997
                                                  Weighted
                                                   Average
                                                  Excercise
                                        Shares      Price
<S>                                     <C>      <C>
Outstanding at beginning of year        11,481    $  13.53
Granted                                    ---         ---
Exercised                                  957       13.32
Expired                                    318       13.32
                                         -----    --------
Outstanding at end of year              10,206    $  13.56

Options exercisable at year-end          6,378
Weighted average fair value of
   options granted during the year                    N/A
</TABLE>

<PAGE>

The following information applies to options outstanding at December 31, 1999.

<TABLE>
-------------------------------------------------------------------------------
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
-------------------------------------------------------------------------------
<S>                                                    <C>
     Number outstanding                                      16,584
     Range of exercise prices                           $12.96 to $23.25
     Weighted-average exercise price                         $17.39
     Weighted-average remaining contractual life           6.98 years
-------------------------------------------------------------------------------
</TABLE>

NOTE N - COMMITMENTS AND CONTINGENCIES

     The Company has non-cancellable operating lease agreements in excess of one
year with respect to various buildings and equipment.  The minimum annual rental
commitments at December 31, 1999 are payable as follows.

<TABLE>
--------------------------------------------
       Operating Leases
--------------------------------------------
<S>                      <C>
2000                      $   428
2001                          441
2002                          526
2003                          412
2004                          422
2005 and beyond             1,258
                          -------
Total                     $ 3,487
--------------------------------------------
</TABLE>

     The total rental expense was $397,000,  $378,000 and $421,000 in 1999, 1998
and 1997, respectively.

     The Company has reserved  $994,000 against unsettled claims which have been
or may be asserted  against the Bank in connection with certain pre-need funeral
trust funds which were allegedly directed by funeral directors to be invested in
a private placement annuity issued by EA International Trust. As of December 31,
1999,  nine  funeral  directors  whose funds were  invested in this annuity have
commenced  suit  against  the Bank;  if all funeral  directors  whose funds were
invested in this annuity were to pursue claims,  the Bank's maximum exposure for
unsettled  claims  would be  approximately  $4.1  million  principal  loss  plus
punitive damages,  interest,  costs and attorney fees. The Bank has been advised
that it has  significant  defenses  to these  claims and  intends to  vigorously
defend against such claims.  The Bank has  discontinued  its involvement in this
annuity and is pursuing indemnification for some or all of these possible losses
from its insurance carriers and from EA International Trust.

<PAGE>

NOTE O - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET 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, 1999 are as follows.

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit             $ 36,119
Standby letters of credit                 $ 2,164


     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.

     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

<PAGE>

securities.  The  extent of  collateral  held for any one  financial  instrument
ranges up to 100%.  The average  collateral  held on financial  instruments  was
79.9% as of December 31, 1999.

NOTE P - CONCENTRATIONS OF CREDIT RISK

     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,  1999,  the  Bank  had  residential   real  estate  loans
outstanding totaling $112,870,000,  which is 55.6% of total loans. The Bank also
had real estate  related  commercial  loans  outstanding  at  December  31, 1999
totaling $26,809,000,  which is 13.2% of total loans. Loans to various borrowers
for land development  totaling  $7,053,000 are included in the Bank's total real
estate  commercial  loans.  These loans represent 26.3% of the total real estate
related commercial loans. Loans to individuals for recreational vehicles totaled
$25,817,000 at December 31, 1999.  This is 12.7% of total loans and 56.2% of the
Bank's consumer and installment loans which totaled  $45,886,000 at December 31,
1999

NOTE Q - RELATED PARTY TRANSACTIONS

     The amount of loans by the Company to its directors and executive  officers
was  approximately  $1,040,000  and  $1,298,000  at December  31, 1999 and 1998,
respectively.  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 1999 activity of these loans follows.

-------------------------------------------------------
Balance, January 1, 1999                       $ 1,298
     New loans                                     131
     Repayments                                    389
                                         --------------
Balance, December 31, 1999                     $ 1,040
-------------------------------------------------------

<PAGE>

NOTE R - REGULATORY MATTERS

     The Bank, as a National Bank, i s 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, 1999,  that the Bank could declare,  without the approval of the
Comptroller of the Currency, amounted to approximately $3,494,000.

     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
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, 1999, the Company and
the Bank met all capital adequacy requirements to which they were subject.

<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, 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   8.11%    $15,726   4.00%      ---    ---
  Bank                      $28,194   7.20%    $15,655   4.00%  $19,568   5.00%

</TABLE>

CAPITAL RATIOS
<TABLE>
                                                                  To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At December 31, 1998        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                       <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,555   16.97%   $15,819   8.00%      ---    ---
  Bank                      $29,450   15.02%   $15,684   8.00%  $19,605  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $30,938   15.64%   $ 7,906   4.00%      ---    ---
  Bank                      $26,596   13.57%   $ 7,842   4.00%  $11,763   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $30,938   8.60%    $14,114   4.00%      ---    ---
  Bank                      $26,596   7.47%    $13,951   4.00%  $17,439   5.00%
</TABLE>

<PAGE>

     The Company is not aware of any known trends,  events or uncertainties that
will have a material  effect on the Company's  liquidity,  capital  resources or
operations.  The  Company  is  not  under  any  agreement  with  the  regulatory
authorities  nor  is it  aware  of  any  current  recommendation  by  regulatory
authorities  which,  if they were  implemented,  would have a material effect on
liquidity, capital, resources, or the operations of the Company.

     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 1999 was approximately $6,150,000 and $6,558,000,  respectively. For
1998, the average  reserve  balance was  $5,152,000 and the year-end  amount was
$5,675,000.

NOTE S - EQUITY TRANSACTIONS

     The Company paid a 5% stock  dividend on its common  stock from  authorized
but unissued shares on June 24, 1999 to all  shareholders of record at the close
of  business on June 4, 1999.  On June 25,  1998,  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 5, 1998.  The Company
also paid a 5% stock dividend on June 19, 1997 to  shareholders of record on May
30, 1997.  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 1999,  15,061 common new shares
were purchased pursuant to the Dividend  Reinvestment and Stock Purchase Plan at
an average  cost of $20.99 per  share for  total  proceeds of $316,000. In 1998,

<PAGE>

10,910 common shares were purchased  pursuant to the Dividend  Reinvestment  and
Stock Purchase Plan at an average cost of $29.98 for proceeds of $327,000.

NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No.  107,  "Disclosures  About Fair Value of  Financial  Instruments",
requires all entities to disclose 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.

     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, 1999 and 1998 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>
                                         1999                     1998
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value   Amount
<S>                            <C>       <C>            <C>       <C>
Cash and cash equivalents        $  16,272 $  16,272      $  14,259 $  14,259
Investment securities               19,123    19,887         17,920    17,723
Securities available-for-sale      132,356   132,356         98,389    98,389
Mortgage loans held-for-sale           ---       ---            603       603
</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.

<TABLE>
                                         1999                     1998
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value   Amount
<S>                            <C>       <C>            <C>        <C>
Assets:
 Interest-bearing deposits
  with banks                     $   5,589 $   5,589       $  3,301  $  3,301
Liabilities:
 Deposits with stated
  maturities                       154,771   156,584        136,024   128,711
 Securities sold under
  agreements to repurchase           1,730     1,730          5,094     5,094
 Long-term debt                     29,519    30,000         20,419    20,000
</TABLE>

     Fair value of financial  instrument  liabilities with no stated  maturities
has been estimated to equal the carrying amount (the amount payable on demand).

<TABLE>
                                         1999                     1998
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value    Amount
<S>                            <C>       <C>            <C>         <C>
Deposits with no
 stated maturities               $ 167,691 $ 167,896      $ 173,301   $165,838
</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>
                                         1999                     1998
                                 Estimated  Carrying      Estimated  Carrying
                                Fair Value   Amount      Fair Value    Amount
<S>                            <C>        <C>           <C>        <C>
Total loans                      $199,738   $202,258      $238,031   $212,437
</TABLE>

<PAGE>

     There  is no  material  difference  between  the  carrying  amount  and the
estimated fair value of off-balance-sheet items totaling $38,283,000 at December
31, 1999 and  $22,502,000 at December 31, 1998 which are primarily  comprised of
unfunded loan  commitments  which are generally  priced at market at the time of
funding.

     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

<PAGE>

NOTE U  -  FIRST COLONIAL GROUP, INC.
(PARENT COMPANY ONLY)
<TABLE>
-----------------------------------------------------------------------
CONDENSED BALANCE SHEETS
December 31,                                   1999               1998
-----------------------------------------------------------------------
<S>                                       <C>                <C>
ASSETS

  Cash and Due from Banks                  $     14           $     20
  Interest-Bearing Deposits
    with Banks                                  369                130
  Loan to Banking Subsidiary                  1,000              1,000
  Investment in Banking
    Subsidiary                               24,544             27,158
  Investment in Other
    Subsidiary                                3,680              3,909
  Other Assets                                   35                 13
                                           ---------          ---------
    TOTAL ASSETS                           $ 29,642           $ 32,230

LIABILITIES

  Long-Term Debt                            $ 1,320              $ 435
  Other Liabilities                              79                 78
                                            --------          ---------
    TOTAL LIABILITIES                         1,399                513
SHAREHOLDERS' EQUITY                         28,243             31,717
                                           ---------          ---------
  TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY                     $ 29,642           $ 32,230
</TABLE>

<PAGE>

<TABLE>
-------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
For the Year Ended December 31,             1999          1998         1997
-------------------------------------------------------------------------------
<S>                                     <C>             <C>        <C>
INCOME

  Dividends from Subsidiaries            $ 1,321         $ 688      $ 1,139
  Interest on Loan
    to Subsidiary                             85            89           89
  Interest on Deposits
    with Banks                                 6             5           21
                                         -------         ------      ------
      TOTAL INCOME                         1,412           782        1,249
                                         -------         ------      ------
EXPENSES

  Interest on Long-Term Debt                 105            39           41
  Other Expenses                              81            94           99
                                         -------         -----       ------
     TOTAL EXPENSES                          186           133          140
                                         -------         -----       ------
Income Before Taxes and
  Equity in Undistributed Net
  Earnings of Subsidiaries                 1,226           649        1,109
Federal Income Tax (Credit)                  (32)          (12)         (10)
                                         -------         -----       ------
Income Before Equity in
  Undistributed Net Earnings
  of Subsidiaries                          1,258           661        1,119
Equity in Undistributed Net
  Earnings of Subsidiaries                 2,024         2,371        2,164
                                         -------       -------      -------
  NET INCOME                             $ 3,282       $ 3,032      $ 3,283
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
-------------------------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
For the Year Ended December 31,           1999            1998           1997
-------------------------------------------------------------------------------
<S>                                    <C>             <C>            <C>
OPERATING ACTIVITIES
  Net Income                            $ 3,282         $ 3,032        $ 3,283
  Adjustments to Reconcile
    Net Income to Net Cash
    Provided by Operating
      Activities:
 Distribution in Excess
      of Undistributed Net
      Earnings of Subsidiaries           (2,006)         (2,467)        (2,164)
Changes in Assets and
  Liabilities:
  (Increase) Decrease in
    Interest-Bearing Deposits
    with Banks                             (239)            774           (248)
  (Increase) Decrease in
    Other Assets                            (22)             (1)             -
  Increase (Decrease) in
    Other Liabilities                         1              28            (23)
                                        -------         -------          ------
NET CASH PROVIDED BY
  OPERATING ACTIVITIES                    1,016           1,366            848
                                        -------         -------         ------
INVESTING ACTIVITIES
  Capital Contribution to
    Bank Subsidiary                           -            (500)             -
                                        --------         -------         ------
NET CASH PROVIDED BY
  INVESTING ACTIVITIES                        -            (500)             -
                                        --------         -------         ------
FINANCING ACTIVITIES
  Increase in Long-Term Debt                 885             45              -
  Increase in ESOP Debt                     (885)           (45)             -
  Purchase of Treasury Stock                   -              -           (107)
  Proceeds from the Sale of
    Treasury Stock                             -             94             33
  Proceeds from Issuance
    of Common Stock                          303            333            361
  Cash Dividends Paid                     (1,321)        (1,275)        (1,139)
  Cash in Lieu of
    Fractional Shares                         (4)            (6)            (4)
                                        --------         ------         -------
NET CASH USED IN
  FINANCING ACTIVITIES                    (1,022)          (854)          (856)
                                        --------         ------         -------
Increase (Decrease) in Cash
  and Cash Equivalent                         (6)            12             (8)
Cash and Cash Equivalent,
  January 1,                                  20              8             16
                                        --------         ------         -------
Cash and Cash Equivalent,
  December 31,                          $     14         $   20         $    8

-------------------------------------------------------------------------------
</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 11, 1999 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, 1999, there were 726 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 G - 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, 1999 was $17.375 and
in December,  1998 was $27.738.  Stock prices and  dividends per share have been
restated to reflect the 5% stock  dividends  of June,  1999 and June,  1998 (see
"Note  S  -  Equity  Transactions"  in  the  "Notes  to  Consolidated  Financial
Statements").


<PAGE>


<TABLE>
1998

<S>                  <C>             <C>            <C>
     First Quarter     $33.56          $31.07         $ 0.1724
     Second Quarter     34.76           31.74           0.1724
     Third Quarter      34.29           25.48           0.1810
     Fourth Quarter     28.33           25.48           0.1810
                                                      --------
     TOTAL                                            $ 0.7068
</TABLE>

<TABLE>
1999

<S>                  <C>             <C>            <C>
     First Quarter     $27.62          $21.91         $ 0.1810
     Second Quarter     24.00           20.71           0.1810
     Third Quarter      24.25           18.50           0.1900
     Fourth Quarter     20.00           17.19           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, 1999.

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.;  Instinet
Corporation; Ryan, Beck & Co.; Spear Leeds & Kellogg Capital Markets; and Tucker
Anthony, Inc.

<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
         12/31/99 and 12/31/98

         Consolidated Statements of Income and Comprehensive Income
         for the Years Ended 12/31/99, 12/31/98 and 12/31/97

         Consolidated Statement of Changes in Shareholders' Equity
         for the Years Ended  12/31/99, 12/31/98 and 12/31/97

         Consolidated Statements of Cash Flows for the Years Ended
         12/31/99, 12/31/98 and 12/31/97

         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, 1994, 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 (9)      Severance Agreement dated July 19, 1994 by and between
                    the Bank and S. Eric Beattie

    *10.10.1 (12)   Amendment No. 1 to Severance Agreement by and between
                    the Board and S. Eric Beattie

    *10.11 (9)      Severance Agreement dated July 19, 1994 by and between
                    the Bank and Reid L. Heeren

<PAGE>

      Number          Title                                           Page No.
      ------          -----                                           --------
    *10.11.1 (12)   Amendment No. 1 to Severance Agreement by and
                       between the Board 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

    *10.13 (9)      Severance dated July 19, 1994 by and between
                       the Bank and Gerald E. Kemmerer

    *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 (13)     Severance Agreement dated September 22, 1997 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 (15)     Severance Agreement dated March 1, 1999 by and
                       between the Board and Robert McGovern

     10.21          Loan Agreement dated February 8, 1999 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.

<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, 1999.

<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 31, 2000                       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 31, 2000

By:  /s/  S. Eric Beattie
          ----------------------------
          S. ERIC BEATTIE
          President, Chief Executive Officer
          and Director (Principal Executive Officer)
          March 31, 2000

By:  /s/  Reid L. Heeren
          ----------------------------
          REID   L.   HEEREN
          Executive  Vice  President  and  Treasurer
          (Principal  Financial  Officer  and
           Principal Accounting Officer) March 31, 2000

By:  /s/  Robert J. Bergren
          ----------------------------
          ROBERT J. BERGREN
          Director
          March 31, 2000

<PAGE>

By:  /s/  Christian F. Martin, IV
          ----------------------------
          CHRISTIAN F. MARTIN, IV
          Director
          March 31, 2000

By:  /s/  Gordon B. Mowrer
          ----------------------------
          GORDON B. MOWRER
          Director
          March 31, 2000

By:  /s/  Daniel B. Mulholland
          ----------------------------
          DANIEL B. MULHOLLAND
          Director
          March 31, 2000

By: /s/   Charles J. Peischl
          -----------------------------
          CHARLES J. PEISCHL, ESQUIRE
          Director
          March 31, 2000

By: /s/   John H. Ruhle, Jr.
          -----------------------------
          JOHN H. RUHLE, JR.
          Director
          March 31, 2000

By: /s/   Maria Zumas Thulin
          -----------------------------
          MARIA Z. THULIN
          Director
          March 31, 2000