<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

For the fiscal year-ended December 31, 2002

[]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED]

For the transition period from _____________to________________

Commission file Number: 0-19028

                               CCFNB BANCORP, INC.
                 (Name of small business issuer in its charter)

PENNSYLVANIA                                              23-2254643
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification Number)

232 East Street, Bloomsburg, Pennsylvania                 17815
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code: (570) 784-4400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $1.25 per share.

            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 of 1934 during the past 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No______

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

            Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes ______ No X

            The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant based on the average of the bid
and asked prices of $23.63 at February 28, 2003, was $30,420,435.

            As of February 28, 2003, the Registrant had outstanding 1,287,365
shares of its common stock, par value $1.25 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

            In addition, portions of the Annual Report to stockholders of the
Registrant for the year-ended December 31, 2002, are incorporated by reference
in Part II of this Annual Report.

                                  Page 1 of 76
                            Exhibit Index on Page 43
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                               CCFNB BANCORP, INC.
                                    FORM 10-K

                                      INDEX

<TABLE>
<CAPTION>
Part I                                                                                                    Page
------                                                                                                    ----
<S>                                                                                                       <C>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS...........................................................3
ITEM 1.      BUSINESS.......................................................................................3
ITEM 2.      PROPERTIES....................................................................................19
ITEM 3.      LEGAL PROCEEDINGS.............................................................................19
ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................19
ITEM 6.      SELECTED FINANCIAL DATA.......................................................................20
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS.........................................................................21
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................33
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................33
ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................33
ITEM 11.     EXECUTIVE COMPENSATION........................................................................34
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             AND RELATED STOCKHOLDER MATTERS...............................................................37
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................38
ITEM 14.     CONTROLS AND PROCEDURES.......................................................................38
ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................40

SIGNATURES.................................................................................................40
INDEX TO EXHIBITS..........................................................................................43
</TABLE>


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                               CCFNB BANCORP, INC.
                                    FORM 10-K

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This annual report on Form 10-K, other periodic reports filed by us under the
Securities Exchange Act of 1934, as amended, and any other written or oral
statements made by or on behalf of us may include "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect our current views with respect to future events and financial
performance. Such forward looking statements are based on general assumptions
and are subject to various risks, uncertainties, and other factors that may
cause actual results to differ materially from the views, beliefs and
projections expressed in such statements. These risks, uncertainties and other
factors include, but are not limited to:

      -     possible changes in economic and business conditions that may affect
            the prevailing interest rates, the prevailing rates of inflation, or
            the amount of growth, stagnation, or recession in the global, U.S.,
            and Northcentral Pennsylvania economies, the value of investments,
            collectibility of loans and the profitability of business entities;

      -     possible changes in monetary and fiscal policies, laws and
            regulations, and other activities of governments, agencies and
            similar organizations;

      -     the effects of easing of restrictions on participants in the
            financial services industry, such as banks, securities brokers and
            dealers, investment companies and finance companies, and changes
            evolving from the enactment of the Gramm-Leach-Bliley Act which
            became effective in 2000, and attendant changes in matters and
            effects of competition in the financial services industry;

      -     the cost and other effects of legal proceedings, claims, settlements
            and judgments; and

      -     our ability to achieve the expected operating results related to our
            operations which depends on a variety of factors, including the
            continued growth of the markets in which we operate consistent with
            recent historical experience, and our ability to expand into new
            markets and to maintain profit margins in the face of pricing
            pressures.

The words "believe," "expect," "anticipate," "project" and similar expressions
signify forward looking statements. Readers are cautioned not to place undue
reliance on any forward looking statements made by or on behalf of us. Any such
statement speaks only as of the date the statement was made. We undertake no
obligation to update or revise any forward looking statements.

PART I

ITEM 1. BUSINESS

GENERAL

We are a registered financial holding company, bank holding company, and
Pennsylvania business corporation, and are headquartered in Bloomsburg,
Pennsylvania. We have one wholly-owned subsidiary which is Columbia County
Farmers National Bank or referred to as the Bank. A substantial part of our
business consists of the management and supervision of the Bank. Our principal
source of income is dividends paid by the Bank. At December 31, 2002, we had
approximately:

      -     $229 million in total assets;

      -     $151 million in loans;

      -     $172 million in deposits; and

      -     $ 27 million in stockholders' equity.

The Bank is a national banking association and member of the Federal Reserve
System whose deposits are insured by the Bank Insurance Fund of the FDIC. The
Bank is a full-service commercial bank providing a range of services and
products, including time and demand deposit accounts, consumer, commercial and
mortgage loans to individuals and small to medium-sized business in its
Northcentral Pennsylvania market area. The Bank also operates a full-service
trust department. A third-party brokerage is also resident in the Bank's main
office in Bloomsburg, Pennsylvania. At December 31, 2002, the Bank had six
branch banking offices which are located in the Pennsylvania county of Columbia.

We consider our branch banking offices to be a single operating segment, because
these branches have similar:


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      -     economic characteristics,

      -     products and services,

      -     operating processes,

      -     delivery system,

      -     customer bases, and

      -     regulatory oversight.

We have not operated any other reportable operating segments in the 3-year
period ended December 31, 2002.

We hold a 50% interest in a local insurance agency. The name of this agency is
Neighborhood Group, Inc. and trades under two fictitious names: Neighborhood
Advisors (insurance agency) and Neighborhood Group Financial Services (insurance
and investment). Through this joint venture, we sell insurance products and
services, annuities and other investment products.

As of December 31, 2002, we had 81 employees on a full-time equivalent basis.
The Company and the Bank are not parties to any collective bargaining agreement
and employee relations are considered to be good.

SUPERVISION AND REGULATION

The following discussion sets forth the material elements of the regulatory
framework applicable to us and the Bank and provides certain specific
information. This regulatory framework is primarily intended for the protection
of investors in our common stock, depositors at the Bank and the Bank Insurance
Fund that insures bank deposits. To the extent that the following information
describes statutory and regulatory provisions, it is qualified by reference to
those provisions. A change in the statutes, regulations or regulatory policies
applicable to us or the Bank may have a material effect on our business.

INTERCOMPANY TRANSACTIONS

Various governmental requirements, including Sections 23A and 23B of the Federal
Reserve Act and Regulation W of the Federal Reserve Board, limit borrowings by
us from the Bank and also limit various other transactions between us and the
Bank. For example, Section 23A of the Federal Reserve Act limits to no more than
ten percent of its total capital the aggregate outstanding amount of the Bank's
loans and other "covered transactions" with any particular non-bank affiliate
(including a financial subsidiary) and limits to no more than 20 percent of its
total capital the aggregate outstanding amount of the Bank's covered
transactions with all of its affiliates (including financial subsidiaries). At
December 31, 2002, approximately $5 million was available for loans to us from
the Bank. Section 23A of the Federal Reserve Act also generally requires that
the Bank's loans to its non-bank affiliates (including financial subsidiaries)
be secured, and Section 23B of the Federal Reserve Act generally requires that
the Bank's transactions with its non-bank affiliates (including financial
subsidiaries) be on arm's-length terms. Also, we, the Bank, and any financial
subsidiary are prohibited from engaging in certain "tie-in" arrangements in
connection with extensions of credit or provision of property or services.

SUPERVISORY AGENCIES

As a national bank and member of the Federal Reserve System, the Bank is subject
to primary supervision, regulation, and examination by the Office of the
Comptroller of the Currency and secondary regulation by the FDIC. The Bank is
subject to extensive statutes and regulations that significantly affect its
business and activities. The Bank must file reports with its regulators
concerning its activities and financial condition and obtain regulatory approval
to enter into certain transactions. The Bank is also subject to periodic
examinations by its regulators to ascertain compliance with various regulatory
requirements. Other applicable statutes and regulations relate to insurance of
deposits, allowable investments, loans, leases, acceptance of deposits, trust
activities, mergers, consolidations, payment of dividends, capital requirements,
reserves against deposits, establishment of branches and certain other
facilities, limitations on loans to one borrower and loans to affiliated
persons, activities of subsidiaries and other aspects of the business of banks.
Recent Federal legislation has instructed federal agencies to adopt standards or
guidelines governing banks' internal controls, information systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation and benefits, asset quality, earnings and stock valuation, and
other matters. Legislation adopted in 1994 gives the federal banking agencies
greater flexibility in implementing standards on asset quality, earnings, and
stock valuation. Regulatory authorities have broad flexibility to initiate
proceedings designed to prohibit banks from engaging in unsafe and unsound
banking practices.

We and the Bank are also affected by various other governmental requirements and
regulations, general economic conditions, and the fiscal and monetary policies
of the federal government and the Federal Reserve Board. The monetary policies
of the Federal Reserve Board influence to a significant extent the overall
growth of loans, leases, investments, deposits, interest rates charged on loans,
and interest rates paid on deposits. The nature and impact of future changes in
monetary policies are often not predictable.


                                       4
<PAGE>
We are subject to the jurisdiction of the SEC for matters relating to the
offering and sale of our securities. We are also subject to the SEC's rules and
regulations relating to periodic reporting, insider trader reports and proxy
solicitation materials. Our common stock is not listed for quotation of prices
on The NASDAQ Stock Market or any other nationally-recognized stock exchange.
However, daily bid and asked price quotations are maintained on the interdealer
electronic bulletin board system.

SUPPORT OF THE BANK

Under current Federal Reserve Board policy, we are expected to act as a source
of financial and managerial strength to the Bank by standing ready to use
available resources to provide adequate capital funds to the Bank during periods
of financial adversity and by maintaining the financial flexibility and
capital-raising capacity to obtain additional resources for assisting the Bank.
The support expected by the Federal Reserve Board may be required at times when
we may not have the resources or inclination to provide it.

If a default occurred with respect to the Bank, any capital loans to the Bank
from us would be subordinate in right of payment to payment of the Bank
depositors and certain of its other obligations.

LIABILITY OF COMMONLY CONTROLLED BANKS

The Bank can be held liable for any loss incurred, or reasonably expected to be
incurred, by the FDIC in connection with:

      -     the default of a commonly controlled FDIC-insured depository
            institution or

      -     any assistance provided by the FDIC to a commonly controlled
            FDIC-insured depository institution in danger of default.

"Default" generally is defined as the appointment of a conservator or receiver,
and "in danger of default" generally is defined as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.

DEPOSITOR PREFERENCE STATUTE

In the "liquidation or other resolution" of the Bank by any receiver, federal
legislation provides that deposits and certain claims for administrative
expenses and employee compensation against the Bank are afforded a priority over
the general unsecured claims against the Bank, including federal funds and
letters of credit.

ALLOWANCE FOR LOAN LOSSES

There are certain risks inherent in making all loans. These risks include
interest rate changes over the time period in which loans may be repaid, risks
resulting from changes in our Northcentral Pennsylvania area economy, risks
inherent in dealing with individual borrowers, and, in the case of a loan backed
by collateral, risks resulting from uncertainties about the future value of the
collateral.

Commercial loans and commercial real estate loans comprised 33% of our total
consolidated loans as of December 31, 2002. Commercial loans are typically
larger than residential real estate loans and consumer loans. Because our loan
portfolio contains a significant number of commercial loans and commercial real
estate loans with relatively large balances, the deterioration of one or a few
of these loans may cause a significant increase in nonperforming loans. An
increase in nonperforming loans could result in a loss of earnings from these
loans, an increase in the provision for loan losses and loan charge-offs.

We maintain an allowance for loan losses to absorb any loan losses based on,
among other things, our historical experience, an evaluation of economic
conditions, and regular reviews of any delinquencies and loan portfolio quality.
We cannot assure you that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for loan
losses will not be required. Additions to the allowance for loan losses would
result in a decrease in our net income and, possibly, our capital.

In evaluating our allowance for loan losses, we divide our loans into the
following categories:

      -     commercial,

      -     real estate mortgages,

      -     consumer, and

      -     unallocated.

We evaluate some loans as a group and some individually. We use the following
criteria in choosing loans to be evaluated individually:


                                       5
<PAGE>
      -     by industry group,

      -     by risk profile, and

      -     by past due status.

After our evaluation of these loans, we allocate portions of our allowance for
loan losses to categories of loans based upon the following considerations:

      -     historical trends,

      -     economic conditions, and

      -     any known deterioration.

We use a self-correcting mechanism to reduce differences between estimated and
actual losses. We will, on a quarterly basis, weigh our loss experience among
the various categories and reallocate the allowance for loan losses.

For a more in-depth presentation of our allowance for loan losses and the
components of this allowance, please refer to Item 7 of this report under
Management's Discussion and Analysis of Financial Condition and Results of
Operations at "Non-Performing Assets," "Allowance for Loan Losses and Related
Provision," and "Summary of Loan Loss Experience," as well as Note 4 at Exhibit
13 to this report.

SOURCES OF FUNDS

GENERAL. Our primary source of funds is the cash flow provided by our investing
activities, including principal and interest payments on loans and
mortgage-backed and other securities. Our other sources of funds are provided by
operating activities (primarily net income) and financing activities, including
borrowings and deposits.

DEPOSITS. We offer a variety of deposit accounts with a range of interest rates
and terms. We currently offer passbook and statement savings accounts, NOW
accounts, money market accounts, demand deposit accounts and certificates of
deposit. The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. Our deposits are primarily obtained from areas surrounding our
banking offices. We rely primarily on marketing, new products, service and
long-standing relationships with customers to attract and retain these deposits.
At December 31, 2002, our deposits totaled $172 million. Of the total deposit
balance, $10 million or 6%, represent Individual Retirement Accounts and $30
million or 17% represent certificates of deposit in amounts of $100,000 or more.

When we determine the levels of our deposit rates, consideration is given to
local competition, yields of U.S. Treasury securities and the rates charged for
other sources of funds. We have maintained a high level of core deposits, which
has contributed to our low cost of funds. Core deposits include savings, money
market, NOW and demand deposit accounts, which, in the aggregate, represented
45% of total deposits at December 31, 2002 and 44% of total deposits at December
31, 2001.

For a further discussion of our deposits, please refer to Item 7 of this report
under Management's Discussion and Analysis of Financial Condition and Results of
Operations at "Deposits and Borrowed Funds," as well as Note 7 at Exhibit 13 to
this report.

CAPITAL REQUIREMENTS

We are subject to risk-based capital requirements and guidelines imposed by the
Federal Reserve Board, which are substantially similar to the capital
requirements and guidelines imposed by the Comptroller of the Currency on the
Bank. For this purpose, a bank's or bank holding company's assets and certain
specified off-balance sheet commitments are assigned to four risk categories,
each weighted differently based on the level of credit risk that is ascribed to
those assets or commitments. In addition, risk-weighted assets are adjusted for
low-level recourse and market-risk equivalent assets. A bank's or bank holding
company's capital, in turn, includes the following tiers:

      -     core ("Tier 1") capital, which includes common equity,
            non-cumulative perpetual preferred stock, a limited amount of
            cumulative perpetual preferred stock, and minority interests in
            equity accounts of consolidated subsidiaries, less goodwill, certain
            identifiable intangible assets, and certain other assets; and

      -     supplementary ("Tier 2") capital, which includes, among other items,
            perpetual preferred stock not meeting the Tier 1 definition,
            mandatory convertible securities, subordinated debt and allowances
            for loan and lease losses, subject to certain limitations, less
            certain required deductions.

We, like other bank holding companies, are required to maintain Tier 1 and
"Total Capital" (the sum of Tier 1 and Tier 2 capital, less certain deductions)
equal to at least four percent and eight percent of their total risk-weighted
assets (including certain off-


                                       6
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balance sheet items, such as unused lending commitments and standby letters of
credit), respectively. At December 31, 2002, we met both requirements, with Tier
1 and Total Capital equal to 18.53 percent and 19.46 percent of total
risk-weighted assets.

The Federal Reserve Board has adopted rules to incorporate market and interest
rate risk components into their risk-based capital standards. Under these
market-risk requirements, capital will be allocated to support the amount of
market risk related to a financial institution's ongoing trading activities.

The Federal Reserve Board also requires bank holding companies to maintain a
minimum "Leverage Ratio" (Tier 1 capital to adjusted total assets) of three
percent if the bank holding company has the highest regulatory rating and meets
certain other requirements, or of three percent plus an additional cushion of at
least one to two percentage points if the bank holding company does not meet
these requirements. At December 31, 2002, our leverage ratio was 11.77 percent.

The Federal Reserve Board may set capital requirements higher than the minimums
noted above for holding companies whose circumstances warrant it. For example,
bank holding companies experiencing or anticipating significant growth may be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"Tangible Tier 1 Leverage Ratio" (deducting all intangibles) and other
indications of capital strength in evaluating proposals for expansion or new
activities, or when a bank holding company faces unusual or abnormal risk. The
Federal Reserve Board has not advised us of any specific minimum leverage ratio
applicable to us.

The Bank is subject to similar risk-based capital and leverage requirements
adopted by the Comptroller of the Currency. The Bank was in compliance with the
applicable minimum capital requirements as of December 31, 2002. The Comptroller
of the Currency has not advised the Bank of any specific minimum leverage ratio
applicable to the Bank.

Failure to meet capital requirements could subject the Bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. The Federal Deposit Insurance
Corporation Improvements Act of 1991 ("FDICIA"), among other things, identifies
five capital categories for insured banks - well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized - and requires federal bank regulatory agencies to implement
systems for "prompt corrective action" for insured banks that do not meet
minimum capital requirements based on these categories. The FDICIA imposed
progressively more restrictive constraints on operations, management, and
capital distributions, depending on the category in which an institution is
classified. Unless a bank is well capitalized, it is subject to restrictions on
its ability to offer brokered deposits, on "pass-through" insurance coverage for
certain of its accounts, and on certain other aspects of its operations. FDICIA
generally prohibits a bank from paying any dividend or making any capital
distribution or paying any management fee to its holding company if the bank
would thereafter be undercapitalized. An undercapitalized bank is subject to
regulatory monitoring and may be required to divest itself of or liquidate
subsidiaries. Holding companies of such institutions may be required to divest
themselves of such institutions or divest themselves of or liquidate other
affiliates. An undercapitalized bank must develop a capital restoration plan,
and its parent bank holding company must guarantee the bank's compliance with
the plan up to the lesser of five percent of the bank's assets at the time it
became undercapitalized or the amount needed to comply with the plan. Critically
undercapitalized institutions are prohibited from making payments of principal
and interest on subordinated debt and are generally subject to the mandatory
appointment of a conservator or receiver.

Rules adopted by the Comptroller of the Currency under FDICIA provide that a
national bank is deemed to be well capitalized if the bank has a total
risk-based capital ratio of ten percent or greater, a Tier 1 risk-based capital
ratio of six percent or greater, and a leverage ratio of five percent or greater
and the institution is not subject to a written agreement, order, capital
directive, or prompt corrective action directive to meet and maintain a specific
level of any capital measure. As of December 31, 2002, the Bank was
well-capitalized, based on the prompt corrective action ratios and guidelines
described above. It should be noted, however, that a bank's capital category is
determined solely for the purpose of applying the Comptroller of the Currency's
prompt corrective action regulations, and that the capital category may not
constitute an accurate representation of the bank's overall financial condition
or prospects.

BROKERED DEPOSITS

Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless
it (1) is well capitalized, or (2) is adequately capitalized and receives a
waiver from the FDIC. In addition, these regulations prohibit any bank that is
not well capitalized from paying an interest rate on brokered deposits in excess
of three-quarters of one percentage point over certain prevailing market rates.
As of December 31, 2002, the Bank held no brokered deposits.

DIVIDEND RESTRICTIONS

We are a legal entity separate and distinct from the Bank. In general, under
Pennsylvania law, we cannot pay a cash dividend if such payment would render us
insolvent. Our revenues consist primarily of dividends paid by the Bank. The
National Bank Act


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limits the amount of dividends the Bank can pay to us without regulatory
approval. The Bank may declare and pay dividends to us to the lesser of:

      -     the level of undivided profits, and

      -     absent regulatory approval, an amount not in excess of net income
            combined with retained net income for the preceding two years.

At December 31, 2002, approximately $1 million was available for payment of
dividends to us.

In addition, federal bank regulatory authorities have authority to prohibit the
Bank from engaging in an unsafe or unsound practice in conducting its business.
Depending upon the financial condition of the bank in question, the payment of
dividends could be deemed to constitute an unsafe or unsound practice. The
ability of the Bank to pay dividends in the future is currently influenced, and
could be further influenced, by bank regulatory policies and capital guidelines.

DEPOSIT INSURANCE ASSESSMENTS

The deposits of the Bank are insured up to regulatory limits by the FDIC and,
accordingly, are subject to deposit insurance assessments to maintain the Bank
Insurance Fund ("BIF") administered by the FDIC. The FDIC has adopted
regulations establishing a permanent risk-related deposit insurance assessment
system. Under this system, the FDIC places each insured bank in one of nine risk
categories based on the bank's capitalization and supervisory evaluations
provided to the FDIC by the institution's primary federal regulator. An insured
bank's insurance assessment rate is then determined by the risk category in
which it is classified by the FDIC.

In the light of the recent favorable financial situation of the federal deposit
insurance funds and the recent low number of depository institution failures,
the annual insurance premiums on bank deposits insured by the BIF vary between
$0.00 per $100 of deposits for banks classified in the highest capital and
supervisory evaluation categories to $0.27 per $100 of deposits for banks
classified in the lowest capital and supervisory evaluation categories. BIF
assessment rates are subject to semi-annual adjustment by the FDIC within a
range of up to five basis points without public comment. The FDIC also possesses
authority to impose special assessments from time to time.

The Deposit Insurance Funds Act provides for assessments to be imposed on
insured depository institutions with respect to deposits insured by the BIF (in
addition to assessments currently imposed on depository institutions with
respect to BIF-insured deposits) to pay for the cost of Financing Corporation
("FICO") funding. The FDIC established the FICO assessment rates effective for
the fourth quarter 2002 and first quarter of 2003 at approximately $0.170 and
$0.168, respectively, per $100 annually for BIF-assessable deposits. The FICO
assessments are adjusted quarterly to reflect changes in the assessment bases of
the FDIC insurance funds and do not vary depending upon a depository
institution's capitalization or supervisory evaluations. In 2002, the Bank paid
FICO assessments of $27,051.

INTERSTATE BANKING AND BRANCHING

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
("Riegle-Neal"), subject to certain concentration limits and other requirements:

      -     bank holding companies, such as we, are permitted to acquire banks
            and bank holding companies located in any state;

      -     any bank that is a subsidiary of a bank holding company is permitted
            to receive deposits, renew time deposits, close loans, service
            loans, and receive loan payments as an agent for any other
            depository institution subsidiary of that bank holding company; and

      -     banks are permitted to acquire branch offices outside their home
            states by merging with out-of-state banks, purchasing branches in
            other states, and establishing de novo branch offices in other
            states.

The ability of banks to acquire branch offices through purchase or opening of
other branches is contingent, however, on the host state having adopted
legislation "opting in" to those provisions of Riegle-Neal. In addition, the
ability of a bank to merge with a bank located in another state is contingent on
the host state not having adopted legislation "opting out" of that provision of
Riegle-Neal. Pennsylvania has opted in to all of these provisions upon the
condition that another host state has similar or reciprocal requirements as in
Pennsylvania.

As of the date of this report, we are not contemplating any interstate
acquisitions of a bank or a branch office.

CONTROL ACQUISITIONS


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<PAGE>
The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company, unless the Federal Reserve Board
has been notified and has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve Board, the acquisition of ten
percent or more of a class of voting stock of a bank holding company with a
class of securities registered under Section 12 of the Exchange Act, such as we,
would, under the circumstances set forth in the presumption, constitute
acquisition of control of the bank holding company.

In addition, a company is required to obtain the approval of the Federal Reserve
Board under the Bank Holding Company Act before acquiring 25 percent (five
percent in the case of an acquirer that is a bank holding company) or more of
any class of outstanding common stock of a bank holding company, such as we, or
otherwise obtaining control or a "controlling influence" over that bank holding
company.

PERMITTED NON-BANKING ACTIVITIES

The Federal Reserve Board permits us or our subsidiaries to engage in nonbanking
activities so closely related to banking or managing or controlling banks as to
be a proper incident thereto. For a discussion of other activities that are
financial in nature in which we can engage, see the caption that follows
entitled "Financial Services Modernization."

The Federal Reserve Board requires us to serve as a source of financial and
managerial strength to the Bank and not to conduct our operations in an unsafe
and unsound manner. Whenever the Federal Reserve Board believes an activity that
we are doing or our control of a nonbank subsidiary (other than a nonbank
subsidiary of the Bank) constitutes a serious risk to the financial safety,
soundness, or stability of the Bank and is inconsistent with sound banking
principles or the purposes of the federal banking laws, the Federal Reserve
Board may require us to terminate that activity or to terminate control of that
subsidiary. While the types of permissible activities are subject to change by
the Federal Reserve Board, the principal nonbanking activities that presently
may be conducted by a bank holding company or its subsidiary without prior
approval of the Federal Reserve Board are:

      -     Servicing Activities. Furnishing services for, or establish or
            acquire a company that engages solely in servicing activities for:

            -     us or the Bank in connection with activities authorized by
                  law, such as commitments entered into by any subsidiary with
                  third parties as long as we or our servicing company comply
                  with published guidelines and do not act as a principal in
                  dealing with third parties;

            -     the internal operations of the Bank, such as:

                  -     accounting, auditing and appraising;

                  -     advertising and public relations;

                  -     data processing and transmission services, data bases or
                        facilities;

                  -     personnel services;

                  -     courier services;

                  -     holding or operating property used by our subsidiaries
                        or for their future use;

                  -     liquidating property acquired from the Bank; and

                  -     selling, purchasing or underwriting insurance, such as
                        blanket bond insurance, group insurance for employees
                        and property and casualty insurance.

      -     Safe deposit business. Conduct a safe deposit business or acquire
            voting securities of a company that conducts such business.

      -     Securities or property representing five percent or less of any
            company. Acquiring five percent or less of the outstanding voting
            securities of any company regardless of that company's activities.

      -     Extending credit and servicing loans. Making, acquiring, brokering,
            or servicing loans or other extensions of credit (including
            factoring, issuing letters of credit and accepting drafts) for the
            company's account or for the account of others.

      -     Activities related to extending credit. Any activity usual in
            connection with making, acquiring, brokering or servicing loans or
            other extensions of credit, as determined by the Federal Reserve
            Board. The Federal Reserve Board has determined that the following
            activities are usual in connection with making, acquiring, brokering
            or servicing loans or other extensions of credit:


                                       9
<PAGE>
            -     Real estate and personal property appraising. Performing
                  appraisals of real estate and tangible and intangible personal
                  property, including securities.

            -     Arranging commercial real estate equity financing. Acting as
                  intermediary for the financing of commercial or industrial
                  income-producing real estate by arranging for the transfer of
                  the title, control, and risk of such a real estate project to
                  one or more investors, if the bank holding company and its
                  affiliates do not have an interest in, or participate in
                  managing or developing, a real estate project for which it
                  arranges equity financing, and do not promote or sponsor the
                  development of the property.

            -     Check-guaranty services. Authorizing a subscribing merchant to
                  accept personal checks tendered by the merchant's customers in
                  payment for goods and services, and purchasing from the
                  merchant validly authorized checks that are subsequently
                  dishonored.

            -     Collection agency services. Collecting overdue accounts
                  receivable, either retail or commercial.

            -     Credit bureau services. Maintaining information related to the
                  credit history of consumers and providing the information to a
                  credit grantor who is considering a borrower's application for
                  credit or who has extended credit to the borrower.

            -     Asset management, servicing, and collection activities.
                  Engaging under contract with a third party in asset
                  management, servicing, and collection of assets of a type that
                  an insured depository institution may originate and own, if
                  the company does not engage in real property management or
                  real estate brokerage services as part of these services.

            -     Acquiring debt in default. Acquiring debt that is in default
                  at the time of acquisition under certain conditions.

            -     Real estate settlement servicing. Providing real estate
                  settlement services.

      -     Leasing personal or real property. Leasing personal or real property
            or acting as agent, broker, or adviser in leasing such property
            under certain conditions.

      -     Operating nonbank depository institutions:

            -     Industrial banking. Owning, controlling, or operating an
                  industrial bank, Morris Plan bank, or industrial loan company,
                  so long as the institution is not a bank.

            -     Operating savings association. Owning, controlling or
                  operating a savings association, if the savings association
                  engages only in deposit-taking activities, lending, and other
                  activities that are permissible for bank holding companies.

      -     Trust company functions. Performing functions or activities that may
            be performed by a trust company (including activities of a
            fiduciary, agency, or custodial nature), in the manner authorized by
            federal or state law, so long as the company is not a bank for
            purposes of the Bank Holding Company Act.

      -     Financial and investment advisory activities. Acting as investment
            or financial advisor to any person, including (without, in any way,
            limiting the foregoing):

            -     Serving as investment adviser (as defined in section 2(a)(20)
                  of the Investment Company Act of 1940, 15 U.S.C.
                  80a-2(a)(20)), to an investment company registered under that
                  act, including sponsoring, organizing, and managing a
                  closed-end investment company;

            -     Furnishing general economic information and advice, general
                  economic statistical forecasting services, and industry
                  studies;

            -     Providing advice in connection with mergers, acquisitions,
                  divestitures, investments, joint ventures, leveraged buyouts,
                  recapitalizations, capital structurings, financing
                  transactions and similar transactions, and conducting
                  financial feasibility studies;


                                       10
<PAGE>
            -     Providing information, statistical forecasting, and advice
                  with respect to any transaction in foreign exchange, swaps,
                  and similar transactions, commodities, and any forward
                  contract, option, future, option on a future, and similar
                  instruments;

            -     Providing educational courses, and instructional materials to
                  consumers on individual financial management matters; and

            -     Providing tax-planning and tax-preparation services to any
                  person.

      -     Agency transactional services for customer investments:

            -     Securities brokerage. Providing securities brokerage services
                  (including securities clearing and/or securities execution
                  services on an exchange), whether alone or in combination with
                  investment advisory services, and incidental activities
                  (including related securities credit activities and custodial
                  services), if the securities brokerage services are restricted
                  to buying and selling securities solely as agent for the
                  account of customers and do not include securities
                  underwriting or dealing.

            -     Riskless principal transactions. Buying and selling in the
                  secondary market all types of securities on the order of
                  customers as a "riskless principal" to the extent of engaging
                  in a transaction in which the company, after receiving an
                  order to buy (or sell) a security from a customer, purchases
                  (or sells) the security for its own account to offset a
                  contemporaneous sale to (or purchase from) the customer. This
                  does not include:

                  (A) Selling bank-ineligible securities at the order of a
            customer that is the issuer of the securities, or selling
            bank-ineligible securities in any transaction where the company has
            a contractual agreement to place the securities as agent of the
            issuer; or

                  (B) Acting as a riskless principal in any transaction
            involving a bank-ineligible security for which the company or any of
            its affiliates acts as underwriter (during the period of the
            underwriting or for 30 days thereafter) or dealer.

            -     Private placement services. Acting as agent for the private
                  placement of securities in accordance with the requirements of
                  the Securities Act of 1933 ("1933 Act") and the rules of the
                  Securities and Exchange Commission, if the company engaged in
                  the activity does not purchase or repurchase for its own
                  account the securities being placed, or hold in inventory
                  unsold portions of issues of these securities.

            -     Futures commission merchant. Acting as a futures commission
                  merchant ("FCM") for unaffiliated persons in the execution,
                  clearance, or execution and clearance of any futures contract
                  and option on a futures contract traded on an exchange in the
                  United States or abroad under certain conditions.

            -     Other transactional services. Providing to customers as agent
                  transactional services with respect to swaps and similar
                  transactions.

      -     Investment transactions as principal:

            -     Underwriting and dealing in government obligations and money
                  market instruments. Underwriting and dealing in obligations of
                  the United States, general obligations of states and their
                  political subdivisions, and other obligations that state
                  member banks of the Federal Reserve System may be authorized
                  to underwrite and deal in under 12 U.S.C. 24 and 335,
                  including banker's acceptances and certificates of deposit,
                  under the same limitations as would be applicable if the
                  activity were performed by the bank holding company's
                  subsidiary member banks or its subsidiary nonmember banks as
                  if they were member banks.

            -     Investing and trading activities. Engaging as principal in:

                  (A) Foreign exchange;

                  (B) Forward contracts, options, futures, options on futures,
            swaps, and similar contracts, whether traded on exchanges or not,
            based on any rate, price, financial asset (including gold, silver,
            platinum, palladium, copper, or any other metal approved by the
            Federal Reserve Board), nonfinancial asset, or group of assets,
            other than a bank-ineligible security under certain conditions.


                                       11
<PAGE>
                  (C) Forward contracts, options, futures, options on futures,
            swaps, and similar contracts, whether traded on exchanges or not,
            based on an index of a rate, a price, or the value of any financial
            asset, nonfinancial asset, or group of assets, if the contract
            requires such settlement.

            -     Buying and selling bullion, and related activities. Buying,
                  selling and storing bars, rounds, bullion, and coins of gold,
                  silver, platinum, palladium, copper, and any other metal
                  approved by the Federal Reserve Board, for the company's own
                  account and the account of others, and providing incidental
                  services such as arranging for storage, safe custody,
                  assaying, and shipment.

      -     Management consulting and counseling activities:

            -     Management consulting. Providing management consulting advice
                  under certain conditions.

            -     Employee benefits consulting services. Providing consulting
                  services to employee benefit, compensation and insurance
                  plans, including designing plans, assisting in the
                  implementation of plans, providing administrative services to
                  plans, and developing employee communication programs for
                  plans.

            -     Career counseling services. Providing career counseling
                  services to:

                  (A) A financial organization and individuals currently
            employed by, or recently displaced from, a financial organization;

                  (B) Individuals who are seeking employment at a financial
            organization; and

                  (C) Individuals who are currently employed in or who seek
            positions in the finance, accounting, and audit departments of any
            company.

      -     Support services:

            -     Courier services. Providing courier services for:

                  (A) Checks, commercial papers, documents, and written
            instruments (excluding currency or bearer-type negotiable
            instruments) that are exchanged among banks and financial
            institutions; and

                  (B) Audit and accounting media of a banking or financial
            nature and other business records and documents used in processing
            such media.

            (ii) Printing and selling MICR-encoded items. Printing and selling
      checks and related documents, including corporate image checks, cash
      tickets, voucher checks, deposit slips, savings withdrawal packages, and
      other forms that require Magnetic Ink Character Recognition ("MICR")
      encoding.

      -     Insurance agency and underwriting:

            -     Credit insurance. Acting as principal, agent, or broker for
                  insurance (including home mortgage redemption insurance) that
                  is:

                  (A) Directly related to an extension of credit by the bank
            holding company or any of its subsidiaries; and

                  (B) Limited to ensuring the repayment of the outstanding
            balance due on the extension of credit in the event of the death,
            disability, or involuntary unemployment of the debtor.

            -     Finance company subsidiary. Acting as agent or broker for
                  insurance directly related to an extension of credit by a
                  finance company that is a subsidiary of a bank holding company
                  under certain conditions.

            -     Engaging in any general insurance agency activities.


                                       12
<PAGE>
            -     Supervision of retail insurance agents. Supervising on behalf
                  of insurance underwriters the activities of retail insurance
                  agents who sell fidelity, property and casualty and group
                  insurances for the operations and employees of the bank
                  holding company or its subsidiaries.

      -     Community development activities:

            -     Financing and investment activities. Making equity and debt
                  investments in corporations or projects designed primarily to
                  promote community welfare, such as the economic rehabilitation
                  and development of low-income areas by providing housing,
                  services, or jobs for residents.

            -     Advisory activities. Providing advisory and related services
                  for programs designed primarily to promote community welfare.

      -     Money orders, savings bonds, and traveler's checks. The issuance and
            sale at retail of money orders and similar consumer-type payment
            instruments; the sale of U.S. savings bonds; and the issuance and
            sale of traveler's checks.

      -     Data processing. Providing data processing data transmission
            services, facilities (including data processing and data
            transmission hardware, software, documentation, or operating
            personnel), data bases, advice, and access to such services,
            facilities, or data bases by any technological means under certain
            conditions.

COMMUNITY REINVESTMENT ACT

The Community Reinvestment Act of 1977, as amended (the "CRA"), and the
regulations promulgated to implement the CRA are designed to create a system for
bank regulatory agencies to evaluate a depository institution's record in
meeting the credit needs of its community. CRA regulations establish tests for
evaluating both small and large depository institutions' investment in the
community. A "small bank" is defined as a bank which has total assets of less
than $250 million and is independent or is an affiliate of a holding company
with less than $1 billion in assets. There are streamlined procedures for
evaluating small banks and the frequency of CRA examinations will occur less
often based upon a bank's CRA rating. A large retail institution is one which
does not meet the "small bank" definition. A large retail institution can be
evaluated under one of two tests: (1) a three-part test evaluating the
institution's lending, service and investment performance; or (2) a "strategic
plan" designed by the institution with community involvement and approved by the
appropriate federal bank regulator. A large institution must choose one of these
options under which to be examined. In addition, the CRA regulations include
separate rules regarding the manner in which "wholesale banks" and "limited
purpose banks" will be evaluated for compliance.

For the purposes of the CRA regulations, the Bank is deemed to be a "small
bank," based upon financial information as of December 31, 2002. The Bank will
be examined under the streamlined procedures. The Bank received a "satisfactory"
CRA rating in its last CRA examination which was held in 2002.

CONCENTRATION

We are not dependent for deposits nor exposed by loan concentrations to a single
customer or to a small group of customers the loss of any one or more of which
would have a materially adverse effect on our financial condition.

FINANCIAL SERVICES MODERNIZATION

The Gramm-Leach-Bliley Act (the "GLB Act"), in general, took effect on March 11,
2000. The GLB Act contains some of the most far-reaching changes governing the
operations of companies doing business in the financial services industry. The
GLB Act eliminates the restrictions placed on the activities of banks and bank
holding companies. By creating two new structures - financial holding companies
and financial subsidiaries - we and the Bank will be allowed to provide a wider
array of financial services and products that were reserved only for insurance
companies and securities firms. In addition, we can now affiliate with an
insurance company and a securities firm.

On December 19, 2000 we became a financial holding company. A financial holding
company has authority to engage in activities referred to as "financial
activities" that are not permitted to bank holding companies. A financial
holding company may also affiliate with companies that are engaged in financial
activities. A "financial activity" is an activity that does not pose a safety
and soundness risk and is:

      -     financial in nature,

      -     incidental to an activity that is financial in nature, or


                                       13
<PAGE>
      -     complimentary to a financial activity.

The GLB Act lists certain activities as financial in nature:

      -     Lending, investing or safeguarding money or securities;

      -     Underwriting insurance or annuities, or acting as an insurance or
            annuity principal, agent or broker;

      -     Providing financial or investment advice;

      -     Issuing or selling interests in pools of assets that a bank could
            hold;

      -     Underwriting, dealing in or making markets in securities;

      -     Engaging in any activity that the Federal Reserve Board found before
            the GLB Act to be related closely to banking (See the section in
            this report entitled "Permitted Non-banking Activities");

      -     Engaging within the United States in any activity that a bank
            holding company could engage in outside of the country, if the
            Federal Reserve Board determined before the GLB Act that the
            activity was usual in connection with banking or other financial
            operations internationally;

      -     Merchant banking - acquiring or controlling ownership interests in
            an entity engaged in impermissible activities, if: the interests are
            not held by a depository institution; the interests are held by a
            securities affiliate or an investment advisory affiliate of an
            insurance company as part of underwriting, merchant or investment
            banking activity; the interests are held long enough to enable their
            sale in a manner consistent with the financial viability of such an
            activity; and we do not control the entity except to the extent
            necessary to obtain a reasonable return on the investment; or

      -     Insurance portfolio investing - acquiring or controlling ownership
            interests in an entity engaged in impermissible activities, if: the
            interests are not held by a depository institution; the interests
            are held by an insurance or annuity company; the interests represent
            investments made in the ordinary course of business in accordance
            with state law; and we do not control the entity except to the
            extent necessary to obtain a reasonable return on the investment.

The GLB Act instructs the Federal Reserve Board to adopt a regulation or order
defining certain additional activities as financial in nature, to the extent
they are consistent with the purposes of the GLB Act. These are:

      -     Lending, exchanging, transferring, investing for others or
            safeguarding financial assets other than money or securities;

      -     Providing any method of transferring financial assets; and

      -     Arranging, effecting or facilitating financial transactions for
            third parties.

Other activities also may be decided by the Federal Reserve Board to be
financial in nature or incidental to a financial activity if they meet specified
criteria. The Federal Reserve Board is instructed to consider the purposes of
the GLB Act and the Bank Holding Company Act; changes in the market in which
financial holding companies compete; changes in the technology used to deliver
financial services; and whether the proposed activity is necessary or
appropriate to allow a financial holding company and its affiliates to compete
effectively, deliver services efficiently and offer services through the most
advanced technological means available.

The GLB Act gives national banks authority to use "financial subsidiaries" to
engage in financial activities. This authority has some limitations. A financial
subsidiary of the Bank may not, as a principal:

      -     underwrite insurance or annuities;

      -     engage in real estate development or investment;

      -     engage in merchant banking; or

      -     engage in insurance portfolio investment activities.

A bank's investment in a financial subsidiary will affect the way it calculates
its capital. The bank must deduct from its assets and stockholders' equity the
total of its investments in financial subsidiaries. Moreover, a bank must
present its financial information in two ways: in accordance with generally
accepted accounting principles, and, separately, in a manner that reflects the
segregation of the bank's investments in financial subsidiaries.

PRIVACY

Title V of the GLB Act creates a minimum federal standard of privacy by limiting
the instances which we and the Bank may disclose nonpublic personal information
about a consumer of our products or services to nonaffiliated third parties. A
state, such as Pennsylvania, can impose a greater or more restrictive standard
of privacy than the GLB Act. The GLB Act distinguishes "consumers" from
"customers" for purposes of the notice requirements imposed by this Act. We are
required to give a "consumer" a privacy notice only if we intend to disclose
nonpublic personal information about the consumer to a nonaffiliated


                                       14
<PAGE>
third party. However, by contrast, we are required to give a "customer" a notice
of our privacy policy at the time of the establishment of a customer
relationship and then annually, thereafter during the continuation of the
customer relationship.

The term consumer is different from the term customer. A consumer means an
individual who obtains or has obtained a financial product or service from the
Bank that is to be used primarily for personal, family or household purposes or
that individual's representative. A customer of the Bank is an individual with a
continuous relationship with the Bank. The Office of the Comptroller of the
Currency has regulations which give several examples of a consumer and customer
relationship:

      -     An individual who applies to the Bank for credit for personal,
            family or household purposes is a consumer of a financial service,
            regardless of whether the credit is extended.

      -     An individual who provides nonpublic personal information to the
            Bank in order to obtain a determination about whether he or she may
            qualify for a loan to be used primarily for personal, family, or
            household purposes is a consumer of a financial service, regardless
            of whether the loan is extended by the Bank or another financial
            institution.

      -     An individual who provides nonpublic personal information to the
            Bank in connection with obtaining or seeking to obtain financial,
            investment or economic advisory services is a consumer regardless of
            whether the Bank establishes an ongoing advisory relationship.

      -     An individual who negotiates a workout with the Bank for a loan that
            the Bank owns is a consumer regardless of whether the Bank
            originally extended the loan to the individual.

      -     An individual who has a loan from the Bank is the Bank's consumer
            even if the Bank:

            -     Hires an agent to collect on the loan;

            -     Sells the rights to service the loan; or

            -     Bought the loan from the financial institution that originated
                  the loan.

      -     An individual is not the Bank's consumer solely because the Bank
            processes information about the individual on behalf of a financial
            institution that extended the loan to the individual.

On the other hand, several examples of a customer follow:

      -     A customer has a continuing relationship with the Bank if the
            customer:

            -     Has a deposit, loan, credit, trust or investment account with
                  the Bank;

            -     Purchases an insurance product from the Bank;

            -     Holds an investment product through the Bank;

                  -     Enters into an agreement or understanding with the Bank
                        whereby the Bank undertakes to arrange or broker a home
                           mortgage loan for the customer;

            -     Has a loan that the Bank services where the Bank owns the
                  servicing rights;

            -     Enters into a lease of personal property with the Bank; or

            -     Obtains financial, investment, or economic advisory services
                  from the Bank for a fee.

            -     A person does not, however, have a continuing relationship
                  with the Bank and therefore is not a customer, if:

                  -     The person only obtains a financial product or service
                        in an isolated transaction, such as withdrawing cash
                        from the Bank's ATM or purchasing a cashier's check or
                        money order;

            -     The Bank sells the person's loan and does not retain the
                  rights to service the loan; or

            -     The Bank sells the person airline tickets, travel insurance or
                  traveler's checks in an isolated transaction.

In general, the Bank cannot disclose to a nonaffiliated third party any
nonpublic personal information of its customers and consumers unless the Bank
provides its customer or consumer with a notice that includes:

      -     the policies and practices of the Bank with regard to:

            -     disclosing nonpublic personal information to nonaffiliated
                  third parties;

            -     the categories of persons to whom the information is or may be
                  disclosed; and

            -     the policy for disclosure to former customers;

      -     categories of nonpublic personal information that are collected by
            the Bank;

      -     the policies that the Bank maintains to protect the confidentiality
            and security of nonpublic personal information;

      -     the disclosure, if required, under the Fair Credit Reporting Act;
            and

      -     in addition, the Bank must provide an opt out notice to each of its
            consumers and customers that explains accurately the right to opt
            out of any disclosure by the Bank of the customer's or consumer's
            nonpublic personal information and the means by which the customer
            or consumer may exercise the opt out right.

The GLB Act sets forth a new requirement that this notice to a consumer or
customer must be in clear and conspicuous or "plain English" language and
presentation. The regulations give several examples of the rules to follow in
drafting these notices:


                                       15
<PAGE>
      -     The Bank makes its notice reasonably understandable if, the Bank:

                  -     Presents the information contained in the notice in
                        clear, concise sentences, paragraphs and sections;

                  -     Uses short explanatory sentences and bullet lists,
                        whenever possible;

                  -     Uses definite, concrete, everyday words and active
                        voice, whenever possible;

                  -     Avoids multiple negatives;

                  -     Avoids legal and highly technical business terminology;
                        and

                  -     Avoids boilerplate explanations that are imprecise and
                        readily subject to different interpretations.

      -     The Bank designs its notice to call attention to the nature and
            significance of the information contained in the notice if, to the
            extent applicable, the Bank:

                  -     Uses a plain-language heading to call attention to the
                        notice;

                  -     Uses a typeface and type size that are easy to read; and

                  -     Provides wide margins and ample line spacing.

      -     If the Bank provides a notice on the same form as another notice or
            other documents, the Bank designs its notice to call attention to
            the nature and significance of the information contained in the
            notice if the Bank uses:

                  -     Larger type size(s), boldface or italics in the text;

                  -     Wider margins and line spacing in the notice; or

                  -     Shading or sidebars to highlight the notice, whenever
                        possible.

The GLB Act creates certain exceptions to the prohibition on disclosure of
nonpublic personal information of customers and consumers. Some of these
exceptions are:

      -     with the consent of the customer or consumer;

      -     to effect, administer or enforce a transaction requested or
            authorized by the customer or consumer;

      -     the servicing or processing of a financial product or service
            requested or authorized by the customer or consumer;

      -     the maintaining or servicing of the customer's or consumer's account
            with the Bank or with another entity as part of a private label
            credit card program;

      -     disclosure to persons holding a legal or beneficial interest
            relating to the customer or consumer or to persons acting in a
            fiduciary or representative capacity on behalf of the customer or
            consumer;

      -     providing information to insurance rate advisory organizations,
            guaranty funds or agencies, rating agencies, persons assessing the
            Bank's compliance with industry standards and the Bank's attorneys,
            accountants and auditors; and

      -     disclosure permitted under other laws, such as the Right to
            Financial Privacy Act, to law enforcement agencies or under local
            and state laws.

The Bank cannot disclose an account number or similar form of access code for a
credit card account, deposit account or transaction account of a customer or
consumer to any non-affiliated third party for use in telemarketing, direct mail
marketing or other marketing through electronic mail to the customer or
consumer.

TERRORIST ACTIVITIES

The Office of Foreign Assets Control or OFAC of the Department of the Treasury
has (and will) send our banking regulatory agencies lists of names of persons
and organizations suspected of aiding, harboring or engaging in terrorist acts.
If the Bank finds any name on any transaction, account or wire transfer that is
on an OFAC list, the Bank must freeze such account, file a suspicious activity
report and notify the FBI. The Bank has appointed an OFAC compliance officer to
oversee the inspection of its accounts and the filing of any notifications.

THE USA PATRIOT ACT

In the wake of the tragic events of September 11, 2001, the President signed the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism ("USA PATRIOT") Act of 2001. Under the USA
PATRIOT Act, financial institutions are subject to prohibitions against
specified financial transactions and account relationships as well as enhanced
due diligence and "know your customer" standards in their dealings with foreign
financial institutions and foreign customers. For example, the enhanced due
diligence policies, procedures, and controls generally require financial
institutions to take reasonable steps:

      -     to conduct enhanced scrutiny of account relationships to guard
            against money laundering and report any suspicious transactions;

      -     to ascertain the identity of the nominal and beneficial owners of,
            and the source of funds deposited into, each account as needed to
            guard against money laundering and report any suspicious
            transactions;


                                       16
<PAGE>
      -     to ascertain for any foreign bank, the shares of which are not
            publicly traded, the identify of the owners of the foreign bank, and
            the nature and extent of the ownership interest of each such owner;
            and

      -     to ascertain whether any foreign bank provides correspondent
            accounts to other foreign banks and, if so, the identity of those
            foreign banks and related due diligence information.

Under the USA PATRIOT Act, the Bank had until April 25, 2002 to establish
anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards
for these programs, including:

      -     the development of internal policies, procedures, and controls;

      -     the designation of a compliance officer;

      -     an ongoing employee training program; and

      -     and independent audit function, in order to test these programs.

In addition, the USA PATRIOT Act authorized the Secretary of the Treasury to
adopt rules increasing the cooperation and information sharing between financial
institutions, regulators, and law enforcement authorities regarding individuals,
entities and organizations engaged in, or reasonably suspected based on credible
evidence of engaging in, terrorist acts or money laundering activities. Any
financial institutions complying with these rules will not be deemed to have
violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed
above.

SUBPRIME LENDING

Our federal banking regulatory agencies have jointly issued expanded examination
and supervision guidance relating to subprime lending activities. In the
guidance, "subprime" lending generally refers to programs that target borrowers
with weakened credit histories or lower repayment capacity. The guidance
principally applies to institutions with subprime lending programs with an
aggregate credit exposure equal to or greater than 25 percent of an
institution's Tier 1 capital. Such institutions would be subject to more
stringent risk management standards and, in many cases, additional capital
requirements. As a starting point, the guidance generally expects that such an
institution would hold capital against subprime portfolios in an amount that is
one and one-half to three times greater than the amount appropriate for similar
types of non-subprime assets. The Bank does not engage in any subprime lending
programs.

The Federal Reserve Board has issued regulations which would implement the Home
Ownership and Equity Protection Act or HOEPA. This Act imposes additional
disclosure requirements and certain substantive limitations on certain mortgage
loans with rates or fees above specified levels. The proposed regulations would
lower the rate levels that trigger the application of HOEPA and would include
additional fees in the calculation of the fee amount that triggers HOEPA. The
loans that the Bank currently makes are generally below the rate and fee levels
that trigger HOEPA.

On June 23, 2001, the Governor of the Commonwealth of Pennsylvania signed into
law Act 55 of 2001, the Mortgage Bankers and Brokers and Consumer Equity
Protection Act. This law addresses what is known as "predatory lending", among
other things, and is applicable to the Bank's closed-end home equity mortgage
loans, involving property located in Pennsylvania, in an amount less than
$100,000 made at a "high cost" which is generally the rate and point triggers in
the HOEPA. Those HOEPA triggers are:

      -     an annual percentage rate exceeding 10 percentage points above
            comparable term U.S. Treasury Securities; and/or

      -     total points and fees payable by the consumer at or before closing
            that exceed the greater of 8 percent of the total loan amount or
            $400. The $400 is adjusted annually by the annual percentage change
            in the CPI, and for the years 2002 and 2003 is $480 and $488,
            respectively, according to the Federal Reserve Board.

These loans are called "covered loans" under this law. If HOEPA's rate or point
triggers are changed, then the definition of a covered loan under this law
changes automatically. Loans with an original principal amount of $100,000 or
more are not subject to this law, but may be subject to HOEPA.

Certain loan terms are prohibited or conditionally restricted in connection with
a covered loan, such as: balloon payments, call provisions, negative
amortization, increased interest rate upon default, and prepayment fees or
penalties.

Certain acts or practices are prohibited, conditionally restricted, or required
in connection with a covered loan, including the following:

      -     a cautionary notice, in writing, is required to be provided by the
            Bank to the borrower at least three business days prior to
            consummation of the mortgage transaction;


                                       17
<PAGE>
      -     it is impermissible to engage in a pattern or practice of making
            covered loans without due regard to the consumer's ability to repay
            the loan;1

      -     there are restrictions on the Bank refinancing an existing covered
            loan held by it with a new covered loan such that no points may be
            charged to the extent the proceeds are used to refinance the
            existing covered loan if the most recent financing was within one
            year;

      -     the Bank may not refinance a zero interest rate or low-rate loan
            made by a governmental or nonprofit lender with a covered loan
            unless the loan is at least ten years old or the current holder of
            the loan consents to the refinancing;

      -     the Bank may not pay proceeds from a covered loan directly to a home
            improvement contractor but instead must disburse the loan proceeds
            through an instrument payable to the borrower (statutorily defined
            as the person obligated to repay a covered loan) individually or
            jointly with the contractor or, at the borrower's election through a
            third party escrow agent in accordance with the terms of a written
            agreement signed by the borrower, the Bank, and home improvement
            contractor prior to disbursement of funds to the contractors;

      -     the Bank may not sell single premium credit insurance in connection
            with a covered loan unless the Bank offers the borrower the option
            of purchasing all such credit insurance on a monthly basis
            (compliance with this provision is required by 18 months to 2 years
            after June 25, 2002);

      -     a credit insurance notice, in writing, must be provided to the
            borrower stating that his or her purchase of credit insurance is not
            a required condition of obtaining the covered loan, and that the
            borrower may cancel the credit insurance within 30 days of the date
            of the covered loan in order to receive a full refund (meaning a
            credit to the loan balance or cash, at the Bank's or insurance
            company's discretion);

      -     the Bank shall maintain records related to covered loans that will
            facilitate the Pennsylvania Department of Banking determining
            compliance;

      -     the Bank or its servicer shall file quarterly reports of favorable
            and unfavorable credit history of the borrower with a nationally
            recognized consumer credit reporting agency, but this requirement
            shall not prevent the Bank or servicer from agreeing with the
            borrower not to report payment history information related to
            resolved or unresolved disputes with a borrower, and this provision
            shall not apply to covered loans held or serviced by the Bank for
            less than 90 days; and

      -     the Bank shall verify that each mortgage broker with whom it does
            business in connection with covered loans holds the required license
            to engage in business in Pennsylvania.

A borrower can institute a civil action to recover damages from the Bank if it
engages in the above practices with respect to a covered loan. Moreover, the
Pennsylvania Department of Banking can impose monetary penalties; revoke a
license; issue a cease and desist order; and remove persons from their
employment in the mortgage finance industry or in any other capacity related to
these prohibited activities.

SALES OF INSURANCE

Our federal banking regulatory agencies have issued their consumer protection
rules with respect to the retail sale of insurance products by the Company, the
Bank, or a subsidiary or joint venture of the Company or the Bank. These rules
cover generally practices, solicitations, advertising or offers of any insurance
product by a depository institution or any person that performs such activities
at an office of, or on behalf of, the Company or the Bank. Moreover, these rules
include specific provisions relating to sales practices, disclosures and
advertising, the physical separation of banking and nonbanking activities, and
domestic violence discrimination.

THE BANK

The Bank's legal headquarters are located at 232 East Street, Bloomsburg,
Columbia County, Pennsylvania 17815. The Bank is a locally-owned and managed
community bank that seeks to provide personal attention and professional
financial assistance to its customers. The Bank serves the needs of individuals
and small - and medium-sized businesses. The Bank's business philosophy includes
offering direct access to its President and other officers and providing
friendly, informed and courteous service, local and timely decision making,
flexible and reasonable operating procedures and consistently-applied credit
policies.

The Bank solicits small and medium-sized businesses located primarily within the
Bank's market area that typically borrow in the $25,000 to $1.0 million range.
In the event that certain loan requests may exceed the Bank's lending limit to
any one customer, the Bank seeks to arrange such loans on a participation basis
with other financial institutions.

----------
1     The consumer's ability to repay applies under this law only to persons
      whose income is 120% or less of the median family income under the
      metropolitan statistical area or nonmetropolitan family income statistics.
      There is a statutory presumption that a consumer can repay the covered
      loan if the monthly payment does not exceed 50% of the consumer's monthly
      gross income. There is no statutory presumption that a consumer cannot
      make the payments even if the 50% monthly gross income level is exceeded
      by the required monthly loan payments.


                                       18
<PAGE>
MARKETING AREA

The Bank's primary market area is Columbia County, a 484 square mile area
located in Northcentral Pennsylvania with a population of approximately 64,157
based on 2000 census data. The Town of Bloomsburg is the County's largest
municipality and its center of industry and commerce. Bloomsburg has a
population of approximately 12,375 based on 2000 census data, and is the county
seat. Berwick, located on the eastern boundary of the County, is the second
largest municipality, with a 2000 population of approximately 10,774. The Bank
currently serves its market area through six branch offices located in
Bloomsburg, Benton, Lightstreet, Millville, Orangeville and South Centre,
Columbia County.

The Bank competes with eight other depository institutions in Columbia County.
The Bank's major competitors are: First National Bank of Berwick; PNC Bank,
N.A., the largest commercial bank headquartered in Pennsylvania; and First
Columbia Bank and Trust Company of Bloomsburg, Pennsylvania.

The Bank's extended market area includes the adjacent Pennsylvania counties of
Luzerne, Montour, Northumberland, Schuylkill and Sullivan.

FUTURE LEGISLATION

Various legislation, including proposals to substantially change the financial
institution regulatory system and to expand or contract the powers of banking
institutions and bank holding companies, is from time to time introduced in the
Congress. This legislation may change banking statutes and our operating
environment in substantial and unpredictable ways. If enacted, such legislation
could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks, savings
associations, credit unions, and other financial institutions. We can not
accurately predict whether any of this potential legislation will ultimately be
enacted, and, if enacted, the ultimate effect that it, or implementing
regulations, would have upon our financial condition or results of operations.

ITEM 2. PROPERTIES

Our corporate headquarters are located at 232 East Street, Bloomsburg,
Pennsylvania. We own this facility which has approximately 11,686 square feet.
The Bank's legal or registered office is also at 232 East Street, Bloomsburg,
Pennsylvania.

Our remaining banking centers, all of which we own, are described as follows:

<TABLE>
<CAPTION>
                                           Approximate
Location             Square Footage            Use
--------             --------------            ---
<S>                  <C>                <C>
Orangeville, PA          2,259          Banking Services
Benton, PA               4,672          Banking Services
South Centre, PA         3,868          Banking Services
Scott Township, PA      16,500          Banking Services, Corporate,
                                        Credit and Operations
Millville, PA            2,520          Banking Services
</TABLE>

We consider our facilities to be suitable and adequate for our current and
immediate future purposes.

ITEM 3. LEGAL PROCEEDINGS

We and the Bank are not parties to any legal proceedings that could have any
significant effect upon our financial condition or income. In addition, we and
the Bank are not parties to any legal proceedings under federal and state
environmental laws.

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

We had 798 stockholders of record including individual participants in security
position listings and 1,287,365 shares of common stock, par value of $1.25 per
share, the only authorized class of common stock, outstanding as of February 28,
2003. Our common stock trades under the symbol "CCFN." As of February 28, 2003,
4 firms were identified on the interdealer electronic bulletin board system as
market makers in our common stock. The following information is reported by one
of our market makers: Ferris, Baker Watts, Inc., Washington, D.C. These
quotations represent prices between buyers and sellers and do not include retail


                                       19
<PAGE>
makeup, markdown or commission. They may not necessarily represent actual
transactions. The high and low closing sale prices and dividends per share of
our common stock for the four quarters of 2002 and 2001 are summarized in the
following table.

<TABLE>
<CAPTION>
                                                      Dividends
2002:                 High ($)          Low ($)      Declared ($)
                      --------          -------      ------------
<S>                   <C>               <C>          <C>
First quarter            23.45            21.12           .15
Second quarter           21.60            21.00           .16
Third quarter            24.00            20.36           .16
Fourth quarter           24.25            23.00           .16
</TABLE>

<TABLE>
<CAPTION>
                                                     Dividends
2001:                High ($)          Low ($)      Declared ($)
                     --------          -------      ------------
<S>                  <C>               <C>          <C>
First quarter           17.88            16.50           .14
Second quarter          21.00            19.00           .15
Third quarter           24.50            23.00           .15
Fourth quarter          23.75            23.05           .15
</TABLE>

We have paid cash dividends since 1983. It is our present intention to continue
the dividend payment policy, although the payment of future dividends must
necessarily depend upon earnings, financial position, appropriate restrictions
under applicable law and other factors relevant at the time the Board of
Directors considers any declaration of dividends.

ITEM 6. SELECTED FINANCIAL DATA

                               CCFNB BANCORP, INC.
                     SELECTED CONSOLIDATED FINANCIAL SUMMARY

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)

<TABLE>
<CAPTION>
                                                       2002             2001            2000             1999              1998
                                                  -------------    -------------    -------------    -------------    -------------
<S>                                               <C>              <C>              <C>              <C>              <C>
INCOME STATEMENT DATA:
Total interest income .........................   $      12,780    $      13,720    $      13,552    $      12,669    $      12,444
Total interest expense ........................           5,741            6,924            6,859            6,099            6,072
                                                  -------------    -------------    -------------    -------------    -------------
Net interest income ...........................   $       7,039                $          6,796 $      6,693$6,570            6,372
Provision for possible loan losses ............             309              163               54               78               78
Other operating income ........................           1,210            1,149            1,053            1,050              981
Other operating expenses ......................           5,479            5,104            4,967            4,818            4,739
Federal income taxes ..........................             539              621              671              685              634
                                                  -------------    -------------    -------------    -------------    -------------
Net income ....................................   $       1,922    $       2,057    $       2,054    $       2,039    $       1,902
                                                  =============    =============    =============    =============    =============

PER SHARE DATA:
Earnings per share (1) ........................   $        1.47    $        1.54    $        1.51    $        1.48    $        1.38
Cash dividends declared per share .............            0.63             0.59             0.56             0.51             0.46
Book value per share ..........................           20,76            19.64            18.61            16.85            16.65
Average shares outstanding ....................       1,309,084        1,338,007        1,355,624        1,375,572        1,378,339

BALANCE SHEET DATA:
Total assets ..................................   $     229,032    $     214,238    $     203,054    $     196,122    $     185,258
Total loans ...................................         151,338          142,990          137,360          134,423          118,558
Total securities ..............................          53,538           57,121           47,311           49,104           48,151
Total deposits ................................         172,127          155,666          143,169          138,606          137,679
FHLB advances - long-term .....................          11,347           11,357           13,368            2,344            2,291
Total stockholders' equity ....................          26,840           26,042           25,050           23,047           23,480

PERFORMANCE RATIOS:
Return on average assets ......................            0.86%           0 .99             1.04%            1.09%            1.07%
Return on average stockholders' equity ........            7.22%            7.92%            8.59%            8.91%            8.54%
Net interest margin (2) .......................            3.58%            3.68%          3..88%             3.96%            4.04%
Total  non-interest  expense as a percentage of
   average assets .............................            2.45%            2.45             2.52%            2.58%            2.67%

ASSET QUALITY RATIOS:
Allowance for possible loan losses as a
percentage of loans, net ......................             .87%            0.72%            0.74%            0.73%            0.81%
Allowance for possible loan losses as a
   percentage of non-performing loans (3) .....           57.95%           60.54%          341.27%          264.83%          100.32%
Non-performing loans as a percentage of total
   loans, net (3) .............................            1.49%            1.19             0.25%            0.28%            0.81%
Non-performing assets as a percentage of total
   assets (3) .................................            0.98%            0.79%            0.17%            0.19%            0.51%
Net charge-offs as a percentage of average net
   loans (4) ..................................            0.03%            0.10%            0.02%            0.04%            2.11%
</TABLE>


                                       20
<PAGE>
<TABLE>
<S>                                                       <C>              <C>              <C>              <C>              <C>
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets ..............................           11.72%           12.16%           12.34%           11.75%           12.53%
Tier 1 Capital to risk-weighted assets (5) ....           20.36%           19.06%           20.94%           17.94%           20.93%
Leverage ratio (5)(6) .........................           11.77%           12.44%           13.02%           12.94%           12.95%
Total capital to risk-weighted assets (5) .....           18.53%           19.82%           21.79%           18.68%           21.80%
Dividend payout ratio .........................           42.86%           38.31%           37.09%           34.23%           33.72%
</TABLE>

----------

(1) Based upon average shares and common share equivalents outstanding.

(2) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.

(3) Non-performing loans are comprised of (i) loans which are on a non-accrual
basis, (ii) accruing loans that are 90 days or more past due, and (iii)
restructured loans. Non-performing assets are comprised of non-performing loans
and foreclosed real estate (assets acquired in foreclosure), if applicable.

(4) Based upon average balances for the respective periods.

(5) Based on the Federal Reserve Bank's risk-based capital guidelines, as
applicable to the Corporation. The Bank is subject to similar requirements
imposed by the Comptroller of the Currency.

(6) The leverage ratio is defined as the ratio of Tier 1 Capital to average
total assets less intangible assets, if applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion and analysis should be read in conjunction with
the detailed information and financial statements, including notes thereto,
included elsewhere in this Annual Report. Our consolidated financial condition
and results of operations are essentially those of our subsidiary, the Bank.
Therefore, the analysis that follows is directed to the performance of the Bank.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

      General. Banking is affected, directly and indirectly, by local, domestic
and international economic and political conditions, and by government 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 our control may adversely affect the future
results of operations. We do not expect any one particular factor to affect our
results of operations. A downward trend in several areas, however, including
real estate, construction and consumer spending, could have an adverse impact on
our ability to maintain or increase profitability. Therefore, there is no
assurance that we will be able to continue our current rates of income and
growth.

      Interest Rates. Our earnings depend, to a large extent, upon net interest
income, which is primarily influenced by the relationship between the cost of
funds (deposits and borrowings) and the yield on interest-earning assets (loans
and investments). This relationship, known as the net interest spread, is
subject to fluctuation and is affected by regulatory, economic and competitive
factors which influence interest rates, the volume, rate and mix of
interest-earning assets and interest-bearing liabilities, and the level of
non-performing assets. As part of our interest rate risk management strategy
comprised of interest rate risk, mortgage risk, and deposit pricing risk
components, we seek to control our exposure to interest rate changes by managing
the maturity and repricing characteristics of interest-earning assets and
interest-bearing liabilities.

      As of December 31, 2002, total interest-earning assets maturing or
repricing within one year were more than total interest-bearing liabilities
maturing or repricing in the same period by $16,704,000, representing a
cumulative one-year interest rate sensitivity gap as a percentage of positive
7.29%. This condition suggests that the yield on the our interest-earning assets
should adjust to changes in market interest rates at a faster rate than the cost
of the our interest-bearing liabilities. Consequently, our net interest income
could increase during periods of rising interest rates. See "Interest Rate
Sensitivity".

      Local Economic Conditions. Our success is dependent, to a certain extent,
upon the general economic conditions in the geographic market in which we
conduct our business. Although we expect that economic conditions will continue
to be favorable in this market, no assurance can be given that these economic
conditions will continue. Adverse changes in economic conditions in the
geographic market that we serve would likely impair our ability to collect loans
and could otherwise have a material adverse effect on our results of operations
and financial condition.

      Competition. The banking industry is highly competitive, with rapid
changes in product delivery systems and in consolidation of service providers.
Many of our competitors are bigger than us in terms of assets and have
substantially greater technical, marketing and financial resources. Because of
their size, many of these competitors can (and do) offer products and services
that we do not offer. We are constantly striving to meet the convenience and
needs of our customers and to enlarge our customer base. No assurance can be
given that these efforts will be successful in maintaining and expanding our
customer base.

                              RESULTS OF OPERATIONS

      Our net income decreased by 6.6% from $2,057,000 in 2001 to $1,922,000 in
2002. Earnings per share decreased by 4.5% from $1.54 in 2001 to $1.47 in 2002.
Our return on average assets (ROAA) decreased to 0.86% in 2002, compared to
0.99% in 2001. Our return on average equity (ROAE) decreased to 7.22% in 2002,
compared to 7.92% in 2001.The primary reasons for these declines in our
performance ratios were: the decreasing interest rate environment; unstable
economic conditions; a significant increase to our loan loss reserve; the
downward repricing of our large concentration of adjustable rate mortgages; the


                                       21
<PAGE>
adjustment to the funding of deferred compensation plans and the funding of
deferred health benefits for retiring Senior Management; an increase in
non-accrual loans; and interest expense on long term debt.

      Loans increased by 5.8% in 2002 to $151,338,000 from $142,900,000 in 2001.
This increase was in the real estate lending area.

      We instituted, in 1995, a dividend reinvestment plan and an employees
stock purchase plan. Moreover, in 1999, we commenced a strategy to purchase and
cancel up to 10% of our outstanding shares of common stock through open market
purchases. This repurchase program resulted in the purchase and cancellation of
the following numbers of shares of our common stock for the years indicated:
41,500 shares (2002); 27,501 shares (2001); and 30,100 shares (2000). The net
effect of the stock plans and the repurchase program resulted in weighted
average shares of common stock outstanding as follows: 1,309,084 (2002);
1,338,007 (2001); and 1,355,624 (2000).

      Tax-equivalent net interest income increased 2.7% to $7.5 million in 2002
from $7.3 million in 2001. Average earning assets increased 6.3% from $198.2
million in 2001 to $210.6 million in 2002. Along with the increase in interest
earning assets, net interest income also increased 2.9% from $6.8 million in
2001 to $7 million in 2002. This increased net interest income is a result of
strategies in the loan and deposit areas during 2002. One strategy consisted of
closely monitoring all deposit pricing to minimize interest expense. Other
strategies were the marketing of a 7 year convertible rate and a 15 year fixed
rate mortgage product.

                          TABLE OF NON-INTEREST INCOME
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                           --------------------------------------
                                            2002            2001            2000
                                           ------          ------          ------
<S>                                        <C>             <C>             <C>
Service charges and fees ........          $  651          $  606          $  595
Gain on sale of loans ...........               1               0               0
Trust department income .........             215             238             219
Investment securities gains - net             137              99               0
Other ...........................             207             206             239
                                           ------          ------          ------
Total non-interest income .......          $1,211          $1,149          $1,053
                                           ======          ======          ======
</TABLE>

      Total non-interest income increased slightly during 2002 from $1,149,000
in 2001 to $1,211,000 in 2002. The decline in Trust income in the amount of
$23,000 was primarily due to the decline in market value of the accounts. This
loss offset the increases in fee income of $45,000 and Gain on sale investment
securities of $38,000; making the increase in non-interest income $62,000 for
the year. The amount of Trust income decreased 9.7% from $238,000 in 2001 to
$215,000 in 2002. Service fees and charges increased from $606,000 in 2001 to
$651,000 in 2002 or 7.4%. Other income remained at $207,000 for 2002 compared to
$206,000 in 2001. The increase in the non-interest area is reflected in the gain
on sale of investment securities, which increased $38,000 from $99,000 in 2001
to $137,000 in 2002. During 2002, we began a fixed-rate mortgage sales program
with the Federal Home Loan Bank of Pittsburgh (FHLB-Pgh), in which fixed-rate
mortgages are sold to FHLB-Pgh with servicing rights maintained by us and some
recourse retained by us. During 2002, one such loan was placed on the books
reflecting approximate income of $1,000. Many more loan sales are expected in
2003 due to the low interest rate environment.


                                       22
<PAGE>
                          TABLE OF NON-INTEREST EXPENSE
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                         --------------------------------------
                                          2002            2001            2000
                                         ------          ------          ------
<S>                                      <C>             <C>             <C>
Salaries and wages ............          $2,224          $2,050          $2,016
Employee benefits .............             730             692             645
Net occupancy expense .........             335             366             328
Furniture and equipment expense             587             544             601
State shares tax ..............             254             243             219
Other expense .................           1,329           1,209           1,158
                                         ------          ------          ------
Total non-interest expense ....          $5,479          $5,104          $4,967
                                         ======          ======          ======
</TABLE>

      Total non-interest expense increased to $5,479,000 in 2002 from $5,104,000
in 2001 or an increase of 7.3%. An 7.7% increase in salaries and benefits was
attributable to normal merit and cost of living increases as well as increased
health insurance costs. Additionally, two deferred compensation plans for senior
officers were modified and the cost attributed to these increases was 35.1% of
the $212,000 increase. Furniture and equipment expense increased 7.9% from
$544,000 in 2001 compared to $587,000 in 2002. The main factor contributing to
this increase was a systems upgrade during 2002 of the wide area network (WAN)
computer system, including hardware and software, loan and deposit software and
telephone system upgrades. Net occupancy expense decreased $11,000 from $366,000
in 2001 to $355,000 in 2002 or 3%. The mild winter enjoyed in 2002 was the
contributing factor in this decrease. State Shares tax increased 4.5% from
$243,000 in 2001 to $254,000 in 2002.

      A 9.9% increase in other expenses from $1,209,000 in 2001 to $1,329,000 in
2002 was attributable to the following increases:

<TABLE>
<S>                                <C>
Other Professional                 $ 25,000
Accounting                           20,000
Other Real Estate Expense            17,000
Deferred Health Benefits             15,000
Third Party Loss of 2001             15,000
Telephone                            13,000
Data processing                      12,000
Other                                 3,000
                                   --------
Total                              $120,000
                                   ========
</TABLE>

      One standard to measure non-interest expense is to express non-interest
expense as a percentage of average total assets. In 2002, this percentage was
2.5% compared to 2.4% in 2001.

      Loan delinquencies increased 51.6% from $2,647,000 in 2001 to $4,013,000
in 2002. The increase in these delinquencies was attributed to the current
economic conditions, which resulted in less profitability for many local
companies. This further impacted the local job market and the associated wages.
The provision for loan losses for 2002 increased in response to this rise in
delinquencies from $162,500 in 2001 to $309,000 in 2002. Our management has been
diligent in its efforts to reduce these delinquencies and has increased
monitoring and review of current loans to foresee future delinquency occurrences
and react to them quickly.

                               NET INTEREST INCOME

      Tax-equivalent net interest income for 2002 equaled $7,529,000 compared to
$7,290,000 in 2001, an increase of 3.3%.

      The decrease in the overall net interest margin from 3.68% in 2001 to
3.58% in 2002 is a result of interest rate changes with adjustable loan rates
repricing downward throughout 2002 in this continuing downward interest rate
environment. Income received on one-day investments fell from an average of
4.09% for 2001 to an average of 1.22% for 2002. This "squeeze" caused by
interest rates is keeping the net interest spread in a declining mode; however,
the change in net interest margin is gradual and slight. Our "asset" sensitive
position places us in a position to have an increase in our net interest margin
when rates rise. The cost of long-term debt averaged 5.99% for the year which
contributed to the declining net interest margin. This long-term debt will
remain a deterrent to us in a declining interest rate environment. This is due
to the fact that the Federal Home Loan Bank has the option to reprice these
loans at their discretion. Until interest rates would rise to make the current
5.99% average rate unattractive, this in all probability will not occur. We will
continue to use the following strategies to mitigate this decline in our net
interest margin: Pricing of deposits will continue to be monitored and lowered,
if necessary, to meet current market conditions; large deposits over $100,000
will continue to be priced conservatively; and in this low interest rate
environment the majority of new investments will be kept short term in
anticipation of rising rates.


                                       23

<PAGE>

                       TAX-EQUIVALENT NET INTEREST INCOME
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                ----------------------------------
                                                                   2002          2001        2000
                                                                  ------        ------      ------
<S>                                                              <C>           <C>         <C>
Interest income .........................................        $12,780       $13,719     $13,552
Interest expense.........................................          5,741         6,924       6,859
                                                                 -------       -------     -------
Net interest income......................................          7,039         6.795       6,693
Tax-equivalent adjustment................................            490           495         445
                                                                 -------       -------     -------
Net interest income (fully taxable equivalent)...........        $ 7,529       $ 7,290      $7,138
                                                                 =======       =======     =======
</TABLE>

      The following Average Balance Sheet and Rate Analysis table presents the
average assets, actual income or expense and the average yield on assets,
liabilities and stockholders' equity for the years 2002, 2001 and 2000.

                     AVERAGE BALANCE SHEET AND RATE ANALYSIS
                         THREE YEARS ENDED DECEMBER 31,
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                2002                               2001                             2000
                                                ----                               ----                             ----
                                    Average    Interest   Average    Average    Interest    Average   Average   Interest   Average
                                    Balance    Inc./Exp   Yd/Rate    Balance    Inc./Exp    Yd/Rate   Balance   Inc./Exp   Yd/Rate
                                    -------    --------   -------    -------    --------    -------   -------   --------   -------
<S>                                 <C>        <C>        <C>        <C>        <C>         <C>       <C>       <C>        <C>
ASSETS:                               (1)         (2)                  (1)         (2)                  (1)        (2)
Interest Bearing Deposits With
      Other Financial Institutions   $  5,309   $    65      1.22%   $  6,569    $   269      4.09%   $  1,296   $    83      6.40%
                                     ----------------------------------------------------------------------------------------------
Investment Securities:
      U.S. Government Securities..     32,180     1,548      4.81%     29,908    $ 1,727       5.77     30,980   $ 1,912      6.17
      State and Municipal
        Obligations (3)...........     16,965       799      7.14%     17,162        815       7.19     14,731       732      7.53
      Other Securities............      5,052       221      4.37%      3,523        196       5.56      1,292        98      7.59
                                     ----------------------------------------------------------------------------------------------
Total Investment Securities.......   $ 54,197   $ 2,568      4.74%   $ 50,593    $ 2,738       5.41%  $ 47,003   $ 2,742      5.83%
                                     ----------------------------------------------------------------------------------------------
Federal Funds Sold................      3,503        51      1.46%      1,771         67       3.78%        49         3      6.12%
                                     ----------------------------------------------------------------------------------------------
      Consumer....................      8,767       742      8.46%     11,436        959       8.39     12,515     1,016      8.12
      Dealer Floor Plan...........      4,543       181      3.98%      4,522        290       6.41      5,424       475      8.76
      Mortgage....................    122,434     8,450      6.90%    111,715      8,523       7.63    104,356     8,169      7.83
      Commercial..................      8,941       570      6.38%      8,733        726       8.28      9,500       931      9.80
      Municipal Leases (3)........      1,863        98      7.97%        230         10       6.59        145         8      8.36
      Tax Free (3)................        997        55      8.36%      2,543        137       8.16      2,385       125      7.94
                                     ----------------------------------------------------------------------------------------------
Total Loans.......................   $147,545   $10,096      6.84%   $139,219    $10,645      7.65%   $134,325   $10,724      7.98%
                                     ----------------------------------------------------------------------------------------------
Total Interest-Earning Assets.....    210,554    12,780      6.07%    198,152     13,719      6.92%    182,673    13,552      7.42%
                                                ------------------               ------------------
Reserve for Loan Losses...........     (1,167)                         (1,015)                          (1,018)
Cash and Due from Banks...........      5,328                           2,373                            5,360
Other Assets......................      8,761                           9,120                            9,712
                                     --------                        --------                         --------
Total Assets......................   $223,476                        $208,630                         $196,727
                                     ========                        ========                         ========

LIABILITIES AND CAPITAL:
NOW Deposits......................   $ 24,575   $   133      0.54%   $ 22,188      $ 217       .98%   $ 21,662   $   279      1.29%
IRA's under $100,000..............      8,636       240      2.78%      8,326        368      4.42%      8,147       433      5.31%
Money Market Deposits.............     10,858       112      1.03%      8,337        173      2.08%      9,308       255      2.74%
Savings Deposits..................     24,040       266      1.11%     21,335        396      1.86%     21,464       550      2.56%
Time Deposits including IRA's
      over $100,000...............     29,143     1,419      4.87%     24,272      1,493      6.15%     17,169     1,066      6.21%
Other Time Deposits under
        $100,000..................     53,631     2,555      4.76%     51,121      2,827      5.53%     47,579       889      5.40%
                                     ----------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits...   $150,883   $ 4,725      3.13%   $135,579     $5,474      4.04%   $125,329   $ 5,170      4.13%
U.S. Treasury Short-Term
        Borrowings................        511         6      1.17%        485         17      3.51%        439        28      6.38%
Short-Term Borrowings
        - Other...................          0         0      0.00%          0          0       .00%      3.449       202      5.68%
Long-Term Borrowings..............     11,351       680      5.99%     12,179        731      6.00%     10,847       570      5.25%
Repurchase Agreements.............     17,494       330      1.89%     18,965        702      3.70%     16,468       889      5.40%
                                     ----------------------------------------------------------------------------------------------
Total Interest-Bearing
        Liabilities...............   $180,239   $55,741      3.19%   $167,208     $6,924      4.14%   $156,532   $ 6,859      4.38%
                                                -------      -----                -----------------              ------------------
Demand Deposits...................     15,224                          14,022                           14,445
Other Liabilities.................      1,398                           1,420                            1,840
Stockholders' Equity..............     26,615                          25,980                           23,910
                                     --------                        --------                         --------
Total Liabilities and Capital.....   $223,476                        $208,630                         $196,727
                                     ========                        ========                         ========
NET INTEREST INCOME/NET
     INTEREST MARGIN (4)..........              $ 7,039      3.34%                $6,795      3.43%              $ 6,693      3.66%
                                                ==================                =================              ==================
TAX-EQUIVALENT NET INTEREST
     INCOME/NET INTEREST
        MARGIN (5)................              $ 7,529      3.58%                $7,290      3.68%              $ 7,138      3.91%
                                                ==================                =================              ==================
</TABLE>

(1)   Average volume information was compared using daily (or monthly) averages.
(2)   Interest on loans includes fee income.
(3)   Yield on tax-exempt obligations has been computed on a tax-equivalent
      basis.
(4)   Net interest margin is computed by dividing net interest income by total
      interest-earning assets. (5) Interest and yield are presented on a
      tax-equivalent basis using 34% for 2002, 2001 & 2000.

                                       24
<PAGE>
                        COMPONENTS OF NET INTEREST INCOME

      To enhance the understanding of the effects of volumes (the average
balance of earning assets and costing liabilities) and average interest rate
fluctuations on the balance sheet as it pertains to net interest income, the
table below reflects these changes for 2002 versus 2001, 2001 versus 2000, and
2000 versus 1999:

        TABLE OF NET INTEREST INCOME COMPONENTS ON A TAX-EQUIVALENT BASIS
                  For the twelve months ended December 31, 2002
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                            2002 Versus 2001                2001 Versus 2000                 2000 Versus 1999
                                            ----------------               ----------------                 ----------------
                                           Increase (Decrease)             Increase (Decrease)              Increase (Decrease)
                                            Due to Changes In              Due to Changes In                Due to Changes In
                                            -----------------              -----------------                -----------------
                                     Average    Average             Average    Average               Average     Average
                                     Volume      Rate      Total    Volume       Rate       Total     Volume      Rate      Total
                                     ------      ----      -----    ------       ----       -----     ------      ----      -----
<S>                                  <C>        <C>       <C>       <C>        <C>          <C>      <C>         <C>       <C>
Interest Income:
Interest-Bearing Deposits with
 Other Financial Institutions ....   $ (52)     $  (189)  $  (241)   $  337      $ (30)     $ 307      $ (70)     $ 43      $ (27)
U.S. Government Securities .......     131         (287)     (156)      (66)      (124)      (190)      (200)      100       (100)
State and Municipal Obligations ..     (14)          (9)      (23)      183        (50)       133         30        34         64
Other Securities .................      85          (42)       43       169        (26)       143         10        12         22
Federal Funds Sold ...............      65          (41)       24       105         (1)       104        (37)       11        (26)
Consumer Loans ...................    (224)           8      (216)      (88)        34        (54)       141       (11)       130
Dealer Floor Plan ................       1         (110)     (109)      (79)      (127)      (206)       204        22        226
Mortgage Loans(1) ................     818         (816)        2       576       (209)       367        382        10        392
Commercial Loans .................      14         (167)     (153)      (71)      (144)      (215)       156        61        217
Int. Municipal Leases-Lehigh-Tax
 Exempt ..........................     108            3       111         7         (3)         4          7        (1)         6
Tax Free Loans ...................    (126)           5      (121)       13          5         18         15         2         17
                                     ---------------------------------------------------------------------------------------------
Total Earning Assets .............   $ 806      $(1,645)  $  (839)   $1,086      $(675)     $ 411      $ 638      $283      $ 921
                                     ---------------------------------------------------------------------------------------------
Interest Expense:
SUPER NOW Deposits ...............   $  23      $   (98)  $   (75)   $    7      $ (67)     $ (60)     $  (1)     $ (9)     $ (10)
IRA ..............................      14         (137)     (123)       10        (73)       (63)       (10)       31         21
Money Market Deposits ............      52          (88)      (36)      (27)       (61)       (88)       (42)       (1)       (43)
Savings Deposits .................      50         (160)     (110)       (3)      (150)      (153)       (11)        2         (9)
Time Deposits over $100,000 ......     300         (311)      (11)      441        (10)       431        165        67        232
Other Time Deposits ..............     139         (394)     (255)      193         43        236        (49)       63         14
U.S. Treasury - Short-Term
 Borrowings ......................       1          (11)      (10)        3        (13)       (10)        (1)        8          7
Short-Term Borrowings - Other ....       0            0         0      (202)      (202)      (404)        99         3        102
Long-Term Borrowings .............     (50)          (1)      (51)       70         81        151        477        (8)       469
Repurchase Agreements ............     (54)        (343)     (397)      135       (280)      (145)      (118)      127          9
                                     ---------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits ..   $ 475      $(1,543)  $(1,068)   $  627      $(732)     $(105)     $ 509      $283      $ 792
                                     ---------------------------------------------------------------------------------------------
NET INTEREST INCOME ..............   $ 331      $  (102)  $   229    $  459      $  57      $ 516      $ 129      $  0      $ 129
                                     =============================================================================================
</TABLE>

(1)   Includes non-accrual loans.

                               FINANCIAL CONDITION

            Our consolidated assets at December 31, 2002 were $229 million which
      represented an increase of $14.8 million or 6.9% over $214.2 million at
      December 31, 2001. The comparable increase for 2001 over 2000 was 5.5% or
      $11.1 million.

            Capital increased 3.1% from $26 million in 2001 to $26.8 million in
      2002. The adjustment for the fair market value of securities was a
      positive $500,000 for 2002 compared to a positive $75,000 for 2001.
      Additionally, a strategy to purchase and retire up to 10% of our
      outstanding shares of common stock was in place and resulted in common
      stock and surplus decreasing to $5.6 million in 2002 from $6.4 million in
      2001, or a decrease of 12.5%.

            Total average assets grew 7.1% from 2001 at $208.6 million to 2002
      at $223.5 million. Average earning assets grew 6.3% from 2001 at $198.2
      million to 2002 at $210.6 million.

            Loans grew 5.8% from $143 million at December 31, 2001 to $151.3
      million at December 31, 2002.

            Non-interest bearing deposits grew 3.4% to $15.2 million at December
      31, 2002 from $14.7 million at December 31, 2001. Interest bearing
      deposits grew 11.3% from $141 million in 2001 to $156.9 million in 2002.

            The loan-to-deposit ratio is a key measurement of liquidity. Our
      loan-to-deposit ratio decreased during 2002 to 87.9% compared to 91.9%
      during 2001.

            It is our opinion that the balance sheet mix and the interest rate
      risk associated with the balance sheet is within manageable parameters.
      Constant monitoring using asset/liability reports and interest rate risk
      scenarios are in place along with quarterly asset/liability management
      meetings on the committee level by the Bank's Board of Directors.
      Additionally, the Board's Asset/Liability Committee meets with the
      investment consultants quarterly.

                                       25
<PAGE>
                                   INVESTMENTS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                       Outstanding Balance at December 31,
                                                       -----------------------------------
                                          2002                   2001                      2000
                                          ----                   ----                      ----
                                 Available-   Held-To     Available-   Held-To    Available-   Held-To
                                  For-Sale    Maturity    For-Sale     Maturity    For-Sale    Maturity
                                  --------    --------    --------     --------    --------    --------
                                    (2)          (1)          (2)        (1)          (2)        (1)
<S>                              <C>          <C>         <C>          <C>        <C>          <C>
Federal Agency Obligations.....   $ 10,104       $0        $12,553        $0        $15,810       $0
Mortgage-backed Securities.....     22,690        0         21,001         0         13,294        0
Obligations of State and
 Political Subdivisions........     15,751        0         17,525         0         16,104        0
Corporate Securities...........      3,419        0          4,589         0            725        0
Marketable Equity Securities...        363        0            327         0            252        0
Restricted Equity Securities...      1,198        0          1,126         0          1,126        0
                                  --------      ---        -------       ---        -------      ---
Total Investment Securities....   $ 53,528       $0        $57,121        $0        $47,311       $0
                                  ========      ===        =======       ===        =======      ===

</TABLE>

(1)   Carried at amortized cost.

(2)   Carried at estimated fair value.

            The following table sets forth the maturity distribution of the
      investment portfolio's Available-for-Sale securities, the weighted average
      yield for each type of Available-for-Sale security and ranges of maturity
      at December 31, 2002. Yields are presented on a tax-equivalent basis, are
      based upon carrying value and are weighted for the scheduled maturity. At
      December 31, 2002, our investment securities portfolio had an average
      maturity of approximately 6.11 years.

<TABLE>
<CAPTION>
                                                                            (Dollars in Thousands)
                                                                            ----------------------
                                                               After One       After Five
                                                               Year But         Years But
                                             Within             Within           Within              After
                                             One Year         Five Years        Ten Years          Ten Years            Total
                                             --------         ----------        ---------          ---------            -----
                                         Amount     Yield   Amount    Yield   Amount    Yield    Amount   Yield    Amount    Yield
                                         ------     -----   ------    -----   ------    -----    ------   -----    ------    -----
<S>                                      <C>        <C>     <C>       <C>    <C>        <C>      <C>      <C>      <C>       <C>
AVAILABLE-FOR-SALE SECURITIES AT
  FAIR VALUE
  Federal Agency Obligations..........    $1,335    5.61%   $22,604   5.15%    $5,836    5.22%    $3,022   3.97%   $32,797    5.08%
  Obligations of State and Political
    Subdivisions......................         0    0.00%       413   6.70%     3,363    6.84%    11,975   7.14%    15.751    7.06%
  Corporate Securities................     1,007    4.18%     1,032   3.02%         0    0.00%     1,380   4.50%     3,419    3.97%
  Marketable Equity Securities........         0    0.00%         0   0.00%         0    0.00%     1,198   3.84%     1,198    3.84%
  Restricted Equity Securities........         0    0.00%         0   0.00%         0    0.00%       363   3.09%       363    3.09%
                                          ------            -------            ------            -------           -------
                TOTAL                     $2,342    4.99%   $24,049   5.12%    $9,199    5.81%   $17,938   6.10%   $53,528    5.55%
                                          ======            =======            ======            =======           =======
</TABLE>

            Available-for-Sale securities are reported on the balance sheet at
      fair value. An adjustment to capital, net or deferred taxes, is the offset
      for this entry. The possibility of material price volatility in a falling
      interest rate environment is offset by the availability to us of
      restructuring the portfolio for gap positioning at any time through the
      securities classed as Available-for-Sale. All of our securities are
      Available-for-Sale. The impact of the fair value accounting was an
      unrealized gain, net of tax, on December 31, 2002 of $537,000 compared to
      an unrealized gain, net of tax, on December 31, 2001 of $75,000.

            Available-for-Sale securities total $53.5 at year-end 2002 compared
      to $57.1 at year-end 2001, or a decrease of 6.3%.

            The mix of securities in the portfolio is 61.3% Federal Agency
      Obligations, 29.4% Municipal Securities, 6.4% Corporate Securities and
      2.9% Other. We do not engage in derivative investment products.

                                      LOANS

                                 LOAN PORTFOLIO
                                LOANS OUTSTANDING
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                 2002           2001         2000
                                                 ----           ----         ----
<S>                                            <C>            <C>          <C>
Commercial ...............................     $ 15,033       $ 13,091     $ 14,412
Tax-Exempt ...............................        3,535          1,947        2,747
Real Estate - Construction................        1,185          2,538        1,648
Real Estate ..............................      123,746        115,716      106,604
Personal .................................        7,902          9,962       12,317
</TABLE>

                                       26
<PAGE>
<TABLE>
<S>                                            <C>            <C>          <C>
                                               ------------------------------------
                                               $151,401       $143,254     $137,850
Unamortized Loan Fees, Net of Costs.......           76             15           (4)
Unearned Discount.........................         (139)          (279)        (486)
                                               ------------------------------------
Loans, Net                                     $151,338       $142,990     $137,360
                                               ====================================
</TABLE>

            The loan portfolio grew 5.8% from $143 million in 2001 to $151.3
      million in 2002. The percentage distribution in the loan portfolio was
      82.5% in real estate loans at $124,931,000; 10% in commercial loans at
      $15,033,000; 5.2% in consumer loans at $7,902,000; and 2.3% in tax exempt
      loans at $3,535,000. Variable rate real estate loans were comprised of
      1.7% with 5-year adjustable rates; 46.9% with 3-year adjustable rates;
      14.9% with 1-year adjustable rates; and 3% with one-day to 3-month
      adjustable rates. Many 3-year and one-year adjustable rate loans have
      bi-weekly payments. The remaining 33.5% of real estate loans are fixed
      rates.

                           DEPOSITS AND BORROWED FUNDS

                    TABLE OF DISTRIBUTION OF AVERAGE DEPOSITS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                       December 31,
                                                       ------------
                                           2002            2001           2000
                                           ----            ----           ----
<S>                                     <C>             <C>            <C>
Demand deposits.....................    $ 39,799        $ 36,210       $ 36,107
Savings deposits....................      34,898          29,672         30,772
Time deposits.......................      62,267          59,447         55,726
Time deposits, $100,000 and over....      29,143          24,272         17,169
                                        ---------------------------------------
Total...............................    $166,107        $149,601       $139,774
                                        =======================================
</TABLE>

          TABLE OF MATURITY DISTRIBUTION OF TIME DEPOSITS OVER $100,000
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                          December 31,
                                                          ------------
                                              2002          2001          2000
                                              ----          ----          ----
<S>                                         <C>           <C>           <C>
Three months or less...................     $ 9,236       $ 6,446       $ 4,648
Over three months to six months........       5,769         4,225         1,960
Over six months to twelve months.......       8,123         7,493         5,889
Over twelve months.....................       8,063         7,895         9,419
                                            -----------------------------------
Total..................................     $31,191       $26,059       $21,916
                                            ===================================
</TABLE>

            Total average deposits increased by 11% from $149.6 million at
      year-end 2001 to $166.1 million at year-end 2002. Average savings deposits
      increased to $34.9 million at year-end 2002 from $29.7 million at year-end
      2001. Average time deposits increased 9.2% from $83.7 million at year-end
      2001 to $91.4 million at year-end 2002. Average non-interest bearing
      demand deposits increased to $15.2 million for 2002 from $14.7 million for
      2001. Average interest bearing NOW accounts increased 10.8% from $22.2
      million for 2001 to $24.6 million for 2002.

            Short-term borrowings, securities sold under agreements to
      repurchase and day-to-day borrowings from the FHLB-Pgh decreased 12.6%
      from $19.8 million at year-end 2001 to $17.3 million at year-end 2002.
      Treasury Tax and Loan deposits held by us for the U.S. Treasury averaged
      $511,000 for 2002. One-day borrowings did not occur in 2002 and repurchase
      agreements averaged $17.5 million for 2002. Long-term borrowings, namely
      borrowings from the FHLB-Pgh, averaged $11.4 million for 2002.

                              NON-PERFORMING ASSETS
                         PAST DUE AND NON-ACCRUAL LOANS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                     Lease
                           Real     Installment                   Financing
              2002        Estate       Loans       Commercial    Receivables      Total
              ----        ------       -----       ----------    -----------      -----
<S>                       <C>       <C>            <C>           <C>             <C>
Days 30-89............    $1,216        $112        $  513           $0          $1,814
Days 90 Plus..........        40          10             0            0              50
Non-accrual...........     1,279           6           837            0           2,122
                          -------------------------------------------------------------
Total.................    $2,535        $128        $1,350           $0          $4,013
                          -------------------------------------------------------------
</TABLE>

                                       27
<PAGE>
<TABLE>
<CAPTION>
                                                                Lease
                         Real     Installment                  Financing
          2001           Estate       Loans     Commercial    Receivables     Total
          ----           ------       -----     ----------    -----------     -----
<S>                      <C>      <C>           <C>           <C>             <C>
Days 30-89...........    $  798       $142         $  9           $0          $  949
Days 90 Plus.........       915         28           26            0             969
Non-accrual..........       429         15          285            0             729
                         -----------------------------------------------------------
Total................    $2,142       $185         $320           $0          $2,647
                         ===========================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                   Lease
                           Real     Installment                 Financing
            2000          Estate      Loans       Commercial   Receivables      Total
            ----          ------      -----       ----------   -----------      -----
<S>                       <C>       <C>           <C>          <C>              <C>
Days 30-89...........     $1,053      $205           $ 82          $0           $1,340
Days 90 Plus.........        336         8              0           0              344
Non-accrual..........        282         0             30           0              312
                          ------------------------------------------------------------
Total................     $1,671      $213           $112          $0           $1,996
                          ============================================================
</TABLE>


            At year-end 2002, loans 30-89 days past due totaled $1,841,000
      compared to $949,000 at year-end 2001. Past due loans 90 days plus totaled
      $50,000 at year-end 2002 compared to $969,000 at year-end 2001.
      Non-accrual loans at year-end 2002 totaled $2,122,000 compared to $729,000
      at year-end 2001. Overall, past due and non-accrual loans increased 51.6%
      from $2,647,000 at year-end 2001 to $4,013,000 at year-end 2002. During
      this same period of time, the ratio of net charge offs during the period
      to average loans outstanding during the period was .03%. (See Summary of
      Loan Loss Experience). We do not consider these percentages to be
      significant or material.

            Loans were stated at their outstanding principal balances, net of
      any deferred fees or costs, unearned income, and the allowance for loan
      losses. Interest on loans was accrued on the principal amount outstanding,
      primarily on the actual day basis. Non-renewable loan fees and certain
      direct costs were deferred and amortized over the life of the loans using
      the interest method. The amortization was reflected on an interest yield
      adjustment, and the deferred portion of the net fees and costs was
      reflected as a part of the loan balance.

            Generally, a loan is classified as non-accrual, and the accrual of
      interest on such a loan is discontinued when the contractual payment of
      principal or interest becomes 90 days past due or management has serious
      doubts about further collectibility of principal or interest, even though
      the loan may be performing.

            A loan may remain on accrual status if it is in the process of
      collection and is either guaranteed or well secured. When a loan is placed
      on non-accrual status, unpaid interest credited to income in the current
      year is reversed, and unpaid interest accrued in prior years is charged
      against the allowance for loan losses. Potential problem loans are
      identified by management as part of its loan review process.

            Certain non-accrual loans may continue to perform, that is, payments
      were still being received generally, and the payments were applied to
      principal. These loans remain under constant scrutiny and if performance
      continues, interest income may be recorded on a cash basis based on
      management's judgment as to collectibility of principal.

                 ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                   Outstanding Balance at December 31,
                                                   -----------------------------------
                                       2002                      2001                    2000
                                       ----                      ----                    ----
                                         % of Loans                 % of Loans                % of Loans
                                         in Category               in Category               in Category
                                          to Total                   to Total                  to Total
                           Amount           Loans        Amount       Loans      Amount         Loans
                           ------           -----        ------       -----      ------         -----
<S>                        <C>           <C>             <C>       <C>           <C>         <C>
Commercial ..........      $  406           13.00%       $  372         13%      $  173           13%
Real estate mortgages         723           82.00%          464         78%         318           78%
Consumer ............          66            5.00%           94          7%          79            9%
Unallocated .........         103             N/A            98        N/A          438          N/A
                           -------------------------------------------------------------------------
                           $1,298          100.00%       $1,028        100%      $1,008          100%
                           =========================================================================
</TABLE>

            The allowance for loan losses was $1,298,000 at December 31, 2002,
      compared to $1,028,000 at December 31, 2001. This allowance equaled .87%
      and .72% of total loans, net of unearned income, at the end of

                                       28
<PAGE>
      2002 and 2001. This allowance was considered adequate based on delinquency
      trends and actual loans written as it relates to the loan portfolio.

            The loan loss reserve is analyzed quarterly and reviewed by the
      Bank's Board of Directors. The assessment of the loan policies and
      procedures during 2002 revealed no anticipated loss on any loans
      considered "significant". No concentration or apparent deterioration in
      classes of loans or pledged collateral was evident. Monthly loan meetings
      with the Bank Board's Credit Administration Committee reviewed new loans,
      delinquent loans and loan exceptions to determine compliance with
      policies.

            The schedule below presents a history of actual charge-offs and
      recoveries by category and related balances and ratios.

                         SUMMARY OF LOAN LOSS EXPERIENCE
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                               Years Ended December 31,,
                                                                               -------------------------
                                                                           2002          2001           2000
                                                                           ----          ----           ----
<S>                                                                      <C>           <C>           <C>
Loans outstanding at end of  year                                        $151,338      $142,990      $137,360
                                                                         ====================================
Average loans outstanding....................................            $147,545      $139,219      $134,325
                                                                         ====================================
Allowance for loan losses:
Balance, beginning of year...................................            $  1,028      $  1,008      $    985
                                                                         ------------------------------------
Loans Charged-off:
      Commercial and industrial..............................                 (29)          (94)            0
      Real estate mortgages..................................                 (17)          (13)           (1)
      Consumer...............................................                 (54)          (82)          (97)
      Credit cards...........................................                   0             0             0
                                                                         ------------------------------------
Total loans charged-off......................................                (100)         (189)          (98)
                                                                         ------------------------------------
Recoveries:
      Commercial and industrial..............................                  19            14             5
      Real estate mortgages..................................                   0             0             3
      Consumer...............................................                  42            29            55
      Municipal leases.......................................                   0             0             0
      Credit cards...........................................                   0             3             4
                                                                         ------------------------------------
Total recoveries.............................................                  61            46            67
                                                                         ------------------------------------
Net loans charged-off........................................                 (39)         (143)          (31)
                                                                         ------------------------------------
Provision charged to expense.................................                 309           163            54
                                                                         ------------------------------------
Balance, end of year                                                     $  1,298      $  1,028      $  1,008
                                                                         ====================================
Ratio of net charge-offs during the year  to average loans
      outstanding during year                                                0.03%         0.10%         0.02%
                                                                         ====================================
</TABLE>

            The allowance for loan losses is established through provisions for
      loan losses charged against income. Loans deemed to be uncollectible were
      charged against income. Loans deemed to be uncollectible were charged
      against the allowance for loan losses, and subsequent recoveries, if any,
      are credited to the allowance.

            On January 1, 1995, we adopted Statement of Financial Accounting
      Standards No. 114, "Accounting for Creditors for Impairment of a Loan -
      Income Recognition and Disclosure." Under these standards, the allowance
      for loan losses related to loans that were identified for evaluation in
      accordance with Statement No. 114 which was based on discounted cash flows
      using the loan's initial effective interest rate or the fair value of the
      collateral for certain collateral dependent loans. Prior to 1995, the
      allowance for loan losses related to these loans was based on undiscounted
      cash flows or the fair value of the collateral for collateral dependent
      loans. Statement No. 118 allowed the continued use of existing methods for
      income recognition on impaired loans and amends disclosure requirements to
      require information about the recorded investment in certain impaired
      loans and related income recognition on those loans. The allowance for
      loan losses was maintained at a level to be adequate to absorb estimated
      potential loan losses. Our periodic evaluations of the adequacy of the
      allowance for loan losses were based on past loan loss experience; known
      and inherent risks in the portfolio; adverse situations that may affect
      the borrower's ability to repay (including the timing of future payments);
      and other relevant factors. These evaluations were inherently subjective
      as they required material estimates, including the amounts and timing of
      future cash flows expected to be received on impaired loans that may be
      susceptible to significant change. See "Factors That May Affect Future
      Results".

            No additional charge to operations was required to provide for the
      impaired loans since the total allowance for loan losses is estimated by
      management to be adequate to provide for the loan loss allowance required
      by SFAS No. 114 along with any other potential losses.

                                       29
<PAGE>
                                    LIQUIDITY

            Liquidity management is required to ensure that adequate funds will
      be available to meet anticipated and unanticipated deposit withdrawals,
      debt service payments, investment commitments, commercial and consumer
      loan demand, and ongoing operating expenses. Funding sources include
      principal repayments on loans, sales of assets, growth in core deposits,
      short and long-term borrowings, investment securities coming due, loan
      prepayments and repurchase agreements. Regular loan payments are a
      dependable source of funds, while the sale of investment securities,
      deposit growth and loan prepayments are significantly influenced by
      general economic conditions and the level of interest rates.

            We manage liquidity on a daily basis. We believe that our liquidity
      is sufficient to meet present and future financial obligations and
      commitments on a timely basis. However, see "Factors That May Affect
      Future Results".

            At December 31, 2002, cash and cash equivalents totaled $16,020,677
      compared to $8,517,616 at December 31, 2001. Changes in cash were measured
      by changes in the three major classifications of cash flows known as
      operating, investing and financing activities.

            At December 31, 2002, net cash provided by operating activities
      equaled $2,643,687 which consisted mainly of net income adjusted for
      non-cash items such as depreciation, provision for loan losses, premium
      amortization on investment securities and deferred income tax.

            Net cash used for investing activities totaled $7,498,901 which was
      principally the result of $8,454,934 increase in loans and $4,215,746
      excess of proceeds on sale and redemption of Available-for-Sale securities
      over the purchases of Available-for-Sale securities.

            Net cash provided by financing activities totaled $12,358,255 and
      consisted mainly of an increase in deposits of $16,461,354 and a decrease
      in short-term borrowings of $2,506,672.

                                CAPITAL RESOURCES

            Capital continues to be a strength for us.

            Capital is critical as it must provide growth, payment to
      shareholders, and absorption of unforeseen losses. The federal regulators
      provide standards that must be met. We 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 impact on our consolidated
      financial statements. Under capital adequacy guidelines and the regulatory
      framework for prompt corrective action, we must meet specific capital
      guidelines that involve quantitative measures of our assets, liabilities,
      and certain off-balance sheet items as calculated under regulatory
      accounting practices. Our capital amounts and classification are also
      subject to qualitative judgments by the regulators about components, risk
      weightings, and other factors.

            Quantitative measures established by federal banking regulation are
      to ensure capital adequacy require that we maintain minimum amounts and
      ratios (set forth in the following table) of Total and Tier I Capital (as
      defined in the regulations) to risk-weighted assets (as defined), and of
      Tier I Capital (as defined) to average assets (as defined).

            As of December 31, 2002, the most recent notification from the
      Comptroller of the Currency, the Bank's primary federal regulator,
      categorized the Bank as well capitalized under the regulatory framework
      for prompt corrective action. To be categorized as well capitalized the
      Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
      leverage ratios as set forth in the Table. There are no conditions or
      events since that notification that management believes have changed the
      institution's category.

            The Bank's actual capital amounts are ratios in the following table:

<TABLE>
<CAPTION>
                                                                                                           To be Well
                                                                                                       Capitalized Under
                                                                                For Capital            Prompt Corrective
                                                       Actual                Adequacy Purposes         Action Provisions
                                                       ------                -----------------         -----------------
                                                 Amount         Ratio       Amount         Ratio      Amount        Ratio
                                                 ------         -----       ------         -----      ------        -----
<S>                                              <C>            <C>         <C>            <C>        <C>           <C>
As of December 31, 2002:
      Total Capital
            (To risk-weighted assets).......      $27,615       19.46%      $11,352        8.00%      $14,191       10.00%
      Tier I Capital
            (To risk-weighted assets).......      $26,303       18.53%      $ 5,682        4.00%      $ 8,524        6.00%
      Tier I Capital
            (To average assets).............      $26,303       11.77%      $ 8,939        4.00%      $11,174        5.00%
</TABLE>

                                       30
<PAGE>
<TABLE>
<S>                                               <C>           <C>         <C>            <C>        <C>           <C>
As of December 31, 2001:
      Total Capital
            (To risk-weighted assets).......      $26,989       19.82%      $10,894        8.00%      $13,618       10.00%
      Tier I Capital
            (To risk-weighted assets).......      $25,961       19.06%      $ 5,447        4.00%      $ 8,171        6.00%
      Tier I Capital
            (To average assets).............      $25,961       12.44%      $ 8,346        4.00%      $10,432        5.00%
</TABLE>

            Our capital ratios are not materially different from those of the
      Bank.

            Dividend payouts are restricted by the Pennsylvania Business
      Corporation Law of 1988, as amended (the BCL). The BCL operates generally
      to preclude dividend payments if the effect thereof would render us unable
      to meet our obligations as they become due. As a practical matter, our
      payment of dividends is contingent upon our ability to obtain funding in
      the form of dividends from the Bank. Payment of dividends to us by the
      Bank is subject to the restrictions set forth in the National Bank Act.
      Generally, the National Bank Act would permit the Bank to declare
      dividends in 2003 of approximately $1,080,224 plus additional amounts
      equal to the net income earned in 2003 for the period January 1, 2003
      through the date of declaration, less any dividends which may be paid in
      2003.

                          INTEREST RATE RISK MANAGEMENT

            Interest rate risk management involves managing the extent to which
      interest-sensitive assets and interest-sensitive liabilities are matched.
      Interest rate sensitivity is the relationship between market interest
      rates and earnings volatility due to the repricing characteristics of
      assets and liabilities. The Bank's net interest income is affected by
      changes in the level of market interest rates. In order to maintain
      consistent earnings performance, the Bank seeks to manage, to the extent
      possible, the repricing characteristics of its assets and liabilities.

            One major objective of the Bank when managing the rate sensitivity
      of its assets and liabilities is to stabilize net interest income. The
      management of and authority to assume interest rate risk is the
      responsibility of the Bank's Asset/Liability Committee ("ALCO"), which is
      comprised of senior management and Board members. ALCO meets quarterly to
      monitor the ratio of interest sensitive assets to interest sensitive
      liabilities. The process to review interest rate risk management is a
      regular part of management of the Bank. Consistent policies and practices
      of measuring and reporting interest rate risk exposure, particularly
      regarding the treatment of noncontractual assets and liabilities, are in
      effect. In addition, there is an annual process to review the interest
      rate risk policy with the Board of Directors which includes limits on the
      impact to earnings from shifts in interest rates.

            The ratio between assets and liabilities repricing in specific time
      intervals is referred to as an interest rate sensitivity gap. Interest
      rate sensitivity gaps can be managed to take advantage of the slope of the
      yield curve as well as forecasted changes in the level of interest rate
      changes.

            To manage the interest sensitivity position, an asset/liability
      model called "gap analysis" is used to monitor the difference in the
      volume of the Bank's interest sensitive assets and liabilities that mature
      or reprice within given periods. A positive gap (asset sensitive)
      indicates that more assets reprice during a given period compared to
      liabilities, while a negative gap (liability sensitive) has the opposite
      effect. The Bank employs computerized net interest income simulation
      modeling to assist in quantifying interest rate risk exposure. This
      process measures and quantifies the impact on net interest income through
      varying interest rate changes and balance sheet compositions. The use of
      this model assists the ALCO to gauge the effects of the interest rate
      changes on interest sensitive assets and liabilities in order to determine
      what impact these rate changes will have upon the net interest spread.

                     STATEMENT OF INTEREST SENSITIVITY GAP
                             (Dollars in thousands)
                                DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                               > 90 Days
                                                 90 Days           But         1 to 5       5 to 10         > 10
                                                 Or Less        < 1 Year        Years        Years          Years         Total
                                                 -------        --------        -----        -----          -----         -----
<S>                                              <C>           <C>            <C>           <C>            <C>          <C>
Short-term investments .....................      $ 16,021      $      0      $      0      $      0       $      0     $ 16,021
Securities Available-for-Sale (1) ..........        13,839        19,126        17,434         1,579          1,550       53,528
Loans (1) ..................................        35,529        37,800        66,090        11,796            123      151,338
                                                 -------------------------------------------------------------------------------
      Rate Sensitive Assets ................        65,389        56,926        83,524        13,375          1,673      220,887
                                                 -------------------------------------------------------------------------------
Deposits:
Interest-bearing demand deposits (2) .......      $  4,029      $  3,751      $ 20,005      $      0       $      0     $ 27,785
Savings (2) ................................         5,376         5,584        24,041                                    35,001
Time .......................................        31,245        35,656        27,202             0              0       94,103
</TABLE>

                                       31
<PAGE>
<TABLE>
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
Borrowed funds .............................        17,274             0             0             0              0       17,274
Long-term debt .............................             3             9           199        11,136              0       11,347
Shareholders' equity .......................           671         2,013         8,857         8,857          6,442       26,840
                                                  --------      --------      --------      --------      ---------     --------
      Rate Sensitive Liabilities and
        Shareholders' Equity ...............      $ 58,598      $ 47,013      $ 80,304      $ 19,993       $  6,442     $212,350
                                                  --------      --------      --------      --------      ---------     --------
Interest Sensitivity Gap ...................      $  6,791      $  9,913      $  3,220      $ (6,618)      $ (4,769)    $  8,537
Cumulative Gap .............................      $  6,791      $ 16,704      $ 19,924      $ 13,306       $  8,537     $      0
</TABLE>

(1) Investments and loans are included at the earlier of repricing or maturity
adjusted for the effects of prepayments.

(2) Interest bearing demand and savings accounts are included based on
historical experience and managements' judgment about the behavior of these
deposits in changing interest rate environments.

            At December 31, 2002, our cumulative gap positions and the potential
      earnings change resulting from a 200 basis point change in rates were
      within the internal risk management guidelines.

            Upon reviewing the current interest sensitivity scenario, declining
      interest rates could negatively affect net income because the Bank is
      asset-sensitive. In an increasing interest rate environment, net income
      could be positively affected because more assets than liabilities will
      reprice during a given period.

            Certain shortcomings are inherent in the method of analysis
      presented in the above table. Although certain assets and liabilities may
      have similar maturities or periods of repricing, they may react in
      different degrees to changes in market interest rates. The interest rates
      on certain types of assets and liabilities may fluctuate in advance of
      changes in market interest rates, while interest rates on other types of
      assets and liabilities may lag behind changes in market interest rates.
      Certain assets, such as adjustable-rate mortgages, have features which
      restrict changes in interest rates on a short-term basis and over the life
      of the asset. In the event of a change in interest rates, prepayment and
      early withdrawal levels may deviate significantly from those assumed in
      calculating the table. The ability of many borrowers to service their
      adjustable-rate debt may decrease in the event of an interest rate
      increase.

            In addition to gap analysis, the Bank uses earnings simulation to
      assist in measuring and controlling interest rate risk.

            The following table provides information about our financial
      instruments. The table presents the financial instruments including the
      expected cash flow over the next five years. In addition the average
      interest rate is shown for each period presented. The table also includes
      the fair market value for each category of financial instruments as of
      December 31, 2002. This presentation differs from the above gap report
      primarily due to presenting the financial instruments based on a
      contractual maturity as opposed to a repricing scenario as reflected in
      the above gap report.

                    PRINCIPAL / NOTIONAL AMOUNTS MATURING IN:
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                                                                                            Fair
                                                                                                    There-                 Value
                                            2003       2004        2005       2006       2007       after      Total      12-31-02
                                            ----       ----        ----       ----       ----       -----      -----      --------
<S>                                        <C>        <C>         <C>        <C>        <C>        <C>        <C>         <C>
Rate sensitive assets:
Fixed interest loans (1)                   $ 9,955    $ 6,767     $ 5,389    $4,222     $ 3,872    $ 17,215   $ 47,420    $ 47,754
      Average interest rate                   7.71%      7.62%       7.36%     7.26%       7.21%       7.11%      7.38%
Variable interest rate loans (2)           $56,989    $21,497     $18,485    $  973     $   262    $  5,712   $103,918    $104,344
      Average interest rate                   5.53%      6.97%       5.91%     7.36%       7.13%       6,96%      5.99%
Fixed interest rate securities (1)         $ 1,335    $ 5,722     $ 2,180    $4,828     $10,287    $ 12,524   $ 36,876    $ 36,876
      Average interest rate                   5.61%      5.44%       3.20%     4.52%       5.20%       6.13%      5.83%
Variable interest rate securities (1)      $ 1,007    $   492     $   540    $    0     $     0    $14,613'   $ 16,652    $ 16,652
      Average interest rate                   4.18%      2.56%       2.35%     0.00%       0.00%       5.05%      4.89%
Other interest-bearing assets              $10,068    $     0     $     0    $    0     $     0    $  3,627   $ 13,695    $ 13,695
      Average interest rate                   1.22%      0.00%       0.00%     0.00%       0.00%       5.24%      2.37%
Rate sensitive liabilities:
Non-interest-bearing checking (2)          $ 6,094    $ 2,286     $ 2,286    $2,286     $ 2,286    $      0   $ 15,238    $ 15,238
      Average interest rate                   0.00%      0.00%       0.00%     0.00%       0.00%       0.00%      0.00%
Savings & interest-bearing checking (2)    $21,387    $ 8,020     $ 8,020    $8,020     $ 8,020    $      0   $ 53,467    $ 53,467
      Average interest rate                   0.75%      0.75%       0.75%     0.75%       0.75%       0.00%      0.75%
Money market accounts (2)                  $ 3,727    $ 1,398     $ 1,398    $1,398     $ 1,398    $      0    $ 9,319     $ 9,319
      Average interest rate                   0.97%     0.97%        0.97%     0.97%       0.97%       0.00%     0..97%
Time deposits (under $100,000)             $49,506    $ 5,081     $ 2,952    $1,011     $ 4,362    $      0    $62,912    $ 64,478
      Average interest rate                   4.81%      3.80%       3.61%     5.15%       4.58%       0.00%      4.60%
Time deposits (over 100,000)               $23,129    $ 3,402     $ 3,260    $  451     $  949'    $      0   $ 31,191    $ 31,789
      Average interest rate                   4.45%      4.45%       6.30%     5.75%       5.37%       0.00%      5.36%
Fixed interest rate borrowings             $     0    $     0     $     0    $    0     $     0    $    347     $  347    $    347
      Average interest rate                   0.00%      0.00%       0.00%     0.00%       0.00%       5.93%      5.93%
Variable interest rate borrowings          $17,274    $     0     $     0    $    0     $11,000    $      0   $ 28,274    $ 28,516
      Average interest rate                   1.89%      0.00%       0.00%     5.91%       5.91%       0.00%      3.47%
</TABLE>

(1) Investments and loans are included at contractual maturity.

(2) Non interest-bearing checking, interest-bearing checking, savings and money
market accounts are reflecting historical experience and management's judgment
about the duration of these deposits.

                                       32
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item can be found at Item 7 of this Annual
Report under the caption "Interest Rate Risk Management" and is incorporated in
its entirety by reference under this Item 7A.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and notes to these statements are filed at
Exhibit 13 to this report and are incorporated in their entirety by reference
under this Item 8.

Our supplementary data is filed at Exhibit 13 to this report and is incorporated
in its entirety by reference under this Item 8.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

At February 28, 2003, we had nine directors.

Our directors are divided into three classes: three directors are in Class 1;
three directors are in Class 2; and three directors are in Class 3. Each
director holds office for a three-year term. The terms of the classes are
staggered, so that the term of office of one class expires each year.

The following information includes the age of each of our current directors, a
recently-resigned director, and those persons who have been nominated to become
a director upon their election at our 2003 annual meeting of stockholders. All
directors of the Corporation are also directors of the Bank.

<TABLE>
<CAPTION>
                   NAME              AGE                       PRINCIPAL OCCUPATION                            DIRECTOR SINCE
                   ----              ---                       --------------------                            --------------
<S>                                  <C>       <C>                                                             <C>
     Don E. Bangs                     71      Secretary of the Corporation and the Bank.  Former                    1985
                                              owner of Bangs Insurance Agency and former agent for
                                              The Thrush Insurance Agency.
     Robert M. Brewington, Jr.        52      Owner of Sutliff Motors and Brewington Transportation
                                              (sales and service of cars and trucks; school bus                     1996
                                              contractor).

     Edward L. Campbell               64      President of ELC Enterprises, Inc. and the sole
                                              proprietor of Heritage Acres Christmas tree sales.                    1985

     Lance O. Diehl                   37      President of the Corporation and the Bank and Director                2003
                                              since February 13, 2003; Chief Executive Officer of
                                              the Corporation and the Bank since January 1, 2003.
                                              Former Executive Vice President of the Bank for Branch
                                              Operations and Marketing.

     Elwood R. Harding, Jr.           56      Attorney-at-Law and President of Premier Real Estate                  1984
                                              Settlement Services, Inc. (title insurance) and since
                                              January 1, 2003, Vice Chairman of the Corporation and
                                              the Bank.

     William F. Hess                  69      Former Chairman of the
</TABLE>

                                       33
<PAGE>
<TABLE>
<S>                                   <C>     <C>                                                                   <C>
                                              Corporation and the Bank.                                             1983
                                              Dairy farmer.

     Rodney B. Keller                 52      Community Development Director for PPL Electric                       2000
                                              Utilities. Resigned as Director on February 13, 2003.

     Willard H. Kile, Jr., D.M.D.     48      Partner of Kile & Robinson LLC (dentists); Partner of                 2000
                                              Kile & Kile Real Estate.

     Charles E. Long                  67      Retired.  Former President of Long Supply Co., Inc. (a                1993
                                              wholesaler and retailer of hardware and masonry
                                              products).

     Paul E. Reichart                 65      Chairman of the Corporation and the Bank since January                1983
                                              1, 2003.  Former Vice Chairman of the Corporation and
                                              the Bank. President of the Corporation and the Bank
                                              until February 13, 2003. Former Chief Executive
                                              Officer until January 1, 2003.
</TABLE>

PRINCIPAL OFFICERS

Our principal officers are appointed by the Board of Directors and serve at the
will of the Board of Directors, subject to certain change in control agreements
discussed later in this report. The following information is presented for those
persons who were principal officers at December 31, 2002:

<TABLE>
<CAPTION>
                                                              HELD    EMPLOYEE
                             NAME & POSITION                 SINCE      SINCE     AGE
                             ---------------                 -----      -----     ---
<S>                                                          <C>      <C>         <C>
William F. Hess,                                              1998        *        69
Chairman
Don E. Bangs,
Secretary                                                     1993        *        71
Paul E. Reichart,
President and Chief Executive Officer, and Vice Chairman      1985       1960      65
Virginia D. Kocher
Treasurer and Assistant Secretary                             1991       1972      55
</TABLE>

* Not an employee of the Company and the Bank.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Executive officers and directors and "beneficial owners" of more than ten
percent of our common stock must file initial reports of ownership and reports
of changes in ownership with the SEC pursuant to Section 16(a).

We have reviewed the reports and written representations from the executive
officers and directors. Based on this review, we believe that all filing
requirements were met during 2002.

ITEM 11. EXECUTIVE COMPENSATION

This section of the report contains charts that show the amount of compensation
earned by our executive officers whose salary and bonus exceeded $100,000 for
2002. It also contains the performance graph comparing our performance relative
to a peer group and the report of our human resource committee explaining the
compensation philosophy for our most highly paid officers.

                          SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
                                                                        ANNUAL COMPENSATION
                                                                        -------------------
         NAME AND PRINCIPAL                FISCAL                                  OTHER ANNUAL          ALL OTHER
<S>                                       <C>         <C>           <C>         <C>                    <C>

</TABLE>

                                       34
<PAGE>
<TABLE>
<CAPTION>
                POSITION                    YEAR      SALARY($)     BONUS($)    COMPENSATION(2)($)    COMPENSATION(3)($)
                --------                    ----      ---------     --------    ------------------    ------------------
<S>                                         <C>       <C>           <C>         <C>                   <C>
Paul E. Reichart                            2002       100,211      31,470(4)         10,200                3,727
President and Chief                         2001        98,302      31,333(5)          9,600                4,471
Executive Officer(7)                        2000        94,439      31,598(6)          9,600                4,284
</TABLE>

(1)   From January 1, 2000 through December 31, 2002, the Corporation did not
      pay any long-term compensation in the form of stock options, stock
      appreciation rights, restricted stock or any other long-term compensation,
      nor did it make any long-term incentive plan payments. Accordingly, no
      such information is presented in the summary compensation table set forth
      above. No such arrangements are currently in effect.

(2)   Represents the payment of directors' fees by the bank for the years
      presented. Mr. Reichart did not receive perquisites and other personal
      benefits, securities and property that totaled in the aggregate for the
      years presented either $50,000 or 10% of the total of the amounts reported
      under the salary and bonus columns. Therefore, the amounts for such
      perquisites and other personal benefits, securities and property are not
      reported.

(3)   These figures represent annual term insurance premium payments on the life
      of Mr. Reichart.

(4)   Includes $15,000 as a life insurance premium payment for a deferred
      compensation plan; $4,101 as a cash bonus representing 4% of base salary;
      $4,764 as a contribution to the bank's profit sharing plan; $1,572
      representing 50% up to 3% matching contribution to Mr. Reichart's 401K
      plan; $325 representing car expense; and $5,708 representing cafeteria
      plan benefits.

(5)   Includes $15,000 as a life insurance premium payment for a deferred
      compensation plan; $3,513 as a cash bonus representing 3 -1/2 % of base
      salary; $5,349 as a contribution to the bank's profit sharing plan; $1,538
      representing 50% up to 3% matching contribution to Mr. Reichart's 401K
      plan; $704 representing car expense; and $5,229 representing cafeteria
      plan benefits.

(6)   Includes $15,000 as a life insurance premium payment for a deferred
      compensation plan; $4,212 as a cash bonus representing 4% of base salary;
      $5,430 as a contribution to the bank's profit sharing plan; $1,300
      representing 50% up to 3% matching contribution to Mr. Reichart's 401K
      plan; $718 representing car expense; and $4,938 representing cafeteria
      plan benefits.

(7)   Mr. Reichart retired from this position in January 2003.

                             EXECUTIVE COMPENSATION

HUMAN RESOURCE COMMITTEE REPORT

Executive compensation for the officers of the Company and the Bank is
determined by the Human Resource Committee of the Company's Board of Directors.
Salaries and bonuses for the executive officers are reviewed annually. All
executive compensation is paid by the Bank to the applicable executive.

COMPENSATION PHILOSOPHY

Our executive compensation philosophy is designed to attract, retain, and
motivate the best managerial talent available in line with three central themes:
alignment, accountability, and attraction.

      -     Alignment with the long-term interests of our stockholders;

      -     Accountability for results by linking executives to the Company and
            individual performance; and

      -     Attraction, motivation and retention of critical talent.

The Human Resource Committee annually conducts a full review of our executives
and their performance in determining compensation levels. For 2002, the Human
Resource Committee considered various qualitative and quantitative indicators of
the Company and individual performance in determining the level of compensation
for President and Chief Executive Officer and other executive officers. The
review included an evaluation of the Company's performance both on a short- and
long-term basis. This review included an analysis of quantitative measures, such
as Return on Equity. The Human Resource Committee considered also qualitative
measures such as leadership, experience, strategic direction, community
representation and social responsibility. The Human Resource Committee has been
sensitive to management's maintaining a balance between actions that foster
long-term value creation and short-term performance. In addition, the Human
Resource Committee evaluates total executive compensation in light of the
operational and financial performance and compensation practices of the
commercial banking industry in the Pennsylvania region.

Base salaries are reviewed each year and generally adjusted relative to
individual performance and competitive salaries with the commercial banking
industry in the Pennsylvania region.

A base salary increase of 3.63% was made to all executives in 2002. Actual
salaries will continue to be set according to the scope of the responsibilities
of each executive officer's position.

DEFERRED COMPENSATION AGREEMENTS FOR EXECUTIVE OFFICERS

                                       35
<PAGE>
Paul E. Reichart has served as the Corporation's and the Bank's President and
Chief Executive Officer from 1985 to 2003. Mr. Reichart was named Vice Chairman
in 1998. J. Jan Girton has served as the Executive Vice President, Chief
Operating Officer and Assistant Secretary of the Bank since 1987. As a result of
Messrs. Reichart's and Girton's active involvement and experience in the affairs
of the Bank, the Bank has depended upon, and continues to depend upon, their
continued employment. The Bank does not maintain employment agreements or keyman
insurance, other than the deferred compensation agreements described below, with
respect to Messrs. Reichart and Girton. In 1992, the Bank entered into
agreements with Paul E. Reichart, the former President and Chief Executive
Officer of the Corporation and the Bank, and J. Jan Girton, Executive Vice
President, Chief Operating Officer and Assistant Secretary of the Bank, to
establish a non-qualified deferred compensation plan for these officers.

Each officer is deferring compensation in order to participate in his deferred
compensation plan. If the officer continues to serve as an officer of the Bank
until he attains 65 years of age, the Bank has agreed to pay him 120 guaranteed
consecutive monthly payments commencing on the first day of the month following
the officer's 65th birthday. Each officer's guaranteed monthly payment is based
upon the future value of life insurance purchased with the compensation the
officer has deferred. If the officer attains 65 years of age but dies before
receiving all of the guaranteed monthly payments, then the Bank will make the
remaining payments to the officer's designated beneficiary or to the
representative of his estate. In the event that the officer dies while serving
as an officer, but prior to age 65 years of age, then the Bank will remit the
guaranteed monthly payments to the officer's designated beneficiary or to the
representative of his estate. The Bank has obtained life insurance (designating
the bank as the beneficiary) on the life of each participating officer in an
amount which is intended to cover the Bank's obligations under the deferred
compensation plan, based upon certain actuarial assumptions. In 2002 the Bank
accrued $87,139 as an expense for the deferred compensation plan.

During 2002, the agreements with the two executive officers were modified. Under
one agreement, Mr. Reichart will receive $225,000 payable monthly over a 10 year
period commencing in February 2003. Under the other agreement, Mr. Girton will
receive $175,000 payable monthly over a 10 year period commencing in April 2003.
This second agreement will also provide post employment health care benefits to
the executive officer until the attainment of age 65. As of December 31, 2002
and 2001, the net cash value of insurance policies was $292,515 and $254,936,
respectively, and the total accrued liability, equal to the present value of
these obligations, was $314,674 and $227,535, respectively, relating to these
executive officers' deferred compensation agreements and the accrued liability
related to the post employment health care benefit was $14,668 as of December
31, 2002.

Additionally, during December 2002, the Bank purchased $3,000,000 of bank-owned
life insurance policies covering certain of its employees. The amount of net
cash values of insurance policies and total accrued liabilities are included in
other assets and accrued interest and other expenses, respectively, on the
consolidated balance sheets.

FIVE YEAR PERFORMANCE GRAPH

The following graph and table compare the cumulative total stockholder return on
our common stock during the five-year period ending on December 31, 2002, with
(i) the cumulative total return on the SNL Securities Corporation Performance
Index (1) for 35 publicly-traded banks with under $250 million in total assets
in the Middle Atlantic area (2), and (ii) the cumulative total return for all
United States stocks traded on the NASDAQ Stock market. The comparison assumes
the value of the investment in our common stock and each index was $100 on
December 31, 1997, and assumes further the reinvestment of dividends into the
applicable securities. The stockholder return shown on the graph and table below
is not necessarily indicative of future performance.

                                       36
<PAGE>
                              [BANCORP LINE CHART]

<TABLE>
<CAPTION>
                                                           PERIOD ENDING
                                -------------------------------------------------------------------------
INDEX                           12/31/97    12/31/98     12/31/99     12/31/00     12/31/01     12/31/02
---------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>          <C>          <C>          <C>          <C>
CCFNB Bancorp, Incorporated       100.00      111.33        88.65        75.67       108.70       116.03
NASDAQ - Total US*                100.00      140.99       261.48       157.42       124.89        86.33
SNL <$250M Bank Index             100.00       95.06        83.47        82.64       103.04       126.62
</TABLE>

*Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2003.

Used with permission. All rights reserved. crsp.com.

SNL FINANCIAL LC                                                  (434) 977-1600
(C)2003

Notes:

      A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.

      B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.

      C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding day is used.

      D. The index level for all series was set to $100 on 12/31/97.

      (1) SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and financial
services industries.

      (2) The Middle Atlantic area comprises the states of Delaware,
Pennsylvania, Maryland, New Jersey and New York, the District of Columbia and
Puerto Rico.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

This section describes how much stock our directors, executive officers own. It
also describes the persons or entities that own more than 5% of our voting
stock.

STOCK OWNED BY DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE DIRECTORS

This table indicates the number of shares of Common Stock owned by the executive
officers and directors as of February 28, 2003. The aggregate number of shares
owned by all directors and executive officers is 4.79%. Unless otherwise noted,
each individual has sole voting and investment power for the shares indicated
below.

                                       37
<PAGE>
<TABLE>
<CAPTION>
          NAME OF INDIVIDUAL                      AMOUNT AND NATURE OF
         OF IDENTITY OF GROUP                   BENEFICIAL OWNERSHIP(1)     PERCENT OF CLASS
         --------------------                   -----------------------     ----------------
<S>                                             <C>                         <C>
Don E. Bangs                                            8,670.743                 ---
Robert M. Brewington, Jr.                               8,279.407                 ---
Edward L. Campbell                                      6,152.755                 ---
Lance O. Diehl                                            202.491                 ---
Elwood R. Harding, Jr.                                 15,546.940                1.21%
William F. Hess                                         4,542.192                 ---
Willard H. Kile, Jr.                                    2,851.014                 ---
Virginia D. Kocher                                        391.000                 ---
Charles E. Long                                         6,482.999                 ---
Paul E. Reichart                                        8,551.000                 ---
All Officers and Directors as a group
   (9 directors, 3 nominees, 5 officers,
        10 persons in total)                           61,670.541                4.79%
</TABLE>

(1)   Includes shares held (a) directly, (b) jointly with a spouse, (c)
      individually by spouse, (d) by the transfer agent in the Corporation's
      dividend reinvestment account, (e) in the 401(k) plan, and (f) in various
      trusts.

VOTING STOCK OWNED BY "BENEFICIAL OWNER"

We know of no persons or entities who own beneficially more than five percent of
our common stock as of February 28, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We encourage our directors and executive officers to have banking and financial
transactions with the Bank. All of these transactions are made on comparable
terms and with similar interest rates as those prevailing for other customers.

The total consolidated loans made by the Bank at December 31, 2002, to its
directors and officers as a group, members of their immediate families and
companies in which they have a 10% or more ownership interest was $6,527,490 or
approximately 24.3% of our total consolidated capital accounts. The largest
amount for all of these loans in 2002 was $6,527,490 million or approximately
24.3% of our total consolidated capital accounts. These loans did not involve
more than the normal risk of collectibility nor did they present other
unfavorable features.

ITEM 14. CONTROLS AND PROCEDURES

EVALUATION OF OUR DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Within the 90-day
period prior to the date of this report on Form 10-K, we evaluated the
effectiveness of the design and operation of our "disclosure controls and
procedures" (Disclosure Controls), and our "internal controls and procedures for
financial reporting" (Internal Controls). This evaluation (the Controls
Evaluation) was done under the supervision and with the participation of
management, including our Chief Executive Officer (CEO) and Principal Financial
Officer (Treasurer). Rules adopted by the SEC require that, in this section of
this report, we present the conclusions of the CEO and the Treasurer about the
effectiveness of our Disclosure Controls and Internal Controls based on and as
of the date of the Controls Evaluation.

CEO AND TREASURER CERTIFICATIONS. Appearing at Exhibits 99B, 99C, 99D and 99E of
this report are two separate forms of "Certifications" for each of the CEO and
the Treasurer. The form of Certification at Exhibits 99D and 99E is required in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certification). This section of this report which you are currently reading is
the information concerning the Controls Evaluation referred to in the Section
302 Certification and this information should be read in conjunction with the
Section 302 Certification for a more complete understanding of the topics
presented.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Disclosure Controls are procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934
(Exchange Act), such as this report, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules. Disclosure
Controls are also designed with the objective of ensuring that such information
is accumulated and communicated to our management, including the CEO and
Treasurer, as appropriate, to allow timely decisions regarding required
disclosure. We design Internal Controls procedures

                                       38
<PAGE>
with the objective of providing reasonable assurance that: (1) our transactions
are properly authorized; (2) our assets are safeguarded against unauthorized or
improper use; and (3) our transactions are properly recorded and reported, all
to permit the preparation of our financial statements in conformity with
generally accepted accounting principals.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. Our management, including the CEO
and Treasurer, does not expect that our Disclosure Controls or our Internal
Controls will prevent all error or all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control systems are met. Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits or controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company and the Bank have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies and procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

SCOPE OF THE CONTROLS EVALUATION. The CEO and Treasurer evaluation of our
Disclosure Controls and Internal Controls included a review of the controls'
objectives and design, the control's implementation by us and the Bank and the
effect of the controls on the information generated for use in this report. In
the course of the Controls Evaluation, we sought to identify data errors,
controls problems or acts of fraud and to confirm that appropriate corrective
action, including process improvements, were being undertaken. This type of
evaluation will be done on a quarterly basis so that the conclusions concerning
controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and
Annual Reports on Form 10-K. Our Internal Controls are also evaluated on an
ongoing basis by our Outside Internal Auditors, by other personnel in the Bank
and by our external independent auditors in connection with their audit and
review activities. The overall goals of these various evaluation activities are
to monitor our Disclosure Controls and Internal Controls and to make
modifications as necessary. Our intent in this regard is that the Disclosure
Controls and Internal Controls will be maintained as dynamic systems that change
(including with improvements and corrections) as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in our and the Bank's
Internal Controls, or whether we had identified any acts of fraud involving
personnel who have a significant role in our and the Bank's Internal Controls.
This information was important both for the Controls Evaluation generally and
because items 5 and 6 in the Section 302 Certifications of the CEO and Treasurer
require that the CEO and Treasurer disclose that information to our Board's
Audit Committee and to our independent auditors and to report on related matters
in this section of our Annual Report. In the professional auditing literature,
"significant deficiencies" are referred to as "reportable conditions"; these are
control issues that could have a significant adverse effect on the ability to
record, process, summarize and report financial data in the financial
statements. A "material weakness" is defined in the auditing literature as a
particularly serious reportable condition where the internal control does not
reduce to a relatively low level the risk that misstatements caused by error or
fraud may occur in amounts that would be material in relation to the financial
statements and not be detected within a timely period by employees in the normal
course of performing their assigned functions. In addition, we sought to deal
with other controls matters in the Controls Evaluation, and in each case if a
problem was identified, we considered what revision, improvement and/or
correction to make in accord with our on-going procedures.

In accord with SEC requirements, the CEO and Treasurer note that, since the date
of the Controls Evaluation (Evaluation Date) to the date of this Annual Report,
there have been no significant changes in Internal Controls or in other factors
that could significantly affect Internal Controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.

CONCLUSIONS. Based upon the Controls Evaluation, our CEO and Treasurer have
concluded that, subject to the limitations noted above, our Disclosure Controls
are effective to ensure that material information relating to CCFNB Bancorp,
Inc. and its consolidated subsidiaries is made known to management, including
the CEO and Treasurer, particularly during the period when our Exchange Act
periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.

                                       39
<PAGE>
PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Our consolidated financial statements and notes to these statements as
well as the applicable reports of the independent certified public accountants
are filed at Exhibit 13 to this report and are incorporated in their entirety by
reference under this Item 14(a)1.

      2. All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes to these
statements.

      3. The exhibits required by Item 601 of Regulation S-K are included under
Item 14(c) to this report.

(b) Reports on Form 8-K

We filed no current reports on Form 8-K during the quarter ended December 31,
2002.

(c) Exhibits required by Item 601 of Regulation S-K:

<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation SK           Description of Exhibit
-------------------------           ----------------------
<S>                           <C>
         2                                   None.
         3                                   None.
         4                                   None.
         9                                   None.
         10                                  None.
         11                                  None.
         12                                  None.
         13                   Portions of the Annual Report to Stockholders for
                              Fiscal Year-ended December 31, 2002.
         16                                  None.
         18                                  None.
         21                   List of Subsidiaries of the Company.
         22                                  None.
         23                                  None.
         24                                  None.
        99A                   SEC Guide 3 Financial Information.
        99B                   CEO certification pursuant to 18 U.S.C. Section 1350, as
                              adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
        99C                   Principal Financial Officer certification pursuant to 18
                              U.S.C. Section 1350, as adopted pursuant to Section 906 of
                              the Sarbanes-Oxley Act of 2002
        99D                   CEO certification pursuant to Section 302 of the
                              Sarbanes-Oxley Act of 2002
        99E                   Principal Financial Officer certification pursuant to
                              Section 302 of the Sarbanes-Oxley Act of 2002
</TABLE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CCFNB BANCORP, INC.
               (Bancorp)

                                       40
<PAGE>
<TABLE>
<S>                                                                                     <C>
By:   /s/ Lance O. Diehl                                                                Date:   March 27, 2003
     ------------------------------------------------------
       Lance O. Diehl
       President and Chief Executive Officer
</TABLE>

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                                                                     <C>
By:   /s/ Don E. Bangs                                                                  Date:   March 27, 2003
     ------------------------------------------------------
       Don E. Bangs
       Director and Secretary


By:   /s/ Robert M. Brewington, Jr.                                                     Date:   March 27, 2003
     ------------------------------------------------------
       Robert M. Brewington, Jr.
       Director


By:   /s/ Edward L. Campbell                                                            Date:   March 27, 2003
     ------------------------------------------------------
       Edward L. Campbell
       Director


By:   /s/ Lance O. Diehl                                                                Date:   March 27, 2003
     ------------------------------------------------------
       Lance O. Diehl
       President, Chief Executive Officer and Director


By:   /s/ Elwood R. Harding Jr.                                                         Date:   March 27, 2003
     ------------------------------------------------------
       Elwood R. Harding, Jr.
       Director and Vice Chairman of the Board


By:   /s/ William F. Hess                                                               Date:   March 27, 2003
     ------------------------------------------------------
       William F. Hess
       Director


By:   /s/ Willard H. Kile, Jr., DMD                                                     Date:   March 27, 2003
     ------------------------------------------------------
       Willard H. Kile, Jr., DMD
       Director


By:   /s/ Charles E. Long                                                               Date:   March 27, 2003
     ------------------------------------------------------
       Charles E. Long
       Director
</TABLE>

                                       41
<PAGE>
<TABLE>
<S>                                                                                     <C>
By:   /s/ Paul E. Reichart                                                              Date:   March 27, 2003
     ------------------------------------------------------
       Paul E. Reichart
       Director , Chairman of the Board


By:   /s/ Virgnia D. Kocher                                                             Date:   March 27, 2003
     ------------------------------------------------------
       Virginia D. Kocher
       Treasurer and Assistant Secretary
       (Principal Financial and Accounting Officer)
</TABLE>

                                       42
<PAGE>
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Item Number     Description                                                               Page
-----------     -----------                                                               ----
<S>             <C>                                                                       <C>
    13          Portions of the Annual Report to Stockholders for the
                Fiscal Year-ended December 31, 2002...................................     44
    21          List of Subsidiaries of the Company...................................     68
    99A         SEC Guide 3 Financial Information.....................................     69
    99B         CEO certification pursuant to 18 U.S.C. Section 1350,
                as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002............................................     73
    99C         Principal Financial Officer certification pursuant to 18 U.S.C.
                Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002............................................     74
    99D         CEO certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002............................................     75
    99E         Principal Financial Officer certification pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.........................     76
</TABLE>

                                       43