SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark one)

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

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

           FOR THE TRANSITION PERIOD FROM ____________TO_____________

                         COMMISSION FILE NUMBER 33-88802

                          PEOPLES FINANCIAL CORP., INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  PENNSYLVANIA                              25-1469914
            (State or other jurisdiction of               (I.R.S. Employer
            Incorporation or organization                 Identification No.)

                  323 FORD STREET, FORD CITY, PA                   16226
                  --------------------------------                ------
              (Address of principal executive offices)          (Zip Code)

             Registrants telephone number, including area code: (814) 275-3133

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

                                            Name of each exchange
                  Title of each class       on which registered
                  -------------------       -------------------

                        None                         None

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 Act of 1934 during the
preceding 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 10K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $35,607,061 on February 15, 2002

Indicate the number of shares outstanding of the registrant's common stock, as
of February 15, 2002. PEOPLES FINANCIAL CORP., INC. COMMON STOCK, PAR VALUE
$0.30 PER SHARE: 1,665,412 SHARES

                       DOCUMENTS INCORPORATED BY REFERENCE

Excerpts from the following documents have been incorporated by reference in
answer or partial answer to certain Items required herein and are attached
hereto as Exhibits:

1) Annual Report to Shareholders, Part I - II.
2) Proxy Statement, Part III.

<PAGE>


                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Peoples Financial Corp, Inc., is a Pennsylvania business corporation,
incorporated in June, 1984. Peoples Financial Corp, Inc., was organized as a
holding company for Peoples Bank of PA. Peoples Bank of PA, in turn owned
approximately 53% of New Bethlehem Bank common stock. Effective April 1, 1995,
New Bethlehem Bank merged with and into Peoples Bank of PA and changed its name
to PFC Bank.

PFC Bank is a Pennsylvania-chartered banking institution and, as successor to
Peoples Bank of PA and New Bethlehem Bank, traces its origins to 1914 and 1895,
respectively. The bank offers a full range of banking services through seven
banking offices in Pennsylvania, two of which are located in Ford City, two in
New Bethlehem, one each in Clarion, Butler and Indiana. As of December 31, 2001,
the bank had total assets of $319.8 million and stockholders' equity of $38.2
million. All of PFC Bank's outstanding common stock is owned by PFC.

PFC Service Corporation is a Delaware corporation and a wholly owned subsidiary
of the bank. The service corporation was incorporated in Delaware, on May 16,
1997. The primary purpose of the service corporation is to hold equity
securities for the bank, which are primarily Pennsylvania bank securities. As of
December 31, 2001, the service corporation had total assets of $31.8 million and
shareholder's equity of $25.0 million.

PFC entered into an Agreement and Plan of Reorganization, dated as of March 19,
2002 by and among Peoples Financial Corporation, Inc., S & T Bancorp, Inc. and S
& T Merger Subsidiary, Inc. Pursuant to which S & T Bancorp and S & T Bank
intend to acquire Peoples Financial and PFC Bank. Under the terms of the
agreement, PFC shareholders will receive $52.50 in cash for each share of PFC,
for an aggregate transaction value of $87.4 million. The transaction is subject
to, among other things, regulatory approval and approval of PFC shareholders at
the Annual Meeting of Shareholders.

FORWARD-LOOKING STATEMENTS

From time to time, the corporation may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the corporation notes that a variety of
factors could cause the corporation's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
corporation's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the corporation's
business include the following: general economic conditions, including their
impact on capital expenditures; business conditions in the banking industry; the
regulatory environment; rapidly changing technology and evolving banking
industry standards; competitive factors, including increased competition with
community, regional and national financial institutions; new service and product
offerings by competitors and price pressures; and similar items.

EMPLOYEES

As of December 31, 2001, PFC, PFC Bank and PFC Service Corporation had 88
full-time employees and 17 part-time employees.
<PAGE>

COMPETITION

The financial services industry in the corporation's service area is extremely
competitive. The corporation's competitors within its service area include
multi-bank holding companies, with resources substantially greater than those of
the corporation. Many competing financial institutions have legal lending limits
substantially higher than the bank's legal lending limit. In addition, the bank
competes with savings banks, savings and loan associations, credit unions, money
market and other mutual funds, mortgage companies, leasing companies, finance
companies, and other financial services companies that offer products and
services similar to those offered by the bank on competitive terms. The bank is
not impacted by one or a few major competitors.

Recently enacted federal legislation is expected to have a significant effect in
restructuring the banking industry in the United States. As a result, the
corporation expects the operating environment for Pennsylvania-based financial
institutions to become increasingly competitive. Additionally, the manner in
which banking institutions conduct their operations may change materially as the
activities increase in which bank holding companies and their banking and
nonbanking subsidiaries are permitted to engage, and funding and investment
alternatives continue to broaden, although the long-range effects of these
changes cannot be predicted with reasonable certainty at this time. These
changes probably will further narrow the differences and intensify competition
between and among commercial banks, thrift institutions, and other financial
service companies.

SUPERVISION AND REGULATION OF PFC AND PFC BANK

PFC is subject to the provisions of the Bank Holding Company Act of 1956, and to
supervision by the Board of Governors of the Federal Reserve System. Under
Federal Reserve Board policy, PFC, as a holding company, is expected to act as a
source of financial strength to its subsidiaries and to commit resources to
support the subsidiaries. This support may be required at times when, absent
such Federal Reserve Board policy, PFC may not be in a position to provide it.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency, up to specified limits.

Under the Bank Holding Company Act, the Federal Reserve Board has the authority
to require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary upon the Federal Reserve Board's determination
that such activity or control constitutes a serious risk to the financial
soundness and stability of any bank subsidiary of the bank holding company.

The Bank Holding Company Act prohibits the corporation from acquiring direct or
indirect control of more than 5% of the outstanding shares of any class of
voting stock or substantially all of the assets of any bank or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve Board. Such a transaction would also require approval of the
Pennsylvania Department of Banking. Pennsylvania law permits Pennsylvania bank
holding companies to control an unlimited number of banks.

As a bank holding company, the corporation is prohibited from engaging in or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.

<PAGE>

As a bank holding company, PFC is required to file reports with the Federal
Reserve Board and is subject to examinations by the Federal Reserve Bank.

The activities that the Federal Reserve has determined by regulation to be
permissible are:

o    making, acquiring, or servicing loans or other extensions of credit for its
     own account or for the account of others;

o    operating an industrial bank, Morris Plan bank, or industrial loan company,
     in the manner authorized by state law, so long as the institution is not a
     bank;

o    operating as a trust company in the manner authorized by federal or state
     law so long as the institution is not a bank and does not make loans or
     investments or accept deposits, except as may be permitted by the Federal
     Reserve Board;

o    subject to limitations, acting as an investment or financial advisor (i) to
     a mortgage or real estate investment trust, (ii) to certain registered
     investment companies, (iii) by providing portfolio investment advice to
     other persons, (iv) by furnishing general economic information and advice,
     general economic statistical forecasting services, and industry studies,
     (v) by providing financial advice to state and local governments, or (vi)
     by providing financial and transaction advice to corporations,
     institutions, and certain persons in connection with mergers, acquisitions,
     and other financial transactions;

o    subject to limitations, leasing real or personal property or acting as
     agent, broker, or adviser in leasing such property in accordance with
     prescribed conditions;

o    investing in corporations or projects designed primarily to promote
     community welfare;

o    providing to others data processing services and data transmission
     services, data bases, and facilities, within certain limitations;

o    subject to limitations, engaging in certain agency and underwriting
     activities with respect to credit insurance, and certain other insurance
     activities as permitted by the Federal Reserve Board;

o    owning, controlling, or operating a savings association, if the savings
     association engages only in deposit-taking activities and lending and other
     activities that are permissible for bank holding companies under Federal
     Reserve Board regulations;

o    providing courier services for certain financial documents;

o    subject to limitations, providing management consulting advice to
     nonaffiliated bank and nonbank depository institutions;

o    retail selling of money orders and similar consumer-type payment
     instruments having a face value of $1,000 or less, selling U.S. Savings
     Bonds, and issuing and selling traveler's checks;

o    performing appraisals of real estate and personal property;
<PAGE>

o    subject to limitations, 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;

o    providing certain securities brokerage services;

o    subject to limitations, underwriting and dealing in government obligations
     and certain other instruments;

o    subject to limitations, providing foreign exchange and transactional
     services;

o    subject to limitations, acting as a futures commission merchant for
     nonaffiliated persons;

o    subject to limitations, providing investment advice on financial futures
     and options to futures;

o    subject to limitations, providing consumer financial counseling;

o    subject to limitations, tax planning and preparation;

o    providing check guaranty services;

o    subject to limitations, operating a collection agency; and,

o    operating a credit bureau.

Federal Reserve Board approval may be required before the corporation or its
nonbank subsidiaries may begin to engage in any such activity and before any
such business may be acquired.

The corporation is a legal entity separate and distinct from the bank. The
corporation revenues (on a parent corporation only basis) result almost entirely
from dividends paid to the corporation by its subsidiary. The right of the
corporation, and consequently the right of creditors and shareholders of the
corporation, to participate in any distribution of the assets or earnings of any
subsidiary through the payment of such dividends or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary (including
depositors, in the case of the bank), except to the extent that claims of the
corporation in its capacity as a creditor may be recognized.

Federal and state laws regulate the payment of dividends by the corporation's
subsidiaries.

Further, it is the policy of the Federal Reserve Board that bank holding
companies should pay dividends only out of current earnings. Federal banking
regulators also have the authority to prohibit banks and bank holding companies
from paying a dividend if they should deem such payment to be an unsafe or
unsound practice.

CAPITAL ADEQUACY

Bank holding companies are required to comply with the Federal Reserve Board's
risk-based capital guidelines. The required minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half (4%) of the total capital is
required to be "Tier 1 capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain intangible assets. The remainder ("Tier
<PAGE>

2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance. In addition to the risk-based capital guidelines, the
Federal Reserve Board requires a bank holding company to maintain a minimum
"leverage ratio." This requires a minimum level of Tier 1 capital (as determined
under the risk-based capital rules) to average total consolidated assets of 3%
for those bank holding companies that have the highest regulatory examination
ratings and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies that have the highest regulatory
examination ratings and are not contemplating or experiencing significant growth
or expansion. All other bank holding companies are expected to maintain a ratio
of at least 1% to 2% above the stated minimum. Further, the Federal Reserve
Board has indicated that it will consider a "tangible Tier 1 capital leverage
ratio" and other indicators of capital strength in evaluating proposals for
expansion or new activities. The Federal Reserve Board has not advised
management of any specific minimum leverage ratio applicable to PFC.

Pursuant to Federal Deposit Insurance Corporation Improvement Act, the federal
banking agencies have specified, by regulation, the levels at which an insured
institution is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or critically
undercapitalized." Under these regulations, an institution is considered "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 5% or
greater, and is not subject to any order or written directive to meet and
maintain a specific capital level. PFC and PFC Bank, at December 31, 2001,
qualify as "well capitalized" under these regulatory standards.

PFC Bank is subject to supervision, regulation and examination by the
Commonwealth of Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation. In addition, the bank is subject to a variety of local,
state and federal laws that affect its operation.

The laws of the Department of Banking applicable to PFC Bank include, among
other things, provisions that:

o    require the maintenance of certain reserves against deposits;
o    limit the type and amount of loans that may be made and the interest that
     may be charged thereon;
o    restrict investments and other activities; and,
o    limit the payment of dividends. The amount of funds that the bank may lend
     to a single borrower is generally limited under Pennsylvania law to 15% of
     the aggregate of its capital, surplus, undivided profits, loan loss
     reserves and capital securities of the Bank, all as defined by statute and
     regulation.

Applicable Pennsylvania law also requires that a bank obtain the approval of the
Department of Banking prior to effecting any merger where the surviving bank
would be a Pennsylvania-chartered bank. In reviewing merger applications,
consideration is given, among other things, to whether the merger would be
consistent with adequate and sound banking practices and in the public interest
on the basis of several factors, including the potential effect of the merger on
competition and the convenience and needs of the area primarily to be served by
the bank resulting from the merger.

Applicable Pennsylvania law permits Pennsylvania-chartered banks to engage in
banking activity in other states (interstate banking) provided that such
activity is within a state that permits reciprocal privileges.

The FDIC, which has primary supervisory authority over the bank, regularly
examines banks in such areas as reserves, loans, investments, management
practices, and other aspects of operations. These examinations are designed for
the protection of the bank's depositors rather than the corporation's
stockholders. The bank must furnish annual and quarterly reports to the FDIC,
<PAGE>

which has the authority under the Financial Institutions Supervisory Act to
prevent a state non-member bank from engaging in an unsafe or unsound practice
in conducting its business.

Federal and state banking laws and regulations govern, among other things, the
scope of a bank's business, the investments a bank may take, the reserves
against deposits a bank must maintain, the types and terms of loans a bank may
make and the collateral it may take, the activities of a bank with respect to
mergers and consolidations, and the establishment of branches. Pennsylvania law
permits statewide branching.

Under the Federal Deposit Insurance Act, as amended, the bank is required to
obtain the prior approval of the FDIC for the payment of dividends if the total
of all dividends declared by the bank in one year would exceed the bank's net
profits for the current year plus its retained net profits for the two preceding
years, less any required transfers to surplus. In addition, the bank may only
pay dividends to the extent that its retained net profits exceed statutory bad
debts. Under Federal Deposit Insurance Corporation Improvement Act, any
depository institution, including the bank, is prohibited from paying any
dividends, making other distributions or paying any management fees if, after
such payment, it would fail to satisfy its minimum capital requirements.

A subsidiary bank of a bank holding company, such as PFC Bank, is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to the principal
shareholders of its parent holding company, among others, and to related
interests of such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.

The bank, and the banking industry in general, are affected by the monetary and
fiscal policies of government agencies, including the Federal Reserve Board.
Through open market securities transactions and changes in its discount rate and
reserve requirements, the Board of Governors of the Federal Reserve exerts
considerable influence over the cost and availability of funds for lending and
investment.

FDIC INSURANCE

PFC Bank's deposits are insured by the FDIC pursuant to the system of federal
deposit insurance initially established by the Banking Act of 1933. This
insurance covers $100,000 per depositor relationship. The bank pays insurance
premiums into a fund according to rates established by the FDIC. The Federal
Deposit Insurance Corporation Improvement Act was enacted, in part, to prevent
the deposit insurance funds related to savings institutions from becoming
insolvent. The act authorized the FDIC to raise insurance premium assessments in
order to achieve and maintain an adequate level of funds. The depletion of the
deposit insurance funds had been due, in part, to a large number of failed
financial institutions in the 1980's, as well as increases in coverage per
deposit account. As a result, the future cost of deposit insurance for the bank
is in large part dependent upon the extent of future banking failures and the
amount of insurance coverage provided by the FDIC per deposit account, neither
of which is within the bank's control. Moreover, the act required the FDIC to
establish a risk-based insurance premium assessment system in order to
differentiate between higher and lower risk institutions and to assess lower
premiums against institutions in a lower risk category. As a result, the bank's
future cost of deposit insurance will depend, in part, upon its risk rating.
<PAGE>

ENVIRONMENTAL LAWS

Neither PFC nor the bank anticipate that compliance with environmental laws and
regulations will have any material effect on capital, expenditures, or earnings.
However, environmentally related hazards have become a source of high risk and
potentially unlimited liability for financial institutions. Environmentally
contaminated properties owned by an institution's borrowers may result in a
drastic reduction in the value of the collateral securing the institution's
loans to such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of any lien in favor
of the institution to a state or federal lien securing clean up costs, and
liability to the institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of the borrower. To
minimize this risk, the bank may require an environmental examination of and
report with respect to the property of any borrower or prospective borrower if
circumstances affecting the property indicate a potential for contamination
taking into consideration a potential loss to the institution in relation to the
borrower. Such examination must be performed by an engineering firm experienced
in environmental risk studies and acceptable to the institution, and the cost of
such examinations and reports are the responsibility of the borrower. These
costs may be substantial and may deter prospective borrowers from entering into
a loan transaction with the bank. PFC is not aware of any borrower who is
currently subject to any environmental investigation or clean up proceeding that
is likely to have a material adverse effect on the financial condition or
results of operations of the bank.

GRAMM-LEACH-BLILEY ACT

On November 12, 1999 the Gramm-Leach-Bliley Financial Modernization Act was
signed into law. The Act has a profound impact on the financial services
industry.

o    The Act repeals prior legislation to permit commercial banks to affiliate
     with securities firms and insurance companies. More importantly, the Act
     significantly expands the authority of each of these financial industries
     to engage in a full array of financial services. Thus, each industry may
     now engage in activities previously reserved to one or the other.

o    The Act authorizes bank holding companies meeting defined standards to
     engage in a substantially broader range of non-banking activities than was
     permissible before the legislation passed.

o    A new hierarchy of existing state and federal regulators will monitor banks
     and bank holding companies. The Act coordinates the efforts of these
     regulators. The goal is to lessen regulatory burden and prevent duplication
     of examination efforts.

Also, all financial institutions are required to take reasonable precautions to
protect the security and confidentiality of personal customer information. A
bank or bank holding company may only share customer information with its
affiliates under certain circumstances.

ITEM 2 - DESCRIPTION OF PROPERTIES

The corporation has seven full service offices at the following locations:

1.   Ford City Office, 323 Ford Street, Ford City, Pennsylvania, Corporate
     office, containing 8,300 square feet;

2.   New Bethlehem Office, 363 Broad Street, New Bethlehem, Pennsylvania,
     Operations Office, containing 12,707 square feet;

3.   Clarion Office, 650 Main Street, Clarion, Pennsylvania, containing 7,101
     square feet;
<PAGE>

4.   Butler Office, 181 New Castle Road, Butler, Pennsylvania, containing 1,400
     square feet;

5    Indiana Office, 500 Philadelphia Street, Indiana, Pennsylvania, containing
     4,000 square feet;

6.   New Bethlehem Branch Office, 628 Broad Street, New Bethlehem, Pennsylvania,
     containing 2,800 square feet;

7.   Manor Township Office, Pleasantview Drive, Ford City, Pennsylvania,
     containing 1,600 square feet;

All properties listed are owned by the corporation and are used by the
corporation in its operations. In management's opinion, the above properties are
in good condition and are adequate for the bank's purposes.

ITEM 3 - LEGAL PROCEEDINGS

A civil action was filed in the Court of Common Pleas of Armstrong County,
Pennsylvania on November 29, 2000 that lists Peoples Financial Corp., Inc. as a
co-defendant along with C. Edward Dunmire and National City Bank of
Pennsylvania, as co-trustees of the Paul L. Dunmire and S. Esther Dunmire
trusts. The plaintiffs, Elmer Snyder, as agent for Thomas A. Snyder, David E.
Snyder, Mark A. Snyder, C.H. Snyder, Jr., Dennis C. Snyder, Richard G. Snyder
and Sally A. Snyder Smith allege that there was a contract for the sale of
107,640 shares of stock in Peoples Financial Corp., Inc. by the Dunmire Trusts
to the plaintiffs. The stock was purchased by Peoples Financial Corp., Inc. from
the Dunmire Trusts. Count I of the Complaint is against the Dunmire Trusts for
breach of contract. Count II of the Complaint is against Peoples Financial
Corp., Inc. for intentional interference with contractual relations. The
plaintiffs are seeking lost stock appreciation of $387,504, reimbursable
expenses, interest, costs and punitive damages from Peoples Financial Corp.,
Inc.

There are no other proceedings pending other than routine litigation incidental
to the business of the corporation and the bank.

ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
<PAGE>

                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PFC's common stock is held by 389 stockholders of record as of February 15,
2002, and is rarely traded. Management of PFC believes that a small number of
securities dealers continue attempts to form a market for the PFC common stock
even though there are very few trades recorded. As of February 15, 2002, there
were 1,665,412 shares outstanding. PFC paid dividends of $0.15 per share each
quarter of 2000 with the addition of a special $0.16 per share dividend paid
prior to year-end. A dividend of $0.17 per share was paid in the first quarter
2001, $0.18 per share in the second quarter followed by a $0.20 per share
dividend in the third and fourth quarters. An additional special dividend of
$0.20 per share was paid prior to year end. Because corporate and banking laws
limit the amount of dividends that can be paid generally, there can be no
assurance that dividends will be paid in the future and, if paid, the amount of
such dividends. See Note 12, Regulatory Matters, in the footnotes to PFC's
financial statement attached at Exhibit 13. PFC repurchased 107,640 shares of
its common stock on July 12, 2000 at the market price of $36.10 per share to be
held as treasury stock.

The following table sets forth quarterly highs and lows of PFC common stock for
the years 1999 through 2001. Quotations were received from Elmer Powell and
Associates and reflect inter-dealer prices, without retail markup, mark down or
commission and may not represent actual transactions.

                                  Common Stock

                               Market Performance

                                  (in dollars)

                    --------------------------------------
                         Qtr.          High         Low
                    --------------------------------------
                        2001
                    --------------------------------------
                          4            42.25       32.30
                          3            37.00       37.00
                          2            37.00       37.00
                          1            37.00       36.00
                    --------------------------------------
                        2000
                    --------------------------------------
                          4            36.50       35.00
                          3            36.50       35.00
                          2            36.69       36.69
                          1            32.63       32.63
                    --------------------------------------
                        1999
                    --------------------------------------
                          4            33.50       32.50
                          3            33.50       32.50
                          2            36.00       32.00
                          1            32.00       30.00
                    --------------------------------------
<PAGE>


ITEM 6 - SELECTED FINANCIAL DATA

The following is selected financial data of PFC and its wholly owned subsidiary,
PFC Bank. Dollar amounts are in thousands, except per share data. Per share data
reflects the retroactive effect of the 100% stock dividend in the form of a 2
for 1 stock split in February 1999. The average balances shown consist of daily
average balances.(except SFAS No. 115 which is based on quarterly averages)
<TABLE>
<CAPTION>

                                                                         Years Ended
                                          ------------------------------------------------------------------------------
 SUMMARY OF OPERATIONS                          12/31/01       12/31/00       12/31/99        12/31/98        12/31/97
                                          ------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>              <C>             <C>
   Total interest income                       $  22,113      $  21,262      $  19,148        $  17,355       $  15,571

   Total interest expense                         11,365         11,293          9,765            8,450           7,489

   Net interest income                            10,748          9,969          9,383            8,905           8,082

   Provision for loan losses                          60             60            150              200              80

   Gains on securities                             2,178            999          2,950            3,001           1,065

   Other operating income                            798            585            591              626             870

   Other operating expenses                        6,373          6,252          6,219            6,037           5,934

   Net income                                      5,135          3,787          4,700            4,464           2,997

   Earnings per share                               3.08           2.20           2.66             2.53            1.70

   Earnings per share (fully diluted)               3.08           2.20           2.66             2.53            1.70

   Dividend per share                               0.95           0.76           0.54            0.585           0.565

   Total number of offices                             7              7              7                7               6

AVERAGE BALANCE SHEET TOTALS

   Total assets (1)                              303,084        284,201        259,865          227,803         206,871

   Investment securities (1)                      50,017         48,639         40,390           43,337          41,946

   Loans & leases (net of unearned
       income)                                   220,079        207,626        187,930          163,520         142,663

   Total deposits                                265,987        250,272        232,416          203,096         183,770

   Total borrowings                                4,219          2,508          2,323                -               -

   Stockholders' equity (1)                       27,217         26,520         24,620           21,230          18,505

   Historical number of shares
       outstanding at period end               1,665,412      1,665,412      1,773,052        1,768,694       1,764,336

   Weighted average number of shares
       outstanding                             1,665,412      1,722,467      1,770,151        1,765,792       1,761,126

PERIOD END TOTAL ASSETS (2)                      321,699        301,479        301,715          266,002         240,271
</TABLE>


(1)  Excludes the effect of SFAS No. 115 (Statement of Financial Accounting
     Standards No. 115 - Accounting for Certain Debt and Equity Securities).
(2)  Includes the effect of SFAS No. 115.


<PAGE>


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

The following is management's discussion and analysis of the consolidated
financial condition and results of operations of PFC and its wholly owned
subsidiary, PFC Bank. The consolidated financial information should be read in
conjunction with PFC's consolidated financial statements included at Exhibit 13
to this report. Substantially all of the income and expenses of PFC are
attributable to PFC Bank and the bank's subsidiary, PFC Service Corporation.

FINANCIAL CONDITION

The total assets of PFC at December 31, 2001 were $321.7 million, an increase of
$20.2 million, or 6.71% over total assets at December 31, 2000 of $301.5
million. Total assets at December 31, 2000 decreased by $0.2 million or 0.07%
over December 31, 1999. The increase in total assets as of December 31, 2001 as
compared to December 31, 2000 was comprised primarily of increases of $14.5
million in the loan portfolio, $2.8 million in federal funds sold and $6.3
million in available-for-sale securities partially offset by decreases of $1.5
million in held-to-maturity securities, $1.3 million in other assets and $0.6
million in cash and due from banks.

The decrease in total assets from December 31, 1999 to December 31, 2000 was
comprised primarily of decreases in cash and interest-bearing balances with
depository institutions of $18.6 million, federal funds sold of $3.3 million and
$2.4 million in available-for-sale securities offsetting increases in the loan
portfolio of over $16.9 million, $5.4 million in held-to-maturity securities and
other assets of $1.8 million.

The total liabilities of PFC at December 31, 2001 were $281.0, an increase of
$15.7 million or 5.92% over total liabilities at December 31, 2000 of $265.3
million. The increase in liabilities resulted primarily from increases in
interest bearing deposits of $19.4 million, non-interest bearing deposits of
$1.1 million and other liabilities of $0.6 million, offset by decreases in
short-term borrowed funds of $5.0 million and deferred taxes of $0.4 million.

Total liabilities of PFC increased by $2.3 million from $263.0 million at
December 31, 1999 to $265.3 million at December 31, 2000. This increase was due
to increases in interest-bearing deposits of $4.6 million and non-interest
bearing deposits of $1.3 million offset by decreases in short-term borrowed
funds of $3.0 million and deferred taxes of $0.6 million.

NET INCOME

PFC reported net income for the 12 month period ended December 31, 2001 of
$5,135,000 as compared to $3,787,000 for the 12 month period ended December 31,
2000, an increase of $1,348,000 or 35.61%. The increase was due to increases of
$1,179,000 in capital gains taken from the sale of available-for-sale
securities, $779,000 in net interest income and $213,000 in non-interest fee
income offset by increases in net operating expenses of $121,000 and an increase
of $702,000 in provision for income taxes. PFC reported net income for the year
ended December 31, 2000 of $3,787,000 which was a decrease of $914,000 or 19.4%
as compared to $4,700,000 reported for the year ended December 31, 1999. This
decrease is the result of decreases of $1,951,000 in capital gains taken from
the sale of available-for-sale securities and $40,000 in net operating expenses
offset by an increase in net interest income of $586,000 and a decrease of
$90,000 in provision for loan losses.

Earnings per share, adjusted for the 100% stock dividend in the form of a 2 for
1 stock split effective February 10, 1999 to shareholders of record January 20,
1999, for the 12 month periods ended December 31, 2001, 2000 and 1999 was $3.08,
$2.20 and $2.66, respectively.
<PAGE>

Because most of the assets and liabilities of banks are monetary in nature,
changes in interest rates can have a significant effect on earnings. PFC,
through its asset and liability management, positions itself to react and
compensate for the volatility of interest rates. See additional analysis of
interest rate sensitivity presented on page 25.

INTEREST INCOME AND EXPENSES

Total interest income increased to $22,113,000 in 2001 from $21,262,000 in 2000,
an increase of $851,000 or 4.00%. This increase is primarily attributable to
increases in interest earned on loans of $1,041,000 and interest-bearing
deposits of $47,000 slightly offset by a decrease in interest on investment
securities and federal funds sold of $238,000. The average yield on
interest-earning assets decreased from 7.34% for the 12 month period ended
December 31, 2000 to 7.12% for the 12 month period ended December 31, 2001. The
average yield on interest-earning assets increased from 7.01% for the 12 month
period ended December 31, 1999 to 7.34% for the 12 month period ended December
31, 2000. The increase in total interest income from 2000 to 2001 results from
an increase in average earning assets of $20.8 million. Total average loans
increased by $12.5 million along with increases in average interest-bearing
deposits of $5.2 million and average investment securities of $3.7 million.
These increases were slightly offset by a decrease in average federal funds sold
of $0.6 million.

Total interest income increased to $21,262,000 in 2000 from $19,148,000 for the
year ended December 31, 1999, an increase of $2,114,000 or 11.04%. The increase
in total interest income from 1999 to 2000 results from an increase in earning
assets of $16.5 million. Average loans increased by $19.7 million while total
average securities, federal funds sold and due from banks decreased by $1.9
million, $1.0 million and $0.3 million, respectively.

Total interest expense increased to $11,365,000 in 2001 from $11,293,000 in
2000, an increase of $72,000, or 0.64%. This increase is the result of an
increase of $138,000 in interest on FHLB borrowings partially offset by a
decrease of $66,000 in interest on interest-bearing deposits. Total interest
expense increased to $11,293,000 in 2000 from $9,765,000 in 1999, an increase of
$1,528,000 or 15.65%. The increase is primarily the result of an increase in
interest-bearing deposits of $15.0 million for the year ended December 31, 2000.
The average rate on interest-bearing liabilities was 4.77% for the 12 months
ended December 31, 2001 and 5.08% and 4.71% for the 12 month periods ended
December 31, 2000 and 1999, respectively.

Net interest income is the difference between the interest earned on loans and
other investments, including dividends received on equity securities, and the
interest paid on deposits and other sources of funds. Net interest income for
the 12 month period ended December 31, 2001 was $10,748,000 as compared to
$9,969,000 for the 12 month period ended December 31, 2000, an increase of
$779,000 or 7.81%. Net interest income increased $586,000 or 7.81% in 2000 as
compared to $9,383,000 for the year ended December 31, 1999.

PFC obtains a portion of its funds from non-interest bearing deposits.
Therefore, the rate paid for all funds is lower than the rate on
interest-bearing funds alone. PFC has been able to retain a significant base of
inexpensive deposits, which consists of checking and savings accounts. These
deposits for the years ended December 31, 2001, 2000 and 1999 comprise
approximately 50.09%, 45.52% and 47.61% of total deposits, respectively.
<PAGE>

INTEREST INCOME AND EXPENSES (CONTINUED)

The following tables present the average major asset and liability categories
for the 12 month periods ended December 31, 2001, 2000 and 1999 along with
interest income and yields. The average balances shown consist of daily average
balances (except SFAS No. 115 which is based on quarterly averages).
Non-performing loans are included in the average balance and yield calculations.

AVERAGE BALANCE SHEETS & NET INTEREST ANALYSIS FOR 2001
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                              AVERAGE
SELECTED ASSET CATEGORIES                                     BALANCES         INTEREST         YIELD/RATE
-------------------------                                     --------         --------         ----------
<S>                                                           <C>             <C>                 <C>
   Interest-earning assets
          Loans & direct lease financing                      $ 220,079       $ 17,911            8.14%
             (net of unearned discount)
          Investment securities                                  67,560          3,435            5.08%
          Federal funds sold                                      6,818            286            4.19%
          Due from banks                                         15,922            481            3.02%
   Non-interest earning assets
          Cash and due from banks                                 3,870            N/A             N/A
          Premises and equipment                                  2,855            N/A             N/A
          Other assets                                            3,108            N/A             N/A


SELECTED LIABILITY CATEGORIES
-----------------------------

   Interest-bearing liabilities
          Demand deposits                                     $  61,408       $  2,100            3.42%
          Savings deposits                                       30,420            898            2.95%
          Time deposits                                         142,300          8,071            5.67%
          Short-term borrowings                                   4,219            296            7.02%
   Non-interest-bearing liabilities
          Demand deposits                                        31,859            N/A            N/A
          Other                                                   6,887            N/A            N/A


Net interest income                                           $  10,748
Net interest margin                                               3.46%
Yield on average interest-earning assets                          7.12%
Rate on average interest-bearing liabilities                      4.77%
</TABLE>

<PAGE>

INTEREST INCOME AND EXPENSE (CONTINUED)

AVERAGE BALANCE SHEETS & NET INTEREST ANALYSIS FOR 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                              AVERAGE
SELECTED ASSET CATEGORIES                                     BALANCES        INTEREST         YIELD/RATE
-------------------------                                     --------        --------         ----------
<S>                                                           <C>             <C>                 <C>
   Interest-earning assets
             Loans & direct lease financing                   $ 207,626       $ 16,869            8.12%
                (net of unearned discount)
             Investment securities                               63,803          3,495            5.48%
             Federal funds sold                                   7,463            464            6.22%
             Due from banks                                      10,672            434            4.07%
   Non-interest earning assets
             Cash and due from banks                              4,018           N/A             N/A
             Premises and equipment                               2,966           N/A             N/A
             Other assets                                         3,153           N/A             N/A

SELECTED LIABILITY CATEGORIES
-----------------------------

   Interest-bearing liabilities
             Demand deposits                                  $  54,084       $  2,043            3.78%
             Savings deposits                                    29,318            933            3.18%
             Time deposits                                      136,444          8,159            5.98%
             Short-term borrowings                                2,508            158            6.30%
   Non-interest-bearing liabilities
             Demand deposits                                     30,426           N/A              N/A
             Other                                                7,484           N/A              N/A



Net interest income                                            $  9,969
Net interest margin                                               3.44%
Yield on average interest-earning assets                          7.34%
Rate on average interest-bearing liabilities                      5.08%
</TABLE>
<PAGE>
INTEREST INCOME AND EXPENSE (CONTINUED)
<TABLE>
<CAPTION>

AVERAGE BALANCE SHEETS & NET INTEREST ANALYSIS FOR 1999
(IN THOUSANDS)

                                                               AVERAGE
SELECTED ASSET CATEGORIES                                     BALANCES        INTEREST        YIELD/RATE
-------------------------                                     --------        --------        ----------
<S>                                                           <C>             <C>                 <C>
   Interest-earning assets
               Loans & direct lease financing                 $ 187,930       $ 15,317            8.15%
                  (net of unearned discount)
               Investment securities                             65,732          3,045            4.63%
               Federal funds sold                                 8,422            440            5.22%
               Due from banks                                    10,942            346            3.16%
   Non-interest earning assets
               Cash and due from banks                            7,032            N/A             N/A
               Premises and equipment                             3,178            N/A             N/A
               Other assets                                       3,301            N/A             N/A

SELECTED LIABILITY CATEGORIES
-----------------------------

   Interest-bearing liabilities
               Demand deposits                                $  53,634       $   1,969           3.67%
               Savings deposits                                  29,459             936           3.18%
               Time deposits                                    121,766           6,724           5.52%
               Short-term borrowings                              2,323             136           5.85%
   Non-interest-bearing liabilities
               Demand deposits                                   27,557              N/A           N/A
               Other                                             10,877              N/A           N/A

Net interest income                                           $   9,383
Net interest margin                                               3.44%
Yield on average interest-earning assets                          7.01%
Rate on average interest-bearing liabilities                      4.71%
</TABLE>

<PAGE>

NON-INTEREST INCOME

Non-interest income for the twelve month period ended December 31, 2001 totaled
$2,976,000 as compared to $1,584,000 for the same period ended 2000, an increase
of $1,392,000 or 87.88%. This increase was primarily due to an increase of
$1,179,000 in capital gains taken from the sale of available-for-sale
securities. Non-interest income for the year ended December 31, 2000 decreased
from the total in 1999 of $3,549,000 by $1,965,000. Changes in the level of
non-interest income during 2001 are attributable to increases in net investment
gains of $1,179,000 and service fees and miscellaneous income of $213,000.
Changes in the level of non-interest income during 2000 are primarily
attributable to decreases in investment gains of $1,951,000 and service fees of
$14,000.

NON-INTEREST EXPENSES

Non-interest expenses for the twelve month period ended December 31, 2001
totaled $6,373,000 as compared to $6,252,000 for the same period in 2000, an
increase of $121,000 or 1.94%. The increase is primarily related to increases in
miscellaneous expenses of $297,000 offset by decreases in salaries and employee
benefits of $78,000, occupancy expenses of $78,000 and PA Shares Tax of $20,000.
Non-interest expense for the twelve month period ended December 31, 2000
registered an increase of $25,000 or 0.4% as compared to the same period in
1999. The increase is primarily the result of increases in occupancy expense of
$63,000, salaries and employee benefits of $89,000 and legal and professional
fees of $14,000 partially offset by decreases of $64,000 in data processing fees
and miscellaneous fees of $77,000.

INVESTMENT SECURITIES

Investments are second only to the loan portfolio when analyzing the source of
PFC's earning assets. In addition to generating revenue, securities provide the
primary source of liquidity and also serve as collateral for public deposits.
PFC historically invests in U.S. Treasury securities, obligations of U.S.
government agencies, obligations of state and political subdivisions, selected
corporate notes and equity securities of other local and regional financial
institutions. PFC accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which requires PFC to classify
investment securities as either held to maturity, available for sale or trading.
Management has the ability and intent to hold held-to-maturity securities until
maturity. PFC has classified all equity securities as available for sale.
Substantially all of these securities are held in PFC Service Corporation, Inc.
There are no securities held in PFC's investment portfolio which are considered
trading securities. Under SFAS No. 115, PFC is required to adjust the carrying
value of its available-for-sale securities to market value. These unrealized
gains (losses) are recognized as an increase (decrease) to the carrying value of
such securities; the offset of which is an increase (decrease) to PFC's
stockholder's equity, adjusted for the deferred income tax effects thereon. For
the period ended December 31, 2001, PFC's net unrealized gain on
available-for-sale securities was $17.9 million. As of December 31, 2000 the net
unrealized gain was $16.2 million.

PFC's investment securities balance for the period ended December 31, 2001 was
$69.2 million, a $4.8 million or 7.58% increase compared to the period ended
December 31, 2000. This increase is primarily the result of an increase of $6.3
million in available-for-sale securities offset by a decrease of $1.5 million in
held-to-maturity securities. The December 31, 2000 securities balance of $64.3
million was an increase of $3.0 million over the same time period in 1999.

Average federal funds sold were $6.8 million and $7.5 million for the years
ended December 31, 2001 and 2000, respectively.
<PAGE>

INVESTMENT SECURITIES (CONTINUED)

The following table summarizes the maturity distribution and itemized breakdown
of the investment portfolio as of December 31, 2001.

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES FOR 2001

(IN THOUSANDS AND EXCLUDING SFAS NO. 115)
<TABLE>
<CAPTION>


                                     NO                   WITHIN                  1 TO 5         5 OR MORE
                                  MATURITY     YIELD      1 YEAR    YIELD         YEARS   YIELD     YEARS      YIELD      TOTAL
                                  --------     -----      ------    -----         -----   -----     -----      -----      -----

<S>                                <C>        <C>         <C>        <C>        <C>        <C>        <C>     <C>       <C>
U.S. Treasuries/Agencies                                  $15,933    5.69%      $20,047    6.06%      $   0        -    $ 35,980
State/Municipal                                                 0                     0                  25     4.65%         25
Other Securities                                                0                     0               2,377     8.64%       2,377
Equity Securities                   $ 12,898    9.17%           0                     0                   0               12,898
                                -------------------------------------------------------------------------------------------------

Totals                              $ 12,898    9.17%    $ 15,933    5.69%      $20,047    6.06%    $ 2,402    8.60%    $ 51,280
                                ============= ======== =========== ======== ============ ======== ========== ======== ===========
</TABLE>



SHORT-TERM BORROWINGS

(IN THOUSANDS)

For each period:                     2001      2000        1999
                                     ----      ----        ----

Balance at period end              $    0     $5,000      $8,000
Weighted average interest rate          0       6.30%       5.85%
Maximum amount outstanding          5,000      8,000       8,000
Average amount outstanding          4,219      2,508       2,323


<PAGE>

LOANS

As of December 31, 2001, the net loan portfolio of PFC Bank comprised 70.84% of
total consolidated assets as compared with 70.80% for the year ending December
31, 2000.

The corporation's total consolidated loans (net of unearned income and the
allowance for loan losses) at December 31, 2001, were $227.9 million, an
increase of $14.5 million or 6.79% as compared to $213.4 million at December 31,
2000. The December 31, 2000 balance increased $16.9 million or 8.60% over the
year ended December 31, 1999. The increase in 2001 was primarily due to
increases of $6.7 million in residential property loans, $9.4 million in
commercial property loans and $2.4 million loans for construction of real
estate. The increase in 2000 was due primarily to an increase in residential
loans of $14.9 million.

Traditionally, PFC Bank has been highly dependent on home mortgage lending.
While this type of loan comprises a large portion of the loan portfolio, PFC
Bank has a wide range of other loans.

The bank offers a variety of loans to individual and corporate customers in
Armstrong, Butler, Clarion and Indiana Counties of Pennsylvania, but
concentrates lending activities in residential mortgages in these local market
areas. These loans comprised approximately 66.25% of PFC Bank's gross loan
portfolio as of December 31, 2001. As of that date, the remainder of the
portfolio was made up of real estate construction loans comprising loans of
2.01%, commercial mortgages of 18.69%, commercial and agricultural loans of
4.17%, consumer loans of 6.72% and other loans comprising 2.16% of the loan
portfolio. Although PFC Bank has a significant concentration of residential and
commercial mortgage loans collateralized by first mortgage liens located in the
bank's lending areas, there is no concentration of loans to borrowers engaged in
similar economic activities which exceed 10% of the loans at December 31, 2001.

The risks associated with the various types of loans placed by PFC Bank are
varied. The practices employed by the bank in addressing these risks constantly
evolve in response to economic conditions.

With respect to secured real estate lending, PFC Bank has traditionally placed
heavy reliance on collateral value but has tightened its lending policies and is
placing more reliance on the borrower's ability to repay. Because the bank's
market is comprised largely of outlying but moderately prosperous sections of
Pennsylvania, PFC Bank has been somewhat cushioned from the real estate
recessions as well as real estate booms, leaving values at very conservative
levels through the years. The bank experienced a decrease in non-performing
assets from 2000 to 2001 of $119,000 or 23.85% following an increase of $99,000
or 24.75% from 1999 to 2000. Restructured loans decreased by $85,000 or 80.95%
while non-accrual loans and loans 90 days or more past-due decreased by $30,000.
The tightening of lending policies has not decreased loan demand. In fact, total
loans as of December 31, 2001 have increased over the balance at December 31,
2000, by $14.5 million following an increase from 1999 to 2000 of $16.9 million.
The bank intends to continue its policy of performing formal credit analysis in
support of loan requests.
<PAGE>

LOANS(CONTINUED)

(IN THOUSANDS AND NET OF UNEARNED INCOME, BUT NOT THE ALLOWANCE FOR LOAN LOSSES)
<TABLE>
<CAPTION>


                                              12/31/01      12/31/00        12/31/99     12/31/98        12/31/97
                                        ---------------------------------------------------------------------------

<S>                                            <C>           <C>            <C>            <C>            <C>
Commercial, financial, agriculture             $ 9,569       $11,775        $ 11,517       $12,089        $ 17,200
Real estate-construction                         4,597         2,188           2,762         2,439           1,966
Real estate-residential                        151,913       145,198         130,265       110,861          84,708
Real estate-commercial                          42,863        33,461          27,262        22,174          17,514
Consumer                                        15,401        18,630          22,125        24,085          28,646
Other                                           4,950          3,612           3,987         4,294           3,611
                                        --------------- -------------  -------------- -------------  --------------
          TOTALS                             $ 229,293      $214,864        $197,918      $175,942        $153,645
                                        =============== =============  ============== =============  ==============
</TABLE>



PERCENT OF LOAN CATEGORIES TO TOTAL LOANS
<TABLE>
<CAPTION>

                                             12/31/01       12/31/00       12/31/99      12/31/98        12/31/97
                                        ---------------------------------------------------------------------------

<S>                                              <C>           <C>             <C>           <C>            <C>
Commercial, financial, agriculture               4.17%         5.48%           5.82%         6.87%          11.19%
Consumer/Other                                   8.88%        10.35%          13.19%        16.13%          21.00%
Real estate                                     86.95%        84.17%          80.99%        77.00%          67.81%
                                        --------------- -------------  -------------- -------------  --------------
                                               100.00%       100.00%         100.00%       100.00%         100.00%
                                        =============== =============  ============== =============  ==============
</TABLE>


MATURITY TABLE AS OF DECEMBER 31, 2001
<TABLE>
<CAPTION>

                                             Due
                                        1 year or less     1-5 years    After 5 years      Totals
                                       --------------------------------------------------------------
<S>                                             <C>            <C>             <C>          <C>
Floating rate                                   $  781         $   -           $   -        $  781
Fixed rate                                      10,452        31,508         186,552       228,512
                                        --------------- -------------  -------------- -------------
                                              $ 11,233       $31,508        $186,552      $229,293
</TABLE>

<PAGE>

ALLOWANCE/PROVISION FOR LOAN LOSSES

An allowance for possible loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks in the loan portfolio. Management's judgment is based
upon evaluation of individual loans, past loss experience, current economic
conditions and other relevant factors. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the bank's allowance for loan losses. Such agencies may require the bank to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.

The evaluation of the adequacy of the allowance for loan losses includes a
consideration of the following factors: the level and trends in loan
delinquencies and non-accrual loans; the current and anticipated local, regional
and national economic outlook; concentrations of credit risk; historical
charge-off and recovery experience; trends in loan classifications; an
assessment of inherent risk and overall portfolio quality; and, consideration of
PFC Bank's loan origination standards.

Based on this information, management concluded that the bank's allowance for
loan losses was adequate to provide for known and inherent losses which may
exist in the loan portfolio as of December 31, 2001.

The provision for loan losses was $60,000 for the twelve month period ended
December 31, 2001 and $60,000 for the same period ended December 31, 2000. The
allowance for loan losses was $1,386,000 at December 31, 2001, which was a
decrease of $26,000 or 1.84% over the amount at December 31, 2000.

The provision for loan losses of $60,000 for the twelve month period ended
December 31, 2000 was a $90,000 decrease compared with the provision of $150,000
for the same period ended December 31, 1999. The allowance for loan losses
increased $34,000 from $1,378,000 at December 31, 1999 to $1,412,000 at December
2000.

Management recognizes the need to maintain an adequate reserve to meet the
ongoing risks associated with a growing loan portfolio and intends to continue
to maintain the allowance at appropriate levels based on ongoing evaluations of
the loan portfolio. Net loan charge-offs were $86,000 for the twelve month
period ended December 31, 2001 as compared to 2000 and 1999 net charge-offs of
$26,000 and $10,000, respectively. The unusual increase in net charge-offs in
1999 was due to a single loan charge-off of $151,000 arising from a successor
letter of credit, derived from a letter of credit originally issued in 1985 by
past management.

Non-performing assets of $380,000 were 27.42% of the allowance for loan losses
at December 31, 2001. Non-performing assets compared to the allowance for loan
losses at December 31, 2000 and 1999 were 35.34% and 29.03%, respectively.
Non-performing assets consist of loans no longer accruing interest, loans
accruing interest past due more than 90 days, restructured loans and other real
estate owned (foreclosed assets).

The table on the following page summarizes the loan portfolio and loan
charge-offs for the five years ended December 31, 2001.
<PAGE>

ALLOWANCE/PROVISION FOR LOAN LOSSES (CONTINUED)
<TABLE>
<CAPTION>

LOAN LOSS SUMMARY
(IN THOUSANDS)                                                              Years Ended
                                                -----------------------------------------------------------------------
                                                  12/31/01      12/31/00       12/31/99       12/31/98      12/31/97
                                                -----------------------------------------------------------------------
<S>                                                 <C>           <C>            <C>            <C>           <C>
Amount of loans outstanding at end
  of period, net of unearned income and
  net deferred costs                                $229,293      $ 214,864      $197,918       $175,942      $153,645
                                                ============= ============== =============  ============= =============

Daily average amounts of loans                      $226,884      $ 207,626      $187,930       $163,520      $142,663
                                                ============= ============== =============  ============= =============

Allowance for loan losses
  at the beginning of period                        $  1,412      $   1,378      $  1,238       $  1,249      $  1,254
LOANS CHARGED-OFF:

  Commercial, financial, agriculture                      67              2             3            151             4
  Real-estate construction                                 0              0             0              0             0
  Real-estate mortgage                                     2              0             0              0             0
  Consumer                                                36             43            45             95           101
  Leasing and other                                        0              0             0              0             0
                                                ------------- -------------- -------------  ------------- -------------
             TOTALS                                      105             45            48            246           105
Recoveries of loans previously charged-off:
  Commercial, financial, agriculture                       3              4             1              8             8
  Real estate - construction                               0              0             0              0             0
  Real estate - mortgage                                   1              0             0              0             0
  Consumer                                                15             15            37             27            12
  Leasing and other                                        0              0             0              0             0
                                                ------------- -------------- -------------  ------------- -------------
             TOTALS                                       19             19            38             35            20
                                                ------------- -------------- -------------  ------------- -------------

Net loans charged off                               $     86      $      26      $     10       $    211      $     85

Additions to allowance charged
   to operations
                                                          60             60           150            200            80
                                                ------------- -------------- -------------  ------------- -------------
Allowance for loan losses                           $  1,386      $   1,412      $  1,378       $  1,238      $  1,249
                                                ============= ============== =============  ============= =============

Ratio of net charge-offs during period
   to average loans outstanding                        0.04%          0.01%         0.01%          0.13%         0.06%
Ratio of reserves to net loans at end
   of period                                           0.60%          0.66%         0.70%          0.70%         0.81%

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

LOAN TYPE

  Commercial. financial, agriculture                $    100      $     184      $    278       $    260      $    421
  Real estate - construction/mortgage
                                                         134            110           122            100           100
  Consumer and other

                                                         100            100           138            180           505
  Not allocated

                                                       1,052          1,018           840            698           223
                                                ------------- -------------- -------------  ------------- -------------
             TOTALS                                 $  1,386      $   1,412      $  1,378       $  1,238      $  1,249
                                                ============= ============== =============  ============= =============
</TABLE>


<PAGE>

NON-PERFORMING ASSETS

The table below presents non-performing assets in each of the five years ended
December 31, 2001. Management is not aware of any significant loans outstanding
which are current, but for which there is a serious doubt as to whether the
customer can comply with loan repayment terms.

PFC Bank's non-performing assets consist of: (i) non-accrual loans; (ii) loans
past due 90 or more days as to interest or principal and still accruing
interest; (iii) restructured loans; and, (iv) other real estate acquired through
foreclosure, including in-substance foreclosures.

As part of its policy, PFC Bank places all loans that are past due 90 days or
more on non-accrual status, unless they are adequately capitalized and in the
process of collection.

Properties acquired by foreclosure, or deed in lieu of foreclosure, and
properties classified as in-substance foreclosures are transferred to other real
estate and recorded at the lower of cost or fair value, less estimated disposal
costs. This method of accounting is consistent with the American Institute of
Certified Public Accountants' Statement of Position 92-3, Accounting for
Foreclosed Assets (SOP 92-3). Management of PFC believes that the adoption of
SOP 92-3 has not had a material impact on the financial statements of PFC Bank

NON-PERFORMING ASSETS
(in thousands)
<TABLE>
<CAPTION>

                                                   12/31/01      12/31/00     12/31/99      12/31/98      12/31/97
                                                  --------------------------------------------------------------------

<S>                                                     <C>          <C>            <C>           <C>           <C>
Non-accrual loans                                       $  23        $  96          $  7          $ 93          $ 217
Accruing loans past due 90 days or more                   316          273           226           434            451
Restructured loans                                         20          105           118           133            144
Other real estate                                          21           25            49           229            145
                                                  ------------  -----------  ------------ ------------- --------------
     TOTALS                                             $ 380        $ 499         $ 400         $ 889          $ 957
                                                  ============  ===========  ============ ============= ==============


                                                   12/31/01      12/31/00     12/31/99      12/31/98      12/31/97
                                                  --------------------------------------------------------------------

Interest income which would have been
   recorded under original terms                        $  12        $  10          $  3          $  7          $  26
Interest income recorded during period                      3            5           117            40              4
Commitments to lend additional funds                      N/A          N/A           N/A           N/A            N/A

</TABLE>
<PAGE>

DEPOSITS

PFC Bank continues to rely upon deposits as its primary source of funds.
Deposits consist of interest bearing and non-interest bearing demand deposits,
savings deposits and time deposits.

The table below presents average daily deposits and interest rates of time
deposits of $100,000 or more for the years ended December 31, 2001, 2000 and
1999.

DEPOSITS
(in thousands)
<TABLE>
<CAPTION>

                                                             Average Amount                        Average Rate
                                              --------------------------------------------------------------------------
                                                    2001         2000         1999       2001        2000       1999
                                              --------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>        <C>        <C>        <C>
Non-interest bearing demand deposits               $31,859      $30,620     $ 27,557       -           -          -
Interest bearing demand deposits                    61,408       54,084       53,634     3.42%      3.78%      3.67%
Savings deposits                                    30,420       29,318       29,459     2.95%      3.18%      3.18%
Time deposits                                      142,300      136,444      121,766     5.67%      5.98%      5.52%
                                              ---------------------------------------
   TOTALS                                         $265,987     $250,466    $ 232,416
                                              =======================================

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

                                                    2001         2000         1999
                                              ---------------------------------------
Three months or less                               $18,150      $21,601     $ 22,640
Over three through twelve months                    19,974       18,242       20,805
Over 1 year through 5 years                         11,269       10,566        7,424
Over 5 years                                           100          100          100
                                              ---------------------------------------
   TOTALS                                          $49,493      $50,509     $ 50,969
                                              =======================================
</TABLE>

PFC's consolidated deposit balance as of December 31, 2001 was $272.6 million,
which is a $20.6 million increase over the December 31, 2000 balance of $252.0
million. The December 31, 2000 balance was a $5.9 million increase over the
December 31, 1999 balance of $246.1 million. The majority of the deposit growth
experienced in 2001 resulted from an increase in money market deposit accounts,
while the increase in 2000 occurred in time deposits.

LIQUIDITY

PFC Bank's liquidity is a measure of its ability to fund loans, withdrawals of
deposits and other cash outflows in a cost effective and timely manner.

PFC Bank's principal sources of funds are deposits, scheduled payments and
pre-payments of loan principal, maturities and sales of investment securities,
short term borrowed funds and other funds provided by operations. While loan
payments and maturing investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition. In order to meet the cash needs for 2001, PFC Bank
maintained an average balance of federal funds sold of $6.8 million for the 12
months ended December 31, 2001, as compared to $7.5 million at December 31,
2000. At December 31, 2001, PFC held $15.9 million of investment securities and
$11.2 million of loans maturing in less than one year. PFC Bank has the option
to borrow funds from the Federal Home Loan Bank (FHLB) and the Federal Reserve
Bank. At December 31, 2001, the bank had not borrowed any short term funds from
FHLB, compared with $5.0 million borrowed at December 31, 2000. The bank also
relies on the sale of bank equities as a secondary source of liquidity through
the planned taking of capital gains. Management believes that the bank's
liquidity position is adequate at the present time.
<PAGE>

INTEREST RATE SENSITIVITY

The objective of interest rate sensitivity management is to minimize the bank's
risks associated with changing interest rates by managing interest sensitive
assets and liabilities in such a manner that they can be repriced in response to
changes in market interest rates. PFC Bank's objective is to maintain a
reasonable balance between rate sensitive assets and rate sensitive liabilities.

The difference between interest sensitive assets and liabilities (i.e., balance
sheet gap) cannot solely be used to control interest rate sensitivity. Interest
rates themselves must be monitored and adjusted to maintain an acceptable return
on assets. Management's ability to forecast and simulate rate movements allows
changes to be made quickly and advantageously. Although management recognizes
PFC Bank's short-term, highly liability sensitive position, it continues to
evaluate its earning assets versus liabilities to manage this gap. Management
believes the gap ratio, as indicated in the table below, is acceptable.
Management's study of the bank's primary core deposit base revealed that even in
times of interest rate fluctuation, the base has remained stable. As a result,
management believes that these core deposits (demand, NOW and savings accounts)
are not necessarily tied to interest rate sensitivity.

INTEREST SENSITIVITY CUMULATIVE GAP ANALYSIS
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                 DECEMBER 31, 2001

                                                  0-3           0-12            0-24           0-5
ASSETS:                                         Months         Months         Months          Years
                                          --------------- -------------- --------------  -------------
<S>                                              <C>           <C>            <C>            <C>
Investments Securities                           $ 8,675       $ 17,884       $ 27,360       $ 37,945
Loans                                              8,308         26,791         46,918         98,447
Federal Funds sold                                 5,000          5,000          5,000          5,000
Interest Bearing Depository Balances               9,230          9,230          9,230          9,230
                                          --------------- -------------- --------------  -------------
     Total Earning Assets                       $ 31,213       $ 58,905       $ 88,508       $150,622

LIABILITIES:
Greater than $100,000                           $ 18,151       $ 38,125       $ 43,797       $ 49,393
Less than $100,000                                22,916         60,801         72,249         86,033
                                          --------------- -------------- --------------  -------------
     Total interest-bearing liabilities         $ 41,067       $ 98,926      $ 116,046       $135,426

Cumulative gap                                    (9,854)       (40,021)       (27,538)        15,196
Cumulative gap ratio                               (3.09)        (12.53)         (8.62)          4.76
Rate Sensitive Assets/
         Rate Sensitive Liabilities               76.01%         59.54%         76.27%        111.22%
</TABLE>

<PAGE>


PEOPLES FINANCIAL CORP., INC.
CHANGES IN INTEREST INCOME/ EXPENSE
(in thousands)
<TABLE>
<CAPTION>

                                                                        DECEMBER 31, 2001 VS. 2000
                                                                           INCREASE/DECREASE DUE
                                                                               TO CHANGE IN
                                                                     ---------------------------------
INTEREST INCOME ON:                                                   VOLUME        RATE         NET
                                                                     -------      -------      -------
<S>                                                                  <C>          <C>          <C>
     Loans                                                           $ 1,012      $    30      $ 1,042
     Investment securities
                                                                         206         (266)         (60)
     Due from banks                                                      214         (167)          47
     Federal funds sold and securities purchases                         (40)        (138)        (178)
                                                                     -------      -------      -------
             Total interest-earning assets                           $ 1,392      $  (541)     $   851

INTEREST EXPENSE ON:
     Demand deposits                                                 $   278      $    57
                                                                                               $  (221)


     Savings deposits                                                     35          (70)         (35)
     Time deposits                                                       350         (438)         (88)
     Short-term borrowings                                               108           30          138
                                                                     -------      -------      -------
             Total interest-bearing liabilities                      $   771      $  (699)     $    72


                                                                        DECEMBER 31, 2000 VS. 1999
                                                                           INCREASE/DECREASE DUE
                                                                               TO CHANGE IN
                                                                     ---------------------------------
INTEREST INCOME ON:                                                   VOLUME        RATE         NET
                                                                     -------      -------      -------
     Loans                                                           $ 1,605      $   (53)     $ 1,552
     Investment securities                                               (89)         539          450
     Due from banks                                                       (9)          97           88
     Federal funds sold and securities purchases                         (50)          74           24
                                                                     -------      -------      -------
             Total interest-earning assets                           $ 1,457      $   657      $ 2,114

INTEREST EXPENSE ON:

     Demand deposits                                                 $    17      $    57      $    74
     Savings deposits                                                     (4)           1           (3)
     Time deposits                                                       811          624        1,435
     Short-term borrowings                                                11           11           22
                                                                     -------      -------      -------
             Total interest-bearing liabilities                      $   835      $   693      $ 1,528

                                                                        DECEMBER 31, 1999 VS. 1998
                                                                           INCREASE/DECREASE DUE
                                                                               TO CHANGE IN
                                                                     ---------------------------------
INTEREST INCOME ON:                                                  VOLUME        RATE          NET
                                                                     -------      -------      -------
     Loans                                                           $ 2,067      $  (596)     $ 1,471
     Investment securities                                              (212)         239           27
     Due from banks                                                      124          (71)          53
     Federal funds sold and securities purchases                         248           (6)         242
                                                                     -------      -------      -------
             Total interest-earning assets                           $ 2,227      $  (434)     $ 1,793

INTEREST EXPENSE ON:

     Demand deposits                                                 $   172      $    44      $   216
     Savings deposits                                                     42            0           42
     Time deposits                                                     1,184         (263)         921
     Short-term borrowings                                               136            0          136
                                                                     -------      -------      -------
             Total interest-bearing liabilities                      $ 1,534      $  (219)     $ 1,315
</TABLE>


<PAGE>


CAPITAL RESOURCES

Capital resources are provided by common stock, capital surplus and retained
earnings. The objective of management is to emphasize current and future capital
needs based upon anticipated growth.

PFC Bank has historically maintained an adequate capital position. The
regulations of the FDIC require it to maintain a Leverage Ratio, Tier I Capital
to Risk-Weighted Assets Ratio, and a Total Capital to Risk-Weighted Asset Ratio
of 3%, 4%, and 8%, respectively. PFC Bank exceeds each of these ratios as shown
in the following table representing PFC Bank at December 31, 2001.

                                                     PFC BANK

Leverage Capital Ratio                                 8.47%

Tier I Capital to Risk
Weighted Assets                                       14.35%

Total Capital to Risk
Weighted Assets                                       19.54%


RETURN ON EQUITY AND ASSETS
(not including SFAS No. 115)
<TABLE>
<CAPTION>

                                                12/31/01        12/31/00         12/31/99         12/31/98     12/31/97
                                                ----------     ------------    -------------    ----------     --------
<S>                                               <C>             <C>              <C>              <C>           <C>
Return on Assets
 (net income divided by avg total assets)         1.69%           1.32%            1.81%            1.96%         1.45%

Return on Equity
  (net income divided by average equity)         19.36%          14.28%           19.09%           21.03%        16.19%

Equity to assets ratio
 (average equity divided by avg total assets)     8.75%           9.25%            9.47%            9.32%         9.15%
</TABLE>


ITEM 8 - FINANCIAL STATEMENTS

The financial statements required by this Item are set forth at Exhibit 13, and
incorporated herein by reference.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

<PAGE>




                                    PART III

ITEM 10 -  DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS

The information required by this Item, relating to directors, executive
officers, control persons is set forth in the Registrant's Proxy Statement to be
used in connection with the 2002 Annual Meeting of Shareholders, which pages are
incorporated herein by reference.

Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the Registrant's officers and
directors, and persons who own more than 10% of a registered class of the
Registrant's equity securities, to file reports of ownership with the Securities
and Exchange Commission. Officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish the Registrant with copies of all
Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Registrant believes that during the period January 1, 2001
through December 31, 2001, its officers and directors were in compliance with
all filing requirements applicable to them.

ITEM 11 - EXECUTIVE COMPENSATION

The information required by this Item, relating to executive compensation, is
set forth in the Registrant's Proxy Statement to be used in connection with the
2002 Annual Meeting of Shareholders, which pages are incorporated herein by
reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item, relating to beneficial ownership of the
Registrant's Common Stock, is set forth in the Registrant's Proxy Statement to
be used in connection with the 2002 Annual Meeting of Shareholders, which pages
are incorporated herein by reference.
<PAGE>

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PFC Bank has a policy of granting loans to eligible directors, officers,
employees and members of their immediate families. Loans are made in the
ordinary course of business and on the same terms, including collateral
requirements and interest rates, as those prevailing at the time for comparable
transactions and do not involve more than the normal risk of collection. The
table below sets forth information concerning each loan made by PFC Bank to
executive officers, directors and major shareholders, for which a loan balance
was outstanding at any time since January 1, 2001.
<TABLE>
<CAPTION>

                                                  LARGEST AMOUNT
                                        DATE OF     OUTSTANDING            BALANCE
NAME                       POSITION      LOAN    SINCE JAN. 1, 2001     DEC. 31, 2001
----                       --------      ----    ------------------     -------------
<S>                        <C>          <C>         <C>                  <C>        <C>
Timothy P. Reddinger       Secretary    various      $ 873,702            $ 870,777  (1)
Frank T. Baker             Chairman      1998           74,626               70,219
Darl Hetrick               Director     various         81,384               73,950  (2)
James L. Kifer             Exec. V.P.    1998           44,058               37,928
R.B. Robertson             Pres./CEO                    25,000               25,000  (3)
Francis E. Kane            Director      1999           10,520                7,685
</TABLE>

(1)    Comprised primarily of Standby Letters of Credit fully secured by cash on
       deposit or residential property.

(2)    Comprised primarily of third party receivables associated with equipment
       sales by Mr. Hetrick's farm supply business. The receivables were
       purchased by PFC Bank from Mr. Hetrick with recourse to Mr. Hetrick in
       the event of non-payment by the equipment purchaser.

(3)    Letter of Credit
<PAGE>

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

         (a)      1.  Financial Statements.

                       The following financial statements are included
                       by reference in Part II, Item 8 hereof:

                       Report of Independent Certified Public Accountants.
                       Consolidated Balance Sheets.
                       Consolidated Statements of Income.
                       Consolidated Statements of Changes in Stockholders'
                         Equity.
                       Consolidated Statement of Cash Flows.
                       Notes to Consolidated Financial Statements.

                  2.  Financial Statement Schedules.

                       Financial Statement Schedules are omitted because the
                       required information is either not applicable, not
                       required or is shown in the respective financial
                       statements or in the notes thereto.

                  3.  The following Exhibits are files herewith or incorporated
                      by reference as a part of this Annual Report

                      3.1   Registrant's Articles of Incorporation.
                            (Incorporated by Reference to Registrant's January
                            27, 1995, filing of Form S-4.

                      3.2   Registrant's By-Laws.
                            (Incorporated by Reference to Registrant's January
                            27, 1995, filing of Form S-4.)

                     10.1   Agreement between R.B. Robertson and Bank.
                            (Incorporated by Reference to the Registrant's
                            September 30, 1997 filing of Form 10-QSB.)

                     10.2   Settlement Agreement.
                            (Incorporated by Reference to the Registrant's
                            December 31, 1996 filing of Form 10-KSB.)

                     10.3   General Release.
                            (Incorporated by Reference to the Registrant's
                            December 31, 1996 filing of Form 10-KSB.)

                     10.4   Amendment to Executive Employment Agreement dated
                            October 20, 1999, between R.B. Robertson and Bank.
                            (Incorporated by Reference to Registrant's September
                            30, 1999 filing of Form 10-Q).

                     10.5   Amendment to Executive Employment Agreement dated
                            November 17, 1999 between R.B. Robertson and Bank.
                            (Incorporated by Reference to Registrant's December
                            31, 1999 filing of Form 10-K).
<PAGE>

                     11     Statement re:  Computation of Earnings Per Share.
                            (Refer to Exhibit 13, page 3, Consolidated Statement
                            of Income.)

                     13     Annual Report to Shareholders.

                     21     Subsidiaries of the Registrant.

                     23     Consent of Independent Auditors.

            (b)  Reports on Form 8-K.
                     None.

            (c)  The exhibits required herein are included at Item 14(a), above.

            (d)  Not Applicable.

<PAGE>






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, thereto duly authorized.

                                         PEOPLES FINANCIAL CORP., INC.
                                         (Registrant)

March 22, 2002                           By   /S/ R.B. Robertson
                                              ----------------------------
                                              R.B. Robertson
                                              President/CEO

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>
<CAPTION>

SIGNATURE                           TITLE                                   DATE
---------                           -----                                   ----
<S>                                <C>                                  <C>

/S/ R.B. Robertson                  President/CEO                        March 22, 2002
                                    and Director

/S/ Frank Baker                     Chairman/Director                    March 22, 2002

/S/ Darl Hetrick                    Vice President and Director          March 22, 2002

/S/ Timothy Reddinger               Secretary and Director               March 22, 2002

/S/ William H. Toy                  Director                             March 22, 2002

/S/ R.B. Robertson, Jr.             Director                             March 22, 2002

/S/ Howard H. Shreckengost          Director                             March 22, 2002

/S/ J. Jack Sherman                 Director                             March 22, 2002

/S/ Francis E. Kane                 Director                             March 22, 2002

/S/ James L. Kifer                  Executive Vice President             March 22, 2002
                                    Principal Financial Officer
                                    Principal Accounting Officer
</TABLE>

<PAGE>

                                  EXHIBIT INDEX
         (a)      1.  Financial Statements.

                       The following financial statements are included
                       by reference in Part II, Item 8 hereof:

                       Report of Independent Certified Public Accountants.
                       Consolidated Balance Sheets.
                       Consolidated Statements of Income.
                       Consolidated Statements of Changes in Stockholders'
                         Equity.
                       Consolidated Statement of Cash Flows.
                       Notes to Consolidated Financial Statements.

                  2.  Financial Statement Schedules.

                       Financial Statement Schedules are omitted because the
                       required information is either not applicable, not
                       required or is shown in the respective financial
                       statements or in the notes thereto.

                  3.  The following Exhibits are files herewith or incorporated
                      by reference as a part of this Annual Report

                      3.1   Registrant's Articles of Incorporation.
                            (Incorporated by Reference to Registrant's January
                            27, 1995, filing of Form S-4.

                      3.2   Registrant's By-Laws.
                            (Incorporated by Reference to Registrant's January
                            27, 1995, filing of Form S-4.)

                     10.1   Agreement between R.B. Robertson and Bank.
                            (Incorporated by Reference to the Registrant's
                            September 30, 1997 filing of Form 10-QSB.)

                     10.2   Settlement Agreement.
                            (Incorporated by Reference to the Registrant's
                            December 31, 1996 filing of Form 10-KSB.)

                     10.3   General Release.
                            (Incorporated by Reference to the Registrant's
                            December 31, 1996 filing of Form 10-KSB.)

                     10.4   Amendment to Executive Employment Agreement dated
                            October 20, 1999, between R.B. Robertson and Bank.
                            (Incorporated by Reference to Registrant's September
                            30, 1999 filing of Form 10-Q).

                     10.5   Amendment to Executive Employment Agreement dated
                            November 17, 1999 between R.B. Robertson and Bank.
                            (Incorporated by Reference to Registrant's December
                            31, 1999 filing of Form 10-K).

                     11     Statement re:  Computation of Earnings Per Share.
                            (Refer to Exhibit 13, page 3, Consolidated Statement
                            of Income.)

                     13     Annual Report to Shareholders.

                     21     Subsidiaries of the Registrant.

                     23     Consent of Independent Auditors.




<PAGE>
                          PEOPLES FINANCIAL CORP., INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


<PAGE>




CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

DECEMBER 31, 2001, 2000 AND 1999

CONTENTS                                                                    PAGE

Independent Auditors' Report.................................................1

Consolidated Balance Sheets..................................................2

Consolidated Statements of Income............................................3

Consolidated Statements of Changes in Stockholders' Equity.................4-5

Consolidated Statements of Cash Flows......................................6-7

Notes to Consolidated Financial Statements................................8-24





<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Peoples Financial Corp., Inc.
New Bethlehem, Pennsylvania

We have audited the accompanying consolidated balance sheets of Peoples
Financial Corp., Inc. (the Company) and subsidiary as of December 31, 2001 and
2000 and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Financial
Corp., Inc. and subsidiary as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

<********************Signature********************>

Pittsburgh, Pennsylvania
January 25, 2002


                                      -1-
<PAGE>

CONSOLIDATED BALANCE SHEETS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                      December 31,
                                                            ------------------------------
                                                                2001              2000
                                                            -------------    -------------
ASSETS
<S>                                                         <C>              <C>
    Cash and due from banks                                 $   4,980,367    $   4,759,697
    Interest-bearing deposits in banks                          9,130,085        9,752,322
    Federal funds sold                                          5,000,000        2,250,000
    Available for sale securities                              31,709,475       25,418,773
    Held to maturity securities (market value of
      $37,246,244 and $38,039,929 at
      December 31, 2001 and 2000, respectively)                36,005,350       37,463,536
    Federal Home Loan Bank stock, at cost                       1,446,700        1,408,400
    Loans receivable, net of allowance for loan losses of
    $1,385,976 in 2001 and $1,411,860 in 2000                 227,906,525      213,446,066
    Premises and equipment, net                                 2,702,473        2,879,633
    Other assets                                                2,818,034        4,100,356
                                                            -------------    -------------

    Total Assets                                            $ 321,699,009    $ 301,478,783
                                                            =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

    Liabilities
      Deposits
        Non-interest bearing                                $  30,867,475    $  29,726,219
        Interest bearing                                      241,702,579      222,287,942
                                                            -------------    -------------
        Total deposits                                        272,570,054      252,014,161

      Deferred taxes                                            6,656,755        6,263,558
      Federal Home Loan Bank borrowings                                --        5,000,000
      Accrued interest and other liabilities                    1,788,809        2,026,049
                                                            -------------    -------------
      Total liabilities                                       281,015,618      265,303,768

    Stockholders' Equity
      Common stock; par value $0.30; 5,000,000 shares
        authorized; 1,773,052 shares issued; 1,665,412
        shares outstanding at December 31, 2001 and
        2000, respectively                                        531,916          531,916
      Surplus                                                   3,832,083        3,832,083
      Retained earnings                                        28,593,976       25,041,232
      Accumulated other comprehensive income                   11,674,362       10,718,730
      Treasury stock, at cost; 107,640 shares                  (3,948,946)      (3,948,946)
                                                            -------------    -------------
      Total stockholders' equity                               40,683,391       36,175,015
                                                            -------------    -------------
    Total Liabilities and Stockholders' Equity              $ 321,699,009    $ 301,478,783
                                                            =============    =============

The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                      -2-


<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

                                                  YEARS ENDED DECEMBER 31,
                                        ---------------------------------------
                                            2001         2000          1999
                                        -----------   -----------   -----------
INTEREST INCOME
    Loans, including fees               $17,910,473   $16,868,996   $15,317,065
    Investment securities                 3,434,501     3,494,790     3,044,541
    Interest-bearing deposits               481,221       433,982       346,267
    Federal funds sold                      286,403       464,461       440,448
                                        -----------   -----------   -----------
    Total interest income                22,112,598    21,262,229    19,148,321

INTEREST EXPENSE
    Deposits                             11,068,620    11,135,279     9,628,790
    Federal Home Loan Bank borrowings       296,127       157,699       136,151
                                        -----------   -----------   -----------
    Total interest expense               11,364,747    11,292,978     9,764,941
                                        -----------   -----------   -----------
NET INTEREST INCOME                      10,747,851     9,969,251     9,383,380

PROVISION FOR LOAN LOSSES                    60,000        60,000       150,000
                                        -----------   -----------   -----------
NET INTEREST INCOME AFTER
    PROVISION FOR LOAN LOSSES            10,687,851     9,909,251     9,233,380

OTHER INCOME
    Service fees                            499,277       496,659       502,659
    Investment security gains             2,177,935       999,002     2,950,489
    Other                                   299,113        88,185        95,801
                                        -----------   -----------   -----------
    Total other income                    2,976,325     1,583,846     3,548,949

OTHER EXPENSES
    Salaries                              2,185,719     2,090,856     2,135,263
    Pension and other employee benefits     746,926       920,271       787,069
    Occupancy expense                       983,613     1,061,092       997,536
    Data processing                         233,132       237,634       301,895
    Pennsylvania bank shares tax            317,709       337,578       294,616
    Other                                 1,905,773     1,604,934     1,710,128
                                        -----------   -----------   -----------

    Total other expenses                  6,372,872     6,252,365     6,226,507
                                        -----------   -----------   -----------

INCOME BEFORE INCOME TAXES                7,291,304     5,240,732     6,555,822

PROVISION FOR INCOME TAXES                2,156,419     1,454,131     1,855,635
                                        -----------   -----------   -----------

NET INCOME                              $ 5,134,885   $ 3,786,601   $ 4,700,187
                                        ===========   ===========   ===========

BASIC AND DILUTED EARNINGS PER SHARE    $      3.08   $      2.20   $      2.66
                                        ===========   ===========   ===========

The accompanying notes are an integral part of these consolidated financial
statements

                                                -3-

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
                                                                                              Other
                                                     Common                    Retained   Comprehensive   Treasury
                                                     Stock        Surplus      Earnings       Income        Stock        Total
                                                   -----------  ------------ ------------  ------------  -----------  ------------

<S>                                                <C>          <C>          <C>           <C>           <C>          <C>
BALANCE AT DECEMBER 31, 1998                       $   530,608  $  3,750,044 $ 18,808,764  $ 17,484,705  $        --  $ 40,574,121

   Comprehensive Income
     Net income                                             --            --    4,700,187            --           --     4,700,187
     Other comprehensive income, net of tax:
       Changes in net unrealized holding
         gains (losses) on available for sale
         securities, net of deferred
         income tax benefit of $2,953,185                   --            --           --    (5,732,653)          --    (5,732,653)
       Change in minimum pension liability, net of
         deferred income tax of $66,653                     --            --           --       129,384           --       129,384
       Reclassification adjustment due to
         sale of securities, net of deferred
         income tax benefit of $62,757                      --            --           --      (121,823)          --      (121,823)
                                                                                                                      ------------

     Total Comprehensive Income                                                                                         (1,024,905)

   Sale of 2,179 shares of common stock                  1,308        82,039           --            --           --        83,347
   Cash dividends, $0.54 per share                          --            --     (956,315)           --           --      (956,315)
                                                   -----------  ------------ ------------  ------------  -----------  ------------

BALANCE AT DECEMBER 31, 1999                           531,916     3,832,083   22,552,636    11,759,613           --    38,676,248

   Comprehensive Income
     Net income                                             --            --    3,786,601            --           --     3,786,601
     Other comprehensive income, net of tax:
       Changes in net unrealized holding
        gains (losses) on available for sale
        securities, net of deferred
        income tax benefit of $868,857                      --            --           --    (1,686,604)          --    (1,686,604)
       Reclassification adjustment due to
         sale of securities, net of deferred
         income tax of $332,644                             --            --           --       645,721           --       645,721
                                                                                                                      ------------

     Total Comprehensive Income                             --            --           --            --           --     2,745,718

   Treasury stock purchase of 107,640 shares                --            --           --            --   (3,948,946)   (3,948,946)

   Cash dividends, $0.76 per share                          --            --   (1,298,005)           --           --    (1,298,005)
                                                   -----------  ------------ ------------  ------------  -----------  ------------

Balance at December 31, 2000                       $   531,916  $  3,832,083 $ 25,041,232  $ 10,718,730  $(3,948,946) $ 36,175,015

                      The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                                                 -4-


<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                                                                           ACCUMULATED
                                                                                              Other
                                                     Common                    Retained   Comprehensive   Treasury
                                                     Stock        Surplus      Earnings       Income        Stock        Total
                                                   -----------  ------------ ------------  ------------  -----------  ------------

<S>                                                <C>          <C>          <C>           <C>           <C>          <C>
BALANCE AT DECEMBER 31, 2000                       $   531,916  $  3,832,083 $ 25,041,232  $ 10,718,730  $(3,948,946) $ 36,175,015

   Comprehensive Income
     Net income                                                                 5,134,885                                5,134,885
     Other comprehensive income, net of tax:
       Changes in net unrealized holding
       gains (losses) on available for sale
       securities, net of deferred income
       tax benefit of $182,317                                                                 (353,910)                  (353,910)
       Reclassification adjustment due to
         sale of securities, net of deferred
         income tax of $740,260                                                               1,436,975                  1,436,975
       Change in minimum pension liability,
         net of deferred income tax benefit
         of $65,647                                                                            (127,433)                  (127,433)
                                                                                                                      ------------

     Total Comprehensive Income                                                                                          6,090,517

   Cash dividends, $0.95 per share                                             (1,582,141)                              (1,582,141)
                                                   -----------  ------------ ------------  ------------  -----------  ------------

Balance at December 31, 2001                       $   531,916  $  3,832,083 $ 28,593,976  $ 11,674,362  $(3,948,946) $ 40,683,391
                                                   ===========  ============ ============  ============  ===========  ============


                      The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                                                 -5-

<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                --------------------------------------------
                                                    2001            2000            1999
                                                ------------    ------------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                             <C>             <C>             <C>
    Net income                                  $  5,134,885    $  3,786,601    $  4,700,187
    Adjustments to reconcile net cash from
      operating activities:
        Depreciation and amortization                522,472         537,248         618,762
        Net amortization (accretion) of
           premiums and discounts                    (41,972)        (39,088)         31,202
        Investment security gains                 (2,177,935)       (999,002)     (2,950,489)
        Provision for loan losses                     60,000          60,000         150,000
        Net loss (gain) on disposal of
           premises and equipment                     57,359            (100)         16,957
        Net loss on disposal of foreclosed
           assets                                         --          34,113          24,632
        Reinvestment of stock dividends                   --              --         (52,854)
        Deferred taxes                               (99,099)        (90,260)       (150,240)
        Increase (decrease) in cash due to
           changes in assets and liabilities:
             Other assets                          1,639,498      (1,788,581)         64,990
             Accrued interest and
               other liabilities                    (798,831)       (127,859)         61,264
                                                ------------    ------------    ------------

    NET CASH FROM OPERATING ACTIVITIES             4,296,377       1,373,072       2,514,411

CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of
      available for sale securities                3,304,484       1,769,083       3,696,243
    Proceeds from maturities of
      held to maturity securities                 17,519,976       9,940,000       8,880,000
    Purchase of available for sale
      securities                                  (5,776,943)             --              --
    Purchase of held to maturity securities      (16,019,118)    (15,310,072)     (8,304,107)
    Purchases of Federal Home Loan
      Bank stock                                     (38,300)             --        (566,900)
    Net loans made to customers                  (14,534,084)    (16,980,640)    (22,008,417)
    Proceeds from disposal of
      premises and equipment                          13,361             100          76,174
    Purchases of premises and equipment             (399,189)       (437,764)       (365,054)
                                                ------------    ------------    ------------
    NET CASH USED BY
      INVESTING ACTIVITIES                      $(15,929,813)   $(21,019,293)   $(18,592,061)


       The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                                -6-

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                --------------------------------------------
                                                    2001            2000            1999
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in deposits                    $ 20,564,010    $  5,975,458    $ 32,720,274
    Proceeds from Federal Home Loan
      Bank borrowings                                     --              --       8,000,000
    Repayments of Federal Home Loan
      Bank borrowings                             (5,000,000)     (3,000,000)             --
    Proceeds from issuing common stock                    --              --          83,347
    Purchases of treasury stock                           --      (3,948,946)             --
    Dividends paid                                (1,582,141)     (1,298,005)       (956,315)
                                                ------------    ------------    ------------
    NET CASH FROM (USED BY)
      FINANCING ACTIVITIES                        13,981,869      (2,271,493)     39,847,306
                                                ------------    ------------    ------------
NET CHANGE IN CASH AND
    CASH EQUIVALENTS                               2,348,433     (21,917,714)     23,769,656

CASH AND CASH EQUIVALENTS
    AT BEGINNING OF YEAR                          16,762,019      38,679,733      14,910,077
                                                ------------    ------------    ------------
CASH AND CASH EQUIVALENTS
    AT END OF YEAR                              $ 19,110,452    $ 16,762,019    $ 38,679,733
                                                ============    ============    ============

SUPPLEMENTAL DISCLOSURES
    Cash payments for:
      Interest                                  $ 11,679,636    $ 11,204,968    $  9,683,375

      Income taxes                              $  2,197,640    $  1,412,000    $  1,862,837

NON-CASH INVESTING AND FINANCING TRANSACTIONS
    Recorded unrealized gains on securities
      available for sale at December 31         $ 17,881,508    $ 16,240,500    $ 17,817,596

    Deferred income taxes on recorded
      net unrealized gains on securities
      available for sale at December 31         $  6,079,713    $  5,521,770    $  6,057,983

    Loans transferred to foreclosed assets
      during the year                           $     57,015    $     31,305    $     59,793

       The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                                -7-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS: Peoples Financial Corp., Inc. (the Company) is a bank
holding company for its wholly owned subsidiary, PFC Bank (the Bank). The Bank
is a full-service commercial banking institution. It provides a variety of
financial services to individuals and corporate customers in Armstrong, Butler,
Clarion and Indiana counties through its six branches and main office located in
New Bethlehem, Pennsylvania. The Bank's primary deposit products are
non-interest and interest-bearing checking accounts, savings accounts and
certificates of deposit. Its primary lending products are installment,
commercial and single-family and multi-family mortgage loans. PFC Bank has a
wholly owned subsidiary, PFC Service Corporation. PFC Service Corporation is a
Delaware holding company for the Bank's equity investments.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Peoples Financial Corp., Inc., its wholly-owned subsidiary, PFC
Bank, and PFC Service Corporation, a wholly owned subsidiary of the Bank. All
significant intercompany accounts have been eliminated in the consolidation.
Peoples Financial Corp., Inc. transacts no other material business.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. Management obtains independent appraisals for significant properties in
determining the allowances for loan losses and the valuation of foreclosed real
estate.

INVESTMENT SECURITIES: The Bank classifies its investment securities as held to
maturity, trading or available for sale. Securities which management has
positive intent and ability to hold until maturity are classified as held to
maturity. Held to maturity securities are stated at cost, adjusted for
amortization of premium and accretion of discount computed on a level yield
basis. Securities that are bought and held principally to sell in the near term
are classified as trading securities. All other securities are classified as
available for sale securities. Unrealized holding gains and losses for trading
securities are included in earnings. Unrealized holding gains and losses for
available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management does not intend to establish a trading securities
classification.

Interest and dividends on investment securities are reported as interest income.
Gains and losses realized on sales of investment securities represent the
differences between net proceeds and carrying values determined by the specific
identification method.


                                      -8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES: Loans are stated at unpaid
principal balances, less the allowance for loan losses, deferred loan fees and
costs, and unearned discounts.

The allowance for loan losses is maintained at a level that, in management's
judgment, is adequate to absorb potential losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans generally are
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on non-accrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.

Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on non-accrual status.

Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.

PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed in the current period. The costs associated with
significant additions or improvements are capitalized.

FORECLOSED ASSETS: Real estate properties and other assets acquired through, or
in lieu of, loan foreclosure are initially recorded at the lower of the Bank's
carrying amount or fair value less estimated selling costs at the date of
foreclosure. Any write-downs on an asset's fair value at the date of foreclosure
are charged against the allowance for loan losses. Costs of significant asset
improvements are capitalized, whereas costs relating to holding foreclosed
assets are expensed in the period incurred. Management periodically obtains
valuations on the assets. Any subsequent write-downs to reduce the carrying
value of an asset to the lower of its cost or fair value less estimated selling
costs are recorded as a charge against current operations.

EMPLOYEE RETIREMENT PLANS: The Bank's qualified defined benefit pension plan
(see Note 9) is funded in accordance with the Employee Retirement Income
Security Act of 1974. Liabilities are recognized based on the actuarially
calculated benefits accrued through the date of the calculation. Funding for the
Bank's non-qualified defined benefit pension plan consists of certificates of
deposit.

ADVERTISING: Advertising costs are expensed as incurred. Advertising expense was
$158,771, $167,998 and $156,099 for the years ended December 31, 2001, 2000 and
1999, respectively.


                                      -9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES: The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. When necessary, valuation allowances are established to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities. The Company files
consolidated Federal income tax returns with its subsidiary.

EARNINGS PER SHARE: Earnings per share are calculated using the weighted-average
number of shares outstanding, which also equals basic and diluted per share
calculations. The weighted average shares outstanding, giving retroactive effect
to the stock dividend discussed in Note 17, were 1,665,412, 1,722,467 and
1,770,151 for the years ended December 31, 2001, 2000 and 1999, respectively.

CASH EQUIVALENTS: For purposes of the Statements of Cash Flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. This includes the balance sheet captions
of "Cash and due from banks", "Interest-bearing deposits in banks", and "Federal
funds sold".

RECLASSIFICATIONS: Certain previously reported items have been reclassified to
conform to the current year's classifications. The reclassifications have no
effect on total assets, total liabilities and stockholders' equity, or net
income.

NOTE 2 - INVESTMENT SECURITIES

Available for sale securities consist of the following:

<TABLE>
<CAPTION>
                                                 DECEMBER 31, 2001
                       --------------------------------------------------------------------------
                                               GROSS              GROSS
                          AMORTIZED          UNREALIZED         UNREALIZED           MARKET
                             COST              GAINS              LOSSES             VALUE
                       -----------------  -----------------  -----------------  -----------------
<S>                          <C>         <C>                <C>                <C>
Equity securities      $     13,827,967  $      17,945,164  $         (63,656) $   $  31,709,475

                                                 DECEMBER 31, 2000
                       --------------------------------------------------------------------------
                                               GROSS              GROSS

                          AMORTIZED          UNREALIZED         UNREALIZED           MARKET
                             COST              GAINS              LOSSES             VALUE
                       -----------------  -----------------  -----------------  -----------------

Equity securities      $      9,178,273  $      16,270,108  $         (29,608) $   $  25,418,773
</TABLE>



                                      -10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

Held to maturity securities consist of the following:
<TABLE>
<CAPTION>
                                                 DECEMBER 31, 2001
                       --------------------------------------------------------------------------
                                               GROSS              GROSS
                          AMORTIZED          UNREALIZED         UNREALIZED           MARKET
                             COST              GAINS              LOSSES             VALUE
                       -----------------  -----------------  -----------------  -----------------
<S>                          <C>         <C>                <C>                <C>
U.S. Treasury
  securities           $     18,510,570  $         478,626  $            (926) $      18,988,270
Obligations of U.S.
  government
  agencies                   17,469,928            762,801                (20)        18,232,709
Obligations of state
  and political sub-
  divisions                      24,852                413                  -             25,265
                       -----------------  -----------------  -----------------  -----------------

                       $     36,005,350  $       1,241,840  $            (946) $      37,246,244
                       =================  =================  =================  =================
</TABLE>


<TABLE>
<CAPTION>
                                                DECEMBER 31, 2000
                       --------------------------------------------------------------------------
                                               GROSS              GROSS
                          AMORTIZED          UNREALIZED         UNREALIZED           MARKET
                             COST              GAINS              LOSSES             VALUE
                       -----------------  -----------------  -----------------  -----------------

<S>                   <C>               <C>                <C>                <C>
U.S. Treasury
  securities           $     19,453,858  $         282,739  $          (6,742) $   $  19,729,855
Obligations of U.S.
  government
  agencies                   17,889,845            324,491            (24,387)        18,189,949
Obligations of state
  and political sub-
  divisions                     119,833                375                (83)           120,125
                       -----------------  -----------------  -----------------  -----------------

                       $     37,463,536  $         607,605  $         (31,212) $   $  38,039,929
                       =================  =================  =================  =================
</TABLE>

Gross realized gains on sales of available for sale securities were $2,607,963,
$1,327,902 and $3,199,903 in 2001, 2000 and 1999, respectively. The gains are
reduced by previously recognized appreciation which occurred as a result of a
merger of $430,728, $329,232 and $281,732 in 2001, 2000 and 1999, respectively.
Additional net gains of $700, $332 and $32,318 in 2001, 2000 and 1999,
respectively, were recognized for previous write-downs of held to maturity
securities resulting from the merger.


                                      -11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

The amortized cost and estimated market value of held to maturity securities at
December 31, 2001, by contractual maturity, are shown below. Available for sale
securities do not have a contractual maturity date as they consist of equity
securities. Expected maturities may differ from contractual maturities because
issuers have the right to call or prepay obligations.

                                               AMORTIZED COST     MARKET VALUE
                                               -------------    -------------

Available for Sale Securities                  $  13,827,967    $  31,709,475
                                               =============    =============
Held to Maturity Securities
  Due in one year or less                      $  15,948,838    $  16,174,590
  Due after one year through five years           20,046,569       21,046,389
  Due after five years through ten years              24,852           25,265
                                               -------------    -------------

                                                  36,020,259       37,246,244
  Step-down due to merger                            (14,909)              --
                                               -------------    -------------

                                               $  36,005,350    $  37,246,244
                                               =============    =============

As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Bank is
required to maintain a minimum amount of FHLB stock. The minimum amount is
calculated based on the level of the Bank's assets, residential real estate
loans, and FHLB advances. At December 31, 2001 and 2000, the Bank held
$1,446,700 and $1,408,400, respectively, of FHLB stock.

NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The primary classifications of loans as of December 31 are as follows:

                                                     2001             2000
                                               -------------    -------------

Mortgage                                       $ 199,372,873    $ 180,847,383
Installment and consumer                          15,331,627       18,585,073
Commercial                                         9,569,488       11,775,001
Other                                              4,949,852        3,612,136
                                               -------------    -------------

                                                 229,223,840      214,819,593

  Unearned discounts                                  (1,606)          (5,800)
  Net deferred loan origination costs                 70,267           44,133
  Allowance for loan losses                       (1,385,976)      (1,411,860)
                                               -------------    -------------

                                               $ 227,906,525    $ 213,446,066
                                               =============    =============

                                                -12-

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Changes in the allowance for loan losses for the years ended December 31 were as
follows:


                                       2001           2000           1999
                                   -----------    -----------    -----------
Balance, beginning of year         $ 1,411,860    $ 1,378,369    $ 1,238,232
Provision charged to operations         60,000         60,000        150,000
Loans charged off                     (105,088)       (45,127)       (48,442)
Recoveries                              19,204         18,618         38,579
                                   -----------    -----------    -----------

Balance, end of year               $ 1,385,976    $ 1,411,860    $ 1,378,369
                                   ===========    ===========    ===========

At December 31, 2001 and 2000, the total recorded investment in impaired loans
amounted to approximately $23,000 and $27,200, respectively. All impaired loans
were on non-accrual status as of December 31, 2001 and 2000. The allowance for
loan losses related to impaired loans amounted to approximately $6,800 and
$16,700 at December 31, 2001 and 2000, respectively.

NOTE 4 - PREMISES AND EQUIPMENT

Premises and equipment, which are stated at cost, as of December 31 are as
follows:

                                                        2001             2000
                                               -------------    -------------
Land                                           $     376,004    $     371,554
Buildings and improvements                         3,508,493        3,508,399
Furniture and equipment                            4,486,659        4,847,854
                                               -------------    -------------
                                                   8,371,156        8,727,807

Less:  Accumulated depreciation                    5,668,683        5,848,174
                                               -------------    -------------
                                               $   2,702,473    $   2,879,633
                                               =============    =============

Depreciation expense was $505,629, $546,680 and $590,385 for 2001, 2000 and
1999, respectively.

NOTE 5 - PLEDGED ASSETS

The carrying values of assets pledged to qualify for fiduciary powers, to secure
public monies as required by law and for other purposes at December 31 are as
follows:

                                                        2001             2000
                                               -------------    -------------
U.S. Treasury securities                       $  18,525,479    $  16,419,881
Obligations of U.S. government agencies           16,469,908       17,889,845
Obligations of state and political
sub-divisions                                         24,852          119,833
                                               -------------    -------------
                                               $  35,020,239    $  34,429,559
                                               =============    =============



                                                -13-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 6 - DEPOSITS

The maturities of time deposits over the next five years and thereafter as of
December 31, 2001 are as follows:

                                                       AMOUNT      PERCENT
                                                   --------------- ---------

Within one year                                   $    98,926,148      72.7  %
One to two years                                       17,020,253      12.5
Two to three years                                      7,788,700       5.7
Three to four years                                     8,127,482       6.0
Four to five years                                      3,563,545       2.6
Over five years                                           624,027       0.5
                                                   --------------- ---------

                                                  $   136,050,155     100.0  %
                                                   =============== =========

NOTE 7 - INCOME TAXES

The provision for income taxes for the years ended December 31 consists of:

                                          2001           2000           1999
                                   -----------    -----------    -----------

Currently payable                  $ 2,109,069    $ 1,432,453    $ 1,976,719
Deferred tax expense (benefit)          47,350         21,678       (121,084)
                                   -----------    -----------    -----------

                                   $ 2,156,419    $ 1,454,131    $ 1,855,635
                                   ===========    ===========    ===========

The significant components of temporary differences as of December 31 are as
follows:


                               2001         2000        1999
                            ---------    ---------    ---------
Provision for loan losses   $   8,801    $ (11,387)   $ (47,647)
Depreciation                  (54,274)     (79,694)     (96,012)
Employee benefits                  --       42,519       (1,422)
Other                          92,823       70,240       23,997
                            ---------    ---------    ---------

  Total                     $  47,350    $  21,678    $(121,084)
                            =========    =========    =========


                                      -14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 7 - INCOME TAXES (CONTINUED)

A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before income taxes for the years ended December 31 is as
follows:

<TABLE>
<CAPTION>
                                                  PERCENTAGE OF PRE-TAX INCOME
                                           -----------------------------------------
                                              2001            2000           1999
                                           -----------    -----------    -----------

<S>                                               <C>            <C>            <C>
Provision at statutory rate                       34.0 %         34.0 %         34.0 %
Effect of tax-exempt income                       (0.3)          (1.6)          (1.6)
Dividend received deduction                       (3.0)          (5.1)          (3.9)
Other                                             (1.0)           0.4           (0.2)
                                           -----------    -----------    -----------

Actual tax expense and effective rate             29.7 %         27.7 %         28.3 %
                                           ===========    ===========    ===========
</TABLE>

The significant components of the Bank's deferred tax assets and liabilities
recorded on the balance sheet as of December 31 are as follows:
<TABLE>
<CAPTION>
                                      2001                                  2000
                       ------------------------------------  ------------------------------------
                                  DEFERRED TAX                          DEFERRED TAX
                       ------------------------------------  ------------------------------------
                            ASSETS          LIABILITIES           ASSETS          LIABILITIES
                       -----------------  -----------------  -----------------  -----------------

<S>                             <C>       <C>               <C>               <C>
Provision for loan
  losses               $        306,905   $              -  $         315,706   $              -
Pension expense                       -             33,429                  -             34,644
Pension liability                65,647                  -                                     -
Unrealized gains                      -          6,079,713                  -          5,521,770
Merger adjustment to

  market value                        -            835,250                  -            981,699
Other                            42,091            123,006             65,102            106,253
                       -----------------  -----------------  -----------------  -----------------

                       $        414,643   $      7,071,398  $         380,808   $      6,644,366
                       =================  =================  =================  =================
</TABLE>


NOTE 8 - FEDERAL HOME LOAN BANK BORROWINGS

At December 31, 2001, the Bank did not have any advances outstanding from the
FHLB. The Bank has access to FHLB borrowings in the amount of $139 million.
However, such borrowings would require additional holdings of FHLB stock.

NOTE 9 - EMPLOYEE RETIREMENT PLANS

PFC Bank maintains a qualified non-contributory defined benefit pension plan
which covers substantially all employees meeting minimum age and service
requirements. The plan generally provides benefits based on years of credited
service and final average earnings. The current funding policy of the plan is to
annually contribute the maximum amount that can be deducted for Federal income
tax purposes. In 1999, the Bank adopted a non-qualified deferred compensation
plan for certain executive employees. The Board of Directors designates
participants of the plan. Benefits provided under the non-qualified plan are
based on the discretion of the Board of Directors.


                                      -15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 9 - EMPLOYEE RETIREMENT PLANS (CONTINUED)

Assets for the qualified pension plan were primarily U.S. government
obligations, corporate obligations and equity securities whose valuations are
subject to fluctuations of the securities market. Changes in plan asset values
attributable to differences between actual and expected returns on plan assets
were deferred as unrecognized gains or losses and included in the determination
of pension cost over time. Assets for the non-qualified plan consist of
certificates of deposit.

The following table summarizes financial data for the plans as of December 31:
<TABLE>
<CAPTION>
                                               2001           2000           1999
                                           -----------    -----------    -----------
<S>                                        <C>            <C>            <C>
Change in Projected Benefit Obligation:
  Beginning of year benefit obligation     $ 2,144,035    $ 2,168,777    $ 1,962,727
  Service cost                                 105,662        117,342        115,881
  Interest cost                                150,333        154,269        132,866
  Plan adoption                                     --             --        143,966
  Net actuarial (gain) loss                    344,242        (58,941)       (63,787)
  Benefits paid to participants               (199,841)      (237,412)      (122,876)
                                           -----------    -----------    -----------

   End of year benefit obligation          $ 2,544,431    $ 2,144,035    $ 2,168,777
                                           ===========    ===========    ===========

Change in the Fair Value of Plan Assets:
  Beginning of year plan assets,
    at fair value                          $ 1,848,257    $ 1,861,739    $ 1,571,422
  Actual return on plan assets                (186,900)         4,860        184,042
  Employer contributions                       297,548        219,070        229,151
  Benefits paid to participants               (199,841)      (237,412)      (122,876)
                                           -----------    -----------    -----------

   End of year plan assets at fair value   $ 1,759,064    $ 1,848,257    $ 1,861,739
                                           ===========    ===========    ===========

Accrued Pension Expense:
  Funded status (projected benefit
    obligation less plan assets at
    fair value)                            $  (785,367)   $  (295,778)   $  (307,038)
  Unamortized transition amount                 71,170         76,558         81,946
  Unrecognized net actuarial loss            1,297,310        603,014        521,487
  Additional minimum pension
    liability adjustment                      (613,942)       (52,351)      (130,878)
  Unamortized prior service benefit           (390,134)      (396,223)      (323,361)
                                           -----------    -----------    -----------
   Accrued pension expense                 $  (420,963)   $   (64,780)   $  (157,844)
                                           ===========    ===========    ===========
</TABLE>

Prepaid benefit expenses were $0 and $90,162 for December 31, 2001 and 2000,
respectively. Accrued pension expenses were $420,963 and $154,942 as of December
31, 2001 and 2000, respectively.

Associated with the Company's additional minimum pension liabilities, the
Company recorded an intangible asset for $420,862 and comprehensive income
includes $127,433 (net of deferred taxes of $65,647) for 2001. For 2000, an
intangible asset was recorded for $52,351.


                                      -16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 9 - EMPLOYEE RETIREMENT PLANS (CONTINUED)

Net periodic pension expense included the following components for the years
ended December 31:

<TABLE>
<CAPTION>
                                              2001            2000           1999
                                           -----------    -----------    -----------
<S>                                        <C>            <C>            <C>
Service cost - benefits earned
  during the period                        $   105,662    $   117,342    $   115,881
Interest cost on projected benefit
  obligation                                   150,333        154,269        132,866
Net amortization (deferral)                   (294,370)       (62,218)        97,701
Actual loss (gain) on plan assets              186,900         (4,860)      (184,042)
                                           -----------    -----------    -----------

  Net periodic pension expense             $   148,525    $   204,533    $   162,406
                                           ===========    ===========    ===========
</TABLE>

The projected benefit obligation for the qualified plan was determined using an
assumed discount rate of 7.0% for 2001 and 7.5% for both 2000 and 1999 and an
expected rate of increase in compensation of 5.0% for 2001 and 4.0% for both
2000 and 1999. The assumed rate of return on the qualified plan's investments
was 8.0% for each year. The assumed discount rate for the non-qualified plan was
6.5% for both 2001 and 2000 and the assumed rate of return was 6.5% for both
2001 and 2000. The non-qualified plan does not consider compensation increases.

NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

There are various outstanding commitments and contingent liabilities arising in
the normal course of business that are not reflected in the accompanying
financial statements. These commitments and contingent liabilities represent
financial instruments with off-balance sheet risk. The contract or notional
amounts of those instruments were comprised of commitments to extend credit and
stand-by letters of credit of approximately $15,219,000 and $12,268,000 as of
December 31, 2001 and 2000, respectively, and approximate fair value.

The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance sheet instruments. The amount of collateral obtained, if deemed
necessary, upon extension of credit is based on management's credit evaluation
of the party. The terms are typically for a one-year period, with annual renewal
options subject to prior approval by management.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of outstanding commercial and personal lines
of credit.

The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements.


                                      -17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 11 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

           CASH AND CASH EQUIVALENTS: The carrying amount is a reasonable
           estimate of fair value.

           INVESTMENT SECURITIES: The fair value of securities is equal to the
           available quoted market price. If no quoted market price is
           available, fair value is estimated using the quoted market price for
           similar securities.

           FHLB STOCK: The carrying value of the FHLB stock is a reasonable
           estimate of fair value due to restrictions on the securities.

           LOANS RECEIVABLE: For most homogeneous categories of loans, fair
           value is estimated by comparing rates currently offered on similar
           loans to the interest rate yield being realized on existing loans.
           The fair value of other types of loans is estimated by discounting
           the future cash flows using the current rates at which similar loans
           would be made to borrowers for the same remaining maturities.

           DEPOSIT LIABILITIES: The fair value of demand deposits, savings
           accounts and money market deposits is the amount payable on demand at
           the reporting date. The fair value of fixed-maturity certificates of
           deposit is estimated by comparing the rates currently offered on
           similarly maturing deposits to the interest rate being recognized on
           existing certificates of deposit.

The Company's estimated fair value of financial instruments as of December 31,
2001 is as follows:

                                                 CARRYING
                                                  AMOUNT          FAIR VALUE
                                               -------------    -------------

Financial Assets
  Cash and cash equivalents                    $  19,110,452    $  19,110,452

  Investment securities                        $  67,714,825    $  68,955,719

  Federal Home Loan Bank stock                 $   1,446,700    $   1,446,700

  Loans receivable                             $ 227,906,525    $ 226,341,000

Financial Liabilities
  Deposits                                     $ 272,570,054    $ 270,174,000


The market values of classifications of investment securities are contained in
Note 2.


                                      -18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 12 - REGULATORY MATTERS

The Bank is subject to legal limitations on the amount of dividends that can be
paid to the Company. The Pennsylvania Banking Code restricts the payment of
dividends, generally to the extent of retained earnings. Dividends are based on
operating results for the period. Consideration for dividend declarations and
payments include regulatory guidelines and limitations and the capital
requirements of the Bank.

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below and
defined in the regulations, of Tier 1 capital to average assets and of Tier 1
and total capital to risk-weighted assets. Management believes, as of December
31, 2001 and 2000, that the Bank meets all capital adequacy requirements to
which it is subjected.

As of December 31, 2001 and 2000, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the Bank's category.

The Bank's regulatory capital information as of December 31, 2001 and 2000 is,
as follows:

<TABLE>
<CAPTION>
                                                                       MINIMUM                  WELL
                                                                       CAPITAL               CAPITALIZED
                                                    ACTUAL          REQUIREMENTS            REQUIREMENTS
                                                ----------------  ------------------     -----------------

Leverage capital ratio
<S>                                                 <C>                <C>   <C>                 <C>
2001                                                8.47%              3% to 4%                  5%
2000                                                8.69%              3% to 4%                  5%

Tier 1 capital to risk weighted assets
2001                                               14.35%                 4%                     6%
2000                                               13.11%                 4%                     6%

Total capital to risk weighted assets
2001                                               19.54%                 8%                    10%
2000                                               17.72%                 8%                    10%
</TABLE>


                                                -19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 12 - REGULATORY MATTERS (CONTINUED)

Included in the "Cash and due from banks" and "Interest-bearing deposits in
banks" balances are required federal reserves of approximately $1,929,000 and
$1,677,000 at December 31, 2001 and 2000, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances.

NOTE 13 - CONCENTRATIONS, RISKS AND UNCERTAINTIES

The Bank primarily grants loans to customers in Armstrong, Butler, Clarion and
Indiana counties of Pennsylvania and maintains a diversified loan portfolio. The
ability of its debtors to honor their contracts is not substantially dependent
on any particular economic business sector.

The Bank has certain risks associated with deposit concentrations. The Bank had
466 accounts greater than $100,000 representing $89.6 million in deposits as of
December 31, 2001 (32.9% of deposits as of December 31, 2001) and $73.8 million
in 374 accounts as of December 31, 2000 (29.3% of deposits as of December 31,
2000).

A substantial portion of the Bank's investments in municipal securities is
obligations of state or political subdivisions located within Pennsylvania.

At December 31, 2001, approximately $5.9 million of the Bank's "Cash and due
from banks" and "Interest-bearing deposits in banks" was maintained at various
financial institutions in amounts that exceeded the $100,000 limit on FDIC
insured accounts.

The Company and the Bank are involved in various legal actions from normal
business activities. Management believes that the liability, if any, arising
from such actions will not have a material adverse effect on the financial
position of the Company or the Bank.

NOTE 14 - RELATED PARTIES

At December 31, 2001 and 2000, certain executive officers, directors and
principal shareholders of the Company, and companies in which they have
beneficial ownership, were indebted (including loans, open letters of credit,
and third part consignors) to the Bank for $1,085,558 and $1,109,290,
respectively. During 2001, no new loans were made to such related parties.
Repayments on existing loans were $23,732. There was no change in open letters
of credit and third party guarantees during 2001.

Deposits with the Bank by related parties and shareholders' greater than 5% were
approximately $4,965,000 and $4,487,000 as of December 31, 2001 and 2000,
respectively.


                                      -20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 15 - SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                 QUARTERS ENDED IN 2001
                            -------------------------------------------------------------
                              MARCH 31         JUNE 30       SEPTEMBER 30     DECEMBER 31
                            ----------       ----------      -----------      -----------
<S>                          <C>              <C>              <C>             <C>
Interest income             $5,386,786       $5,492,003       $5,586,887       $5,646,922
Interest expense             3,008,833        2,976,055        2,859,979        2,519,880
                            ----------       ----------       ----------       ----------
  Net interest income        2,377,953        2,515,948        2,726,908        3,127,042

Provision for loan
  losses                        15,000           15,000           15,000           15,000
Other income                   993,388          377,425        1,231,594          373,918
Other expenses               1,482,088        1,689,330        1,529,464        1,671,990
                            ----------       ----------       ----------       ----------

Income before
  income taxes               1,874,253        1,189,043        2,414,038        1,813,970

Income tax expense             564,207          360,011          762,319          469,882
                            ----------       ----------       ----------       ----------

Net income                  $1,310,046       $  829$032       $1,651,719       $1,344,088
                            ==========       ==========       ==========       ==========

Basic and diluted
  earnings per share        $     0.79       $     0.50       $     0.99       $     0.80
                            ==========       ==========       ==========       ==========

Basic and diluted
  weighted average
  shares outstanding         1,665,412        1,665,412        1,665,412        1,665,412
                            ==========       ==========       ==========       ==========
<CAPTION>
                                                 QUARTERS ENDED IN 2000
                             -------------------------------------------------------------
                             MARCH 31         JUNE 30        SEPTEMBER 30      DECEMBER 31
                            ----------       ----------      ------------      -----------

<S>                          <C>              <C>              <C>             <C>
Interest income             $5,115,684       $5,294,$90       $5,380,750       $5,471,005
Interest expense             2,705,149        2,703,941        2,837,565        3,046,323
                            ----------       ----------       ----------       ----------

  Net interest income        2,410,535        2,590,849        2,543,185        2,424,682

Provision for loan
  losses                        15,000           15,000           15,000           15,000
Other income                   155,474          148,597          137,530        1,142,245
Other expenses               1,426,352        1,572,013        1,417,421        1,836,579
                            ----------       ----------       ----------       ----------

Income before
  income taxes               1,124,657        1,152,433        1,248,294        1,715,348

Income tax expense             323,737          303,690          342,458          484,246
                            ----------       ----------       ----------       ----------

Net income                  $  800,920       $  848,743       $  905,836       $1,231,102
                            ==========       ==========       ==========       ==========

Basic and diluted
  earnings per share        $     0.44       $     0.48       $     0.54       $     0.74
                            ==========       ==========       ==========       ==========

Basic and diluted
  weighted average
  shares outstanding         1,773,052        1,773,052        1,668,922        1,665,412
                            ==========       ==========       ==========       ==========
</TABLE>


                                      -21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 16 - PARENT COMPANY FINANCIAL INFORMATION

The condensed financial information for Peoples Financial Corp., Inc., Inc. as
of December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000
and 1999 is as follows:


                                                          DECEMBER 31,
                                                 ---------------------------
                                                     2001            2000
                                                 -----------     -----------
ASSETS
  Cash in bank                                   $   618,178     $   231,194
  Investment in subsidiary                        38,159,583      35,728,883
  Available for sale securities                    1,922,458         211,609
  Deferred taxes                                          --           3,329
  Other assets                                         7,534              --
                                                 -----------     -----------

  TOTAL ASSETS                                   $40,707,753     $36,175,015
                                                 ===========     ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

  LIABILITIES

    Deferred taxes                               $    24,362     $        --

  STOCKHOLDERS' EQUITY                            40,683,391      36,175,015
                                                 -----------     -----------

  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $40,707,753     $36,175,015
                                                 ===========     ===========


<TABLE>
<CAPTION>

STATEMENTS OF INCOME

                                                          YEARS ENDED DECEMBER 31,
                                                 --------------------------------------------
                                                     2001           2000              1999
                                                 -----------     -----------      -----------
INCOME

<S>                                              <C>             <C>              <C>
  Dividends from subsidiary                      $ 3,584,141     $ 5,298,005      $ 1,006,296
  Other                                               58,842          36,711           35,434

EXPENSES

  Professional fees                                   31,324          24,248           25,096
  Miscellaneous                                        5,595           6,429            4,733
                                                 -----------     -----------      -----------

INCOME BEFORE EQUITY IN UNDISTRIBUTED
  (EXCESS DISTRIBUTION OF) EARNINGS

  OF SUBSIDIARY                                    3,606,064       5,304,039        1,011,901

EQUITY IN UNDISTRIBUTED (EXCESS DISTRIBUTION

  OF) EARNINGS OF SUBSIDIARY                       1,528,821      (1,517,438)       3,688,286
                                                 -----------     -----------      -----------

NET INCOME                                       $ 5,134,885     $ 3,786,601      $ 4,700,187
                                                 ===========     ===========      ===========
</TABLE>



                                      -22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 16 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                           -------------------------------------------
                                                              2001             2000            1999
                                                           -----------     -----------     -----------
<S>                                                        <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                               $ 5,134,885     $ 3,786,601     $ 4,700,187
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Increase (decrease) in cash due to changes
        in assets and liabilities
          Other assets                                          (7,534)             --              --
          Equity in (undistributed) excess distribution
            of earnings of subsidiary                       (1,528,821)      1,517,438      (3,688,286)
                                                           -----------     -----------     -----------

NET CASH FROM OPERATING ACTIVITIES                           3,598,530       5,304,039       1,011,901

CASH FLOWS FROM INVESTING ACTIVITIES

  Purchase of available for sale securities                 (1,629,405)             --              --
                                                           -----------     -----------     -----------

NET CASH USED BY INVESTING ACTIVITIES                       (1,629,405)             --              --

CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from issuing of common stock                             --              --          83,347
  Purchase of treasury stock                                        --      (3,948,946)             --
  Dividends paid                                            (1,582,141)     (1,298,005)       (956,315)
                                                           -----------     -----------     -----------

NET CASH USED BY FINANCING ACTIVITIES                       (1,582,141)     (5,246,951)       (872,968)
                                                           -----------     -----------     -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                        386,984          57,088         138,933

CASH AND CASH EQUIVALENTS

  AT BEGINNING OF YEAR                                         231,194         174,106          35,173
                                                           -----------     -----------     -----------

CASH AND CASH EQUIVALENTS

  AT END OF YEAR                                           $   618,178     $   231,194     $   174,106
                                                           ===========     ===========     ===========
</TABLE>


NOTE 17 - STOCK SPLIT

On January 20, 1999, the Company declared a 100% stock dividend in the form of a
two-for-one stock split on the Company's outstanding common stock. One
additional share of common stock was issued for each share of common stock held
by shareholders of record as of the close of business on January 20, 1999. The
distribution of new shares began February 10, 1999. The Company has
retroactively restated common stock and surplus for all periods presented to
reflect this stock split. Par value remained unchanged at $0.30 per share. All
reference to the number of shares and per share amounts elsewhere in the
consolidated financial statements and related footnotes have been restated as
appropriate to reflect the effect of the stock split for all periods presented.


                                      -23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


NOTE 18 - REPURCHASE OF COMMON STOCK

In July 2000, the Company repurchased 107,640 shares of its stock for
$3,948,946. It is being held as treasury stock and reported at cost at December
31, 2000. The Company is named as a co-defendant in a lawsuit related to the
repurchase of the common stock. Management does not feel that any loss will
result from the lawsuit.

NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations". This
statement addresses financial accounting and reporting for business
combinations. It requires accounting for all business combinations within the
scope of this statement using the Purchase Method, thereby, eliminating the
Pooling Method of accounting for business combinations. It also requires
recognizing intangible assets separately from goodwill. In addition, it requires
certain disclosures concerning the reason for the combination and the
methodology of allocating the purchase price to assets acquired and liabilities
assumed. The statement is effective for all business combinations initiated
after June 30, 2001, and applies to all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. This statement has no current impact on the Company.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets. The statement is effective for
fiscal years beginning after December 15, 2001. Management does not believe the
statement will have a material impact on the Company or its operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. It eliminates
the exception to consolidating a subsidiary for which control is likely to be
temporary and addresses the accounting for a segment of a business accounted for
as a discontinued operation. The statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those fiscal years. Management does not believe the statement will have a
material impact on the Company or its operations.


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