PEOPLES FINANCIAL CORP., INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995


<PAGE>




CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

December 31, 1997, 1996 and 1995







CONTENTS                                                                PAGE

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

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

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

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

Consolidated Statements of Cash Flows.....................................7

Notes to Consolidated Financial Statements................................9


<PAGE>

                          INDEPENDENT AUDITORS' REPORT


                      [Letterhead of Edwards Leap & Sauer]




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, 1997 and
1996 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, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Financial
Corp., Inc. and subsidiary as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.



/s/ Edwards Leap & Sauer
--------------------------------
Pittsburgh, Pennsylvania
February 13, 1998


                                      - 1 -

<PAGE>

CONSOLIDATED BALANCE SHEETS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                     December 31,
                                                            ------------------------------
                                                                1997              1996
                                                            ------------      ------------
<S>                                                        <C>                <C>
ASSETS

   Cash and due from banks                                  $  7,003,534      $  8,944,707
   Federal funds sold                                          4,075,000         7,325,000
   Available-for-sale securities                              38,069,171        25,315,225
   Held-to-maturity securities (market value of
      $32,862,436 and $25,885,993 at
      December 31, 1997 and 1996, respectively)               32,378,224        25,674,119
   Federal Home Loan Bank stock, at cost                         740,200           569,500
   Loans receivable, net                                     152,395,769       136,050,197
   Premises and equipment, net                                 3,459,173         3,748,922
   Other assets                                                2,149,627         3,184,521
                                                            ------------      ------------
   Total Assets                                             $240,270,698      $210,812,191
                                                            ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

   Liabilities
      Deposits
        Non-interest bearing                                $ 23,343,039      $ 20,860,522
        Interest bearing                                     167,229,668       155,404,110
                                                            ------------      ------------

        Total deposits                                       190,572,707       176,264,632

      Deferred taxes                                          10,503,460         5,926,532
      Accrued interest and other liabilities                   1,781,581         1,752,876
                                                            ------------      ------------
      Total liabilities                                      202,857,748       183,944,040

   Stockholders' Equity
      Common stock, par value $0.30, 5,000,000 shares
        authorized, 882,168 and 879,990 shares issued
        and outstanding at December 31, 1997 and 1996,
        respectively                                             264,650           263,997
      Surplus                                                  3,932,656         3,850,000
      Retained earnings                                       15,298,374        13,377,522
      Net unrealized holding gains on
        available-for-sale securities                         17,917,270         9,376,632
                                                            ------------      ------------
      Total stockholders' equity                              37,412,950        26,868,151
                                                            ------------      ------------
   Total Liabilities and Stockholders' Equity               $240,270,698      $210,812,191
                                                            ============      ============
</TABLE>

                                      -2-

<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                      ------------------------------------------------
                                          1997              1996              1995
                                      ------------      ------------      ------------
<S>                                   <C>              <C>               <C>
Interest Income
   Loans                              $ 12,323,037      $ 10,890,677      $  9,943,821
   Investment securities                 2,829,841         2,734,704         2,848,176
   Interest bearing deposits                 1,648             3,469             1,912
   Federal funds sold                      416,973           303,927           374,251
                                      ------------      ------------      ------------

   Total interest income                15,571,499        13,932,777        13,168,160

Interest Expense
   Deposits                              7,489,044         6,475,388         6,299,006
                                      ------------      ------------      ------------

Net Interest Income                      8,082,455         7,457,389         6,869,154

Provision for Loan Losses                   80,000            75,000            60,000
                                      ------------      ------------      ------------

Net Interest Income after
   Provision for Loan Losses             8,002,455         7,382,389         6,809,154

Other Income
   Service fees                            614,572           672,176           661,204
   Insurance proceeds                      205,830           358,694                --
   Net investment security gains         1,065,063         1,053,326         1,252,974
   Other                                    49,698            36,467                --
                                      ------------      ------------      ------------

   Total other income                    1,935,163         2,120,663         1,914,178
</TABLE>
                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                      ------------------------------------------------
                                          1997              1996              1995
                                      ------------      ------------      ------------
<S>                                   <C>              <C>               <C>
Other Expenses
   Salaries                           $  2,077,039      $  2,178,002      $  2,108,730
   Pension and other employee
      benefits                             639,535           805,041           846,253
   Occupancy expense                     1,000,044         1,089,451           947,920
   Legal and professional fees             215,619           234,434           251,345
   Regulatory fees and deposit
      insurance                             54,278            35,139           351,322
   Data processing                         245,814           226,005           292,730
   Separation expenses                          --           544,322                --
   Other                                 1,701,971         1,717,868         2,036,701
                                      ------------      ------------      ------------

   Total other expenses                  5,934,300         6,830,262         6,835,001
                                      ------------      ------------      ------------

Income Before Income Taxes
   and Minority Interest                 4,003,318         2,672,790         1,888,331

Provision for Income Taxes               1,006,880           562,651           346,714
                                      ------------      ------------      ------------

Income Before Minority
   Interest                              2,996,438         2,110,139         1,541,617

Minority Interest                               --                --          (163,499)
                                      ------------      ------------      ------------

Net Income                            $  2,996,438      $  2,110,139      $  1,378,118
                                      ============      ============      ============

Net Income per Share of
   Common Stock                       $       3.40      $       2.40      $       1.76
                                      ============      ============      ============
</TABLE>
                  The accompanying notes are an integral part
                   of these consolidated financial statements

                                       -4-
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                 Net Unrealized
                                 Capital                            Retained      Holding Gains      Treasury
                                  Stock            Surplus          Earnings         (Losses)          Stock
                               -----------       -----------      -----------    ---------------    -----------
<S>                            <C>               <C>              <C>            <C>                 <C>
Balance at
December 31, 1994              $   250,758       $ 3,708,952      $10,800,978      $ 4,992,913      $(8,581,100)

   Sale of 1,685 shares
      of common stock                  506            39,935
   Net income                                                       1,378,118
   Cash dividends                                                    (620,763)
   Changes in net
      unrealized holding
      gains (losses) on
      available-for-sale
      securities                                                                     2,199,348
   Change in minimum
      pension liability                                                27,227
   Merger activity
      Exchange of PFC
        stock due to
        merger                      12,733           101,113
      Acquisition of
        subsidiary
        minority interest                                           9,063,356
      Re-authorization
        of treasury stock                                          (8,581,100)                        8,581,100
                               -----------       -----------      -----------      -----------      -----------
Balance at
December 31, 1995                  263,997         3,850,000       12,067,816        7,192,261               --
</TABLE>


                                      -5-
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Net Unrealized
                                 Capital                            Retained      Holding Gains      Treasury
                                  Stock            Surplus          Earnings         (Losses)          Stock
                               -----------       -----------      -----------    ---------------    -----------
<S>                            <C>               <C>              <C>            <C>                 <C>
   Net income                                                       2,110,139
   Cash dividends                                                    (809,591)
   Changes in net
      unrealized holding
      gains (losses) on
      available-for-sale
      securities                                                                     2,184,371
   Change in minimum
      pension liability                                                 9,158
                               -----------       -----------      -----------      -----------      -----------

Balance at
December 31, 1996              $   263,997       $ 3,850,000      $13,377,522      $ 9,376,632      $        --

   Sale of 2,178 shares
      of common stock          $       653       $    82,656      $                $                $
   Net income                                                       2,996,438
   Dividends                                                         (995,261)
   Changes in net
      unrealized holding
      gains (losses) on
      available-for-sale
      securities                                                                     8,540,638
   Change in minimum
      pension liability                                               (80,325)
                               -----------       -----------      -----------      -----------      -----------

Balance at
December 31, 1997              $   264,650       $ 3,932,656      $15,298,374      $17,917,270      $        --
                               ===========       ===========      ===========      ===========      ===========
</TABLE>

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


                                      -6-
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY



<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                     --------------------------------------------------
                                         1997               1996               1995
                                     ------------       ------------       ------------
<S>                                  <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                           $  2,996,438       $  2,110,139       $  1,378,118
Adjustments to reconcile
 net cash from operating
 activities:
  Depreciation and
    merger amortization                   584,356            584,626            564,053
  Net amortization/
    accretion of premiums
    and discounts                         (17,366)            17,383              3,852
  Net investment security
    gains                              (1,065,063)        (1,053,326)        (1,252,974)
  Provision for loan losses                80,000             75,000             60,000
  Net loss on disposal of
    fixed assets                           30,349             52,963            148,282
  Reinvestment of stock
    dividends                             (74,811)           (85,384)           (80,740)
  Minority interest                            --                 --            163,499
   Increase (decrease) in
     cash due to changes in
     assets and liabilities:
       Other assets                       949,711           (642,346)          (563,416)
        Accrued interest and
          other liabilities               199,434            159,594            764,936
                                     ------------       ------------       ------------
Net Cash From
 Operating Activities                $  3,683,048       $  1,218,649       $  1,185,610
</TABLE>


                                      -7-


<PAGE>


<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                     --------------------------------------------------
                                         1997               1996               1995
                                     ------------       ------------       ------------
<S>                                  <C>                <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of
 available-for-sale securities       $  1,370,112       $  1,926,307       $  2,046,274
Proceeds from maturities of
 held-to-maturity securities            8,800,000          9,250,000          7,060,882
Purchase of held-to-maturity
 securities                           (15,446,563)        (2,189,655)        (5,576,865)
Purchase of available-for-sale
 securities                               (84,000)          (230,293)           (50,400)
Net sales (purchases) of
 FHLB stock                              (170,700)            32,000            (14,800)
Net loans made to customers           (16,469,278)       (22,594,327)        (2,002,474)
Purchases of premises
 and equipment                           (284,949)          (743,741)          (496,101)
                                     ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash From (Used By)
 Investing Activities                 (22,285,378)       (14,549,709)           966,516


Net increase in deposits               14,323,109         19,184,441          3,103,988

Proceeds from issuance of
 common stock                              83,309                 --             40,441

Dividends paid                           (995,261)          (809,591)          (693,283)

Net proceeds (repayments)
 from FHLB advances                            --                 --         (2,175,000)
                                     ------------       ------------       ------------

Net Cash From
 Financing Activities                  13,411,157         18,374,850            276,146
                                     ------------       ------------       ------------

Net Change in Cash and
 Cash Equivalents                      (5,191,173)         5,043,790          2,428,272

Cash and Cash Equivalents
 at Beginning of Year                  16,269,707         11,225,917          8,797,645
                                     ------------       ------------       ------------

Cash and Cash Equivalents
 at End of Year                      $ 11,078,534       $ 16,269,707       $ 11,225,917
                                     ============       ============       ============
</TABLE>

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



                                      -8-

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE A - 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, Clarion
and Indiana counties through its five 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 single-family and multi-family
residential 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 them 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.

Loans Receivable and Allowance for Loan Losses: Loans are stated at unpaid
principal balances, less the allowance for loan losses and unearned discounts.

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


                                      -9-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Loans Receivable and Allowance for Loan Losses (continued): 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.

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 major
additions or improvements are capitalized.

Other Real Estate Owned (OREO): Real estate acquired in satisfaction of a loan
and in-substance foreclosures are reported in OREO. In-substance foreclosures
are properties in which a borrower, with little or no equity in the collateral,
effectively abandons control of the property or has no economic interest to
continue involvement in the property. The borrower's ability to rebuild equity
based on current financial conditions would also be considered doubtful.

Properties acquired by foreclosure or deed in lieu of foreclosure and properties
classified as in-substance foreclosures are transferred to OREO and recorded at
the lower of cost or fair value, less estimated costs to sell. Costs to maintain
the assets, subsequent write-downs to reflect declines in the fair value of the
properties, and subsequent gains and losses related to their disposal are
included in non-interest income and expenses.

Employee Retirement Plan: The plan 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.

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. The weighted average shares outstanding were
880,563, 879,990 and 785,057 for the years ended December 31, 1997, 1996 and
1995, respectively.


                                      -10-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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" 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 B - MERGER

Effective April 1, 1995, Peoples Bank of PA, the wholly owned subsidiary of
Peoples Financial Corp., Inc., completed a merger under which it acquired all of
the remaining outstanding stock of New Bethlehem Bank, a subsidiary of which,
until merger, Peoples Bank of PA owned 53.05%. New Bethlehem Bank was and, now
as a division of PFC Bank, is a full-service commercial banking institution with
offices in New Bethlehem and Clarion, Clarion County, Pennsylvania. As part of
the merger, Peoples Bank of PA changed its corporate name to PFC Bank and
designated two divisions, the Peoples Bank of PA Division and the New Bethlehem
Bank Division.

The transaction was accounted for as an acquisition of a minority interest under
the purchase method of accounting. It resulted in a tax free exchange of stock
under which each outstanding share held by New Bethlehem Bank shareholders,
exclusive of shares held by those exercising dissenters' rights, was exchanged
for 183.15 shares of Peoples Financial Corp., Inc. No cash was exchanged in the
transaction with the exception of the purchase of fractional shares. Under the
purchase method, the portion of the assets and liabilities of New Bethlehem Bank
relating to the minority interest being acquired was re-valued to fair market
value on the date of the merger. Substantially all of the assets and liabilities
of New Bethlehem Bank were carried at amounts approximating fair value as a
result of the adoption of recent accounting pronouncements (see Notes A and C
regarding investment securities). Consequently, there was very little change in
the valuation because of the merger except for the costs of acquisition of
approximately $220,000, which consisted primarily of expenses relating thereto.
These expenses were allocated primarily to goodwill (approximately $170,000) and
the balance was allocated to other assets and liabilities. The goodwill is being
amortized on the straight-line basis over 15 years. Had the acquisition occurred
on January 1, 1995, the 1995 net income and earnings per share on a pro-forma
basis would have been $1,541,617 and $1.85 per share, respectively (unaudited).

In order to complete the merger, Peoples Financial Corp., Inc. returned its
December 31, 1994 balance of treasury stock shares to authorized but un-issued
status.

                                      -11-

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE C - INVESTMENT SECURITIES

Available-for-sale securities consist of the following:

<TABLE>
<CAPTION>
                                               December 31, 1997
                          --------------------------------------------------------------
                                              Gross           Gross
                           Amortized       Unrealized       Unrealized         Market
                             Cost             Gains           Losses           Value
                          -----------      -----------      -----------      -----------
<S>                       <C>              <C>             <C>               <C>
Equity securities         $10,921,793      $27,147,378      $        --      $38,069,171
</TABLE>

<TABLE>
<CAPTION>
                                               December 31, 1996
                          --------------------------------------------------------------
                                              Gross           Gross
                           Amortized       Unrealized       Unrealized         Market
                             Cost             Gains           Losses           Value
                          -----------      -----------      -----------      -----------
<S>                       <C>              <C>             <C>               <C>
Equity securities         $11,108,207      $14,207,018      $        --      $25,315,225
</TABLE>


Held-to-maturity securities consist of the following:

<TABLE>
<CAPTION>
                                               December 31, 1997
                          --------------------------------------------------------------
                                              Gross           Gross
                           Amortized       Unrealized       Unrealized         Market
                             Cost             Gains           Losses           Value
                          -----------      -----------      -----------      -----------
<S>                       <C>              <C>             <C>               <C>
U.S. Treasury
  securities              $27,396,668      $   472,555      $     7,293      $27,861,930
Obligations of U.S.
  government
  agencies                  1,097,184            7,892              826        1,104,250
Obligations of state
  and political sub-
  divisions                 1,889,897            6,778           11,669        1,885,006
Corporate notes             1,994,475           16,775               --        2,011,250
                          -----------      -----------      -----------      -----------

                          $32,378,224      $   504,000      $    19,788      $32,862,436
                          ===========      ===========      ===========      ===========
</TABLE>
                                      -12-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE C - INVESTMENT SECURITIES (CONTINUED)


<TABLE>
<CAPTION>
                                               December 31, 1996
                          --------------------------------------------------------------
                                              Gross           Gross
                           Amortized       Unrealized       Unrealized         Market
                             Cost             Gains           Losses           Value
                          -----------      -----------      -----------      -----------
<S>                       <C>              <C>             <C>               <C>
U.S. Treasury
  securities              $19,506,510      $   176,802      $    81,402      $19,601,910
Obligations of U.S.
  government
  agencies                    648,206               --            2,004          646,202
Obligations of state
  and political sub-
  divisions                 2,871,540            4,648           29,619        2,846,569
Corporate notes             2,647,863          143,449               --        2,791,312
                          -----------      -----------      -----------      -----------

                          $25,674,119      $   324,899      $   113,025      $25,885,993
                          ===========      ===========      ===========      ===========
</TABLE>


Gross realized gains on sales of available-for-sale securities were $1,173,428,
$1,309,787 and $1,510,860 in 1997, 1996 and 1995, respectively. The gains are
reduced by previously recognized appreciation recorded through the merger of
$148,541, $291,410 and $263,386 in 1997, 1996 and 1995, respectively. Additional
net gains of $40,176, $34,949 and $5,500 in 1997, 1996 and 1995, respectively,
were recognized for write-downs and held-to-maturity securities resulting from
the merger.

The amortized cost and estimated market value of available-for-sale and
held-to-maturity securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because
issuers have the right to call or prepay obligations.



<TABLE>
<CAPTION>
                                             Amortized Cost      Market Value
                                             --------------      ------------
<S>                                         <C>                 <C>
Available-for-sale Securities                 $ 10,921,793       $ 38,069,171
                                              ============       ============

Held-to-maturity Securities
  Due in one year or less                     $ 10,022,210       $ 10,015,202
  Due after one year through five years         20,222,108         20,540,414
  Due after five years through ten years         2,219,238          2,306,820
                                              ------------       ------------

                                                32,463,556         32,862,436
  Step-down due to merger                          (85,332)                --
                                              ------------       ------------

                                              $ 32,378,224       $ 32,862,436
                                              ============       ============
</TABLE>


                                      -13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE C - INVESTMENT SECURITIES (CONTINUED)



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, 1997 and 1996, the Bank held $740,200
and $569,500, respectively, of FHLB stock.

NOTE D - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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


                                              1997              1996
                                          ------------      ------------
Real estate                               $106,617,350      $ 92,815,579
Installment                                 25,122,377        25,708,254
Commercial                                  18,377,724        12,206,855
PHEAA and other                              3,537,526         6,591,677
                                          ------------      ------------

                                           153,654,977       137,322,365

Less:  Unearned discounts                       10,329            18,358
       Allowance for loan losses             1,248,879         1,253,810
                                          ------------      ------------

                                          $152,395,769      $136,050,197
                                          ============      ============


NOTE D - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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


                                              1997              1996
                                          ------------      ------------
Real estate                               $106,617,350      $ 92,815,579
Installment                                 25,122,377        25,708,254
Commercial                                  18,377,724        12,206,855
PHEAA and other                              3,537,526         6,591,677
                                          ------------      ------------

                                           153,654,977       137,322,365

Less:  Unearned discounts                       10,329            18,358
           Allowance for loan losses         1,248,879         1,253,810
                                          ------------      ------------

                                          $152,395,769      $136,050,197
                                          ============      ============



Loans on which the accrual of interest had been discontinued were approximately
$217,250 and $332,450 at December 31, 1997 and 1996, respectively. The gross
amount of interest which would have been recorded if such loans had been
accruing interest at their original terms was approximately $26,150 and $27,500
for 1997 and 1996, respectively.

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

<TABLE>
<CAPTION>
                                       1997              1996               1995
                                     -----------       -----------       -----------
<S>                                  <C>              <C>               <C>
Balance, beginning of year           $ 1,253,810       $ 1,243,619       $ 1,383,059
Provision charged to operations           80,000            75,000            60,000
Loans charged-off                       (105,016)         (107,354)         (223,438)
Recoveries                                20,085            42,545            23,998
                                     -----------       -----------       -----------

Balance, end of year                 $ 1,248,879       $ 1,253,810       $ 1,243,619
                                     ===========       ===========       ===========
</TABLE>
                                      -14-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE E - PREMISES AND EQUIPMENT

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

                                        1997            1996
                                     ----------      ----------
Land                                 $  334,554      $  315,454
Buildings and improvements            3,283,694       3,113,053
Furniture and equipment               4,274,178       4,287,234
                                     ----------      ----------

                                      7,892,426       7,715,741

Less:  Accumulated depreciation       4,433,253       3,966,819
                                     ----------      ----------

                                     $3,459,173      $3,748,922
                                     ==========      ==========

Depreciation expense was $544,349, $515,125 and $564,053 for the years ended
December 31, 1997, 1996 and 1995, respectively.

NOTE F - PLEDGED ASSETS

At December 31, 1997 and 1996, assets carried at approximately $28,515,000 and
$19,710,000, respectively, were pledged to qualify for fiduciary powers, to
secure public monies as required by law, and for other purposes.


NOTE G - DEPOSITS

The maturities of time deposit over the next five years and thereafter as of
December 31, 1997 are, as follows:

                           Amount           Percent
                         -----------       ---------

Within one year          $63,863,768          70.5%
One to two years          12,332,971          13.6
Two to three years         7,652,324           8.4
Three to four years        2,143,368           2.4
Four to five years         3,164,293           3.5
Over five years            1,465,416           1.6
                         -----------         -----

                         $90,622,140         100.0%
                         ===========         =====

                                      -15-


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE H - INCOME TAXES

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


                          1997            1996            1995
                       ----------      ----------      ----------

Currently payable      $  963,936        $522,995       $ 453,411
Deferred taxes             42,944          39,656        (106,697)
                       ----------      ----------      ----------

                       $1,006,880        $562,651       $ 346,714
                       ==========      ==========      ==========





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


                                 1997             1996           1995
                               ---------       ---------       ---------

Provision for loan losses      $   1,677       $   1,528       $  28,263
Depreciation                       3,488          97,345          (8,844)
Employee benefits                (22,299)         52,053         (36,197)
Other                             60,078        (111,270)        (89,919)
                               ---------       ---------       ---------

  Total                        $  42,944       $  39,656       $(106,697)
                               =========       =========       =========


A reconciliation of income taxes at 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>

                                          1997                          1996                            1995
                                 ------------------------     --------------------------     -------------------------
                                                    % of                          % of                        % of
                                                   Pre-tax                       Pre-tax                     Pre-tax
                                    Amount         Income        Amount          Income        Amount         Income
                                 -----------       ------      -----------       -------     -----------    ----------
<S>                              <C>               <C>        <C>               <C>           <C>           <C>
Provision at statutory rate      $ 1,361,128         34.0 %    $   908,748         34.0 %      $ 642,033         34.0%
Effect of tax-exempt income         (100,923)        (2.5)        (110,837)        (4.1)         (84,970)        (4.5)
Bad debt deduction, net                   --           --               --           --          (45,263)        (2.4)
Other                               (253,325)        (6.3)        (235,260)        (8.8)        (165,086)        (8.7)
                                 -----------       ------      -----------       -------     -----------         ----

Actual tax expense and
  effective rate                 $ 1,006,880         25.2 %    $   562,651         21.1 %      $ 346,714         18.4%
                                 ===========       ======      ===========       =======     ===========         ====
</TABLE>

                                      -16-

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE H - INCOME TAXES (CONTINUED)

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>
                                      1997                               1996
                          ----------------------------      ----------------------------
                                  Deferred Tax                       Deferred Tax
                          ----------------------------      ----------------------------
                            Assets         Liabilities         Assets        Liabilities
                          -----------      -----------      -----------      -----------
<S>                       <C>              <C>             <C>              <C>
Provision for loan
  losses                  $   260,291      $        --      $   261,937      $        --
Depreciation                                   278,801                           275,312
Employee benefits             102,163                            79,854
Unrealized gains                             9,230,109                         4,830,386
Merger adjustment to
  market value                               1,273,351                         1,329,259
Additional minimum
  pension liability            41,378
Other                         118,811           12,296          167,864            1,231
                          -----------      -----------      -----------      -----------

                          $   522,643      $10,794,557      $   509,655      $ 6,436,188
                          ===========      ===========      ===========      ===========
</TABLE>


NOTE I - EMPLOYEE RETIREMENT PLANS

Prior to the merger, Peoples Bank of PA and New Bethlehem Bank each maintained
separate qualified non-contributory defined benefit pension plans which covered
substantially all employees meeting minimum age and service requirements. The
plans generally provide benefits based on years of credited service and final
average earnings. These plans were merged effective January 1, 1996. The current
funding policies of the plans are to contribute annually the maximum amount that
can be deducted for Federal income tax purposes.

Peoples Bank of PA and New Bethlehem Bank also maintained separate non-qualified
deferred compensation plans. The Board of Directors designated participants of
the plans. These plans were terminated effective December 31, 1996. The
termination and subsequent recovery of the terminated plans' assets are included
in the Bank's results of operations for the year ended December 31, 1996.

Assets for the qualified pension plans and the New Bethlehem non-qualified
deferred compensation 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. The Peoples Bank of PA non-qualified deferred compensation plan was
funded primarily through the purchase of life insurance contracts. Consequently,
no actuarial assumptions were used in determining the funded status and related
expenses of the Peoples Bank of PA non-qualified deferred compensation plan.


                                      -17-


<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE I - EMPLOYEE RETIREMENT PLANS (CONTINUED)


The following table sets forth the plan's funded status and amounts recognized
in the Bank's balance sheets at December 31 based upon valuation date of January
1 of each year:

                                                      1997            1996
                                                   -----------     -----------

Accumulated benefit obligation                     $ 1,669,031     $ 1,388,553
                                                   ===========     ===========

Projected benefit obligation for service
  rendered to date                                 $(1,710,378)    $(1,388,553)
Plan assets at fair value                            1,285,379        ,005,092
                                                   -----------     -----------

Projected benefit obligation less/(greater)
  than plan assets at December 31                     (424,999)       (383,461)

Unrecognized net (gain)/loss from past
  experience different from that assumed
  and effects of changes in assumptions                535,926         446,989
Unrecognized net asset at transition
  being recognized over 26 years                        92,722          98,110
Prior service cost not yet recognized in net
  periodic pension adjustment                         (465,569)       (471,234)
Additional minimum pension liability                  (121,732)        (73,865)
                                                   -----------     -----------

    Accrued pension cost at year end               $  (383,652)    $  (383,461)
                                                   ===========     ===========


Net pension costs for the year ended December 31 included the following
components:




                                          1997          1996         1995
                                        --------      --------      --------
Service cost - benefits earned
  during the period                     $ 68,009      $ 77,482      $136,560
Interest cost on projected benefit
  obligation                              89,596        83,503       154,830
Net amortization and deferral            114,976        55,491       120,831
Less: Actual return on plan assets       175,841        99,694       122,129
                                        --------      --------      --------

  Net periodic pension cost             $ 96,740      $116,782      $290,092
                                        ========      ========      ========



                                      -18-


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE I - EMPLOYEE RETIREMENT PLANS (CONTINUED)


The projected  benefit  obligation was determined using an assumed discount rate
of 7.0%  for  1997  and 6.5%  for  1996  and an  expected  rate of  increase  in
compensation of 4.0% and 5.0%,  respectively,  for the same periods. The assumed
rate of return on the plan's investment  earnings was 7.0% for 1997 and 6.5% for
1996.


NOTE J - SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                      ---------------------------------------------
                                          1997             1996             1995
                                      -----------      -----------      -----------
<S>                                  <C>               <C>              <C>
SUPPLEMENTAL DISCLOSURES

   Cash payments for:
      Interest                        $ 7,141,409      $ 6,403,061      $ 6,421,032

      Income taxes                    $   946,040      $   611,505      $   258,965

NON-CASH INVESTING AND FINANCING
TRANSACTIONS

   Recorded unrealized gains
      on available-for-sale
      securities at December 31       $27,147,378      $14,207,018      $10,897,364

   Deferred income taxes on
      recorded unrealized gains
      on available-for-sale
      securities at December 31       $ 9,230,109      $ 4,830,386      $ 3,705,104

   Loans transferred to
      foreclosed real estate
      during the year                 $   343,479      $   176,376      $    14,700
</TABLE>


NOTE K - FINANICAL 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 $7,316,524 and $7,422,924 as of December 31, 1997
and 1996, respectively, and approximate fair value.


                                      -19-


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE K - FINANICAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)

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 an annual
renewal option 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.


NOTE L - 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 certain homogeneous categories of loans, fair value
     is estimated using the quoted market prices for securities backed by
     similar loans adjusted for differences in loan characteristics. 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.

     Deposits: 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
     discounting the future cash flows using the rates currently offered for
     deposits of similar remaining maturities.


                                      -20-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE L - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair value of the Bank's financial instruments as of December 31,
1997 are as follows:


                                        Carrying
                                         Amount           Fair Value
                                       -----------        -----------
Financial Assets
 Cash and cash equivalents            $ 11,078,534       $ 11,078,534

 Investment securities                $ 70,447,395       $ 70,931,607

 Federal Home Loan Bank stock         $    740,200       $    740,200

 Loans receivable                     $152,395,769       $152,364,000

Financial Liabilities
 Deposits                             $190,572,707       $190,379,000


The market values of classifications of investment securities, which are based
upon quoted market prices are contained in Note C.


NOTE M - REGULATORY MATTERS


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


                                      -21-


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE M - REGULATORY MATTERS (CONTINUED)


Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below, of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1997 and 1996, that the Bank meets all capital adequacy
requirements to which it is subjected.

As of December 31, 1997 and 1996, 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, 1997 and 1996 is,
as follows:

                                                Minimum                Well
                                                Capital            Capitalized
                                Actual        Requirements         Requirements
                                ------        ------------         ------------

Risk-based capital ratio
 1997                           13.10%             8%                   10%
 1996                           14.21%             8%                   10%

Leverage capital ratio
 1997                            8.33%          3% to 4%                 5%
 1996                            8.62%          3% to 4%                 5%

Tier 1 risk-based
capital ratio
 1997                           12.30%             4%                    6%
 1996                           13.23%             4%                    6%

Included in the "Cash and due from banks" balance are required federal reserves
of approximately $963,000 and $950,000 at December 31, 1997 and 1996,
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.

In accordance with the Deposit Insurance Funds Act of 1996, the FDIC reduced the
insurance premiums on all deposits assessable under the Bank Insurance Fund due
to the over-capitalized nature of the fund. The Bank's FDIC insurance expense
for the years ended December 31, 1997 and 1996 was $22,577 and $6,719,
respectively, lower because of the legislation.


                                      -22-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995


NOTE N - CONCENTRATIONS, RISKS AND UNCERTAINTIES

The Bank primarily grants loans to customers in Armstrong, 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 188 customers with accounts greater than $100,000 representing $46.4 million
in deposits as of December 31, 1997 (24.3% of deposits as of December 31, 1997)
and approximately $44.9 million with 215 customers as of December 31, 1996
(25.5% of total deposits as of December 31, 1996).

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

At December 31, 1997, approximately $3,677,000 of the Bank's "Cash and due
from banks" was maintained at various financial institutions in amounts that
exceed $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 O - RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income. The statement establishes standards for reporting and
displaying comprehensive income and its individual components. Comprehensive
income includes net income and all other non-income changes to retained earnings
accounts.

Management is currently evaluating the impact of this statement.


NOTE P - RELATED PARTIES

At December 31, 1997 and 1996, certain officers and directors of the Bank
and companies in which they have beneficial ownership, were indebted to the Bank
for $415,408 and $678,067, respectively. During 1997, new loans to such related
parties were $2,500 and repayments were $27,318. Loan balances totaling $237,841
were removed from this classification, as the borrowers were no longer related
parties as of December 31, 1997. During 1996, new loans were $55,000 and
repayments were $76,126.

Deposits with the Bank by related parties and shareholders' greater than 5%
were approximately $4,432,000 and $5,131,500 as of December 31, 1997 and 1996.

                                      -23-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE Q -- PARENT COMPANY FINANCIAL INFORMATION

The condensed financial information for Peoples Financial Corp., Inc., as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995 is as follows:

BALANCE SHEETS
                                                            December 31,
                                                    ----------------------------
                                                        1997             1996
                                                    -----------      -----------
ASSETS
  Cash in bank                                      $   173,898      $   149,868
  Investment in subsidiary                           37,217,593       26,705,824
  Other assets                                           21,459           12,459
                                                    -----------      -----------
  Total Assets                                      $37,412,950      $26,868,151
                                                    ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities                                         $        --      $        --

Stockholders' Equity                                 37,412,950       26,868,151
                                                    -----------      -----------
Total Liabilities and
  Stockholders' Equity                              $37,412,950      $26,868,151
                                                    ===========      ===========

STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                        ------------------------------------------
                                           1997            1996            1995
                                        ----------      ----------      ----------
<S>                                      <C>           <C>             <C>
Income
  Dividends from subsidiary             $1,004,261      $  822,050      $  780,793
  Other                                     14,781           7,539           7,655
Expenses
  Professional fees                         69,860              --           4,105
  Miscellaneous                              4,201           5,806           2,952
                                        ----------      ----------      ----------
Income Before Income Taxes and
  Equity in Undistributed Earnings
  of Subsidiary                            944,981         823,783         781,391
Equity in Undistributed Earnings
  of Subsidiary                          2,051,457       1,286,356         596,727
                                        ----------      ----------      ----------
Net Income                              $2,996,438      $2,110,139      $1,378,118
                                        ==========      ==========      ==========
</TABLE>

                                      -24-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1997, 1996 and 1995

NOTE Q -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                  -----------------------------------------------
                                                     1997              1996               1995
                                                  -----------       -----------       -----------
<S>                                               <C>                <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                        $ 2,996,438       $ 2,110,139       $ 1,378,118

Adjustments to reconcile net income to
  net cash provided by operating activities:
    Decrease in cash due to changes
      in assets and liabilities
        Equity in undistributed earnings
          of subsidiary                            (2,051,457)       (1,286,356)         (596,727)

        Other assets                                   (9,000)           (6,733)             (503)
        Loan payable                                       --                --           (66,266)
                                                  -----------       -----------       -----------
Net Cash From
  Operating Activities                                935,981           817,050           714,622

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock                 83,309                --            40,441
Dividends paid                                       (995,261)         (809,591)         (620,763)
                                                  -----------       -----------       -----------
Net Cash Used By
  Financing Activities                               (911,952)         (809,591)         (580,322)
                                                  -----------       -----------       -----------
Net Change in Cash and
  Cash Equivalents                                     24,029             7,459           134,300

Cash and Cash Equivalents
  at Beginning of Year                                149,868           142,409             8,109
                                                  -----------       -----------       -----------
Cash and Cash Equivalents
  at End of Year                                  $   173,897       $   149,868       $   142,409
                                                  ===========       ===========       ===========
</TABLE>



                                      -25-