PEOPLES FINANCIAL CORP., INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

December 31, 1998, 1997 and 1996


CONTENTS                                                                   PAGE

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

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

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

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

Consolidated Statements of Cash Flows.................................       6

Notes to Consolidated Financial Statements............................       8


<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, 1998 and
1997 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, 1998. 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, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.


Pittsburgh, Pennsylvania
February 5, 1999


                                      -1-

<PAGE>


CONSOLIDATED BALANCE SHEETS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                                                         December 31,
                                                                ----------------------------
                                                                    1998            1997
                                                                ------------    ------------
<S>                                                             <C>             <C>
ASSETS
    Cash and due from banks                                     $  4,742,511    $  6,968,221
    Interest-bearing deposits in banks                             8,267,566         35,313
    Federal funds sold                                             1,900,000      4,075,000
    Available-for-sale securities                                 37,361,888     38,069,171
    Held-to-maturity securities (market value of
      $33,407,392 and $32,862,436 at
      December 31, 1998 and 1997, respectively)                   32,628,821      32,378,224
    Federal Home Loan Bank stock, at cost                            841,500         740,200
    Loans receivable, net                                        174,704,201     152,395,769
    Premises and equipment, net                                    3,331,643       3,459,173
    Other assets                                                   2,224,143       2,149,627
                                                                ------------    ------------
    Total Assets                                                $266,002,273    $240,270,698
                                                                ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities
      Deposits
        Non-interest bearing                                    $ 26,205,654    $ 23,343,039
        Interest bearing                                         187,153,692     167,229,668
                                                                ------------    ------------
        Total deposits                                           213,359,346     190,572,707

      Deferred taxes                                              10,056,183      10,271,914
      Accrued interest and other liabilities                       2,012,623       2,013,127
                                                                 ------------   ------------
      Total liabilities                                          225,428,152     202,857,748

    Stockholders' Equity
      Common stock, par value $0.30, 5,000,000 shares
        authorized, 1,768,694 and 1,764,336 shares issued
        and outstanding at December 31, 1998 and 1997,
        respectively                                                 530,608        529,300
      Surplus                                                      3,750,044      3,668,006
      Retained earnings                                           18,808,764     15,378,699
      Accumulated other comprehensive income                      17,484,705     17,836,945
                                                                ------------    ------------
      Total stockholders' equity                                  40,574,121     37,412,950
                                                                ------------   ------------
    Total Liabilities and Stockholders' Equity                  $266,002,273   $240,270,698
                                                                ============   ============
</TABLE>

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


                                     - 2 -

<PAGE>


CONSOLIDATED STATEMENTS OF INCOME

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                            -------------------------------------------
                                                1998            1997            1996
                                            -----------     -----------     -----------
<S>                                         <C>             <C>             <C>
Interest Income
    Loans                                   $13,845,749     $12,323,037     $10,890,677
    Investment securities                     3,017,698       2,829,841       2,734,704
    Interest-bearing deposits                   293,710           1,648           3,469
    Federal funds sold                          197,762         416,973         303,927
                                            -----------     -----------     -----------
    Total interest income                    17,354,919      15,571,499      13,932,777

Interest Expense
    Deposits                                  8,449,973       7,489,044       6,475,388
                                            -----------     -----------     -----------
Net Interest Income                           8,904,946       8,082,455       7,457,389

Provision for Loan Losses                       200,000          80,000          75,000
                                            -----------     -----------     -----------
Net Interest Income after
    Provision for Loan Losses                 8,704,946       8,002,455       7,382,389

Other Income
    Service fees                                592,421         614,572         672,176
    Insurance proceeds                               --         205,830         358,694
    Net investment security gains             3,001,116       1,065,063       1,053,326
    Other                                        33,837          49,698          36,467
                                            -----------     -----------     -----------
    Total other income                        3,627,374       1,935,163       2,120,663

Other Expenses
    Salaries                                $ 2,173,212     $ 2,077,039     $ 2,178,002
    Pension and other employee benefits         743,014         639,535         805,041
    Occupancy expense                           984,022       1,000,044       1,089,451
    Legal and professional fees                 146,732         215,619         234,434
    Data processing                             246,689         245,814         226,005
    Separation expenses                              --              --         544,322
    Pennsylvania bank shares tax                247,544         212,498         201,877
    Other                                     1,496,247       1,543,751       1,551,130
                                            -----------     -----------     -----------
    Total other expenses                      6,037,460       5,934,300       6,830,262
                                            -----------     -----------     -----------

Income Before Income Taxes                    6,294,860       4,003,318       2,672,790

Provision for Income Taxes                    1,831,198       1,006,880         562,651
                                            -----------     -----------     -----------
Net Income                                  $ 4,463,662     $ 2,996,438     $ 2,110,139
                                            ===========     ===========     ===========
Net Income per Share of Common Stock        $      2.53     $      1.70     $      1.20
                                            ===========     ===========     ===========
</TABLE>

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


                                     - 3 -

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                                                                                     Other
                                                       Common                      Retained      Comprehensive
                                                       Stock        Surplus        Earnings          Income         Total
                                                      --------     ----------     -----------    -------------   -----------
<S>                                                   <C>          <C>            <C>             <C>            <C>
Balance at
December 31, 1995                                     $263,997     $3,850,000     $12,076,974     $ 7,183,103    $23,374,074
    Comprehensive Income
      Net income                                                                    2,110,139                      2,110,139
      Other comprehensive income, net of tax:
        Changes in net unrealized holding
          gains (losses) on available-for-sale
          securities, net of deferred income tax
          of $1,125,282                                                                             2,184,371      2,184,371
        Change in minimum pension liability,
          net of deferred income tax of $4,718                                                          9,158          9,158

      Total Comprehensive Income                                                                                   4,303,668
    Cash dividends                                                                   (809,591)                      (809,591)
                                                      --------     ----------     -----------     -----------    -----------
Balance at December 31, 1996                           263,997      3,850,000      13,377,522       9,376,632     26,868,151

    Comprehensive Income
      Net income                                                                    2,996,438                      2,996,438
      Other comprehensive income, net of tax:
        Changes in net unrealized holding
          gains (losses) on available-for-sale
          securities, net of deferred income tax
          of $4,399,723                                                                             8,540,638      8,540,638
        Change in minimum pension liability,
          net of deferred income tax benefit
          of $41,380                                                                                  (80,325)       (80,325)

      Total Comprehensive Income                                                                                  11,456,751

    Sale of 2,178 shares of common stock                   653         82,656                                         83,309
    Dividends
      Cash                                                                           (995,261)                      (995,261)
      Retroactive restatement, 1999
        stock dividend in the form of
        a two-for-one one stock split                  264,650       (264,650)                                            --
                                                      --------     ----------     -----------     -----------     -----------
Balance at December 31, 1997                          $529,300     $3,668,006     $15,378,699     $17,836,945    $37,412,950

    Comprehensive Income
      Net income                                                                    4,463,662                      4,463,662
      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 $545,996                                                                     (1,059,874)    (1,059,874)
        Change in minimum pension liability,
          net of deferred income tax benefit
          of $25,264                                                                                  (49,041)       (49,041)
        Reclassification adjustment due to sale of
          securities, net of deferred income tax
          of $389,802                                                                                 756,675        756,675

      Total Comprehensive Income                                                                                   4,111,422

    Sale of 4,358 shares of common stock                   654         82,692                                         83,346
    Dividends
      Cash                                                                         (1,033,597)                    (1,033,597)
      Adjustment to stock purchase to reflect
        retroactive treatment of stock split               654           (654)
                                                      --------     ----------     -----------     ----------     -----------

Balance at December 31, 1998                          $530,608     $3,750,044     $18,808,764     $17,484,705    $40,574,121
                                                      ========     ==========     ===========     ===========    ===========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 4 -
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                      ------------------------------------------------
                                                          1998               1997             1996
                                                      ------------      ------------      ------------
<S>                                                   <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                        $  4,463,662      $  2,996,438      $  2,110,139
    Adjustments to reconcile net cash from
      operating activities:
        Depreciation and amortization                      601,686           584,356           584,626
        Net amortization/accretion of
           premiums and discounts                          (10,617)          (17,366)           17,383
        Net investment security gains                   (3,001,116)       (1,065,063)       (1,053,326)
        Provision for loan losses                          200,000            80,000            75,000
        Net loss on disposal of fixed assets                43,681            30,349            52,963
        Reinvestment of stock dividends                    (60,669)          (74,811)          (85,384)
      Increase (decrease) in cash due to
        changes in assets and liabilities:
           Other assets                                    (85,851)          949,711          (642,346)
           Accrued interest and other liabilities         (109,082)          199,434           159,594
                                                      ------------      ------------      ------------
    Net Cash From Operating Activities                   2,041,694         3,683,048         1,218,649

CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of
      available-for-sale securities                      3,545,958         1,370,112         1,926,307
    Proceeds from maturities of
      held-to-maturity securities                       11,125,000         8,800,000         9,250,000
    Purchase of held-to-maturity securities            (11,333,169)      (15,446,563)       (2,189,655)
    Purchase of available-for-sale
      securities                                          (268,094)          (84,000)         (230,293)
    Net sales (purchases) of Federal Home
      Loan Bank stock                                     (101,300)         (170,700)           32,000
    Net loans made to customers                        (22,537,032)      (16,469,278)      (22,594,327)
    Proceeds from disposal of
      premises and equipment                                 1,969
    Purchases of premises and equipment                   (499,070)         (284,949)         (743,741)
                                                      ------------      ------------      ------------
    Net Cash Used By Investing Activities             $(20,065,738)     $(22,285,378)     $(14,549,709)

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in deposits                          $ 22,805,838      $ 14,323,109      $ 19,184,441
    Proceeds from issuing common stock                      83,346            83,309                --
    Dividends paid                                      (1,033,597)         (995,261)         (809,591)
                                                      ------------      ------------      ------------
    Net Cash From Financing Activities                  21,855,587        13,411,157        18,374,850
                                                      ------------      ------------      ------------
Net Change in Cash and Cash Equivalents                  3,831,543        (5,191,173)        5,043,790

Cash and Cash Equivalents at Beginning of Year          11,078,534        16,269,707        11,225,917
                                                      ------------      ------------      ------------
Cash and Cash Equivalents at End of Year              $ 14,910,077      $ 11,078,534      $ 16,269,707
                                                      ============      ============      ============
SUPPLEMENTAL DISCLOSURES Cash payments for:
      Interest                                        $  8,173,810      $  7,151,078      $  6,403,061
      Income taxes                                    $  2,054,842      $    946,040      $    611,505

NON-CASH INVESTING AND FINANCING TRANSACTIONS
    Recorded unrealized gains on
      available-for-sale securities                   $ 26,687,984      $ 27,147,378      $ 14,207,018
    Loans transferred to foreclosed assets
      during the year                                 $    268,697      $    343,479      $    176,376
    100% stock dividend in the form of a
      two-for-one stock split, retroactively
      restated to 1997
        Common stock                                  $         --      $    265,304      $         --
        Surplus                                       $         --      $   (265,304)     $         --

    Adjustment due to retroactive restatement to
      reflect additional share purchases
        Common stock                                  $        654      $         --      $         --
        Surplus                                       $       (654)     $         --      $         --
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 5 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

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 single-family and
multi-family mortgages and installment and commercial 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.


                                     - 6 -
<PAGE> 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 1 - 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
significant 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 other income and expenses.

Employee Retirement Plan: The Bank's defined benefit pension plan (see Note
8) 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.


                                     - 7 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings per Share: Earnings per share are calculated using the weighted-average
number of shares outstanding. The weighted average shares outstanding giving
retroactive effect to the stock dividend discussed in Note 14, were 1,765,794,
1,761,126 and 1,759,980 for the years ended December 31, 1998, 1997 and 1996,
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. Specifically, the Company
discloses certain non-income statement changes to equity balances under the
classification of "Accumulated Other Comprehensive Income" in accordance with
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. 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:

                                           December 31, 1998
                      ----------------------------------------------------------
                                          Gross         Gross
                       Amortized       Unrealized     Unrealized        Market
                          Cost            Gains         Losses          Value
                      -----------      -----------    ----------     -----------
Equity securities     $10,673,904      $26,698,406      $10,422      $37,361,888



                                           December 31, 1997
                      ----------------------------------------------------------
                                          Gross         Gross
                       Amortized       Unrealized     Unrealized        Market
                          Cost            Gains         Losses          Value
                      -----------      -----------    ----------     -----------
Equity securities     $10,921,793      $27,147,378      $    --      $38,069,171


                                     - 8 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 2 - INVESTMENT SECURITIES (continued)

Held-to-maturity securities consist of the following:

<TABLE>
<CAPTION>
                                                                        December 31, 1998
                                                    ---------------------------------------------------------
                                                                        Gross        Gross
                                                     Amortized       Unrealized    Unrealized        Market
                                                        Cost            Gains        Losses          Value
                                                    -----------      ----------    ----------     -----------
<S>                                                 <C>               <C>            <C>          <C>        
U.S. Treasury securities                            $23,967,745       $775,586       $    --      $24,743,331
Obligations of U.S. government agencies               6,774,380         17,427        21,707        6,770,100
Obligations of state and political sub-divisions      1,137,866          5,129         1,745        1,141,250
Corporate notes                                         748,829          3,881            --          752,710
                                                    -----------       --------       -------      -----------
                                                    $32,628,821       $802,023       $23,452      $33,407,392
                                                    ===========       ========       =======      ===========
</TABLE>

<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>
                                     - 9 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated market value of held-to-maturity securities at
December 31, 1998, 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                 $  10,673,904       $ 37,361,888
                                              =============       ============
Held-to-maturity Securities
  Due in one year or less                     $   8,803,078       $  8,858,958
  Due after one year through five years          23,849,208         24,523,685
  Due after five years through ten years             24,795             24,749
                                              -------------       ------------
                                                 32,677,081         33,407,392
  Step-down due to merger                           (48,260)                --
                                              -------------       ------------
                                              $  32,628,821       $ 33,407,392
                                              =============       ============

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, 1998 and 1997, the Bank held $841,500
and $740,200, respectively, of FHLB stock. The Bank also has a line of credit
with the FHLB in the amount of $7.4 million at 5.8% annual interest. The full
amount of the line was available at December 31, 1998.

NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

                                                   1998               1997
                                              -------------       ------------
Mortgage                                      $ 112,915,388       $106,617,350
Installment                                      23,925,546         25,122,377
Commercial                                       34,396,565         18,377,724
Student and other                                 4,714,617          3,537,526
                                              -------------       ------------
                                                175,952,116        153,654,977

Less: Unearned discounts                              9,683             10,329
      Allowance for loan losses                   1,238,232          1,248,879
                                              -------------       ------------
                                              $ 174,704,201       $152,395,769
                                              =============       ============

                                     - 10 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

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:

                                        1998            1997            1996
                                     ----------      ----------      ----------
Balance, beginning of year           $1,248,879      $1,253,810      $1,243,619
Provision charged to operations         200,000          80,000          75,000
Loans charged off                      (246,182)       (105,016)       (107,354)
Recoveries                               35,535          20,085          42,545
                                     ----------      ----------      ----------
Balance, end of year                 $1,238,232      $1,248,879      $1,253,810
                                     ==========      ==========      ==========

NOTE 4 - PREMISES AND EQUIPMENT

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

                                                      1998               1997
                                                   ----------         ----------
Land                                               $  368,054         $  334,554
Buildings and improvements                          3,446,544          3,283,694
Furniture and equipment                             4,358,121          4,274,178
                                                   ----------         ----------
                                                    8,172,719          7,892,426
Less:  Accumulated depreciation                     4,841,076          4,433,253
                                                   ----------         ----------
                                                   $3,331,643         $3,459,173
                                                   ==========         ==========

Depreciation expense was $580,950, $544,349 and $515,125 for the years ended
December 31, 1998, 1997 and 1996, respectively.

NOTE 5 - PLEDGED ASSETS

At December 31, 1998 and 1997, assets carried at approximately $31,105,000 and
$28,515,000, respectively, were pledged to qualify for fiduciary powers, to
secure public monies as required by law, and for other purposes.


                                     - 11 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 6 - DEPOSITS

The maturities of time deposits over the next five years and thereafter as of
December 31, 1998 are, as follows:

DEPOSITS - TIME DEPOSIT MATURITIES

                                                    Amount              Percent
                                                 ------------           -------
Within one year                                  $ 78,994,956            72.6%
One to two years                                   13,365,217            12.3
Two to three years                                  4,638,384             4.3
Three to four years                                 3,419,788             3.1
Four to five years                                  6,704,442             6.2
Over five years                                     1,688,785             1.5
                                                 ------------           -----
                                                 $108,811,572           100.0%
                                                 ============           =====

NOTE 7 - INCOME TAXES

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

                                    1998               1997              1996
                                 ----------         ----------         --------
Currently payable                $1,781,535         $  963,936         $522,995
Deferred taxes                       49,663             42,944           39,656
                                 ----------         ----------         --------
                                 $1,831,198         $1,006,880         $562,651
                                 ==========         ==========         ========

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

                                       1998            1997             1996
                                     --------        --------        ---------
Provision for loan losses            $  3,620        $  1,677        $   1,528
Depreciation                          (90,913)          3,488           97,345
Employee benefits                      57,191         (22,299)          52,053
Other                                  79,765          60,078         (111,270)
                                     --------        --------        ---------
  Total                              $ 49,663        $ 42,944        $  39,656
                                     ========        ========        =========


                                     - 12 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

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:

                                                 Percentage of Pre-Tax Income
                                                ------------------------------
                                                1998         1997         1996
                                                ----         ----         ----
Provision at statutory rate                     34.0%        34.0%        34.0%
Effect of tax-exempt income                     (1.7)        (2.5)        (4.1)
Dividend received deduction                     (3.9)        (5.5)        (7.9)
Other                                            0.7         (0.8)        (0.9)
                                                ----         ----         ----
Actual tax expense and effective rate           29.1%        25.2%        21.1%
                                                ====         ====         ====

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>

                                                       1998                             1997
                                          ----------------------------      ----------------------------
                                                   Deferred Tax                      Deferred Tax
                                          ----------------------------      ----------------------------
                                            Assets         Liabilities        Assets         Liabilities
                                          -----------      -----------      -----------      -----------
<S>                                       <C>              <C>              <C>              <C>
Provision for loan losses                 $   256,671      $        --      $   260,291      $        --
Depreciation                                                   187,888                           278,801
Pension expense                                 6,453                           102,163
Unrealized gains                                             9,073,915                         9,230,109
Merger adjustment to market value                            1,189,426                         1,273,351
Additional minimum pension liability           66,653                            41,378
Other                                         109,303           44,034          118,811           12,296
                                          -----------      -----------      -----------      -----------
                                          $   439,080      $10,495,263      $   522,643      $10,794,557
                                          ===========      ===========      ===========      ===========
</TABLE>

NOTE 8 - EMPLOYEE RETIREMENT PLAN

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.

                                     - 13 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 8 - EMPLOYEE RETIREMENT PLAN (CONTINUED)

PFC Bank's operating divisions, Peoples Bank of PA and New Bethlehem Bank,
maintained non-qualified deferred compensation plans with participation
designated by the Board of Directors. The plans were terminated effective
December 31, 1996. The termination and subsequent recovery of the plans' assets
was included in the Bank's results of operations for the year ended December 31,
1996.

Assets for the qualified pension plan 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 valuation was used to determine the funded status and related
expenses of the Peoples Bank of PA non-qualified deferred compensation plan.

The following table summarizes financial data for the plan as of December 31:

<TABLE>
<CAPTION>
                                                               1998             1997
                                                            -----------      -----------
<S>                                                         <C>              <C>
Change in Projected Benefit Obligation:
  Beginning of year benefit obligation                      $ 1,710,378      $ 1,388,533
  Service cost                                                  112,188           68,009
  Interest cost                                                 119,322           89,596
  Net actuarial gain                                            131,452          204,190
  Less: Benefits paid to participants                          (110,613)         (39,970)
                                                            -----------      -----------
    End of year benefit obligation                          $ 1,962,727      $ 1,710,358
                                                            ===========      ===========
Change in the Fair Value of Plan Assets:
  Beginning of year plan assets, at fair value              $ 1,285,379      $ 1,005,092
  Actual return on plan assets                                   91,921          175,841
  Employer contributions                                        304,735          144,416
  Benefits paid to participants                                (110,613)         (39,970)
                                                            -----------      -----------
    End of year plan assets, at fair value                  $ 1,571,422      $ 1,285,379
                                                            ===========      ===========
Accrued Pension Expense:
  Funded status (projected benefit obligation less plan
    assets at fair value)                                   $  (391,305)     $  (424,999)
  Unamortized transition amount                                  87,334           92,722
  Unrecognized net actuarial loss                               670,164          535,926
  Additional minimum pension liability adjustment              (196,037)        (121,732)
  Unamortized prior service benefit                            (459,904)        (465,569)
                                                            -----------      -----------
    Accrued pension expense at year end                     $  (289,748)     $  (383,652)
                                                            ===========      ===========
</TABLE>

                                     - 14 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 8 - EMPLOYEE RETIREMENT PLAN (CONTINUED)

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

<TABLE>
<CAPTION>

                                                    1998          1997         1996
                                                  --------      --------     --------
<S>                                               <C>           <C>          <C>
Service cost - benefits earned
  during the period                               $112,188      $ 68,009     $ 77,482
Interest cost on projected benefit obligation      119,322        89,596       83,503
Net amortization (deferral)                         (3,063)      114,976       55,491
Less: Actual return on plan assets                  91,921       175,841       99,694
                                                  --------      --------     --------
  Net periodic pension cost                       $136,526      $ 96,740     $116,782
                                                  ========      ========     ========
</TABLE>

The projected benefit obligation was determined using an assumed discount rate
of 7.0% for 1998, 7.0% for 1997, and 6.5% for 1996 and an expected rate of
increase in compensation of 4.0%, 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 1998, 7.0% for 1997, and 6.5% for 1996.


NOTE 9 - 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 $11,958,000 and $8,398,000 as of December 31, 1998
and 1997, 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 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.

                                     - 15 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 10 - 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 estimated fair value of the Company's financial instruments as of
December 31, 1998 is as follows:

                                                 Carrying
                                                  Amount            Fair Value
                                               ------------        ------------
Financial Assets
  Cash and cash equivalents                    $ 14,910,077        $ 14,910,077
  Investment securities                        $ 69,990,709        $ 70,769,280
  Federal Home Loan Bank stock                 $    841,500        $    841,500
  Loans receivable                             $174,704,201        $174,137,000
Financial Liabilities
  Deposits                                     $213,359,346        $212,686,000

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

                                     - 16 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 11 - 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. 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
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.

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, 1998 and 1997, that the Bank meets all capital adequacy
requirements to which it is subjected.

As of December 31, 1998 and 1997, 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, 1998 and 1997 is,
as follows:

                                                   Minimum            Well
                                                   Capital         Capitalized
                                     Actual      Requirements      Requirements
                                     ------      ------------      ------------
Risk-based capital ratio
  1998                               20.91%           8%                10%
  1997                               13.10%           8%                10%

Leverage capital ratio
  1998                                9.48%        3% to 4%              5%
  1997                                8.33%        3% to 4%              5%

Tier 1 risk-based capital ratio
  1998                               13.18%            4%                6%
  1997                               12.30%            4%                6%

                                     - 19 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

Included in the "Cash and due from banks" balance are required federal reserves
of approximately $1,191,000 and $963,000 at December 31, 1998 and 1997,
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.

                                     - 20 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 12 - 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
327 accounts greater than $100,000 representing $62.3 million in deposits as of
December 31, 1998 (29.2% of deposits as of December 31, 1998) and approximately
$53.6 million in 237 accounts as of December 31, 1997 (28.1% of deposits as of
December 31, 1997).

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

At December 31, 1998, approximately $9,000,000 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 13 - RELATED PARTIES

At December 31, 1998 and 1997, certain executive officers, directors and
principal shareholders of the Company, and companies in which they have
beneficial ownership, were indebted to the Bank for $480,998 and $415,408,
respectively. During 1998, new loans to such related parties were $172,339 and
repayments were $74,331. Additionally the net amount loaned to related parties
decreased by $32,418 due to changes in the executive officers, directors or
principal shareholders.

Deposits with the Bank by related parties and shareholders' greater than 5% were
approximately $3,739,000 and $4,432,000 as of December 31, 1998 and 1997.

NOTE 14 - SUBSEQUENT EVENT

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 will be 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 will remain unchanged at $0.30 per share.
The number of shares issued and outstanding at December 31, 1998, after giving
effect to the stock split, was 1,768,694 (884,347 shares issued and outstanding
prior to the stock split). 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.

                                     - 21 -
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION

The condensed financial information for Peoples Financial Corp., Inc., Inc. as
of December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997
and 1996 is as follows:

BALANCE SHEETS
                                                            December 31,
                                                   ----------------------------
                                                       1998             1997
                                                   -----------      -----------
ASSETS
  Cash in bank                                     $    35,173      $   173,898
  Investment in subsidiary                          40,322,888       37,217,593
  Available-for-sale securities                        216,060           21,459
  Other assets                                              --               --
                                                   -----------      -----------
  Total Assets                                     $40,574,121      $37,412,950
                                                   ===========      ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities                                      $        --      $        --
  Stockholders' Equity                              40,574,121       37,412,950
                                                   -----------      -----------
  Total Liabilities and Stockholders' Equity       $40,574,121      $37,412,950
                                                   ===========      ===========

<TABLE>
<CAPTION>
STATEMENTS OF INCOME
                                                     Years Ended December 31,
                                             ----------------------------------------
                                                1998           1997           1996
                                             ----------     ----------     ----------
<S>                                          <C>            <C>            <C>
Income
  Dividends from subsidiary                  $1,033,597     $1,004,261     $  822,050
  Other                                          26,113         14,781          7,539

Expenses
  Professional fees                              45,142         69,860             --
  Miscellaneous                                   3,100          4,200          5,806
                                             ----------     ----------     ----------
Income Before Income Taxes and Equity in
  Undistributed Earnings of Subsidiary        1,011,468        944,982        823,783

Equity in Undistributed Earnings
  of Subsidiary                               3,452,194      2,051,456      1,286,356
                                             ----------     ----------     ----------
Net Income                                   $4,463,662     $2,996,438     $2,110,139
                                             ==========     ==========     ==========
</TABLE>

                                     - 22 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY

Years Ended December 31, 1998, 1997 and 1996

NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                   ---------------------------------------------
                                                      1998             1997             1996
                                                   -----------      -----------      -----------
<S>                                                <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                       $ 4,463,662      $ 2,996,438      $ 2,110,139
  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                           (3,452,194)      (2,051,456)      (1,286,356)
          Other assets                                      --               --           (6,733)
                                                   -----------      -----------      -----------
Net Cash From Operating Activities                   1,011,468          944,982          817,050

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of available-for-sale securities           (199,942)          (9,000)              --

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuing of common stock                 83,346           83,309               --
  Dividends paid                                    (1,033,597)        (995,261)        (809,591)
                                                   -----------      -----------      -----------
Net Cash Used By Financing Activities                 (950,251)        (911,952)        (809,591)
                                                   -----------      -----------      -----------
Net Change in Cash and Cash Equivalents               (138,725)          24,030            7,459

Cash and Cash Equivalents
  at Beginning of Year                                 173,898          149,868          142,409
                                                   -----------      -----------      -----------
Cash and Cash Equivalents
  at End of Year                                   $    35,173      $   173,898      $   149,868
                                                   ===========      ===========      ===========
</TABLE>

NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption, the transfer of any held-to-maturity security into
either the available-for-sale or trading category and the transfer of any
available-for-sale security into the trading category. Transfers from the
held-to-maturity portfolio at the date of initial adoption will not call into
question an entity's intent to hold other debt securities to maturity in the
future. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. At this time, the Bank does not hold any
derivative instruments or engage in any hedging activities.


                                     - 23 -