<PAGE>

                                   EXHIBIT 13

                  PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
                     FOR FISCAL YEAR ENDED DECEMBER 31, 2003

<PAGE>

COMM BANCORP, INC.
CONTENTS

INTRODUCTION

 65  President's Message to Stockholders
 67  Consolidated Selected Financial Data

MANAGEMENT'S DISCUSSION AND ANALYSIS

 68  Forward-Looking Discussion
 69  Critical Accounting Policies
 71  Operating Environment
 76  Review of Financial Position
116  Review of Financial Performance

CONSOLIDATED FINANCIAL STATEMENTS

128  Independent Auditors' Report
129  Consolidated Statements of Income and Comprehensive Income
130  Consolidated Balance Sheets
131  Consolidated Statements of Changes in Stockholders' Equity
132  Consolidated Statements of Cash Flows

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

133  Summary of significant accounting policies
151  Cash and due from banks
152  Investment securities
154  Loans, nonperforming assets and allowance for loan losses
157  Commitments, concentrations and contingent liabilities
159  Premises and equipment, net
160  Other assets
161  Deposits
162  Short-term borrowings
163  Fair value of financial instruments
163  Employee benefit plan
164  Income taxes
166  Parent Company financial statements
168  Regulatory matters
172  Summary of quarterly financial information (unaudited)

MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001

173  Operating Environment
174  Review of Financial Position
182  Review of Financial Performance

DIRECTORS AND OFFICERS

186  Boards of Directors and Corporate Officers

OTHER INFORMATION

190  Locations
191  Stockholder Information

<PAGE>

COMM BANCORP, INC.
PRESIDENT'S MESSAGE TO STOCKHOLDERS

Prepare (pri-par) vb 1. to make or get ready.

The year 2003 was very challenging for financial institutions. Interest rates
reached historic lows, which compressed interest margins and made it difficult
to achieve earnings growth. Net income was $4.7 million for the year or $2.45
per share. Given this very difficult economic climate, we chose to use 2003 as a
year to prepare. A year to position our Company for greater profitability in the
future.

As we look back on 2003, we are extremely pleased with the milestones achieved
and the goals brought to fruition. Our balance sheet grew significantly. Total
assets reached the milestone of one-half of $1.0 billion and closed the year at
$509.4 million, $23.0 million or 4.7 percent higher than at the end of 2002. We
attributed this strong growth to our strategic focus which involves building
commercial market share, maintaining a strong individual customer base and
providing all our customers with superior, personalized and comprehensive
financial services.

On December 9, 2003, we officially opened our 17th community banking office in
Tannersville, Pennsylvania. In close proximity to New York City, this area is
one of the fastest growing urban areas in the Commonwealth. We look forward to
developing relationships with the people and businesses in this area.

Over the past few years we have focused our efforts on developing comprehensive
and solid relationships with businesses in our market area. We not only cater to
the lending needs of our business customers, but rather build relationships that
incorporate all their financial service needs. As a result of these efforts, we
have been successful! In a year where many banks experienced a runoff in
commercial loans, our loan portfolio grew nearly 11.0 percent in 2003, with our
commercial loan portfolio increasing a significant 34.0 percent. In addition,
total deposits increased approximately 5.0 percent in 2003, of which
approximately one-third was commercial in nature.

Although, we have been striving to build commercial market share, we have not
forgotten the importance of our mainstay-our personal customers. In 2003, we
introduced new products and services that create value for the individuals and
families in our neighborhoods. We created Community Plus Mortgage, a 100.0
percent financing program that makes it easier for first- time home buyers to
achieve their dream of owning their own home. We also began offering title
insurance and abstract services to our mortgage customers in order to make the
closing process less complicated. Finally, we know our customers have busy
schedules, that is why we implemented InTouch(SM), a secure, 24-hour customer
service line. Customers can now perform their routine banking functions at their
convenience via the telephone.

                                       65
<PAGE>

COMM BANCORP, INC.
PRESIDENT'S MESSAGE TO STOCKHOLDERS (CONTINUED)

In 2003, we took steps to strengthen our Company's corporate governance. As you
may know, with the enactment of the Sarbanes-Oxley Act of 2002, many changes
were made to ensure the integrity and accountability of Management, including
the Board of Directors, and independence of the outside independent auditors of
public companies. We have a code of business conduct that applies to all
officers, directors and employees of our Company, to help ensure that we retain
our integrity to merit public trust and confidence. In addition, our senior
financial officers have signed a code of ethics designed to ensure the accuracy,
integrity and completeness of our financial reporting and disclosures. Finally,
I, along with the Chief Financial Officer, certify our quarterly and annual
financial statements. We fully comply with all the requirements of the
Sarbanes-Oxley Act of 2002 and the recently-adopted listing standards of The
NASDAQ Stock Market(R).

In closing, I would like to thank our employees for their hard work and
diligence. Our Company would not be where it is today if it were not for them. I
would also like to thank the Board of Directors for their leadership in a
challenging and changing year. It is through their guidance that we maintain the
highest standard of integrity and accountability. Finally, I would like to thank
you, our stockholders, for your continued confidence in our Company. I can
ensure you that we are prepared. We are prepared to meet whatever opportunities
and challenges 2004 may present.

Sincerely,

/s/ William F. Farber, Sr.
---------------------------------------------
William F. Farber, Sr.
President and Chief Executive Officer,
Chairman of the Board

                                       66
<PAGE>

COMM BANCORP, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                            2003          2002          2001          2000          1999
------------------------------------------------------------   ----------    ----------    ----------    ----------    ----------
<S>                                                            <C>           <C>           <C>           <C>           <C>
CONDENSED STATEMENTS OF FINANCIAL PERFORMANCE:
Interest income ............................................   $   26,808    $   29,284    $   31,012    $   29,583    $   27,812
Interest expense ...........................................        9,972        12,216        15,131        15,212        14,022
                                                               ----------    ----------    ----------    ----------    ----------
  Net interest income ......................................       16,836        17,068        15,881        14,371        13,790
Provision for loan losses ..................................          480         1,100           720           420           535
                                                               ----------    ----------    ----------    ----------    ----------
  Net interest income after provision for loan losses ......       16,356        15,968        15,161        13,951        13,255
Noninterest income .........................................        4,034         4,145         2,835         2,457         2,112
Noninterest expense ........................................       14,484        13,530        11,870        11,069         9,429
                                                               ----------    ----------    ----------    ----------    ----------
  Income before income taxes ...............................        5,906         6,583         6,126         5,339         5,938
Provision for income tax expense ...........................        1,206         1,383         1,426         1,139         1,338
                                                               ----------    ----------    ----------    ----------    ----------
  Net income ...............................................   $    4,700    $    5,200    $    4,700    $    4,200    $    4,600
                                                               ==========    ==========    ==========    ==========    ==========

CONDENSED STATEMENTS OF FINANCIAL POSITION:
Investment securities ......................................   $  105,248    $  124,203    $  120,357    $   71,246    $  105,630
Net loans ..................................................      354,356       319,830       307,102       294,245       273,051
Other assets ...............................................       49,848        42,385        32,899        54,249        28,431
                                                               ----------    ----------    ----------    ----------    ----------
  Total assets .............................................   $  509,452    $  486,418    $  460,358    $  419,740    $  407,112
                                                               ==========    ==========    ==========    ==========    ==========

Deposits ...................................................   $  459,466    $  437,213    $  416,205    $  378,721    $  362,483
Short-term borrowings ......................................                                                                5,500
Long-term debt .............................................                                                     36            39
Other liabilities ..........................................        3,445         3,872         3,305         3,365         3,615
Stockholders' equity .......................................       46,541        45,333        40,848        37,618        35,475
                                                               ----------    ----------    ----------    ----------    ----------
  Total liabilities and stockholders' equity ...............   $  509,452    $  486,418    $  460,358    $  419,740    $  407,112
                                                               ==========    ==========    ==========    ==========    ==========

PER SHARE DATA:
Net income .................................................   $     2.45    $     2.65    $     2.37    $     2.11    $     2.17
Cash dividends declared ....................................         0.88          0.82          0.74          0.70          0.57
Stockholders' equity .......................................   $    24.41    $    23.31    $    20.67    $    18.95    $    17.43
Cash dividends declared as a percentage of net income ......        35.89%        30.83%        31.23%        33.21%        26.00%
Average common shares outstanding ..........................    1,921,063     1,960,140     1,984,180     1,995,834     2,125,164

SELECTED RATIOS (BASED ON AVERAGE BALANCES):
Net income as a percentage of total assets .................         0.93%         1.10%         1.07%         1.03%         1.16%
Net income as a percentage of stockholders' equity .........        10.23         11.99         11.82         11.72         12.02
Stockholders' equity as a percentage of total assets .......         9.14          9.13          9.02          8.81          9.66
Tier I capital as a percentage of adjusted total assets ....         8.66          8.77          8.82          8.71          8.60
Net interest income as a percentage of earning assets ......         3.80          4.09          4.08          4.04          4.01
Loans, net, as a percentage of deposits ....................        76.43%        74.33%        75.41%        79.17%        73.20%

SELECTED RATIOS AND DATA (BASED ON PERIOD END BALANCES):
Tier I capital as a percentage of risk-weighted assets .....        11.30%        12.10%        12.80%        12.85%        13.24%
Total capital as a percentage of risk-weighted assets ......        12.23         13.19         13.86         14.04         14.49
Allowance for loan losses as a percentage of loans, net ....         1.00%         1.16%         1.04%         1.10%         1.37%
Full-time equivalent employees .............................          203           196           182           169           167
Locations ..................................................           17            16            14            14            14
</TABLE>

Note: Average balances were calculated using average daily balances. Average
balances for loans include nonaccrual loans. Tax-equivalent adjustments were
calculated using the prevailing statutory rate of 34.0 percent.

                                       67
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Management's Discussion and Analysis appearing on the following pages should be
read in conjunction with the Consolidated Financial Statements beginning on page
128 and Management's Discussion and Analysis 2002 versus 2001 beginning on page
173.

FORWARD-LOOKING DISCUSSION:

Certain statements in this Form 10-K are forward-looking statements that involve
numerous risks and uncertainties. The following factors, among others, may cause
actual results to differ materially from projected results:

Local, domestic and international economic and political conditions and
government monetary and fiscal policies affect banking both directly and
indirectly. Inflation, recession, unemployment, volatile interest rates, tight
money supply, real estate values, international conflicts and other factors
beyond our control may also adversely affect our future results of operations.
Our management team, consisting of the Board of Directors and executive
officers, expects that no particular factor will affect the results of
operations. Downward trends in areas such as real estate, construction and
consumer spending may adversely impact our ability to maintain or increase
profitability. Therefore, we cannot assure the continuation of our current rates
of income and growth.

Our earnings depend largely upon net interest income. The relationship between
our cost of funds, deposits and borrowings, and the yield on our
interest-earning assets, loans and investments, all influence net interest
income levels. This relationship, defined as the net interest spread, fluctuates
and is affected by regulatory, economic and competitive factors that influence
interest rates, the volume, rate and mix of interest-earning assets and
interest-bearing liabilities and the level of nonperforming assets. As part of
our interest rate risk ("IRR") strategy, we monitor the maturity and repricing
characteristics of interest-earning assets and interest-bearing liabilities to
control our exposure to interest rate changes.

To a certain extent, our success depends upon the general economic conditions in
the geographic market area that we serve. Although we expect economic conditions
in our market area to improve, assurance cannot be given that this improvement
will occur. Adverse changes to economic conditions would likely impair loan
collections and may have a materially adverse effect on the consolidated results
of operations and financial position.

                                       68
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The banking industry is highly competitive, with rapid changes in product
delivery systems and consolidation of service providers. We compete with many
larger institutions in terms of asset size. These competitors also have
substantially greater technical, marketing and financial resources. The larger
size of these companies affords them the opportunity to offer some specialized
products and services not offered by us. We are constantly striving to meet the
convenience and needs of our customers and to enlarge our customer base,
however, we cannot assure that these efforts will be successful.

CRITICAL ACCOUNTING POLICIES:

Our financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). The preparation of financial statements in
conformity with GAAP requires management to establish critical accounting
policies and make accounting estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during those reporting
periods.

An accounting estimate requires assumptions about uncertain matters that could
have a material effect on the financial statements if a different amount within
a range of estimates were used or if estimates changed from period to period.
Readers of this report should understand that estimates are made considering
facts and circumstances at a point in time, and changes in those facts and
circumstances could produce results that differ from when those estimates were
made. Significant estimates that are particularly susceptible to material change
in the next year relate to the allowance for loan losses, fair value of
financial instruments and the valuations of real estate acquired through
foreclosure and intangible assets. Actual amounts could differ from those
estimates.

We maintain the allowance for loan losses at a level we believe adequate to
absorb probable credit losses related to specifically identified loans, as well
as probable incurred losses inherent in the remainder of the loan portfolio as
of the balance sheet date. The balance in the allowance for loan losses account
is based on past events and current economic conditions.

The allowance for loan losses account consists of an allocated element and an
unallocated element. The allocated element consists of a specific portion for
the impairment of loans individually evaluated and a formula portion for the
impairment of those loans collectively evaluated. The unallocated element is
used to cover inherent losses that exist as of the

                                       69
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

evaluation date, but which have not been identified as part of the allocated
allowance using our impairment evaluation methodology due to limitations in the
process.

Management monitors the adequacy of the allocated portion of the allowance
quarterly and adjusts the allowance for any deficiencies through normal
operations. This self-correcting mechanism reduces potential differences between
estimates and actual observed losses. In addition, the unallocated portion of
the allowance is examined quarterly to ensure that it remains relatively
constant in relation to the total allowance unless there are changes in the
related criteria that would indicate a need to either increase or decrease it.
The determination of the allowance for loan loss level is inherently subjective
as it requires estimates that are susceptible to significant revision as more
information becomes available. Accordingly, management cannot ensure that
charge-offs in future periods will not exceed the allowance for loan losses or
that additional increases in the allowance for loan losses will not be required
resulting in an adverse impact on operating results.

Fair values of financial instruments, in cases where quoted market prices are
not available, are based on estimates using present value or other valuation
techniques which are subject to change.

Real estate acquired in connection with foreclosures or in satisfaction of loans
is written-down to the lower of the related loan balance or 80.0 percent of fair
market value for residential properties or 75.0 percent of fair market value for
commercial properties based upon estimates derived through independent
appraisals. However, proceeds realized from sales may ultimately be higher or
lower than those estimates.

Intangible assets include goodwill and a core deposit intangible. We evaluate
goodwill for impairment at least annually and we evaluate the useful life of the
core deposit in each reporting period in order to determine if it should be
adjusted.

For a further discussion of our critical account policies, refer to the note
entitled, "Summary of significant accounting policies," in the Notes to
Consolidated Financial Statements to this Annual Report. This note lists the
significant accounting policies used by management in the development and
presentation of our financial statements. This Management's Discussion and
Analysis, the Notes to the Consolidated Financial Statements and other financial
statement disclosures identify and address key variables and other qualitative
and quantitative factors that are necessary for the understanding and valuation
of our financial position, results of operations and cash flows.

                                       70
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

OPERATING ENVIRONMENT:

The subpar economic performance characteristic of the previous two years
appeared to turnaround midway through 2003. In the early part of the year,
uncertainty about the economic outlook and war in Iraq still plagued the United
States economy. The gross domestic product ("GDP"), the value of all goods and
services produced in the United States, grew at a moderate annual pace of 2.0
percent in the first quarter and a slightly higher annual pace of 3.1 percent in
the second quarter. Supported by very accommodative monetary and fiscal policy
initiatives, economic activity accelerated in the second half of the year. The
Federal Open Market Committee ("FOMC") in an effort to support economic
expansion and insure against a drop in inflation, lowered its target federal
funds rate 25 basis points to 1.00 percent at its meeting on June 24, 2003. In
addition, the federal government passed fiscal policy in order to help spur the
economy by providing incentives to increase consumer and business spending. The
Jobs and Growth Tax Relief Reconciliation Act of 2003 was signed into law on May
28, 2003. The Act advanced refund checks to households eligible for an increase
in the 2003 child tax credit, lowered withholding schedules for individuals and
provided a partial-expensing incentive for business capital investment. The
economy picked up remarkably following these initiatives, and as a result, GDP
grew at an annual rate of 8.2 percent in the third quarter and 4.1 percent in
the fourth quarter. For the entire year, the United States economy grew 3.1
percent.

Consumer spending, which has been the mainstay of the economy, rose at the same
moderate pace in the early part of 2003 as it did in the prior two years.
However, households increased their spending considerably after fiscal policy
actions were initiated midway through the year. Personal consumption jumped 6.9
percent in the third quarter, as the tax rate reductions and advance child tax
credits supported growth in disposable personal income. In addition, low
interest rates provided additional support by reducing borrowing costs for the
purchase of homes and durable goods. The further reduction in interest rates
allowed consumers, once again, to stretch their paychecks further and increase
their purchasing power. The lower rates also provided additional strength to the
housing market and spurred a new round of mortgage refinancing. Appreciation in
home prices increased the equity for most homeowners, and many converted the
equity to cash through refinancing and used the proceeds for home improvements
and other purchases. Consumer spending for all of 2003 rose 3.1 percent.

After declining for the past two years, business investment picked up
dramatically in 2003. In addition, business profitability rose due to

                                       71
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

strong productivity gains. Efforts to control cost and increase efficiency led
to a 5.3 percent increase in output per hour. Greater profitability led to an
improvement in cash flows and a rebound in equity values, which created a sense
of confidence in the economic outlook. This newfound confidence, coupled with an
increase in consumption and fiscal stimulus, prompted 14.8 percent and 15.8
percent increases in business investment in the third and fourth quarters of
2003. For all of 2003, business investment rose 4.3 percent, after contracting
1.2 percent in 2002 and 8.4 percent in 2001. Nonresidential investment increased
2.9 percent and outlays for equipment and software rose 5.5 percent, after
posting declines of 7.2 percent and 2.8 percent in 2002.

However, the increase in productivity continued to create excess capacity in the
labor market. Although the National unemployment rate fell to 5.4 percent in
2003 from 5.7 percent in 2002, the decrease was not due to a creation of new
jobs. For the third year in a row, job losses in the manufacturing sector were
only partially offset by job gains in the service-providing industry. Rather,
the decline in unemployment was due to a reduction in the labor force, as a
large number of potential workers stopped looking for jobs. The labor force
participation rate declined to 66.0 percent in December of 2003 from 66.4
percent one year earlier. However, job creation is expected to pick up in 2004.
As manufacturers increase production to fulfill demand, excess labor capacity
will be used up, thus creating a need for new jobs.

National, Pennsylvania and our market area's unemployment rates at December 31,
2003 and 2002, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31              2003      2002
-----------------------  ----      ----
<S>                      <C>       <C>
National ..............   5.4%      5.7%
Pennsylvania ..........   5.2       5.9
Lackawanna County .....   4.5       5.2
Monroe County .........   6.1       7.4
Susquehanna County ....   4.7       6.1
Wayne County ..........   5.0       6.2
Wyoming County ........   4.9%      6.4%
</TABLE>

All areas experienced a decrease in their respective unemployment rates.
Employment conditions in the Commonwealth improved to 5.2 percent in 2003 from
5.9 percent in 2002. The unemployment rate for all five counties in our market
area improved in comparison to last year. However, similar to the Nation,
according to the State Department of Labor and Industry, the improvement was not
due to job creation, but rather a reduction in the region's labor force. The
civilian labor force in our five-county market

                                       72
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

area fell by 5,600 workers or 2.5 percent in 2003, due primarily to this
region's growing number of retirees. In addition, the number of jobs in December
2003 fell by 3,100 compared with one year earlier.

Despite the lackluster employment conditions in our market area, a recent
Brookings Institution study conducted in cooperation with the local economic
development community concluded that the Scranton/Wilkes-Barre/Hazleton area was
among those best positioned to succeed. The study also concluded that whatever
happens to the three downtown areas of Scranton, Wilkes-Barre and Hazleton
affects the competitiveness and quality of life for the entire region, including
regional economic performance. On a positive note, in August of 2003, the
directors for several area chambers of commerce met at a joint meeting to lay
the groundwork for cooperation in promoting the entire region. With regard to
Lackawanna County, one of our primary markets, there were a number of changes
that either occurred or were announced in 2003 to enhance the infrastructure of
the downtown Scranton area including:

         -    The Scranton Enterprise Center, a business incubator, opened in
              April, with construction of an addition and parking lot started in
              July;

         -    The Scranton Hilton Hotel and Convention Center, a brand new
              175-room facility and anchor for the city's business district,
              opened its doors in the summer;

         -    Two downtown buildings were revitalized and a third sold to an
              out-of-town developer;

         -    An area businessman detailed a proposal for the construction of
              office buildings for both retail and commercial use; and

         -    Both Southern Union, a utility company, and Vaccess America, a
              subsidiary of Aventis Pasteur, a Swiftwater-based pharmaceutical
              company, are planning to locate their new headquarters on
              Lackawanna Avenue.

In addition, commercial businesses located in other cities and towns in our
market area experienced growth in 2003 or received favorable news for 2004
including:

         -    Foremost, the war in Iraq brought millions of dollars in
              government contracts to area military contractors such as Lockheed
              Martin;

                                       73
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

         -    Gentex Optics, located just outside Carbondale, Pennsylvania, is
              building a 6,800 square foot addition and adding 45 new jobs to
              expand its production of shatterproof eye-wear;

         -    Caterpillar Logistics Services announced that it will open a
              distribution center in the Covington Industrial Park in Lackawanna
              County; and

         -    Many national restaurant chains established locations in the
              Clarks Summit, Dickson City and Wilkes-Barre areas.

The banking industry, for the third year in a row, reported record earnings in
2003. Higher levels of noninterest income and lower provisions for loan losses
led to a 14.1 percent increase in net income for all Federal Deposit Insurance
Corporation ("FDIC")-insured commercial banks. Much of the improvement was
concentrated in large institutions, as earnings for smaller community banks were
negatively impacted by net interest margin compression. In addition, banks
exhibited strong balance sheet growth. For all FDIC-insured commercial banks,
total assets grew 7.4 percent. Strong demand for residential mortgages resulted
in loans, net of unearned income, growing 6.6 percent. Similar to 2002, these
institutions also continued to experience strong demand for their deposit
products. Total deposits grew 7.2 percent in 2003 after increasing 7.1 percent
last year. Interest-bearing deposits increased 8.6 percent, while
noninterest-bearing deposits rose 1.9 percent. Much of the demand for
interest-bearing accounts was concentrated in savings accounts as consumers
opted to keep their funds liquid. Commercial banks also experienced significant
improvement in asset quality, specifically in the quality of their commercial
and industrial loan portfolios. Total nonperforming assets, as a percentage of
total assets, for all FDIC-insured commercial banks improved to 0.77 percent at
December 31, 2003, from 0.94 percent at the end of 2002. Although stockholders'
equity increased 6.9 percent, FDIC-insured commercial banks reported risk-based
capital ratios that were relatively unchanged, due to growth, is assets with a
higher risk rating. The Tier I and Total risk-based capital ratios were 10.1
percent and 12.7 percent at year-end 2003 compared to 10.0 percent and 12.8
percent at the end of the previous year. The Leverage ratio for these banks was
7.9 percent and 7.8 percent at December 31, 2003 and 2002.

As previously mentioned, net profits for all FDIC-insured commercial banks
increased $12.7 billion or 14.1 percent and reached a record $102.6 billion in
2003, compared to $89.9 billion in 2002. Return on average assets ("ROAA") and
return on average equity ("ROAE") for these institutions improved considerably.
These banks posted ROAA of 1.40 percent and ROAE of

                                       74
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

15.31 percent in 2003 compared to 1.33 percent and 14.49 percent in 2002. The
improved profitability, for the most part, resulted from increased noninterest
income, coupled with a reduction in the provision for loan losses. Noninterest
income rose $13.9 billion or 8.0 percent due to higher gains on the sale of
residential mortgages and increased servicing fees. Asset quality improved for
all FDIC-insured banks, which resulted in a substantial 15.0 percent decline in
net charge-offs. FDIC-insured banks responded by reducing their provisions for
loan losses by 27.9 percent in 2003. However, the banking industry began to feel
the effects of the low interest rate environment, as the net interest margin for
all FDIC-insured commercial banks contracted 27 basis points. Small community
banks, which rely on net interest income for the majority of their revenue, felt
the greatest impact.

Contrary to the results for the overall banking industry, FDIC-insured
commercial banks located in Pennsylvania recorded a reduction in earnings for
the third straight year. For these banks, net income declined $155.0 million in
2003, after decreasing $24.0 million in 2002 and $137.0 million in 2001. Similar
to 2002, reduced net interest income, due to declining margins and lower levels
of noninterest income, were the reasons attributed to the decline. ROAA and ROAE
for insured Pennsylvania banks decreased to 1.38 percent and 15.70 percent in
2003 from 1.52 percent and 17.86 percent in 2002. For these banks, net interest
income decreased $448.2 million or 7.9 percent in 2003, as their net interest
margin compressed 26 basis points. In addition, these Pennsylvania banks were
not successful in improving fee income, as noninterest income declined $214.0
million or 4.3 percent compared to 2002. Asset quality for Pennsylvania banks
improved, and as a result, these banks lowered their provisions by 51.5 percent,
which partially mitigated the effects of the reduced revenues.

After two years of decline, equity markets rebounded in 2003. The rebound was
evidenced by increases in two prominent indices, the Dow Jones Industrial
Average and the Standard & Poor's 500, which posted gains of 25.3 percent and
26.4 percent. In addition, values of tech stocks, which were deflated in recent
years, improved dramatically. This caused The NASDAQ Stock Market(R) Composite
to jump 50.0 percent. Bank stocks also posted gains, as evidenced by an increase
in The NASDAQ Bank Index Composite growing 29.9 percent. Economic recovery and
higher stock values influenced the increase in deals announced in 2003, as
companies once again pursued mergers and acquisitions as a means of growth. In
the United States, $523.7 billion in transactions were announced in 2003, a 19.0
percent increase from 2002. The largest deal announced in 2003 occurred in the
banking industry between Bank of America and FleetBoston, with a total value of
$49.3 billion. With regard to the entire banking industry, the number of

                                       75
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

mergers and acquisitions announced increased 13.6 percent. Deal values also
increased, as both the median price-to-earnings and the median price-to-tangible
book value rose. Merger and acquisition activity is expected to pick up in 2004
as financial institutions continue to battle earnings challenges and increased
regulatory burdens. For a discussion of recent Statements of Financial
Accounting Standards ("SFAS") issued by the Financial Accounting Standards Board
("FASB") related to business combinations and intangible assets, refer to the
note entitled, "Summary of significant accounting policies-Business
combinations, intangible assets and disposable activities," in the Notes to
Consolidated Financial Statements to this Annual Report.

The fundamental factors supporting the economy, increases in consumer and
business spending, coupled with a strong housing market in the second half of
2003 are expected to continue and promote brisk expansion in 2004. The FOMC is
anticipating strong GDP growth of between 4.5 percent and 5.0 percent.
Employment conditions are expected to improve as excess slack in the labor
market is utilized. The FOMC indicated that they expect inflation to remain
stable due to sustained productivity gains. Accordingly, it is expected that
they will remain patient before taking action to change their accommodative
policy stance. However, no assurance can be given regarding changes in economic
conditions and activity or their effects on us.

REVIEW OF FINANCIAL POSITION:

We are located in Northeastern Pennsylvania and offer traditional bank products
and services, including loans, deposits and trust services, through our primary
subsidiary, Community Bank and Trust Company ("Community Bank"). Our other
subsidiary, Comm Realty Corporation ("Comm Realty"), holds, manages and sells
foreclosed or distressed assets on behalf of Community Bank. Community Bank
operates 17 full-service branch banking offices located within a five-county
market area and primarily services individuals and small- and medium-sized
businesses. Community Bank has two subsidiaries, Community Leasing Corporation
("Community Leasing") and Comm Financial Services Corporation ("Comm Financial
Services"). Community Leasing provides direct lease financing to commercial
customers and Comm Financial Services offers various types of insurance products
and asset management services to both individuals and businesses.

We consider Community Bank's 17 branch banking offices to be a single operating
segment. Community Leasing, Comm Financial Services and Comm Realty did not meet
the quantitative thresholds for required segment disclosure. For a further
discussion of the requirements for segment disclosure, refer to the note
entitled, "Summary of significant accounting

                                       76
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

policies-Segment disclosure," in the Notes to Consolidated Financial Statements
to this Annual Report.

The strategic focus of our Company involves growing our commercial loan and
deposit portfolios, as well as maintaining a strong individual customer base,
while providing both types of customers superior, personalized and comprehensive
financial services. In order to accomplish these goals we:

         -    Continue to seek and establish new markets in predominantly urban
              areas with a high concentration of commercial activity;

         -    Add commercial lenders that have proven experience in building
              complete, strong relationships with business customers. This
              involves not only catering to their financing needs, but also
              establishing deposit relationships and adding value through our
              many other services, such as insurance, trust and leasing;

         -    Develop new product offerings to not only generate new revenue
              sources, but for the benefit and convenience of our customers;

         -    Provide comprehensive orientation training to newly hired
              employees and continuing education for existing staff in order to
              provide superior service; and

         -    Remain current with and offer the latest in banking technology.

On December 9, 2003, we officially began developing banking relationships with
the people and businesses in Tannersville, Monroe County, Pennsylvania. In close
proximity to New York City, this area is one of the fastest growing urban areas
in the Commonwealth. Deposits and loans for this new branch totaled $1.6 million
and $3.7 million at December 31, 2003. Commercial relationships accounted for
approximately 98.1 percent of the new business.

Over the past two years, we have added several commercial loan officers and
another business development officer to our staff. These new additions have
proven successful in building and changing the composition of our loan and
deposit portfolios as well as creating solid customer relationships.

At the end of 2002, we received approval from the Pennsylvania Department of
Banking to form and become a 40.0 percent member of Community Abstract Services,
LLC ("Community Abstract"). This limited liability company became operational in
May of 2003. Not only does this company generate additional fee income for us,
it adds value for mortgage customers by offering title insurance and abstract
services at competitive rates.

                                       77
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In order to continue to provide customers with superior service, we implemented
InTouch(SM), a secure, 24-hour automated customer service line. Customers can
check their account balances, transfer funds between accounts and perform other
routine banking functions at their convenience via the telephone. We also
implemented an enterprise-wide document imaging system in 2003. The system
provides cold archival storage of reports and the ability to scan and store
deposit, loan and other application documents at a central location. The system
provides greater operating efficiency and enhances customer service through the
fast, accurate retrieval of information concurrently throughout our
organization.

We plan to continue our strategic focus in 2004 by possibly hiring additional
commercial loan officers and/or business development officers. We also plan to
expand our branch network into the Greater Wilkes-Barre area of Luzerne County.
Wilkes-Barre and the surrounding area is the second largest urban market in
Northeastern Pennsylvania.

We grew significantly in 2003, surpassing the one-half of $1.0 billion
milestone. Our strategic initiatives, coupled with economic and market
conditions, affected the demand for both loans and deposits and led to a $23.0
million or 4.7 percent increase in total assets to $509.4 million at December
31, 2003, from $486.4 million at the end of the previous year. Total assets
averaged $502.9 million in 2003, an increase of $27.9 million or 5.9 percent
compared to 2002. As a percentage of average total assets, average earning
assets equaled 94.5 percent in 2003 and 94.7 percent in 2002. Market rates,
already at historic lows, fell even further and forced a 92 basis point
reduction in our tax-equivalent yield on earning assets to 5.89 percent in 2003
from 6.81 percent in 2002.

Loans, net of unearned income, grew substantially, by $34.3 million or 10.6
percent to $357.9 million at December 31, 2003, from $323.6 million at year-end
2002. Our focus on developing commercial business relationships, coupled with
the strength of the housing market continued to influence the composition of our
loan portfolio. Commercial business development directly led to a 34.0 percent
increase in business loans, including commercial loans, commercial mortgages and
commercial lease financing. The commercial portfolio represented 62.6 percent of
our total loan portfolio at December 31, 2003, compared to 51.7 percent at the
end of 2002. Mortgage rates remained low throughout 2003, which kept the housing
market and the demand for mortgage loans strong. We experienced intense activity
in our secondary mortgage division. However, since the majority of mortgage
loans originated or refinanced are subsequently sold in the secondary market,
residential mortgage loans, including construction loans, declined 17.0 percent
reducing the effect that the strong commercial loan growth had on the

                                       78
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

overall growth in the loan portfolio. Loans averaged $346.6 million in 2003, an
increase of $28.4 million or 8.9 percent over the prior year, and represented
72.9 percent of average earning assets. Prior actions by the FOMC to ease
monetary policy, along with action taken in the middle of 2003 reducing the
target rate still another 25 basis points, led to a 75 basis point decline in
the tax-equivalent yield on our loan portfolio to 6.75 percent in 2003 from 7.50
percent in 2002.

Although economic conditions began to rebound, uncertainty about future
conditions and volatility in the equity markets influenced the decisions of many
investors. As a result, the demand for low-risk bank deposits remained strong.
Our deposits rose $22.3 million or 5.1 percent from the previous year-end.
Similar to last year, the majority of the growth was in noninterest-bearing
deposits and interest-bearing transaction accounts. Our cost of deposits
declined 72 basis points to 2.51 percent in 2003 from 3.23 percent in 2002.

Stockholders' equity increased $1.2 million to $46.5 million at December 31,
2003, from $45.3 million at December 31, 2002. Our book value grew to $24.41 per
share, compared to $23.31 per share at the end of 2002. Net income of $4.7
million was the primary factor contributing to the improvement.

For a discussion of the recent Interpretation issued by the FASB related to the
consolidation of variable interest entities, refer to the note entitled,
"Summary of significant accounting policies-Variable interest entities," in the
Notes to Consolidated Financial Statements to this Annual Report.

INVESTMENT PORTFOLIO:

Primarily, our investment portfolio provides a source of liquidity needed to
meet expected loan demand and generates a reasonable return in order to increase
our profitability. Additionally, we utilize the investment portfolio to meet
pledging requirements and reduce income taxes. Our investment portfolio
primarily consists of short-term collateralized mortgage obligations ("CMOs") of
U.S. Government-sponsored agencies, which provide a source of liquidity, and
intermediate-term, tax-exempt state and municipal obligations, which mitigate
our income tax burden.

There are certain risks inherent in the portfolio that may negatively impact our
liquidity and profitability. Two of the major risks affecting our portfolio are
market or IRR and timing risk. Understanding these and other inherent risks and
their potential effects are essential in effectively managing the investment
portfolio.

                                       79
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Market or IRR, the greatest risk to our portfolio, relates to the inverse
relationship between bond prices and market yields. It is defined as the risk
that increases in general market interest rates will result in market value
depreciation. Since our entire investment portfolio is designated as
available-for-sale and carried at estimated fair value, with net unrealized
gains and losses reported as a separate component of stockholders' equity,
market value depreciation could negatively impact our capital position. In
addition to affecting the market value of the investment portfolio, interest
rate changes can have a significant impact on the amount and timing of cash flow
receipts, which are an important source of funding for our loan portfolio. As
interest rates increase, prepayments on underlying mortgages generally decline,
which could materially reduce the cash flows available from these investments.
Conversely, should interest rates decline, cash flows from CMOs generally
increase, which could lead to a surplus of liquidity that must be reinvested at
lower rates.

The FOMC carefully watched economic conditions during the first six months of
2003. The economy exhibited only slight growth in the first half of the year.
Treasury rates fell during this period in response to weak economic data and
rumors of possible further easing of monetary policy. With inflationary
pressures nonexistent, the FOMC decided to lower the target for the federal
funds rate 25 basis points to 1.00 percent from 1.25 percent at its meeting on
June 24, 2003, in order to add further support to economic expansion and insure
against deflation. In addition, the FOMC stated at subsequent meetings that
given the low probability of inflation, monetary policy could remain
accommodative for a considerable period. As a result, the yield curve steepened.
Short-term rates remained at low levels but intermediate-term and long-term
rates backed up and closed 2003 notably higher. Since our investment portfolio
primarily consists of fixed-rate bonds, changes in market interest rates have a
substantial influence on the fair value of the portfolio. Specifically, the
parts of the yield curve most closely related to our investments include the
two-year and ten-year U.S. Treasuries, which affect the values of our
mortgage-backed securities, including CMOs, and other short-term investments,
and tax-exempt state and municipal obligations. The yield on the two-year U.S.
Treasury, which started the year at 1.61 percent, fell 51 basis points to a low
of 1.10 percent on June 13, 2003. Similarly, the yield on the ten-year U.S.
Treasury fell 70 basis points from 3.83 percent at year-end 2002 to a low of
3.13 percent on the same date. After the easing of monetary policy and emergence
of increasingly positive economic data, these yields rose appreciably over the
remainder of 2003. The yield on the two-year U.S Treasury rose 74 basis points
and closed 2003 at 1.84 percent, 23 basis points higher than the previous
year-end. The change in the yield on the ten-year U.S. Treasury was even more
dramatic. This yield rose 114 basis

                                       80

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

points by December 31, 2003, 44 basis points higher than the end of 2002. As
previously mentioned, bond prices react inversely to yields. As a result, we
experienced a decline of $713 in the aggregate market value of our investment
portfolio. The decline in value was primarily due to a $748 decrease in the
unrealized holding gain on mortgage-backed securities and the recognition of a
$301 unrealized holding loss on taxable municipals. Although interest rates on
the ten-year U.S. Treasury were higher, the net unrealized holding gain on
tax-exempt state and municipal obligations rose $331, partially offsetting the
market value depreciation on our holding of mortgage-backed and taxable
municipal investment securities. The appreciation in value of our tax-exempt
municipal portfolio can be explained by a decline in the differential that
existed between supply and demand in the municipal market at the end of 2003
compared to one year earlier. As a result, tax-exempt municipals were priced
higher at December 31, 2003.

We reported net unrealized holding gains, included as a separate component of
stockholders' equity, of $2,113, net of income taxes of $1,089, at December 31,
2003, and $2,584, net of income taxes of $1,331, at December 31, 2002. We
realize additional increases in interest rates could negatively impact the
market value of our investments and our capital position. In order to monitor
the potential effects a rise in interest rates could have on the value of our
investments, we perform stress test modeling on the portfolio. Stress tests
conducted on our portfolio at December 31, 2003, indicated that should general
market rates increase by 100, 200 and 300 basis points, we would anticipate
declines of 2.7 percent, 5.7 percent and 8.7 percent in the market value of our
portfolio. Our IRR exposure with regard to market value depreciation weakened
slightly in comparison to the end of 2002. At December 31, 2002, we anticipated
market value depreciation of 2.1 percent, 4.7 percent and 7.6 percent given the
same rate shocks.

In addition to monitoring the effects interest rate changes have on the value of
our investments, we measure how our cash receipts from principal repayments on
our mortgage-backed securities will change given rate fluctuations of plus or
minus 100 basis points. Based on our investment portfolio at December 31, 2003,
we expect to receive $12.9 million from repayments in 2004 if rates do not
change. If rates go up 100 basis points from their current level, we expect
repayments to decrease to $10.2 million in 2004. Conversely, if rates go down
100 basis points from their current level, we expect repayments to increase to
$19.0 million in 2004.

In order to limit the effects of IRR on market value, we restrict the duration
of individual securities and the portfolio as a whole. In order to

                                       81

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

mitigate fluctuations in the timing of cash flows, we purchase and hold only
classes of mortgage-backed securities that possess the highest quality with
respect to their structure and composition. Furthermore, we monitor and evaluate
the performance of our investment portfolio with respect to total return and
risk in comparison to national and market area industry benchmarks.

Total return is a comprehensive industry-wide approach measuring investment
portfolio performance. This measure is superior to measuring performance
strictly on the basis of yield since it not only considers income earned similar
to the yield approach, but also includes the reinvestment income on repayments
and capital gains and losses whether realized or unrealized. The total return on
our investment portfolio weakened to 3.3 percent in 2003, from 8.8 percent in
2002. In 2003 and 2002, our portfolio did not outperform the Lehman Brothers'
aggregate-bond index, a benchmark used by most investment managers. This index
scored a total return of 4.5 percent in 2003 and 13.1 percent in 2002. However,
our investment portfolio's total return was comparable to the average total
return for the nine community banks located in our market area of 3.9 percent.
In addition, our investment portfolio ranked in the upper half of all
FDIC-insured bank holding companies, based on a study from an independent
national investment performance ranking company, with respect to total return
over the previous 12 months.

Similar to the approach taken in assessing our performance with respect to
return, we evaluate our risk in comparison to all other financial institutions.
Risk is assessed by quantifying the average life of the investment portfolio as
compared to U.S. Treasury securities. Average life is derived from the
volatility of our total return to that of U.S. Treasury securities over a
one-year time horizon. This risk measure improved from 1.0 year in 2002 to 0.8
years in 2003. As a result of this improvement, according to the same
independent ranking company, our portfolio ranked in the upper one-third of all
FDIC-insured bank holding companies with regard to low risk. In addition, the
risk associated with our portfolio was less than that of the same nine community
banks, whose average life for their portfolio was 1.7 years.

Investment securities decreased $19.0 million to $105.2 million at December 31,
2003, from $124.2 million at December 31, 2002. The investment portfolio
averaged $112.8 million and equaled 23.7 percent of average earning assets in
2003, compared to $110.2 million and 24.5 percent in 2002. Due primarily to a
239 basis point decline in the yield on taxable investments, the tax-equivalent
yield on the investment portfolio fell 188 basis points to 3.93 percent in 2003
from 5.81 percent in 2002. The tax-

                                       82

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

equivalent yield on tax-exempt investments was 7.45 percent in 2003 and 7.50
percent in 2002.

The carrying values of the major classifications of available-for-sale
securities as they relate to the total investment portfolio for the past five
years are summarized as follows:

DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE-FOR-SALE

<TABLE>
<CAPTION>
                                   2003               2002               2001              2000               1999
                            ----------------   ----------------   ----------------   ---------------   ----------------
       DECEMBER 31           AMOUNT      %      AMOUNT      %      AMOUNT      %      AMOUNT     %      AMOUNT      %
-----------------------------------------------------------------------------------------------------------------------
<S>                         <C>       <C>      <C>       <C>      <C>       <C>      <C>      <C>      <C>       <C>
U.S. Treasury securities..                                                           $ 3,001    4.21%  $  3,595    3.40%
U.S. Government agencies..  $ 16,377   15.56%  $ 10,350    8.33%  $  1,067    0.89%    1,025    1.44      1,635    1.55
State and municipals:
  Taxable.................    17,051   16.20
  Tax-exempt..............    34,788   33.05     35,003   28.18     41,790   34.72    20,075   28.18     34,781   32.93
Mortgage-backed securities    35,099   33.35     77,579   62.46     75,558   62.78    45,269   63.54     63,523   60.14
Equity securities.........     1,933    1.84      1,271    1.03      1,942    1.61     1,876    2.63      2,096    1.98
                            --------  ------   --------  ------   --------  ------   -------  ------   --------  ------
    Total.................  $105,248  100.00%  $124,203  100.00%  $120,357  100.00%  $71,246  100.00%  $105,630  100.00%
                            ========  ======   ========  ======   ========  ======   =======  ======   ========  ======
</TABLE>

We received proceeds from the sale of available-for-sale investment securities
of $19.0 million in 2003 and $15.1 million in 2002. The securities sold in 2003
were comprised entirely of short-term bonds of U.S. Government agencies. These
securities were sold for liquidity purposes in order to fund loans to tax-exempt
local municipal authorities that offered comparably higher yields. The majority
of the investments sold in 2002 were tax-exempt state and municipal obligations
with short call provisions, which were sold to reduce the amount of call risk in
the portfolio. Net gains recognized on the sale of investment securities totaled
$13 in 2003 and $322 in 2002. Repayments from investment securities totaled
$60.0 million in 2003 and $34.5 million in 2002. The increase in repayments
resulted from higher levels of prepayments received on mortgage-backed
securities, as interest rates on mortgages fell significantly by mid-2003.

We purchased a total of $62.8 million in investment securities in 2003. IRR and
liquidity concerns weighed heavily on our decision to purchase certain
investment securities in 2003. In order to minimize our exposure to potentially
severe interest rate risk and cash flow timing risk in the future, given the
historically low interest rate environment, we limited our purchases primarily
to short-term investment securities. The weighted-average life of
mortgage-backed securities purchased in 2003 was 2.0 years. Similarly, the
weighted-average maturity of all other investment securities purchased was 2.7
years. Specifically, our purchases primarily included obligations of U.S.
Governments agencies with a cost of $25.3 million and a weighted-average yield
of 1.95 percent, mortgage-backed securities with a cost of $18.4 million and a
weighted-average yield of 3.08 percent and

                                       83

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

taxable obligations of states and municipalities with a cost of $17.4 million
and a weighted-average yield of 2.39 percent. In addition to limiting our
exposure to risk, our purchases of U.S. Government agencies and mortgage-backed
securities will provide liquidity to support loan demand in the near term. The
taxable municipal obligations were purchased because these investments carried
higher yields when compared to other short-term investment alternatives.
Purchases totaled $51.2 million in 2002, consisting of $39.1 million in
mortgage-backed securities, $10.3 million in short-term U.S. Government agencies
and $1.8 million in intermediate-term tax-exempt state and municipal
obligations.

At December 31, 2003, investment securities with an amortized cost of $36.3
million were pledged to secure deposits, to qualify for fiduciary powers and for
other purposes required or permitted by law. At December 31, 2002, the amortized
cost of pledged securities equaled $37.4 million. The fair value of such
securities equaled $36.9 million at December 31, 2003, and $38.4 million at
December 31, 2002.

                                       84

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The maturity distribution of the amortized cost, fair value and weighted-average
tax-equivalent yield of the available-for-sale portfolio at December 31, 2003,
is summarized as follows. The weighted-average yield, based on amortized cost,
has been computed for tax-exempt state and municipals on a tax-equivalent basis
using the prevailing statutory tax rate of 34.0 percent. The distributions are
based on contractual maturity with the exception of mortgage-backed securities,
CMOs and equity securities. Mortgage-backed securities and CMOs are presented
based upon estimated cash flows, assuming no change in the current interest rate
environment. Equity securities with no stated contractual maturities are
included in the "After ten years" maturity distribution. Expected maturities may
differ from contracted maturities, or estimated maturities for mortgage-backed
securities and CMOs, because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.

MATURITY DISTRIBUTION OF AVAILABLE-FOR-SALE PORTFOLIO

<TABLE>
<CAPTION>
                                                    AFTER ONE     AFTER FIVE
                                    WITHIN         BUT WITHIN     BUT WITHIN          AFTER
                                   ONE YEAR        FIVE YEARS      TEN YEARS        TEN YEARS           TOTAL
                               -----------------------------------------------------------------------------------
      DECEMBER 31, 2003         AMOUNT   YIELD   AMOUNT   YIELD  AMOUNT   YIELD   AMOUNT   YIELD   AMOUNT    YIELD
------------------------------------------------------------------------------------------------------------------
<S>                            <C>       <C>    <C>       <C>    <C>      <C>    <C>       <C>    <C>        <C>
Amortized cost:
U.S. Government agencies.....  $ 4,039   2.21%  $12,274   2.00%                                   $ 16,313   2.05%
State and municipals:
  Taxable....................                    17,352   2.53                                      17,352   2.53
  Tax-exempt.................      340   4.04       775   2.64   $8,256   7.92%  $22,591   7.59%    31,962   7.52
Mortgage-backed securities...   13,075   4.94    21,015   4.32      410   6.81        98   6.91     34,598   4.59
Equity securities............                                                      1,821   2.18      1,821   2.18
                               -------          -------          ------          -------          --------
    Total....................  $17,454   4.29%  $51,416   3.14%  $8,666   7.87%  $24,510   7.19%  $102,046   4.71%
                               =======          =======          ======          =======          ========

Fair value:
U.S. Government agencies.....  $ 4,069          $12,308                                           $ 16,377
State and municipals:
  Taxable....................                    17,051                                             17,051
  Tax-exempt.................      347              783          $9,136          $24,522            34,788
Mortgage-backed securities...   13,247           21,322             428              102            35,099
Equity securities............                                                      1,933             1,933
                               -------          -------          ------          -------          --------
    Total....................  $17,663          $51,464          $9,564          $26,557          $105,248
                               =======          =======          ======          =======          ========
</TABLE>

For a discussion of recent SFASs and consensus positions of the Emerging Issues
Task Force issued by the FASB related to investment securities, refer to the
note entitled, "Summary of significant accounting policies-Investment
securities," in the Notes to Consolidated Financial Statements to this Annual
Report.

LOAN PORTFOLIO:

Economic factors and how they affect loan demand are of extreme importance to us
and the overall banking industry, as lending is a primary business

                                       85

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

activity. Loans are the most significant component of earning assets and they
generate the greatest amount of revenue for us. Similar to the investment
portfolio, there are risks inherent in the loan portfolio that must be
understood and considered in managing the lending function. These risks include
IRR, credit concentrations and fluctuations in demand. Changes in economic
conditions and interest rates affect these risks which influence loan demand,
the composition of the loan portfolio and profitability of the lending function.

Many of the economic factors that impacted loan demand in 2002 continued in
2003. Banks, for the third consecutive year, experienced a runoff in commercial
and industrial loans, while demand for residential mortgages flourished.
Commercial and industrial loans outstanding at all commercial banks declined
$64.9 billion or 6.7 percent to $898.4 billion at December 31, 2003, from $963.3
billion at year-end 2002. However, by the end of the year, there were
indications that this downward trend in commercial loan demand could be
reversed. Slow growth in aggregate demand and low prices hindered corporate
profits at the beginning of 2003. Business investment, which had been lackluster
in recent years, began to pick up in the second quarter of 2003, as corporate
earnings rebounded and confidence in the economic recovery strengthened. These
positive indications may serve to improve the demand for commercial and
industrial loans in 2004. According to the "January 2004 Senior Loan Officer
Opinion Survey on Bank Lending Practices," issued by the Board of Governors of
the Federal Reserve System, domestic banking institutions reported for the first
time since early 2000, an increase in demand for commercial and industrial
loans, as well as commercial mortgage loans.

Historically low interest rates and strong appreciation in home prices bolstered
the demand for mortgages throughout the majority of 2003. Demand for mortgage
borrowing boomed as mortgage rates hit a 45-year record low by mid-year. The
rate for a 30-year fixed-rate mortgage tumbled 82 basis points to 5.23 percent
at June 30, 2003, from an already low 6.05 percent at the end of 2002. Sales of
both new and existing homes reached record levels in 2003. New home sales were
up 11.5 percent and existing home sales rose 9.5 percent, breaking the previous
records set in 2002. In addition, the further reduction in rates and
appreciation in home values spurred another round of mortgage refinancings as
some homeowners refinanced for the second and third time. A record 65.0 percent
of mortgage lending in 2003 was due to refinancings. Mortgage rates, although
remaining low, edged up in the second half of 2003 and closed the year at 5.88
percent, 65 basis points higher than their June level. Both the "October 2003
and January 2004 Senior Loan Officer Opinion Survey on Bank Lending Practices,"
reported demand for mortgage loans and refinancing had weakened in recent

                                       86

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

months. Loans secured by real estate at all commercial banks rose $190.4 billion
or 9.4 percent in 2003, and consumer loans outstanding increased $46.1 billion
or 7.8 percent.

The composition of the loan portfolio at year end for the past five years is
summarized as follows:

DISTRIBUTION OF LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                            2003               2002               2001               2000               1999
                                     ----------------   ----------------   ----------------   ----------------   -----------------
           DECEMBER 31                AMOUNT      %      AMOUNT      %      AMOUNT      %      AMOUNT      %      AMOUNT      %
----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
COMMERCIAL, FINANCIAL AND OTHERS...  $100,723   28.14%  $ 90,747   28.05%  $ 71,512   23.05%  $ 49,476   16.63%  $ 43,907   15.86%
REAL ESTATE:
  CONSTRUCTION.....................     2,983    0.83      5,398    1.67      5,285    1.70      3,546    1.19      3,164    1.14
  MORTGAGE.........................   222,621   62.20    193,012   59.65    195,915   63.13    205,771   69.16    198,423   71.67
CONSUMER, NET......................    29,726    8.30     32,631   10.08     36,346   11.71     37,800   12.70     30,830   11.14
LEASE FINANCING, NET...............     1,887    0.53      1,787    0.55      1,264    0.41        937    0.32        526    0.19
                                     --------  ------   --------  ------   --------  ------   --------  ------   --------  ------
  LOANS, NET OF UNEARNED INCOME....   357,940  100.00%   323,575  100.00%   310,322  100.00%   297,530  100.00%   276,850  100.00%
                                               ======             ======             ======             ======             ======
LESS: ALLOWANCE FOR LOAN LOSSES....     3,584              3,745              3,220              3,285              3,799
                                     --------           --------           --------           --------           --------
    NET LOANS......................  $354,356           $319,830           $307,102           $294,245           $273,051
                                     ========           ========           ========           ========           ========
</TABLE>

Loans, net of unearned income, totaled $357.9 million at December 31, 2003, an
increase of $34.3 million or 10.6 percent from $323.6 million at December 31,
2002. As previously mentioned, we continued our emphasis on building
relationships with businesses in our market area. This effort led to an increase
in business loans, including commercial loans, commercial mortgages and lease
financing, of $56.8 million or 34.0 percent to $224.1 million at year-end 2003
from $167.3 million at the end of last year. Specifically, commercial real
estate loans rose significantly, $46.7 million or 62.4 percent, while commercial
loans and leases grew $10.1 million or 11.0 percent. Business loans represented
62.6 percent of total loans, net of unearned income, at December 31, 2003,
compared to 51.7 percent at year-end 2002. Although we experienced intense
mortgage demand in 2003, the majority of new loans and loans refinanced were
subsequently sold in the secondary market. This resulted in a $19.5 million or
15.8 percent decline in the outstanding balance of residential mortgages,
including construction loans, to $104.1 million at the end of 2003 from $123.6
million at December 31, 2002. Indirect lending through local automobile
dealerships is a predominant portion of our retail lending activities.
Automobile manufacturers continued to offer either zero percent or very low-rate
financing incentives in 2003. We could not compete with these incentives, and as
a result, consumer loans decreased $3.0 million or 9.2 percent to $29.7 million
at December 31, 2003, from $32.7 million at the end of 2002.

As previously mentioned, the rate on a 30-year mortgage hit a historic low of
5.23 percent at June 30, 2003. These historically low mortgage rates,

                                       87

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

coupled with the strength of the housing market, kept both mortgage activity and
refinancing activity strong throughout 2003. In addition, home values continued
to appreciate, providing homeowners with additional liquidity by increasing
their mortgage debt. The additional proceeds were used for home improvements and
debt consolidation.

Activity in our secondary mortgage banking program continued to flourish.
Mortgages originated and subsequently sold in the secondary market totaled $56.9
million in 2003, an increase of $17.2 million or 43.3 percent compared to $39.7
million in 2002. We realized net gains on the sale of these loans, included in
noninterest income, of $1,212 in 2003 and $919 in 2002. In addition, we had $3.2
million and $3.9 million of residential mortgage loans held for sale at December
31, 2003 and 2002. Residential mortgage loans serviced for the Federal National
Mortgage Association totaled $90.0 million at December 31, 2003, an increase of
$33.9 million or 60.4 percent compared to $56.1 million at December 31, 2002.

We experienced strong refinancing activity for the third consecutive year. Our
volume of refinanced residential mortgages increased $4.7 million or 25.8
percent in 2003. The number of mortgage refinancings totaled 292 with an
aggregate dollar volume of $22.9 million in 2003, compared to 212, with an
aggregate dollar volume of $18.2 million in 2002. In addition, more than 40.0
percent of our refinancing customers opted to increase mortgage debt and extract
cash proceeds when they refinanced in each of the last three years.

The loan portfolio averaged $346.6 million in 2003, an increase of $28.4 million
or 8.9 percent compared to $318.2 million in 2002. Taxable loans averaged $19.9
million or 6.5 percent higher, while average tax-exempt loans increased $8.5
million or 63.3 percent. As a result of the strong loan demand, average loans,
as a percentage of average earning assets, equaled 72.9 percent in 2003,
compared to 70.8 percent in 2002.

The prime rate remained at 4.25 percent for the first half of 2003. When the
FOMC lowered interest rates 25 basis points in June, banks responded by lowering
the prime rate to 4.00 percent. As a result, loan yields continued to reprice
downward throughout 2003. The tax-equivalent yield on our loan portfolio fell 75
basis points to 6.75 percent in 2003 from 7.50 percent in 2002. Although our
loan yields declined steadily over the course of the year, we felt the greatest
impact in the third and fourth quarters subsequent to the reduction in the prime
rate. The tax-equivalent yield declined 14 basis points in both the first and
second quarters of 2003, however, the yield fell a significant 39 basis points
in the third quarter and then another 22 basis points in the fourth quarter.
Interest rates are

                                       88

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

expected to remain low throughout 2004. We expect the yield on our loan
portfolio to further decline as one-, three- and five-year adjustable-rate loans
reprice and new loans are originated at comparatively lower yields versus the
yields on repayments of existing loans.

The maturity distribution and repricing information of the loan portfolio by
major classification at December 31, 2003, is summarized as follows:

MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                                                         AFTER ONE
                                                            WITHIN       BUT WITHIN        AFTER
                DECEMBER 31, 2003                          ONE YEAR      FIVE YEARS     FIVE YEARS      TOTAL
--------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>            <C>           <C>
Maturity schedule:
Commercial, financial and others.........................  $ 44,719       $ 11,815       $ 44,189     $100,723
Real estate:
  Construction...........................................     2,983                                      2,983
  Mortgage...............................................    18,695         52,900        151,026      222,621
Consumer, net............................................    11,223         15,571          2,932       29,726
Lease financing, net.....................................       692          1,195                       1,887
                                                           --------       --------       --------     --------
    Total................................................  $ 78,312       $ 81,481       $198,147     $357,940
                                                           ========       ========       ========     ========

Repricing schedule:
Predetermined interest rates.............................  $ 38,658       $ 68,912       $ 55,949     $163,519
Floating- or adjustable-interest rates...................   109,222         85,138             61      194,421
                                                           --------       --------       --------     --------
    Total................................................  $147,880       $154,050       $ 56,010     $357,940
                                                           ========       ========       ========     ========
</TABLE>

As previously mentioned, there are numerous risks inherent in the loan
portfolio. We manage the portfolio by employing sound credit policies and
utilizing various modeling techniques in order to limit the effects of such
risks. In addition, we continuously monitor our liquidity position so that
adequate funds are available to meet loan demand. Based on our asset/liability
simulation model, we feel confident that loan demand can be facilitated through
payments and prepayments on investments and loans, and increases in core
deposits. We expect to receive approximately $95.8 million from repayments on
loans and investment securities during 2004. In the event an unforeseen increase
in loan demand arises, we could facilitate the demand by aggressively competing
for deposits, by selling available-for-sale securities or by utilizing various
credit products available through the Federal Home Loan Bank of Pittsburgh
("FHLB-Pgh").

In an attempt to limit IRR and liquidity strains, we continually examine the
maturity distribution and interest rate sensitivity of the loan portfolio. As
part of our asset/liability management strategy to reduce the amount of IRR in
the loan portfolio, we price loan products to increase our holdings of
adjustable-rate loans and reduce the average term of fixed-rate loans.
Approximately 41.3 percent of the loan portfolio is expected to reprice within
the next 12 months. Due to our continued focus on commercial

                                       89

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

lending activities, our holdings of adjustable-rate loans increased $49.4
million or 34.1 percent in 2003 after increasing $47.4 million or 48.6 percent
in 2002. Adjustable-rate loans totaled $194.4 million and represented 54.3
percent of the loan portfolio at December 31, 2003, compared to $145.0 million
or 44.8 percent at the end of 2002. Heightened refinancing activity, coupled
with an increase in the volume of loans sold in the secondary market, caused a
reduction in our residential mortgage loans. As a result, the amount of
fixed-rate loans decreased $15.1 million to $163.5 million at December 31, 2003,
from $178.6 million at December 31, 2002.

Additionally, our secondary mortgage program provides us with an additional
source of liquidity and a means to limit our exposure to IRR. Through this
program, we are able to competitively price conforming one-to-four family
residential mortgage loans without taking on IRR which would result from
retaining these long-term, low fixed-rate loans on our books. The loans
originated are subsequently sold in the secondary market, with the sales price
locked in at the time of commitment, thereby greatly reducing our exposure to
IRR.

For a discussion of the recent Statement of Position issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants related to lending or financing activities, refer to the note
entitled, "Summary of significant accounting policies-Loans," in the Notes to
Consolidated Financial Statements to this Annual Report.

In addition to the risks inherent in our loan portfolio, in the normal course of
business, we are also a party to financial instruments with off-balance sheet
risk to meet the financing needs of our customers. These instruments include
legally binding commitments to extend credit, unused portions of home equity and
credit card lines and commercial letters of credit, and involve, to varying
degrees, elements of credit risk and IRR in excess of the amount recognized in
the financial statements.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Commercial letters of credit are conditional
commitments issued by us to support customers in the purchase of commercial
goods. These letters of credit are automatically renewable upon their
anniversary date unless canceled by us prior to that date.

                                       90

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Credit risk is the principal risk associated with these instruments. Our
involvement and exposure to credit loss in the event that the instruments are
fully drawn upon and the customer defaults is represented by the contractual
amounts of these instruments. In order to control credit risk associated with
entering into commitments and issuing letters of credit, we employ the same
credit quality and collateral policies in making commitments that we use in
other lending activities. We evaluate each customer's creditworthiness on a
case-by-case basis, and if deemed necessary, obtain collateral. The amount and
nature of the collateral obtained is based on our credit evaluation.

The contractual amounts of off-balance sheet commitments at year end for the
past five years are summarized as follows:

DISTRIBUTION OF OFF-BALANCE SHEET COMMITMENTS

<TABLE>
<CAPTION>
                         DECEMBER 31                                 2003     2002     2001     2000     1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>      <C>      <C>      <C>      <C>
Commitments to extend credit.....................................  $44,025  $48,478  $28,726  $25,873  $22,338
Unused portions of home equity and credit card lines.............    9,806    6,892    5,464    3,904    2,981
Commercial letters of credit.....................................    2,255      986    1,007    1,278    1,057
                                                                   -------  -------  -------  -------  -------
  Total..........................................................  $56,086  $56,356  $35,197  $31,055  $26,376
                                                                   =======  =======  =======  =======  =======
</TABLE>

These commitments are generally issued for one year or less and often expire
unused in whole or in part by the customer. We record an allowance for credit
losses, if deemed necessary, separately as a liability. No allowance was deemed
necessary at December 31, 2003 and 2002. We do not anticipate that losses, if
any, that may occur as a result of funding off-balance sheet commitments, would
have a material adverse effect on our operating results or financial position.

ASSET QUALITY:

FDIC-insured commercial banks experienced an overall improvement in asset
quality in 2003. Asset quality for commercial and industrial loans improved,
however these banks felt a marked deterioration in the quality of consumer debt.
Total consumer credit outstanding rose $99.1 billion in 2003, while total
revolving debt increased $27.9 billion. High levels of consumer spending and
increasing debt burdens have fueled the mounting number of bankruptcy filings.
With debt at record levels, unforeseen layoffs, due to the slowdown in the
economy, have forced many consumers into bankruptcy. According to data released
by the Administrative Office of the U.S. Courts, bankruptcy filings increased
5.2 percent and broke record levels in 2003, with personal filings accounting
for 97.9 percent. Personal bankruptcy cases filed nationally for the 12 months
ended December 31, 2003, increased 5.6 percent from the previous year. However,
the number of

                                       91

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

businesses filing for bankruptcy in the United States declined by 9.1 percent.
Lower debt burdens for commercial enterprises due to the low interest rate
environment are cited as the reason for the decline. Bankruptcy filings in
Pennsylvania grew by 8.4 percent in 2003. Similar to the National results,
personal cases in Pennsylvania rose 8.8 percent, while the number of business
filings declined 5.5 percent. According to the Administrative Office of the U.S.
Courts, personal bankruptcies filed in Northeastern Pennsylvania grew at more
than twice the national average. The number of non-business filings in this
district increased 1,509 or 12.4 percent to 13,723 in 2003 from 12,214 in 2002,
while the number of business filings in this district fell by 181 cases or 39.3
percent.

As previously mentioned, asset quality for all FDIC-insured commercial banks
improved as evidenced by a $7.6 billion or 12.6 percent decrease in
nonperforming loans and leases to $52.9 billion at December 31, 2003, from $60.5
billion at year-end 2002. The majority of the improvement resulted from a 23.4
percent reduction in nonperforming commercial and industrial loans. For all
commercial banks, the ratio of nonperforming assets to total assets improved
from 0.94 percent at the end of 2002 to 0.77 percent at year-end 2003. In
addition, net charge-offs, as a percentage of loans outstanding, improved from
1.12 percent in 2002 to 0.89 percent in 2003. Asset quality also strengthened
for Pennsylvania commercial banks. The ratio of nonperforming assets to total
assets improved to 0.50 percent at December 31, 2003, from 0.64 percent at
December 31, 2002.

We are committed to developing and maintaining sound, quality assets through our
credit risk management procedures. Credit risk is the risk to earnings or
capital which arises from a borrower's failure to meet the terms of their loan
agreement. We manage credit risk by diversifying the loan portfolio and applying
policies and procedures designed to foster sound lending practices. These
policies include certain standards that assist lenders in making judgments
regarding the character, capacity, capital structure and collateral of the
borrower. In addition, the lender must determine the borrower's ability to repay
the credit based on prevailing and expected business conditions. The Board of
Directors establishes and reviews, at least annually, the lending authority for
all loan officers and branch managers. Credits beyond the scope of the lending
officers and branch managers are forwarded to the Directors' Loan Committee.
This Committee, comprised of senior management and board members, attempts to
assure the quality of the loan portfolio through careful analysis of credit
applications, adherence to credit policies and the examination of outstanding
loans and delinquencies. These procedures assist in the early detection and
timely follow-up of problem loans. Credits in excess of $1.0 million are subject
to approval by our Board of Directors.

                                       92

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Credit risk is also minimized by quarterly internal loan reviews of our
portfolio. These reviews aid management in identifying deteriorating financial
conditions of borrowers, allowing them to assist customers in remedying these
situations.

Nonperforming assets consist of nonperforming loans and foreclosed assets.
Nonperforming loans include nonaccrual loans, restructured loans and accruing
loans past due 90 days or more. For a discussion of our policy regarding
nonperforming assets, refer to the note entitled, "Summary of significant
accounting policies-Nonperforming assets," in the Notes to Consolidated
Financial Statements to this Annual Report.

Information concerning nonperforming assets for the past five years is
summarized as follows. The table includes credits classified for regulatory
purposes and all material credits that cause management to have serious doubts
as to the borrower's ability to comply with present loan repayment terms.

DISTRIBUTION OF NONPERFORMING ASSETS

<TABLE>
<CAPTION>
                       DECEMBER 31                                   2003     2002     2001     2000     1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>      <C>      <C>      <C>      <C>
Nonaccrual loans:
Commercial, financial and others..................................  $  306   $  541   $  113   $  141   $  166
Real estate:
  Construction....................................................
  Mortgage........................................................   1,077    1,213    1,045    1,469    2,272
Consumer, net.....................................................      63      238      190       74       33
Lease financing, net..............................................
                                                                    ------   ------   ------   ------   ------
    Total nonaccrual loans........................................   1,446    1,992    1,348    1,684    2,471
                                                                    ------   ------   ------   ------   ------

Restructured loans................................................                                124      149
                                                                    ------   ------   ------   ------   ------

Accruing loans past due 90 days or more:
Commercial, financial and others..................................     124       97      107       23      726
Real estate:
  Construction....................................................
  Mortgage........................................................     352      281      372      449    2,768
Consumer, net.....................................................     151      132      225      353      471
Lease financing, net..............................................      73
                                                                    ------   ------   ------   ------   ------
    Total accruing loans past due 90 days or more.................     700      510      704      825    3,965
                                                                    ------   ------   ------   ------   ------
    Total nonperforming loans.....................................   2,146    2,502    2,052    2,633    6,585
                                                                    ------   ------   ------   ------   ------
Foreclosed assets.................................................     261       40    1,818    1,391      359
                                                                    ------   ------   ------   ------   ------
    Total nonperforming assets....................................  $2,407   $2,542   $3,870   $4,024   $6,944
                                                                    ======   ======   ======   ======   ======

Ratios:
Nonperforming loans as a percentage of loans, net.................    0.60%    0.77%    0.66%    0.88%    2.38%
Nonperforming assets as a percentage of loans, net................    0.67%    0.79%    1.25%    1.35%    2.51%
</TABLE>

Our asset quality continued to improve in 2003. Prior to 2002, our asset quality
performance was less favorable compared to the banking industry.

                                       93

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Asset quality is a critical area for financial institutions, as substantial
losses could negatively impact operating results and financial position. We have
consciously focused on strengthening this area of our operations in recent
years. This was accomplished by restructuring and adding personnel with
considerable experience and expertise to our Special Assets and Loan Review
Divisions. In addition, we have strengthened our underwriting standards and
collection efforts. As a result, we have experienced steady improvement in asset
quality over the past five years.

Nonperforming assets decreased $135 or 5.3 percent to $2,407 at December 31,
2003, from $2,542 at the end of 2002. A reduction of $356 in nonperforming loans
was partially offset by an increase of $221 in foreclosed assets. With regard to
nonperforming loans, loans on nonaccrual status decreased $546, while accruing
loans past due 90 days or more rose $190.

There were four properties with an aggregate carrying value of $261 in
foreclosed assets at December 31, 2003, compared to one property with a carrying
value of $40 at the end of 2002. During 2003, eight properties totaling $440
were transferred into foreclosed assets. We sold five properties for $219. There
was no net gain or loss realized on the sale of the properties, nor were there
any writedowns charged to noninterest expense in 2003. The carrying values of
all foreclosed properties at December 31, 2003, did not exceed 80.0 percent of
their collateral values in the case of residential properties and 75.0 percent
of their collateral values in the case of commercial properties.

We maintain the allowance for loan losses at a level we believe adequate to
absorb probable credit losses related to specifically identified loans, as well
as probable incurred losses inherent in the remainder of the loan portfolio as
of the balance sheet date. The balance in the allowance for loan losses account
is based on past events and current economic conditions. We employ the Federal
Financial Institutions Examination Council ("FFIEC") Interagency Policy
Statement and GAAP in assessing the adequacy of the allowance account. Under
GAAP, the adequacy of the allowance account is determined based on the
provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
for loans specifically identified to be individually evaluated for impairment
and the requirements of SFAS No. 5, "Accounting for Contingencies," for large
groups of smaller-balance homogeneous loans to be collectively evaluated for
impairment.

We follow our systematic methodology in accordance with procedural discipline by
applying it in the same manner regardless of whether the allowance is being
determined at a high point or a low point in the economic cycle. Each quarter,
our loan review division identifies those loans to be individually evaluated for
impairment and those to be collectively evaluated for impairment utilizing a
standard criteria.

                                       94

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Internal loan review grades are assigned quarterly to loans identified to be
individually evaluated. A loan's grade may differ from period to period based on
current conditions and events, however, we consistently utilize the same grading
system each quarter. We consistently use loss experience from the latest eight
quarters in determining the historical loss factor for each pool collectively
evaluated for impairment. Qualitative factors are evaluated in the same manner
each quarter and are adjusted within a relevant range of values based on current
conditions.

Regulatory agencies, as an integral part of their examination process,
periodically review our allowance for loan losses and the systematic methodology
utilized to determine its adequacy. This methodology was reviewed as part of the
scope of the most recent regulatory examination and was deemed satisfactory by
the regulators.

For a further discussion of our accounting policies for determining the amount
of the allowance and a description of the systematic analysis and procedural
discipline applied, refer to the notes entitled, "Summary of significant
accounting policies-Use of estimates," and "Summary of significant accounting
policies-Allowance for loan losses," in the Notes to Consolidated Financial
Statements to this Annual Report.

Information concerning impaired loans for the past five years is summarized as
follows. The table includes credits classified for regulatory purposes and all
material credits that cause management to have serious doubts as to the
borrower's ability to comply with present loan repayment terms.

DISTRIBUTION OF IMPAIRED LOANS

<TABLE>
<CAPTION>
DECEMBER 31                                                          2003     2002     2001     2000     1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                <C>      <C>      <C>      <C>      <C>
Nonaccrual loans:
Commercial, financial and others.................................  $  306   $  541   $  113   $  141   $  166
Real estate:
  Construction...................................................
  Mortgage.......................................................   1,077    1,213    1,045    1,469    2,272
Consumer, net....................................................      63      238      190       74       33
Lease financing, net.............................................
                                                                   ------   ------   ------   ------   ------
    Total nonaccrual loans.......................................   1,446    1,992    1,348    1,684    2,471
                                                                   ------   ------   ------   ------   ------

Restructured loans...............................................                                124      149
                                                                   ------   ------   ------   ------   ------

Accruing loans:
Commercial, financial and others.................................              889      407
Real estate:
  Construction...................................................
  Mortgage.......................................................     207      485       65
Consumer, net....................................................       1      292      125
Lease financing, net.............................................
                                                                   ------   ------   ------   ------   ------
    Total accruing loans.........................................     208    1,666      597
                                                                   ------   ------   ------   ------   ------
    Total impaired loans.........................................  $1,654   $3,658   $1,945   $1,808   $2,620
                                                                   ======   ======   ======   ======   ======

Ratio:
Impaired loans as a percentage of loans, net.....................    0.46%    1.13%    0.63%    0.61%    0.95%
</TABLE>

                                       95

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

At December 31, 2003 and 2002, we had a recorded investment in impaired loans of
$1,654 and $3,658. The recorded investment in impaired loans averaged $2,510 in
2003 and $2,831 in 2002. At December 31, 2003, the amount of recorded investment
in impaired loans for which there was a related allowance for loan losses and
the amount of the allowance was $747 and $377. Comparatively, the amount of
these loans and their related allowance was $2,500 and $877, at December 31,
2002. The amount of recorded investment for which there was no related allowance
for loan losses was $907 and $1,158 at December 31, 2003 and 2002. During 2003,
activity in the allowance for loan losses account related to impaired loans
included a provision charged to operations of $83, losses charged to the
allowance of $609 and recoveries of impaired loans previously charged-off of
$26. The 2002 activity in the allowance for loan losses account related to
impaired loans included a provision charged to operations of $944, losses
charged to the allowance of $477 and recoveries of impaired loans previously
charged-off of $7. Interest income related to impaired loans would have been
$188 in 2003 and $201 in 2002, had the loans been current and the terms of the
loans not been modified. Interest recognized on impaired loans amounted to $145
in 2003 and $176 in 2002. Included in these amounts was interest recognized on a
cash basis of $145 and $176. Cash received on impaired loans applied as a
reduction of principal totaled $754 in 2003 and $493 in 2002. There were no
commitments to extend additional funds to customers with impaired loans at
December 31, 2003 and 2002.

                                       96

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The allocation of the allowance for loan losses for the past five years is
summarized as follows:

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                        2003              2002              2001              2000              1999
                                  ----------------  ----------------  ----------------  ----------------  ----------------
                                          CATEGORY          CATEGORY          CATEGORY          CATEGORY          CATEGORY
                                            AS A              AS A              AS A              AS A              AS A
                                            % OF              % OF              % OF              % OF              % OF
          DECEMBER 31             AMOUNT    LOANS   AMOUNT    LOANS   AMOUNT    LOANS   AMOUNT    LOANS   AMOUNT    LOANS
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>
Allocated allowance:
Specific:
Commercial, financial and others  $  237     0.09%  $  597     0.44%  $  174     0.17%  $   65     0.12%  $  617     0.38%
Real estate:
  Construction..................
  Mortgage......................     124     0.36      173     0.53      135     0.36      312     0.87      159     1.61
Consumer, net...................      16     0.01      107     0.16       94     0.10      229     0.11      161     0.09
Lease financing, net............
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
    Total specific..............     377     0.46      877     1.13      403     0.63      606     1.10      937     2.08
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------   ------

Formula:
Commercial, financial and others     237    28.05      367    27.61    1,433    22.88    1,011    16.51    1,042    15.48
Real estate:
  Construction..................             0.83              1.67              1.70              1.19              1.14
  Mortgage......................     974    61.84    2,071    59.12      800    62.77      848    68.29      902    70.06
Consumer, net...................     316     8.29      419     9.92      452    11.61      472    12.59      476    11.05
Lease financing, net............       1     0.53              0.55              0.41              0.32              0.19
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
    Total formula...............   1,528    99.54    2,857    98.87    2,685    99.37    2,331    98.90    2,420    97.92
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
    Total allocated allowance...   1,905   100.00%   3,734   100.00%   3,088   100.00%   2,937   100.00%   3,357   100.00%
                                           ======            ======            ======            ======            ======
Unallocated allowance...........   1,679                11               132               348               442
                                  ------            ------            ------            ------            ------
    Total.......................  $3,584            $3,745            $3,220            $3,285            $3,799
                                  ======            ======            ======            ======            ======
</TABLE>

The allocated element of the allowance for loan losses account was $1,905 at
December 31, 2003, compared to $3,734 at December 31, 2002. The decrease
resulted from reductions of $500 in the specific portion for the impairment of
loans individually evaluated under SFAS No. 114 and $1,329 in the formula
portion for the impairment of loans collectively evaluated under SFAS No. 5. The
decrease in the specific portion resulted from a decline in the volume of
impaired loans with a recorded investment in excess of their fair value.
Impaired loans with a recorded investment in excess of their fair value totaled
$747 at year-end 2003 compared to $2,500 at the end of the previous year. For
these loans, the amount by which the recorded investment exceeded the fair
market value was $377 at December 31, 2003, compared to $877 at the end of 2002.
With regard to the formula portion of the allowance for loans collectively
evaluated for impairment under SFAS No. 5, the decline resulted from a
significant reduction in the total loss factor for identified loans individually
evaluated but considered not impaired that share risk characteristics with other
collectively evaluated loans having internal loan grading classifications of
substandard, special mention or watch. The reduction in the total loss factor
resulted from a

                                       97

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

dramatic improvement in the historical loss factor, defined as the average of
the ratio of net loans charged-off to loans, net of unearned income, over the
past eight quarters, for these types of loans.

The unallocated element was $1,679 at December 31, 2003 and $11 at December 31,
2002. We believe the increase in the unallocated element is substantiated based
on the overall increase in the loan portfolio and the shift in composition of
the portfolio from predominantly residential mortgages to commercial credits,
which inherently carry greater risk of loss.

The coverage ratio, the allowance for loan losses account, as a percentage of
nonperforming loans, is an industry ratio used to test the ability of the
allowance account to absorb potential losses arising from nonperforming loans.
This ratio, improved to 167.0 percent at December 31, 2003, from 149.7 percent
at December 31, 2002, and indicated that our allowance account was more than
able to absorb all potential losses associated with nonperforming loans. With
regard to all nonperforming assets, our coverage ratio equaled 148.9 percent at
the end of 2003 and 147.3 percent at year-end 2002. Furthermore, the allowance
for loan losses covered 216.7 percent of loans considered impaired at December
31, 2003. The coverage ratio for impaired loans at December 31, 2002, was 102.4
percent.

                                       98

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

A reconciliation of the allowance for loan losses and an illustration of
charge-offs and recoveries by major loan category for the past five years are
summarized as follows:

RECONCILIATION OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                          DECEMBER 31                                    2003     2002     2001     2000     1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>      <C>      <C>      <C>      <C>
Allowance for loan losses at beginning of period.....................   $3,745   $3,220   $3,285   $3,799   $4,050
Loans charged-off:
Commercial, financial and others.....................................       94      167       85      580      587
Real estate:
  Construction.......................................................
  Mortgage...........................................................      415      222      493      158      108
Consumer, net........................................................      244      317      338      291      269
Lease financing, net.................................................                 3
                                                                        ------   ------   ------   ------   ------
    Total............................................................      753      709      916    1,029      964
                                                                        ------   ------   ------   ------   ------

Loans recovered:
Commercial, financial and others.....................................       29       31       25       29       57
Real estate:
  Construction.......................................................
  Mortgage...........................................................       19       11       26        4       50
Consumer, net........................................................       64       92       80       62       71
Lease financing, net.................................................
                                                                        ------   ------   ------   ------   ------
    Total............................................................      112      134      131       95      178
                                                                        ------   ------   ------   ------   ------
Net loans charged-off................................................      641      575      785      934      786
                                                                        ------   ------   ------   ------   ------
Provision for loan losses............................................      480    1,100      720      420      535
                                                                        ------   ------   ------   ------   ------
Allowance for loan losses at end of period...........................   $3,584   $3,745   $3,220   $3,285   $3,799
                                                                        ======   ======   ======   ======   ======

Ratios:
Net loans charged-off as a percentage of average loans outstanding...     0.18%    0.18%    0.26%    0.32%    0.30%
Allowance for loan losses as a percentage of period end loans........     1.00%    1.16%    1.04%    1.10%    1.37%
</TABLE>

The allowance for loan losses was $3.6 million and approximated 1.00 percent of
loans, net of unearned income, at December 31, 2003, compared to $3.7 million
and 1.16 percent at the end of the previous year. The lower ratio primarily
resulted from a reduction in the provision for loan losses, coupled with the
overall increase in the loan portfolio.

Past due loans not satisfied through repossession, foreclosure or related
actions, are evaluated individually to determine if all or part of the
outstanding balance should be charged against the allowance for loan losses
account. Any subsequent recoveries are credited to the allowance account. Net
loans charged-off amounted to $641 or 0.18 percent of average loans outstanding
in 2003, compared to $575 or 0.18 percent in 2002. For our peer group, a group
of 347 bank holding companies located within the Federal Reserve District of
Philadelphia with consolidated assets between $500.0 million and $1.0 billion,
net charge-offs, as a percentage of average loans outstanding, increased to 0.22
percent in 2003 from 0.18 percent in 2002.

                                       99

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

DEPOSITS:

The household sector in 2003 continued to grow at the same moderate pace as the
previous two years. Mid-year tax cuts and advance child tax credits caused a 4.4
percent increase in disposable personal income. Consumer propensity to save
rather than spend during periods of uncertainty did not come into play during
the recovery due, in large part, to attractive pricing and financing options
offered by manufacturers. As a result, both consumer spending and savings
remained relatively stable. Spending in this sector rose 3.1 percent in 2003
after increasing 3.4 percent in 2002. Consumers saved 2.0 percent and 2.3
percent of their disposable personal income in 2003 and 2002.

Despite the relatively low savings rate, FDIC-insured commercial banks again
exhibited strong deposit growth in 2003. Similar to 2002, total deposits rose
$339.1 billion or 7.2 percent in 2003. The growth was primarily concentrated in
interest-bearing deposits, which grew $321.3 billion or 8.6 percent.
Noninterest-bearing deposits rose $17.8 billion or 1.9 percent. Total deposits
grew $312.0 billion or 7.1 percent in 2002. Interest-bearing deposits grew
$247.7 billion or 7.1 percent and noninterest-bearing deposits grew $64.3
billion or 7.4 percent. For FDIC-insured Pennsylvania banks, deposits grew
another $2.6 billion or 2.0 percent in 2003 after growing 2.0 percent last year.

Our deposit base is a primary source of funds to support our operations. We
offer a variety of deposit products to meet the needs of our individual and
commercial customers. Similar to the growth experienced by all FDIC-insured
commercial banks, we also experienced strong deposit growth. Total deposits grew
$22.3 million or 5.1 percent to $459.5 million at December 31, 2003, from $437.2
million at the end of 2002. The same external and internal factors that
influenced our deposit growth and composition last year prevailed throughout
2003. Equity markets, although beginning to rebound, remained volatile.
Investors were still uncertain about the future performance of the stock market.
As a result, bank deposits, as a source of investment, remained in favor.
However, liquidity was still a concern. Many depositors did not want to tie up
funds for the long-term should equity market performance stabilize. Of the total
deposit growth, $20.7 million or 92.8 percent was concentrated in demand
deposits and interest-bearing transaction accounts. Noninterest-bearing accounts
grew $9.3 million or 18.7 percent from the end of 2002, while interest-bearing
transaction accounts rose $11.4 million or 6.4 percent. In addition, we
continued to focus on building comprehensive relationships with our commercial
customers. Nearly 31.0 percent of total growth in interest-bearing transaction
accounts occurred in the commercial sector. Furthermore, commercial checking
accounts increased $5.7 million or 63.3 percent.

                                      100

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The average amount of, and the rate paid on, the major classifications of
deposits for the past five years are summarized as follows:

DEPOSIT DISTRIBUTION

<TABLE>
<CAPTION>
                                      2003                2002                2001                2000                1999
                              ------------------  ------------------  ------------------  -----------------  ------------------
                               AVERAGE   AVERAGE   AVERAGE   AVERAGE   AVERAGE   AVERAGE   AVERAGE  AVERAGE   AVERAGE   AVERAGE
   YEAR ENDED DECEMBER 31      BALANCE     RATE    BALANCE    RATE     BALANCE    RATE     BALANCE   RATE     BALANCE    RATE
-------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>      <C>        <C>      <C>        <C>      <C>       <C>      <C>        <C>
INTEREST-BEARING:
MONEY MARKET ACCOUNTS.......  $ 16,494    1.03%   $ 19,073    1.92%   $ 29,390    3.76%   $ 20,710   3.55%   $ 19,466    3.12%
NOW ACCOUNTS................    38,600    0.90      38,125    1.37      29,099    1.75      25,569   2.37      24,671    2.45
SAVINGS ACCOUNTS............   127,975    1.03     108,137    1.88      79,616    2.25      73,171   2.52      67,920    2.38
TIME DEPOSITS LESS THAN $100   185,873    3.88     185,508    4.44     185,015    5.47     175,522   5.66     181,164    5.42
TIME DEPOSITS $100 OR MORE..    27,755    3.30      27,861    3.79      32,075    5.03      32,302   5.98      22,710    5.69
                              --------            --------            --------            --------           --------
  TOTAL INTEREST-BEARING....   396,697    2.51%    378,704    3.23%    355,195    4.26%    327,274   4.60%    315,931    4.41%
NONINTEREST-BEARING.........    56,743              49,441              42,235              37,953             36,757
                              --------            --------            --------            --------           --------
  TOTAL DEPOSITS............  $453,440            $428,145            $397,430            $365,227           $352,688
                              ========            ========            ========            ========           ========
</TABLE>

Total average deposits grew $25.3 million or 5.9 percent to $453.4 million in
2003, from $428.1 million in 2002. Noninterest-bearing deposits averaged $7.3
million or 14.8 percent higher in 2003, while average interest-bearing accounts
grew $18.0 million or 4.8 percent. As previously mentioned, the growth in
interest-bearing accounts reflected customer preference for liquidity. Average
savings accounts increased $19.9 million or 18.4 percent, as deposits having
stated maturities, average time deposits less than $100 and time deposits $100
or more, exhibited only marginal growth of $0.2 million. Average money market
accounts declined $2.6 million, while average NOW accounts increased $0.5
million. A significant portion of money market accounts and NOW accounts are
comprised of deposits of local area school districts and municipal
organizations. The change in these accounts is reflective of changes in
investment preferences for these depositors.

Funding costs for the banking industry continued to decline in 2003. After
declining 131 basis points in 2002, the cost of funds, as a percentage of
average earning assets, for FDIC-insured commercial banks fell another 57 basis
points to 1.52 percent in 2003 from 2.09 percent in 2002. Pennsylvania banks
reported a similar reduction in their cost of funds. The cost of deposits for
these institutions fell 51 basis points to 1.57 percent in 2003 from 2.08
percent in 2002.

We regularly monitor interest rates of local competitors and prevailing market
rates when establishing interest rates on our deposit products. Deposit rates
for banks within our market area continued to decline over the course of the
year. Excess liquidity, coupled with the FOMC easing monetary policy another 25
basis points factored into the decline. The average cost of a six-month,
12-month and 60-month certificate of deposit for community banks in our market
area was 1.64 percent, 2.03 percent and

                                      101

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3.80 percent at January 1, 2003. In response to the 25 basis point reduction in
the federal funds target rate, banks once again lowered certificate of deposit
rates. By July 1, 2003, the average rates for a six-month and 12-month
certificate declined 36 basis points and 44 basis points to 1.28 percent and
1.59 percent. Average rates on longer-term certificates declined to an even
greater extent, as evidenced by a 52 basis point decrease in the 60-month
certificate to 3.28 percent. By year-end, the yield curve for U.S. Treasuries
had steepened and competition picked up for longer-term certificates. The
average rate for a 60-month certificate edged up 5 basis points to 3.33 percent
at December 31, 2003. However, average rates for short-term certificates
continued their decent. The average rate for a six-month certificate declined
another 11 basis points to 1.17 percent and the average rate for the 12-month
certificate declined 17 basis points to 1.42 percent.

We also experienced a significant reduction in our fund costs. Our cost of
deposits decreased 72 basis points to 2.51 percent in 2003, from 3.23 percent in
2002. The decline in fund costs occurred gradually throughout the first three
quarters before leveling off in the fourth quarter. Our average deposit costs
declined 13 basis points and 19 basis points in the first and second quarters.
In the third quarter, subsequent to the FOMC easing of interest rates, we
experienced a slightly greater reduction of 25 basis points in our cost of
deposits. In the fourth quarter, although our cost of funds declined another 6
basis points, the magnitude was not as dramatic, indicating funding costs may
have reached a plateau. Our deposit costs could decline further in the near
term, however we do not expect to see as great a reduction as evidenced in the
past two years. Should economic conditions and the stock market continue to
recover, competition for deposits could escalate and the FOMC may begin raising
interest rates, which would negatively impact our cost of funds.

Volatile deposits, time deposits $100 or more, increased $4.6 million to $29.1
million at December 31, 2003, from $24.5 million at the end of 2002. Large
denomination certificates of deposit are typically short-term, high cost funds.
However, the growth we experienced was related entirely to personal accounts, as
individuals took advantage of our attractive long-term certificate of deposit
rates. Large denomination time deposits averaged $27.8 million in 2003 and $27.9
million in 2002. Our average cost of these funds declined 49 basis points to
3.30 percent in 2003, from 3.79 percent in 2002. Despite the growth in personal
accounts with longer-term maturities, this type of funding is very volatile and
therefore, not considered to be a strong source of funding. We continued to be
less reliant on this type of funding as compared to our peer group in 2003. Our
ratio of average volatile deposits, as a percentage of average total assets,
equaled 5.5 percent in 2003, compared to 11.5 percent for our peer group.

                                      102

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Maturities of time deposits $100 or more for the past five years are summarized
as follows:

MATURITY DISTRIBUTION OF TIME DEPOSITS $100 OR MORE

<TABLE>
<CAPTION>
                     DECEMBER 31                             2003       2002       2001       2000       1999
--------------------------------------------------------------------------------------------------------------
<S>                                                        <C>        <C>        <C>        <C>        <C>
Within three months......................................  $ 4,414    $ 3,020    $10,720    $17,281    $ 3,752
After three months but within six months.................    4,845      3,333      4,648      3,357      5,240
After six months but within twelve months................    3,861      8,230     11,619      5,761      5,411
After twelve months......................................   15,969      9,961      4,823      7,327      8,850
                                                           -------    -------    -------    -------    -------
  Total..................................................  $29,089    $24,544    $31,810    $33,726    $23,253
                                                           =======    =======    =======    =======    =======
</TABLE>

In addition to deposit gathering, we have in place a secondary source of
liquidity to fund operations through exercising existing credit arrangements
with the FHLB-Pgh. We had only minimal reliance on this type of funding in 2003
and 2002. For a further discussion of our borrowings and their terms refer to
the note entitled, "Short-term borrowings," in the Notes to Consolidated
Financial Statements to this Annual Report.

MARKET RISK SENSITIVITY:

Market risk is the risk to our earnings or financial position resulting from
adverse changes in market rates or prices, such as interest rates, foreign
exchange rates or equity prices. Our exposure to market risk is primarily IRR
associated with our lending, investing and deposit-gathering activities. During
the normal course of business, we are not exposed to foreign exchange risk or
commodity price risk. Our exposure to IRR can be explained as the potential for
change in our reported earnings and/or the market value of our net worth.
Variations in interest rates affect earnings by changing net interest income and
the level of other interest-sensitive income and operating expenses. Interest
rate changes also affect the underlying economic value of our assets,
liabilities and off-balance sheet items. These changes arise because the present
value of future cash flows, and often the cash flows themselves, change with
interest rates. The effects of the changes in these present values reflect the
change in our underlying economic value, and provide a basis for the expected
change in future earnings related to interest rates. IRR is inherent in the role
of banks as financial intermediaries. However, a bank with a high degree of IRR
may experience lower earnings, impaired liquidity and capital positions, and
most likely, a greater risk of insolvency. Therefore, banks must carefully
evaluate IRR to promote safety and soundness in their activities.

Bank regulations require us to develop and maintain an IRR management program,
overseen by the Board of Directors and senior management, that

                                      103

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

involves a comprehensive risk management process in order to effectively
identify, measure, monitor and control risk. Should we have material weaknesses
in our risk management process or high exposure relative to its capital, bank
regulatory agencies will take action to remedy these shortcomings. Moreover, the
level of IRR exposure and the quality of our risk management process is a
determining factor when evaluating capital adequacy.

The Asset/Liability Committee ("ALCO"), comprised of members of our Board of
Directors, senior management and other appropriate officers, oversees our IRR
management program. Specifically, ALCO analyzes economic data and market
interest rate trends, as well as competitive pressures, and utilizes several
computerized modeling techniques to reveal potential exposure to IRR. This
allows us to monitor and attempt to control the influence these factors may have
on our rate sensitive assets ("RSA") and rate sensitive liabilities ("RSL"), and
overall operating results and financial position.

We utilize the tabular presentation alternative in complying with quantitative
and qualitative disclosure rules. Information with respect to maturities and
fair values of our financial instruments at December 31, 2003, is summarized as
follows. For expected maturity distributions, the financial assets and
liabilities are presented based on their carrying values, except for investment
securities, which are based on amortized costs. Investment distributions and
their related weighted-average interest rates are based on contractual
maturities, with the exception of mortgage-backed securities and equity
securities. Mortgage-backed securities are presented based upon estimated
principal cash flows and related weighted-average interest rates, assuming no
change in the current interest rate environment. The amount of, and
weighted-average interest rate earned on equity securities, are included in the
"Thereafter" maturity category. Loans and their related weighted-average
interest rates are categorized based on payment due dates, assuming no change in
current interest rates. For noninterest-bearing deposits, money market, NOW and
savings accounts that have no contractual maturity, principal cash flows and
related weighted-average interest rates are presented based on our historical
experience, judgment and statistical analysis, as applicable, concerning their
most likely withdrawal behaviors. The table also presents distributions and
related weighted-average interest rates for time deposits based on contractual
maturities assuming no change in current interest rates. The weighted-average
yields of tax-exempt securities and loans have been computed on a tax-equivalent
basis using the prevailing statutory tax rate of 34.0 percent. For additional
information on the assumptions used to determine fair values, refer to the note
entitled, "Summary of significant accounting policies-Fair value of financial
instruments," in the Notes to Consolidated Financial Statements to this Annual
Report.

                                      104

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

MARKET RISK DISCLOSURES

<TABLE>
<CAPTION>
                                                                  EXPECTED MATURITY DATE
                                    ---------------------------------------------------------------------------------
                                                                                        THERE-                  FAIR
                                       2004      2005      2006      2007      2008      AFTER      TOTAL      VALUE
                                    ---------------------------------------------------------------------------------
<S>                                 <C>        <C>       <C>       <C>       <C>       <C>        <C>        <C>
Financial assets:
Cash and due from banks...........  $ 17,099                                                      $ 17,099   $ 17,099
Average interest rate.............
Federal funds sold................    11,500                                                        11,500     11,500
Average interest rate.............      1.00%                                                         1.00%
Investment securities:
U.S. Treasuries and agencies......     4,039   $ 8,016   $ 4,258                                    16,313     16,377
Average interest rate.............      2.21%     1.90%     2.19%                                     2.05%
State and municipals:
Taxable...........................               2,733     4,004   $ 5,333   $ 5,282                17,352     17,051
Average interest rate.............                1.55%     2.60%     2.75%     2.77%                 2.53%
Tax-exempt........................       340       660        55        60             $ 30,847     31,962     34,788
Average interest rate.............      4.04%     2.21%     4.85%     5.39%                7.68%      7.52%
Mortgage-backed securities........    13,075     9,304     6,818     3,311     1,582        508     34,598     35,099
Average interest rate.............      4.94%     4.18%     5.15%     3.23%     3.83%      6.83%      4.59%
Equity securities.................                                                        1,821      1,821      1,933
Average interest rate.............                                                         2.18%      2.18%
                                    --------   -------   -------   -------   -------   --------   --------   --------
  Total...........................    17,454    20,713    15,135     8,704     6,864     33,176    102,046    105,248
  Average interest rate...........      4.29%     2.89%     3.64%     2.95%     3.01%      7.37%      4.71%
Loans held for sale, net..........     3,205                                                         3,205      3,253
Average interest rate.............      5.97%                                                         5.97%
Net loans:
Fixed-rate........................    38,271    22,067    18,638    15,384    12,132     55,390    161,882    162,223
Average interest rate.............      6.22%     7.33%     7.17%     7.04%     7.21%      7.45%      7.05%
Adjustable-rate...................    39,257     2,923     2,867     3,496     3,157    140,774    192,474    193,595
Average interest rate.............      4.90%     5.83%     5.43%     5.48%     5.32%      5.54%      5.41%
                                    --------   -------   -------   -------   -------   --------   --------   --------
  Total...........................    77,528    24,990    21,505    18,880    15,289    196,164    354,356    355,818
  Average interest rate...........      5.55%     7.15%     6.94%     6.75%     6.82%      6.08%      6.16%
Accrued interest receivable.......     2,229                                                         2,229      2,229
Average interest rate.............
                                    --------   -------   -------   -------   -------   --------   --------   --------
  Total...........................  $129,015   $45,703   $36,640   $27,584   $22,153   $229,340   $490,435   $495,147
                                    ========   =======   =======   =======   =======   ========   ========   ========

Financial liabilities:
Noninterest-bearing deposits......  $ 12,415   $11,233   $10,050   $ 8,868   $ 7,685   $  8,868   $ 59,119   $ 59,119
Average interest rate.............
Interest-bearing liabilities:
Money market, NOW and savings.....    39,965    36,159    32,354    28,547    24,741     28,546    190,312    190,312
Average interest rate.............      0.75%     0.75%     0.75%     0.75%     0.75%      0.75%      0.75%
Time deposits.....................    69,548    43,821    27,265    36,326    17,106     15,969    210,035    216,895
Average interest rate.............      1.89%     4.51%     4.32%     4.81%     4.05%      4.66%      3.64%
                                    --------   -------   -------   -------   -------   --------   --------   --------
  Total...........................   109,513    79,980    59,619    64,873    41,847     44,515    400,347    407,207
  Average interest rate...........      1.47%     2.81%     2.38%     3.02%     2.10%      2.15%      2.27%
Accrued interest payable..........     1,143                                                         1,143      1,143
Average interest rate.............
                                    --------   -------   -------   -------   -------   --------   --------   --------
  Total...........................  $123,071   $91,213   $69,669   $73,741   $49,532   $ 53,383   $460,609   $467,469
                                    ========   =======   =======   =======   =======   ========   ========   ========
</TABLE>

At December 31, 2003, total interest-earning assets scheduled to mature within
one year totaled $109.7 million with a weighted-average tax-equivalent yield of
4.88 percent. Total interest-bearing liabilities scheduled to mature within one
year equaled $109.5 million with a weighted-

                                      105

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

average cost of 1.47 percent. Interest-earning assets scheduled to mature within
one year were primarily comprised of investment securities having an amortized
cost of $17.5 million and a weighted-average tax-equivalent yield of 4.29
percent and net loans of $77.5 million with a weighted-average tax-equivalent
yield of 5.55 percent. In addition, there were $11.5 million in federal funds
sold and $3.2 million in loans held for sale with weighted-average yields of
1.00 percent and 5.97 percent at the end of 2003. With regard to
interest-bearing liabilities, based on historical withdrawal patterns,
interest-bearing transaction accounts, defined as money market, NOW and savings
accounts, of $40.0 million with a weighted-average cost of 0.75 percent were
anticipated to mature within one year. In addition, time deposits totaling $69.5
million with a weighted-average cost of 1.89 percent were scheduled to mature
within the same time frame.

Limitations of the market risk disclosure model include, among others,
magnitude, timing and frequency of interest rate changes of other financial
assets and liabilities. Historical withdrawal patterns with respect to
interest-bearing and noninterest-bearing transaction accounts are not
necessarily indicative of future performance. In addition, loan information is
presented based on payment due dates, which may materially differ from actual
results. Both historical withdrawal patterns and loan payment information may be
affected by changes in interest rates, sociological conditions, demographics and
economic climate.

Maturity distributions and fair values are primarily based on contractual
maturities or payment due dates and do not consider repricing frequencies for
adjustable-rate assets and liabilities. The table does not include maturity
distribution and fair value information on certain assets and liabilities which
are not considered financial, and does not anticipate future business activity.
Actual results will, more likely than not, differ from results presented in the
table.

                                      106

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Additionally, we supplement the market risk disclosure model through simulation
analysis utilizing interest rate shocks. The model analyzes the effects
instantaneous parallel shifts of plus or minus 100 basis points will have on the
economic values of other financial instruments. The results of the model at
December 31, 2003, are summarized as follows:

CHANGES IN FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

<TABLE>
<CAPTION>
                                                                    FAIR VALUE
                                                          ------------------------------
                DECEMBER 31, 2003                         +100 BPS     LEVEL    -100 BPS
----------------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>
Other financial assets:
Cash and due from banks.................................  $ 17,099   $ 17,099   $ 17,099
Federal funds sold......................................    11,500     11,500     11,500
Investment securities...................................   102,412    105,248    107,691
Loans held for sale, net................................     3,253      3,253      3,253
Net loans...............................................   350,403    355,818    361,425
Accrued interest receivable.............................     2,229      2,229      2,229
                                                          --------   --------   --------
  Total.................................................  $486,896   $495,147   $503,197
                                                          ========   ========   ========

Other financial liabilities:
Noninterest-bearing deposits............................  $ 59,119   $ 59,119   $ 59,119
Money market, NOW and savings accounts..................   190,312    190,312    190,312
Time deposits...........................................   212,292    216,895    221,722
Accrued interest payable................................     1,143      1,143      1,143
                                                          --------   --------   --------
  Total.................................................  $462,866   $467,469   $472,296
                                                          ========   ========   ========
</TABLE>

We also utilize a gap analysis model that considers repricing frequencies of RSA
and RSL in addition to maturity distributions in order to monitor IRR. Gap
analysis attempts to measure our interest rate exposure by calculating the net
amount of RSA and RSL that reprice within specific time intervals. A positive
gap occurs when the amount of RSA repricing in a specific period is greater than
the amount of RSL repricing within that same time frame and is indicated by a
RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL
repricing is greater than the amount of RSA and is indicated by a RSA/RSL ratio
less than 1.0. A positive gap implies that earnings will be impacted favorably
if interest rates rise and adversely if interest rates fall during the period. A
negative gap tends to indicate that earnings will be affected inversely to
interest rate changes.

Our interest rate sensitivity gap position, illustrating RSA and RSL at their
related carrying values, is summarized as follows. The distributions in the
table are based on a combination of maturities, call provisions, repricing
frequencies and prepayment patterns. Adjustable-rate assets and liabilities are
distributed based on the repricing frequency of the

                                      107

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

instrument. Mortgage instruments are distributed in accordance with estimated
cash flows, assuming there is no change in the current interest rate
environment.

INTEREST RATE SENSITIVITY

<TABLE>
<CAPTION>
                                                       DUE AFTER        DUE AFTER
                                                      THREE MONTHS       ONE YEAR
                                       DUE WITHIN      BUT WITHIN       BUT WITHIN        DUE AFTER
         DECEMBER 31, 2003            THREE MONTHS   TWELVE MONTHS      FIVE YEARS       FIVE YEARS       TOTAL
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>                <C>              <C>            <C>
Rate-sensitive assets:
Investment securities...............    $  3,725        $ 13,938         $ 51,464          $36,121      $105,248
Loans held for sale, net............       3,205                                                           3,205
Loans, net of unearned income.......      99,652          48,228          154,050           56,010       357,940
Federal funds sold..................      11,500                                                          11,500
                                        --------        --------         --------          -------      --------
  Total.............................    $118,082        $ 62,166         $205,514          $92,131      $477,893
                                        ========        ========         ========          =======      ========

Rate-sensitive liabilities:
Money market accounts...............                    $ 17,369                                        $ 17,369
NOW accounts........................                      43,352                                          43,352
Savings accounts....................                                     $129,591                        129,591
Time deposits less than $100........    $ 20,763          37,789          108,984          $13,410       180,946
Time deposits $100 or more..........       4,414           8,706           13,410            2,559        29,089
                                        --------        --------         --------          -------      --------
  Total.............................    $ 25,177        $107,216         $251,985          $15,969      $400,347
                                        ========        ========         ========          =======      ========

Rate-sensitivity gap:
  Period............................    $ 92,905        $(45,050)        $(46,471)         $76,162
  Cumulative........................    $ 92,905        $ 47,855         $  1,384          $77,546      $ 77,546

RSA/RSL ratio:
  Period............................        4.69            0.58             0.82             5.77
  Cumulative........................        4.69            1.36             1.00             1.19          1.19
</TABLE>

At December 31, 2003 and 2002, we had cumulative one-year RSA/RSL ratios of 1.36
and 1.11. As previously mentioned, this indicated that if interest rates
increase our earnings would likely be favorably impacted. Given the current low
interest rate environment, ALCO focused on maintaining this advantageous
position by monitoring and making certain the gap position between RSA and RSL
remained positive. Specifically, we predominantly offer commercial loans with
adjustable-rate terms that either reprice immediately or within one year. In
addition, we continued to offer promotional rates on our longer-term
certificates of deposit in an attempt to extend the average maturities of these
types of funds. Should interest rates increase, a greater amount of RSA would
reprice upward in the near term and at a faster pace than RSL, thereby
positively affecting net interest income. However, these forward-looking
statements are qualified in the aforementioned section entitled "Forward-Looking
Discussion" in this Management's Discussion and Analysis.

                                      108

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In comparison to the end of 2002, the change in our ratio resulted from an $8.4
million or 4.9 percent increase in RSA coupled with a $22.0 million or 14.3
percent decrease in RSL maturing or repricing within one year. The increase in
RSA primarily resulted from a $34.0 million increase in loans, net of unearned
income, partially offset by a $26.0 million reduction in investment securities.
The reduction in RSL was primarily caused by a $26.3 million decrease in total
time deposits maturing or repricing within this time frame, partially offset by
a $4.8 million increase in NOW accounts. Moreover, the amount of total time
deposits maturing or repricing within the "Due after one year but within five
years" category increased $16.4 million or 15.4 percent and those maturing or
repricing after five years rose $11.4 million or 250.9 percent.

Static gap analysis, although a credible measuring tool, does not fully
illustrate the impact of interest rate changes on future earnings. First, market
rate changes normally do not equally or simultaneously affect all categories of
assets and liabilities. Second, assets and liabilities that can contractually
reprice within the same period may not do so at the same time or to the same
magnitude. Third, the interest rate sensitivity table presents a one-day
position, variations occur daily as we adjust our rate sensitivity throughout
the year. Finally, assumptions must be made in constructing such a table. For
example, the conservative nature of our Asset/Liability Management Policy
assigns money market and NOW accounts to the "Due after three months but within
twelve months" repricing interval. In reality, these items may reprice less
frequently and in different magnitudes than changes in general market interest
rate levels.

As the static gap report fails to address the dynamic changes in the balance
sheet composition or prevailing interest rates, we utilize a simulation model to
enhance our asset/liability management. This model is used to create pro forma
net interest income scenarios under various interest rate shocks. Given
instantaneous and parallel shifts in general market rates of plus 100 basis
points, our projected net interest income for the 12 months ended December 31,
2004, would increase 4.9 percent from model results using current interest
rates. Based on the historically low interest rate environment, we chose not to
create a pro forma net interest income scenario given an instantaneous and
parallel shift in general market rates of minus 100 basis points as the results
of this model would not be meaningful. We will continue to monitor our IRR
position in 2004 and employ deposit and loan pricing strategies and direct the
reinvestment of loan and investment payments and prepayments in order to
maintain our favorable IRR position.

                                      109

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Financial institutions are affected differently by inflation than commercial and
industrial companies that have significant investments in fixed assets and
inventories. Most of our assets are monetary in nature and change
correspondingly with variations in the inflation rate. It is difficult to
precisely measure the impact inflation has on us, however, we believe that our
exposure to inflation can be mitigated through asset/liability management.

LIQUIDITY:

Liquidity management is essential to our continuing operations as it gives us
the ability to meet our financial obligations as they come due, as well as to
take advantage of new business opportunities as they arise. Our financial
obligations include, but are not limited to, the following:

          -    Funding new and existing loan commitments;

          -    Payment of deposits on demand or at their contractual maturity;

          -    Repayment of borrowings as they mature;

          -    Payment of lease obligations; and

          -    Payment of operating expenses.

Historically, core deposits have been our primary source of liquidity. Deposits
are an attractive source of liquidity because of their stability and lower cost,
in general, than other types of funding. Providing additional sources of funds
are loan and investment payments and prepayments and the ability to sell both
available-for-sale securities and mortgage loans held for sale. As a final
source of liquidity, we can exercise existing credit arrangements with the
FHLB-Pgh. We manage liquidity daily, thus enabling us to effectively monitor
fluctuations in our position and to adapt our position according to market
fluctuations and balance sheet trends. We believe our liquidity is adequate to
meet both present and future financial obligations and commitments on a timely
basis.

                                      110

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Information concerning our future contractual obligations by payment due dates
at December 31, 2003, is summarized as follows. Contractual obligations for
deposit accounts do not include accrued interest. Payments for deposits without
a contractual maturity, noninterest-bearing deposits and money market, NOW and
savings accounts, are based on our historical experience, judgement and
statistical analysis, as applicable, concerning their most likely withdrawal
behaviors. Operating lease contractual payments include the effects of
escalation clauses that provide for inflation adjustments to the rental
payments.

MATURITY DISTRIBUTION OF CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                        AFTER ONE   AFTER THREE
                                          DUE WITHIN   BUT WITHIN   BUT WITHIN     AFTER
           DECEMBER 31, 2003               ONE YEAR    THREE YEARS  FIVE YEARS   FIVE YEARS      TOTAL
--------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>          <C>          <C>
Deposits without a contractual maturity   $   52,380   $   89,796   $   69,841   $   37,414   $  249,431
Time deposits less than $100 ..........       56,428       63,450       47,658       13,410      180,946
Time deposits $100 or more ............       13,120        7,636        5,774        2,559       29,089
Operating leases ......................          209          353          349          854        1,765
                                          ----------   ----------   ----------   ----------   ----------
  Total ...............................   $  122,137   $  161,235   $  123,622   $   54,237   $  461,231
                                          ==========   ==========   ==========   ==========   ==========
</TABLE>

We employ a number of analytical techniques in assessing the adequacy of our
liquidity position. One such technique is the use of ratio analysis related to
our reliance on noncore funds, time deposits in denominations of $100 or more
and borrowings from the FHLB-Pgh, to fund our investments and loans maturing
after 2004. At December 31, 2003, our noncore funds consisted of only large
denomination time deposits, as we had no outstanding borrowings from the
FHLB-Pgh. Large denomination time deposits are not considered to be a strong
source of liquidity since they are very interest rate sensitive and are
considered to be highly volatile. At December 31, 2003, our net noncore funding
dependence ratio, the difference between noncore funds and short-term
investments to long-term assets, was negative 0.02 percent. Similarly, our net
short-term noncore funding dependence ratio, noncore funds maturing within one
year, less short-term investments to long-term assets equaled negative 3.72
percent at the end of 2003. Negative ratios indicated that at December 31, 2003,
we did not use noncore funds to fund our long-term assets. In comparison, our
peer group, with net noncore and net short-term noncore funding dependence
ratios of 19.0 percent and 8.6 percent, relied on noncore funds as a source of
liquidity. We believe that by maintaining adequate volumes of short-term
investments and implementing competitive pricing strategies on deposits, we can
ensure adequate liquidity to support future growth.

The Consolidated Statements of Cash Flows present the change in cash and cash
equivalents from operating, investing and financing activities. Cash and cash
equivalents consist of cash on hand, cash items in the process of

                                      111

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

collection, noninterest-bearing deposits with other banks, balances with the
Federal Reserve Bank of Philadelphia and the FHLB-Pgh and federal funds sold.
Cash and cash equivalents increased $7.2 million to $28.6 million at December
31, 2003, from $21.4 million at the end of 2002. From the end of 2001 to
year-end 2002, cash and cash equivalents increased $7.5 million. In both 2003
and 2002, the increases in cash and cash equivalents primarily resulted from net
cash provided by financing activities and, to a lesser extent, operating
activities, partially offset by net cash used in investing activities.

Deposit gathering is our predominant financing activity, as it provided us with
net cash of $22.3 million in 2003 and $21.0 million in 2002. In 2002,
transaction accounts increased $30.4 million, while time deposits declined $9.4
million as depositors, unsure of the economy, interest rates and the stock
market, chose to keep their funds liquid. In 2003, we experienced an increase in
both transaction accounts and time deposits of $20.7 million and $1.6 million.
Another source of funds generated by financing activities is proceeds received
from issuance of common stock as part of our dividend reinvestment plan ("DRP").
Our uses of cash categorized as financing activities include those to repurchase
and retire shares of our common stock and pay dividends to stockholders.

Operating activities provided net cash of $8.7 million in 2003 and $5.6 million
in 2002. Net income, adjusted for the effects of noncash transactions such as
depreciation and the provision for loan losses, and net changes in current
assets, is the primary source of funds from operations.

Our primary investing activities involve transactions related to our investment
securities and lending activities. Net cash outlays for investing activities
totaled $20.7 million in 2003 compared to $16.5 million in 2002. We experienced
an increase in loan demand as evidenced by net funds used in lending activities
of $35.3 million in 2003, an increase of $21.3 million compared to the $14.0
million used in lending activities in 2002. With regard to our investment
portfolio, we received cash from the sale of investment securities of $19.0
million in 2003 and $15.1 million in 2002. Due to declining market rates, we
experienced an increase in cash received from repayments of investment
securities, as the volume of prepayments on mortgage-backed securities amounted
to $60.0 million in 2003 compared to $34.5 million in 2002. Cash outlays for the
purchase of investment securities totaled $62.8 million and $51.2 million in
2003 and 2002.

                                      112

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Recently, our liquidity position, as well as that of the banking industry in
general, has been favorably affected by economic conditions. Our customers,
concerned about employment conditions and the stock market, have not only
increased savings, but sought out the safety of bank deposit accounts to invest
their funds. As economic conditions strengthen and the stock market rebounds,
bank liquidity could be hindered should consumers withdraw savings and reinvest
in the stock market. We, however, cannot predict or guarantee movements in the
stock market, changes in economic conditions or investment preferences of
consumers. Regardless of changes in the economy or stock market, we believe that
through constant monitoring and adherence to our liquidity plan, we will have
the means to provide adequate cash to fund our normal operations in 2004.

CAPITAL ADEQUACY:

We believe a strong capital position is essential to our continued growth and
profitability. A solid capital base provides depositors and stockholders with a
margin of safety, while allowing us to take advantage of profitable
opportunities, support future growth and provide protection against any
unforeseen losses.

Our ALCO continually reviews our capital position. As part of its review, the
ALCO considers:

          -    The current and expected capital requirements, including the
               maintenance of capital ratios in excess of minimum regulatory
               guidelines;

          -    The market value of our securities and the resulting effect on
               capital;

          -    Any planned asset growth;

          -    The anticipated level of net earnings and capital position,
               taking into account the projected asset/liability position and
               exposure to changes in interest rates; and

          -    The source and timing of additional funds to fulfill future
               capital requirements.

Stockholders' equity increased $1.2 million to $46.5 million at December 31,
2003, from $45.3 million at December 31, 2002. On a per share basis,
stockholders' equity equaled $24.41 per share and $23.31 per share for these
respective periods. Net income of $4.7 million was the primary factor
contributing to the capital improvement. Also affecting stockholders'

                                      113

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

equity were common stock repurchases of $1.6 million, net cash dividends
declared of $1.4 million and a net unrealized loss on investment securities of
$0.5 million.

We periodically purchase shares of our common stock under a Board-approved stock
repurchase program. Under this program, we repurchased and retired 44,788 shares
for $1.6 million in 2003, 37,933 shares for $1.2 million in 2002 and 16,229
shares for $0.5 million in 2001. At December 31, 2003, 3,021 shares authorized
under the program were available to be repurchased. We plan to buyback the
available shares in 2004, if upon analysis, such repurchases meet our targeted
internal rate of return and after-tax return on investment.

We declared dividends of $1,687 or $0.88 per share in 2003 and $1,603 or $0.82
per share in 2002. Our dividend payout ratio was 35.9 percent and 30.8 percent
in 2003 and 2002. It is the intention of our Board of Directors to continue to
pay cash dividends in the future. However, these decisions are based on our
operating results, financial and economic conditions, capital and growth
objectives, appropriate dividend restrictions and other relevant factors. The
primary source of funds for payment of dividends has been the dividends received
from our subsidiary, Community Bank. Community Bank's ability to pay dividends
is subject to federal and state regulations. Accordingly, Community Bank,
without prior regulatory approval, may declare dividends to us totaling $7,834
at December 31, 2003.

Stockholders may automatically reinvest their dividends in shares of our common
stock through our DRP. The DRP not only provides stockholders with a convenient
means to invest in our common stock without brokerage commissions, but also
furnishes us with additional funds for general corporate purposes. During the
years ended December 31, 2003 and 2002, 6,547 shares and 6,161 shares were
issued under this plan.

Bank regulatory agencies consider capital to be a significant factor in ensuring
the safety of a depositor's accounts. These agencies, in light of past bank
failures, adopted minimum capital adequacy requirements that include mandatory
and discretionary supervisory actions for noncompliance. For a further
discussion of these risk-based capital standards and supervisory actions for
noncompliance, refer to the note entitled, "Regulatory matters," in the Notes to
Consolidated Financial Statements to this Annual Report.

                                      114

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Our and Community Bank's capital ratios at December 31, 2003 and 2002, as well
as the required minimum ratios for capital adequacy purposes and to be well
capitalized under the prompt corrective action provisions as defined by the
Federal Deposit Insurance Corporation Improvement Act of 1991, are summarized as
follows:

REGULATORY CAPITAL

<TABLE>
<CAPTION>
                                                                                           MINIMUM TO BE WELL
                                                                                            CAPITALIZED UNDER
                                                                   MINIMUM FOR CAPITAL      PROMPT CORRECTIVE
                                                  ACTUAL            ADEQUACY PURPOSES       ACTION PROVISIONS
                                           ------------------------------------------------------------------
               DECEMBER 31                   2003       2002        2003         2002        2003       2002
-------------------------------------------------------------------------------------------------------------
<S>                                        <C>        <C>         <C>          <C>         <C>        <C>
Basis for ratios:
Tier I capital to risk-weighted assets:
  Consolidated...........................  $ 43,466   $ 41,544    $15,384      $13,730
  Community Bank.........................    42,113     39,809     15,361       13,706     $23,042    $20,559
Total capital to risk-weighted assets:
  Consolidated...........................    47,050     45,289     30,769       27,459
  Community Bank.........................    45,697     43,554     30,723       27,412      38,403     34,265
Tier I capital to total average assets
 less intangible assets:
  Consolidated...........................    43,466     41,544     20,076       18,950
  Community Bank.........................    42,113     39,809    $20,049      $18,910     $25,061    $23,637

Risk-weighted assets:
  Consolidated...........................   357,240    315,360
  Community Bank.........................   356,667    314,764
Risk-weighted off-balance sheet items:
  Consolidated...........................    27,367     27,882
  Community Bank.........................    27,367     27,882
Average assets for Leverage ratio:
  Consolidated...........................   501,900    473,746
  Community Bank.........................  $501,220   $472,744

Ratios:
Tier I capital as a percentage of risk-
 weighted assets and off-balance sheet
 items:
  Consolidated...........................      11.3%      12.1%       4.0%         4.0%
  Community Bank.........................      11.0       11.6        4.0          4.0         6.0%       6.0%
Total of Tier I and Tier II capital as a
 percentage of risk-weighted assets and
 off-balance sheet items:
  Consolidated...........................      12.2       13.2        8.0          8.0
  Community Bank.........................      11.9       12.7        8.0          8.0        10.0       10.0
Tier I capital as a percentage of total
 average assets less intangible assets:
  Consolidated...........................       8.7        8.8        4.0          4.0
  Community Bank.........................       8.4%       8.4%       4.0%         4.0%        5.0%       5.0%
</TABLE>

We and Community Bank have consistently maintained regulatory capital ratios
well above the minimum levels of 4.0 percent and 8.0 percent required for
adequately capitalized institutions. Our risk-based capital ratios declined
slightly in 2003 from 2002 but remain strong. Risk-weighted

                                      115

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

assets and off-balance sheet items increased to a greater extent than both Tier
I and total capital. Specifically, total risk-weighted assets and off-balance
sheet items rose $41.4 million or 12.1 percent, while Tier I capital increased
$1.9 million or 4.6 percent and total capital grew $1.8 million or 3.9 percent.
The ratio of Tier I capital to risk-weighted assets was 11.3 percent and 12.1
percent at December 31, 2003 and 2002, and our total capital to risk-weighted
assets ratio was 12.2 percent at year-end 2003, compared to 13.2 percent at the
end of 2002. Community Bank's Tier I risk-based and total risk-based capital
ratios also declined for reasons similar to those discussed for the consolidated
ratios. Our Leverage ratio equaled 8.7 percent and 8.8 percent at December 31,
2003 and 2002, while Community Bank's Leverage ratio remained stable at 8.4
percent. Similar to the Tier I risk-based and total risk-based capital ratios,
the Leverage ratio for us and Community Bank well exceeded the minimum of 4.0
percent for capital adequacy purposes. Based on the most recent notification
from the FDIC, Community Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action at December 31, 2003 and 2002.
There are no conditions or events since this notification that we believe have
changed Community Bank's category.

REVIEW OF FINANCIAL PERFORMANCE:

Net income totaled $4.7 million or $2.45 per share in 2003, compared to $5.2
million or $2.65 per share in 2002. Tighter net interest margins, reductions in
the gain on the sale of investment securities and higher levels of noninterest
expenses all contributed to the decline in net income. The effect these factors
had on net income was partially offset by not being required to make a similar
addition in 2003, as was the case in 2002, to the loan loss reserve through a
special provision. ROAA and ROAE were 0.93 percent and 10.23 percent in 2003,
compared to 1.10 percent and 11.99 percent in 2002. In addition, a rise in
market rates impacted the value of our available-for-sale investment securities.
As a result, we experienced a loss in other comprehensive income, net of income
tax benefits, of $0.5 million in 2003. In comparison, we reported other
comprehensive income, net of income tax expense, of $1.9 million in 2002.

Tax-equivalent net interest income decreased $0.3 million or 1.9 percent in
2003. A decline in tax-equivalent interest revenue of $2.6 million overshadowed
a $2.3 million reduction in interest expense. Unfavorable changes in the net
spread between earning assets and interest-bearing liabilities more than offset
the favorable influence gained by growing earning assets faster than
interest-bearing liabilities in 2003. Our net interest margin was 3.80 percent
in 2003 and 4.09 percent in 2002.

                                      116

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Total noninterest income fell 2.7 percent comparing 2003 and 2002. Reductions in
gains recognized on the sale of investment securities and, to a lesser extent,
income earned on service charges, fees and commissions, outweighed the positive
influence from an increase in the gains recognized on the sale of loans.
Noninterest expense increased 7.1 percent in 2003, primarily resulting from
higher costs associated with employee-related and net occupancy and equipment
expenses. These increases, coupled with the reduction in net interest income and
noninterest income, negatively impacted our productivity. The operating
efficiency ratio, defined as noninterest expense divided by net interest income
and noninterest income, is a key industry ratio that measures productivity. Our
operating efficiency ratio weakened to 69.4 percent in 2003, from 63.8 percent
in 2002. Another measure of productivity is the overhead ratio, noninterest
expense as a percentage of average total assets, which also weakened to 2.9
percent in 2003 from 2.8 percent in 2002.

NET INTEREST INCOME:

Net interest income is still the fundamental source of earnings for commercial
banks. Moreover, fluctuations in the level of noninterest income can have the
greatest impact on net profits. Net interest income is defined as the difference
between interest revenue, interest and fees earned on interest-earning assets,
and interest expense, the cost of interest-bearing liabilities supporting those
assets. The primary sources of earning assets are loans and investment
securities, while interest-bearing deposits, short-term borrowings and long-term
debt, comprise interest-bearing liabilities. Net interest income is impacted by:

          -    Variations in the volume, rate and composition of earning assets
               and interest-bearing liabilities;

          -    Changes in general market interest rates; and

          -    The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net
interest margin. Net interest spread, the difference between the average yield
earned on earning assets and the average rate incurred on interest-bearing
liabilities, illustrates the effects changing interest rates have on
profitability. Net interest margin, net interest income as a percentage of
earning assets, is a more comprehensive ratio, as it reflects not only the
spread, but also the change in the composition of interest-earning assets and
interest-bearing liabilities. Tax-exempt loans and investments carry pretax
yields lower than their taxable counterparts. Therefore, in order to make the
analysis of net interest income more comparable, tax-exempt income and yields
are reported on a tax-equivalent basis using the prevailing statutory tax rate
of 34.0 percent.

                                      117

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The banking industry felt the effects of the sustained low interest rate
environment, as the net interest margin for all FDIC-insured commercial banks
compressed 27 basis points to 3.82 percent in 2003 from 4.09 percent in 2002.
The yield on earning assets for these institutions fell 84 basis points to 5.34
percent in 2003 from 6.18 percent last year. However, funding costs, already at
historic lows, could not react to the same magnitude. The cost of funding
earning assets decreased 57 basis points to 1.52 percent in 2003 from 2.09
percent in 2002. For Pennsylvania banks, margin compression was just as severe.
For these banks, the yield on earning assets fell 77 basis points in 2003, while
their cost of funds, as a percentage of average earning assets, fell 51 basis
points. As a result, their average net interest margin compressed 26 basis
points to 3.44 percent in 2003 from 3.70 percent in 2002. Similar to all
FDIC-insured banks and insured Pennsylvania banks, banks in our peer group
reported lower net interest margins in 2003. This group's tax-equivalent net
interest margin decreased 25 basis points to 4.07 percent in 2003 from 4.32
percent in 2002.

Similar to all banks, we consider the maintenance of an adequate net interest
margin to be of primary concern. The current economic environment has the
potential to pose problems for all banks. If economic growth does not increase,
given low inflation and possible deflationary conditions, the FOMC may lower
interest rates further. Rate-sensitive loans, tied to prime, will once again
reprice downward. However, deposit rates, already near acceptable minimums, may
have less room to reprice downward, which may consequently cause margins to
compress. No assurance can be given as to how general market conditions will
change or how such changes will affect net interest income. Therefore, we
believe through prudent deposit-pricing practices and careful investing and
conservative loan pricing, our net interest margin will remain strong.

                                      118

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

We analyze interest income and interest expense by segregating rate and volume
components of earning assets and interest-bearing liabilities. The impact
changes in the interest rates earned and paid on assets and liabilities, along
with changes in the volumes of earning assets and interest-bearing liabilities
have on net interest income are summarized as follows. The net change,
attributable to the combined impact of rate and volume, has been allocated
proportionately to the change due to rate and the change due to volume.

NET INTEREST INCOME CHANGES DUE TO RATE AND VOLUME

<TABLE>
<CAPTION>
                                                             2003 VS. 2002                  2002 VS. 2001
                                                      ---------------------------    --------------------------
                                                           INCREASE (DECREASE)            INCREASE (DECREASE)
                                                             ATTRIBUTABLE TO                ATTRIBUTABLE TO
                                                      ---------------------------    --------------------------
                                                        TOTAL                          TOTAL
                                                       CHANGE      RATE   VOLUME      CHANGE     RATE    VOLUME
                                                       ------      ----   ------      ------     ----    ------
<S>                                                   <C>       <C>       <C>        <C>       <C>       <C>
Interest income:
Loans:
  Taxable...........................................  $  (583)  $(2,014)  $1,431     $(1,582)  $(2,646)  $1,064
  Tax-exempt........................................      138      (386)     524         330      (103)     433
Investments:
  Taxable...........................................   (1,518)   (1,891)     373         (67)     (486)     419
  Tax-exempt........................................     (453)      (19)    (434)        186       (20)     206
Federal funds sold..................................     (168)      (96)     (72)       (419)     (468)      49
                                                      -------   -------   ------     -------   -------   ------
    Total interest income...........................   (2,584)   (4,406)   1,822      (1,552)   (3,723)   2,171
                                                      -------   -------   ------     -------   -------   ------

Interest expense:
Money market accounts...............................     (197)     (152)     (45)       (738)     (612)    (126)
NOW accounts........................................     (176)     (183)       7          14      (125)     139
Savings accounts....................................     (708)   (1,032)     324         240      (474)     714
Time deposits less than $100........................   (1,028)   (1,044)      16      (1,872)   (2,149)     277
Time deposits $100 or more..........................     (138)     (134)      (4)       (558)     (452)    (106)
Short-term borrowings...............................        3        (1)       4
Long-term debt......................................                                      (1)                (1)
                                                      -------   -------   ------     -------   -------   ------
    Total interest expense..........................   (2,244)   (2,546)     302      (2,915)   (3,812)     897
                                                      -------   -------   ------     -------   -------   ------
    Net interest income.............................  $  (340)  $(1,860)  $1,520     $ 1,363   $    89   $1,274
                                                      =======   =======   ======     =======   =======   ======
</TABLE>

For the year ended December 31, 2003, tax-equivalent net interest income
decreased $340 to $18,054 from $18,394 for the same period of 2002. The
reduction resulted from a decline in the net interest spread, partially offset
by growth in earning assets over that of interest-bearing liabilities.

Due to the sustained low interest rate environment, earning asset yields
declined to a greater extent than the cost of interest-bearing liabilities. This
resulted in a 20 basis point reduction in the net interest spread to 3.38
percent in 2003 from 3.58 percent in 2002, and accounted for a $1,860 decrease
in tax-equivalent net interest income due to changes in rate. The tax-equivalent
yield on earning assets compressed 92 basis points to 5.89

                                      119

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

percent in 2003 from 6.81 percent in 2002, which resulted in a $4,406 reduction
in tax-equivalent interest revenue. Accounting for 88.6 percent of this
reduction were decreases of 63 basis points in the yield on taxable loans and
239 basis points in the yield on taxable investments. These yield declines
reduced interest revenue by $2,014 and $1,891. The cost of interest-bearing
liabilities declined 72 basis points to 2.51 percent in 2003 from 3.23 percent
in 2002 and resulted in a $2,546 reduction in interest expense. Reductions of 85
basis points and 56 basis points in the cost of our savings accounts and time
deposits less than $100 accounted for 81.5 percent of the decrease in interest
expense. The cost of savings accounts fell to 1.03 percent in 2003 compared to
1.88 percent in 2002 and the cost of time deposits less than $100 dropped to
3.88 percent from 4.44 percent. These cost reductions caused interest expense to
decline $1,032 and $1,044.

Average earning assets grew $25.7 million or 5.7 percent in 2003 to $475.4
million from $449.7 million in 2002. This resulted in additional interest
revenue of $1,822. Interest-bearing liabilities averaged $397.0 million in 2003,
an increase of $18.3 million or 4.8 percent compared to $378.7 million in 2002,
and caused an increase in interest expense of $302. With regard to growth in
average earning assets, taxable and tax-exempt loans grew $19.9 million and $8.5
million, which together resulted in additional interest revenue of $1,955.
Taxable investments averaged $8.4 million higher, however, tax-exempt
investments decreased $5.8 million. As a result of changes in the volume of
investments, interest revenue was reduced by $61. The change in average
interest-bearing liabilities was primarily caused by the $19.9 million growth in
savings accounts, which resulted in additional interest expense of $324.
Overall, the change in volumes resulted in additional tax-equivalent net
interest income of $1,520, which partially mitigated the effect of the decline
in spread.

The average balances of assets and liabilities, corresponding interest income
and expense and resulting average yields or rates paid are summarized as
follows. Averages for earning assets include nonaccrual loans. Investment
averages include available-for-sale securities at amortized cost. Income on
investment securities and loans are adjusted to a tax-equivalent basis using the
prevailing statutory tax rate of 34.0 percent.

                                      120

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SUMMARY OF NET INTEREST INCOME

<TABLE>
<CAPTION>
                                                            2003                             2002
                                                ----------------------------    ------------------------------
                                                          INTEREST   AVERAGE              INTEREST     AVERAGE
                                                 AVERAGE   INCOME/  INTEREST     AVERAGE   INCOME/    INTEREST
                                                 BALANCE   EXPENSE    RATE       BALANCE   EXPENSE      RATE
                                                 -------   -------    ----       -------   -------      ----
<S>                                             <C>       <C>       <C>         <C>       <C>         <C>
ASSETS:
Earning assets:
Loans:
  Taxable.....................................  $324,705   $22,228    6.85%     $304,849   $22,811      7.48%
  Tax-exempt..................................    21,853     1,181    5.40        13,386     1,043      7.79
Investments:
  Taxable.....................................    80,520     2,034    2.53        72,155     3,552      4.92
  Tax-exempt..................................    32,240     2,403    7.45        38,060     2,856      7.50
Federal funds sold............................    16,116       180    1.12        21,241       348      1.64
                                                --------   -------              --------   -------
    Total earning assets......................   475,434    28,026    5.89%      449,691    30,610      6.81%
Less: allowance for loan losses...............     3,732                           3,488
Other assets..................................    31,160                          28,748
                                                --------                        --------
    Total assets..............................  $502,862                        $474,951
                                                ========                        ========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts.........................  $ 16,494       170    1.03%     $ 19,073       367      1.92%
NOW accounts..................................    38,600       348    0.90        38,125       524      1.37
Savings accounts..............................   127,975     1,322    1.03       108,137     2,030      1.88
Time deposits less than $100..................   185,873     7,212    3.88       185,508     8,240      4.44
Time deposits $100 or more....................    27,755       917    3.30        27,861     1,055      3.79
Short-term borrowings.........................       265         3    1.13             8                2.00
Long-term debt................................
                                                --------   -------              --------   -------
    Total interest-bearing liabilities........   396,962     9,972    2.51%      378,712    12,216      3.23%
Noninterest-bearing deposits..................    56,743                          49,441
Other liabilities.............................     3,207                           3,435
Stockholders' equity..........................    45,950                          43,363
                                                --------                        --------
    Total liabilities and stockholders' equity  $502,862                        $474,951
                                                ========   -------              ========   -------
    Net interest/income spread................             $18,054    3.38%                $18,394      3.58%
                                                           =======                         =======
    Net interest margin.......................                        3.80%                             4.09%
Tax-equivalent adjustments:
Loans.........................................             $   401                         $   355
Investments...................................                 817                             971
                                                           -------                         -------
    Total adjustments.........................             $ 1,218                         $ 1,326
                                                           =======                         =======
</TABLE>

Note: Average balances were calculated using average daily balances. Average
balances for loans include nonaccrual loans. Interest income on taxable loans
includes fees of $1,030 in 2003, $812 in 2002, $673 in 2001, $445 in 2000 and
$551 in 1999. Available-for-sale securities, included in investment securities,
are stated at amortized cost with the related average unrealized holding gains
of $3,367 in 2003, $2,614 in 2002, $1,337 in 2001 and $689 in 1999, and an
average unrealized holding loss of $810 in 2000 included in other assets.
Tax-equivalent adjustments were calculated using the prevailing statutory tax
rate of 34.0 percent.

                                      121

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SUMMARY OF NET INTEREST INCOME (CONTINUED)

<TABLE>
<CAPTION>
            2001                                    2000                                    1999
------------------------------         ------------------------------         ------------------------------
          INTEREST     AVERAGE                   INTEREST     AVERAGE                   INTEREST     AVERAGE
 AVERAGE   INCOME/    INTEREST          AVERAGE   INCOME/    INTEREST          AVERAGE   INCOME/    INTEREST
 BALANCE   EXPENSE      RATE            BALANCE   EXPENSE      RATE            BALANCE   EXPENSE      RATE
 -------   -------      ----            -------   -------      ----            -------   -------      ----
<C>       <C>         <C>              <C>       <C>         <C>              <C>       <C>           <C>
$291,514   $24,393      8.37%          $278,931   $23,562      8.45%          $249,789   $20,879      8.36%
   8,179       713      8.72             10,228       977      9.55              8,381       634      7.56

  64,172     3,619      5.64             60,810     3,567      5.87             76,500     4,463      5.83
  35,490     2,670      7.52             31,915     2,492      7.81             35,956     2,863      7.96
  18,451       767      4.16              2,679       164      6.12              3,282       162      4.94
--------   -------                     --------   -------                     --------   -------
 417,806    32,162      7.70%           384,563    30,762      8.00%           373,908    29,001      7.76%
   3,426                                  3,492                                  3,997
  26,323                                 25,797                                 26,293
--------                               --------                               --------
$440,703                               $406,868                               $396,204
========                               ========                               ========

$ 29,390     1,105      3.76%          $ 20,710       735      3.55%          $ 19,466       608      3.12%
  29,099       510      1.75             25,569       606      2.37             24,671       605      2.45
  79,616     1,790      2.25             73,171     1,846      2.52             67,920     1,618      2.38
 185,015    10,112      5.47            175,522     9,942      5.66            181,164     9,822      5.42
  32,075     1,613      5.03             32,302     1,931      5.98             22,710     1,293      5.69
       5                5.00              2,374       150      6.32              1,393        73      5.24
       6         1      7.50                 37         2      7.50                 40         3      7.50
--------   -------                     --------   -------                     --------   -------
 355,206    15,131      4.26%           329,685    15,212      4.61%           317,364    14,022      4.42%
  42,235                                 37,953                                 36,757
   3,504                                  3,402                                  3,810
  39,758                                 35,828                                 38,273
--------                               --------                               --------
$440,703                               $406,868                               $396,204
========   -------                     ========   -------                     ========   -------
           $17,031      3.44%                     $15,550      3.39%                     $14,979      3.34%
           =======                                =======                                =======
                        4.08%                                  4.04%                                  4.01%

           $   242                                $   332                                $   215
               908                                    847                                    974
           -------                                -------                                -------
           $ 1,150                                $ 1,179                                $ 1,189
           =======                                =======                                =======
</TABLE>

                                      122

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

PROVISION FOR LOAN LOSSES:

As previously mentioned, asset quality problems that plagued the banking
industry in recent years, subsided in 2003. For all FDIC-insured commercial
banks, nonperforming assets after increasing 10.2 percent in 2002 and 27.9
percent in 2001, decreased 12.6 percent in 2003. As a percentage of total
assets, nonperforming assets, improved to 0.77 percent at December 31, 2003,
from 0.94 percent at the end of 2002. In addition, net charge-off levels
decreased 15.0 percent. As a result, banks cutback on their provision for loan
losses $13.4 billion or 27.9 percent in 2003. Pennsylvania banks also
experienced an improvement in asset quality as evidenced by a 21.2 percent
reduction in nonperforming asset levels. In addition, the amount of loans
charged-off improved 32.1 percent, and as a result, Pennsylvania banks reduced
their provision for loan losses by 51.5 percent.

We evaluate the adequacy of the allowance for loan losses account on a quarterly
basis utilizing our systematic analysis in accordance with procedural
discipline. We take into consideration certain factors such as composition of
the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs,
prevailing economic conditions and other relevant factors when determining the
adequacy of the allowance for loan losses account. We make monthly provisions to
the allowance for loan losses account in order to maintain the allowance at the
appropriate level indicated by our evaluations. Based on our most recent
evaluation at December 31, 2003, we believe that the allowance was adequate to
absorb any known or potential losses in our portfolio.

The provision for loan losses equaled $480 in 2003, a decrease of $620 compared
to $1,100 in 2002. In 2002, we were required by regulators to recognize an
additional $500 to the allowance for loan losses account. The regulators arrived
at this amount by applying the estimated average industry loss experience
factors defined in the December 21, 1993, FFIEC Interagency Policy Statement.
These factors differed from the factors we applied, which are based on our
average actual historical loss experience for the latest eight quarters. No such
addition to the allowance for loan losses account was required in 2003.

NONINTEREST INCOME:

Similar to 2002, the composite of all FDIC-insured banks experienced strong
growth in noninterest income in 2003. Much of the growth was concentrated in
larger commercial institutions. For all FDIC-insured commercial banks,
noninterest income increased $13.9 billion or 8.0 percent in 2003.

                                      123

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Conversely, noninterest income for insured Pennsylvania banks declined for the
second year in a row, as noninterest income for these banks declined $214.1
million or 4.3 percent in 2003.

Noninterest income totaled $4,034 in 2003 and $4,145 in 2002. Net gains on the
sale of residential mortgages increased $293 or 31.9 percent to $1,212 for the
year ended December 31, 2003. Service charges, fees and commissions decreased
$95 or 3.3 percent compared to the previous year. Net gains on the sale of
investment securities were $13 in 2003 and $322 in 2002.

Fee-based revenue growth is important to improving profitability, as it lessens
reliance on traditional, spread-based income. Our ratio of noninterest income,
not including gains on the sale of investments, as a percentage of average total
assets, remained constant at 0.80 percent in 2003 and 2002. In comparison, this
ratio for our peer group was 1.14 percent in 2003 and 0.93 percent in 2002.

We continuously try to develop new sources of fee income. As previously
mentioned, we formed and became a 40.0 percent member in Community Abstract,
which offers title insurance and abstract services to residential mortgage
customers. Community Abstract which became operational in May, generated fee
income of $28 in 2003.

NONINTEREST EXPENSE:

Bank productivity weakened slightly in 2003 as evidenced by an increase in the
efficiency ratio for all FDIC-insured commercial banks to 56.5 percent in 2003
from 55.7 percent in 2002. For these institutions, noninterest expense increased
$12.4 billion or 5.3 percent. Insured Pennsylvania banks also experienced a
slight increase in noninterest expense. For these banks, noninterest expense, as
a percentage of average earning assets, rose to 4.2 percent in 2003 compared to
4.1 percent in 2002.

In general, noninterest expense is categorized into three main groups including
employee-related expenses, occupancy and equipment expenses and other expenses.
Employee-related expenses are costs associated with providing salaries,
including payroll taxes, and benefits to our employees. Occupancy and equipment
expenses, the costs related to the maintenance of facilities and equipment,
include depreciation, general maintenance and repairs, real estate taxes, rental
expense offset by any rental income and utility costs. Other expenses include
general operating expenses such as advertising, contractual services, insurance,
including FDIC assessment, other taxes and supplies. Several of these costs and
expenses are variable while the remainder are fixed. We utilize budgets and
other related strategies in an effort to control the variable expenses.

                                      124

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Noninterest expense increased $954 or 7.1 percent to $14,484 for the year ended
December 31, 2003, from $13,530 for the same period of 2002. We experienced
increases of $410 or 6.1 percent in salaries and employee benefits expenses,
$397 or 21.4 percent in net occupancy and equipment expense and $147 or 3.0
percent in other expenses.

The major components of noninterest expense for the past five years are
summarized as follows:

NONINTEREST EXPENSE

<TABLE>
<CAPTION>
                   YEAR ENDED DECEMBER 31                            2003     2002     2001     2000     1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>      <C>      <C>      <C>       <C>
Salaries and employee benefits expense:
Salaries and payroll taxes.......................................  $ 5,929  $ 5,623  $ 4,755  $ 4,419   $4,169
Employee benefits................................................    1,248    1,144      883      800      655
                                                                   -------  -------  -------  -------   ------
  Salaries and employee benefits expense.........................    7,177    6,767    5,638    5,219    4,824
                                                                   -------  -------  -------  -------   ------

Net occupancy and equipment expense:
Net occupancy expense............................................      991      836      766      781      610
Equipment expense................................................    1,259    1,017      914      911      735
                                                                   -------  -------  -------  -------   ------
  Net occupancy and equipment expense............................    2,250    1,853    1,680    1,692    1,345
                                                                   -------  -------  -------  -------   ------

Other expenses:
Marketing expense................................................      425      482      381      365      322
Other taxes......................................................      444      399      407      315      320
Stationery and supplies..........................................      385      465      389      406      431
Contractual services.............................................    1,579    1,494    1,320    1,183      916
Insurance, including FDIC assessment.............................      207      187      169      164      124
Other............................................................    2,017    1,883    1,886    1,725    1,147
                                                                   -------  -------  -------  -------   ------
  Other expenses.................................................    5,057    4,910    4,552    4,158    3,260
                                                                   -------  -------  -------  -------   ------
    Total noninterest expense....................................  $14,484  $13,530  $11,870  $11,069   $9,429
                                                                   =======  =======  =======  =======   ======
</TABLE>

Salaries and employee benefits expense constitutes the majority of our
noninterest expense. Total personnel costs rose $410 or 6.1 percent to $7,177 in
2003 from $6,767 in 2002. Additional staff and training required for the new
Tannersville office and personnel added in our Lending and Credit Administration
Divisions were responsible for a 5.4 percent increase in salaries and payroll
taxes. Employee health insurance premiums rose 22.4 percent in 2003 and
primarily caused the increase in employee benefits expense.

Net occupancy and equipment expense was $2,250 in 2003, an increase of $397 or
21.4 percent compared to $1,853 in 2002. Depreciation and maintenance costs
associated with the relocation of the Clifford office in January and the
installation of a document imaging system factored into the increase.

On December 9, 2003, we opened our 17th branch banking office in Tannersville,
Monroe County, Pennsylvania. This project had an aggregate cost of $1.5 million,
which was funded through normal operations. We

                                      125

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

anticipate an increase in occupancy and equipment expenses in 2004 due to the
opening of this branch.

For a discussion on recent SFASs issued by the FASB related to net occupancy and
equipment expense, refer to the note entitled, "Summary of significant
accounting policies-Premises and equipment, net," in the Notes to Consolidated
Financial Statements to this Annual Report.

Other expenses were impacted by higher contractual services relative to the
strong volume in originations of one-to-four family residential mortgages that
qualified for sale in the secondary market, and increased state shares tax.
Partially offsetting these higher costs were reductions in marketing costs,
stationery and supply costs and other real estate expense. Other expenses
amounted to $5,057 in 2003, an increase of $147 or 3.0 percent compared to
$4,910 in 2002.

Our deposits are insured by the FDIC and are subject to deposit insurance
assessments to maintain the Bank Insurance Fund ("BIF") administered by the
FDIC. The FDIC places each insured bank into one of nine risk categories based
on the bank's capitalization and supervisory evaluations provided to the FDIC by
the bank's primary federal regulator. An insured bank's assessment rate is then
determined by the risk category into which it is classified. Recently, the FDIC
decided to retain the existing BIF assessment schedules of $0.00 per 100 dollars
of deposits for banks classified in the highest capital and supervisory
evaluation category and $0.27 per 100 dollars of deposits for banks classified
in the lowest category. We were classified in the highest capital and
supervisory evaluation category at December 31, 2003, and will be exempt from
paying a BIF assessment for the first half of 2004.

There is a separate levy assessed on all FDIC-insured institutions to bear the
cost of Finance Corporation ("FICO") funding. The FDIC established the annual
FICO assessment rates effective for the fourth quarter of 2003 at $0.0152 and
first quarter of 2004 at $0.0154 per 100 dollars of BIF-assessable deposits. Our
FICO assessments were $70 and $72 for the years ended December 31, 2003 and
2002.

INCOME TAXES:

Our income tax expense decreased $177 to $1,206 for the year ended December 31,
2003, from $1,383 for the same period of 2002. Our effective tax rate improved
from 21.0 percent in 2002 to 20.4 percent in 2003. We utilize loans and
investments of tax-exempt organizations to mitigate our tax burden, as interest
revenue from these sources are not taxable by the

                                      126

<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

federal government. Tax-exempt interest revenue, as a percentage of total
interest revenue, equaled 8.8 percent in 2003 and 2002. Our effective tax rate
was more advantageous than that of our peer group's of 27.5 percent in 2003 from
24.3 percent in 2002. In addition to income on tax-exempt loans and investments,
we utilize investment tax credits available through our investment in an elderly
and low- to moderate-income residential housing program to mitigate our tax
burden. By utilizing these credits, we reduced our income tax expense by $80 in
2003 and 2002. Over the past ten years, we recognized aggregate tax credits from
our investment in this project of $895. However, these tax credits expired in
2003. We recently committed to an investment that qualifies for a one-time
Federal Historic Tax Credit. The anticipated tax credit available to us in 2004
for our investment in this project is $418. As a result, we expect our income
tax expense to decrease in 2004. Should we not be able to utilize the full
benefit in 2004 due to alternative minimum tax requirements, the remainder of
the tax credit can be carried back one year and/or carried forward 20 years.

The difference between the amount of income tax currently payable and the
provision for income tax expense reflected in the income statements arise from
temporary differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements, which result in deferred tax assets or liabilities. We perform
quarterly reviews on the tax criteria related to the recognition of deferred tax
assets. We decided not to establish a valuation reserve for the deferred tax
assets since it is likely that these assets will be realized through carry-back
to taxable income in prior years and by future reversals of existing taxable
temporary differences or, to a lesser extent, through future taxable income.

                                      127
<PAGE>

COMM BANCORP, INC.
INDEPENDENT AUDITORS' REPORT

Board of Directors
 and Stockholders
Comm Bancorp, Inc.
Clarks Summit, Pennsylvania

We have audited the accompanying consolidated balance sheets of Comm Bancorp,
Inc. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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 Comm Bancorp, Inc.
and subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

January 30, 2004

/s/ Kronick Kalada Berdy & Co.
--------------------------------
KRONICK KALADA BERDY & CO., P.C.
Kingston, Pennsylvania

                                      128
<PAGE>

COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                                              2003            2002            2001
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>             <C>
INTEREST INCOME:
Interest and fees on loans:
  Taxable ...................................................................    $    22,228     $    22,811     $    24,393
  Tax-exempt ................................................................            780             688             471
Interest and dividends on investment securities available-for-sale:

  Taxable ...................................................................          1,994           3,481           3,499
  Tax-exempt ................................................................          1,586           1,885           1,762
  Dividends .................................................................             40              71             120
Interest on federal funds sold ..............................................            180             348             767
                                                                                 -----------     -----------     -----------
    Total interest income ...................................................         26,808          29,284          31,012
                                                                                 -----------     -----------     -----------

INTEREST EXPENSE:
Interest on deposits ........................................................          9,969          12,216          15,130
Interest on short-term borrowings ...........................................              3
Interest on long-term debt ..................................................                                              1
                                                                                 -----------     -----------     -----------
    Total interest expense ..................................................          9,972          12,216          15,131
                                                                                 -----------     -----------     -----------
    Net interest income .....................................................         16,836          17,068          15,881
Provision for loan losses ...................................................            480           1,100             720
                                                                                 -----------     -----------     -----------
    Net interest income after provision for loan losses .....................         16,356          15,968          15,161
                                                                                 -----------     -----------     -----------

NONINTEREST INCOME:
Service charges, fees and commissions .......................................          2,809           2,904           2,479
Net gains on sale of loans ..................................................          1,212             919             356
Net gains on sale of investment securities available-for-sale ...............             13             322
                                                                                 -----------     -----------     -----------
    Total noninterest income ................................................          4,034           4,145           2,835
                                                                                 -----------     -----------     -----------

NONINTEREST EXPENSE:
Salaries and employee benefits expense ......................................          7,177           6,767           5,638
Net occupancy and equipment expense .........................................          2,250           1,853           1,680
Other expenses ..............................................................          5,057           4,910           4,552
                                                                                 -----------     -----------     -----------
    Total noninterest expense ...............................................         14,484          13,530          11,870
                                                                                 -----------     -----------     -----------
Income before income taxes ..................................................          5,906           6,583           6,126
Provision for income tax expense ............................................          1,206           1,383           1,426
                                                                                 -----------     -----------     -----------
    Net income ..............................................................          4,700           5,200           4,700
                                                                                 -----------     -----------     -----------

OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding gains (losses) on investment securities available-for-sale           (700)          3,245             372
Reclassification adjustment for gains included in net income ................            (13)           (322)
Income tax expense (benefit) related to other comprehensive income (loss) ...           (242)            994             126
                                                                                 -----------     -----------     -----------
    Other comprehensive income (loss), net of income taxes ..................           (471)          1,929             246
                                                                                 -----------     -----------     -----------
    Comprehensive income ....................................................    $     4,229     $     7,129     $     4,946
                                                                                 ===========     ===========     ===========

PER SHARE DATA:
Net income ..................................................................    $      2.45     $      2.65     $      2.37
Cash dividends declared .....................................................    $      0.88     $      0.82     $      0.74
Average common shares outstanding ...........................................      1,921,063       1,960,140       1,984,180
</TABLE>

See Notes to Consolidated Financial Statements.

                                      129
<PAGE>

COMM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31                                                                      2003        2002
---------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>
ASSETS:
Cash and due from banks ...................................................    $ 17,099    $ 10,883
Federal funds sold ........................................................      11,500      10,500
Investment securities available-for-sale ..................................     105,248     124,203
Loans held for sale, net ..................................................       3,205       3,916
Loans, net of unearned income .............................................     357,940     323,575
  Less: allowance for loan losses .........................................       3,584       3,745
                                                                               --------    --------
Net loans .................................................................     354,356     319,830
Premises and equipment, net ...............................................      12,484      11,861
Accrued interest receivable ...............................................       2,229       2,164
Other assets ..............................................................       3,331       3,061
                                                                               --------    --------
    Total assets ..........................................................    $509,452    $486,418
                                                                               ========    ========

LIABILITIES:
Deposits:
  Noninterest-bearing .....................................................    $ 59,119    $ 49,820
  Interest-bearing ........................................................     400,347     387,393
                                                                               --------    --------
    Total deposits ........................................................     459,466     437,213
Accrued interest payable ..................................................       1,143       1,358
Other liabilities .........................................................       2,302       2,514
                                                                               --------    --------
    Total liabilities .....................................................     462,911     441,085
                                                                               --------    --------

STOCKHOLDERS' EQUITY:
Common stock, par value $0.33, authorized 12,000,000 shares, issued and
outstanding:

 2003, 1,906,528 shares; 2002, 1,944,769 shares ...........................         629         642
Capital surplus ...........................................................       6,576       6,484
Retained earnings .........................................................      37,223      35,623
Accumulated other comprehensive income ....................................       2,113       2,584
                                                                               --------    --------
    Total stockholders' equity ............................................      46,541      45,333
                                                                               --------    --------
    Total liabilities and stockholders' equity ............................    $509,452    $486,418
                                                                               ========    ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      130
<PAGE>

COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       ACCUMULATED
                                                                                          OTHER         TOTAL
                                                        COMMON  CAPITAL RETAINED      COMPREHENSIVE  STOCKHOLDERS'
FOR THE THREE YEARS ENDED DECEMBER 31, 2003             STOCK   SURPLUS EARNINGS          INCOME        EQUITY
------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>     <C>     <C>           <C>            <C>
BALANCE, DECEMBER 31, 2000............................   $655   $6,244   $30,310          $  409        $37,618
Net income............................................                     4,700                          4,700
Dividends declared: $0.74 per share...................                    (1,468)                        (1,468)
Dividend reinvestment plan: 7,371 shares issued.......      2      201                                      203
Repurchase and retirement: 16,229 shares..............     (5)     (49)     (397)                          (451)
Net changes in other comprehensive income (loss)......                                       246            246
                                                         ----   ------   -------          ------        -------
BALANCE, DECEMBER 31, 2001............................    652    6,396    33,145             655         40,848
Net income............................................                     5,200                          5,200
Dividends declared: $0.82 per share...................                    (1,603)                        (1,603)
Dividend reinvestment plan: 6,161 shares issued.......      2      201                                      203
Repurchase and retirement: 37,933 shares..............    (12)    (113)   (1,119)                        (1,244)
Net changes in other comprehensive income (loss)......                                     1,929          1,929
                                                         ----   ------   -------          ------        -------
BALANCE, DECEMBER 31, 2002............................    642    6,484    35,623           2,584         45,333
Net income............................................                     4,700                          4,700
Dividends declared: $0.88 per share...................                    (1,687)                        (1,687)
Dividend reinvestment plan: 6,547 shares issued.......      2      227                                      229
Repurchase and retirement: 44,788 shares..............    (15)    (135)   (1,413)                        (1,563)
Net changes in other comprehensive income (loss)......                                      (471)          (471)
                                                         ----   ------   -------          ------        -------
BALANCE, DECEMBER 31, 2003............................   $629   $6,576   $37,223          $2,113        $46,541
                                                         ====   ======   =======          ======        =======
</TABLE>

See Notes to Consolidated Financial Statements.

                                      131
<PAGE>

COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                                              2003      2002      2001
--------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.....................................................................   $  4,700  $  5,200  $  4,700
Adjustments:
  Provision for loan losses....................................................        480     1,100       720
  Depreciation, amortization and accretion.....................................      3,534     2,292     2,079
  Amortization of loan fees....................................................       (168)     (138)     (117)
  Deferred income tax expense (benefit)........................................        154       (41)      157
  Gains on sale of investment securities available-for-sale....................        (13)     (322)
  Losses (gains) on foreclosed assets..........................................                 (174)       61
  Losses on disposition of equipment...........................................          5                   4
  Changes in:
    Loans held for sale, net...................................................        711    (2,031)   (1,823)
    Accrued interest receivable................................................        (65)      319      (469)
    Other assets...............................................................       (489)     (199)      (93)
    Accrued interest payable...................................................       (215)     (521)     (135)
    Other liabilities..........................................................         36        88       (43)
                                                                                  --------  --------  --------
      Net cash provided by operating activities................................      8,670     5,573     5,041
                                                                                  --------  --------  --------

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of investment securities available-for-sale.................     19,015    15,064
Proceeds from repayments of investment securities available-for-sale...........     59,972    34,499    25,173
Purchases of investment securities available-for-sale..........................    (62,828)  (51,224)  (74,647)
Proceeds from sale of foreclosed assets........................................        219     2,272       976
Net increase in lending activities.............................................    (35,278)  (14,010)  (14,924)
Purchases of premises and equipment............................................     (1,797)   (3,121)     (854)
                                                                                  --------  --------  --------
      Net cash used in investing activities....................................    (20,697)  (16,520)  (64,276)
                                                                                  --------  --------  --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Net changes in:

  Money market, NOW, savings and noninterest-bearing accounts..................     20,744    30,404    30,592
  Time deposits................................................................      1,509    (9,396)    6,892
Payments on long-term debt.....................................................                            (36)
Proceeds from the issuance of common shares....................................        229       203       203
Repurchase and retirement of common shares.....................................     (1,563)   (1,244)     (451)
Cash dividends paid............................................................     (1,676)   (1,571)   (1,450)
                                                                                  --------  --------  --------
      Net cash provided by financing activities................................     19,243    18,396    35,750
                                                                                  --------  --------  --------
      Net increase (decrease) in cash and cash equivalents.....................      7,216     7,449   (23,485)
      Cash and cash equivalents at beginning of year...........................     21,383    13,934    37,419
                                                                                  --------  --------  --------
      Cash and cash equivalents at end of year.................................   $ 28,599  $ 21,383  $ 13,934
                                                                                  ========  ========  ========

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
  Interest.....................................................................   $ 10,187  $ 12,737  $ 15,266
  Income taxes.................................................................      1,257     1,348     1,193
Noncash items:

  Transfers of loans to foreclosed assets......................................        440       320     1,464
  Unrealized losses (gains) on investment securities available-for-sale, net...   $    471  $ (1,929) $   (246)
</TABLE>

See Notes to Consolidated Financial Statements.

                                      132
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF OPERATIONS:

Comm Bancorp, Inc., a bank holding company incorporated under the laws of
Pennsylvania, provides a full range of financial services through its
wholly-owned subsidiaries: Community Bank and Trust Company ("Community Bank"),
including its subsidiaries, Community Leasing Corporation and Comm Financial
Services Corporation; and Comm Realty Corporation (collectively, the "Company").
The Company services its individual and commercial customers through 17
full-service branches located within the Lackawanna, Monroe, Susquehanna, Wayne
and Wyoming counties of Northeastern Pennsylvania.

Community Bank's primary product is loans to small- and medium-sized businesses.
Other lending products include one-to-four family residential mortgages and
consumer loans. Community Bank primarily funds its loans by offering
certificates of deposit to commercial enterprises and individuals. Other deposit
product offerings include various demand and savings accounts. In addition,
Community Bank provides fiduciary services through its Trust Division.

Community Leasing Corporation provides equipment lease financing to small- and
middle-market commercial customers. Comm Financial Services Corporation engages
in selling insurance products and services and in providing asset management
services to individuals and small- and medium-sized businesses. Comm Realty
Corporation holds, manages and sells foreclosed or distressed assets on behalf
of Community Bank.

On November 7, 2002, Community Bank received approval from the Pennsylvania
Department of Banking to form and become a 40.0 percent member in Community
Abstract Services, LLC. This limited liability company, which became fully
operational in the second quarter of 2003, offers title insurance and abstract
services to residential mortgage loan customers. Community Bank has significant
influence over the operating and financing decisions and accounts for this
investment using the equity method of accounting. The investment is included in
other assets with Community Bank's proportionate share of income or loss
included in noninterest income.

The Company faces competition primarily from commercial banks, thrift
institutions and credit unions within the Northeastern Pennsylvania market, many
of which are substantially larger in terms of assets and capital. In addition,
mutual funds and security brokers compete for various types of

                                      133
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

deposits, and consumer, mortgage, leasing and insurance companies compete for
various types of loans and leases. Principal methods of competing for banking
and permitted nonbanking services include price, nature of product, quality of
service and convenience of location.

The Company is subject to regulations of certain federal and state regulatory
agencies and undergoes periodic examinations.

BASIS OF PRESENTATION:

The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles ("GAAP"), Regulation
S-X, Item 302 of Regulation S-K and reporting practices applied in the banking
industry. All significant intercompany balances and transactions have been
eliminated in the consolidation. The Company also presents herein condensed
parent company only financial information regarding Comm Bancorp, Inc. ("Parent
Company"). Prior period amounts are reclassified when necessary to conform with
the current year's presentation.

VARIABLE INTEREST ENTITIES:

On January 17, 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
addresses consolidation by business enterprises of variable interest entities. A
revised version of Interpretation No. 46 was issued on December 24, 2003.
Interpretation No. 46 provides guidance on how to identify a variable interest
entity and determine when the assets, liabilities, noncontrolling interests and
results of operations of a variable interest entity are to be included in an
entity's consolidated financial statements. A variable interest entity exists
when either the total equity investment at risk is not sufficient to permit the
entity to finance its activities by itself, or the equity investors lack one of
the three characteristics associated with owning a controlling financial
interest. Those characteristics include: (i) the direct or indirect ability to
make decisions about an entity's activities through voting rights or similar
rights; (ii) the obligation to absorb the expected losses of an entity if they
occur; or (iii) the right to receive the expected residual returns of the entity
if they occur. The revisions to Interpretation No. 46 clarify some provisions.
Interpretation No. 46 is effective for all variable interest entities not
considered "special-purpose" for the first fiscal year or interim period
beginning after December 15, 2003. For entities that are considered
"special-purpose," Interpretation No. 46 is effective for the first reporting
period ending after December 15, 2003. The Company has no interests that meet
the criteria to be treated as a

                                      134
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

variable interest entity, therefore the adoption of this Interpretation is not
expected to have an effect on the operating results or financial position of the
Company.

SEGMENT DISCLOSURE:

Public companies are required by GAAP to report information about operating
segments in annual financial statements and to report selected information about
operating segments in interim financial reports issued to stockholders. GAAP
permits the aggregation of two or more operating segments into a single segment
if the segments have similar: (i) economic characteristics; (ii) products and
services; (iii) operating processes; (iv) customer bases; (v) delivery systems;
and (vi) regulatory oversight. The Company's 17 branch banking offices, all
similar with respect to these characteristics, have exhibited similar long-term
financial performance. Therefore, they were aggregated into a single operating
segment.

Community Leasing Corporation, Comm Financial Services Corporation and Comm
Realty Corporation did not meet the quantitative thresholds for required segment
disclosure under GAAP.

USE OF ESTIMATES:

The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions. These 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, as
well as the reported amounts of revenues and expenses during the reporting
periods. Significant estimates that are particularly susceptible to material
change in the next year relate to the allowance for loan losses, fair value of
financial instruments and the valuations of real estate acquired through
foreclosure and intangible assets. Actual results could differ from those
estimates.

Management maintains the allowance for loan losses at a level it believes
adequate to absorb probable credit losses related to specifically identified
loans, as well as probable incurred losses inherent in the remainder of the loan
portfolio as of the balance sheet dates. The balance in the allowance for loan
losses account is based on past events and current economic conditions. The
Company employs the Federal Financial Institutions Examination Council
Interagency Policy Statement on the

                                      135
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Allowance for Loan Losses as the primary analytical guidance in assessing the
adequacy of the allowance account. This Statement requires adherence to GAAP for
determining the adequacy of the allowance for loan losses account for both
financial and regulatory reporting purposes. Under GAAP, the adequacy of the
allowance account is determined based on the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," for loans specifically identified to be individually
evaluated for impairment, and the requirements of SFAS No. 5, "Accounting for
Contingencies," for large groups of smaller-balance homogeneous loans to be
collectively evaluated for impairment.

The allowance for loan losses account consists of an allocated element and an
unallocated element. The allocated element consists of a specific portion for
the impairment of loans individually evaluated under SFAS No. 114, and a formula
portion for the impairment of those loans collectively evaluated under SFAS No.
5.

Identified loans individually evaluated for impairment under SFAS No. 114
include: (i) loans to borrowers having an aggregate exposure of $500 or more;
(ii) loans that are past due 90 days or more; (iii) nonaccrual loans; (iv) any
loans internally classified as substandard, doubtful, loss or special mention;
(v) loans to officers and directors; and (vi) a random sample of loans with
balances between $250 and $500. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. All amounts due according to the contractual terms means that both
the contractual interest payments and the contractual principal payments of a
loan will be collected as scheduled in the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value
and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Loans considered impaired under SFAS No. 114 are
measured for impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of the
collateral if the loan is collateral dependent. If the present value of expected
future cash flows discounted at the loan's effective interest rate or the fair
value of the collateral, if

                                      136
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

the loan is collateral dependent, is less than the recorded investment in the
loan, including accrued interest and net deferred loan fees, the Company will
recognize the impairment by adjusting the allowance for loan losses account
through charges to earnings as a provision for loan losses.

For identified loans considered not impaired, management determines if these
loans share similar risk with those grouped and collectively evaluated for
impairment under SFAS No. 5.

Large groups of smaller-balance homogeneous loans and those identified loans
considered not impaired having similar characteristics as these groups are
segregated into major pools and are collectively evaluated, on a pool-by-pool
basis, for impairment under SFAS No. 5. Impairment for each of the major loan
pools is determined by applying a total loss factor to the current balance
outstanding for each individual pool. The total loss factor is comprised of a
historical loss factor using the loss migration method plus a qualitative
factor, which adjusts the historical loss factor for changes in trends,
conditions and other relevant factors that may affect repayment of the loans in
these pools as of the evaluation date. Loss migration involves determining the
percentage of each pool that is expected to ultimately result in loss based on
historical loss experience. The historical loss factor is based on the ratio of
net loans charged-off to loans, net of unearned income. These historical loss
percentages are updated quarterly and are based on the average actual amount of
loans in each pool that resulted in loss over the past eight quarters.
Management adjusts these historical loss factors by a qualitative factor that
represents a number of environmental risks that may cause estimated credit
losses associated with the current portfolio to differ from historical loss
experience. These environmental risks include: (i) changes in lending policies
and procedures including underwriting standards and collection, charge-off and
recovery policies; (ii) changes in the composition and volume of the portfolio;
(iii) changes in national, local and industry conditions; (iv) changes in the
volume of classified loans, including past due, nonaccrual, troubled debt
restructuring and other loan modifications; (v) changes in the levels of, and
trends in, charge-offs and recoveries; (vi) the existence and effect of any
concentrations of credit and changes in the level of such concentrations; (vii)
changes in the experience, ability and depth of lending management and other
relevant staff; (viii) changes in the quality of the loan review system and the
degree of oversight by the board of directors; and (ix) the effect of external
factors such as competition and legal and regulatory requirements.

                                      137
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Loans identified to be collectively evaluated for impairment are separated into
three major pools in order to determine applicable loss factors. These pools
include: (i) identified loans individually evaluated but considered not impaired
that share risk characteristics with other collectively evaluated loans having
an internal loan grading classification of substandard, special mention or
watch; (ii) identified loans individually evaluated but considered not impaired
that share risk characteristics with other collectively evaluated loans having
an internal loan grading classification of superior, satisfactory or marginal;
and (iii) identified loans to be collectively evaluated for impairment and not
having an internal loan grading classification. Specifically, management applies
loss factors to identified loans individually evaluated but considered not
impaired that share risk characteristics with other collectively evaluated loans
having an internal loan grading classification of substandard, special mention
or watch based on actual historical loss experience over the latest eight
quarters, adjusted for current environmental risks, for the Company's portfolio
of loans having these loan grading classifications. Loss factors applied to
identified loans individually evaluated but considered not impaired that share
risk characteristics with other collectively evaluated loans having an internal
loan grading classification of superior, satisfactory or marginal are based on
actual historical loss experience and current environmental factors for the
Company's portfolio of loans having these loan grading classifications. Loans
collectively evaluated under SFAS No. 5 and not internally classified are
applied a loss factor based on the actual historical loss experience and current
environmental conditions for the overall loan portfolio. The loss factors for
these pools are further defined for the major classifications of loans
including: (i) commercial, financial and others; (ii) real estate-construction;
(iii) real estate-mortgage; (iv) consumer; and (v) lease financing.

The unallocated element is used to cover inherent losses that exist as of the
evaluation date, but which have not been identified as part of the allocated
allowance using the above impairment evaluation methodology due to limitations
in the process. One such limitation is the imprecision of accurately estimating
the impact current economic conditions will have on historical loss rates.
Variations in the magnitude of impact may cause estimated credit losses
associated with the current portfolio to differ from historical loss experience,
resulting in an allowance that is higher or lower than the anticipated level.
Management establishes the unallocated element of the allowance by considering a
number of environmental risks similar to the ones used for determining the
qualitative factors. Management continually monitors trends in historical and
qualitative factors, including trends in the volume, composition and credit
quality of the portfolio. Management utilizes these trends to evaluate the
reasonableness of the unallocated element.

                                      138
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Management monitors the adequacy of the allocated portion of the allowance
quarterly and adjusts the allowance for any deficiencies through normal
operations. This self-correcting mechanism reduces potential differences between
estimates and actual observed losses. In addition, the unallocated portion of
the allowance is examined quarterly to ensure that it remains relatively
constant in relation to the total allowance unless there are changes in the
related criteria that would indicate a need to either increase or decrease it.
The determination of the allowance for loan loss level is inherently subjective
as it requires estimates that are susceptible to significant revision as more
information becomes available. Accordingly, management cannot ensure that
charge-offs in future periods will not exceed the allowance for loan losses or
that additional increases in the allowance for loan losses will not be required
resulting in an adverse impact on operating results.

As subsequently discussed in this note, in cases where quoted market prices are
not available, fair values of financial instruments are based on estimates using
present value or other valuation techniques which are subject to change.

Real estate acquired in connection with foreclosures or in satisfaction of loans
is written-down to the lower of the related loan balance or 80.0 percent of fair
market value for residential properties or 75.0 percent of fair market value for
commercial properties based upon estimates derived through independent
appraisals. However, proceeds realized from sales may ultimately be higher or
lower than those estimates.

Intangible assets include goodwill and a core deposit intangible. Goodwill is
evaluated, at least annually for impairment. Any impairment losses arising from
such testing are reported in the income statement in the current period as a
separate line item within operations. The core deposit's useful life is
evaluated each reporting period in order to determine if it should be adjusted.

INVESTMENT SECURITIES:

Investment securities are classified and accounted for as either
held-to-maturity, available-for-sale or trading based on management's intent at
the time of acquisition. Management is required to reassess the appropriateness
of the classifications at each reporting date. The Company does not buy or hold
securities principally for the purpose of selling them in the near term in order
to generate profits from market appreciation. Accordingly, there were no
investment securities classified as trading at December 31, 2003 and 2002.

                                      139
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

The Company classifies debt securities as held-to-maturity when management has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premium and accretion of discount. The Company did not have any investment
securities classified as held-to-maturity at December 31, 2003 and 2002.

Investment securities are designated as available-for-sale when they are to be
held for indefinite periods of time for the purpose of implementing management's
asset/liability strategies. The Company may also sell these securities in
response to changes in interest rates, prepayment risk, liquidity requirements
or other circumstances identified by management.

Available-for-sale securities are carried at estimated fair value with
unrealized gains and losses and their related income tax effect included in
other comprehensive income, which is reported as a separate component of
stockholders' equity, except for restricted equity investment securities of the
Federal Home Loan Bank of Pittsburgh ("FHLB-Pgh") and the Federal Reserve Bank
of Philadelphia ("FRB") which are carried at cost. Estimated fair values for
investment securities are based on quoted market prices from a national
electronic pricing service. Except for restricted equity investment securities,
all of the Company's investments trade actively in a liquid market.

Realized gains and losses are computed using the specific identification method
and are included in noninterest income. Premiums are amortized and discounts are
accreted over the contractual lives of investment securities using the interest
method, except for mortgage-backed securities, where amortization or accretion
is prorated based on principal repayments.

Management periodically evaluates each investment security to determine if a
decline in fair value below its amortized cost is other than temporary. If a
decline is judged to be other than temporary, the individual security is
written-down to fair value with the amount of the write-down included in
earnings.

On December 31, 2003, the Company adopted the FASB's Emerging Issues Task Force
("EITF") Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." EITF Issue No. 03-1 requires certain
quantitative and qualitative disclosures for debt and marketable-equity
securities classified as available-for-sale or held-to-maturity under SFAS No.
115 that are impaired as of the balance sheet date,

                                      140
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

but for which an other-than-temporary impairment has not been recognized.
Quantitative information required includes the total related fair value of
investments with unrealized losses and the total amount of these unrealized
losses by investment category. The quantitative information is segmented by
those investments that have been in a continuous unrealized loss position for
less than 12 months and those that have been in a continuous unrealized loss
position for 12 months or longer. Additional information, in narrative form, is
required to provide sufficient information to allow financial statement users to
understand the quantitative disclosures and the information that the investor
considered in reaching the conclusion that the impairments are not other than
temporary. Such information includes: (i) the nature of the investments; (ii)
the causes of the impairments; (iii) the number of investments that are in an
unrealized loss position; (iv) the severity and duration of the impairments; and
(v) other evidence considered by the investor in reaching a conclusion that the
investments are not other than temporarily impaired. The disclosures are
effective for fiscal years ending after December 15, 2003. The required
quantitative and qualitative disclosures for the Company's investments with
unrealized losses that have not been recognized as other-than-temporary
impairments are provided in Note 3. The adoption of EITF Issue No. 03-1 had no
effect on the operating results or financial position of the Company.

Transfers of securities between categories are recorded at fair value at the
date of the transfer. The accounting for the resulting unrealized gains or
losses is determined by the category into which the security is transferred.
There were no transfers of securities between categories during the years ended
December 31, 2003 and 2002.

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amended and
clarified accounting for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. Specifically, SFAS No. 149 clarified under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
and when a derivative contains a financing component that warrants special
reporting in the Statement of Cash Flows. In addition, the Statement amended
certain other existing pronouncements, which will result in more consistent
reporting of contracts that are derivatives in their entirety or contain
embedded derivatives that warrant separate accounting. SFAS No. 149 is effective
for contracts entered into or modified, and for hedging relationships designated
after June 30, 2003. The provisions that relate to SFAS No. 133 implementation
issues are

                                      141
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

required to be applied in accordance with their respective dates. The adoption
of the provisions of SFAS No. 149 did not, and is not expected to, have a
material effect on the operating results or financial position.

LOANS HELD FOR SALE, NET:

Loans held for sale consist of one-to-four family residential mortgages
originated and intended for sale in the secondary market. The loans are carried
in aggregate at the lower of cost or estimated market value, based upon current
delivery prices in the secondary mortgage market. Net unrealized losses are
recognized through a valuation allowance by corresponding charges to income.
Gains or losses on the sale of these loans are recognized in noninterest income
at the time of sale using the specific identification method. Loan origination
fees, net of certain direct loan origination costs, are included in net gains or
losses upon the sale of the related mortgage loan. All loans are sold without
recourse. The aggregate cost of these loans was lower than their estimated
market value at December 31, 2003 and 2002, accordingly, no valuation allowance
was deemed necessary.

LOANS:

Loans, including direct financing leases, are stated at outstanding principal
balances, net of unearned interest and deferred loan fees. Interest income is
accrued on the principal amount outstanding, except for certain scheduled
payment loans for which interest is accrued based on a predetermined
amortization schedule. Unearned interest on leases and installment loans is
recognized over the respective loan terms using the effective interest method.
Loan origination fees, net of certain direct loan origination costs, are
deferred and recognized over the contractual life of the related loan as an
adjustment to yield using the effective interest method. For direct financing
leases, any gain or loss realized upon disposal of equipment returned at the end
of the lease term is included in other income or expense.

On January 1, 2002, the Company adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants' ("AICPA")
Statement of Position ("SOP") 01-6, "Accounting by Certain Entities (Including
Entities With Trade Receivables) That Lend to or Finance the Activities of
Others." SOP 01-6 eliminated differences in accounting and disclosure
requirements established by the respective AICPA Audit and Accounting Guides,
"Banks and Savings Institutions," "Audits of Credit Unions," and "Audits of
Finance Companies," where such differences

                                      142
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

are not warranted. In addition, SOP 01-6 carried forward accounting guidance for
transactions unique to certain financial entities. SOP 01-6 applies to all
banks, savings institutions, credit unions and other entities subject to the
aforementioned AICPA Audit and Accounting Guides. The adoption of SOP 01-6 did
not have a material effect on the operating results or financial position of the
Company.

NONPERFORMING ASSETS:

Nonperforming assets consist of nonperforming loans and foreclosed assets.
Nonperforming loans include nonaccrual loans, restructured loans and accruing
loans past due 90 days or more. Generally, a loan is classified as nonaccrual
when it is determined that the collection of all or a portion of interest or
principal is doubtful or when a default of interest or principal has existed for
90 days or more, unless the loan is well secured and in the process of
collection. When a loan is placed on nonaccrual, interest accruals discontinue
and uncollected accrued interest is reversed against income in the current
period. Interest collections after a loan has been placed on nonaccrual status
are credited to a suspense account until either the loan is returned to
performing status or charged-off. The interest accumulated in the suspense
account is credited to income if the nonaccrual loan is returned to performing
status. However, if the nonaccrual loan is charged-off, the accumulated interest
is applied as a reduction to principal at the time the loan is charged-off. A
nonaccrual loan is returned to performing status when the loan is current as to
principal and interest and has performed according to the contractual terms for
a minimum of six months.

Restructured loans are loans with original terms, interest rate, or both, that
have been modified as a result of a deterioration in the borrower's financial
condition. Interest income on restructured loans is recognized when earned,
using the interest method. There were no restructured loans outstanding at
December 31, 2003 and 2002.

The Company recognizes interest income on impaired loans based on its policy for
nonaccrual, restructured or accruing loans depending on the status of the
impaired loan.

Foreclosed assets are comprised of properties acquired through foreclosure
proceedings or acceptance of a deed-in-lieu of foreclosure and loans classified
as in-substance foreclosures. The Company includes such properties in other
assets. A loan is classified as in-substance foreclosure when the Company has
taken possession of the collateral regardless of whether formal foreclosure
proceedings take place. Foreclosed assets are recorded at the lower of the
related loan balance or

                                      143
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

80.0 percent of its fair market value for residential properties or 75.0 percent
of its fair market value for commercial properties at the time of acquisition.
Any excess of the loan balance over the recorded value is charged to the
allowance for loan losses. Subsequent declines in the recorded values of the
properties prior to their disposal and costs to maintain the assets are included
in other expenses. No allowance for losses has been established subsequent to
the acquisition of foreclosed assets during the three years ended December 31,
2003. Any gain or loss realized upon disposal of foreclosed assets is included
in noninterest income or noninterest expense. The historical average holding
period for such properties is less than 12 months.

ALLOWANCE FOR LOAN LOSSES:

The allowance for loan losses account is established through charges to earnings
as a provision for loan losses. Loans, or portions of loans, determined to be
uncollectible are charged against the allowance account and subsequent
recoveries, if any, are credited to the account. Nonaccrual, restructured and
large delinquent commercial and real estate loans are reviewed monthly to
determine if carrying value reductions are warranted or if these classifications
should be changed. Consumer loans are considered losses when they are 120 days
past due, except those expected to be recovered through insurance or collateral
disposition proceeds.

Management evaluates the adequacy of the allowance for loan losses account
quarterly. Identified loans individually evaluated for impairment under SFAS No.
114 are reviewed to determine if impairment exists or if the level of impairment
has changed. Historical loss factors and qualitative factors are updated and
used to estimate the level of impairment for loans collectively evaluated under
SFAS No. 5. Based on these evaluations, the allowance for loan losses account is
adjusted for any deficiency through the provision for loan losses in the current
period.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:

In the ordinary course of business, the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under home equity and credit card arrangements and commercial
letters of credit. These financial instruments are recorded in the financial
statements when they are exercised. Fees on commercial letters of credit and on
unused, available lines of credit are recorded as service charges, fees and
commissions and are included in noninterest income when earned.

                                      144
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

PREMISES AND EQUIPMENT, NET:

Land is stated at cost. Premises, equipment and leasehold improvements are
stated at cost less accumulated depreciation. The cost of routine maintenance
and repairs is expensed as incurred. The cost of major replacements, renewals
and betterments is capitalized. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are eliminated and any
resulting gain or loss is reflected in noninterest income or noninterest
expense. Depreciation is computed principally using the straight-line method
based on the following useful lives:

Premises.............................  15-45 years
Equipment............................   3-10 years
Leasehold improvements...............     15 years

On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 amended SFAS No. 19, "Financial Accounting
and Reporting by Oil and Gas Producing Companies." SFAS No. 143 applies to all
entities and addresses financial accounting and reporting obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. It applies to the legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and normal operations of a long-lived asset, except for certain
obligations of lessees. The adoption of this Statement did not have a material
effect on the operating results or financial position of the Company.

MORTGAGE SERVICING RIGHTS:

Mortgage servicing rights are recognized as a separate asset when acquired
through sales of loan originations. The Company determines a mortgage servicing
right by allocating the total costs incurred between the loan sold and the
servicing right, based on their relative fair values at the date of the sale.
Mortgage servicing rights are included in other assets and are amortized into
noninterest income in proportion to, and over the period of, the estimated
future net servicing income of the underlying mortgage loans. In addition,
mortgage servicing rights are evaluated for impairment at each reporting date
based on the fair value of those rights. To determine the fair value, the
Company estimates the present value of future cash flows incorporating
assumptions such as cost of servicing, discount rates, prepayment speeds and
default rates. For purposes of measuring impairment, the rights are stratified
by loan type, term and

                                      145
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

interest rate. The amount of impairment recognized, through a valuation
allowance, is the amount by which the mortgage servicing rights for a stratum
exceed their fair value.

BUSINESS COMBINATIONS, INTANGIBLE ASSETS AND DISPOSAL ACTIVITIES:

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142, which superseded Accounting Principles
Bulletin ("APB") Opinion No. 17, "Intangible Assets," changed the accounting for
goodwill, including goodwill recorded from past business combinations, from an
amortization method to an impairment only approach. The Company includes
goodwill in other assets, and prior to the adoption of SFAS No. 142, amortized
goodwill on a straight-line basis over 15 years. Upon adoption of this
Statement, amortization of goodwill ceased and is now tested for impairment
annually or when circumstances arise indicating impairment has occurred. Any
impairment losses arising from such testing are reported in the income statement
as a separate line item within operations, except for such losses included in
the calculation of a gain or loss from discontinued operations. The adoption of
SFAS No. 142 affected the results of operations by eliminating the annual
amortization expense on goodwill of $218. There were no impairment losses
recognized upon the initial application of this Statement on January 1, 2002, or
as a result of periodic impairment testing in 2003 and 2002.

On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement replaced SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of business.
This Statement also amended Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 established
a single accounting model for long-lived assets to be disposed of by sale and
resolved significant implementation issues related to SFAS No. 121. The adoption
of this Statement did not have a material effect on the operating results or
financial position of the Company.

On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires companies
to recognize costs associated with exit or disposal activities

                                      146
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

when they are incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of this Statement did not have a
material effect on the operating results or financial position of the Company.

On October 1, 2002, the Company adopted SFAS No. 147, "Acquisitions of Certain
Financial Institutions." This Statement provides guidance on the accounting for
the acquisition of a financial institution. Except for acquisitions between two
or more mutual enterprises, SFAS No. 147 removed acquisitions of financial
institutions from the scope of SFAS No. 72, "Accounting for Certain Acquisitions
of Banking or Thrift Institutions" and FASB Interpretation No. 9, "Applying APB
Opinions No. 16 and 17 When a Savings and Loan Association or a Similar
Institution is Acquired in a Business Combination Accounted for by the Purchase
Method," and required that those transactions be accounted for in accordance
with SFAS Nos. 141 and 142. In addition, this Statement amended SFAS No. 144 to
include in its scope long-term customer relationship intangible assets of
financial institutions. The adoption of SFAS No. 147 did not have a material
effect on the operating results or financial position of the Company.

The core deposit intangible that resulted from branch acquisitions is included
in other assets and amortized on a straight-line basis over eight years.
Management, on a periodic basis, reviews the core deposit intangible and
evaluates events or changes in circumstances that may indicate a change in its
remaining useful life. As of December 31, 2003, there were no events or changes
in circumstances that would lead management to believe that the useful life
should be adjusted.

TRUST ASSETS:

Assets held in a fiduciary or agency capacity for customers are not included in
the accompanying consolidated balance sheets since they are not the Company's
assets. Trust income is recorded on a cash basis, which is not materially
different than if reported on an accrual basis, and is included in noninterest
income. Revenue from trust services did not meet any of the quantitative
thresholds for required segment disclosure under GAAP.

                                      147
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

EXTINGUISHMENT OF DEBT:

On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinded SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements," and SFAS No. 44, "Accounting for Intangible
Assets of Motor Carriers." Furthermore, SFAS No. 145 amended SFAS No. 13,
"Accounting for Leases," to eliminate any inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects similar to sale-leaseback
transactions. The adoption of this Statement did not have a material effect on
the operating results or financial position of the Company.

STATEMENTS OF CASH FLOWS:

The Consolidated Statements of Cash Flows are presented using the indirect
method. For the purpose of cash flow, cash and cash equivalents include cash on
hand, cash items in the process of collection, noninterest-bearing deposits with
other banks, balances with the FRB and FHLB-Pgh and federal funds sold. Federal
funds sold are highly-liquid investments sold for one-day periods.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial. Accordingly, such
assets and liabilities are excluded from disclosure requirements. For example,
no benefit is recorded for the value of low- cost funding subsequently
discussed. In addition, Community Bank's Trust Division contributes fee income
annually. Trust assets and liabilities are not considered financial instruments
for this disclosure, and their values have not been incorporated into the fair
value estimates. Other significant items that are not considered financial
instruments include deferred tax assets, premises and equipment, foreclosed
assets and intangible assets. Accordingly, the net aggregate fair value amounts
presented do not represent the underlying value of the Company.

The Company's assets that were considered financial instruments approximated
96.9 percent of total assets at December 31, 2003 and 2002.

                                      148
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Liabilities that were considered financial instruments approximated 99.5 percent
and 99.4 percent of total liabilities at December 31, 2003 and 2002,
respectively. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets. In many cases, these values cannot be realized in immediate settlement
of the instrument.

The following methods and assumptions were used by the Company to construct the
summary table in Note 10 containing the fair values and related carrying amounts
of financial instruments:

CASH AND CASH EQUIVALENTS: The carrying values of cash and cash equivalents as
reported on the balance sheet approximate fair value.

INVESTMENT SECURITIES: The fair value of investment securities is based on
quoted market prices. The carrying values of restricted equity securities
approximate fair value.

LOANS HELD FOR SALE, NET: The fair value of loans held for sale, net, are based
on quoted market prices.

NET LOANS: For adjustable-rate loans that reprice immediately and with no
significant credit risk, fair values are based on carrying values. The fair
values of all other loans are estimated using discounted cash flow analysis,
using interest rates currently offered for loans with similar terms to borrowers
of similar credit risk. Fair values for impaired loans are estimated using
discounted cash flow analysis determined by the loan review function or
underlying collateral values, where applicable.

ACCRUED INTEREST RECEIVABLE: The carrying value of accrued interest receivable
as reported on the balance sheet approximates fair value.

DEPOSITS WITHOUT STATED MATURITIES: The fair value of demand deposits, savings
accounts and certain money market accounts is the amount payable on demand at
the reporting date. The fair value estimates do not include the benefit that
results from such low-cost funding provided by the deposit liabilities compared
to the cost of borrowing funds in the market.

                                      149
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

DEPOSITS WITH STATED MATURITIES: The carrying value of adjustable-rate,
fixed-term time deposits approximates their fair value at the reporting date.
For fixed-rate time deposits, the present value of future cash flows is used to
estimate fair value. The discount rates used are the current rates offered for
time deposits with similar maturities.

ACCRUED INTEREST PAYABLE: The carrying value of accrued interest payable as
reported on the balance sheet approximates fair value.

COMMITMENTS: The majority of commitments to extend credit, unused portions of
home equity and credit card lines and letters of credit carry current market
interest rates if converted to loans. Because such commitments are generally
unassignable by either the Company or the borrower, they only have value to the
Company and the borrower. None of the commitments are subject to undue credit
risk. The estimated fair value approximates the recorded deferred fee amounts
and is included in net loans.

COMPREHENSIVE INCOME:

The components of comprehensive income and their related tax effects are
reported in the Consolidated Statements of Income and Comprehensive Income. The
accumulated other comprehensive income included in the Consolidated Statements
of Changes in Stockholders' Equity relates entirely to the net unrealized gains
and losses on available-for-sale securities.

ADVERTISING COSTS:

Advertising costs are expensed as incurred and totaled $369 in 2003, $411 in
2002 and $332 in 2001.

WEB SITE OPERATIONAL COSTS:

Costs associated with the operation of the Company's web site are expensed as
incurred and totaled $37 in 2003, $32 in 2002 and $28 in 2001.

INCOME TAXES:

The Company recognizes the current and deferred tax consequences of all
transactions that have been recognized in the financial statements using the
provisions of the enacted tax laws. Deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences by
applying enacted statutory tax rates to differences between

                                      150
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The amount of deferred tax assets is reduced, if necessary, to
the amount that, based on available evidence, will more likely than not be
realized. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.

The Parent Company and its subsidiaries file a consolidated federal income tax
return. The subsidiaries provide for income taxes on a separate return basis,
and remit amounts determined to be currently payable to the Parent Company.

EARNINGS PER COMMON SHARE:

The Company had no dilutive potential common shares outstanding during the
three-year period ended December 31, 2003, therefore, the per share data
presented on the face of the Consolidated Statements of Income and Comprehensive
Income relates to basic per share amounts.

2. CASH AND DUE FROM BANKS:

The Federal Reserve Act, as amended, imposes reserve requirements on all member
depository institutions. The Company's required reserve balances, which were
satisfied through the restriction of vault cash, were $2,769 and $3,214 at
December 31, 2003 and 2002, respectively. These reserve requirements averaged
$2,637 in 2003 and $1,988 in 2002.

Community Bank maintains compensating balances with the FRB and various other
correspondent banks, most of which are not required, to offset specific charges
for check clearing and other services. Balances maintained for these purposes
were $11,196 and $5,198 at December 31, 2003 and 2002, respectively.
Compensating balances with correspondent banks averaged $6,373 in 2003 and
$5,716 in 2002.

                                      151
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3. INVESTMENT SECURITIES:

All investment securities were classified as available-for-sale for the years
ended December 31, 2003 and 2002. The amortized cost and fair value of
available-for-sale securities aggregated by investment category at December 31,
2003 and 2002, are summarized as follows:

<TABLE>
<CAPTION>
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
DECEMBER 31, 2003                 COST       GAINS       LOSSES     VALUE
-----------------------------   ---------  ----------  ----------  --------
<S>                             <C>        <C>         <C>         <C>
U.S. Government agencies.....   $  16,313    $   64                $ 16,377
State and municipals:
  Taxable....................      17,352        32       $333       17,051
  Tax-exempt.................      31,962     2,826                  34,788
Mortgage-backed securities...      34,598       632        131       35,099
Equity securities............       1,821       112                   1,933
                                ---------    ------       ----     --------
    Total....................   $ 102,046    $3,666       $464     $105,248
                                =========    ======       ====     ========
</TABLE>

<TABLE>
<CAPTION>
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
DECEMBER 31, 2002                 COST       GAINS       LOSSES     VALUE
-----------------------------   ---------  ----------  ----------  --------
<S>                             <C>        <C>         <C>         <C>
U.S. Government agencies.....   $  10,263    $   87                $ 10,350
State and municipals:
  Taxable....................
  Tax-exempt.................      32,508     2,495                  35,003
Mortgage-backed securities...      76,330     1,349       $100       77,579
Equity securities............       1,187        84                   1,271
                                ---------    ------       ----     --------
    Total....................   $ 120,288    $4,015       $100     $124,203
                                =========    ======       ====     ========
</TABLE>

The fair value and gross unrealized losses of available-for-sale securities with
unrealized losses for which an other-than-temporary impairment has not been
recognized at December 31, 2003, aggregated by investment category and length of
time that the individual securities have been in a continuous unrealized loss
position, are summarized as follows:

<TABLE>
<CAPTION>
                                 LESS THAN 12 MONTHS   12 MONTHS OR MORE           TOTAL
                                 -------------------   -----------------   -------------------
                                  FAIR    UNREALIZED    FAIR  UNREALIZED    FAIR    UNREALIZED
DECEMBER 31, 2003                 VALUE     LOSSES     VALUE    LOSSES     VALUE      LOSSES
------------------------------   -------  ----------   -----  ----------   -------  ----------
<S>                              <C>      <C>          <C>    <C>          <C>      <C>
U.S. Government agencies......
State and municipals:
  Taxable.....................   $16,576     $333                          $16,576     $333
  Tax-exempt..................
Mortgage-backed securities....     9,373      129      $213       $2         9,586      131
Equity securities.............
                                 -------     ----      ----       --       -------     ----
Total.........................   $25,949     $462      $213       $2       $26,162     $464
                                 =======     ====      ====       ==       =======     ====
</TABLE>

At December 31, 2003, the Company had 222 investment securities. There were 28
investment securities in an unrealized loss position at December 31, 2003. The
unrealized losses reported related to taxable state and municipal

                                      152
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3. INVESTMENT SECURITIES (CONTINUED):

obligations and mortgage-backed securities with maturities of less than five
years. One security, which was issued by a U.S. Government-sponsored agency, has
been in a continuous loss position for more than 12 months, and represented less
than 1.0 percent of the total reported unrealized loss. Deterioration in the
value of these securities was attributable to changes in market interest rates
and not the credit quality of the issuers. None of the investment securities in
an unrealized loss position at December 31, 2003, represents an
other-than-temporary impairment. Furthermore, the Company has the ability and
intent to hold these securities until such time as the value recovers or the
securities mature.

Proceeds from the sales of available-for-sale securities amounted to $19,015 in
2003 and $15,064 in 2002. There were no sales of investment securities in 2001.
Gross gains of $19 and $322 were realized on the sale of securities in 2003 and
2002, respectively. Gross losses of $6 were realized on the sale of securities
in 2003. There were no gross losses realized on the sale of securities in 2002.
The income tax provision applicable to net realized gains amounted to $4 in 2003
and $109 in 2002.

Net unrealized holding gains and losses on available-for-sale securities are
included as a separate component in stockholders' equity. The Company had net
unrealized holding gains of $2,113, net of deferred income taxes of $1,089, at
December 31, 2003, and $2,584, net of deferred income taxes of $1,331, at
December 31, 2002.

Investment securities with an amortized cost of $36,349 at December 31, 2003,
and $37,424 at December 31, 2002, were pledged to secure deposits, to qualify
for fiduciary powers and for other purposes required or permitted by law. The
fair value of these securities was $36,865 at December 31, 2003, and $38,416 at
December 31, 2002.

The maturity distribution of the amortized cost, fair value and weighted-
average tax-equivalent yield of the available-for-sale portfolio at December 31,
2003, is summarized in the table that follows. The weighted-average yield based
on amortized cost has been computed for tax-exempt state and municipals on a
tax-equivalent basis using the statutory tax rate of 34.0 percent. The
distributions are based on contractual maturity with the exception of
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and equity securities. Mortgage-backed securities and CMOs have been
presented based upon estimated cash flows, assuming no change in the current
interest rate environment. Equity securities, which primarily consist of stock
issued by the FHLB-Pgh and

                                      153
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3. INVESTMENT SECURITIES (CONTINUED):

FRB, with no stated contractual maturities are included in the "After ten years"
maturity distribution. Expected maturities may differ from contracted
maturities, or estimated maturities for mortgage-backed securities and CMOs,
because borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.

<TABLE>
<CAPTION>
                                                    AFTER ONE       AFTER FIVE
                                     WITHIN         BUT WITHIN      BUT WITHIN         AFTER
                                    ONE YEAR        FIVE YEARS       TEN YEARS       TEN YEARS           TOTAL
                                 --------------   --------------   -------------   --------------   ---------------
DECEMBER 31, 2003                AMOUNT   YIELD    AMOUNT  YIELD   AMOUNT  YIELD    AMOUNT  YIELD     AMOUNT  YIELD
------------------------------   -------  -----   -------  -----   ------  -----   -------  -----   --------  -----
<S>                              <C>      <C>     <C>      <C>     <C>     <C>     <C>      <C>     <C>       <C>
Amortized cost:
U.S. Government agencies......   $ 4,039   2.21%  $12,274   2.00%                                   $ 16,313   2.05%
State and municipals:
  Taxable.....................                     17,352   2.53                                      17,352   2.53
  Tax-exempt..................       340   4.04       775   2.64   $8,256   7.92%  $22,591   7.59%    31,962   7.52
Mortgage-backed securities....    13,075   4.94    21,015   4.32      410   6.81        98   6.91     34,598   4.59
Equity securities.............                                                       1,821   2.18      1,821   2.18
                                 -------          -------          ------          -------          --------
    Total.....................   $17,454   4.29%  $51,416   3.14%  $8,666   7.87%  $24,510   7.19%  $102,046   4.71%
                                 =======          =======          ======          =======          ========

Fair value:
U.S. Government agencies......   $ 4,069          $12,308                                           $ 16,377
State and municipals:
  Taxable.....................                     17,051                                             17,051
  Tax-exempt..................       347              783          $9,136          $24,522            34,788
Mortgage-backed securities....    13,247           21,322             428              102            35,099
Equity securities.............                                                       1,933             1,933
                                 -------          -------          ------          -------          --------
    Total.....................   $17,663          $51,464          $9,564          $26,557          $105,248
                                 =======          =======          ======          =======          ========
</TABLE>

Except for U.S. Government agencies, including mortgage-backed securities, there
were no securities of any individual issuer that exceeded 10.0 percent of
stockholders' equity at December 31, 2003 and 2002. All securities are
considered "investment grade," receiving a rating of "Baa" or higher from
Moody's or "BBB" or higher from Standard and Poor's rating services at December
31, 2003.

4. LOANS, NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES:

The major classifications of loans outstanding, net of unearned interest of
$2,118 and $2,685 and deferred loan fees of $471 and $445 at December 31, 2003
and 2002, respectively, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                  2003        2002
----------------------------------------   --------    --------
<S>                                        <C>         <C>
Commercial, financial and others........   $100,723    $ 90,747
Real estate:
  Construction..........................      2,983       5,398
  Mortgage..............................    222,621     193,012
Consumer, net...........................     29,726      32,631
Lease financing, net....................      1,887       1,787
                                           --------    --------
    Total...............................   $357,940    $323,575
                                           ========    ========
</TABLE>

                                      154
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

4. LOANS, NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED):

Fixed-rate loans totaled $163,519 and $178,584, while loans with adjustable
interest rates were $194,421 and $144,991, respectively, at December 31, 2003
and 2002.

The maturity distribution of the loan portfolio by major classification at
December 31, 2003, is summarized as follows:

<TABLE>
<CAPTION>
                                                 AFTER ONE
                                        WITHIN   BUT WITHIN    AFTER
DECEMBER 31, 2003                      ONE YEAR  FIVE YEARS  FIVE YEARS   TOTAL
------------------------------------   --------  ----------  ----------  --------
<S>                                    <C>       <C>         <C>         <C>
Maturity schedule:
Commercial, financial and others....   $ 44,719   $ 11,815    $ 44,189   $100,723
Real estate:
  Construction......................      2,983                             2,983
  Mortgage..........................     18,695     52,900     151,026    222,621
Consumer, net.......................     11,223     15,571       2,932     29,726
Lease financing, net................        692      1,195                  1,887
                                       --------   --------    --------   --------
    Total...........................   $ 78,312   $ 81,481    $198,147   $357,940
                                       ========   ========    ========   ========
</TABLE>

Loans outstanding to directors, executive officers, principal stockholders or to
their affiliates totaled $5,573 at December 31, 2003, and $6,107 at December 31,
2002. Advances and repayments during 2003 totaled $12,963 and $13,497,
respectively. These loans are made during the ordinary course of business at
normal credit terms. There were no related party loans that were classified as
nonaccrual, past due, restructured or considered a potential credit risk at
December 31, 2003 and 2002.

At December 31, 2003, the majority of the Company's loans were at least
partially secured by real estate in Northeastern Pennsylvania. Therefore, a
primary concentration of credit risk is directly related to the real estate
market in this area. Changes in the general economy, local economy or in the
real estate market could affect the ultimate collectibility of this portion of
the loan portfolio. Management does not believe there are any other significant
concentrations of credit risk that could affect the loan portfolio.

The analysis of changes affecting the allowance for loan losses account for each
of the three years ended December 31, 2003, 2002 and 2001, is summarized as
follows:

<TABLE>
<CAPTION>
                                   2003     2002     2001
                                 -------   ------   ------
<S>                              <C>       <C>      <C>
Balance, January 1.............   $3,745   $3,220   $3,285
Provision for loan losses......      480    1,100      720
Loans charged-off..............     (753)    (709)    (916)
Loans recovered................      112      134      131
                                  ------   ------   ------
Balance, December 31...........   $3,584   $3,745   $3,220
                                  ======   ======   ======
</TABLE>

                                      155
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

4. LOANS, NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED):

Information concerning nonperforming assets at December 31, 2003 and 2002, is
summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                                2003    2002
-------------------------------------------------------   ------  ------
<S>                                                       <C>     <C>
Nonaccrual loans:
Commercial, financial and others.......................   $  306  $  541
Real estate:
  Construction.........................................
  Mortgage.............................................    1,077   1,213
Consumer, net..........................................       63     238
Lease financing, net...................................
                                                          ------  ------
    Total nonaccrual loans.............................    1,446   1,992
                                                          ------  ------
Accruing loans past due 90 days or more:
Commercial, financial and others.......................      124      97
Real estate:
  Construction.........................................
  Mortgage.............................................      352     281
Consumer, net..........................................      151     132
Lease financing, net...................................       73
                                                          ------  ------
    Total accruing loans past due 90 days or more......      700     510
                                                          ------  ------
    Total nonperforming loans..........................    2,146   2,502
Foreclosed assets......................................      261      40
                                                          ------  ------
    Total nonperforming assets.........................   $2,407  $2,542
                                                          ======  ======
</TABLE>

Information relating to the recorded investment in impaired loans at December
31, 2003 and 2002, is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                            2003    2002
---------------------------------    ------  ------
<S>                                  <C>     <C>
Impaired loans:
With a related allowance.........    $  747  $2,500
With no related allowance........       907   1,158
                                     ------  ------
  Total..........................    $1,654  $3,658
                                     ======  ======
</TABLE>

The analysis of changes affecting the allowance for loan losses related to
impaired loans for each of the three years ended December 31, 2003, 2002 and
2001, is summarized as follows:

<TABLE>
<CAPTION>
                                      2003    2002    2001
                                     -----   -----   -----
<S>                                  <C>     <C>     <C>
Balance, January 1...............    $ 877   $ 403   $ 405
Provision for loan losses........       83     944     483
Loans charged-off................     (609)   (477)   (498)
Loans recovered..................       26       7      13
                                     -----   -----   -----
Balance, December 31.............    $ 377   $ 877   $ 403
                                     =====   =====   =====
</TABLE>

                                      156
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

4. LOANS, NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED):

Interest income on impaired loans that would have been recognized had the loans
been current and the terms of the loans not been modified, the aggregate amount
of interest income recognized and the amount recognized using the cash-basis
method, and the average recorded investment in impaired loans for each of the
three years ended December 31, 2003, 2002 and 2001, are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                            2003    2002    2001
---------------------------------------------------------------  ------  ------  ------
<S>                                                              <C>     <C>     <C>
Gross interest due under terms.................................  $  188  $  201  $  194
Interest income recognized.....................................     145     176     276
                                                                 ------  ------  ------
Interest income not recognized (recognized in excess of due)...  $   43  $   25  $  (82)
                                                                 ======  ======  ======
Interest income recognized (cash-basis)........................  $  145  $  176  $  276

Average recorded investment in impaired loans..................  $2,510  $2,831  $2,476
</TABLE>

Cash received on impaired loans applied as a reduction of principal totaled $754
in 2003, $493 in 2002 and $349 in 2001. There were no commitments to extend
additional funds to customers with impaired loans at December 31, 2003 and 2002.

5. COMMITMENTS, CONCENTRATIONS AND CONTINGENT LIABILITIES:

In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements. Management does not anticipate that losses, if any, that may occur
as a result of funding off-balance sheet commitments, would have a material
adverse effect on the operating results or financial position of the Company.

The contractual amounts of off-balance sheet commitments at December 31, 2003
and 2002, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                                   2003     2002
----------------------------------------------------------   -------  -------
<S>                                                          <C>      <C>
Commitments to extend credit..............................   $44,025  $48,478
Unused portions of home equity and credit card lines......     9,806    6,892
Commercial letters of credit..............................     2,255      986
                                                             -------  -------
  Total...................................................   $56,086  $56,356
                                                             =======  =======
</TABLE>

                                      157
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5. COMMITMENTS, CONCENTRATIONS AND CONTINGENT LIABILITIES (CONTINUED):

The Company's involvement in, and exposure to, credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit, unused portions of home equity and credit card lines and
commercial letters of credit is represented by the contractual amounts of those
instruments. Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Commercial letters of credit are conditional
commitments issued by the Company to support customers in the purchase of
commercial goods. These letters of credit are automatically renewable upon their
anniversary date unless canceled prior to such date at the option of the
Company.

To reduce credit risk related to the use of off-balance sheet credit-related
financial instruments, the Company might deem it necessary to obtain collateral.
The amount and nature of the collateral obtained is based on the Company's
credit evaluation of the customer. Collateral held varies but may include cash,
securities, accounts receivable, inventory, property, plant and equipment and
real estate. Allowance for credit losses, if any, on off-balance sheet
commitments is reported separately as a liability. No allowance was deemed
necessary at December 31, 2003 and 2002. These commitments are generally issued
for one year or less and often expire unused in whole or in part by the
customer.

The Company provides deposit and loan products and other financial services to
individual and corporate customers in its five-county market area of Lackawanna,
Monroe, Susquehanna, Wayne and Wyoming. There are no significant concentrations
of credit risk from any individual counterparty or groups of counterparties,
except for locational concentrations. The concentrations of the credit portfolio
by loan type are set forth in Note 4. Collateral is required for all real estate
exposure and for most other loans, including off-balance sheet commitments upon
extension of credit. Loan-to-value ratios of no greater than 80.0 percent are
maintained, except in the case of loans secured by deposits or U.S. Government
securities. The amount of collateral obtained is based on management's credit
evaluation of the customer. Collateral varies but may include property, plant
and equipment, primary residential properties, and to a lesser extent,
income-producing properties. Although the credit portfolio is diversified, the
Company and its borrowers are dependent on the continued viability of the
Northeastern Pennsylvania economy. The loan portfolio does not include any form
of credit involving highly-leveraged transactions, defined as financing
transactions that involve the buyout, acquisition or recapitalization of an
existing business, including credit extended to highly-leveraged industries.

                                      158
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5. COMMITMENTS, CONCENTRATIONS AND CONTINGENT LIABILITIES (CONTINUED):

Securities and short-term investment activities are conducted with a diverse
group of government entities, corporations and depository institutions. The
counterparty's creditworthiness and type of collateral is evaluated on a
case-by-case basis. At December 31, 2003 and 2002, there were no significant
concentrations of credit risk from any one issuer, with the exception of
securities issued by U.S. Government agencies, including mortgage-backed
securities.

Neither the Company nor any of its property is subject to any material legal
proceedings. Management, after consultation with legal counsel, does not
anticipate that the ultimate liability, if any, arising out of pending and
threatened lawsuits will have a material effect on the operating results or
financial position of the Company.

6. PREMISES AND EQUIPMENT, NET:

Premises and equipment at December 31, 2003 and 2002, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                             2003     2002
------------------------------------   -------  -------
<S>                                    <C>      <C>
Land................................   $ 3,525  $ 3,525
Premises............................    10,294    9,587
Leasehold improvements..............       291      291
Furniture and equipment.............     8,691    7,826
                                       -------  -------
  Total premises and equipment......    22,801   21,229
Less: accumulated depreciation......    10,317    9,368
                                       -------  -------
  Premises and equipment, net.......   $12,484  $11,861
                                       =======  =======
</TABLE>

Depreciation charged to noninterest expense amounted to $1,168 in 2003, $962 in
2002 and $856 in 2001. Occupancy expense has been reduced by rental income from
premises leased to others in the amount of $70 in 2003, $61 in 2002 and $59 in
2001.

Certain facilities are leased under operating lease agreements expiring at
various dates until the year 2022. Three leases contain escalation clauses that
provide for inflation adjustments. The effects of such adjustments are included
in the following table. Two leases contain renewal options that provide for
extensions of the original lease terms up to 20 years. The cost of such rentals
is not included in the following table. The realty leases require the Company to
pay real estate taxes, insurances, utilities and repair costs. Rental expense on
operating leases amounted to $181 in 2003, $147 in 2002 and $106 in 2001.

                                      159
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

6. PREMISES AND EQUIPMENT, NET (CONTINUED):

Future minimum annual rentals required under noncancellable leases are
summarized as follows:

<TABLE>
<S>                        <C>
2004.....................  $  209
2005.....................     181
2006.....................     172
2007.....................     173
2008.....................     176
2009 and thereafter......     854
                           ------
  Total..................  $1,765
                           ======
</TABLE>

7. OTHER ASSETS:

The major components of other assets at December 31, 2003 and 2002, are
summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                     2003    2002
----------------------------   ------  ------
<S>                            <C>     <C>
Goodwill....................   $  349  $  349
Core deposit intangible.....      540     810
Foreclosed assets...........      261      40
Mortgage servicing rights...      740     466
Other.......................    1,441   1,396
                               ------  ------
  Total.....................   $3,331  $3,061
                               ======  ======
</TABLE>

Effective January 1, 2002, goodwill is subject to impairment testing and is no
longer subject to periodic amortization. Accordingly, there was no amortization
expense of goodwill in 2003 and 2002. Amortization expense of goodwill amounted
to $218 in 2001. There was no goodwill acquired in 2003, 2002 and 2001.

The gross carrying amount and accumulated amortization of the core deposit
intangible was $2,178 and $1,638 at December 31, 2003, and $2,178 and $1,368 at
December 31, 2002. Amortization expense of the core deposit intangible amounted
to $270 per year in 2003, 2002 and 2001. The core deposit intangible will be
fully amortized in 2005. The Company will incur estimated future amortization
expense of $270 per year in 2004 and 2005.

The net costs of operating foreclosed assets, including gains and losses on the
sale of such properties, were $40 in 2003 and $181 in 2001. The operation of
foreclosed assets generated net revenue of $59 in 2002.

                                      160
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

7. OTHER ASSETS (CONTINUED):

The Company originates one-to-four family residential mortgage loans for sale in
the secondary market with servicing rights retained. Mortgage loans serviced for
others are not included in the accompanying Consolidated Balance Sheets. The
unpaid principal balances of mortgage loans serviced for others were $89,963 at
December 31, 2003, and $56,112 at December 31, 2002. Custodial escrow balances,
maintained in connection with the loan servicing and included in demand
deposits, were $274 and $110 at December 31, 2003 and 2002, respectively.

The analysis of the changes in the balances of mortgage servicing assets for
each of the three years ended December 31, 2003, 2002 and 2001, is summarized as
follows:

<TABLE>
<CAPTION>
                              2003    2002    2001
                             -----   -----    ----
<S>                          <C>     <C>      <C>
Balance, January 1........   $ 466   $ 192    $ 47
Additions.................     541     377     173
Amortization..............    (267)   (103)    (28)
                             -----   -----    ----
Balance, December 31......   $ 740   $ 466    $192
                             =====   =====    ====
</TABLE>

At December 31, 2003, 2002 and 2001, the fair value of the mortgage servicing
assets approximated their carrying value, therefore, no valuation allowance was
deemed necessary.

8. DEPOSITS:

The major components of interest-bearing and noninterest-bearing deposits at
December 31, 2003 and 2002, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                  2003       2002
----------------------------------------   --------   --------
<S>                                        <C>        <C>
Interest-bearing deposits:
  Money market accounts.................   $ 17,369   $ 17,878
  NOW accounts..........................     43,352     38,592
  Savings accounts......................    129,591    122,397
  Time deposits less than $100..........    180,946    183,982
  Time deposits $100 or more............     29,089     24,544
                                           --------   --------
    Total interest-bearing deposits.....    400,347    387,393
Noninterest-bearing deposits............     59,119     49,820
                                           --------   --------
    Total deposits......................   $459,466   $437,213
                                           ========   ========
</TABLE>

Deposits of directors, executive officers, principal stockholders or their
affiliates are accepted on the same terms and at the prevailing interest rates
offered at the time of deposit for comparable transactions with unrelated
parties. The amount of related party deposits totaled $7,361 at December 31,
2003, and $4,968 at December 31, 2002.

                                      161
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

8. DEPOSITS (CONTINUED):

The maturity distribution of time deposits $100 or more at December 31, 2003 and
2002, is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                        2003     2002
----------------------------------------------   -------  -------
<S>                                              <C>      <C>
Within three months...........................   $ 4,414  $ 3,020
After three months but within six months......     4,845    3,333
After six months but within twelve months.....     3,861    8,230
After twelve months...........................    15,969    9,961
                                                 -------  -------
  Total.......................................   $29,089  $24,544
                                                 =======  =======
</TABLE>

Interest expense on time deposits $100 or more amounted to $916 in 2003, $1,055
in 2002 and $1,613 in 2001.

The aggregate amounts of maturities for all time deposits at December 31, 2003,
are summarized as follows:

<TABLE>
<S>                         <C>
2004......................  $ 69,548
2005......................    43,821
2006......................    27,265
2007......................    36,326
2008......................    17,106
2009 and thereafter.......    15,969
                            --------
  Total...................  $210,035
                            ========
</TABLE>

The aggregate amount of deposits reclassified as loans was $235 at December 31,
2003, and $950 at December 31, 2002. Management evaluates transaction accounts
that are overdrawn for collectibility as part of its evaluation for credit
losses. At December 31, 2003 and 2002, no allowance was deemed necessary for
these accounts. During 2003 and 2002, no deposits were received on terms other
than those available in the normal course of business.

9. SHORT-TERM BORROWINGS:

Short-term borrowings available to the Company consist of a line of credit and
advances with the FHLB-Pgh secured under terms of a blanket collateral agreement
by a pledge of FHLB-Pgh stock and certain other qualifying collateral, such as
investment and mortgage-backed securities and mortgage loans. The line of credit
is limited to the Company's maximum borrowing capacity ("MBC") with the
FHLB-Pgh, which is based on a percentage of qualifying collateral assets. At
December 31, 2003, the MBC was $183,678. Interest accrues daily on the line
based on the rates of FHLB-Pgh discount notes. This rate resets each day. The
line is renewable annually on its anniversary date and carries no associated
commitment fees. The FHLB-Pgh has the right to reduce or terminate the line at
any time without prior

                                      162
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

9. SHORT-TERM BORROWINGS (CONTINUED):

notice and the Company may repay the line at any time without incurring
prepayment penalties. Short-term advances are issued with maturities less than
one year based on the FHLB-Pgh's current cost of funds rate. Advances are
limited to the MBC and are not prepayable. There are no commitment fees
associated with the advances, except those for forward settlement that are based
on FHLB-Pgh hedging costs.

There were no short-term borrowings outstanding at December 31, 2003 and 2002,
nor were there short-term borrowings outstanding at any month-end during 2003
and 2002. The average daily balance and weighted-average rate on aggregate
short-term borrowings, which consisted entirely of the FHLB-Pgh line of credit,
was $265 at 1.2 percent in 2003 and $8 at 2.0 percent in 2002.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair value of financial instruments at December 31, 2003 and 2002,
is summarized as follows:

<TABLE>
<CAPTION>
                                                      2003                  2002
                                               -------------------   -------------------
                                               CARRYING     FAIR     CARRYING     FAIR
DECEMBER 31                                     VALUE       VALUE      VALUE      VALUE
---------------------------------------------  --------   --------   --------   --------
<S>                                            <C>        <C>        <C>        <C>
Financial assets:
Cash and cash equivalents....................  $ 28,599   $ 28,599   $ 21,383   $ 21,383
Investment securities available-for-sale.....   105,248    105,248    124,203    124,203
Loans held for sale, net.....................     3,205      3,253      3,916      3,997
Net loans....................................   354,356    355,818    319,830    325,980
Accrued interest receivable..................     2,229      2,229      2,164      2,164
                                               --------   --------   --------   --------
  Total......................................  $493,637   $495,147   $471,496   $477,727
                                               ========   ========   ========   ========

Financial liabilities:

Deposits without stated maturities...........  $249,431   $249,431   $228,687   $228,687
Deposits with stated maturities..............   210,035    216,895    208,526    212,112
Accrued interest payable.....................     1,143      1,143      1,358      1,358
                                               --------   --------   --------   --------
  Total......................................  $460,609   $467,469   $438,571   $442,157
                                               ========   ========   ========   ========
</TABLE>

11. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution plan covering all employees who have
completed 1,000 hours of service, attained 21 years of age and have been
employed by the Company for at least one year. Contributions to the plan are
determined by the Board of Directors and are based on a prescribed percentage of
annual net income allocated to each participant based on

                                      163
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

11. EMPLOYEE BENEFIT PLAN (CONTINUED):

their pro rata share of annual compensation. Pension costs are accrued monthly
to salaries and benefits expense with the plan being funded annually.

Effective January 1, 2002, the Board of Directors ratified an amendment to the
defined contribution plan to include the provisions under section 401(k) of the
Internal Revenue Code ("401(k)"). The 401(k) feature of the plan permits
employees to make voluntary, pre-tax contributions up to 25.0 percent of their
compensation. Company contributions to the 401(k) are based on 100.0 percent
matching of voluntary contributions up to 3.0 percent of the employee's eligible
compensation. Company matching contributions to the 401(k) are funded biweekly
and are included in salaries and benefits expense. Employee contributions under
the 401(k) vest immediately, while matched contributions and discretionary
annual contributions made under the defined contribution plan vest
proportionally over five years of credited service.

Discretionary annual contributions to the plan were $83 in 2003, $114 in 2002
and $78 in 2001. Matching contributions under the 401(k) feature of the plan
totaled $127 in 2003 and $111 in 2002. Contributions to the plan are included in
salaries and employees benefits expense.

12. INCOME TAXES:

The current and deferred amounts of the provision for income tax expense for
each of the three years ended December 31, 2003, 2002 and 2001, are summarized
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31   2003    2002    2001
----------------------  ------  ------  ------
<S>                     <C>     <C>     <C>
Current...............  $1,052  $1,424  $1,269
Deferred..............     154     (41)    157
                        ------  ------  ------
  Total...............  $1,206  $1,383  $1,426
                        ======  ======  ======
</TABLE>

A reconciliation between the effective income tax expense and the amount of
income tax expense that would have been provided at the federal statutory tax
rate of 34.0 percent for each of the three years ended December 31, 2003, 2002
and 2001, is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                       2003    2002    2001
---------------------------------------------------------   ------  ------  ------
<S>                                                         <C>     <C>     <C>
Federal income tax at statutory rate.....................   $2,008  $2,238  $2,083
Differences resulting from:
  Tax-exempt interest, net...............................     (729)   (783)   (656)
  Goodwill...............................................                       74
  Residential housing program tax credit.................      (80)    (80)    (80)
  Other..................................................        7       8       5
                                                            ------  ------  ------
    Federal income tax on income before income taxes.....   $1,206  $1,383  $1,426
                                                            ======  ======  ======
</TABLE>

                                      164
<PAGE>


COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12. INCOME TAXES (CONTINUED):

Sources of change in deferred income taxes and the related tax effects for each
of the three years ended December 31, 2003, 2002 and 2001, are summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                                2003    2002   2001
------------------------------------------------------------------   -----   -----   ----
<S>                                                                  <C>     <C>     <C>
Allowance for loan losses.........................................   $  74   $(160)  $ 64
Loans, net of unearned income.....................................      (9)      1      4
Accrued interest receivable.......................................       5       6    101
Premises and equipment, net.......................................     117     101     88
Core deposit intangible...........................................     (43)    (43)   (43)
Other.............................................................      10      54    (57)
                                                                     -----   -----   ----
  Change in deferred income taxes affecting the statements of
   income.........................................................     154     (41)   157
Deferred income taxes on investment securities recognized in
 stockholders' equity.............................................    (242)    994    126
                                                                     -----   -----   ----
    Total change in deferred income taxes.........................   $ (88)  $ 953   $283
                                                                     =====   =====   ====
</TABLE>

Temporary differences between financial statement carrying amounts and tax bases
of assets and liabilities that represent the deferred tax assets and liabilities
at December 31, 2003 and 2002, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31                                        2003    2002
-----------------------------------------------   ------  ------
<S>                                               <C>     <C>
Deferred tax assets:
  Allowance for loan losses....................   $  927  $1,001
  Loans, net of unearned income................      160     151
  Accrued interest receivable..................       49      54
  Core deposit intangible......................      257     214
  Other........................................                3
                                                  ------  ------
    Total......................................    1,393   1,423
                                                  ------  ------
Deferred tax liabilities:
  Investment securities available-for-sale.....    1,089   1,331
  Premises and equipment, net..................      710     593
Other..........................................        7
                                                  ------  ------
    Total......................................    1,806   1,924
                                                  ------  ------
    Net deferred tax liabilities...............   $ (413) $ (501)
                                                  ======  ======
</TABLE>

The Company has determined that the establishment of a valuation reserve for the
deferred tax assets is not required, since it is more likely than not that the
net deferred tax assets could be principally realized through carryback to
taxable income in prior years, and by future reversals of existing taxable
temporary differences, or to a lesser extent, through future taxable income. A
review of the accounting criteria related to the recognition of deferred tax
assets is performed quarterly. Banks in Pennsylvania are not subject to state or
local income taxes, but rather are assessed a tax based on capital. This tax is
included in other expenses.

                                      165
<PAGE>


COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12. INCOME TAXES (CONTINUED):

Income tax expense (benefit) related to unrealized holding gains (losses) and
the reclassification adjustments included in other comprehensive income (loss)
for each of the three years ended December 31, 2003, 2002 and 2001, were
calculated using the prevailing statutory tax rate of 34.0 percent and are
summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                                                   2003    2002    2001
-------------------------------------------------------------------------------------   -----   ------   ----
<S>                                                                                     <C>     <C>      <C>
Income tax expense (benefit):
  Unrealized holding gains (losses) on investment securities available-for-sale......   $(238)  $1,103   $126
  Reclassification adjustment for gains included in net income.......................      (4)    (109)
                                                                                        -----   ------   ----
    Income tax expense (benefit) related to other comprehensive income (loss)........   $(242)  $  994   $126
                                                                                        =====   ======   ====
</TABLE>

13. PARENT COMPANY FINANCIAL STATEMENTS:

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                              2003    2002    2001
----------------------------------------------------------------   ------  ------  ------
<S>                                                                <C>     <C>     <C>
Income:
Dividends from subsidiaries.....................................   $3,011  $2,715  $1,719
Management fees from subsidiaries...............................      217     222     194
Other income....................................................        3       7       3
                                                                   ------  ------  ------
  Total income..................................................    3,231   2,944   1,916
                                                                   ------  ------  ------
Expense:
Occupancy and equipment expenses................................       76      76      76
Other expenses..................................................      280     279     429
                                                                   ------  ------  ------
  Total expenses................................................      356     355     505
                                                                   ------  ------  ------
Income before income taxes and undistributed income of
 subsidiaries...................................................    2,875   2,589   1,411
Income tax benefits.............................................     (127)   (124)   (111)
                                                                   ------  ------  ------
Income before undistributed income of subsidiaries..............    3,002   2,713   1,522
Equity in undistributed income of subsidiaries..................    1,698   2,487   3,178
                                                                   ------  ------  ------
  Net income....................................................   $4,700  $5,200  $4,700
                                                                   ======  ======  ======
</TABLE>

                                      166
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

13. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED):

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31                                            2003    2002
---------------------------------------------------   ------- -------
<S>                                                   <C>     <C>
Assets:
Cash...............................................   $    20 $    15
Investment in bank subsidiary......................    45,115  43,543
Investment in nonbank subsidiary...................        85     447
Investment securities available-for-sale...........       150     122
Other assets.......................................     1,814   1,843
                                                      ------- -------
  Total assets.....................................   $47,184 $45,970
                                                      ======= =======
Liabilities:
Dividends payable..................................   $   419 $   408
Other liabilities..................................       224     229
                                                      ------- -------
  Total liabilities................................       643     637
Stockholders' equity...............................    46,541  45,333
                                                      ------- -------
  Total liabilities and stockholders' equity.......   $47,184 $45,970
                                                      ======= =======
</TABLE>

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                    2003     2002     2001
-----------------------------------------------------    -------  -------  -------
<S>                                                      <C>      <C>      <C>
Cash flows from operating activities:
Net income...........................................    $ 4,700  $ 5,200  $ 4,700
Adjustments:
  Equity in undistributed income of subsidiaries.....     (1,698)  (2,487)  (3,178)
  Depreciation and amortization......................         76       76      294
  Changes in:
    Other assets.....................................        (48)    (192)     (61)
    Other liabilities................................        (15)     (41)     (83)
                                                         -------  -------  -------
      Net cash provided by operating activities......      3,015    2,556    1,672
                                                         -------  -------  -------
Cash flows from investing activities:
Capital contribution in nonbank subsidiary...........                 (20)     (30)
                                                         -------  -------  -------
      Net cash used in investing activities..........                 (20)     (30)
                                                         -------  -------  -------
Cash flows from financing activities:
Issuance of common stock.............................        229      203      203
Repurchase and retirement of common shares...........     (1,563)  (1,244)    (451)
Cash dividends paid..................................     (1,676)  (1,571)  (1,450)
                                                         -------  -------  -------
      Net cash used in financing activities..........     (3,010)  (2,612)  (1,698)
                                                         -------  -------  -------
      Net increase (decrease) in cash................          5      (76)     (56)
      Cash at beginning of year......................         15       91      147
                                                         -------  -------  -------
      Cash at end of year............................    $    20  $    15  $    91
                                                         =======  =======  =======
</TABLE>

                                      167
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14. REGULATORY MATTERS:

Under the Pennsylvania Business Corporation Law of 1988, as amended, the Company
may not pay a dividend if, after payment, either the Company could not pay its
debts as they become due in the usual course of business, or the Company's total
assets would be less than its total liabilities. The determination of total
assets and liabilities may be based upon: (i) financial statements prepared on
the basis of GAAP; (ii) financial statements that are prepared on the basis of
other accounting practices and principles that are reasonable under the
circumstances; or (iii) a fair valuation or other method that is reasonable
under the circumstances.

In addition, the Company is subject to dividend restrictions under the
Pennsylvania Banking Code of 1965, as amended, which allows cash dividends to be
declared and paid out of accumulated net earnings. More stringent dividend
restrictions apply under Federal Reserve Regulation H, which restricts calendar
year dividend payments of member banks to the total of its net profits for that
year combined with its retained net profits of the preceding two calendar years,
less any required transfer to surplus, unless a bank has received prior approval
from the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). Accordingly, Community Bank, without prior approval from the Federal
Reserve Board, may declare dividends to the Parent Company of $7,834 at December
31, 2003.

Although subject to the aforementioned regulatory restrictions, the Company's
consolidated retained earnings at December 31, 2003 and 2002, were not
restricted under any borrowing agreement as to payment of dividends or
reacquisition of common stock.

The Company has paid cash dividends since its formation as a bank holding
company in 1983. It is the present intention of the Board of Directors to
continue this dividend payment policy, however, further dividends must
necessarily depend upon earnings, financial condition, appropriate legal
restrictions and other factors relevant at the time the Board of Directors
considers payment of dividends.

The amount of funds available for transfer from Community Bank to the Parent
Company in the form of loans and other extensions of credit is also limited.
Under the provisions of Section 23A of the Federal Reserve Act, transfers to any
one affiliate are limited to 10.0 percent of capital and surplus. At December
31, 2003, the maximum amount available for transfer from Community Bank to the
Parent Company in the form of loans amounted to $4,570. At December 31, 2003 and
2002, there were no loans outstanding, nor were any advances made during 2003
and 2002.

                                      168
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14. REGULATORY MATTERS (CONTINUED):

The Company and Community Bank are subject to certain regulatory capital
requirements administered by the federal banking agencies, which are defined by
Section 38 of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and Community
Bank's financial statements. In the event an institution is deemed to be
undercapitalized by such standards, FDICIA prescribes an increasing amount of
regulatory intervention, including the required institution of a capital
restoration plan and restrictions on the growth of assets, branches or lines of
business. Further restrictions are applied to the significantly or critically
undercapitalized institutions including restrictions on interest payable on
accounts, dismissal of management and appointment of a receiver. For well
capitalized institutions, FDICIA provides authority for regulatory intervention
where the institution is deemed to be engaging in unsafe and unsound practices
or receives a less than satisfactory examination report rating. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Community Bank must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classifications are also subject to qualitative judgements
by the regulators about components, risk weightings and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.

Community Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action at December 31, 2003 and 2002, based on
the most recent notification from the Federal Deposit Insurance Corporation. To
be categorized as well capitalized, Community Bank must maintain certain minimum
Tier I risk-based, total risk-based and Tier I Leverage ratios as set forth in
the following tables. The Tier I Leverage ratio is defined as Tier I capital to
total average assets less intangible assets. There are no conditions or events
since the most recent notification that management believes have changed
Community Bank's category.

                                      169
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14. REGULATORY MATTERS (CONTINUED):

The Company's and Community Bank's capital ratios at December 31, 2003 and 2002,
as well as the required minimum ratios for capital adequacy purposes and to be
well capitalized under the prompt corrective action provisions as defined by
FDICIA, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                MINIMUM TO BE WELL
                                                                                                 CAPITALIZED UNDER
                                                                         MINIMUM FOR CAPITAL     PROMPT CORRECTIVE
                                                             ACTUAL       ADEQUACY PURPOSES      ACTION PROVISIONS
                                                      -----------------  -------------------    ------------------
DECEMBER 31, 2003                                      AMOUNT     RATIO    AMOUNT     RATIO       AMOUNT     RATIO
---------------------------------------------------   --------    -----  ----------   ------    ---------    -----
<S>                                                   <C>         <C>    <C>          <C>       <C>          <C>
Tier I capital to risk-weighted assets:
  Consolidated....................................    $ 43,466     11.3%   $15,384       4.0%
  Community Bank..................................      42,113     11.0     15,361       4.0     $23,042       6.0%
Total capital to risk-weighted assets:
  Consolidated....................................      47,050     12.2     30,769       8.0
  Community Bank..................................      45,697     11.9     30,723       8.0      38,403      10.0
Tier I capital to total average assets
 less intangible assets:
  Consolidated....................................      43,466      8.7     20,076       4.0
  Community Bank..................................    $ 42,113      8.4%   $20,049       4.0%    $25,061       5.0%

Risk-weighted assets:
  Consolidated....................................    $357,240
  Community Bank..................................     356,667
Risk-weighted off-balance sheet items:
  Consolidated....................................      27,367
  Community Bank..................................      27,367
Average assets for Leverage ratio:
  Consolidated....................................     501,900
  Community Bank..................................    $501,220
</TABLE>

<TABLE>
<CAPTION>
                                                                                                MINIMUM TO BE WELL
                                                                                                 CAPITALIZED UNDER
                                                                         MINIMUM FOR CAPITAL     PROMPT CORRECTIVE
                                                             ACTUAL       ADEQUACY PURPOSES      ACTION PROVISIONS
                                                      -----------------  -------------------    ------------------
DECEMBER 31, 2003                                      AMOUNT     RATIO    AMOUNT     RATIO       AMOUNT     RATIO
---------------------------------------------------   --------    -----  ----------   ------    ---------    -----
<S>                                                   <C>         <C>    <C>          <C>       <C>          <C>
Tier I capital to risk-weighted assets:
  Consolidated....................................    $ 41,544     12.1%  $13,730       4.0%
  Community Bank..................................      39,809     11.6    13,706       4.0      $20,559       6.0%
Total capital to risk-weighted assets:
  Consolidated....................................      45,289     13.2    27,459       8.0
  Community Bank..................................      43,554     12.7    27,412       8.0       34,265      10.0
Tier I capital to total average assets
 less intangible assets:
  Consolidated....................................      41,544      8.8    18,950       4.0
  Community Bank..................................    $ 39,809      8.4%  $18,910       4.0%     $23,637       5.0%

Risk-weighted assets:
  Consolidated....................................    $315,360
  Community Bank..................................     314,764
Risk-weighted off-balance sheet items:
  Consolidated....................................      27,882
  Community Bank..................................      27,882
Average assets for Leverage ratio:
  Consolidated....................................     473,746
  Community Bank..................................    $472,744
</TABLE>

                                      170
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14. REGULATORY MATTERS (CONTINUED):

Management periodically purchases shares of the Company's common stock under a
stock repurchase program. For the years ended December 31, 2003, 2002 and 2001,
44,788 shares, 37,933 shares and 16,229 shares having an aggregate cost of
$1,563, $1,244 and $451, respectively, were purchased and retired under the
program. At December 31, 2003, 3,021 shares authorized under the program were
available to be repurchased.

The Company offers its stockholders a Dividend Reinvestment Plan ("DRP"). Under
the DRP, the Company registered with the Securities and Exchange Commission
300,000 shares of its common stock to be sold pursuant to this plan. The DRP
provides stockholders with a simple and convenient method to invest cash
dividends in the Company's common stock without payment of any brokerage
commissions, while also furnishing the Company with additional funds for general
corporate purposes. Main features of the DRP include the following: (i) shares
will be purchased from original issuances; (ii) no optional cash payments; (iii)
eligibility for all registered and street name stockholders; (iv) no minimum or
maximum number of shares participation restrictions; and (v) availability of
full or partial dividend reinvestment. During the years ended December 31, 2003,
2002 and 2001, 6,547 shares, 6,161 shares and 7,371 shares, respectively, were
issued under the DRP.

                                      171
<PAGE>

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

15. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

<TABLE>
<CAPTION>
                                                           2003                                   2002
                                             ------------------------------------  ------------------------------------
QUARTER ENDED                                MARCH 31  JUNE 30  SEPT. 30  DEC. 31  MARCH 31  JUNE 30  SEPT. 30  DEC. 31
------------------------------------------   --------  -------  --------  -------  --------  -------  --------  -------
<S>                                          <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
INTEREST INCOME:
Interest and fees on loans:
  Taxable.................................    $5,552    $5,612   $5,617    $5,447   $5,767    $5,686   $5,684    $5,674
  Tax-exempt..............................       191       187      199       203      168       177      177       166
Interest and dividends on investment
 securities available-for-sale:
  Taxable.................................       658       430      397       509    1,023       942      804       712
  Tax-exempt..............................       400       399      394       393      512       504      439       430
  Dividends...............................        14        11        9         6       22        17       17        15
Interest on federal funds sold............        28        86       49        17       23        68      164        93
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Total interest income.................     6,843     6,725    6,665     6,575    7,515     7,394    7,285     7,090
                                              ------    ------   ------    ------   ------    ------   ------    ------
INTEREST EXPENSE:
Interest on deposits......................     2,672     2,582    2,392     2,323    3,180     3,111    3,036     2,889
Interest on short-term borrowings.........                                      3
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Total interest expense................     2,672     2,582    2,392     2,326    3,180     3,111    3,036     2,889
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Net interest income...................     4,171     4,143    4,273     4,249    4,335     4,283    4,249     4,201
Provision for loan losses.................       120       120      120       120      370       370      195       165
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Net interest income after
     provision for loan losses............     4,051     4,023    4,153     4,129    3,965     3,913    4,054     4,036
                                              ------    ------   ------    ------   ------    ------   ------    ------
NONINTEREST INCOME:
Service charges, fees and commissions.....       696       695      702       716      774       679      763       688
Net gains on sale of loans................       390       295      328       199      185       172      208       354
Net gains on sale of investments..........                                     13                 69       17       236
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Total noninterest income .............     1,086       990    1,030       928      959       920      988     1,278
                                              ------    ------   ------    ------   ------    ------   ------    ------
NONINTEREST EXPENSE:
Salaries and employee benefits............     1,696     1,773    1,859     1,849    1,581     1,690    1,721     1,775
Net occupancy and equipment...............       540       548      558       604      451       450      458       494
Other.....................................     1,189     1,257    1,322     1,289    1,240     1,176    1,249     1,245
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Total noninterest expense.............     3,425     3,578    3,739     3,742    3,272     3,316    3,428     3,514
                                              ------    ------   ------    ------   ------    ------   ------    ------
Income before income taxes................     1,712     1,435    1,444     1,315    1,652     1,517    1,614     1,800
Provision for income tax expense..........       382       290      289       245      338       291      344       410
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Net income............................     1,330     1,145    1,155     1,070    1,314     1,226    1,270     1,390
                                              ------    ------   ------    ------   ------    ------   ------    ------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding gains (losses) on
 investment securities available-
 for-sale.................................      (236)      212     (408)     (268)      29     1,990    1,561      (335)
Reclassification adjustment for gains
 included in net income...................                                    (13)               (69)     (17)     (236)
Income tax expense (benefit) related
 to other comprehensive income (loss).....       (80)       72     (139)      (95)      10       653      525      (194)
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Other comprehensive income
     (loss), net of income tax............      (156)      140     (269)     (186)      19     1,268    1,019      (377)
                                              ------    ------   ------    ------   ------    ------   ------    ------
    Comprehensive income..................    $1,174    $1,285   $  886    $  884   $1,333    $2,494   $2,289    $1,013
                                              ======    ======   ======    ======   ======    ======   ======    ======
PER SHARE DATA:
Net income................................    $ 0.68    $ 0.60   $ 0.61    $ 0.56   $ 0.67    $ 0.62   $ 0.65    $ 0.71
Cash dividends declared...................    $ 0.22    $ 0.22   $ 0.22    $ 0.22   $ 0.20    $ 0.20   $ 0.21    $ 0.21
</TABLE>

                                      172
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

OPERATING ENVIRONMENT:

The recession that began in the first quarter of 2001 appeared to have ended in
the beginning of 2002. Accommodative monetary and fiscal policies supported the
improvement in economic conditions through the first part of 2002. Household
spending remained solid and businesses began to increase outlays for certain
types of capital equipment. As economic growth picked up, the Federal Open
Market Committee ("FOMC") maintained its target federal funds rate at 1.75
percent. However, the recovery was slow and was characterized by much
uncertainty. By the later part of the year, forward momentum in the economy had
noticeably diminished. Equity prices fell in the wake of corporate scandals.
Geopolitical tensions in the Middle East boosted oil prices and added to the
uncertainty about the economic outlook. Businesses reluctant to increase
investment and restock inventories, once again trimmed production and payrolls.
Consumer spending decelerated in response to rising unemployment and declining
household wealth from further deterioration in the value of their stock
portfolios. Given these circumstances, the FOMC at their meeting on November 6,
2002, lowered the target federal funds rate 50 basis points to 1.25 percent.
However, despite these many adversities, the United States economy was able to
post moderate growth in 2002. The gross domestic product, the total value of all
goods and services produced within the United States, grew 2.9 percent.

Consumer spending increased 3.1 percent in 2002, primarily due to growth in
disposable personal income, low interest rates and rising home values. However,
overcapacity, weak earnings and corporate governance scandals plagued the
business sector in 2002. In order to restore profits, businesses focused their
efforts on containing costs through cutting jobs and curtailing investment.
Nonresidential investment fell 5.7 percent in 2002, after falling 5.2 percent in
2001. Employment conditions worsened in 2002 for the second consecutive year, as
businesses continued to cutback on payrolls. As a result, the National
unemployment rate rose to 5.7 percent in 2002. However, productivity continued
to grow, increasing 4.8 percent in 2002, the fastest pace since 1950. Much of
the growth resulted from businesses cutting payrolls and using the existing
workforce more intensively.

The Commonwealth of Pennsylvania exhibited a much larger increase in
unemployment as compared to the Nation. The unemployment rate for the
Commonwealth rose to 5.9 percent in 2002, from 5.1 percent in 2001. Employment
conditions varied in our market area. Lackawanna County exhibited slight
improvement in employment conditions, as evidenced by a

                                      173
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

reduction in the unemployment rate to 5.2 percent in 2002, from 5.3 percent in
2001. However, conditions weakened in Wayne and Wyoming Counties. The
unemployment rates for these two counties increased to 6.2 percent and 6.4
percent in 2002, compared to 5.5 percent and 4.5 percent in 2001. Susquehanna
County's unemployment rate remained unchanged at 6.1 percent.

Despite the slowdown in the economy and the deterioration in employment
conditions, the banking industry remained well capitalized and profitable,
posting record earnings in 2002. Net income for all Federal Deposit Insurance
Corporation ("FDIC")-insured commercial banks improved to $89.9 billion, an
increase of 21.8 percent. The strong earnings performance was characterized by
improved net interest margins, growth in noninterest income, higher gains on
sales of securities and containment of noninterest expense. These positive
aspects far outweighed the negative effect of credit losses that resulted in
increased provisions. In addition, banks exhibited strong balance sheet growth.
For all FDIC-insured commercial banks, total assets grew 8.0 percent, loans, net
of unearned income, grew 7.0 percent and total deposits rose 7.1 percent. The
capital position for these banks also improved, as stockholders' equity
increased 9.1 percent.

Despite reporting record earnings in 2002, stock prices fell for the overall
banking industry, but not to the magnitude experienced by the major industrial
composite indices. The Dow Jones Industrial Average, the Standard & Poor's 500
and The NASDAQ Stock Market(R) Composite declined 16.8 percent, 23.4 percent and
31.5 percent. Stock value declines had a direct effect on reducing merger and
acquisition activity, not only for the banking industry, but throughout all
industries. Specifically for the banking industry, the depressed values caused a
22.8 percent decline in the number of deals announced and a 30.8 percent
decrease in the number of branch sale transactions in 2002. In addition, deal
values also fell, both the median price-to-earnings and the median price-to-book
dropped, as well as the premium paid for deposits in branch sales.

REVIEW OF FINANCIAL POSITION:

We experienced strong growth in our balance sheet in 2002. A change in our
strategic focus to developing a greater concentration of commercial
relationships, coupled with economic and market conditions, influenced the $26.0
million or 5.6 percent growth in total assets to $486.4 million at December 31,
2002, from $460.4 million at the end of 2001. Total assets averaged $475.0
million in 2002, an increase of $34.3 million or 7.8 percent compared to 2001.
As a percentage of average total assets, average earning assets equaled 94.7
percent in 2002 and 94.8 percent in 2001. Sustained low interest rates caused an
89 basis point reduction in our tax-

                                      174
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

equivalent yield on average earning assets to 6.81 percent in 2002 from 7.70
percent in 2001.

Loans, net of unearned income, rose $13.3 million or 4.3 percent to $323.6
million at December 31, 2002. Our deposits rose $21.0 million or 5.0 percent
from the previous year-end. We experienced marked increases in our
noninterest-bearing deposits and savings accounts. Our capital position improved
at December 31, 2002, as evidenced by an 11.0 percent growth in stockholders'
equity. Record earnings and an increase in accumulated other comprehensive
income, relating entirely to market appreciation on our investment portfolio,
contributed to the improvement.

INVESTMENT PORTFOLIO:

The principal gauge in determining the wealth improvement generated from the
investment portfolio is total return. The total return on our investment
portfolio improved to 8.8 percent in 2002, from 6.9 percent in 2001. In
addition, our investment portfolio ranked in the upper one-fifth among all
FDIC-insured bank holding companies, based on a study from an independent
national investment performance ranking company, with respect to total return
over the previous 12 months.

Similar to the approach taken in assessing our performance with respect to
return, we evaluate our risk in comparison to all other financial institutions.
Risk is assessed by quantifying the average life of the investment portfolio as
compared to U.S. Treasury securities. This risk measure improved from 1.6 years
in 2001 to 1.0 year in 2002.

Investment securities increased $3.8 million to $124.2 million at December 31,
2002, from $120.4 million at December 31, 2001. The investment portfolio
averaged $110.2 million and equaled 24.5 percent of average earning assets in
2002, compared to $99.7 million and 23.9 percent in 2001. Net unrealized holding
gains, included as a separate component of stockholders' equity, were $2,584,
net of income taxes of $1,331, at December 31, 2002, and $655, net of income
taxes of $337, at December 31, 2001. The tax-equivalent yield on our investment
portfolio fell 50 basis points to 5.81 percent in 2002 from 6.31 percent in
2001.

Proceeds from the sale of available-for-sale securities amounted to $15.1
million in 2002. The majority of the investments sold were state and municipal
obligations. Net gains recognized on the sale of investment securities totaled
$322 in 2002. We did not sell any securities in 2001. Repayments from investment
securities totaled $34.5 million in 2002 and $25.2 million in 2001.

                                      175
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Purchases of investment securities totaled $51.2 million in 2002, compared to
$74.6 million in 2001. At December 31, 2002, investment securities with an
amortized cost of $37.4 million were pledged to secure deposits, to qualify for
fiduciary powers and for other purposes required or permitted by law. At
December 31, 2001, the amortized cost of pledged securities equaled $44.8
million. The fair value of such securities equaled $38.4 million at December 31,
2002, and $45.5 million at December 31, 2001.

LOAN PORTFOLIO:

At December 31, 2002, our loans, net of unearned income, totaled $323.6 million,
an increase of $13.3 million or 4.3 percent from $310.3 million at December 31,
2001. With regard to the composition of our portfolio, business loans, including
commercial loans, commercial mortgages and commercial lease financing, increased
$42.9 million or 34.5 percent to $167.3 million at year-end 2002 from $124.4
million at the end of 2001. Commercial loans and leases grew $19.8 million or
27.1 percent, while commercial real estate loans rose $23.1 million or 44.8
percent. Business loans, including commercial loans, commercial mortgages and
commercial lease financing, represented 51.7 percent of total loans, net of
unearned income, at December 31, 2002, compared to 40.1 percent at year-end
2001. Residential mortgages, including construction loans, declined $26.0
million or 17.4 percent to $123.6 million at the end of 2002 from $149.6 million
at December 31, 2001. Consumer loans decreased $3.6 million to $32.7 million at
December 31, 2002, from $36.3 million at the end of 2001.

Loans, net of unearned income, averaged $318.2 million in 2002, an increase of
$18.5 million or 6.2 percent compared to $299.7 million in 2001. As a result of
the continuation of the historically low interest rate environment, loans
repriced downward throughout 2002 and the weighted-average tax-equivalent yield
on our loan portfolio declined 88 basis points to 7.50 percent in 2002 from 8.38
percent in 2001.

We continued to experience strong refinancing activity in 2002. The number of
refinanced mortgages totaled 212, with an aggregate dollar volume of $18.2
million in 2002 and 219, with an aggregate dollar volume of $16.8 million in
2001.

We also experienced significant activity in our secondary mortgage banking
program due to the favorable mortgage rates. Mortgages originated and
subsequently sold in the secondary market totaled $39.7 million in 2002, an
increase of $22.0 million or 124.3 percent compared to $17.7 million in 2001. We
realized net gains on the sale of these loans, included in noninterest income,
of $919 in 2002, compared to $356 in 2001. In addition, we had $3.9 million of
residential mortgage loans held for sale at December

                                      176
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

31, 2002, compared to $1.9 million at year-end 2001. Residential mortgage loans
serviced for the Federal National Mortgage Association increased $34.2 million
to $56.1 million at December 31, 2002, from $21.9 million at the end of 2001.

Adjustable-rate loans totaled $145.0 million at December 31, 2002, an increase
of $47.4 million or 48.6 percent from $97.6 million at the end of 2001.
Adjustable-rate loans accounted for 44.8 percent of our loan portfolio at
December 31, 2002, compared to 31.5 percent at year-end 2001. Heightened
refinancing activity, coupled with an increase in the volume of loans sold in
the secondary market, caused a reduction in our residential mortgage loans. As a
result, the amount of fixed-rate loans decreased $34.1 million to $178.6 million
at December 31, 2002, from $212.7 million at December 31, 2001.

ASSET QUALITY:

Asset quality improved in 2002. Nonperforming assets declined $1,328 to $2,542
at December 31, 2002, from $3,870 at December 31, 2001. Our ratio of
nonperforming assets as a percentage of loans, net of unearned income, improved
to 0.79 percent at year-end 2002 from 1.25 percent at the end of 2001. A $1,778
reduction in foreclosed assets was directly responsible for the improvement.
Partially offsetting the reduction in foreclosed assets was an increase in
nonperforming loans of $450. Nonaccrual loans increased $644, while accruing
loans past due 90 days or more declined $194. Our ratio of nonperforming loans
as a percentage of loans, net of unearned income, weakened slightly to 0.77
percent at December 31, 2002, from 0.66 percent at the end of 2001.

At December 31, 2002 and 2001, we had a recorded investment in impaired loans of
$3,658 and $1,945. The recorded investment in impaired loans averaged $2,831 in
2002 and $2,476 in 2001. At December 31, 2002, the amount of recorded investment
in impaired loans for which there was a related allowance for loan losses and
the amount of the allowance was $2,500 and $877. Comparatively, the amount of
these loans and their related allowance was $910 and $403 at December 31, 2001.
The amount of recorded investment for which there was no related allowance for
loan losses was $1,158 and $1,035 at December 31, 2002 and 2001. During 2002,
activity in the allowance for loan losses account related to impaired loans
included a provision charged to operations of $944, losses charged to the
allowance of $477 and recoveries of impaired loans previously charged-off of $7.
The 2001 activity in the allowance for loan losses account related to impaired
loans included a provision charged to operations of $483, losses charged to the
allowance of $498 and recoveries of impaired loans previously charged off of
$13. Interest income related to impaired loans would have been $201 in 2002 and
$194 in 2001 had the loans been current and the terms of the loans not been
modified. Interest recognized on impaired loans amounted to

                                      177
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

$176 in 2002 and $276 in 2001. Included in these amounts was interest recognized
on a cash basis of $176 and $276. Cash received on impaired loans applied as a
reduction of principal totaled $493 in 2002 and $349 in 2001. There were no
commitments to extend additional funds to customers with impaired loans at
December 31, 2002 and 2001.

We maintain the allowance for loan losses at a level we believe adequate to
absorb probable credit losses related to specifically identified loans, as well
as probable incurred losses inherent in the remainder of the loan portfolio as
of the balance sheet dates. The allocated element of the allowance for loan
losses account increased $646 to $3,734 at December 31, 2002, from $3,088 at
December 31, 2001. The change resulted from an increase in the specific portion
of $474 for the impairment of loans individually evaluated under Statement of
Financial Accounting Standards ("SFAS") No. 114, coupled with an increase in the
formula portion of $172 for the impairment of loans collectively evaluated under
SFAS No. 5. The increase in the specific portion resulted from an increase in
the volume of loans individually evaluated for impairment. The percentage of
loans specifically evaluated for impairment increased to 1.1 percent of loans,
net of unearned income, at December 31, 2002, from 0.6 percent at the end of
2001. The increase in the formula portion was due to the overall growth of the
loan portfolio. The total volume of loans collectively evaluated for impairment
increased $11.5 million or 3.7 percent to $319.9 million at December 31, 2002.
Partially mitigating the effect of the increase in volume was a reduction in our
historical loss percentages for loans to commercial, financial and others and
mortgage loans. At December 31, 2002, the unallocated element was $11, compared
to $132 at year-end 2001.

The coverage ratio, the allowance for loan losses account, as a percentage of
nonperforming loans, is an industry ratio used to test the ability of the
allowance account to absorb potential losses arising from nonperforming loans.
This ratio, which equaled 149.7 percent at December 31, 2002, indicated that our
allowance account was more than adequate to absorb all potential losses
associated with nonperforming loans. Due to the reduction in the balance of
foreclosed assets, our coverage ratio for total nonperforming assets improved to
147.3 percent at December 31, 2002, from 83.2 percent at December 31, 2001.

The allowance for loan losses was $3.7 million at December 31, 2002, and $3.2
million at December 31, 2001. Due to a higher provision for loan losses, coupled
with a reduction in net charge-offs, the allowance for loan losses, as a
percentage of loans, net of unearned income, increased to 1.16 percent at
year-end 2002, compared to 1.04 percent at the end of the previous year. Net
loans charged off declined $210 or 26.8 percent to $575

                                      178
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

in 2002 compared to $785 in 2001. As a percentage of average loans outstanding,
net charge-offs equaled 0.18 percent in 2002 and 0.26 percent in 2001.

DEPOSITS:

Our total deposits grew $21.0 million or 5.0 percent to $437.2 million at
December 31, 2002, from $416.2 million at the end of 2001. Noninterest-bearing
accounts rose $4.7 million or 10.4 percent, while interest-bearing accounts
increased $16.3 million or 4.4 percent. Commercial checking accounted for 55.1
percent of the growth in our noninterest-bearing accounts in 2002, which
reflected our emphasis on developing relationships with the commercial sector
and the expansion of our branch network. Commercial interest-bearing transaction
accounts, which include NOW accounts, money market accounts and savings accounts
to commercial customers, increased $7.4 million or 28.9 percent. Due to consumer
preference for liquidity, the majority of our growth in interest-bearing
deposits was concentrated in our savings accounts, which increased $32.6 million
or 36.3 percent. Time deposits less than $100 and time deposits $100 or more
decreased $2.1 million and $7.3 million.

Total deposits averaged $428.1 million in 2002, an increase of $30.7 million or
7.7 percent from $397.4 million in 2001. Noninterest-bearing deposits averaged
$7.2 million or 17.1 percent higher in 2002, while average interest-bearing
accounts grew $23.5 million or 6.6 percent. As previously mentioned, the growth
in interest-bearing accounts reflected customer preference for liquidity.
Average savings accounts increased $28.5 million or 35.8 percent, as deposits
having stated maturities, average time deposits less than $100 and time deposits
$100 or more, declined $3.7 million. Average money market accounts declined
$10.3 million, while average NOW accounts increased $9.0 million. Our cost of
deposits decreased 103 basis points to 3.23 percent in 2002, from 4.26 percent
in 2001.

Volatile deposits, time deposits $100 or more, decreased $7.3 million to $24.5
million at December 31, 2002, from $31.8 million at year-end 2001. These large
denomination time deposits averaged $27.9 million in 2002 compared to $32.1
million in 2001. Our average cost of these funds declined 124 basis points to
3.79 percent in 2002, from 5.03 percent in 2001.

MARKET RISK SENSITIVITY:

We utilize various computerized modeling techniques for market risk management.
One such technique utilizes a tabular presentation of fair value information and
contract terms relevant to determine the future cash flows of market risk
sensitive instruments, categorized by expected maturity dates. According to the
results of this presentation at December 31, 2002, investment securities having
an amortized cost of $43.2 million

                                      179
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

and a weighted-average tax-equivalent yield of 4.68 percent were scheduled to
mature within one year. Net loans scheduled to mature within the same time frame
equaled $69.8 million with a weighted-average tax-equivalent yield of 6.49
percent. In addition, there were $3.9 million in loans held for sale with a
weighted-average yield of 5.84 percent at the end of 2002. Total
interest-earning assets scheduled to mature within one year were $127.4 million
with a weighted-average tax-equivalent yield of 5.42 percent. With respect to
interest-bearing liabilities, based on historical withdrawal patterns,
interest-bearing transaction accounts, defined as money market, NOW and savings
accounts, of $37.6 million with a weighted-average cost of 1.37 percent were
scheduled to mature within one year. In addition, time deposits totaling $95.0
million with a weighted-average cost of 3.15 percent were scheduled to mature in
the same time frame. Total interest-bearing liabilities scheduled to mature
within one year equaled $132.6 million with a weighted-average cost of 2.65
percent.

In addition to monitoring market risk based on this tabular presentation, we
analyze changes in the fair value of other financial instruments utilizing
interest rate shocks. Specifically, we analyze the effects instantaneous
parallel shifts of plus or minus 100 basis points have on the economic values of
other financial instruments. The results of the model at December 31, 2002,
indicated fair value declines of 2.0 percent in other financial assets and 0.9
percent in other financial liabilities given a parallel and instantaneous rise
of 100 basis points in interest rates. Conversely, a 100 basis point decline in
general market interest rates would result in fair value appreciation of 2.1
percent in other financial assets and 0.9 percent in other financial
liabilities.

We also use models that consider repricing frequencies of rate sensitive assets
("RSA") and rate sensitive liabilities ("RSL") in addition to maturity
distributions. One such technique utilizes a static gap report, which attempts
to measure our interest rate exposure by calculating the net amount of RSA and
RSL that reprice within specific time intervals. At December 31, 2002, our
cumulative one-year RSA/RSL ratio was 1.11, compared to 0.74 at December 31,
2001. Both ratios fell within our asset/liability guidelines of 0.70 and 1.30.

As a final tool to assist in managing market risk sensitivity, we enhance our
asset/liability management by using a simulation model. This model is used to
create pro forma net interest income scenarios under various interest rate
shocks. Model results, using parallel and instantaneous shifts in general market
interest rates of plus and minus 100 basis points, did not change materially
from model results using current interest rates at December 31, 2002.

                                      180
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

LIQUIDITY:

The net noncore and net short-term noncore funding dependence ratios illustrate
the improvement in our liquidity position over the prior year. At December 31,
2002, our net noncore funding dependence ratio was negative 7.5 percent,
compared to 2.3 percent at December 31, 2001. Our net short-term noncore funding
dependence ratio equaled negative 10.0 percent at the end of 2002, compared to
1.1 percent at year-end 2001. At December 31, 2002, these ratios indicated that
we had no reliance on noncore deposits and borrowings to fund our long-term
assets, namely loans and investments. Conversely, our ratios at year-end 2001
indicated we were slightly dependent on funding from noncore deposit sources.
The improved liquidity position primarily resulted from the $10.5 million
increase in federal funds sold.

Our liquidity position is further explained by analyzing the Consolidated
Statements of Cash Flows. Cash and cash equivalents increased $7.5 million to
$21.4 million at December 31, 2002, from $13.9 million at the end of 2001. Net
cash provided by operating and financing activities, partially offset by net
cash used in investing activities, caused the increase. Net income of $5.2
million was the primary source of the $5.6 million in net cash provided by
operating activities in 2002.

Net cash used in investing activities totaled $16.5 million in 2002. Proceeds
received from sales and repayments of investment securities were more than
offset by purchases of investment securities and a net increase in lending
activities. We received $34.5 million from repayments and $15.1 million from
sales of investment securities. Purchases of securities totaled $51.2 million.
Net cash used in lending activities equaled $14.0 million.

An increase in deposits, reduced by net cash dividends paid and common stock
repurchases, predominantly caused the $18.4 million in net cash provided by
financing activities. Transaction accounts increased $30.4 million, which was
partially offset by a decline in time deposits of $9.4 million in 2002.

CAPITAL ADEQUACY:

Our stockholders' equity increased $4.5 million to $45.3 million at December 31,
2002, from $40.8 million at December 31, 2001. Stockholders' equity improved
$2.64 on a per share basis to $23.31 at year-end 2002, from $20.67 at the end of
2001. The primary factor contributing to the capital improvement was net income
of $5.2 million. Net cash dividends of $1.4

                                      181
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

million, common stock repurchases of $1.2 million and a net unrealized gain on
investment securities of $1.9 million also affected stockholders' equity.

We declared dividends of $1,603 or $0.82 per share in 2002 and $1,468 or $0.74
per share in 2001. Our dividend payout ratio was 30.8 percent and 31.2 percent
in 2002 and 2001. During the years ended December 31, 2002 and 2001, 6,161
shares and 7,371 shares were issued under the dividend reinvestment plan. Under
the stock repurchase program, we repurchased and retired 37,933 shares for $1.2
million in 2002 and 16,229 shares for $0.5 million in 2001.

We and Community Bank have consistently maintained regulatory capital ratios
well above the minimum levels of 4.0 percent and 8.0 percent required for
adequately capitalized institutions. Our risk-based capital ratios declined
slightly in 2002, but remained strong. The increase in total risk-weighted
assets and off-balance sheet items was greater than the increase in both Tier I
and total capital. Specifically, total risk-weighted assets and off-balance
sheet items rose $40.5 million or 13.4 percent, while Tier I capital increased
$2.8 million or 7.2 percent and total capital grew $3.3 million or 7.9 percent.
The ratio of Tier I capital to risk-weighted assets was 12.1 percent and 12.8
percent at December 31, 2002 and 2001, and our total capital to risk-weighted
assets ratio was 13.2 percent at year-end 2002, compared to 13.9 percent at the
end of 2001. Our Leverage ratio remained constant at 8.8 percent at December 31,
2002 and 2001.

REVIEW OF FINANCIAL PERFORMANCE:

Our net income totaled $5.2 million in 2002, an increase of $0.5 million or 10.6
percent compared to $4.7 million in 2001. On a per share basis, earnings rose
$0.28 to $2.65 in 2002 from $2.37 in 2001. Earnings were favorably affected by
greater net interest income and strong growth in noninterest income. Higher
noninterest expense and an increase in the provision for loan losses partially
offset the increase in revenue. Return on average assets and return on average
equity were 1.10 percent and 11.99 percent in 2002, compared to 1.07 percent and
11.82 percent in 2001. Market appreciation of our available-for-sale investment
securities resulted in other comprehensive income, net of income taxes, of $1.9
million in 2002 compared to $0.2 million in 2001. For the years ended December
31, 2002 and 2001, comprehensive income amounted to $7.1 million and $4.9
million.

                                      182
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NET INTEREST INCOME:

Our tax-equivalent net interest income improved $1,363 or 8.0 percent to $18,394
for the year ended December 31, 2002, from $17,031 for the same period of 2001.
The improvement resulted from growth in average earning assets over that of our
interest-bearing liabilities and a greater decline in our cost of funds compared
to the decline in our tax-equivalent yield on earning assets.

Interest-earning assets averaged $449.7 million in 2002, an increase of $31.9
million or 7.6 percent compared to $417.8 million in 2001. Average
interest-bearing liabilities rose $23.5 million or 6.6 percent to $378.7 million
in 2002, from $355.2 million in 2001. Tax-equivalent interest revenue improved
$2,171 due to the changes in the volume of average earning assets, partially
offset by an $897 increase in interest expense attributable to the rise in
average balances of interest-bearing liabilities.

Also affecting our tax-equivalent interest revenue and interest expense was the
impact variations in interest rates had on our yield on earning assets and our
cost of funds. Our tax-equivalent yield on earning assets fell 89 basis points
to 6.81 percent in 2002 from 7.70 percent in 2001, which resulted in a reduction
in interest revenue of $3,723. Our cost of funds declined 103 basis points to
3.23 percent in 2002 from 4.26 percent in 2001. This reduction lowered interest
expense by $3,812 which more than offset the negative effects caused by the
decline in yields. Our net interest spread widened 14 basis points to 3.58
percent in 2002, from 3.44 percent in 2001. We also experienced a slight
improvement in our tax-equivalent net interest margin to 4.09 percent for the
year ended December 31, 2002, from 4.08 percent for the same period of 2001.

PROVISION FOR LOAN LOSSES:

Our provision for loan losses equaled $1,100 in 2002, an increase of $380
compared to $720 in 2001. We consider the increase appropriate in light of an
overall increase in the loan portfolio and greater emphasis placed on commercial
lending.

NONINTEREST INCOME:

Our noninterest income totaled $4,145 in 2002 and $2,835 in 2001. Included in
noninterest income in 2002 were gains on the sale of investment securities of
$322. Adjusting for these gains, noninterest income improved $988 or 34.9
percent over the previous year. As a result of the strong housing market and
favorable mortgage rates in 2002, activity in our

                                      183
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

secondary mortgage division flourished. We benefitted by recording gains on the
sale of residential mortgages of $919 in 2002, an increase of $563 or 158.1
percent, compared to $356 in 2001. Service charges, fees and commissions rose
$425 or 17.1 percent to $2,904 in 2002, compared to $2,479 in 2001.

NONINTEREST EXPENSE:

For the year ended December 31, 2002, noninterest expense amounted to $13,530,
an increase of $1,660 or 14.0 percent, from $11,870 for the same period of 2001.
The majority of this increase occurred from a 20.0 percent increase in
employee-related costs. In 2002, net occupancy and equipment expense rose $173
or 10.3 percent and other expenses increased $358 or 7.9 percent. The increase
in expenses negatively impacted our productivity measures. Our operating
efficiency ratio weakened to 63.8 percent in 2002, from 63.4 percent in 2001.
Similarly, our overhead ratio weakened to 2.8 percent in 2002 from 2.7 percent
in 2001.

Total personnel costs rose $1,129 or 20.0 percent to $6,767 in 2002 from $5,638
in 2001. Salaries and payroll taxes increased $868, while employee benefits
expense rose $261. Salaries and employee benefits expense increased as a result
of staffing our two new community banking offices in 2002, as well as the
addition of several corporate relationship officers and related staff. Higher
health insurance premiums and employer matching contributions to our newly
established defined contribution plan under section 401(k) of the Internal
Revenue Code ("401(k)") primarily caused the increase in employee benefits
expense. Discretionary annual contributions to the defined contribution plan
increased $36 to $114 in 2002 from $78 in 2001. Matching contributions under the
401(k) feature of the plan totaled $111 in 2002.

Opening our new Carbondale and Scranton community banking offices in 2002
primarily caused the $173 or 10.3 percent increase in occupancy and equipment
expense. Also contributing to the increase were the costs associated with the
implementation of a Marketing Customer Information File and loan and deposit
platform systems.

Other expenses increased $358 or 7.9 percent to $4,910 in 2002 from $4,552 in
2001. Higher marketing-related costs, supply costs and contractual services
factored into the rise in other expenses. A 26.5 percent increase in marketing
costs and a 19.5 percent rise in stationery and supplies resulted from
additional expenses associated with opening the new community banking offices
and developing commercial business relationships. The increase in contractual
services primarily resulted from an increase in

                                      184
<PAGE>

COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2002 VERSUS 2001 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

costs associated with originating loans for sale in the secondary market.
Heightened activity with regard to this area of business caused an increase in
appraisal fees and credit report and search costs.

INCOME TAXES:

Despite higher earnings in 2002, our income tax expense decreased $43 to $1,383
for the year ended December 31, 2002, from $1,426 for the same period of 2001.
Our effective tax rate improved from 23.3 percent in 2001 to 21.0 percent in
2002. A higher level of tax-exempt income was primarily responsible for the
improvement. Tax-exempt interest revenue, as a percentage of total interest
revenue, increased from 7.2 percent in 2001 to 8.8 percent in 2002.

                                      185
<PAGE>

COMM BANCORP, INC.
DIRECTORS AND OFFICERS

BOARD OF DIRECTORS
COMM BANCORP, INC. AND
COMMUNITY BANK AND TRUST COMPANY
DAVID L. BAKER
Senior Vice President,
Community Bank and Trust Company

THOMAS M. CHESNICK
Retired

WILLIAM F. FARBER, SR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD

JUDD B. FITZE
Attorney, Farr, Davis & Fitze

DEAN L. HESSER
President, Tom Hesser Chevrolet, Inc.,
Tom Hesser Ford, LLC & Tom Hesser Nissan, LLC

JOHN P. KAMEEN
SECRETARY
Publisher, The Forest City News

WILLIAM A. KERL
President, Carbondale Concrete Company, Inc.,
Kerl Coal, Oil and Trucking Company, Inc.

ERWIN T. KOST
President, Kost Tire Distributors, Inc.

SUSAN F. MANCUSO
Partner, Mancuso & Mancuso
Accounting & Tax Service

ROBERT A. MAZZONI
Judge of the Court of Common Pleas of
Lackawanna County

J. ROBERT MCDONNELL
VICE CHAIRMAN
Owner, McDonnell's Restaurant

JOSEPH P. MOORE, III
President, J.J. Motors, Inc.

ERIC G. STEPHENS
Auto Dealer, H.L. Stephens and Son

CORPORATE OFFICERS
COMM BANCORP, INC.
WILLIAM R. BOYLE
Senior Vice President
Chief Credit Officer

WILLIAM F. FARBER, SR.
President and Chief Executive Officer
Chairman of the Board

JOHN P. KAMEEN
Secretary

J. ROBERT MCDONNELL
Vice Chairman

SCOTT A. SEASOCK
Executive Vice President
Chief Financial Officer

DIRECTORS EMERITUS
MICHAEL T. GOSKOWSKI
President, Kartri Sales Co., Inc.,
M.G. Manufacturing Co., Inc.

WILLIAM B. LOPATOFSKY
Retired

JOSEPH P. MOORE, JR.
President, Elk Mountain Ski Resort, Inc.

THEODORE W. POROSKY
Owner, Porosky Lumber Company

                                      186
<PAGE>

COMM BANCORP, INC.
DIRECTORS AND OFFICERS (CONTINUED)

ADVISORY BOARDS
COMMUNITY BANK AND TRUST COMPANY
CARBONDALE BRANCH
JOSEPH J. BRENNAN
Brennan and Brennan Funeral Home

JOHN J. CERRA
Attorney

HENRY E. DEECKE
Henry E. Deecke Real Estate

ROBERT W. FARBER
Quality Perforating, Inc.

JOSEPH R. MAZZA
Mazza Linen Service

CLIFFORD BRANCH
THOMAS J. LOPATOFSKY, JR.
Lenox Propane

SEAN P. MCGRAW
Attorney, McGraw, Peterson & Nepa

PATRICK J. OLIVERI
Oliveri's Crystal Lake Hotel

EATON TOWNSHIP,
LAKE WINOLA AND
TUNKHANNOCK BRANCHES
DOUGLAS A. GAY
Gay's True Value, Inc.

GLEN C. LAYAOU
Eaton Hills Development Corp.,
Layaou Construction Co.

HOWARD D. TRAUGER
Trauger's, Inc.

FOREST CITY BRANCH
THOMAS BAILEYS
Does Not Compute

RICHARD E. CURTIS
CUBE Auto Supply

ALLAN A. HORNBECK, JR.
Allan Hornbeck Chevrolet

JOSEPH LUCCHESI, D.M.D.
Dentist

J. SCOTT MISKOVSKY
Pharmacist, Red Cross Pharmacy

LINDA M. RICHARDS
Sparkware Associates, Inc.

MONTROSE BRANCH
EDGAR B. BAKER
Consultant

DUANE L. JERAULD
Retired

THOMAS R. KERR
Tom Kerr Chevrolet

DONNA L. WILLIAMS
Livestock Dealer/Farmer

NICHOLSON BRANCH
RICHARD S. LOCHEN
Lochen's Market

MARK W. NOVITCH
Sherwood's Freightliner
Western Star Sterling

DAVID E. SCHMIDT, JR.
The Proctor and Gamble
Paper Products Co.

SIMPSON BRANCH
FRANCIS LAPERA
Lapera Oil Company, Inc.

ROBERT M. MCDONNELL
McDonnell's Restaurant

GERALD G. SALKO, D.D.S.
Dentist

                                      187
<PAGE>

COMM BANCORP, INC.
DIRECTORS AND OFFICERS (CONTINUED)

OFFICERS
COMMUNITY BANK AND TRUST COMPANY
DAVID L. BAKER
Senior Vice President

WILLIAM R. BOYLE
Senior Vice President
Chief Credit Officer

THOMAS A. BYRNE
Vice President
Commercial Loan Officer

DEBRA A. CARR
Dickson City Branch Manager

MARK E. CATERSON
Montrose Branch Manager

ROBERT F. DAVIS
Assistant Vice President
Commercial Loan Officer

WILLIAM F. FARBER, SR.
President and Chief Executive Officer
Chairman of the Board

JAY S. FENDRICK
Senior Trust Officer

SHARON J. FONTANA
Tannersville Branch Manager

STEPHANIE A. GANZ, CPA
Vice President of Finance

DEBRA A. GAY
Eaton Township and Lake Winola Branch Manager

GREGORY G. GULA
Vice President
Internal Loan Review Officer

DONALD J. GIBBS
Scranton Branch Manager

DAVID A. JONES
Vice President
Mortgage Department

SHARON A. KOHANSKI
Assistant Vice President
Commercial Loan Officer

RANDOLPH LACROIX
Clifford Branch Manager

GARY S. LAVELLE
Vice President
Consumer Loan Officer

KATHLEEN A. LOCH
Factoryville and Nicholson Branch Manager

ANNETTE M. LYNCH
Loan Administrator

PAMELA S. MAGNOTTI
Compliance Officer

MARY ANN MUSHO
Human Resources Director

MICHAEL A. NARCAVAGE
Vice President
Chief Operations Officer

TIMOTHY P. O'BRIEN
Vice President
Commercial Loan Manager

ROBERT P. O'MALLEY
Indirect Loan Officer

M. EVELYN PANTZAR
Vice President
Internal Auditor

JOHN PASH, III
Comptroller

MARY BETH PASQUALICCHIO
Marketing Director

JAMES R. PIETROWSKI
Assistant Vice President
Commercial Loan Officer

VICTORIA L. RANDIS
Eynon Branch Manager

CHERYL A. RUPP
Simpson Branch Manager

THOMAS A. SALUS
Vice President
Credit Administrator

SCOTT A. SEASOCK
Executive Vice President
Chief Financial Officer

THOMAS W. SHEPPARD
Vice President
Clark Summit Branch Manager

RONALD K. SMITH
Vice President
Branch Administrator

TAMI L. SNYDER
Vice President
Information Services

HAROLD F. STOUT
Tunkhannock Branch Manager

BRIAN C. URBAS
Forest City and Lakewood Branch Manager

STEVEN J. URSICH
Assistant Vice President
Carbondale Branch Manager

LOUIS J. ZEFRAN
Business Development Officer

                                      188
<PAGE>

COMM BANCORP, INC.
DIRECTORS AND OFFICERS (CONTINUED)

BOARD OF DIRECTORS
COMM REALTY CORPORATION
WILLIAM F. FARBER, SR.
CHAIRMAN OF THE BOARD

SCOTT A. SEASOCK

ERIC G. STEPHENS

OFFICERS
COMM REALTY CORPORATION
THOMAS A. SALUS
President

STEPHANIE A. GANZ, CPA
Treasurer

THOMAS A. BYRNE
Secretary

BOARD OF DIRECTORS
COMMUNITY LEASING CORPORATION
WILLIAM F. FARBER, SR.
CHAIRMAN OF THE BOARD

SCOTT A. SEASOCK

ERIC G. STEPHENS

OFFICERS
COMMUNITY LEASING CORPORATION
ERIC G. STEPHENS
President

STEPHANIE A. GANZ, CPA
Treasurer

THOMAS A. BYRNE
Secretary

BOARD OF DIRECTORS
COMM FINANCIAL SERVICES CORPORATION
WILLIAM F. FARBER, SR.
CHAIRMAN OF THE BOARD

JOHN P. KAMEEN

SCOTT A. SEASOCK

OFFICERS
COMM FINANCIAL SERVICES CORPORATION
GEORGE J. COBB
President

JOHN PASH, III
Treasurer

MARY ANN MUSHO
Secretary

MEMBERSHIP
COMMUNITY ABSTRACT SERVICES, LLC
WILLIAM F. FARBER, SR.
Community Bank and Trust Company

MICHAEL C. COWLEY
Cowley Law Firm

OFFICERS
COMMUNITY ABSTRACT SERVICES, LLC
MICHAEL C. COWLEY
President and Managing Partner

SCOTT A. SEASOCK
Vice President

STEPHANIE A. GANZ, CPA
Treasurer

WILLIAM R. BOYLE
Secretary

                                      189
<PAGE>

COMM BANCORP, INC.
OTHER INFORMATION

LOCATIONS
COMMUNITY BANK AND TRUST COMPANY

CARBONDALE BRANCHES*
37 Dundaff Street
Carbondale, PA 18407
570-282-7500

92 Brooklyn Street
Carbondale, PA 18407
570-282-2276

CLARKS SUMMIT BRANCH*
125 N. State Street
Clarks Summit, PA 18411
570-586-6876

CLIFFORD BRANCH*
60 Main Street
Clifford, PA 18413
570-222-3168

DICKSON CITY BRANCH*
1601 Main Street
Dickson City, PA 18519
570-489-8900

EATON TOWNSHIP BRANCH*
Cross Country Complex
Route 29
Eaton Township, PA 18657
570-836-1008

EYNON BRANCH*
Eynon Plaza
Route 6
Eynon, PA 18403
570-876-4881

FACTORYVILLE BRANCH*
97 College Avenue
Factoryville, PA 18419
570-945-5137

FOREST CITY BRANCH*
521 Main Street
Forest City, PA 18421
570-785-3181

LAKE WINOLA BRANCH*
Winola Plaza
Lake Winola, PA 18625
570-378-3195

LAKEWOOD BRANCH
Lake Como Road
Lakewood, PA 18439
570-798-2900

MONTROSE BRANCH*
61 Church Street
Montrose, PA 18801
570-278-3824

NICHOLSON BRANCH*
57 Main Street
Nicholson, PA 18446
570-942-6135

SCRANTON BRANCH*
601 W. Lackawanna Avenue
Scranton, PA 18504
570-558-3600

SIMPSON BRANCH*
347 Main Street
Simpson, PA 18407
570-282-4821

TANNERSVILLE BRANCH*
Route 611
Tannersville, PA 18372
570-619-6620

TUNKHANNOCK BRANCH*
Route 6 West
Tunkhannock, PA 18657
570-836-5555

TRUST SERVICES
125 N. State Street
Clarks Summit, PA 18411
800-217-3501

LOAN OPERATIONS CENTER
1212 S. Abington Road
Clarks Summit, PA 18411
570-586-0377

REMOTE ATM LOCATIONS
Keystone College
College Avenue
LaPlume, PA 18440

Moses Taylor Hospital
700 Quincy Avenue
Scranton, PA 18510

COMMUNITY ABSTRACT SERVICES, LLC
281 E. Grove Street
Clarks Green, PA 18411
570-587-3060

COMM FINANCIAL SERVICES CORPORATION
125 N. State Street
Clarks Summit, PA 18411
570-586-0377

COMMUNITY LEASING CORPORATION
125 N. State Street
Clarks Summit, PA 18411
570-586-0377

COMM REALTY CORPORATION
125 N. State Street
Clarks Summit, PA 18411
570-586-0377

KLICK(SM) BANKING VIA THE INTERNET
www.combk.com
Customer Service:
800-820-4642, Ext. 109

INTOUCH(SM) TELEPHONE BANKING SYSTEM
1-800-820-4642

*ATM Locations

                                      190
<PAGE>

COMM BANCORP, INC.
OTHER INFORMATION (CONTINUED)

STOCKHOLDER INFORMATION

CORPORATE HEADQUARTERS:
125 North State Street
Clarks Summit, PA 18411

LEGAL COUNSEL:
Saul Ewing LLP
Penn National Insurance Plaza
2 North Second Street, 7th Floor
Harrisburg, PA 17101

INDEPENDENT AUDITORS:
Kronick Kalada Berdy & Co., PC
190 Lathrop Street
Kingston, PA 18704

TRANSFER AGENT:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10007

MARKET MAKERS:
Ferris, Baker, Watts, Inc.
100 Light Street
Baltimore, MD 21202
800-638-7411

Janney, Montgomery, Scott, LLC
1801 Market Street
Philadelphia, PA 19103
800-211-2663

M.H. Meyerson & Co., Inc.
525 Washington Blvd.
Jersey City, NJ 07303-0260
201-459-9500

Ryan, Beck & Co.
80 Main Street
West Orange, NJ 07052
888-231-7226

Sandler O'Neill & Partners, LP
9 West 57th Street, 19th Floor
New York, NY 10019
212-933-2705

COMMUNITY REINVESTMENT:

Copies of Community Bank and Trust Company's Community Reinvestment Statement
may be obtained without charge by writing to Pamela S. Magnotti, Compliance
Officer, at corporate headquarters.

COMMON STOCK MARKET INFORMATION:

Shares of Comm Bancorp, Inc. common stock are listed on The NASDAQ Stock
Market(R) ("NASDAQ") as CommBcp under the symbol "CCBP." As of March 17, 2004,
five firms were listed on the NASDAQ system as market makers for the Company's
common stock.

The high and low closing sale prices and dividends per share of the Company's
common stock for the four quarters of 2003 and 2002 are summarized as follows:

<TABLE>
<CAPTION>
                                                     CASH
                                                   DIVIDENDS
                                HIGH       LOW     DECLARED
                               ------     ------   ---------
<S>                            <C>        <C>      <C>
2003:
First Quarter...............   $35.48     $33.50     $0.22
Second Quarter..............    37.40      34.23      0.22
Third Quarter...............    36.67      34.25      0.22
Fourth Quarter..............   $38.85     $35.97     $0.22
2002:
First Quarter...............   $32.00     $29.00     $0.20
Second Quarter..............    38.00      31.50      0.20
Third Quarter...............    35.97      32.01      0.21
Fourth Quarter..............   $35.50     $32.76     $0.21
</TABLE>

DIVIDEND REINVESTMENT:

Comm Bancorp, Inc. offers a Dividend Reinvestment Plan whereby stockholders can
increase their investment in additional shares of common stock without incurring
fees or commissions. A prospectus and enrollment form may be obtained by
contacting American Stock Transfer & Trust Company, Dividend Reinvestment
Department, 59 Maiden Lane, New York, NY 10007, 1-800-278-4353.

DIVIDEND DIRECT DEPOSIT:

Comm Bancorp, Inc. stockholders not participating in the Dividend Reinvestment
Plan may opt to have their dividends deposited directly into their bank account
by contacting American Stock Transfer & Trust Company at 1-800-937-5449.

WEBSITE INFORMATION:

The Company files reports, proxy and information statements and other
information electronically with the Securities and Exchange Commission ("SEC")
through the Electronic Data Gathering Analysis and Retrieval ("EDGAR") filing
system. Stockholders and other interested parties may read and copy any
materials that the Company files with the SEC at the SEC's Public Reference Room
at 450 5th Street, N.W., Washington, DC 20549. Information can be obtained on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The SEC's website address is http://www.sec.gov. The Company's website
address is http://www.combk.com. Copies of the Company's Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act, as soon as reasonably practicable after the Company
electronically files such material with, or furnish it to, the SEC may be
obtained without charge by writing to Comm Bancorp, Inc., 125 North State
Street, Clarks Summit, PA 18411, Attn: Investor Relations or through our
Internet website.

                                      191