Reserve Bancorp, Inc.

                       2003 ANNUAL REPORT TO STOCKHOLDERS

<PAGE>

RESERVE BANCORP, INC.
2003 ANNUAL REPORT



TABLE OF CONTENTS

Page

Letter to Stockholders.........................................................1

Corporate Profile..............................................................2

Stock Price Information........................................................2

Selected Financial and Other Data..............................................3

Management's Discussion and Analysis
         of Financial Condition and Results of Operations......................5

Independent Auditor's Report.................................................F-1

Consolidated Financial Statements............................................F-2

Notes to Consolidated Financial Statements...................................F-7

Corporate Information.........................................................13



<PAGE>

                              Reserve Bancorp, Inc.




Dear Fellow Stockholders:

On behalf of our Board of Directors and employees, we are pleased to present the
2003 Annual Report to the Stockholders of Reserve Bancorp, Inc. (the "Company").

During  2003,  we  continued to build on the  successes  of 2002  following  the
completion of our initial public  offering in April 2002 in connection  with the
mutual-to-stock  conversion of Mt. Troy Bank.  Earnings on the investment of the
proceeds  of the  stock  offering  over a full  year  period  helped us during a
challenging  rate  environment  to achieve net income of  $734,000  for the year
ended  September  30,  2003,  as compared to net income of $505,000 for the year
ended September 30, 2002, an increase of 45.3%.

Total assets grew 18.6% during the year to $71.9  million at September 30, 2003,
as compared to $60.6  million at  September  30, 2002.  Stockholders'  equity at
September  30,  2003 was $12.6  million,  resulting  in book  value per share of
$17.09.

During 2003, we began to repurchase shares of the Company's common stock to fund
the restricted  stock plan and a 5% stock repurchase plan. We also continued our
efforts  to  enhance  stockholder  value  with the  payment  of cash  dividends.
Dividends  of $0.15  per  share  paid to  stockholders  during  the  year  ended
September 30, 2003. On November 10, 2003,  the Board of Directors of the Company
declared a $0.10 per share  semi-annual  cash  dividend  payable on December 31,
2003.

This year saw changes to our board of  directors.  We are sad to report that Mr.
Louis J. Slais,  a director of the Bank since 1976,  passed away during 2003. He
provided many years of quality  service to the Bank and the Board will certainly
miss his contribution.

Also, we would like to welcome Mr. Brian S. Allen to the Board of Directors. Mr.
Allen is with the investment  management  firm of C.S.  McKee.  We are confident
that Mr. Allen will be a valuable addition to the Board.

With the support of our  directors,  officers and  employees  and the  continued
confidence of our  investors,  we look forward to further  improvement in growth
and earnings.

Sincerely,


/s/David P. Butler                                     /s/Richard A. Sinewe

David P. Butler                                        Richard A. Sinewe
Chairman of the Board                                  President


                                        1

<PAGE>

CORPORATE PROFILE

The Company was formed as a  Pennsylvania  corporation  in December 2001 for the
purpose of acquiring  all of the capital  stock issued by the Bank in connection
with Bank's conversion from mutual to stock form of ownership. On April 5, 2002,
the Bank completed its  conversion as part of the $7.575 million  initial public
offering of the  Company's  common stock.  The Company is a unitary  savings and
loan holding  company  which,  under  existing laws, is subject to statutory and
regulatory restrictions on its business activities.  Under the Home Owners' Loan
Act, as amended by the  Gramm-Leach-Bliley  Financial Services Modernization Act
of 1999,  the  nonbanking  activities  of the Company are  restricted to certain
activities specified by the regulations of the Office of Thrift Supervision (the
"OTS"),  which  include  performing  services and holding  properties  used by a
savings  institution  subsidiary,  activities  authorized  for  savings and loan
holding companies as of March 5, 1987, and nonbanking activities permissible for
bank  holding  companies  pursuant  to the Bank  Holding  Company Act of 1956 or
authorized for financial  holding companies  pursuant to the  Gramm-Leach-Bliley
Act.  At the present  time,  the Company  conducts  no  significant  business or
operations  of its own other than  holding all of the  outstanding  stock of the
Bank and  investing the  Company's  portion of the net proceeds  obtained in the
mutual to stock conversion.

The  Bank  was  originally  founded  in  1891 as the Mt.  Troy  Building  & Loan
Association.  The Bank is a  federally-chartered  stock savings bank,  providing
traditional retail banking services,  one-to-four  family  residential  mortgage
loans,  residential  construction  loans,  commercial  real  estate  loans,  and
consumer loan products,  including home equity,  auto, and personal  loans.  The
Bank conducts its operations from its main office in Reserve Township and from a
full-service branch office in Pittsburgh, Pennsylvania.

The Bank is subject to examination and  comprehensive  regulation by the OTS and
its deposits are federally insured by the Federal Deposit Insurance  Corporation
(the "FDIC") under the Savings Association Insurance Fund (the "SAIF"). The Bank
is a member  of,  and owns  capital  stock in the  Federal  Home  Loan Bank (the
"FHLB") of Pittsburgh.

STOCK PRICE INFORMATION

Since it  commenced  trading on April 8, 2002,  the  Company's  common stock has
traded  in  the  over-  the-counter  market  with  quotations  available  on the
OTC-Electronic  Bulletin  Board under the trading  symbol  "RSVB." The following
table  reflects  high and low bid prices as reported on  www.nasdaq.com  for the
calendar quarters indicated. The quotations reflect inter-dealer prices, without
retail   mark-up,   markdown  or  commission   and  may  not  represent   actual
transactions.


          Quarter Ended                              High           Low
          -------------                              ----           ---
          June 30, 2002
             (beginning April 18, 2002)             $12.95         $11.30
          September 30, 2002                        $12.95         $12.40
          December 31, 2002                         $13.45         $12.65
          March 31, 2003                            $17.35         $16.90
          June 30, 2003                             $17.60         $16.00
          September 30, 2003                        $17.10         $16.35

The number of stockholders  of record as of December 12, 2003 was  approximately
322.  This does not reflect the number of persons or entities  who held stock in
nominee or "street" name through various  brokerage firms. At December 12, 2003,
there were 711,950 shares of the Company's common stock outstanding.

                                        2

<PAGE>

There were  dividends  of $0.15 per share paid to  stockholders  during the year
ended  September 30, 2003.  On November 10, 2003,  the Board of Directors of the
Company declared a $0.10 per share  semi-annual cash dividend to stockholders of
record as of December 15, 2003,  payable on December  31,  2003.  The  Company's
ability to pay dividends to stockholders is largely dependent upon the dividends
it receives  from the Bank.  The Bank may not declare or pay a cash  dividend on
any of its stock if the effect thereof would cause the Bank's regulatory capital
to be  reduced  below  (1)  the  amount  required  for the  liquidation  account
established  in  connection  with its mutual-  to-stock  conversion,  or (2) the
regulatory requirements imposed by the OTS.

SELECTED FINANCIAL AND OTHER DATA

The following  financial  information  and other data in this section is derived
from the audited consolidated financial statements for the years ended September
30, 2003 and 2002 and should be read  together with the  consolidated  financial
statements and the notes thereto included in this annual report.  The historical
financial  and other data at or for the years ended  September 30, 2003 and 2002
may not be  indicative  of results for the year ended  September 30, 2003 or for
any other period.

                                                        At or For the Year Ended
                                                              September 30,
                                                        ------------------------
                                                            2003         2002
                                                            ----         ----
Balance Sheet Data:                                          (In thousands)
Assets.................................................   $71,939      $60,560
Loans receivable, net..................................    34,887       35,017
Securities.............................................    30,646       20,942
Interest-bearing deposits in other banks...............     1,397        1,796
Cash and cash equivalents..............................     3,350        1,655
Deposits...............................................    50,468       42,987
FHLB advances..........................................     8,378        4,883
Total equity...........................................    12,597       12,350

Summary of Operations:
Interest and dividend income...........................    $3,811       $3,417
Interest expense.......................................     1,670        1,625
Net interest income....................................     2,141        1,792
Provision for loan losses..............................        18           18
                                                           ------       ------
Net interest income after provision for loan losses....     2,123        1,744
Noninterest income.....................................       238          186
Noninterest expense....................................     1,263        1,138
                                                           ------       ------
Income before income taxes.............................     1,098          822
Income taxes...........................................       364          317
                                                           ------       ------
Net income.............................................    $  734       $  505
                                                           ======       ======

                                        3

<PAGE>
<TABLE>
<CAPTION>
                                                                 At or For the Year
                                                                       Ended
                                                                    September 30,
                                                                ---------------------
                                                                  2003         2002
                                                                  ----         ----
<S>                                                            <C>          <C>
Earnings per share  - basic (since inception) .........         $ 1.06       $ 0.38
Earnings per share  - diluted (since inception) .......         $ 1.04       $ 0.38

Actual number (not in thousands):
Real estate loans outstanding .........................            335          378
Deposit accounts ......................................          5,448        5,708
Full service offices ..................................              1            2


Performance Ratios:
  Return on average assets (net income divided by
     average total  assets) ...........................           1.08%        0.97%

  Return on average equity (net income divided by
     average equity) ..................................           5.84         6.26

  Net interest rate spread ............................           2.66         2.96

  Net interest margin (net interest income as a
     percentage of average interest-earning assets ....           3.21         3.50

  Average interest-earning assets to average
     interest-bearing liabilities .....................         122.02       117.00

  Efficiency ratio (noninterest expense divided by the
     sum of net interest income and noninterest income)          53.09        57.53

  Dividend payout ratio ...............................          15.50          n/a


Asset Quality Ratios:
  Non-performing loans to total loans, net ............           0.17         1.10

  Non-performing assets to total assets ...............           0.08         0.64

  Net charge-offs to average loans outstanding ........           0.02         0.01

  Allowance for loan losses to total loans ............           0.50         0.52


Capital Ratios:
  Average equity to average assets ratios
     (average equity divided by average total assets) .          18.53        15.43

  Equity to assets at period end ......................          17.51        20.39
</TABLE>
----------------
(1)  Earnings per share for fiscal 2002 has been computed  based upon net income
     per share for the post mutual-to-stock conversion period from April 5, 2002
     to  September  30,  2002.  See  Note  20 to the  accompanying  Consolidated
     Financial Statements.

                                        4

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the consolidated  financial condition and results of
operations of the Company  should be read in conjunction  with the  accompanying
Consolidated Financial Statements.

General

Our earnings are  primarily  dependent  upon net interest  income,  which is the
difference  between  the  interest  income  earned on  interest-earning  assets,
primarily loans,  mortgage-backed  securities, and investment securities and the
interest  expense  on  interest-bearing  liabilities,   primarily  deposits  and
borrowings.  Net  interest  income  may be  affected  significantly  by  general
economic  and  competitive  conditions  and  policies  of  regulatory  agencies,
particularly  those  with  respect  to market  interest  rates.  The  results of
operations are also significantly influenced by the level of noninterest income,
such  as  loan-related  fees  and  fees  on  deposit-related  services,  and the
provision for loan losses.

The Management's  Discussion and Analysis section of this Annual Report contains
certain  forward-  looking  statements  (as  defined in the  Private  Securities
Litigation  Reform Act of 1995).  These  forward-looking  statements may involve
risks and  uncertainties.  Although  management  believes that the  expectations
reflected in such forward-looking statements are reasonable,  actual results may
differ from the results in these forward-looking statements. We do not undertake
to update any  forward-looking  statement,  whether written or oral, that may be
made from time to time.

Changes in Financial Condition

The  Company's  total  assets  of $71.9  million  at  September  30,  2003,  are
reflective of an increase of $11.3 million or 18.6% as compared to $60.6 million
at  September  30,  2002.  The  increase in total assets was due to increases in
interest bearing cash, FHLB stock and mortgage-backed and investment securities,
partially offset by a decrease in loans receivable and interest bearing deposits
in other banks.  The increase in the  liabilities was primarily due to increases
in savings deposits and advances from the Federal Home Loan Bank.  Stockholders'
equity increased by $247,000 to $12.6 million at September 30, 2003, as compared
to $12.4  million at September  30, 2002.  Changes in the  components of assets,
liabilities and equity are discussed herein.

Cash  and  Cash  Equivalents.  Cash  and  cash  equivalents,  which  consist  of
interest-bearing  and  noninterest-bearing  deposits with original maturities of
three months or less,  totaled  $3,350,000 at September 30, 2003, an increase of
$1,695,000  or 102.4% as compared to  $1,655,000  at September  30,  2002.  This
increase was primarily due to increased  interest-bearing deposits maintained at
the Federal Home Loan Bank.

Interest-bearing  Deposits in Other  Banks.  Interest-bearing  deposits in other
banks  totaled $1.4 million at  September  30, 2003,  an decrease of $400,000 or
22.2% as compared to $1.8 million at September 30, 2002.

Investment Securities.  Investment securities totaled $18.7 million at September
30, 2003, an increase of $7.3 million or 64.0%,  as compared to $11.4 million at
September 30, 2002. This was primarily a result of purchases of $12.0 million of
corporate bonds,  government agency bonds, and municipal  securities,  offset by
the  proceeds  from  maturities,  calls and payments  totaling  $3.5 million and
proceeds from sales of $1.5 million.

                                        5

<PAGE>

Mortgage-backed Securities. Mortgage-backed securities totaled $12.0 million  at
September  30, 2003,  an increase of $2.4 million or 25.0%,  as compared to $9.6
million at September  30, 2002.  The increase was due  primarily to purchases of
$7.5 million offset by principal  payments totaling $5.0 million and proceeds of
sales of $100,000.

Loans Receivable,  Net. Net loans receivable at September 30, 2003 totaled $34.9
million,  a decrease  of $100,000  or 0.29%,  as  compared  to $35.0  million at
September 30, 2002. The decrease was primarily due to net principal repayments.

Deposits.  Total deposits,  after interest  credited,  increased $7.5 million or
10.1% to $50.5  million at September  30, 2003,  as compared to $43.0 million at
September  30,  2002.  The  increase was due to increases in the NOW and savings
accounts, as well as certificates of deposit.

Federal  Home Loan Bank  Advances.  Federal  Home Loan Bank  advances  were $8.4
million at  September  30, 2003,  as compared to $4.9  million at September  30,
2002.  The increase in borrowings was obtained in order to take advantage of the
low interest rates  available on borrowings  and the  opportunity to implement a
rate  enhancement  program.  The  borrowings  were  used to  fund an  investment
purchase with the spread on the transaction returning approximately 2.00%.

Stockholders' Equity.  Stockholders' equity totaled $12,597,000 at September 30,
2003, as compared to $12,350,000 at September 30, 2002. The increase of $247,000
or 2.0% was due to earnings for the year ended  September  30, 2003 of $734,000;
an increase in accumulated other comprehensive income of $83,000 and an increase
of $97,000 from the release of ESOP  shares,  less  dividends  paid of $113,000,
purchases of treasury stock of $342,000, and the awarding of RSP shares unearned
of $212,000.

Results of Operations for the Years Ended September 30, 2003 and 2002.

Net Income.  Net income was $734,000 for the year ended  September  30, 2003, as
compared to net income of $505,000 for the year ended  September  30, 2002.  The
$229,000 or 45.3%  increase in net income for the year ended  September 30, 2003
was  primarily  the result of increases in net interest  income and  noninterest
income,  offset by increases in  noninterest  expense and  provision  for income
taxes. Changes in the components of income and expense are discussed herein.

Net Interest  Income.  Net interest income  increased  $348,000 or 19.4% for the
year ended September 30, 2003, as compared to the year ended September 30, 2002.
The average balance of interest-earning assets increased $15.4 million or 30.1%,
whereas the rate earned thereon  decreased 96 basis points.  The average balance
of interest-bearing liabilities increased by $10.8 million or 24.8%, whereas the
rate paid thereon decreased 66 basis points.

The net  interest  rate  spread,  which is the  difference  between the yield on
average  interest-earning  assets  and  the  cost  of  average  interest-bearing
liabilities, decreased to 2.66% for the year ended September 30, 2003 from 2.96%
for the year ended September 30, 2002.

Interest Income.  Interest income increased  $393,000 or 11.5% to $3,810,000 for
the year ended  September 30, 2003, as compared to $3,417,000 for the year ended
September 30, 2002.

Interest  on loans  receivable  decreased  $292,000  or 10.5% for the year ended
September  30, 2003,  as compared to the year ended  September  30,  2002.  This
increase was the result of a $1,724,000
                                        6

<PAGE>

decrease  in the  average  balance  of loans  receivable  and a 46  basis  point
decrease in the yield earned.

Interest income on mortgage-backed securities increased $306,000 or 148% for the
year ended September 30, 2003, as compared to the year ended September 30, 2002.
This increase was the result of a $7.3 million  increase in the average  balance
of mortgage-backed securities,  partially offset by a 54 basis point decrease in
the yield earned thereon.

Interest income on investment  securities  increased  $430,000 or 123.0% for the
year ended September 30, 2003, as compared to the year ended September 30, 2002.
The increase was the result of $7.6 million  increase in the average  balance of
investment securities, and a 65 basis point increase in the average yield earned
thereon.

Interest income on other interest-earning  assets decreased $51,000 or 56.0% for
the year ended  September 30, 2003, as compared to the year ended  September 30,
2002.  The decrease was primarily due to 260 basis point decrease in the average
yield earned  partially offset by a $2.3 million increase in the average balance
of other interest-earning assets.

The average  yield on  interest-earning  assets was 5.72% and 6.68% for the year
ended September 30, 2003 and 2002, respectively.

Interest  Expense.  Interest  expense  totaled  $1,670,000  for the  year  ended
September 30, 2003, as compared to $1,625,000  for the year ended  September 30,
2002. The $45,000 or 2.8% increase was primarily due to a $10.8 million increase
in the average balance of interest-bearing liabilities, partially offset by a 66
basis point decrease in the rate paid.

Interest expense on deposits totaled $1.45 million for the years ended September
30, 2003,  as compared to $1.57  million for the year ended  September 30, 2002.
The $120,000 or 7.7% decrease was primarily due to a 71 basis point  decrease in
the average  cost,  partially  offset by a $5.8 million  increase in the average
balance of deposits.

Interest  expense  on  FHLB  advances  increased  $165,000  for the  year  ended
September  30,  2003,  as compared to the year ended  September  30,  2002.  The
increase  was due to a $5.0  million  increase in the  average  balance and a 21
basis point  increase in the average rate paid on FHLB advances  during the year
ended September 30, 2003.

Provision for Loan Losses.  During the years ended  September 30, 2003 and 2002,
the  provision  for  loan  losses  was  $18,000.  This  reflected   management's
evaluation of the underlying  credit risk of the loan portfolio and the level of
allowance for loan losses.

At September 30, 2003, the allowance for loan losses  totaled  $193,000 or 0.50%
and  321.7% of total  loans and total  non-performing  loans,  respectively,  as
compared to $182,000 or 0.48% and 47.27%,  respectively,  at September 30, 2002.
Our  non-performing  loans (non-accrual loans and accruing loans 90 days or more
overdue)  totaled  $60,000 and $385,000 at September  30, 2003 and September 30,
2002,   respectively,   which  represented  0.17%  and  1.10%  of  total  loans,
respectively.  Our ratio of  non-performing  loans to total assets was 0.08% and
0.64% at September 30, 2003 and September 30, 2002, respectively.

Noninterest Income. During the year ended September 30, 2003, noninterest income
increased  $52,000 or 27.9%,  as compared to the year ended  September 30, 2002,
primarily due to an increase in service charges and other fees.

                                        7

<PAGE>

Noninterest  Expense.  Total noninterest expense increased by $125,000 or 10.98%
during  the year  ended  September  30,  2003,  as  compared  to the year  ended
September  30, 2002.  The increase was  attributable  to an $87,000  increase in
compensation and benefits,  including $30,000  attributable to the ESOP plan and
$42,000 attributable to the RSP plan. Legal, accounting and other fees increased
$34,000 due to activities relating to being a public company.

Income Tax Expense.  The provision for income tax totaled  $364,000 for the year
ended  September 30, 2003, as compared to $317,000 for the year ended  September
30, 2002. The $47,000 or 14.8% increase was due to increased income.

                                        8

<PAGE>

Average Balance Sheet

The  following  table sets forth a summary  of  average  balances  of assets and
liabilities as well as average yield and rate information.  Average balances are
derived primarily from month-end balances,  however, management does not believe
the use of month-end  balances differs  significantly from an average based upon
daily balances.

<TABLE>
<CAPTION>
                                                                          Year Ended September 30,
                                                      ---------------------------------------------------------------
                                                                 2003                              2002
                                                      ------------------------------   ------------------------------
                                                      Average               Average    Average              Average
                                                      Balance   Interest  Yield/Cost   Balance   Interest  Yield/Cost
                                                      -------   --------  ----------   -------   --------  ----------
                                                                          (Dollars in thousands)
<S>                                                  <C>       <C>            <C>     <C>       <C>           <C>
Interest-earning assets:
 Loans receivable net (1).........................    $34,586   $2,477         7.16%   $36,310   $2,769        7.63%
 Mortgage-backed securities.......................     11,338      513         4.52      4,087      207        5.06
 Investment securities (2)........................     15,662      780         4.98      8,083      350        4.33
 Other interest earning assets....................      4,978       40         0.80      2,676       91        3.40
                                                      -------   ------       ------    -------   ------      ------
  Total interest-earning assets...................     66,564    3,810         5.72     51,156    3,417        6.68
                                                                ------                           ------
Non-interest-earning assets.......................      1,200                            1,127
                                                      -------                          -------
  Total assets....................................    $67,764                          $52,283
                                                      =======                          =======
Interest-bearing liabilities:
 NOW accounts.....................................    $ 7,037      118         1.61   $  6,794      135        1.99
 Savings accounts.................................     18,558      437         2.35     14,598      416        2.85
 Certificates of deposit..........................     21,670      891         4.11     20,354    1,015        4.99
 FHLB advances....................................      7,018      224         3.19      1,977       59        2.98
                                                      -------   ------       ------    -------   ------      ------
  Total interest-bearing liabilities.............      54,553    1,670         3.06     43,723    1,625        3.72
                                                                ------                           ------
Non-interest-bearing liabilities..................        651                              492
                                                      -------                          -------
 Total liabilities................................     55,204                           44,215
Stockholders' equity..............................     12,560                            8,068
                                                      -------                          -------
 Total liabilities and stockholders' equity.......    $67,764                          $52,283
                                                      =======                          =======
Net interest income...............................              $2,140                           $1,792
                                                                ======                           ======
Interest rate spread(3)...........................                             2.66%                           2.96%
                                                                             ======                          ======
Net yield on interest-earning  assets(4)..........                             3.21%                           3.50%
                                                                             ======                          ======
Ratio of average interest-earning assets
   to average interest-bearing liabilities........                           122.02%                         117.00%
                                                                             ======                          ======
</TABLE>
-----------------
(1)  Non-accruing  loans have been included in loans receivable,  and the effect
     of such inclusion was not material.
(2)  Includes  government  securities,  corporate  bonds and equity  securities.
     There have been no tax equivalent adjustments made to yields.
(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                        9

<PAGE>

Rate/Volume Analysis

The relationship between the volume and rates of the Company's  interest-bearing
assets and  interest-bearing  liabilities  influence  the Company's net interest
income.  The following table reflects the sensitivity of the Company's  interest
income and  interest  expense to  changes in volume and in  prevailing  interest
rates during the periods  indicated.  Each category reflects the: (1) changes in
volume (changes in volume  multiplied by old rate); (2) changes in rate (changes
in rate  multiplied by old volume);  (3) changes in rate/volume  (change in rate
multiplied  by the  change  in  volume);  and (4)  net  change.  The net  change
attributable  to the  combined  impact  of  volume  and rate has been  allocated
proportionally to the absolute dollar amounts of change in each.


                                                    Year Ended September 30,
                                               -------------------------------
                                                         2003 vs. 2002
                                               -------------------------------
                                                      Increase (Decrease)
                                                           Due to
                                               -------------------------------
                                                                Rate/
                                               Volume    Rate   Volume    Net
                                               ------   -----   ------   -----
                                                    (Dollars in thousands)
Interest and dividend income:
   Loans receivable...........................  $(121)  $(179)   $   8   $(292)
   Investment securities and other............    830     (63)    ( 81)    686
                                                -----   -----    -----   -----
      Total interest-earning assets...........   $709   $(242)   $( 73)  $ 394
                                                 ====   =====    =====   =====

Interest expense:
   NOW accounts...............................  $   8   $ (24)   $  (1)  $ (17)
   Savings accounts...........................    104     (67)     (17)     20
   Certificates of deposit....................     70    (181)     (12)   (123)
   Advances from FHLB and other borrowings....    439     (32)    (242)    165
                                                -----   -----    -----   -----
      Total interest-bearing liabilities......   $621   $(304)   $(272)  $  45
                                                -----   -----    -----   -----
Change in net interest income.................  $  88   $  62    $ 199   $ 349
                                                =====   =====    =====   =====

Market Risk Analysis

Qualitative Analysis.  Because the majority of the Bank's assets and liabilities
are sensitive to changes in interest rates,  the Bank's most significant form of
market risk is interest  rate risk,  or changes in interest  rates.  The Bank is
vulnerable to an increase in interest rates to the extent that  interest-bearing
liabilities  mature or reprice more rapidly than  interest-earning  assets.  The
lending  activities of the Bank have historically  emphasized the origination of
long-term,  fixed rate loans  secured by  single-family  residences.  The Bank's
primary source of funds has been deposits with substantially shorter maturities.
While having  interest-bearing  liabilities  that reprice more  frequently  than
interest-earnings assets is generally beneficial to net interest income during a
period of declining interest rates, this type of an asset/liability  mismatch is
generally detrimental during periods of rising interest rates.

The Board of Directors  has  established  an  asset/liability  committee,  which
consists of the Bank's  president,  treasurer/controller  and two members of the
Board of Directors.  The committee meets periodically to review loan and deposit
pricing and  production  volumes,  interest  rate risk  analysis,  liquidity and
borrowing needs, and a variety of other assets and liability management topics.

                                       10

<PAGE>

To reduce the effect of interest  rate changes on net  interest  income the Bank
has  adopted  various  strategies  to  enable  it to  improve  the  matching  of
interest-earning asset maturities to interest-bearing  liability maturities. The
main elements of these strategies include seeking to:

o    originate  loans with  adjustable  rate  features  or fixed rate loans with
     short maturities;

o    lengthen the maturities of its liabilities  when it would be cost effective
     through  the  pricing  and  promotion  of   certificates   of  deposit  and
     utilization of FHLB advances;

o    attract low cost checking and transaction  accounts,  which tend to be less
     interest rate sensitive when interest rates rise;

o    when market  conditions  permit,  to  originate  and hold in its  portfolio
     adjustable rate loans which have annual interest rate adjustments; and

o    maintain an investment  portfolio that provides a stable cash flow, thereby
     providing investable funds in varying interest rate cycles.

The Bank has also made a significant  effort to maintain its level of lower cost
deposits as a method of enhancing profitability. At September 30, 2003, the Bank
had  approximately  58% of its  deposits in low- cost  savings  accounts and NOW
accounts.  These deposits have traditionally  remained relatively stable and are
expected to be only moderately affected in a period of rising interest rates.

Quantitative  Analysis.  Exposure to interest rate risk is actively monitored by
management.   The  Bank's  objective  is  to  maintain  a  consistent  level  of
profitability  within  acceptable  risk  tolerances  across  a  broad  range  of
potential interest rate environments.  The Bank uses the OTS Net Portfolio Value
("NPV")  Model to monitor its exposure to interest rate risk,  which  calculates
changes in net portfolio value.  Reports generated from assumptions provided and
modified by management are reviewed by the Asset/Liability  Management Committee
and reported to the Board of Directors quarterly.  The Interest Rate Sensitivity
of Net Portfolio Value Report shows the degree to which balance sheet line items
and net  portfolio  value are  potentially  affected by a 100 to 300 basis point
(1/100th  of a  percentage  point)  upward  and  downward  shift  (shock) in the
Treasury yield curve.

The following  table  presents the Bank's NPV as of September 30, 2003.  The NPV
was calculated by the OTS, based on information provided by the Bank.

                                                        NPV as % of Present
                   (Net Portfolio Value ("NPV")           Value of Assets
                   ----------------------------           ---------------
Change                                                      Basis Point
in Rates(1)     $ Amount   $ Change         % Change     NPV Ratio   Change
-----------     --------   --------         --------     ---------   ------
                  (Dollars in thousands)
 +300 bp          10,192     -3,878             -28%      14.57%      -412 bp
 +200 bp          11,505     -2,566             -18       16.04       -265
 +100 bp          12,854     -1,216             - 9       17.48       -121
    0 bp          14,070                                  18.69
 -100 bp          14,720        650              +5       19.25        +56

-----------
(1)  The  -200bp  and  -300bp  scenarios  are not  shown  due to low  prevailing
     interest rate environment.

Future  interest  rates or their  effect on NPV or net  interest  income are not
predictable.  Nevertheless,  the  Bank's  management  does  not  expect  current
interest  rates to have a  material  adverse  effect  on the  Bank's  NPV or net
interest  income in the near  future.  Computations  of  prospective  effects of
hypothetical interest rate changes are based on

                                       11

<PAGE>

numerous  assumptions,  including  relative  levels  of market  interest  rates,
prepayments,  and deposit run-offs,  and should not be relied upon as indicative
of  actual  results.   Certain   shortcomings  are  inherent  in  this  type  of
computation.  Although  certain assets and liabilities may have similar maturity
or periods of  repricing,  they may react at  different  times and in  different
degrees to changes in the market  interest  rates.  The interest rate on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while rates on other types of assets and  liabilities  may lag
behind changes in market interest rates.  Certain assets such as adjustable rate
mortgages,  generally have features, which restrict changes in interest rates on
a short-term  basis and over the life of the asset.  In the event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increase  in credit  risk may  result as the  ability of many
borrowers to service  their debt may decrease in the event of a rise in interest
rates.

Liquidity and Capital Resources

The Company's primary sources of funds are new deposits, proceeds from principal
and interest payments on loans, and repayments on investment and mortgage-backed
securities.   While  maturities  and  scheduled  amortization  of  loans  are  a
predictable source of funds,  deposit flows and mortgage  repayments are greatly
influenced by general interest rates,  economic conditions and competition.  The
Company   maintained   liquidity  levels  adequate  to  fund  loan  commitments,
investment  opportunities,  deposit withdrawals and other financial commitments.
At September 30, 2003,  the Company had  obligations  to fund  outstanding  loan
commitments of approximately $2.4 million, including unused lines of credit, for
which adequate  resources  were available to fund these loans.  At September 30,
2003,  approximately $10.6 million of the Bank's time deposits were scheduled to
mature  within the next 12 months.  The Bank expects such deposits to be renewed
at market rates. In addition to this source of continuing funding,  the Bank has
the ability to obtain advances from the FHLB of Pittsburgh.

At September 30, 2003, management had no knowledge of any trends, events or
uncertainties  that will have or are reasonably  likely to have material effects
on the  liquidity,  capital  resources or operations of the Company.  Further at
September 30, 2003,  management was not aware of any current  recommendations by
the regulatory authorities, which, if implemented, would have such an effect.

                                       12

<PAGE>

                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
Reserve Bancorp, Inc.:

We have audited the accompanying  consolidated balance sheet of Reserve Bancorp,
Inc. and  subsidiary  (the  "Company") as of September 30, 2003, and the related
consolidated  statements  of income,  changes in  shareholders'  equity and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  financial  statements  based on our  audit.  The  consolidated  financial
statements of Reserve  Bancorp,  Inc. as of and for the year ended September 30,
2002, were audited by Stokes & Hinds, LLC, who merged with Parente Randolph, LLC
as of June 1, 2003,  and whose  report  dated  November  8, 2002,  expressed  an
unqualified opinion on those statements.

We conducted our audit 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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the 2003 consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Reserve
Bancorp,  Inc. and subsidiary as of September 30, 2003, and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
accounting principles generally accepted in the United States of America.



/s/Parente Randolph, LLC


Pittsburgh, Pennsylvania
October 24, 2003

                                       F-1
<PAGE>
                              RESERVE BANCORP, INC.

                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                                    2003            2002
----------------------------------------------------------------------------------------------

                                     ASSETS
                                     ------
<S>                                                             <C>             <C>
Cash and cash equivalents:
     Interest bearing                                             $ 3,118,784     $ 1,335,623
     Noninterest bearing                                              231,185         319,537
Interest-bearing deposits in other banks                            1,397,485       1,795,869
Securities held-to-maturity (estimated fair value of
     $4,574,916 and $5,672,445)                                     4,301,648       5,405,046
Mortgage-backed securities held-to-maturity (estimated
     fair value of $3,997,025 and $6,986,926)                       3,929,953       6,891,886
Securities available-for-sale, at fair value                       14,351,220       5,979,584
Mortgage-backed securities available-for-sale, at fair value        8,063,083       2,665,481
Loans, net                                                         34,886,871      35,016,785
Federal Home Loan Bank stock, at cost                                 674,500         303,600
Accrued interest receivable                                           500,626         421,735
Premises and equipment, net                                           281,411         292,292
Real estate held for investment                                       154,302          76,945
Prepaid expenses                                                       42,867          13,040
Deferred income taxes                                                   5,317          42,299
                                                                 ------------    ------------

                      TOTAL                                      $ 71,939,252    $ 60,559,722
                                                                 ============    ============

           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------

Deposits                                                         $ 50,468,363    $ 42,986,487
Federal Home Loan Bank advances                                     8,378,469       4,883,312
Advances from borrowers for taxes and insurance                        76,998          61,835
Accrued interest payable                                              122,542         119,641
Other liabilities                                                     296,131         158,504
                                                                 ------------    ------------

            Total liabilities                                      59,342,503      48,209,779
                                                                 ------------    ------------
Commitments and contingencies

Preferred stock, no par value; 2,000,000 authorized;
     none outstanding                                                       -               -
Common stock, par value $.10 per share; 8,000,000
     shares authorized; 757,500 shares issued                          75,750          75,750
Additional paid-in-capital                                          7,128,170       7,089,908
Retained earnings - substantially restricted                        6,275,671       5,654,945
Accumulated other comprehensive income, net of
     applicable income taxes of $102,203 and $42,286                  143,485          60,340
Treasury stock, at cost (20,450 shares)                              (342,033)              -
Unallocated shares held by Employee Stock Ownership
     Plan (ESOP)                                                     (472,008)       (531,000)
Unearned shares held by Restricted Stock Plan (RSP)                  (212,286)              -
                                                                 ------------    ------------

            Net shareholders' equity                               12,596,749      12,349,943
                                                                 ------------    ------------

                      TOTAL                                      $ 71,939,252    $ 60,559,722
                                                                 ============    ============

----------------------------------------------------------------------------------------------
</TABLE>

        See Notes to Consolidated Financial Statements

                                       F-2
<PAGE>
                              RESERVE BANCORP, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                               2003           2002
--------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>
INTEREST AND DIVIDEND INCOME:
     Loans                                                                   $ 2,476,776    $ 2,768,886
     Investments                                                                 780,464        349,659
     Mortgaged-backed securities                                                 513,399        206,756
     Federal Home Loan Bank stock                                                 13,125         12,961
     Interest-earning demand deposits                                             27,150         78,347
                                                                              ----------     ----------
            Total interest and dividend income                                 3,810,914      3,416,609
                                                                              ----------     ----------
INTEREST EXPENSE:
     Deposits                                                                  1,446,461      1,566,342
     Advances from Federal Home Loan Bank                                        223,744         58,850
                                                                              ----------     ----------
            Total interest expense                                             1,670,205      1,625,192
                                                                              ----------     ----------
                   Net interest income                                         2,140,709      1,791,417

PROVISION FOR LOAN LOSSES                                                         18,000         18,000
                                                                              ----------     ----------
                       Net interest income after
                          provision for loan losses                            2,122,709      1,773,417
                                                                              ----------     ----------
NONINTEREST INCOME:
     Service charges and other fees                                              206,883        143,072
     Income from real estate rental                                               10,400          4,800
     Gain on sale of investments                                                  20,870         38,599
                                                                              ----------     ----------
            Total noninterest income                                             238,153        186,471
                                                                              ----------     ----------
NONINTEREST EXPENSE:
     Compensation and benefits                                                   660,814        573,964
     Occupancy and equipment                                                     110,639        115,646
     Federal insurance premiums                                                   27,305         24,601
     Data processing                                                             105,876        101,472
     Professional and supervisory fees                                           117,169         82,801
     Other                                                                       241,057        239,919
                                                                              ----------     ----------
            Total noninterest expense                                          1,262,860      1,138,403
                                                                              ----------     ----------
INCOME BEFORE INCOME TAX EXPENSE                                               1,098,002        821,485

INCOME TAX EXPENSE                                                               363,738        316,691
                                                                              ----------     ----------
NET INCOME                                                                    $  734,264     $  504,794
                                                                              ==========     ==========

EARNINGS PER SHARE - BASIC (SINCE INCEPTION)                                  $     1.06     $     0.38
                                                                              ==========     ==========

EARNINGS PER SHARE - DILUTIVE (SINCE INCEPTION)                               $     1.04     $     0.38
                                                                              ==========     ==========

WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC                                        693,732        700,221
                                                                              ==========     ==========

WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTIVE                                     705,095        700,221
                                                                              ==========     ==========

--------------------------------------------------------------------------------------------------------
</TABLE>

         See Notes to Consoldiated Financial Statements

                                       F-3
<PAGE>
                              RESERVE BANCORP, INC.

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                          ACCUMULATED
                                                                             OTHER                          UNALLOCATED
                                                     ADDITIONAL             COMPRE-                          UNEARNED
                                            COMMON     PAID-IN   RETAINED   HENSIVE   TREASURY SHARES HELD    SHARES
                                             STOCK     CAPITAL   EARNINGS   INCOME     STOCK     BY ESOP    HELD BY RSP     TOTAL
------------------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>      <C>        <C>         <C>       <C>         <C>         <C>        <C>
BALANCE AT SEPTEMBER 30, 2001              $     - $        -  $5,150,151  $ 13,757  $       -   $       -   $       -  $ 5,163,908
                                                                                                                        -----------

COMPREHENSIVE INCOME:
    Net income                                   -          -     504,794         -          -           -           -      504,794
    Change in unrealized gain (loss)
       on securities available-for-sale,
       net of applicable income taxes
       of $32,490                                -          -           -    46,583          -           -           -       46,583
                                                                                                                        -----------
          Total comprehensive income                                                                                        551,377
                                                                                                                        -----------
Proceeds from sale of common stock,
    net of issuance costs                   75,750  7,082,079           -         -          -    (590,000)          -    6,567,829
ESOP shares allocated                           -       7,829           -         -          -      59,000           -       66,829
                                           ------- ----------  ----------  --------  ---------  ----------   ---------  -----------
BALANCE AT SEPTEMBER 30, 2002               75,750  7,089,908   5,654,945    60,340          -    (531,000)          -   12,349,943
                                                                                                                        -----------
COMPREHENSIVE INCOME:
Net income                                       -          -     734,264         -          -           -           -      734,264
    Change in unrealized gain (loss)
       on securities available-for-sale,
       net of applicable income taxes
       of $86,815                                -          -           -   120,470          -           -           -      120,470
    Reclassification adjustment, net of
       income tax of $(26,898)                   -          -           -   (37,325)         -           -           -      (37,325)
                                                                                                                        -----------
          Total comprehensive income                                                                                        817,409
                                                                                                                        -----------
RSP shares awarded                               -          -          87         -          -           -    (254,743)    (254,656)
Compensation expense for RSP                     -          -           -         -          -           -      42,457       42,457
ESOP shares allocated                            -     38,262           -         -          -      58,992           -       97,254
Purchase of treasury stock                       -          -                     -   (342,033)          -           -     (342,033)
Cash dividends declared ($0.15 per share)        -          -    (113,625)        -          -           -           -     (113,625)
                                           ------- ----------  ----------  --------  ---------  ----------   ---------  -----------
BALANCE AT SEPTEMBER 30, 2003              $75,750 $7,128,170  $6,275,671  $143,485  $(342,033) $ (472,008)  $(212,286) $12,596,749
                                           ======= ==========  ==========  ========  =========  ==========   =========  ===========

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                 See Notes to Consolidated Financial Statements

                                       F-4
<PAGE>
                              RESERVE BANCORP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                 FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                          2003           2002
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                      $    734,264    $    504,794
     Adjustments to reconcile change in net income to
        net cash provided by operating activities:
           Amortization of:
               Deferred loan origination fees                             (66,927)        (76,578)
               Premiums and discounts on investment securities           (235,592)        (15,668)
           Provision for loan losses                                       18,000          18,000
           Depreciation and amortization of premises and equipment         50,457          43,568
           Compensation expense - ESOP and RSP                            139,711          66,829
           Net gain on sales of securities available-for-sale             (20,870)        (34,079)
           Net gain on call of security held to maturity                        -          (4,520)
           Deferred income taxes                                          (22,935)         44,661
           (Increase) decrease in:
               Accrued interest receivable                                (78,891)       (125,239)
               Prepaid expenses                                           (29,827)         31,096
           Increase (decrease) in:
               Accrued interest payable                                     2,901         (59,536)
               Other liabilities                                          137,627          68,377
                                                                     ------------    ------------
                  Net cash provided by operating activities               627,918         461,705
                                                                     ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of interest-bearing deposits in other banks                      -      (1,495,836)
     Proceeds from maturities of interest-bearing deposits
        in other banks                                                    399,000         100,000
     Proceeds from maturities and calls of
        securities held-to-maturity                                     1,450,000       5,444,477
     Proceeds from principal repayments of
        mortgage-backed securities held-to-maturity                     2,922,951         359,575
     Purchases of securities held-to-maturity                            (350,000)     (8,789,290)
     Purchases of mortgage-backed securities held-to-maturity                   -      (7,033,857)
     Proceeds from sales of securities available-for-sale               1,558,399          64,900
     Proceeds from maturities and calls of
        securities available-for-sale                                   2,086,851         460,000
     Proceeds from principal repayments of
        mortgage-backed securities available-for-sale                   2,108,361         255,372
     Purchases of securities available-for-sale                       (11,642,433)     (4,682,830)
     Purchases of mortgage-backed securities available-for-sale        (7,537,236)     (2,540,268)
     Proceeds from sales of mortgage backed
        securities available-for-sale                                      98,108            --
     Purchases of premises and equipment                                  (39,576)        (92,100)
     Purchases of real estate held for investment                         (77,357)        (76,945)
     (Increase) decrease in Federal Home Loan Bank stock                 (370,900)          9,000
     Net loan originations and principal repayments on loans              178,841       2,772,868
                                                                     ------------    ------------
                  Net cash used in investing activities                (9,214,991)    (15,244,934)
                                                                     ------------    ------------
---------------------------------------------------------------------------------------------------
</TABLE>
                 See Notes to Consolidated Financial Statements

                                       F-5
<PAGE>

RESERVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                  2003           2002
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net increase in FHLB advances                                           $  3,495,157    $  4,883,312
     Net increase in deposits                                                   7,481,876       3,948,829
     Net increase (decrease) in advances from borrowers
        for taxes and insurance                                                    15,163         (21,537)
     Proceeds from issuance of common stock                                             -       6,966,000
     Payment of conversion costs                                                        -        (398,171)
     Dividends paid                                                              (113,625)              -
     Purchase of RSP shares                                                      (254,656)              -
     Purchase of treasury stock                                                  (342,033)              -
                                                                             ------------    ------------
                  Net cash provided by financing activities                    10,281,882      15,378,433
                                                                             ------------    ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                       1,694,809         595,204

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  1,655,160       1,059,956
                                                                             ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                     $  3,349,969    $  1,655,160
                                                                             ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION:
        Cash paid for:
           Interest on deposits, advances, and other borrowings              $  1,667,304    $  1,684,728
                                                                             ============    ============
           Income taxes                                                      $    359,598    $    234,713
                                                                             ============    ============
        Loans transferred to foreclosed real estate owned                    $     59,457    $          -
                                                                             ============    ============

        Security transferred from held-to-maturity to available-for-sale
          -due to continued increase in the credit risk of the security
          as evidenced by a deterioration of the credit worthiness of
          the issuer                                                         $          -    $    154,421
                                                                             ============    ============
        Total increase in unrealized gain on securities available-for-sale   $    207,285    $     79,073
                                                                             ============    ============

           Deferred income tax expense                                            (86,815)        (32,490)
                                                                             ------------    ------------
        Net increase in unrealized gain on securities available-for-sale     $    120,470    $     46,583
                                                                             ============    ============

---------------------------------------------------------------------------------------------------
</TABLE>
                 See Notes to Consolidated Financial Statements

                                       F-6
<PAGE>

RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

                              RESERVE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

 1.   NATURE OF OPERATIONS AND SUMMARY OF
      SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION

         The consolidated  financial  statements include the accounts of Reserve
         Bancorp,   Inc.  and  its  wholly-owned   subsidiary,   Mt.  Troy  Bank
         (collectively,  the "Company"). All intercompany transactions have been
         eliminated in consolidation.

         The accounting and reporting policies of the Company and the methods of
         applying those policies  conform with accounting  principles  generally
         accepted in the United States of America  (GAAP).  The  accounting  and
         reporting  policies and the methods of applying  those  policies  which
         significantly  affect the determination of financial position,  results
         of operations, and cash flows are summarized below.

      USE OF ESTIMATES

         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities,  disclosure of contingent assets and
         liabilities  as of the balance  sheet date and the reported  amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         Material  estimates  that are  particularly  susceptible to significant
         change relate to the determination of the allowance for loan losses and
         the  valuation  of  foreclosed  real  estate.  In  connection  with the
         determination  of the  allowance  for loan losses and the  valuation of
         foreclosed real estate management  obtains  independent  appraisals for
         significant properties.

         A majority of the Company's  loan portfolio  consists of  single-family
         residential  loans in the  Pittsburgh  area.  The  regional  economy is
         currently stable and consists of various types of industry. Real estate
         prices  in  this  market  are  also  stable,   however,   the  ultimate
         collectibility of a substantial portion of the Company's loan portfolio
         are susceptible to changes in local market conditions.

         While  management  uses available  information  to recognize  losses on
         loans and foreclosed  real estate,  further  reductions in the carrying
         amounts  of loans  and  foreclosed  assets  may be  necessary  based on
         changes in local economic conditions. In addition, regulatory agencies,
         as an integral part of their examination  process,  periodically review
         the estimated losses on loans and foreclosed real estate. Such agencies
         may require the Company to recognize  additional  losses based on their
         judgments  about  information  available  to them at the  time of their
         examination.  Because of these factors,  it is reasonably possible that
         the  estimated  losses on

                                      F-7
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         loans and  foreclosed  real  estate may change  materially  in the near
         term.  However,  the amount of the change that is  reasonably  possible
         cannot be estimated.

      BUSINESS

         Reserve  Bancorp,   Inc.  was  incorporated   under  the  laws  of  the
         Commonwealth  of  Pennsylvania  for the purpose of becoming the holding
         company of Mt. Troy Bank in connection with the Bank's  conversion from
         a federally  chartered  mutual  savings  bank to a federally  chartered
         stock savings  bank,  pursuant to its Plan of  Conversion.  The Company
         commenced  operations  on April  5,  2002,  the date of a  Subscription
         Offering of its shares in  connection  with the  conversion of the Bank
         (the  "Conversion").  The  operating  results  of  the  Company  depend
         primarily  upon the  operating  results  of the Bank  and,  to a lesser
         extent,  income  from   interest-earning   assets  such  as  investment
         securities.

         Mt. Troy Bank is a federally-chartered, SAIF-insured stock savings bank
         conducting  business  from  one  office  location,   Reserve  Township,
         Allegheny County, Pennsylvania. The Bank's principal sources of revenue
         originate from its portfolio of residential  real estate and commercial
         mortgage loans as well as income from  investment  and  mortgage-backed
         securities.

         The Bank is  subject  to  regulation  and  supervision  by the  Federal
         Deposit  Insurance   Corporation   (FDIC)  and  the  Office  of  Thrift
         Supervision (OTS).

      RECLASSIFICATION OF COMPARATIVE FIGURES

         Certain  comparative  amounts for prior years have been reclassified to
         conform to current year presentations.  Such  reclassifications  had no
         effect on net income or shareholders' equity.

      CASH AND CASH EQUIVALENTS

         For purposes of reporting  cash flows,  the Company  considers cash and
         deposits in other financial  institutions  with original  maturities of
         three months or less to be cash and cash equivalents.

      INTEREST-BEARING DEPOSITS IN OTHER BANKS

         Interest-bearing deposits in other banks are carried at cost.

      INVESTMENT AND MORTGAGE-BACKED SECURITIES

         The Company follows the provisions of Statement of Financial Accounting
         Standards  No.  115,  Accounting  for Certain  Investments  in Debt and
         Equity Securities.  Accordingly,  management determines the appropriate
         classification  of securities  at the time of purchase and  reevaluates
         such  designation  as of each balance sheet date.  Debt  securities are
         classified as held-

                                      F-8
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         to-maturity  when the  Company has the  positive  intent and ability to
         hold the securities to maturity. Held-to-maturity securities are stated
         at amortized cost.  Debt securities not classified as  held-to-maturity
         are classified as available-for-sale. Available-for-sale securities are
         stated at fair value, with the unrealized gains and losses, net of tax,
         reported as a separate component of shareholders' equity.

         The amortized cost of debt securities classified as held-to-maturity or
         available-for-sale   is  adjusted  for  amortization  of  premiums  and
         accretion of discounts to maturity,  or in the case of  mortgage-backed
         securities,  over  the  contractual  life of the  security,  which  are
         computed using the interest  method.  Such  amortization is included in
         interest income from  investments.  Interest and dividends are included
         in interest  income from  investments.  Realized gains and losses,  and
         declines in value  judged to be  other-than-temporary  are  included in
         gain  (loss) on sale of  investments.  The cost of  securities  sold is
         based on the specific identification method.

      LOANS

         Loans are stated at unpaid principal  balances,  less the allowance for
         loan losses and net deferred loan fees.

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

         Interest income generally is not recognized on specific  impaired loans
         unless the  likelihood  of further  loss is remote.  Interest  payments
         received on such loans are applied as a reduction of the loan principal
         balance.  Interest income on other impaired loans is recognized only to
         the extent of interest payments received.

      ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses is established as losses are estimated to
         have occurred  through a provision for loan losses charged to earnings.
         Loan losses are charged against the allowance when management  believes
         the  uncollectibility  of  a  loan  balance  is  confirmed.  Subsequent
         recoveries, if any, are credited to the allowance.

         The  allowance  for loan  losses is  evaluated  on a  regular  basis by
         management  and is  based  upon  management's  periodic  review  of the
         collectibility  of the  loans in light of  historical  experience,  the
         nature and volume of the loan  portfolio,  adverse  situations that may
         affect  the  borrower's  ability  to  repay,  estimated  value  of  any
         underlying   collateral  and  prevailing  economic   conditions.   This
         evaluation is inherently  subjective as it requires  estimates that are
         susceptible  to  significant   revision  as  more  information  becomes
         available.

         A loan is considered  impaired when,  based on current  information and
         events,  it is probable  that the Company will be unable to collect the
         scheduled  payments of principal or interest  when due according to the
         contractual  terms  of  the  loan  agreement.   Factors  considered  by
         management in determining impairment include payment status, collateral
         value,  and the  probability  of

                                      F-9
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         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.
         Impairment  is measured on a loan by loan basis for all loans by either
         the present  value of  expected  future  cash flows  discounted  at the
         loan's effective  interest rate, the loan's obtainable market price, or
         the fair value of the collateral if the loan is collateral dependent.

      REAL ESTATE OWNED

         Real  estate  acquired  by  foreclosure  or  voluntary  deed in lieu of
         foreclosure  is  initially  carried  at the lower of fair  value  minus
         estimated  disposal costs or the balance of the loan on the property at
         the date of  acquisition.  Any  write-downs  based on the asset's  fair
         value at date of  acquisition  are  charged to the  allowance  for loan
         losses.  Subsequent  costs  directly  related  to  the  development  or
         improvement of real estate are capitalized.

      FEDERAL HOME LOAN BANK STOCK

         Investment  in stock of a Federal  Home Loan Bank is required by law of
         every  federally   insured  savings  and  loan  or  savings  bank.  The
         investment  is carried at cost.  No ready market  exists for the stock,
         and it has no quoted market value.

      PREMISES AND EQUIPMENT

         Land is carried at cost. Buildings,  building  improvements,  leasehold
         improvements,  and  furniture,  fixtures,  and equipment are carried at
         cost,  less  accumulated  depreciation  and  amortization.   Buildings,
         building improvements, leasehold improvements, and furniture, fixtures,
         and equipment are depreciated  using the  straight-line and accelerated
         methods over the  estimated  useful  lives of the assets,  which are as
         follows:

             Building                                         50 years
             Building improvements                        5 - 32 years
             Leasehold improvements                           15 years
             Furniture, fixtures, and equipment           2 - 10 years

      INCOME TAXES

         Income  taxes are  provided  for the tax  effects  of the  transactions
         reported in the financial statements and consist of taxes currently due
         plus deferred taxes related primarily to differences  between the basis
         of available-for-sale  securities,  allowance for loan losses,  benefit
         plans, loan origination fees and accumulated depreciation for financial
         reporting  and income  tax.  The  deferred  tax assets and  liabilities
         represent  the  future tax return  consequences  of those  differences,
         which  will  either  be  taxable  or  deductible  when the  assets  and
         liabilities   are

                                      F-10
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         recovered or settled. Deferred tax assets and liabilities are reflected
         at income tax rates  applicable to the period in which the deferred tax
         assets or  liabilities  are  expected to be  realized  or  settled.  As
         changes  in tax laws or rates are  enacted,  deferred  tax  assets  and
         liabilities are adjusted through the provision for income taxes.

      STOCK OPTIONS

         The Company  accounts for the stock  option plan under the  recognition
         and measurement  principles of APB Opinion No. 25, Accounting for Stock
         Issued  to  Employees,  and  related  interpretations.  No  stock-based
         employee  compensation  cost is reflected in net income, as all options
         granted under the plan have an exercise price equal to the market value
         of the underlying  common stock on the date of the grant. The following
         table  illustrates  the effect on net income and  earnings per share if
         the  Company  applies  the fair value  recognition  provisions  of FASB
         statement No. 123,  Accounting  for  Stock-Based  Compensation,  to the
         stock option plan.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                                  -------------------
                                                                    2003       2002
                                                                  --------   --------
<S>                                                             <C>        <C>
      Net income, as reported                                     $734,264   $504,794
      Deduct: total stock-based employee compensation expense
            determined under fair value based methods for all
            awards, net of related tax effects                     (6,629)        (-)
                                                                  --------   --------
      Pro forma net income                                        $727,635   $504,794
                                                                  ========   ========
      Earnings per share:
          Basic-as reported                                          $1.06       $.38
                                                                     =====       ====
          Basic-pro forma                                            $1.05       $.38
                                                                     =====       ====

          Diluted-as reported                                        $1.04       $.38
                                                                     =====       ====
          Diluted-pro forma                                          $1.03       $.38
                                                                     =====       ====
</TABLE>

      For the purpose of computing  the pro forma effects of stock option grants
      under the fair value accounting method, the fair value of the stock option
      grant  was  estimated  on the date of the grant  using  the Black  Scholes
      option pricing model. The weighted average  grant-date fair value of stock
      options granted during fiscal year 2003 was $.89 per share.  The following
      weighted  average  assumptions were used for option grants made during the
      year ended September 30, 2003:

      Risk-free interest rate                                            4.25%
      Expected life (years)                                              9.50
      Expected volatility                                               20.00%
      Dividend yield                                                      .89%


                                      F-11
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      COMPREHENSIVE INCOME

         The  Company  is  required  to  present  comprehensive  income  and its
         components in a full set of general  purpose  financial  statements for
         all  periods  presented.   Other  comprehensive   income  is  comprised
         exclusively of net  unrealized  holding gains (losses) on its available
         for sale  securities  portfolio.  The Company has elected to report the
         effects of its other  comprehensive  income as part of the Statement of
         Changes in Shareholders' Equity.

      EARNINGS PER SHARE

         Earnings  per share  (EPS)  have  been  calculated  using the  weighted
         average  number  of  shares  outstanding.  For  purposes  of  computing
         weighted-average  shares  outstanding,  unallocated  shares  under  the
         Company's Employee Stock Ownership Plan and unvested shares held by the
         Bank's Restricted Stock Plan are not considered  outstanding until they
         are  committed to be released for  allocation.  EPS for fiscal 2002 has
         been computed  based upon net income per share for the post  conversion
         period from April 5, 2002 to September 30, 2002.

      CONVERSION TO STOCK FORM OF OWNERSHIP

         The Company was incorporated under Pennsylvania law in December 2001 to
         acquire and hold all the outstanding  common stock of the Bank, as part
         of the Bank's conversion from a federally chartered mutual savings bank
         to a federally  chartered  stock savings  bank. In connection  with the
         conversion,  which was consummated on April 5, 2002, the Company issued
         and sold 757,500  shares of common stock at a price of $10.00 per share
         for total net  proceeds  of  $7,157,829  after  conversion  expenses of
         $417,171.  The Company retained $2,967,829 of the proceeds and used the
         remaining  proceeds to purchase the newly issued  capital  stock of the
         Bank in the amount of $3,600,000  and  originated a loan to the ESOP of
         $590,000.

         The Bank may not declare or pay a cash  dividend if the effect  thereof
         would  cause its net  worth to be  reduced  below  either  the  amounts
         required for the liquidation  account discussed below or the regulatory
         capital requirements imposed by federal and state regulations.

         At the time of conversion,  the Bank established a liquidation  account
         in an amount ($5.27  million) equal to its retained income as reflected
         in the latest  consolidated  balance sheet used in the final conversion
         prospectus.  The  liquidation  account is maintained for the benefit of
         eligible  account  holders  who  continue  to  maintain  their  deposit
         accounts  in the Bank  after  conversion.  In the  event of a  complete
         liquidation  of  the  Bank  (and  only  in  such  an  event),  eligible
         depositors  who  continue  to  maintain  accounts  shall be entitled to
         receive  a  distribution  from  the  liquidation   account  before  any
         liquidation may be made with respect to common stock.

      RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2002, the FASB issued  Statement No. 146,  Accounting for Costs
         Associated with Exit or Disposal  Activities,  effective for activities
         that are  initiated  after  December 31, 2002,  with early  application
         encouraged. This Statement addresses financial accounting and reporting
         for costs

                                      F-12
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         associated  with exit or disposal  activities  and  nullifies  Emerging
         Issues Task Force  (EITF)  Issue No.  94-3  Liability  Recognition  for
         Certain  Employee  Termination  Benefits  and  Other  Costs  to Exit an
         Activity  (including  Certain Costs Incurred in a  Restructuring).  The
         adoption of Statement 146 is not expected to have a material  effect on
         the Company's financial position or results of operations.

         In October 2002,  the FASB issued  Statement No. 147,  Acquisitions  of
         Certain Financial  Institutions-an  amendment of FASB Statements No. 72
         and 144 and FASB Interpretation No. 9, effective for acquisitions on or
         after October 1, 2002.  FASB Statement No. 72, and FASB  Interpretation
         No.  9,  provided  interpretive  guidance  on  the  application  of the
         purchase method to acquisitions of financial  institutions.  Except for
         transactions  between two or more mutual  enterprises,  this  Statement
         removes  acquisitions of financial  institutions from the scope of both
         Statement 72 and  Interpretation 9 and requires that those transactions
         be accounted for in accordance with FASB  Statements No. 141,  Business
         Combinations,  and No. 142, Goodwill and Other Intangible Assets. Thus,
         the  requirement  in  paragraph 5 of  Statement  72 to  recognize  (and
         subsequently  amortize)  any  excess of the fair  value of  liabilities
         assumed  over the fair value of tangible  and  identifiable  intangible
         assets acquired as an unidentifiable intangible asset no longer applies
         to acquisitions  within the scope of FAS No. 147. In addition,  FAS No.
         147 amends FASB  Statement No. 144,  Accounting  for the  Impairment or
         Disposal  of  Long-Lived  Assets,  to  include  in its scope  long-term
         customer-relationship  intangible assets of financial institutions such
         as  depositor-and  borrower-relationship  intangible  assets and credit
         cardholder intangible assets. Consequently, those intangible assets are
         subject  to the same  undiscounted  cash flow  recoverability  test and
         impairment loss  recognition and measurement  provisions that Statement
         144 requires for other  long-lived  assets that are held and used.  The
         adoption of Statement No. 147 is not expected to have a material effect
         on the Company's financial position or results of operations.

         On December  31,  2002,  the FASB issued FAS No.  148,  Accounting  for
         Stock-Based  Compensation-Transition  and Disclosure,  which amends FAS
         No. 123,  Accounting for Stock-Based  Compensation.  FAS No. 148 amends
         the  disclosure  requirements  of FAS No. 123 to require more prominent
         and more frequent disclosures in financial statements about the effects
         of  stock-based  compensation.  Under the  provisions  of FAS No.  123,
         companies  that  adopted the  preferable,  fair value based method were
         required  to apply  that  method  prospectively  for new  stock  option
         awards.   This   contributed  to  a  "ramp-up"  effect  on  stock-based
         compensation  expense in the first few years following adoption,  which
         caused  concern  for  companies  and  investors  because of the lack of
         consistency in reported results.  To address that concern,  FAS No. 148
         provides two additional  methods of transition that reflect an entity's
         full complement of stock-based  compensation  expense  immediately upon
         adoption,  thereby  eliminating  the ramp-up  effect.  FAS No. 148 also
         improves the clarity and prominence of disclosures  about the pro forma
         effects  of  using  the fair  value  based  method  of  accounting  for
         stock-based compensation for all companies-regardless of the accounting
         method used-by  requiring  that the data be presented more  prominently
         and in a more  user-friendly  format in the  footnotes to the financial
         statements. In addition, the statement improves the timeliness of those
         disclosures by requiring  that this  information be included in interim
         as well as annual  financial  statements.  The transition  guidance and
         annual  disclosure  provisions  of FAS No. 148 are effective for fiscal
         years  ending

                                      F-13
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         after December 15, 2002, with earlier application  permitted in certain
         circumstances.  The interim  disclosure  provisions  are  effective for
         financial reports containing  financial  statements for interim periods
         beginning after December 15, 2002.

         In April 2003,  the FASB issued No. 149,  Amendment of Statement 133 on
         Derivative  Instruments and Hedging  Activities.  This statement amends
         and clarifies accounting for derivative instruments,  including certain
         derivative  instruments  embedded  in other  contracts  and for hedging
         activities under FAS Statement No. 133. The amendments set forth in FAS
         no. 149 improve  financial  reporting by requiring  that contracts with
         comparable  characteristics be accounted for similarly.  In particular,
         this statement  clarifies  under what  circumstances a contract with an
         initial net  investment  meets the  characteristic  of a derivative  as
         discussed  in FAS No. 133. In addition,  it  clarifies  when a derivate
         contains a financing  component that warrants special  reporting in the
         statement  of cash flows.  FAS No. 149 amends  certain  other  existing
         pronouncements.  Those changes will result in more consistent reporting
         consistent  reporting  of  contracts  that  are  derivatives  in  their
         entirety or that contain  embedded  derivatives  that warrant  separate
         accounting.  This statement is effective for contracts  entered into or
         modified  after June 30,  2003,  except as stated below and for hedging
         relationships  designated  after June 30, 2003. The guidance  should be
         applied prospectively.  The provisions of this statement that relate to
         FAS No. 133,  Implement  Issues,  that have been  effective  for fiscal
         quarters  that began  prior to June 15,  2003,  should  continue  to be
         applied  in  accordance  with  their  respective  effective  dates.  In
         addition,  certain provisions relating to forward purchases or sales of
         when-issued  securities  or  other  securities  that do not yet  exist,
         should  be  applied  to  existing  contracts  as well as new  contracts
         entered into after June 30, 2003. The adoption of this statement is not
         expected to have a material effect on the Company's  financial position
         or results of operations.

         In May 2003, the FASB issued Statement No. 150,  Accounting for Certain
         Financial  Instruments  with  Characteristics  of both  Liabilities and
         Equity.  This  statement   establishes  standards  for  how  an  issuer
         classifies   and   measures   certain   financial    instruments   with
         characteristics  of both  liabilities  and equity.  It requires that an
         issuer  classify a financial  instrument  that is within its scope as a
         liability (or an asset in some  circumstances).  Such  instruments  may
         have been previously  classified as equity. This statement is effective
         for financial  instruments entered into or modified after May 31, 2003,
         and otherwise is effective at the beginning of the first interim period
         beginning  after June 15, 2003.  The adoption of this statement has not
         and is not expected to have a material effect on the Company's reported
         equity.

         In  November,  2002,  FASB issued  Interpretation  No. 45,  Guarantor's
         Accounting  and  Disclosure  Requirements  for  Guarantees,   Including
         Indirect  Guarantees of  Indebtedness  of Others.  This  interpretation
         elaborates on the  disclosures to be made by a guarantor in its interim
         and annual  financial  statements  about its obligations  under certain
         guarantees  that it has issued.  This  interpretation  clarifies that a
         guarantor  is  required to  disclose  (a) the nature of the  guarantee,
         including  the  approximate  term of the  guarantee,  how the guarantee
         arose and the events or circumstances  that would require the guarantor
         to perform under the  guarantee;  (b) the maximum  potential  amount of
         future  payments  under the guarantee;  (c) the carrying  amount of the
         liability, if any, for the guarantor's obligations under the guarantee;
         and (d) the nature and

                                      F-14
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

         extent of any recourse  provisions or available  collateral  that would
         enable the  guarantor to recover the amounts paid under the  guarantee.
         This  interpretation  also  clarifies  that a guarantor  is required to
         recognize,  at the  inception  of a  guarantee,  a  liability  for  the
         obligations it has  undertaken in issuing the guarantee,  including its
         ongoing  obligation  to  stand  ready to  perform  over the term of the
         guarantee  in  the  event  that  the  specified  triggering  events  or
         conditions  occur.  The  objective of the initial  measurement  of that
         liability  is the fair value of the  guarantee  at its  inception.  The
         initial  recognition  and  initial   measurement   provisions  of  this
         interpretation  are  applicable  on a  prospective  basis to guarantees
         issued  or  modified  after  December  31,  2002,  irrespective  of the
         guarantor's  fiscal  year-end.  The  disclosure  requirements  in  this
         interpretation  are effective  for  financial  statements of interim or
         annual  periods  ending after  December 15, 2002.  The adoption of this
         interpretation  did  not  have  a  material  effect  on  the  Company's
         financial position or results of operations.

         In January,  2003, the FASB issued Interpretation No. 46, Consolidation
         of  Variable  Interest  Entities,  in an  effort  to  expand  upon  and
         strengthen  existing  accounting guidance that addresses when a company
         should include in its financial statements the assets, liabilities, and
         activities of another entity.  The objective of this  interpretation is
         not to restrict  the use of variable  interest  entities but to improve
         financial  reporting  by  companies  involved  with  variable  interest
         entities.  Until now, one company generally has included another entity
         in its  consolidated  financial  statements  only if it controlled  the
         entity through voting interests.  This interpretation  changes that, by
         requiring a variable  interest  entity to be considered by a company if
         that  company is  subject  to a  majority  of the risk of loss from the
         variable interest entity's activities or entitled to receive a majority
         of  the  entity's   residual   returns  or  both.   The   consolidation
         requirements  of this  interpretation  apply  immediately  to  variable
         interest  entities  created after January 31, 2003.  The  consolidation
         requirements  apply to  older  entities  in the  first  fiscal  year or
         interim period beginning after June 15, 2003. Certain of the disclosure
         requirements apply in all financial statements issued after January 31,
         2003,  regardless of when the variable interest entity was established.
         The adoption of this interpretation has not and is not expected to have
         a material  effect on the  Company's  financial  position or results of
         operations.

 2.   SECURITIES HELD-TO-MATURITY

      The   amortized   cost   and   estimated   fair   values   of   securities
      held-to-maturity at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                           ....................................2003....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                              <C>                  <C>                   <C>                <C>
         Government agency                         $1,516,430           $98,417               $   -              $1,614,847
         Municipal bonds                            2,040,533           132,132                   -               2,172,665
         Corporate bonds                              744,685            42,719                   -                 787,404
                                                   ----------          --------               -----              ----------
                  Total                            $4,301,648          $273,268               $   -              $4,574,916
                                                   ==========          ========               =====              ==========
</TABLE>
                                      F-15
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                           ....................................2002....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                              <C>                  <C>                 <C>                <C>

         Government agency                         $2,421,652          $106,568             $     -              $2,528,220
         Municipal bonds                            1,890,003           112,707                   -               2,002,710
         Corporate bonds                            1,093,391            49,191              (1,067)              1,141,515
                                                   ----------          --------             -------              ----------
                  Total                            $5,405,046          $268,466             $(1,067)             $5,672,445
                                                   ==========          ========             =======              ==========
</TABLE>

      The   amortized   cost   and   estimated   fair   values   of   securities
      held-to-maturity at September 30, 2003, by contractual  maturity are shown
      below.

                                                         .....SECURITIES........
                                                         AMORTIZED       FAIR
                                                            COST         VALUE

         Due within one year                              $194,682    $ 196,950
         Due from one to five                            2,261,875    2,400,372
         Due from five to ten                              189,283      203,994
         Due after ten years                             1,655,808    1,773,600
                                                        ----------   ----------
                    Total                               $4,301,648   $4,574,916
                                                        ==========   ==========

 3.   MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY

      The amortized cost and estimated fair values of mortgage-backed securities
      held-to-maturity at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                ....................................2003....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                              <C>                  <C>                  <C>                <C>
      Government National Mortgage
         Association                                $ 879,007            $3,869             $(2,954)              $ 879,922
      Federal Home Loan Mortgage
         Corporation                                    1,768                71                  (1)                  1,838
      Federal National Mortgage
         Association                                3,049,178            66,087                   -               3,115,265
                                                   ----------           -------             -------              ----------
               Total                               $3,929,953           $70,027             $(2,955)             $3,997,025
                                                   ==========           =======             =======              ==========
</TABLE>
                                      F-16
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                             ....................................2002.......................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                              <C>                  <C>                   <C>                <C>

      Government National Mortgage
         Association                               $1,146,388          $  9,112            $   (516)             $1,154,984
      Federal Home Loan Mortgage
         Corporation                                    3,733               114                   -                   3,847
      Federal National Mortgage
         Association                                5,741,765            98,989             (12,659)              5,828,095
                                                   ----------          --------            --------              ----------
               Total                               $6,891,886          $108,215            $(13,175)             $6,986,926
                                                   ==========          ========            ========              ==========

</TABLE>
      The amortized cost and estimated fair values of mortgage-backed securities
      held-to-maturity at September 30, 2003, by contractual  maturity are shown
      below.

                                                       MORTGAGE-BACKED
                                                  .......SECURITIES.........
                                                  AMORTIZED             FAIR
                                                     COST              VALUE
                                                     ----              -----

         Due within one year                     $        -        $        -
         Due from one to five                        17,255            16,810
         Due from five to ten                       567,225           575,437
         Due after ten years                      3,345,473         3,404,778
                                                 ----------        ----------
                    Total                        $3,929,953        $3,997,025
                                                 ==========        ==========

                                      F-17

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

 4.   SECURITIES AVAILABLE-FOR-SALE

      The   amortized   cost   and   estimated   fair   values   of   securities
      available-for-sale at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                ....................................2003....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                            <C>                  <C>                  <C>                <C>
      Government agency                            $1,996,939         $ 21,336             $(13,819)             $2,004,456
      Corporate bonds                               8,773,940          266,332               (7,948)              9,032,324
      Municipal bonds                                 165,000           13,144                    -                 178,144
                                                  -----------         --------             --------             -----------
             Total debt securities                 10,935,879          300,812              (21,767)             11,214,924
                                                  -----------         --------             --------             -----------
      FHLMC/FNMA stock                                408,100            4,000              (15,350)                396,750
      Mortgage security mutual fund                 1,996,964               -               (14,035)              1,982,929
      Corporate stock                                 752,250           47,115              (42,748)                756,617
                                                  -----------         --------             --------             -----------
             Total equity securities                3,157,314           51,115              (72,133)              3,136,296
                                                  -----------         --------             --------             -----------
                    Total                         $14,093,193         $351,927             $(93,900)            $14,351,220
                                                  ===========         ========             ========             ===========
</TABLE>

<TABLE>
<CAPTION>
                                                ....................................2002....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                              <C>                  <C>                  <C>                <C>


      Government agency                            $1,500,000           $24,158            $      -              $1,524,158
      Corporate bonds                               1,203,721            10,579              (4,600)              1,209,700
      Municipal bonds                                 516,008            19,800                   -                 535,808
                                                   ----------           -------            --------              ----------
             Total debt securities                  3,219,729            54,537              (4,600)              3,269,666
                                                   ----------           -------            --------              ----------
      FHLMC/FNMA stock                                454,400            20,000             (35,320)                439,080
      Mortgage security mutual fund                 2,281,474                88             (10,724)              2,270,838
                                                   ----------           -------            --------              ----------
             Total equity securities                2,735,874            20,088             (46,044)              2,709,918
                                                   ----------           -------            --------              ----------
                    Total                          $5,955,603           $74,625            $(50,644)             $5,979,584
                                                   ==========           =======            ========              ==========
</TABLE>

                                      F-18
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

The amortized cost and estimated fair values of securities available-for-sale at
September 30, 2003 by contractual  maturity are shown below.  Mutual fund shares
and stocks have no maturity date.

                                               .......SECURITIES.........
                                              AMORTIZED              FAIR
                                                COST                VALUE
                                                ----                -----

         Due within one year                 $ 2,378,190         $ 2,434,024
         Due from one to five                  5,286,940           5,503,891
         Due from five to ten                  1,746,939           1,740,956
         Due after ten years                   1,523,810           1,536,053
                                             -----------         -----------
                    Total                    $10,935,879         $11,214,924
                                             ===========         ===========

 5.   MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE

      The amortized cost and estimated fair values of mortgage-backed securities
      available-for-sale at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                ....................................2003....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                            <C>                  <C>                  <C>                <C>
      Federal National Mortgage
         Association                               $7,706,131           $45,533            $(20,305)             $7,731,359
      Federal Home Loan Mortgage
         Corporation                                  369,291                -              (37,567)                331,724
                                                   ----------           -------            --------              ----------
               Total                               $8,075,422           $45,533            $(57,872)             $8,063,083
                                                   ==========           =======            ========              ==========
</TABLE>

<TABLE>
<CAPTION>
                                                ....................................2002....................................
                                                                        GROSS                GROSS
                                                   AMORTIZED          UNREALIZED          UNREALIZED                FAIR
                                                     COST               GAINS               LOSSES                  VALUE
                                                     ----               -----               ------                  -----
<S>                                            <C>                  <C>                  <C>                <C>
      Government National Mortgage
         Association                             $  116,370           $ 6,717                $   -             $  123,087
      Federal National Mortgage
         Association                              1,690,098            62,464                    -              1,752,562
      Federal Home Loan Mortgage
         Corporation                                780,368             9,464                    -                789,832
                                                 ----------           -------                ----              ----------
               Total                             $2,586,836           $78,645                $   -             $2,665,481
                                                 ==========           =======                =====             ==========
</TABLE>
                                      F-19
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      The amortized cost and estimated fair values of mortgage-backed securities
      available-for-sale  at September  30, 2003,  by  contractual  maturity are
      shown below.

<TABLE>
<CAPTION>
                                                                        AMORTIZED           FAIR
                                                                          COST              VALUE
                                                                          ----              -----
<S>                                                                  <C>               <C>
         Due within one year                                           $        -        $        -
         Due from one to five                                                   -                 -
         Due from five to ten                                             781,737           785,635
         Due after ten years                                            7,293,685         7,277,448
                                                                       ----------        ----------
                    Total                                              $8,075,422        $8,063,083
                                                                       ==========        ==========
</TABLE>

 6.   LOANS, NET

      Loans, net at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                           2003               2002
                                                                       -----------        -----------
<S>                                                                  <C>                <C>
         First mortgage loans:
             One to four family                                        $24,927,305        $25,909,505
             Multi-family                                                  247,681            264,327
             Construction loans                                          5,543,356          4,935,365
             Commercial real estate                                      3,684,310          2,755,672
         Home equity and second mortgage                                 2,209,334          2,631,768
         Consumer loans:
             Secured                                                       264,823            329,532
             Unsecured                                                     184,626            217,245
             Share loans                                                   117,878            136,343
         Commercial business loans                                       1,388,803            483,731
                                                                       -----------        -----------

                Total                                                   38,568,116         37,663,488

         Plus:     Real estate owned                                        59,458                  -

         Less:      Undisbursed portion of construction loans            3,478,144          2,385,205
                    Allowance for loan losses                              192,519            181,835
                    Net deferred loan origination fees                      70,040             79,663
                                                                       -----------        -----------
                           Loans, net                                  $34,886,871        $35,016,785
                                                                       ===========        ===========
</TABLE>

      As of September 30, 2003, the majority of the Company's loan portfolio was
      secured  by  properties  located  in  western  Pennsylvania.  The  Company
      evaluates  each  customer's  credit  worthiness on a  case-by-case  basis.
      Collateral  held includes  mortgages on residential  and  income-producing
      properties.  The Company does not believe it has significant concentration
      of credit risk to any one

                                      F-20
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

     group of borrowers given its underwriting and collateral requirements.

      In accordance with SFAS No. 114, Accounting by Creditors for Impairment of
      a Loan, no loans in  non-homogenous  groups were determined to be impaired
      for the years ended  September 30, 2003 and 2002.  Commercial real estate,
      multi-family residential,  construction, and commercial business loans are
      included in the non-homogenous group.

      Loans  which  are  contractually  past  due  ninety  days  or  more  total
      approximately $60,304 at September 30, 2003.

      An analysis of the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                                                                      2003           2002
                                                                                    --------       --------
<S>                                                                               <C>            <C>
         Beginning balance                                                          $181,835       $166,114
         Provision for loan losses                                                    18,000         18,000
         Charge-offs                                                                  (7,316)        (2,809)
         Recoveries                                                                        -            530
                                                                                    --------       --------
         Ending balance                                                             $192,519       $181,835
                                                                                    ========       ========
</TABLE>

 7.   ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable at September 30, is summarized as follows:

<TABLE>
<CAPTION>
                                                                                     2003             2002
                                                                                   --------        --------
<S>                                                                                <C>             <C>
         Loans receivable                                                          $190,376        $256,183
         Investment securities                                                      316,383         202,077
                                                                                   --------        --------
                Total                                                               506,759         458,260

         Allowance for uncollectible interest                                        (6,133)        (36,525)
                                                                                   --------        --------
                                                                                   $500,626        $421,735
                                                                                   ========        ========
</TABLE>

                                      F-21

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

 8.   PREMISES AND EQUIPMENT

      Premises and equipment at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                      2003               2002
                                                                                    --------           -------
<S>                                                                              <C>               <C>
         Land                                                                      $ 10,000          $ 10,000
         Buildings and improvements                                                 429,713           429,397
         Furniture, fixtures, and equipment                                         554,010           514,751
                                                                                    --------           -------
                       Total                                                        993,723           954,148

         Accumulated depreciation                                                  (712,312)         (661,856)
                                                                                    --------           -------
                              Premises and equipment, net                          $281,411         $ 292,292
                                                                                   ========         =========
</TABLE>

9.    REAL ESTATE HELD FOR INVESTMENT

      Real estate held for investment at September 30 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                      2003               2002
                                                                                    --------           -------
<S>                                                                                 <C>                <C>
         Land                                                                       $      -           $     -
         Building                                                                    154,302            76,945
                                                                                    --------           -------
                                                                                     154,302            76,945
         Less accumulated depreciation                                                     -                 -
                                                                                    --------           -------
                       Total                                                        $154,302           $76,945
                                                                                    ========           =======
</TABLE>

                                      F-22
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

10.   DEPOSITS

      Deposits at September 30, are summarized as follows:

<TABLE>
<CAPTION>

                                  ..................2003..................       ...................2002...................

                                  WEIGHTED                        PERCENT        WEIGHTED                         PERCENT
                                  INTEREST                          OF           INTEREST                            OF
                                    RATE           AMOUNT        PORTFOLIO         RATE            AMOUNT         PORTFOLIO
                                    ----           ------        ---------         ----            ------         ---------

<S>                              <C>           <C>                <C>           <C>          <C>                 <C>
      NOW accounts                  0.87%         $7,606,297         15.1%         1.82%        $ 6,880,901         16.0%
      Savings accounts              2.00%         21,498,173         42.6%         2.75%         16,219,947         37.7%
                                    ----          ----------         ----          ----         -----------         ----
                                    1.71%         29,104,470         57.7%         2.47%         23,100,848         53.7%
                                    ----          ----------         ----          ----
      Certificates of deposit:
         1.00% to 1.99%             1.56%          2,414,005          4.8%            -                   -            -
         2.00% to 2.99%             2.50%          4,933,480          9.8%         2.62%          3,189,363          7.4%
         3.00% to 3.99%             3.42%          6,534,795         12.9%         3.34%          4,675,758         10.9%
         4.00% to 4.99%             4.17%          3,033,935          6.0%         4.43%          2,756,894          6.4%
         5.00% to 5.99%             5.23%          2,513,743          5.0%         5.31%          4,569,875         10.6%
         6.00% to 6.99%             6.44%            903,914          1.8%         6.32%          3,062,454          7.1%
         7.00% to 7.99%             7.40%          1,030,021          2.0%         7.32%          1,631,295          3.8%
                                    ----         -----------        -----          ----         -----------        -----
                                    3.46%         21,363,893         42.3%         4.61%         19,885,639         46.3%
                                    ----         -----------        -----          ----         -----------        -----
                                    2.45%        $50,468,363        100.0%         3.46%        $42,986,487        100.0%
                                    ====         ===========        =====          ====         ===========        =====
</TABLE>

      At September 30, 2003, the aggregate maturities of certificates of deposit
      are as follows:

         YEARS ENDING SEPTEMBER 30
         -------------------------

             2004                                  $10,618,243
             2005                                    4,477,816
             2006                                    3,514,444
             2007                                      722,979
             2008                                    2,030,411
                                                   -----------
                       Total                       $21,363,893
                                                   ===========

      Deposits in excess of $100,000 are not insured by the SAIF.  The aggregate
      amount of  certificates  of  deposit  at  September  30,  2003 and 2002 in
      denominations  of  $100,000 or more  totaled  $5,941,890  and  $4,881,558,
      respectively.  At  September  30,  2003,  the Bank had  deposits  from its
      officers and directors totaling $260,971.

                                      F-23
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      Interest expense by deposit category for the years ended September 30, are
      as follows:

                                                       2003             2002
                                                   ----------       ----------

         NOW accounts                               $ 118,250        $ 135,184
         Savings accounts                             436,855          416,444
         Certificates of deposit                      891,356        1,014,714
                                                   ----------       ----------
                       Total                       $1,446,461       $1,566,342
                                                   ==========       ==========

11.   ADVANCES FROM FEDERAL HOME LOAN BANK

      At September 30, 2003, the following  advances were  outstanding  from the
Federal Home Loan Bank:

          LOAN      MATURITY         INTEREST
          TYPE        DATE             RATE          2003           2002
          ----        ----             ----          ----           ----

          Term          10/18/02       1.91%        $     -     $1,383,312
          Term           6/13/03       2.59%              -        500,000
          Line         1/31/2004       1.31%      1,234,394              -
          Term        10/27/2003       1.15%        500,000              -
          Term         3/18/2004       1.39%        628,815              -
          Term         6/14/2004       3.54%        500,000        500,000
          Term         3/18/2005       1.88%        754,475              -
          Term         6/13/2005       4.11%        500,000        500,000
          Term         7/25/2005       1.80%        500,000              -
          Term         3/20/2006       2.38%        754,475              -
          Term         6/13/2006       4.52%        500,000        500.000
          Term         3/19/2007       2.92%        503,155              -
          Term         6/13/2007       4.80%        500,000        500,000
          Term         3/18/2008       3.26%        503,155              -
          Term         6/13/2008       5.03%        500,000        500,000
          Term         6/15/2009       5.20%        500,000        500,000
                                                 ----------     ----------
                                                 $8,378,469     $4,883,312
                                                 ==========     ==========

                                                           2003        2002
                                                           ----        ----
                                                        (dollars in thousands)

      Average balance during the year                   $ 7,018       $1,651
      Maximum month-end balance during the year           9,489        5,000
      Average interest rate during the year               3.19%        3.59%
      Weighted-average rate at year-end                   2.85%        3.59%

                                      F-24
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      The Bank has a line of credit of  $4,000,000  from the  Federal  Home Loan
      Bank (FHLB),  maturing  January 31, 2004 with an interest rate of 1.31% at
      September 30, 2003.  The Bank had draws of $1,234,394  and $0 on this line
      of credit at September 30, 2003 and 2002, respectively.

      Although no specific  collateral is required to be pledged,  FHLB advances
      are secured by a blanket security  agreement that includes the Bank's FHLB
      stock,  investment and  mortgage-backed  securities held in safekeeping at
      the FHLB,  and certain  qualifying  first  mortgage  loans.  Advances  are
      subject to substantial prepayment penalties.

12.   FINANCIAL INSTITUTIONS THRIFT PLAN

      The Company participates in a Financial Institutions Thrift Plan. The Plan
      permits employees to contribute  various  percentages of their salary as a
      contribution to the Plan. The Company also contributes 50% of the member's
      contribution  to a maximum of 6% of the employees  eligible  compensation.
      Thrift  plan  expense  for the years  ended  September  30,  2003 and 2002
      amounted to $11,596 and $29,532, respectively.

13.   INCOME TAXES

      Income  tax  expense  (benefit)  for the  years  ended  September  30,  is
      summarized as follows:

                                                           2003           2002
                                                         --------       --------

         Federal:
             Current                                     $320,998       $211,628
             Deferred                                     (22,949)        44,661
                                                         --------       --------
                    Total                                $298,049       $256,289
                                                         ========       ========

         State:
             Current                                     $ 65,689       $ 60,402
                                                         ========       ========

         Totals:
             Current                                     $386,687       $272,030
             Deferred                                     (22,949)        44,771
                                                         --------       --------
                                                         $363,738       $316,691
                                                         ========       ========

                                      F-25

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      The differences  between actual income tax expense and the amount computed
      by applying the federal  statutory income tax rate of 34% to income before
      income taxes for the years ended September 30, are reconciled as follows:

<TABLE>
<CAPTION>
                                                                    2003           2002
                                                                   --------      --------
<S>                                                             <C>           <C>
         Computed income tax expense                              $373,320      $279,305
         Increase (decrease) resulting from:
             Federal tax-exempt income                             (34,318)      (21,353)
             State taxes (net of federal benefit)                   43,462        39,865
             Other, net                                            (18,726)       18,874
                                                                  --------      --------
         Actual income tax expense                                $363,738      $316,691
                                                                  ========      ========

         Effective tax rate                                           33.1%         38.6%
                                                                  ========      ========
</TABLE>

      The components of net deferred tax assets and liabilities at September 30,
      are as follows:

<TABLE>
<CAPTION>
                                                                           2003          2002
                                                                         -------       --------
<S>                                                                  <C>           <C>
         Deferred tax assets:
             Loan origination fees, net                                 $      -       $  5,092
             Allowance for loan losses                                    65,456         61,824
             Directors' retirement plan/ESOP accrual                      17,903         11,298
             Impairment loss on securities held-to-maturity               31,502         31,502
             Other                                                         5,201              -
                                                                         -------       --------
                    Total                                                120,062        109,716
                                                                         -------       --------
         Deferred tax liabilities:
             Premises and equipment                                      (12,542)        (9,176)
             Unrealized gain on securities available for sale           (102,203)       (42,286)
             Other                                                             -        (15,955)
                                                                         -------       --------
                    Total                                               (114,745)       (67,417)
                                                                         -------       --------
         Net deferred asset                                              $ 5,317       $ 42,299
                                                                         =======       ========
</TABLE>

      No valuation  allowance was established at September 30, 2003 and 2002, in
      view of the  Company's  ability to  carryback  to taxes  paid in  previous
      years,  future  anticipated  taxable  income,  which is  evidenced  by the
      Company's  earnings  potential,  and deferred tax liabilities at September
      30.

      The Company's  annual  addition to its reserve for bad debts allowed under
      the  Internal  Revenue  Code may  differ  significantly  from the bad debt
      expense used for financial  statement  purposes.

                                      F-26
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

     Such bad debt  deductions  for income tax  purposes are included in taxable
     income of later years only if the bad debt  reserves  are used for purposes
     other than to absorb bad debt losses.  Since the Company does not intend to
     use the  reserve  for  purposes  other than to absorb  losses,  no deferred
     income taxes have been  provided on the amount of bad debt reserves for tax
     purposes  that arose in tax years  beginning  before  December 31, 1987, in
     accordance with SFAS No. 109. Therefore, retained earnings at September 30,
     2003 and 2002, includes approximately $175,000,  representing such bad debt
     deductions for which no deferred income taxes have been provided.

14.   OTHER NONINTEREST EXPENSE

      Other noninterest  expense amounts are summarized as follows for the years
      ended September 30, 2003 and 2002:

                                                        2003           2002
                                                      --------       --------

         FHLB bank account expense                     $25,568        $29,084
         Advertising and promotion                      13,756         23,952
         Loan expenses                                   7,488          6,373
         Printing, stationery, and supplies             11,708         24,653
         Telephone and postage                          26,011         20,010
         Seminars and training                          25,700         20,010
         Other insurance                                15,149         13,816
         Cash (over) and short                             178            (11)
         Bank transportation service                     6,453          7,897
         NOW expenses                                   29,793         29,178
         ATM and internet banking                       30,250         34,640
         Other                                          49,003         30,317
                                                      --------       --------

                    Total                             $241,057       $239,919
                                                      ========       ========

15.   REGULATORY MATTERS

      The  Company is not  required to  maintain  any minimum  level of capital;
      however,  the Bank is subject to various regulatory  capital  requirements
      administered by its primary  regulator,  The Office of Thrift  Supervision
      (OTS).  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
      financial statements. Under capital adequacy guidelines and the regulatory
      framework  for  prompt  corrective  action,  the Bank must  meet  specific
      capital  guidelines  that  involve  quantitative  measures  of the  Bank's
      assets,  liabilities,  and certain  off-balance-sheet  items as calculated
      under  regulatory  accounting  practices.  The Bank's capital  amounts and
      classification are also subject to qualitative judgments by the regulators
      about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require the  maintenance  of minimum  amounts and ratios (set forth in the
      table  below) of total and Tier I capital

                                      F-27
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

     (as defined in the regulations) to risk-weighted  assets (as defined),  and
     of Tier I capital (as defined) to average  assets (as defined).  Management
     believes,  as of  September  30,  2003,  that the Bank  meets  all  capital
     adequacy requirements to which it is subject.

      As of  September  30,  2003,  the most  recent  notification  from the OTS
      categorized the Bank as "well capitalized" under the regulatory  framework
      for prompt corrective  action. To be categorized as "well capitalized" the
      Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
      leverage  ratios as set forth in the  table.  There are no  conditions  or
      events since that notification that management believes have changed those
      categories.

      OTS regulations impose limitations upon all capital  distributions such as
      cash  dividends,  payments  to  repurchase  its  shares,  and  payments to
      shareholders  of  another  institution  in a  cash-out  merger.  Under the
      regulation,  an  application  to and the  approval  of the OTS is required
      prior to any capital  distribution  if the  institution  does not meet the
      criteria for "expedited  treatment" of applications under OTS regulations.
      If an  application  is not required,  the  institution  must still provide
      prior notice to the OTS of the capital  distribution if, like the Bank, it
      is a subsidiary of a holding company. In the event the Bank's capital fell
      below its  regulatory  requirements  or the OTS notified it that it was in
      need of more than normal  supervision,  the Bank's ability to make capital
      distributions could be restricted.  In addition,  the OTS could prohibit a
      proposed capital distribution by any institution, which would otherwise be
      permitted by the regulation,  if the OTS determines that such distribution
      would constitute an unsafe or unsound practice. The Bank paid no dividends
      to the Company in 2003 or 2002.

      The Bank's capital amounts are as follows:

<TABLE>
<CAPTION>
                                                                                                       TO BE WELL
                                                                          FOR CAPITAL             CAPITALIZED UNDER
                                                                           ADEQUACY               PROMPT CORRECTIVE
                                           .......ACTUAL......        .....PURPOSES......    .....ACTION.PROVISIONS....
                                             AMOUNT      RATIO          AMOUNT     RATIO          AMOUNT      RATIO
                                             ------      -----          ------     -----          ------      -----
<S>                                      <C>           <C>          <C>           <C>         <C>           <C>
As of September 30, 2003:
    Total Risk-Based Capital (to
      Risk-Weighted Assets)                $9,474,756    24.8%        $3,052,880    8.0%        $3,816,100    10.0%

    Tier I Capital
      (to Risk-Weighted Assets)            $9,282,237    24.3%        $1,526,440    4.0%        $2,289,660    6.0%

    Tier I Capital
      (to Adjusted Total Assets)           $9,282,237    13.3%        $2,787,407    4.0%        $3,484,259    5.0%

    Tangible Capital
      (to Adjusted Total Assets            $9,282,237    13.3%        $1,045,278    1.5%        $3,484,259    5.0%
</TABLE>

                                      F-28

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      The following is a reconciliation of GAAP capital to regulatory capital:

         GAAP equity                                       $9,427,791
         Plus (less):
             Accumulated other comprehensive income          (145,554)
             Net unrealized losses on equity securities
                                                                    -
                                                           ----------

         Tangible capital                                   9,282,237

         Plus allowance for loan losses                       192,519
                                                           ----------
         Total risk-based capital                          $9,474,756
                                                           ==========

<TABLE>
<CAPTION>
                                                                                                       TO BE WELL
                                                                          FOR CAPITAL             CAPITALIZED UNDER
                                                                           ADEQUACY               PROMPT CORRECTIVE
                                           .......ACTUAL......        .....PURPOSES......    .....ACTION.PROVISIONS....
                                             AMOUNT      RATIO          AMOUNT     RATIO          AMOUNT      RATIO
                                             ------      -----          ------     -----          ------      -----
<S>                                      <C>           <C>          <C>           <C>         <C>           <C>
As of September 30, 2002:
    Total Risk-Based Capital (to
      Risk-Weighted Assets)                $8,851,043    31.7%        $2,237,440    8.0%        $2,769,800       10.0%

    Tier I Capital
      (to Risk-Weighted Assets)            $8,669,208    31.0%        $1,118,720    4.0%        $1,678,080       6.0%

    Tier I Capital
      (to Adjusted Total Assets)           $8,669,208    15.0%        $2,312,440    4.0%        $2,890,550       5.0%

    Tangible Capital
      (to Adjusted Total Assets)           $8,669,208    15.0%          $867,165    1.5%        $2,890,550       5.0%
</TABLE>

      The following is a reconciliation of GAAP capital to regulatory capital:

         GAAP equity                                            $8,741,213
         Plus (less):
             Accumulated other comprehensive income               (36,685)
             Net unrealized losses on equity securities           (35,320)
                                                                ----------

         Tangible capital                                        8,669,208

         Plus allowance for loan losses                            181,835
                                                                ----------

         Total risk-based capital                               $8,851,043
                                                                ==========

                                      F-29

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

16.   CLOSED BRANCH OFFICE

      The Company  leased its branch office  facility  under an operating  lease
      which was cancelled in April 2003. Rent expense was $7,520 and $11,280 for
      the years ended September 30, 2003 and 2002, respectively.

17.   COMMITMENTS AND CONTINGENCIES

      In the normal  course of  business,  the Company  has various  outstanding
      commitments  and  contingent  liabilities  that are not  reflected  in the
      accompanying  financial  statements.  The  financial  commitments  of  the
      Company are as follows:

      The Company has outstanding commitments to originate loans as follows:

                                                       2003           2002
                                                       ----           ----

         Fixed rate first mortgage loans              $536,000     $1,277,000

         Variable rate:
             Home equity lines of credit               511,000        329,000
             Commercial business loans               1,389,000        484,000

      The range of interest rates on fixed rate first mortgage loan  commitments
      were 6.5% to 7% as of September 30, 2003.

18.   RELATED PARTY TRANSACTIONS

      Some of the Company's  directors,  principal  officers,  and their related
      interests  had  transactions  with the Company in the  ordinary  course of
      business  during the fiscal year 2003. All loans and  commitments to loans
      in such transactions were made on substantially the same terms,  including
      collateral  and  interest  rates,  as  those  prevailing  at the  time for
      comparable transactions.  In the opinion of management, these transactions
      do not involve more than normal risk of  collectibility  or present  other
      unfavorable  features.  It is anticipated  that further such extensions of
      credit will be made in the future.

      The aggregate  amount of credit  extended to these directors and principal
      officers  was  $623,959  and  $324,541  at  September  30,  2003 and 2002,
      respectively.

      The following is an analysis of loans to these  parties  during the fiscal
      year 2003:

         Balances at October 1, 2002                       $324,541
         Advances                                           372,872
         Repayments                                         (73,454)
                                                           --------
         Balances at September 30, 2003                    $623,959
                                                           ========

                                      F-30
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

19.   DIRECTORS' RETIREMENT PLAN

      Effective January 1, 2001, the Company established a nonqualified  defined
      benefit  retirement plan which provides benefits to its board of directors
      upon their retirement from the board. The compensation  cost is recognized
      on the projected  unit credit  method over the remaining  service lives of
      the individual directors. The Company recorded expense related to the plan
      totaling $30,729 and $28,734 during the years ended September 30, 2003 and
      2002,  respectively.  The  following  table sets  forth the plan's  funded
      status amounts recognized in the Company's balance sheet at September 30:

<TABLE>
<CAPTION>
                                                                          2003             2002
                                                                       ---------        ---------
<S>                                                                  <C>              <C>
         Change in benefit obligation:
             Benefit obligation at beginning of year                   $ 154,095        $ 132,911
             Service cost                                                  2,811            5,864
             Interest cost                                                 8,423            8,540
             Experience (gains)/losses including assumption changes      (22,986)          16,080
             Benefits paid                                                (9,300)          (9,300)
                                                                       ---------        ---------
             Benefit obligation at end of year                         $ 133,043        $ 154,095
                                                                       =========        =========

         Change in plan assets:
             Fair value of plan assets at beginning of year            $       -        $       -
             Actual return on plan assets                                      -                -
             Employer contribution                                         9,300            9,300
             Benefits paid                                                (9,300)          (9,300)
                                                                       ---------        ---------
             Fair value of plan assets at end of year                  $       -        $       -
                                                                       =========        =========

             Funded status                                             $(133,804)       $(152,592)
             Unrecognized net actuarial loss                              (6,878)          16,180
             Unrecognized net transition obligation                      101,000          115,429
                                                                       ---------        ---------
             Accrued benefit cost                                      $ (39,682)       $ (20,983)
                                                                       =========        =========
</TABLE>

                                      F-31

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

                                                              2003        2002
                                                              ----        ----
         Weighted-average assumptions as of September 30:
             Discount rate                                     6.75%         7%
             Expected return on plan assets                       7%         7%
             Rate of compensation increase                        5%         5%

         Components of net periodic benefit cost:
             Service cost                                   $ 2,811    $ 5,864
             Interest cost                                    8,423      8,540
             Expected return on plan assets                       -        (99)
             Amortization of prior service cost              14,429     14,429
                                                            -------    -------
             Net periodic benefit cost                      $25,663    $28,734
                                                            =======    =======

20. EARNINGS PER SHARE

      Earnings  per share is  computed by  dividing  net income by the  weighted
      average number of common shares outstanding,  less unallocated shares held
      by the Company's  Employee Stock Ownership Plan (ESOP) and unvested shares
      held by the Bank's Restricted Stock Plan (RSP), during the period. Diluted
      earnings  per share is  calculated  by dividing net income by the weighted
      average number of common shares outstanding, including the effect of stock
      options,  if dilutive,  in accordance  with SFAS 128.  Stockholders of the
      Company  ratified  the adoption of the 2003 Stock Option Plan at a meeting
      of  stockholders  on April 8, 2003. The  computation of basic and dulutive
      earnings per share is shown in the table below:

<TABLE>
<CAPTION>
                                                                            2003             2002
                                                                          --------        --------
         Basic EPS Computation:
<S>                                                                     <C>             <C>
             Numerator-net income                                         $734,264        $504,794
             Less income attributable to pre-stock conversion period
               (all income through April 4, 2002)                                -        (237,994)
                                                                          --------        --------
             Income available to common stockholders used in basic EPS    $734,264        $266,800
                                                                          ========        ========

             Denominator-weighted average number of shares outstanding     693,732         700,221
                                                                          --------        --------
             Basic EPS                                                    $   1.06        $    .38
                                                                          ========        ========
</TABLE>

                                      F-32

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2003            2002
                                                                              --------        --------
<S>                                                                         <C>             <C>
         Diluted EPS Computation:
             Numerator-net income                                             $734,264        $504,794
             Less income attributable to pre-stock conversion period
                  (all income through April 4, 2002)                                 -        (237,994)
                                                                              --------        --------
             Income available to common stockholders used in diluted EPS      $734,264        $266,800
                                                                              ========        ========


             Denominator-weighted average number of shares outstanding         693,732         700,221
             Dilutive stock options                                                  -               -
             Dilutive unvested RSP                                              11,363               -
                                                                              --------        --------
             Weighted average common shares and common stock equivalents       705,095         700,221
                                                                              --------        --------
             Diluted EPS                                                      $   1.04        $    .38
                                                                              ========        ========
</TABLE>

21.   EMPLOYEE STOCK OWNERSHIP PLAN

      As part of the conversion discussed in Note I, an Employee Stock Ownership
      Plan (ESOP) was  established for all employees who have completed one year
      of service and have  attained  the age of 21. The ESOP  borrowed  $590,000
      from the Company and used the funds to  purchase  59,000  shares of common
      stock of the  Company  issued  in the  offering.  The loan  will be repaid
      principally from the Company's  contributions to the ESOP over a period of
      10 years.  On September 30, 2003, the loan had an  outstanding  balance of
      $531,000 and an interest rate of 4.75%. The loan obligation of the ESOP is
      considered unearned  compensation and, as such, recorded as a reduction of
      the  Company's  shareholders'  equity.  Both the loan  obligation  and the
      unearned compensation are reduced by an amount of the loan repayments made
      by the ESOP.  Shares  purchased  with loan proceeds are held in a suspense
      account  for  allocation  among   participants  as  the  loan  is  repaid.
      Contributions  to the ESOP and shares  released from the suspense  account
      are allocated among  participants on the basis of compensation in the year
      of  allocation.  Benefits  become fully vested at the end of five years of
      service  under the terms of the ESOP Plan.  Benefits  may be payable  upon
      retirement,  death,  disability,  or separation  from  service.  Since the
      Company's annual  contributions are discretionary,  benefits payable under
      the ESOP cannot be estimated.  Compensation expenses are recognized to the
      extent of the fair value of shares committed to be released.

      At  September  30,  2003,  10,325 ESOP shares have been  allocated  to the
      participating  employees.  For purposes of computing net income per share,
      the remaining  48,675  unallocated  shares are not considered  outstanding
      until they are  committed-to-be-released  for  allocation.  The Company is
      recognizing as compensation expense the fair value of the Company's common
      stock  allocated  to   participating   employees.   Compensation   expense
      recognized  by the Company  during the years ended  September 30, 2003 and
      2002 was $97,254 and $66,829 respectively.

                                      F-33

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

22.   RESTRICTED STOCK PLAN (RSP)

      The Company  maintains a RSP for directors and officers.  The objective of
      this plan is to enable the  Company  and the Bank to retain its  corporate
      officers and directors who have the  experience  and ability  necessary to
      manage these entities.  Directors and officers who are selected by members
      of a Board-appointed  committee are eligible to receive benefits under the
      RSP.  The  non-employee  directors  of the  Company  and the Bank serve as
      trustees  for the RSP,  and have the  responsibility  to invest  all funds
      contributed by the Bank to the Trust created for the RSP.

      The Trust is  authorized  to purchase up to 30,300  shares for award.  The
      Trust  acquired  15,150  shares  and  granted a total of 15,150  shares of
      common stock of which 3,787  shares  became  immediately  vested under the
      plan with the remaining shares vesting over a three-year  period beginning
      April 8, 2004.  A total of 3,787  shares were vested as of  September  30,
      2003. The RSP shares purchased  initially are excluded from  stockholder's
      equity. The Company recognizes  compensation expense in the amount of fair
      value of the  common  stock at the grant  date,  pro rata,  over the years
      during  which the shares are  payable  and  recorded as an addition to the
      stockholder's   equity.   Directors  and  officers  who  terminate   their
      association with the Company shall forfeit the right to any shares,  which
      were awarded but not earned.

      Net compensation expense attributable to the RSP's amounted to $42,457 for
      the year ended September 30, 2003.

23.   STOCK OPTION PLAN

      The Company  maintains a Stock Option Plan for the directors and officers.
      An aggregate of 75,750 shares of authorized  but unissued  common stock of
      the Company were reserved for future  issuance  under this Plan. The stock
      options  have  an  expiration  term  of  ten  years,  subject  to  certain
      extensions  and early  terminations.  The per share  exercise  price of an
      incentive stock option shall at a minimum equal the fair market value of a
      share of common stock on the date the option is granted. Proceeds from the
      exercise  of the  stock  options  are  credited  to  common  stock for the
      aggregate par value and the excess is credited to paid-in capital.

      The  following  table  presents  information  related  to the  outstanding
      options:

<TABLE>
<CAPTION>
                                            Officer's Stock   Director's Stock    Exercise
                                               Options            Options           Price
                                               -------            -------           -----
<S>                                          <C>                  <C>            <C>
      Outstanding, September 30, 2002               -                    -            N/A
             Granted                           15,150               22,725         $17.00
             Exercised                              -                    -            N/A
             Forfeited                              -                    -            N/A
                                               ------               ------
      Outstanding, September 30, 2003          15,150               22,725         $17.00
                                               ======               ======

      Exercisable at year end                   5,050                7,575         $17.00
      Available for future grant               15,150               22,725            N/A
</TABLE>

                                      F-34
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

     There were 15,150 options  outstanding  for officers with an exercise price
     of $17.00 and a remaining  contractual  life of 9.5 years. The options vest
     1/3 at the date of the grant and 1/3 annually  thereafter.  There were also
     22,725 options  outstanding  for directors with an exercise price of $17.00
     and a remaining  contractual life of 9.5 years. The options vest 1/3 at the
     date of the grant and 1/3 annually thereafter.

24.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

      The Company is a party to  financial  instruments  with  off-balance-sheet
      risk in the normal course of business to meet the  financing  needs of its
      customers.  These  financial  instruments  include  commitments  to extend
      credit. These instruments involve, to varying degrees,  elements of credit
      and interest rate risk in excess of the amounts  recognized in the balance
      sheets.

      The Company's  exposure to credit loss in the event of  nonperformance  by
      the other party to the financial  instruments  for  commitments  to extend
      credit  is  represented  by  the  contractual  notional  amount  of  those
      instruments  (See Note 17). The Company  uses the same credit  policies in
      making  commitments and conditional  obligations as it does for on balance
      sheet 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.  Since many of the  commitments
      are  expected to expire  without  being drawn upon,  the total  commitment
      amounts do not necessarily represent future cash requirements. The Company
      evaluates each customer's  creditworthiness  on a case-by-case  basis. The
      amount and type of collateral obtained, if deemed necessary by the Company
      upon  extension  of  credit,  varies and is based on  management's  credit
      evaluation of the counterparty.

25.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values at September 30 are as follows:

<TABLE>
<CAPTION>

                                                        ...............2003............     ...............2002.............
                                                          CARRYING             FAIR            CARRYING            FAIR
                                                           AMOUNT              VALUE            AMOUNT             VALUE
                                                           ------              -----            ------             -----
<S>                                                     <C>               <C>               <C>                <C>
      ASSETS:
         Cash and cash equivalents                       $ 3,349,969       $ 3,349,969       $ 1,655,160        $ 1,655,160
         Interest-bearing deposits in other banks          1,397,485         1,397,485         1,795,869          1,795,869
         Investment and mortgage backed securities        30,645,904        30,986,244        20,941,997         21,304,436
         Net loans receivable                             34,886,871        36,397,051        35,016,785         36,610,141
         FHLB stock                                          674,500           674,500           303,600            303,600
         Accrued interest receivable                         500,626           500,626           421,735            421,735
                                                         -----------       -----------       -----------        -----------
                Total assets                             $71,455,355       $73,305,875       $60,135,146        $62,090,941
                                                         ===========       ===========       ===========        ===========
</TABLE>
                                      F-35

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                        ...............2003............     ...............2002.............
                                                          CARRYING             FAIR            CARRYING            FAIR
                                                           AMOUNT              VALUE            AMOUNT             VALUE
                                                           ------              -----            ------             -----
<S>                                                     <C>               <C>               <C>                <C>
      LIABILITIES:
         Deposits                                        $50,468,363       $50,949,981       $42,986,487        $43,381,113
         FHLB advances                                     8,378,469         8,332,979         4,883,312          4,883,312
         Advances from borrowers for taxes and
             insurance                                        76,998            76,998            61,835             61,835
         Accrued interest payable                            122,542           122,542           119,641            119,641
                                                         -----------       -----------       -----------        -----------
                Total liabilities                        $59,046,372       $59,482,500       $48,051,275        $48,445,901
                                                         ===========       ===========       ===========        ===========
</TABLE>

      Financial  instruments  are  defined  as cash,  evidence  of an  ownership
      interest in an entity,  or a contract which creates an obligation or right
      to receive or deliver cash or another  financial  instrument  from or to a
      second entity on potentially favorable or unfavorable terms.

      Fair value is defined as the amount at which a financial  instrument could
      be exchanged in a current transaction between willing parties,  other than
      in a forced or liquidation sale. If a quoted market price is available for
      a financial instrument, the estimated fair value would be calculated based
      upon the market price per trading unit of the instrument.

      If no  readily  available  market  exists,  the fair value  estimates  for
      financial instruments should be based upon management's judgment regarding
      current  economic  conditions,  interest  rate risk,  expected cash flows,
      future estimated losses and other factors,  as determined  through various
      option  pricing  formulas  or  simulation  modeling.   As  many  of  these
      assumptions  result from judgments made by management based upon estimates
      which are inherently uncertain,  the resulting estimated values may not be
      indicative of the amount realizable in the sale of a particular  financial
      instrument. In addition, changes in the assumptions on which the estimated
      values are based may have a significant impact on the resulting  estimated
      values.

      As certain assets and liabilities,  such as deferred tax assets,  premises
      and equipment,  and many other operational elements of the Company are not
      considered  financial  instruments,  but have value,  this  estimated fair
      value of financial  instruments  would not represent the full market value
      of the Company.

      Estimated  fair values have been  determined by the Company using the best
      available  data,  as generally  provided in internal  Company  reports and
      regulatory  reports,  using an  estimation  methodology  suitable for each
      category of financial instruments.  The estimation  methodologies used are
      as follows:

      Cash and  Cash  Equivalents,  Interest-bearing  Deposits  in Other  Banks,
      Accrued Interest  Receivable and Payable,  and Advances from Borrowers for
      Taxes and  Insurance - The fair value  approximate  the  current  carrying
      value.

                                      F-36
<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

      Investment Securities,  Mortgage-backed  Securities,  and FHLB Stock - The
      fair value of investment  and  mortgage-backed  securities is equal to the
      available  quoted  market  price.  If no quoted market price is available,
      fair  value is  estimated  using  the  quoted  market  price  for  similar
      securities.  Since the FHLB stock is not  actively  traded on a  secondary
      market  and  held  exclusively  by  member  financial  institutions,   the
      estimated fair market value approximates the carrying amount.

      Loans - For  variable-rate  loans  that  reprice  frequently  and  with no
      significant  change in credit  risk,  fair  values  are based on  carrying
      amounts.  The fair values for other loans are estimated  using  discounted
      cash flow analysis,  based on interest rates  currently  being offered for
      loans with similar terms to borrowers of similar credit quality. Loan fair
      value  estimates   include   judgments   regarding  future  expected  loss
      experience  and risk  characteristics.  Fair values for impaired loans are
      estimated  using  discounted  cash flow analysis or underlying  collateral
      values, where applicable.

      Deposits  -  The  fair  values  disclosed  for  demand  deposits  are,  by
      definition,  equal to the amount  payable on demand at the reporting  date
      (that is, their carrying amounts).  The carrying amounts of variable-rate,
      fixed-term  money-market  accounts and certificates of deposit approximate
      their fair values. Fair values for fixed-rate  certificates of deposit are
      estimated using a discounted cash flow  calculation  that applies interest
      rates  currently  offered  on  certificates  to a schedule  of  aggregated
      expected monthly maturities on time deposits.

      FHLB Advances - The fair values of fixed rate advances are estimated using
      discounted cash flows,  based on current  incremental  borrowing rates for
      similar types of borrowing arrangements.

      Commitments to Extend Credit - These  financial  instruments are generally
      not subject to sale and estimated  fair values are not readily  available.
      The carrying  value,  represented by the net deferred fee arising from the
      unrecognized commitment,  and the fair value determined by discounting the
      remaining  contractual  fee  over the term of the  commitment  using  fees
      currently  charged to enter into similar  agreements  with similar  credit
      risk, are not considered material for disclosure.  The contractual amounts
      of  unfunded  commitments  are  presented  in Note 17 to  these  financial
      statements.

                                      F-37

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

26.  PARENT COMPANY ONLY

     Condensed  financial  information  of  Reserve  Bancorp,  Inc.  on a parent
     company only basis is as follows:

<TABLE>
<CAPTION>
                            CONDENSED BALANCE SHEETS
                                                                     YEARS ENDED
                                                               ......SEPTEMBER 30,.........
                                                                  2003               2002
                                                                  ----               ----
<S>                                                        <C>                <C>
      ASSETS:
         Interest-bearing cash and cash equivalents          $   308,416        $   244,136
         Interest-bearing deposits in other banks                300,000            599,000
         Securities available for sale                           756,617            506,049
         Mortgage-backed securities available for sale           721,134          1,500,601
         Investment in subsidiary bank                         9,427,791          8,741,213
         Loan receivable                                         531,000            590,000
         Accrued interest receivable and other assets            414,072            114,679
         Premises and equipment, net                             154,302             76,945
                                                             -----------        -----------
                           TOTAL                             $12,613,332        $12,372,623
                                                             ===========        ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY:
         Other liabilities                                   $    16,583        $    22,680
         Stockholders' equity                                 12,596,749         12,349,943
                                                             -----------        -----------
                           TOTAL                             $12,613,332        $12,372,623
                                                             ===========        ===========
</TABLE>

                                      F-38

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                         CONDENSED STATEMENTS OF INCOME
                                                                YEAR ENDED
                                                        .......SEPTEMBER 30,.......
                                                          2003               2002
                                                          ----               ----
<S>                                                   <C>               <C>
      INCOME:
         Loans                                          $ 30,652          $ 13,609
         Investment and mortgage-backed securities        93,835            36,266
         Interest-bearing cash and cash equivalents        3,783            23,849
                                                        --------          --------
                Total income                             128,270            73,724

      OTHER OPERATING REVENUE                              5,005               745
      OTHER OPERATING EXPENSE                           (140,470)          (29,065)
                                                        --------          --------
      INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
         EARNINGS OF SUBSIDIARY                           (7,195)           45,404

      EQUITY IN UNDISTRIBUTED EARNINGS
         OF SUBSIDIARY                                   738,744           477,549
                                                        --------          --------

      INCOME BEFORE INCOME TAXES                         731,549           522,953

      INCOME TAXES (BENEFIT) EXPENSE                      (2,715)           18,159
                                                        --------          --------
      NET INCOME                                        $734,264          $504,794
                                                        ========          ========
</TABLE>

                                      F-39

<PAGE>
RESERVE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                       CONDENSED STATEMENTS OF CASH FLOW
                                                                                                     YEAR ENDED
                                                                                             ........SEPTEMBER 30.........
                                                                                                2003               2002
                                                                                             ----------         ----------
<S>                                                                                        <C>                <C>
      CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income                                                                          $  734,264         $  504,794
         Adjustments to reconcile net income to net cash
             provided by operating activities:
                Undistributed net income of subsidiary                                         (738,744)          (477,549)
                Amortization of investment discounts and premiums                                   622                158
                Compensation expense                                                             46,091                  -
                Other                                                                          (287,889)          (108,202)
                                                                                             ----------         ----------

                    Net cash used in operating activities                                      (245,656)           (80,799)
                                                                                             ----------         ----------

      CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of investment and mortgage-backed
             securities available-for-sale                                                     (752,250)        (2,026,140)
         Proceeds from repayments, calls, and maturities of
             investment and mortgage-backed securities available-for-sale                     1,237,201             59,191
         Proceeds from maturities of interest bearing deposits in other banks                   299,000                  -
         Purchases of interest-bearing deposits in other banks                                         -          (599,000)
         Purchase of premises and equipment                                                     (77,357)           (76,945)
         Purchase of subsidiary stock                                                                 -         (3,600,000)
         ESOP loan                                                                               59,000           (590,000)
                                                                                             ----------         ----------

                    Net cash provided by (used in) investing activities                         765,594         (6,832,894)
                                                                                             ----------         ----------

      CASH FLOWS FROM FINANCING ACTIVITES
         Net proceeds from issuance of common stock                                                   -          7,157,829
         Purchase of treasury stock                                                            (342,033)                 -
         Dividends paid                                                                        (113,625)                 -
                                                                                             ----------         ----------

                    Net cash (used in) provided by financing activities                        (455,658)         7,157,829
                                                                                             ----------         ----------

      INCREASE IN CASH AND CASH EQUIVALENTS                                                      64,280            244,136

      CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                              244,136                  -
                                                                                             ----------         ----------

      CASH AND CASH EQUIVALENTS, END OF YEAR                                                 $  308,416         $  244,136
                                                                                             ==========         ==========

</TABLE>

                                      F-40
<PAGE>

Corporate Information
---------------------

                              RESERVE BANCORP, INC.
                               2000 Mt. Troy Road
                         Pittsburgh, Pennsylvania 15212
                                 (412) 322-6107

                                  MT. TROY BANK
                               2000 Mt. Troy Road
                         Pittsburgh, Pennsylvania 15212
                                 (412) 322-6107


                               Board of Directors
                            David P. Butler, Chairman

      Richard A. Sinewe                           Robert B. Shust, Vice Chairman
      Timothy Schneider                                   Brian S. Allen


                               Executive Officers
                          Richard A. Sinewe, President
                     Robert B. Kastan, Treasurer/Controller
                           Robert B. Shust, Secretary


                            Officers of Mt. Troy Bank
                   Debra S. Lafferty, Vice President - Lending
        Diane L. Edgar, Assistant Vice President and Assistant Secretary
                  Celeste P. Templin, Assistant Vice President

                            ________________________

 Solicitor                                        Independent Auditor
 C L Tuttle, Attorney at Law                      Parente Randolph, LLC
 P.O. Box 24530                                   9401 McKnight Road
 Pittsburgh, Pennsylvania 15234                   Pittsburgh, Pennsylvania 15237

 Special Counsel                                  Transfer Agent and Registrar
 Malizia Spidi & Fisch, PC                        Registrar and Transfer Company
 1100 New York Avenue, N.W.                       10 Commerce Drive
 Suite 340 West                                   Cranford, New Jersey 07016
 Washington, D.C. 20005

-----------------
The Company's  Annual Report on Form 10-KSB for the fiscal year ended  September
30, 2003 is available  without  charge upon written  request.  For a copy of the
Form 10-KSB, please write or call Mr. Richard A. Sinewe,  President.  The Annual
Meeting of  Stockholders  will be held on January  27, 2004 at 11:00 a.m. at the
offices of Mt. Troy Bank, 2000 Mt. Troy Road, Pittsburgh, Pennsylvania.

                                       13