RESERVE BANCORP, INC.
                       2002 ANNUAL REPORT TO STOCKHOLDERS


                                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
first  Annual  Report  to  the  Stockholders  of  Reserve  Bancorp,   Inc.  (the
"Company").

Our  issuance  of  757,500  shares  of  common  stock  in  connection  with  the
mutual-to-stock  conversion of Mt. Troy Bank ("the Bank") was completed in April
2002. The investment of the proceeds of the stock offering  offset the effect of
continued interest rate reductions by the Federal Reserve during the 2002 fiscal
year and helped us achieve  consolidated  earnings of approximately  $505,000 as
compared to 2001 net income of approximately $340,000, an increase of 48.3%.

Growth  trends  were good as well,  with  total  assets at  September  30,  2002
reaching  $60.6  million,  as compared to $44.6  million at September  30, 2001.
Stockholders'  equity was $12.3  million,  resulting  in book value per share of
$16.30. The increases in income,  assets and equity for 2002 as compared to 2001
are due in part to the sale of the  Company's  stock in April 2002 in connection
with the Bank's mutual-to-stock conversion.

We are pleased to announce  that on November  26,  2002,  the Board of Directors
declared  the  Company's  first  cash  dividend  of $.05 per  share,  payable to
stockholders of record on December 15, 2002. We expect to pay a cash dividend on
a semi-annual basis.

This year marked the  passing of Mr. Fred L. Maitz,  Jr., a director of the Bank
since 1987. We are thankful for Mr. Maitz's  faithful service to the Bank and we
dedicate this first Annual Report of Reserve Bancorp, Inc. to his memory.

With the strong  performance  of 2002 as a starting  point,  we look  forward to
further  improvement in growth,  earnings and market share and to enhancing your
investment in the Company.

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 8, 2002)         $12.95       $11.30

         September 30, 2002                              $12.95       $12.40

The number of stockholders of record as of September 30, 2002 was  approximately
334.  This does not reflect the number of persons or entities  who held stock in
nominee or "street" name through various brokerage firms. At September 30, 2002,
there were 757,500 shares of the Company's common stock outstanding.

There were no dividends paid to stockholders during the year ended September 30,
2002.  On November  26, 2002,  the Board of Directors of the Company  declared a
$0.05  semi-annual  cash dividend to  stockholders  of record as of December 15,
2002, payable on December 31, 2002.

                                        2
<PAGE>

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, 2002 and 2001 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, 2002 and 2001
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,
                                                    ------------------------
                                                       2002          2001
                                                    ----------    ----------
                                                                  (Restated)

                                                          (In thousands)

Assets............................................    $60,560       $44,554
Loans receivable, net.............................     35,017        37,731
Investment securities.............................     20,942         4,347
Interest-bearing deposits in other banks..........      1,796           400
Cash and cash equivalents.........................      1,655         1,060
Deposits..........................................     42,987        39,038
FHLB advances.....................................      4,883             -
Total equity......................................     12,350         5,164

Summary of Operations:

Interest and dividend income......................    $ 3,417       $ 3,161
Interest expense..................................      1,625         1,696
                                                        -----         -----
Net interest income...............................      1,792         1,465
Provision for loan losses.........................         18            18
                                                        -----         -----
Net interest income after provision
  for loan losses.................................      1,744         1,447
Noninterest income................................        186           146
Noninterest expense...............................      1,138         1,097
                                                        -----         -----
Income before income taxes........................        822           496
Income taxes......................................        317           155
                                                        -----         -----
Net income........................................     $  505        $  341
                                                        =====         =====

                                       3

<PAGE>

Actual number (not in thousands):
Real estate loans outstanding.....................        378           411
Deposit accounts..................................      5,708         5,885
Full service offices..............................          2             2


                                                              At or For the
                                                                Year Ended
                                                               September 30,
                                                             ----------------
                                                              2002      2001
                                                             -------   ------

Performance Ratios:
  Return on average assets (net income divided by
     average total  assets)................................     0.97%     0.79%

  Return on average equity (net income divided by
     average equity).......................................     6.26      6.89

  Net interest rate spread.................................     2.96      2.97

  Net interest margin (net interest income as a
     percentage of average interest-earning assets.........     3.50      3.47

  Average interest-earning assets to average
     interest-bearing liabilities..........................   117.00    112.30

  Efficiency ratio (noninterest expense divided by the
     sum of net interest income and noninterest income)....    57.53     68.09

Asset Quality Ratios:
  Non-performing loans to total loans, net.................     1.10      0.20

  Non-performing assets to total assets....................     0.64      0.17

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

  Allowance for loan losses to total loans.................     0.52      0.44

Capital Ratios:
  Average equity to average assets ratios
     (average equity divided by average total assets)......    15.43     11.46

  Equity to assets at period end...........................    20.39     11.59



                                        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

Our total assets of $60.6  million at September 30, 2002,  are  reflective of an
increase of $16.0 million or 35.9% as compared to $44.6 million at September 30,
2001.  Stockholders'  equity  increased  by $7.1  million,  to $12.3  million at
September  30,  2002,  as compared to $5.2 million at  September  30, 2001.  The
increase in total assets was due to increases in interest bearing cash, interest
bearing deposits in other banks, and mortgage-backed and investment  securities,
partially offset by a decrease in loans receivable.

The increases in the various  categories of assets and in  stockholders'  equity
are due primarily to the effect of the additional capital received in connection
with the Bank's mutual-to-stock conversion completed in April 2002.

The  increase in the  liabilities  was  primarily  due to  increases  in savings
deposits and advances from the Federal Home Loan Bank. 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  $1,655,000 at September 30, 2002, an increase of
$595,000 or 56.1% as compared to $1,060,000 at September 30, 2001. This increase
was  primarily  due to increased  interest-bearing  deposits  maintained  at the
Federal  Home Loan  Bank,  resulting  from the  deposit  of  subscription  funds
received in connection with the Bank's  mutual-to-stock  conversion completed in
April 2002.

Interest-bearing  Deposits in Other  Banks.  Interest-bearing  deposits in other
banks totaled $1.8 million at September 30, 2002, an increase of $1.4 million or
350% as compared to $400,000 at September 30, 2001.

                                        5
<PAGE>

Investment Securities.  Investment securities totaled $11.4 million at September
30, 2002,  an increase of $7.6  million or 200%,  as compared to $3.8 million at
September 30, 2001. This was primarily a result of purchases of $13.5 million of
commercial paper, FHLB bonds, and municipal  securities,  offset by the proceeds
from maturities, calls and payments totaling $5.9 million.

Mortgage-backed  Securities.  Mortgage-backed  securities  totaled $9,557,000 at
September 30, 2002, an increase of $9,017,000 or more than  seventeen  times the
total of $540,000 at  September  30, 2001.  The  increase  was due  primarily to
purchases of $9,574,000 offset by principal payments totaling $615,000.

Loans  Receivable,  net.  Net loans  receivable  at  September  30, 2002 totaled
$35,017,000,  a decrease of $2,714,000 or 7.2%,  as compared to  $37,731,000  at
September 30, 2001. The decrease was primarily due to net principal repayments.

Deposits. Total deposits, after interest credited, increased $3,948,000 or 10.1%
to  $42,986,000  at September 30, 2002, as compared to  $39,038,000 at September
30, 2001.  The  increase  was due to  increases in the NOW and passbook  savings
accounts of $5,838,000 partially offset by a $1,890,000 decrease in certificates
of deposit.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances were $4,883,000
at September  30, 2002 compared to $-0- at September  30, 2001.  The  borrowings
were used to fund an investment purchase.

Stockholders' Equity.  Stockholders' equity totaled $12,350,000 at September 30,
2002,  as  compared  to  $5,164,000  at  September  30,  2001.  The  increase of
$7,186,000 or 139% was due to earnings for the year ended  September 30, 2002 of
$505,000,  an increase in accumulated other comprehensive income of $46,000, and
$6,635,000 from the issuance of common stock.

Results of Operations for the Years Ended September 30, 2002 and 2001

Net Income.  Net income was $505,000 for the year ended  September  30, 2002, as
compared to net income of $340,000 for the year ended  September  30, 2001.  The
$165,000 or 48.5%  increase in net income for the year ended  September 30, 2002
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  $326,000 or 22.3% for the
year ended September 30, 2002, as compared to the year ended September 30, 2001.
The average balance of interest-earning  assets increased $8.9 million or 21.0%,
whereas the average rate earned thereon  decreased 80 basis points.  The average
balance of  interest-bearing  liabilities  increased  by $6.1  million or 16.1%,
whereas the average rate paid thereon decreased 79 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 2.96% for the year ended September 30, 2002 from 2.97%
for the year ended September 30, 2001.

Interest Income.  Interest income  increased  $256,000 or 8.1% to $3,417,000 for
the year ended  September 30, 2002, as compared to $3,161,000 for the year ended
September 30, 2001.


                                        6


<PAGE>

Interest  on loans  receivable  increased  $2,000  or 0.7%  for the  year  ended
September  30, 2002,  as compared to the year ended  September  30,  2001.  This
increase was the result of a $551,000  increase in the average  balance of loans
receivable,  partially offset by an 11 basis point decrease in the average yield
earned on loans receivable.

Interest income on mortgage-backed securities increased $159,000 or 335% for the
year ended September 30, 2002, as compared to the year ended September 30, 2001.
This increase was the result of $3.4 million  increase in the average balance of
mortgage-backed  securities,  resulting in part from the  investment of proceeds
received in connection with the Bank's  mutual-to-stock  conversion completed in
April 2002,  partially offset by a 165 basis point decrease in the average yield
earned thereon.

Interest income on investment securities increased $68,000 or 24.0% for the year
ended  September 30, 2002, as compared to the year ended September 30, 2001. The
increase  was the result of $3.4  million  increase  in the  average  balance of
investment  securities,  resulting  in part  from  the  investment  of  proceeds
received in connection with the Bank's  mutual-to-stock  conversion completed in
April 2002,  partially offset by a 172 basis point decrease in the average yield
earned thereon.

Interest income on other interest-earning  assets increased $27,000 or 41.8% for
the year ended  September 30, 2002, as compared to the year ended  September 30,
2001.  The increase was primarily due to a $1.5 million  increase in the average
balance  of  other  interest-earning   assets  resulting  from  the  deposit  of
subscription  funds  received  in  connection  with the  Bank's  mutual-to-stock
conversion  completed  in April  2002,  partially  offset by a 221  basis  point
decrease in the average yield earned thereon.

The average yield on the average  balance of  interest-earning  assets was 6.68%
and 7.48% for the year ended September 30, 2002 and 2001, respectively.

Interest  Expense.  Interest  expense  totaled  $1,625,000  for the  year  ended
September 30, 2002, as compared to $1,696,000  for the year ended  September 30,
2001.  The  $71,000  or 4.2%  decrease  was  primarily  due to a 79 basis  point
decrease  in the  average  rate  paid  on  the  total  average  interest-bearing
liabilities, partially offset by an $6.1 million increase in the average balance
of interest-bearing liabilities.

Interest expense on deposits totaled $1.57 million for the years ended September
30, 2002,  as compared to $1.69  million for the year ended  September 30, 2001.
The $12,000 or 7.1% decrease was  primarily due to a 75 basis point  decrease in
the average rate paid thereon,  partially  offset by a $4.2 million  increase in
the average balance of deposits.

Interest expense on FHLB advances increased $51,000 for the year ended September
30, 2002, as compared to the year ended September 30, 2001. The increase was due
to a $1,849,000 increase in the average balance of FHLB advances during the year
ended September 30, 2002.

Provision for Loan Losses.  During the years ended  September 30, 2002 and 2001,
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, 2002,  the allowance for loan losses  totaled  $182,000 or .52%
and  47.27% of total  loans and total  non-performing  loans,  respectively,  as
compared to $166,000 or .44% and 224.3%,  respectively,  at September  30, 2001.
Our  non-performing  loans (non-accrual loans and accruing loans 90 days or more
overdue)  totaled  $385,000 and $74,000 at September  30, 2002 and September 30,
2001, respectively,

                                        7
<PAGE>

which  represented  1.10% and 0.20% of total loans,  respectively.  Our ratio of
non-performing  loans to total assets was 0.64% and 0.17% at September  30, 2002
and September 30, 2001, respectively.

Noninterest Income. During the year ended September 30, 2002, noninterest income
increased  $40,000 or 27.4%,  as compared to the year ended  September 30, 2001,
primarily due to an increase in service charges and other fees.

Noninterest  Expense.  Total  noninterest  expense  increased by $41,000 or 3.7%
during  the year  ended  September  30,  2002,  as  compared  to the year  ended
September  30, 2001.  The increase was  attributable  to a $115,000  increase in
compensation  and benefits,  including  $67,000  attributable  to the ESOP plan.
Legal, accounting and other fees increased $34,000 due to activities relating to
being a public company.  These  increases were partially  offset by the fact the
Company did not record a loss on  impairment of  investment  securities  for the
year ended  September 30, 2002 as compared to a $132,000 loss recognized for the
year ended September 30, 2001.

Income Tax Expense.  The provision for income tax totaled  $317,000 for the year
ended  September 30, 2002, as compared to $155,000 for the year ended  September
30, 2001. The $162,000 or 104.5% 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>
                                                                       Year Ended September 30,
                                                  ----------------------------------------------------------------
                                                              2002                               2001
                                                  ------------------------------  --------------------------------
                                                   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)......................   $36,310    $2,769       7.63%     $35,759    $2,767      7.74%
 Mortgage-backed securities....................     4,087       207       5.06          715        48      6.71
 Investment securities (2).....................     8,083       350       4.33        4,662       282      6.05
 Other interest earning assets.................     2,676        91       3.40        1,141        64      5.61
                                                   ------     -----       ----       ------     -----      ----
  Total interest-earning assets................    51,156     3,417       6.68       42,277     3,161      7.48
Non-interest-earning assets....................     1,127     -----                     928     -----
                                                   ------                            ------
  Total assets.................................   $52,283                           $43,205
                                                   ======                            ======

Interest-bearing liabilities:
 NOW accounts..................................   $ 6,794       135       1.99     $  6,232       139      2.23
 Savings accounts..............................    14,598       416       2.85       10,804       349      3.23
 Certificates of deposit.......................    20,354     1,015       4.99       20,481     1,200      5.86
 FHLB advances.................................     1,977        59       2.98          128         8      6.25
                                                   ------     -----       ----       ------     -----      ----
  Total interest-bearing liabilities..........     43,723     1,625       3.72       37,645     1,696      4.51
Non-interest-bearing liabilities...............       492     -----                     608     -----
                                                   ------                            ------
 Total liabilities.............................    44,215                            38,253
Stockholders' equity...........................     8,068                             4,952
                                                   ------                            ------
 Total liabilities and stockholders' equity....   $52,283                           $43,205
                                                   ======                            ======
Net interest income............................              $1,792                            $1,465
                                                              =====                             =====
Interest rate spread(3)........................                          2.96%                            2.97%
                                                                         ====                             ====
Net yield on interest-earning  assets(4).......                          3.50%                            3.47%
                                                                         ====                             ====
Ratio of average interest-earning assets to
   average interest-bearing liabilities........                        117.00%                          112.30%
                                                                       ======                           ======
</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 Bank's  interest-bearing
assets and  interest-bearing  liabilities  influence  the  Bank's  net  interest
income.  The following  table reflects the  sensitivity  of the Bank'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.

<TABLE>
                                                      Year Ended September 30,
                                                  ----------------------------------
                                                            2002 vs. 2001
                                                  ----------------------------------
                                                       Increase (Decrease)
                                                              Due to
                                                  ----------------------------------
                                                                     Rate/
                                                  Volume   Rate     Volume     Net
                                                  ------  ------   -------   -------
                                                        (Dollars in thousands)
<S>                                             <C>    <C>       <C>      <C>

Interest and dividend income:
   Loans receivable...........................     $ 32   $ (29)    $  (1)   $   2
   Investment securities and other............      451     (92)     (105)     254
                                                    ---    ----      ----     ----
      Total interest-earning assets...........     $483   $(121)    $(106)   $ 256
                                                    ===    ====      ====     ====
Interest expense:
   NOW accounts...............................     $ 15   $ (17)    $  (2)   $  (4)
   Savings accounts...........................      129     (45)      (17)      67
   Certificates of deposit....................      (12)   (175)        2    $(185)
   Advances from FHLB and other borrowings....       80      (3)      (26)      51
                                                    ---    ----      ----     ----
      Total interest-bearing liabilities......     $212   $(240)    $ (43)   $ (71)
                                                    ===    ====      ====     ====
Change in net interest income.................     $271   $ 119     $ (63)   $ 327
                                                    ===    ====      ====     ====
</TABLE>

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 extend 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, 2002, the Bank
had approximately 54% of its deposits in low- cost passbook 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, 2002.  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        8,610    -2,829      -25%     15.01%       -368 bp
 +200 bp        9,751    -1,688      -15      16.58        -211
 +100 bp       10,739      -700       -6      17.86         -83
    0 bp       11,439                         18.69
 -100 bp       11,724       285        2      18.95         +26

___________
(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

                                       11


<PAGE>

NPV or net  interest  income in the near  future.  Computations  of  prospective
effects of hypothetical interest rate changes are based on 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

Our 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.  We
maintain  liquidity  levels  adequate  to  fund  loan  commitments,   investment
opportunities, deposit withdrawals and other financial commitments. At September
30,  2002,  we  had  obligations  to  fund   outstanding   loan  commitments  of
approximately $2.1 million, including unused lines of credit, for which adequate
resources  were   available  to  fund  these  loans.   At  September  30,  2002,
approximately $13.1 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,  2002,  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, 2002,  management was not aware of any current  recommendations by
the regulatory authorities which, if implemented, would have such an effect.



                                       12
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


Board of Directors and Shareholders
Reserve Bancorp, Inc.


We have audited the accompanying consolidated balance sheets of Reserve Bancorp,
Inc. and subsidiary  (the  "Company") as of September 30, 2002 and 2001, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Reserve  Bancorp,  Inc. and
subsidiary  as of  September  30,  2002  and  2001,  and the  results  of  their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.



/s/ Stokes & Hinds, LLC



November 8, 2002
Pittsburgh, Pennsylvania

                                      F-1

<PAGE>

                              RESERVE BANCORP, INC.

                           CONSOLIDATED BALANCE SHEETS

                           September 30, 2002 and 2001


<TABLE>
<CAPTION>
                                                                   2002               2001
                                                               ------------       ------------
                                     ASSETS
<S>                                                          <C>                <C>
Cash and cash equivalents
   Interest bearing                                            $  1,335,623       $    796,703
   Non-interest bearing                                             319,537            263,253
Interest-bearing deposits in other banks                          1,795,869            400,000
Securities held-to-maturity (estimated fair value of
   $5,672,445 and $2,177,533)                                     5,405,046          2,161,455
Mortgage-backed securities held-to-maturity (estimated
   fair value of $6,986,926 and $225,337)                         6,891,886            223,531
Securities available-for-sale, at fair value                      5,979,584          1,644,952
Mortgage-backed securities available-for-sale, at fair value      2,665,481            316,831
Loans, net                                                       35,016,785         37,731,075
Federal Home Loan Bank stock, at cost                               303,600            312,600
Accrued interest receivable                                         421,735            296,496
Premises and equipment, net                                         369,237            243,760
Prepaid expenses                                                     13,040             44,136
Deferred income taxes                                                42,299            119,450
                                                               ------------       ------------

      TOTAL ASSETS                                             $ 60,559,722       $ 44,554,242
                                                               ============       ============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                       $ 42,986,487       $ 39,037,658
Federal Home Loan Bank advances                                   4,883,312               --
Advances from borrowers for taxes and insurance                      61,835             83,372
Accrued interest payable                                            119,641            179,177
Other liabilities                                                   158,504             90,127
                                                               ------------       ------------

      TOTAL LIABILITIES                                          48,209,779         39,390,334
                                                               ------------       ------------

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               --
Additional paid-in-capital                                        7,089,908               --
Retained earnings - substantially restricted                      5,654,945          5,150,151
Accumulated other comprehensive income, net of
   applicable income taxes of $42,286 and $9,796                     60,340             13,757
Unallocated shares held by Employee Stock Ownership
   Plan (ESOP)                                                     (531,000)              --
                                                               ------------       ------------

   TOTAL SHAREHOLDERS' EQUITY                                    12,349,943          5,163,908
                                                               ------------       ------------

   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 60,559,722       $ 44,554,242
                                                               ============       ============
</TABLE>

See accompanying notes.

                                       F-2
<PAGE>


                              RESERVE BANCORP, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                     Years Ended September 30, 2002 and 2001


                                                  2002         2001
                                              -----------   ----------

INTEREST AND DIVIDEND INCOME
   Loans                                       $2,768,886   $2,766,761
   Investments                                    349,659      282,038
   Mortgaged-backed securities                    206,756       47,535
   Federal Home Loan Bank stock                    12,961       18,685
   Interest-earning demand deposits                78,347       45,708
                                               ----------   ----------

                                                3,416,609    3,160,727
                                               ----------   ----------

INTEREST EXPENSE
   Deposits                                     1,566,342    1,687,719
   Advances from Federal Home Loan Bank            58,850        7,920
                                               ----------   ----------

                                                1,625,192    1,695,639
                                               ----------   ----------

        NET INTEREST INCOME                     1,791,417    1,465,088

PROVISION FOR LOAN LOSSES                          18,000       18,000
                                               ----------   ----------

        NET INTEREST INCOME AFTER
          PROVISION FOR LOAN LOSSES             1,773,417    1,447,088
                                               ----------   ----------

NONINTEREST INCOME
   Service charges and other fees                 143,072      102,912
   Income from real estate rental                   4,800        4,475
   Gain on sale of real estate                       --          7,437
   Gain on sale of investments                     38,599       30,782
                                               ----------   ----------

                                                  186,471      145,606
                                               ----------   ----------

NONINTEREST EXPENSE
   Compensation and benefits                      573,964      458,694
   Occupancy and equipment                        115,646      115,163
   Federal insurance premiums                      24,601       18,840
   Service bureau expense                         101,472      100,784
   Loss on impairment of securities                  --        132,256
   Other                                          322,720      271,659
                                               ----------   ----------

                                                1,138,403    1,097,396
                                               ----------   ----------

        INCOME BEFORE INCOME TAX                  821,485      495,298

INCOME TAX EXPENSE                                316,691      154,895
                                               ----------   ----------

         NET INCOME                            $  504,794   $  340,403
                                               ==========   ==========

EARNINGS PER SHARE - BASIC (SINCE INCEPTION)   $     0.38          N/A

WEIGHTED AVERAGE SHARES OUTSTANDING               700,221         --

See accompanying notes.

                                       F-3

<PAGE>

                                              RESERVE BANCORP, INC.

                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                     Years Ended September 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                     ACCUMULATED
                                                                                        OTHER      UNALLOCATED
                                               COMMON      PAID IN      RETAINED    COMPREHENSIVE  SHARES HELD
                                               STOCK       CAPITAL      EARNINGS    INCOME (LOSS)    BY ESOP       TOTAL
                                            -----------  -----------   -----------  -------------  -----------  -----------
<S>                                        <C>         <C>           <C>           <C>           <C>          <C>

BALANCE AT SEPTEMBER 30, 2000                $   --      $      --     $ 4,809,748   $   (32,353)  $      --    $ 4,777,395

COMPREHENSIVE INCOME
Net income                                       --             --         340,403          --            --        340,403
Change in unrealized gain (loss)
   on securities available-for-sale,
   net of applicable income taxes
   of $32,832                                    --             --            --          46,110          --         46,110
                                                                                                                 ----------
             TOTAL COMPREHENSIVE INCOME                                                                             386,513
                                             --------    -----------   -----------   -----------   -----------  -----------

BALANCE AT SEPTEMBER 30, 2001                    --             --       5,150,151        13,757          --      5,163,908

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

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

BALANCE AT SEPTEMBER 30, 2002                $ 75,750    $ 7,089,908   $ 5,654,945   $    60,340   $  (531,000) $12,349,943
                                             ========    ===========   ===========   ===========   ===========  ===========

</TABLE>

See accompanying notes.

                                       F-4
<PAGE>

                              RESERVE BANCORP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years Ended September 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                        2002           2001
                                                                   -------------   -------------
<S>                                                              <C>             <C>
OPERATING ACTIVITIES
Net income                                                         $    504,794    $    340,403
Adjustments to reconcile change in net income to
      net cash provided by operating activities
      Amortization of:
           Deferred loan origination fees                               (76,578)        (59,678)
           Premiums and discounts on investment securities              (15,668)          2,947
      Provision for loan losses                                          18,000          18,000
      Depreciation and amortization of premises and equipment            43,568          49,915
      Compensation expense - ESOP                                        66,829            --
      Net gain on sales of securities available-for-sale                (34,079)        (30,782)
      Net gain on call of security held to maturity                      (4,520)           --
      Gain on sale of real estate owned                                    --            (7,437)
      Loss on impairment of securities                                     --           132,256
      (Increase) decrease in:
           Accrued interest receivable                                 (125,239)        (16,592)
           Prepaid expenses                                              31,096         (11,781)
           Deferred income taxes                                         44,661         (83,516)
      Increase (decrease) in:
           Accrued interest payable                                     (59,536)          4,688
           Other liabilities                                             68,377          (3,973)
                                                                   ------------    ------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                               461,705         334,450
                                                                   ------------    ------------
INVESTING ACTIVITIES
      Purchases of interest-bearing deposits in other banks          (1,495,836)       (200,000)
      Proceeds from maturities of interest-bearing deposits
           in other banks                                               100,000         397,000
      Proceeds from maturities and calls of
           securities held-to-maturity                                5,444,477       1,050,000
      Proceeds from principal repayments of
           mortgage-backed securities held-to-maturity                  359,575          73,949
      Purchases of securities held-to-maturity                       (8,789,290)     (1,660,000)
      Purchases of mortgage-backed securities held-to-maturity       (7,033,857)           --
      Proceeds from sales of securities available-for-sale               64,900         453,824
      Proceeds from maturities and calls of
           securities available-for-sale                                460,000         600,000
      Proceeds from principal repayments of
           mortgage-backed securities available-for-sale                255,372          71,426
      Purchases of securities available-for-sale                     (4,682,830)       (608,250)
      Purchases of mortgage-backed securities available-for-sale     (2,540,268)           --
      Purchases of premises and equipment                              (169,045)        (19,334)
      Decrease (increase) in Federal Home Loan Bank stock                 9,000          (5,300)
      Proceeds from sale of real estate owned                              --            86,700
      Net loan originations and principal repayments on loans         2,772,868      (2,084,009)
                                                                   ------------    ------------

NET CASH USED BY INVESTING ACTIVITIES                               (15,244,934)     (1,843,994)
                                                                   ------------    ------------
</TABLE>
See accompanying notes.

                                       F-5
<PAGE>

                              RESERVE BANCORP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years Ended September 30, 2002 and 2001
<TABLE>
<CAPTION>
                                                                                        2002           2001
                                                                                   -------------   -------------
<S>                                                                              <C>                <C>
FINANCING ACTIVITIES
      Net increase (decrease) in FHLB advances                                        4,883,312      (1,450,000)
      Net increase in deposits                                                        3,948,829       3,027,073
      Net (decrease) increase in advances from borrowers
           for taxes and insurance                                                      (21,537)          3,819
      Proceeds from issuance of common stock                                          6,966,000            --
      Payment of conversion costs                                                      (398,171)           --
                                                                                   -------------   -------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                            15,378,433       1,580,892
                                                                                   -------------   -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                               595,204          71,348

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        1,059,956         988,608
                                                                                   -------------   -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                           $  1,655,160       1,059,956
                                                                                   =============   =============

SUPPLEMENTAL DISCLOSURES

Cash paid for:
      Interest on deposits, advances, and other borrowings                         $  1,684,728    $  1,690,951
                                                                                   =============   =============

      Income taxes                                                                 $    234,713    $    274,041
                                                                                   =============   =============

Loans transferred to foreclosed real estate owned                                  $       --      $     65,867
                                                                                   =============   =============
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                 $     79,073    $     78,942

      Deferred income tax expense                                                       (32,490)        (32,832)
                                                                                   -------------   -------------

Net increase in unrealized gain on securities available-for-sale                   $     46,583    $     46,110
                                                                                   =============   =============
</TABLE>

See accompanying ntoes.

                                       F-6
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of  Presentation  - The  consolidated  financial  statements  include  the
accounts of the  Company and its  wholly-owned  subsidiary,  Mt. Troy Bank.  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.  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 at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

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

A majority of the Bank'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 Bank'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  Bank 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 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. (the "Company") was incorporated under the laws
of the  Commonwealth  of  Pennsylvania  for the purpose of becoming  the holding
company of Mt. Troy Bank (the "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").  Prior to
fiscal 2002, the financial statements include the accounts of the Bank only. 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  two  offices,  Reserve  Township  and  the  City  of
Pittsburgh. 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).

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.

                                      F-7

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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-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 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.

                                       F-8
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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,  accrued interest on
certificates,  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 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.

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 Shareholders' Equity.

Earnings  per Share -  Earnings  per share  (EPS)  have been  calculated  on 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 are not  considered  outstanding  until they are
committed to be released for allocation. EPS is not applicable for periods prior
to the  completion  of the Bank's  stock  conversion  on April 5, 2002.  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.

The Company currently  maintains a simple capital  structure,  thus there are no
dilutive effects on earnings per share.

                                       F-9

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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  conversions.
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  2001,  the  Financial  Accounting
Standards Board (FASB) issued  Statement of Financial  Accounting  Standards No.
141, Business  Combinations,  effective for all business combinations  initiated
after June 30, 2001, as well as all business  combinations  accounted for by the
purchase  method  that are  completed  after June 30,  2001.  The new  statement
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  and  prohibits  the use of the  pooling-of-interests  method.  The
adoption of Statement  No. 141 is not expected to have a material  effect on the
Company's financial position or results of operations.

In June 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
142, Goodwill and Other Intangible Assets,  effective for fiscal years beginning
after December 31, 2001.  The new statement  changes the accounting for goodwill
from an amortization method to an impairment-only  approach.  Thus, amortization
of goodwill,  including  goodwill recorded in past business  combinations,  will
cease upon adoption of this Statement.  The adoption of Statement No. 142 is not
expected  to have a  material  effect on the  Company's  financial  position  or
results of operations.

In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations,  effective  for fiscal years  beginning  after June 15,  2002.  The
Statement requires entities to record the fair value of a liability for an asset
retirement  obligation  (ARO) in the  period in which it is  incurred.  When the
liability is initially recorded, the entity capitalizes a cost by increasing the
carrying  amount of the related  long-lived  asset.  Over time, the liability is
accreted  to its  present  value  each  period,  and  the  capitalized  cost  is
depreciated  over the useful life of the related asset.  Upon  settlement of the
liability,  an entity either settles the  obligation for its recorded  amount or
incurs a gain or loss upon settlement.  The adoption of Statement No. 143 is not
expected  to have a  material  effect on the  Company's  financial  position  or
results of operations.

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
of Long-Lived  Assets,  effective for fiscal years  beginning after December 15,
2001.  The  Statement  replaces  FASB  Statement  No.  121,  Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The
primary  objectives  of this  project were to develop one  accounting  model for
long-lived  assets  to be  disposed  of  by  sale  and  to  address  significant
implementation  issues  using the  framework  established  in SFAS No. 121.  The
adoption of Statement  No. 144 is not expected to have a material  effect on the
Company's financial position or results of operations.

                                      F-10
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent  Accounting  Pronouncements  (continued) - In April 2002, the FASB issued
Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical  Corrections.  This Statement rescinds FASB
Statement No. 4, and an amendment of that Statement, FASB Statement No. 64. This
Statement  also  rescinds  FASB  Statement  No. 44. This  Statement  amends FASB
Statement No. 13, to eliminate an inconsistency  between the required accounting
for certain lease  modifications  that have economic effects that are similar to
sale-leaseback   transactions.   This   Statement  also  amends  other  existing
authoritative  pronouncements  to make various  technical  corrections,  clarify
meanings, or describe their applicability under changed conditions. The adoption
of  Statement  145 is not  expected to have a material  effect on the  Company's
financial position or results of operations.

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 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.

                                      F-11

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001

NOTE B - 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>
                                                     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
                           ------------     -----------     ----------   ------------

                           $  5,405,046     $   268,466     $   (1,067)  $  5,672,445
                           ============     ===========     ==========   ============

</TABLE>

<TABLE>
<CAPTION>

                                                     2001
                           ----------------------------------------------------------
                                               Gross          Gross
                             Amortized       Unrealized     Unrealized      Fair
                                 Cost          Gains          Losses        Value
                           -----------      -----------     ----------   ------------

<S>                      <C>              <C>             <C>          <C>
Municipal Bonds            $    907,837     $    13,633     $   --       $    921,470
Corporate Bonds               1,253,618          14,083        (11,638)     1,256,063
                           ------------     -----------     -----------  ------------

                           $  2,161,455     $    27,716     $  (11,638)  $  2,177,533
                           ============     ===========     ==========   ============
</TABLE>


The amortized cost and estimated fair values of securities  held-to-maturity  at
September 30, 2002, by contractual maturity are shown below.

                                          Securities
                             ---------------------------------
                                Amortized          Fair
                                   Cost             Value
                             --------------    --------------

Due within one year          $     250,000     $     249,873
Due from one to five             3,110,849         3,261,945
Due from five to ten               439,117           459,271
Due after ten years              1,605,080         1,701,356
                             -------------     -------------

                              $  5,405,046      $  5,672,445
                              ============      ============

                                      F-12


<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001

NOTE C - 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>

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

                               $ 6,891,886   $   108,215    $   (13,175)   $ 6,986,926
                               ===========   ===========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        2001
                               -------------------------------------------------------
                                                Gross         Gross
                                Amortized    Unrealized     Unrealized        Fair
                                  Cost          Gains         Losses          Value
                               -----------   -----------    -----------    -----------

<S>                          <C>           <C>            <C>            <C>
Government National
   Mortgage Association        $   213,405   $     3,194    $    (1,891)   $   214,708
Federal Home Loan Mortgage
   Corporation                       6,515           338           --            6,853
Federal National Mortgage
   Association                       3,611           165           --            3,776
                               -----------   -----------    -----------    ------------

                               $   223,531   $     3,697    $    (1,891)   $   225,337
                               ===========   ===========    ===========    ===========
</TABLE>


The  amortized  cost and  estimated  fair values of  mortgage-backed  securities
held-to-maturity at September 30, 2002, by contractual maturity are shown below.

                                       Mortgage Backed Securities
                               ------------------------------------------
                                    Amortized                  Fair
                                      Cost                     Value
                               ----------------            -------------

Due within one year             $       --                 $        --
Due from one to five                  27,482                      27,380
Due from five to ten                 993,079                     980,417
Due after ten years                5,871,325                   5,979,129
                               -------------               -------------

                                $  6,891,886               $   6,986,926
                                ============               =============

                                      F-13

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE D - 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>
                                                           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 Sec Mutual Fund             2,281,474            88      (10,724)     2,270,838
                                   -----------   -----------    ---------    -----------

         Total Equity Securities     2,735,874        20,088      (46,044)     2,709,918
                                   -----------   -----------    ---------    -----------

                                   $ 5,955,603   $    74,625    $ (50,644)   $ 5,979,584
                                   ===========   ===========    =========    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                           2001
                                   -------------------------------------------------------
                                                   Gross          Gross
                                    Amortized    Unrealized     Unrealized      Fair
                                      Cost         Gains         Losses         Value
                                   -----------   -----------    ----------   -----------

<S>                              <C>           <C>            <C>            <C>
U.S. Government and
   Government agency obligations   $   200,000   $       702    $      --      $   200,702
Municipal Bonds                        775,175        20,034           --          795,209
                                   -----------   -----------    -----------    -----------

         Total debt securities         975,175        20,736           --          995,911
                                   -----------   -----------    -----------    -----------

FHLMC/FNMA stock                       381,250         4,758         (1,190)       384,818
Mortgage securities mutual fund        281,474          --          (17,251)       264,223
                                   -----------   -----------    -----------    -----------

         Total equity securities       662,724         4,758        (18,441)       649,041
                                   -----------   -----------    -----------    -----------

                                   $ 1,637,899   $    25,494    $   (18,441)   $ 1,644,952
                                   ===========   ===========    ===========    ===========
</TABLE>



                                      F-14

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE D - SECURITIES AVAILABLE-FOR-SALE (CONTINUED)

The amortized cost and estimated fair values of securities available-for-sale at
September 30, 2002 by contractual  maturity are shown below.  Mutual fund shares
and stocks have no maturity date.

                                                      Securities
                                           -------------------------------
                                             Amortized          Fair
                                               Cost             Value
                                           -------------     -------------

Due within one year                        $        --       $        --
Due from one to five                           2,549,300         2,568,858
Due from five to ten                             419,421           443,874
Due after ten years                              251,008           256,934
                                           -------------     -------------

                                           $   3,219,729     $   3,269,666
                                           =============     =============

NOTE E - 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>

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

                                    $   2,586,836     $   78,645   $    --      $  2,665,481
                                    =============     ==========   ===========  ============
</TABLE>

<TABLE>
<CAPTION>

                                                            2001
                                    --------------------------------------------------------
                                                        Gross        Gross
                                      Amortized       Unrealized   Unrealized       Fair
                                        Cost            Gains        Losses         Value
                                    -------------     ----------   ----------   ------------

<S>                               <C>               <C>          <C>          <C>
Federal Home Loan Mortgage
   Corporation                      $     112,055     $    3,998   $    --      $    116,053
Government National
   Mortgage Association                   188,276         12,502        --           200,778
                                    -------------     ----------   -----------  ------------

                                    $     300,331     $   16,500   $    --      $    316,831
                                    =============     ==========   ===========  ============
</TABLE>

                                      F-15
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE E - MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE (CONTINUED)

The  amortized  cost and  estimated  fair values of  mortgage-backed  securities
available-for-sale  at September  30, 2002,  by  contractual  maturity are shown
below.

                                           Amortized           Fair
                                              Cost             Value
                                          ------------     -------------

Due within one year                       $       --       $        --
Due from one to five                              --                --
Due from five to ten                            22,316            23,333
Due after ten years                          2,564,520         2,642,158
                                          ------------     -------------

                                          $  2,586,836     $   2,665,481
                                          ============     =============

NOTE F - LOANS

Loans at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                2002                2001
                                                           -------------       -------------
<S>                                                      <C>                 <C>
First mortgage loans:
   One to four family                                      $  25,909,505       $  27,843,101
   Multi-family                                                  264,327             538,826
Construction loans                                             4,935,365           6,156,355
Commercial real estate                                         2,755,672           1,993,146
Home equity and second mortgage                                2,631,768           2,700,781
Consumer loans:
   Secured                                                       329,532             490,187
   Unsecured                                                     217,245             244,930
   Share loans                                                   136,343             156,416
Commercial business loans                                        483,731             446,137
                                                           -------------       -------------

                                                              37,663,488          40,569,879
Less:    Undisbursed portion of construction loans             2,385,205           2,567,972
         Allowance for loan losses                               181,835             166,114
         Net deferred loan origination fees                       79,663             104,718
                                                           -------------       -------------
                                                           $  35,016,785       $  37,731,075
                                                           =============       =============
</TABLE>

The  Company  conducts  its  business  through  two  offices  located in Reserve
Township and the City of  Pittsburgh.  As of September 30, 2002, 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  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
year ended or as of September  30, 2002.  Commercial  real estate,  multi-family
residential,  construction,  and  commercial  business loans are included in the
non-homogenous group.

                                      F-16

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE F - LOANS (CONTINUED)

Loans which are contractually  past due ninety days or more total  approximately
$385,000 at September 30, 2002.

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

                                                      2002            2001
                                                  -----------     -----------


Beginning balance                                 $   166,114     $   152,895
Provision for loan losses                              18,000          18,000
Charge-offs                                            (2,809)         (4,917)
Recoveries                                                530             136
                                                  -----------     -----------

Ending balance                                    $   181,835     $   166,114
                                                  ===========     ===========

In the ordinary  course of business,  the Company has and expects to continue to
have transactions, including borrowings, with its officers, directors, and their
affiliates.   In  the  opinion  of  management,   such   transactions   were  on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time of comparable transactions with other persons and did not
involve  more  than a  normal  risk  of  collectibility  or  present  any  other
unfavorable features to the Company.

NOTE G - ACCRUED INTEREST RECEIVABLE

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

                                                      2002           2001
                                                  ----------      -----------

   Loans receivable                               $   256,183     $   240,732
   Investment securities                              202,077          63,611
                                                  -----------     -----------
                                                      458,260         304,343
   Allowance for uncollectible interest               (36,525)         (7,847)
                                                  -----------      ----------
                                                  $   421,735      $  296,496
                                                  ===========      ==========

NOTE H - PREMISES AND EQUIPMENT

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

                                                      2002           2001
                                                  -----------     -----------

     Land                                         $    10,000     $    10,000
     Buildings and improvements                       506,342         377,043
  Furniture, fixtures, and equipment                  514,751         475,005
                                                  -----------     -----------

                                                    1,031,093         862,048
   Accumulated depreciation                          (661,856)       (618,288)
                                                  -----------     -----------
                                                  $   369,237     $   243,760
                                                  ===========     ===========

                                      F-17
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE I - DEPOSITS

Deposits at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                              2002                                           2001
                            -------------------------------------   ---------------------------------------

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

<S>                        <C>        <C>              <C>           <C>         <C>             <C>
NOW account                  1.82%      $  6,880,901      16.0%        2.21%       $  6,415,613     16.4%
Passbook savings             2.75%        16,219,947      37.7         3.29%         10,846,583     27.8
                                        ------------     ------                    ------------    ------

                             2.47%        23,100,848      53.7         2.89%         17,262,196     44.2
                                        ------------     ------                    ------------    ------
Certificates of deposit:
2.00% to 2.99%               2.62%         3,189,363       7.4           N/A               --        0.0
3.00% to 3.99%               3.34%         4,675,758      10.9         3.30%             85,418      0.2
4.00% to 4.99%               4.43%         2,756,894       6.4         4.42%          5,947,183     15.2
5.00% to 5.99%               5.31%         4,569,875      10.6         5.40%          5,671,534     14.6
6.00% to 6.99%               6.32%         3,062,454       7.1         6.22%          7,953,139     20.4
7.00% to 7.99%               7.32%         1,631,295       3.8         7.29%          2,118,188      5.4
                                        ------------     ------                    ------------   ------
                             4.61%        19,885,639      46.3         5.61%         21,775,462     55.8
                                        ------------     ------                     -----------   ------
                             3.46%      $ 42,986,487     100.0%        4.40%       $ 39,037,658    100.0%
                                        ============     ======                     ===========    ======
</TABLE>

At September 30, 2002, the aggregate  maturities of  certificates of deposit are
as follows:

   2003         $   13,101,879
   2004              3,542,325
   2005              1,632,182
   2006                866,349
   2007                742,904
                --------------

                $   19,885,639
                ==============

Deposits in excess of $100,000 are not insured by the SAIF. The aggregate amount
of certificates of deposit at September 30, 2002 in denominations of $100,000 or
more totaled  $4,881,558.  At September 30, 2002, the Bank had deposits from its
officers and directors totaling $185,181.

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

                                            2002                  2001
                                      ---------------        -----------------

NOW accounts                            $   135,184           $   138,903
Passbook savings                            416,444               348,410
Certificates of deposit                   1,014,714             1,200,406
                                        -----------           -----------

   Total                                 $1,566,342            $1,687,719
                                         ==========            ==========

                                      F-18

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE J - ADVANCES FROM FEDERAL HOME LOAN BANK

At September 30, 2002, the following  advances were outstanding from the Federal
Home Loan Bank:

      Loan Type       Maturity Date      Interest Rate     Principal Outstanding
      ---------       -------------      -------------     ---------------------

        Term           10/18/2002           1.91%               $1,383,312
        Term            6/13/2003           2.59%                  500,000
        Term            6/14/2004           3.54%                  500,000
        Term            6/13/2005           4.11%                  500,000
        Term            6/13/2006           4.52%                  500,000
        Term            6/13/2007           4.80%                  500,000
        Term            6/13/2008           5.03%                  500,000
        Term            6/15/2009           5.20%                  500,000
                                                              ------------

                                            3.591%              $4,883,312
                                                                ==========

The Bank also has a line of credit of $4,000,000 from the Federal Home Loan Bank
(FHLB),  maturing  February 27, 2003 with an interest rate of 1.94% at September
30, 2002.  The Bank had draws of $0 on this line of credit at September 30, 2002
and 2001, 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.

NOTE K - FINANCIAL INSTITUTIONS THRIFT PLAN

The Company  participates  in the 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, 2002 and 2001 amounted to $29,532
and $24,501, respectively.

NOTE L - INCOME TAXES

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

                                                2002             2001
                                             ---------        ---------

Federal:
     Current                                 $ 211,628        $ 204,154
     Deferred                                   44,661          (83,516)
                                             ---------        ---------
                                             $ 256,289        $ 120,638
                                             =========        =========
State:
     Current                                 $  60,402        $  34,257
                                             =========        =========
Totals:
     Current                                 $ 272,030        $ 238,411
     Deferred                                   44,661          (83,516)
                                             ---------        ---------
                                             $ 316,691        $ 154,895
                                             =========        =========

                                      F-19

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE L - INCOME TAXES (CONTINUED)

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:

                                                           2002          2001
                                                         ---------    ---------


Computed income tax expense                              $ 279,305    $ 168,401
Increase (decrease) resulting from:
   Federal tax-exempt income                               (21,353)     (18,747)
   State taxes (net of federal benefit)                     39,865       22,610
   Other, net                                               18,874      (17,369)
                                                         ---------    ---------

Actual income tax expense                                $ 316,691    $ 154,895
                                                         =========    =========

   Effective tax rate                                        38.6%        31.3%
                                                         =========    =========

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

                                                            2002        2001
                                                         ---------    ---------

Deferred tax assets:
   Loan origination fees, net                            $   5,092    $  10,915
   Allowance for loan losses                                61,824       60,533
   Accrued interest payable                                   --         12,216
   Premises and equipment                                     --          2,126
   Directors retirement plan/ESOP accrual                   11,298        5,028
   Impairment loss on securities held-to-maturity           31,502       48,195
                                                         ---------    ---------

                                                           109,716      139,013
                                                         ---------    ---------

Deferred tax liabilities:
   Premises and equipment                                   (9,176)        --
   Unrealized gain on securities available for sale        (42,286)      (9,796)
   Other                                                   (15,955)      (9,767)
                                                         ---------    ---------
                                                           (67,417)     (19,563)
                                                         ---------    ---------
Net deferred asset                                       $  42,299    $ 119,450
                                                         =========    =========


No valuation  allowance was  established at September 30, 2002 and 2001, 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.  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, 2002 and 2001, includes approximately  $175,000,  representing such bad debt
deductions for which no deferred income taxes have been provided.


                                      F-20
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE M - OTHER NONINTEREST EXPENSE

Other noninterest  expense amounts are summarized as follows for the years ended
September 30, 2002 and 2001:

                                                   2002            2001
                                                ----------      ----------


FHLB bank account expense                       $  29,084       $  23,361
Advertising and promotion                          23,952          28,403
Loan expenses                                       6,373           5,070
Professional and supervisory fees                  82,801          48,737
Printing, stationery, and supplies                 24,653          20,201
Telephone and postage                              20,010          23,589
Seminars and training                              20,010          19,727
Other insurance                                    13,816          15,430
Cash (over) and short                                 (11)          2,815
Bank transportation service                         7,897           6,858
NOW expenses                                       29,178          35,144
ATM and internet banking                           34,640          32,584
Other operating expenses                           26,137           8,148
Non-operating expenses                              4,180           1,592
                                                ---------       ---------
                                                $ 322,720       $ 271,659
                                                =========       =========

NOTE N - REGULATORY MATTERS

The Company and the Bank are 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  Company  must  meet  specific  capital  guidelines  that  involve
quantitative  measures  of  the  Company's  assets,  liabilities,   and  certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company'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  (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, 2002,  that the
Company meets all capital adequacy requirements to which it is subject.

                                      F-21

<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE N - REGULATORY MATTERS (CONTINUED)

As of September 30, 2002, 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.

<TABLE>
<CAPTION>

                                                                                    To Be Well
                                                                                  Capitalized Under
                                                               For Capital        Prompt Corrective
                                        Actual             Adequacy 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)
   Reserve Bancorp, Inc.        $12,471,438     44.6%    $ 2,237,440     8.0%
   Mt. Troy Bank                  8,851,043     31.7%      2,237,440     8.0     $ 2,796,800     10.0%

Tier I Capital
   (to Risk-Weighted Assets)
   Reserve Bancorp, Inc.        $12,289,603     43.9%    $ 1,118,720     4.0%
   Mt. Troy Bank                  8,669,208     31.0%      1,118,720     4.0     $ 1,678,080      6.0%

Tier I Capital
   (to Adjusted Total Assets)
   Reserve Bancorp, Inc.        $12,289,603     20.3%    $ 2,422,389     4.0%
   Mt. Troy Bank                  8,669,208     15.0%      2,312,440     4.0     $ 2,890,550      5.0%

Tangible Capital
   (to Adjusted Total Assets)
   Reserve Bancorp, Inc.        $12,289,603     20.3%    $   908,396     1.5%
   Mt. Troy Bank                  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:

<TABLE>
<CAPTION>
                                                              Reserve
                                                              Bancorp,         Mt. Troy
                                                                Inc.             Bank
                                                           -------------     -------------
<S>                                                      <C>               <C>
GAAP equity                                                $  12,349,943     $   8,741,213
Plus (Less):
  Accumulated other comprehensive income
                                                                 (60,340)          (36,685)
  Net unrealized losses on equity securities                         --            (35,320)
                                                           -------------     -------------
Tangible capital                                              12,289,603         8,669,208
Plus:
  Allowance for loan losses                                      181,835           181,835
                                                           -------------     -------------

Total Risk-Based Capital                                   $  12,471,438     $   8,851,043
                                                           =============     =============
</TABLE>
                                      F-22
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE N - REGULATORY MATTERS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                       To Be Well
                                                                                    Capitalized Under
                                                                For Capital         Prompt Corrective
                                          Actual             Adequacy Purposes:     Action Provisions:
                                  ---------------------    ---------------------   ---------------------

                                     Amount       Ratio       Amount       Ratio      Amount       Ratio
                                  ---------------------    ---------------------   ---------------------
<S>                             <C>             <C>      <C>            <C>      <C>             <C>
As of September 30, 2001:

   Total Risk-Based Capital
      (to Risk-Weighted Assets)   $5,302,582      20.4%    $2,076,080     8.0%     $2,595,100      10.0%

   Tier I Capital
      (to Risk-Weighted Assets)    5,136,468      19.8%     1,038,040     4.0%      1,557,060       6.0%

   Tier I Capital
      (to Adjusted Total Assets)   5,136,468      11.5%     1,782,170     4.0%      2,227,712       5.0%

   Tangible Capital
      (to Adjusted Total Assets)   5,136,468      11.5%       668,314     1.5%      2,227,712       5.0%

</TABLE>

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

GAAP equity                                                  $5,163,908
Plus (Less):
   Accumulated other comprehensive income                       (13,757)
   Net unrealized losses on equity securities                   (13,683)
                                                           ------------
Tangible capital                                              5,136,468
Plus:
   Allowance for loan losses                                    166,114
                                                           ------------
Total Risk-Based Capital                                     $5,302,582
                                                             ==========

                                      F-23

<PAGE>
                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE O - BRANCH OFFICE LEASE

The Company leases its branch office  facility under an operating lease which is
currently  operating  on a year by year  basis.  Rent  expense  was  $11,280 and
$11,060 for the years ended September 30, 2002 and 2001, respectively.

The minimum lease payments required under the operating lease for the year ended
September 30, 2003 is $11,280.

NOTE P - 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:

                                                       2002             2001
                                                    ---------       -----------

Fixed:
     First mortgage loans                          $1,277,000          $236,500
     Second mortgage loans                                  -            39,000

Variable:
     Home equity lines of credit                      329,285           660,924
     Commercial business loans                        483,731           225,027

The range of  interest  rates on fixed  rate  first  and  second  mortgage  loan
commitments were 6.50% to 8.00% as of September 30, 2002.

NOTE Q - 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 2002. 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 $324,541 and $338,796 at September 30, 2002 and 2001, respectively.

The  following is an analysis of loans to these  parties  during the fiscal year
2002:

     Balances at October 1, 2001                          $338,796
     Advances                                               58,825
     Repayments                                            (73,080)
                                                          --------
     Balances at September 30, 2002                       $324,541
                                                          ========

                                      F-24

<PAGE>
                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE R - DIRECTORS' RETIREMENT PLAN

Effective  January 1, 2001,  the Company  established  a  non-qualified  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 $28,734 and
$21,549 during the years ended  September 30, 2002 and 2001,  respectively.  The
following  table sets forth the plan's funded status  amounts  recognized in the
Company's balance sheet at September 30:

                                                          2002          2001
                                                       ---------     ---------
Change in benefit obligation
Benefit obligation at beginning of year                $ 132,911     $       -
Service cost                                               5,864         4,398
Interest cost                                              8,540         6,405
Actuarial gain                                                 -             -
Assumption changes                                        16,080       129,858
Benefits paid                                             (9,300)       (7,750)
                                                       ---------     ---------
Benefit obligation at end of year                      $ 154,095     $ 132,911
                                                       =========     =========

Change in plan assets
Fair value of plan assets at beginning of year         $       -     $       -
Actual return on plan assets                                   -             -
Employer contribution                                      9,300         7,750
Benefits paid                                             (9,300)       (7,750)
                                                       ---------     ---------
Fair value of plan assets at end of year               $       -     $       -
                                                       =========     =========

Funded status                                          $(152,592)    $(132,911)
Unrecognized net actuarial loss                           16,180            74
Unrecognized net transition obligation                   115,429       119,038
                                                       ---------     ---------
Prepaid (accrued) benefit cost                         $ (20,983)    $ (13,799)
                                                       =========     =========

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

Components of net periodic benefit cost
Service cost                                           $   5,864     $   4,398
Interest cost                                              8,540         6,405
Expected return on plan assets                               (99)          (74)
Amortization of prior service cost                        14,429        10,820
                                                       ---------     ---------
Net periodic benefit cost                              $  28,734     $  21,549
                                                       =========     =========

                                      F-25
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001

NOTE S - EMPLOYEE STOCK OWNERSHIP PLAN

As part of the conversion  discussed in Note A, 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, 2002, the
loan had an outstanding  balance of $590,000 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.

At  September  30,  2002,   2,950  ESOP  shares  have  been   allocated  to  the
participating  employees.  For purposes of computing  net income per share,  the
remaining 56,050  unallocated  shares are not considered  outstanding until they
are  committed-to-be-released  for  allocation.  The Company is  recognizing  as
compensation  expense  the fair  market  value  of the  Company's  common  stock
allocated to participating  employees.  Compensation  expense  recognized by the
Company during the year ended September 30, 2002 was $66,829.

NOTE T - 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
P).  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.

                                      F-26
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001

NOTE U - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                       2002                       2001
                                             -------------------------  -------------------------

                                              Carrying        Fair       Carrying        Fair
                                               Amount         Value       Amount         Value
                                             ----------   ------------  -----------   -----------
<S>                                       <C>           <C>           <C>           <C>
FINANCIAL ASSETS
Cash and cash equivalents                   $ 1,655,160   $ 1,655,160   $ 1,059,956   $ 1,059,956
Interest-bearing deposits in other banks      1,795,869     1,795,869       400,000       400,000
Investment and mortgage backed securities    20,941,997    21,304,436     4,346,769     4,364,653
Net loans receivable                         35,016,785    36,610,141    37,731,075    38,225,293
FHLB stock                                      303,600       303,600       312,600       312,600
Accrued interest receivable                     421,735       421,735       296,496       296,496
                                            -----------   -----------   -----------   -----------


     Total financial assets                 $60,135,146   $62,090,941   $44,146,896   $44,658,998
                                            ===========   ===========   ===========   ===========
FINANCIAL LIABILITIES
Deposits                                    $42,986,487   $43,381,113   $39,037,658   $39,618,093
Advances from borrowers for taxes
 and insurance                                   61,835        61,835        83,372        83,372
FHLB advances                                 4,883,312     4,883,312             -             -
Accrued interest payable                        119,641       119,641       179,177       179,177
                                            -----------   -----------   -----------   -----------

     Total financial liabilities            $48,051,275   $48,445,901   $39,300,207   $39,880,642
                                            ===========   ===========   ===========   ===========
</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.

                                      F-27
<PAGE>

                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE U - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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 book value.

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 carrying amounts of short-term  borrowings and notes payable
approximate their fair values.

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 P to these financial statements.

                                      F-28

<PAGE>
                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE V - PARENT COMPANY

Condensed financial information of Reserve Bancorp, Inc., is as follows:

                             CONDENSED BALANCE SHEET

                                                           September 30,
                                                          2002        2001
                                                      ----------   ---------

ASSETS
      Interest-bearing cash and cash equivalents      $  244,136   $      --
      Interest-bearing deposits in other banks           599,000          --
      Investment securities available for sale           506,049          --
      Mortgage-backed securities available for sale    1,500,601          --
      Investment in subsidiary bank                    4,077,549          --
      Loan receivable                                    590,000          --
      Accrued interest receivable and other assets       114,679          --
      Premises and equipment, net                         76,945          --
                                                      ----------   ---------

TOTAL ASSETS                                          $7,708,959   $      --
                                                      ==========   =========

LIABILITIES AND SHAREHOLDERS' EQUITY
      Other liabilities                               $   22,680   $      --
      Stockholders' equity                             7,686,279          --
                                                      ----------   ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $7,708,959   $      --
                                                      ==========   =========


                          CONDENSED STATEMENT OF INCOME

                                                      Years Ended September 30,
                                                         2002         2001
                                                       ---------   ----------
INCOME
      Loans                                            $  13,609    $     --
      Investment and mortgage-backed securities           36,266          --
      Interest-bearing cash and cash equivalents          23,849          --
                                                       ---------    --------

Total income                                              73,724          --

OTHER OPERATING REVENUE                                      745          --
OTHER OPERATING EXPENSE                                  (29,065)         --
                                                       ---------    --------

      Income before equity in undistributed earnings
         of subsidiary                                    45,404          --
      Equity in undistributed earnings of subsidiary     477,549          --
                                                       ---------    --------

      Income before income taxes                         522,953          --
      Income taxes                                        18,159          --
                                                       ---------    --------

NET INCOME                                             $ 504,794    $     --
                                                       =========    ========

                                      F-29

<PAGE>
                              RESERVE BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2002 and 2001


NOTE V - PARENT COMPANY (CONTINUED)

                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Years Ended September 30,
                                                                   2002          2001
                                                               -----------    -----------
<S>                                                          <C>            <C>

OPERATING ACTIVITIES
Net income                                                     $   504,794    $       --
Adjustments to reconcile net income to net cash
      provided by operating activities:
           Undistributed net income of subsidiary                 (477,549)           --
           Amortization of investment discounts and premiums           158            --
           Other                                                  (108,202)           --
                                                               -----------    ----------

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

INVESTING ACTIVITIES
      Purchases of investment and mortgage-backed securities
           available-for-sale                                   (2,026,140)           --
      Proceeds from repayments of investment and
           mortgage-backed securities available-for-sale            59,191            --
      Purchases of interest-bearing deposits in other banks       (599,000)           --
      Purchase of premises and equipment                           (76,945)           --
      Purchase of subsidiary stock                              (3,600,000)           --
      ESOP loan                                                   (590,000)           --
                                                               -----------    ----------

Net cash used in investing activities                           (6,832,894)           --
                                                               -----------    ----------

FINANCING ACTIVITIES
      Net proceeds from issuance of common stock                 7,157,829            --
                                                               -----------    ----------

Net cash used in financing activities                            7,157,829            --
                                                               -----------    ----------

Increase in cash and cash equivalents                              244,136            --

CASH AND CASH EQUIVALENTS BEGINNING OF YEAR                             --            --
                                                               -----------    ----------

CASH AND CASH EQUIVALENTS END OF YEAR                          $   244,136    $       --
                                                               ===========    ==========
</TABLE>

See accompanying notes.

                                      F-30

<PAGE>

Corporate Information

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


                                      MT. TROY BANK
          Main Office                                Shop 'n Save Office
       2000 Mt. Troy Road                         1930 Spring Garden Avenue
 Pittsburgh, Pennsylvania 15212                 Pittsburgh, Pennsylvania 15212


                               Board of Directors
                            David P. Butler, Chairman
            Richard A. Sinewe                      Louis J. Slais, Vice Chairman
     Robert B. Shust, Vice Chairman                      Timothy Schneider


                               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                   Stokes & Hinds, 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, 2002 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 April 8, 2003 at 11:00 a.m. at the Mt.
Troy Bank, 2000 Mt. Troy Road, Pittsburgh, Pennsylvania.