<PAGE>

Selected Financial Data
-----------------------

The following tables set forth certain information concerning the consolidated
position and certain performance ratios of the company and its subsidiaries at
the dates indicated:

<TABLE>
<CAPTION>
                                                            At or for the Year Ended December 31,
                                                ------------------------------------------------------------
                                                  2001         2000         1999        1998          1997
                                                --------     --------     --------     --------     --------
                                                    (Dollars in Thousands, Except Per Share Information)
<S>                                             <C>          <C>          <C>          <C>          <C>
      Balance Sheet Data
      ------------------
       Assets                                   $ 74,533     $ 69,892     $ 63,456     $ 58,303     $ 48,326
       Investment securities                      22,235       22,544       22,886       21,657       14,985
       Loans                                      42,767       39,236       32,586       28,939       26,012
       Allowance for loan losses                     443          448          375          340          309
       Deposits                                   59,585       55,601       53,676       51,349       42,904
       Borrowings                                  5,805        5,487        4,489        1,567          177
       Stockholders' equity                        8,757        8,495        5,119        5,078        4,515

      Summary of Operations
      ---------------------
       Interest income                          $  5,024     $  5,012     $  4,199     $  3,933     $  3,396
       Interest expense                            1,958        1,998        1,714        1,646        1,332
                                                --------     --------     --------     --------     --------
       Net interest income                         3,066        3,014        2,485        2,287        2,064
       Provision for loan losses                     111          129           79           54           54
                                                --------     --------     --------     --------     --------
       Net interest income after
          provision for loan losses                2,955        2,885        2,406        2,233        2,010
       Other operating income                        822          662          549          487          351
       Other operating expense                     3,107        2,761        2,329        2,057        1,685
                                                --------     --------     --------     --------     --------
       Income before income taxes                    670          786          626          663          676
       Income taxes                                  111          113           76          115          151
                                                --------     --------     --------     --------     --------
       Net income                               $    559     $    673     $    550     $    548     $    525
                                                ========     ========     ========     ========     ========

      Per Share Data (1)
      ------------------
       Basic earnings                           $   0.77     $   0.93     $   0.88     $   0.88     $   0.85
       Diluted earnings                             0.76         0.91         0.87         0.87         0.85
       Cash dividends declared                      0.25         0.25         0.23         0.21         0.19
       Book value                                  12.16        11.57         8.09         8.15         7.25
       Basic Average shares outstanding          727,071      727,460      623,399      621,320      621,320
       Diluted Average shares outstanding        735,414      737,372      632,458      630,339      621,320

      Market Information
      ------------------
       High                                     $  27.25     $  27.27     $  24.55     $  24.00     $  14.40
       Low                                         21.50        20.00        21.14        18.91        10.47
       At December 31                              24.00        21.82        24.55        24.00        14.40

      Selected Financial Ratios
      -------------------------
       Return on average assets                     0.74%        0.97%        0.89%        0.99%        1.15%
       Return on average equity                     6.43         9.07        10.87        11.38        12.31
       Average equity to average assets            11.56        10.69         8.19         8.73         9.35
       Equity to assets at end of period           11.75        12.15         8.07         8.71         9.34
       Non-performing assets to total assets        0.39         0.27         0.47         0.30         0.21
       Non-performing loans to total loans          0.67         0.49         0.85         0.59         0.39
</TABLE>

(1)      Adjusted for a 10% stock dividend effective January 11, 2002, a
         five-for-four stock split effective August 25, 1999, a 10% stock
         dividend effective June 26, 1998 and a 2-for-1 stock split effective
         July 9, 1997.
<PAGE>

Common Stock Market Price and Dividend Information
--------------------------------------------------

Tri-State 1st Bank, Inc.'s common stock is traded on the NASDAQ OTC Bulletin
Board under the trade symbol TSEO. The following table presents the quarterly
high and low prices as reported by Advest, Inc., a market maker in the company's
common stock and previously the bank's common stock, for the recent two-year
period ended December 31, 2001. Also included in the table are dividends
declared per share on the outstanding common stock.

                                                      Cash
                   Common Stock Price               Dividends
        -------------------------------------       Declared
             2001             High      Low         Per Share
        --------------       ------    ------       ---------
        First Quarter        $25.75    $24.00         $0.06
        Second Quarter        27.25     23.50          0.06
        Third Quarter         25.25     23.50          0.06
        Fourth Quarter        24.00     21.50          0.07
                                                      -----
                                                      $0.25
                                                      =====

            2000
        --------------
        First Quarter        $27.27    $20.00         $  --
        Second Quarter        25.91     20.00          0.12
        Third Quarter         25.45     21.82          0.06
        Fourth Quarter        24.55     21.59          0.07
                                                      -----
                                                      $0.25
                                                      =====

At December 31, 2001, there were 720,298 of common shares outstanding, which
were held by approximately 488 shareholders of record.

The company's ability to pay dividends to shareholders may be dependent upon the
receipt of dividends from the bank. The bank may not declare or pay dividends on
its common stock if such payment will cause its regulatory capital to be reduced
below minimum requirements imposed by OCC regulations. The company is also
subject to certain regulatory restrictions imposed by the Federal Reserve Board
on the payment of dividends to its shareholders.

All dividend amounts have been restated to reflect a 10% stock dividend
effective January 11, 2002.
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------






Board of Directors and Stockholders
Tri-State 1st Bank, Inc.

We have audited the consolidated balance sheet of Tri-State 1st Bank, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, changes in stockholders' 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
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tri-State 1st Bank,
Inc. and Subsidiaries as of December 31, 2001 and 2000, 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/ S.R. Snodgrass
Wexford, PA
February 15, 2002


S.R. Snodgrass, A.C.
1000 Stonewood Drive
Suite 200
Wexford, PA 15090
724-934-0344
<PAGE>

                            TRI-STATE 1ST BANK, INC.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                    2001            2000
                                                                ------------    ------------
<S>                                                             <C>             <C>
ASSETS
     Cash and due from banks                                    $  4,150,121    $  3,476,407
     Interest-bearing deposits with other banks                       68,475          65,857
     Federal funds sold                                            1,450,000       1,350,000
                                                                ------------    ------------
         Cash and cash equivalents                                 5,668,596       4,892,264

     Investment securities available for sale                     21,037,556      20,998,665
     Investment securities held to maturity (market value
       of $1,242,389 and $1,582,312)                               1,197,936       1,545,382
     Loans                                                        42,766,633      39,236,019
     Less allowance for loan losses                                  443,350         447,914
                                                                ------------    ------------
         Net loans                                                42,323,283      38,788,105
     Premises and equipment                                        3,299,993       2,583,872
     Accrued interest and other assets                             1,006,040       1,084,110
                                                                ------------    ------------

         TOTAL ASSETS                                           $ 74,533,404    $ 69,892,398
                                                                ============    ============

LIABILITIES
     Deposits:
        Noninterest-bearing demand                              $  9,773,483    $  8,560,439
        Interest-bearing demand                                   13,411,836      13,029,949
        Money market                                               3,373,053       3,596,426
        Savings                                                   10,480,953      10,658,297
        Time                                                      22,545,363      19,755,942
                                                                ------------    ------------
         Total deposits                                           59,584,688      55,601,053
     Short-term borrowings                                         5,805,177       5,486,532
     Accrued interest and other liabilities                          386,846         310,305
                                                                ------------    ------------
         TOTAL LIABILITIES                                        65,776,711      61,397,890
                                                                ------------    ------------

STOCKHOLDERS' EQUITY
     Common stock, no par value; 1,000,000 shares authorized,
        733,971 and 667,313 shares issued                          8,142,398       6,570,686
     Retained earnings                                               683,647       1,883,370
     Treasury stock, at cost (13,673 shares)                        (303,943)             --
     Accumulated other comprehensive income                          234,591          40,452
                                                                ------------    ------------
         TOTAL STOCKHOLDERS' EQUITY                                8,756,693       8,494,508
                                                                ------------    ------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 74,533,404    $ 69,892,398
                                                                ============    ============
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       2
<PAGE>

                            TRI-STATE 1ST BANK, INC.
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                      2001           2000
                                                   -----------   -----------
<S>                                                <C>           <C>
INTEREST INCOME
     Loans, including fees                         $ 3,559,548   $ 3,489,189
     Interest-bearing deposits with other banks
                                                         2,693         3,402
     Federal funds sold                                176,089       182,999
     Investment securities:
         Taxable                                       921,724       883,545
         Exempt from federal income tax                363,569       453,212
                                                   -----------   -----------
                   Total interest income             5,023,623     5,012,347
                                                   -----------   -----------

INTEREST EXPENSE
     Deposits                                        1,782,525     1,717,757
     Short-term borrowings                             175,159       280,103
                                                   -----------   -----------
                   Total interest expense            1,957,684     1,997,860
                                                   -----------   -----------

NET INTEREST INCOME                                  3,065,939     3,014,487

Provision for loan losses                              111,200       129,200
                                                   -----------   -----------

NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES                         2,954,739     2,885,287
                                                   -----------   -----------

OTHER OPERATING INCOME
     Service fees on deposit accounts                  536,624       492,741
     Investment securities gains (losses)               43,000       (37,379)
     Other                                             242,040       206,611
                                                   -----------   -----------
                   Total other operating income        821,664       661,973
                                                   -----------   -----------

OTHER OPERATING EXPENSE
     Salaries and employee benefits                  1,492,537     1,365,066
     Occupancy                                         362,046       286,924
     Furniture and equipment                           228,500       176,741
     Other                                           1,022,886       931,986
                                                   -----------   -----------
                   Total other operating expense     3,105,969     2,760,717
                                                   -----------   -----------

Income before income taxes                             670,434       786,543
Income taxes                                           111,418       113,400
                                                   -----------   -----------

NET INCOME                                         $   559,016   $   673,143
                                                   ===========   ===========

EARNINGS PER SHARE
     Basic                                         $      0.77   $      0.93
     Diluted                                              0.76          0.91
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

                            TRI-STATE 1ST BANK, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                                                   Other
                                                      Common        Retained      Treasury     Comprehensive
                                                       Stock        Earnings        Stock      Income (Loss)      Total
                                                    -----------   -----------    -----------    -----------    -----------
<S>                                                 <C>           <C>            <C>            <C>            <C>
Balance, December 31, 1999                          $ 4,085,248   $ 1,397,077    $        --    $  (363,715)   $ 5,118,610

Comprehensive income:
Net income                                                            673,143                                      673,143
Net unrealized gain on securities,
  net of reclassification adjustment,
  net of taxes of $208,207                                                                          404,167        404,167
                                                                                                               -----------
Total comprehensive income                                                                                       1,077,310

Dividends declared ($0.25 per share)                                 (186,850)                                    (186,850)
Common stock issued, net of
  issuance costs                                      2,485,438                                                  2,485,438
                                                    -----------   -----------    -----------    -----------    -----------

Balance, December 31, 2000                            6,570,686     1,883,370             --         40,452      8,494,508

Comprehensive income:
Net income                                                            559,016                                      559,016
Net unrealized gain on securities,
  net of reclassification adjustment,
  net of taxes of $100,011                                                                          194,139        194,139
                                                                                                               -----------
Total comprehensive income                                                                                         753,155

Purchase of treasury stock                                                          (303,943)                     (303,943)
Dividends declared ($0.25 per share)                                 (185,275)                                    (185,275)
Stock dividend                                        1,571,712    (1,573,464)                                      (1,752)
                                                    -----------   -----------    -----------    -----------    -----------

Balance, December 31, 2001                          $ 8,142,398   $   683,647    $  (303,943)   $   234,591    $ 8,756,693
                                                    ===========   ===========    ===========    ===========    ===========

                                                                                                    2001           2000
                                                                                                -----------    -----------
Components of other comprehensive income:
  Change in net unrealized gain on
    investment securities available for sale                                                    $   222,519    $   379,497
  Realized (gains) losses included in net
    income, net of taxes of $14,620 and ($12,709)                                                   (28,380)        24,670
                                                                                                -----------    -----------

Total                                                                                           $   194,139    $   404,167
                                                                                                ===========    ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>

                            TRI-STATE 1ST BANK, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                    2001           2000
                                                                -----------    -----------
<S>                                                             <C>            <C>
OPERATING ACTIVITIES
     Net income                                                 $   559,016    $   673,143
     Adjustments to reconcile net income to net cash provided
       by operating activities:
        Provision for loan losses                                   111,200        129,200
        Depreciation and amortization, net                          321,254        248,640
        Investment securities losses (gains)                        (43,000)        37,379
        Deferred income taxes                                       (17,504)        33,145
        Decrease (increase) in accrued interest receivable           84,568        (94,935)
        Increase (decrease) in accrued interest payable              (2,404)         7,733
        Other                                                       (11,813)       113,583
                                                                -----------    -----------

         Net cash provided by operating activities                1,001,317      1,147,888
                                                                -----------    -----------

INVESTING ACTIVITIES
     Investment securities available for sale:
        Proceeds from sales                                       1,093,000      1,151,062
        Proceeds from principal repayments and maturities         7,889,765      2,477,874
        Purchases of securities                                  (8,698,262)    (3,380,723)
     Investment securities held to maturity:
        Proceeds from principal repayments and maturities           345,911        339,053
     Net increase in loans                                       (3,686,065)    (6,754,519)
     Purchase of premises and equipment                            (982,396)      (674,720)
     Proceeds from sale of real estate owned                             --         17,590
                                                                -----------    -----------

         Net cash used for investing activities                  (4,038,047)    (6,824,383)
                                                                -----------    -----------

FINANCING ACTIVITIES
     Net increase in deposits                                     3,983,635      1,925,040
     Net increase in short-term borrowings                          318,645        997,333
     Net proceeds from issuance of common stock                          --      2,485,438
     Treasury stock purchased                                      (303,943)            --
     Cash dividends paid                                           (185,275)      (186,850)
                                                                -----------    -----------

         Net cash provided by financing activities                3,813,062      5,220,961
                                                                -----------    -----------

         Increase (decrease) in cash and cash equivalents           776,332       (455,534)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    4,892,264      5,347,798
                                                                -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                        $ 5,668,596    $ 4,892,264
                                                                ===========    ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>

                            TRI-STATE 1ST BANK, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Operations and Basis of Presentation
     ----------------------------------------------

     A summary of significant accounting and reporting policies applied in the
     presentation of the accompanying financial statements follows:

     Tri-State 1st Bank, Inc. (the "Company") is an Ohio corporation organized
     as the holding company of the 1st National Community Bank (the "Bank"), and
     Gateminder Corporation ("Gateminder"). The Bank is a national banking
     association headquartered in East Liverpool, Ohio. The Bank's principal
     sources of revenue emanate from its commercial, commercial mortgage,
     residential real estate, and consumer loan financing, its investment
     securities portfolio, as well as a variety of deposit services offered to
     its customers through seven branch offices and one loan production office
     which are located in the tri-state area. Gateminder was established by the
     Company to provide non-banking services to business with automated teller
     machines ("ATM"). Gateminder sells ATM machines and provides the means for
     processing transactions for businesses.

     The Company's principal assets are represented by its ownership of the Bank
     and Gateminder. The Company and Gateminder are supervised by the Board of
     Governors of the Federal Reserve System, while the Bank is subject to
     regulation and supervision by the Office of the Comptroller of the
     Currency.

     The consolidated financial statements of the Company include its
     wholly-owned subsidiaries. All intercompany transactions have been
     eliminated in consolidation. The investment in subsidiaries on the parent
     company financial statements is carried at the Company's equity position in
     the underlying net assets of each entity. The financial statements have
     been prepared in conformity with accounting principles generally accepted
     in the United States of America. In preparing the financial statements,
     management is required to make estimates and assumptions that affect the
     reported amounts of assets and liabilities as of the balance sheet date and
     revenues and expenses for the period. Actual results could differ
     significantly from those estimates.

     Investment Securities
     ---------------------

     Investment securities are classified at the time of purchase, based on
     management's abilities and intention, as securities held to maturity or
     available for sale. Debt securities acquired with the ability and intent to
     hold to maturity are stated at cost adjusted for amortization of premium
     and accretion of discount, which are computed using the interest method,
     and recognized as adjustments of interest income. All other debt securities
     have been classified as available for sale to serve principally for
     liquidity purposes. Unrealized holding gains and losses for available for
     sale securities are reported as a separate component of stockholders'
     equity, net of tax, until realized. Realized securities gains and losses
     are computed using the specific identification method. Interest and
     dividends on investment securities are recognized as income when earned.

     Common stock of the Federal Home Loan Bank and the Federal Reserve Bank
     represents ownership in institutions that are wholly-owned by other
     financial institutions. These equity securities are accounted for at cost
     and are classified as other assets.

                                       6
<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Loans
     -----

     Loans are reported at their principal amount, net of the allowance for loan
     losses. Interest on all loans is recognized as income when earned on the
     accrual method. The Company's general policy is to stop accruing interest
     on loans when it is determined that reasonable doubt exists as to the
     collectibility of additional interest. Interest received on nonaccrual
     loans is recorded as income or applied against principal according to
     manage-ment's judgment as to the collectibility of principal.

     Loan origination fees and certain direct loan origination costs are being
     deferred and the net amount amortized as an adjustment of the related
     loan's yield. The Company is amortizing these amounts over the contractual
     life of the related loans.

     Allowance for Loan Losses
     -------------------------

     The allowance for loan losses represents the amount which management
     estimates is adequate to provide for potential losses inherent in its loan
     portfolio. The allowance method is used in providing for loan losses.
     Accordingly, all loan losses are charged to the allowance, and all
     recoveries are credited to it. The allowance for loan losses is established
     through a provision for loan losses charged to operations. The provision
     for loan losses is based on management's periodic evaluation of individual
     loans, economic factors, past loan loss experience, changes in the
     composition and volume of the portfolio, and other relevant factors. The
     estimates used in determining the adequacy of the allowance for loan
     losses, including the amounts and timing of future cash flows expected on
     impaired loans, are particularly susceptible to changes in the near term.

     Impaired loans are commercial and commercial real estate loans for which it
     is probable the Company will not be able to collect all amounts due
     according to the contractual terms of the loan agreement. The Company
     individually evaluates such loans for impairment and does not aggregate
     loans by major risk classifications. The definition of "impaired loans" is
     not the same as the definition of "nonaccrual loans," although the two
     categories overlap. The Company may choose to place a loan on nonaccrual
     status due to payment delinquency or uncertain collectibility, while not
     classifying the loan as impaired provided the loan is not of a commercial
     or commercial real estate classification. Factors considered by management
     in determining impairment include payment status and collateral value. The
     amount of impairment for these types of loans is determined by the
     difference between the present value of the expected cash flows related to
     the loan, using the original interest rate, and its recorded value, or as a
     practical expedient in the case of collateralized loans, the difference
     between the fair value of the collateral and the recorded amount of the
     loans. When foreclosure is probable, impairment is measured based on the
     fair value of the collateral.

     Mortgage loans secured by one-to-four family properties and all consumer
     loans are large groups of smaller balance homogeneous loans and are
     measured for impairment collectively. Loans that experience insignificant
     payment delays, which are defined as 90 days or less, generally are not
     classified as impaired. Management determines the significance of payment
     delays on a case-by-case basis taking into consideration all circumstances
     concerning the loan, the credit worthiness and payment history of the
     borrower, the length of the payment delay, and the amount of shortfall in
     relation to the principal and interest owed.

     Premises and Equipment
     ----------------------

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation is computed on the straight-line method over the estimated
     useful lives of the assets. Expenditures for maintenance and repairs are
     charged against income as incurred. Costs of major additions and
     improvements are capitalized.

                                       7
<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Intangible Asset
     ----------------

     The intangible asset consists exclusively of a core deposit acquisition
     premium. This core deposit acquisition premium, which was developed based
     upon a specific core deposit life study, is amortized using the
     straight-line method over eight years. Annual assessments of carrying value
     and remaining amortization periods are made to determine possible carrying
     value impairment and appropriate adjustments as deemed necessary. This
     asset is a component of other assets on the consolidated balance sheet.

     Real Estate Owned
     -----------------

     Real estate owned acquired in the settlement of foreclosed loans is carried
     as a component of other assets at the lower of cost or fair value minus
     estimated cost to sell. Valuation allowances for estimated losses are
     provided when the carrying value of the real estate acquired exceeds the
     fair value. Direct costs incurred in the foreclosure process and subsequent
     holding costs incurred on such properties are recorded as expenses of
     current operations.

     Earnings Per Share
     ------------------

     The Company provides dual presentation of Basic and Diluted earnings per
     share. Basic earnings per share is calculated utilizing net income as
     reported in the numerator and average shares outstanding in the
     denominator. The computation of diluted earnings per share differs in that
     the dilutive effects of any stock options, warrants, and convertible
     securities are adjusted in the denominator.

     Employee Benefits
     -----------------

     Employee benefits include contributions to a defined contribution Section
     401(k) plan covering eligible employees. Limited matching contributions are
     made for participating employees subject to plan criteria. In addition, an
     elective contribution is made annually at the discretion of the Board of
     Directors. The Company also maintains an Employee Stock Ownership Plan
     ("ESOP") covering substantially all employees and officers. The amount of
     the contribution to the ESOP is at discretion of the Board of Directors.

     Stock Options
     -------------

     The Company maintains a stock option plan for the Directors, officers, and
     key employees. When the exercise price of the Company's stock options is
     greater than or equal to the market price of the underlying stock on the
     date of the grant, no compensation expense is recognized in the Company's
     financial statements. Pro forma net income and earnings per share are
     disclosed to reflect the impact of the stock option plan assuming
     compensation expense had been recognized based on the fair value of the
     stock options granted under the plan in the accom-panying notes to the
     financial statements.

     Income Taxes
     ------------

     Deferred tax assets and liabilities are reflected at currently enacted
     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, these 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. The Company's other comprehensive income is comprised
     exclusively of the net unrealized gains and losses attributable to its
     investment securities available for sale. The Company has elected to report
     the effects of comprehensive income as a part of the Consolidated Statement
     of Changes in Stockholders' Equity.

                                       8
<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Cash Flow Information
     ---------------------

     The Company has defined cash and cash equivalents as those amounts included
     in the balance sheet captions Cash and due from banks, Interest-bearing
     deposits with other banks, and Federal funds sold. Cash payments for
     interest expense in 2001 and 2000 were $1,960,088 and $1,990,127,
     respectively. Cash (receipts) payments for income taxes in 2001 and 2000
     were $108,419 and $(21,091), respectively.

     Reclassification of Comparative Amounts
     ---------------------------------------

     Certain items previously reported have been reclassified to conform to the
     current year's reporting format. Such reclassifications did not affect net
     income or retained earnings.

     Recent Accounting Pronouncements
     --------------------------------

     In July 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (FAS) 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 July 2001, the FASB issued FAS No. 142, Goodwill and Other Intangible
     Assets, effective for fiscal years beginning after December 15, 2001. The
     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. However, the new statement did not amend FAS No. 72,
     Accounting for Certain Acquisitions of Banking or Thrift Institutions,
     which requires recognition and amortization of unidentified intangible
     assets relating to the acquisition of financial institutions or branches
     thereof. The FASB has decided to undertake a limited scope project to
     reconsider the provisions of FAS No. 72 in 2002. Therefore, 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 August 2001, the FASB issued FAS No. 143, Accounting for Asset
     Retirement Obligations, which requires that the fair value of a liability
     be recognized when incurred for the retirement of a long-lived asset and
     the value of the asset be increased by that amount. The statement also
     requires that the liability be maintained at its present value in
     subsequent periods and outlines certain disclosures for such obligations.
     The adoption of this statement, which is effective January 1, 2003, is not
     expected to have a material effect on the Company `s financial statements.

     In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment
     or Disposal of Long-Lived Assets. FAS No. 144 supercedes FAS No. 121 and
     applies to all long-lived assets (including discontinued operations) and
     consequently amends APB Opinion No. 30, Reporting Results of Operations -
     Reporting the Effects of Disposal of a Segment of a Business. FAS No. 144
     requires that long-lived assets that are to be disposed of by sale be
     measured at the lower of book value or fair value less costs to sell. FAS
     No. 144 is effective for financial statements issued for fiscal years
     beginning after December 15, 2001 and, generally, its provisions are to be
     applied prospectively. The adoption of this statement is not expected to
     have a material effect on the Company's financial statements.

                                       9
<PAGE>

2.   EARNINGS PER SHARE

     There are no convertible securities which would effect the numerator in
     calculating basic and diluted earnings per share; therefore, net income as
     presented on the Consolidated Statement of Income will be used as the
     numerator. The following table sets forth the composition of the
     weighted-average common shares (denominator) used in the basic and diluted
     earnings per share computation.

                                                        2001         2000
                                                      --------     --------

     Weighted average common shares                    733,971      727,460

     Average treasury stock shares                      (6,900)          --
                                                      --------     --------

     Weighted average common shares
        outstanding used to calculate
        basic earnings per share                       727,071      727,460

     Additional common stock equivalents
        (stock options) used to calculate
        diluted earnings per share                       8,343        9,912
                                                      --------     --------

     Weighted average common shares and
        common stock equivalents used to
        calculate diluted earnings per share           735,414      737,372
                                                      ========     ========

     Options to purchase 29,697 shares of common stock at prices from $24.00 to
     $25.45 were outstanding during 2001 and 2000, but were not included in the
     computation of diluted earnings per share because to do so would have been
     anti-dilutive.

3.   STOCK DIVIDEND

     On November 7, 2001, the Board of Directors approved a 10 percent stock
     dividend, payable January 11, 2002 to stockholders' of record as of
     December 20, 2001. Average shares outstanding and all per share amounts
     included in the consolidated financial statements are based on the
     increased number of shares giving retroactive effect to the stock dividend.

4.   INVESTMENT SECURITIES

     The amortized cost and estimated market value of investment securities
     available for sale are as follows:

<TABLE>
<CAPTION>
                                                            2001
                                    ------------------------------------------------------
                                                     Gross         Gross        Estimated
                                     Amortized     Unrealized    Unrealized      Market
                                       Cost          Gains         Losses         Value
                                    -----------   -----------   -----------    -----------
     <S>                            <C>           <C>           <C>            <C>
     U.S. Treasury securities and
       other U.S. Government
       agency securities            $10,760,595   $   192,805   $   (14,722)   $10,938,678
     Obligations of states and
       political subdivisions         8,363,780       196,832       (30,703)     8,529,909
     Mortgage-backed securities       1,557,740        11,229            --      1,568,969
                                    -----------   -----------   -----------    -----------
          Total                     $20,682,115   $   400,866   $   (45,425)   $21,037,556
                                    ===========   ===========   ===========    ===========
</TABLE>

                                       10
<PAGE>

4.   INVESTMENT SECURITIES (Continued)

<TABLE>
<CAPTION>
                                                             2000
                                    ------------------------------------------------------
                                                     Gross         Gross        Estimated
                                     Amortized     Unrealized    Unrealized      Market
                                       Cost          Gains         Losses         Value
                                    -----------   -----------   -----------    -----------
     <S>                            <C>           <C>           <C>            <C>
     U.S. Treasury securities and
       other U.S. Government
       agency securities            $12,733,759   $    60,857   $   (61,162)   $12,733,454
     Obligations of states and
       political subdivisions         8,016,435        90,038       (27,996)     8,078,477
     Mortgage-backed securities         187,180           184          (630)       186,734
                                    -----------   -----------   -----------    -----------
          Total                     $20,937,374   $   151,079   $   (89,788)   $20,998,665
                                    ===========   ===========   ===========    ===========
</TABLE>

The amortized cost and estimated market value of investment securities held to
maturity are as follows:

<TABLE>
<CAPTION>
                                                        2001
                                  --------------------------------------------------
                                                 Gross        Gross       Estimated
                                   Amortized   Unrealized   Unrealized      Market
                                     Cost        Gains        Losses        Value
                                  ----------   ----------   ----------    ----------
     <S>                          <C>          <C>          <C>           <C>
     Obligations of states and
       political subdivisions     $1,144,366   $   43,055   $       --    $1,187,421
     Mortgage-backed securities       53,570        1,405           (7)       54,968
                                  ----------   ----------   ----------    ----------

     Total                        $1,197,936   $   44,460   $       (7)   $1,242,389
                                  ==========   ==========   ==========    ==========

<CAPTION>
                                                        2000
                                  --------------------------------------------------
                                                 Gross        Gross       Estimated
                                   Amortized   Unrealized   Unrealized      Market
                                     Cost        Gains        Losses        Value
                                  ----------   ----------   ----------    ----------
     <S>                          <C>          <C>          <C>           <C>
     Obligations of states and
       political subdivisions     $1,453,684   $   36,399   $     (264)   $1,489,819
     Mortgage-backed securities       91,698          851          (56)       92,493
                                  ----------   ----------   ----------    ----------

     Total                        $1,545,382   $   37,250   $     (320)   $1,582,312
                                  ==========   ==========   ==========    ==========
</TABLE>

                                       11
<PAGE>

4.   INVESTMENT SECURITIES (Continued)

     The amortized cost and estimated market value of debt securities by
     contractual maturity at December 31, 2001 are shown below. Expected
     maturities will differ from contractual maturities because borrowers may
     have the right to call or prepay obligations with or without call or
     prepayment penalties.

<TABLE>
<CAPTION>
                                        AVAILABLE FOR SALE          HELD TO MATURITY
                                    -------------------------   -------------------------
                                                   Estimated                   Estimated
                                     Amortized       Market      Amortized       Market
                                       Cost          Value         Cost          Value
                                    -----------   -----------   -----------   -----------
     <S>                            <C>           <C>           <C>           <C>
     Due in one year or less        $   825,391   $   837,965   $    75,000   $    76,153
     Due after one year through
       five years                    11,311,109    11,559,164       572,572       592,936
     Due after five years through
       ten years                      6,849,424     6,929,416       550,364       573,300
     Due after ten years              1,696,191     1,711,011            --            --
                                    -----------   -----------   -----------   -----------

     Total                          $20,682,115   $21,037,556   $ 1,197,936   $ 1,242,389
                                    ===========   ===========   ===========   ===========
</TABLE>

     Proceeds from the sales of securities available for sale and the gross
     realized gains and losses for the years ended December 31, were as follows:

                                                 2001               2000
                                             -----------        -----------
     Proceeds from sales                     $ 1,093,000        $ 1,151,062
     Gross realized losses                            --             37,379
     Gross realized gains                        (43,000)                --

     Investment securities with an amortized cost of $8,025,392 and $11,060,970
     and an estimated market value of $8,171,140 and $11,049,541, respectively,
     were pledged to secure public deposits, securities sold under agreements to
     repurchase, and other purposes as required by law at December 31, 2001 and
     2000.

5.   LOANS

     Major classifications of loans are summarized as follows:

                                                    2001            2000
                                                -----------     -----------
     Commercial and agricultural                $16,083,028     $12,667,468
     Real estate mortgages:
          Residential                            18,248,069      17,757,042
          Construction                              145,237              --
          Commercial                              3,056,873       3,489,968
     Consumer                                     5,233,426       5,321,541
                                                -----------     -----------
                                                 42,766,633      39,236,019
     Less allowance for loan losses                 443,350         447,914
                                                -----------     -----------

        Net loans                               $42,323,283     $38,788,105
                                                ===========     ===========

                                       12
<PAGE>

5.   LOANS

     The Company grants consumer, commercial, and mortgage loans to customers
     throughout its trade area that encompasses the immediate tri-state area of
     East Liverpool, Ohio. Although the Company has a diversified loan
     portfolio, at December 31, 2001 and 2000, a substantial portion of its
     debtors' ability to honor their loan agreements is dependent upon the
     economic stability of the tri-state area.

     Non-performing loans are comprised of commercial, mortgage, and consumer
     loans which are on a nonaccrual basis, or contractually past due 90 days or
     more as to interest or principal payment but are not on nonaccrual status
     because they are well secured or in process of collection. The Company had
     non-performing loans of $286,109 and $192,060 as of December 31, 2001 and
     2000, respectively. The Company had no impaired loans at December 31, 2001
     or 2000.

     As of December 31, 2001, aggregate loans of $60,000 or more extended to
     officers, Directors, and related affiliates or associates were $1,165,319.
     A summary of activity during the year is as follows:

                                            Amount
           2000           Additions        Collected             2001
      -------------  ---------------   -----------------   -----------------

      $   1,783,208    $   514,917       $   1,132,806       $   1,165,319

6.   ALLOWANCE FOR LOAN LOSSES

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

                                                        2001         2000
                                                      --------     --------
     Balance, January 1                               $447,914     $375,280
     Add:
          Provision charged to operations              111,200      129,200
          Recoveries                                    34,686       63,514
     Less loans charged off                            150,450      120,080
                                                      --------     --------

     Balance, December 31                             $443,350     $447,914
                                                      ========     ========

7.   PREMISES AND EQUIPMENT

     Major classifications of premises and equipment are summarized as follows
     at December 31:

                                                     2001           2000
                                                  ----------     ----------
     Land and improvements                        $  423,966     $  397,980
     Buildings and improvements                    2,250,151      1,552,656
     Leasehold improvements                          609,584        241,704
     Furniture, fixtures, and equipment            1,553,798      1,255,750
     Construction in-progress                             --        407,011
                                                  ----------     ----------
                                                   4,837,499      3,855,101
     Less accumulated depreciation                 1,537,506      1,271,229
                                                  ----------     ----------

     Total                                        $3,299,993     $2,583,872
                                                  ==========     ==========

     Construction in-progress represents the costs incurred to date for two new
     branch offices of the Bank, which were completed in 2001. Depreciation and
     amortization charged to operations was $266,277 in 2001 and $189,981 in
     2000.

                                       13
<PAGE>

8.   DEPOSITS

     Time deposits include certificates of deposit in denominations of $100,000
     or more. Such deposits aggregated $3,854,379 and $4,814,373 at December 31,
     2001 and 2000, respectively.

     Maturities on time deposits of $100,000 or more are as follows at December
     31, 2001:

     Within three months                                         $2,111,029
     Beyond three but within six months                             508,758
     Beyond six but within twelve months                            742,091
     Beyond one year                                                492,501
                                                                 ----------

     Total                                                       $3,854,379
                                                                 ==========

9.   SHORT-TERM BORROWINGS

     Short-term borrowings can consist of federal funds purchased, securities
     sold under agreement to repurchase, and FHLB adjustable rate borrowings
     with terms of 30 days or less.

     The outstanding balances and related information for short-term borrowings
     are summarized as follows:

                                          2001                   2000
                                   -------------------   ----------------------
                                     Amount      Rate      Amount       Rate
                                   ----------   ------   ----------   ---------
     Balance at year-end           $5,805,177    2.00%   $5,486,532        5.37%
     Average balance outstanding
        during the year             5,814,225    3.01     5,320,419        5.26
     Maximum amount outstanding
        at any month-end            6,668,373             6,953,070


     At December 31, 2001 and 2000, short-term borrowings consisted exclusively
     of securities sold under agreement to repurchase to one customer.

     The Bank also has a line of credit with a borrowing limit of approximately
     $12.4 million with the Federal Home Loan Bank of Cincinnati ("FHLB") as of
     December 31, 2001. This credit line is subject to annual renewal and incurs
     no service charges. Outstanding borrowings on this line are collateralized
     by a blanket security agreement on qualified residential mortgage loans and
     the Bank's investment in stock of the FHLB. There were no significant
     borrowings outstanding on this line of credit for the years ended December
     31, 2001 or 2000.

                                       14
<PAGE>

10.  OTHER EXPENSES

     The following is an analysis of other expenses:

                                                       2001         2000
                                                    ----------   ----------
     Stationery, printing, and supplies             $  143,965   $  145,240
     State franchise tax                                77,385       68,000
     Postage                                            66,917       79,285
     ATM and debit card processing and supplies         74,502       62,222
     Advertising and public relations                   69,707       58,413
     Other                                             590,410      518,826
                                                    ----------   ----------

     Total                                          $1,022,886   $  931,986
                                                    ==========   ==========


11.  INCOME TAXES

     The provision for income taxes consists of:

                                                2001                 2000
                                              ---------           ---------
     Current                                  $ 128,922           $  80,255
     Deferred                                   (17,504)             33,145
                                              ---------           ---------

          Total                               $ 111,418           $ 113,400
                                              =========           =========


     The components of the net deferred tax assets (liabilities) are as follows
     at December 31:

                                                      2001          2000
                                                   ---------     ---------
     Deferred tax assets:
          Provision for loan losses                $ 128,153     $ 135,345
          Other                                       11,760         9,039
                                                   ---------     ---------
             Gross deferred tax assets               139,913       144,384
                                                   ---------     ---------

     Deferred tax liabilities:
          Net unrealized gain on securities          120,850        20,839
          Depreciation                                26,960        24,690
          Accrual to cash conversion                 108,713       141,012
          Deferred loan fees                          36,748        33,454
          FHLB stock dividend                         27,164        22,404
                                                   ---------     ---------
             Gross deferred tax liabilities          320,435       242,399
                                                   ---------     ---------

             Net deferred tax liabilities          $(180,522)    $ (98,015)
                                                   =========     =========

                                       15
<PAGE>

11.  INCOME TAXES (Continued)

     The reconciliation of the federal statutory rate and the Company's
     effective income tax rate is as follows:

                                           2001                  2000
                                   --------------------- ---------------------
                                            % of Pre-tax          % of Pre-tax
                                     Amount    Income     Amount     Income
                                   ---------    ----     ---------    ----
     Provision at statutory rate   $ 227,948    34.0%    $ 267,425    34.0%
     Effect of tax-free income      (123,752)   (18.5)    (168,118)   (21.4)
     Other                             7,222     1.1        14,093     1.8
                                   ---------    ----     ---------    ----

     Actual tax expense and
       effective rate              $ 111,418    16.6%    $ 113,400    14.4%
                                   =========    ====     =========    ====

12.  EMPLOYEE BENEFITS

     Savings Plan
     ------------

     The Bank maintains a trusteed Section 401(k) plan for all eligible
     employees. The Bank makes matching contributions for eligible employees of
     25 percent of the employee contributions annually, to a maximum of 12
     percent of base salary. The Bank also makes discretionary contributions as
     determined annually by the Board of Directors. The Bank's total
     contribution to this plan was $27,925 in 2001 and $32,949 in 2000.

     ESOP
     ----

     The Company also maintains an ESOP covering substantially all employees and
     officers. The Trustee has discretionary authority to purchase shares of
     common stock of the Company in the open market. The amount of the
     contribution to the ESOP is at the discretion of the Board of Directors
     with benefits vesting over a seven-year period. Contributions of $6,500 and
     $8,000 were recorded during 2001 and 2000, respectively. The Trustee held
     5,665 shares of the Company's common stock at December 31, 2001 and 2000.

     Stock Option Plan
     -----------------

     The Company maintains a stock option plan for the directors, officers, and
     key employees. During 2001, the Company authorized additional options for
     the purchase of 38,500 shares of its common stock which are available for
     future grant. The stock options typically have expiration terms of five or
     ten years, subject to certain extensions and early terminations and are
     fully vested on the grant date. The per share exercise price of a stock
     option granted shall, at a minimum, equal the fair market value of a share
     of common stock on the date the option is granted. Proceeds from the
     exercise of the stock are credited to common stock.

                                       16
<PAGE>

12.  EMPLOYEE BENEFITS (Continued)

     Stock Option Plan
     -----------------

     The following table presents share data related to the outstanding options:

                                                 Weighted-         Weighted-
                                                  average           average
                                                 Exercise          Exercise
                                          2001     Price    2000     Price
                                         ------   ------   ------   ------

     Outstanding, at beginning of year   72,360   $20.15   57,620   $18.80
          Granted                            --       --   14,740    25.45
          Exercised                          --       --       --       --
          Forfeited                          --       --       --       --
                                         ------            ------

     Outstanding, at end of year         72,360    20.15   72,360    20.15
                                         ======            ======

     Exercisable, at end of year         72,360    20.15   72,360    20.15
                                         ======            ======


     The following table summarizes the characteristics of stock options
     outstanding at December 31, 2001:

                                     Outstanding
                                         and      Contractual   Average
          Grant            Exercise  Exercisable    Average     Exercise
           Date              Price      Shares       Life        Price
     ---------------       --------  -----------  -----------   --------
     August 14, 1997        $13.88      22,312       0.62        $13.88
     August 20, 1998         20.36      20,351       1.63         20.36
     August 25, 1999         24.00      14,959       7.65         24.00
     August 24, 2000         25.45      14,738       9.65         25.45
                                       -------
                                        72,360                    20.15
                                       =======


     The Company accounts for its stock option plans under provisions of APB
     Opinion No. 25, "Accounting for Stock Issued to Employees" and related
     Interpretations. Under this Opinion, no compensation expense has been
     recognized with respect to the plans because the exercise price of the
     Company's employee stock options equals the market price of the underlying
     stock on the grant date.

     For purposes of computing pro forma results, the Company estimated the fair
     values of stock options using the Black-Scholes option pricing model. The
     model requires the use of subjective assumptions which can materially
     affect fair value estimates. Therefore, the pro-forma results are estimates
     of results of operations as if compen-sation expense had been recognized
     for the stock option plans. The fair value of each stock option granted was
     estimated using the following weighted-average assumptions for grants in
     2000: (1) expected dividend yields were two percent; (2) risk-free interest
     rates ranging from 5.29 percent to 6.68 percent; (3) expected volatility of
     5.00 percent; and (4) expected lives of options of ten years.

                                       17
<PAGE>

12.  EMPLOYEE BENEFITS (Continued)

     Stock Option Plan (Continued)
     -----------------

     Had compensation expense for the stock option plans been recognized in
     accordance with the fair-value accounting provisions of SFAS No. 123,
     "Accounting for Stock-based Compensation," net income applicable to common
     stock, basic and diluted net income per common share for the years ended
     December 31, would have been as follows:

                                                                    2000
                                                                -----------
     Net income applicable to common stock:
          As reported                                           $   673,143
          Pro forma                                                 617,001
     Basic net income per common share:
          As reported                                           $      0.93
          Pro forma                                                    0.85
     Diluted net income per common share:
          As reported                                           $      0.91
          Pro forma                                                    0.84


13.  COMMITMENTS

     In the normal course of business, the Company makes various commitments not
     reflected in the accompanying consolidated financial statements. The
     Company offers such products to enable its customers to meet their
     financing objectives. The instruments involve, to varying degrees, elements
     of credit and interest rate risk in excess of the amount recognized in the
     balance sheet. The Company's exposure to credit loss is represented by the
     contractual amounts as disclosed below. Losses, if any, are charged to the
     allowance for loan losses. The Company minimizes its exposure to credit
     loss under these commitments by subjecting them to credit approval, review
     procedures, and collateral requirements as deemed necessary.

     The off-balance sheet commitments were comprised of the following at
     December 31:

                                                   2001             2000
                                                ----------       ----------
     Commitments to extend credit               $6,770,928       $3,938,254
     Standby letters of credit                   1,169,166        1,609,974


     Commitments to extend credit are agreements to lend to a customer as long
     as there is no violation of any condition established in the loan
     agreement. These commitments are comprised primarily of available
     commercial and personal lines of credit and loans granted but not yet
     funded. The Company does not charge fees for the customer credit lines.
     Since many of the commitments are expected to expire without being fully
     drawn upon, the contractual amounts do not necessarily represent future
     funding requirements.

     Standby letters of credit represent conditional commitments issued by the
     Company to guarantee the performance of a customer to a third party. These
     instruments are issued primarily to support bid or performance-related
     contracts. The coverage period for these instruments is typically a
     one-year period with an annual renewal option subject to prior approval by
     management. The Company holds collateral for these instruments as deemed
     necessary.

                                       18
<PAGE>

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values at December 31, of the Company's financial
     instruments are as follows:

<TABLE>
<CAPTION>
                                                  2001                            2000
                                      ---------------------------     ---------------------------
                                       Carrying          Fair           Carrying         Fair
                                         Value           Value            Value          Value
                                      -----------     -----------     -----------     -----------
     <S>                              <C>             <C>             <C>             <C>
     Financial assets:
     Cash and due from banks,
        interest-bearing deposits
        with other banks, and
        federal funds sold            $ 5,668,596     $ 5,668,596     $ 4,892,264     $ 4,892,264
     Investment securities             22,235,492      22,279,945      22,544,047      22,580,977
     Net loans                         42,323,283      42,655,000      38,788,105      39,681,759
     Regulatory stock                     333,950         333,950         319,150         319,150
     Accrued interest receivable          485,687         485,687         570,255         570,255
                                      -----------     -----------     -----------     -----------

             Total                    $71,047,008     $71,423,178     $67,113,821     $68,044,405
                                      ===========     ===========     ===========     ===========

     Financial liabilities:
     Deposits                         $59,584,688     $60,116,449     $55,601,053     $55,741,053
     Short-term borrowings              5,805,177       5,805,177       5,486,532       5,486,532
     Accrued interest payable              80,260          80,260          82,664          82,664
                                      -----------     -----------     -----------     -----------

             Total                    $65,470,125     $66,001,886     $61,170,249     $61,310,249
                                      ===========     ===========     ===========     ===========
</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/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 are based upon manage-ment'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 fair 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 fair values are based may have a significant impact on the
     resulting estimated fair values.

     As certain assets such as deferred tax assets and premises and equipment
     are not considered financial instruments, the estimated fair value of
     financial instruments would not represent the full value of the Company.

     The Company employed simulation modeling in determining the estimated fair
     value of financial instruments for which quoted market prices were not
     available based upon the following assumptions:

     Cash and Due from Banks, Interest-bearing Deposits with Other Banks,
     --------------------------------------------------------------------
     Federal Funds Sold, Regulatory Stock, Accrued Interest Receivable,
     ------------------------------------------------------------------
     Short-term Borrowings, and Accrued Interest Payable
     ---------------------------------------------------

     The fair value is equal to the current carrying value.

                                       19
<PAGE>

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

     Investment Securities
     ---------------------

     The fair value of investment 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.

     Loans and Deposits
     ------------------

     The fair value of loans is estimated by discounting the future cash flows
     using a simulation model which estimates future cash flows and constructs
     discount rates that consider reinvestment opportunities, operating
     expenses, non- interest income, credit quality, and prepayment risk.
     Demand, savings, and money market deposit accounts which are due within 30
     days are valued at the amount payable as of year-end. Fair values for time
     are estimated using a discounted cash flow calculation that applies
     contractual costs currently being offered in the existing portfolio to
     current market rates being offered for deposits of similar remaining
     maturities.

     Commitments to Extend Credit and Commercial Letters of 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 or letter of credit, 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 and letters of credit are presented in Note
     13.

15.  REGULATORY MATTERS

     Cash and Due from Banks
     -----------------------

     The district Federal Reserve Bank requires the Bank to maintain certain
     reserve balances. As of December 31, 2001 and 2000, the Bank had required
     reserves of $707,000 and $631,000, respectively, comprised of vault cash
     and a depository amount held with the Federal Reserve Bank.

     Loans
     -----

     Federal law prevents the Company from borrowing from the Bank unless the
     loans are secured by specific obligations. Further, such secured loans are
     limited in amount to ten percent of the Bank's capital.

     Dividends
     ---------

     The Bank is subject to a dividend restriction that generally limits the
     amount of dividends that can be paid by a national bank. Prior approval of
     the Comptroller of the Currency is required if the total of all dividends
     declared by a national bank in any calendar year exceeds net profits, as
     defined for the year, combined with its retained net profits for the two
     preceding calendar years less any required transfers to surplus. Using this
     formula, the amount available for payment of dividends by the Bank to the
     Company in 2002, without approval of the Comptroller, will be limited to
     approximately $1,259,000 plus 2002 net profits retained up to the date of
     the dividend declaration.

     Capital Requirements
     --------------------

     Federal regulations require the Company to maintain minimum amounts of
     capital. Specifically, the Company and the Bank are required to maintain
     minimum amounts and ratios of Total and Tier 1 capital to risk-weighted
     assets, and of Tier 1 capital to average total assets. Management believes,
     as of December 31, 2001, that the Company and the Bank meet all capital
     adequacy requirements to which they are subject.

                                       20
<PAGE>

15.  REGULATORY MATTERS (Continued)

     Capital Requirements (Continued)
     --------------------

     In addition to capital requirements, the Federal Deposit Insurance
     Corporation Improvement Act ("FDICIA") established five capital categories
     ranging from "well capitalized" to "critically undercapitalized." Should
     any institution fail to meet the requirements to be considered "adequately
     capitalized," it would become subject to a series of increasingly
     restrictive regulatory actions.

     As of December 31, 2001 and 2000, the FDIC categorized the Company and the
     Bank as well capitalized under the regulatory framework for prompt
     corrective action. To be classified as a well capitalized financial
     institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage
     capital ratios must be at least ten percent, six percent, and five percent,
     respectively.

     The capital position of the Bank does not materially differ from the
     Company's; therefore, the following table sets forth the Company's capital
     position and minimum requirements as of December 31:

                                            2001                 2000
                                     ------------------    ------------------
                                       Amount     Ratio      Amount     Ratio
                                     ----------   -----    ----------   -----
     Total Capital
       (to Risk-weighted Assets)

     Actual                          $8,903,411   18.97%   $8,822,863   21.59%
     For Capital Adequacy Purposes    3,754,106    8.00     3,269,280    8.00
     To Be Well Capitalized           4,692,633   10.00     4,086,610   10.00

     Tier I Capital
       (to Risk-weighted Assets)

     Actual                          $8,460,061   18.03%   $8,374,950   20.49%
     For Capital Adequacy Purposes    1,877,053    4.00     1,634,640    4.00
     To Be Well Capitalized           2,815,580    6.00     2,451,960    6.00

     Tier I Capital
       (to Average Assets)

     Actual                          $8,460,061   10.96%   $8,374,950   11.98%
     For Capital Adequacy Purposes    2,315,755    3.00     2,777,010    4.00
     To Be Well Capitalized           3,859,592    5.00     3,471,250    5.00


16.  COMMON STOCK OFFERING

     On September 23, 1999, the Board of Directors approved the offering of the
     Company's common stock to existing shareholders and the public. The
     offering began on December 14, 1999, after receiving approval from the
     Securities and Exchange Commission. Total shares offered were 148,110 at a
     price of $27 per share. The offering was closed at the end of May 2000. The
     Company used these proceeds for additional capitalization of Gateminder and
     the Bank, as well as financing the construction of two branch offices for
     the Bank.

                                       21
<PAGE>

17.  PARENT COMPANY

     Following are condensed financial statements for the parent company:

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                           2001            2000
                                                                        -----------    -----------
     <S>                                                                <C>            <C>
     ASSETS
        Cash                                                            $   891,481    $ 1,113,587
        Investment in subsidiaries                                        7,856,967      7,075,736
        Other assets                                                         10,000        305,185
                                                                        -----------    -----------

          TOTAL ASSETS                                                  $ 8,758,448    $ 8,494,508
                                                                        ===========    ===========

     OTHER LIABILITIES                                                  $     1,754    $        --
     STOCKHOLDERS' EQUITY                                                 8,756,694      8,494,508
                                                                        -----------    -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 8,758,448    $ 8,494,508
                                                                        ===========    ===========

                          CONDENSED STATEMENT OF INCOME

<CAPTION>
                                                                               December 31,
                                                                           2001            2000
                                                                        -----------    -----------
     <S>                                                                <C>            <C>
     INCOME                                                             $    11,908    $     2,438

     EXPENSES                                                                23,838         17,325
                                                                        -----------    -----------

        Loss before income taxes                                            (11,930)       (14,887)
        Income tax benefit                                                   (6,144)        (5,822)
                                                                        -----------    -----------

        Loss before equity in undistributed
          earnings of subsidiaries                                          (18,074)        (9,065)
        Equity in undistributed earnings of subsidiaries                    577,090        682,208
                                                                        -----------    -----------

     NET INCOME                                                         $   559,016    $   673,143
                                                                        ===========    ===========
</TABLE>

                                       22
<PAGE>

17.  PARENT COMPANY (Continued)

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                           2001            2000
                                                                        -----------    -----------
     <S>                                                                <C>            <C>
     OPERATING ACTIVITIES
        Net income                                                      $   559,016    $   673,143
        Adjustment to reconcile net income to net cash
          provided by operating activities:
            Equity in undistributed earnings of subsidiaries               (577,090)      (682,208)
            Other, net                                                        5,186         11,659
                                                                        -----------    -----------
                 Net cash provided by (used for) operating activities       (12,888)         2,594
                                                                        -----------    -----------

     INVESTING ACTIVITIES
        Net decrease (increase) in loans receivable                         290,000       (300,000)
                                                                        -----------    -----------
                 Net cash provided by (used for) investing activities       290,000       (300,000)
                                                                        -----------    -----------

     FINANCING ACTIVITIES
        Capital contribution to banking subsidiary                               --       (850,000)
        Capital contribution to service corporation subsidiary              (10,000)       (56,450)
        Cash dividends paid including cash paid in lieu of
          fractional shares                                                (185,275)      (186,850)
        Treasury stock purchase                                            (303,943)            --
        Net proceeds from issuance of common stock                               --      2,485,438
                                                                        -----------    -----------
                 Net cash provided by (used for) financing activities      (499,218)     1,392,138
                                                                        -----------    -----------

                 Net increase (decrease) in cash                           (222,106)     1,094,732

     CASH AT BEGINNING OF YEAR                                            1,113,587         18,855
                                                                        -----------    -----------

     CASH AT END OF YEAR                                                $   891,481    $ 1,113,587
                                                                        ===========    ===========
</TABLE>

                                       23
<PAGE>

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

The following is Management's discussion and analysis of the financial condition
and results of operations of Tri-State 1st Bank, Inc. for the years ended
December 31, 2001 and 2000. The discussion should be read in conjunction with
the consolidated financial statements and notes thereto and the summary
financial information included elsewhere in this annual report.

Business
--------

Tri-State 1st Bank, Inc. (the "company") is an Ohio Corporation organized as the
parent company of 1st National Community Bank (the "bank"), and Gateminder
Corporation ("Gateminder"). The company was formed in April 1996, and controls
all of the capital stock of the bank, a national banking association and
Gateminder Corporation, an Ohio corporation. The company is a bank holding
company regulated by the Board of Governors of the Federal Reserve System.

The bank, chartered as a national banking association in June 1987 and
headquartered in East Liverpool, Ohio, conducts business through seven
full-service banking offices and one limited-service loan production office.
Branch offices are located throughout the tri-state area of Columbiana County,
Ohio; Hancock County, West Virginia; and Beaver County, Pennsylvania. The bank
operates as a community bank, offering a variety of financial services by
accepting demand and time deposits from the general public and together with
borrowings and other funds, using the proceeds to originate commercial and
consumer type loans and the purchasing of investment securities. The bank's
deposits are insured to the legal maximum amount provided by the Federal Deposit
Insurance Corporation.

Gateminder Corporation was incorporated in April 1999, under the laws of the
state of Ohio as a wholly owned non-bank subsidiary of the company.
Headquartered in East Liverpool, Ohio, Gateminder provides non-bank activities
for Automated Teller Machines ("ATM"). The non-bank subsidiary sells ATM
machines to businesses and merchants that operate ATMs at their place of
business and provides the means for processing the ATM transactions that are
generated at the merchants ATM Machine.

The company's results of operations are primarily dependent on the operations of
the bank. The bank's results of operations are primarily dependent on its net
interest income, which is the difference between interest earned on loans, the
investment securities portfolio and other interest earning assets, and its cost
of funds consisting of interest expense paid on its deposits and other
borrowings. Earnings of the bank are also impacted by the provision for loan
loss, other operating income and expense as well as economic conditions,
competition, regulatory changes and interest rate changes.

Management Strategy
-------------------

The company's philosophy is to provide personal community banking services
through strategic office locations that offer customer friendly hours and a
variety of loan and deposit products tailored to fit the needs of its customers.

The lending strategy of the bank has historically focused on the origination of
real estate commercial mortgages, one-to-four family mortgage loans, working
capital commercial loans in the form of credit lines and term notes, personal
loans, automobile loans and home equity loans.
<PAGE>

Management Strategy (continued)
-------------------------------

The bank attempts to manage the interest rates it pays on deposits, while
maintaining a stable to growing deposit base by providing convenient and quality
service at competitive rates to its customers. Historically, the bank has relied
upon its customer deposit base as its primary source of funds but has from time
to time borrowed "other funds" through credit arrangements with the Federal Home
Loan Bank of Cincinnati ("FHLB"), the use of repurchase agreements with its
business customers and federal funds purchased.

The bank monitors its interest rate sensitivity through an asset/liability
management program. The goal of this program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize the
fluctuations in net interest spread and achieve constant growth in net interest
income during periods of changing interest rates.

Summary of Financial Condition
------------------------------

The consolidated assets of Tri-State 1st Bank were $74,533,000 at December 31,
2001, an increase of $4,641,000 or 6.6% over assets at December 31, 2000. Total
loans for the year grew by $3,531,000 or 9.0% and comprised most of the asset
growth. Funding for the asset growth was provided by deposits and short-term
borrowings, which increased by $3,984,000 or 7.2% and $319,000 or 5.8%,
respectively. Total earning assets, which principally include loans, investment
securities and federal funds sold equaled $66,521,000 at December 31, 2001, an
increase of $3,325,000 or 5.3% over total earning assets at December 31, 2000.

Federal Funds Sold and Investment Securities
--------------------------------------------

Federal funds sold at December 31, 2001 totaled $1,450,000 up $100,000 or 7.4%
from year-end 2000. On an average basis, federal funds sold for the year were
$4.9 million compared to $2.9 million for the same prior year period. The
company generally attempts to average between $2 million and $4 million in
federal funds sold, however, this range may shift as deposits increase or as
cash liquidity needs change.

The investment activities of the company play a key role in managing the overall
yield on earning assets while supporting interest rate sensitivity and liquidity
positions. Securities purchased with the intent and ability to retain until
maturity are classified as held to maturity and carried at amortized cost. All
other securities are classified as securities available for sale and are carried
at market value. The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions, including the interest
rate environment and other on and off-balance sheet positions.

Investment securities available for sale were $21,038,000 at December 31, 2001.
This compares to $20,999,000 at December 31, 2000, an increase of $39,000 or
0.2%. Although the year-end balance increased only slightly in 2001, the overall
volume of securities that were purchased, called or matured increased
significantly. During 2001, securities totaling $8.7 million were purchased
compared to $3.4 million in 2000. Securities called or matured totaled $7.9
million in 2001 compared to $2.5 million in 2000. The increased activity for the
year stemmed from the significant reduction in interest rates throughout 2001 as
many callable securities were refinanced to lower rates.

Investment securities held to maturity decreased $347,000 or 22.5% in 2001 when
compared to the prior year as a result of principal pay-downs, maturities and
calls as there were no purchases in 2001.
<PAGE>

Loans
-----

Total loans for the year grew by 9.0%, increasing to $42,767,000 at December 31,
2001 and representing an increase of $3,531,000 for the year. Loans originated
in 2001 increased by 22% to $21 million, however pay-offs for the year were also
up significantly. The drastic decrease in interest rates in 2001 brought about
historically low rates providing an opportunity for debtors to refinance at
lower rates. Refinancing for consumer type borrowings was up significantly over
last year while commercial loans appeared to remain rather stable. Many of the
bank's commercial loans are adjustable rate loans indexed to a prime lending
rate which fell sharply in 2001 benefiting many of the businesses without having
to refinance. The overall composition of the portfolio changed during the year
as demand for commercial and residential real-estate loans remained strong and
comprised much of the loan growth for the year.

Deposits
--------

Deposits are generally the bank's primary source for funding its earning assets.
The bank offers a wide variety of products designed to attract new customers and
retain existing customers while at the same time attempting to maintain a
cost-effective funding source. Total deposits were up $3,984,000 or 7.2% when
compared to total deposits at December 31, 2000. Money market accounts and
savings were the only deposit accounts to decrease for the year. Money markets
decreased by 6.2% or $223,000 and savings by 1.7% or $177,000. Demand deposits
increased by $1,213,000 or 14.2%, while time deposits increased by $2,789,000 or
14.1%

Borrowings
----------

The company may from time to time uses various funding sources other than
deposits to provide the funds necessary for the loan and investment securities
portfolios. Alternative funding sources may include securities sold under
repurchase agreements and advances with the Federal Home Loan Bank of
Cincinnati. These funding sources are often used when deposit growth is
insufficient to support earning asset growth.

At December 31, 2001 and 2000 total borrowings consisted solely of securities
sold under repurchase agreements. These securities, which are agreements with
customers of the bank and are collateralized by various bank owned investment
securities, totaled $5,805,000, an increase of $318,000 or 5.8%.

Summary of Earnings
-------------------

The company's 2001 net income was $559,000, a decrease of $114,000, or 17.0%,
from 2000's net income of $673,000. The decrease in net income for the year was
a result of an increase in operating expenses offset by only moderate increases
in net interest income and noninterest income. The sharp decline in interest
rates in 2001 negatively impacted the company's net interest margin at a time
when operating costs were increasing as a result of the opening two new branch
banking offices during the year.

On a per share basis, net income for 2001 was $0.77 per basic share and $0.76
per diluted share. This compares to 2000's net income per share of $0.93 and
$0.91 for basic and diluted shares, respectively. Average shares outstanding for
2001 were 727,071, a slight decrease from the previous year due to the
repurchase of 13,673 shares of the company's common stock at various times
throughout the year.
<PAGE>

Interest Income
---------------

Interest income on loans increased $70,000 or 2.0% during 2001 when compared to
2000. This increase was a result of a $3,707,000 or 10.2% increase in the
average loan balance outstanding during the period offset by a 73 basis point
decrease on the yield earned.

Interest income on federal funds sold and interest-bearing deposits decreased
$8,000 or 4.3% during 2001 when compared to 2000 due to a 279 basis point
decrease in the yield earned offset by a $2,035,000 or 70.0% increase in the
average balance outstanding during the same period.

Interest income earned on investment securities decreased in 2001 by $51,000 or
3.8% from 2000. This decrease was a result of a decrease of 6 basis points on
the yield earned for the year as well as a $1,706,000 or 7.0% decrease in the
average balance outstanding.

Interest Expense
----------------

Interest expense on deposits for 2001 increased $65,000 or 3.8% over 2000's
interest expense due to a $4,271,000 or 9.0% increase in total average
interest-bearing deposits outstanding offset by a 17 basis point decrease in the
rate paid on these deposits during the same period.

Interest expense on short-term borrowings decreased $105,000 or 37.5% in 2001
when compared to 2000 and was due to a decrease of 225 basis points on the rate
paid on these funds offset by an increase of $494,000 or 9.3% in the average
balance of borrowed funds outstanding.

<PAGE>

Average Balances and Average Yields
-----------------------------------

The following table sets forth certain information relating to the company's
consolidated average balance sheets and statements of income for the years ended
December 31, 2001 and 2000, and reflects the average yield on assets and average
cost of liabilities for the periods indicated. Such yields and costs are derived
by dividing income or expense by the average daily balance of assets or
liabilities, respectively, for the periods shown.

<TABLE>
<CAPTION>
                                                                     For the Year Ended
                                          ------------------------------------------------------------------------------
                                                           2001                                    2000
                                          ----------------------------------     ---------------------------------------
                                                                     Average                                   Average
                                            Average                   Yield/       Average                     Yield/
                                            Balance      Interest      Rate        Balance        Interest      Rate
                                          -----------   -----------    ----      -----------    -----------     ----
<S>                                       <C>           <C>            <C>       <C>            <C>             <C>
Interest-earning assets:
  Interest-bearing deposits
    with other banks and federal
    funds sold                            $ 4,944,615   $   178,782    3.62%     $ 2,909,129    $   186,401     6.41%
  Taxable investment securities            14,062,744       921,725    6.55%      14,308,716        883,545     6.17%
  Non taxable investment
      securities (2)                        8,282,074       550,862    6.65%       9,742,256        686,684     7.05%
  Loans (1)(2)                             40,053,657     3,564,384    8.90%      36,346,979      3,498,848     9.63%
                                          -----------   -----------    ----      -----------    -----------     ----
    Total interest-earning assets          67,343,090     5,215,753    7.75%      63,307,080      5,255,478     8.30%
                                                        -----------                             -----------
Noninterest-earning assets                  8,302,915                              6,459,665
                                          -----------                            -----------

     Total assets                         $75,646,005                            $69,766,745
                                          ===========                            ===========

Interest-bearing liabilities:
  Interest bearing demand                 $15,704,433       329,437    2.10%     $14,290,338        372,354     2.61%
  Money market accounts                     4,005,120        89,450    2.23%       4,186,673        114,104     2.73%
  Savings deposits                         10,572,678       198,997    1.88%      10,820,144        270,406     2.50%
  Time deposits                            21,699,873     1,164,640    5.37%      18,413,584        960,893     5.22%
  Short-term borrowings                     5,814,225       175,160    3.01%       5,320,419        280,103     5.26%
                                          -----------   -----------    ----      -----------    -----------     ----
    Total interest-bearing liabilities     57,796,329     1,957,684    3.39%      53,031,158      1,997,860     3.77%
                                                        -----------                             -----------
Noninterest-bearing liabilities             9,152,245                             10,486,808
Stockholders' equity                        8,697,431                              6,248,779
                                          -----------                            -----------

     Total liabilities and
        stockholders' equity              $75,646,005                            $69,766,745
                                          ===========                            ===========

Net earning assets                        $ 9,546,761                            $10,275,922
                                          ===========                            ===========
Net interest income                                     $ 3,258,069                             $ 3,257,618
                                                        ===========                             ===========
Net interest spread (3)                                                4.37%                                    4.54%
                                                                       ====                                     ====
Net interest margin (4)                                                4.84%                                    5.15%
                                                                       ====                                     ====
</TABLE>

(1)      For the purpose of these computations, non-accrual loans (if any) are
         included in the daily average loan amounts outstanding and interest on
         loans includes fee income.
(2)      Yields are computed on a tax equivalent basis using a 34% federal
         income tax rate.
(3)      Net interest rate spread represents the difference between the average
         yield on interest-earning assets, and the average cost of
         interest-bearing liabilities.
(4)      Net interest margin is calculated by dividing the difference between
         total interest earned and total paid by total interest earning assets.
<PAGE>
Provision and Allowance for Loan Losses
---------------------------------------

Current expense reflecting expected credit losses are referred to by the company
as the provision for loan losses on the consolidated statements of income.
Actual losses on loans are charged against the allowance for loan losses, which
is a reserve built up on the consolidated balance sheet. The company's policy is
to charge-off loans when, in Management's opinion, the collection of loan
principal is in doubt. All loans charged-off are subject to continuous review
and concerted efforts are made to maximize the recovery of charged-off loans. In
order to determine the adequacy of the allowance for loan losses, Management
considers the risk classification of loans, delinquency trends, charge-off
experience, credit concentrations, economic conditions, and other relevant
factors. The allowance is maintained at a level determined according to
established methodologies.

The provision for loan losses charged to operations in 2001 was $111,000,
compared to $129,000 charged in 2000. This represents an $18,000 or 13.9%
decrease for the year. The factors that effected the amount of the provision for
loan losses for the year were credit risks inherent in the portfolio, loan
quality, economic conditions and management's ongoing analysis of the adequacy
of the allowance for loan losses.

Actual loan losses, net of recoveries, were $116,000 in 2001 compared to $57,000
incurred in 2000. Total charge-offs for the year were mostly from consumer type
loans while recoveries were down from the previous year due to one-time
recoveries collected in 2000.

The company's allowance for loan losses was $443,000 at year-end 2001 compared
to $448,000 at year-end 2000. The company believes that the allowance for loan
losses at December 31, 2001 of $443,000 is adequate to cover losses inherent in
the portfolio as of such date. However, there can be no assurance that the
company will not sustain losses in future periods, which could be substantial in
relation to the size of the allowance at December 31, 2001.

Other Operating Income
----------------------

Total other operating income, excluding the gains and losses incurred from
investment securities that were sold, totaled $779,000, an increase of $79,000
or 11.3% over 2000. Service fees on deposit accounts increased $44,000 or 8.9%
in 2001 and were a result of continued growth in the number of accounts serviced
by the bank, and to a lessor extent, increases in the fees charged for these
services. Other operating income increased $35,000 or 17.1% due to an increase
in transaction based fees such as ATM and Debit card usage as well as an overall
increase in other bank service fees.

Investment securities available for sale totaling $1.1 million were sold in 2001
and resulted in a gain of $43,000 for the year. For 2000, securities totaling
$1.2 million were sold, resulting in a net loss of $37,000. The sales for both
periods were in conjunction with the interest rate environments at the time of
the sales based upon preemptive measures against anticipated future interest
rate changes.

Other Operating Expense
-----------------------

Total salary and employee benefits increased $127,000 or 9.3% in 2001. Salaries
and wages increased $116,000 or 10.6% due to the hiring of additional personnel
throughout 2001 as well as normal merit increases relating to existing
employees. Total full-time equivalent employees increased from 54 in 2000 to 57
in 2001, an increase of 5.5%. The increase in full-time equivalents was a result
of an overall increase in staffing level needs with the opening of two new
branch banking facilities in early 2001. Total employee benefit costs for the
year increased by $11,000 due mainly to an overall increase in employee related
benefit costs, offset by a reduction in pension costs.

Net occupancy expense increased $75,000 or 26.2% in 2001 due to increased costs
associated with the expansion of the bank's branch banking network. Construction
was completed in 2001 for two new branch-banking facilities located in Midland,
Pennsylvania and downtown East Liverpool, Ohio. The Midland branch facility
replaced a temporary facility that was used for the Midland branch while the
downtown East Liverpool branch was an expansion office.

Furniture and equipment costs increased $52,000 or 29.3% in 2001 from 2000. The
increase for the year was mostly due to an increase in depreciation and
equipment costs associated with the bank's two new branch banking facilities
opened in 2001.

Other expenses increased $91,000 or 9.8%, in 2001. Increases for the year
included; (1) an increase of $15,000 in consulting fees, (2) $12,000 increase in
advertising expense, (3) a $12,000 increase in ATM and Debit card processing
expense, (4) a $16,000 increase in stationary, printing and supplies expense and
(5) an overall increase general and administrative costs.

The provision for income tax was $111,000 in 2001 compared to $113,000 in 2000.
This represents a decrease of $2,000 or 1.7% and is due mostly to a decrease in
taxable income.
<PAGE>

Capital Resources
-----------------

Total consolidated stockholders' equity increased $262,000 or 3.1% when compared
to December 31, 2000. Contributing to the increase in total stockholders equity
for the year was; net income of $559,000 less cash dividends declared to
shareholders of $185,000, and a net unrealized gain on investment securities
available for sale of $194,000, offset by treasury stock purchased in the amount
of $304,000.

Liquidity
---------

The liquidity of a banking institution reflects its ability to provide funds to
meet loan requests, to accommodate the possible outflows of deposits and to take
advantage of interest rate market opportunities. It requires continuous analysis
by management in order to match the maturaties of short-term loans and
investments with the various types of deposits and borrowings. Liquidity is
normally considered in terms of the nature and the mix of the bank's sources and
uses of funds.

The bank's primary sources of funds are deposits, borrowings, proceeds from
principal and interest payments on loans and interest payments and maturities on
investment securities. While scheduled principal repayments on loans and
interest payments on investment securities are a relatively predictable source
of funds, deposit and short-term borrowing outflows are greatly influenced by
interest rates, economic conditions, competition and other factors.

Management is not aware of any known trends, events or uncertainties that would
have a material effect on the liquidity, capital resources or operations of the
company. Management is not aware of any current regulatory recommendations,
which, if implemented, would have a material effect on the liquidity, capital
resources or operations of the company.

Impact of Inflation and Changing Prices
---------------------------------------

The financial statements and related data have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars, without
consideration for changes in the relative purchasing power of money over time
caused by inflation.

The effects of inflation on the local economy and the company's operating
results have been relatively modest for the past several years. However, unlike
industrial companies, nearly all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than general levels
of inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods or services, since such goods and
services are affected by inflation. In the current interest rate environment,
liquidity and the maturity structure of the bank's assets and liabilities are
critical to the maintenance of the acceptable performance levels.