EXHIBIT 13

<PAGE>


                                PHS BANCORP, INC.
                        SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Selected Financial Data
--------------------------------------------------- ------------ --------- ---------- ------------ ------------
At December 31,                                        1999        1998        1997       1996         1995
--------------------------------------------------- ------------ --------- ---------- ------------ ------------
                                                                        (Dollars in Thousands)
<S>                                                 <C>         <C>         <C>         <C>          <C>
Assets ..........................................   $ 268,640   $ 244,253   $ 217,735   $ 202,216    $ 198,939
Loans ...........................................     118,745      99,914      99,691      95,773       87,330
Mortgage-backed securities held to maturity .....      44,141      48,287      40,234      31,138       30,151
Mortgage-backed securities available
  for sale ......................................      37,426      32,878      30,159      25,794       25,442
Investment securities held to maturity ..........      15,540      18,146      10,015      10,768       13,774
Investment securities available for sale ........      27,595      25,197      24,253      26,688       32,727
Interest-bearing deposits with other institutions      11,417       9,332       3,308       3,004        1,809
Federal Home Loan Bank stock ....................       2,615       1,545       1,020         972          925
Deposits ........................................     189,345     181,113     174,286     175,925      173,545
Other borrowings ................................         120       1,388       1,116        --           --
Advances from Federal Home Loan Bank ............      50,295      30,895      12,117       8,100        7,400
Stockholders' equity(1) .........................      26,751      29,184      28,609      16,645       16,643
</TABLE>

<TABLE>
<CAPTION>
Selected Consolidated Operating Data
--------------------------------------------------- ------------ --------- ---------- ------------ ------------
Year Ended December 31,                                 1999        1998        1997       1996         1995
--------------------------------------------------- ------------ --------- ---------- ------------ ------------
                                                          (Dollars in Thousands)
<S>                                                <C>         <C>         <C>         <C>          <C>
Interest income .................................   $  17,511   $  16,112   $  14,950   $  14,584    $  13,950
Interest expense ................................       9,284       8,523       7,857       7,882        7,598
                                                    ---------   ---------   ---------   ---------    ---------
  Net interest income ...........................       8,227       7,589       7,093       6,702        6,352
Provision for loan losses .......................         410         365         555         455          370
                                                    ---------   ---------   ---------   ---------    ---------
  Net interest income after provision
    for loan losses .............................       7,817       7,224       6,538       6,247        5,982
Total non-interest income .......................         764         914         937         781          848
Total non-interest expense ......................       6,094       6,245       5,687       6,638(2)     5,000
                                                    ---------   ---------   ---------   ---------    ---------
Income before income taxes ......................       2,487       1,893       1,788         390        1,830
Income taxes ....................................         629         391         150        (319)         353
                                                    ---------   ---------   ---------   ---------    ---------
  Net income ....................................   $   1,858   $   1,502   $   1,638   $     709    $   1,477
                                                    =========   =========   =========   =========    =========

</TABLE>


                          (footnotes on following page)

                                       2
<PAGE>
<TABLE>
<CAPTION>
Other Selected Data
-----------------------------------------------------------------------------------------------
At or for the Year Ended December 31,           1999      1998      1997     1996       1995
-----------------------------------------------------------------------------------------------
<S>                                        <C>       <C>       <C>        <C>         <C>
Return on average assets (net income
  divided by average total assets) .......      0.73%     0.65%     0.79%    .35%(2)     .76%
Return on average equity (net income
  divided by average equity assets) ......      6.68%     5.24%     7.33%   4.37%(2)   10.09%
Average equity to average assets .........     10.86%    12.50%    10.81%   8.06%       7.52%
Net interest rate spread .................      3.15%     3.21%     3.48%   3.50%       3.40%
Per Share Information:
  Diluted earnings per shares(3) ......... $    0.71 $    0.56 $    0.33    N/A         N/A
  Tangible book value per shares(3) ...... $   10.15 $   10.57 $   10.37    N/A         N/A
Non-performing assets to total assets ....      0.19%     0.22%     0.41%    .66%       0.80%
Non-performing loans to total loans ......      0.42%     0.52%     0.87%   1.33%       1.50%
Allowance for loan losses to total loans..      1.14%     1.28%     1.39%   1.49%       1.45%
</TABLE>
----------------
(1)  Prior to December 30, 1997,  represents  retained  earnings  (substantially
     restricted).
(2)  Includes a one-time  special  assessment of $1,106,000 to recapitalize  the
     SAIF.
(3)  No shares of common stock were outstanding  until July 10, 1997,  therefore
     per share  information  for December 31, 1997 is based upon the period from
     July  10,  1997  to  December  31,  1997,  with  weighted   average  shares
     outstanding of 2,705,880.

Summary of Quarterly Results (unaudited)
<TABLE>
<CAPTION>
                                                                   1999
                                          ------------------------------------------------------
                                          December 31    September 30   June 30        March 31
                                          -----------    ------------   -------        --------
                                             (Dollars in Thousands, Except Per Share Amounts)
<S>                                         <C>           <C>           <C>           <C>
Net interest income ......................   $2,090        $2,123        $2,031        $1,983
Provision for loan losses ................      105           120            90            95
Net realized gains on securities .........       19            --            --            --
Other income .............................      195           233           159           158
Other expense ............................    1,522         1,520         1,521         1,531
                                             ------        ------        ------        ------
Income before income taxes ...............      677           716           579           515
Income taxes .............................      150           190           159           130
                                             ------        ------        ------        ------
NET INCOME ...............................   $  527        $  526        $  420        $  385
                                             ======        ======        ======        ======
Basic earnings per share .................   $ 0.20        $ 0.20        $ 0.16        $ 0.15
                                             ======        ======        ======        ======
Diluted earnings per share ...............   $ 0.20        $ 0.20        $ 0.16        $ 0.15
                                             ======        ======        ======        ======
</TABLE>
<TABLE>
<CAPTION>
                                                                   1998
                                          ------------------------------------------------------
                                          December 31    September 30   June 30        March 31
                                          -----------    ------------   -------        --------
                                             (Dollars in Thousands, Except Per Share Amounts)
                                            (Dollars in Thousands, Except Per Share Amounts)
<S>                                        <C>           <C>           <C>           <C>
Net interest income ......................   $1,910        $1,957        $1,855        $1,867
Provision for loan losses ................       90            95            90            90
Net realized gains on securities .........       --            --            --           117
Other income .............................      202           227           201           167
Other expense ............................    1,563         1,678         1,509         1,495
                                             ------        ------        ------        ------
Income before income taxes ...............      459           411           457           566
Income taxes .............................       84            93            84           130
                                             ------        ------        ------        ------
NET INCOME ...............................   $  375        $  318        $  373        $  436
                                             ======        ======        ======        ======
Basic earnings per share .................   $ 0.14        $ 0.12        $ 0.14        $ 0.16
                                             ======        ======        ======        ======
Diluted earnings per share ...............   $ 0.14           N/A           N/A           N/A
</TABLE>
                                       3
<PAGE>

                                PHS BANCORP, INC.

Corporate Profile

         The  Company is a  Pennsylvania-chartered,  middle  tier stock  holding
company that owns 100% of the stock of Peoples  Home Savings Bank (the  "Bank").
PHS Bancorp,  M.H.C.  (the  "M.H.C.")  owns a majority of the  Company's  common
stock.  References to the "Bank" herein,  unless the context required otherwise,
also refer to the Company and the Bank on a consolidated basis.

          Originally  chartered in 1888, the Bank is a community oriented,  full
service retail savings institution  offering  traditional mortgage loan products
and consumer loans, notably automobile loans. Its deposits are federally insured
by the Savings  Association  Insurance Fund ("SAIF") and the Bank is a member of
the Federal Home Loan Bank ("FHLB") System.  The Bank attracts its deposits from
the  general  public  and has  historically  used  such  deposits  primarily  to
originate  mortgage and consumer  (particularly new and used automobile)  loans.
Excess liquidity is invested in mortgage-backed securities.

Stock Market Information

         In July 1997, the Bank, among other things,  changed from a mutual form
of  ownership  to that of a stock form.  As a result,  the Bank's  common  stock
commenced  trading on the Nasdaq  National  Market.  In November  1998, the Bank
exchanged  its  common  stock  for the  Company's  common  stock,  resulting  in
Company's common stock to commence its trading on the Nasdaq National Market and
the Bank's Common Stock to cease its trading.  The Company stock symbol retained
the Bank's old symbol and trades under "PHSB." The following  table reflects the
stock price as published by the Nasdaq  National  Market and includes the prices
of the  Company as well as Bank's  before  the  reorganization.  The  quotations
reflect inter-dealer prices, without retail mark-up,  mark-down,  or commission,
and may not represent actual  transactions.  On December 31, 1999, the Company's
common stock closed at $8.25.

                                                                      DIVIDENDS
                                                                      DECLARED
QUARTER ENDED                     HIGH                 LOW            PER SHARE
-------------                     ----                 ---            ---------
December 31, 1999                10.375              7.875              $0.09
September 30, 1999                10.75              9.875               0.07
June 30, 1999                    11.375               9.00               0.07
March 31, 1999                   14.625              10.75               0.07
December 31, 1998                14.625              11.50               0.07
September 30, 1998                19.50              13.75               0.07
June 30, 1998                    22.125             18.375               0.07
March 31, 1998                    20.00              18.00               0.07


                                       4

<PAGE>

         The number of  stockholders  of record of common stock as of the record
date  for the  1999  annual  meeting  of  stockholders  (April  27,  2000),  was
approximately  634.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through  various  brokerage  firms. As of
December 31, 1999, there were 2,636,000 shares outstanding.

         The Company's  ability to pay dividends to  stockholders  is subject to
the requirements of Pennsylvania  law. No dividend may be paid by the Company on
any of its stock if the effect thereof would cause the Bank's regulatory capital
to be  reduced  below  (1)  the  amount  required  for the  liquidation  account
established in connection with the Bank's  conversion from mutual to stock form,
or (2) the  regulatory  capital  requirements  imposed  by the  Federal  Deposit
Insurance  Corporation  ("FDIC")  and the  Pennsylvania  Department  of  Banking
("Department").


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

The Private  Securities  Litigation Act of 1995 contains safe harbor  provisions
regarding forward-looking  statements.  When used in this discussion,  the words
"believes",  "anticipates",  "contemplates",  "expects", and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and  uncertainties  which could cause actual  results to differ
materially from those projected.  Those risks and uncertainties  include changes
in interest rates, risks associated with the effect of opening a new branch, the
ability to control  costs and expenses,  and general  economic  conditions.  The
Company and the Bank undertake no obligation to publicly  release the results of
any revisions to those forward looking  statements  which may be made to reflect
events or  circumstances  after the date hereof or to reflect the  occurrence of
unanticipated events.

Financial Condition

Total assets at December 31, 1999 of $268.6  million  represented an increase of
$24.4 million or 9.98% from  December 31, 1998.  This increase was primarily the
result of increases in loans of $18.8  million,  Federal Home Loan Bank Stock of
$1.1 million and interest-bearing  deposits with other financial institutions of
$2.1 million.

Loans receivable at December 31, 1999, of $118.8 million represented an increase
of 18.8% from $99.9  million at December  31,  1998.  Mortgage,  commercial  and
consumer  loans  increased  by $4.8  million,  $1.1  million and $12.8  million,
respectively.  The increases in mortgage and commercial loans were primarily due
to  increased  loan demand for these types of loans due to the current  interest
rate  environment.  The growth in the  consumer  loan  portfolio  was  primarily
attributable to an increase in automobile  loans of $11.4 million.  The increase
in  automobile  loans  was  primarily  due  to  one  of  the  Company's  primary
competitors  temporarily  terminating  this type of  lending  and the  Company's
ability to attract those borrowers.

The allowance for loan losses increased  $73,000 for the year ended December 31,
1999. The overall ratio of the allowance to loans  receivable  declined to 1.14%
at December  31, 1999,  as compared to 1.28% at December 31, 1998.  The ratio of
the allowance  for loan losses to  non-performing  loans  increased to 273.6% at
December 31, 1999,  from 244.2% at December 31, 1998. The  relationship  between
the  allowance and loans  receivable  is a function of credit  quality and known
risk factors of the loan portfolio.


                                       5
<PAGE>



Investment  and  mortgage-backed  securities  increased  $.2  million  to $124.7
million at December 31,  1999,  from $124.5  million at December 31, 1998.  This
increase  was the result of  purchases  of $50.2  million,  which were funded by
sales of $2.1 million,  maturities  of $30.4  million,  principal  repayments of
$14.6  million and  increased  Federal Home Loan Bank  advances.  The  purchases
funded by borrowings were part of the Company's leverage strategy. The Company's
leverage  strategy  utilizes  borrowings to fund asset purchases in an effort to
use  capital  more  efficiently  and  improve  operating  results.  The sales of
securities  were in  conjunction  with the Company's Year 2000 liquidity plan to
increase liquidity at year end.

Total deposits at December 31, 1999,  were $189.3  million,  an increase of $8.2
million or 4.5% from  $181.1  million  at  December  31,  1998.  Total  deposits
increased  $2.3  million net of interest  credited of $5.9  million for the year
ended December 31, 1999.

Advances from the Federal Home Loan Bank of Pittsburgh  increased  $19.4 million
to $50.3  million at December 31, 1999 from $30.9  million at December 31, 1998.
This increase was the result of additional  borrowings  to fund  increased  loan
demand, securities purchases and year end liquidity as discussed above.

Other  borrowings  decreased  $1.3  million or 90.6% to $120,000 at December 31,
1999 from $1.4 million at December 31, 1998. This decrease was the result of the
Company  acquiring the loan on the Bank's  Employee Stock Ownership Plan (ESOP).
At December 31, 1998, the ESOP loan was an obligation to an  unaffiliated  third
party.

Stockholders'  equity  decreased  $2.4  million for the year ended  December 31,
1999.  This decrease was due to an unrealized  loss of $914,000 in the Company's
securities  available for sale  portfolio at December 31, 1999 as compared to an
unrealized  gain of $1.1 million at December 31, 1998,  along with  increases in
unallocated RSP and treasury shares of $271,000 and $1,269,000, respectively and
cash  dividends  paid of $744,000.  During the year ended December 31, 1999, the
Company  repurchased  124,000 shares of it's common stock at an average price of
$10.23 per share. These decreases to stockholders'  equity were partially offset
by net income of $1.9 million.


                                       6
<PAGE>
Average Balance Sheets and Interest Analysis

         The  following  tables set forth  certain  information  relating to the
Company's  average  balance  sheet and reflects the average  yield on assets and
average cost of  liabilities  for the periods  indicated and the average  yields
earned and rates paid.  Such yields and costs are derived by dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods presented.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                               -----------------------------------------------------------------------------------------------------
                                             1999                            1998                                 1997
                               -------------------------------   --------------------------------   --------------------------------
                                Average                           Average                             Average
                                Balance     Interest    Yield     Balance   Interest      Yield       Balance     Interest  Yield
                                -------     --------    -----     -------   --------      -----       -------     --------  -----
                                                                     (Dollars in Thousands)
<S>                          <C>           <C>         <C>      <C>        <C>           <C>       <C>          <C>        <C>
ASSETS
Interest-earning assets:
 Loans(1)....................  $111,050      $8,926       8.04%   $99,253    $8,378        8.44%     $ 99,594     $ 8,308     8.34%
 Mortgage-backed securities..    47,241       3,032       6.42     41,906     2,729        6.51        30,784       2,086     6.78
 Investment securities(2)....    26,920       1,410       5.24     22,271     1,244        5.59        16,138       1,005     6.23
 Securities held for sale....    63,156       4,644       7.35     58,339     4,272        7.32        53,757       4,196     7.81
                                -------      ------               -------    ------                   -------      ------
  Total interest-
    earning assets...........   248,367      18,012       7.25    221,769    16,623        7.50       200,273      15,595     7.79%
                                             ------                          ------                                ------
Noninterest-earning assets...     7,775                             7,576                               6,324
                               --------                          --------                            --------
  Total assets...............  $256,142                          $229,345                            $206,597
                               ========                          ========                            ========

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Savings(3).................  $ 29,649         564      1.90%   $ 29,863       637       2.13%      $ 31,253       $ 770     2.46%
  NOW and money markets......    54,295       1,105       2.04     45,876       954        2.08        39,220         752     1.92
  Time deposits..............   101,986       5,320       5.22    102,289     5,673        5.55       105,266       5,950     5.65
  Advances from FHLB.........    39,829       2,240       5.62     19,435     1,145        5.89         6,131         349     5.69
  Other borrowings...........       738          55       7.45      1,457       114        7.82           439          36     8.20
                                -------      ------               -------    ------                   -------      ------
  Total interest-
    bearing liabilities......   226,497       9,284       4.10    198,920     8,523        4.28       182,309       7,857     4.31%
                                             ------                          ------                                ------
Non-interest bearing
  liabilities................     1,823                             1,747                               1,955
                               --------                          --------                            --------
 Total liabilities...........   228,320                           200,667                             184,264
Stockholders' equity.........    27,822                            28,678                              22,333
                               --------                          --------                            --------
 Total liabilities and
   retained earnings.........  $256,142                          $229,345                            $206,597
                               ========                          ========                            ========
Net interest income,
  interest rate spread(4)....               $ 8,728       3.15%              $ 8,100       3.21%                    $7,738    3.48%
                                            =======       ====               =======       ====                     ======    ====
Net yield on interest-
  earning assets.............                             3.51%                            3.65%                              3.86%
                                                          ====                             ====                               ====
Ratio of average
  interest-earning assets
   to average interest-
   bearing liabilities.......                           109.66%                          111.49%                            109.85%
                                                        ======                           ======                             ======
</TABLE>

---------------------------------
(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Includes advances by borrowers for taxes and insurance.
(4)  Interest  income is shown on a fully tax  equivalent  basis  assuming a 34%
     federal income tax rate.

                                       7
<PAGE>

Rate/Volume Analysis

         The  volume and rate  relationship  of the  Company's  interest-earning
assets and interest-bearing  liabilities are determining factors of net interest
income.  The following table reflects the significant  sensitivity to changes in
interest rates of the interest income and interest  expense of the Company.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in volume multiplied by old rate) and, (ii) changes in rate (changes in
rate  multiplied by old volume).  Changes which are not solely  attributable  to
rate or volume  are  allocated  to changes  in rate due to rate  sensitivity  of
interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                        -------------------------------------------------------------------------
                                                1999 vs. 1998                      1998 vs. 1997
                                        ------------------------------   ----------------------------------------

                                              Increase (Decrease)              Increase (Decrease)
                                                     Due to                           Due to
                                                     ------                           ------
                                         Volume       Rate       Net      Volume       Rate       Net
                                         ------       ----       ---      ------       ----       ---
                                                                (In Thousands)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
 Loans ..............................   $   996    $  (448)   $   548    $   (28)   $    98    $    70
 Mortgage-backed securities .........       347        (44)       303        754       (111)       643
 Investment securities (1) ..........       260        (94)       166        382       (143)       239
 Securities available for sale (1) ..       353         19        372        358       (282)        76
                                        -------    -------    -------    -------    -------    -------
  Total interest-earning assets .....     1,956       (567)     1,389      1,466       (438)     1,028
                                        -------    -------    -------    -------    -------    -------
Interest expense:
  Savings ...........................        (5)       (68)       (73)       (34)       (99)      (133)
  NOW and money markets .............       175        (24)       151        128         74        202
  Time deposits .....................       (17)      (336)      (353)      (168)      (109)      (277)
  Advances from FHLB ................     1,201       (106)     1,095        757         39        796
  Other borrowings ..................       (56)        (3)       (59)        83         (5)        78
                                        -------    -------    -------    -------    -------    -------
   Total interest-bearing liabilities     1,298       (537)       761        766       (100)       666
                                        -------    -------    -------    -------    -------    -------
Net change in net interest income ...   $   658    $   (30)   $   628    $   700    $  (338)   $   362
                                        =======    =======    =======    =======    =======    =======
</TABLE>

----------------
(1)      Income  and  yields  derived  from  state  and  political  subdivisions
         securities  are shown on a fully tax  equivalent  basis  assuming a 34%
         federal income tax rate.


Comparison of Operating Results for the Years Ended December 31, 1999 and 1998.

         General.  Net income for the year ended  December 31, 1999 increased by
$356,000 to  $1,857,000,  from  $1,502,000 for the year ended December 31, 1998.
This  increase  was  primarily  due to an  increase  in net  interest  income of
$638,000  along with a decrease  in  non-interest  expense  of  $151,000.  These
increases  to net income were  partially  offset by a decrease  in  non-interest
income of $150,000  along with  increases in loan loss and income tax provisions
of $45,000 and $238,000, respectively.

         Net Interest  Income.  Reported net interest income increased $ 638,000
or 8.4% for the year ended  December  31,  1999.  Net  interest  income on a tax
equivalent  basis  increased  by $628,000 or 7.6% in a period when both  average
interest  earning  assets and  average  interest-bearing  liabilities  increased
(increased  $26.6  million and $27.6  million,  respectively).  The  increase in
average  earning assets of $26.6 million was primarily due to increases of $14.8
million in average investment and  mortgage-backed  securities and $11.8 million
in average  loans.  The  Company's  net interest  rate spread  decreased 6 basis
points  (with 100 basis

                                       8
<PAGE>

points being equal to 1%) to 3.15% for the year ended  December 31, 1999. Due to
the volume of  obligations  of state and political  subdivision in the Company's
investment portfolio, net interest income and interest income are presented on a
tax equivalent basis. See also "- Average Balance Sheets and Interest Analysis."

         Interest  Income.  Interest  income  on a fully  tax  equivalent  basis
totaled $18.0 million for the year ended  December 31, 1999, an increase of $1.4
million or 8.4% over the total of $16.6 million for the year ended  December 31,
1998.  This  increase  was mainly due to an  increase in the  Company's  average
interest-earning  assets of $26.6 million for the year ended  December 31, 1999.
Interest earned on loans  increased  $548,000 or 6.5%, in 1999. The increase was
due to a $11.8 million increase in the average balance of loans partially offset
by a 40 basis point decrease in the yield earned.  Interest earned on investment
and mortgage-backed  securities  (including  securities held for sale) increased
$841,000 or 10.2%, in 1999. The increase was due to a $14.8 million  increase in
the average  balance of  investment  and  mortgage-backed  securities  partially
offset by a 34 basis point decrease in the yield earned.

         Interest Expense.  Interest expense increased  $761,000 to $9.3 million
for the year ended December 31, 1999.  The increase in interest  expense was due
to  a  $27.6  million  increase  in  the  average  balance  of  interest-bearing
liabilities due to increased  average  borrowings and deposits of $19.7 and $7.9
million, respecively. These increases were partially offset by an 18 basis point
decrease in the average cost of interest-bearing liabilities.

         Provision for Losses on Loans.  The provision for loan losses increased
by $45,000 to $410,000 for the year ended  December 31, 1999,  from $365,000 for
the year ended  December  31,  1998.  Gross loans at December  31, 1999  totaled
$120.1 million  compared to $101.2 million at December 31, 1998 resulting in the
allowance  for loan losses  being 1.14% of total loans at December  31, 1999 and
1.28% of total loans at December 31, 1998.  While  management  believes that the
allowance  for  loan  losses  is  sufficient,  there  can be no  assurance  that
regulators,  in reviewing the  Company's  loan  portfolio,  will not request the
Company to  significantly  increase its  allowance  for loan  losses,  or that a
deteriorating  real  estate  market  will  cause the  Company  to  significantly
increase its  allowance  for loans losses,  therefore  negatively  effecting the
Company's financial condition and earnings.

         Non-interest Income. Non-interest income decreased $150,000 to $764,000
for the year ended December 31, 1999,  from $914,000 for the year ended December
31, 1998. This decrease was primarily due to gains on the sale of securities and
loans for the year  ended  December  31,  1999 of $19,000  compared  to gains of
$145,000 for year ended December 31, 1998.

         Non-interest  Expense.  Non-interest expense decreased $151,000 to $6.1
million for the year ended  December  31,  1999,  from $6.2 million for the year
ended  December  31,  1998.  This  decrease  was  primarily  due to decreases in
compensation  and employee  benefits of $130,000 for the year ended December 31,
1999. This decrease in compensation and employee benefits was primarily due to a
reduction in ESOP expense due to the lower average market price of the Company's
common stock during the year ended December 31, 1999.

         Income Tax Expense.  Income tax expense increased  $238,000 to $630,000
for the year ended December 31, 1999,  from $392,000 for the year ended December
31, 1998.

                                       9
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.

         General.  Net income for the year ended  December 31, 1998 decreased by
$136,000 to  $1,502,000,  from  $1,638,000 for the year ended December 31, 1997.
This decrease was primarily due to increases in non-interest expense of $558,000
and increased income tax provisions of $241,000 along with a $23,000 decrease in
non-interest  income.  These decreases to net income were partially offset by an
increase in net interest  income of $496,000 along with a decrease in provisions
for loan losses of $190,000.

         Net Interest Income. Reported net interest income increased $496,000 or
6.5%  for the year  ended  December  31,  1998.  Net  interest  income  on a tax
equivalent  basis  increased  by $362,000 or 4.7% in a period when both  average
interest  earning  assets and  average  interest-bearing  liabilities  increased
(increased  $21.5  million and $16.4  million,  respectively).  The  increase in
average  earning  assets of $21.5  million was  primarily due to a $21.9 million
increase in average investment and mortgage-backed  securities  partially offset
by a $0.3 million  decrease in average  loans.  The  Company's net interest rate
spread  decreased 27 basis points to 3.21% for the year ended December 31, 1998.
Due to the  volume of  obligations  of state and  political  subdivision  in the
Company's  investment  portfolio,  net interest  income and interest  income are
presented on a tax  equivalent  basis.  See also "- Average  Balance  Sheets and
Interest Analysis."

         Interest  Income.  Interest  income  on a fully  tax  equivalent  basis
totaled  $16.6  million for the year ended  December  31,  1998,  an increase of
$1,028,000 or 6.6% over the total of $15.6  million for the year ended  December
31, 1997.  This increase was mainly due to an increase in the Company's  average
interest-earning  assets of $21.5 million for the year ended  December 31, 1998.
Interest  earned on loans  increased  $70,000 or 0.8%, in 1998. The increase was
due to a 10 basis point increase in the yield earned  partially offset by a $0.3
million decrease in the average balance of loans.  Interest earned on investment
and mortgage-backed  securities  (including  securities held for sale) increased
$958,000 or 13.1%, in 1998. The increase was due to a $21.8 million  increase in
the average  balance of  investment  and  mortgage-backed  securities  partially
offset by a 51 basis point decrease in the yield earned.

         Interest Expense.  Interest expense increased  $666,000 to $8.5 million
for the year ended December 31, 1998.  The increase in interest  expense was due
to  a  $16.6  million  increase  in  the  average  balance  of  interest-bearing
liabilities  primarily  due to increased  borrowings  pursuant to the  Company's
leverage  strategy  partially  offset by a three  basis  point  decrease  in the
average cost of interest-bearing liabilities.

         Provision for Losses on Loans.  The provision for loan losses decreased
by $190,000 to $365,000 for the year ended December 31, 1998,  from $555,000 for
the year ended  December  31,  1997.  Gross loans at December  31, 1998  totaled
$101.2 million  compared to $101.1 million at December 31, 1997 resulting in the
allowance  for loan losses  being 1.28% of total loans at December  31, 1998 and
1.39% of total loans at December 31, 1997.  While  management  believes that the
allowance  for  loan  losses  is  sufficient,  there  can be no  assurance  that
regulators,  in reviewing the  Company's  loan  portfolio,  will not request the
Company to  significantly  increase its  allowance  for loan  losses,  or that a
deteriorating  real  estate  market  will  cause the  Company  to  significantly
increase its  allowance  for loans losses,  therefore  negatively  effecting the
Company's financial condition and earnings.

         Non-interest Income.  Non-interest income decreased $23,000 to $914,000
for the year ended December 31, 1998,  from $937,000 for the year ended December
31, 1997.  This decrease was  primarily due to a decrease in service  charges of
$86,000,  due to check  printing  charges being  charged  directly to depositors
accounts instead the printer  charging the Company and the Company  subsequently
charging depositors.  In addition,  gains on the sale of securities for the year
ended  December  31, 1998 of $117,000,  a decrease of $15,000 from  $132,000 for
year  ended  December  31,  1997,  due  primarily  to the  restructuring  of the
Company's  portfolio as previously  discussed.  These  decreases  were partially
offset by increases in

                                       10
<PAGE>

gains on sales of loans of $17,000,  increased  automated teller machine fees of
$15,000, and increased rental income of $4,000.

         Non-interest  Expense.   Non-interest  expense  increased  $558,000  to
$6,245,000  for the year ended December 31, 1998,  from  $5,687,000 for the year
ended  December  31,  1997.  This  increase  was  primarily  due to increases in
compensation  and  employee  benefits  (including  stock  related  benefits)  of
$491,000.

The increase in compensation and employee benefits of $491,000 was primarily the
result of increased compensation of $318,000 due to employees working additional
hours  during the  Company's  computer  system  conversion  along with  staffing
increases and normal merit  increases,  a $30,000 increase in expense related to
the  Company's  ESOP,  and an  accrual  for  expense  related  to the  Company's
Restricted Stock Plan of $129,000.

         Income Tax Expense.  Income tax expense increased  $241,000 to $392,000
for the year ended December 31, 1998,  from $150,000 for the year ended December
31, 1997.

Market Risk Analysis

         The Company, like many other financial  institutions,  is vulnerable to
an increase in interest  rates to the extent that  interest-bearing  liabilities
generally  mature or reprice  more  rapidly than  interest-earning  assets.  The
lending  activities of the Company have historically  emphasized the origination
of  long-term,  fixed rate loans secured by single  family  residences,  and the
primary source of funds has been deposits with substantially shorter maturities.
While having  interest-bearing  liabilities  that reprice more  frequently  than
interest-earning  assets is generally beneficial to net interest income during a
period  of  declining  interest  rates,  such  an  asset/liability  mismatch  is
generally detrimental during periods of rising interest rates.

         To reduce the effect of interest  rate changes on net  interest  income
the Company has adopted various  strategies to enable it to improve  matching of
interest-earning asset maturities to interest-bearing  liability maturities. The
principal  elements  of these  strategies  include:  (1)  purchasing  investment
securities  with  maturities  that  match  specific  deposit   maturities;   (2)
emphasizing  origination of shorter-term  consumer  loans,  which in addition to
offering  more rate  flexibility,  typically  bear  higher  interest  rates than
residential  mortgage loans and (3) purchasing  adjustable-rate  mortgage-backed
securities. Although consumer loans inherently generally possess a higher credit
risk than residential mortgage loans, the Company believes that its underwriting
standards will minimize this risk.

         The Company has also made a significant effort to maintain its level of
lower costs  deposits as a method of  enhancing  profitability.  The Company has
traditionally had a high level of low-cost passbook,  interest-bearing  checking
(NOW) and Money Market Demand  Accounts.  Although its base of such deposits has
increased as a result of the current  interest rate  environment,  such deposits
have traditionally remained relatively stable and would be expected to reduce to
normal  levels in a period of rising  interest  rates.  Because of this relative
stability in a significant portion of its deposits, the Company has been able to
offset the impact of rising rates in other deposit accounts.

         Exposure to interest rate risk is actively monitored by management. The
Company's  objective is to maintain a consistent level of  profitability  within
acceptable  risk  tolerances  across a broad range of  potential  interest  rate
environments.  The Company uses the Olson Research Associates, Inc.'s, Columbia,
Maryland,  A/L  Benchmarks to monitor its exposure to interest rate risk,  which
calculates  changes in market value of portfolio equity and net interest income.
Reports generated from assumptions  provided by Olson and modified by management
are reviewed by the Interest Rate Risk and Asset Liability  Management Committee
and reported to the Board of Trustees quarterly.  The Balance Sheet Shock Report
shows the degree to which

                                       11
<PAGE>

balance  sheet  line  items  and  the  market  value  of  portfolio  equity  are
potentially  affected by a 200 basis point  upward and downward  parallel  shift
(shock)  in  the  Treasury  yield  curve.   Exception  tests  are  conducted  as
recommended under federal law to determine if the bank qualifies as low risk and
may therefore be exempt from supplemental  reporting.  In addition, the possible
impact on risk-based  capital is assessed using the  methodology  which had been
previously  proposed  under  FDICIA.  An Income Shock Report shows the degree to
which income  statement line items and net income are potentially  affected by a
200 basis point upward and downward parallel shift in the Treasury yield curve.

         From  analysis  and  discussion  of the  aforementioned  reports  as of
December 31,  1999,  management  has assessed  that the Bank's level of interest
rate risk is appropriate for current market conditions. The percentage change in
market value of the  portfolio  equity for an upward and  downward  shift of 200
basis  points  are  (19.61)%  and  15.83%,  respectively.  Net  interest  income
decreased  by $429,000 or 5.1% for an upward  shift in rates of 200 basis points
and  increased by $308,000 or 3.6%,  for a downward  shift of 200 basis  points.
Excess Net Interest  Rate Risk was within  those  limits  outlined in the Bank's
Asset/Liability  Management and Interest Rate Risk Policy. The Bank's calculated
(total)  risk-based  capital before the interest rate risk impact was 22.93% and
18.77% after the interest  rate risk impact.  Results fall within  policy limits
for all applicable  tests with the exception of the net interest income decrease
of 5.1% for an upward  shift of 200 basis  points.  The Bank's  policy limit for
this test is 5.0%.  Management  feels that this variance was due to an unusually
high volume of  short-term  borrowings  at year end that were taken out for year
2000 liquidity purposes.  During January 2000 cash levels were reduced to normal
levels and a substantial portion of these short-term borrowings were repaid.

Liquidity and Capital Requirements

General.  Liquidity refers to the Company's ability to generate  sufficient cash
to meet the funding needs of current loan demand,  savings deposit  withdrawals,
and to pay operating expenses.  The Company has historically  maintained a level
of liquid assets in excess of regulatory requirements.  Maintaining a high level
of liquid  assets tends to decrease  earnings,  as liquid  assets tend to have a
lower  yield than other  assets  with longer  terms  (e.g.  loans).  The Company
adjusts liquidity as appropriate to meet its asset/liability objectives.

The Company's primary sources of funds are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
funds  provided  from  operations.  While  scheduled  loan  and  mortgage-backed
securities  repayments  are a relatively  predictable  source of funds,  deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by interest rates, economic conditions and competition. In addition, the Company
invests  excess  funds in overnight  deposits  which  provide  liquidity to meet
lending requirements

The  primary  activity  of the  Company  is  originating  loans  and  purchasing
investment and mortgage-backed  securities.  During the years ended December 31,
1999, 1998 and 1997 the Company  originated loans in the amounts of $67.3, $49.8
and $45.3  million,  respectively.  The Company also  purchases  investment  and
mortgage-backed  securities to invest excess  liquidity and to supplement  local
loan  demand.  During the years ended  December  31,  1999,  1998 and 1997,  the
Company purchased  investment and  mortgage-backed  securities in the amounts of
$50.2, $48.7 and $33.5 million, respectively.

The  Company  has other  sources of  liquidity  if a need for  additional  funds
arises, such as FHLB of Pittsburgh advances. Additional sources of liquidity can
be found in the  Company's  balance  sheet,  such as investment  securities  and
unencumbered mortgage-backed securities that are readily marketable.  Management
believes that the Company has adequate resources to fund all of its commitments.


                                       12
<PAGE>

The Bank  may not  declare  or pay a cash  dividend  on any of its  stock if the
effect thereof would cause the Bank's regulatory capital to be reduced below (1)
the amount required for the liquidation  account  established in connection with
the Bank's mutual holding company  reorganization and stock issuance, or (2) the
regulatory capital requirements imposed by the Department and the FDIC.

Regulatory Capital  Requirements.  As a condition of deposit insurance,  current
FDIC  regulations  require  that the  Bank  calculate  and  maintain  a  minimum
regulatory  capital level on a quarterly  basis and satisfy such  requirement at
the  calculation  date and  throughout the ensuing  quarter.  See Note 15 to the
Consolidated Financial Statements.

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

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 and  services,  since
such goods and services are affected by inflation.  In the current interest rate
environment,  liquidity and the maturity  structure of the Company's  assets and
liabilities are critical to the maintenance of acceptable performance levels.

Year 2000

Like many financial  institutions,  we rely on computers to conduct our business
and  information  systems  processing.  Industry  experts were concerned that on
January 1, 2000,  some  cumputers  might not be able to  interpret  the new year
properly,  causing computer  malfunctions.  Some banking industry experts remain
concerned that some computers may not be able to interpret  additional  dates in
the year 2000  properly.  We have operated and evaluated our computer  operating
systems  following  January  1,  2000 and  have not  identified  any  errors  or
experienced  any computer system  malfunctions.  We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop  appropriate  contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem  experienced  by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.

Nevertheless,  it is too soon to  conclude  that there will not be any  problems
arising from the Year 2000 problem, particularly at some of our vendors. We will
continue to monitor its  significant  vendors of goods and services with respect
to Year 2000  problems they may encounter as those issues may effect our ability
to  continue  operations,  or might  adversely  affect our  financial  position,
results of operations and cash flows.  We do not believe at this time that these
potential problems will materially impact the ability of the Company to continue
its operations, however, no assurance can be given that this will be the case.

The  Company's   expectations  contained  in  this  section  on  Year  2000  are
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995 and involve  substantial  risks and uncertainties
that may cause actual results to differ  materially  from those indicated by the
forward looking statements.  All forward-looking  statements in this section are
based  on  information  available  to us on the date of this  document,  and the
Company assumes no obligation to update such forward looking statements.

                                       13




<PAGE>
          SNODGRASS
{LOGO]    CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS



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




Board of Directors and Stockholders
PHS Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of PHS Bancorp, Inc.
and  subsidiary as of December 31, 1999 and 1998,  and the related  consolidated
statements of income,  changes in stockholders'  equity, and cash flows for each
of the three  years in the period  ended  December  31,  1999.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform 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 consolidated  financial  position of PHS
Bancorp,  Inc. and  subsidiary as of December 31, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1999 in conformity with generally accepted  accounting
principles.


/s/S.R. Snodgrass, A.C.


Wexford, PA
January 28, 2000


S.R. Snodgrass, A.C.
101 Bradford Road, Suite 100, Wexford, PA 15090-6909  Phone: 724-934-0344
FACSIMILE  724-934-0345

                                       14
<PAGE>
                                PHS BANCORP, INC.
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                                       1999               1998
                                                                                 -----------------  -----------------
<S>                                                                          <C>                 <C>
ASSETS
     Cash and amounts due from other institutions                              $        3,533,452  $       2,136,601
     Interest-bearing deposits with other institutions                                 11,416,781          9,332,219
     Investment securities:
         Available for sale                                                            27,594,897         25,197,294
         Held to maturity (market value $15,268,634
           and $18,581,867)                                                            15,539,866         18,145,662
     Mortgage-backed securities:
         Available for sale                                                            37,426,028         32,877,841
         Held to maturity (market value $42,263,705
           and $48,767,611)                                                            44,141,386         48,287,244
     Loans (net of allowance for loan losses of $1,359,900
       and $1,287,496)                                                                118,745,043         99,913,716
     Accrued interest receivable                                                        1,538,163          1,516,677
     Premises and equipment                                                             4,295,194          4,501,659
     Federal Home Loan Bank stock                                                       2,614,885          1,544,800
     Other assets                                                                       1,794,646            798,957
                                                                                 -----------------  -----------------

             TOTAL ASSETS                                                      $      268,640,341  $     244,252,670
                                                                                 =================  =================

LIABILITIES
     Deposits                                                                  $      189,344,552  $     181,112,564
     Advances from Federal Home Loan Bank                                              50,294,800         30,894,800
     Other borrowings                                                                     120,039          1,387,618
     Accrued interest payable and other liabilities                                     2,129,613          1,673,579
                                                                                 -----------------  -----------------

             TOTAL LIABILITIES                                                        241,889,004        215,068,561
                                                                                 -----------------  -----------------

STOCKHOLDERS' EQUITY
     Preferred stock, no par value; 2,000,000 shares
       authorized; none issued and outstanding                                                  -                  -
     Common stock, par value $.10 per share; 8,000,000
       shares authorized; 2,760,000 issued                                                276,000            276,000
     Additional paid-in capital                                                        10,541,960         10,588,940
     Retained earnings - substantially restricted                                      19,496,887         18,489,177
     Accumulated other comprehensive income (loss)                                       (914,110)         1,088,415
     Unallocated shares held by Employee Stock
       Ownership Plan (ESOP)                                                           (1,066,503)        (1,215,723)
     Unallocated shares held by Restricted Stock Plan (RSP)                              (314,295)           (42,700)
     Treasury stock, at cost (124,000 shares)                                          (1,268,602)                 -
                                                                                 -----------------  -----------------

             TOTAL STOCKHOLDERS' EQUITY                                                26,751,337         29,184,109
                                                                                 -----------------  -----------------

             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $      268,640,341  $     244,252,670
                                                                                 =================  =================
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       15
<PAGE>
                                PHS BANCORP, INC.
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                   1999                1998               1997
                                                             ------------------  -----------------  -----------------
<S>                                                         <C>                  <C>                <C>
INTEREST INCOME
      Loans                                                  $       8,926,063    $     8,377,792   $      8,307,944
      Investment securities:
          Taxable                                                    1,905,686          1,348,081            978,151
          Exempt from federal income tax                               972,907            991,341          1,252,465
      Mortgage-backed securities                                     5,513,483          5,098,561          4,165,100
      Interest-bearing deposits with other institutions                192,749            295,675            245,884
                                                             ------------------  -----------------  -----------------
               Total interest income                                17,510,888         16,111,450         14,949,544
                                                             ------------------  -----------------  -----------------
INTEREST EXPENSE
      Deposits                                                       6,988,338          7,263,761          7,471,775
      Advances from Federal Home Loan Bank                           2,239,940          1,144,625            348,454
      Other borrowings                                                  55,411            114,173             36,452
                                                             ------------------  -----------------  -----------------
               Total interest expense                                9,283,689          8,522,559          7,856,681
                                                             ------------------  -----------------  -----------------
               Net interest income                                   8,227,199          7,588,891          7,092,863

PROVISION FOR LOAN LOSSES                                              410,000            365,000            555,000
                                                             ------------------  -----------------  -----------------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                    7,817,199          7,223,891          6,537,863
                                                             ------------------  -----------------  -----------------
NONINTEREST INCOME
      Service charges on deposit accounts                              453,497            460,788            546,669
      Investment securities gains, net                                  19,095            116,858            131,931
      Gain on sale of loans, net                                             -             27,765             11,250
      Rental income, net                                                92,402             89,898             85,416
      Other income                                                     199,064            218,700            162,171
                                                             ------------------  -----------------  -----------------
               Total noninterest income                                764,058            914,009            937,437
                                                             ------------------  -----------------  -----------------
NONINTEREST EXPENSE
      Compensation and employee benefits                             3,241,692          3,372,162          2,881,255
      Occupancy and equipment costs                                  1,129,482          1,039,833            838,664
      Deposit insurance premium                                        106,263            105,362            112,453
      Data processing costs                                            297,990            368,847            319,747
      Other expenses                                                 1,318,338          1,358,312          1,535,350
                                                             ------------------  -----------------  -----------------
               Total noninterest expense                             6,093,765          6,244,516          5,687,469
                                                             ------------------  -----------------  -----------------
Income before income taxes                                           2,487,492          1,893,384          1,787,831
Income taxes                                                           629,602            391,759            150,316
                                                             ------------------  -----------------  -----------------
               NET INCOME                                    $       1,857,890   $      1,501,625  $       1,637,515
                                                             ==================  =================  =================
EARNINGS PER SHARE
  (Since inception July 10, 1997)
      Basic                                                  $            0.71   $           0.56  $            0.33
      Diluted                                                             0.71               0.56                N/A
</TABLE>

See accompanying notes to the consolidated financial statements.

                                        16
<PAGE>
                                PHS BANCORP,INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                            Accumu
                                                           lated
                                                 Retained  Other       Unallo-
                                                 Earnings  Compre-      cated        Unallocated                            Compre-
                                   Additional    Substan-  hensive     Shares        Shares                      Total      hensive
                         Common     Paid-in      tially    Income      Held by       Held by     Treasury     Stockholders' Income
                         Stock      Capital     Restricted (Loss)      ESOP           RSP         Stock         Equity      (Loss)
                       --------  -----------  ------------ --------  -----------   -----------  ------------ -----------    --------
Balance,
<S>                   <C>       <C>          <C>         <C>         <C>          <C>           <C>         <C>         <C>
  December 31, 1996    $     -   $         -  $16,090,580 $  554,087  $        -   $         -   $         - $16,644,667
Net income                                      1,637,515                                                      1,637,515 $1,637,515
Other comprehensive
income:
  Unrealized gain on
    available for sale
    securities, net of
    tax of $208,949                                          405,606                                             405,606    405,606
                                                                                                                         ----------
Comprehensive income                                                                                                     $2,043,121
                                                                                                                         ==========
Sale of common stock   276,000    11,551,733                                                                  11,827,733
Capitalization of
  PHS Bancorp, M.H.C.             (1,000,000)                                                                 (1,000,000)
Common shares acquired
  by ESOP                                                             (1,043,625)                             (1,043,625)
ESOP shares released                   8,530                             128,512                                 137,042
                       --------  -----------  -----------   -------- -----------   -----------  ------------ -----------
Balance,
  December 31, 1997     276,000   10,560,263   17,728,095    959,693    (915,113)            -             -  28,608,938
Net income                                      1,501,625                                                      1,501,625 $1,501,625
Other comprehensive
income:
  Unrealized gain on
    available for sale
    securities, net of
    tax of $66,311                                           128,722                                             128,722    128,722
                                                                                                                         ----------
Comprehensive income                                                                                                     $1,630,347
                                                                                                                         ==========
Cash dividends declared
  ($.26 per share)                               (695,792)                                                      (695,792)
Common stock acquired
  by ESOP                                                               (448,512)                               (448,512)
ESOP shares released                  18,941                             147,902                                 166,843
Common stock acquired
  by RSP                                          (44,751)                            (171,212)                 (215,963)
RSP shares released                    9,736                                           128,512                   138,248
                       --------  -----------  -----------   -------- -----------   -----------  ------------ -----------
Balance,
  December 31, 1998     276,000   10,588,940   18,489,177  1,088,415  (1,215,723)      (42,700)            -  29,184,109
Net income                                      1,857,890                                                      1,857,890 $1,857,890
Other comprehensive
loss:
  Unrealized loss on
    available for sale
    securities, net
    of tax benefit
    of $1,031,604                                         (2,002,525)                                         (2,002,525)(2,002,525)
                                                                                                                         ----------
Comprehensive loss                                                                                                       $ (144,635)
                                                                                                                         ==========
Cash dividends declared
  ($.30 per share)                               (743,785)                                                      (743,785)
ESOP shares released                 (46,980)                            149,220                                 102,240
Treasury stock
  purchased, at cost                                                                              (1,268,602) (1,268,602)
Common stock
  acquired by RSP                                (106,395)                            (400,107)                 (506,502)
RSP shares released                                                                    128,512                   128,512
                      --------   -----------  -----------   -------- -----------   ------------ ------------- -----------
Balance,
 December 31, 1999    $276,000   $10,541,960  $19,496,887   (914,110)$(1,066,503)  $  (314,295)  $(1,268,602)$26,751,337
                      ========   ===========  ===========   ======== ===========   ===========  ============ ============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                             1999          1998         1997
                                                                                         ------------  ------------ ------------
<S>                                                                                    <C>           <C>           <C>
Components of comprehensive income (loss):
  Change in net unrealized gain (loss) on investments held for sale                     $ (1,989,922) $    205,848  $   492,680
  Realized gains included in net income, net of tax of $6,492, $39,732, and $44,857          (12,603)      (77,126)     (87,074)
                                                                                         ------------  ------------ ------------
Total                                                                                    $(2,002,525)  $   128,722  $   405,606
                                                                                         ============  ============ ============
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       17
<PAGE>
                                PHS BANCORP, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                       1999              1998             1997
                                                                  ----------------  ---------------  ----------------
<S>                                                            <C>                <C>              <C>
OPERATING ACTIVITIES
Net income                                                      $       1,857,890  $     1,501,625  $      1,637,515
Adjustments to reconcile net income to net
  cash provided by operating activities:
     Provision for loan losses                                            410,000          365,000           555,000
     Provision for depreciation                                           518,874          502,955           329,039
     Amortization of discounts, premiums,
       and loan origination fees                                          865,746        1,022,329         1,040,439
     Investment securities gains, net                                     (19,095)        (116,858)         (131,931)
     Gain on sale on loans, net                                                 -          (27,765)          (11,250)
     Increase in loans held for sale                                       48,080        1,073,254             3,183
     Decrease (increase) in accrued interest receivable                   (21,486)        (123,278)           69,963
     Increase (decrease) in accrued interest payable                      208,050           46,377           (46,591)
     Amortization of ESOP unearned compensation                           102,240          166,843           137,042
     Amortization of RSP unearned compensation                            128,512          138,248                 -
     Other, net                                                            15,846         (315,884)            4,383
                                                                  ----------------  ---------------  ----------------
              Net cash provided by operating activities                 4,114,657        4,232,846         3,586,792
                                                                  ----------------  ---------------  ----------------

INVESTING ACTIVITIES
     Investment and mortgage-backed securites
       available for sale:
        Proceeds from sales                                             2,142,314        2,259,493         6,617,750
        Proceeds from maturities and principal repayments              11,514,770        8,009,594         6,291,492
        Purchases                                                     (23,578,542)     (13,617,911)      (14,081,142)
     Investment and mortgage-backed securities
       held to maturity:
        Proceeds from maturities and principal repayments              33,467,106       18,718,865        10,983,348
        Purchases                                                     (26,634,757)     (35,098,662)      (19,452,555)
     Increase in loans, net                                           (20,320,123)      (2,485,946)       (5,716,736)
     Proceeds from sales of repossessed assets                            312,962          306,784           671,650
     Purchase of premises and equipment                                  (312,409)        (542,980)       (1,819,879)
     Purchase of Federal Home Loan Bank stock                          (1,070,085)        (525,300)          (47,400)
                                                                  ----------------  ---------------  ----------------
              Net cash used for investing activities                  (24,478,764)     (22,976,063)      (16,553,472)
                                                                  ----------------  ---------------  ----------------

FINANCING ACTIVITIES
     Increase (decrease) in deposits, net                               8,231,988        6,826,415        (1,638,896)
     Proceeds from advances from Federal Home Loan Bank                19,400,000       20,377,800         4,017,000
     Repayment of advances from Federal Home Loan Bank                          -       (1,600,000)                -
     Proceeds from other borrowings                                             -          271,853         1,115,765
     Repayment of other borrowings                                     (1,267,579)               -                 -
     Common stock acquired by ESOP                                              -         (448,512)       (1,043,625)
     Common stock acquired by RSP                                        (506,502)        (215,963)                -
     Cash dividends paid                                                 (743,785)        (695,792)                -
     Purchase of treasury stock                                        (1,268,602)               -                 -
     Proceeds from sale of common stock                                         -                -        11,827,733
     Capitalization of PHS Bancorp, M.H.C.                                      -                -        (1,000,000)
                                                                  ----------------  ---------------  ----------------
              Net cash provided by financing activities                23,845,520       24,515,801        13,277,977
                                                                  ----------------  ---------------  ----------------
              Increase in cash and cash equivalents                     3,481,413        5,772,584           311,297

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                                    11,468,820        5,696,236         5,384,939
                                                                  ----------------  ---------------  ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                          $    14,950,233   $   11,468,820   $     5,696,236
                                                                  ================  ===============  ================
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       18
<PAGE>

                                PHS BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

PHS  Bancorp,  Inc.  (the  "Company")  is  a  Pennsylvania  corporation  and  is
registered  under the Bank Holding  Company Act. The Company was organized to be
the holding company of Peoples Home Savings Bank (the "Bank"). The Company's and
the  Bank's   principal   sources  of  revenue   emanate  from   investment  and
mortgage-backed securities,  mortgage,  commercial, and consumer loan portfolios
as well as a variety of deposit services provided to Bank customers through nine
locations.  The Company is supervised by the Federal  Reserve  Board,  while the
Bank  is a  state-chartered  savings  bank  supervised  by the  Federal  Deposit
Insurance Corporation and the Pennsylvania Department of Banking.

The consolidated financial statements of the Company include the accounts of the
Bank and its wholly-owned subsidiary, HOMECO. All intercompany transactions have
been eliminated in consolidation. The investment in the subsidiary on the parent
company  financial  statement is carried at the parent  company's  equity in the
underlying assets of the Bank.

The  accounting  principles  followed by the Company and the methods of applying
these principles conform with generally accepted accounting  principles and with
general  practice  within the  banking  industry.  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
related  revenues  and  expenses  for the period.  Actual  results  could differ
significantly from those estimates.

Investment and Mortgage-backed Securities
-----------------------------------------

Investment  and  mortgage-backed  securities  are  classified  at  the  time  of
purchase,  based upon management's intentions and ability, as securities held to
maturity  or  securities   available  for  sale.  Debt   securities,   including
mortgage-backed  securities,  acquired  with the intent  and  ability to hold to
maturity are  classified as held to maturity and are stated at cost and adjusted
for amortization of premium and accretion of discount which are computed using a
level yield method and  recognized as adjustments  of interest  income.  Certain
other  debt  securities  have been  classified  as  available  for sale to serve
principally  as a source of  liquidity.  Unrealized  holding gains and losses on
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 ("FHLB")  represents  ownership in an
institution which is wholly-owned by other financial  institutions.  This equity
security is accounted for at cost and reported  separately  on the  accompanying
consolidated balance sheet.

Loans
-----

Loans are stated at the principal  amount  outstanding net of deferred loan fees
and the allowance for loan losses. Interest income on loans is recognized on the
accrual method.  Accrual of interest on loans is generally  discontinued when it
is  determined  that a  reasonable  doubt  exists  as to the  collectibility  of
principal, interest, or both. Loans are returned to accrual status when past due
interest is collected, and the collection of principal is probable.

                                       19
<PAGE>
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans (Continued)
-----

Loan  origination and commitment fees as well as certain direct loan origination
costs are being  deferred and the net amount  amortized as an  adjustment to the
related loan's yield.  These amounts are being  amortized  over the  contractual
lives 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 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.  Factors  considered by management in determining  impairment  include
payment status and collateral value. The amount of impairment for these types of
impaired 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 on 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  surrounding  the loan and the  borrower
including the length of the delay, the borrower's prior payment record,  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 calculated using the straight-line  method over the useful lives
of the related assets.  Expenditures  for maintenance and repairs are charged to
operations  as  incurred.   Costs  of  major  additions  and   improvements  are
capitalized.

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

Real  estate  acquired  in  settlement  of loans is  stated  at the lower of the
recorded  investment in the property or its fair value minus  estimated costs of
sale.  Prior to foreclosure  the value of the  underlying  collateral is written
down by a charge to the allowance for loan losses if necessary.  Any  subsequent
write-downs are charged against operating  expenses.  Operating expenses of such
properties, net of related income and losses on their disposition,  are included
in other expenses.

                                       20
<PAGE>
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

The Company and its subsidiary  file a  consolidated  federal income tax return.
Deferred tax assets or liabilities are computed based on the difference  between
financial statement and the income tax basis of assets and liabilities using the
enacted  marginal tax rates.  Deferred income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period.

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 as the
numerator and average shares outstanding as the denominator.  The computation of
diluted  earnings per share differs in that the dilutive effects of any options,
warrants, and convertible securities are adjusted for in the denominator.

Earnings  per  share  computations  for  1997  are  based  on net  income  since
inception, July 10, 1997, amounting to $884,176.

Employee Benefit Plans
----------------------

The Bank  sponsors a  trusteed,  deferred  benefit  pension  plan  covering  all
eligible employees.  The Bank's funding policy is to make annual  contributions,
as needed, based upon the funding formula developed by the plan's actuary.

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

The Company  maintains  a stock  option plan for the  directors,  officers,  and
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 presented 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 this plan.

Comprehensive Income
--------------------

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

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

The Company has defined cash and cash  equivalents  as cash and amounts due from
depository institutions and interest-bearing deposits with other institutions.

For the years ended  December 31, 1999,  1998,  and 1997,  the Company made cash
payments for interest of $9,075,639,  $8,476,182, and $7,903,272,  respectively.
The Company also made cash payments for income taxes of $334,500,  $358,000, and
$198,100, respectively, during these same periods.

                                       21
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Pending Accounting Pronouncements
---------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments  and  Hedging  Activities,"  as amended for in June 1999 by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133." The Statement provides accounting
and reporting standards for derivative instruments, including certain derivative
instruments  embedded in other contracts,  by requiring the recognition of those
items as assets or liabilities in the statement of financial position,  recorded
at fair value.  Statement  No. 133  precludes a held to maturity  security  from
being designated as a hedged item;  however,  at the date of initial application
of this  Statement,  an entity is  permitted  to  transfer  any held to maturity
security  into the  available  for sale or trading  categories.  The  unrealized
holding gain or loss on such transferred securities shall be reported consistent
with the requirements of Statement No. 115,  "Accounting for Certain Investments
in Debt and Equity  Securities."  Such transfers do not raise an issue regarding
an entity's intent to hold other debt securities to maturity in the future. This
Statement  applies  prospectively for all fiscal quarters of all years beginning
after June 15, 2000.  Earlier  adoption is permitted for any fiscal quarter that
begins after the issue date of this Statement.

Reclassification
----------------

Certain items in the prior year financial  statements have been  reclassified to
conform to the current year presentation.  Such reclassifications did not affect
net income or stockholders' equity.

2.  EARNINGS PER SHARE

There  are no  convertible  securities  which  would  affect  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.

                                                 1999        1998        1997
                                              -----------  ----------  ---------

Weighted-average common shares
     outstanding                               2,760,000   2,760,000   2,760,000

Average treasury stock shares                   (43,705)           -           -

Average unearned ESOP and RSP shares           (104,629)    (73,463)    (81,000)
                                              -----------  ----------  ---------

Weighted-average common shares and
     common stock equivalents used to
     calculate basic earnings per share        2,611,666   2,686,537   2,679,000

Additional common stock equivalents
     (stock options) used to calculate
     diluted earnings per share                        -      12,560           -
                                              -----------  ----------  ---------
Weighted-average common shares and
     common stock equivalents used
     to calculate diluted earnings per share   2,611,666   2,699,097   2,679,000
                                              ===========  ==========  =========

                                       22
<PAGE>
3.  INVESTMENT SECURITIES

The amortized  cost and  estimated  market value of  investment  securities  are
summarized as follows:
<TABLE>
<CAPTION>
                                                                            1999
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Available for Sale
U.S. Treasury securities                 $      4,994,727   $            678    $        (36,335)  $       4,959,070
U.S. Government agencies
  securities                                    6,000,000                  -                   -           6,000,000
Obligations of state and
  political subdivisions                       16,809,617            203,633            (436,079)         16,577,171
Real estate mortgage
  investment conduits                              58,443                213                   -              58,656
                                         -----------------  -----------------   -----------------  -----------------

           Total                         $     27,862,787   $        204,524    $      (472,414)   $      27,594,897
                                         =================  =================   =================  =================
</TABLE>

<TABLE>
<CAPTION>

                                                                            1998
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Available for Sale
U.S. Treasury securities                 $      8,991,872   $        140,278    $              -   $      9,132,150
Obligations of state and
  political subdivisions                       15,235,785            727,594                             15,963,379
                                                                                               -
Real estate mortgage
  investment conduits                             101,619                146                   -            101,765
                                         -----------------  -----------------   -----------------  -----------------

           Total                         $     24,329,276   $        868,018    $              -   $     25,197,294
                                         =================  =================   =================  =================
</TABLE>

<TABLE>
<CAPTION>
                                                                            1999
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Held to Maturity
U.S. Government agency
  securities                             $     12,553,752   $        128,493    $      (235,416)   $     12,446,829
Obligations of states and
  political subdivisions                        2,986,114                              (181,926)          2,821,805
                                                                      17,617
                                         -----------------  -----------------   -----------------  -----------------

           Total                         $     15,539,866   $        146,110    $      (417,342)   $     15,268,634
                                         =================  =================   =================  =================
</TABLE>

                                       23
<PAGE>
3.  INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
                                                                            1998
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Held to Maturity
U.S. Government agency
  securities                             $     13,927,031   $        393,549    $              -   $     14,320,580
Obligations of states and
  political subdivisions                        1,237,521                                                 1,280,177
                                                                      42,656                   -
Corporate obligations                           2,981,110                  -                   -          2,981,110
                                         -----------------  -----------------   -----------------  -----------------

           Total                         $     18,145,662   $        436,205    $              -   $     18,581,867
                                         =================  =================   =================  =================
</TABLE>

The amortized cost and estimated market value of debt securities at December 31,
1999, by contractual maturity, are shown below.
<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                  $      5,678,322   $      5,711,375    $              -   $              -
Due after one year through
  five years                                    4,677,097          4,732,779           8,600,000          8,364,584
Due after five years through
  ten years                                     7,897,085          7,932,078           1,629,475          1,638,833
Due after ten years                             9,610,283          9,218,665           5,310,391          5,265,217
                                         -----------------  -----------------   -----------------  -----------------

      Total                              $     27,862,787   $     27,594,897    $     15,539,866   $     15,268,634
                                         =================  =================   =================  =================
</TABLE>

The following is a summary of proceeds  received,  gross gains, and gross losses
realized on the sale of investment  securities  available for sale for the years
ended December 31:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------

<S>                                                        <C>                 <C>                <C>
     Proceeds from sales                                    $      2,142,314    $      2,259,493   $      6,617,750
     Gross gains                                                      21,088             116,858           243,484
     Gross losses                                                      1,993                   -           111,553
</TABLE>



                                       24
<PAGE>
4.  MORTGAGE-BACKED SECURITIES

The amortized cost and estimated market value of mortgage-backed  securities are
summarized as follows:
<TABLE>
<CAPTION>
                                                                            1999
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Available for Sale
Government National Mortgage
  Association securities                 $     38,524,820   $        114,723    $    (1,232,306)   $     37,407,237
Federal Home Loan Mortgage
  Corporation securities                           18,333                470                (12)             18,791
                                         -----------------  -----------------   -----------------  -----------------
            Total                        $     38,543,153   $        115,193    $    (1,232,318)   $     37,426,028
                                         =================  =================   =================  =================
</TABLE>

<TABLE>
<CAPTION>
                                                                            1998
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Available for Sale
Government National Mortgage
   Association securities                $     32,068,134   $        785,420    $        (5,608)   $     32,847,946
Federal Home Loan Mortgage
   Corporation securities
                                                   28,610              1,285                   -             29,895
                                         -----------------  -----------------   -----------------  -----------------
            Total                        $     32,096,744   $        786,705    $        (5,608)   $     32,877,841
                                         =================  =================   =================  =================
</TABLE>

<TABLE>
<CAPTION>
                                                                            1999
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Held to Maturity
Government National Mortgage
   Association securities                $     37,623,016   $          1,710    $    (1,902,028)   $     35,722,698
Federal Home Loan Mortgage
   Corporation securities                       3,020,242             25,370             (7,321)          3,038,291
Federal National Mortgage
   Association securities                       3,498,128             18,994            (14,406)          3,502,716
                                         -----------------  -----------------   -----------------  -----------------
            Total                        $     44,141,386   $         46,074    $    (1,923,755)   $     42,263,705
                                         =================  =================   =================  =================
</TABLE>

                                       25
<PAGE>



4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
                                                                            1998
                                         ---------------------------------------------------------------------------
                                                                 Gross               Gross            Estimated
                                            Amortized          Unrealized          Unrealized           Market
                                               Cost              Gains               Losses             Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                <C>                 <C>                <C>
Held to Maturity
Government National Mortgage
   Association securities                $     37,495,485   $        316,725    $       (42,889)   $     37,769,321
Federal Home Loan Mortgage
   Corporation securities                       5,576,332            142,611                  -           5,718,943
Federal National Mortgage
   Association securities                       5,215,427             70,430             (6,510)          5,279,347
                                         -----------------  -----------------   -----------------  -----------------
            Total                        $     48,287,244   $        529,766    $       (49,399)   $     48,767,611
                                         =================  =================   =================  =================
</TABLE>

The amortized cost and estimated market value of  mortgage-backed  securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
of securities could differ from  contractual  maturities  because  borrowers may
have  the  right  to call or  prepay  obligations  with  or  without  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                  $              -   $              -    $                  $              -
Due after one year through
  five years                                       23,026             23,257                   -                  -
Due after five years through
  ten years                                     2,423,595          2,458,765                   -                  -
Due after ten years                            36,096,532         34,944,006          44,141,386         42,263,705
                                         -----------------  -----------------   -----------------  -----------------
      Total                              $     38,543,153   $     37,426,028    $     44,141,386   $     42,263,705
                                         =================  =================   =================  =================
</TABLE>

                                       26
<PAGE>
5.  LOANS

Loans consist of the following:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Mortgage loans:
        Residential                                                             $     53,183,648   $     49,084,140
        Multi-family units                                                               388,317            554,241
        Construction                                                                   1,613,995            325,823
        Commercial real estate                                                           540,695            940,708
                                                                                -----------------  -----------------
                                                                                      55,726,655         50,904,912
                                                                                -----------------  -----------------
     Commercial loans                                                                  4,728,297          3,617,244
                                                                                -----------------  -----------------
     Consumer:
        Consumer credit line                                                           5,547,534          5,288,136
        Automobile                                                                    48,025,794         36,617,849
        Other                                                                          5,161,230          3,990,246
                                                                                -----------------  -----------------
                                                                                      58,734,558         45,896,231
                                                                                -----------------  -----------------
     Less:
       Loans in process                                                                  707,469            219,313
       Deferred loan costs, net                                                       (1,622,902)        (1,002,138)
       Allowance for loan losses                                                       1,359,900          1,287,496
                                                                                -----------------  -----------------
                                                                                         444,467            504,671
                                                                                -----------------  -----------------
            Total                                                               $    118,745,043   $     99,913,716
                                                                                =================  =================
</TABLE>
Total nonaccrual loans and the related interest for the years ended December 31,
are as follows. In management's opinion, these loans did not meet the definition
of impaired loans.
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------
<S>                                                        <C>                 <C>              <C>
     Principal outstanding                                  $        424,244    $        391,503 $          805,334
     Contractual interest due                                         54,285              47,158             84,913
     Interest income recognized                                       29,522              28,562             50,069
</TABLE>

Activity in the allowance for loan losses for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------
<S>                                                        <C>                 <C>                <C>
     Balance, January 1,                                    $      1,287,496    $      1,394,084   $      1,433,776
         Add:
            Provisions charged to operations                         410,000             365,000            555,000
            Loan recoveries                                           50,941              54,993             57,390
         Less loans charged off                                      388,537             526,581            652,082
                                                            -----------------   -----------------  -----------------
     Balance, December 31,                                  $      1,359,900    $      1,287,496   $      1,394,084
                                                            =================   =================  =================
</TABLE>
The Company's loan  portfolio is  predominantly  made up of  one-to-four  family
first  mortgage  loans and  consumer  loans in the areas of Beaver and  Lawrence
Counties. These loans have been granted in compliance with regulatory guidelines
relating to collateral  requirements and credit  policies.  Although the Company
has  a  diversified  loan  portfolio  at  December  31,  1999  and  1998,  loans
outstanding  to  individuals   and  businesses  are  dependent  upon  the  local
conditions in its immediate trade area.

                                       27
<PAGE>
6.  ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Interest-bearing deposits with other institutions                          $         37,261   $         24,267
     Investment securities                                                               503,855            506,975
     Mortgage-backed securities                                                          495,337            486,528
     Loans                                                                               501,710            498,907
                                                                                -----------------  -----------------
            Total                                                               $      1,538,163   $      1,516,677
                                                                                =================  =================
</TABLE>

7.  PREMISES AND EQUIPMENT

Premises and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Land                                                                       $        515,726   $        515,726
     Office buildings                                                                  4,227,265          4,034,469
     Furniture, fixtures, and equipment                                                2,910,239          2,790,626
     Leasehold improvements                                                              405,798            405,798
                                                                                -----------------  -----------------
                                                                                       8,059,028          7,746,619
     Less accumulated depreciation and amortization                                    3,763,834          3,244,960
                                                                                -----------------  -----------------
            Total                                                               $      4,295,194   $      4,501,659
                                                                                =================  =================
</TABLE>

Depreciation  expense for the years ended December 31, 1999,  1998, and 1997 was
$518,874, $502,955, and $329,039, respectively.

8.  DEPOSITS

Comparative details of deposit accounts follow:
<TABLE>
<CAPTION>
                                                      1999                                     1998
                                      -------------------------------------     ------------------------------------
                                                            Percent of                                Percent of
                                           Amount            Portfolio               Amount           Portfolio
                                      -----------------  ------------------     -----------------  -----------------
<S>                                 <C>                             <C>       <C>                            <C>
DDA and NOW accounts                  $     26,934,968                14.2 %    $     25,853,525               14.3 %
Money market
  demand accounts                           27,499,163                14.6            25,130,858               13.9
Savings accounts                            28,006,240                14.8            27,601,326               15.2
                                      -----------------  ------------------     -----------------  -----------------
                                            82,440,371                43.6            78,585,709               43.4
                                      -----------------  ------------------     -----------------  -----------------
Time certificates of deposit:

     2.01%  -  4.00%                         7,652,299                 4.0             6,056,411                3.3
     4.01%  -  6.00%                        81,270,806                42.9            79,039,874               43.7
     6.01%  -  8.00%                        17,981,076                 9.5            17,430,570                9.6
                                      -----------------  ------------------     -----------------  -----------------
                                           106,904,181                56.4           102,526,855               56.6
                                      -----------------  ------------------     -----------------  -----------------
            Total                     $    189,344,552               100.0 %    $    181,112,564              100.0 %
                                      =================  ==================     =================  =================
</TABLE>


                                       28
<PAGE>
8.  DEPOSITS

Time deposits  include  certificates of deposit in  denominations of $100,000 or
more.  Such deposits  aggregated  $9,798,141 and $9,153,519 at December 31, 1999
and 1998, respectively, with maturities at December 31, 1999 as follows:
<TABLE>
<CAPTION>
<S>                                                                                               <C>
     Within three months                                                                           $      1,206,531
     Beyond three but within six months                                                                   1,069,758
     Beyond six but within twelve months                                                                  1,827,791
     Beyond one year                                                                                      5,694,061
                                                                                                   -----------------

            Total                                                                                  $      9,798,141
                                                                                                   =================
</TABLE>

Interest  expense by deposit  category  for the years ended  December  31, is as
follows:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------

<S>                                                        <C>                 <C>                <C>
Savings accounts                                            $        563,778    $        636,965   $        769,805
NOW and money market deposit accounts                              1,104,444             954,283            752,198
Time certificates of deposit                                       5,320,116           5,672,513          5,949,772
                                                            -----------------   -----------------  -----------------
            Total                                           $      6,988,338    $      7,263,761   $      7,471,775
                                                            =================   =================  =================
</TABLE>

9.  ADVANCES FROM FEDERAL HOME LOAN BANK

The following table sets forth  information  concerning both short and long-term
advances from FHLB:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Balance at year-end                                                        $     50,294,800   $     30,894,800
     Average  balance outstanding                                                     39,829,047         19,434,945
     Maximum month-end balance                                                        50,294,800         30,894,800
     Weighted-average rate at year-end                                                     5.62%              5.59%
     Weighted-average rate during the year                                                 5.62%              5.89%

</TABLE>

The scheduled maturities of advances outstanding are as follows:
<TABLE>
<CAPTION>
                                                      1999                                     1998
                                      -------------------------------------     ------------------------------------
              Year Ending                                    Weighted-                                Weighted -
              December 31,                 Amount          average Rate              Amount          average Rate
     -------------------------------  -----------------  ------------------     -----------------  -----------------
<S>     <C>                         <C>                              <C>      <C>                            <C>
                  1999                $              -                   - %    $      2,600,000               5.98 %
                  2000                      21,600,000                5.84             4,600,000               5.90
                  2001                       2,000,000                5.77             2,000,000               5.77
                  2002                       3,317,000                5.99             3,317,000               5.99
          2003 and thereafter               23,377,800                5.36            18,377,800               5.37
                                      -----------------                         -----------------
                 Total                $     50,294,800                5.62 %    $     30,894,800               5.59 %
                                      =================                         =================
</TABLE>

Borrowing capacity consists of credit  arrangements with the FHLB of Pittsburgh.
FHLB borrowings are subject to annual renewal, incur no service charges, and are
secured   by  a  blanket   security   agreement   on  certain   investment   and
mortgage-backed  securities,  outstanding residential mortgages,  and the Bank's
investment in FHLB stock. As of December 31, 1999, the Bank's maximum  borrowing
capacity with the FHLB was approximately $135 million.

                                       29
<PAGE>
10. OTHER BORROWINGS

Other  borrowings  at December 31, 1999  includes a loan to finance an equipment
lease for $120,039.  At December 31, 1998,  other borrowings is comprised of the
loan to finance an equipment lease for $162,624, as well as, a loan for the ESOP
for $1,224,994.  The loan for the ESOP was repaid during 1999 by a loan from the
Company to the ESOP  trust.  Terms for the  equipment  loan call for a five-year
term at a rate of 4.90 percent with equal monthly payments.

11. INCOME TAXES

The provision for income taxes for the years ended December 31, consists of:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------
<S>                                                        <C>                 <C>              <C>
Currently payable:
     Federal                                                $        479,198    $        310,802 $          199,605
     State                                                            89,226              67,568             88,663
                                                            -----------------   -----------------  -----------------
                                                                     568,424             378,370            288,268
Deferred                                                              61,178              13,389           (137,952)
                                                            -----------------   -----------------  -----------------
            Total                                           $        629,602    $        391,759 $          150,316
                                                            =================   =================  =================
</TABLE>

The tax effects of deductible and taxable  temporary  differences that gave rise
to  significant  portions  of the net  deferred  tax assets and  liabilities  at
December 31, are as follows:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
Deferred tax assets:
     Allowance for loan losses                                                  $        462,366   $        437,749
     Net unrealized loss on securities                                                   470,905                  -
     Premises and equipment                                                                3,713             30,498
     Accrued employee benefits                                                           266,418            228,870
     Alternative minimum tax credit                                                      205,817            293,367
     Other                                                                                17,225             26,233
                                                                                -----------------  -----------------
         Total gross deferred tax assets                                               1,426,444          1,016,717
                                                                                -----------------  -----------------
Deferred tax liabilities:
     Net unrealized gain on securities                                                         -            560,699
                                                                                -----------------  -----------------
         Total gross deferred tax liabilities                                                  -            560,699
                                                                                -----------------  -----------------
         Net deferred tax assets                                                $      1,426,444   $        456,018
                                                                                =================  =================
</TABLE>

No valuation  allowance was established at December 31, 1999 and 1998 in view of
certain tax  strategies  coupled with the  anticipated  future taxable income as
evidenced by the Company's earnings potential.


                                       30
<PAGE>
11. INCOME TAXES (Continued)

The following is a reconciliation  between the actual provision for income taxes
and the amount of income taxes which would have been provided at statutory rates
for the years ended December 31:
<TABLE>
<CAPTION>
                                            1999                           1998                           1997
                                  --------------------------     --------------------------     -------------------------
                                                    % of                           % of                          % of
                                                  Pre-tax                        Pre-tax                        Pre-tax
                                     Amount        Income           Amount        Income           Amount       Income
                                  -------------  -----------     -------------  -----------     -------------  ----------

<S>                             <C>                 <C>        <C>                 <C>        <C>                 <C>
Provision at statutory rate       $    845,747         34.0 %    $    643,751         34.0 %    $    607,863        34.0  %
State income tax expense,
  net of federal tax benefit            58,889          2.4            44,595          2.4            58,518         3.3
Tax-exempt interest                   (342,447)       (13.8)         (335,448)       (17.7)         (427,556)      (23.9)
Other, net                              67,413          2.7            38,861          2.0           (88,509)       (5.0)
                                  -------------  -----------     -------------  -----------     -------------  ----------
Actual expense and
  effective rate                  $    629,602         25.3 %    $    391,759         20.7 %    $    150,316        8.4  %
                                  =============  ===========     =============  ===========     =============  ==========
</TABLE>

The Bank is subject to the Pennsylvania  Mutual Thrift Institutions Tax which is
calculated at 11.5 percent of earnings  based on generally  accepted  accounting
principles with certain adjustments.

12.   EMPLOYEE BENEFITS

Pension Plan
------------

The Bank sponsors a trusteed, defined benefit pension plan covering all eligible
Bank employees and officers.  The plan calls for benefits to be paid to eligible
employees at retirement  based primarily upon years of service and  compensation
rates  near   retirement.   The  Bank's   funding   policy  is  to  make  annual
contributions, if needed, based upon the funding formula developed by the plan's
actuary.

The following table sets forth the change in plan assets and benefit  obligation
at December 31:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Plan assets at fair value, beginning of year                               $      3,328,834   $      2,988,963
     Actual return on plan assets                                                        228,319            211,831
     Employer contribution                                                               168,061            200,732
     Benefits paid                                                                       (83,787)           (72,692)
                                                                                -----------------  -----------------
     Plan assets at fair value, end of year                                            3,641,427          3,328,834
                                                                                -----------------  -----------------
     Benefit obligation, beginning of year                                             3,915,765          3,422,049
     Service cost                                                                        197,002            181,425
     Interest cost                                                                       264,483            249,500
     Amendments                                                                         (414,221)           135,483
     Benefits paid                                                                       (83,787)           (72,692)
                                                                                -----------------  -----------------
     Benefit obligation, end of year                                                   3,879,242          3,915,765
                                                                                -----------------  -----------------
     Funded status                                                                      (237,815)          (586,931)
     Transition adjustment                                                              (200,815)          (221,629)
     Unrecognized net loss from past experience
       different from that assumed                                                       250,939            645,435
                                                                                -----------------  -----------------
     Accrued pension liability                                                  $       (187,691)  $       (163,125)
                                                                                =================  =================
</TABLE>

                                       31
<PAGE>
12.   EMPLOYEE BENEFITS (Continued)

The plan assets are invested primarily in bonds, stocks, and mortgages under the
control of the plan's trustees as of December 31, 1999.

Assumptions used in determining net periodic pension cost are as follows:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------
<S>                                                                  <C>                 <C>                <C>
     Discount rate                                                     7.00%               6.50%              7.00%
     Expected return on plan assets                                    8.00%               8.00%              8.00%
     Rate of compensation increase                                     5.00%               5.00%              5.00%
</TABLE>

The plan utilizes the  straight-line  method of  amortization  for  unrecognized
gains and losses.

Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                            -----------------   -----------------  -----------------
<S>                                                        <C>                 <C>                <C>
     Service cost of the current period                     $        197,002    $        181,425   $        136,776
     Interest cost on projected benefit obligation                   264,483             249,500            200,998
     Actual return on plan assets                                   (228,319)           (211,831)          (200,430)
     Net amortization and deferral                                   (40,539)            (36,262)           (36,876)
                                                            -----------------   -----------------  -----------------
     Net periodic pension cost                              $        192,627    $        182,832   $        100,468
                                                            =================   =================  =================
</TABLE>

Supplemental Retirement Plans
-----------------------------

Board of Directors
------------------

The Bank  maintains a Directors'  Consultation  and  Retirement  Plan to provide
post-retirement  payments over a ten-year  period to non-officer  members of the
Board of Directors who have completed twenty or more years of service.  The plan
was amended on November 6, 1996, to provide post-retirement  payments to members
who have  completed  fifteen or more years of  service.  Expenses  for the years
ended  December 31,  1999,  1998,  and 1997  amounted to $81,429,  $75,699,  and
$57,000,  respectively,  and are  included  as a  component  of other  operating
expenses.

President
---------

The Bank maintains a Supplemental  Retirement Plan for the President of the Bank
for the purpose of providing the  President  with  supplemental  post-retirement
benefits for life in addition to those  provided  under the Bank's  pension plan
for all  eligible  employees.  Expenses  for the years ended  December 31, 1999,
1998, and 1997, amounted to $31,215, $34,400, and $12,100, respectively, and are
included as a component of compensation and employee benefits.

The  assumptions of 7.50 percent and 5.00 percent for the discount rate and rate
of compensation  increase,  respectively,  were used in determining net periodic
post-retirement  costs for the Directors'  Consultation and Retirement Plans and
Supplemental Retirement Plan for the President.

Profit Sharing Plan
-------------------

The Bank maintains a profit  sharing plan covering all employees.  Contributions
to the plan are made  annually  at the  discretion  of the  Board of  Directors.
Contributions for the years ended December 31, 1999, 1998 and 1997,  amounted to
$69,739, $67,052, and $61,556, respectively.

                                       32
<PAGE>
12.   EMPLOYEE BENEFITS (Continued)

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

On October 22, 1998, the Board of Directors  approved and stockholders  ratified
the  formation  of a stock  option  plan.  The plan will  provide  for  granting
incentive stock options and  nonstatutory  stock options for executive  officers
and  non-employee  directors  of the  Company.  A total  of  124,200  shares  of
authorized  but unissued  common stock are reserved for issuance under the plan,
which expires ten years from the date of shareholder ratification. The per share
exercise  price of an option  granted  will not be less than the fair value of a
share of common stock on the date the option is granted.

On October 22, 1998, non-statutory stock options for non-employee directors were
granted for the purchase of 37,260 shares. The recipients of these stock options
vest over a four-year period of time. Also, incentive stock options for officers
and employees were granted for the purchase of 86,940 shares.  The recipients of
these stock options vest over a four or five-year period of time.

The following table presents share data related to the outstanding options:
<TABLE>
<CAPTION>
                                                               Weighted-                              Weighted-
                                                                average                                average
                                                                Exercise                               Exercise
                                               1999              Price                1998              Price
                                         -----------------  -----------------   -----------------  -----------------

<S>                                      <C>               <C>                 <C>                <C>
     Outstanding, beginning                       124,200   $          11.81                   -   $              -
       Granted                                          -                  -             124,200              11.81
       Exercised                                        -                  -                   -                  -
       Forfeited                                        -                  -                   -                  -
                                         -----------------                      -----------------

     Outstanding, ending                          124,200   $          11.81             124,200   $          11.81
                                         =================                      =================

     Exercisable at year-end                       55,890                                 27,945
                                         =================                      =================
</TABLE>

The following table summarizes the  characteristics of stock options at December
31, 1999:
<TABLE>
<CAPTION>
                                                Outstanding                                   Exercisable
                               -----------------------------------------------      --------------------------------
                                                                    Average                               Average
                                                    Average        Exercise                              Exercise
     Exercise price                Shares            Life            Price              Shares             Price
     ----------------------    ---------------    ------------    ------------      ----------------    ------------

<S>     <C>                       <C>                <C>          <C>                  <C>              <C>
         $ 11.81                   124,200            8.17         $ 11.81              55,890           $ 11.81
</TABLE>

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.  No options
were granted in 1999.


                                       33
<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 Statement of Financial
Accounting  Standards No. 123,  "Accounting for Stock-based  Compensation,"  net
income applicable to common stock, basic and diluted net income per common share
for the year ended December 31, would have been as follows:
<TABLE>
<CAPTION>
                                                                                         1999              1998
                                                                                  ----------------  ----------------
<S>                                                                              <C>             <C>
Net income applicble to common stock:
     As reported                                                                  $     1,857,890 $       1,501,625
     Pro forma                                                                          1,768,978         1,323,801
Basic net income per common share:
     As reported                                                                  $          0.71 $            0.56
     Pro forma                                                                               0.68              0.49
Diluted net income per common share
     As reported                                                                  $          0.71 $            0.56
     Pro forma                                                                               0.68              0.49
</TABLE>

Employee Stock Ownership Plan ("ESOP")
--------------------------------------

The Company has an ESOP for the benefit of  employees  who meet the  eligibility
requirements which include having completed one year of service with the Company
or its  subsidiaries and attained age 21. The ESOP trust purchased 96,000 shares
of common stock since the date of  conversion  with proceeds from a loan from an
independent third party. During 1999, the Company paid off the loan to the third
party and internally  financed the remaining  loan balance.  The Bank makes cash
contributions  to the ESOP on an annual basis  sufficient  to enable the ESOP to
make the required loan payments to the Company.  The loan bears interest at 8.00
percent with interest  payable  quarterly and principal  payable in equal annual
installments  over ten  years.  The loan is  secured  by the shares of the stock
purchased.

As the debt is repaid,  shares are released from the collateral and allocated to
qualified  employees  based on the  proportion of debt service paid in the year.
Accordingly,  the shares pledged as collateral are reported as unallocated  ESOP
shares  in  the  consolidated   balance  sheet.  As  shares  are  released  from
collateral, the Company reports compensation expense equal to the current market
price of the shares,  and the shares become  outstanding  for earnings per share
computations.  Compensation  expense for the ESOP was  $102,240,  $167,543,  and
$137,042 for the years ended December 31, 1999, 1998, and 1997, respectively.

The following table presents the components of the ESOP shares:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------
<S>                                                                            <C>                <C>
     Allocated shares                                                                     18,540              8,940

     Shares released for allocation                                                        9,600              9,600

     Unreleased shares                                                                    67,860             77,460
                                                                                -----------------  -----------------
     Total ESOP shares                                                                    96,000             96,000
                                                                                =================  =================
     Fair value of unreleased shares                                            $        559,845   $      1,094,123
                                                                                =================  =================


</TABLE>

                                       34
<PAGE>



12.   EMPLOYEE BENEFITS (Continued)

Restricted Stock Plan ("RSP")
-----------------------------

In 1998,  the Board of  Directors  adopted a RSP for  directors,  officers,  and
employees  which was  approved  by  stockholders  at a special  meeting  held on
October 22,  1998.  The  objective of this plan is to enable the Company and the
Bank to retain its corporate officers, key employees, and directors who have the
experience and ability necessary to manage these entities. Directors,  officers,
and key employees who are selected by members of a Board-appointed committee are
eligible to receive  benefits under the RSP. The  non-employee  directors of the
Company and the Bank serve as trustees for the RSP, and have the  responsibility
to invest all funds contributed by the Bank to the Trust created for the RSP.

In 1999 and 1998,  the Trust  purchased,  with  funds  contributed  by the Bank,
34,792 and 14,888  shares of the common stock of the Company,  respectively,  of
which 3,726  shares were issued to  directors,  and 7,449  shares were issued to
officers  in both 1999 and 1998.  As of December  31, 1999 and 1998,  27,330 and
3,713 shares  remained  unissued,  respectively.  Directors,  officers,  and key
employees who  terminate  their  association  with the Company shall forfeit the
right to any shares which were awarded but not earned.

The  Company  granted a total of 49,680  shares of common  stock on October  22,
1998, of which 11,175 shares became  immediately  vested under the plan with the
remaining  shares  vesting over a four-year  period for directors and five years
for officers and employees  beginning October 22, 1999. A total of 11,175 shares
were vested as of December 31, 1998. The RSP shares purchased  initially will be
excluded from stockholders' equity. The Company recognizes  compensation expense
in the  amount of fair value of the common  stock at the grant  date,  pro rata,
over the years  during  which the shares are payable and recorded as an addition
to the stockholders' equity.

Net compensation  expense  attributable to the RSPs amounted to $128,512 for the
years ended December 31, 1999 and 1998.

13. COMMITMENTS

In the  normal  course  of  business,  there  are  outstanding  commitments  and
contingent  liabilities,   such  as  commitments  to  extend  credit,  financial
guarantees,  and letters of credit,  which are not reflected in the accompanying
consolidated financial statements. The Company does not anticipate any losses as
a result of these transactions.  These instruments  involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the  consolidated  balance  sheet.  The  contract or  notional  amounts of those
instruments  reflect the extent of involvement the Company has in the particular
classes of financial instruments.

These commitments  represent financial  instruments with off-balance sheet risk.
Outstanding commitments for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                -----------------  -----------------

<S>                                                                            <C>                <C>
     Fixed rate commitments                                                     $     12,442,414   $     13,791,721
     Variable rate commitments                                                         6,233,398          6,135,362
                                                                                -----------------  -----------------

          Total                                                                 $     18,675,812   $     19,927,083
                                                                                =================  =================
</TABLE>

The range of interest  rate  residential  mortgage  loan  commitments  was 7.625
percent to 8.00 percent at December 31, 1999, and 6.125 percent to 7.125 percent
at December 31, 1998.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash requirements.


                                       35
<PAGE>
14. REGULATORY MATTERS

Loans
-----

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

Dividend Restrictions
---------------------

The Bank is subject to legal  limitations on the amount of dividends that can be
paid to the Company. The Pennsylvania Banking Code restricts the availability of
surplus for dividend purposes. At December 31, 1999 surplus funds of $10,588,940
were not available for dividends.

15. REGULATORY CAPITAL REQUIREMENTS

Federal regulations require the Company and the Bank to maintain minimum amounts
of capital.  Specifically,  each is required to maintain  certain minimum dollar
amounts  and ratios of Total and Tier I capital to  risk-weighted  assets and of
Tier I capital to average total assets.

In  addition  to  the  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, 1999 and 1998,  the Federal  Deposit  Insurance  Corporation
categorized the Company 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.

                                       36
<PAGE>
15. REGULATORY CAPITAL REQUIREMENTS (Continued)

The Company's actual capital ratios are presented in the following tables, which
shows the Company met all regulatory capital requirements.  The capital position
of the Bank does not differ significantly from the Company's.
<TABLE>
<CAPTION>

                                                       1999                                     1998
                                       -------------------------------------     ------------------------------------
                                            Amount              Ratio                 Amount             Ratio
                                       -----------------   -----------------     -----------------  -----------------
<S>                                  <C>                            <C>        <C>                           <C>
Total Capital
  (to Risk-weighted Assets)
--------------------------

Actual                                 $     28,991,275               23.91 %    $     29,383,190              27.46 %
For Capital Adequacy Purposes                 9,698,726                8.00             8,266,640               8.00
To Be Well Capitalized                       12,123,407               10.00            10,358,300              10.00

Tier I Capital
  (to Risk-weighted Assets)
--------------------------

Actual                                 $     27,631,375               22.79 %    $     28,095,694              26.21 %
For Capital Adequacy Purposes                 4,849,363                4.00             4,143,320               4.00
To Be Well Capitalized                        7,274,044                6.00             6,214,980               6.00

Tier I Capital
  (to Average Assets)
--------------------------

Actual                                 $     27,631,375               10.34 %    $     28,095,694              11.31 %
For Capital Adequacy Purposes                10,684,884                4.00             9,606,960               4.00
To Be Well Capitalized                       13,356,106                5.00            12,008,700               5.00
</TABLE>

Prior to the  enactment of the Small  Business Job  Protection  Act, the Company
accumulated  approximately  $2,485,000  of retained  earnings,  which  represent
allocations of income to bad debt deductions for tax purposes only.  Since there
is no amount that  represents the  accumulated  bad debt reserves  subsequent to
1987, no provision for federal income tax has been made for such amount.  If any
portion of this amount is used other than to absorb  loan  losses  (which is not
anticipated),  the amount  will be subject to federal  income tax at the current
corporate rate.


                                       37
<PAGE>
16. FAIR VALUE DISCLOSURE

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>

                                                        1999                                   1998
                                         ------------------------------------   ------------------------------------
                                             Carrying             Fair              Carrying             Fair
                                              Value              Value               Value              Value
                                         -----------------  -----------------   -----------------  -----------------
<S>                                     <C>                 <C>                <C>                <C>
Financial assets:
  Cash and amounts due
    from other institutions              $      3,533,452    $     3,533,452    $      2,136,601   $      2,136,601
  Interest-bearing deposits
    with other institutions                    11,416,781         11,416,781           9,332,219          9,332,219
  Investment securities:
    Available for sale                         27,594,897         27,594,897          25,197,294         25,197,294
    Held to maturity                           15,539,866         15,268,634          18,145,662         18,581,867
  Mortgage-backed securities:
    Available for sale                         37,426,028         37,426,028          32,877,841         32,877,841
    Held to maturity                           44,141,386         42,263,705          48,287,244         48,767,611
  Loans, net                                  118,745,043        114,749,043          99,913,716        101,427,098
  Federal Home Loan Bank stock                  2,614,885          2,614,885           1,544,800          1,544,800
  Accrued interest receivable                   1,538,163          1,538,163           1,516,677          1,516,677
                                         -----------------  -----------------   -----------------  -----------------
       Total                             $    262,550,501   $    256,405,588    $    238,952,054   $    241,382,008
                                         =================  =================   =================  =================

Financial liabilities:
  Deposits                               $    189,344,552   $    189,000,319    $    181,112,564   $    184,038,666
  Advances from Federal
    Home Loan Bank                             50,294,800         49,245,206          30,894,800         31,521,246
  Other borrowings                                120,039            120,039           1,387,618          1,415,754
  Advances from borrowers
    for taxes and insurance                       585,332            585,332             558,052            558,052
  Accrued interest payable                        497,798            497,798             289,748            289,748
                                         -----------------  -----------------   -----------------  -----------------

       Total                             $    240,842,521   $    239,448,694    $    214,242,782   $    217,823,466
                                         =================  =================   =================  =================
</TABLE>

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 values may not be indicative of the amount realizable in the sale of a
particular  financial  instrument.  In addition,  changes in the  assumptions on
which  the  estimated  values  are based  may have a  significant  impact on the
resulting estimated values.

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

                                       38
<PAGE>
16. FAIR VALUE DISCLOSURE (Continued)

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 Amounts Due from  Depository  Institutions,  Interest-bearing  Deposits
--------------------------------------------------------------------------------
with Other  Institutions,  Accrued  Interest  Receivable,  Advance  Payments  by
--------------------------------------------------------------------------------
Borrowers for Taxes and Insurance, and Accrued Interest Payable
---------------------------------------------------------------

The fair value approximates the current book value.

Investment Securities,  Mortgage-backed  Securities,  and Federal Home Loan Bank
--------------------------------------------------------------------------------
Stock
-----

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

Loans, Deposits, Advances from the FHLB, and Other Borrowings
-------------------------------------------------------------

The  estimated  fair values for loans are estimated by  discounting  contractual
cash flows and adjusting for prepayment estimates. Discount rates are based upon
rates  generally  charged for such loans with similar  characteristics.  Demand,
savings,  and money market deposit  accounts are valued at the amount payable on
demand as of year-end.  Fair values for time  deposits,  advances from the FHLB,
and other borrowings 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 and notes of similar  remaining
maturities.

Commitments to Extend Credit
----------------------------

These  financial  instruments  are generally not subject to sale,  and estimated
fair values are not readily  available.  The carrying value,  represented by the
net deferred fee arising from the unrecognized  commitment,  and the fair value,
determined by  discounting  the remaining  contractual  fee over the term of the
commitment  using fees currently  charged to enter into similar  agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 13.

17. CORPORATE REORGANIZATION AND STOCK ISSUANCE

On  July  10,  1997,  the  Bank  adopted  a  plan  of   reorganization   into  a
Pennsylvania-chartered mutual holding company. The Bank received the approval of
the Federal  Reserve,  the Department of Banking,  and the FDIC for transactions
contemplated by the plan of  reorganization,  which authorized the Bank to offer
stock in one or more public  stock  offerings up to a maximum of 49.9 percent of
the  issued  and  outstanding  shares of its  common  stock.  As a result of the
offering in July 1997, PHS Bancorp,  M.H.C.  (mutual holding  company)  received
1,518,000  shares (55 percent) of the Bank stock.  Also as a result of the stock
offering,  the Bank received gross proceeds of $12,420,000.  Expenses associated
with the offering totaled  $592,267,  resulting in net capital  additions to the
Bank of  $11,827,733.  The Bank  recorded  common  stock at par of $276,000  and
additional paid-in capital of $11,551,733 from the stock issuance.

                                       39
<PAGE>
17. CORPORATE REORGANIZATION AND STOCK ISSUANCE (Continued)

On May 21, 1998, the Bank adopted an Agreement and Plan of  Reorganization  (the
"Plan")  whereby the Bank formed the  Company,  an  intermediate  stock  holding
company under  Pennsylvania  law. The Plan received  stockholder  approval as of
October 22, 1998,  and  subsequently  received  all  regulatory  approvals.  The
reorganization  was  completed  on  November  9, 1998.  Upon  completion  of the
reorganization, the Bank became a wholly-owned subsidiary of the Company and the
Company became a majority-owned subsidiary of the M.H.C. The common stock of the
Company replaced the Bank's stock.

18.      PARENT COMPANY

The following are condensed financial statements for the parent company.
<TABLE>
<CAPTION>
                                             CONDENSED BALANCE SHEET

                                                                             1999                     1998
                                                                    -----------------------   ---------------------

<S>                                                                <C>                       <C>
ASSETS
     Cash and due from banks                                        $              469,689    $            978,101
     Investment in subsidiary bank                                              25,512,528              28,240,812
     Loans receivable - ESOP                                                     1,060,930                       -
     Other assets                                                                   34,072                  52,326
                                                                    -----------------------   ---------------------
TOTAL ASSETS                                                        $           27,077,219    $         29,271,239
                                                                    =======================   =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
     Other liabilities                                              $              325,882    $             87,130
     Stockholders' equity                                                       26,751,337              29,184,109
                                                                    -----------------------   ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $           27,077,219    $         29,271,239
                                                                    =======================   =====================
</TABLE>

                                          CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                                               For the Period of
                                                                        For the Year            November 9, 1998
                                                                           Ending                      to
                                                                      December 31, 1999        December 31, 1998
                                                                    -----------------------   ---------------------
<S>                                                                <C>                       <C>
INCOME
      Dividends from subsidiary bank                                $            2,566,800    $                  -
      Interest income                                                               53,370                     287
                                                                    -----------------------   ---------------------
                                                                                 2,620,170                     287
EXPENSES                                                                            36,520                   1,914
                                                                    -----------------------   ---------------------

Income (loss) before equity in undistributed
  earnings of subsidiary                                                         2,583,650                  (1,627)

Equity in undistributed earnings of subsidiary
                                                                                  (725,760)                213,869
                                                                    -----------------------   ---------------------
NET INCOME                                                          $            1,857,890    $            212,242
                                                                    =======================   =====================
</TABLE>


                                       40

<PAGE>

18. PARENT COMPANY (Continued)

                        CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                               For the Period of
                                                                        For the Year            November 9, 1998
                                                                           Ending                      to
                                                                      December 31, 1999         December 31, 1998
                                                                    -----------------------   ---------------------
<S>                                                                <C>                       <C>
OPERATING ACTIVITIES
     Net income                                                     $            1,857,890    $            212,242
     Adjustments to reconcile net income to net cash
       provided  by  operating activities:
             Equity in undistributed earnings of subsidiary                        725,760                (213,869)
             Other, net                                                            385,517                  24,477
                                                                    -----------------------   ---------------------
                  Net cash provided by operating activities                      2,969,167                  22,850
                                                                    -----------------------   ---------------------
INVESTING ACTIVITIES
     Loan to ESOP, net                                                            (958,690)                      -
                                                                    -----------------------   ---------------------
FINANCING ACTIVITIES
     Common stock acquired by RSP                                                 (506,502)                (44,749)
      Cash dividends paid                                                         (743,785)                      -
      Purchase of treasury stock                                                (1,268,602)                      -
     Capitalization of the Company                                                       -               1,000,000
                                                                    -----------------------   ---------------------
     Net cash provided by (used for) financing activities                       (2,518,889)                955,251
                                                                    -----------------------   ---------------------

                  Increase (decrease) in cash                                     (508,412)                978,101

CASH AT BEGINNING OF PERIOD                                                        978,101                       -
                                                                    -----------------------   ---------------------
CASH AT END OF PERIOD                                               $              469,689    $            978,101
                                                                    =======================   =====================
</TABLE>

                                       41