EXHIBIT 13

<PAGE>



                                                 PHS BANCORP, INC.
                                         SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Selected Financial Data
--------------------------------------------------------------------------------------------------------
At December 31,                                      2000        1999       1998       1997       1996
--------------------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)

<S>                                               <C>        <C>        <C>        <C>        <C>
Assets ..........................................   $265,330   $268,640   $244,253   $217,735   $202,216
Loans ...........................................    129,017    118,745     99,914     99,691     95,773
Mortgage-backed securities held to maturity .....     38,780     44,141     48,287     40,234     31,138
Mortgage-backed securities available
  for sale ......................................     38,415     37,426     32,878     30,159     25,794
Investment securities held to maturity ..........     17,776     15,540     18,146     10,015     10,768
Investment securities available for sale ........     24,814     27,595     25,197     24,253     26,688
Interest-bearing deposits with other institutions      5,094     11,417      9,332      3,308      3,004
Federal Home Loan Bank stock ....................      2,615      2,615      1,545      1,020        972
Deposits ........................................    198,242    189,345    181,113    174,286    175,925
Other borrowings ................................         75        120      1,388      1,116       --
Advances from Federal Home Loan Bank ............     36,195     50,295     30,895     12,117      8,100
Stockholders' equity(1) .........................     28,850     26,751     29,184     28,609     16,645

</TABLE>

<TABLE>
<CAPTION>
Selected Consolidated Operating Data
--------------------------------------------------------------------------------------------------------
Year Ended December 31,                               2000       1999       1998       1997       1996
--------------------------------------------------------------------------------------------------------
                                                                     (Dollars in Thousands)
<S>                                                <C>       <C>        <C>        <C>        <C>
Interest income .................................     19,035   $ 17,511   $ 16,112   $ 14,950   $ 14,584
Interest expense ................................     10,448      9,284      8,523      7,857      7,882
                                                   ---------  ---------  ---------  ---------   --------
  Net interest income ...........................      8,587      8,227      7,589      7,093      6,702
Provision for loan losses .......................        555        410        365        555        455
                                                   ---------  ---------  ---------  ---------   --------
  Net interest income after provision
    for loan losses .............................      8,032      7,817      7,224      6,538      6,247
Total non-interest income .......................        854        764        914        937        781
Total non-interest expense ......................      6,000      6,094      6,245      5,687      6,638(2)
                                                   ---------  ---------  ---------  ---------   --------
Income before income taxes ......................      2,886      2,487      1,893      1,788        390
Income taxes ....................................        714        629        391        150       (319)
                                                   ---------  ---------  ---------  ---------   --------
  Net income ....................................   $  2,172   $  1,858   $  1,502   $  1,638   $    709
                                                    ========   ========   ========   ========   ========

</TABLE>
                          (footnotes on following page)

                                        2

<PAGE>
<TABLE>
<CAPTION>
Other Selected Data
---------------------------------------------------------------------------------------------------------------------
At or for the Year Ended December 31,             2000          1999           1998           1997          1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>           <C>        <C>
Return on average assets (net income
  divided by average total assets)..........          0.81%         0.73%          0.65%          0.79%       .35%(2)
Return on average equity (net income
  divided by average equity assets).........          7.95%         6.68%          5.24%          7.33%      4.37%(2)
Average equity to average assets ...........         10.22%        10.86%         12.50%         10.81%      8.06%
Net interest rate spread....................          3.14%         3.15%          3.21%          3.48%      3.50%
Per Share Information:
  Diluted earnings per shares(3)............          $0.86         $0.71          $0.56          $0.33        N/A
  Tangible book value per shares(3).........         $11.28        $10.15         $10.57         $10.37        N/A
Non-performing assets to total assets.......          0.25%         0.19%          0.22%          0.40%       .63%
Non-performing loans to total loans.........          0.51%         0.42%          0.52%          0.87%      1.33%
Allowance for loan losses to total loans....          1.12%         1.14%          1.28%          1.39%      1.49%
</TABLE>

-------------
(1)  At  December  30,  1996,   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.

                                        3
<PAGE>

                                PHS BANCORP, INC.

Corporate Profile

         In November  1998,  our wholly owned  subsidiary,  Peoples Home Savings
Bank,  completed  its  reorganization  and  formed  us as their  parent  holding
company. As part of the reorganization, Peoples Home Savings Bank's stockholders
became  our   stockholders  and  PHS  Bancorp,   M.H.C.,   became  our  majority
stockholder. PHS Bancorp, M.H.C. was formed as the bank's mutual holding company
in 1997. PHS Bancorp,  M.H.C.  conducts no significant business or operations of
its own.

         We  currently  conduct our business  through  Peoples Home Savings Bank
with nine full service offices and an administrative  office located  throughout
Beaver and Lawrence Counties,  Pennsylvania.  We offer a broad range of deposits
and loan products to individuals, families and small businesses. At December 31,
2000,  we had assets of $265.3  million,  loans of $129.0  million,  deposits of
$198.2 million, and stockholder's equity of $28.9 million.

Stock Market Information

         The following table reflects the stock price as published by the Nasdaq
National Market.  The quotations  reflect  inter-dealer  prices,  without retail
mark-up, mark-down, or commission, and may not represent actual transactions. On
December 31, 2000, the Company's common stock closed at $10.25.


                                                           DIVIDENDS
                                                            DECLARED
        QUARTER ENDED             HIGH         LOW         PER SHARE
        ---------------------- ----------  ----------      ---------
        December 31, 2000         11.00       10.25          $0.09
        September 30, 2000       11.375       8.375           0.09
        June 30, 2000              8.75       7.625           0.09
        March 31, 2000            8.625        7.25           0.09
        December 31, 1999        10.375       7.875          $0.07
        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

                                        4

<PAGE>



         The number of  stockholders  of record of common stock as of the record
date on March 9, 2001, was  approximately  606. This does not reflect the number
of persons or  entities  who held stock in  nominee  or  "street"  name  through
various  brokerage  firms.  At  March  9,  2001,  there  were  2,546,600  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 and the Pennsylvania Department of Banking.


                     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.

References to the Company refer  collectively to the Company and the Bank unless
the context indicates otherwise.

Financial Condition

Total assets at December 31, 2000 of $265.3  million  represented  a decrease of
$3.3  million  or  1.2%  from   December   31,  1999.   Decreases  in  cash  and
interest-bearing  deposits  with other  financial  institutions  of $8.4 million
along with  decreases  in  investment  and  mortgage-backed  securities  of $4.9
million were partially offset by increases in loans of $10.3 million.

Loans receivable at December 31, 2000, of $129.0 million represented an increase
of 8.7% from $118.7  million at December  31,  1999.  Mortgage,  commercial  and
consumer  loans  increased  by $4.8  million,  $5.1  million  and $1.0  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.  Additionally,  the Bank acquired two large  municipal  loans
totaling $3.5 to local  municipalities which accounted for some of the growth in
commercial loans.

Investment  and  mortgage-backed  securities  decreased  $4.9  million to $119.8
million at December  31, 2000,  from  $124.7million  at December 31, 1999.  This
decrease was the result of purchases of $10.9  million,  sales of $1.3  million,
maturities of $6.9 million, principal repayments of $9.7 million and an increase
in the market value of securities  available for sale of $2.1 million. The sales
of securities,  which were municipal  securities,  were made in consideration of
income tax planning.

                                        5
<PAGE>

Total deposits at December 31, 2000,  were $198.2  million,  an increase of $8.9
million or 4.7% from  $189.3  million  at  December  31,  1999.  Total  deposits
increased  $2.0  million net of interest  credited of $6.9  million for the year
ended December 31, 2000.

Advances from the Federal Home Loan Bank of Pittsburgh  decreased  $14.1 million
to $36.2  million at December 31, 2000 from $50.3  million at December 31, 1999.
This decrease was  primarily the result of the repayment of short-term  advances
that were acquired to fund year 2000 liquidity at year end 1999.

Stockholders'  equity  increased  $2.1  million for the year ended  December 31,
2000.  This  increase  was due to net  income  of  $2.2  million  along  with an
unrealized  gain of  $457,000 in the  Company's  securities  available  for sale
portfolio at December 31, 2000 as compared to an unrealized  loss of $914,000 at
December 31, 1999, and decreases in unallocated  RSP and ESOP shares of $129,000
and  $149,000  respectively.   These  increases  to  stockholders'  equity  were
partially  offset by and cash  dividends  paid of  $913,000  and an  increase in
treasury stock of $748,000. During the year ended December 31, 2000, the Company
repurchased  78,750 shares of it's common stock at an average price of $9.49 per
share.

                                        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,
                                               -------------------------------------------------------------------------------------
                                                          2000                           1999                       1998
                                               --------------------------   ---------------------------   --------------------------
                                               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).................................... $125,964  $10,206     8.10%  $111,050   $ 8,926    8.04%   $ 99,253  $ 8,378     8.44%
 Mortgage-backed securities..................   41,755    2,785     6.67     47,241     3,032    6.42      41,906    2,729     6.51
 Investment securities(2) (4)................   25,858    1,572     6.08     26,920     1,410    5.24      22,271    1,244     5.59
 Securities held for sale (4)................   65,843    4,988     7.58     63,156     4,644    7.35      58,339    4,272     7.32
                                              --------  -------            --------   -------            --------  -------
  Total interest-earning assets..............  259,420   19,551     7.54    248,367    18,012    7.25     221,769   16,623     7.50
                                                        -------                       -------                      -------
Noninterest-earning assets...................    7,887                        7,775                         7,576
                                              --------                     --------                      --------
  Total assets............................... $267,307                     $256,142                      $229,345
                                              ========                     ========                      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Savings(3)................................. $ 29,710      576     1.94%  $ 29,649       564    1.90%   $ 29,863      637     2.13%
  NOW and money markets......................   57,161    1,352     2.37     54,295     1,105    2.04      45,876      954     2.08
  Time deposits..............................  109,158    6,109     5.60    101,986     5,320    5.22     102,289    5,673     5.55
  Advances from FHLB.........................   41,692    2,407     5.77     39,829     2,240    5.62      19,435    1,145     5.89
  Other borrowings...........................      100        5     5.00        738        55    7.45       1,457      114     7.82
                                              --------  -------            --------   -------            --------  -------
  Total interest-bearing liabilities........   237,821   10,449     4.39    226,497     9,284    4.10     198,920    8,523     4.28
                                                        -------                       -------                      -------
Non-interest bearing liabilities.............    2,176                        1,823                         1,747
                                              --------                     --------                      --------
 Total liabilities...........................  239,997                      228,320                       200,667
Stockholders' equity.........................   27,310                       27,822                        28,678
                                              --------                     --------                      --------
 Total liabilities and retained earnings..... $267,307                     $256,142                      $229,345
                                              ========                     ========                      ========
Net interest income, interest rate spread(4).           $ 9,102     3.14%             $ 8,728    3.15%             $ 8,100     3.21%
                                                        =======   ======              =======  ======               ======   ======
Net yield on interest-earning assets.........                       3.51%                        3.51%                         3.65%
                                                                  ======                       ======                        ======
Ratio of average interest-earning assets
 to average interest-bearing liabilities.....                     109.08%                      109.66%                       111.49%
                                                                  ======                       ======                        ======
</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,
                                        --------------------------------------------------------------
                                                2000 vs. 1999                    1999 vs. 1998
                                        -----------------------------    -----------------------------
                                             Increase (Decrease)              Increase (Decrease)
                                                   Due to                           Due to
                                        -----------------------------    -----------------------------
                                         Volume     Rate        Net      Volume      Rate        Net
                                        -------    -------    -------    -------    -------    -------
                                                                 (In Thousands)
Interest income:
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
 Loans ..............................   $ 1,199    $    81    $ 1,280    $   996    $  (448)   $   548
 Mortgage-backed securities .........      (352)       105       (247)       347        (44)       303
 Investment securities (1) ..........       (56)       218        162        260        (94)       166
 Securities available for sale (1) ..       198        146        344        353         19        372
                                        -------    -------    -------    -------    -------    -------
  Total interest-earning assets .....       989        550      1,539      1,956       (567)     1,389
                                        -------    -------    -------    -------    -------    -------
Interest expense:
  Savings ...........................         1         11         12         (5)       (68)       (73)
  NOW and money markets .............        58        189        247        175        (24)       151
  Time deposits .....................       374        415        789        (17)      (336)      (353)
  Advances from FHLB ................       105         62        167      1,201       (106)     1,095
  Other borrowings ..................       (48)        (2)       (50)       (56)        (3)       (59)
                                        -------    -------    -------    -------    -------    -------
   Total interest-bearing liabilities       490        675      1,165      1,298       (537)       761
                                        -------    -------    -------    -------    -------    -------
Net change in net interest income ...   $   499    $  (125)   $   374    $   658    $   (30)   $   628
                                        =======    =======    =======    =======    =======    =======
</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, 2000 and 1999

         General.  Net income for the year ended  December 31, 2000 increased by
$314,000 to  $2,172,000,  from  $1,858,000 for the year ended December 31, 1999.
This increase was primarily due to increases in net interest  income of $359,000
and non-interest income of $90,000 along with a decrease in non-interest expense
of $94,000.  These increases to net income were partially offset by increases in
loan loss and income tax provisions of $145,000 and $84,000, respectively.

         Net Interest  Income.  Reported net interest income increased $ 359,000
or 4.4% for the year ended  December  31,  2000.  Net  interest  income on a tax
equivalent  basis  increased  by $374,000 or 4.3% in a period when both  average
interest  earning  assets and  average  interest-bearing  liabilities  increased
(increased  $11.1  million and $11.3  million,  respectively).  The  increase in
average  earning assets of $11.1 million was primarily due to increases of $14.9
in average loans partially offset by a decrease in average investment and

                                        8
<PAGE>

mortgage-backed  securities  of $3.9  million.  The  Company's net interest rate
spread decreased 1basis point (with 100 basis points being equal to 1%) to 3.14%
for the year ended  December 31, 2000. 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 $19.6 million for the year ended  December 31, 2000, an increase of $1.6
million or 8.5% over the total of $18.0 million for the year ended  December 31,
1999.  This  increase  was mainly due to an  increase in the  Company's  average
interest-earning  assets of $11.1 million for the year ended  December 31, 2000.
Interest  earned on loans increased $1.3 million or 14.3%, in 2000. The increase
was due to a $14.9 million increase in the average balance of loans along with a
6 basis point  increase in the yield earned.  Interest  earned on investment and
mortgage-backed  securities  (including  securities  held  for  sale)  increased
$259,000 or 2.9%, in 2000.  The increase was due to a 38 basis point increase in
the yield  earned  partially  offset by a $3.9  million  decrease in the average
balance of investment and mortgage-backed securities.

         Interest  Expense.  Interest  expense  increased  $1.1 million to $10.4
million for the year ended December 31, 2000.  The increase in interest  expense
was due to an $11.3 million increase in the average balance of  interest-bearing
liabilities due to increased  average  deposits and borrowings of $10.1 and $1.2
million,  respectively  along with a 29 basis point increase in the average cost
of interest-bearing liabilities.

         Provision  for Losses on Loans.  Provision  for loan losses are made in
order  to bring  the  allowance  for loan  losses  to a level  that the  Company
believes is appropriate.  Management bases its  determination of the appropriate
level on such factors as the Company's  historical loss  experience,  the volume
and type of loans that are being  made,  the amount and trends  relating  to the
Company's  delinquent and  nonperforming  loans,  regulatory  policies,  general
economic conditions and other factors relating to the collectibility of loans in
the portfolio.

         For the year ended  December 31, 2000,  the  provision  for loan losses
increased  $145,000 to $555,000  from  $410,000 for the year ended  December 31,
1999. The provision for loan losses increased in 2000 as a result of the Company
originating more commercial business loans (approximately $5.1 million),  higher
charge-offs  of consumer loans over last year, and as a result of increasing the
overall size of the loan portfolio.

         Non-interest Income.  Non-interest income increased $90,000 to $854,000
for the year ended December 31, 2000,  from $764,000 for the year ended December
31, 1999.  This  increase was  primarily  due to  increased  service  charges on
deposit  accounts of $87,000,  due to increases  in fees which  commenced in the
third  quarter of 1999  coupled  with an increase  in the number of  transaction
accounts.

         Non-interest  Expense.  Non-interest  expense decreased $94,000 to $6.0
million for the year ended  December  31,  2000,  from $6.1 million for the year
ended December 31, 1999. This decrease was primarily due to decreases in deposit
insurance premiums of $67,000 for the year ended December 31, 2000. The decrease
in  deposit  insurance  premiums  was  due  to  the  Federal  Deposit  Insurance
Corporation's assessment rate change in January 2000.

         Income Tax Expense.  Income tax expense  increased  $84,000 to $714,000
for the year ended December 31, 2000,  from $630,000 for the year ended December
31, 1999.

                                        9
<PAGE>

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 Directors quarterly. The Balance Sheet Shock Report
shows the degree to which  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,  2000,  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  (32.85)%  and  33.39%,  respectively.  Net  interest  income
decreased  by $518,000 or 6.0% for an upward  shift in rates of 200 basis points
and  increased by $416,000 or 4.8%,  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

                                       10
<PAGE>

interest  rate risk impact was 22.63% and 13.63%  after the  interest  rate risk
impact. Results fall within policy limits for all applicable tests.

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,
2000, 1999 and 1998 the Company  originated loans in the amounts of $58.0, $67.3
and $49.8  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,  2000,  1999 and 1998,  the
Company purchased  investment and  mortgage-backed  securities in the amounts of
$10.9, $50.2 and $48.7 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.

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

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.

                                       11


<PAGE>


[LOGO]
SNODGRASS
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, 2000 and 1999,  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,  2000.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of PHS
Bancorp,  Inc. and  subsidiary as of December 31, 2000 and 1999, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December  31,  2000  in  conformity  with  accounting  principles
generally accepted in the United States of America.



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

Wexford, PA
January 12, 2001


<TABLE>
<CAPTION>
<S>                                                   <C>                 <C>
S.R.Snodgrass, A.C.
1000 Stonewood Drive, Suite 200 Wexford, PA 15090-8399 Phone: 724-934-0344 Facsimile: 724-934-0345

                                       12
</TABLE>

<PAGE>
                                PHS BANCORP, INC.
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                       2000               1999
                                                                                 -----------------  -----------------
<S>                                                                            <C>                <C>
ASSETS
     Cash and amounts due from other institutions                                $      1,502,757   $      3,533,452
     Interest-bearing deposits with other institutions                                  5,094,404         11,416,781
     Investment securities:
         Available for sale                                                            24,814,065         27,594,897
         Held to maturity (market value $17,917,570
           and $15,268,634)                                                            17,776,486         15,539,866
     Mortgage-backed securities:
         Available for sale                                                            38,415,158         37,426,028
         Held to maturity (market value $38,471,164
           and $42,263,705)                                                            38,779,775         44,141,386
     Loans (net of allowance for loan losses of $1,454,618
       and $1,359,900)                                                                129,017,057        118,745,043
     Accrued interest receivable                                                        1,625,420          1,538,163
     Premises and equipment                                                             4,637,374          4,295,194
     Federal Home Loan Bank stock                                                       2,614,800          2,614,885
     Other assets                                                                       1,052,375          1,794,646
                                                                                 -----------------  -----------------
             TOTAL ASSETS                                                        $    265,329,671   $    268,640,341
                                                                                 =================  =================
LIABILITIES
     Deposits                                                                    $    198,241,701   $    189,344,552
     Advances from Federal Home Loan Bank                                              36,194,800         50,294,800
     Other borrowings                                                                      75,315            120,039
     Accrued interest payable and other liabilities                                     1,967,621          2,129,613
                                                                                 -----------------  -----------------
             TOTAL LIABILITIES                                                        236,479,437        241,889,004
                                                                                 -----------------  -----------------
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                                                        10,480,215         10,541,960
     Retained earnings - substantially restricted                                      20,756,274         19,496,887
     Accumulated other comprehensive income (loss)                                        456,968           (914,110)
     Unallocated shares held by Employee Stock                                           (917,283)        (1,066,503)
     Unallocated shares held by Restricted Stock Plan (RSP)                              (185,783)          (314,295)
     Treasury stock, at cost (202,750 and 124,000 shares)                              (2,016,157)        (1,268,602)
                                                                                 -----------------  -----------------
             TOTAL STOCKHOLDERS' EQUITY                                                28,850,234         26,751,337
                                                                                 -----------------  -----------------
             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $    265,329,671   $    268,640,341
                                                                                 =================  =================
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       13
<PAGE>
                                PHS BANCORP, INC.
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                   2000                1999               1998
                                                             ------------------  -----------------  -----------------
<S>                                                        <C>                 <C>                <C>
INTEREST INCOME
      Loans                                                  $      10,205,593   $      8,926,063   $      8,377,792
      Investment securities:
          Taxable                                                    2,072,906          1,905,686          1,348,081
          Exempt from federal income tax                             1,002,398            972,907            991,341
      Mortgage-backed securities                                     5,620,716          5,513,483          5,098,561
      Interest-bearing deposits with other institutions                133,703            192,749            295,675
                                                             ------------------  -----------------  -----------------
               Total interest income                                19,035,316         17,510,888         16,111,450
                                                             ------------------  -----------------  -----------------
INTEREST EXPENSE
      Deposits                                                       8,036,700          6,988,338          7,263,761
      Advances from Federal Home Loan Bank                           2,407,253          2,239,940          1,144,625
      Other borrowings                                                   4,771             55,411            114,173
                                                             ------------------  -----------------  -----------------
               Total interest expense                               10,448,724          9,283,689          8,522,559
                                                             ------------------  -----------------  -----------------
               Net interest income                                   8,586,592          8,227,199          7,588,891

PROVISION FOR LOAN LOSSES                                              555,000            410,000            365,000
                                                             ------------------  -----------------  -----------------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                    8,031,592          7,817,199          7,223,891
                                                             ------------------  -----------------  -----------------
NONINTEREST INCOME
      Service charges on deposit accounts                              540,762            453,497            460,788
      Investment securities gains, net                                   7,315             19,095            116,858
      Gain on sale of loans, net                                             -                  -             27,765
      Rental income, net                                                88,179             92,402             89,898
      Other income                                                     217,729            199,064            218,700
                                                             ------------------  -----------------  -----------------
               Total noninterest income                                853,985            764,058            914,009
                                                             ------------------  -----------------  -----------------
NONINTEREST EXPENSE
      Compensation and employee benefits                             3,232,703          3,241,692          3,372,162
      Occupancy and equipment costs                                  1,174,330          1,129,482          1,039,833
      Deposit insurance premium                                         39,073            106,263            105,362
      Data processing costs                                            319,434            297,990            368,847
      Other expenses                                                 1,234,067          1,318,338          1,358,312
                                                             ------------------  -----------------  -----------------
               Total noninterest expense                             5,999,607          6,093,765          6,244,516
                                                             ------------------  -----------------  -----------------
Income before income taxes                                           2,885,970          2,487,492          1,893,384
Income taxes                                                           714,033            629,602            391,759
                                                             ------------------  -----------------  -----------------
               NET INCOME                                    $       2,171,937   $      1,857,890   $      1,501,625
                                                             ==================  =================  =================
EARNINGS PER SHARE
      Basic                                                  $            0.86   $           0.71   $           0.56
      Diluted                                                             0.86               0.71               0.56
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       14
<PAGE>
                                PHS BANCORP,INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                               Accumu-
                                                               lated      Unallo-      Unallo-
                                                Retained       Other      cated        cated                    Total       Compre-
                                 Additional     Earnings       Compre-    Shares       Shares                   Stock-      hensive
                       Common     Paid-in     Substantially    hensive    Held by      Held by    Treasury      holders'    Income
                       Stock      Capital      Restricted      (Loss)      ESOP         RSP        Stock        Equity      (Loss)
                     ---------  ------------- ------------- ----------- -----------  ---------- -----------  ------------ ----------
<S>                  <C>        <C>          <C>           <C>         <C>          <C>        <C>          <C>         <C>
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

Net income                                      2,171,937                                                      2,171,937 $2,171,937
Other comprehensive
income:
  Unrealized gain
    on available
    for sale
    securities,
    net of tax of
    $706,313                                                 1,371,078                                         1,371,078  1,371,078
                                                                                                                         -----------
Comprehensive income                                                                                                     $3,543,015
                                                                                                                         ===========
Cash dividends
  declared
  ($.36 per share)                               (912,550)                                                      (912,550)
ESOP shares released                 (61,745)                              149,220                                87,475
Treasury stock
  purchased, at cost                                                                               (747,555)    (747,555)
RSP shares released                                                                    128,512                   128,512
                      ---------  ------------ ------------  ----------- -----------  ---------- ------------ ------------
Balance,
  December 31, 2000   $276,000   $10,480,215  $20,756,274   $  456,968  $ (917,283)  $(185,783) $(2,016,157) $28,850,234
                      =========  ============ ============  =========== ===========  ========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
                                                                  2000           1999          1998
                                                              -------------  ------------- -------------
<S>                                                         <C>            <C>           <C>
Components of comprehensive income (loss):
  Change in net unrealized gain (loss)
    on investments held for sale                              $  1,375,906   $ (1,989,922) $    205,848
  Realized gains included in net income,
    net of tax of $2,487, $6,492, and $39,732                       (4,828)       (12,603)      (77,126)
                                                              -------------  ------------- -------------
Total                                                         $  1,371,078   $ (2,002,525) $    128,722
                                                              =============  ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.

                                       15
<PAGE>
                                PHS BANCORP, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                    2000             1999             1998
                                                               ---------------  ---------------  ---------------
<S>                                                          <C>              <C>              <C>
OPERATING ACTIVITIES
Net income                                                     $    2,171,937   $    1,857,890   $    1,501,625
Adjustments to reconcile net income to net
  cash provided by operating activities:
     Provision for loan losses                                        555,000          410,000          365,000
     Provision for depreciation                                       594,029          518,874          502,955
     Amortization of discounts, premiums,
       and loan origination fees                                    1,044,622          865,746        1,022,329
     Investment securities gains, net                                  (7,315)         (19,095)        (116,858)
     Gain on sale on loans, net                                             -                -          (27,765)
     Decrease in loans held for sale                                        -           48,080        1,073,254
     Increase in accrued interest receivable                          (87,257)         (21,486)        (123,278)
     Increase (decrease) in accrued interest payable                 (108,195)         208,050           46,377
     Amortization of ESOP unearned compensation                        87,475          102,240          166,843
     Amortization of RSP unearned compensation                        128,512          128,512          138,248
     Other, net                                                      (389,421)          15,846         (315,884)
                                                               ---------------  ---------------  ---------------
             Net cash provided by operating activities              3,989,387        4,114,657        4,232,846
                                                               ---------------  ---------------  ---------------
INVESTING ACTIVITIES
     Investment and mortgage-backed securites
       available for sale:
        Proceeds from sales                                         1,337,950        2,142,314        2,259,493
        Proceeds from maturities and principal repayments          10,494,500       11,514,770        8,009,594
        Purchases                                                  (7,886,766)     (23,578,542)     (13,617,911)
     Investment and mortgage-backed securities
       held to maturity:
        Proceeds from maturities and principal repayments           6,052,587       33,467,106       18,718,865
        Purchases                                                  (2,963,389)     (26,634,757)     (35,098,662)
     Increase in loans, net                                       (11,834,673)     (20,320,123)      (2,485,946)
     Proceeds from sales of repossessed assets                        301,221          312,962          306,784
     Purchase of premises and equipment                              (936,209)        (312,409)        (542,980)
     Purchase of Federal Home Loan Bank stock                               -       (1,070,085)        (525,300)
                                                               ---------------  ---------------  ---------------
             Net cash used for investing activities                (5,434,779)     (24,478,764)     (22,976,063)
                                                               ---------------  ---------------  ---------------
FINANCING ACTIVITIES
     Increase in deposits, net                                      8,897,149        8,231,988        6,826,415
     Proceeds from advances from Federal Home Loan Bank            13,500,000       19,400,000       20,377,800
     Repayment of advances from Federal Home Loan Bank            (27,600,000)               -       (1,600,000)
     Proceeds from other borrowings                                         -                -          271,853
     Repayment of other borrowings                                   (44,724)       (1,267,579)               -
     Common stock acquired by ESOP                                          -                -         (448,512)
     Common stock acquired by RSP                                           -         (506,502)        (215,963)
     Cash dividends paid                                             (912,550)        (743,785)        (695,792)
     Purchase of treasury stock                                      (747,555)      (1,268,602)               -
                                                               ---------------  ---------------  ---------------
             Net cash provided by (used for) financing
               activities                                          (6,907,680)      23,845,520       24,515,801
                                                               ---------------  ---------------  ---------------
             Increase (decrease) in cash and cash equivalents      (8,353,072)       3,481,413        5,772,584

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                                14,950,233       11,468,820        5,696,236
                                                               ---------------  ---------------  ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                       $    6,597,161   $   14,950,233   $   11,468,820
                                                               ===============  ===============  ===============
</TABLE>
See accompanying notes to the consolidated financial statements.

                                       16
<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,  and  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.

                                       17
<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.

                                       18
<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.

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, 2000,  1999,  and 1998,  the Company made cash
payments for interest of $10,556,919,  $9,075,639, and $8,476,182, respectively.
The Company also made cash payments for income taxes of $797,748,  $334,500, and
$358,000, respectively, during these same periods.

                                       19
<PAGE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Financial   Accounting  Standards  Board  Statement  No.  133,  "Accounting  for
Derivative  Instruments and Hedging Activities"  (Statement No. 133), as amended
by Financial  Accounting  Standards  Board  Statement No. 138,  "Accounting  for
Derivative  Instruments and Hedging  Activities - Deferral of the Effective Date
of Statement No. 133"  (Statement  No. 138), is effective in 2001,  and requires
measuring  and  recording  the change in fair value of  derivative  instruments.
Statement No. 133 is not expected to materially  affect the Company's  financial
position or results of operations.

In September 2000, the FASB issued Statement No. 140,  "Accounting for Transfers
and  Servicing of Financial  Assets and  Extinguishments  of  Liabilities."  The
Statement replaces FASB Statement No. 125 and provides consistent  standards for
distinguishing  transfers of financial assets that are sales from transfers that
are  secured  borrowings  based  on  a  control-oriented  "financial-components"
approach.  Under this approach,  after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred,  derecognizes  financial  assets when control has been surrendered and
derecognizes liabilities when extinguished.  The provisions of Statement No. 140
are effective for transactions occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization  trans-actions and collateral for fiscal years ending
after  December 15, 2000. The adoption of the provisions of Statement No. 140 is
not  expected  to have a material  impact on  financial  position  or results of
operations.

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.

<TABLE>
<CAPTION>
                                                  2000          1999          1998
                                               ----------    ----------    ----------
<S>                                           <C>           <C>           <C>
Weighted-average common shares
     outstanding                                2,760,000     2,760,000     2,760,000

Average treasury stock shares                    (157,255)      (43,705)            -

Average unearned ESOP and RSP shares              (85,645)     (104,629)      (73,463)
                                               ----------    ----------    ----------
Weighted-average common shares and
     common stock equivalents used to
     calculate basic earnings per share         2,517,100     2,611,666     2,686,537

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    2,517,100     2,611,666     2,699,097
                                               ==========    ==========    ==========
</TABLE>
                                       20
<PAGE>

3.  INVESTMENT SECURITIES

The amortized  cost and  estimated  market value of  investment  securities  are
summarized as follows:

<TABLE>
<CAPTION>

                                                                            2000
                                         ---------------------------------------------------------------------------
                                                                 Gross              Gross             Estimated
                                            Amortized          Unrealized         Unrealized            Market
                                               Cost              Gains              Losses              Value
                                         -----------------  -----------------  -----------------   -----------------
<S>                                     <C>                <C>                <C>                 <C>
Available for Sale
U.S. Treasury securities                 $      1,997,755   $          9,153   $        (2,218)    $      2,004,690
U.S. Government agency
  securities                                    6,994,398             55,912           (15,000)           7,035,310
Obligations of states and
  political subdivisions                       15,251,581            406,975           (37,100)          15,621,456
Real estate mortgage
  investment conduits                              45,247                 64                 -               45,311
                                         -----------------  -----------------  -----------------   -----------------
           Total debt securities               24,288,981            472,104           (54,318)          24,706,767

Equity Securities                                 107,298                  -                 -              107,298
                                         -----------------  -----------------  -----------------   -----------------
           Total                         $     24,396,279   $        472,104   $       (54,318)    $     24,814,065
                                         =================  =================  =================   =================
</TABLE>

<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 agency
  securities                                    6,000,000                  -                  -           6,000,000
Obligations of states 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>
                                       21
<PAGE>

3.  INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
                                                                            2000
                                         ---------------------------------------------------------------------------
                                                                 Gross              Gross             Estimated
                                            Amortized          Unrealized         Unrealized            Market
                                               Cost              Gains              Losses              Value
                                         -----------------  -----------------  -----------------   -----------------
<S>                                     <C>                <C>                <C>                 <C>
Held to Maturity
U.S. Government agency
  securities                             $     15,221,187   $        177,166   $       (32,670)    $     15,365,683
Obligations of states and
  political subdivisions                        2,555,299             13,920           (17,332)           2,551,887
                                         -----------------  -----------------  -----------------   -----------------
           Total                         $     17,776,486   $        191,086   $       (50,002)    $     17,917,570
                                         =================  =================  =================   =================
</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             17,617          (181,926)           2,821,805
                                         -----------------  -----------------  -----------------   -----------------
           Total                         $     15,539,866   $        146,110   $      (417,342)    $     15,268,634
                                         =================  =================  =================   =================
</TABLE>

The amortized cost and estimated market value of debt securities at December 31,
2000, 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                  $      2,097,016   $      2,115,349   $      2,291,571    $      2,292,540
Due after one year through
  five years                                    6,475,398          6,714,626          9,571,755           9,625,940
Due after five years through
  ten years                                     6,101,329          6,089,503          3,894,432           3,987,235
Due after ten years                             9,615,238          9,787,289          2,018,728           2,011,855
                                         -----------------  -----------------  -----------------   -----------------

      Total                              $     24,288,981   $     24,706,767   $     17,776,486    $     17,917,570
                                         =================  =================  =================   =================
</TABLE>

                                       22

<PAGE>

3.  INVESTMENT SECURITIES (Continued)

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>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
     Proceeds from sales                                    $      1,337,950   $      2,142,314    $      2,259,493
     Gross gains                                                      14,461             21,088             116,858
     Gross losses                                                      7,146              1,993                   -
</TABLE>

Investment  securities  with an amortized  cost of  $2,289,326  and an estimated
market value of $2,299,690  were pledged to secure  public  deposits at December
31, 2000. There were no investment securities pledged at December 31, 1999.

4.  MORTGAGE-BACKED SECURITIES

The amortized cost and estimated market value of mortgage-backed  securities are
summarized as follows:
<TABLE>
<CAPTION>
                                                                            2000
                                         ---------------------------------------------------------------------------
                                                                 Gross              Gross             Estimated
                                            Amortized          Unrealized         Unrealized            Market
                                               Cost              Gains              Losses              Value
                                         -----------------  -----------------  -----------------   -----------------
<S>                                     <C>                <C>                <C>                 <C>
Available for Sale
Government National Mortgage
  Association securities                 $     38,128,786   $        427,220   $      (153,007)    $     38,402,999
Federal Home Loan Mortgage
  Corporation securities                           11,783                376                 -               12,159
                                         -----------------  -----------------  -----------------   -----------------
            Total                        $     38,140,569   $        427,596   $      (153,007)    $     38,415,158
                                         =================  =================  =================   =================
</TABLE>

<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>

                                       23
<PAGE>

4.  MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
                                                                            2000
                                         ---------------------------------------------------------------------------
                                                                 Gross              Gross             Estimated
                                            Amortized          Unrealized         Unrealized            Market
                                               Cost              Gains              Losses              Value
                                         -----------------  -----------------  -----------------   -----------------
<S>                                     <C>                <C>                <C>                 <C>
Held to Maturity
Government National Mortgage
   Association securities                $     33,720,679   $         58,147   $      (450,388)    $     33,328,438
Federal Home Loan Mortgage
   Corporation securities                       2,545,206             39,932            (1,749)           2,583,391
Federal National Mortgage
   Association securities                       2,513,890             46,135              (690)           2,559,335
                                         -----------------  -----------------  -----------------   -----------------
            Total                        $     38,779,775   $        144,214   $      (452,825)    $     38,471,164
                                         =================  =================  =================   =================
</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>

The amortized cost and estimated market value of  mortgage-backed  securities at
December 31, 2000, 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                  $             11   $             11   $             -     $             -
Due after one year through
  five years                                       31,676             32,519                  -                   -
Due after five years through
  ten years                                     2,040,177          2,103,222                  -                   -
Due after ten years                            36,068,705         36,279,406         38,779,775          38,471,164
                                         -----------------  -----------------  -----------------   -----------------
      Total                              $     38,140,569   $     38,415,158   $     38,779,775    $     38,471,164
                                         =================  =================  =================   =================
</TABLE>

Mortgage-backed securities with an amortized cost of $1,621,073 and an estimated
market value of $1,626,248  were pledged to secure  public  deposits at December
31, 2000. There were no mortgage-backed securities pledged at December 31, 1999.

                                       24
<PAGE>

5.  LOANS

Loans consist of the following:
<TABLE>
<CAPTION>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                          <C>                 <C>
     Mortgage loans:
        Residential                                                            $     57,998,525    $     53,183,648
        Multi-family units                                                              308,252             388,317
        Construction                                                                  1,777,861           1,613,995
        Commercial real estate                                                          481,042             540,695
                                                                               -----------------   -----------------
                                                                                     60,565,680          55,726,655
                                                                               -----------------   -----------------
     Commercial loans                                                                 9,814,834           4,728,297
                                                                               -----------------   -----------------
     Consumer:
        Consumer credit line                                                          6,129,699           5,547,534
        Automobile                                                                   48,361,011          48,025,794
        Other                                                                         5,216,121           5,161,230
                                                                               -----------------   -----------------
                                                                                     59,706,831          58,734,558
                                                                               -----------------   -----------------
     Less:
       Loans in process                                                               1,203,921             707,469
       Deferred loan costs, net                                                      (1,588,251)         (1,622,902)
       Allowance for loan losses                                                      1,454,618           1,359,900
                                                                               -----------------   -----------------
                                                                                      1,070,288             444,467
                                                                               -----------------   -----------------
            Total                                                              $    129,017,057    $    118,745,043
                                                                               =================   =================
</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>

                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
     Principal outstanding                                  $        581,706   $        424,244    $        391,503
     Contractual interest due                                         66,356             54,285              47,158
     Interest income recognized                                       29,705             29,522              28,562
</TABLE>

Activity in the allowance for loan losses for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
     Balance, January 1,                                    $      1,359,900   $      1,287,496    $      1,394,084
         Add:
            Provisions charged to operations                         555,000            410,000             365,000
            Loan recoveries                                           51,016             50,941              54,993

         Less loans charged off                                      511,298            388,537             526,581
                                                            -----------------  -----------------   -----------------
     Balance, December 31,                                  $      1,454,618   $      1,359,900    $      1,287,496
                                                            =================  =================   =================
</TABLE>

                                       25
<PAGE>

5.  LOANS (Continued)

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,  2000  and  1999,  loans
outstanding  to  individuals   and  businesses  are  dependent  upon  the  local
conditions in its immediate trade area.

6.  ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                            <C>                 <C>
     Interest-bearing deposits with other institutions                         $         14,346    $         37,261
     Investment securities                                                              560,409             503,855
     Mortgage-backed securities                                                         468,734             495,337
     Loans                                                                              581,931             501,710
                                                                               -----------------   -----------------
            Total                                                              $      1,625,420    $      1,538,163
                                                                               =================   =================
</TABLE>

7.  PREMISES AND EQUIPMENT

Premises and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                           <C>                 <C>
     Land                                                                      $        841,109    $        515,726
     Office buildings                                                                 4,345,357           4,227,265
     Furniture, fixtures, and equipment                                               3,040,798           2,910,239
     Leasehold improvements                                                             403,403             405,798
                                                                               -----------------   -----------------
                                                                                      8,630,667           8,059,028
     Less accumulated depreciation and amortization                                   3,993,293           3,763,834
                                                                               -----------------   -----------------
            Total                                                              $      4,637,374    $      4,295,194
                                                                               =================   =================
</TABLE>

Depreciation  expense for the years ended December 31, 2000,  1999, and 1998 was
$594,029, $518,874, and $502,955, respectively.

                                       26
<PAGE>

8.  DEPOSITS

Comparative details of deposit accounts follow:
<TABLE>
<CAPTION>
                                                     2000                                      1999
                                      ------------------------------------     -------------------------------------
                                                            Percent of                                Percent of
                                           Amount           Portfolio               Amount            Portfolio
                                      -----------------  -----------------     -----------------   -----------------
<S>                                  <C>                          <C>        <C>                            <C>
DDA and NOW accounts                  $     31,251,502               15.8 %    $     26,934,968                14.2 %
Money market
  demand accounts                           28,358,712               14.3            27,499,163                14.6
Savings accounts                            27,082,955               13.6            28,006,240                14.8
                                      -----------------  -----------------     -----------------   -----------------
                                            86,693,169               43.7            82,440,371                43.6
                                      -----------------  -----------------     -----------------   -----------------
Time certificates of deposit:
     2.01%  -  4.00%                           156,898                0.1             7,652,299                 4.0
     4.01%  -  6.00%                        52,665,440               26.6            81,270,806                42.9
     6.01%  -  8.00%                        58,726,194               29.6            17,981,076                 9.5
                                      -----------------  -----------------     -----------------   -----------------
                                           111,548,532               56.3           106,904,181                56.4
                                      -----------------  -----------------     -----------------   -----------------
            Total                     $    198,241,701              100.0 %    $    189,344,552               100.0 %
                                      =================  =================     =================   =================
</TABLE>

Time deposits  include  certificates of deposit in  denominations of $100,000 or
more. Such deposits  aggregated  $10,909,799 and $9,798,141 at December 31, 2000
and 1999, respectively, with maturities at December 31, 2000 as follows:
<TABLE>
<CAPTION>
<S>                                                                                             <C>
     Within three months                                                                           $        794,503
     Beyond three but within six months                                                                   2,943,914
     Beyond six but within twelve months                                                                  1,532,742
     Beyond one year                                                                                      5,638,640
                                                                                                   -----------------
            Total                                                                                  $     10,909,799
                                                                                                   =================
</TABLE>
Interest  expense by deposit  category  for the years ended  December  31, is as
follows:
<TABLE>
<CAPTION>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
Savings accounts                                            $        576,060   $        563,778    $        636,965
NOW and money market deposit accounts                              1,352,279          1,104,444             954,283
Time certificates of deposit                                       6,108,361          5,320,116           5,672,513
                                                            -----------------  -----------------   -----------------
            Total                                           $      8,036,700   $      6,988,338    $      7,263,761
                                                            =================  =================   =================
</TABLE>

                                       27
<PAGE>

9.  ADVANCES FROM FEDERAL HOME LOAN BANK

The following table sets forth  information  concerning both short and long-term
advances from FHLB:
<TABLE>
<CAPTION>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                           <C>                 <C>
     Balance at year-end                                                       $     36,194,800    $     50,294,800
     Average  balance outstanding                                                    41,692,341          39,829,047
     Maximum month-end balance                                                       44,294,800          50,294,800
     Weighted-average rate at year-end                                                     5.72%               5.62%
     Weighted-average rate during the year                                                 5.77%               5.62%
</TABLE>

The scheduled maturities of advances outstanding are as follows:
<TABLE>
<CAPTION>
                                                     2000                                      1999
                                      ------------------------------------     -------------------------------------
              Year Ending                                   Weighted-                                 Weighted-
              December 31,                 Amount          average Rate             Amount           average Rate
     -------------------------------  -----------------  -----------------     -----------------   -----------------
<S>                                 <C>                        <C>           <C>                        <C>
                  2000                $              -              - %        $     21,600,000           5.84 %
                  2001                       8,000,000           6.46                 2,000,000           5.77
                  2002                       3,317,000           5.99                 3,317,000           5.99
                  2003                       1,377,800           6.28                 1,377,800           6.28
          2004 and thereafter               23,500,000           5.39                22,000,000           5.31
                                      -----------------                        -----------------
                 Total                $     36,194,800           5.72 %        $     50,294,800           5.62 %
                                      =================                        =================
</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, 2000, the Bank's maximum  borrowing
capacity with the FHLB was approximately $133 million.

10. OTHER BORROWINGS

Other  borrowings at December 31, 2000 and 1999 consists of a loan to finance an
equipment lease for $75,315 and $120,039.  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>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
Currently payable:
     Federal                                                $        551,803   $        479,198    $        310,802
     State                                                           112,222             89,226              67,568
                                                            -----------------  -----------------   -----------------
                                                                     664,025            568,424             378,370
Deferred                                                              50,008             61,178              13,389
                                                            -----------------  -----------------   -----------------
            Total                                           $        714,033   $        629,602    $        391,759
                                                            =================  =================   =================
</TABLE>
                                       28
<PAGE>

11. INCOME TAXES (Continued)

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>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                           <C>                 <C>
Deferred tax assets:
     Allowance for loan losses                                                 $        494,570    $        462,366
     Net unrealized loss on securities                                                        -             470,905
     Premises and equipment                                                              22,417               3,713
     Accrued employee benefits                                                          279,202             266,418
     Alternative minimum tax credit                                                      96,210             205,817
     Other                                                                               13,132              17,225
                                                                               -----------------   -----------------
         Total gross deferred tax assets                                                905,531           1,426,444
                                                                               -----------------   -----------------
Deferred tax liabilities:
     Net unrealized gain on securities                                                  235,408                   -
                                                                               -----------------   -----------------
         Total gross deferred tax liabilities                                           235,408                   -
                                                                               -----------------   -----------------
         Net deferred tax assets                                               $        670,123    $      1,426,444
                                                                               =================   =================
</TABLE>

No valuation  allowance was established at December 31, 2000 and 1999 in view of
certain tax  strategies  coupled with the  anticipated  future taxable income as
evidenced by the Company's earnings potential.

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>
                                            2000                          1999                           1998
                                  -------------------------     --------------------------     --------------------------
                                                   % 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       $    981,230        34.0 %    $    845,747         34.0 %    $    643,751         34.0 %
State income tax expense,
  net of federal tax benefit            74,067         2.7            58,889          2.4            44,595          2.4
Tax-exempt interest                   (402,284)      (13.9)         (342,447)       (13.8)         (335,448)       (17.7)
Other, net                              61,020         1.9            67,413          2.7            38,861          2.0
                                  -------------  ----------     -------------   ----------     -------------  -----------
Actual expense and
  effective rate                  $    714,033        24.7 %    $    629,602         25.3 %    $    391,759         20.7 %
                                  =============  ==========     =============   ==========     =============  ===========
</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.

                                       29
<PAGE>

12.   EMPLOYEE BENEFITS (Continued)

Pension Plan (Continued)
------------

The following table sets forth the change in plan assets and benefit  obligation
at December 31:
<TABLE>
<CAPTION>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                           <C>                 <C>
     Plan assets at fair value, beginning of year                              $      3,641,427    $      3,328,834
     Actual return on plan assets                                                       251,452             228,319
     Employer contribution                                                              178,765             168,061
     Benefits paid                                                                      (86,619)            (83,787)
                                                                               -----------------   -----------------
     Plan assets at fair value, end of year                                           3,985,025           3,641,427
                                                                               -----------------   -----------------
     Benefit obligation, beginning of year                                            3,879,242           3,915,765
     Service cost                                                                       189,965             197,002
     Interest cost                                                                      281,366             264,483
     Actuarial gains                                                                    (91,747)           (414,221)
     Benefits paid                                                                      (86,619)            (83,787)
                                                                               -----------------   -----------------
     Benefit obligation, end of year                                                  4,172,207           3,879,242
                                                                               -----------------   -----------------
     Funded status                                                                     (187,182)           (237,815)
     Transition adjustment                                                             (180,001)           (200,815)
     Unrecognized net loss from past experience
       different from that assumed                                                      195,079             250,939
                                                                               -----------------   -----------------
     Accrued pension liability                                                 $       (172,104)   $       (187,691)
                                                                               =================   =================
</TABLE>

The plan assets are invested primarily in bonds, stocks, and mortgages under the
control of the plan's trustees as of December 31, 2000.

Assumptions used in determining net periodic pension cost are as follows:
<TABLE>
<CAPTION>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                              <C>                <C>                 <C>
     Discount rate                                                 7.00%              7.00%               6.50%
     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>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                 <C>
     Service cost of the current period                     $        189,965   $        197,002    $        181,425
     Interest cost on projected benefit obligation                   281,366            264,483             249,500
     Actual return on plan assets                                   (251,452)          (228,319)           (211,831)
     Net amortization and deferral                                   (56,701)           (40,539)            (36,262)
                                                            -----------------  -----------------   -----------------
     Net periodic pension cost                              $        163,178   $        192,627    $        182,832
                                                            =================  =================   =================
</TABLE>

                                       30
<PAGE>

12.   EMPLOYEE BENEFITS (Continued)

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,  2000,  1999,  and 1998  amounted to $24,000,  $38,580,  and
$32,850,  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, 2000,
1999, and 1998, amounted to $29,400, $31,215, and $34,400, 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, 2000, 1999 and 1998,  amounted to
$73,582, $69,739, and $67,052, respectively.

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

On October 22, 1998, the Board of Directors  approved and stockholders  ratified
the formation of a stock option plan.  The plan provides 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.

                                       31
<PAGE>

12.   EMPLOYEE BENEFITS (Continued)

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

The following table presents share data related to the outstanding options:
<TABLE>
<CAPTION>
                                                               Weighted-                              Weighted-
                                                                average                                average
                                                                Exercise                               Exercise
                                               2000              Price               1999               Price
                                         -----------------  -----------------  -----------------   -----------------
<S>                                        <C>            <C>                      <C>            <C>
     Outstanding, beginning                   124,200        $      11.81             124,200         $      11.81
       Granted                                      -                   -                   -                    -
       Exercised                                    -                   -                   -                    -
       Forfeited                                    -                   -                   -                    -
                                         -------------                          --------------
     Outstanding, ending                      124,200        $      11.81             124,200         $      11.81
                                         =============                          ==============
     Exercisable at year-end                   83,835        $      11.81              55,890         $      11.81
                                         =============                          ==============
</TABLE>

The following table summarizes the  characteristics of stock options at December
31, 2000:
<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           7.83            11.81               83,835           11.81
</TABLE>

For purposes of computing pro forma results,  the Company  estimated fair values
of stock  options  using  the  Black-Scholes  option-pricing  model.  The  model
requires use of subjective  assumptions  that can  materially  effect fair value
estimates.  Therefore,  the pro  forma  results  are  estimates  of  results  of
operation as if  compensation  expense had been  recognized for the stock option
plans.  The fair value of each stock  option  granted  was  estimated  using the
following weighted-average assumptions for grants in 2000: (1) expected dividend
yield of 1.03 percent; (2) risk-free interest rate of 4.95 percent; (3) expected
volatility of 14 percent; and (4) expected life of eight years.

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 2000 or 1999.

                                       32
<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>
                                                                     2000              1999              1998
                                                                ----------------  ----------------  ----------------
<S>                                                            <C>               <C>               <C>
Net income applicable to common stock:
     As reported                                                $     2,171,937   $     1,857,890   $     1,501,625
     Pro forma                                                        2,131,893         1,768,978         1,323,801
Basic net income per common share:
     As reported                                                $          0.86   $          0.71   $          0.56
     Pro forma                                                             0.85              0.68              0.49
Diluted net income per common share:
     As reported                                                $          0.86   $          0.71   $          0.56
     Pro forma                                                             0.85              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  $87,475,  $102,240,  and
$167,543, for the years ended December 31, 2000, 1999, and 1998, respectively.

The following table presents the components of the ESOP shares:
<TABLE>
<CAPTION>
                                                                  2000               1999                1998
                                                            -----------------  -----------------   -----------------
<S>                                                        <C>                <C>                <C>
     Allocated shares                                                 28,140             18,540               8,940
     Shares released for allocation                                    9,600              9,600               9,600
     Unreleased shares                                                58,260             67,860              77,460
                                                            -----------------  -----------------   -----------------
     Total ESOP shares                                                96,000             96,000              96,000
                                                            =================  =================   =================
     Fair value of unreleased shares                        $        597,165   $        559,845    $      1,094,123
                                                            =================  =================   =================
</TABLE>
                                       33
<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.

The Company  acquired and granted a total of 49,680 shares of common  stock,  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 33,525 shares were vested
as of December 31, 2000.  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. 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.

Net compensation  expense  attributable to the RSPs amounted to $128,513 for the
years ended December 31, 2000, 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>
                                                                                     2000                1999
                                                                               -----------------   -----------------
<S>                                                                           <C>                 <C>
     Fixed rate commitments                                                    $     12,278,071    $     12,442,414
     Variable rate commitments                                                        6,179,593           6,233,398
                                                                               -----------------   -----------------
          Total                                                                $     18,457,664    $     18,675,812
                                                                               =================   =================
</TABLE>

The range of  interest  rate  residential  mortgage  loan  commitments  was 7.50
percent to 8.00 percent at December 31, 2000,  and 7.625 percent to 8.00 percent
at December 31, 1999.

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.

                                       34
<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, 2000 surplus funds of $10,581,437
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, 2000 and 1999,  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.

                                       35
<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>
                                                      2000                                      1999
                                       ------------------------------------      ------------------------------------
                                            Amount             Ratio                  Amount             Ratio
                                       -----------------  -----------------      -----------------  -----------------
<S>                                   <C>                      <C>             <C>                      <C>
Total Capital
(to Risk-weighted Assets)
-------------------------

Actual                                 $     29,822,330          23.37  %        $     28,991,275         23.91 %
For Capital Adequacy Purposes                10,210,604           8.00                  9,698,726          8.00
To Be Well Capitalized                       12,763,255          10.00                 12,123,407         10.00

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

Actual                                 $     28,367,712          22.23  %        $     27,631,375         22.79 %
For Capital Adequacy Purposes                 5,105,302           4.00                  4,849,363          4.00
To Be Well Capitalized                        7,657,953           6.00                  7,274,044          6.00

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

Actual                                 $     28,367,712          10.67  %        $     27,631,375         10.34 %
For Capital Adequacy Purposes                10,635,641           4.00                 10,684,884          4.00
To Be Well Capitalized                       13,294,552           5.00                 13,356,106          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.

                                       36
<PAGE>

16. FAIR VALUE DISCLOSURE

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
                                                        2000                                   1999
                                         ------------------------------------  -------------------------------------
                                             Carrying             Fair             Carrying              Fair
                                              Value              Value              Value               Value
                                         -----------------  -----------------  -----------------   -----------------
<S>                                     <C>                <C>                <C>                 <C>
Financial assets:
  Cash and amounts due
    from other institutions              $      1,502,757   $      1,502,757   $      3,533,452    $      3,533,452
  Interest-bearing deposits
    with other institutions                     5,094,404          5,094,404         11,416,781          11,416,781
  Investment securities:
    Available for sale                         24,814,065         24,814,065         27,594,897          27,594,897
    Held to maturity                           17,776,486         17,917,570         15,539,866          15,268,634
  Mortgage-backed securities:
    Available for sale                         38,415,158         38,415,158         37,426,028          37,426,028
    Held to maturity                           38,779,775         38,471,164         44,141,386          42,263,705
  Loans, net                                  129,017,057        128,167,057        118,745,043         114,749,043
  Federal Home Loan Bank stock                  2,614,800          2,614,800          2,614,885           2,614,885
  Accrued interest receivable                   1,625,420          1,625,420          1,538,163           1,538,163
                                         -----------------  -----------------  -----------------   -----------------
       Total                             $    259,639,922   $    258,622,395   $    262,550,501    $    256,405,588
                                         =================  =================  =================   =================

Financial liabilities:
  Deposits                               $    198,241,701   $    199,475,701   $    189,344,552    $    189,000,319
  Advances from Federal
    Home Loan Bank                             36,194,800         36,182,800         50,294,800          49,245,206
  Other borrowings                                 75,315             75,315            120,039             120,039
  Advances from borrowers
    for taxes and insurance                       584,723            584,723            585,332             585,332
  Accrued interest payable                        389,603            389,603            497,798             497,798
                                         -----------------  -----------------  -----------------   -----------------
       Total                             $    235,486,142   $    236,708,142   $    240,842,521    $    239,448,694
                                         =================  =================  =================   =================
</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.

                                       37
<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.

                                       38
<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.


                             CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                      2000                1999
                                                                                -----------------   ------------------
<S>                                                                            <C>                 <C>
ASSETS
     Cash and due from banks                                                    $        133,657    $         469,689
     Investment securities - available for sale                                          107,298                    -
     Investment in subsidiary bank                                                    27,879,419           25,512,528
     Loans receivable - ESOP                                                             910,843            1,060,930
     Other assets                                                                         25,554               34,072
                                                                                -----------------   ------------------
TOTAL ASSETS                                                                    $     29,056,771    $      27,077,219
                                                                                =================   ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
     Other liabilities                                                          $        206,537    $         325,882
     Stockholders' equity                                                             28,850,234           26,751,337
                                                                                -----------------   ------------------
TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY                                                          $     29,056,771    $      27,077,219
                                                                                =================   ==================
</TABLE>

                                       39
<PAGE>



PARENT COMPANY (Continued)


                          CONDENSED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                                       For the Period of
                                                                                                       November 9, 1998
                                                               For the Year Ended December 31,                to
                                                                   2000                1999            December 31, 1998
                                                             -----------------   -----------------   ----------------------
<S>                                                        <C>                 <C>                 <C>
INCOME
      Dividends from subsidiary bank                         $      1,158,100    $      2,566,800    $                   -
      Interest income                                                  92,005              53,370                      287
                                                             -----------------   -----------------   ----------------------
                                                                    1,250,105           2,620,170                      287
EXPENSES                                                               73,981              36,520                    1,914
                                                             -----------------   -----------------   ----------------------
Income before equity in undistributed
  earnings of subsidiary                                            1,176,124           2,583,650                   (1,627)

Equity in undistributed earnings of subsidiary                        995,813            (725,760)                 213,869
                                                             -----------------   -----------------   ----------------------
NET INCOME                                                   $      2,171,937    $      1,857,890    $             212,242
                                                             =================   =================   ======================
</TABLE>

                                       40
<PAGE>

PARENT COMPANY (Continued)


                        CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                       For the Period of
                                                                                                       November 9, 1998
                                                              For the Year Ended December 31,                 to
                                                                   2000                1999            December 31, 1998
                                                             -----------------   -----------------   ----------------------
<S>                                                         <C>                 <C>                 <C>
OPERATING ACTIVITIES
     Net income                                              $      2,171,937    $      1,857,890    $             212,242
     Adjustments  to  reconcile  net income to net cash
        provided  by  operating activities:
           Equity in undistributed earnings of subsidiary            (995,813)            725,760                 (213,869)
           Other, net                                                 105,160             385,517                   24,477
                                                             -----------------   -----------------   ----------------------
                Net cash provided by operating activities           1,281,284           2,969,167                   22,850
                                                             -----------------   -----------------   ----------------------
INVESTING ACTIVITIES
     Purchases of investment securities                              (107,298)                  -                        -
     Decrease (increase) in loan to ESOP, net                         150,087            (958,690)                       -
                                                             -----------------   -----------------   ----------------------
                Net cash provided by (used for)
                   investing activities                                42,789            (958,690)                       -
                                                             -----------------   -----------------   ----------------------
FINANCING ACTIVITIES
     Common stock acquired by RSP                                           -            (506,502)                 (44,749)
     Cash dividends paid                                             (912,550)           (743,785)                       -
     Purchase of treasury stock                                      (747,555)         (1,268,602)
     Capitalization of the Company                                          -                   -                1,000,000
                                                             -----------------   -----------------   ----------------------
                Net cash provided by (used for)
                   investing activities                            (1,660,105)         (2,518,889)                 955,251
                                                             -----------------   -----------------   ----------------------
                Increase (decrease) in cash                          (336,032)           (508,412)                 978,101

CASH AT BEGINNING OF PERIOD                                           469,689             978,101                        -
                                                             -----------------   -----------------   ----------------------
CASH AT END OF PERIOD                                        $        133,657    $        469,689    $             978,101
                                                             =================   =================   ======================
</TABLE>

                                       41
<PAGE>

19. SELECTED QUARTERLY FINANCIAL DATA (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                              ----------------------------------------------------------------------
                                                   March             June            September         December
                                                   2000              2000              2000              2000
                                              ----------------  ----------------  ----------------  ----------------
<S>                                          <C>               <C>               <C>               <C>
Total interest income                         $     4,660,622   $     4,798,024   $     4,796,277   $     4,780,393
Total interest expense                              2,515,933         2,607,543         2,640,051         2,685,197
                                              ----------------  ----------------  ----------------  ----------------
Net interest income                                 2,144,689         2,190,481         2,156,226         2,095,196
Provision for loan losses                             115,000           140,000           150,000           150,000
                                              ----------------  ----------------  ----------------  ----------------
Net interest income after
  provision for loan losses                         2,029,689         2,050,481         2,006,226         1,945,196

Investment securities gains, net                            -                 -             7,315                 -
Total noninterest income                              181,070           198,096           252,668           214,836
Total noninterest expense                           1,487,911         1,491,062         1,529,085         1,491,549
                                              ----------------  ----------------  ----------------  ----------------
Income before income taxes                            722,848           757,515           737,124           668,483
Income taxes                                          192,100           200,024           166,500           155,409
                                              ----------------  ----------------  ----------------  ----------------
Net income                                    $       530,748   $       557,491   $       570,624   $       513,074
                                              ================  ================  ================  ================
Per share data:
Net income
     Basic                                    $          0.21   $          0.22   $          0.23   $          0.21
     Diluted                                             0.21              0.22              0.23              0.21
Weighted-average shares outstanding
     Basic                                          2,536,898         2,522,978         2,516,971         2,498,170
     Diluted                                        2,536,898         2,522,978         2,516,971         2,498,170
</TABLE>

                                       42
<PAGE>

19. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                              ----------------------------------------------------------------------
                                                   March             June            September         December
                                                   1999              1999              1999              1999
                                              ----------------  ----------------  ----------------  ----------------
<S>                                          <C>               <C>               <C>               <C>
Total interest income                         $     4,178,515   $     4,309,672   $     4,447,759   $     4,574,942
Total interest expense                              2,195,307         2,278,937         2,324,419         2,485,026
                                              ----------------  ----------------  ----------------  ----------------
Net interest income                                 1,983,208         2,030,735         2,123,340         2,089,916
Provision for loan losses                              95,000            90,000           120,000           105,000
                                              ----------------  ----------------  ----------------  ----------------
Net interest income after
  provision for loan losses                         1,888,208         1,940,735         2,003,340         1,984,916

Investment securities gains, net                                                                             19,095
                                                            -                 -                 -
Total noninterest income                              157,713           159,350           232,844           195,056
Total noninterest expense                           1,530,518         1,521,176         1,519,653         1,522,418
                                              ----------------  ----------------  ----------------  ----------------
Income before income taxes                            515,403           578,909           716,531           676,649
Income taxes                                          129,747           158,755           190,500           150,600
                                              ----------------  ----------------  ----------------  ----------------
Net income                                    $       385,656   $       420,154   $       526,031   $       526,049
                                              ================  ================  ================  ================
Per share data:
Net income
     Basic                                    $          0.15   $          0.16   $          0.20   $          0.20
     Diluted                                             0.15              0.16              0.20              0.20
Weighted-average shares outstanding
     Basic                                          2,648,697         2,678,207         2,621,054         2,570,781
     Diluted                                        2,655,168         2,678,207         2,621,054         2,570,781
</TABLE>

                                       43