PREMIER BANCORP INC /PA/, 10KSB40, 2000-03-30

PREMIER BANCORP INC /PA/
10KSB40, 2000-03-30
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, FOR THE TRANSITION PERIOD FROM _______________ TO _______________.

COMMISSION FILE NUMBER 1-15513

PREMIER BANCORP, INC.
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(Name of Small Business Issuer in Its Charter)

PENNSYLVANIA 23-2921058
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

379 NORTH MAIN STREET, DOYLESTOWN, PENNSYLVANIA 18901
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(Address of Principal Executive Offices) (Zip Code)

(215) 345-5100
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Issuer's Telephone Number, Including Area Code

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:

COMMON STOCK, $0.33 PAR VALUE AMERICAN STOCK EXCHANGE
----------------------------- -----------------------
Title of Each Class Name of Each Exchange
on Which Registered

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:

None
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(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

The issuer's revenues for its most recent fiscal year were $22,053,000.

As of March 17, 2000, 3,078,914 shares of common stock of the registrant
were outstanding and the aggregate market value of the common stock of the
registrant, held by non-affiliates was approximately $20,321,000.

Transitional Small Business Disclosure Format (check one): YES NO X
--- ---

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the
registrant's 2000 annual meeting of shareholders are incorporated by reference
into Part III of this report.

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<PAGE>

PREMIER BANCORP, INC.

FORM 10-KSB
INDEX

PAGE
----
PART I

Item 1 Business.................................................... 1

Item 2 Properties.................................................. 6

Item 3 Legal Proceedings........................................... 7

Item 4 Submission of Matters to a Vote of Security Holders......... 7

PART II

Item 5 Market for Registrant's Common Stock and Related Shareholder
Matters................................................... 8

Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 9

Item 7 Financial Statements and Supplementary Data................. 28

Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 56

PART III

Item 9 Directors and Executive Officers; Compliance with Section
16(a) of the Exchange Act................................. 57

Item 10 Executive Compensation...................................... 57

Item 11 Security Ownership of Certain Beneficial Owners and
Management................................................ 57

Item 12 Certain Relationships and Related Transactions.............. 57

Item 13 Exhibits List and Reports on Form 8-K....................... 58

Signatures.................................................. 59

<PAGE>

PART I

ITEM 1 -- BUSINESS

PREMIER BANCORP, INC.

We are a Pennsylvania business corporation and a registered bank holding
company headquartered in Doylestown, Bucks County, Pennsylvania. We were
incorporated on July 15, 1997 and reorganized on November 17, 1997 as the
one-bank holding company of Premier Bank. Each outstanding share of Premier Bank
common stock was converted into one share of Premier Bancorp, Inc. common stock
under the Plan of Reorganization approved by the bank's shareholders. Our
primary business is the operation of our wholly-owned subsidiary, Premier Bank,
which we manage as a single business segment.

Our consolidated financial condition and results of operations consist
almost entirely of Premier Bank's financial condition and results of operations.
At December 31, 1999, we had total consolidated assets of $318,660,000, total
deposits of $237,481,000 and total shareholders' equity of $12,647,000.

As of December 31, 1999, the holding company did not own or lease any
property and had no employees.

PREMIER BANK

Premier Bank was organized in 1990 as a Pennsylvania chartered banking
institution and began operations on April 24, 1992. The bank is a
community-oriented financial services provider whose business primarily consists
of attracting retail deposits from the general public and small businesses and
originating commercial and consumer loans in its market area. Substantially all
of the bank's revenues are derived from net interest income. The bank conducts
business from its main office in Doylestown, Pennsylvania and from four other
Pennsylvania based retail offices located in Southampton, Bucks County, Lower
Makefield, Bucks County, Easton, Northampton County, and Bethlehem, Northampton
County. Premier Bank opened its fourth branch office in Lower Makefield
Township, Bucks County, Pennsylvania on February 19, 1999 and its fifth branch
in Bethlehem, Northampton County, Pennsylvania on December 17, 1999.

The bank's deposit products include checking, savings and money market
accounts as well as certificates of deposit. The bank offers numerous credit
products but specializes in lending to small commercial businesses and
professionals. The bank offers a full array of lending products including loans
secured by real estate and other assets, working capital lines and other
commercial loans. Other credit products include residential mortgage loans, home
equity loans and lines of credit, personal lines of credit and other consumer
loans. Premier Bank also offers other services such as internet banking,
telephone banking, cash management services, automated teller services and safe
deposit boxes.

The bank is a member of the Federal Reserve System. Deposits are insured by
the Federal Deposit Insurance Corporation's Bank Insurance Fund to the fullest
extent provided by law.

At December 31, 1999 the bank had 57 full-time and 17 part-time employees.

MARKET AREA

The bank's primary market area is Doylestown, Pennsylvania and the
surrounding Bucks County and Greater Delaware Valley communities. The bank has
three Bucks County based offices. The bank also services parts of the Lehigh
Valley from its Bethlehem and Easton, Northampton County, Pennsylvania offices.
Though the vast majority of business comes from these specific areas, the bank
will from time to time do business in a wider geographic region including all of
Eastern Pennsylvania and New Jersey including the New Jersey coastline.

The bank expects to extend its market area into sections of Montgomery
County, Pennsylvania with the opening of its sixth branch in Montgomeryville
during the third quarter of 2000.

<PAGE>

LENDING ACTIVITIES

The bank offers a variety of loan products to its customers, including
loans secured by real estate, commercial and consumer loans. The bank's lending
objectives are as follows:

o to establish a diversified loan portfolio comprised of commercial loans,
mortgage loans, consumer loans and all other loan types;

o to provide a satisfactory return to the company's shareholders by
properly pricing loans to include the cost of funds, administrative
costs, bad debts, local economic conditions, competition, customer
relationships, the term of the loan, credit risk, collateral quality and
a reasonable profit margin.

The bank manages credit risk through portfolio diversification,
underwriting policies and procedures and loan monitoring practices.

Gross loans totaled $199,224,000 at December 31, 1999 compared to
$140,348,000 at December 31, 1998. Gross loans represented approximately 62.5%
and 56.3% of total assets at year-end 1999 and 1998, respectively. At December
31, 1999, $171,803,000 or 86.2% of loans were secured by real estate compared to
$124,074,000 or 88.4% at December 31, 1998.

Loans secured by residential properties include both first and second
mortgages on single family loans. Many of these loans were made to small
business owners and professionals. Loans secured by residential property totaled
$34,180,000 and $32,931,000 at December 31, 1999 and 1998, respectively.

Loans secured by commercial properties include owner occupied commercial
properties and investment income producing properties. Commercial mortgages
totaled $127,885,000 and $86,008,000 at December 31, 1999 and 1998,
respectively.

Loans secured by apartments and other multi-family residential properties
totaled $9,738,000 at December 31, 1999 and $5,135,000 at December 31, 1998.

Other loans not secured by real estate include commercial and consumer
loans. Commercial loans are generally made to finance the acquisition of
machinery and equipment and to provide working capital for local commercial,
retail and professional companies. These loans are usually secured by business
assets, excluding real property, and guaranteed by the owners. Commercial loans
totaled $25,260,000 and $14,434,000 at December 31, 1999 and 1998, respectively.

Consumer loans consist generally of automobile loans and personal loans. At
December 31, 1999 and 1998, these loans totaled $2,161,000 and $1,840,000,
respectively.

INVESTMENT ACTIVITIES

At December 31, 1999 and 1998, our investment portfolio, totaled
$103,957,000 and $99,380,000, respectively. Investments consisted primarily of
U.S. government agency obligations, mortgage-backed securities, corporate bonds
and state and municipal securities. The corporate bonds included in our
investment portfolio were issued by other banking companies and are similar in
type to the capital securities we issued in August 1998. Equity securities
include stock in the Federal Home Loan Bank of Pittsburgh, the Federal Reserve
Bank of Philadelphia and the Atlantic Central Bankers Bank, the bank's principal
correspondent bank. Investment securities available for sale are recorded at
market value with the unrealized holding gain or loss, net of taxes, included in
shareholders' equity, while investment securities held to maturity are recorded
at amortized cost. At December 31, 1999 and 1998, the carrying value of the
available for sale portfolio was $97,076,000 and $93,888,000, respectively. The
portfolio experienced significant market value depreciation during 1999 as
interest rates rose. The carrying value of the held to maturity portfolio was
$6,881,000 and $5,492,000, at December 31, 1999 and 1998, respectively.

We view our investment portfolio as a source of earnings and liquidity.
Decisions on maturity and type of investment are dictated by our investment and
balance sheet management policies as approved annually by our Board of
Directors. The Chief Financial Officer makes the decision regarding the specific
selection of investments for our portfolio. The Asset Liability Committee sets
investment guidelines and strategy based on our financial goals and interest
rate sensitivity.

<PAGE>

SOURCES OF FUNDS

The bank primarily uses deposits and borrowings to finance lending and
investment activities. Borrowing sources include advances from the Federal Home
Loan Bank of Pittsburgh, reverse repurchase agreements with investment banks
and, overnight borrowings from our customers and correspondent bank. The bank
also has an available line with the Federal Reserve Bank of Philadelphia. To
date, the bank has not used this funding source. All borrowings, except for the
line of credit with our correspondent bank, require collateral in the form of
loans or securities. Borrowings are, therefore, limited by collateral levels and
the available lines of credit extended by the bank's creditors. Deposits
continue to be the key to the future funding and growth of the business.

COMPETITION

The bank actively competes with other financial services companies for
deposit and loan business. Competitors include other commercial banks, savings
banks, savings and loan associations, insurance companies, securities brokerage
firms, credit unions, finance companies, mutual funds, money market funds, and
certain government agencies. Financial institutions compete mostly on the
quality of services rendered, interest rates and returns offered on deposit
accounts, interest charged on loans, service charges, the convenience of banking
facilities, location and hours of operation and, in case of loans to larger
commercial borrowers, relative lending limits.

Many of these competitors are significantly larger than Premier Bank and
have significantly greater financial resources, personnel and locations from
which to conduct business. In addition, the bank is subject to regulation while
certain competitors are not. There are relatively few barriers for companies
wanting to enter into the financial services industry. For more information, see
the "Supervision and Regulation" section below.

The growth of mutual funds over the past decade has made it increasingly
difficult for community-based financial institutions like Premier Bank to
attract deposits. The continued flow of cash into mutual funds, much of which is
made through tax deferred investment vehicles such as 401(k) plans and a strong
economy, have fueled high returns for these investments, in particular, certain
equity funds. These returns, which have been higher than what commercial banks
earn on their assets, have perpetuated the flow of additional investment dollars
into the stock market and away from traditional bank deposit products.

SUPERVISION AND REGULATION

Holding Company Regulation

As a registered holding company under the Bank Holding Company Act of 1956,
we are regulated by the Federal Reserve Board and the provisions of section 115
of the Pennsylvania Banking Code of 1965.

The Bank Holding Company Act requires us to file an annual report with the
Federal Reserve Board regarding the holding company and its subsidiary bank. The
Federal Reserve Board may also make examinations of the holding company and its
subsidiary bank. The Federal Reserve Board possesses cease-and-desist powers
over bank holding companies and their non-bank subsidiaries where their actions
would constitute an unsafe or unsound practice or violation of law.

The Bank Holding Company Act restricts a bank holding company's ability to
acquire control of additional banks. In addition, the Act generally prohibits a
bank holding company from:

o acquiring a direct or indirect interest in, or control of 5% or more of
the outstanding voting shares of any company; and

o engaging directly or indirectly in activities other than that of banking,
managing or controlling banks or furnishing services to its subsidiaries.

However, the Federal Reserve Board permits a bank holding company to engage
in, and to own shares of companies engaged in, certain activities deemed closely
related to banking or the managing or controlling of banks.

<PAGE>

Bank Regulation

The bank is subject to supervision, regulation and examination by the
Pennsylvania Department of Banking, the FDIC and the Federal Reserve Board. In
addition, the bank is subject to a variety of local, state and federal laws.

Banking regulations include, but are not limited to, permissible types and
amounts of loans, investment and other activities, capital adequacy, branching,
interest rates on loans and the safety and soundness of banking practices.

Environmental Laws

We do not anticipate that compliance with environmental laws and
regulations will have any material effect on capital, expenditures, earnings, or
on our competitive position. However, environmentally related hazards have
become a source of high risk and potentially unlimited liability for financial
institutions. Environmentally contaminated properties owned by an institution's
borrowers may result in a drastic reduction in the value of the collateral
securing the institution's loans to these borrowers, high environmental clean up
costs to the borrower affecting its ability to repay the loans, the
subordination of any lien in favor of the institution to a state or federal lien
securing clean up costs, and liability to the institution for clean up costs if
it forecloses on the contaminated property or becomes involved in the management
of the borrower. To minimize this risk, the bank may require an environmental
examination of and report with respect to the property of any borrower or
prospective borrower if circumstances affecting the property indicate a
potential for contamination, taking into consideration a potential loss to the
institution in relation to the borrower. This examination must be performed by
an engineering firm experienced in environmental risk studies and acceptable to
the institution. Borrowers are responsible for the cost of these examinations
and reports. These costs may be substantial and may deter prospective borrowers
from entering into a loan transaction with the bank. We are not aware of any
borrower who is currently subject to any environmental investigation or clean up
proceeding that is likely to have a material adverse effect on the financial
condition or results of operations of the bank.

In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substance on
or from the property, or known and willfully compelled the borrower to commit an
action which caused such release or violate an environmental act. The Economic
Development Agency, Fiduciary and Lender Environmental Liability Protection Act,
however, does not limit federal liability which still exists under certain
circumstances.

Federal Reserve Board Requirements

Regulation D of the Federal Reserve Board requires all depository
institutions to maintain reserves on transaction accounts. These reserves may be
in the form of cash or non-interest-bearing deposits with the Federal Reserve
Bank of Philadelphia. Under Regulation D, the bank must establish reserves equal
to 3.0% of the first $44,300,000 of net transaction accounts plus 10% on the
remainder. The bank's reserve requirement was $1,222,000 and $862,000 at
December 31, 1999 and 1998, respectively.

Effects of Government Policy

The Gramm-Leach-Bliley Financial Services Modernization Act of l999, signed
into law on November 12, 1999, amends the Bank Holding Company Act of 1956 to
create a new category of holding company - the "financial holding company." To
be designated as a financial holding company, a bank holding company must file
an application with the Federal Reserve Board. The holding company must be well
capitalized and

<PAGE>

well managed, as determined by Federal Reserve Board regulations. When a bank
holding company becomes a financial holding company, the holding company or its
affiliates may engage in any financial activities that are "financial in nature
or incidental to such activities." Furthermore, the Federal Reserve may approve
a proposed activity if it is "complementary" to financial activities and does
not threaten the safety and soundness of banking. The Act provides an initial
list of activities that constitute activities that are financial in nature,
including:

o lending and deposit activities,

o insurance activities, including underwriting, agency and brokerage,

o providing financial investment advisory services,

o underwriting in, and acting as a broker or dealer in, securities,

o merchant banking, and

o insurance company portfolio investment

o Support services:

o Providing limited courier services; and

o Printing and selling checks and related items requiring magnetic ink
character recognition.

o Insurance agency and underwriting:

o Subject to certain limitations, acting as principal, agent, or
broker for credit life, accident, health and unemployment insurance
that is directly related to an extension of credit by the bank
holding company or any of its subsidiaries.

o Engaging in any insurance agency activity in a place where the bank
holding company or a subsidiary of the bank holding company has a
lending office and that has a population not exceeding 5,000 or has
inadequate insurance agency facilities, as determined by the Federal
Reserve Board.

o Supervising, on behalf of insurance underwriters, the activities of
retail insurance agents who sell fidelity insurance and property and
casualty insurance on the real and personal property used in the
bank holding company's operations or its subsidiaries and group
insurance that protects the employees of the bank holding company or
its subsidiaries.

o Engaging in any insurance agency activities if the bank holding
company has total consolidated assets of $50 million or less with
the sale of life insurance and annuities being limited to sales in
small towns or as credit insurance.

o Making equity and debt investments in corporations or projects designed
primarily to promote community welfare, and providing advisory services
to these programs.

o Subject to certain limitations, providing others financially oriented
data processing or bookkeeping services.

o Issuing and selling money orders, travelers' checks and United States
savings bonds.

o Providing consumer financial counseling that involves counseling,
educational courses and distribution of instructional materials to
individuals on consumer-oriented financial management matters, including
debt consolidation, mortgage applications, bankruptcy, budget management,
real estate tax shelters, tax planning, retirement and estate planning,
insurance and general investment management, so long as this activity
does not include the sale of specific products or investments.

o Providing tax planning and preparation advice.

<PAGE>

In addition to permitting financial services providers to enter into new
lines of business, the new law allows firms the freedom to streamline existing
operations and to potentially reduce costs. The impact that the
Gramm-Leach-Bliley Financial Modernization Act is likely to have on Premier
Bancorp, Inc. and Premier Bank is difficult to predict. While the Act
facilitates the ability of financial institutions to offer a wide range of
financial services, management does not believe that this Act will have an
immediate positive or negative material effect on our operations. However, the
Act may increase the amount of competition from larger financial services
companies because many community banks are less able to devote the capital and
management resources needed to facilitate broad expansion of financial services
including insurance and brokerage services.

Further, the company's and bank's business is also affected by the state of
the financial services industry in general. As a result of legal and industry
changes, management believes that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies, market share and economies of scale.

AVAILABLE INFORMATION

Premier Bancorp Inc.'s common stock is registered under Section 12(b) of
the Securities Exchange Act of 1934 and is traded on the American Stock
Exchange. We are subject to the informational requirements of the Exchange Act,
and, accordingly, file reports, proxy statements and other information with the
Securities and Exchange Commission. The reports, proxy statements and other
information filed with the SEC are available for inspection and copying at the
SEC's Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Premier Bancorp Inc.
is an electronic filer with the SEC. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The SEC's Internet site
address is: http://www.sec.gov. Our Internet site address is:
http://www.premierbankonline.com.

You may also inspect materials and other information concerning Premier
Bancorp. Inc. at the offices of the American Stock Exchange, Inc. at 86 Trinity
Place, New York, New York 10006 because our common stock is listed on the
American Stock Exchange under the trading symbol PPA. The American Stock
Exchange's Internet address is: http://www.amex.com.

ITEM 2 -- PROPERTIES

Our main office is located at 379 North Main Street, Doylestown,
Pennsylvania. The bank currently conducts business from the main office and four
other retail offices located in Southampton and Lower Makefield Township, Bucks
County and, Bethlehem and Easton, Northampton County, Pennsylvania. The Floral
Vale Branch in Lower Makefield Township, Bucks County opened on February 19,
1999 and the Bethlehem branch opened on December 17, 1999. The bank plans to
open a sixth branch in Montgomeryville, Montgomery County, Pennsylvania in the
third quarter of 2000.

Commercial lenders are located in or within close proximity to each of the
bank's retail offices or in markets where the bank may expand later. In
September 1999, the bank opened a commercial loan production office in Colmar,
Montgomery County, Pennsylvania.

<PAGE>

The following table details ownership of the bank's properties at
December 31, 1999.

<TABLE>
<S> <C>
1) Doylestown, Pa.................... Main office and branch -- owned

2) Easton, Pa........................ Branch -- owned

3) Southampton, Pa................... Branch and operations center -- leased requiring
rental payments of $59,670 per year

4) Southampton, Pa................... Loan production office -- leased requiring rental
payments of $16,775 in 2000

5) Lower Makefield Twp., Pa.......... Branch -- owned

6) Bethlehem, Pa..................... Branch -- owned

7) Colmar, Pa........................ Loan production office -- leased requiring rental
payments of $12,000 in 2000

8) Montgomeryville, Pa............... Land leased for future branch site requiring rental
payments of $85,000 per year to begin 150 days
after the start of construction
</TABLE>

Prior to 1999, the Doylestown and Easton offices were leased. In January
1999, the bank exercised its option to purchase these buildings.

The bank expects to open its sixth branch in Montgomeryville, Montgomery
County, Pennsylvania during the third quarter of 2000.

ITEM 3 -- LEGAL PROCEEDINGS

At December 31, 1999, there were no material legal proceedings pending
against the company.

ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE>

PART II

ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

Our common stock was listed on the American Stock Exchange (AMEX) on
December 30, 1999 under the trading symbol PPA. At December 31, 1999, 30,000,000
shares of common stock were authorized and 3,078,914 shares were outstanding. We
had 721 shareholders of record as of March 17, 2000. No other class of common
stock is authorized or outstanding.

On February 17, 2000 we declared a 5% stock dividend which resulted in the
issuance of 146,492 shares of common stock on March 10, 2000 to holders of
record on February 29, 2000. All information has been retroactively restated to
reflect this stock dividend.

To the best of management's knowledge, shares of common stock traded in the
range of $10.48 to $12.38 per share during 1999 and $5.71 to $10.48 per share
during 1998, after giving retroactive effect to the common stock dividend
declared on February 17, 2000. Our ability to pay dividends to shareholders is
dependent upon our ability to obtain dividends from the bank. The bank's ability
to pay dividends is subject to certain regulatory restrictions that are
described in greater detail at Note 20 to the 1999 Consolidated Financial
Statements. We have not declared nor paid any cash dividends.

We issued 286,036 shares at $10.48 per share during a stock offering from
December 22, 1998 to March 31, 1999 after giving retroactive effect to the 5%
common stock dividend declared on February 17, 2000. Net proceeds of this
offering were $2,850,000. We used the net proceeds of this stock offering for
general corporate purposes, including investments in or advances to the bank
which increased the bank's capital position and loan to one borrower lending
limits. In addition, we may use these proceeds to support the continuing
development of the bank's franchise through possible expansion into related
businesses.

<PAGE>

SELECTED FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Income and Expense
Interest income...................................... $ 21,929 $ 16,516 $ 13,448
Interest expense..................................... 11,420 8,922 7,532
---------- ---------- ----------
Net interest income.................................. 10,509 7,594 5,916
Provision for loan losses............................ 719 505 400
Non-interest income.................................. 124 357 150
Non-interest expense................................. 6,744 4,903 3,735
---------- ---------- ----------
Income before income taxes........................... 3,170 2,543 1,931
Income tax expense................................... 765 788 590
---------- ---------- ----------
Net income........................................... $ 2,405 $ 1,755 $ 1,341
========== ========== ==========

Share Data
Basic earnings per share............................. $ 0.80 $ 0.64 $ 0.49
Diluted earnings per share........................... 0.72 0.57 0.47
Book value per share................................. 4.11 4.25 3.78
Average common shares outstanding.................... 3,016,893 2,762,101 2,736,796
Average diluted shares outstanding................... 3,341,208 3,069,673 2,890,085

Balance Sheet
Loans, net of unearned income........................ $ 198,632 $ 139,905 $ 108,532
Investment securities held to maturity............... 6,881 5,492 15,170
Investment securities available for sale............. 97,076 93,888 62,434
Other earning assets................................. 3,845 1,762 284
Total assets......................................... 318,660 249,193 193,523
Deposits............................................. 237,481 191,226 143,603
Borrowings........................................... 52,537 29,936 34,843
Subordinated debt.................................... 1,500 1,500 1,500
Capital securities................................... 10,000 10,000 --
Shareholders' equity................................. 12,647 11,767 10,434

Selected Financial Ratios
Net interest margin.................................. 3.94% 3.82% 3.56%
Return on average assets............................. 0.83% 0.82% 0.78%
Return on average shareholders' equity............... 17.59% 16.05% 14.28%
Average shareholders' equity to average assets....... 4.70% 5.11% 5.45%

Number of banking offices at year-end................ 5 3 3
</TABLE>

ITEM 6 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

Premier Bancorp, Inc. is a Pennsylvania business corporation and a
registered bank holding company headquartered in Doylestown, Bucks County,
Pennsylvania. We were incorporated on July 15, 1997 and reorganized on November
17, 1997 as the one-bank holding company of Premier Bank. Our primary business
is the operation of our wholly owned subsidiary, Premier Bank, which we manage
as a single business segment.

<PAGE>

backed securities, obligations of U.S. government agencies and government
sponsored entities, corporate bonds and state and municipal bonds.

The bank's revenues are derived principally from interest on its loan and
securities portfolios. The bank's primary sources of funds are deposits,
repayments of loans and investment securities and, borrowed funds. Currently,
the bank has five full-service Pennsylvania banking offices: Doylestown, Easton,
Southampton, Bethlehem and Floral Vale. The bank faces significant competition
from other financial services companies, many of which are larger organizations
with more resources and locations than the bank.

Our consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
paid on interest-bearing liabilities, such as deposits and borrowed money. We
also generate non-interest income such as service charges and other fees. Our
non-interest expenses primarily consist of employee compensation and benefits,
occupancy expenses, marketing, data processing costs and other operating
expenses. The bank is subject to losses from its loan portfolio if borrowers
fail to meet their obligations. Our results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory agencies.

The following discussion focuses on the major components of our operations
and presents an overview of the significant changes in the results of operations
and financial condition for the past two years. This discussion section should
be read in conjunction with the Consolidated Financial Statements and
accompanying Notes beginning on page 32. Current performance may not be
indicative of future performance.

The management of Premier Bancorp, Inc. has made forward-looking statements
in this Annual Report on Form 10-KSB. These forward-looking statements may be
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Premier Bancorp, Inc. and its subsidiaries, Premier Bank and PBI Capital Trust.
When words such as "believes", "expects", "anticipates" or similar expressions
occur in this Annual Report, management is making forward-looking statements.

Shareholders should note that many factors, some of which are discussed
elsewhere in this Annual Report, could affect the future financial results of
Premier Bancorp, Inc. and its subsidiaries, both individually and collectively,
and could cause those results to differ materially from those expressed in the
forward-looking statements contained in this Annual Report. These factors
include the following:

o operating, legal and regulatory risks;

o economic, political and competitive forces affecting our banking,
securities, asset management and credit services businesses; and

o the risk that our analyses of these risks and forces could be incorrect
and or that the strategies developed to address them could be
unsuccessful.

MANAGEMENT STRATEGY

Our primary strategy is to increase loan and deposit market share in the
communities we serve and to expand our branch network to new markets as deemed
appropriate. We plan to accomplish this growth principally through aggressive
pricing and marketing. The bank opened its fourth branch office in Lower
Makefield Township, Bucks County on February 19, 1999 and its fifth branch in
Bethlehem, Pennsylvania on December 17, 1999. The bank also has loan production
offices in Southampton and Colmar, Pennsylvania. The bank plans to open its
sixth branch in Montgomeryville, Pennsylvania in the third quarter of 2000.

We also try to maximize earnings, given our current level of capital and
interest rate sensitivity, by borrowing funds and purchasing investment
securities. Management continually monitors the quality of its loan and
investment portfolios. In addition, we use various asset/liability modeling
techniques to measure and manage the impact of interest rate changes on our net
interest income and capital.

<PAGE>

Management believes that a strong capital position is fundamental in order
to support the continued growth of the institution. Accordingly, management
continues to analyze capital raising alternatives. In March 1999 we completed a
common stock offering which netted us $2,850,000. In 1998, we issued $10,000,000
in capital securities as discussed at Note 21 to the Consolidated Financial
Statements.

It is expected that the year 2000 performance will be challenged by the
growth in overhead expenses related to our franchise expansion into new markets
and by the increasing competition for deposits. Therefore, these items may
impact our results of operations for 2000.

RESULTS OF OPERATIONS

We reported net income of $2,405,000 or $.72 diluted earnings per share for
the year ended December 31, 1999. This represents an increase of $650,000 or 37%
from the net income of $1,755,000 or $.57 diluted earnings per share reported in
1998. Return on average assets and return on average shareholders' equity were
.83% and 17.59%, respectively, in 1999 compared to .82% and 16.05% in 1998.
Return on average equity, exclusive of the unrealized loss on investment
securities available for sale, was 15.36% in 1999 compared to 15.91% in 1998.

Following our two capital raising initiatives discussed above, we were able
to significantly increase the level of our earning assets. In late 1998 we grew
investment securities following the issuance of our $10,000,000 in capital
securities. In 1999 we focused on growing our loan portfolio to obtain higher
yields. As a result, our earnings for 1999 were higher than 1998 primarily due
to this growth in interest-earning assets. The bank hired several new loan
officers during 1999 to help grow the loan portfolio. Total gross loans grew
$58,876,000 or 42% over the prior year while investments grew only $4,577,000 or
4.6% over the prior year. Average investment balances, however, grew $31,314,000
or 38.4% over the prior year.

Interest rates rose throughout 1999. The 30-year Treasury bond increased
from 5.09% at December 31, 1998 to 6.48% at December 31,1999. Similarly, the
yield on 5 and 10-year Treasury bonds increased approximately 180 basis points
during this same period. The 10-year bond increased from 4.65% at December 31,
1998 to 6.44% at December 31, 1999. During the second half of 1999, the Federal
Reserve Bank increased the federal funds target rate by 75 basis points in an
effort to slow the general economic expansion.

The following tables and discussions related to net interest income,
interest income and interest expense were prepared on a tax-equivalent basis.

NET INTEREST INCOME

Net interest income is the most significant component of our operating
income. Net interest income depends upon the levels of interest-earning assets
and interest-bearing liabilities and the difference or "spread" between the
respective yields earned and rates paid. The interest rate spread is influenced
by the overall interest rate environment and by competition.

Net interest income, on a tax equivalent basis, increased $3,125,000 or
39.4% in 1999 compared to an increase of $1,813,000 or 29.7% in 1998. The
increase in net interest income over the past two years is primarily a function
of asset growth rather than rate changes. Average earning assets grew
$75,821,000 or 36.5% in 1999 and $41,273,000 or 24.8% in 1998. Average loans and
average investments increased $45,624,000 and $31,314,000, respectively in 1999.
On the liability side, average interest-bearing deposits and borrowings
increased $40,332,000 and $21,693,000, respectively. As overall interest rates
moved higher in 1999, our interest rate spread grew modestly by 4 basis points
to 3.25%. Lower yields on loans were offset by lower deposit and borrowing
costs. The yield on total investment securities was relatively unchanged. The
net interest margin increased 9 basis points to 3.90%. The increase in net
interest margin is primarily due to a higher ratio of interest-earning assets to
interest-bearing liabilities and heavier weighting of earning assets towards
loans. The ratio of interest-earning assets to interest-bearing liabilities was
116.09% in 1999 compared to 113.99% in 1998.

<PAGE>

The following table presents certain key average balance sheet amounts and
the corresponding earnings/expenses and rates.

AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY

<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits...... $ 394 $ 18 4.57% $ 273 $ 11 4.03% $ 299 $ 14 4.68%
Federal funds sold............. 2,221 116 5.22% 3,459 189 5.46% 1,497 82 5.48%
Investment securities available
for sale (1)
Taxable...................... 86,917 5,902 6.79% 59,728 4,002 6.70% 50,624 3,385 6.69%
Tax-exempt (2)............... 19,189 1,455 7.58% 10,590 830 7.84% 5,030 420 8.35%
Investment securities held to
maturity..................... 6,779 436 6.43% 11,253 764 6.79% 13,749 937 6.82%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total investment
securities................. 112,885 7,793 6.90% 81,571 5,596 6.86% 69,403 4,742 6.83%
Loans, net of unearned
income (3)(4)................ 168,076 14,542 8.65% 122,452 11,050 9.02% 95,283 8,805 9.24%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total earning assets........... 283,576 22,469 7.92% 207,755 16,846 8.11% 166,482 13,643 8.19%
Cash and due from banks........ 4,639 3,477 2,778
Allowance for loan losses...... (2,143) (1,555) (1,143)
Other assets (5)............... 6,953 4,539 4,115
-------- -------- --------
Total assets..................... $293,025 $214,216 $172,232
======== ======== ========
Liabilities, minority interest in
subsidiaries and shareholders'
equity
Interest checking.............. $ 18,365 $ 473 2.58% $ 12,858 335 2.61% $ 8,829 $ 224 2.54%
Money market deposit
accounts..................... 1,446 37 2.56% 1,720 44 2.56% 1,535 39 2.54%
Savings accounts............... 55,138 1,888 3.42% 50,679 1,905 3.76% 42,108 1,649 3.92%
Time deposits.................. 120,783 6,424 5.32% 90,143 5,164 5.73% 69,725 3,984 5.71%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
deposits................... 195,732 8,822 4.51% 155,400 7,448 4.79% 122,197 5,896 4.82%
Short-term borrowings.......... 33,735 1,770 5.25% 10,357 543 5.24% 24,007 1,355 5.64%
Long-term borrowings........... 13,315 722 5.42% 15,000 813 5.42% 2,973 162 5.45%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total borrowings............. 47,050 2,492 5.30% 25,357 1,356 5.35% 26,980 1,517 5.62%
Subordinated debt.............. 1,500 106 7.07% 1,500 118 7.87% 1,467 119 8.11%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities................ 244,282 11,420 4.67% 182,257 8,922 4.90% 150,644 7,532 5.00%
Non-interest bearing
deposits..................... 18,747 13,628 9,576
Other liabilities.............. 4,340 3,382 2,586
Capital securities............. 10,000 3,918 --
Shareholders' equity (6)....... 15,656 11,031 9,426
-------- -------- --------
Total liabilities, minority
interest in subsidiaries and
shareholders' equity........... $293,025 $214,216 $172,232
======== ======== ========
Net interest income/rate
spread....................... $11,049 3.25% $ 7,924 3.21% $ 6,111 3.19%
======= ==== ======= ==== ======= ====
Net interest margin (7)........ 3.90% 3.81% 3.67%
Average interest-earning assets
as a percentage of average
interest-bearing
liabilities.................. 116.09% 113.99% 110.51%
</TABLE>

- ------------------
(1) Excludes the SFAS 115 valuation allowance on investments available for sale.

(2) Interest income on tax-exempt investment securities was presented on a
tax-equivalent basis. Tax exempt yields were adjusted to a tax equivalent
basis using a 34% rate.

(3) Includes non-accrual loans of $585,000, $460,000 and $512,000 on average in
1999, 1998 and 1997, respectively. Also includes loans held for sale of
$291,000, $347,000 and $137,000 on average in 1999, 1998 and 1997,
respectively.

(4) Includes tax-exempt loans of $1,213,000, $1,339,000 and $1,457,000 on
average in 1999, 1998 and 1997, respectively. Tax exempt yields were
adjusted to a tax equivalent basis using a 34% rate.

(5) Excludes the deferred tax asset related to the SFAS 115 valuation allowance
on investments available for sale.

(6) Excludes the SFAS 115 valuation allowance on investments available for sale,
net of tax.

(7) Net interest margin is calculated as net interest income divided by average
interest-earning assets.

<PAGE>

The following table sets forth certain information regarding changes in net
interest income attributable to changes in the volumes of interest-earning
assets and interest-bearing liabilities and changes in rates for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to:

o changes in volume (change in volume multiplied by prior year rate);

o changes in rates (change in rate multiplied by prior year volume); and

o total change.

Changes due to the combination of rate and volume changes (changes in
volume multiplied by changes in rate) were allocated proportionately between
changes in rate and changes in volume.

Interest income foregone on non-accrual loans is presented as a change in
rate.

RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 VS. 1998 1998 VS. 1997
- -------------------------------- -------------------------- --------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------ ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold.............. $ (65) $ (8) $ (73) $ 107 $ -- $ 107
Interest-bearing deposits....... 6 1 7 (1) (2) (3)
Investment securities available
for sale...................... 2,481 44 2,525 1,008 19 1,027
Investment securities held to
maturity...................... (290) (38) (328) (169) (4) (173)
Loans........................... 3,977 (485) 3,492 2,520 (275) 2,245
------- ------- ------ ------- ------- ------
Total interest income................ 6,109 (486) 5,623 3,465 (262) 3,203
------- ------- ------ ------- ------- ------
Interest expense:
Interest checking............... 142 (4) 138 105 6 111
Money market accounts........... (7) -- (7) 5 -- 5
Savings......................... 160 (177) (17) 324 (68) 256
Time............................ 1,651 (391) 1,260 1,170 10 1,180
Short-term borrowings........... 1,227 -- 1,227 (722) (90) (812)
Long-term borrowings............ (91) -- (91) 652 (1) 651
Subordinated debt............... -- (12) (12) 3 (4) (1)
------- ------- ------ ------- ------- ------
Total interest expense............... 3,082 (584) 2,498 1,537 (147) 1,390
------- ------- ------ ------- ------- ------
Net interest income.................. $ 3,027 $ 98 $3,125 $ 1,928 $ (115) $1,813
======= ======= ====== ======= ======= ======
</TABLE>

INTEREST INCOME

Total interest income, on a tax equivalent basis, increased $5,623,000 or
33.4% in 1999 to $22,469,000. Higher average investment and loan balances added
$2,191,000 and $3,977,000, respectively, to interest income in 1999. Lower
yields on loans reduced total interest income by $485,000. The yield on earning
assets decreased 19 basis points to 7.92%. The yield on loans decreased 37 basis
points to 8.65% in 1999 as the bank faced increased pressure from competitors to
lower its rates.

INTEREST EXPENSE

Total interest expense increased $2,498,000 or 28% in 1999 to $11,420,000.
Higher deposit and borrowing balances added $1,946,000 and $1,136,000 to total
interest expense, respectively. The average rate on interest-bearing deposits
decreased 28 basis points to 4.51% lowering interest expense by $572,000. The
deposit mix remained concentrated in higher yielding deposits. Rates on savings
and time deposits were adjusted downward in 1999. The average rate on savings
accounts decreased 34 basis points to 3.42% and

<PAGE>

lowered interest expense by $177,000. The average rate on time deposits
decreased 41 basis points to 5.32% in 1999 lowering interest expense by
$391,000.

The average rates on short-term borrowings and long-term borrowings were
relatively unchanged. The long-term borrowings were called by the FHLB during
the fourth quarter of 1999 and repaid with short-term advances. Higher
borrowings increased total interest expense by $1,136,000. Subordinated debt
reprices annually each January and matures in 2012. The average rate on
subordinated debt decreased 80 basis points and lowered interest expense by
$12,000.

INTEREST RATE SENSITIVITY

We are subject to the interest rate risk inherent in our lending, investing
and financing activities. Fluctuations in interest rates will impact both the
interest income/expense and market value of all interest-earning assets and
interest-bearing liabilities, other than those with a short term to maturity. At
December 31, 1999, we did not have any hedging transactions in place such as
interest rate swaps, futures, caps or floors. We are not directly subject to
foreign currency exchange or commodity price risk.

Our primary objective in managing interest rate risk is to minimize the
adverse impact of changes in interest rates on our net interest income while
creating an asset/liability structure that maximizes earnings. The Asset
Liability Management Committee actively monitors and manages our interest rate
exposure using gap analysis and simulation models.

Gap analysis measures the difference between volumes of rate-sensitive
assets and liabilities and quantifies these repricing differences for various
time intervals. Static gap analysis describes interest rate sensitivity at a
point in time. However, it alone does not accurately measure the magnitude of
changes in net interest income because changes in interest rates do not impact
assets and liabilities at the same speed, to the same extent, or on the same
basis. Furthermore, gap analysis does not consider future growth.

A positive gap results when the amount of interest rate sensitive assets
exceeds interest rate sensitive liabilities and generally means that the
institution will benefit during periods of rising interest rates. A negative gap
results when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets and generally means that the institution will benefit
during periods of falling interest rates.

Gap and interest rate simulation analyses require assumptions on certain
categories of assets and deposits. For purposes of these analyses, assets and
liabilities are stated at their contractual maturity, estimated likely call
date, or earliest repricing opportunity. Mortgage-backed securities and
amortizing loans are scheduled based on their anticipated cash flow including
estimated prepayments. Loans held for sale are included in the earliest period
because they are typically sold within thirty days of their settlement date.
Savings accounts, including passbook, statement savings, money market, and
interest checking accounts, do not have a stated maturity or repricing term and
can be withdrawn or repriced at any time. This may impact our margin if more
expensive alternative sources of deposits are required to fund loans or deposit
runoff. Management projects the repricing characteristics of these accounts
based on historical performance and assumptions that it believes reflect their
rate sensitivity. Customer repurchase agreements included in short-term
borrowings were assigned repricing characteristics similar to non-maturing
deposits.

<PAGE>

Our gap analysis at December 31, 1999 is as follows.

INTEREST RATE SENSITIVITY

<TABLE>
<CAPTION>
WITHIN 4 TO 6 7 MONTHS 1 TO 3 3 TO 5 AFTER
DECEMBER 31, 1999 3 MONTHS MONTHS TO 1 YEAR YEARS YEARS 5 YEARS TOTAL
----------------- -------- -------- --------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold.......... $ 3,436 $ -- $ -- $ -- $ -- $ -- $ 3,436
Interest-bearing deposits... 409 -- -- -- -- -- 409
Investment securities....... 14,407 3,095 3,125 8,467 5,581 69,282 103,957
Loans, net of deferred
fees (1).................. 38,980 3,644 11,657 52,195 88,967 3,189 198,632
-------- -------- -------- --------- -------- -------- --------
Total rate sensitive assets... 57,232 6,739 14,782 60,662 94,548 72,471 306,434
-------- -------- -------- --------- -------- -------- --------
Total cumulative assets....... 57,232 63,971 78,753 139,415 233,963 306,434
-------- -------- -------- --------- -------- --------
Liabilities
Interest checking, money
market and savings
accounts.................. $ 2,939 $ 2,204 $ 4,408 $ 44,085 $ 14,695 $ 5,142 $ 73,473
Time deposits............... 32,900 21,225 57,796 31,131 1,480 -- 144,532
Short-term borrowings....... 46,339 105 210 840 840 4,203 52,537
Subordinated debt........... 1,500 -- -- -- -- -- 1,500
-------- -------- -------- --------- -------- -------- --------
Total rate sensitive
liabilities................. 83,678 23,534 62,414 76,056 17,015 9,345 272,042
-------- -------- -------- --------- -------- -------- --------
Total cumulative
liabilities................. 83,678 107,212 169,626 245,682 262,697 272,042
-------- -------- -------- --------- -------- --------
Gap during period............. $(26,446) $(16,795) $(47,632) $ (15,394) $ 77,533 $ 63,126 $ 34,392
======== ======== ======== ========= ======== ======== ========
Cumulative gap................ $(26,446) $(43,241) $(90,873) $(106,267) $(28,734) $ 34,392
======== ======== ======== ========= ======== ========
Cumulative gap as a percentage
of:
Earning assets.............. (8.63%) (14.11%) (29.65)% (34.68)% (9.38)% 11.22%
Total assets................ (8.30%) (13.57%) (28.52)% (33.35)% (9.02)% 10.79%
</TABLE>

- ------------------
(1) Includes loans held for sale, if any.

We use computer-based simulation models to assess the impact of changes in
interest rates on our net interest income. The model incorporates management's
business plan assumptions and related asset and liability yields, deposit
sensitivity and the size, composition and maturity or repricing characteristics
of the balance sheet. The assumptions are based on what management believes at
that time to be the most likely interest rate environment.

Actual results may differ from simulated results due to various factors
including time, magnitude and frequency of interest rate changes, the
relationship or spread between various rates, loan pricing and deposit
sensitivity, and asset/liability strategies.

NON-INTEREST INCOME COMPARISON

<TABLE>
<CAPTION>
CHANGE
-------------------
1999 1998 AMOUNT %
------ ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges and other fees.......................... $ 194 $ 169 $ 25 14.79%
(Loss) gain, on sale of investment securities available
for sale.............................................. (151) 133 (284) (213.53%)
Gain on sale of loans held for sale..................... 81 55 26 47.27%
------ ------ ------ -------
Total non-interest income.......................... $ 124 $ 357 $ (233) (65.27%)
====== ====== ====== =======
</TABLE>

Non-interest income decreased $233,000 during 1999 to $124,000. This
decrease was largely attributed to net losses of $151,000 on the sale of
investment securities available for sale. In contrast, we realized net gains on
the sales of investment securities available for sale of $133,000 in 1998. The
level of gains or losses realized on investment sales is dependent upon the
volume of transactions, the types of securities sold, timing and the interest
rate environment. We also engaged in the sale of residential mortgage loans and
realized gains of $81,000 in 1999 as compared to $55,000 in 1998. This activity,
which is very susceptible to interest rate changes, slowed considerably
throughout 1999 as interest rates rose. We use an outside company to originate
and sell residential mortgages on our behalf. Service charges and other fees
increased $25,000 and included monthly account maintenance and overdraft charges
on deposit transaction accounts. This increase is attributed to the growth in
deposit accounts during 1999.

<PAGE>

NON-INTEREST EXPENSE COMPARISON

<TABLE>
<CAPTION>
CHANGE
------------------
1999 1998 AMOUNT %
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits.......................... $3,163 $2,245 $ 918 40.89%
Occupancy costs......................................... 433 419 14 3.34%
Data processing......................................... 667 484 183 37.81%
Professional services................................... 264 299 (35) (11.71%)
Marketing............................................... 306 187 119 63.64%
Other real estate owned expense......................... 9 134 (125) (93.28%)
Minority interest in expense of subsidiaries............ 866 347 519 149.57%
Other................................................... 1,036 788 248 31.47%
------ ------ ------ ------
Total................................................. $6,744 $4,903 $1,841 37.55%
====== ====== ====== ======
</TABLE>

Non-interest expense increased $1,841,000 during 1999 to $6,744,000. The
majority of this increase occurred in salaries and employee benefits, which grew
$918,000. This increase was primarily due to the addition of new personnel in
conjunction with the opening of two full-service branches and a loan production
office in 1999. Accordingly, the number of full-time equivalent employees
increased to 66 in 1999 from 50 in 1998. This, along with annual salary
adjustments and bonus expense, accounted for the increase. Data processing costs
increased $183,000 principally due to the growth of the institution, variable
costs associated with item processing and account volumes, and new services
including internet banking. We also incurred higher network administration costs
associated with software upgrades and additional expenses related to the Year
2000 project. Other real estate owned expense included write-downs and
maintenance expenses on foreclosed properties. The bank recorded $127,000 in
write-downs on three properties during 1998. The bank had no other real estate
owned properties at December 31, 1999. Minority interest in expense of
subsidiaries of $866,000 relates to the capital securities issued in August
1998. In 1999, we incurred a full year of this expense. Other expenses consist
primarily of furniture and equipment expense, employee travel, meals and
entertainment, stationery, supplies and postage. The $248,000 increase in other
expenses is principally attributed to the growth of the institution. We expect
overhead expenses to continue to trend higher in 2000 as we continue to grow and
expand our branch network.

PROVISION FOR LOAN LOSSES

The provision for loan losses represents the amount necessary to be charged
to operations to bring the allowance for loan losses to a level that management
deems adequate to provide for potential losses. The amount of the provision for
loan losses and the amount of the allowance for loan losses is subject to
ongoing analysis of the loan portfolio which considers current economic
conditions, actual loss experience, the current risk profile of the portfolio,
and composition of loan types within the portfolio. Net charge-offs were $13,000
in 1999 and $60,000 in 1998. The bank's loan portfolio is relatively immature
given its recent growth rates. Therefore, charge-off and non-performing trends
may not be indicative of future performance.

The provision for loan losses increased from $505,000 in 1998 to $719,000
in 1999. The increase is due to the overall increase in the size of the loan
portfolio. The ratio of non-performing loans to total loans decreased from 1.20%
in 1998 to .10% in 1999. This decrease is principally due to the transfer of one
loan secured by an apartment building to other real estate owned. This property
was sold in December 1999. In addition, $638,000 of loans classified as
non-performing at December 31, 1998 were repaid in 1999. The allowance for loan
losses was $2,511,000 at December 31, 1999, a 39.1% increase from the level
reported at December 31, 1998. The loan loss allowance as a percentage of total
loans was 1.26% in 1999 versus 1.29% in 1998.

INCOME TAXES

We recorded a $765,000 tax provision representing an effective tax rate of
24.1% for the year ended December 31, 1999 compared to $788,000 and 31.0% for
1998, respectively. Our effective tax rate decreased in 1999 as a result of
higher levels of tax-exempt securities.

<PAGE>

FINANCIAL CONDITION

Consolidated assets grew $69,467,000 or 27.9% during 1999. Total loans and
investments grew $58,876,000 or 42% and $4,577,000 or 4.6%, respectively. A
$46,255,000 or 24.2% increase in deposits and a $22,601,000 or 75.5% increase in
borrowings, in addition to the $2,850,000 raised in our stock offering, funded
asset growth. Shareholders' equity grew $880,000 or 7.5% to $12,647,000 at
December 31, 1999. This increase was attributable to earnings and proceeds from
our common stock offering which were offset in part by unrealized losses on
investment securities available for sale.

INVESTMENT SECURITIES

Our investment policies dictate permissible investment categories, credit
quality, maturity intervals and investment concentrations. Management is
responsible for making the specific investment purchases within these standards.
The carrying value of investment securities at December 31, 1999 totaled
$103,957,000 or 32.6% of total assets. This was only $4,577,000 higher than the
balance at December 31, 1998. Average investment balances, however, were
$31,314,000 or 38.4% higher in 1999 compared to 1998.

Historically, and in particular following the issuance of our $10,000,000
in fixed rate 30-year term capital securities in August 1998, we have sought to
maximize earnings by purchasing investment securities. We have earned a positive
interest spread by assuming interest rate risk in using short-term borrowings to
purchase assets with a longer maturity. We then seek to reduce these borrowings
as a percentage of assets by increasing deposits through our branch network.

We classify investment securities at the time of purchase by one of three
purposes: trading, available for sale (AFS) or, held to maturity (HTM). To date,
we have not purchased any securities for trading purposes. We classify most of
our securities as AFS even though we have no immediate intent to sell them. The
AFS designation affords management the flexibility to sell securities and adjust
the balance sheet in response to capital levels, liquidity needs and/or changes
in market conditions. AFS securities are marked to market in the Consolidated
Statements of Financial Condition with an adjustment to equity, net of tax, and
presented in the caption "Accumulated other comprehensive income (loss)."

We acquired approximately 85% of our investment portfolio, which is fixed
rate, by the end of the first quarter of 1999. Throughout 1999 interest rates
rose and depressed the market values of investment securities. At December 31,
1999 the AFS portfolio had an estimated market depreciation of $7,410,000 before
tax and an equity adjustment of $4,891,000, net of tax. At this time we plan to
hold these investment positions realizing that it may be some time before market
conditions improve. Approximately 15% of our investment portfolio is variable
rate and will reset to higher interest rates given current market conditions.
Approximately 46% of our portfolio consists of mortgage-backed securities, which
amortize and provide us with monthly cash flow to reinvest.

At December 31, 1999 approximately 56.4% of the investment portfolio was
comprised of U.S. government sponsored enterprises ("GSE") or government agency
debt or mortgage-backed securities compared to 40.7% at December 31, 1998.

At December 31, 1999 corporate bonds comprised $27,028,000 or 26% of the
total investment portfolio. Approximately 60% of our corporate bonds are fixed
rate and 40% are variable rate. Following the issuance of our $10,000,000 of
capital securities in August 1998, we began investing in similar type securities
issued by other banking companies. We classified these investments as corporate
bonds. In the third quarter of 1998 there was a "flight to quality" into U.S.
treasury bonds and a deep discounting of corporate bond issues. Our corporate
bond portfolio experienced an unrealized loss in value beyond that caused by
rising interest rates alone. We believe that the market valuations of our
corporate bonds were discounted further because $11,586,000 of these bonds were
issued by non-rated or below investment grade rated companies. We believe that
the credit quality of our corporate bond portfolio is sound and therefore, the
unrealized loss is temporary. We evaluate the credit quality of corporate bond
issues prior to their purchase. We monitor market conditions and adjust our
portfolio, as we consider necessary. Although we have no immediate plans to sell
these securities, we have classified them as "available for sale" allowing
management the flexibility to sell the securities and adjust its portfolio as
future conditions change.

<PAGE>

The following corporate bonds available for sale represent those issuers
with an aggregate book value exceeding 10% of shareholders' equity at December
31, 1999.

DECEMBER 31, 1999
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
Chase Capital Trust II.................................. $1,963 $1,900
FCB/SC Capital Trust I.................................. 2,026 1,800
First Keystone Capital Trust I.......................... 1,657 1,455
MBNA Capital Trust Series B............................. 1,425 1,268
North Fork Capital Trust II............................. 2,094 1,800
Patriot Capital Trust I................................. 2,278 2,020
Sovereign Capital Trust I............................... 1,710 1,536

The composition and maturity of our investment portfolio is as follows.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency obligations.................. $ 4,997 $ 4,976 $ 5,000 $ 4,998
Mortgage-backed securities.......................... 1,384 1,366 50,010 47,250
State and municipal securities...................... -- -- 17,860 15,802
Equity securities................................... -- -- 1,883 1,883
Corporate bonds..................................... -- -- 29,618 27,028
Other debt securities............................... 500 500 115 115
------- ------- -------- -------
Total............................................. $ 6,881 $ 6,842 $104,486 $97,076
======= ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency obligations.................. $ 2,998 $ 2,993 $ -- $ --
Mortgage-backed securities.......................... 1,994 1,986 35,411 35,476
State and municipal securities...................... -- -- 18,533 18,702
Equity securities................................... -- -- 3,745 3,745
Corporate bonds..................................... -- -- 36,689 35,850
Other debt securities............................... 500 500 115 115
------- ------- -------- -------
Total............................................. $ 5,492 $ 5,479 $ 94,493 $93,888
======= ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency obligations.................. $11,986 $11,956 $ -- $ --
Mortgage-backed securities.......................... 3,184 3,144 50,132 50,134
State and municipal securities...................... -- -- 10,326 10,403
Equity securities................................... -- -- 1,780 1,780
Other debt securities............................... -- -- 117 117
------- ------- -------- -------
Total............................................. $15,170 $15,100 $ 62,355 $62,434
======= ======= ======== =======
</TABLE>

<PAGE>

INVESTMENT SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS

<TABLE>
<CAPTION>
UNDER 1-5 5-10 OVER 10
DECEMBER 31, 1999 1 YEAR YEARS YEARS YEARS TOTAL
- ----------------- ------ ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE
U.S. government agency obligations:
Amortized cost.......................... $1,000 $ 2,000 $ 2,000 $ -- $ 5,000
Weighted average yield.................. 5.75% 6.00% 7.42% -- 6.52%
Mortgage-backed securities:
Amortized cost.......................... 4,133 13,050 11,428 21,399 50,010
Weighted average yield.................. 6.60% 6.58% 6.56% 6.50% 6.54%
State and municipal securities:
Amortized cost.......................... -- -- -- 17,860 17,860
Weighted average yield (1).............. -- -- -- 7.50% 7.50%
Equity securities:
Amortized cost.......................... -- -- -- 1,883 1,883
Weighted average yield.................. -- -- -- 6.22% 6.22%
Corporate bonds:
Amortized cost.......................... -- -- -- 29,618 29,618
Weighted average yield.................. -- -- -- 7.29% 7.29%
Other debt securities:
Amortized cost.......................... 15 -- 100 -- 115
Weighted average yield.................. 3.00% -- 7.50% -- 6.91%
------ ------- ------- ------- --------
TOTAL AMORTIZED COST...................... $5,148 $15,050 $13,528 $70,760 $104,486
====== ======= ======= ======= ========
TOTAL FAIR VALUE.......................... $4,926 $14,329 $12,896 $64,925 $ 97,076
====== ======= ======= ======= ========
WEIGHTED AVERAGE YIELD.................... 6.42% 6.50% 6.69% 7.08% 6.91%

INVESTMENT SECURITIES HELD TO MATURITY
U.S. government agency obligations:
Amortized cost.......................... $ -- $ -- $ 2,999 $ 1,998 $ 4,997
Weighted average yield.................. -- -- 6.74% 6.53% 6.66%
Mortgage-backed securities:
Amortized cost.......................... 723 644 17 -- 1,384
Weighted average yield.................. 5.84% 5.76% 6.44% -- 5.81%
Other debt securities:
Amortized cost.......................... -- -- -- 500 500
Weighted average yield.................. -- -- -- 6.75% 6.75%
------ ------- ------- ------- --------
TOTAL AMORTIZED COST...................... $ 723 $ 644 $ 3,016 $ 2,498 $ 6,881
====== ======= ======= ======= ========
WEIGHTED AVERAGE YIELD.................... 5.84% 5.76% 6.74% 6.57% 6.50%
</TABLE>

- ------------------
(1) Presented on a tax equivalent basis using a 34% rate.

LOANS HELD FOR SALE

We use an outside company to originate and sell residential mortgages on
our behalf. We had no loans held for sale at December 31, 1999 compared to
$1,627,000 at December 31, 1998. The decrease is attributed to the timing of
loan originations versus their sale. These loans are typically sold within
thirty days of their settlement.

Total loans sold were $11,048,000 in 1999 compared to $7,059,000 in 1998.
Approximately 68.1% of our total loan sales occurred during the first half of
the year. This business activity slowed considerably in the second half of 1999
as interest rates rose.

<PAGE>

LOANS

Gross loans increased $58,876,000 to $199,224,000 at December 31, 1999. The
majority of the loan portfolio is collateralized, at least in part, by real
estate in the greater Lehigh and Delaware Valleys. Real estate values are
subject to risks associated with the general economy. Loans secured by
residential and commercial properties increased $5,852,000 and $41,877,000,
respectively, during 1999.

Inherent within the lending function is the evaluation and acceptance of
credit risk and interest rate risk. We manage credit risk through portfolio
diversification, underwriting policies and procedures, and loan monitoring
practices. We manage interest rate risk within our asset/liability framework
using various modeling techniques and analyses. Most of our loans are either
fixed rate for a period of five years or less or variable rate.

Our commercial lending activity is focused on small businesses and
professionals within the local community.

LOAN PORTFOLIO

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ----------------- -----------------
DECEMBER 31, AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ------------ -------- ------- -------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate- $ -- -- $ -- -- $ 500 0.46% $ -- -- $ -- --
farmland..........
Real estate-
construction...... 3,850 1.93% 2,161 1.54% 1,188 1.09% 1,953 2.35% 3,056 5.07%
Real estate-
residential....... 30,330 15.22% 30,770 21.92% 22,966 21.10% 19,666 23.67% 13,631 22.63%
Real estate-
multi-family...... 9,738 4.89% 5,135 3.66% 1,949 1.79% 1,138 1.37% 1,423 2.36%
Real estate-
commercial........ 127,885 64.19% 86,008 61.28% 72,372 66.48% 52,731 63.47% 37,415 62.10%
Commercial........... 25,260 12.69% 14,434 10.29% 9,084 8.35% 6,862 8.26% 3,572 5.93%
Consumer............. 2,161 1.08% 1,840 1.31% 798 0.73% 735 0.88% 1,153 1.91%
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total................ $199,224 100.00% $140,348 100.00% $108,857 100.00% $83,085 100.00% $60,250 100.00%
======== ====== ======== ====== ======== ====== ======= ====== ======= ======
</TABLE>

LOAN MATURITIES AND INTEREST SENSITIVITY

<TABLE>
<CAPTION>
UNDER 1-5 OVER
DECEMBER 31, 1999 1 YEAR YEARS 5 YEARS TOTAL
- ----------------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate-construction............................... $ 865 $ 2,985 $ -- $ 3,850
Real estate-residential................................ 11,507 18,098 725 30,330
Real estate-multi-family............................... 2,419 7,319 -- 9,738
Real estate-commercial................................. 32,432 93,008 2,445 127,885
Commercial............................................. 13,180 9,895 2,185 25,260
Consumer............................................... 1,509 636 16 2,161
------- -------- ------ --------
Total.................................................. $61,912 $131,941 $5,371 $199,224
======= ======== ====== ========
</TABLE>

The following shows the amount of loans due after one year that have fixed
or variable interest rates at December 31, 1999:

Loans with fixed interest rates............................. $128,724,000
Loans with variable interest rates.......................... 8,588,000

ALLOWANCE FOR LOAN LOSSES

We maintain an allowance for loan losses and charge losses to this
allowance when losses are considered probable. The allowance for loan losses is
maintained at a level which management considers adequate to provide for known
and inherent losses in the loan portfolio. Management's evaluation includes such
factors as current economic conditions, actual loss experience and the current
risk profile of the loan portfolio. Each commercial loan is assigned a specific
loan loss reserve using a scoring system. This scoring system takes into
consideration collateral type and value, loan to value ratios, the borrower's
risk rating and other factors previously described. Borrower risk ratings are
determined by loan officers at the inception of

<PAGE>

each loan and are subject to on-going analysis and update by an independent loan
reviewer. Homogeneous loans comprised primarily of home equity and non-real
estate secured consumer loans, are analyzed in the aggregate. Since the bank is
less than eight years old with a limited history for loan losses, management
also uses peer group analysis to gauge the overall reasonableness of its loan
loss reserves. While the allowance is determined and calculated based on
specific loans or loan categories, the total allowance is considered available
for losses in the entire loan portfolio. Changes in economic conditions and the
financial condition of borrowers can occur quickly, and as a result, impact the
estimates made by management.

Regulatory authorities, as an integral part of their examinations,
periodically review the allowance for loan losses. They may require additions to
the allowance based upon their judgment and information available to them at the
time of examination.

Management considers the allowance for loan losses to be adequate. However,
to comply with industry reporting requirements, management has allocated the
allowance for loan losses as shown in the table below into components by loan
type at each year-end. Through such allocation, management does not intend to
imply that actual future charge-offs will necessarily follow the same pattern or
that any portion of the allowance is restricted.

ALLOWANCE FOR LOAN LOSS ALLOCATION

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Real estate-farmland... $ -- --% $ -- --% $ 5 0.46% $ -- --% $ -- --%
Real estate-
construction........ 37 1.47% 20 1.54% 37 1.09% 95 2.35% 37 5.07%
Real estate-
residential......... 428 17.04% 403 21.92% 272 21.10% 201 23.67% 168 22.63%
Real estate-
multi-family........ 110 4.38% 125 3.66% 19 1.79% 13 1.37% 17 2.36%
Real estate-
commercial.......... 1,436 57.19% 999 61.28% 875 66.48% 559 63.47% 458 62.10%
Commercial............. 481 19.16% 239 10.29% 142 8.35% 76 8.26% 44 5.93%
Consumer............... 19 0.76% 19 1.31% 10 0.73% 17 0.88% 14 1.91%
------ ------ ------ ------ ------ ------ ---- ------ ---- ------
Total.................. $2,511 100.00% $1,805 100.00% $1,360 100.00% $961 100.00% $738 100.00%
====== ====== ====== ====== ====== ====== ==== ====== ==== ======
</TABLE>

<PAGE>

Changes in the allowance for loan losses during the last five fiscal years are
as follows.

ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- ----------------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 1........................ $ 1,805 $ 1,360 $ 961 $ 738 $ 602
Charge-offs:
Real estate-residential................. -- 60 -- -- --
Real estate-commercial.................. -- -- -- 125 --
Commercial.............................. 2 -- -- -- 14
Consumer................................ 11 8 1 2 --
-------- -------- -------- -------- --------
Total charge-offs......................... 13 68 1 127 14

Recoveries:
Consumer................................ -- 8 -- -- --
-------- -------- -------- -------- --------
Total recoveries.......................... -- 8 -- -- --
-------- -------- -------- -------- --------
Net charge-offs........................... 13 60 1 127 14
Provision for loan losses................. 719 505 400 350 150
-------- -------- -------- -------- --------
Balance, December 31...................... $ 2,511 $ 1,805 $ 1,360 $ 961 $ 738
======== ======== ======== ======== ========

Total gross loans:
Average................................. $168,363 $122,526 $ 95,404 $ 68,771 $ 50,359
Year-end................................ $199,224 140,348 108,857 83,085 60,250

Ratios:
Net charge-offs to:
Average loans........................... 0.01% 0.05% -- 0.19% 0.03%
Loans at year-end....................... 0.01% 0.04% -- 0.15% 0.02%
Allowance for loan losses............... 0.52% 3.32% 0.04% 13.22% 1.90%
Provision for loan losses............... 1.81% 11.88% 0.13% 36.29% 9.33%

Allowance for loan losses to:
Total gross loans at year-end........... 1.26% 1.29% 1.25% 1.16% 1.22%
Non-performing loans.................... 1307.81% 106.74% 209.64% 88.75% 113.71%
</TABLE>

NON-PERFORMING ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998 1997 1996 1995
- ------------ ---- ------ ------ ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more and accruing
Real estate-construction............................. $ -- $ -- $ -- $ 211 $ --
Real estate-residential.............................. 55 605 146 -- 124
Commercial........................................... 1 6 -- -- --
Consumer............................................. -- -- 5 1 6
---- ------ ------ ------ ----
Total loans past due 90 days or more and
accruing........................................ 56 611 151 212 130
Loans accounted for on a non-accrual basis
Real estate-construction............................. -- -- -- 299 519
Real estate-residential.............................. 136 25 299 -- --
Real estate-multi-family............................. -- 890 -- -- --
Real estate-commercial............................... -- 165 192 572 --
Consumer............................................. -- -- 7 -- --
---- ------ ------ ------ ----
Total non-accrual loans........................... 136 1,080 498 871 519
Other real estate owned.............................. -- 200 638 389 --
---- ------ ------ ------ ----
Total non-performing assets....................... $192 $1,891 $1,287 $1,472 $649
==== ====== ====== ====== ====

Ratio of non-performing loans to total loans........... 0.10% 1.20% 0.60% 1.30% 1.08%
Ratio of non-performing assets to total assets......... 0.06% 0.76% 0.67% 0.96% 0.57%
</TABLE>

<PAGE>

Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and other real estate owned.
Non-performing assets represented 0.06% of total assets at December 31, 1999
compared to 0.76% at December 31, 1998. The decrease in non-performing assets is
mostly due to the foreclosure and subsequent sale of an apartment building,
which was previously classified as a non-accruing multi-family loan at December
31, 1998. In 1999 borrowers repaid the non-accruing commercial loan of $165,000
and $473,000 of the $605,000 in loans past due 90 days and accruing at December
31, 1998. In addition, in April 1999 we sold the residential property that was
in the other real estate owned category at December 31, 1998. No gain or loss
was recorded on this sale.

Non-accrual loans are those where the accrual of interest has ceased.
Non-consumer loans are placed on non-accrual status immediately if, in the
opinion of management, collection is doubtful or when principal or interest is
past due 90 days or more. Consumer loans are not automatically placed on
non-accrual status when principal or interest payments are 90 days past due, but
in most instances, are charged-off when deemed uncollectible or after reaching
120 days past due. Interest accrued, but not collected at the date a loan is
placed on non-accrual status, is reversed and charged against interest income.
Subsequent cash receipts are applied either to the outstanding principal or
recorded as interest income, depending on management's assessment of ultimate
collectibility of principal and interest. Non-accruing loans decreased $944,000
during 1999. This decrease was due to the foreclosure and subsequent sale of an
apartment building and the full repayment of one loan secured by a commercial
property as previously discussed. This decrease was offset by the placement of
one loan secured by a residential property on non-accrual in July 1999. This
loan was repaid in February 2000 with a resultant $6,000 charge-off against the
allowance for loan losses. No interest income was recognized on non-accrual
loans in 1999 or 1998. Interest foregone on non-accrual loans totaled $14,000 in
1999 and $69,000 in 1998.

The bank had $4,635,000 in loans, which, although performing at December
31, 1999, are believed to require increased supervision and review; and may,
depending on the economic environment and other factors, become non-performing
assets in future periods. Most of these loans are secured by real estate.

OTHER REAL ESTATE OWNED

We had no other real estate owned at December 31, 1999.

Other real estate owned totaled $200,000 at December 31, 1998. This
property was sold in April 1999 with no gain or loss recognized.

PREMISES AND EQUIPMENT

Premises and equipment increased $2,169,000 during 1999 to $3,807,000. This
increase is primarily due to the purchase of the Doylestown and Easton offices
in January 1999 for $1,252,000 in the aggregate. These offices were leased
previously. The remaining increase relates primarily to the Floral Vale branch
which opened in February 1999 and the purchase and renovation of the Bethlehem
branch which opened in December 1999.

DEFERRED TAXES

Deferred taxes increased $2,516,000 during 1999 to $3,342,000. The tax
effect of unrealized losses on investment securities available for sale
accounted for $2,314,000 of this increase. The remainder of the increase relates
primarily to the provision for loan losses.

DEPOSITS

Premier Bank, a traditional community-based bank, is largely dependent upon
its base of competitively priced core deposits to provide a stable source of
funding. The bank has retained and grown its customer base since inception
through a combination of price, quality service, convenience, and a stable and
experienced staff. Core deposits, which exclude time deposits greater than
$100,000, grew $25,349,000 or 14.4% during 1999 to $201,237,000. Most of this
growth occurred in time deposits. Total time deposits at December 31, 1999 were
$144,532,000 or 60.9% of total deposits, of which $32,611,000 mature after one

<PAGE>

year. Depending on market conditions, management generally prices its time
deposits to extend maturities beyond a year. In 1999 the bank aggressively
promoted its 11-month and 30-month certificates of deposits. Together, these
promotions accounted for $26,054,000 of our total time deposits at year-end. The
bank continues to experience a strong retention rate on maturing time deposits.

Total deposits increased $46,255,000 or 24.2% during 1999 to $237,481,000.
Total average deposits increased $45,451,000 or 26.9% in 1999 and $37,255,000 or
28.3% in 1998. Non-interest-bearing deposits are an important source of funds
for a bank because they lower overall deposit costs. These accounts increased
$5,119,000 or 37.6% on average during 1999 to $18,747,000. However, the majority
of our deposit mix remains concentrated in savings and time deposits. At
December 31, 1999, average savings accounts and average time deposits were 25.7%
and 56.3% of total average deposits, respectively. At December 31, 1998, average
savings accounts and average time deposits were 30% and 53.3% of total average
deposits, respectively.

We will continue to grow deposits through promotions, business development
programs, maturation of existing branches and branch expansion. The bank opened
its fourth branch in Lower Makefield Township, Pennsylvania in February 1999 and
its fifth branch in Bethlehem, Pennsylvania in December 1999. The bank plans to
open its sixth branch in Montgomeryville, Pennsylvania in the third quarter of
2000.

The growth of mutual funds over the past decade have made it increasingly
difficult for community based financial institutions like Premier Bank to
attract deposits. The continued flow of cash into mutual funds, much of which is
made through tax deferred investment vehicles such as 401(k) plans and a strong
economy, have fueled high returns for these investments, in particular, certain
equity funds. These returns, which have been higher than what commercial banks
earn on their assets, have perpetuated the flow of additional investment dollars
into the stock market and away from traditional bank deposit products.

AVERAGE DEPOSITS BY MAJOR CLASSIFICATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- ------------------ ------------------ ------------------
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing deposits........ $ 18,747 -- $ 13,628 -- $ 9,576 --
Interest checking.................... 18,365 2.58% 12,858 2.61% 8,829 2.54%
Money market deposit accounts........ 1,446 2.56% 1,720 2.56% 1,535 2.54%
Savings accounts..................... 55,138 3.42% 50,679 3.76% 42,108 3.92%
Time deposits........................ 120,783 5.32% 90,143 5.73% 69,725 5.71%
-------- ---- -------- ---- -------- ----
Total.............................. $214,479 4.11% $169,028 4.41% $131,773 4.47%
======== ==== ======== ==== ======== ====
</TABLE>

MATURITY OF TIME DEPOSITS OF $100,000 OR MORE

YEAR ENDED DECEMBER 31, 1999
- ----------------------- --------------
(IN THOUSANDS)
Three months or less................................... $17,690
Over three through six months.......................... 4,703
Over six through twelve months......................... 8,809
Over twelve months..................................... 5,042
-------
Total................................................ $36,244
=======

OTHER LIABILITIES

Other liabilities decreased $1,102,000 during 1999 to $2,131,000. The
majority of this decrease relates to an $866,000 decrease in our official
checking accounts and a $247,000 decrease in accrued expenses. Official checking
accounts are primarily used for disbursements to customers and vendors. Official
checking account balances fluctuate daily due to the timing of payments.

<PAGE>

CAPITAL

Capital Requirements

A strong capital position is fundamental to support the continued growth
and profitability of our institution. In addition, we are subject to various
regulatory capital requirements. Regulatory capital is defined in terms of Tier
I capital (shareholders' equity plus the allowable portion of the minority
interest in equity of subsidiaries, less unrealized gains or losses on available
for sale securities and certain intangible assets), Tier II capital (which
includes a portion of the allowance for loan losses, minority interest and
subordinated debt), and total capital (Tier I plus Tier II). Risk-based capital
ratios are expressed as a percentage of risk-weighted assets. Risk-weighted
assets are determined by assigning various weights to all assets and off-balance
sheet financial instruments, such as letters of credit and loan commitments,
based on associated risk. Regulators have also adopted minimum Tier I leverage
ratio standards, which measure the ratio of Tier I capital to total assets.

During the past 18 months we completed two capital raising initiatives
which are discussed in the "Capital Resources" section that follows.

At December 31, 1999, management believes that the company and bank are
"well capitalized" and in compliance with regulatory capital requirements.

The company's capital components are depicted in the following table.

CAPITAL COMPONENTS

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C>
Tier I
Shareholders' equity........................................ $ 12,647 $ 11,767
Allowable portion of minority interest in equity of
subsidiaries.............................................. 5,846 4,000
Net unrealized security losses.............................. 4,891 399
-------- --------
Total Tier I capital........................................ $ 23,384 $ 16,166
======== ========
Tier II
Allowable portion of minority interest in equity of
subsidiaries.............................................. $ 4,154 $ 6,000
Allowable portion of the allowance for loan losses.......... 2,511 1,805
Allowable portion of subordinated debt...................... 1,500 1,500
-------- --------
Total Tier II capital....................................... $ 8,165 $ 9,305
======== ========
Total capital............................................... $ 31,549 $ 25,471
Risk-weighted assets........................................ $241,357 $185,263
</TABLE>

The following table compares the company's capital ratios to the
"adequately capitalized" and "well capitalized" regulatory requirements.

CAPITAL RATIOS

<TABLE>
<CAPTION>
"ADEQUATELY "WELL
CAPITALIZED" CAPITALIZED"
DECEMBER 31, 1999 1998 RATIOS RATIOS
- ------------ ----- ----- ------------- -------------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted assets............ 13.07% 13.75% 8.00% 10.00%
Tier I capital/risk-weighted assets...................... 9.69% 8.73% 4.00% 6.00%
Tier I capital/average assets (leverage ratio)........... 7.33% 6.75% 4.00% 5.00%
</TABLE>

<PAGE>

Capital Resources

Our future dividend policy is subject to the discretion of the Board of
Directors and depends upon a number of factors, including future earnings,
financial condition, cash needs, and general business conditions. Holders of
common stock will be entitled to receive dividends as and when declared by the
Board of Directors out of funds legally available for that purpose. Our ability
to pay dividends depends on our ability to obtain dividends from the bank.

The bank's ability to pay dividends is subject to the regulatory
restrictions set forth in the Pennsylvania Banking Code of 1965, the Federal
Reserve Act and the Federal Deposit Insurance Corporation Act. The Pennsylvania
Banking Code provides that cash dividends may be declared and paid only out of
accumulated net earnings, which were $7,684,000 at December 31, 1999. Cash
dividends must be approved by the Federal Reserve Board if the total of all cash
dividends declared by the bank in any calendar year, including the proposed cash
dividend, exceeds the total of the bank's net profits for that year plus its
retained net profits from the preceding two years less any required transfers to
surplus or to a fund for the retirement of preferred stock, if any. The Federal
Deposit Insurance Corporation Act generally prohibits all payments of dividends
by any bank that is in default of any assessment of the FDIC. As of December 31,
1999 and 1998, the bank was not in default of any FDIC assessments.

As a practical matter, we have not nor plan to pay cash dividends in the
foreseeable future. All earnings are being retained to help finance the
continued growth of the institution. The growth rate of the institution
continues to exceed returns on equity. If this trend continues, we will need
additional capital. The formation of the holding company in November 1997 was
largely for the purpose of providing additional capital raising alternatives. On
August 11, 1998, our wholly-owned subsidiary, PBI Capital Trust, issued
$10,000,000 in capital securities. Proceeds from the capital securities provided
us with additional Tier I and Tier II capital. The capital securities, which
represent the minority interest in equity accounts of subsidiaries, are limited
to 25% of Tier I capital. As our equity grows, a greater portion of the capital
securities will count towards Tier I capital.

CAPITAL LEVERAGE STRATEGY

We plan to remain "well capitalized" and manage our organization
accordingly. Current capital levels exceed the regulatory requirement for "well
capitalized" classification. A portion of the "excess" capital has been
temporarily deployed through the use of a capital leverage strategy whereby the
bank invests in mortgage-backed securities, municipal and corporate bonds and
U.S. government agency securities, together, called leverage assets, funded by
short and intermediate term borrowings principally from the Federal Home Loan
Bank of Pittsburgh. This capital leverage strategy generates additional earnings
for us by virtue of a positive interest rate spread between the yield on the
leverage assets and the cost of the borrowings. This positive spread is created
because the average term to maturity of the leverage assets exceeds that of the
borrowings used to fund their purchase. The net interest income earned on the
leverage strategy would be expected to decline in a rising interest rate
environment. The capital leverage strategy has been undertaken in accordance
with the limits established by the Board of Directors for enhancing
profitability under moderate levels of interest rate risk.

LIQUIDITY

Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. Our primary sources of funds are deposits, proceeds from
principal and interest payments on loans and investments, sales of investment
securities available for sale and borrowings. While maturities and scheduled
amortization of loans and investments are a predictable source of funds, deposit
flows, loan prepayments and mortgage-backed securities prepayments are
influenced by interest rates, economic conditions and competition.

<PAGE>

During 1999, operating and financing activities provided cash and cash
equivalents of $4,745,000 and $71,735,000, respectively, while investing
activities used $72,889,000. The cash provided by financing activities resulted
primarily from an increase in deposits and borrowings and the proceeds from our
common stock offering. Other significant sources of cash included principal
repayments on loans and mortgage-backed securities and sales and calls of
investment securities. Together, this cash was primarily used for loan
originations, and the purchase of mortgage-backed and other securities. During
1999, loans and investments grew $59,754,000 and $11,679,000, respectively.
Deposits and borrowings grew $46,255,000 and $22,601,000, respectively, in 1999.

During 1998, operating and financing activities provided cash and cash
equivalents of $2,208,000 and $52,731,000, respectively, while investing
activities used $54,432,000. The cash provided by financing activities resulted
primarily from an increase in deposits and proceeds from the issuance of capital
securities. Other significant sources of cash included principal repayments on
loans and mortgage-backed securities and sales and calls of investment
securities. Together, this cash was primarily used for loan originations, the
purchase of corporate bonds, mortgage-backed and other securities and the
repayment of borrowings. During 1998, loans and investments grew $31,801,000 and
$22,510,000, respectively. Borrowings were reduced by $4,907,000 in 1998.

The bank monitors its liquidity position on a daily basis. The bank uses
overnight federal funds and interest-bearing deposits in other banks to absorb
daily excess liquidity. Conversely, overnight federal funds may be purchased to
satisfy daily liquidity needs. Federal funds are sold or purchased overnight
through a correspondent bank, which diversifies the holdings to an approved
group of commercial banks throughout the country.

If the bank requires funds beyond its ability to generate them internally,
additional sources of funds are available through the use of one of the
following: $4,000,000 unsecured federal funds line of credit with its
correspondent bank, the bank's $43,399,000 borrowing limit at the Federal Home
Loan Bank or the bank's $28,242,000 secured line of credit with the Federal
Reserve Bank of Philadelphia. The bank could also sell or reverse repurchase
investment securities. At December 31, 1999, the bank had $27,500,000 in
borrowings outstanding at the Federal Home Loan Bank and $18,734,000 in reverse
repurchase agreements with investment banks.

The bank is required to maintain a minimum average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by the Federal Reserve Board. The
required reserve balance was $1,222,000 as of December 31, 1999.

At December 31, 1999, certain investment securities were pledged as
collateral for Federal Home Loan Bank borrowings, customer repurchase
agreements, public funds on deposit and reverse repurchase agreements with
investment banks. In addition, investment securities were pledged to satisfy a
reserve requirement of our capital securities issue. At December 31, 1999, an
estimated $65,210,000 in investment securities were pledged for these purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

Derivative Instruments and Hedging Activities

In June 1998 the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and those used for hedging activities, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Statement generally
provides for matching of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, so long as the hedge is
effective. Prospective application of Statement No. 133 is required for all
fiscal quarters of fiscal years beginning after June 15, 2000, with earlier
adoption permitted. We have not yet determined the impact, if any, of this
Statement, including its provisions for the potential reclassifications of
investment securities, on earnings, financial condition or equity.

<PAGE>

YEAR 2000 ISSUES

The Year 2000 Problem resulted because many computer programs were written
using two digits rather than four to define the applicable year. As disclosed in
other filings, in 1999 we developed a company-wide program to ensure that our
date-sensitive information, telephone and business systems, and other equipment
would properly recognize the Year 2000 as a result of the century date change on
January 1, 2000. Our program focused on hardware, software, third party data
processing providers, vendors and suppliers. We substantially completed this
program by the third quarter of 1999. We also took actions we believed would
mitigate our Year 2000 risks related to our critical business partners including
customers, suppliers, vendors and data processing providers. We have not
experienced any significant disruptions of our operating or financial activities
caused by a failure of our information technology systems or embedded technology
applications or unexpected business problems resulting from Year 2000 issues.
Given the absence of any significant problems to date, we do not expect Year
2000 issues to have a material adverse effect on our operations or financial
results in 2000.

In total, we spent approximately $72,000 in external costs on this program
through December 31, 1999 and do not expect to incur any significant additional
costs related to Year 2000 compliance. While there can be no assurance that no
legal claims will arise due to perceived or real Year 2000 issues, the company
does not expect a material impact on its liquidity, financial position or
results of operations caused by internal Year 2000 issues or by possible claims
asserted by third parties.

We funded the costs related to our Year 2000 plan through cash flows from
operations.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and accompanying notes presented in this Form
10-KSB have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the bank's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the bank are
monetary in nature. As a result, interest rates have a greater impact on the
bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.

ITEM 7 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-KSB on the following
pages:

PAGE
----
Independent Auditors' Report................................ 31
Consolidated Statements of Financial Condition.............. 32
Consolidated Statements of Operations....................... 33
Consolidated Statements of Shareholders' Equity and
Comprehensive Income (Loss)............................... 34
Consolidated Statements of Cash Flows....................... 35
Notes to Consolidated Financial Statements.................. 36

<PAGE>

(b) A summary of quarterly results for the years 1999 and 1998 is as follows.

SUMMARY OF QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
QUARTERS ENDED 1999
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................................... $6,099 $5,742 $5,260 $4,828
Interest expense................................... 3,266 2,984 2,721 2,449
------ ------ ------ ------
Net interest income................................ 2,833 2,758 2,539 2,379
Provision for loan losses.......................... 168 199 185 167
Non-interest income................................ 8 18 55 43
Non-interest expense............................... 1,976 1,721 1,551 1,496
------ ------ ------ ------
Income before income tax........................... 697 856 858 759
Income tax expense................................. 168 211 198 188
------ ------ ------ ------
Net income......................................... $ 529 $ 645 $ 660 $ 571
====== ====== ====== ======
Basic earnings per share........................... $ 0.17 $ 0.21 $ 0.22 $ 0.20
Diluted earnings per share......................... $ 0.16 $ 0.19 $ 0.20 $ 0.18
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED 1998
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................................... $4,596 $4,281 $3,907 $3,732
Interest expense................................... 2,354 2,302 2,177 2,089
------ ------ ------ ------
Net interest income................................ 2,242 1,979 1,730 1,643
Provision for loan losses.......................... 150 120 121 114
Non-interest income................................ 125 126 30 76
Non-interest expense............................... 1,429 1,366 1,059 1,049
------ ------ ------ ------
Income before income tax........................... 788 619 580 556
Income tax expense................................. 213 200 194 181
------ ------ ------ ------
Net income......................................... $ 575 $ 419 $ 386 $ 375
====== ====== ====== ======
Basic earnings per share........................... $ 0.21 $ 0.15 $ 0.14 $ 0.14
Diluted earnings per share......................... $ 0.19 $ 0.14 $ 0.13 $ 0.12
</TABLE>

<PAGE>

30
<PAGE>

[LOGO]

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Premier Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Premier Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Premier Bancorp,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ KPMG LLP

February 17, 2000
Philadelphia, Pennsylvania

<PAGE>

PREMIER BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Assets
Cash and due from banks..................................... $ 4,646 $ 4,765
Federal funds sold.......................................... 3,436 1
Interest-bearing deposits................................... 409 134
-------- --------
Cash and cash equivalents................................... 8,491 4,900
Investment securities:
Held to maturity (fair value $6,842 in 1999 and $5,479 in
1998).................................................. 6,881 5,492
Available for sale (amortized cost $104,486 in 1999 and
$94,493 in 1998)....................................... 97,076 93,888
Loans held for sale......................................... -- 1,627
Loans receivable (net of allowance for loan losses of $2,511
in 1999 and $1,805 in 1998)............................... 196,121 138,100
Other real estate owned..................................... -- 200
Premises and equipment...................................... 3,807 1,638
Accrued interest receivable................................. 2,174 1,785
Deferred taxes.............................................. 3,342 826
Other assets................................................ 768 737
-------- --------
Total assets................................................ $318,660 $249,193
======== ========

Liabilities, minority interest in subsidiaries and
shareholders' equity
Deposits.................................................... $237,481 $191,226
Borrowings.................................................. 52,537 29,936
Accrued interest payable.................................... 2,364 1,531
Other liabilities........................................... 2,131 3,233
Subordinated debt........................................... 1,500 1,500
-------- --------

Total liabilities........................................... 296,013 227,426

Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation................ 10,000 10,000

Commitments and contingencies

Shareholders' equity
Common stock - $0.33 par value; 30,000,000 shares
authorized; issued and outstanding 3,078,914 at December
31, 1999 and 2,767,107 at December 31, 1998............... 1,016 913
Additional paid-in capital.................................. 11,662 8,798
Retained earnings........................................... 4,860 2,455
Accumulated other comprehensive loss........................ (4,891) (399)
-------- --------

Total shareholders' equity.................................. 12,647 11,767
-------- --------

Total liabilities, minority interest in subsidiaries and
shareholders' equity...................................... $318,660 $249,193
======== ========
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.

<PAGE>

PREMIER BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998
- -------------------------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest income:
Loans..................................................... $ 14,497 $ 11,002
Federal funds sold and interest-bearing deposits.......... 134 200
Investments:
Taxable................................................... 6,338 4,766
Tax-exempt................................................ 960 548
---------- ----------
Total interest income....................................... 21,929 16,516

Interest expense:
Deposits.................................................. 8,822 7,448
Borrowings................................................ 2,598 1,474
---------- ----------
Total interest expense...................................... 11,420 8,922
---------- ----------
Net interest income......................................... 10,509 7,594
Provision for loan losses................................... 719 505
---------- ----------
Net interest income after loan loss provision............... 9,790 7,089

Non-interest income:
Service charges and other fees............................ 194 169
(Loss) gain, net, on sale of investment securities
available for sale..................................... (151) 133
Gain on sale of loans held for sale....................... 81 55
---------- ----------
Total non-interest income................................... 124 357

Non-interest expense:
Salaries and employee benefits............................ 3,163 2,245
Occupancy................................................. 433 419
Data processing........................................... 667 484
Professional services..................................... 264 299
Marketing................................................. 306 187
Other real estate owned expense........................... 9 134
Minority interest in expense of subsidiaries.............. 866 347
Other..................................................... 1,036 788
---------- ----------
Total non-interest expense.................................. 6,744 4,903
---------- ----------

Income before income tax.................................... 3,170 2,543
Income tax expense.......................................... 765 788
---------- ----------
Net income.................................................. $ 2,405 $ 1,755
========== ==========
Earnings per share:
Basic..................................................... $ 0.80 $ 0.64
Diluted................................................... $ 0.72 $ 0.57
Weighted average number of shares outstanding:
Basic..................................................... 3,016,893 2,762,101
Diluted................................................... 3,341,208 3,069,673
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.

<PAGE>

PREMIER BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
INCOME (LOSS) STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------- ------ ---------- -------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ $ 911 $ 8,771 $ 700 $ 52 $10,434
Comprehensive income (loss)
Net income...................... $ 1,755 -- -- 1,755 -- 1,755
Other comprehensive income
(loss), net of tax
Unrealized losses on
securities available for
sale....................... (423) -- -- -- -- --
Less: reclassification
adjustment for gains
included in net income..... (28) -- -- -- -- --
-------
Other comprehensive income
(loss)....................... (451) -- -- -- (451) (451)
-------
Comprehensive income (loss)....... $ 1,304 -- -- -- -- --
=======
Stock issued for options
exercised....................... 2 27 -- -- 29
------ ------- ------ ------- -------
Balance, December 31, 1998........ $ 913 $ 8,798 $2,455 $ (399) $11,767
====== ======= ====== ======= =======
Comprehensive income (loss)
Net income...................... $ 2,405 -- -- $2,405 -- $ 2,405
Other comprehensive income
(loss), net of tax
Unrealized losses on
securities available for
sale....................... (4,567) -- -- -- -- --
Less: reclassification
adjustment for losses
included in net income..... 75 -- -- -- -- --
-------
Other comprehensive income
(loss)..................... (4,492) -- -- -- (4,492) (4,492)
-------
Comprehensive income (loss)....... $(2,087) -- -- -- -- --
=======
Stock issued from stock
offering........................ 96 2,754 -- -- 2,850

Stock issued for options
exercised....................... 7 110 -- -- 117
------ ------- ------ ------- -------
Balance, December 31, 1999........ $1,016 $11,662 $4,860 $(4,891) $12,647
====== ======= ====== ======= =======
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.

<PAGE>

PREMIER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998
- -------------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income................................................ $ 2,405 $ 1,755
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation expense.................................... 351 219
Provision for loan losses............................... 719 505
Writedowns and losses on sale of other real estate
owned.................................................. -- 127
Amortization of premiums and discounts on investment
securities held to maturity............................ 11 18
Amortization of premiums and discounts on investment
securities available for sale.......................... 135 165
Loss (gain) on sale of investment securities available
for sale............................................... 151 (133)
Gain on sale of loans held for sale..................... (81) (55)
Originations of loans held for sale..................... (9,421) (8,488)
Proceeds from sale of loans held for sale............... 11,129 7,114
Increase in accrued interest receivable................. (389) (333)
Increase in deferred tax asset.......................... (203) (188)
Increase in other assets................................ (31) (251)
Increase in deferred loan fees.......................... 149 118
Increase in accrued interest payable.................... 833 185
(Decrease) increase in other liabilities................ (1,013) 1,450
-------- --------
Net cash provided by operating activities................... 4,745 2,208
-------- --------
Investing activities:
Proceeds from sale of investment securities available for
sale.................................................... 19,716 89,564
Repayment on investment securities available for sale..... 4,517 8,818
Purchase of investment securities available for sale...... (34,512) (130,552)
Repayment on investment securities held to maturity....... 599 13,157
Purchase of investment securities held to maturity........ (1,999) (3,497)
Net increase in loans receivable.......................... (59,754) (31,801)
Proceeds from sale of other real estate owned............. 1,064 561
Purchases of premises and equipment....................... (2,520) (682)
-------- --------
Net cash used in investing activities....................... (72,889) (54,432)
-------- --------
Financing activities:
Net increase in deposits.................................. 46,255 47,623
Net increase (decrease) in borrowings less than 90 days... 27,601 (4,907)
Increase in borrowings greater than 90 days............... 10,000 5,000
Repayment of borrowings greater than 90 days.............. (15,000) (5,000)
Proceeds from common stock offering....................... 2,850 --
Proceeds from exercised stock options..................... 29 15
Proceeds from capital securities.......................... -- 10,000
-------- --------
Net cash provided by financing activities................... 71,735 52,731
-------- --------
Increase in cash and cash equivalents....................... 3,591 507

Cash and cash equivalents:
Beginning of year......................................... 4,900 4,393
-------- --------
End of year............................................... $ 8,491 $ 4,900
======== ========
Supplemental disclosures:
Cash payments for:
Interest expense........................................ $ 10,587 $ 8,737
Taxes................................................... 1,075 950

Supplemental disclosure of noncash activities:
Change in the estimated fair value of investment
securities available for sale........................... $ (6,805) $ (684)
Change in deferred tax asset related to investment
securities available for sale........................... 2,313 233
Tax effect of exercised stock options..................... 89 14
Transfer of loans to other real estate owned.............. 864 297
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Premier Bancorp, Inc. (the "company") was incorporated under the laws of
the Commonwealth of Pennsylvania on July 15, 1997. It was reorganized as the
one-bank holding company of Premier Bank (the "bank") on November 17, 1997.
Premier Bancorp, Inc., through its subsidiary bank, Premier Bank, provides a
full range of banking services to individual and corporate customers through its
branch banking system located in Bucks and Northampton Counties in Pennsylvania,
all of which is managed as one operating segment. Premier Bank is a Pennsylvania
chartered commercial bank and member of the Federal Reserve Bank of Philadelphia
and the Federal Deposit Insurance Corporation. The bank is subject to
competition from other financial institutions and other financial services
companies with respect to these services and customers. The company is also
subject to the regulations of certain federal agencies and undergoes periodic
examinations by such regulatory authorities.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Premier
Bancorp, Inc. and its wholly-owned subsidiaries, Premier Bank and PBI Capital
Trust. Such statements have been prepared in accordance with generally accepted
accounting principles as it applies to the banking industry. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. Certain previously reported amounts have been reclassified
to conform to current presentation standards. These reclassifications had no
effect on net income.

Use of Estimates

In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from such estimates. Material estimates that are particularly susceptible to
significant change in the near term include the determination of the allowance
for loan losses and the carrying value of other real estate owned, if any.

Investment Securities

Debt and equity securities are classified as either held to maturity
("HTM") securities or as available for sale ("AFS") securities. Investment
securities that the company has the positive intent and ability to hold to
maturity are classified as HTM securities and reported at amortized cost.
Investment securities not classified as held to maturity nor held for the
purpose of trading in the near term are classified as AFS securities and
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders' equity. The
company does not engage in any trading activities. Management determines the
appropriate classification of securities at the time of purchase.

AFS securities include securities that management intends to use as part of
its asset/liability management strategy and that may be sold in response to
changes in market interest rates and related changes in the securities'
prepayment risk or to meet liquidity needs. The majority of the company's
investment portfolio is classified as available for sale.

Premiums and discounts on debt securities are recognized in interest income
using a constant yield method. Gains and losses on sales of investment
securities are computed on the specific identification basis and included in
non-interest income based on trade date.

Equity securities are limited to stocks owned in the FRB, the Federal Home
Loan Bank of Pittsburgh and the Atlantic Central Bankers Bank. These non-readily
marketable equity securities are carried at cost, which approximates liquidation
value.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Loans

Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs. Interest income is accrued on the principal amount outstanding.
Loan origination fees and related direct costs are deferred and amortized to
income over the term of the respective loan and loan commitment period as a
yield adjustment.

Non-accrual loans are those on which the accrual of interest has ceased.
Non-consumer loans are generally placed on non-accrual status if, in the opinion
of management, collection is doubtful, or when principal or interest is past due
90 days or more. Interest accrued, but not collected at the date a loan is
placed on non-accrual status, is reversed and charged against interest income.
Subsequent cash receipts are applied either to the outstanding principal or
recorded as interest income, depending on management's assessment of ultimate
collectibility of principal and interest. Loans are returned to an accrual
status when the borrower's ability to make periodic principal and interest
payments has returned to normal (i.e. brought current with respect to principal
or interest or restructured) and the paying capacity of the borrower and/or the
underlying collateral is deemed sufficient to cover principal and interest.
Consumer loans are not automatically placed on non-accrual status when principal
or interest payments are 90 days past due, but in most instances, are
charged-off when deemed uncollectible or after reaching 120 days past due.

Impaired loans are measured based on the present value of expected future
discounted cash flows, the market price of the loan or the fair value of the
underlying collateral if the loan is collateral dependent. The recognition of
interest income on impaired loans is the same as for non-accrual loans discussed
above.

Loans Held for Sale

Residential mortgages held for sale are carried at the lower of aggregate
cost or market value. Gains and losses on residential mortgages held for sale
are included in non-interest income. The servicing of these loans is released to
the purchaser upon sale.

Allowance for Loan Losses

The provision for loan losses charged to operating expense reflects the
amount deemed appropriate by management to produce an adequate reserve to meet
the present and foreseeable risk characteristics of the existing loan portfolio.
Management's judgment is based on the evaluation of individual loans, past
experience, the assessment of current economic conditions, and other relevant
factors. Loan losses are charged directly against the allowance for loan losses
and recoveries on previously charged-off loans are added to the allowance.

Management uses estimates to determine the allowance for loan losses.
Consideration is given to a variety of factors in establishing these estimates
including current economic conditions, diversification of the loan portfolio,
delinquency statistics, borrowers' perceived financial and managerial strengths,
the adequacy of underlying collateral, if collateral dependent, or present value
of future cash flows, and other relevant factors.

In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for loan losses. They may
require additions to the allowance based upon their judgment and information
available to them at the time of examination.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the assets as follows:
buildings-15 to 40 years; leasehold improvements-lesser of the useful life or
lease term; equipment-5 to 10 years; and software-3 years. Expenditures for
maintenance and repairs are charged to operations as incurred. Gains or losses
upon disposition are reflected in earnings as realized. Land is carried at cost.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Other Real Estate Owned

Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Other
real estate owned is recorded at the lower of the carrying value of the loan or
the fair value of the property, net of estimated selling costs. Costs relating
to the development or improvement of the properties are capitalized while
holding expenses related to the operation and maintenance of properties are
expensed as incurred. Gains and losses upon disposition are reflected in
earnings as realized.

Income Taxes

Premier Bancorp, Inc. and its subsidiaries file a consolidated federal
income tax return and the amount of income tax expense or benefit is computed
and allocated on a separate return basis. To provide for income taxes, the
company uses the asset and liability method under which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period which includes the
enactment date.

Earnings Per Share

Basic earnings per common share is calculated on the basis of the weighted
average number of shares outstanding, after giving retroactive effect to the 5%
common stock dividend declared on February 17, 2000 and paid on March 10, 2000.
Diluted earnings per common share includes dilutive common stock equivalents as
computed under the treasury stock method using average common stock prices.

Stock Options

The company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, as permitted by
Statement No. 123, "Accounting for Stock-Based Compensation". As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Statement No. 123
requires entities which continue to apply the provisions of APB Opinion No. 25
to provide pro-forma net income and pro-forma earnings per share disclosures for
stock option grants made in 1995 and subsequent years as if the fair value based
method defined in Statement No. 123 had been applied. The company elected to
continue to apply the provisions of APB Opinion No. 25 and provides the
pro-forma disclosure provisions of Statement No. 123.

Statement of Cash Flows

Cash and cash equivalents for purposes of this statement consist of cash
and due from banks, interest-bearing deposits, and overnight federal funds sold.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

Derivative Instruments and Hedging Activities

In June 1998 the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and those used for hedging activities, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Statement generally
provides for matching of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, so long as the hedge is
effective. Prospective application of Statement No. 133 is required for all
fiscal quarters of fiscal years beginning after June 15, 2000 with earlier
adoption permitted. The company has not yet determined the impact, if any, of
this Statement, including its provisions for the potential reclassifications of
investment securities, on earnings, financial condition or equity.

NOTE 2 -- STOCK DIVIDEND

On February 17, 2000, the company declared a 5% common stock dividend to
shareholders of record as of February 29, 2000 and payable March 10, 2000. The
number of shares and per share amounts have been restated to reflect this event
as of the earliest date presented herein.

NOTE 3 -- CASH AND DUE FROM BANKS

The bank is required to maintain certain daily average reserve balances in
accordance with Federal Reserve Board requirements. At December 31, 1999 and
1998 the reserve requirement was $1,222,000 and $862,000, respectively.

NOTE 4 -- INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at
December 31, 1999 and 1998 are as follows.

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
- -----------------
Held to Maturity:
Mortgage-backed securities........................... $ 1,384 $ -- $ (18) $ 1,366
U.S. government agency obligations................... 4,997 -- (21) 4,976
Other debt securities................................ 500 -- -- 500
-------- ---- ------- -------
Total investment securities held to maturity......... $ 6,881 $ -- $ (39) $ 6,842
======== ==== ======= =======
Available for Sale:
Mortgage-backed securities........................... $ 50,010 $ 2 $(2,762) $47,250
U.S. government agency obligations................... 5,000 3 (5) 4,998
State and municipal securities....................... 17,860 -- (2,058) 15,802
Equity securities.................................... 1,883 -- -- 1,883
Corporate bonds...................................... 29,618 -- (2,590) 27,028
Other debt securities................................ 115 -- -- 115
-------- ---- ------- -------
Total investment securities available for sale....... $104,486 $ 5 $(7,415) $97,076
======== ==== ======= =======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 -- INVESTMENT SECURITIES -- (CONTINUED)

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
- -----------------
Held to Maturity:
Mortgage-backed securities........................................ $ 1,994 $ -- $ (8) $ 1,986
U.S. government agency obligations................................ 2,998 15 (20) 2,993
Other debt securities............................................. 500 -- -- 500
--------- ---- -------- -------
Total investment securities held to maturity...................... $ 5,492 $ 15 $ (28) $ 5,479
========= ==== ======== =======
Available for Sale:
Mortgage-backed securities........................................ $ 35,411 $134 $ (69) $35,476
State and municipal securities.................................... 18,533 188 (19) 18,702
Corporate bonds................................................... 36,689 40 (879) 35,850
Equity securities................................................. 3,745 -- -- 3,745
Other debt securities............................................. 115 -- -- 115
--------- ---- -------- -------
Total investment securities available for sale.................... $ 94,493 $362 $ (967) $93,888
========= ==== ======== =======
</TABLE>

At December 31, 1999, certain investment securities were pledged as
collateral for borrowings, customer repurchase agreements, reverse repurchase
agreements with investment banks, and public funds on deposit. In addition,
investment securities were pledged to satisfy a reserve requirement of our
capital securities issue. At December 31, 1999, an estimated $65,210,000 in
investment securities were pledged for these purposes.

The amortized cost and estimated fair value of investment securities AFS
and HTM by contractual maturity at December 31, 1999 are shown in the following
table. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
penalties.

<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................................ $ 723 $ 714 $ 5,148 $ 4,926
Due after one year through five years.............................. 644 636 15,050 14,329
Due after five years through ten years............................. 3,016 2,997 13,528 12,896
Due after 10 years................................................. 2,498 2,495 70,760 64,925
------- ------- --------- -------
Total.............................................................. $ 6,881 $ 6,842 $ 104,486 $97,076
======= ======= ========= =======
</TABLE>

Proceeds from sales of investment securities AFS are as follows:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Proceeds................................................................... $ 19,716 $ 89,564
Gross gains................................................................ 71 402
Gross losses............................................................... 222 269
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -- LOANS

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate--construction.................................................. $ 3,850 $ 2,161
Real estate--residential................................................... 30,330 30,770
Real estate--multifamily................................................... 9,738 5,135
Real estate--commercial.................................................... 127,885 86,008
Commercial................................................................. 25,260 14,434
Consumer................................................................... 2,161 1,840
-------- --------
Total loans................................................................ 199,224 140,348
Unearned income............................................................ 592 443
Allowance for loan losses.................................................. 2,511 1,805
-------- --------
Total loans, net........................................................... $196,121 $138,100
======== ========
</TABLE>

The company generally lends in the Greater Delaware and Lehigh Valleys in
Pennsylvania and New Jersey with a majority of its borrowers living in
communities surrounding its branches. Most loans are collateralized in part by
real estate. Accordingly, lending activities could be affected by changes in the
general economy, the regional economy or real estate values.

The company had impaired loans totaling $136,000 and $1,080,000 at December
31, 1999 and 1998, respectively. The average recorded investment in these loans
was $148,000 and $460,000 for 1999 and 1998, respectively. Each of the impaired
loans at December 31, 1999 and 1998 had a corresponding allowance for losses.
The allowance for losses on impaired loans totaled $31,000 at December 31, 1999
compared to $93,000 at December 31, 1998. Most of the loans identified as
impaired are collateral-dependent. No interest income was recognized on these
loans in 1999 or 1998.

Non-accrual loans totaled $136,000 and $1,080,000 at December 31, 1999 and
December 31, 1998, respectively. If interest on these loans had been recorded,
interest income would have increased by $14,000 in 1999 and $69,000 in 1998. The
bank had $4,635,000 in loans which, although performing at December 31, 1999,
are believed to require increased supervision and review; and may, depending on
the economic environment and other factors, become non-performing assets in
future periods. Most of these loans are secured by real estate.

NOTE 6 -- ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is shown below.

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------ ------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year............................................... $1,805 $1,360
Charge-offs................................................................ (13) (68)
Recoveries................................................................. -- 8
Provision for loan losses.................................................. 719 505
------ ------
Balance at end of year..................................................... $2,511 $1,805
====== ======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -- PREMISES AND EQUIPMENT

Premises and equipment, stated at cost less accumulated depreciation and
amortization, are summarized below:

DECEMBER 31, 1999 1998
- ------------ ------ ------
(IN THOUSANDS)
Building.................................................. $1,804 $ 406
Land...................................................... 794 255
Leasehold improvements.................................... 321 400
Furniture, fixtures and equipment......................... 1,869 1,229
------ ------
Cost...................................................... 4,788 2,290
Accumulated depreciation and amortization................. (981) (652)
------ ------
Carrying value............................................ $3,807 $1,638
====== ======

Depreciation and amortization expense on premises and equipment amounted to
$351,000 and $219,000 for the years ended December 31, 1999, and 1998,
respectively.

Throughout 1998 all premises were leased. The leases on the Doylestown and
Easton offices expired on December 31, 1998. The bank exercised its option to
purchase these facilities in January 1999 for $1,252,000 in the aggregate.
Properties under lease as of December 31, 1999 include the Southampton branch
and operations center, two loan production offices and land for the future site
of the Montgomeryville, Pennsylvania branch. The Southampton and Colmar loan
centers were opened in September 1998 and November 1999, respectively. The
Montgomeryville branch is expected to open in the third quarter of 2000. These
leases include options for renewal.

Required minimum annual rentals due on non-cancelable leases expiring after
one year approximate $1,888,000 in the aggregate at December 31, 1999. Future
minimum payments under these leases are as follows.

FUTURE
MINIMUM LEASE
FOR THE YEARS ENDING DECEMBER 31, PAYMENTS
- --------------------------------- -------------
(IN
THOUSANDS)
2000............................................................ $ 102
2001............................................................ 145
2002............................................................ 145
2003............................................................ 93
2004............................................................ 85
2005 and thereafter............................................. 1,318
-------
$ 1,888
=======

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 -- DEPOSITS

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST % OF INTEREST % OF
RATE AMOUNT TOTAL RATE AMOUNT TOTAL
-------- -------- ------ -------- -------- -------
(DOLLARS IN THOUSANDS)
Interest checking......................... 2.56% $ 21,249 8.95% 2.62% $ 16,432 8.59%
Money market.............................. 2.55% 1,000 0.42% 2.57% 1,580 0.83%
Savings................................... 3.41% 51,224 21.57% 3.44% 54,082 28.28%
Time...................................... 5.46% 144,532 60.86% 5.46% 100,107 52.35%
---- -------- ------ ---- -------- -------
Total interest-bearing deposits........... 4.68% 218,005 91.80% 4.53% 172,201 90.05%
==== ====
Non-interest-bearing deposits............. 19,476 8.20% 19,025 9.95%
-------- ------ -------- -------
Total deposits............................ $237,481 100.00% $191,226 100.00%
======== ====== ======== =======
</TABLE>

Time deposits by date of maturity are as follows:

<TABLE>
<CAPTION>
AMOUNTS
AMOUNTS LESS
$100,000 THAN
FOR THE YEARS ENDING DECEMBER 31, OR GREATER $100,000 TOTAL
- --------------------------------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
2000...................................................... $ 31,201 $ 80,720 $111,921
2001...................................................... 2,473 19,456 21,929
2002...................................................... 2,270 6,932 9,202
2003...................................................... 300 934 1,234
2004...................................................... -- 246 246
2005 and thereafter....................................... -- -- --
-------- -------- --------
$ 36,244 $108,288 $144,532
======== ======== ========
</TABLE>

Interest expense on deposits is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest checking........................................................ $ 473 $ 335
Money market............................................................. 37 44
Savings.................................................................. 1,888 1,905
Time..................................................................... 6,424 5,164
------- -------
Total interest expense on deposits....................................... $ 8,822 $ 7,448
======= =======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -- BORROWINGS

<TABLE>
<CAPTION>
MAXIMUM WEIGHTED
AMOUNT AVERAGE AVERAGE
TOTAL OUTSTANDING AMOUNT INTEREST
BALANCE WEIGHTED AT MONTH END OUTSTANDING RATE
END OF AVERAGE DURING THE DURING THE DURING THE
PERIOD RATE PERIOD PERIOD PERIOD
------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
1999 (DOLLARS IN THOUSANDS)
- ----
Federal funds purchased and securities sold under
agreement to repurchase.......................... $52,537 5.80% $ 52,537 $33,735 5.25%
Long-term FHLB advances............................ -- -- 15,000 13,315 5.42%
------- ------- ----
Total borrowings................................... $52,537 $47,050 5.30%
======= ======= ====
1998
- ----
Federal funds purchased and securities sold under
agreement to repurchase.......................... $14,936 4.74% $ 16,093 $10,357 5.24%
Long-term FHLB advances............................ 15,000 5.42% 15,000 15,000 5.42%
------- ------- ----
Total borrowings................................... $29,936 $25,357 5.35%
======= ======= ====
</TABLE>

At December 31, 1999 short-term borrowings included $27,500,000 in
borrowings from the FHLB which mature within 90 days, $18,734,000 in reverse
repurchase agreements with investment banks which mature within 60 days and
$6,303,000 in overnight borrowings from customers. At December 31, 1998
short-term borrowings included $11,000,000 in borrowings from FHLB which mature
within 7 days and $3,936,000 in overnight borrowings from customers.

All borrowings from the FHLB are secured by a blanket lien against all of
the bank's assets. In addition, the FHLB amended its policies in 1998 to require
its borrowers who exceed 50% of their maximum borrowing capacity to deliver
certain securities to them as collateral. The bank delivered $33,024,000 and
$21,714,000 in investments as collateral to the FHLB under this new policy at
December 31, 1999 and 1998, respectively. Repurchase agreements with investment
banks were secured by $21,320,000 in investment securities at December 31, 1999.
Customer repurchase agreements are collateralized by investment securities in an
amount equal to or exceeding such borrowings. The company controls securities
pledged as collateral for customer repurchase agreements.

The company prepaid all long-term FHLB borrowings in 1999 after the issuer
called them.

At December 31, 1999, the bank had a $4,000,000 unsecured federal funds
line of credit from its correspondent bank and a $43,399,000 borrowing limit at
the FHLB. At December 31, 1999, the bank had unused borrowing capacity of
$4,000,000 and $15,899,000 from the correspondent bank and the FHLB,
respectively. Reverse repurchase agreements generally can be transacted with
investment banks on a deal by deal basis provided the company has adequate
collateral.

Additional borrowing capacity of $28,242,000 is also available through a
line of credit with the Federal Reserve Bank of Philadelphia. Borrowings against
this line would be collateralized by loans. At December 31, 1999, no funds were
drawn against this credit facility.

NOTE 10 -- SUBORDINATED DEBT

On January 9, 1997, the bank borrowed $1,500,000 from another financial
institution for the purpose of funding its continued growth and to assist in the
maintenance of certain regulatory capital ratios. The loan is unsecured and
matures on January 12, 2012. The term note carries an annually adjustable rate
based upon the one-year Treasury index plus 240 basis points. The note requires
monthly interest payments for the first ten years with principal payments
beginning in the eleventh year with full amortization by the maturity date. The
bank can prepay the notes with regulatory approval.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -- EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------
PER SHARE
NET INCOME SHARES AMOUNT
---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Basic earnings per share.......................... $2,405 3,016,893 $ 0.80
Effect of dilutive stock options.................. -- 324,315 (0.08)
------ --------- -------
Diluted earnings per share........................ $2,405 3,341,208 $ 0.72
====== ========= =======
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------
PER SHARE
NET INCOME SHARES AMOUNT
---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Basic earnings per share.......................... $1,755 2,762,101 $ 0.64
Effect of dilutive stock options.................. -- 307,572 (0.07)
------ --------- -------
Diluted earnings per share........................ $1,755 3,069,673 $ 0.57
====== ========= =======
</TABLE>

Earnings per share was calculated on the basis of weighted average number
of shares after giving retroactive effect to the 5% common stock dividend
declared on February 17, 2000. Options to purchase 688,326 and 705,936 shares of
common stock were outstanding at December 31, 1999 and 1998, respectively, and
to the extent dilutive, were included in the computation of diluted earnings per
share.

NOTE 12 -- INCOME TAXES

The components of the provision for income taxes are as follows.

YEAR ENDED DECEMBER 31, 1999 1998
- ----------------------- ------ ------
(IN THOUSANDS)
Current tax expense..................................... $ 968 $ 976
Deferred income tax benefit............................. (203) (188)
------ ------
Income tax expense...................................... $ 765 $ 788
====== ======

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 -- INCOME TAXES -- (CONTINUED)

At December 31, 1999 and 1998, the tax effects of temporary differences
that represent the significant portion of deferred tax assets and liabilities
are as follows.

YEAR ENDED DECEMBER 31, 1999 1998
- ---------------------------------------------------------- ------ ------
(IN THOUSANDS)
Deferred tax assets:
Unrealized net loss on securities available for sale.... $2,519 $ 206
Allowance for loan losses............................... 831 593
Other................................................... 13 51
------ ------
Total deferred tax assets................................. 3,363 850
------ ------

Deferred tax liabilities:
Depreciation............................................ (21) (24)
------ ------
Total deferred tax liabilities............................ (21) (24)
------ ------
Net deferred tax asset.................................... $3,342 $ 826
====== ======

The realizability of deferred tax assets is dependent upon a variety of
factors, including the generation of future taxable income, the existence of
taxes paid and recoverable, the reversal of deferred tax liabilities and tax
planning strategies. Based upon these and other factors, management believes it
is more likely than not that the company will realize the benefits of these
deferred tax assets.

A reconciliation of income tax expense in the accompanying statements of
operations with the amount computed by applying the statutory federal income tax
rate to earnings before income taxes is as follows.

YEAR ENDED DECEMBER 31, 1999 1998
- ----------------------- ------- -------
(IN THOUSANDS)
Tax expense at 34% rate................................ $ 1,078 $ 865
Interest from tax exempt loans and investments......... (300) (185)
Other, net............................................. (13) 108
------- -------
Income tax expense..................................... $ 765 $ 788
======= =======

NOTE 13 -- EMPLOYEE BENEFIT PLANS

The company maintains a defined contribution savings plan covering
substantially all employees. The plan allows eligible employees to make
contributions by salary reduction pursuant to the provisions of 401(k) of the
Internal Revenue Code. Discretionary matching contributions by the bank expensed
in the financial statements for 1999 and 1998 were $54,000 and $49,000,
respectively.

NOTE 14 -- STOCK OPTION PLAN

The number of options and strike prices in the following discussion were
provided after giving retroactive effect to the 5% common stock dividend
declared on February 17, 2000 and paid on March 10, 2000. In connection with its
initial stock offering, the company issued options to purchase common stock to
certain incorporators, directors, officers, and institutional investors. The
options are exercisable at a price of $2.89 per share and expire April 23, 2002.
The options are transferable and contain certain customary anti-dilution clauses
in the case of certain events. At December 31, 1999 and 1998, there were 423,780
and 453,906 of such options issued and outstanding, respectively.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 -- STOCK OPTION PLAN -- (CONTINUED)

In addition, the company adopted a stock option program in 1995 whereby up
to 315,000 options may be granted to employees or directors based on a
discretionary incentive program. The exercise price of options granted under
this program will be at the fair value of common stock as of the grant date.
Options expire ten years from the date of grant. In January 1998, 15,933 options
were granted at an exercise price of $5.71 per share and were immediately
vested. In January 1999, 13,665 options were granted at an exercise price of
10.48 per share and were immediately vested. In January 2000, 38,333 options
were granted at an exercise price of $12.26 per share and were immediately
vested.

A summary of the company's stock option plan as of December 31, 1999 and
1998 is as follows.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................................... 705,936 $ 3.55 695,253 $ 3.50
Granted............................................................ 13,665 10.48 15,933 5.71
Exercised.......................................................... (31,275) 2.91 (5,250) 2.89
-------- ------ -------- ------
Outstanding at end of of year...................................... 688,326 $ 3.72 705,936 $ 3.55
======== ====== ======== ======
Options exercisable at end of year................................. 628,791 629,391
======== ========
Weighted-average fair value of options granted and vested during
the year......................................................... $156,000 $107,000
======== ========
</TABLE>

The following summarizes information about stock options outstanding and
exercisable at December 31, 1999 and 1998.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ----------------- ----------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.89 423,780 2.33 $ 2.89 423,780 $ 2.89
3.50 12,911 6.00 3.50 12,911 3.50
4.76 222,037 7.00 4.76 162,502 4.76
5.71 15,933 8.00 5.71 15,933 5.71
10.48 13,665 9.00 10.48 13,665 10.48
- ----------------- ------- ----- ------ ------- ------
$ 2.89 to $10.48 688,326 4.17 $ 3.72 628,791 $ 3.62
================= ======= ===== ====== ======= ======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 -- STOCK OPTION PLAN -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.89 453,906 3.33 $ 2.89 453,906 $ 2.89
3.50 14,060 7.00 3.50 14,060 3.50
4.76 222,037 8.00 4.76 145,492 4.76
5.71 15,933 9.00 5.71 15,933 5.71
- --------------- ------- ----- ------ ------- ------
$ 2.89 to $5.71 705,936 5.00 $ 3.55 629,391 $ 3.41
=============== ======= ===== ====== ======= ======
</TABLE>

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require, the adoption of fair
value accounting for stock-based compensation to employees. The company, as
permitted, has elected not to adopt the fair value accounting provisions of
Statement No. 123, and has instead continued to apply APB Opinion 25 and related
interpretation in accounting for the plan and has provided the required
pro-forma disclosures of Statement No. 123.

The fair value of each option using the Black Scholes options pricing model
was $7.32 in 1999 and $4.99 in 1998. Significant assumptions used in the model
for 1999 and 1998 grants included a weighted average risk-free rate of return of
4.61% in 1999 and 5.46% in 1998; expected option life of ten years for both 1999
and 1998; and no dividends for either 1999 or 1998. Had the grant-date
fair-value provisions of Statement No. 123 been adopted, the company would have
recognized additional compensation expense of $156,000 in 1999 and $107,000 in
1998.

As a result, the company's net income and earnings per share would have
been reduced to the pro-forma amounts indicated below.

DECEMBER 31, 1999 1998
- ------------ ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income
As reported............................. $ 2,405 $ 1,755
Pro forma............................... 2,249 1,648
Basic earnings per share
As reported............................. $ 0.80 $ 0.64
Pro forma............................... 0.75 0.60
Diluted earnings per share
As reported............................. $ 0.72 $ 0.57
Pro forma............................... 0.67 0.54

NOTE 15 -- COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-balance Sheet Risk

The bank is a party to financial instruments with off-balance sheet risk in
the normal course of business. These financial instruments include commitments
to extend credit and stand-by letters of credit to meet the financing needs of
its customers. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
statements of financial condition. The contract or notional amounts of those
instruments reflect the extent of involvement the bank has in particular classes
of financial instruments.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

The bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
stand-by letters of credit is represented by the contractual or notional amount
of those instruments.

Financial instruments whose contract amounts represent credit risk at
December 31, 1999 and 1998 are as follows.

CONTRACT OR NOTIONAL AMOUNT
---------------------------
1999 1998
-------- -------
(IN THOUSANDS)
Commitments to extend credit...................... $22,018 $15,627
Stand-by letters of credit........................ 1,509 1,588

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions established in the contract. The bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the bank upon extension of
credit, is based on management's credit evaluation of the counter-party.
Collateral held varies but may include inventory, property, plant and equipment,
and income producing commercial properties. The commitments at December 31, 1999
were principally to originate commercial loans and other loans secured by real
estate. At December 31, 1999, fixed and variable rate commitments totalled
$2,184,000 and $19,834,000, respectively.

Stand-by letters of credit are conditional commitments issued by the bank
to guarantee the performance of a customer to a third party. Most guarantees
extend for one year or less. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers.

The amount of collateral received on loan commitments and on stand-by
letters of credit is dependent upon the individual transaction and the credit
worthiness of the customer.

Concentrations of Credit Risk

The company generally lends in the Greater Delaware and Lehigh Valleys in
Pennsylvania and New Jersey with a majority of its borrowers living in
communities surrounding its branches. The majority of the bank's loan portfolio
is secured by residential and commercial real estate. Accordingly, the bank's
primary concentration of credit risk is related to the real estate market in
these areas. The ultimate collectibility of this portion of the bank's portfolio
is susceptible to changes in local market conditions, and therefore, dependent
upon the local economic environment. In addition, loan concentrations are also
considered to exist when there are amounts loaned or committed to be loaned to a
multiple number of borrowers engaged in similar activities which would cause
their ability to meet contractual obligations to be similarly impacted by
economic or other conditions. The bank's loan portfolio contains many borrowers
who are employed in various professions such as the medical, dental, legal,
restaurant, hotel, and real estate professions.

Legal Proceedings

As of December 31, 1999, there were no material legal proceedings pending
against the company.

NOTE 16 -- RELATED PARTY TRANSACTIONS

As a matter of policy, the bank does not extend credit to employees,
officers or directors.

The bank's offices in Doylestown and Easton were owned by Norbuck
Associates, a Pennsylvania limited partnership consisting of several directors
of the bank. The leases with Norbuck expired December 31, 1998. In January 1999,
the bank exercised its option to purchase these buildings (See also Note 7).
Rent paid to Norbuck in 1999 and 1998 was $10,000 and $120,000, respectively.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

The company incurred $107,000 and $84,000 in expenses for consulting
services rendered by its Chairman of the Board of Directors in 1999 and 1998,
respectively.

At December 31, 1999 the bank had approximately $9,076,000 on deposit from
companies related to one of the members of our Board of Directors. Management
believes that these deposits were made on substantially the same terms,
including interest rate, as those prevailing at the time for comparable
transactions with other non-related parties. Approximantely $8,692,000 of these
deposits matured in January 2000.

NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The company is required to disclose estimated fair values for its financial
instruments, whether or not recognized in the balance sheet. For Premier
Bancorp, Inc., as for most financial institutions, substantially all of its
assets and liabilities are considered financial instruments.

Estimates of fair value are made at a specific point in time, based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the company's entire holdings of a
particular financial instrument. For a substantial portion of the company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions regarding the
amount and timing of estimated future cash flows, which are discounted to
reflect varying degrees of risk. Given the uncertainties surrounding these
assumptions, the reported fair values may not represent actual values of
financial instruments that could have been realized as of year end or that will
be realized in the future. Use of different assumptions or methodologies is
likely to result in significantly different fair value estimates.

The fair value of non-interest bearing demand deposits, interest checking
accounts, money market accounts and savings accounts is equal to the carrying
amount because these deposits have no stated maturity. This approach to
estimating fair value excludes the significant benefit that results from the
low-cost funding provided by such deposit liabilities, as compared to
alternative sources of funding. As a consequence, the values below may distort
the actual fair value of a banking organization that is a going concern.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)

The estimated fair values and carrying amounts of financial assets and
liabilities are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ----------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE AMOUNT FAIR VALUE AMOUNT
---------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks....................... $ 4,646 $ 4,646 $ 4,765 $ 4,765
Federal funds sold............................ 3,436 3,436 1 1
Interest-bearing deposits..................... 409 409 134 134
Investment securities:
Available for sale.......................... 97,076 97,076 93,888 93,888
Held to maturity............................ 6,842 6,881 5,479 5,492
Loans held for sale........................... -- -- 1,634 1,627
Net loans..................................... 194,716 196,121 141,445 138,100
Accrued interest receivable................... 2,174 2,174 1,785 1,785
-------- -------- -------- --------
Total financial assets........................ $309,299 $310,743 $249,131 $245,792
======== ======== ======== ========
Financial liabilities:
Deposits with no stated maturities............ $ 92,949 $ 92,949 $ 91,119 $ 91,119
Deposits with stated maturities............... 145,065 144,532 100,815 100,107
Borrowings.................................... 52,532 52,537 30,553 29,936
Subordinated debt............................. 1,500 1,500 1,500 1,500
Accrued interest payable...................... 2,364 2,364 1,531 1,531
-------- -------- -------- --------
Total financial liabilities................... $294,410 $293,882 $225,518 $224,193
======== ======== ======== ========
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1999 and
1998.

Cash and due from banks, Federal funds sold and Interest-bearing
deposits: Current carrying amounts approximate estimated fair values.

Investment securities: Current quoted market prices were used to estimate
fair value.

Net loans and Loans held for sale: Fair values were estimated using the
present value of the estimated cash flows, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.

Accrued interest receivable and Accrued interest payable: Current carrying
amounts approximate estimated fair values.

Deposit liabilities: The fair value of deposits with no stated maturity
(i.e., demand deposits, interest checking accounts, money market accounts and
savings accounts) are by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). Deposits with a stated
maturity (time deposits) have been valued using the present value of cash flows
discounted at rates approximating the current market for similar deposits.

Borrowings: Borrowings have been valued using the present value of cash
flows discounted at rates approximating the current market for similar
liabilities.

Subordinated debt: The interest rate on subordinated debt adjusts annually
each January. Therefore, current carrying amount approximates estimated fair
value.

Off-balance-sheet instruments: Off-balance-sheet instruments are primarily
comprised of loan commitments that are generally priced at market at the time of
funding. Fees on commitments to extend credit and stand-by letters of credit are
deemed to be immaterial and these instruments are expected to be settled at face
value or expire unused. It is impractical to assign any fair value to these
instruments. At December 31, 1999 and 1998 loan commitments were $22,018,000 and
$15,627,000, respectively. Stand-by letters of credit were $1,509,000 and
$1,588,000 at December 31, 1999 and 1998, respectively.

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C>
Assets
Cash on deposit with subsidiary bank.............................. $ 2,241 $ 553
Investment securities available for sale.......................... 1,918 4,980
Investment in subsidiaries........................................ 18,541 16,290
Deferred issuance costs on capital securities..................... 456 425
Accrued interest receivable....................................... 30 67
Other............................................................. 173 152
------- -------
Total assets.................................................... $23,359 $22,467
======= =======
Liabilities and shareholders' equity
Borrowings from subsidiary trust.................................. $10,310 $10,310
Accrued interest payable.......................................... 334 349
Other............................................................. 68 41
------- -------
Total liabilities............................................... 10,712 10,700

Shareholders' equity
Common stock...................................................... 1,016 913
Additional paid-in capital........................................ 11,662 8,798
Retained earnings................................................. 4,860 2,455
Accumulated other comprehensive loss.............................. (4,891) (399)
------- -------
Total shareholders' equity...................................... 12,647 11,767
------- -------
Total liabilities and shareholders' equity........................ $23,359 $22,467
======= =======

CONDENSED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1999 1998
- -------------------------------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest income on securities available for sale.................. $ 268 $ 123
Interest income on capital securities of subsidiary trust......... 28 9
Equity in undistributed income of subsidiaries.................... 3,260 2,039
Loss on sale of investment securities available for sale.......... (69) --
------- -------
Total income...................................................... 3,487 2,171
------- -------
Interest expense.................................................. 878 350
Other expense..................................................... 204 66
------- -------
Total expense..................................................... 1,082 416
------- -------
Income before taxes............................................... 2,405 1,755
Income tax expense................................................ -- --
------- -------
Net income........................................................ $ 2,405 $ 1,755
======= =======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................... $ 2,405 $ 1,755

Deduct items not affecting cash flows:
Equity in undistributed income of subsidiary........................................... (3,260) (2,039)
Amortization of deferred issuance costs on capital securities.......................... 16 13
Amortization of premiums and discounts on investment securities available for sale..... 4 --
Loss on sale of investment securities available for sale............................... 69 --
Decrease (increase) in accrued interest receivable..................................... 37 (67)
Decrease (increase) in other assets.................................................... 57 (81)
(Decrease) increase in accrued interest payable........................................ (15) 349
Increase in other liabilities.......................................................... 27 41
------- -------
Net cash used in operating activities.................................................... (660) (29)

Cash flows from investing activities:
Purchase of investment securities available for sale..................................... (1,024) (7,164)
Proceeds from sale of investment securities available for sale........................... 2,959 2,090
Capital investment in subsidiary bank.................................................... (2,419) (4,000)
Purchase of capital securities of subsidiary trust....................................... -- (310)
------- -------
Net cash used in investing activities.................................................... (484) (9,384)

Cash flows from financing activities:
Proceeds from junior subordinated debt................................................... -- 10,310
Proceeds from common stock offering...................................................... 2,850 --
Proceeds from exercised stock options.................................................... 29 15
Issuance costs related to capital securities............................................. (47) (438)
------- -------
Net cash provided by financing activities................................................ 2,832 9,887
------- -------

Net increase in cash and cash equivalents................................................ 1,688 474
Cash and cash equivalents at beginning of year........................................... 553 79
------- -------
Cash and cash equivalents at end of year................................................. $ 2,241 $ 553
======= =======
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 -- REGULATORY RESTRICTIONS

The company and bank are subject to various regulatory capital requirements
of federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that if undertaken, could have a direct material effect on the
company's and bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the company and bank must
meet specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under accounting
practices. Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

The company and bank must maintain certain minimum capital amounts and
ratios to be considered adequately capitalized as set forth in the table below.
Management believes that the company and bank met, as of December 31, 1999 and
1998, all capital adequacy requirements to which they are subject. Management
believes that the company and bank were well capitalized at December 31, 1999
and 1998 under the regulatory framework for prompt corrective action provisions
of Section 38 of the Federal Deposit Insurance Act.

To be categorized as well capitalized, the company and bank must maintain
the minimum ratios listed in the table below. The company's and bank's capital
amounts and ratios are presented in the following table.

<TABLE>
<CAPTION>
REQUIRED TO BE REQUIRED TO BE
ADEQUATELY WELL
ACTUAL CAPITALIZED CAPITALIZED
---------------- ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
- ------------------------
Total capital to risk-weighted assets
Premier Bancorp, Inc............................. $31,549 13.07% $19,309 8.00% $24,136 10.00%
Premier Bank..................................... 27,086 11.34% 19,113 8.00% 23,891 10.00%
Tier I capital to risk-weighted assets
Premier Bancorp, Inc............................. 23,384 9.69% 9,654 4.00% 14,481 6.00%
Premier Bank..................................... 23,075 9.66% 9,556 4.00% 14,335 6.00%
Tier I capital to average assets
Premier Bancorp, Inc............................. 23,384 7.33% 12,757 4.00% 15,947 5.00%
Premier Bank..................................... 23,075 7.29% 12,656 4.00% 15,819 5.00%

AS OF DECEMBER 31, 1998:
- ------------------------
Total capital to risk-weighted assets
Premier Bancorp, Inc............................. $25,471 13.75% $14,821 8.00% $18,526 10.00%
Premier Bank..................................... 19,620 10.92% 14,371 8.00% 17,964 10.00%
Tier I capital to risk-weighted assets
Premier Bancorp, Inc............................. 16,166 8.73% 7,411 4.00% 11,116 6.00%
Premier Bank..................................... 16,315 9.08% 7,186 4.00% 10,779 6.00%
Tier I capital to average assets
Premier Bancorp, Inc............................. 16,166 6.75% 9,580 4.00% 11,975 5.00%
Premier Bank..................................... 16,315 6.97% 9,358 4.00% 11,698 5.00%
</TABLE>

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -- DIVIDEND POLICY

The company's ability to pay dividends is dependent upon its ability to
obtain dividends from the bank. The future dividend policy of the bank is
subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, financial conditions, cash needs,
and general business conditions. Holders of common stock will be entitled to
receive dividends as and when declared by the Board of Directors of the bank out
of funds legally available for that purpose. Such payment, however, will be
subject to the regulatory restrictions set forth in the Pennsylvania Banking
Code of 1965, the Federal Reserve Act and the Federal Deposit Insurance
Corporation Act.

The Pennsylvania Banking Code provides that cash dividends may be declared
and paid only out of the accumulated net earnings of the bank, which were
$7,684,000 at December 31, 1999. Cash dividends must be approved by the Federal
Reserve Board if the total of all cash dividends declared by the bank in any
calendar year, including the proposed cash dividend, exceeds the total of the
bank's net profits for that year plus its retained net profits from the
preceding two years less any required transfers to surplus or to a fund for the
retirement of preferred stock, if any. The Federal Deposit Insurance Corporation
Act generally prohibits all payments of dividends by any bank which is in
default of any assessment of the FDIC. As of December 31, 1999 and 1998, the
bank was not in default of any FDIC assessments.

NOTE 21 -- CAPITAL SECURITIES

On August 11, 1998, the company's subsidiary, PBI Capital Trust, issued
$10,000,000 of 8.57% capital securities due August 15, 2028. The trust is a
statutory business trust created under the laws of Delaware. The company is the
sole owner of the trust. The trust used the proceeds from the capital securities
to acquire $10,000,000 in 8.57% junior subordinated deferrable interest
debentures issued by the company. The junior subordinated debentures are the
sole assets of the trust, and payments under the junior subordinated debentures
are the sole revenue of the trust. The company is using the proceeds from the
sale of the junior subordinated debentures for general corporate purposes,
including, but not limited to, investments in and advances to its subsidiary,
Premier Bank, repurchases of common stock of the company, branch expansion, and
funding loans. The precise amount and timing of the application of the net
proceeds used for such corporate purposes depends on the funding requirements
and the availability of other funds to the company and the bank. Proceeds from
the capital securities provide the company with additional Tier I and Tier II
capital.

At December 31, 1999 and 1998, the company was required to maintain a
reserve account equal to one year's expense on its capital securities. This
reserve is required at all times except when the ratio of the company's total
unsecured debt to shareholders' equity is equal to or less than 70% and the bank
has the capacity to pay dividends in an amount equal to or greater than two
times the amount of interest payable on the junior subordinated debentures for a
one-year period. At December 31, 1999 and 1998, the company was required to
maintain a reserve account since its unsecured debt to equity ratio exceeded
70%. This reserve account was invested in available for sale investment
securities with an estimated fair market value of $950,000 and $940,000 at
December 31, 1999 and 1998, respectively.

The capital securities are reported in the Consolidated Statements of
Financial Condition under the caption "Corporation-obligated mandatorily
redeemable capital securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation."

<PAGE>

PREMIER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 -- COMMON STOCK OFFERING

The company issued 286,036 shares at $10.48 per share during a stock
offering from December 22, 1998 to March 31, 1999 after giving retroactive
effect to the 5% common stock dividend declared on February 17, 2000. Net
proceeds of this offering were $2,850,000. The company used the net proceeds of
this stock offering for general corporate purposes, including investment in or
advances to the bank that increased the bank's capital position and loan to one
borrower lending limits. In addition, these proceeds may be used to support the
continuing development of the bank's franchise through possible expansion into
related businesses.

NOTE 23 -- OTHER COMPREHENSIVE INCOME (LOSS)

The tax effects allocated to each component of "Other comprehensive income
(loss)" are as follows:
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
FOR THE YEAR ENDED DECEMBER 31, 1999 AMOUNT BENEFIT AMOUNT
- ------------------------------------ ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized losses on securities available for sale
Unrealized holding losses arising during the period......................... $ (6,919) $ 2,352 $ (4,567)
Less: reclassification adjustment for losses included in net income......... 114 (39) 75
-------- ------- --------
Other comprehensive income (loss)............................................. $ (6,805) $ 2,313 $ (4,492)
======== ======= ========

TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
FOR THE YEAR ENDED DECEMBER 31, 1998 AMOUNT BENEFIT AMOUNT
- ------------------------------------ ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized losses on securities available for sale
Unrealized holding losses arising during the period......................... $ (642) $ 219 $ (423)
Less: reclassification adjustment for gains included in net income.......... (42) 14 (28)
-------- ------- --------
Other comprehensive income (loss)............................................. $ (684) $ 233 $ (451)
======== ======= ========
</TABLE>

<PAGE>

ITEM 8 -- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 9 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT

The information required by this Item, relating to directors, executive
officers and control persons is set forth under the sections captioned
"Directors and Executive Officers", "Information as to Nominees and Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" of the
Registrant's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Shareholders, which pages are incorporated herein by
reference.

ITEM 10 -- EXECUTIVE COMPENSATION

The information required by Item 10 is incorporated by reference to the
information appearing under the caption "Executive Compensation" in the
Registrant's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Shareholders.

ITEM 11 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 11 is incorporated by reference to the
information appearing under the caption "Beneficial Ownership by Directors,
Nominees and Officers" in the Registrant's definitive Proxy Statement to be used
in connection with the 2000 Annual Meeting of Shareholders.

ITEM 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 is incorporated by reference to the
information appearing under the caption "Certain Relationships and Related
Transactions" in the Registrant's definitive Proxy Statement to be used in
connection with the 2000 Annual Meeting of Shareholders.

<PAGE>

ITEM 13 --EXHIBITS LIST AND REPORTS ON FORM 8-K

(a) 1. The consolidated financial statements listed on the index set forth in
Item 7 of this Annual Report on Form 10-KSB are filed as part of this
Annual Report.

2. Financial Statement Schedules
All schedules are omitted because they are either not applicable, the data
are not significant or the required information is shown in the financial
statements or the notes thereto or elsewhere herein.

3. Exhibits

The following exhibits are incorporated by reference herein or annexed to
this 10-KSB:

3.1 Articles of Incorporation (Incorporated by reference to Exhibit
3i to the company's Registration Statement No. 333-34243 on Form
S-4 filed with the Securities and Exchange Commission on August
22, 1997 and amended on September 9, 1997).

3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the
company's Registration Statement No. 333-34243 on Form S-4 filed
with the Securities and Exchange Commission on August 22, 1997
and amended on September 9, 1997).

10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement
No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997 and amended on September 9, 1997).

10.2 Change of Control Agreement between Premier Bancorp, Inc.,
Premier Bank and John C. Soffronoff (Incorporated by reference to
Exhibit 10.2 to our Quarterly Report on Form 10-QSB filed with
the Commission on November 13, 1998).

10.3 Change of Control Agreement between Premier Bancorp, Inc.,
Premier Bank and John J. Ginley (Incorporated by reference to
Exhibit 10.3 to our Quarterly Report on Form 10-QSB filed with
the Commission on November 13, 1998).

10.4 Change of Control Agreement between Premier Bancorp, Inc.,
Premier Bank and Bruce E. Sickel (Incorporated by reference to
Exhibit 10.4 to our Quarterly Report on Form 10-QSB filed with
the Commission on November 13, 1998).

11.1 Statement re: Computation of Earnings per share (Included at Note
11 to the 1999 Consolidated Financial Statements).

21.1 Subsidiaries of the Registrant

23.1 Consent of Auditors

27.1 Financial Data Schedule

(b) Reports on Form 8-K

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report be signed on
its behalf by the undersigned, thereunto duly authorized.

PREMIER BANCORP, INC.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> C> <C>
By: /s/ JOHN C. SOFFRONOFF President, Chief Executive Officer, March 27, 2000
- ---------------------------------- (Principal Executive Officer), Director
John C. Soffronoff

By: /s/ BRUCE E. SICKEL Chief Financial Officer, (Principal Financial March 27, 2000
- ---------------------------------- Officer), Director
Bruce E. Sickel

By: /s/ JOANNE M. CALIBEO Controller (Principal Accounting Officer) March 27, 2000
- ----------------------------------
Joanne M. Calibeo
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ JOHN C. SOFFRONOFF President, Chief Executive Officer, March 27, 2000
- ---------------------------------- (Principal Executive Officer), Director
John C. Soffronoff

By: /s/ CLARK S. FRAME Chairman of the Board, Director March 27, 2000
- ----------------------------------
Clark S. Frame

By: /s/ BRUCE E. SICKEL Chief Financial Officer, (Principal Financial March 27, 2000
- ---------------------------------- Officer), Director
Bruce E. Sickel

By: /s/ BARRY J. MILES Director March 27, 2000
- ----------------------------------
Barry J. Miles

By: /s/ DANIEL E. COHEN Director March 27, 2000
- ----------------------------------
Daniel E. Cohen

By: /s/ PETER A. COOPER Director March 27, 2000
- ----------------------------------
Peter A. Cooper

By: /s/ JOHN J. GINLEY Senior Lending Officer, Director March 27, 2000
- ----------------------------------
John J. Ginley

By: /s/ DR. THOMAS E. MACKELL Director March 27, 2000
- ----------------------------------
Dr. Thomas E. Mackell
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ DR. DANIEL A. NESI Director March 27, 2000
- ----------------------------------
Dr. Daniel A. Nesi

By: /s/ NEIL W. NORTON Director March 27, 2000
- ----------------------------------
Neil W. Norton

By: /s/ THOMAS M. O'MARA Director March 27, 2000
- ----------------------------------
Thomas M. O'Mara

By: /s/ MICHAEL J. PERRUCCI Director March 27, 2000
- ----------------------------------
Michael J. Perrucci

By: /s/ BRIAN R. RICH Director March 27, 2000
- ----------------------------------
Brian R. Rich

By: /s/ EZIO U. ROSSI Director March 27, 2000
- ----------------------------------
Ezio U. Rossi

By: /s/ RICHARD F. RYON Director March 27, 2000
- ----------------------------------
Richard F. Ryon

By: /s/ GERALD SCHATZ Director March 27, 2000
- ----------------------------------
Gerald Schatz

By: /s/ IRVING N. STEIN Director March 27, 2000
- ----------------------------------
Irving N. Stein

By: /s/ THOMAS P. STITT Director March 27, 2000
- ----------------------------------
Thomas P. Stitt

By: /s/ HELENBETH GAROFALO VILCEK Director March 27, 2000
- ----------------------------------
HelenBeth Garofalo Vilcek

By: /s/ JOHN A. ZEBROWSKI Director March 27, 2000
- ----------------------------------
John A. Zebrowski
</TABLE>

<PAGE>

CORPORATE INFORMATION

Annual Meeting

The Annual Meeting of Shareholders of Premier Bancorp, Inc. will be held at
The Doylestown Country Club, Green Street, Doylestown, PA on May 11, 2000, at
9:00 a.m.

Transfer Agent

Registrar and Transfer Company
311 Cox Street
Roselle, NJ 07203
(908) 241-9880

Form 10-KSB

A copy of Premier Bancorp Inc.'s Annual Report on Form 10-KSB, as filed
with the Securities and Exchange Commission, is available, without charge to
shareholders, by writing John C. Soffronoff, President and Chief Executive
Officer, Premier Bancorp, Inc., 379 North Main Street, Doylestown, Pennsylvania,
18901-0818. The Annual Report and other Company reports are filed electronically
through the SEC's Electronic Data Gathering, Analysis, and Retrieval System
("EDGAR") which performs automated collection, validation, indexing, acceptance,
and forwarding of submissions to the Securities and Exchange Commission and is
accessible by the public using the Internet at http://www.sec.gov./edgarhp.htm.

Directors of Premier Bancorp, Inc. and Premier Bank

Mario Andretti* Brian R. Rich
Daniel E. Cohen Ezio U. Rossi
Peter A. Cooper Richard F. Ryon
Clark S. Frame, Chairman Gerald Schatz
David C. Frame* Bruce E. Sickel
John J. Ginley John C. Soffronoff
Thomas E. Mackell Irving N. Stein
Barry J. Miles, Sr., Vice Chairman Thomas P. Stitt
Daniel A. Nesi HelenBeth Garofalo Vilcek
Neil W. Norton John A. Zebrowski
Thomas M. O'Mara
Michael J. Perrucci

- ------------------
*Director Emeritus

Officers of Premier Bancorp, Inc.

John C. Soffronoff, President and Chief Executive Officer
Bruce E. Sickel, Treasurer, Senior Vice President and Chief Financial
Officer
John J. Ginley, Secretary, Senior Vice President and Senior Lending Officer

Executive Management of Premier Bank

John C. Soffronoff, President and Chief Executive Officer
Bruce E. Sickel, Senior Vice President and Chief Financial Officer
John J. Ginley, Senior Vice President and Senior Lending Officer

<PAGE>

Officers of Premier Bank
Brenda M. Amey, Branch Manager -- Bethlehem
John W. Barrett, Vice President and Loan Officer -- Colmar
Warren Beideman, Vice President and Loan Officer -- Southampton
Anthony J. Betz, Vice President and Loan Officer -- Easton
Joanne M. Calibeo, Controller
Nancy L. Crisafulli, Branch Manager -- Easton
Frances D'Andrea, Internet Banking Manager
James P. DeBow, Vice President and Loan Officer -- Southampton
Rose M. DeLaurentis, Vice President and Loan Officer -- Southampton
Stephen D. Gilligan, Vice President and Financial Services Manager
Edward A. Grosik, Vice President and Loan Officer -- Floral Vale
Suzanne Hartshorne, Vice President and Loan Officer -- Doylestown
Cheryol S. Hoser, Vice President and Loan Officer -- Colmar
Dolores J. Kleppinger, Operations Controller
Mark A. Mann, Vice President and Loan Officer -- Floral Vale
James A. Miller, Vice President and Loan Officer -- Floral Vale
Karen D. Moffat, Vice President and Branch Manager -- Doylestown
Christopher A. Nardo, Branch Manager -- Floral Vale
Stephen A. Patterson, Vice President and Loan Officer -- Easton
Michele A. Pedersen, Vice President and Loan Officer -- Doylestown
Timothy J. Shanahan, Branch Manager -- Montgomeryville
Lawrence P. Small, Network Manager
Dale O. Smith, Vice President and Branch Manager -- Southampton
William M. Wells, Vice President and Loan Officer -- Southampton

Office Locations

<TABLE>
<S> <C>
Main Office Floral Vale Office
379 North Main Street 101 Floral Vale Boulevard
Doylestown, PA 18901 Yardley, PA 19067
(215) 345-5100 (215) 579-6100
Karen D. Moffat, Branch Manager Christopher A. Nardo, Branch Manager
David Beamer, Assistant Branch Manager Michele A. Thompson, Assistant Branch Manager

Bethlehem Office Colmar Loan Office
1401 Easton Avenue 2303 North Broad Street, Unit 3
Bethlehem, PA 18018 Colmar, PA 18915
(610) 814-0919 (215) 822-4055
Brenda M. Amey, Branch Manager

Easton Office Southampton Loan Office
2201 Northampton Street 283 Second Street Pike
Easton, PA 18042 Suite 130
(610) 258-5100 Southampton, PA 18966
Nancy L. Crisafulli, Branch Manager (215) 953-2822
Deborah A. Thom, Assistant Branch Manager

Southampton Office
Southampton Shopping Center
516 Second Street Pike
Southampton, PA 18966
(215) 322-5400
Dale O. Smith, Branch Manager
Elaine A. Lydon, Assistant Branch Manager
</TABLE>

Exhibit 3.1
Articles of Incorporation

Incorporated by reference to Exhibit 3i to the company's Registration Statement
No. 333-34243 on Form S-4 filed with the Securities and Exchange Commission on
August 22, 1997 and amended on September 9, 1997.

Exhibit 3.2
Bylaws

Incorporated by reference to Exhibit 3ii to the company's Registration Statement
No. 333-34243 on Form S-4 filed with the Securities and Exchange Commission on
August 22, 1997 and amended on September 9, 1997.

Exhibit 10.1
Premier Bank's 1995 Incentive Stock Option Plan

Incorporated by reference to Exhibit 99.6 to the company's Registration
Statement No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997 and amended on September 9, 1997.

Exhibit 10.2
Change of Control Agreement between Premier Bancorp, Inc., Premier Bank and
John C. Soffronoff

Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-QSB
filed with the Commission on November 13, 1998.

Exhibit 10.3
Change of Control Agreement between Premier Bancorp, Inc., Premier Bank and
John J. Ginley

Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-QSB
filed with the Commission on November 13, 1998.

Exhibit 10.4
Change of Control Agreement between Premier Bancorp, Inc., Premier Bank and
Bruce E. Sickel

Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-QSB
filed with the Commission on November 13, 1998.

Exhibit 11.1
Statement re: Computation of Earnings Per Share

Included at Note 11 to the 1999 Consolidated Financial Statements.

Exhibit 21.1
Subsidiaries

Name State of Incorporation
- ---- ----------------------
Premier Bank Pennsylvania

PBI Capital Trust Delaware

Exhibit 23.1
Consent of Auditors

Consent of Independent Certified Public Accountants

The Board of Directors
Premier Bancorp, Inc.

We consent to incorporation by reference in the registration statement (No.
333-34243) on Form S-4 of Premier Bancorp, Inc., of our report dated February
17, 2000, relating to the consolidated statements of financial condition of
Premier Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for the years then ended, which
report appears in the December 31, 1999 Form 10-KSB of Premier Bancorp, Inc.

/s/ KPMG LLP
March 27, 2000
Philadelphia, Pennsylvania

<ARTICLE> 9

<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 4,646 4,765 4,307
<INT-BEARING-DEPOSITS> 409 134 86
<FED-FUNDS-SOLD> 3,436 1 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 97,076 93,888 62,434
<INVESTMENTS-CARRYING> 6,881 5,492 15,170
<INVESTMENTS-MARKET> 6,842 5,479 15,100
<LOANS> 198,632 139,905 108,532
<ALLOWANCE> 2,511 1,805 1,360
<TOTAL-ASSETS> 318,660 249,193 193,523
<DEPOSITS> 237,481 191,226 143,603
<SHORT-TERM> 52,537 14,936 19,843
<LIABILITIES-OTHER> 4,495 4,764 3,143
<LONG-TERM> 1,500 16,500 16,500
0 0 0
0 0 0
<COMMON> 12,678 9,711 9,682
<OTHER-SE> (31) 2,056 752
<TOTAL-LIABILITIES-AND-EQUITY> 308,660 239,193 193,523
<INTEREST-LOAN> 14,497 11,002 8,753
<INTEREST-INVEST> 7,298 5,314 4,599
<INTEREST-OTHER> 134 200 96
<INTEREST-TOTAL> 21,929 16,516 13,448
<INTEREST-DEPOSIT> 8,822 7,448 5,896
<INTEREST-EXPENSE> 11,420 8,922 7,532
<INTEREST-INCOME-NET> 10,509 7,594 5,916
<LOAN-LOSSES> 719 505 400
<SECURITIES-GAINS> (151) 133 15
<EXPENSE-OTHER> 6,744 4,903 3,735
<INCOME-PRETAX> 3,170 2,543 1,931
<INCOME-PRE-EXTRAORDINARY> 3,170 2,543 1,931
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,405 1,755 1,341
<EPS-BASIC> 0.80 0.64 0.49
<EPS-DILUTED> 0.72 0.57 0.47
<YIELD-ACTUAL> 7.82 7.96 8.08
<LOANS-NON> 136 1,080 498
<LOANS-PAST> 56 611 151
<LOANS-TROUBLED> 0 55 0
<LOANS-PROBLEM> 4,635 1,080 498
<ALLOWANCE-OPEN> 1,805 1,360 961
<CHARGE-OFFS> 13 68 1
<RECOVERIES> 0 8 0
<ALLOWANCE-CLOSE> 2,511 1,805 1,360
<ALLOWANCE-DOMESTIC> 2,511 1,805 1,360
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0

</TABLE>