PSB BANCORP INC, S-4, 2001-01-16

PSB BANCORP INC
S-4, 2001-01-16
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

Previous: POLSKA TELEFONIA CYFROWA SP ZOO, 6-K, 2001-01-16

Next: PSB BANCORP INC, S-4, EX-3.1, 2001-01-16

<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 2001
REGISTRATION NO.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

PSB BANCORP, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
PENNSYLVANIA 6036 23-2930740
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>

11 PENN CENTER, SUITE 2601
1835 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 979-7900
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

ANTHONY DISANDRO.
PRESIDENT AND CHIEF OPERATING OFFICER
PSB BANCORP, INC.
11 PENN CENTER, SUITE 2601
1835 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 979-7900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
JEFFREY P. WALDRON, ESQUIRE JOSEPH H. JACOVINI., ESQUIRE
DAVID R. PAYNE, ESQUIRE BARBARA DUBROW, ESQUIRE
Stevens & Lee, P.C. Dilworth Paxson LLP
One Glenhardie Center 3200 Mellon Bank Center
1275 Drummers Lane 1735 Market Street
P.O. Box 236 Philadelphia, PA 19103
Wayne, PA 19087-0236 (215) 575-7000
(610) 293-4961
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------

If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box, and list Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE REGISTRATION FEE
Common Stock....................... 482,560 $13.25 $24,816,229 $350.72
</TABLE>

<TABLE>
<S> <C>
(1) Based on a maximum number of shares of the Registrant's
common stock which may be issued in connection with the
proposed merger of PSB Merger Sub, Inc. with and into Jade
Financial Corp.

(2) Estimated solely for the purpose of calculating the
registration fee and based, in accordance with Rule 457(c),
(f)(1) and (f)(3) promulgated under the Securities Act of
1933, as amended, on the average of the high and low of Jade
Financial Corp. common stock as reported on the NASDAQ
SmallCap Market as of January 12, 2001, less $23,413,356
which equals the amount of cash to be paid by Registrant to
shareholders of Jade Financial Corp. in connection with the
proposed merger.
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT OF PROSPECTUS OF
JADE FINANCIAL CORP. PSB BANCORP, INC.

MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT

The Boards of Directors of PSB Bancorp, Inc. and Jade Financial Corp. have
approved the acquisition of Jade Financial Corp. by PSB Bancorp, Inc. through a
merger of PSB Merger Sub, Inc., a subsidiary of PSB Bancorp, Inc. with and into
Jade Financial Corp. and a contemporaneous merger of their respective bank
subsidiaries, First Penn Bank and IGA Federal Savings Bank.

If you are a Jade Financial Corp. shareholder and the merger is completed,
you will receive $13.55 in cash for each share of Jade Financial Corp. common
stock that you own on the date of the merger. If you are an IGA Employee Stock
Ownership Plan participant and have Jade Financial Corp. shares allocated to
your retirement account, you may direct the ESOP to receive on your behalf
either $13.55 in cash or shares of PSB Bancorp, Inc. common stock. If you elect
to receive shares of PSB Bancorp, Inc. common stock, you will receive [3.328]
shares of PSB Bancorp, Inc. common stock for each share of Jade Financial Corp.
common stock allocated to your retirement account as a participant in the ESOP.
Each share of Jade Financial Corp. common stock that is not allocated to the
account of any participant will be converted into [3.328] shares of PSB
Bancorp, Inc. common stock.

We cannot complete the merger unless the shareholders of Jade Financial
Corp. approve it. Jade Financial Corp. has scheduled a special meeting of
shareholders to vote on this merger proposal. Whether or not you plan to attend
the meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you sign, date and mail your proxy card without indicating how
you want to vote, we will vote your proxy in favor of the merger. Not returning
your card or not instructing your broker how to vote any shares held for you in
"street name" will not permit us to vote your shares in favor of the merger.

The date, time and place of the meeting are as follows:
[Day, March , 2001]
10:00 a.m.
Jade Financial Corp.
213 W. Street Road
Feasterville, Pennsylvania
<PAGE>
PSB Bancorp, Inc. common stock is traded on the Nasdaq Stock Market under
symbol "PSBI." Jade Financial Corp. common stock is traded on the Nasdaq Stock
Market under the symbol "IGAF."

The Board of Directors of Jade Financial Corp. strongly supports this
combination of our companies and recommends that you vote in favor of the
merger.
------------------------

Neither the Securities and Exchange Commission nor any state securities
regulators have approved the PSB Bancorp, Inc. common stock to be issued in
connection with the merger or passed upon the adequacy or accuracy of this proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
The shares of PSB Bancorp, Inc. common stock to be issued in the merger are not
savings or deposit accounts or other obligations of any bank, and they are not
insured by the Federal Deposit Insurance Corporation or any governmental agency.
------------------------

This proxy statement/prospectus was first mailed to shareholders on or about
February , 2001.
<PAGE>
JADE FINANCIAL CORP.
213 WEST STREET ROAD
FEASTERVILLE, PENNSYLVANIA 19053
(215) 322-9000

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON MARCH , 2001

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Jade
Financial Corp., a Pennsylvania business corporation, will be held at the
offices of Jade Financial Corp., located at 213 West Street Road, Feasterville,
Pennsylvania 19053, at 10:00 a.m., local time, on March , 2001, to consider
the following matters:

1. To approve and adopt the Agreement and Plan of Reorganization, dated
November 2, 2000, among PSB Bancorp, Inc., PSB Merger Sub, Inc. and Jade
Financial Corp (attached as Annex "A" to the accompanying proxy
statement/prospectus), providing for the acquisition by PSB of Jade
Financial Corp. through the merger of PSB Merger Sub, Inc., a wholly
owned subsidiary of PSB Bancorp, Inc., with and into Jade Financial Corp.

2. To vote on adjournment of the Jade special meeting, if necessary, to
permit further solicitation of proxies if there are not sufficient votes
at the time of the meeting to approve the Agreement and Plan of
Reorganization.

3. To consider such other matters as may properly be brought before the
Jade special meeting.

Only those Jade shareholders of record at the close of business on
January 18, 2001, are entitled to notice of, and to vote at, the Jade special
meeting.

Each share of Jade common stock outstanding will entitle the holder to one
vote on each matter that may properly come before the Jade special meeting.

By order of the Board of Directors
______________________________________
Richard Hasson,

Corporate Secretary

February , 2001

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. IF YOU ATTEND THE JADE FINANCIAL CORP. SPECIAL
MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY
CARD.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1

SUMMARY..................................................... 2

A WARNING ABOUT FORWARD LOOKING INFORMATION................. 7

SELECTED FINANCIAL DATA..................................... 8

PRO FORMA COMBINED FINANCIAL INFORMATION.................... 11

THE SPECIAL MEETING......................................... 15

THE MERGER.................................................. 17

FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS..... 31

INFORMATION ABOUT PSB BANCORP, INC.......................... 33

INFORMATION ABOUT JADE FINANCIAL CORP....................... 63

DESCRIPTION OF PSB BANCORP, INC. CAPITAL SECURITIES......... 97

COMPARISON OF SHAREHOLDER RIGHTS............................ 99

ADJOURNMENT................................................. 99

EXPERTS..................................................... 100

LEGAL MATTERS............................................... 100

OTHER MATTERS............................................... 100

SHAREHOLDER PROPOSALS....................................... 100

WHERE YOU CAN FIND MORE INFORMATION......................... 100

ANNEXES

A. Agreement and Plan of Merger between PSB
Bancorp, Inc., Jade Financial Corp and PSB Merger
Sub, Inc., dated as of November 2, 2000.............. A-1

B. Opinion of Berwind Financial......................... B-1

C. Section 1930 and 1571-1580 of the Pennsylvania
Business Corporation Law of 1988, as amended......... C-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHAT DO I NEED TO DO NOW?

A: Just indicate on your proxy card how you want your shares to be voted, then
sign and mail it in the enclosed prepaid return envelope as soon as
possible, so that your shares may be represented and voted at the special
meeting to be held on March , 2001.

Your vote is very important. Approval of the merger at the Jade meeting
requires the affirmative vote of a majority of the votes cast. Therefore you
should return your signed proxy card as soon as possible.

The Board of Directors of Jade unanimously recommends voting "FOR" the
merger.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker. Without
instructions, your shares will not be voted on the merger.

Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. There are three ways for you to revoke your proxy and change your vote.
First, you may send a written notice to the person to whom you submitted
your proxy stating that you would like to revoke your proxy. Second, you may
complete and submit a new proxy card with a later date. Third, you may vote
in person at the special meeting. If you have instructed a broker to vote
your shares, you must follow directions received from your broker to change
your vote.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. Shortly after the merger is completed, PSB will send you written
instructions for exchanging your stock certificates. PSB will request that
you return your Jade stock certificates at that time.

Q: WHEN DO YOU EXPECT TO MERGE?

A: We are working to complete the merger as quickly as possible. In addition to
the approval of our shareholders, we must also obtain regulatory approvals.
We expect to receive all necessary approvals in March.

Q: WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THIS
PROXY STATEMENT/ PROSPECTUS?

A: You should contact:

Jade Financial Corp.
213 W. Street Road
Feasterville, Pennsylvania 19053
Attention: Richard Hasson, Corporate Secretary
Telephone: (215) 322-9000, Ext. 204

1
<PAGE>
SUMMARY

This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully, and for more complete
descriptions of the legal terms of the merger, you should read carefully this
entire proxy statement/prospectus and the attached annexes. See "Where You Can
Find More Information" on page 100 for reference to additional information
available to you regarding PSB and Jade.

WHAT JADE SHAREHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 18)

If you are a Jade shareholder, when the merger is completed you will receive
$13.55 in cash for each share of Jade Financial Corp. common stock that you own
on the date of the merger. If you are an IGA Employee Stock Ownership Plan
participant and have Jade Financial Corp. shares allocated to your retirement
account, you may direct the ESOP to receive on your behalf either $13.55 in cash
or shares of PSB Bancorp, Inc. common stock based on an exchange ratio of
[3.328] shares of PSB Bancorp, Inc. common stock for each share of Jade
Financial Corp. common stock. If an eligible ESOP participant elects to receive
cash for his/her allocated shares, the participant will have the option of
directing the trustees of the ESOP to purchase PSB shares or hold the cash in a
money market account. In addition, the trustees of the ESOP may elect to make
other qualified investment options available. Each share of Jade Financial Corp.
common stock held by the ESOP that is not allocated to the account of any
participant will be converted into [3.328] shares of PSB Bancorp, Inc. common
stock.

FEDERAL INCOME TAX ON CASH RECEIVED IN THE MERGER (SEE PAGE 28)

Jade shareholders will be taxed on the cash received in the merger. Because
the ESOP trust is not subject to federal income tax, ESOP participants will not
recognize gain or loss for federal income tax purposes for the shares of PSB
common stock or cash allocated to their accounts as a result of the merger. Tax
matters are complicated, and tax results may vary among shareholders. We urge
you to contact your own tax advisor to understand fully how the merger will
affect you.

DISSENTERS' RIGHTS OF JADE SHAREHOLDERS (SEE PAGE 29)

Pennsylvania law provides shareholders of Jade with the right to dissent
from the merger, and to demand and receive cash for the "fair value" of their
shares of stock instead of receiving the $13.55 in cash offered in the merger.
In order to assert dissenters' rights, Jade shareholders must:

- file with Jade a written notice of intent to dissent prior to the
shareholder vote at the meeting;

- not vote in favor of the merger;

- file a written demand for payment and deposit the certificates
representing their shares as requested by the notice to demand payment
that will be sent by PSB; and

- comply with certain other statutory procedures set forth in Pennsylvania
law.

If you are a Jade shareholder and you sign and return your proxy without
voting instructions, we will vote your proxy in favor of the merger and you will
lose any dissenters' rights that you may have. We have included as Annex C to
this proxy statement/prospectus a copy of the sections of Pennsylvania law
creating dissenters' rights and the procedure for exercising dissenter' rights.

If you do not follow the procedures required by Pennsylvania law, you may
lose your dissenters' rights with respect to the merger. We urge you to read
carefully "The Merger--Dissenters' Rights" on page 29 and Annex C to this proxy
statement/prospectus.

2
<PAGE>
FINANCIAL ADVISOR SAYS CONSIDERATION FAIR FROM A FINANCIAL POINT OF VIEW (SEE
PAGE 19)

Jade has asked its financial advisor, Berwind Financial, for advice on the
fairness, from a financial point of view, of the amount that PSB is offering to
Jade's shareholders in the merger. Jade's advisor performed a number of
analyses, including a review of the financial terms of the merger compared to
those of other publicly announced transactions, and its estimate of the range of
future values of Jade's common stock based on past and anticipated future
performance compared to the financial benefits that could be expected from the
merger. Berwind Financial delivered an opinion to Jade that the price per share
offered is fair to Jade's shareholders from a financial point of view. This
opinion is attached as Annex B to this proxy statement/prospectus.

CONDITIONS THAT MUST BE SATISFIED TO COMPLETE THE MERGER (SEE PAGE 22)

To complete the merger, Jade and PSB must meet a number of conditions in
addition to obtaining the affirmative vote of the Jade shareholders, including
the following:

- no law or injunction may effectively prohibit the merger;

- Jade and PSB must receive the approval of the appropriate Federal and
State regulatory authorities;

- certain officers of Jade must execute new employment agreements
satisfactory to PSB;

- PSB must receive a legal opinion and a tax opinion from Jade's counsel,
Stevens & Lee P.C., satisfactory in form and substance to counsel to PSB.

- Jade must receive a legal opinion from PSB's counsel, Dilworth Paxson LLP,
satisfactory in form and substance to counsel to Jade.

Certain conditions to the merger may be waived by the company entitled to
the benefit of the condition. In some instances, if we wish to waive a
condition, we may be required to resolicit the approval of Jade shareholders.

TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 27)

We can agree jointly to abandon the merger (and terminate the merger
agreement) without completing the merger at any time prior to completion of the
merger. Also, either PSB or Jade can decide, without the consent of the other,
to abandon the merger if any of the following occurs:

- the merger is not completed by June 30, 2001;

- either party is informed in writing by a regulatory authority whose
approval or consent has been requested that such approval or consent is
unlikely to be granted; or

- the other party breaches or materially fails to comply with any of its
representations, warranties or obligations under the merger agreement and
fails to remedy the breach or noncompliance within 30 days after receipt
by the responsible party of notice in writing specifying the nature of
such breach or noncompliance and requesting that it be remedied.

AMENDMENT, WAIVER AND EXTENSION OF THE MERGER AGREEMENT (SEE PAGE 26)

We can amend the merger agreement at any time before the merger actually
takes place, and can agree to extend the time within which any action required
by the merger agreement is to take place. Shareholders must approve, however,
any amendment that changes the amount or form of what Jade shareholders would
receive in the merger.

3
<PAGE>
MERGER APPROVAL REQUIRES A MAJORITY OF VOTES CAST BY JADE SHAREHOLDERS (SEE PAGE
15)

Approval of the merger agreement at the Jade special meeting requires the
affirmative vote of a majority of the votes cast at the meeting provided a
quorum is present. The approval of the adjournment proposal requires the
affirmative vote of a majority of the votes cast at the special meeting. You
will have one vote for each share of common stock that you own on each matter
considered at the special meeting.

CERTAIN SHAREHOLDERS WILL VOTE IN FAVOR OF THE MERGER (SEE PAGES 15)

The directors and executive officers of Jade intend to vote all shares of
Jade common stock that they own for approval of the merger agreement. On the
record date for the Jade special meeting, directors and executive officers of
Jade owned approximately shares of Jade common stock, or
approximately % of the outstanding shares of Jade common stock. In addition,
PSB owns shares of Jade common, or % of the shares of Jade common stock
outstanding, that it intends to vote for adoption of the merger agreement.

PSB BANCORP, INC. (SEE PAGE 33)

PSB Bancorp, Inc., a Pennsylvania business corporation, is the holding
company for First Penn Bank, a state chartered commercial bank. At
September 30, 2000, PSB and its subsidiaries had total consolidated assets of
$266.3 million, deposits of $175.4 million and shareholders' equity of
$37.3 million. First Penn Bank's primary business consists of attracting
deposits from its seven full service offices located in Philadelphia and
Montgomery Counties in Pennsylvania, and originating commercial, consumer and
residential mortgage loans and home equity lines of credit in the communities
served by those offices. The principal executive offices of PSB are located at
11 Penn Center, Suite 2601, 1835 Market Street, Philadelphia, Pennsylvania
19103, and its telephone number is (215) 979-7900.

JADE FINANCIAL CORP. (SEE PAGE 63)

Jade, a Pennsylvania business corporation, is the holding company for IGA
Federal Savings Bank, a federally chartered savings bank. At September 30, 2000,
Jade had total consolidated assets of $214.9 million, deposits of
$165.9 million and shareholders' equity of $27.7 million. In addition to the
main office in Bucks County, Pennsylvania, IGA Federal Savings Bank has four
additional branch offices located in Chester, Delaware and Philadelphia Counties
in Pennsylvania. Jade is engaged principally in the business of taking deposits
and originating consumer and residential mortgage loans. The principal executive
offices of Jade are located at 213 West Street Road, Feasterville, Pennsylvania
19053 and its telephone number is (215) 322-9000.

COMPARISON OF SHAREHOLDER RIGHTS

There are no material differences in the rights of a PSB shareholder when
compared to the rights of a Jade shareholder.

MANAGEMENT AND OPERATIONS AFTER THE MERGER (SEE PAGE 27)

Following the merger, PSB will add two individuals presently serving as
directors of Jade, Mr. John J. O'Connell and Mr. Mario L. Incollingo, Jr., to
its Board of Directors. Additionally, pursuant to the subsidiary bank merger,
PSB will add five individuals presently serving as directors of IGA Federal
Savings Bank, Messrs. Dennis P. Wesley, Clyde A. Warden, Robert E. Adelsberger,
Edward D. McBride and William L. Harm, to First Penn Bank's Board of Directors.

4
<PAGE>
The existing officers of PSB will remain after the merger; however,
Mr. Mario L. Incollingo, Jr., the President and Chief Executive Officer of Jade,
will become the Executive Vice President and Chief Operating Officer of First
Penn Bank.

FINANCIAL INTERESTS OF JADE DIRECTORS AND EXECUTIVE OFFICERS (SEE PAGE 31)

When considering the recommendation of the Jade Board, shareholders of Jade
should be aware that some directors and officers of Jade have interests in the
merger in addition to their interests as shareholders.

PSB and First Penn Bank will enter into three-year employment agreements
with John J. O'Connell, Chairman of the Board of Jade, and Mario L. Incollingo,
Jr. President and Chief Executive Officer of Jade and a three-year retainer
agreement with Frank J. Moran, General Counsel and Director of Jade and IGA
Federal Savings Bank. The employment agreements and the retainer agreement will
become effective when we complete the merger. These agreements replace existing
agreements of a similar nature currently in effect among the individuals, Jade
and IGA Federal Savings Bank.

Directors of Jade and IGA appointed to the Board of Directors of First Penn
Bank will receive directors' fees as members of the Board of Directors of First
Penn Bank.

COMPARATIVE PER SHARE DATA

The following table compares certain unaudited per share data relating to
book value per share, cash dividends declared per share and basic net income per
share. The information is primarily relevant to Jade employees who are
participants in the ESOP and will have PSB shares allocated to their ESOP
accounts as a result of the merger. The table shows information on an historical
basis for PSB and Jade, on a pro forma basis per share of PSB common stock to
reflect completion of the merger, and on an equivalent pro forma basis per share
of Jade common stock to reflect the exchange of Jade shares for PSB shares. The
information shows how a share of Jade common stock would have participated in
the book value, cash dividends and net income if the merger had been completed
at the beginning of the periods presented. The pro forma information gives
effect to the merger using the purchase method of accounting. You should read
this information together with the consolidated financial statements of PSB and
Jade included in this proxy statement/prospectus, and the other financial data
appearing elsewhere in this proxy statement/prospectus. See "Selected Financial
Data" beginning on page 8, "Where You Can Find More Information" on page 99
"Index to Financial Statements" on page F-1.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
2000 1999
---------------- ---------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
PSB....................................................... $ 8.27 $ 8.65
Jade...................................................... 15.63 15.89
Pro Forma(1):
Pro forma per share of PSB common stock................... $ 7.70 $ 7.99
Equivalent pro forma per share of Jade common stock....... 25.63 26.59
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -------------------
<S> <C> <C>
CASH DIVIDENDS PAID PER COMMON SHARE:
Historical:
PSB................................................. $ -- $ --
Jade................................................ -- --
Pro Forma(2):
Pro forma per share of PSB common stock............. $ -- $ --
Equivalent pro forma per share of Jade common
stock............................................. -- --

BASIC NET INCOME PER COMMON SHARE:
Historical:
PSB................................................. $0.48 $0.37
Jade................................................ $0.17 $0.43
Pro Forma(3):
Pro forma per share of PSB common stock............. $0.43 $0.45
Equivalent pro forma per share of Jade common
stock............................................. $1.43 $1.50
</TABLE>

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

(1) Pro forma book value per share of PSB common stock was calculated by
dividing total pro forma combined shareholders' equity amounts as of the
applicable date by the sum of (i) 4,361,141 shares and 4,316,266 shares of
PSB common stock outstanding as of September 30, 2000, and December 31,
1999, respectively, and (ii) 145,000 shares of Jade common stock held by the
ESOP as of September 30, 2000, and December 31, 1999, respectively,
multiplied by the exchange ratio of [3.328] shares. Equivalent pro forma
book value per share of Jade common stock represents the pro forma book
value per share of PSB common stock multiplied by an exchange ratio of
[3.328].

(2) PSB pro forma dividends per share represent historical dividends declared by
PSB. Jade pro forma equivalent dividends per share represent such amounts
multiplied by the exchange ratio of [3.328] shares.

(3) PSB pro forma basic net income per common share represents historical net
income for PSB and Jade adjusted for purchase price adjustments on the
assumption that PSB and Jade had been combined for the periods presented on
a purchase basis, divided by the weighted average number of shares of PSB
common stock outstanding during each period plus the number of shares of PSB
assumed to be issued in the merger. Jade equivalent pro forma basic net
income per common share represents such amounts multiplied by an exchange
ratio of [3.328] shares.

MARKET VALUE OF SECURITIES

The following table shows the market value per share of PSB common stock,
the market value per share of Jade common stock and the equivalent market value
per share of Jade common stock on November 1, 2000 and February , 2001. The
equivalent market value per share of Jade common stock shows the value of a
share of Jade common stock if the merger had been completed on the dates shown
based on an exchange ratio of 3.328 shares of PSB common stock for each share of
Jade common stock.

6
<PAGE>
The historical market values for PSB and Jade common stock are the per share
last sale prices on November 1, 2000 and February , 2001, as reported on the
Nasdaq National Market System and the Nasdaq SmallCap Market, respectively.

<TABLE>
<CAPTION>
EQUIVALENT
PSB JADE MARKET VALUE
HISTORICAL HISTORICAL PER SHARE
---------- ---------- ------------
<S> <C> <C> <C>
November 1, 2000............................. $4.125 $11.750 $
February , 2001........................
</TABLE>

The market price of PSB common stock will fluctuate prior to the merger.
Jade employees who are ESOP participants should obtain current market quotations
for PSB common stock.

A WARNING ABOUT FORWARD LOOKING INFORMATION

This proxy statement/prospectus contains and incorporates certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include certain
statements regarding intent, belief or current expectations about matters
including statements as to "beliefs," "expectations", "anticipations,"
"intentions" or similar words. Forward-looking statements are also statements
that are not statements of historical fact. Forward-looking statements are
subject to risks, uncertainties and assumptions. These include, by their nature:

- the effects of changing economic conditions in PSB's and Jade's market
areas, the Commonwealth of Pennsylvania and nationally;

- credit risks of commercial, real estate, consumer and other lending
activities;

- significant changes in interest rates;

- changes in federal and state banking laws and regulations that could
affect operations;

- funding costs; and

- other external developments that could materially affect the business and
operations of PSB and Jade.

If one or more of these risks or uncertainties occurs or if the underlying
assumptions prove incorrect, actual results, performance or achievements in 2001
and beyond could differ materially from those expressed in, or implied by, the
forward-looking statements.

7
<PAGE>
SELECTED FINANCIAL DATA

The following tables show certain historical consolidated summary financial
data. This information is derived from and you should read it together with the
consolidated financial statements of PSB and Jade and the pro forma combined
financial information, appearing elsewhere in this proxy statement/ prospectus.
See "Pro Forma Combined Financial Information" on page 11, "Where You Can Find
More Information" on page 104 and "Index to Financial Statements" on page F-1.

In 1995, First Penn Bank's predecessor, Pennsylvania Savings Bank,
reorganized into a mutual holding company structure and completed a partial
conversion from mutual to stock form. In 1996, Pennsylvania Savings Bank changed
its fiscal year end from September 30 to December 31. In 1998, Pennsylvania
Savings Bank converted from mutual to stock form that portion of the institution
that had not previously been converted from mutual to stock form as part of the
1995 mutual holding company reorganization. As part of this 1998 transaction,
Pennsylvania Savings Bank became a wholly-owned subsidiary of PSB Bancorp, Inc.
Accordingly, the year-end summary information presented below is derived from
PSB's or Pennsylvania Savings Bank's audited financial statement, as the case
may be.

In 1998, IGA changed its fiscal year from a period ending June 30 to a
period ending December 31. In 1998, IGA converted from mutual to stock form and
became a wholly owned subsidiary of Jade. Accordingly, the summary information
presented below is derived from Jade's or IGA's audited financial statements, as
the case may be.

8
<PAGE>
PSB SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
AT AND FOR AT AND FOR
THE PERIOD ENDED THE YEAR ENDED AT AND FOR
SEPTEMBER 30, DECEMBER 31, THE YEAR ENDED
------------------- ----------------------------------------- SEPTEMBER 30,
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(1).................... $266,311 $255,030 $279,608 $227,486 $194,910 $185,768 $174,043
Cash and cash equivalents.......... 13,072 7,037 17,275 47,527 41,584 48,308 35,949
Loans receivable, net.............. 160,820 155,356 167,787 121,240 110,218 99,453 101,762
Loans held for sale................ 7,927 8,372 8,221 6,938 6,575 4,598 1,041
Investment securities.............. 30,847 25,952 30,435 21,447 23,165 19,526 21,339
Mortgage-backed securities......... 43,786 49,431 46,957 23,400 5,002 5,942 6,905
Deposits........................... 175,391 197,820 193,210 185,654 169,051 163,273 150,600
Retained earnings or shareholders'
equity........................... 37,352 36,256 36,047 36,130 19,983 18,751 13,871
Book value per share............... 8.38 7.99 8.26 8.22 8.73 -- --
SUMMARY STATEMENT OF OPERATIONS:
Interest income.................... 15,799 13,268 18,561 15,226 13,837 13,018 12,597
Interest expense................... 7,776 6,537 9,219 7,800 7,376 6,941 6,448
-------- -------- -------- -------- -------- -------- --------
Net interest income................ 8,023 6,731 9,342 7,426 6,461 6,077 6,149
Provision for loan losses.......... 100 -- 100 283 60 133 252
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................. 7,923 6,731 9,142 7,143 6,401 5,944 5,897
-------- -------- -------- -------- -------- -------- --------
Noninterest income................. 468 866 913 1,373 1,169 1,000 982
Noninterest expense................ 6,046 5,459 8,198 6,517 6,113 6,402 6,384
Income before income taxes......... 2,258 2,138 1,857 1,999 1,457 542 495
-------- -------- -------- -------- -------- -------- --------
Income tax provision............... 650 221 (227) 355 345 201 433
-------- -------- -------- -------- -------- -------- --------
Net Income......................... 1,608 1,917 2,084 1,664 1,112 341 62
======== ======== ======== ======== ======== ======== ========
Earnings per share--basic.......... $ 0.37 $ 0.42 $ 0.48 $ 0.38 $ 0.49 $ -- $ --
======== ======== ======== ======== ======== ======== ========
Earnings per share--diluted........ $ 0.33 $ 0.33 $ 0.40 $ 0.32 $ 0.38 $ -- $ --
======== ======== ======== ======== ======== ======== ========
PERFORMANCE DATA:
Return on average assets........... 0.60% 0.79% 0.76% 0.81% 0.90% 0.18% 0.04%
Return on average equity........... 4.33% 5.29% 5.79% 5.94% 7.59% 1.82% 0.45%
Equity to assets................... 14.02% 14.21% 12.89% 15.88% 11.88% 10.09% 7.97%
Interest rate spread............... 3.38% 2.74% 2.17% 2.89% 3.01% 3.00% 3.32%
ASSET QUALITY RATIOS:
Nonperforming loans to total
loans............................ 1.87% 1.21% 1.16% 1.83% 2.53% 5.36% 6.55%
Nonperforming assets to total
assets........................... 1.63% 1.21% 1.11% 1.60% 2.68% 4.43% 5.22%
Allowance for loan losses to total
loans............................ 0.79% 0.59% 0.69% 0.80% 0.82% 1.35% 1.69%
Allowance for loan losses to
nonperforming loans.............. 42.24% 49.24% 59.82% 43.56% 32.50% 25.11% 25.74%
Allowance for loan losses to
nonperforming assets............. 30.92% 33.51% 39.65% 28.29% 18.49% 17.00% 19.10%
Net charge-offs as a percentage of
total loans...................... -- -- -- 0.21% 0.42% 0.45% 0.03%
Loans past due 90 days or more as
to interest or principal and
accruing interest................ $ -- $ 148 $ 180 $ -- $ 232 $ 2,468 $ 1,565
Nonaccrual loans................... 3,194 1,946 1,882 2,367 2,737 3,108 5,171
-------- -------- -------- -------- -------- -------- --------
Total nonperforming loans.......... 3,194 2,094 2,062 2,367 2,969 5,576 6,736
Real estate owned (REO)............ 1,169 983 1,047 1,277 2,249 2,659 2,344
-------- -------- -------- -------- -------- -------- --------
Total nonperforming assets......... $ 4,363 $ 3,077 $ 3,109 $ 3,644 $ 5,218 $ 8,235 $ 9,080
</TABLE>

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

(1) PSB completed the acquisition of First Bank of Philadelphia on October 12,
1999. This transaction was accounted for as a pooling of interests. As part
of this transaction, Pennsylvania Savings Bank merged with and into First
Bank of Philadelphia which then changed its name to First Penn Bank.

9
<PAGE>
JADE SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
AT AND FOR THE PERIOD AT AND FOR THE YEAR AT AND FOR THE YEAR
ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED JUNE 30,
--------------------- ------------------- -------------------
2000 1999 1999 1998 1998 1997
--------- --------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets............................. $214,876 $189,650 $199,576 $171,091 $159,852 $164,752
Cash and cash equivalents................ 16,733 12,367 13,242 18,351 12,981 16,587
Loans receivable, net.................... 127,275 110,968 114,081 102,900 98,096 100,371
Mortgage-backed securities:
Held-to-maturity....................... 3,117 4,709 4,314 6,635 9,071 14,320
Available-for-sale..................... 7,745 13,108 8,859 10,176 14,267 13,724
Investment securities:
Held-to-maturity....................... 0 0 0 0 500 7,731
Available-for-sale..................... 40,543 37,911 40,783 28,726 19,340 7,199
Total investments held-to-maturity....... 3,117 4,709 4,314 6,635 9,571 22,051
Total investments available-for-sale..... 48,288 51,019 49,642 38,902 33,607 20,923
Deposits................................. 165,937 168,364 156,124 154,888 143,934 149,846
Borrowings............................... 20,000 6,000 15,000 0
Equity................................... 27,694 14,111 27,240 15,276 15,080 14,246
SELECTED OPERATIONS DATA:
Total interest income.................... $ 10,446 $ 9,098 $ 12,516 $ 5,789 $ 11,476 $ 11,660
Total interest expense................... 5,028 4,007 5,496 2,762 5,475 5,655
Net interest income...................... 5,418 5,091 7,020 3,027 6,001 6,005
Provision for loan losses................ 565 405 520 300 1,038 847
Net interest income after provision for
loan losses............................ 4,853 4,686 6,500 2,727 4,963 5,158
Service fees............................. 409 353 566 338 887 767
Gain (loss) on sales of investment
securities............................. (88) 0 0 198 0 (7)
Other non-interest income................ 1,038 456 573 268 71 91
Total non-interest income................ 1,359 809 1,139 804 958 851
Total non-interest expense............... 5,306 4,672 7,239 3,119 5,258 4,983
Income tax expense(1).................. 165 276 107 146 0 0
Net income............................... $ 741 $ 547 $ 293 $ 266 $ 663 $ 1,026
PERFORMANCE RATIOS:
Return on assets (ratio of net income
to average total assets)............. 0.49% 0.40% 0.16% 0.32% 0.42% 0.64%
Return on equity (ratio of net income
to average equity)................... 3.66% 4.79% 1.68% 3.46% 4.52% 7.55%
Interest rate spread................... 3.75% 3.96% 3.99% 3.75% 3.66% 3.64%
Net interest margin.................... 3.93% 4.18% 4.07% 3.90% 3.93% 3.86%
Operating expenses to average total
assets............................... 3.47% 3.54% 3.87% 3.77% 3.33% 3.10%
Average interest-earning assets to
average interest-bearing
liabilities.......................... 105.01% 104.24% 102.55% 104.13% 107.58% 106.17%
ASSET QUALITY RATIOS:
Non-performing assets to total assets
at end of period..................... 0.06% 0.09% 0.11% 0.10% 0.14% 0.49%
Allowance for loan losses to non-
performing assets.................... 192.09% 722.22% 608.53% 631.76% 419.47% 124.69%
Allowance for loan losses to gross
loans receivable..................... 1.28% 1.10% 1.11% 1.03% 0.96% 0.99%
CAPITAL RATIOS:
Equity to total assets at end of
period............................... 12.89% 7.44% 13.65% 8.93% 9.43% 8.65%
Average equity to average assets....... 13.26% 8.40% 9.34% 9.30% 9.29% 8.45%
</TABLE>

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

(1) Prior to July 1, 1998, IGA was a federal credit union that was exempt from
federal income tax.

10
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION

The following tables show selected unaudited pro forma financial data
reflecting the merger accounted for using the purchase method of accounting. See
"The Merger--Accounting Treatment" on page 28.

We present the following pro forma information for illustration purposes
only. The pro forma financial information does not necessarily reflect what the
actual results of PSB would be following completion of the merger.

We have prepared the pro forma information based on the payment of $13.55 in
cash for each share of Jade common stock outstanding that is not held by the
ESOP and the issuance of 3.328 shares of PSB common stock for each share of Jade
common stock held by the ESOP on behalf of the ESOP participants. See "The
Merger--What Jade Shareholders Will Receive" on page 18.

11
<PAGE>
PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2000

The following pro forma consolidated balance sheet information combines the
historical consolidated balance sheets of PSB and Jade as of September 30, 2000.
The merger is reflected using the purchase method of accounting as though we
completed the merger on September 30, 2000. You should read this pro forma
information together with the historical consolidated financial statements of
PSB and Jade appearing elsewhere in this proxy statement/prospectus.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
JADE
PSB FINANCIAL PRO FORMA PRO FORMA
BANCORP, INC. CORP. ADJUSTMENTS COMBINED
------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 13,072 $ 16,733 $(23,413)D $ 6,392
Securities...................................... 74,633 53,655 (79)B 128,209
Loans receivable................................ 170,096 128,932 299,028
Allowance for loan losses....................... (1,349) (1,667) (3,006)
Other assets.................................... 9,859 17,213 (466)C,F 26,606
-------- -------- -------- --------
Total Assets.................................. $266,311 $214,876 $(23,958) $457,229
======== ======== ======== ========
Deposits........................................ 175,391 166,937 341,328
Short-term borrowings........................... 51,340 468 51,808
Long-term debt.................................. -- 20,000 20,000
Other liabilities............................... 2,228 777 2,729 G 5,734
-------- -------- -------- --------
Total liabilities............................. 228,959 187,182 2,729 418,870
-------- -------- -------- --------
Common stock.................................... -- 19 (19)A --
Treasury stock.................................. (489) -- (489)
Surplus......................................... 40,829 14,173 (14,173)A 42,793
1,964 E
Employee stock ownership plan................... (1,239) (957) (2,196)
Retained earnings............................... 630 16,628 (16,628)A 630
Accumulated other comprehensive income.......... (2,379) (2,169) 2,169 A (2,379)
-------- -------- -------- --------
Total Stockholders' Equity.................... 37,352 27,694 (26,687) 38,359
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity.... $266,311 $214,876 $(23,958) $457,229
======== ======== ======== ========
</TABLE>

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

A To eliminate the equity accounts of Jade.

B To adjust the held-to-maturity securities of Jade to fair-value.

C To recognize the tax impact of the other pro forma adjustments.

D To reflect the cash payout of $13.55 for each share of Jade common stock
outstanding (excluding 145,000 ESOP shares).

E To reflect the issuance of PSB common stock for the 145,000 shares of Jade
common stock held by its ESOP.

F To adjust the carrying value of property and equipment to zero (recorded net
of the estimated 40% tax benefit).

G To record negative goodwill for excess of net assets acquired over purchase
price.

12
<PAGE>
PRO FORMA STATEMENTS OF INCOME FOR THE PERIOD ENDED SEPTEMBER 30, 2000,
AND THE YEAR ENDED DECEMBER 31, 1999

The following two tables show pro forma statements of income for the period
ended September 30, 2000 and for the year ended December 31, 1999. We prepared
this pro forma information under the purchase method of accounting assuming that
the merger occurred on the first day of each period for which information is
presented. You should read this pro forma information together with the
historical financial statements of PSB and Jade appearing elsewhere in this
proxy statement/prospectus.

PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
JADE
PSB FINANCIAL PRO FORMA PRO FORMA
BANCORP, INC. CORP. ADJUSTMENTS COMBINED
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income.............................. $ 15,799 $ 10,446 $ (615)A $ 25,630
Interest expense............................. 7,776 5,028 12,804
---------- ---------- ------- ----------
Net interest income.......................... 8,023 5,418 (615) 12,826
Provision for loan losses.................... 100 565 665
---------- ---------- ------- ----------
Net interest income after provision for
loan losses................................ 7,923 4,853 (615) 12,161
Other income................................. 468 1,359 275 B 2,102
Other expenses............................... 6,133 5,306 11,439
---------- ---------- ------- ----------
Income before income taxes................... 2,258 906 (340) 2,824
Income taxes................................. 650 165 (136)C 679
---------- ---------- ------- ----------
Net income................................... $ 1,608 $ 741 $ (204) $ 2,145
========== ========== ======= ==========
Basic earnings per share..................... $ 0.37 $ 0.43 $ 0.45
========== ========== ==========
Diluted earnings per share................... $ 0.33 $ 0.43 $ 0.41
========== ========== ==========
Weighted average shares in calculation
Basic...................................... 4,316,766 1,742,423 4,799,326
========== ========== ==========
Diluted.................................... 4,804,471 1,742,423 5,287,031
========== ========== ==========
</TABLE>

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

A To reflect the reduction of interest income associated with the cash outlay.
Calculation assumes a 3.5% average yield.

B To reflect the accretion of the fair value adjustment to investments (10 year
period) and property and equipment (15 year period).

C To reflect the tax benefit associated with the other pro forma adjustments at
a 40% effective tax rate.

13
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income.................................... $ 2,084 $ 293 $(272) $ 2,105
========== ========== ===== ==========
Basic earnings per share...................... $ 0.46 $ 0.17 $ 0.43
========== ========== ==========
Diluted earnings per share.................... $ 0.40 $ 0.17 $ 0.37
========== ========== ==========
Weighted average shares in calculation
Basic....................................... 4,365,000 1,742,423 4,847,560
========== ========== ==========
Diluted..................................... 5,167,000 1,742,423 5,649,560
========== ========== ==========
</TABLE>

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

A To reflect the reduction of interest income associated with the cash outlay.
Calculation assumes a 3.5% average yield.

B To reflect the accretion of the fair value adjustment to investments (10 year
period) and property and equipment (15 year period).

C To reflect the tax benefit associated with the other pro forma adjustments at
a 40% effective tax rate.

14
<PAGE>
THE SPECIAL MEETING

MATTERS TO BE CONSIDERED AT THE MEETINGS

GENERAL. The Boards of Directors of Jade is sending this proxy
statement/prospectus to its shareholders to solicit proxies for use at the Jade
special meeting.

At the Jade special meeting, shareholders will consider and vote upon
proposals to:

- approve and adopt the merger agreement;

- approve the proposal to adjourn the meeting if more time is needed to
solicit proxies; and

- consider any other matters properly brought before the meeting.

A vote for approval of the merger agreement is a vote for approval of the
merger of PSB Merger Sub, Inc. a subsidiary of PSB Bancorp, Inc. with and into
Jade Financial Corp., and, except for the shares of Jade held by the ESOP for
the benefit of ESOP participants, for the exchange of Jade common stock for
$13.55 in cash per share. If you vote for approval of the merger agreement as an
ESOP participant and have Jade Financial Corp. shares allocated to your
retirement account, you may direct the ESOP to receive on your behalf either
$13.55 in cash or shares of PSB Bancorp, Inc. common stock. If you elect to
receive common stock you will receive [3.328] shares of PSB Bancorp, Inc. common
stock for each share of Jade Financial Corp. common stock allocated to your
retirement account as a participant in the ESOP. If an eligible ESOP participant
elects to receive cash for his or her allocated shares, the participant will
have the option of directing the trustees of the ESOP to purchase PSB shares, or
hold the cash in a money market account. In addition, the trustees of the ESOP
may elect to make other qualified investment options available. Each share of
Jade Financial Corp. common stock held by the ESOP that is not allocated to the
account of any participant will be converted into [3.328] shares of PSB
Bancorp, Inc. common stock.

VOTES REQUIRED

Approval of the merger agreement requires the affirmative vote of a majority
of the votes cast in person or by proxy at the Jade special meeting. Approval of
the adjournment proposal also requires the affirmative vote of a majority of the
votes cast in person or by proxy at the Jade special meeting.

Shareholders of Jade have one vote for each share of Jade common stock that
they hold of record on each matter to be considered at the Jade special meeting.

The directors and executive officers of Jade have indicated their intention
to vote all shares of Jade common stock that they own for approval and adoption
of the merger agreement. As of the record date for the special meeting,
directors and executive officers of Jade and their affiliates beneficially owned
and were entitled to vote approximately shares of Jade common stock,
which represented approximately % of the shares of Jade common stock
outstanding on the record date. In addition, PSB owns shares of Jade common
stock, or % of the shares of Jade common stock outstanding, that it intends to
vote for adoption of the merger agreement.

VOTING OF PROXIES

The proxyholders will vote shares represented by all properly executed
proxies received in time for the Jade special meeting in the manner specified on
each proxy. The proxyholders will vote properly executed proxies that do not
contain voting instructions in favor of the merger agreement and in favor of the
adjournment proposal.

The abstention from voting on any proposal by any shareholder who is present
in person or by proxy at the Jade special meeting will not count as a vote "for"
or "against" the proposal. Under the applicable rules of the New York Stock
Exchange and the National Association of Securities Dealers,

15
<PAGE>
brokers who hold your shares in street name cannot give a proxy to vote your
shares on the merger agreement or the adjournment proposal in the absence of
specific instructions from you.

We do not expect that any matter other than those described in this proxy
statement/prospectus will come before the Jade special meeting. If, however, a
shareholder properly presents another matter for a vote at the Jade special
meeting, the persons named as proxies will use their judgment to vote on those
matters.

REVOCABILITY OF PROXIES

You may revoke your proxy at any time until it is voted by:

- delivering a notice of revocation or delivering a later dated proxy to
Richard Hasson, Secretary, Jade Financial Corp., 213 West Street Road,
Feasterville, Pennsylvania 19053; or

- appearing at the Jade special meeting and voting in person.

Attendance at the Jade special meeting will not in and of itself revoke a
proxy.

RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM

Only holders of record of Jade common stock on January 18, 2001 will receive
notice of, and can vote at, the special meeting. On January 18, 2001,
shares of Jade common stock were issued and outstanding and held by
approximately holders of record.

A quorum at the special meeting for purposes of voting on approval of the
merger agreement and the adjournment proposal requires the presence in person or
by proxy of shareholders entitled to cast at least a majority of the votes that
all shareholders of Jade are entitled to cast on the record date.

In addition to shares of common stock voted in person or by proxy, Jade
intends to count the following shares as present at the special meeting for the
purpose of determining a quorum:

- shares of common stock present in person at the special meeting but not
voting;

- shares of common stock relating to proxies received on which holders of
the shares have abstained on any matter; and

- shares of common stock for which it has received proxies from a broker
with no indication of how to vote the shares.

SOLICITATION OF PROXIES

Jade and PSB will share equally the cost of the printing of this proxy
statement/prospectus and solicitation of proxies from Jade's shareholders.

Jade will solicit proxies by mail. In addition, directors, officers and
employees of Jade and its subsidiaries may solicit proxies from shareholders by
telephone, telegram or in person. Jade will make arrangements with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
proxy solicitation material to the beneficial owners of stock held of record by
those persons, and Jade will reimburse such custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses.

Jade shareholders should not send stock certificates with their proxy cards.
As described below under the caption "The Merger--Exchange of Jade Stock
Certificates," PSB will provide each Jade shareholder with materials for
exchanging shares of Jade common stock shortly after the merger.

16
<PAGE>
THE MERGER

GENERAL

In this section of the proxy statement/prospectus we describe the material
terms and provisions of the proposed merger. We have attached a copy of the
merger agreement to this proxy statement/ prospectus as Annex A. We urge all
shareholders to read the merger agreement carefully.

BACKGROUND OF THE MERGER

The President of PSB and the Chairman of Jade have met periodically over the
past five years to discuss banking industry issues that have been of mutual
concern to the two companies. Shortly after Jade converted from a mutual thrift
to the stock form of ownership in October 1999, the President of PSB and the
Chairman of Jade met again. During the meeting, the President of PSB expressed a
possible interest in engaging in a business combination with Jade, but did not
discuss timing, price or other specifics. The regulations of the Office of
Thrift Supervision (the "OTS") prohibited PSB from making an offer to acquire
Jade until after one year after the date of IGA's mutual to stock conversion, or
October 5, 2000, unless the OTS approved the making of such an offer in advance.

At a meeting on February 23, 2000, Jade's Board discussed the interest
expressed by PSB. After this discussion, the Board authorized Jade's counsel to
send a letter to the OTS requesting permission to negotiate with PSB regarding a
possible business combination. The letter was sent to the OTS on March 23, 2000.
During the next three months, Jade's counsel had several discussions with the
OTS regarding the request and on June 21, 2000, the OTS granted Jade permission
to negotiate with PSB. Specifically, the OTS allowed Jade to negotiate a
transaction with PSB, but did not give Jade permission to execute a merger
agreement with PSB until after October 5, 2000.

At a meeting on May 18, 2000, Jade's Board retained Berwind Financial to
serve as Jade's financial advisor in connection with the potential transaction.
At a meeting on June 28, 2000, Jade's Board authorized its chairman and its
president to commence merger negotiations with PSB. Negotiations occurred during
a series of meetings held in July through October of 2000.

On September 5, 2000, the Jade Board of directors met to consider the
transaction and received a presentation from Berwind Financial regarding Berwind
Financial's analysis of the fairness of the consideration to be paid to Jade
shareholders. On October 5, 2000, the Jade Board of Directors met again to
approve the merger agreement. Based, in part, upon the opinion of Berwind
Financial, L.P. (see "The Merger--Opinion of Independent Financial Advisor")
that the consideration to be paid to Jade shareholders was fair from a financial
point of view, the Jade Board of Directors unanimously approved the merger
agreement with PSB, subject to the final resolution of open items.

All open issues were finally resolved on October 25, 2000. The Boards of
Directors of PSB and Jade each received an update as to the final terms and
reaffirmed their respective approval of the merger agreement. PSB and Jade
signed the merger agreement on November 2, 2000 and publicly announced on the
same day.

In considering the merger, Jade's Board of Directors considered, among other
things discussed in this proxy statement/prospectus:

- the financial terms of the merger;

- the structure of the transaction, including provisions of the merger
agreement providing Jade and IGA directors with representation on the PSB
and First Penn Bank Boards of Directors;

- the historic and current financial performance of PSB;

- the PSB strategic plan;

17
<PAGE>
- the complementary nature of, and the potential synergies and revenue
enhancement opportunities presented by the combination of Jade, with its
focus on consumer lending, and PSB, with its concentration on commercial
and mortgage lending;

- potential cost savings;

- the commitment of PSB to the communities it serves;

- the effect on Jade's employees;

- PSB's operating culture; and

- the opinion of its financial advisor as to the fairness of the
transaction, from a financial point of view, to Jade shareholders.

Berwind Financial has advised the Board of Directors that, in its opinion,
the consideration to be received by Jade shareholders in the merger is fair,
from a financial point of view. The Jade Board of Directors received a written
opinion to that effect from Berwind Financial dated October 5, 2000, and updated
as of the date of this proxy statement/prospectus. The updated opinion is
attached as Annex B to this proxy statement/prospectus. A summary of the Berwind
Financial opinion is set forth in "Opinion of Independent Financial Advisor."

The Jade Board of Directors determined, in light of the material factors
discussed above, that the terms of the merger agreement are fair to, and in the
best interests of, Jade and its shareholders. The Jade Board of Directors
believes that the factors discussed above are all of the material factors
considered by the Board of Directors in evaluating the merger. In view of the
wide variety of material factors considered in connection with its evaluation of
the merger, the Jade Board did not find it practical to, and did not, quantify
or otherwise attempt to assign any relative weight to the various factors
considered in reaching their determination. In addition, individual directors
may have given different weights to different factors. The Board of Directors
cannot assure that any of the potential opportunities it considered will be
achieved through consummation of the merger.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The Board of Directors of Jade believes that the terms of the merger are
fair and in the best interests of Jade and its shareholders. The Board of
Directors of Jade has unanimously approved the merger agreement. The Board of
Directors of Jade unanimously recommends that the shareholders of Jade approve
the merger agreement.

EFFECT OF THE MERGER

As a result of the merger, PSB Merger Sub, Inc. will merge with and into
Jade., the separate legal existence of PSB Merger Sub will cease and Jade will
become a wholly-owned subsidiary of PSB. All property, rights, powers, duties,
obligations, debts and liabilities of PSB Merger Sub will automatically transfer
to and vest in Jade in accordance with Pennsylvania law. The Articles of
Incorporation and Bylaws of Jade in effect immediately prior to completion of
the merger will remain in effect after the merger.

WHAT JADE SHAREHOLDERS WILL RECEIVE

If you are a Jade shareholder, other than an ESOP participant, when the
merger is completed you will receive $13.55 in cash for each share of Jade
common stock that you own on the date of the merger. If you are an ESOP
participant and have Jade Financial Corp. shares allocated to your retirement
account, you may direct the ESOP to receive on your behalf either $13.55 in cash
or shares of PSB Bancorp, Inc. common stock. If you elect to receive common
stock, you will receive [3.328] shares of PSB Bancorp, Inc. common stock for
each share of Jade Financial Corp. common stock

18
<PAGE>
allocated to your retirement account. If an eligible ESOP participant elects to
receive cash for his or her allocated shares, the participant will have the
option of directing the trustees of the ESOP to purchase PSB shares or hold the
cash in a money market account. In addition, the trustees of the ESOP may elect
to make other qualified investment options available. Each share of Jade
Financial Corp. common stock held by the ESOP that is not allocated to the
account of any participant will be converted into [3.328] shares of PSB
Bancorp, Inc. common stock.

If PSB effects a stock split or a stock dividend or any similar change in
its common stock prior to the merger, we will adjust proportionately the number
of shares of PSB common stock issuable in exchange for shares of Jade common
stock held by the ESOP.

OPINION OF INDEPENDENT FINANCIAL ADVISOR

Jade retained Berwind Financial to act as its financial advisor and to
render a fairness opinion in connection with the merger. Berwind Financial
rendered its opinion to the Board of Directors of Jade that, based upon and
subject to the various considerations set forth therein, as of October 5, 2000
(the "October Opinion"), and as of (the "Proxy Opinion"), the
financial terms of the proposed merger are fair, from a financial point of view,
to the holders of Jade common stock.

The full text of Berwind Financial's Proxy Opinion, which sets forth the
assumptions made, matters considered and limitations of the review undertaken,
is attached as Annex B to this proxy statement/ prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
proxy statement/prospectus. The summary of the opinion of Berwind Financial set
forth herein is qualified in its entirety by reference to the full text of such
opinion attached as Annex B to this proxy statement/prospectus.

Berwind Financial was selected by Jade based upon its qualifications,
expertise and experience. Berwind Financial has knowledge of, and experience
with, Mid-Atlantic and surrounding banking markets as well as banking
organizations operating in those markets and was selected by Jade because of its
knowledge of, experience with, and reputation in the financial services
industry. Berwind Financial, as part of its investment banking business, is
engaged regularly in the valuation of assets, securities and companies in
connection with various types of asset and securities transactions, including
mergers, acquisitions, private placements, and valuations for various other
purposes and in the determination of adequate consideration in such
transactions.

On November 2, 2000, Jade's Board of Directors executed the merger
agreement. Prior to such approval, Berwind Financial delivered its October
Opinion to Jade's Board stating that, as of the date of the October Opinion, the
financial terms of the proposed merger were fair to the shareholders of Jade
from a financial point of view. Berwind Financial reached the same opinion as of
the date of its Proxy Opinion. The full text of the Proxy Opinion, which sets
forth assumptions made, matters considered and limits on the review undertaken,
is attached as Annex B to this proxy statement/ prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
proxy statement/prospectus. The summary of the Proxy Opinion of Berwind
Financial set forth herein is qualified in its entirety by reference to the full
text of the Proxy Opinion. No limitations were imposed by Jade's Board of
Directors upon Berwind Financial with respect to the investigations made or
procedures followed by Berwind Financial in rendering the October Opinion or the
Proxy Opinion.

In rendering its Proxy Opinion, Berwind Financial: (i) reviewed the
historical financial performance, current financial position and general
prospects of Jade and reviewed certain internal financial analyses and forecasts
prepared by the management of Jade, (ii) reviewed the merger agreement,
(iii) studied and analyzed the stock market performance of Jade,
(iv) considered the terms and conditions of the proposed merger between PSB and
Jade compared with the terms and conditions of comparable thrift and thrift
holding company mergers and acquisitions, (v) met and/or communicated with
certain members of Jade's senior management to discuss its operations,
historical

19
<PAGE>
financial statements and future prospects, (vi) reviewed this proxy
statement/prospectus, and (vii) conducted such other financial analyses, studies
and investigations as it deemed appropriate.

In delivering its October Opinion and Proxy Opinion, Berwind Financial
assumed that in the course of obtaining the necessary regulatory and
governmental approvals for the merger, no restriction will be imposed on PSB or
Jade that would have a material adverse effect on the contemplated benefits of
the merger.

Berwind Financial relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinions. With respect to Jade's financial
forecasts reviewed by Berwind Financial in rendering its opinions, Berwind
Financial assumed that such financial forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Jade as to the future financial performance of Jade. Berwind
Financial did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of Jade or PSB nor was it furnished with any
such appraisal. Berwind Financial also did not independently verify and has
relied on and assumed that all allowances for loan and lease losses set forth in
the balance sheets of Jade and PSB were adequate and complied fully with
applicable law, regulatory policy and sound banking practice as of the date of
such financial statements.

The following is a summary of selected analyses prepared by Berwind
Financial and presented to Jade's Board in connection with the October Opinion
and analyzed by Berwind Financial in connection with the October and Proxy
Opinions. In connection with delivering its Proxy Opinion, Berwind Financial
updated certain analyses described below to reflect current market conditions
and events occurring since the date of the October Opinion. As a result of such
reviews and updates Berwind Financial determined that it was not necessary to
change the conclusions it had reached in connection with rendering the October
Opinion.

COMPARABLE COMPANIES AND COMPARABLE ACQUISITION TRANSACTION
ANALYSES. Berwind Financial compared selected financial and operating data for
Jade with those of two different peer groups. The first peer group consisted of
independent, SEC-reporting thrifts headquartered in the Mid-Atlantic and New
England regions that fully converted to public ownership subsequent to
January 1, 1998 and had total assets between $50 million and $1 billion as of
the most recent period publicly available prior to the Proxy Opinion. The second
group consisted of independent, SEC-reporting thrifts headquartered in
Pennsylvania and New Jersey that had total assets between $100 million and
$500 million as of the most recent period publicly available prior to the Proxy
Opinion. Financial data and operating ratios compared in the analysis of the
Jade peer groups included but were not limited to: return on average assets,
return on average equity, shareholders' equity to assets ratio and certain asset
quality ratios.

Berwind Financial also compared the multiples of book value, tangible book
value and latest twelve months' earnings inherent to the merger with the
multiples paid in recent acquisitions of thrifts that Berwind Financial deemed
comparable. The transactions deemed comparable by Berwind Financial included
both interstate and intrastate acquisitions announced after January 1, 1999, in
which the selling institution's assets were between $100 million and
$500 million as of the most recent period publicly available prior to the Proxy
Opinion. No company or transaction, however, used in this analysis is identical
to Jade, PSB or the merger. Accordingly, an analysis of the result of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that would affect the public trading values of
the companies or company to which they are being compared.

DISCOUNTED DIVIDEND ANALYSES. Using discounted dividend analyses, Berwind
Financial estimated the present value of Jade's common stock after a five year
period by applying a range of earnings multiples to Jade's terminal year
earnings under various growth assumptions. The range of multiples used reflected
a variety of scenarios regarding the growth and profitability prospects of Jade.
The

20
<PAGE>
terminal values were then discounted to present value using discount rates,
reflecting different assumptions regarding the rates of return required by
holders or prospective buyers of Jade's common stock.

HURDLE RATE ANALYSIS. Using a range of discount rates and earnings
multiples, Berwind Financial estimated the compound annual earnings growth rate
required over a five year period to allow Jade to reach a valuation level
comparable to the consideration offered by PSB on an independent basis at the
end of five years. Berwind Financial then compared this earnings growth rate
with Jade's historical and estimated future earnings growth rates.

In connection with rendering its October Opinion and Proxy Opinion, Berwind
Financial performed a variety of financial analyses. Although the evaluation of
the fairness, from a financial point of view, of the financial terms of the
proposed merger was to some extent a subjective one based on the experience and
judgment of Berwind Financial and not merely the result of mathematical analysis
of financial data, Berwind Financial principally relied on the previously
discussed financial valuation methodologies in its determinations. Berwind
Financial believes its analyses must be considered as a whole and that selecting
portions of such analyses and factors considered by Berwind Financial without
considering all such analyses and factors could create an incomplete view of the
process underlying Berwind Financial's opinions. In its analysis, Berwind
Financial made numerous assumptions with respect to business, market, monetary
and economic conditions, industry performance and other matters, many of which
are beyond Jade's and PSB's control. Any estimates contained in Berwind
Financial's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.

In reaching its opinions as to fairness, none of the analyses performed by
Berwind Financial was assigned a greater or lesser weighting by Berwind
Financial than any other analysis. As a result of its consideration of the
aggregate of all factors present and analyses performed, Berwind Financial
reached the conclusion, and opined, that the financial terms of the proposed
merger as set forth in the agreement, are fair from a financial point of view to
Jade and its shareholders.

Berwind Financial's Proxy Opinion was based solely upon the information
available to it and the economic, market and other circumstances as they existed
as of the date its Proxy Opinion was delivered; events occurring after the date
of its Proxy Opinion could materially affect the assumptions used in preparing
its Proxy Opinion. Berwind Financial has not undertaken to reaffirm and revise
its Proxy Opinion or otherwise comment upon any events occurring after the date
thereof.

Pursuant to the terms of its engagement letter, Jade has paid Berwind
Financial $60,000 for acting as financial advisor in connection with the merger
including delivering its October and Proxy Opinions. In addition, Jade has also
agreed to pay Berwind Financial approximately $140,000 upon the consummation of
the merger and to reimburse Berwind Financial for certain out-of-pocket
expenses. Whether or not the merger is consummated, Jade has also agreed to
indemnify Berwind Financial and certain related persons against certain
liabilities relating to or arising out of its engagement.

The full text of the Proxy Opinion of Berwind Financial dated ,
which sets forth assumptions made and matters considered, is attached hereto as
Annex B. Jade's shareholders are urged to read the Proxy Opinion in its
entirety. Berwind Financial's Proxy Opinion is directed only to the financial
terms of the proposed merger and does not constitute a recommendation to any
holder of Jade common stock as to how such holder should vote at the Jade
special meeting.

THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND
FINANCIAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT
OPINION, WHICH IS SET FORTH IN ANNEX B TO THIS PROXY STATEMENT/ PROSPECTUS.

21
<PAGE>
EFFECTIVE DATE OF THE MERGER

The effective date of the merger will occur within 5 business days following
the satisfaction or waiver of all conditions to the completion of the merger as
specified in the merger agreement. We presently expect that the effective date
of the merger will occur late in the first quarter or early in the second
quarter of 2001.

On or prior to the effective date of the merger, PSB Merger Sub, Inc. and
Jade will file articles of merger with the Pennsylvania Department of State and
the articles will set forth the effective date of the merger. Either PSB or Jade
can terminate the merger if, among other reasons, the merger does not occur on
or before June 30, 2001 and the terminating party has not breached or failed to
perform or observe any of its agreements under the merger agreement. See
"--Termination; Effect of Termination" on page 27.

EXCHANGE OF JADE STOCK CERTIFICATES

As soon as possible after the merger, PSB will send a transmittal form to
each record owner of Jade common stock. The transmittal form will contain
instructions describing how to surrender certificates representing Jade common
stock and receive either cash, or in the case of the ESOP, new certificates
representing shares of PSB common stock.

PSB must mail checks to former shareholders of Jade not later than twenty
business days following the receipt of certificates representing former shares
of Jade common stock properly endorsed or accompanied by the transmitted
materials.

YOU SHOULD NOT FORWARD ANY JADE STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
TRANSMITTAL FORMS FROM PSB. YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.

Until you exchange your certificates representing shares of Jade common
stock, you will not receive the cash into which your Jade shares converted. When
your Jade certificates are surrendered, you will receive any unpaid dividends
without interest. For all other purposes, however, each certificate that
represents shares of Jade common stock outstanding at the effective date of the
merger will evidence a right to receive either $13.55 in cash, or in the case of
the ESOP, $13.55 in cash or shares of PSB common stock (and cash in lieu of
fractional shares), as the case may be, into which those shares are converted as
a result of the merger. Neither PSB nor Jade will be liable to any holder of
shares of Jade common stock for any amount paid in good faith to a public
official pursuant to any applicable abandoned property, escheat or similar law.

CONDITIONS TO THE MERGER

The obligations of PSB and Jade to complete the merger are subject to
various conditions that include, among other customary provisions for
transactions of this type, the following:

- approval of the merger agreement by the holders of Jade common stock;

- receipt by PSB and Jade of all required approvals of regulatory
authorities for the merger, including the expiration or termination of any
notice and waiting periods;

- the absence of any legal order that prohibits completion of the merger or
any transaction contemplated by the merger agreement;

- receipt by PSB of a tax opinion from Jade's counsel;

22
<PAGE>
- the absence of any material adverse effect on the assets, financial
condition or results of operations on a consolidated basis of the other
party since June 30, 2000, not including:

- any change in the value of the investment or loan portfolios of PSB or
Jade resulting from a change in interest rates generally;

- any change occurring after the date of the merger agreement in any law
or regulation or in generally accepted accounting principles that
affects banking institutions generally; and

- execution of an employment agreement and/or a retainer agreement among
PSB, First Penn, and Messrs. O'Connell, Incollingo and Moran, as
appropriate.

In addition, the obligations of both PSB and Jade to complete the merger are
conditioned on:

- the accuracy in all material respects as of the date of the merger
agreement and as of the merger date of the representations and warranties
of the other party, except as to any representation or warranty that
specifically relates to an earlier date and except as otherwise
contemplated by the merger agreement;

- the other party's material performance of all of its covenants and
obligations; and

- other conditions customary for similar transactions, such as the receipt
of officer certificates and legal opinions.

Except for the requirements of shareholder approval, regulatory approvals
and the absence of any legal order preventing the merger, we may waive each of
the conditions described above.

SUBSIDIARY BANKS

Concurrently with the merger, PSB will merge IGA Federal Savings Bank with
and into First Penn Bank with First Penn Bank surviving the merger and
continuing to operate under the name "First Penn Bank."

REGULATORY APPROVALS

We must obtain the prior approval of the Federal Reserve Board, the Office
of Thrift Supervision and the Pennsylvania Department of Banking to complete the
merger. An application for approval of the merger was filed with the Federal
Reserve, the Office of Thrift Supervision and the Pennsylvania Department of
Banking on , 2001, , 2001, and , 2001,
respectively. Under applicable regulations, the Federal Reserve, the Office of
Thrift Supervision and the Pennsylvania Department of Banking will review the
financial, managerial, and competitive, aspects of the transaction, as well as
the convenience and needs of the community.

In addition, the Federal Reserve or the Office of Thrift Supervision may not
approve any proposed acquisition:

- if it would result in a monopoly or further any combination or conspiracy
to monopolize or to attempt to monopolize the banking business in any part
of the United States; or

- which in any section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in any
other manner would restrain trade, unless the Federal Reserve finds that
the anticompetitive effects of the proposed acquisition are clearly
outweighed in the public interest by the probable effect of the proposed
acquisition in meeting the convenience and needs of the community to be
served.

In addition, the Federal Reserve and the Office of Thrift Supervision have
the responsibility to review the performance of all involved institutions in
meeting their responsibilities under the Community Reinvestment Act, which
includes the record of performance of the existing institutions in

23
<PAGE>
meeting the credit needs of the entire community including low- and
moderate-income neighborhoods. Both First Penn Bank and IGA received ratings of
"satisfactory" in their last Community Reinvestment Act examinations. The
Federal Reserve or the Office of Thrift Supervision has not received any protest
under the Community Reinvestment Act as of the date of this proxy
statement/prospectus.

We cannot assure you that the Federal Reserve, the Office of Thrift
Supervision or the Pennsylvania Department of Banking will approve the merger,
and, if approved, as to the date of such approval. We cannot complete the merger
until 30 days (15 days if the Attorney General does not object) after the date
of Federal Reserve approval, during which time the U.S. Department of Justice
may challenge the merger on antitrust grounds. The commencement of an antitrust
action by the U.S. Department of Justice would stay the effectiveness of Federal
Reserve approval unless a court specifically orders otherwise. In reviewing the
merger, the U.S. Department of Justice could analyze the merger's effect on
competition differently than the Federal Reserve, and thus it is possible that
the U.S. Department of Justice could reach a different conclusion than the
Federal Reserve regarding the merger's competitive effects. Failure of the U.S.
Department of Justice to object to the merger does not prevent the filing of
antitrust actions by private persons.

REPRESENTATIONS AND WARRANTIES

The merger agreement contains customary representations and warranties
relating to:

- the corporate organization of PSB and Jade;

- the capital structures of PSB and Jade;

- the due authorization, execution, delivery, performance and enforceability
of the merger agreement;

- consents or approvals of regulatory authorities or third parties necessary
to complete the merger;

- the consistency of financial statements with generally accepted accounting
principles and, where appropriate, applicable regulatory accounting
principles;

- the filing of tax returns and payment of taxes;

- the absence of material adverse changes, since June 30, 2000, in the
consolidated assets, business, financial condition or results of
operations of PSB or Jade;

- the absence of undisclosed pending or threatened litigation that is
material;

- compliance with applicable laws and regulations;

- retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974;

- the quality of title to assets and properties;

- the maintenance of adequate insurance;

- the absence of undisclosed brokers' or finders' fees;

- the absence of material environmental violations, actions or liabilities;

- the consistency of the allowance for loan losses with generally accepted
accounting principles and all applicable regulatory criteria;

- the accuracy of information supplied by PSB and Jade in connection with
the Registration Statement filed by PSB with the SEC, this proxy
statement/prospectus and all applications filed with regulatory
authorities for approval of the merger; and

24
<PAGE>
- documents filed by PSB and Jade with the SEC and the accuracy of
information contained therein.

The merger agreement also contains other representations and warranties by
Jade and PSB relating to:

- certain contracts relating to employment, consulting and benefits matters;

- the validity and binding nature of loans reflected as assets in the
financial statements of Jade and PSB; and

- transactions with affiliates.

BUSINESS PENDING THE MERGER

PSB and Jade have each agreed to use their best efforts to preserve their
business organizations intact, to maintain good relationships with employees and
to preserve the goodwill of customers and others with whom business
relationships exist. In addition, Jade has agreed to conduct its business and to
engage in transactions only in the ordinary course of business, consistent with
past practice, except as otherwise required by the merger agreement or with the
written consent of PSB.

Jade has also agreed that neither it nor IGA Federal Savings Bank may,
without the written consent of PSB:

- amend or change any provision of its articles of incorporation, charter or
bylaws;

- change the number of authorized or issued shares of its capital stock;

- grant any option, warrant, or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into its
capital stock;

- split, combine or reclassify any shares of its capital stock;

- redeem or otherwise acquire any shares of its capital stock;

- grant any severance or termination pay, except in accordance with written
policies or written agreements in effect on the date of the merger
agreement (see "--Employee Benefits" in this section), or enter into or
amend any existing employment agreement;

- grant any pay increase except for routine periodic increases in accordance
with past practice;

- engage in any merger, acquisition or similar transaction;

- sell, lease or dispose of any assets other than in the ordinary course of
business;

- take any action that would result in any of the representations and
warranties of Jade becoming untrue;

- change any accounting practices, except as may be required by generally
accepted accounting principles (without regard to any optional early
adoption date) or any regulatory authority responsible for regulating Jade
or IGA Federal Savings Bank;

- waive, release, grant or transfer any rights of value or modify or change
in any material respect any existing material agreement to which Jade or
any subsidiary is a party, other than in the ordinary causes of business,
consistent with past practices;

- implement any new employee benefit or welfare plan, or amend any such
plan, unless such amendment does not result in an increase in cost except
as expressly permitted by the merger agreement;

25
<PAGE>
- purchase any security for its investment portfolio not rated "A-" or
higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;

- enter into, renew, extend, or modify any transaction (including loans and
commitments to lend) with any affiliate of Jade, except as otherwise
specified in the merger agreement;

- enter into any interest rate swap or similar arrangement;

- make any loan or other credit facility commitment to any borrower or group
of affiliated borrowers in excess of $100,000, or increase, compromise,
extend, renew or modify any existing loan or commitment outstanding in
excess of $100,000, except as otherwise specified in the merger agreement;

- waive, release, grant or transfer any rights of value, or modify or change
in any material respect any existing agreement to which Jade or any Jade
subsidiary is a party, other than in the ordinary course of business,
consistent with past practice.

PSB and Jade have jointly agreed:

- to prepare all applications for, and use their best efforts to obtain, all
required regulatory consents;

- to take all actions necessary to complete the transactions contemplated by
the merger agreement;

- to maintain adequate insurance;

- to maintain accurate books and records;

- to file all tax returns and pay all taxes when due;

- to agree upon the form and substance of any press release or public
disclosure related to the merger agreement, the merger and the bank
merger; and

- to deliver to the other copies of all securities documents when filed.

NO SOLICITATION OF TRANSACTIONS

The merger agreement prohibits Jade or any of its affiliates or
representatives, unless advised by counsel in writing that compliance with the
following prohibitions would constitute a breach of fiduciary duty, from:

- responding to, soliciting, initiating or encouraging any inquiries
relating to an acquisition of Jade by a party other than PSB;

- recommending or endorsing an acquisition of Jade by a party other than PSB
to do so;

- participating in any discussions or negotiations regarding an acquisition
of Jade by a party other than PSB;

- providing anyone other than PSB with any nonpublic information relating to
an acquisition of Jade by a party other than PSB; or

- entering into an agreement with any party other than PSB relating to an
acquisition of Jade by a party other than PSB.

Jade must notify PSB if it receives any inquiries or proposals relating to
an acquisition of Jade by a party other than PSB.

26
<PAGE>
AMENDMENT; WAIVERS

Subject to applicable law, at any time prior to completion of the merger,
PSB and Jade may:

- amend the merger agreement;

- extend the time for the performance of any of the obligations or other
acts of PSB and Jade required in the merger agreement;

- waive any inaccuracies in the representations and warranties contained in
the merger agreement; or

- waive compliance with any of the agreements or conditions contained in the
merger agreement, except for the requirements of shareholder approval,
regulatory approvals and the absence of any order, decree, or injunction
preventing the transactions contemplated by the merger agreement.

After you have approved the merger agreement however, we cannot modify
either the amount or the form of consideration you will receive as Jade
shareholders or otherwise materially adversely affect you without shareholder
approval.

TERMINATION; EFFECT OF TERMINATION

We may terminate the merger agreement at any time prior to completion of the
merger by our mutual written consent.

Either PSB or Jade may terminate the merger agreement at any time prior to
completion of the merger:

- if the merger does not occur on or before June 30, 2001, unless the
failure to complete the merger by that date results from the failure of
the party seeking to terminate the merger agreement to materially perform
any of its obligations; or

- if either party receives a final nonappealable order from a regulatory
authority denying a required approval or consent, unless the denial
results from the failure of the party seeking to terminate the merger
agreement to materially perform any of its obligations.

PSB or Jade may terminate the merger agreement at any time prior to
completion of the merger if the other party has materially breached any material
covenant or representation contained in the merger agreement that would have a
material adverse effect on the assets, financial condition or results of
operations of the parties on a consolidated basis, but only if the breach
remains uncured.

If either PSB or Jade terminates the merger for any of the reasons listed
above, neither PSB nor Jade will have any continuing liability or obligation
other than the obligation dealing with confidentiality and any liabilities
resulting from willful breach. If shareholders of Jade fail to approve the
merger agreement after public disclosure of an "acquisition transaction" by a
party other than PSB and within twelve months following termination of the
merger agreement a third party agrees to merge with or acquire substantially all
of the assets of Jade, then Jade must immediately pay PSB a fee in the amount of
$2.5 million. Jade would not be liable for the $2.5 million termination fee if
the "acquisition transaction" were to be completed with an entity in which:
(i) persons who were members of the Board of Directors of Jade prior to the
termination continue to constitute at least a majority of the Board of Directors
of the surviving entity following completion of such transaction; and (ii) the
shareholders of Jade immediately prior to such transaction continue to own at
least a majority of the outstanding voting securities of the surviving or
resulting entity immediately following the completion of the transaction.

27
<PAGE>
MANAGEMENT AND OPERATIONS AFTER THE MERGER

Following the merger, PSB will add John J. O'Connell and Mario L.
Incollingo, Jr. to its Board of Directors. Both presently serve as directors of
Jade and IGA Federal Savings Bank. The officers of PSB will not change after the
merger.

Following the bank merger, First Penn Bank will add Dennis P. Wesley, Clyde
A. Warden, Robert E. Adelsberger, Edward D. McBride and William L. Harm, to
First Penn Bank's Board of Directors. Mario L. Incollingo, Jr., President and
Chief Executive Officer of Jade, will become an Executive Vice President and
Chief Operating Officer of First Penn Bank and John J. O'Connell will become
Chairman of the Board of First Penn Bank. As a condition of the merger
agreement, Messrs. Incollingo and O'Connell are required to execute a three-year
employment agreement that becomes effective when we complete the merger.

EMPLOYEE BENEFITS

PSB will provide employee benefits to former employees of Jade or IGA
Federal Savings Bank after the merger that are substantially similar in the
aggregate to those provided by PSB to its similarly situated employees.
Employees of Jade or IGA Federal Savings Bank who become employees of PSB or any
PSB subsidiary will receive full credit for each year of service they had with
Jade or IGA Federal Savings Bank for purposes of determining eligibility for
participation and vesting, but not for benefit accrual, in PSB's employee
benefit plans. Subject to these and any other applicable legal requirements, PSB
may discontinue, amend or convert to a PSB plan any particular employee benefit
plan of Jade or IGA Federal Savings Bank.

ACCOUNTING TREATMENT

PSB will use the purchase method of accounting to account for the merger.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

Provided PSB Merger Sub, Inc. has no assets or properties, engages in no
activities other than the merger and is formed and exists solely to facilitate
and engage in the merger PSB Merger Sub, Inc. will be disregarded, and--

(a) to the extent that the cash for the payments to the holders of Jade
common stock under Section 1.02(e) of the merger agreement is provided by
PSB, the merger will be treated as a purchase by PSB of the issued and
outstanding Jade common stock held by holders receiving payment from PSB,
and

(b) to the extent that the cash for the payments to the holders of Jade
common stock under Section 1.02(e) of the merger agreement is provided by
Jade, the merger will be treated as a redemption by Jade of the issued and
outstanding Jade common stock held by holders receiving payment from Jade.

Provided PSB Merger Sub, Inc. is disregarded and no election is made to
treat the merger as a sale of assets under Section 338 of the Code, neither PSB
Merger Sub, Inc. nor Jade will recognize any gain or loss solely as a result of
the merger. A holder of Jade common stock that is not exempt from federal income
tax will recognize gain or loss to the extent that the amount of cash received
by such holder under Section 1.02(e) of the merger agreement differs from such
holder's adjusted tax basis in its shares of Jade common stock. Such gain or
loss should be capital gain or capital loss, provided the shares of Jade common
stock are held as a capital asset on the effective date of the merger.

THIS DISCUSSION IS NOT A COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND, IN PARTICULAR, DOES NOT ADDRESS TAX
CONSIDERATIONS THAT MAY AFFECT THE TREATMENT OF SHAREHOLDERS THAT ARE

28
<PAGE>
EXEMPT ORGANIZATIONS OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES.
EACH SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF
THE MERGER TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION IS PROVIDED HEREIN
WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER UNDER APPLICABLE STATE,
LOCAL, OR FOREIGN LAWS. ACCORDINGLY, WE ADVISE YOU TO CONSULT A TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU.

EXPENSES

PSB and Jade will each pay all their own costs and expenses, including fees
and expenses of financial consultants, accountants and legal counsel. PSB and
Jade will share equally the cost of printing and mailing this proxy
statement/prospectus.

RESALE OF PSB COMMON STOCK

The PSB common stock issued in the merger to the ESOP will be subject to
restrictions on transfer under the Securities Act of 1933 to the extent it is
deemed an "affiliate" for purposes of SEC Rule 145.

DISSENTERS' RIGHTS

GENERAL

Under Pennsylvania law, shareholders of Jade have the right to dissent from
the merger and to obtain payment of the "fair value" of their shares in the
event we complete the merger.

If you are a Jade shareholder and are contemplating exercising your right to
dissent, we urge you to read carefully the provisions of Subchapter D of Chapter
15 of the Pennsylvania Business Corporation Law of 1988, which is attached to
this proxy statement/prospectus as Annex C. A discussion of the provisions of
the statute is included here. The discussion describes the steps that you must
take if you want to exercise your right to dissent. You should read this summary
and the full text of the law.

Before the day of the merger, send any written notice or demand, required
concerning your exercise of dissenters' rights to Richard Hasson, Secretary,
Jade Financial Corp., 213 West Street Road, Feasterville, Pennsylvania 19053.
After the day of the merger, send correspondence to Rosanne Pauciello, Corporate
Secretary, PSB Bancorp, Inc., 11 Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103.

The term "fair value" means the value of a share of Jade common stock
immediately before the day of the merger taking into account all relevant
factors, but excluding any appreciation or depreciation in anticipation of the
merger.

NOTICE OF INTENTION TO DISSENT

If you wish to dissent, you must:

- prior to the vote of shareholders on the merger at the special meeting,
file a written notice of intention to demand payment of the fair value of
your shares of Jade common stock if the merger is effected with PSB;

- make no change in your beneficial ownership of Jade common stock from the
date you give notice through the day of the merger; and

- not vote your Jade common stock for approval of the agreement.

Neither a proxy nor a vote against approval of the merger is the necessary
written notice of intention to dissent.

29
<PAGE>
NOTICE TO DEMAND PAYMENT

If the merger is approved by the required vote of shareholders, Jade or PSB,
as the case may be, will mail a notice to all dissenters who gave due notice of
intention to demand payment and who did not vote for approval of the merger
agreement. The notice will state where and when you must deliver a written
demand for payment and where you must deposit certificates for Jade common stock
in order to obtain payment. The notice will include a form for demanding payment
and a copy of the law. The time set for receipt of the demand for payment and
deposit of stock certificates will be not less than 30 days from the date of
mailing of the notice.

FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.

You must take each step in the indicated order and in strict compliance with
the statute to keep your dissenters' rights. If you fail to follow the steps,
you will lose the right to dissent and you will receive the same $13.55 in cash
per share of Jade stock that you hold as the non-dissenting shareholders receive
in the merger.

PAYMENT OF FAIR VALUE OF SHARES

Promptly after the merger, or upon timely receipt of demand for payment if
the merger already has taken place, PSB will send dissenting shareholders, who
have deposited their stock certificates, the amount that PSB estimates to be the
fair value of the Jade common stock. The remittance or notice will be
accompanied by:

- a closing balance sheet and statement of income of Jade for a fiscal year
ending not more than 16 months before the date of remittance or notice,
together with the latest available interim financial statements;

- a statement of PSB's estimate of the fair value of Jade common stock; and

- a notice of the right of the dissenting shareholder to demand supplemental
payment, accompanied by a copy of the law.

ESTIMATE BY DISSENTING SHAREHOLDER OF FAIR VALUE OF SHARES

If a dissenting shareholder believes that the amount stated or remitted by
PSB is less than the fair value of the PSB common stock, the dissenting
shareholder may send an estimate of the fair value of the Jade common stock to
PSB. If PSB remits payment of estimated value of a dissenting shareholder's Jade
common stock and the dissenting shareholder does not file his or her own
estimate within 30 days after the mailing by PSB of its remittance, the
dissenting shareholder will be entitled to no more than the amount remitted by
PSB.

VALUATION PROCEEDINGS

If any demands for payment remain unsettled within 60 days after the latest
to occur of:

- the merger;

- timely receipt by Jade or PSB, as the case may be, of any demands for
payment; or

- timely receipt by Jade or PSB, as the case may be, of any estimates by
dissenters of the fair value,

then, PSB may file an application, in the Court of Common Pleas of Philadelphia
County, requesting that the court determine the fair value of the Jade common
stock. If this happens, all dissenting shareholders, no matter where they
reside, whose demands have not been settled, will become parties

30
<PAGE>
to the proceeding. In addition, a copy of the application will be delivered to
each dissenting shareholder.

If PSB were to fail to file the application, then any dissenting
shareholder, on behalf of all dissenting shareholders who have made a demand and
who have not settled their claim against PSB, may file an application in the
name of PSB at any time within the 30-day period after the expiration of the
60-day period and request that the Philadelphia Common Pleas Court determine the
fair value of the shares.

The fair value determined by the Philadelphia Common Pleas Court may, but
need not, equal the dissenting shareholder's estimate of fair value. If no
dissenter files an application, then each dissenting shareholder entitled to do
so shall be paid PSB's estimates of the fair value of the Jade common stock and
no more, and may bring an action to recover any amount not previously remitted,
plus interest at a rate the Philadelphia Common Pleas Court finds fair and
equitable.

PSB intends to negotiate in good faith with any dissenting shareholders. If,
after negotiation, a claim cannot be settled, then PSB intends to file an
application requesting that the fair value of the Jade common stock be
determined by the Philadelphia Common Pleas Court.

COSTS AND EXPENSES

The costs and expenses of any valuation proceedings in the Philadelphia
Common Pleas Court, including the reasonable compensation and expenses of any
appraiser appointed by the Court to recommend a decision on the issue of fair
value, will be determined by the Court and assessed against PSB except that any
part of the costs and expenses may be apportioned and assessed by the Court
against all or any of the dissenting shareholders who are parties and whose
action in demanding supplemental payment the Court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.

FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS

Certain members of management of Jade and IGA Federal Savings Bank, and
their Boards of Directors, have interests in the merger in addition to their
interests as shareholders of Jade. The Jade Board of Directors was aware of
these factors and considered them in approving the merger agreement.

INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE

PSB has agreed to indemnify, defend and hold harmless all prior and
then-existing directors and officers of Jade and IGA against:

- all liabilities and expenses relating to claims, proceedings or
investigations resulting from the status of a person as a director,
officer or employee of Jade or any Jade subsidiary, whether pertaining to
matters existing prior to the merger and whether asserted prior to or
after the merger; and

- all liabilities and expenses relating to claims, proceedings or
investigations arising out of the merger agreement or the merger to the
same extent as the officers, directors and employees could be indemnified
by Jade or IGA.

PSB has agreed to maintain Jade' existing directors' and officers' liability
insurance policy, or a policy providing comparable coverage, covering persons
currently covered by such insurance for a period of seven years after the
effective date, subject to certain maximum cost limits.

31
<PAGE>
EMPLOYMENT AGREEMENTS

As a condition of closing, PSB and First Penn Bank will enter into an
employment agreements with Mr. Mario L. Incollingo, Jr., President and Chief
Operating Officer of Jade and Chief Executive Officer of IGA, John J. O'Connell,
Chairman of the Board of Jade and IGA and a retainer agreement with Mr. Frank J.
Moran, General Counsel and Director of Jade and IGA. The employment agreement or
retainer agreement, as appropriate, will replace existing employment agreements
among Messrs. O'Connell, Incollingo, Moran and Jade Financial Corp. The
agreements will become effective when we complete the merger. The employment
agreements and retainer agreement provide for:

- a term of three years from the merger date with automatic annual renewals
absent notice of nonrenewal by any party with respect to the employment
agreements and a one year term with automatic annual renewals with respect
to the retainer agreement;

- a base salary of $160,000 per year for Mr. O'Connell, a base salary of
$155,000 per year for Mr. Incollingo and a retainer of $ per
year for Mr. Moran;

- continuation of base salary payments for up to 3 years if PSB or First
Penn Bank terminates Mr. O'Connell or Mr. Incollingo's employment without
cause or for specified events of good reason.

DIRECTOR FEES

Dennis P. Wesley, Clyde A. Warden, Robert E. Adelsberger, Edward D. McBride
and William L. Harm will become directors of First Penn Bank and as such will
receive directors' fees in accordance with PSB's policy on fees for directors.

32
<PAGE>
INFORMATION ABOUT PSB

DESCRIPTION OF BUSINESS

PSB was organized as a Pennsylvania business corporation on October 3, 1997
for the purpose of becoming a holding company for First Penn Bank. PSB is
subject to regulation by the Federal Reserve Bank of Philadelphia, and its
principal business is the ownership of First Penn Bank. At September 30, 2000,
PSB had total assets of $266.3 million, total deposits of $175.4 million and
shareholders' equity of $37.4 million.

On October 12, 1999, PSB completed its acquisition of First Bank of
Philadelphia. In connection with the acquisition, each outstanding share of
First Bank was exchanged for .857 shares of PSB common stock. In addition,
options to acquire 1,612,500 shares of First Bank were converted into options to
acquire 1,381,912 shares of PSB's common stock.

As part of the transaction, PSB merged Pennsylvania Savings Bank, which held
a state savings bank charter, with and into First Bank, which holds a state
commercial bank charter. The resulting operating subsidiary operates under the
name of First Penn Bank and holds a state commercial bank charter. This provides
First Penn Bank with greater lending flexibility. First Penn Bank operates 7
full-service offices. Six offices are located in Philadelphia, Pennsylvania and
one office is located in Glenside, Montgomery County, Pennsylvania.

First Penn Bank is primarily engaged in the business of attracting deposits
from the general public in the First Penn Bank's market area and investing such
deposits in loans secured by one- to four-family residential real estate,
commercial real estate loans, commercial business loans, construction loans,
student loans and investment and mortgage-backed securities. First Penn Bank's
deposits are insured by the Savings Association Insurance Fund of the FDIC to
the extent that such deposits were assumed from the mutual savings bank in the
1995 mutual holding company reorganization. Deposits accepted by First Penn Bank
after the mutual holding company reorganization are insured by the FDIC's Bank
Insurance Fund.

Historically, First Penn Bank has focused its lending activities primarily
on the origination of loans secured by first mortgages on owner-occupied, one-
to four-family residences for retention in First Penn Bank's portfolio. First
Penn Bank has expanded origination of one-to four-family residential mortgage
loans for resale in the secondary market through expansion of its mortgage
banking operations. As part of a strategy to diversify its loan portfolio,
achieve a higher net interest margin and reduce interest rate risk, First Penn
Bank has increased its origination of construction loans, commercial real estate
loans, commercial business loans, multifamily real estate loans and student
loans. To a lesser extent, First Penn Bank and its subsidiaries also originate
consumer loans, including home equity, second mortgage, and other consumer
loans. First Penn Bank expects this diversification trend to continue.

Through First Penn Bank's subsidiary, Transnational Mortgage Company, First
Penn Bank has conducted a mortgage banking operation since 1989. Mortgage
banking consists primarily of the origination, purchase, sale and servicing of
first mortgage loans secured by one-to four family homes. Such loans are sold
either as individual loans, as mortgage-backed securities, or as participation
certificates issued or guaranteed by FNMA or FHLMC. Loans may be sold either on
a servicing retained or servicing released basis.

First Penn Bank's principal sources of funds are deposits and the principal
and interest payments on loans, investment securities and mortgage-backed
securities. First Penn Bank has available credit with the Federal Home Loan Bank
of Pittsburgh ("FHLB") which at September 30, 2000, had advanced $38.0 million.
The principal source of income is interest received from loans, investment
securities and mortgage-backed securities. First Penn Bank's principal expenses
are the interest paid on deposits and borrowings and the cost of employee
compensation and benefits.

33
<PAGE>
BUSINESS STRATEGY

PSB's strategy is to maximize profitability by providing quality deposit and
loan products in an efficient manner as a well-capitalized and independent
financial institution. Generally, PSB seeks to implement this strategy by
emphasizing retail deposits as its primary source of funds and by maintaining a
substantial part of its assets in locally-originated residential first mortgage,
commercial real estate loans, commercial business loans, construction loans and
student loans, mortgage-backed securities and other liquid investment
securities. PSB's business strategy incorporates the following elements:
(1) increasing assets by expanding its retail branch network to include other
contiguous segments of the metropolitan Philadelphia market, (2) expanding its
lending operations throughout the metropolitan Philadelphia area and the
adjacent counties of Pennsylvania, New Jersey and Delaware, and (3) increasing
net interest income and reducing interest rate risk by emphasizing the
origination for portfolio of commercial real estate, construction, commercial
business and student loans that generally bear higher interest rates and have
shorter terms than residential mortgage loans. The acquisition of Jade with its
five branch network and emphasis on consumer lending is consistent with this
strategy.

SUBSIDIARIES

PSB's only subsidiary is First Penn Bank. First Penn Bank owns three direct
subsidiaries and one indirect subsidiary. Transnational Mortgage Corp. is
engaged in a mortgage banking business, PSA Service Corp. conducts real estate
appraisals, processes credit applications and provides other services in
connection with the origination of loans. PSA Financial Corp. primarily
originates business loans and commercial real estate loans. Its subsidiary, PSA
Consumer Discount Company, primarily originates consumer loans.

PERSONNEL

As of September 30, 2000, PSB had 68 full-time and one part-time employee.
First Penn Bank is not a party to any collective bargaining agreements.

COMPETITION

In the Philadelphia metropolitan market area, the banking business is highly
competitive. First Penn Bank competes with local commercial banks as well as
numerous regionally-based commercial banks that have assets, capital and lending
limits significantly larger than those of First Penn Bank. First Penn Bank also
competes with thrift institutions, savings institutions, credit unions, issuers
of commercial paper, other securities and other non-depository institutions.
First Penn seeks to be competitive with respect to interest rates paid and
charged, and for service charges on customer accounts.

Among the advantages many of First Penn Bank's competitors have over First
Penn Bank are larger asset and capital bases, the ability to finance wide
ranging advertising campaigns and to allocate their investment assets to regions
of highest yield and demand. Many international banking services are indirectly
offered through correspondent relationships. By virtue of their greater capital,
most competitors have substantially higher lending limits than that of First
Penn Bank.

REGULATION OF FIRST PENN BANK

As a state-chartered bank, First Penn Bank is subject to regulation,
supervision and regular examination by the Pennsylvania Department of Banking
("the Department") and is subject to the applicable provisions of the
Pennsylvania Banking Code of 1965, as amended ("the Banking Code"). First Penn
is a member of the Federal Reserve System and is subject to regulation,
supervision, reporting requirements and regular examinations by the Federal
Reserve Board. In addition, First Penn Bank's deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to a

34
<PAGE>
maximum of $100,000 per insured account holder. The FDIC has the authority to
increase its insurance premiums to cover losses and expenses. Some aspects of
the lending and deposit business that are regulated by the Federal Reserve Board
and the FDIC include personal lending, commercial lending, mortgage lending,
reserve requirements against certain deposit accounts and the maintenance of the
requisite capital to asset ratios. First Penn Bank is also subject to numerous
federal, state and local laws and regulations that set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and discrimination in
credit transactions. As a consequence of the extensive regulation of commercial
banking activities in the United States, First Penn Bank's business is
particularly susceptible to changes in federal and state legislation and
regulation that may negatively affect the cost of doing business.

In December of 1992, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA provided
increased funding for the FDIC Bank Insurance Fund ("BIF") and provides for
expanded regulation of depository institutions and their affiliates, including
parent holding companies. FDICIA provides the federal banking agencies with
broad powers to take corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are categorized under the following specified capital tiers as
"well-capitalized," "adequately capitalized," "undercapitalized, "significantly
undercapitalized" or "critically undercapitalized." A depository institution's
capital tier will depend upon where its capital levels are in relation to
various relevant capital measures, which will include a risk-based capital
measure, a leverage ratio and certain other factors. First Penn Bank is deemed
to be "well capitalized" if it has a total risk-based capital ratio of 10.0% or
greater, a tier 1 risk-based capital ratio of 6.0% or greater, and a leverage
ratio of 5.0% or greater. At September 30, 2000, First Penn Bank was
"well-capitalized" under these regulations.

REGULATION OF PSB

PSB is a bank holding company subject to supervision and regulation by the
Federal Reserve under the Bank Holding Company Act of 1956, as amended. As a
bank holding company, PSB's activities and those of its subsidiary are limited
to the business of banking and activities closely related or incidental to
banking, and PSB may not directly or indirectly acquire the ownership or control
or more than 5% of any class of voting shares or substantially all of the assets
of any company, including First Penn Bank, without prior approval of the Federal
Reserve.

Under Federal Reserve policy, PSB is expected to act as a source of
financial strength to First Penn Bank and to commit resources to support First
Penn Bank, i.e., to downstream funds to First Penn Bank. This support may be
required at times, when absent such policy, PSB might not otherwise provide such
support. Any capital loans by PSB to First Penn Bank are subordinate in right of
payment to deposits and to certain other indebtedness of First Penn Bank. In the
event of PSB's bankruptcy, any commitment by PSB to a federal bank regulatory
agency to maintain the capital of First Penn Bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.

PSB is subject to restrictions under federal law that limit its ability to
receive funds from First Penn Bank, whether in the form of loans, other
extensions of credit, investments and asset purchases. Such transfers by First
Penn Bank to PSB are generally limited in amount to 10% of First Penn Bank's
capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specific amounts, and all transactions are required to
be on an arm's length basis. First Penn Bank has never made any loan or
extension of credit to PSB nor has it purchased any assets from PSB.

NEW LEGISLATION

Landmark legislation in the financial services area was signed into law on
November 12, 1999. The Gramm-Leach-Bliley Act dramatically changes certain
banking laws that have been in effect since the

35
<PAGE>
early part of the 20th century. The most radical changes are that the separation
between banking and the securities businesses mandated by the Glass-Steagall Act
has been removed, and the provisions of any state law that prohibits affiliation
between banking and insurance entities have been preempted. Accordingly, the new
legislation permits firms engaged in underwriting and dealing in securities, and
insurance companies, to own banking entities, and permits bank holding companies
(and in some cases, banks) to own securities firms and insurance companies. The
provisions of federal law that preclude banking entities from engaging in
non-financially related activities, such as manufacturing, have not been
changed. For example, a manufacturing company cannot own a bank and become a
bank holding company, and a bank holding company cannot own a subsidiary that is
not engaged in financial activities, as defined by the regulators.

The new legislation creates a new category of bank holding company called a
"financial holding company." In order to avail itself of the expanded financial
activities permitted under the new law, a bank holding company must notify the
Federal Reserve that it elects to be a financial holding company. A bank holding
can make this election if it, and all its bank subsidiaries, are well
capitalized, well managed, and have at least a satisfactory Community
Reinvestment Act rating, each in accordance with the definitions prescribed by
the Federal Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the Federal Reserve
does not object to such election by such bank holding company, the financial
holding company may engage in financial activities (i.e, securities
underwriting, insurance underwriting, and certain other activities that are
financial in nature as to be determined by the Federal Reserve) by simply giving
a notice to the Federal reserve within thirty days after beginning such business
or acquiring a company engaged in such business. This makes the regulatory
approval process to engage in financial activities much more streamlined than it
was under prior law.

It is too early to tell what effect the Gramm-Leach-Bliley Act may have on
PSB. The intent and scope of the act is positive for the financial services
industry, and is an attempt to modernize federal banking laws and make U. S.
institutions competitive with those from other countries. While the legislation
makes significant changes in U. S. banking law, such changes may not directly
affect PSB's business unless it decides to avail itself of new opportunities
available under the new law. PSB does not expect any of the provisions of the
new Act to have a material adverse effect on its existing operations, or to
significantly increase its costs.

NATIONAL MONETARY POLICY

As previously indicated, the earnings and growth of PSB are, and will
continue to be, affected by the policies of the regulatory authorities,
including the Department, the Federal Reserve Board and the FDIC. In addition to
the supervisory and regulatory duties as they are related to operation of a
bank, the Federal Reserve Board is also responsible for the regulation of the
United State money supply and additional credit conditions. This controlling
influence is undertaken in response to national and international economic
developments. Among the means available to the Federal Reserve Board to
implement these objectives are open market operations in the U.S. governmental
securities, establishing the interest rate on temporary loans made to banks
(i.e., the discount rate) and other measures. Alternatives to controlling
economic conditions are used in varying combinations to influence overall growth
and credit distribution, lending, investing and savings. The effect of these
various controlling influences may affect interest rates charged on loans or
paid on deposits.

Bank profitability is significantly dependent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and borrowed money and the interest received by a bank on
securities held in its investment portfolio and loans originated and maintained
comprise the major portion of a bank's earnings. Thus, the earnings and growth
of a bank will be subject to the influence of economic conditions, both domestic
and foreign, and on the levels of and changes in interest rates. The monetary
policies and regulations of the Federal Reserve Board have had a

36
<PAGE>
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. The effects of such policies
upon the future business, earnings and growth of First Penn Bank cannot be
predicted.

DIVIDEND LIMITATIONS

The Banking Code provides that cash dividends may be declared and paid only
out of accumulated net earnings and that, prior to the declaration of any
dividend, if surplus is less than the amount of capital, First Penn Bank shall,
until the surplus is equal to such amount, transfer to surplus an amount that is
at least ten percent of the net earnings of First Penn Bank for the period since
the end of the last fiscal year or any shorter period since the declaration of a
dividend. If the surplus of First Penn Bank is less than fifty percent of the
amount of the capital, no dividend may be declared or paid without the prior
approval of the Department until the surplus is equal to fifty percent of First
Penn Bank's capital. Additionally, the Department has the power to issue orders
prohibiting the payment of dividends where such payment is deemed to be an
unsafe or unsound banking practice.

Under the Federal Reserve Act, as amended, if losses have at any time been
sustained by First Penn Bank, equal to or exceeding its undivided profits then
on hand, no dividend shall be made; and no dividends shall ever be made in an
amount greater than First Penn Bank's net profits. Cash dividends must be
approved by the Federal Reserve Board, if the total of all cash dividends
declared by First Penn Bank in any calendar year, including the proposed cash
dividend, exceeds the total of First Penn Bank's net profits for that year plus
its retained net profits from the preceding two years less any required
transfers to surplus or a fund for the retirement of preferred stock, if any.
The Federal Reserve Board has the authority under the Federal Reserve Act to
prohibit the payment of cash dividends by a bank when it determines such payment
to be an "unsafe and unsound banking practice" under the existing circumstances.

TRANSACTIONS WITH AFFILIATES

Extensions of credit by First Penn Bank to executive officers, trustees, and
principal shareholders and related interests of such persons are subject to
Sections 22(g) and 22(h) of the FRA and the Federal Reserve's Regulation O.
These rules limit the aggregate amount of loans to any such individual and their
related interests, and require that all such loans be pre-approved by the full
Board of PSB voting without such person being present. These rules also provide
that no institution shall make any loan or extension of credit in any manner to
any of such persons, unless such loan or extension of credit is made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, does not
involve more than the normal risk of repayment or present other unfavorable
features, and the institution follows underwriting procedures that are not less
stringent than those applicable to comparable transactions by the institution
with persons who are not executive officers, trustees, principal shareholders,
or employees of the institution. Loans can be made to employees, including
executives and trustees, on more favorable terms than to the general public, if
all employees are eligible for such preferential terms. Regulation O also sets
forth additional limitations on extensions of credit by an institution to its
executive officers. Management believes that First Penn Bank is in compliance
with Sections 22(g) and 22(h) of the FRA and the Federal Reserve's
Regulation O.

LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits involving First
Penn Bank, such as claims to enforce liens, condemnation proceedings on
properties in which First Penn Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
First Penn Bank's business. First Penn Bank is not a party to any pending legal
proceedings that it

37
<PAGE>
believes would have a material adverse effect on the financial condition or
operations of First Penn Bank.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997.

RESULTS OF OPERATIONS

GENERAL

PSB's results of operations depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets, and
interest expense on its interest-bearing liabilities. Its interest-earning
assets consist primarily of loans and investment securities, while its
interest-bearing liabilities consist primarily of deposits and borrowings. PSB's
net income is also affected by its provision for loan losses and its level of
non-interest income as well as by its non-interest expenses, such as salary and
employee benefits, occupancy costs and charges relating to non-performing and
other classified assets.

NET INCOME

PSB's net income totaled $1.6 million and $1.9 million for the nine months
ended September 30, 2000 and 1999, respectively. The decrease from 1999 to 2000
was due largely to a $398,000 decline in non-interest income, and increases of
$587,000 in non-interest expense and $429,000 in income taxes that more than
offset a $1.3 million increase in net interest income. PSB's earnings per share
were $0.37 basic and $0.33 diluted per share for the nine months ended
September 30, 2000, compared to $0.42 basic and $0.33 diluted for the nine
months ended September 30, 1999.

PSB's net income totaled $2.1 million, $1.7 million and $1.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively. These increases were
due largely to the increase in net interest income. The primary factor
contributing to this year-to-year improvement were increases in PSB's net
interest margin. PSB's earnings per share for the years ended December 31, 1999,
1998 and 1997 were $0.48, $0.38 and $0.49 basic and $0.40, $0.32 and $0.38,
diluted, respectively. PSB's earnings per share for the years ended
December 31, 1999 and 1998 are lower than for the year ended December 31, 1997
even though net income was higher in 1999 and 1998 because of the completion in
1998 of the conversion from a mutual holding company to a full stock institution
and the resulting increase in the number of shares outstanding.

NET INTEREST INCOME AND AVERAGE BALANCES

Net interest income is the key component of PSB's profitability structure
and is managed in coordination with PSB's interest rate sensitivity position.
Net interest income was $8.0 million, or 19.2% greater for the nine months ended
September 30, 2000, compared to the same period in 1999. The increase reflects
an improving yield on PSB's loan portfolio and an increase in mortgage-backed
and investment securities that has resulted from PSB's modest leverage program.
PSB's net interest margin for the nine months ended September 30, 2000 was
4.29%. This margin compares to a net interest margin for nine months ended
September 30, 1999 of 4.08%.

Net interest income of $9.3 million for the year ended December 31, 1999,
was 25.7% higher than net interest income of $7.4 million for the year ended
December 31, 1998. PSB's net interest margin, net interest income divided by
total average interest-earning assets, increased 13 basis points to 3.94% for
1999 from 3.78% for 1998. PSB's net interest spread, the difference between the
yield on interest-earning assets and the rates paid on interest-bearing
liabilities, decreased five basis points to 2.84% for

38
<PAGE>
1999, from 2.89% for 1998. The decrease in the net interest spread was caused by
an 11 basis point increase in the rate paid on average interest-bearing
liabilities, due to an increase in borrowed funds.

PSB's yield on average interest-earning assets increased to 7.73% for the
year ended December 31, 1999, compared to 7.71% for the year ended December 31,
1998. Average loans of $150.2 million for the year ended December 31, 1999,
represented 62.5% of total average interest-earning assets, and provided a 1999
yield of 8.96%, compared to average loans of $123.4 million at December 31,
1998, representing again 62.5% of total average interest-earning assets, and
providing a 1998 yield of 9.18%. Average investments and interest bearing
deposits with banks increased $15.9 million or 21.5% to $90.0 million at
December 31, 1999, from $74.1 million for the year ended December 31, 1998.
These assets provided a yield of 5.67% in 1999 compared to 5.26% in 1998.

Total average interest-bearing liabilities increased $20.2 million or 12.5%
to $182.1 million for the year ended December 31, 1999, from $161.9 million for
the year ended December 31, 1998. Total interest expense increased $1.3 million
or 16.7% to $9.2 million at December 31, 1999, from $7.8 million for 1998. The
increase in interest expense rose more swiftly than the increase in average
interest-bearing liabilities because 1999 witnessed a greater use of higher cost
borrowed money resulting in a higher overall cost of funds. PSB's cost of funds
increased to 4.99% for 1999 compared to 4.82% for 1998.

Net interest income of $7.4 million for the year ended December 31, 1998,
was 13.8% higher than the total of $6.5 million for the year ended December 31,
1997. Total interest income increased $1.4 million in 1998 to $15.2 million from
$13.8 million in 1997. Total interest expense increased $423,000 or 5.7% in 1998
to $7.8 million compared to $7.4 million in 1997. Total average interest-
earning assets provided an average yield of 7.71% in 1998 and average
interest-bearing liabilities cost 4.82% in 1998 compared to 7.95% and 4.82%,
respectively, for 1997.

39
<PAGE>
AVERAGE BALANCE SHEETS AND RATE/YIELD ANALYSIS

Net interest income is effected by changes in both average interest rates
and average volumes of interest-earning assets and interest-bearing liabilities.
The following table presents, on a tax equivalent basis, the average daily
balances of assets, liabilities and shareholders' equity and the respective
interest earned or incurred on interest-earning assets and interest-bearing
liabilities, as well as average rates for the period indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
AVERAGE INTEREST/ YIELD/ AVERAGE INTEREST/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits............. $ 2,275 $ 108 6.33% $ 19,650 $ 798 5.41%
Investment securities................. 31,440 1,429 6.06 24,556 1,061 5.76
Mortgage-backed securities............ 45,292 2,243 6.60 42,264 1,858 5.86
Net loans............................. 170,448 12,019 9.40 133,416 9,551 9.55
-------- ------- -------- -------
Total interest-earning assets....... 249,455 $15,799 8.44% 219,886 $13,268 8.05%
------- -------
Noninterest-earning assets.............. 15,926 27,286
-------- --------
Total assets.......................... $265,381 $247,172
======== ========

LIABILITIES
Interest-bearing liabilities:
Now checking accounts................. $ 12,911 $ 258 2.66% $ 11,581 $ 232 2.67%
Money market accounts................. 11,928 328 3.67 15,297 417 3.63
Savings deposits...................... 29,267 632 2.88 30,563 665 2.90
Certificates.......................... 110,534 4,641 5.60 120,973 4,922 5.42
-------- ------- -------- -------
Total deposits...................... 164,640 5,859 4.74 178,414 6,236 4.66
Borrowed money........................ 40,087 1,917 6.38 7,046 301 5.70
-------- ------- -------- -------
Total interest-bearing
liabilities....................... 192,807 7,776 5.06% 185,460 6,537 4.70%
Non-interest-bearing liabilities........ 25,579 25,470
-------- --------
Total liabilities..................... 228,306 210,930
Shareholder's equity.................... 37,075 36,242
-------- --------
Total liabilities and shareholders'
equity............................ $265,381 $247,172
======== ========

Net interest income..................... $ 8,023 $ 6,731
======= =======

Interest rate spread.................... 3.38% 3.35%
Net yield on interest-earning
assets(1)............................. 4.29% 4.08%
Ratio of interest-earning assets to
interest-bearing liabilities.......... 1.29x 1.19x
</TABLE>

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

(1) Calculated on an annualized basis

40
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning
deposits.............. $ 23,227 $ 940 4.05% $ 49,201 $ 2,340 4.76% $ 35,532 $ 1,725 4.85%
Investment securities... 22,034 1,534 6.96 18,573 1,233 6.64 23,728 1,651 6.96
Mortgage-backed
securities............ 44,751 2,630 5.88 6,326 327 5.17 5,696 374 6.57
Net loans............... 150,223 13,457 8.96 123,430 11,326 9.18 109,083 10,087 9.25
-------- ------- -------- ------- -------- -------
Total interest-earning
assets.............. 240,235 $18,561 7.73% 197,530 $15,226 7.71% 174,039 $13,837 7.95%
------- ------- -------
Noninterest-earning
assets.................. 6,942 7,514 9,470
-------- --------
Total assets............ $247,177 $205,044 $183,509
======== ======== ========

LIABILITIES
Interest-bearing
liabilities:
Now checking accounts... $ 8,924 $ 310 3.47% $ 2,322 $ 73 3.14% $ 1,852 $ 65 3.51%
Money market accounts... 15,761 580 3.68 4,469 166 3.71 4,977 179 3.60
Savings deposits........ 29,686 862 2.90 42,184 1,213 2.88 40,708 1,153 2.83
Certificates............ 118,623 6,519 5.50 110,203 6,323 5.74 102,903 5,949 5.78
-------- ------- -------- ------- -------- -------
Total deposits........ 172,994 8,271 4.78 159,178 7,775 4.88 150,440 7,346 4.88
Borrowed money.......... 9,129 813 8.91 2,737 25 0.90 2,621 31 1.18
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities......... 182,123 9,084 4.99% 161,915 7,800 4.82% 153,061 7,377 4.82%
------- ------- -------
Non-interest-bearing
liabilities............. 29,049 15,118 11,121
-------- -------- --------
Total liabilities....... 211,172 177,033 164,182
Shareholders' equity...... 36,005 28,011 19,327
-------- -------- --------
Total liabilities and
shareholders'
equity................ $247,177 $205,044 $183,509
======== ======== ========
Net interest income....... $ 9,477 $ 7,426 $ 6,460
======= ======= =======

Interest rate spread...... 2.74% 2.89% 3.13%
Net yield on
interest-earning
assets.................. 3.94% 3.78% 3.71%
Ratio of interest-earning
assets to
interest-bearing
liabilities............. 1.32x 1.22x 1.14x
</TABLE>

The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected PSB's interest income and interest expense during the
periods indicated. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change.

41
<PAGE>
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate:

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000, VERSUS
SEPTEMBER 30, 1999
INCREASE (DECREASE)
------------------------------
NET
VOLUME RATE CHANGE
------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Interest bearing deposits with banks...................... $ (940) $ 250 $ (690)
Investment securities..................................... 396 (28) 368
Mortgage-backed securities................................ 177 208 385
Loans..................................................... 3,537 (1,069) 2,468
------ ------- ------
Total interest income....................................... $3,170 $ (639) $2,531
------ ------- ------

Interest Expense
Now checking accounts..................................... $ 35 $ (9) $ 26
Money market accounts..................................... (122) 33 (89)
Savings accounts.......................................... (38) 5 (33)
Certificates of deposits.................................. (566) 285 (281)
Borrowings................................................ 1,883 (267) 1,616
------ ------- ------
Total interest expense...................................... $1,192 $ 47 $1,239
------ ------- ------

Net change in net interest income........................... $1,978 $ (592) $1,292
====== ======= ======
</TABLE>

<TABLE>
<CAPTION>
1999 VERSUS 1998 1998 VERSUS 1997
INCREASE (DECREASE) INCREASE (DECREASE)
------------------------------ ------------------------------
NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest bearing deposits with banks...... $(1,052) $(349) $(1,400) $ 651 $ (36) $ 615
Investment securities..................... 230 72 302 (359) (59) (418)
Mortgage-backed securities................ 1,987 316 2,303 33 (80) (47)
Loans..................................... 2,460 (329) 2,131 1,317 (78) 1,239
------- ----- ------- ------ ----- ------
Total interest income....................... $ 3,625 $(290) $ 3,335 $1,642 $(253) $1,389
------- ----- ------- ------ ----- ------

Interest Expense
Now checking accounts..................... 207 (30) 237 15 (19) (4)
Money market accounts..................... 419 (5) 414 (18) 41 23
Savings accounts.......................... (362) (11) 351 42 (5) 37
Certificates of deposits.................. 483 (147) 296 419 (24) 395
Borrowings................................ 53% 730 788 1 (7) (6)
------- ----- ------- ------ ----- ------
Total interest expense...................... $ 805 $(479) $ 1,284 $ 458 $ (7) $ 451
------- ----- ------- ------ ----- ------

Net change in net interest income........... $ 2,878 $(769) $ 2,051 $1,184 $(246) $ 938
======= ===== ======= ====== ===== ======
</TABLE>

42
<PAGE>
PROVISION FOR LOAN LOSSES

The provision for loan losses represents the charge against earnings that is
required to fund the allowance for loan losses. PSB determines the required
allowance for loan losses through a regular review of the loan portfolio.
Management's evaluation of the adequacy of the allowance for loan losses is
based upon an examination of the portfolio as well as such factors as declining
trends, the volume of loan concentrations, adverse situations that may affect
the borrower's ability to pay, prior loss experience within the portfolio,
current economic conditions, and the results of the most recent regulatory
examinations. PSB provided an addition to the loan loss allowance of $100,000
for the nine months ended September 30, 2000 and no provision for the nine
months ended September 30, 1999. PSB provided $200,000, $283,000 and $60,000 in
loan loss provisions for the years ended December 31, 1999, 1998 and 1997,
respectively.

Although management utilizes its best judgment in providing for loan losses,
there can be no assurance that PSB will not have to increase its provision for
loan losses in the future as a result of possible future increases to its
non-performing loans or for other reasons based on changes in facts and
circumstances. In addition, the Federal Reserve and the Pennsylvania Department
of Banking, as an integral part of their examination process, periodically
review PSB's allowance for loan losses and the carrying value of its
non-performing assets. These regulators may require PSB to recognize additions
to its allowance for loan losses based on their judgments about information
available to them at the time of their examination.

NON-INTEREST INCOME

Non-interest income consists of gain on sale of loans, service charges,
rental income and other income. Non-interest income decreased by $398,000, or
45.9% to $468,000 for the nine months ended September 30, 2000, from $866,000
for the same period in 1999. The principal reasons for the decrease in
non-interest income was a $272,000 decrease in gain on sale of loans to $119,000
for the nine month period ended September 30, 2000 from $391,000 for the same
period in 1999, due to a decrease in number of loans sold by Transnational
Mortgage Corp. in 2000. For the nine months ended September 30, 2000, increases
in loan fees, service charges and rental income were offset by decreases in the
gain on sale of loans and other income resulting largely from the decrease in
Transnational Mortgage Corp.'s business.

Non-interest income decreased $460,000 or 34.8% to $913,000 for 1999
compared to $1.4 million for 1998. The reason for this decrease was the gain on
sale of loans of only $372,000 in 1999 compared to gain on sale of loans of
$863,000 in 1998. Service fees on deposit accounts increased 7% or $32,000 from
1998 to 1999. Non-interest income increased by $205,000 or 16.7% to
$1.4 million from $1.2 million for the year ended December 31, 1997. The
principal reason for the increase was a $307,000 increase in gain on sale of
loans to $863,000 for the year ended December 31, 1998, from $556,000 for the
year ended December 31, 1997. In addition an increase in service fee income that
is derived from return check and stop payment charges, commissions on travelers
checks, charges assessed for money orders and official checks, MAC processing
fees, safe deposit box rentals and credit card fees contributed to the increase
in non-interest income.

NON-INTEREST EXPENSE

Non-interest expense principally consists of employee compensation and
benefits, deposit insurance premiums, and premises and occupancy costs and other
operating expenses. Total non-interest expense increased by $587,000, or 10.8%,
to $6.0 million for the nine months ended September 30, 2000, from $5.5 million
for the nine months ended September 30, 1999. The principal reasons for the
increase were an increase in compensation and employee benefits due to normal
salary increases and payment

43
<PAGE>
of bonuses. Additionally, non-interest expense increased due to costs associated
with PSB's expansion strategy, specifically the late 1999 acquisition of First
Bank of Philadelphia.

Total non-interest expense increased 26.2% or $1.7 million, to $8.2 million
in 1999 compared to $6.5 million in 1998. Significant items of note include a
$969,000 increase in professional fees to $1.1 million in 1999 from $95,000 in
1998 due to fees associated with the acquisition of First Bank of Philadelphia
and a $349,000 increase in compensation and employee benefits due to normal
salary increases as well as the increase in the number of bank employees as a
result of the acquisition.

Total non-interest expense increased $398,000 or 6.6% to $6.5 million in
1998 from $6.1 million in 1997. Significant items of note include a $211,000 or
6.9% increase in total compensation and employee benefits for 1998 compared to
1997 and a 21.6% increase in other non-interest expense for 1998 compared to
1997. This was offset by a 3.7% decrease in rent and occupancy expenses for 1998
compared to 1997.

INCOME TAXES

Income tax provisions for the nine months ended September 30, 2000 and 1999
of $650,000 and $221,000, respectively, generally reflect PSB's pre-tax income
in accordance with the principles of SFAS No. 109, "Accounting for Income
Taxes."

PSB had an income tax credit of $227,000 for 1999 and an income tax
provision of $342,000 and $345,000 for the years ended December 31, 1998 and
1997, respectively. The 1999 credit resulted from the application of the net
operating loss carry forwards that were held by First Bank of Philadelphia.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Integral to the management of PSB's balance sheet is the maintaining of
adequate liquidity and the ability to evaluate and control interest rate risk.
Liquidity represents the ability to meet potential cash outflows resulting from
deposit customers who need to withdraw funds or borrowers who need available
credit. Interest rate sensitivity focuses on the impact of fluctuating interest
rates and the repricing characteristics of rate sensitive assets and liabilities
on net interest income.

PSB's asset/liability management committee monitors the level of short-term
assets and liabilities to maintain an appropriate balance between liquidity,
risk and return. Liquidity is derived from various sources that include
increases in core deposits, sales of certificates of deposits, loan principal
repayments and maturities and cash received on maturities or amortization of
investment securities.

The liquidity position of PSB is also strengthened by a $50 million credit
facility with the Federal Home Loan Bank of Pittsburgh (FHLB). Advances are
secured by FHLB stock and qualifying mortgage loans. There was $38.0 million in
advances outstanding against this line at September 30, 2000 and $34.0 million
at December 31, 1999. There were no advances outstanding against this line at
December 31, 1998.

Maximizing cash flow over time is crucial to the maintenance of adequate
liquidity. PSB's total cash flow is a product of its operating activities,
investing activities and financing activities. During the nine months ended
September 30, 2000, net cash provided by operating activities was $3.1 million,
compared to net cash used by operating activities of $1.6 million for the same
period of 1999. During the nine months ended September 30, 2000, net cash
provided by investing activities was $9.3 million, compared to net cash used by
investing activities of $74.0 million for the same period of 1999. Financing
activities used net cash of $16.6 million during the nine months ended
September 30, 2000, compared to $35.1 million in net cash provided in financing
activities for the same period of 1999. The net result of these items was a
$4.2 million decrease in cash and cash equivalents for the nine months ended
September 30, 2000, compared to a $40.5 million decrease in cash and cash
equivalents for the

44
<PAGE>
same period of 1999. This significant decrease in cash and cash equivalents in
1999 reflects management's decision to redeploy cash and interest-earning
deposits into investment securities.

During 1999, net cash provided by operating activities was $4.1 million,
compared to net cash provided by operating activities of $2.1 million in 1998,
and operating cash used of $385,000 in 1997. During 1999, PSB's investing
activities used $87.7 million in net cash and PSB's financing activities
provided $53.4 million in net cash. The major components within these two
categories during 1999 were an increase in total loans receivable of
$46.5 million and proceeds from borrowed funds of $34.0 million. The net result
of these items was a $30.3 million decrease in cash and cash equivalents for
1999, compared to a net increase of $5.9 million for 1998 and a net decrease of
$6.7 million for 1997.

Interest rate risk management is closely related to liquidity management
because each is directly affected by the maturity of assets and liabilities.
Interest rate risk management monitors the effect that fluctuations in interest
rates have on net interest income. The primary function of PSB's interest rate
sensitivity management is to reduce exposure to interest rate risk through an
appropriate balance between interest-earning assets and interest-bearing
liabilities. The goal is to minimize fluctuations in the net interest margin of
PSB due to general changes in interest rates.

The net interest margin of a bank that does not have a relatively close
relationship between the quantity of assets that mature or re-price within a
given time period and the quantity of liabilities that mature or re-price within
the same time period will fluctuate more widely than a bank that has a closer
match. Furthermore, a bank that has liabilities that reprice earlier than its
assets will have a decline in its net interest margin as interest rates rise.

The blending of fixed and floating rate loans and investments to match the
re-pricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize any fluctuations in net interest
income caused by changes in interest rates. The composition of the balance sheet
is designed to minimize any significant fluctuation in net interest income and
to maximize liquidity. Management believes that the accessibility to FHLB
borrowings will provide the flexibility to assist in keeping fluctuations in net
interest income under control and to maintain an adequate liquidity position.

One tool used by management to gauge the structure of the balance sheet is a
"gap" analysis that categorizes assets and liabilities on the basis of maturity
date, the date of next re-pricing, and the applicable amortization schedule.
This analysis summarizes the matching or mismatching of rate sensitive assets
versus rate sensitive liabilities according to specified time periods.
Management concentrates on the zero to three month and one year gap intervals.
At September 30, 2000, PSB had a one-year liability sensitive gap of
$39.7 million and a gap ratio of .75 or 15% of total assets as of that date.

45
<PAGE>
The following table shows the interest rate sensitive data at September 30,
2000:

<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 2000
------------------------------------------------------------------------
NO STATED TOTAL
0-3 MONTHS 3-12 MONTHS 1-5 YEARS >5 YEARS MATURITY BALANCE
---------- ----------- ---------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks... $ 7,887 $ 7,887
Investment securities.................. 6,925 $ 3,697 $24,727 $35,159 $ 4,125 74,633
Mortgage loans......................... 8,007 17,257 45,379 20,916 91,559
Commercial loans....................... 7,501 469 1,406 9,376
Consumer loans......................... 795 1,670 192 58 2,715
Student loans(1)....................... 37,139 37,139
Construction loans..................... 18,134 2,358 812 21,304
SBA loans.............................. 8,003 8,003
Other assets........................... 13,695 13,695
------- -------- ------- ------- -------- --------
Total assets......................... $94,391 $ 25,451 $72,516 $56,133 $ 17,820 $266,311

Non-interest bearing deposits.......... $16,301 $ 16,301
NOW accounts........................... 11,050 11,050
Money market accounts.................. $ 5,170 4,637 9,807
Savings accounts....................... 5,709 22,905 28,614
Time deposits.......................... 23,586 $ 73,685 $12,023 325 109,619
Borrowed funds......................... 51,385 51,385
Other liabilities...................... $ 2,183 2,183
------- -------- ------- ------- -------- --------
Total liabilities.................... $85,850 $ 73,685 $12,023 $55,218 $ 2,183 $228,959

Shareholder's equity................... 37,352 37,352
------- -------- ------- ------- -------- --------
Total liabilities and shareholder's
equity............................. $85,850 $ 73,685 $12,023 $55,218 $ 39,535 $266,311

GAP.................................... $ 8,541 $(48,234) $60,493 $ 915 $(21,715) $ 0

Cumulative GAP......................... $ 8,541 $(39,693) $20,800 $21,715 $ 0 $ 0

Cumulative GAP Ratio................... 1.10 0.75 1.12 1.10 1.00 1.00
</TABLE>

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

(1) Student loans are included in the 0-3 month time period because PSB
originates all student loans subject to a purchase agreement with Sallie Mae
pursuant to which Sallie Mae has agreed to purchase the loans within 30 to
45 days of origination.

CAPITAL ADEQUACY

First Penn Bank and PSB are required to maintain minimum ratios of Tier I
and total capital to total "risk weighted" assets and a minimum Tier I leverage
ratio, as defined by the banking regulators. During the reported periods, First
Penn Bank and PSB were required to have minimum Tier I and total capital ratios
of 4.0% and 8.0%, respectively, and a minimum Tier I leverage ratio of 4.0%.
First Penn Bank's Tier I and total capital ratios at September 30, 2000, were
20.5% and 21.3%, respectively, and First Penn Bank's Tier I leverage ratio was
12.9%. First Penn Bank's Tier I and total capital ratios at December 31, 1999
were 17.90% and 18.60%, respectively, and First Penn Bank's Tier I leverage
ratio was 11.48%. These ratios exceed the requirements for classification as a
"well-capitalized"

46
<PAGE>
institution, the industry's highest capital category. Following are First Penn
Bank's risk based capital ratios at September 30, 2000, and December 31, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------------------
MINIMUM CAPITAL WELL CAPITALIZED
ACTUAL REQUIREMENTS REQUIREMENTS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier I capital to risk weighted assets....... $33,093 20.50% $ 6,457 4.00% $ 9,685 6.00%
Total capital to risk weighted assets........ 34,442 21.33% 12,913 8.00% 16,141 10.00%
Leverage to average assets................... $33,093 12.86% $10,287 4.00% $12,859 5.00%
</TABLE>

Following are PSB's risk based capital ratios at September 30, 2000, and
December 31, 1999:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
MINIMUM CAPITAL WELL CAPITALIZED
ACTUAL REQUIREMENTS REQUIREMENTS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier I capital to risk weighted assets....... $31,348 17.90% $ 7,006 4.00% $10,510 6.00%
Total capital to risk weighted assets........ 32,579 18.60% 14,013 8.00% 17,516 10.00%
Leverage to average assets................... $31,348 11.48% $10,927 4.00% $13,659 5.00%
</TABLE>

Management of PSB expects that its capital ratios will decrease
significantly as a result of the largely cash acquisition of Jade. Nevertheless,
management is confident that PSB will remain "well capitalized".

FINANCIAL CONDITION

GENERAL

PSB's total assets decreased $13.3 million or 4.8% from $279.6 million at
December 31, 1999 to $266.3 million at September 30, 2000. The decrease in
assets was primarily the result of a decrease in net loans, loans held for sale
and investments. Total assets of PSB increased $52.1 million or 22.9% during
1999, from $227.5 million at December 31, 1998. The major reason for this
increase in total assets during 1999 was a 500.27% increase in securities
purchased under agreement to resell, a $34.0 million increase in advances from
the FHLB, and a $6.5 million increase in total deposits. This increased use of
leverage was a strategy initiated by management with the assistance of its
nationally-recognized, affiliate McGuire Performance Solutions, to better
utilize excess capital and increase earnings and return on equity.

Net loans decreased to $168.7 million at September 30, 2000, from
$176.0 million at December 31, 1999. The decrease of $7.0 million, or 4.1%, was
the result of payoffs in PSB's student loan program. A decrease in construction,
commercial and non-residential loans were also contributing factors. Increased
loan origination of other loan products such as commercial real estate, SBA
loans and consumer loans as well as modest growth in residential mortgage loans
were also a factor.

Net loans increased 45.2% to $176.0 million for the year ended December 31,
1999 from $121.2 million at December 31, 1998. The increase in loans was
primarily a result of PSB's student loan program. This program was an existing
program of First Bank of Philadelphia. These loans are funded to students at
qualifying schools and are subsequently contractually sold at par within 30 to
45 days of origination to an investor. Other real estate owned decreased by
$230,000 because PSB sold properties from its portfolio. Total shareholders'
equity decrease by $83,000 representing 1999 net income of $2.1 million and an
unrealized loss from investments of $2.3 million.

47
<PAGE>
INVESTMENT ACTIVITIES

PSB's investment portfolio is comprised of mortgage-backed securities,
investment securities, cash, and cash equivalents. The fair value of PSB's
investment securities and mortgage-backed securities decreased $2.8 million, or
3.6%, to $74.5 million at September 30, 2000, from $77.3 million at
December 31, 1999. The fair value of PSB's investment securities and
mortgaged-backed securities portfolio totaled $77.3 million at December 31,
1999, compared to $45.5 million at December 31, 1998. PSB's cash and cash
equivalents, consisting of cash and due from banks, and interest-earning
deposits with other financial institutions, totaled $17.3 million at
December 31, 1999, compared to $47.5 million at December 31, 1998, a decrease of
$30.3 million, or 64%. PSB historically maintained high levels of
interest-earning deposits as part of its strategy for meeting liquidity
requirements and managing interest sensitivity. In 1999, as part of its cautious
leverage strategy, it began to redeploy some of these liquid funds into
longer-term higher yield securities.

Pursuant to SFAS No. 115, PSB classifies its investment securities and
mortgage-backed securities as either held-to-maturity, available for sale or
trading. Available for sale and trading securities are carried at market value,
while held-to-maturity securities are carried at amortized cost. At
September 30, 2000, $4.9 million of PSB's investment securities and
mortgaged-backed securities were classified held-to-maturity and $73.3 million
of PSB's investment securities and mortgaged-backed securities were classified
available for sale. PSB has never held any securities classified as trading
securities.

PSB's Board of Directors has also adopted an investment policy that
identifies acceptable types of investments and establishes criteria to guide
management in classifying investments as prescribed by SFAS No. 115. The policy
also authorizes PSB's investment officer to make investments of up to
$1 million. Under the investment policy PSB may invest in certain AAA rated
derivative securities. As of December 31, 1999, PSB had no collateralized
mortgage obligations. PSB may not invest in high-risk collateralized mortgage
obligations ("CMOs") and PSB's investment officer must periodically analyze the
risk of any CMO held to determine that such securities are not within the
high-risk category.

On January 29, 1999, PSB purchased 1,600,000 shares of Series A Convertible
Preferred Stock, $.01 par value per share, of Iron Bridge Holdings, Inc. ("Iron
Bridge"). PSB purchased the shares for a total cost of $1.25 million. On
February 25, 2000, PSB purchased 347,750 shares of Series A Convertible
Preferred Stock, $.01 par value per share of Iron Bridge for a total cost of
$500,000. Iron Bridge is the holding company for McGuire Performance
Solutions, Inc., a nationally recognized firm delivering cost-effective
solutions for total balance sheet management to banks, thrifts, credit unions
and other financial institutions. PSB accounts for it's ownership interest in
Iron Bridge using the equity method which initially records an investment in
stock at cost, and adjusts the carrying amount of the investment to recognize
the investor's share of the earnings or losses of the investee after the date of
acquisition. As of September 30, 2000, PSB had an ownership interest of 49% of
Iron Bridge and adjusted it's investment to recognize an $87,000 loss.

On November 16, 1999, PSB purchased a convertible debenture in the amount of
$2.5 million with an initial rate of 5.45% from ZipFinancial.Com.Inc (d/b/a
Bankzip.com). BankZip aggregates and provides Internet-based services to
community financial institutions. This menu of Internet services has two
dimensions, an external consumer dimension and an internal bank operations
dimension. From a consumer banking perspective, the aggregated services, such as
online applications, instant online loan decisions, full call center support and
marketing support, enable community financial institutions to provide a complete
online banking solution for existing customers and attract new customers.
BankZip's menu of Internet services also allows community financial institutions
to convert back-office processes to a more cost-effective online environment. By
converting back-office processes to an online environment, financial
institutions can convert fixed expense to variable expense. As a result,
financial institutions realize significant cost savings and efficiencies while
simultaneously enhancing their ability to deliver products and services to
online and off-line customers.

48
<PAGE>
On September 15, 2000, an involuntary bankruptcy petition was filed against
ZipFinancial.Com, Inc. by one of its vendors, the petition was subsequently
dismissed on October 23, 2000. On November 2, 2000, BankZip completed $410,000
in additional financing. The company has a $1.0 million line of credit from an
unrelated third party under which $300,000 has been advanced. The ability to
make further draws on the line of credit will be dependent on sales. The company
is also seeking $1.5 million to $2.0 million in additional financing. The
continued viability of the company is dependent on its ability to raise
additional capital. No assurances can be given that the company will be able to
raise additional capital. To reflect the uncertainty surrounding this
investment, as of September 30, 2000, PSB has established an equity account
valuation reserve pursuant to SFAS 115 of 50% or $1.25 million while BankZip
seeks additional financing. If the company is unable to raise additional
capital, PSB will be required to write off the entire investment and take a
charge of approximately $1.5 million after-tax (assuming a 40% effective tax
rate).

In October, 1999, PSB invested $795,000 in the common stock of Jade in
connection with the mutual to stock conversion of IGA Federal Savings Bank.

CARRYING AND MARKET VALUE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES.

The following table sets forth certain information regarding the carrying
and market values of investment securities and mortgage-backed securities in
PSB's held-to-maturity portfolio at September 30, 2000 and December 31, 1999,
1998 and 1997.

49
<PAGE>
The following table presents the estimated par value of investment
securities and mortgage-backed securities held-to-maturity and the net
unrealized gain or loss at the period indicated:

<TABLE>
<CAPTION>
HELD-TO-MATURITY
AT SEPTEMBER 30, 2000
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA................................................ $1,000 $-- $ (30) $ 970
FHLMC............................................... 3,000 (135) 2,865
------ ----- ------
Total debt securities............................. 4,000 (165) 3,835
Mortgage-backed securities:
GNMA................................................ 916 26 942
FHLMC............................................... 27 1 28
------ --- ----- ------
Total mortgage-backed securities.................. 943 27 970
------ --- ----- ------
Total securities held-to-maturity................. $4,943 $27 $(165) $4,805
====== === ===== ======
</TABLE>

<TABLE>
<CAPTION>
HELD-TO-MATURITY
AT DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA................................................ $1,000 $-- $ 38 $ 962
FHLMC............................................... 3,000 -- 183 2,817
------ --- ---- ------
Total debt securities............................. 4,000 -- 221 3,779
Mortgage-backed securities:
GNMA................................................ 979 23 -- 1,002
FHLMC............................................... 27 2 -- 29
------ --- ---- ------
Total mortgage-backed securities.................. 1,006 25 -- 1,031
------ --- ---- ------
Total securities held-to-maturity................. $5,006 $25 $221 $4,810
====== === ==== ======
</TABLE>

50
<PAGE>

<TABLE>
<CAPTION>
HELD-TO-MATURITY
AT DECEMBER 31, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA................................................ $1,000 $ 1 $-- $1,001
FHLMC............................................... 2,996 8 -- 3,004
------ --- --- ------
Total debt securities............................. 3,996 9 -- 4,005
Mortgage-backed securities:
GNMA................................................ 1,269 74 -- 1,343
FHLMC............................................... 58 4 -- 62
------ --- --- ------
Total mortgage-backed securities.................. 1,327 78 -- 1,405
------ --- --- ------
Total securities held-to-maturity................. $5,323 $87 $-- $5,410
====== === === ======
</TABLE>

<TABLE>
<CAPTION>
HELD-TO-MATURITY
DECEMBER 31, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA............................................... $ 1,000 $ 7 $ -- $ 1,007
FHLB Notes......................................... 7,219 8 -- 7,227
------- ---- ----- -------
Total debt securities............................ 8,219 15 -- 8,234
Mortgage-backed securities:
GNMA............................................... 1,979 105 $ -- 2,085
FHLMC.............................................. 88 8 -- 97
------- ---- ----- -------
Total mortgage-backed securities................. 2,067 114 -- 2,182
------- ---- ----- -------
Total securities held-to-maturity................ $10,286 $129 $ -- $10,416
======= ==== ===== =======
</TABLE>

51
<PAGE>
The following table presents the estimated fair value of investment
securities and mortgage-backed securities available for sale and the net
unrealized gain or loss at the periods indicated:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
SEPTEMBER 30, 2000
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds......................... $ 2,354 $ -- $ (33) $ 2,321
FHLB and FRB Stock................................. 2,591 2,591
------- ---- ------- -------
Total equity securities.......................... 4,945 -- (33) 4,912
Debt:
FNMA............................................... 3,500 -- (131) 3,369
Municipal tax-exempt............................... 3,488 -- (162) 3,326
FHLB Notes......................................... 11,499 -- (398) 11,101
------- ---- ------- -------
Total debt securities............................ 18,487 -- (691) 17,796

Mortgage-backed securities:
FNMA............................................... 36,344 -- (1,611) 34,733
GNMA............................................... 8,462 -- (337) 8,125
------- ---- ------- -------
Total mortgage-backed securities................. 44,806 (1,948) 42,858
Other investments.................................... 5,145 316 (1,337) 4,124
------- ---- ------- -------
Total securities available-for-sale.............. $73,295 $317 $(3,922) $69,690
======= ==== ======= =======
</TABLE>

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investments in mutual funds........................ $ 2,354 $-- $ 24 $ 2,330
FHLB and FRB Stock................................. 2,056 -- -- 2,056
------- --- ------ -------
Total equity securities.......................... 4,510 -- 24 4,486
Debt:
FNMA Notes......................................... 3,500 -- 198 3,302
Municipal tax-exempt............................... 3,511 -- 310 3,201
FHLB Notes......................................... 11,499 598 10,901
------- --- ------ -------
Total debt securities............................ 18,510 -- 1,106 17,404
Mortgage-backed securities:
FNMA............................................... 39,540 -- 2,188 37,352
GNMA............................................... 9,151 -- 552 8,599
------- --- ------ -------
Total mortgage-backed securities
available-for-sale............................. 48,691 -- 2,740 45,951
Other investments.................................... 4,645 30 -- 4,675
------- --- ------ -------
Total securities available-for-sale.............. $76,356 $30 $3,870 $72,516
======= === ====== =======
</TABLE>

52
<PAGE>

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investments in mutual funds........................ $ 2,354 $-- $1 $ 2,353
FHLB and FRB Stock................................. 1,131 -- -- 1,131
------- --- -- -------
Total equity securities.......................... 3,485 -- 1 3,485
Debt:
FNMA Notes......................................... 3,500 11 -- 3,511
Municipal tax-exempt............................... 3,544 -- -- 3,544
FHLB Notes......................................... 6,498 -- 6,498
SLMA............................................... 1,000 1 -- 1,001
------- --- -- -------
Total debt securities............................ 14,542 -- -- 14,554
Mortgage-backed securities:
FNMA............................................... 11,884 -- 6 11,878
GNMA............................................... 10,196 -- -- 10,196
------- --- -- -------
Total mortgage-backed securities................. 22,080 -- 6 22,073
------- --- -- -------
Total securities available-for-sale.............. $40,107 $12 $7 $40,112
======= === == =======
</TABLE>

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investments in mutual funds........................ $ 2,354 $12 $-- $ 2,366
FHLB and FRB stock................................. 1,104 -- -- 1,104
------- --- --- -------
Total equity securities.......................... 3,458 -- -- 3,470
Debt:
FHLB Notes......................................... 7,435 23 -- 8,018
Federal Farm Credit................................ 2,000 12 -- 2,012
FNMA............................................... 998 13 -- 1,011
SLMA............................................... 1,000 -- 6 994
------- --- --- -------
Total debt securities............................ 11,993 48 6 12,035
Mortgage-backed securities:
FNMA............................................... 2,227 -- 65 2,162
GNMA............................................... 778 -- 6 772
------- --- --- -------
Total mortgage-backed securities................. 3,005 -- 71 2,934
------- --- --- -------
Total securities available-for-sale.............. $17,352 $60 $77 $17,335
======= === === =======
</TABLE>

53
<PAGE>
INVESTMENT PORTFOLIO MATURITIES.

The following table sets forth the scheduled maturities, carrying values,
and weighted average yields for PSB's investment securities and mortgage-backed
securities portfolios, classified as being held to maturity and available for
sale at September 30, 2000 and December 31, 1999. Adjustable-rate,
mortgage-backed securities are included in the period in which interest rates
are next scheduled to adjust.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
---------------------------------------------------------------
IN ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS TO FIVE YEARS TO TEN YEARS
------------------- ------------------- -------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Investment securities..... $ -- -- $ 2,000 6.37% $1,000 6.50%
Mortgage-backed
securities.............. -- -- -- -- -- --
---- ----- ------- ---- ------ ----
Total
held-to-maturity...... $ -- -- $ 2,000 6.37% $1,000 6.50%

Available-for-sale:
Investment securities..... $ -- -- $12,353 5.87% $4,000 6.80%
Mortgage-backed
securities.............. 707 3.84% -- -- -- --
Investment, other......... -- -- -- -- -- --
---- ----- ------- ---- ------ ----
Total
available-for-sale.... $707 3.84% $12,353 5.87% $4,000 6.80%
==== ===== ======= ==== ====== ====

<CAPTION>
AT SEPTEMBER 30, 2000
------------------------------------------

OVER TEN YEARS
------------------- NO STATED
CARRYING AVERAGE MATURITY
VALUE YIELD OR RATE TOTAL
-------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-maturity:
Investment securities..... $ 1,000 7.09% $ -- $ 4,000
Mortgage-backed
securities.............. 943 8.57% -- 943
------- ----- ------ -------
Total
held-to-maturity...... $ 1,943 15.66% $ -- $ 4,943
Available-for-sale:
Investment securities..... $ 4,488 4.69% $7,648 $28,489
Mortgage-backed
securities.............. 44,099 6.48% -- 44,806
Investment, other......... -- -- -- --
------- ----- ------ -------
Total
available-for-sale.... $48,587 11.17% $7,648 $73,295
======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------------------------------------------------
IN ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS TO FIVE YEARS TO TEN YEARS
------------------- ------------------- -------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Investment securities..... $ -- -- $ 2,000 6.37% $ 1,000 6.50%
Mortgage-backed
securities.............. -- -- -- -- -- --
------ ----- ------- ----- ------- -----
Total
held-to-maturity...... $ -- -- $ 2,000 6.37% $ 1,000 6.50%

Available-for-sale:
Investment securities..... $2,500 5.90% $10,483 6.04% $ 4,526 6.58%
Mortgage-backed
securities.............. 879 5.13% 238 5.22% 42,913 6.37%
Investment, other......... 100 -- -- -- -- --
------ ----- ------- ----- ------- -----
Total
available-for-sale.... $3,479 11.03% $10,721 11.26% $47,439 12.95%
====== ===== ======= ===== ======= =====

<CAPTION>
AT DECEMBER 31, 1999
------------------------------------------

LOAN PORTFOLIO

Historically, the principal lending activity of PSB has been the
origination, for retention in its portfolio, of fixed-rate and, to a much lesser
extent, adjustable-rate mortgage loans secured by one to four-family residential
real estate located in its market area. PSB and its subsidiaries also originate
loans secured by multifamily residential and commercial real estate,
construction loans, commercial business loans and consumer loans. As a result of
the acquisition of First Bank of Philadelphia, PSB also has a student loan
program that was an existing program of First Bank of Philadelphia. These loans
are funded to students at qualifying schools and are subsequently contractually
sold at par within 30 to 45 days of origination to an investor.

One to four family residential mortgage loans originated for resale in the
secondary market are underwritten according to standards that conform to
secondary market guidelines. One- to four-family residential mortgage loans
originated and held in portfolio are generally underwritten to conform to

54
<PAGE>
secondary market standards but from time to time PSB does originate
nonconforming loans if, in PSB's judgment, the borrower does not present an
unreasonable risk of default. PSB has primarily been a portfolio lender and at
any one time PSB holds only a nominal amount of loans that may be sold.

Total net loans decreased to $168.7 million at September 30, 2000, from
$176.0 million at December 31, 1999. The decrease of $7.0 million, or 4.1%, was
the result of payoffs in PSB's student loan program. A decrease in construction,
commercial and non-residential loans were also contributing factors. Increased
loan origination of other loan products such as commercial real estate, SBA
loans and consumer loans as well as modest growth in residential mortgage loans
were offsetting factors.

At December 31, 1999, PSB's net loan portfolio totaled $176.0 million,
representing 65% of total assets at that date, compared to $121.2 million
representing 53% of total assets at December 31, 1998. As of December 31, 1999,
one to four family residential loans totaled $63.9 million representing 36.0% of
the loan portfolio, compared to $58.1 million representing 47.4% of the loan
portfolio at December 31, 1998. At December 31, 1999, construction loans totaled
$23.5 million representing 13.3% of the total loan portfolio. This compares to
$16.0 million representing 13.0% of the loan portfolio at December 31, 1998.
Another significant portion of PSB's loan portfolio is the student loan program
that was implemented in 1999 by First Bank of Philadelphia prior to the merger.
As of September 30, 2000, the student loan portfolio totaled $37.1 million
representing 21.8% of the total loan portfolio.

The following table summarizes the loan portfolio by loan category and
amount at September 30, 2000 and December 31 for the past five years. From time
to time, TNMC has originated and sold mortgage loans to third party investors
within PSB's financial reporting periods. Similarly, student loans are
frequently originated and sold within PSB's financial reporting periods. Such
mortgage and student loans are not reflected in the financial tables and
financial statements pertaining to a particular period to the extent that such
loans were sold prior to any period end. The loan categories correspond to PSB's
general classifications:

Commercial loans....................................... 9,376 5.50% 10,682 6.01%
SBA loans.............................................. 8,003 4.69% 6,682 3.76%
Student loans.......................................... 37,139 21.77% 40,509 22.80%
Consumer loans......................................... 2,715 1.59% 2,468 1.39%
-------- ------- -------- ------
Total loans.......................................... $170,605 100.00% $177,635 100.00%
======== ======= ======== ======
Less:
Unearned fees and discounts.......................... $ 509 $ 389
Undisbursed loan proceeds............................ -- 7
Allowance for loan losses............................ 1,349 1,231
-------- --------
Net Loans............................................ $168,747 $176,008
======== ========
</TABLE>

55
<PAGE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1998 1997
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family.................................... $ 58,162 47.40% $ 57,810 71.59%
Construction loans.................................... 15,981 13.02% 11,457 4.14%
Five or more family residence......................... 3,356 2.73% 3,075 1.12%
Nonresidential........................................ 22,575 18.40% 20,914 18.20%
Commercial loans........................................ 13,216 10.77% 9,117 3.04%
SBA loans............................................... 8,251 6.72% 8,225
Student loans........................................... -- 0.00% --
Consumer loans.......................................... 1,168 0.95% 1,201 1.91%
-------- ------ -------- ------
Total loans........................................... $122,709 100.00% $111,799 100.00%
======== ====== ======== ======
Less:
Unearned fees and discounts........................... $ 431 $ 478
Undisbursed loan proceeds............................. 7 138
Allowance for loan losses............................. 1,031 965
-------- --------
Net Loans............................................. $121,240 $110,218
======== ========
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1996 1995
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family.................................... $ 66,008 62.30% $ 67,469 62.97%
Construction loans.................................... 2,467 2.33% 3,462 3.23%
Five or more family residence......................... 654 0.62% 502 0.47%
Nonresidential........................................ 21,854 20.63% 23,411 21.85%
Commercial loans........................................ 6,911 6.52% 6,342 5.92%
SBA loans............................................... 7,047 6.65% 4,641 4.33%
Student loans........................................... -- -- -- --
Consumer loans.......................................... 1,006 0.95% 1,326 1.24%
-------- ------ -------- ------
Total loans........................................... $105,947 100.00% $107,153 100.00%
======== ====== ======== ======
Less:
Unearned fees and discounts........................... $ 629 $ 600
Undisbursed loan proceeds............................. -- --
Allowance for loan losses............................. 1,400 1,734
-------- --------
Net Loans............................................. $167,801 $121,240
======== ========
</TABLE>

56
<PAGE>
LOAN MATURITIES

The following table sets forth the maturity or period of re-pricing of PSB's
loan portfolio at December 31, 1999. Demand loans and loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less. Adjustable and floating-rate loans are included in the period in which
interest rates are next scheduled to adjust rather than the period in which they
contractually mature, and fixed-rate loans are included in the period in which
the final contractual repayment is due (in thousands).

<TABLE>
<CAPTION>
AMOUNTS AT DECEMBER 31, 1999
--------------------------------------------------------------------
MULTI-FAMILY CONSUMER
AND AND
ONE TO FOUR COMMERCIAL COMMERCIAL
FAMILY REAL ESTATE CONSTRUCTION BUSINESS TOTAL LOANS
----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual......................... $ 1,498 $ 47 $ 41 $ 296 $ 1,882
Within one year..................... 4,550 5,952 23,014 47,875 81,391
After one year:
1-3 years......................... 1,818 6,183 324 2,634 10,959
3 to 5 years...................... 1,770 9,352 149 3,190 14,461
5 to 15 years..................... 14,135 6,658 -- 3,640 24,433
Over 15 years..................... 40,166 1,637 -- 2,706 44,509
------- ------- ------- ------- --------
Total due after one year............ 57,889 23,830 473 12,170 93,115
------- ------- ------- ------- --------
Total amounts due................... $63,937 $29,829 $23,528 $60,341 $177,635
======= ======= ======= ======= ========
</TABLE>

Loans receivable at December 31, 1999, includes $112.4 million of fixed rate
loans and $65.2 million of adjustable rate loans.

NON-PERFORMING ASSETS

PSB's non-performing assets increased $1.3 million or 41.9%, during the nine
months ended September 30, 2000, from $3.1 million at December 31, 1999 to
$4.4 million at September 30, 2000. The primary reason for the increase in
non-performing assets for the nine month period ended September 30, 2000, was
the result of the transfer of a number of First Bank of Philadelphia loans
assumed in the merger being reclassified as non-performing. PSB's non-performing
assets decreased $539,000 or 13.9% to $3.1 million at December 31, 1999,
compared to $3.6 million at December 31, 1998. Contributing to this decrease was
a net decrease of $230,000 in the PSB's OREO portfolio and $489,000 in PSB's
non-accrual portfolio, through continuing legal action against the PSB's problem
loan customers, including through foreclosure and other court actions, and
aggressive account management of the performing loan portfolio to minimize
future problems.

As a matter of policy, the accrual of loan interest is discontinued if
management believes that, after considering economic and business conditions and
collection efforts, the borrower's financial condition is such that collection
of interest becomes doubtful. This is normally done when a loan reaches 90 days
delinquent. At this time, all accrued but unpaid interest is reversed out of
interest income. There are occasional exceptions if the loans are well secured
and in the process of collection. PSB did not have any material restructured
loans within the meaning of SFAS No. 15.

57
<PAGE>
The following table sets forth information regarding loans 30 or more days
delinquent and still accruing interest, non-accrual loans, and other real estate
owned held by PSB at the dates indicated:

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------------
2000 1999 1998 1997
---------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans past due 90 days or more as to interest or
principal and accruing interest...................... $ -- $ 180 $ -- $ 232
Nonaccrual loans....................................... 3,194 1,878 2,367 2,737
Loans restructured to provide a reduction or deferral
of interest or principal............................. -- -- -- --
------ ------ ------ ------
Total nonperforming loans.............................. 3,194 $2,058 $2,367 $2,969
Other real estate owned (OREO)......................... 1,169 1,047 1,277 2,249
------ ------ ------ ------
Total nonperforming assets............................. $4,363 $3,105 $3,644 $5,218
====== ====== ====== ======

Nonperforming loans to total loans..................... 1.87% 1.16% 1.83% 2.53%
Nonperforming assets to total assets................... 1.63% 1.11% 1.60% 2.68%
Allowance for loan losses to total loans............... 0.79% 0.69% 0.80% 0.82%
Allowance for loan losses to nonperforming loans....... 42.24% 59.82% 43.56% 32.50%
Allowance for loan losses to nonperforming assets...... 30.92% 39.65% 28.29% 18.49%
Net charge-offs as a percentage of total loans......... -- 0.00% 0.21% 0.42%
</TABLE>

At December 31, 1999, the recorded investment in loans that are considered
to be impaired was $100,000 (all of which was on a non-accrual basis). Included
in the allowance for loan losses at December 31, 1998, was $17,000 related to
the $0.1 million of impaired loans. The average recorded investment in impaired
loans during 1998 was $100,000. No interest income related to these impaired
loans was recognized during the year. At December 31, 1997, the recorded
investment in loans that are considered to be impaired was $0.1 million (all of
which was on a non-accrual basis). Included in the allowance for loan losses at
December 31, 1997, was $17,000 related to the $0.1 million of impaired loans.
The average recorded investment in impaired loans during 1997 was $0.4 million.
No interest income related to these impaired loans was recognized during the
year using the cash basis method of income recognition.

OTHER REAL ESTATE OWNED

Real estate acquired by PSB as a result of foreclosure is classified as
other real estate owned ("OREO") until it is sold. The OREO is initially
recorded at the lower of the related loan balance or fair value of the property
at the date acquired. If the value of the property is less than the loan, less
any related specific loan loss provisions, the difference is charged against the
allowance for loan losses. Any subsequent write-down of OREO is charged against
earnings. At September 30, 2000, PSB had $1.2 million of property acquired as a
result of foreclosure. PSB had $1.0 million and $1.3 million of property
acquired as a result of foreclosure at December 31, 1999 and 1998.

CLASSIFIED ASSETS

As part of PSB's loan review procedures that ultimately results in the
establishment of PSB's allowance for loan losses, PSB identifies and classifies
its problem assets into three classifications: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the bank will sustain some loss
if the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset

58
<PAGE>
classified as loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. PSB charges-off an
asset as soon as it is classified as a loss. At September 30, 2000, PSB had
$1.1 million of loans classified as substandard. Exclusive of PSB's
$1.0 million of OREO, PSB's classified assets at December 31, 1999 consisted of
$929,000 of loans classified as substandard, compared to $1.4 million classified
as substandard at December 31, 1998.

ALLOWANCE FOR LOAN LOSSES

The provision for loan losses is an amount charged against earnings to fund
the allowance for loan losses on existing loans. In order to determine the
amount of the provision for loan losses, PSB conducts a monthly review of the
loan portfolio to evaluate overall credit quality. In establishing its allowance
for loan losses, management considers the size and risk exposure for each
segment of the loan portfolio, past loss experience, current indicators such as
the present levels and trends of delinquency rates and collateral values, and
the potential losses for future periods. The provisions are based on
management's review of the economy, interest rates, general market conditions,
and in certain instances, an estimate of fair value of the collateral, as
applicable, considering the current and anticipated future operating
environment. These estimates are particularly susceptible to changes that may
result in a material adjustment to the allowance for loan losses. As adjustments
become identified, they are reported in earnings for the period in which they
become known. Management believes that it makes an informed judgment based upon
available information. The adequacy of the allowance is reviewed monthly by the
Board of Directors.

It is the objective of PSB's evaluation process to establish the following
components of the allowance for loan losses. A specific allocation for certain
identified loans, a general allocation for pools of loans based on risk rating
and a general allocation for inherent loan portfolio losses. Management performs
current evaluations of its criticized and classified loan portfolios and assigns
specific reserves that reflects current risk. As a general rule, special mention
assets will have a minimum reserve of 5%, substandard assets will have a minimum
reserve of 15%, and doubtful assets will have a minimum reserve of 50%. Due to
the fact that most of PSB's problem loans are secured by real estate, management
has allocated a majority of the allowance for loan losses to these real estate
collateralized loans. A general reserve allocation is applied for pools of loans
based on risk rating for all loans not specifically reserved for as described
previously.

Based upon management's analysis, PSB recorded provisions for loan losses
during the nine month period ended September 30, 2000 of $100,000. PSB recorded
provisions for loan losses of $200,000, $283,000 and $60,000 as of December 31,
1999, 1998 and 1997. The following table summarizes the

59
<PAGE>
changes in PSB's allowance for loan losses for the nine months ended September
30, 2000 and for each of the years in the five years ended December 31, 1999.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance, beginning of period.......... $1,231 $1,031 $ 965 $1,400 $1,734 $2,783
Charge-offs;
Real estate: one-to-four family....... -- -- 270 495 604 1,347
Consumer..............................
------ ------ ------ ------ ------ ------
Total charge-offs....................... -- -- 270 495 604 1,347
------ ------ ------ ------ ------ ------
Total recoveries........................ 18 -- 53 -- 138 38
Net charge-offs (recoveries).......... -- -- 217 495 466 1,309
Provision charged to operations......... 100 200 283 60 132 260
------ ------ ------ ------ ------ ------
Allowance, end of period................ $1,349 $1,231 $1,031 $ 965 $1,400 $1,734
====== ====== ====== ====== ====== ======
Allowance for loan losses to total
loans................................. 0.79% 0.69% 0.80% 0.82% 1.32% 1.62%
Allowance for loan losses to nonaccrual
loans................................. 42.23% 65.55% 43.56% 35.26% 45.05% 34.53%
Net charge-offs as a percentage of total
loans................................. 0.00% 0.00% 0.21% 0.42% 0.57% 1.26%
</TABLE>

DEPOSITS

Deposits are the primary source of PSB's funds for lending and other
investment purposes. PSB's current deposit products include statement savings
accounts, passbook savings accounts, NOW accounts, personal and commercial
demand deposit accounts, money market accounts, and certificates of deposit
accounts. Included among these deposit products are Individual Retirement
Account certificates and Keogh retirement certificates.

PSB's deposits are obtained primarily from residents in its primary market
area. The principal methods used by PSB to attract deposit accounts include
offering a wide variety of services and accounts, no service charges for
maintaining accounts, competitive interest rates and convenient office hours.
PSB operates in a highly competitive banking environment competing against large
regional banks as well as other community banks. This has limited the gathering
of core deposits. PSB relies upon certificates of deposit as its primary funding
source, but it has instituted a program that emphasizes the gathering of more
stable, core deposits through traditional marketing methods to attract new
customers and savings deposits.

60
<PAGE>
The following tables present the average balances and rates paid on deposits
for the nine months ended September 30, 2000 and for the years ended
December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------------------
2000 1999 1998 1997
------------------- ------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits...... $ 24,573 $ 18,911 $ 19,460 $ 10,345
NOW checking 12,911 2.66% 8,924 3.47% 2,322 3.14% 1,852 3.51%
accounts...........
Money market 11,928 3.67% 15,761 3.68% 4,469 3.71% 4,977 3.60%
accounts...........
Savings accounts..... 29,267 2.88% 29,686 2.90% 42,184 2.88% 40,708 2.83%
Certificates of 110,534 5.60% 118,623 5.50% 110,203 5.74% 102,903 5.78%
deposit............
-------- -------- -------- --------
Total deposits... $189,213 $191,905 $178,638 $160,785
======== ======== ======== ========
</TABLE>

As of September 30, 2000 and December 31, 1999, PSB had total certificates
of deposit of approximately $116.7 million and $128.5 million, respectively. The
following table summarizes the composition of these deposits:

<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
2000 1999
--------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Certificates of deposit in excess of $100,000....... $ 21,794 19% $ 18,878 15%
Individual retirement accounts...................... 7,079 6% 8,611 7%
Other certificates of deposit....................... 87,825 75% 101,046 78%
-------- --- -------- ---
Total........................................... $116,698 100% $128,535 100%
======== === ======== ===
</TABLE>

PSB's certificates of deposit in excess of $100,000, which totaled
$21.8 million at September 30, 2000, mature as follows: $6.4 million within
three months, $13.5 million between three and twelve months; and $1.9 million
after twelve months.

The ability of PSB to attract and maintain deposits and PSB's cost of funds
on these deposit accounts have been, and will continue to be, significantly
affected by economic and competitive conditions.

BORROWINGS

PSB is a member of the Federal Home Loan Bank System, which consists of 12
regional FHLBs subject to supervision and regulation by the Federal Housing
Finance Board. The FHLBs provide a central credit facility primarily for member
institutions. PSB, as a member of the FHLB of Pittsburgh, is required to hold
shares of common stock in that FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the FHLB of Pittsburgh, whichever is greater.
PSB had a $2.6 million investment in stock of the FHLB of Pittsburgh at
September 30, 2000, which was in compliance with this requirement. At
September 30, 2000, PSB had $38.0 million in outstanding borrowings from the
FHLB of Pittsburgh.

61
<PAGE>
IMPACT OF INFLATION

The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles that
require the measurement of financial position and operating results in
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operation of PSB is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services.

RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 128, "Earnings Per Share," issued in February 1997, establishes
standards for computing and presenting earnings per share ("EPS") and applies to
entities with publicly-held common stock or potential common stock. It replaces
the presentation of primary EPS with a presentation of basic EPS and requires
the dual presentation of basic and diluted EPS on the face of the income
statement. SFAS No. 128 was effective for the financial statements for the
periods ending after December 15, 1997. SFAS No. 128 requires restatement of all
prior period EPS data presented. The impact of its adoption has not been
material to PSB.

In June 1997, FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income" and Statement
No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130, establishes standards for the reporting and
presentation of comprehensive income and its components in financial statements.
SFAS No. 130 requires that all items that are required to be recognized as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in the financial statement. This Statement was effective for fiscal
years beginning after December 15, 1997. For the nine months ended
September 30, 2000 and the year ended December 31, 1999, PSB had $48,000 and
$2.3 million, respectively in unrealized loss in other comprehensive income
items.

SFAS No. 131 establishes standards for the way that public business
enterprises report information about segments in annual financial statements. It
also requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement was effective for
financial statement periods beginning after December 31, 1997. Management has
not identified any individual operating segments of PSB.

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement was effective for financial statement periods
beginning after June 15, 1999. SFAS No. 133 did not have a material effect on
the financial statements of PSB.

62
<PAGE>
INFORMATION ABOUT JADE

BUSINESS OF JADE FINANCIAL CORP.

Jade Financial Corp. was organized at the direction of the Board of
Directors of IGA Federal Savings Bank for the purpose of becoming a holding
company to own all of the outstanding capital stock of IGA. Upon completion of
its mutual to stock conversion on October 5, 1999, IGA became a wholly-owned
subsidiary of Jade. Jade is engaged primarily in the business of directing,
planning and coordinating the business activities of IGA, and has two other
operating subsidiaries, Jade Abstract, and Jade Insurance Agency.

BUSINESS OF IGA

IGA originally was established in 1975 as IGA Federal Credit Union. The
credit union initially served the Independent Group Association, a labor
organization comprised of employees of PECO Energy, Inc., the electric utility
serving the Philadelphia metropolitan area. Over time, IGA's membership grew to
include other employee groups. However, as a credit union, IGA was legally
restricted to serve only customers who shared a "common bond" such as a common
employer. However, members that were employees of PECO or its affiliates (or
retirees or family members of PECO or its affiliates) continued to be a large
majority of IGA's members.

As a credit union, IGA did not experience membership growth in recent years
due to a reduction in the number of PECO employees from approximately 12,500 to
6,500. Moreover, IGA anticipated that membership would decline in the future due
to the nationwide consolidation of the electric utility industry and the 1996
deregulation of the electric utility industry in Pennsylvania. Therefore, after
receiving the approval of the National Credit Union Administration and IGA's
members, on July 1, 1998, IGA converted from a credit union to IGA Federal
Savings Bank, a federal mutual savings bank. IGA was then able to serve the
general public, rather than being limited to serving only distinct employee
groups.

On October 5, 1999, Jade completed an initial public offering of 1,872,923
shares of common stock and used the proceeds to acquire all the stock of IGA
Federal Savings Bank thereby converting IGA Federal Savings Bank from a federal
mutual savings bank to a federal stock savings bank.

IGA is primarily engaged in the business of attracting deposits from the
general public and originating consumer loans, including home equity, auto,
credit card and personal loans, and residential real estate loans secured by
first mortgages on owner-occupied, one-to-four family residences in our market
area. IGA also originates a limited amount of commercial loans and invests in
investment and mortgage-related securities.

IGA's revenues are derived principally from interest on mortgage loans,
consumer loans and investment and mortgage-related securities.

IGA offers a variety of deposit accounts having a wide range of interest
rates and terms, which generally include passbook and statement savings
accounts, money market deposit accounts, NOW and non-interest bearing checking
accounts and certificates of deposit with varied terms ranging from 91 days to
60 months. IGA only solicits deposits in its market areas and it has not
accepted brokered deposits. Our deposits are insured by the Savings Association
Insurance Fund of the FDIC up to applicable limits.

MARKET AREAS AND COMPETITION

IGA's main office is located in Feasterville, Bucks County, Pennsylvania;
four branch offices are located in Center City, Philadelphia, Pennsylvania,
Grays Ferry in southwest Philadelphia, Pennsylvania,

63
<PAGE>
the Chesterbrook Village Shopping Center in Chester County, Pennsylvania, and
the Media Shopping Center in Delaware County, Pennsylvania.

In addition, IGA participates in MAC, a regional automatic teller machine
network. IGA owns and operates four teller machines.

IGA's market area consists of the Philadelphia metropolitan area, which is
comprised of Philadelphia and the surrounding Pennsylvania counties of Bucks,
Chester, Delaware and Montgomery. IGA also has a number of out-of-market
customers who are retirees or PECO employees at out-of-market locations. IGA's
five-county market area is included in the Philadelphia Metropolitan Statistical
Area. The Philadelphia Metropolitan Statistical Area, which also includes three
New Jersey counties, is the nation's fourth largest metropolitan area in terms
of total population. Based on 1998 census data, the Pennsylvania counties in the
Philadelphia Metropolitan Statistical Area had an estimated population of
3.7 million, which is one-third of Pennsylvania's total population.

IGA faces strong competition, in the consumer and commercial loan business,
commercial real estate and residential real estate loans and in attracting
deposits. The Philadelphia Metropolitan Statistical Area has become a center for
financial services, and IGA competes with a number of very large financial
institutions that are either headquartered or maintain offices in southeastern
Pennsylvania. Some of the larger commercial banks operating in its market area
include First Union National Bank, PNC Bank and Mellon Bank. IGA also competes
with a number of larger thrifts that maintain branches in, or are headquartered
in, southeastern Pennsylvania including Sovereign Bank, Commonwealth Bank,
Firstrust Savings Bank, and Beneficial Mutual Savings Bank. Competition in
originating residential real estate loans comes primarily from other savings
institutions, commercial banks, credit unions and mortgage bankers. Competition
for commercial business loans and commercial real estate loans comes primarily
from commercial banks and savings institutions. Other savings institutions,
commercial banks, credit unions and finance companies provide vigorous
competition in consumer lending.

Competition for deposits is principally from other savings institutions,
commercial banks and credit unions located in the same region, as well as mutual
funds. IGA competes for these deposits by offering a variety of deposit accounts
at competitive rates.

BUSINESS STRATEGY

IGA's strategy is to be a consumer oriented financial institution that
provides retail loan and deposit products to individuals and small businesses.
Highlights of this strategy include the following:

- Consumer Lending--Historically we have concentrated on the origination of
consumer loans as our primary loan product, including home equity,
automobile, credit card and personal loans. At September 30, 2000,
consumer loans totaled $72.4 million, or 56.1% of our loan portfolio.

- Home Mortgage Lending--In recent years, residential first mortgage loans
have become an increasingly important component of our lending activities.
We expect this trend to continue. At September 30, 2000, residential first
mortgage loans totaled $49.2 million, or 38.2% of our loan portfolio.

- Commercial Real Estate and Commercial Business Loans--We have slowly
increased our commercial real estate and commercial business lending with
a focus on small and medium-sized borrowers. We have hired an experienced
commercial lender to manage our expansion in this area. We are funding
this product expansion with locally gathered deposits. We believe a
cautious and prudent expansion in these areas will diversify our loan
portfolio and increase the average yield of our interest earning assets.
We do recognize, however, that commercial real estate and commercial
business loans both involve a higher degree of risk than single-family
residential lending due to a variety of factors, including generally
larger loan balances, the

64
<PAGE>
dependency on successful operation of a project, or the income stream of a
borrower for repayment, and greater oversight efforts compared to mortgage
loans. At September 30, 2000, we had $4.2 million in commercial real
estate loans and $3.1 million in commercial business loans.

- Expanded Customer Base--Prior to June 30, 1998, under our federal credit
union charter, we were limited in the customers that we could service. The
cornerstone of our strategy as a savings bank is to maintain our base of
customers who were credit union members and expand our customer base by
marketing to the communities served by our branches. We believe our
original customer base has continued to increase their banking
relationships with us. In addition, our deposit and loan accounts have
grown by the acquisition of new customers from area banks and thrifts.

SUPERVISION AND REGULATION

IGA is chartered as a federal savings bank under the Home Owners' Loan Act,
as amended (the "HOLA") which is implemented by regulations adopted and
administered by the Office of Thrift Supervision. As a federal savings bank, IGA
is subject to regulation, supervision and regular examination by the OTS. The
OTS also has extensive enforcement authority over all savings institutions and
their holding companies, including IGA and Jade. Federal banking laws and
regulations control, among other things, IGA's investments, loans, required
reserves, mergers and consolidations, payment of dividends and other aspects of
IGA's operations. The deposits of IGA are insured by the Savings Association
Insurance Fund administered by the FDIC to the maximum extent provided by law
($100,000 for each depositor). In addition, the FDIC has certain regulatory and
examination authority over OTS-regulated savings institutions and may recommend
enforcement actions against savings institutions to the OTS. The supervision and
regulation of IGA is intended primarily for the protection of the SAIF and IGA's
depositors rather than Jade or its shareholders.

As a savings and loan holding company, Jade is registered with the OTS and
is also subject to OTS regulation and supervision under the HOLA.

The following discussion is intended to be a summary of certain statutes,
rules and regulations affecting IGA and Jade. A number of other statutes and
regulations have an impact on their operations. The following summary of
applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to relevant statutes and regulations.

NEW LEGISLATION

For information on new legislation effecting Jade, IGA and the banking
industry in general, see "Information About Jade--New Legislation" on page 35.

REGULATION OF IGA

BUSINESS ACTIVITIES--IGA derives its lending and investment powers from the
HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, IGA may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of
commercial paper and debt securities, and certain other assets. IGA may also
establish service corporations that may engage in activities reasonably related
to the business of financial institutions but not otherwise permissible for IGA,
including certain real estate equity investments and securities and insurance
brokerage. These investment powers are subject to various limitations.

BRANCHING--Subject to certain limitations, OTS regulations currently permit
a federally chartered savings institution to establish branches in any state of
the United States, provided that the federal savings institution qualifies as a
"domestic building and loan association" under the Internal Revenue

65
<PAGE>
Code of 1986, as amended ("the Code"), or is a "qualified thrift lender" under
HOLA. IGA has no current plans to establish any branch outside of Pennsylvania
although its authority to establish interstate branches could facilitate a
geographic diversification in the future.

REGULATORY CAPITAL--The OTS has adopted capital adequacy regulations that
require savings institutions such as IGA to meet three minimum capital
standards: a "core" capital requirement of 3% of adjusted total assets, a
"tangible" capital requirement of 1.5% of adjusted total assets, and a
"risk-based" capital requirement of 8% of total risk-based capital to total
risk-weighted assets. In addition, the OTS has adopted regulations imposing
certain restrictions on savings institutions that have a total risk-based
capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets
of less than 4% or a ratio of Tier 1 capital to total assets of less than 4% (or
3% if the institution is rated Composite 1 under the CAMEL examination rating
system).

The core capital, or "leverage ratio," requirement mandates that a savings
institution maintain core capital equal to at least 3% of its adjusted total
assets. "Core capital" includes common shareholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries and certain
nonwithdrawable accounts and pledged deposits. Core capital is generally reduced
by the amount of the savings institution's intangible assets, with limited
exceptions for permissible mortgage servicing rights, purchased credit card
relationships and certain intangible assets arising from prior regulatory
accounting practices. Core capital is further reduced by the amount of a savings
institution's investments in and loans to subsidiaries engaged in activities not
permissible for national banks. At September 30, 2000, IGA had no such
investments.

The risk-based capital standards of the OTS require maintenance of core
capital equal to at least 4% of risk-weighted assets and total capital equal to
at least 8% of risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" included core capital plus supplementary capital up
to the amount of core capital. Supplementary capital includes preferred stock
that does not qualify as core capital, nonwithdrawable accounts and pledged
deposits to the extend not included in core capital, perpetual and mandatory
convertible subordinated debt and maturing capital instruments meeting specified
requirements and a portion of the institution's loan and lease loss allowance.

The risk-based capital requirement is measured against risk-weighted assets,
which equal the sum of each asset and the credit-equivalent amount of each
off-balance sheet item after the dollar amount of each such asset and item is
multiplied by an assigned risk weight, which ranges from 0% to 100% as assigned
by the OTS capital regulations based on the risks the OTS believes are inherent
in the type of asset or off-balance sheet item.

The OTS risk-based capital regulation also included an interest rate risk
("IRR") component that requires savings institutions with greater than normal
IRR, when determining compliance with the risk-based capital requirements, to
maintain additional total capital.

PROMPT CORRECTIVE REGULATORY ACTION--Under the Federal Deposit Insurance
Corporation Improvement Act, the federal banking regulators are required to take
prompt corrective action in respect of depository institutions that do not meet
certain minimum capital requirements, including a leverage limit and a
risk-based capital requirement. All institutions, regardless of their capital
levels, are restricted from making any capital distributions or paying any
management fees that would cause the institution to become undercapitalized.
Banking regulators, including the OTS, have issued regulations that classify
insured depository institutions by capital levels and provide that the
applicable agency will take various prompt corrective actions to resolve the
problems of any institution that fails to satisfy the capital standards.

66
<PAGE>
Under the joint prompt corrective action regulations, a "well-capitalized"
institution is one that is not subject to any regulatory order or directive to
meet any specific capital level and that has or exceeds the following capital
levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital
ratio of 6%, and a ratio of tier 1 capital to total assets ("leverage ratio") of
5%. An "adequately capitalized" institution is one that does not qualify as
"well capitalized" but meets or exceeds the following capital requirements: a
total risk-based capital of 8%, a Tier 1 risk-based capital ratio of 4%, and a
leverage ratio of either (i) 4% or (ii) 3% if the institution has the highest
composite examination rating. An institution not meeting these criteria is
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which its capital levels are below
these standards. An institution that falls within any of the three
"undercapitalized" categories will be subject to certain severe regulatory
sanctions required by FDICIA and the implementing regulations. As of
September 30, 2000, IGA was "well-capitalized" as defined by the regulations,
with a total risk-based capital ratio of 18.07%, a Tier 1 risk-based capital
ratio of 16.84% and a core capital ratio of 10.42%.

INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC--IGA is a member of the
Savings Association Insurance Fund, which is administered by the FDIC. Deposits
are insured up to the applicable limits by the FDIC and such insurance is backed
by the full faith and credit of the United States Government. As insurer, the
FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the Savings
Association Insurance Fund or Bank Insurance Fund. The FDIC also has the
authority to initiate enforcement actions against savings institutions, after
giving the Office of Thrift Supervision an opportunity to take such action, and
may terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (of at least 6% and a risk-based capital ratio of at least 10%)
and considered healthy pay the lowest premium while institutions that are less
than adequately capitalized and considered of substantial supervisory concern
pay the highest premium. Risk classification of all insured institutions is made
by the FDIC for each semi-annual assessment period.

The FDIC is authorized to increase assessment rates, on a semi-annual basis,
if it determines that the reserve ratio of the Savings Association Insurance
Fund will be less than the designated reserve ratio of 1.25% of Savings
Association Insurance Fund insured deposits. In setting these increased
assessments, the FDIC must seek to restore the reserve ratio to that designated
reserve level, or such higher reserve ratio as established by the FDIC. The FDIC
may also impose special assessments on Savings Association Insurance Fund
members to repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC.

Effective January 1, 1999, the premium schedule for Bank Insurance Fund and
Savings Association Insurance Fund insured institutions ranged from 0 to 27
basis points. IGA is in the category of institutions that pay no deposit
insurance premiums. However, all insured institutions are required to pay a
Financing Corporation assessment, in order to fund the interest on bonds issued
to resolve thrift failures in the 1980s. These assessments, which may be revised
based upon the level of Bank Insurance Fund and Savings Association Insurance
Fund deposits, will continue until the bonds mature in the year 2017.

LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS--OTS regulations
impose various restrictions on savings banks with respect to their ability to
make distributions of capital, which include

67
<PAGE>
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings bank from declaring or paying any dividends or from repurchasing any of
its stock if, as a result, the regulatory capital of the bank would be reduced
below the amount required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.

Because IGA is a subsidiary of a savings and loan holding company, the OTS
requires a 30 day notice prior to the approval by the Board of Directors of any
planned capital distribution. If the proposed capital distribution would cause
IGA to fall below an "adequately capitalized" standard or the distribution would
exceed IGA's net income plus its retained income for the preceding two years,
the OTS requires the filing of a formal application (as opposed to a notice) 30
days prior to the Board of Directors' approval of the distribution.

LIQUIDITY--All savings banks, including IGA, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and short-term
borrowings (borrowings payable in one year or less). This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings banks. At the present time,
the minimum liquid asset ratio is 4%. Penalties may be imposed upon banks for
violations of the liquid asset ratio requirement. At September 30, 2000 (the
latest available date), we were in compliance with this requirement with an
overall regulatory liquidity ratio of 27.32%.

QUALIFIED THRIFT LENDER TEST--All savings banks, including IGA, are required
to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings bank to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings bank may maintain 60% of its assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code. Under either
test, such assets primarily consist of residential housing related loans and
investments. At September 30, 2000, we met the test.

Any savings bank that fails to meet the QTL test must convert to a national
bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If a
bank does not requalify and converts to a national bank charter, it must remain
SAIF-insured until the FDIC permits it to transfer to the BIF. If such an
association has not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a savings
bank and a national bank and it is limited to national bank branching rights in
its home state. In addition, the bank is immediately ineligible to receive any
new FHLB borrowings and is subject to national bank limits for payment of
dividends. If such bank has not requalified or converted to a national bank
within three years after the failure, it must divest of all investments and
cease all activities not permissible for a national bank. In addition, it must
repay promptly any outstanding FHLB borrowings, which may result in prepayment
penalties. If any bank that fails the QTL test is controlled by a holding
company, then within one year after the failure, the holding company must
register as a bank holding company and become subject to all restrictions on
bank holding companies.

COMMUNITY REINVESTMENT ACT--Under the Community Reinvestment Act ("CRA"),
every FDIC insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit needs
of its entire community, including low and moderate income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
the examination of IGA, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain

68
<PAGE>
applications, such as a merger or the establishment of a branch by IGA. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.

The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, IGA may be required to devote additional funds for investment and
lending in its local community. We were examined for CRA compliance in April,
1999 and received a rating of "satisfactory."

TRANSACTIONS WITH AFFILIATES--Generally, transactions between a savings bank
or its subsidiaries and its affiliates are required to be on terms as favorable
to the association as transactions with non-affiliates. In addition, certain of
these transactions, such as loans to an affiliate, are restricted to a
percentage of the association's capital. Affiliates of IGA include Jade and any
company which is under common control with IGA. In addition, a savings bank may
not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of most affiliates. The OTS has the
discretion to treat subsidiaries of savings banks as affiliates on a case by
case basis.

Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must generally be made on terms substantially the same as for loans to
unaffiliated individuals or as offered to all employees in a company-wide
benefit program.

FEDERAL SECURITIES LAW--The stock of Jade is registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.

Jade stock held by persons who are affiliates (generally officers, directors
and principal shareholders) of Jade may not be resold without registration or
unless sold in accordance with certain resale restrictions. If Jade meets
specified current public information requirements, each affiliate of Jade is
able to sell in the public market, without registration, a limited number of
shares in any three-month period.

FEDERAL RESERVE SYSTEM--The Federal Reserve Board requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 2000, we were in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements imposed by the OTS.

Savings banks are authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require banks to exhaust other
reasonable alternative sources of funds, including FHLB borrowings, before
borrowing from the Federal Reserve Bank.

FEDERAL HOME LOAN BANK SYSTEM--We are a member of the FHLB of Pittsburgh,
which is one of 12 regional FHLB. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures,
established by the board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.

As a member, Jade is required to purchase and maintain stock in the FHLB of
Pittsburgh. On August 11, 1998, we made our initial purchase of $833,500 in FHLB
stock, which was in compliance with this requirement. We receive dividends on
our FHLB stock on a quarterly basis.

69
<PAGE>
Under federal law the FHLBs are required to provide funds for the resolution
of troubled savings banks and to contribute to low- and moderately priced
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have affected adversely the level of FHLB dividends paid and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future. A reduction in value of our
FHLB stock may result in a corresponding reduction in our capital.

EMPLOYEES--At September 30, 2000, IGA had a total of 77 employees, including
10 part-time employees. IGA's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.

SUBSIDIARIES OF JADE

Jade Abstract is a licensed title insurance agency founded for the purpose
of originating title insurance to the customers of IGA, other financial
institutions, attorneys, accountants, real estate brokers, builders, and the
private consumer. The market area includes southeastern Pennsylvania, primarily,
the Philadelphia five county region. Jade Abstract has a three person board of
directors and employs a full time licensed title agent. Title insurance protects
the lender and the home buyer against any title defects when a new home is
purchased. Premiums for title insurance are traditionally paid by the borrower
and are a cost of obtaining financing secured by real estate. It also provides
protection to the lender when a borrower refinances a home. Title insurance may
be required on both residential and commercial transactions.

Jade Insurance Agency, a Pennsylvania corporation and a wholly owned
subsidiary of Jade, was formed for the purpose of providing a diverse set of
insurance products to meet the needs of existing and potential customers of IGA,
as well as to provide products to other financial institutions such as credit
unions and community banks. The products outlined in the business plan generate
fee income to the agency, and also provide comprehensive service to existing IGA
customers and the general public. Insurance products such as accidental death &
dismemberment, term life, long-term care, auto, homeowner, whole life, universal
life, health, collateral protection and mortgage life are marketed through a
direct mail program as well as a point of sale program. The agency has enlisted
the help of strategic partners in the development and marketing of the insurance
products. As of September 30, 2000, there was no income and minimal expenses
related to this subsidiary.

LEGAL PROCEEDINGS

From time to time IGA is involved as plaintiff or defendant in various legal
actions arising in the normal course of business. Presently, IGA is not involved
as a defendant in any legal proceedings.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1999 AND 1998.

The following discussion of Jade's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes included elsewhere herein. Statements regarding
Jade's expectations as to financial results and other aspects of its business
set forth herein may constitute forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. See "A Warning About
Forward Looking Information." Although Jade believes that its expectations are
based on reasonable assumptions, there can be no assurance that actual results
will not differ materially from its expectations.

70
<PAGE>
RESULTS OF OPERATIONS

GENERAL

Jade's results of operations depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets, and
interest expense on interest-bearing liabilities. Its interest-earning assets
consist primarily of loans and investment securities, while its interest-bearing
liabilities consist primarily of deposits and borrowings. Jade's net income is
also affected by its provision for loan losses, its non-interest income and its
non-interest expense, such as salary and employee benefits, occupancy costs and
charges relating to non-performing and other classified assets. In 1998, IGA
changed its fiscal year from June 30 to December 31. The results of operations
for the twelve months ended December 31, 1999 are compared to the twelve months
ended June 30, 1998 in order to provide a comparison between equal operational
periods.

NET INCOME

Net income for the nine months ended September 30, 2000 was $741,000. Net
income for the comparable period in 1999 was $531,000. The increase is
attributable to increased levels of interest-earning assets, and a significant
increase in non-interest income, offset by a decrease in our net interest spread
and net interest margin.

Core earnings, defined as pretax earnings adjusted for securities sales
transactions and unusual or non-recurring expense or income items, were $994,000
for the nine months ended September 30, 2000 compared to $816,000 in the prior
year period.

Jade's net income totaled $293,000 and $663,000 for the years ended
December 31, 1999 and June 30, 1998, respectively. Results of operations for the
year-ended December 31, 1999 reflect a non-recurring, contribution to the IGA
Charitable Foundation. Excluding the effect of this contribution, net income for
1999 was $812,000. This increase was due largely to an increase in net interest
income.

NET INTEREST INCOME AND AVERAGE BALANCES

Net interest income is the key component of Jade's profitability structure
and is managed in coordination with the bank's interest rate sensitivity
position.

71
<PAGE>
The following table sets forth a summary of average balances with
corresponding interest income and interest expense as well as average yield and
rate information for the periods presented. Average balances are derived from
daily balances during the indicated periods.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
2000 1999
------------------------------------- -------------------------------------
AVERAGE INTEREST (ANNUALIZED) AVERAGE INTEREST (ANNUALIZED)
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------------ ----------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............. $122,072 $ 7,547 8.24% $106,010 $ 6,545 8.23%
Investments.................. 61,581 2,899 6.28% 59,568 2,529 5.66%
-------- ------- -------- -------
Total earning assets..... 183,653 10,446 7.58% 166,37 89,124 7.31%
Non-interest earning
assets..................... 19,975 9,405
-------- --------
Total assets................. $203,628 $175,783
======== ========
Interest-bearing liabilities:
Savings deposits............. $ 70,515 $ 1,078 2.04% $ 71,839 $ 1,120 2.08%
NOW accounts................. 10,316 0 0.00% 10,106 0 0.00%
Money market accounts........ 10,827 374 4.61% 10,297 241 3.12%
Certificates of deposit...... 68,221 2,839 5.55% 65,867 2,589 5.24%
Other notes payable--FHLB.... 15,020 737 6.54% 1,422 59 5.53%
-------- ------- -------- -------
Total interest-bearing
liabilities................ 174,899 5,028 3.83% 159,611 4,004 3.35%
Non-interest bearing
liabilities................ 1,738 1,403
-------- --------

Total liabilities............ $176,637 $161,014
Equity....................... 26,991 14,769
-------- --------

Total liabilities and
equity..................... $203,628 $175,783
======== ========
Net interest-earning
assets..................... $ 8,754 $ 6,767
======== ========
Net interest income/net
interest spread............ $ 5,418 3.75% $ 5,115 3.96%
======= =======
Net interest margin.......... 3.93% 4.10%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities................ 105.01% 104.24%
======== ========
</TABLE>

72
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
--------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- -------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable......... $110,824 $8,947 8.07% $100,915 $4,275 8.47%
Investments.............. 61,505 3,569 5.80% 54,501 1,514 5.56%
-------- ------ -------- ------
Total earning assets..... 172,329 12,516 7.26% 155,416 5,789 7.45%
Non-interest earning
assets................. 14,678 10,026
-------- --------
Total assets............. $187,007 $165,442
======== ========
Interest-bearing
liabilities:
Savings deposits......... $ 74,180 $1,540 2.08% $ 68,852 $ 834 2.42%
NOW accounts............. 10,159 0 0.00% 9,277 0 0.00%
Money market accounts.... 10,767 337 3.13% 9,038 160 3.54%
Certificates of
deposit................ 66,938 3,501 5.23% 62,082 1,767 5.69%
Other notes payable--
FHLB................... 6,000 116 1.93% 0 0
-------- ------ -------- ------
Total interest-bearing
liabilities............ 168,044 5,494 3.27% 149,249 2,761 3.70%
------ ------
Non-interest bearing
liabilities............ 1,503 799
-------- --------
Total liabilities........ $169,547 $150,048
Equity................... 17,460 15,394
-------- --------
Total liabilities and
equity................. $187,007 $165,442
======== ========
Net interest-earning
assets................. $ 4,285 $ 6,167
======== ========
Net interest income/net
interest spread........ $7,022 3.99% $3,028 3.75%
====== ======
Net interest margin...... 4.07% 3.90%
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............ 102.55% 104.13%

<CAPTION>
FOR THE YEAR ENDED
JUNE 30,
1998
---------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable......... $ 99,342 $8,734 8.79%
Investments.............. 53,456 2,742 5.13%
-------- ------
Total earning assets..... 152,798 11,476 7.51%
Non-interest earning
assets................. 5,007
--------
Total assets............. $157,805
========
Interest-bearing
liabilities:
Savings deposits......... $ 63,361 $1,682 2.65%
NOW accounts............. 8,661 0 0.00%
Money market accounts.... 8,298 316 3.81%
Certificates of
deposit................ 61,713 3,477 5.63%
Other notes payable--
FHLB................... 0 0
-------- ------
Total interest-bearing
liabilities............ 142,033 5,475 3.85%
------
Non-interest bearing
liabilities............ 1,109
--------
Total liabilities........ $143,142
Equity................... 14,663
--------
Total liabilities and
equity................. $157,805
========
Net interest-earning
assets................. $ 10,765
========
Net interest income/net
interest spread........ $6,001 3.66%
======
Net interest margin...... 3.93%
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............ 107.58%
</TABLE>

Net interest income increased $303,000 or 5.94% from $5.1 million for the
nine months ended September 30, 1999 compared to $5.4 million for the nine
months ended September 30, 2000. This increase is attributable to a higher
volume of earning assets that was partially offset by a 17 basis point decrease
in the net interest margin caused by rising interest rates generally that
resulted in rates paid on deposits rising more rapidly than rates earned on
loans and investments.

Net interest income of $7.0 million in 1999 was 16.67% higher than June 30,
1998's net interest income of $6.0 million. Jade's net interest margin,
increased 14 basis points to 4.07% for the year ended December 31, 1999 compared
to 3.93% for the year ended June 30, 1998. The bank's net interest spread, the
difference between the yield on interest-earning assets and the rates paid on
interest-bearing liabilities, increased 33 basis points to 3.99% for the year
ended December 31, 1999, from 3.66% for the year ended June 30, 1998. The
improvement in net interest margin reflected a lower cost of funds. The increase
in the net interest spread is due to a decrease in the rates paid on
interest-bearing liabilities, and a smaller decrease in the yield on
interest-earning assets.

Jade's yield on average interest-earning assets decreased to 7.26% for the
year ended December 31, 1999 compared to 7.51% for the year ended June 30, 1998.
Average loans of $111.0 million at December 31, 1999, represented 64.31% of
total average interest-earning assets, and

73
<PAGE>
provided a yield of 8.07%, compared to average loans of $99.3 million for the
year ended June 30, 1998, representing 65% of total average interest-earning
assets, and providing a yield of 8.79%. The decrease in yield is the result of a
decrease in the interest rate charged for loans made in 1999 as a result of a
general decrease in interest rates in the economy. Average investment balances
and interest bearing deposits held by Jade increased $8.0 million or 14.95% to
$61.5 million at December 31, 1999, from $53.5 million for the year ended
June 30, 1998. These assets provided a yield of 5.80% in 1999 compared to 5.13%
in 1998.

Total average interest-bearing liabilities increased $26.0 million or 18.31%
to $168.0 million for the year ended December 31, 1999, from $142.0 million for
the year ended June 30, 1998. This increase resulted from IGA's ability to
attract new deposits from customers other than credit union members. However,
total interest expense increased a modest $21,000 to $5.49 million for the year
ended December 31, 1999 from $5.47 million for the year ended June 30, 1998
because of a decrease in IGA's cost of funds to 3.27% for the year ended
December 31, 1999 from 3.85% for the year ended June 30, 1998.

RATE/YIELD ANALYSIS

The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected IGA's interest income and interest expense during the
periods presented. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
2000 VS. 1999
INCREASE (DECREASE) DUE TO
------------------------------ TOTAL
RATE/ INCREASE
RATE VOLUME VOLUME (DECREASE)
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.......................... $ 11 $1,256 $(315) $ 952
Investments............................... 367 (114) (111) 370
---- ------ ----- ------
Total earning assets...................... 378 1,370 (426) 1,322
Interest-bearing liabilities:
Savings deposits.......................... (29) (28) 15 (42)
Now accounts.............................. 0 0 0 0
Money market accounts..................... 153 17 (37) 133
Certificates of deposit................... 203 123 (76) 250
Other notes payable--FHLB................. 0 752 (74) 678
---- ------ ----- ------
Total interest-bearing liabilities...... 327 864 (172) 1,019
---- ------ ----- ------
Change in net interest income............... $ 51 $ 506 $(254) $ 303
==== ====== ===== ======
</TABLE>

74
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999 VS.
DECEMBER 31, 1998
INCREASE (DECREASE) DUE TO
------------------------------ TOTAL
RATE/ INCREASE
RATE VOLUME VOLUME (DECREASE)
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable......................... $(491) $ 903 $(52) $ 360
Investments.............................. 296 391 41 728
----- ------ ---- ------
Total earning assets................... (195) 1,294 (11) 1,088
Interest-bearing liabilities
Savings deposits......................... (297) 142 (24) (179)
NOW accounts............................. 0 0 0 0
Money market accounts.................... (45) 73 (10) 18
Certificates of deposit.................. (236) 369 (26) 107
Other notes payable--FHLB................ 0 116 116
----- ------ ---- ------
Total interest-bearing liabilities..... (578) 584 56 62
----- ------ ---- ------
Change in net interest income.............. $ 383 $ 710 $(67) 1,026
===== ====== ==== ======
</TABLE>

PROVISION FOR LOAN LOSSES

The provision for loan losses increased by $160,000 or 39.51% for the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999. This increase reflects changes in the composition of the company's loan
portfolio from that of a traditional consumer focused credit union to a more
diversified banking company.

For the year ended December 31, 1999, the provision for loan losses was
$520,000 compared to $1,038,000 for the fiscal year ended June 30, 1998. The
provision decreased in 1999 due to a one-time adjustment of $350,000 made in the
first six months of 1998 to bring the allowance for loan loss within OTS
guidelines in preparation for the conversion of IGA from a credit union to a
federal savings bank. On a quarterly basis, IGA's Board of Directors and
management perform a detailed analysis of the adequacy of the allowance for loan
losses. This analysis includes an evaluation of credit risk concentration,
delinquency trends, past loss experience, current economic conditions,
composition of the loan portfolio, classified loans, and other relevant factors.
The loan growth experienced by IGA since its conversion from a credit union to a
federal savings bank has not resulted in significant percentage increases in
delinquencies or an increase in the chargeoffs incurred by the bank.

NON-INTEREST INCOME

Non-interest income increased $581,000 or 74.68% to $1.4 million for the
nine months ended September 30, 2000 from $778,000 for the nine months ended
September 30, 1999. The increase was due primarily to additional income in 2000
from bank owned life insurance, title insurance income, and increased fees from
debit card transactions offset by a loss of $100,000 to write down an investment
in a discontinued subsidiary.

Non-interest income increased $181,000 or 18.89% to $1,139,000 for the year
ended December 31, 1999 compared to $958,000 for the year ended June 30, 1998.
The primary reason for this increase was an increase in service fee income and
income generated from our debit and credit card products.

75
<PAGE>
NON-INTEREST EXPENSE

Total non-interest expense increased $634,000 or 13.49% to $5.3 million for
the nine months ended September 30, 2000, from $4.7 million for the nine months
ended September 30, 1999. This increase resulted primarily from an increase in
compensation and employee benefits, including the ESOP, an increase in
depreciation related to the purchase of a new computer system, and an increase
in professional fees.

Total non-interest expense increased 35.85% or $1.9 million, to
$7.2 million for the year ended December 31, 1999, compared to $5.3 million for
the year ended June 30, 1998. This increase was primarily due to a non-recurring
charge of $725,000 related to the initial contribution made by Jade to the IGA
Charitable Foundation, an increase of $570,000 in compensation and benefits, a
$268,000 increase in office and occupancy costs, and a $302,000 increase in
other operating costs related to debit and credit card processing. Compensation
and benefits reflects a full year's advance contribution to the ESOP that Jade
elected to make in 1999.

INCOME TAXES

Jade had income tax expense of $165,000 for the period ended September 30,
2000, compared to $285,000 for the period ended September 30, 1999. The Company
had an income tax expense of $107,000 for fiscal year ended December 31, 1999,
and no income tax expense for the year ended June 30, 1998, because of its tax
exempt status as a federal credit union.

LIQUIDITY AND CAPITAL RESOURCES

Pursuant to federal regulations, financial institutions must maintain
liquidity to meet day-to-day requirements of depositor and borrower customers,
take advantage of market opportunities, and provide a reserve against unforeseen
needs. Liquidity needs can be met by either reducing assets or increasing
liabilities. Sources of asset liquidity are provided by investments in U.S.
Government and agency securities, time deposits with banks and federal funds
sold. Maturing and prepayment of loans as well as the monthly cash flow
associated with certain mortgage-backed securities are other sources of asset
liquidity. These assets totaled $16.7 million at September 30, 2000, compared to
$13.2 million at December 31, 1999 and $18.34 million at December 31, 1998.

Sources of liability liquidity are provided by attracting deposits with
competitive rates, using repurchase agreements, buying federal funds or
utilizing the facilities of the Federal Home Loan Bank System. We historically
have relied exclusively on deposits. In 1999 we began to borrow from the FHLB
principally to leverage our increased capital base and enhance earnings rather
than for liquidity purposes but this source of liability liquidity provides
added ability to meet liquidity demands.

We believe that IGA maintains and has maintained sufficient short-term and
liquid assets (including securities available-for-sale) to meet the liquidity
requirements of its operations.

MARKET RISK ANALYSIS

We derive our income primarily from the excess of interest collected over
interest paid. The rates of interest we earn on assets and pay on liabilities
generally are established contractually for a period of time. Market interest
rates change over time. Accordingly, our results of operations, like those of
many financial institutions, are affected by changes in interest rates and the
interest rate sensitivity of our assets and liabilities.

In an attempt to manage our exposure to changes in interest rates and comply
with applicable regulations, we monitor IGA's interest rate risk by analyzing
and managing asset and liability payment streams and interest rates, the timing
of their maturities, and their sensitivity to actual or potential changes in
market interest rate.

76
<PAGE>
An asset or liability is interest-rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more rapidly or to a greater extent than our liabilities, then
net portfolio value and net interest income would tend to increase during
periods of rising interest rates and decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, then net portfolio value and net interest income
would tend to decrease during periods of rising interest rates and increase
during periods of falling interest rates. Our policy has been to address the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by maintaining
sufficient liquid assets for material and prolonged changes in interest rates.

Management regularly reviews our asset and liability position including our
interest rate risk and trends, liquidity and capital ratios and related
regulatory requirements. In addition, management reviews simulations of the
effect of changes in interest rates on IGA's capital, net interest income and
net income.

NET PORTFOLIO VALUE

In order to encourage savings associations to reduce their interest rate
risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose of calculating
an institution's risk-based capital requirement and is measured in terms of the
sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV
is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's IRR is
measured by the change to its NPV as result of a hypothetical 200 basis point
("bp") change in market interest rates. A resulting change in NPV in excess of a
threshold amount will require the institution to deduct from its capital 50% of
that excess change. Based on IGA's asset size and risk-based capital, we have
been informed by the OTS that IGA is exempted from this rule. Nevertheless, the
following table presents an estimate of the change in our NPV at September 30,
2000, as calculated by our personnel, based on quarterly financial information.

<TABLE>
<CAPTION>
ESTIMATED INCREASE
(DECREASE) IN NPV
CHANGE IN INTEREST ESTIMATED NPV RATIO OF NPV TO -----------------------
RATES (BASIS POINTS) AMOUNT TOTAL ASSETS AMOUNT PERCENT
-------------------- ------------- --------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
+300 $19,199 9.14% ($5,914) (24.00)%
+200 20,780 9.82% (4,253) (17.00)%
+100 22,495 10.52% (2,538) (10.00)%
0 25,033 11.53% --
(100) 25,157 11.55% 124 0.00%
(200) 26,061 11.87% 1,028 4.00%
(300) 26,980 12.19% 1,947 8.00%
</TABLE>

In the above table, the first column on the left presents the basis point
increments of yield curve shifts. The second column presents the overall dollar
amount of NPV at each basis point increment. The third column presents IGA's
ratio of NPV to total assets. The remaining columns present IGA's actual
position in dollar change and percentage change in NPV at each basis point
increment.

If IGA were subject to the IRR component at September 30, 2000, it would not
have been considered to have had a greater than normal level of interest rate
exposure and a deduction from capital would not have been required. Although we
have been advised by the OTS that IGA is not subject to the IRR component
discussed above, it is still subject to interest rate risk and, as can be seen
above, rising interest rates will reduce IGA's NPV. The OTS has the authority to
require otherwise exempt institutions to comply with the rule concerning
interest rate risk.

77
<PAGE>
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under the
various interest rate scenarios and should not be relied upon as indicative of
actual results. Certain shortcomings are inherent in the method of analysis
presented in the computation of NPV. Although certain assets and liabilities may
have similar maturities or periods within which they reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. In the event of a change in interest rates, prepayments and early
withdrawal levels could deviate significantly from those assumed in making the
calculations set forth above.

FINANCIAL CONDITION

GENERAL

Our total assets increased $15.3 million from $199.6 million to
$214.9 million or 7.67% from December 31, 1999, to September 30, 2000. Our total
liabilities increased $14.8 million from $172.3 million to $187.1 million or
8.59% from December 31, 1999, to September 30, 2000. The increase in assets and
liabilities at September 30, 2000, compared to December 31, 1999, is primarily
attributable to an increase in deposit balances and an increase in borrowings
from the Federal Home Loan Bank that were used to fund loan growth.

Total loans increased $13.6 million from $115.3 million to $129.0 million or
11.88% from December 31, 1999, to September 30, 2000. The increase was primarily
the result of increased loan originations in almost all loan categories except
credit cards.

Total assets at December 31, 1999, were $199.6 million, an increase of
$28.5 million or 16.66% from $171.1 million at December 31, 1998. This increase
was mainly due to the increase in net loans of $11.2 million or 10.88%, an
increased in investment securities of $8.5 million or 11.76%, and a
$10.0 million purchase of bank owned life insurance. The increase in total
assets was funded primarily by an increase of $15.0 million in borrowed funds
and the net proceeds received in the conversion of IGA to a federally chartered
stock savings bank.

Shareholders' equity totaled $27.2 million at December 31, 1999, compared to
$15.3 million at December 31, 1998. The $11.9 million increase was primarily due
to the net proceeds of $14.1 million received from the conversion and an
increase of $1.4 million in the accumulated other comprehensive income account.
At the time of conversion, the ESOP purchased 145,000 shares utilizing the
proceeds of a $1.2 million loan. This represents a deduction from equity that is
restored as the loan is amortized.

LENDING ACTIVITIES

IGA is primarily engaged in the business of attracting deposits from the
general public and originating consumer loans, including home equity, auto,
credit card and personal loans and residential real estate loans, secured by
first mortgages on owner-occupied, one-to-four family residences in our market
area. IGA also originates a limited amount of commercial loans.

Net loans totaled $127.3 million at September 30, 2000, an increase of
11.57% since December 31, 1999. This increase was primarily due to an aggressive
marketing program instituted by IGA and a resulting increase in loan
originations. Net loans receivable increased by $11.2 million or 10.88% from
$102.9 million at December 31, 1998, to $114.1 million at December 31, 1999.
These increases were due primarily to strong first mortgage demand and a
similarly strong demand for consumer loans, particularly automobile loans.

The following table sets forth the composition of IGA's loan portfolio at
September 30, 2000, December 31, 1999 and 1998 and June 30, 1998, 1997 and 1996.
For the periods presented, there is no

78
<PAGE>
significant concentration of loans in any one industry. No loans have been made
to borrowers outside the United States.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
2000 1999
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family..................................... $ 49,219 38.17% $ 43,434 37.66%
Commercial.............................................. 4,197 3.25% 2,996 2.60%
-------- ------ -------- ------
Total real estate loans............................... 53,416 41.42% 46,430 40.25%
Consumer Loans:
Home equity............................................. 26,344 20.43% 24,172 20.96%
Automobile.............................................. 28,326 21.97% 24,406 21.16%
Credit cards............................................ 9,692 7.52% 10,955 9.50%
Unsecured loans......................................... 5,965 4.63% 5,414 4.69%
Other................................................... 2,074 1.61% 2,498 2.17%
-------- ------ -------- ------
Total consumer loans.................................. 72,401 56.14% 67,445 58.47%
Commercial Loans........................................ 3,141 2.44% 1,469 1.27%
-------- ------ -------- ------
Total loans........................................... $128,958 100.00% $115,344 100.00%
======== ====== ======== ======
Less:
Deferred fees and discounts............................. (26) 21
Allowance for losses.................................... (1,657) (1,284)
-------- --------
Total loans receivable, net........................... $127,275 $114,081
======== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------------------------------------------------------
1998 1998 1997 1996
------------------- ------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to four-family.... $ 40,114 38.57% $35,799 36.15% $ 31,429 31.02% $31,722 33.33%
Commercial............ 1,408 1.35% 256 0.26% 0 0.00% 0 0.00%
-------- ------ ------- ------ -------- ------ ------- ------
Total real estate
loans............. 41,522 39.93% 36,055 36.41% 31,429 31.02% 31,722 33.33%

Consumer Loans:
Home equity........... 22,421 21.56% 23,174 23.40% 24,154 23.84% 21,264 22.34%
Automobile............ 18,746 18.03% 18,844 19.03% 20,470 20.20% 17,869 18.78%
Credit cards.......... 10,920 10.50% 10,269 10.37% 10,700 10.56% 9,555 10.04%
Unsecured loans....... 6,329 6.09% 6,577 6.64% 9,307 9.19% 9,917 10.42%
Other................. 3,658 3.52% 3,871 3.91% 5,264 5.20% 4,840 5.09%
Total consumer
loans............. 62,074 60.07% 62,972 63.59% 69,895 68.98% 63,445 66.67%
Commercial loans...... 400 0.38% 237 0.24% -- -- -- --
-------- ------ ------- ------ -------- ------ ------- ------
Total loans......... $103,996 100.00% $99,027 100.00% $101,324 100.00% $95,167 100.00%
======== ====== ======= ====== ======== ====== ======= ======
Less:
Deferred fees and
discounts........... (22) 17 52 62
Allowance for
losses.............. (1,074) (948) (1,005) (558)
Total loans
receivable,....... $102,900 $98,096 $100,371 $94,671
======== ======= ======== =======
</TABLE>

79
<PAGE>
The following tables show the composition of IGA's loan portfolio by fixed
and adjustable rate at September 30, 2000, December 31, 1999 and December 31,
1998, and June 30, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
----------------------
AMOUNT PERCENT
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family..................................... $ 47,688 36.98%
Home equity............................................. 21,890 16.97%
Commercial.............................................. 4,197 3.25%
Automobile and truck........................................ 28,326 21.97%
Unsecured loans............................................. 5,965 4.63%
Commercial.................................................. 1,302 1.01%
Other....................................................... 2,112 1.64%
-------- ------
Total fixed-rate loans.................................... 111,480 86.45%

Adjustable-Rate Loans:
Real estate:
One- to four-family..................................... 1,504 1.17%
Home equity............................................. 4,259 3.30%
Credit cards................................................ 9,692 7.52%
Commercial.................................................. 1,839 1.43%
Other....................................................... 184 0.14%
-------- ------
Total adjustable-rate loans............................... 17,478 13.55%
Total loans............................................... 128,958 100.00%
-------- ------

Less:
Deferred fees and discounts................................. (26)
Allowance for losses........................................ (1,657)
--------
Total loans receivable, net............................... $127,275
========
</TABLE>

80
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31 DECEMBER 31, ------------------------------
1999 1998 1998 1997
------------------- ------------------- ------------------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family........... $ 42,419 36.78% $ 38,446 36.97% $34,011 34.43% $ 28,675
Home equity................... 19,450 16.86% 17,054 16.40% 17,164 17.37% 16,818
Commercial.................... $ 2,996 2.60% $ 1,408 1.35%
Automobile and truck............ 24,406 21.16% 18,746 18.03% 18,844 19.07% 20,470
Unsecured loans................. 5,163 4.48% 6,329 6.09% 6,577 6.66% 9,307
Commercial...................... 871 0.76% 0 0.00%
Other........................... 2,157 1.87% 3,284 3.16% 3,078 3.12% 4,466
-------- ------ -------- ------ ------- ------ --------
Total fixed-rate loans........ 97,462 84.50% 85,267 81.99% 79,674 80.65% 79,736

Adjustable-Rate Loans:
Real estate:
One- to four-family........... 1,015 0.88% 1,668 1.60% 2,044 2.07% 2,754
Home equity................... 4,722 4.09% 5,367 5.16% 6,010 6.08% 7,336
Credit cards.................... 10,955 9.50% 10,920 10.50% 10,269 10.39% 10,700
Commercial...................... 598 0.52% 400 0.38% 237 0.24%
Other........................... 592 0.51% 374 0.36% 793 0.80% 798
-------- ------ -------- ------ ------- ------ --------
Total adjustable-rate loans... 17,882 15.50% 18,729 18.01% 19,353 19.35% 21,588
-------- ------ -------- ------ ------- ------ --------
Total loans................... 115,344 100.00% 103,996 100.00% 99,027 100.00% 101,324

Less:
Deferred fees and discounts..... 21 (22) 17 52
Allowance for losses............ (1,284) (1,074) (948) (1,005)
-------- -------- ------- --------
Total loans receivable, net..... $114,081 $102,900 $98,096 $100,371
======== ======== ======= ========

<CAPTION>
JUNE 30,
------------------------------
1997 1996
-------- -------------------
PERCENT AMOUNT PERCENT
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family........... 28.30% $28,653 30.11%
Home equity................... 16.60% 13,285 13.96%
Commercial....................
Automobile and truck............ 20.20% 17,869 18.78%
Unsecured loans................. 9.19% 9,917 10.42%
Commercial......................
Other........................... 4.41% 4,241 4.46%
------ ------- ------
Total fixed-rate loans........ 78.69% 73,965 77.72%
Adjustable-Rate Loans:
Real estate:
One- to four-family........... 2.72% 3,069 3.22%
Home equity................... 7.24% 7,979 8.38%
Credit cards.................... 10.56% 9,555 10.04%
Commercial......................
Other........................... 0.79% 599 0.63%
------ ------- ------
Total adjustable-rate loans... 21.31% 21,202 22.28%
------ ------- ------
Total loans................... 100.00% 95,167 100.00%
Less:
Deferred fees and discounts..... 62
Allowance for losses............ (558)
-------
Total loans receivable, net..... $94,671
=======
</TABLE>

RESIDENTIAL MORTGAGE LOANS

IGA originates substantially all of its mortgage loans through its retail
branch network. IGA generally underwrites one-to-four family loans based on the
applicant's employment, credit history and appraised value of the subject
property. Presently, IGA lends up to 95% of the lesser of the appraised value or
purchase price for one-to-four-family residential loans. For loans with a
loan-to-value ratio in excess of 80%, IGA requires borrowers to obtain private
mortgage insurance. As a result, IGA has not experienced any material loss with
respect to residential mortgage loans having a loan-to-value ratio greater than
80%. All first mortgage loans require title and hazard insurance, and flood
insurance, if necessary, in an amount not less than the value of the property
improvements. All mortgage loans must be approved by the Senior Vice President
of Lending and loans exceeding $250,000 must be approved by the President of
IGA.

In order to approve a property as security for a loan, IGA requires a
satisfactory appraisal by an approved independent appraiser. Independent
appraisers must abide by IGA's appraisal policies and must be approved by IGA's
Board of Directors.

IGA currently originates one-to-four family mortgage loans on either a fixed
or adjustable basis, as consumer demand dictates. IGA's pricing strategy for
mortgage loans includes setting interest rates that are competitive with Fannie
Mae and Freddie Mac, other local financial institutions, and IGA's internal
needs. Adjustable rate mortgage ("ARM") loans are offered with either a one-year
or three-year term to the initial repricing date. After the initial period, the
interest rate for each ARM loan generally adjusts annually for the remainder of
the term of the loan. IGA uses the United States Treasury Constant Maturity
Index to reprice ARM loans. At September 30, 2000, IGA had $49.2 million or
38.15% of its total loan portfolio in one-to-four family mortgage loans and at
December 31, 1999, IGA had $43.4 million or 37.66% of its total loan portfolio
in one-to-four family mortgage loans.

81
<PAGE>
COMMERCIAL LOANS

In 1999, IGA took steps to expand its commercial real estate and commercial
business lending program by adopting a commercial lending policy and hiring
staff experienced in this area. IGA believes there is significant opportunity in
small business lending due to the consolidation of financial institutions in
IGA's market area.

IGA offers a variety of multi-family and commercial real estate loans. These
loans are secured primarily by multi-family dwellings, small retail
establishments and small office buildings located in IGA's market areas. IGA
may, from time to time, participate in commercial real estate construction loans
with other lenders. At September 30, 2000, multi-family and commercial real
estate loans totaled $4.2 million or 3.25% of IGA's total loan portfolio and at
December 31, 1999, multi-family and commercial real estate loans totaled
$3.0 million or 2.60% of IGA's total loan portfolio.

IGA offers commercial business loans in the form of lines of credit and
fixed or adjustable rate term loans. These loans are generally secured by
commercial assets, the borrower's personal guarantees and/or personal assets.
Commercial business loans typically require monthly payments and have maximum
maturities of ten years. At September 30, 2000, commercial business loans
totaled $3.1 million or 2.44% of our total loan portfolio and at December 31,
1999, commercial business loans totaled $1.5 million or 1.27% of our total loan
portfolio.

CONSUMER LOANS

IGA offers a variety of consumer loans, including home equity loans, auto
loans, credit card loans, unsecured personal loans, and loans secured by a
deposit account.

At September 30, 2000, consumer loans accounted for $72.4 million or 56.14%
of IGA's total loan portfolio. Of this amount, approximately $26.3 million or
20.43% consisted of home equity loans, $28.3 million or 21.97% consisted of
automobile loans, $9.7 million or 7.52% consisted of credit card loans and
$8.0 million or 6.24% consisted of unsecured personal loans.

At December 31, 1999, consumer loans accounted for $67.4 million or 58.47%
of IGA's total loan portfolio. Of this amount, approximately $24.1 million or
20.96% consisted of home equity loans, $24.4 million or 21.16% consisted of
automobile loans, $10.9 million or 9.50% consisted of credit card loans and
$7.8 million or 6.86% consisted of unsecured personal loans.

Consumer loans generally have shorter terms to maturity, which reduces IGA's
exposure to changes in interest rates, and these loans carry higher rates of
interest than do one-to-four family residential mortgage loans. In addition,
management believes that offering consumer loan products helps to expand and
create stronger ties to our existing customer base by increasing the number of
customer relationships and providing cross-marketing opportunities.

We do not originate any consumer loans on an indirect basis. Indirect loans
are contracts purchased from retailers of goods or services that have extended
credit to their customers.

The underwriting standards employed by IGA for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
consideration, with respect to any secured consumer loan, the underwriting
process also includes a comparison of the value of the security in relation to
the proposed loan amount.

LOAN ORIGINATIONS, SALES AND REPAYMENTS

IGA originates loans through referrals from real estate brokers and
builders, its own marketing efforts, and from existing and walk-in customers.
While IGA originates both adjustable-rate and fixed-rate loans, its ability to
originate loans is dependent upon customer demand for loans in its

82
<PAGE>
market area and is affected by local competition and the prevailing interest
rate environment. IGA sells a limited amount of its mortgage loans and, as a
result, these loans are originated according to secondary market guidelines.

In periods of economic uncertainty, the ability of financial institutions,
including IGA, to originate large dollar volumes of loans may be substantially
reduced or restricted, with a corresponding decrease in related interest income.

The following table shows loan origination, sale and repayment activities
for the nine months ended September 30, 2000, and for the twelve months ended
December 31, 1999, the six months ended December 31, 1998, and the twelve months
ended June 30, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
Originations by type:
Adjustable rate:
Real estate one- to four-family........................... $ 363
Commercial................................................ 1,551
--------
Total adjustable rate................................... 1,914
--------

Fixed rate:
Real estate one- to four-family........................... 8,424
Commercial................................................ 2,704
Consumer.................................................. 22,295
--------
Total fixed-rate........................................ 35,337
--------
Total loans originated...................................... 37,251
========
Principal repayments........................................ (21,723)
Loans sold.................................................. 0
Increase (decrease) in other items, net..................... 0

Net increase................................................ $ 13,614
</TABLE>

83
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------- ------------------------------
1999 1998 1998 1997 1996
---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate one- to four-family....... $ 0 $ 0 $ 229 $ 0 $ 0
-------- -------- -------- -------- --------
Total adjustable rate............... 0 0 229 0 0
-------- -------- -------- -------- --------

Fixed rate:
Real estate one- to four-family....... 8,439 7,000 13,574 3,927 17,801
Commercial............................ 1,686 1,408
Consumer.............................. 30,221 12,656 20,379 31,869 23,767
-------- -------- -------- -------- --------
Total fixed-rate.................... $ 40,346 $ 21,064 $ 33,953 $ 35,796 $ 41,568
-------- -------- -------- -------- --------
Total loans originated.................. $ 40,346 $ 21,064 $ 34,182 $ 35,796 $ 41,568
======== ======== ======== ======== ========

Principal repayments.................... (28,813) (16,140) (31,606) (27,566) (29,538)
Loans sold.............................. 0 0 (4,873) (2,073) (1,677)
Increase (decrease) in other items,
net................................... (131) (77) 22 (457) 360

Net increase............................ $ 11,402 $ 4,847 ($ 2,275) $ 5,700 $ 10,713
</TABLE>

ASSET QUALITY

LOAN DELINQUENCIES

When a borrower fails to make a payment on a loan, a late charge notice is
mailed 15 days after the due date. When the loan is 30 days past due, IGA mails
a delinquent notice to the borrower. All delinquent accounts are reviewed by a
collection officer, who attempts to cause the delinquency to be cured by
contacting the borrower. If the loan becomes 60 days delinquent, the collection
officer will generally send a personal letter to the borrower requesting payment
of the delinquent amount in full, or the establishment of an acceptable
repayment plan to bring the loan current within the next 90 days. If the account
becomes 90 days delinquent, and an acceptable repayment plan has not been agreed
upon, the collection officer will generally refer the account to legal counsel,
with instructions to prepare a notice of intent to foreclose with respect to
real estate loans or to a collection agency with respect to other loans. The
notice of intent to foreclose allows the borrower up to 30 days to bring the
account current. During this 30 day period, the collection officer may accept a
written repayment plan from the borrower that would bring the account current
within the next 90 days. Once the loan becomes 120 days delinquent, and an
acceptable repayment plan has not been agreed upon, the collection officer,
after receiving approval from the appropriate officer designated by IGA's board
of directors, will turn over the account to IGA's counsel with instructions to
initiate foreclosure.

84
<PAGE>
The following table sets forth IGA's loan delinquencies by type, by amount
and by percentage of type at September 30, 2000 and December 31, 1999 and 1998.

<TABLE>
<CAPTION>
LOANS DELINQUENT AT SEPTEMBER 30, 2000 FOR:
---------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family.......... 0 $ 0 0.00% 2 $ 73 0.06% 2 $ 73 0.06%

Consumer:
Home equity.................. 1 11 0.01% 2 12 0.01% 3 23 0.02%
Automobile and truck......... 1 20 0.02% 1 29 0.02% 2 49 0.04%
Credit card loans............ 12 41 0.03% 4 13 0.01% 16 54 0.04%
Commercial................... 1 4 0.00% 0 0 0.00% 1 4 0.00%
Unsecured loans.............. 9 19 0.01% 3 12 0.01% 12 31 0.02%
-- ---- ---- -- ---- ---- -- ---- ----
Total........................ 24 $ 95 0.07% 12 $139 0.11% 36 $234 0.18%
== ==== ==== == ==== ==== == ==== ====
</TABLE>

<TABLE>
<CAPTION>
LOANS DELINQUENT AT DECEMBER 31, 1999 FOR:
---------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to four-family........... 0 $ 0 0.00% 2 $ 73 0.17% 2 $ 73 0.17%

Consumer:
Home equity.................. 2 11 0.05% 2 55 0.23% 4 66 0.27%
Automobile and truck......... 2 15 0.06% 5 21 0.09% 7 36 0.15%
Credit card loans............ 14 39 0.36% 2 11 0.10% 16 50 0.46%
Commercial................... 0 0 0.00% 1 32 2.18% 1 32 2.18%
Unsecured loans.............. 5 9 0.17% 1 2 0.04% 6 11 0.20%
-- ---- ---- -- ---- ---- -- ---- ----
Total...................... 23 $ 74 0.06% 13 $194 0.17% 36 $268 0.23%
== ==== ==== == ==== ==== == ==== ====
</TABLE>

<TABLE>
<CAPTION>
LOANS DELINQUENT AT DECEMBER 31, 1998 FOR:
---------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family.......... 1 $130 0.13% 1 $ 16 0.02% 2 $146 0.14%

Consumer:
Home equity.................. 3 74 0.07% 2 64 0.06% 5 138 0.13%
Automobile and truck......... 4 21 0.02% 7 39 0.04% 11 60 0.06%
Credit card loans............ 3 5 0.00% 15 41 0.04% 18 46 0.04%
Commercial................... 0 0 0.00% 0 0 0.00% 1 0 0.00%
Unsecured loans.............. 7 34 0.03% 3 10 0.01% 10 44 0.04%
-- ---- ---- -- ---- ---- -- ---- ----
Total........................ 18 $264 0.25% 28 $170 0.16% 46 $434 0.42%
== ==== ==== == ==== ==== == ==== ====
</TABLE>

Non-performing assets are comprised of non-accrual loans, accruing loans
that are 90 days or more past due that are insured for credit loss, foreclosed
real estate (assets acquired in foreclosures), and restructured loans. Accrual
of interest is discontinued for loans that are 90 days or more delinquent, or
sooner if IGA believes, after considering economic and business conditions and
collection efforts, that

85
<PAGE>
the borrower's financial condition is such that collection of interest is
doubtful. Upon discontinuance of interest accrual, all unpaid accrued interest
is reversed.

The following table sets forth the amounts and categories of non-performing
assets at September 30, 2000 and December 31, 1999 and 1998 and June 30, 1998,
1997 and 1996. For the periods presented, IGA had no accruing loans 90 days or
more past due and had no renegotiated loans.

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
SEPTEMBER 30, ---------------------- ------------------------------------
2000 1999 1998 1998 1997 1996
------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family................... $ 73 $ 73 $ 16 $ 16 $ 0 $ 0
Home equity........................... 12 55 64 110 294 194
Automobile............................ 29 21 39 40 42 32
Credit cards.......................... 13 11 41 39 174 163
Signature loans....................... 2 2 10 21 296 149
Commercial............................ 0 32 0
Other................................. 10 0 0 0 0 12
----- ----- ----- ----- ----- -----
Total............................... 139 194 170 226 806 550

Foreclosed assets....................... 0 17 0 0 0 0

Total non-performing assets............. $ 139 $ 211 $ 170 $ 226 $ 806 $ 550
===== ===== ===== ===== ===== =====
Non-performing assets as a percent of
total loans........................... 0.11% 0.18% 0.16% 0.23% 0.80% 0.58%
===== ===== ===== ===== ===== =====
Non-performing assets as a percent of
total assets.......................... 0.06% 0.11% 0.10% 0.14% 0.49% 0.34%
===== ===== ===== ===== ===== =====
</TABLE>

ALLOWANCE FOR LOAN LOSSES

IGA makes a quarterly determination as to an appropriate provision against
earnings necessary to maintain an allowance for loan losses that is adequate for
probable and reasonably estimated losses. The amount charged to earnings is
based upon several factors including regular review of delinquent, classified
and non-accrual loans, large loans, and overall portfolio quality, regular
examination and review of the loan portfolio by regulatory authorities,
analytical review of loan charge-off experience, delinquency rates, other
relevant historical and peer statistical ratios and IGA's judgment with respect
to local and general economic conditions and their impact on the existing loan
portfolio.

Assessing the adequacy of the allowance for loan losses is inherently
subjective because it requires making material estimates, including the amount
and timing of future cash flows expected to be received on impaired loans, that
may be susceptible to significant change. In the opinion of management, the
allowance when taken as a whole, is adequate to absorb reasonable estimated loan
losses inherent in IGA's loan portfolio.

86
<PAGE>
The following table sets forth activity in IGA's allowance for loan losses
for the periods indicated.

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR ENDED
FOR THE NINE DECEMBER 31, JUNE 30,
MONTHS ENDED ------------------- ------------------------------
SEPTEMBER 30, 2000 1999 1998 1998 1997 1996
------------------ -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $1,284 $1,074 $ 948 $ 1,005 $ 558 $ 915

Charge-offs:
Real estate..................................... 13 15 27 36 0 0
Credit cards.................................... 90 216 137 479 208 260
Commercial...................................... 84 0 0 0 0 0
Other consumer loans............................ 108 212 90 757 282 561
------ ------ ------ ------- ------ ------
295 443 254 1,272 490 821
------ ------ ------ ------- ------ ------
Recoveries:
Real estate..................................... 7 0 0 0 0 0
Credit cards.................................... 36 52 0 0 0 0
Other consumer loans............................ 60 81 80 177 90 109
------ ------ ------ ------- ------ ------
103 133 80 177 90 109
------ ------ ------ ------- ------ ------
Net charge-offs................................... (192) (310) (174) (1,095) (400) (712)
Additions charged to operations................... 565 520 300 1,038 847 355
------ ------ ------ ------- ------ ------
Balance at end of period.......................... $1,657 $1,284 $1,074 $ 948 $1,005 $ 558
====== ====== ====== ======= ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period..... 0.16% 0.28% 0.17% 1.10% 0.40% 0.81%
Ratio of net charge-offs during the period to
average non-performing assets(1)................ 138.13% 146.92% 102.35% 212.21% 59.00% 138.93%
</TABLE>

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

(1) Charge-offs are greater than non-performing assets due to IGA's policy of
immediately charging off any loan that it determines to be uncollectable
whether or not it has reached 90 days past due at the time of this
determination. This policy results in a higher charge-off to non-performing
asset ratio because some loans, particularly credit cards and other consumer
loans, are charged off prior to their reclassification as a non-performing
asset.

The following table sets forth the distribution of IGA's allowance for loan
losses at September 30, 2000, and for the years ended December 31, 1999 and
1998, and June 30, 1998, and 1997.

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
2000
-------------------------------
PERCENT
OF LOANS
AMOUNT LOAN IN EACH
OF LOAN AMOUNTS CATEGORY
LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One-to-four family.......................................... $ 369 $ 49,219 38.17%
Commercial real estate...................................... 42 4,197 3.25%
Home equity................................................. 231 26,344 20.43%
Automobile.................................................. 275 28,326 21.97%
Credit card................................................. 180 9,692 7.52%
Unsecured loans............................................. 125 5,965 4.63%
Other....................................................... 25 2,074 1.61%
Commercial.................................................. 135 3,141 2.44%
Unallocated................................................. 275 0 0.00%
------ -------- ------
Total................................................... $1,657 $128,958 100.00%
====== ======== ======
</TABLE>

87
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------------------------- -------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
AMOUNT LOAN IN EACH AMOUNT LOAN IN EACH
OF LOAN AMOUNTS CATEGORY OF LOAN AMOUNTS CATEGORY
LOSS BY TO TOTAL LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family.................. $ 342 $ 43,434 37.66% $ 7 $ 40,114 38.57%
Commercial real estate.............. 30 2,996 2.60% 0 1,408 1.35%
Home equity......................... 193 24,172 20.96% 211 22,421 21.56%
Automobile.......................... 239 24,406 21.16% 36 18,746 18.03%
Credit cards........................ 196 10,955 9.50% 128 10,920 10.50%
Unsecured loans..................... 103 5,414 4.69% 276 6,329 6.09%
Other............................... 16 2,498 2.17% 0 3,658 3.52%
Commercial.......................... 121 1,469 1.27% 0 400 0.38%
Unallocated......................... 44 0 0.00% 416 0 0.00%
------ -------- ------ ------ -------- ------
Total........................... $1,284 $115,344 100.00% $1,074 $103,996 100.00%
====== ======== ====== ====== ======== ======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------------------------- -------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
AMOUNT LOAN IN EACH AMOUNT LOAN IN EACH
OF LOAN AMOUNTS CATEGORY OF LOAN AMOUNTS CATEGORY
LOSS BY TO TOTAL LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One-to four-family................... $ 11 $35,799 36.33% $ 5 $ 31,429 31.02%
Commercial real estate............... 0 0 1.35% 0 0 0.00%
Home equity.......................... 59 23,174 23.52% 198 24,154 23.84%
Automobile........................... 26 18,844 19.12% 34 20,470 20.20%
Credit cards......................... 69 10,269 10.42% 120 10,700 10.56%
Unsecured loans...................... 35 6,577 6.67% 258 9,307 9.19%
Other................................ 0 3,871 3.93% 0 5,264 5.20%
Commercial........................... 0 0 0.38% 0 0 0.00%
Unallocated.......................... 748 0 0.00% 390 -- 0.00%
---- ------- ------ ------ -------- ------
Total.............................. $948 $98,534 100.00% $1,005 $101,324 100.00%
==== ======= ====== ====== ======== ======
</TABLE>

INVESTMENT SECURITIES

The bank utilizes its investment securities portfolio to enhance earnings
and manage its liquidity and interest rate risk. For this reason, IGA's
investment securities portfolio is classified as both available for sale and
held to maturity.

The investment policy of IGA and classification of securities are
established by its board of directors. It is based on its asset and liability
management goals and is designed to provide for a portfolio of high quality
liquid investments that optimize interest income. All or a portion of IGA's

88
<PAGE>
investment securities portfolio may be utilized to collateralize borrowings from
the FHLB or repurchase agreements.

<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------------
CARRYING % OF
VALUE TOTAL
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Federal funds............................................... $ 4,527 7.90%
Securities held-to-maturity
Mid-Atlantic Corporate Federal Credit Union:
Daily share accounts.................................... 0 0.00%
Permanent capital account............................... 0 0.00%
Federal Home Loan Bank--IOD............................... 350 0.61%
Mortgage-backed securities................................ 3,117 5.44%
Municipal securities...................................... 4,728 8.25%
FHLB stock................................................ 1,000 1.75%
Securities available-for-sale
U.S. Government and agency obligations.................... 35,815 62.52%
Mortgage-backed securities................................ 7,745 13.52%
------- ------
Total investments and federal funds..................... $57,282 100.00%
======= ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal funds............................................. $ 6,565 10.69% $ 8,726 15.49%
Securities held-to-maturity
Mid-Atlantic Corporate Federal Credit Union:
Daily share accounts.................................. 0 0.00% 0 0.00%
Permanent capital account............................. 0 0.00% 0 0.00%
Federal Home Loan Bank--IOD........................... 47 0.08% 1,237 2.20%
Mortgage-backed securities............................ 4,314 7.03% 6,634 11.78%
Municipal securities.................................. 4,760 7.75% 4,902 8.70%
FHLB stock............................................ 834 1.36% 834 1.48%
Securities available-for-sale
U.S. Government and agency obligations.................. 36,023 58.67% 23,824 42.29%
Mortgage-backed securities.............................. 8,859 14.43% 10,176 18.06%
------- ------ ------- ------
Total investments and federal funds................... $61,402 100.00% $56,333 100.00%
======= ====== ======= ======
</TABLE>

89
<PAGE>

<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------
1998 1997
------------------- -------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal funds............................................. $ 5,134 9.99% $15,714 26.78%
Securities held-to-maturity
Mid-Atlantic Corporate Federal Credit Union:
Daily share accounts.................................. 1,994 3.88% 6,144 10.47%
Permanent capital account............................. 1,111 2.16% 1,587 2.70%
Federal Home Loan Bank--IOD
Mortgage-backed securities.............................. 9,570 18.61% 14,320 24.40%
Municipal securities....................................
FHLB stock..............................................
Securities available-for-sale
U.S. Government and agency obligations.................. 17,457 33.95% 7,199 12.27%
Mortgage-backed securities.............................. 16,150 31.41% 13,724 23.38%
------- ------ ------- ------
Total investments and federal funds................. $51,416 100.00% $58,688 100.00%
======= ====== ======= ======
</TABLE>

The following table sets forth the contractual maturities and weighted
average yield of IGA's investment securities at September 30, 2000 and
December 31, 1999.

<TABLE>
<CAPTION>
AT
SEPTEMBER 30,
2000
------------------------------------------
LESS THAN 1 TO 3 3 TO 10 OVER 10
1 YEAR YEARS YEARS YEARS TOTAL
--------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal funds and other investments............ $4,877 $ 0 $ 0 $ 0 $ 4,877
Securities held-to-maturity.................... 0 250 469 2,398 3,117
Securities available-for-sale.................. 1,080 7,502 31,743 7,963 48,288
------ ------ ------- ------- -------
Total.......................................... $5,957 $7,752 $32,212 $10,361 $56,282
====== ====== ======= ======= =======
Weighted average yield......................... 6.63% 5.96% 5.92% 5.91% 5.97%
====== ====== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT
DECEMBER 31,
1999
------------------------------------------
LESS THAN 1 TO 3 3 TO 10 OVER 10
1 YEAR YEARS YEARS YEARS TOTAL
--------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal funds and other investments............ $ 6,612 $ 0 $ 0 $ 0 $ 6,612
Securities held-to-maturity.................... 2,219 697 952 446 4,314
Securities available-for-sale.................. 6,341 8,902 34,013 386 49,642
------- ------ ------- ------- -------
Total.......................................... $15,172 $9,599 $34,965 $ 832 $60,568
======= ====== ======= ======= =======
Weighted average yield......................... 6.10% 6.09% 5.97% 6.17% 5.99%
======= ====== ======= ======= =======
</TABLE>

90
<PAGE>
On December 14, 1999, Jade invested $2,500,000 in a two year convertible
debenture issued by BankZip.com, a start-up internet banking company for
community banks. The debenture is convertible into 1 million shares of common
stock upon the earlier of an initial public offering by BankZip or the day prior
to the maturity date. JADE, together with three other financial institutions
participated in the initial capitalization of BankZip.com, an internet banking
company. The total capitalization of BankZip was $13.9 million and JADE
contributed $2.5 million in the form of a convertible note. On September 15,
2000, an involuntary bankruptcy petition was filed against
ZipFinancial.Com, Inc. by one of its vendors, the petition was subsequently
dismissed on October 23, 2000. On November 2, 2000, BankZip completed $410,000
in additional financing. The company has a $1.0 million line of credit from an
unrelated third party under which $300,000 has been advanced. The ability to
make further draws on the line of credit will be dependent on sales. The company
is also seeking $1.5 million to $2.0 million in additional financing. The
continued viability of the company is dependent on its ability to raise
additional capital. No assurances can be given that the company will be able to
raise additional capital. To reflect the uncertainty surrounding this
investment, as of September 30, 2000, JADE has established an equity account
valuation reserve pursuant to SFAS 115 of 50% or $1.25 million while BankZip
seeks additional financing. If the company is unable to raise additional
capital, Jade will be required to write off the entire investment and take a
charge of approximately $1.5 million after-tax (assuming a 40% effective tax
rate).

SOURCES OF FUNDS

IGA's sources of funds are deposits, payment of principal and interest on
loans, interest earned on or maturation of other investment securities and
short-term investments, and funds provided from operations.

IGA offers a variety of deposit accounts having a wide range of interest
rates and terms. IGA's deposits consist of savings accounts, money market
deposit accounts, NOW accounts and certificate of deposit accounts. IGA only
solicits deposits from its market area and does not use brokers to obtain
deposits. IGA primarily relies on competitive pricing policies, advertising and
customer service to attract and retain these deposits.

The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.

IGA attracts deposits from new customers primarily by offering a wide
variety of services and accounts, competitive interest rates and convenient
service hours. IGA has become more susceptible to short-term fluctuations in
deposit flow, as customers have become more interest rate conscious. IGA
endeavors to manage the pricing of its deposits in keeping with its
asset/liability management, liquidity and profitability objectives. Based on
IGA's experience, management believes that IGA's savings and checking accounts
are relatively stable sources of funds. However, IGA's ability to attract and
maintain certificates of deposit and the rates paid on these deposits has been
and will continue to be significantly affected by market conditions.

91
<PAGE>
The following table sets forth the deposit flows at IGA for the nine months
ended September 30, 2000, the twelve months ended December 31, 1999, the six
months ended December 31, 1998 and the twelve months ended June 30, 1998, 1997
and 1996.

<TABLE>
<CAPTION>
YEAR
NINE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED ENDED
SEPTEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
2000 1999 1998 1998
----------------- ------------ ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance..................... $156,124 $154,888 $143,934 $149,846
Net increase (decrease) before
interest credited................... 5,522 (4,144) 8,192 (11,387)
Interest credited..................... 4,291 5,380 2,762 5,475
-------- -------- -------- --------
Ending balance........................ $165,937 $156,124 $154,888 $143,934
======== ======== ======== ========
Net increase (decrease)............... $ 9,813 $ 1,236 $ 10,954 $ (5,912)
======== ======== ======== ========
</TABLE>

The following table sets forth the dollar amount of savings deposits in the
various type of deposit programs IGA offered at September 30, 2000,
December 31, 1999, and December 31, 1998.

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
2000
-------------------
PERCENT
AMOUNT OF TOTAL
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Transaction Accounts:
Savings accounts.......................................... $ 72,048 43.42%
NOW accounts.............................................. 10,893 6.56%
Money market accounts..................................... 11,979 7.22%
PECO 401k Employee Savings Plan........................... 0 0.00%
-------- ------
Total non-certificates.................................. 94,920 57.20%
======== ======
Certificates:
3.00 - 3.99%.............................................. 0 0.00%
4.00 - 4.99%.............................................. 7,192 4.33%
5.00 - 5.99%.............................................. 23,878 14.39%
6.00 - 6.99%.............................................. 36,186 21.81%
7.00 - 7.99%.............................................. 3,761 2.27%
-------- ------
Total certificates...................................... 71,017 42.80%
======== ======
Total deposits............................................ $165,937 100.00%
======== ======
</TABLE>

92
<PAGE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1999 1998
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts...................................... $ 68,615 43.95% $ 70,292 45.38%
NOW accounts.......................................... 9,600 6.15% 10,526 6.80%
Money market accounts................................. 9,757 6.25% 9,265 5.98%
PECO 401k Employee Savings Plan....................... 0 0.00% 0 0.00%
-------- ------ -------- ------

Total non-certificates.............................. 87,972 56.35% 90,073 58.15%
======== ====== ======== ======
Certificates:
3.00 - 3.99%.......................................... 693 0.44% 1,622 1.05%
4.00 - 4.99%.......................................... 29,777 19.07% 11,171 7.21%
5.00 - 5.99%.......................................... 19,691 12.61% 41,900 27.05%
6.00 - 6.99%.......................................... 16,492 10.56% 8,608 5.56%
7.00 - 7.99%.......................................... 1,499 0.96% 1,514 0.98%
-------- ------ -------- ------
Total certificates.................................... 68,152 43.65% 64,815 41.85%
======== ====== ======== ======
Total deposits........................................ $156,124 100.00% $154,888 100.00%
======== ====== ======== ======
</TABLE>

The following table shows rate and maturity information for IGA's
certificates of deposit at September 30, 2000 and December 31, 1999.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
----------------------------------------------------------------
LESS THAN 1 TO 2 2 TO 3 3 TO 4 4 TO 5
1 YEAR YEARS YEARS YEARS YEARS TOTAL
--------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%.............................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
4.00 - 4.99%.............................. $ 7,065 $ 127 $ 0 $ 0 $ 0 7,192
5.00 - 5.99%.............................. 20,906 1,742 470 656 104 23,878
6.00 - 6.99%.............................. 28,901 4,121 2,126 0 1,038 36,186
7.00 - 7.99%.............................. 144 0 89 21 3,507 3,761
------- ------ ------ ----- ------ -------
Total certificates of deposit............. $57,016 $5,990 $2,685 $ 677 $4,649 $71,017
======= ====== ====== ===== ====== =======
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------------------------------------------
LESS THAN 1 TO 2 2 TO 3 3 TO 4 4 TO 5
1 YEAR YEARS YEARS YEARS YEARS TOTAL
--------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%.............................. 693 $ 0 $ 0 $ 0 $0 $ 1,622
4.00 - 4.99%.............................. 27,669 $23,090 $ 18 $ 0 $0 29,777
5.00 - 5.99%.............................. 16,610 912 1,133 1,036 0 19,691
6.00 - 6.99%.............................. 12,012 2,982 1,498 0 0 16,492
7.00 - 7.99%.............................. 1,499 0 0 1,499
------- ------- ------ ------ -- -------
Total certificates of deposit............. $58,483 $ 5,984 $2,649 $1,036 $0 $68,152
======= ======= ====== ====== == =======
</TABLE>

93
<PAGE>
The following table presents the amount of our certificates of deposit of
$100,000 or more by the time remaining until maturity at September 30, 2000 and
December 31, 1999.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
---------------------
MATURITY AMOUNT
-------- --------
(IN THOUSANDS)
<S> <C>
Three months or less............................... $ 3,574
3 to 6 months...................................... 2,366
6 to 12 months..................................... 2,319
Over 12 months..................................... 1,353
-------
Total.............................................. $ 9,612
=======
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
MATURITY AMOUNT
-------- --------
(IN THOUSANDS)
<S> <C>
Three months or less............................... $ 3,565
3 to 6 months...................................... 2,416
6 to 12 months..................................... 3,418
Over 12 months..................................... 602
-------
Total.............................................. $10,001
=======
</TABLE>

BORROWINGS

IGA is a member of the Federal Home Loan Bank of Pittsburgh. As a member of
the Federal Home Loan Bank of Pittsburgh, IGA is eligible to obtain advances
from the Federal Home Loan Bank of Pittsburgh, provided certain standards
related to creditworthiness have been met. Such advances are made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. Federal Home Loan Bank of Pittsburgh advances are generally
available to meet seasonal demand and other withdrawals of deposit accounts and
to expand lending, as well as to aid the efforts of member to establish better
asset and liability management through the extension of maturities of
liabilities. At September 30, 2000 and at December 31, 1999, FHLB borrowings
totaled $20.0 million and $15.0 million, respectively. For all previous
reporting periods, IGA had no borrowed funds.

CAPITAL ADEQUACY

IGA is required to maintain minimum ratios of Tier I and risk based capital
to total "risk weighted" assets and a minimum core capital ratio, as defined by
the OTS. At December 31, 1999, IGA was required to have minimum Tier I and risk
based capital ratios of 4.0% and 8.0%, respectively, and a minimum core capital
ratio of 4.0%. IGA's actual Tier I and risked based ratios at September 30, 2000
were 16.84% and 18.07%, respectively, and the bank's core capital ratio was
10.42%. These ratios exceed the requirements for classification as a
"well-capitalized" institution, the industry's highest

94
<PAGE>
capital category. Following are IGA's capital ratios at September 30, 2000 and
December 31, 1999 and 1998:

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTVE ACTION
PURPOSES PROVISIONS
ACTUAL CAPITAL ------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 2000:
Tangible capital
(to tangible assets)..................... $22,351 10.42% $ 3,217 1.5% N/A N/A
Core capital
(to adjusted tangible assets)............ 22,351 10.42% 6,435 3.0% 10,725 5.0%
Tier I capital
(to risk-weighted assets)................ 22,351 16.84% 8,850 4.0% 7,966 6.0
Risk-based capital
(to risk-weighted assets)................ 23,985 18.07% 10,622 8.0% 13,278 10.0

As of December 31, 1999:
Tangible capital
(to tangible assets)..................... $22,691 11.4% $ 2,668 1.5% N/A N/A
Core capital
(to adjusted tangible assets)............ 22,691 11.4 5,336 3.0 8,893 5.0%
Tier I capital
(to risk-weighted assets)................ 22,691 19.26 7,964 4.0 6,010 6.0
Risk-based capital
(to risk-weighted assets)................ 23,975 20.35 9,425 8.0 10,117 10.0

As of December 31, 1998:
Tangible capital
(to tangible assets)..................... 15,365 8.9% 2,567 1.5 N/A N/A
Core capital
(to adjusted tangible assets)............ 15,365 8.9 5,135 3.0 8,559 5.0
Tier I capital
(to risk-weighted assets)................ 15,365 15.7 3,911 4.0 5,867 6.0
Risk-based capital
(to risk-weighted assets)................ 16,439 16.8 7,822 8.0 9,778 10.0
</TABLE>

95
<PAGE>
IMPACT OF NEW FINANCIAL ACCOUNTING STANDARDS

FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME. In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130. SFAS No. 130 requires Jade to classify
items of other comprehensive income by their nature in the financial statements
and display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the statement of equity. SFAS No. 130 was effective for fiscal years beginning
after December 15, 1997. The adoption of this standard did not have a material
impact on Jade's consolidated financial statements.

FASB STATEMENT ON DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. In
February 1997, the FASB issued SFAS No. 129. SFAS No. 129 incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion-1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. FASB No. 129
was effective for financial statements for periods ending after December 15,
1997. SFAS No. 129 was adopted by Jade in the initial period following
consummation of the public offering.

FASB STATEMENT ON DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. In June 1997, the FASB issued SFAS No. 131. SFAS No. 131
established standards for the way public enterprises are to report information
about operating segments in annual financial statements and required those
enterprises to report selected information about operating segments in interim
financial reports. SFAS No. 131 was effective for financial statements for
periods beginning after December 15, 1997. The adoption of this standard did not
have a material impact on Jade's consolidated financial statements.

FASB STATEMENT ON EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POST-RETIREMENT BENEFITS. In February 1998, the FASB issued SFAS No. 132. SFAS
No. 132 revised employers' disclosures about pension and other post-retirement
benefit plans. SFAS No. 132 did not change the measurement or recognition of
those plans and was effective for fiscal years beginning after December 15,
1997. The adoption of this standard did not have a material impact on Jade's
consolidated financial statements.

FASB STATEMENT ON ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. In June 1998, the FASB issued SFAS No. 133. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts
(collectively referred to as "derivatives") and for hedging activities. SFAS
No. 133 required that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (i) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (ii) a hedge
of the exposure of variable cash flows of a forecasted transaction, or (iii) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. SFAS No. 133 was
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Jade has no activity subject to SFAS 133.

FASB STATEMENT ON ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER
THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING
ENTERPRISE. In October 1998, the FASB issued

96
<PAGE>
SFAS No. 134 which changed the way mortgage banking firms account for certain
securities and other interests they retain after securitizing mortgage loans
that were held for sale. Under previous practice, a bank that securitized credit
card receivables had a choice in how it classified any retained securities based
on its intent and ability to hold or sell those investments. SFAS No. 134 gave
mortgage banking firms the opportunity to apply the same intent-based accounting
that is applied by other companies. SFAS No. 134 was effective for the fiscal
quarter beginning after December 15, 1998. The adoption of SFAS No. 134 has not
had a material impact on Jade's financial condition or results of operations.

DESCRIPTION OF PSB CAPITAL SECURITIES

The authorized capital stock of PSB consists of 15,000,000 shares of common
stock, no par value, and 5,000,000 shares of preferred stock, no par value. As
of September 30, 2000, there were 4,455,007 shares of PSB common stock issued
and outstanding, no shares of preferred stock issued and outstanding and 87,500
shares held by PSB as treasury stock. There are no other shares of capital stock
of PSB, issued or outstanding. PSB has 246,089 options outstanding under PSB's
stock option plans. There are no other options, warrants, or rights issued, or
outstanding.

COMMON STOCK

The holders of PSB common stock are entitled to share ratably in dividends
when and if declared by the PSB Board of Directors from funds legally available
therefor. Declaration and payment of cash dividends by PSB depends upon dividend
payments by First Penn Bank, which is PSB's primary source of revenue and cash
flow. As of December 31, 2000, PSB has not paid a dividend to its shareholders.
PSB is a legal entity separate and distinct from its subsidiaries. Accordingly,
the right of PSB, and consequently the right of creditors and shareholders of
PSB, to participate in any distribution of the assets or earnings of any
subsidiary is necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of PSB in its capacity as a
creditor may be recognized.

Presently, the holders of shares of PSB common stock possess exclusive
voting rights in PSB. Each holder of shares of PSB common stock is entitled to
one vote for each share held on matters upon which shareholders have the right
to vote. PSB shareholders are not entitled to cumulate votes in the election of
directors.

The PSB Board of Directors is divided into three classes, each serving
three-year terms, so that approximately one-third of the directors of PSB are
elected at each annual meeting of shareholders of PSB. Classification of the PSB
Board of Directors has the effect of decreasing the number of directors that
could be elected in a single year by any person who seeks to elect its designees
to a majority of the seats on the PSB Board of Directors and thereby could
impede a change in control of PSB.

The holders of PSB common stock have no preemptive rights to acquire any
additional shares of PSB. In addition, PSB common stock is not subject to
redemption.

In the event of liquidation, dissolution, or winding-up of PSB, whether
voluntary or involuntary, holders of PSB common stock will be entitled to share
ratably in any of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after adequate
provision is made therefor).

SPECIAL CHARTER AND PENNSYLVANIA CORPORATE LAW PROVISIONS

PSB's Articles of Incorporation and Restated Bylaws contain provisions that
have the effect of deterring or discouraging, among other things, a
non-negotiated tender or exchange offer for PSB stock, a proxy contest for
control of PSB, the assumption of control of PSB by a holder of a large block of
PSB stock and the removal of PSB's management. These provisions:

(1) divide the PSB Board of Directors into three classes serving
staggered three-year terms;

97
<PAGE>
(2) require a supermajority vote of directors (80% until January 1, 2006
and 66 2/3% thereafter) to increase the size of any class of the Board of
Directors;

(3) require a supermajority vote of directors and shareholders (80% of
directors and 80% of shareholders until January 1, 2006 and 66 2/3% of
directors and a majority of shareholders thereafter) to approve certain
mergers, asset sales and similar transactions if the transaction is not
approved, in advance, unanimously by the PSB Board of Directors;

(4) prohibit shareholders' actions without a meeting;

(5) require any person or group who or which becomes the beneficial
owner of 25% or more of the outstanding shares of PSB common stock to offer
to purchase all other outstanding shares of such common stock for cash at a
price equal to the highest price paid by that person or group for any such
shares of common stock or, if the Board of Directors so elects, at fair
market value determined by an investment banking firm selected by the Board
of Directors;

(6) require a supermajority vote of shareholders and directors to
approve the repeal or amendment of certain provisions of the Articles of
Incorporation and Restated Bylaws;

(7) eliminate cumulative voting in elections of directors;

(9) require advance notice of nominations for the election of directors
and the presentation of shareholder proposals at meetings of shareholders.

The Pennsylvania Business Corporation Law also contains certain provisions
applicable to PSB that may have the effect of impeding a change in control of
PSB. These provisions, among other things:

(1) prohibit for five years, subject to certain exceptions, a "business
combination" (which includes a merger or consolidation of the corporation or
a sale, lease, or exchange of assets) with a shareholder or group of
shareholders beneficially owning 20% or more of a public corporation's
voting power;

(2) require disgorgement by any person or group who or which has
acquired or publicly disclosed an intent to acquire 20% or more of a public
corporation's voting power of any profit realized from the sale of any
shares acquired within specified time periods of such acquisition or
disclosure if the shares are sold within eighteen months thereafter; and

(3) generally prohibit a person or group who or which exceeds certain
stock ownership thresholds (20%, 33 1/3% and 50%) for the first time from
voting the "control shares" (I.E., the shares owned in excess of the
applicable threshold) unless voting rights are restored by a vote of
disinterested shareholders.

In 1990, Pennsylvania adopted legislation further amending the Pennsylvania
Business Corporation Law. This legislation generally:

(1) expands the factors and groups (including shareholders) that the PSB
Board of Directors can consider in determining whether a certain action is
in the best interests of the corporation;

(2) provides that the PSB Board of Directors need not consider the
interests of any particular group as dominant or controlling;

(3) provides that PSB's directors, in order to satisfy the presumption
that they have acted in the best interests of the corporation, need not
satisfy any greater obligation or higher burden of proof with respect to
actions relating to an acquisition or potential acquisition of control;

(4) provides that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed to satisfy
the directors' standard, unless it is proven by clear

98
<PAGE>
and convincing evidence that the directors did not assent to such action in
good faith after reasonable investigation; and

(5) provides that the fiduciary duty of PSB's directors is solely to the
corporation and may be enforced by the corporation or by a shareholder in a
derivative action, but not by a shareholder directly.

The 1990 amendments to the Pennsylvania Business Corporation Law explicitly
provide that the fiduciary duty of directors shall not be deemed to require
directors:

(1) to redeem any rights under, or to modify or render inapplicable, any
shareholder rights plan;

(2) to render inapplicable, or make determinations under, provisions of
the Pennsylvania Business Corporation Law relating to control transactions,
business combinations, control-share acquisitions, or disgorgement by
certain controlling shareholders following attempts to acquire control; or

(3) to act as the board of directors, a committee of the board or an
individual director solely because of the effect such action might have on
an acquisition or potential or proposed acquisition of control of the
corporation or the consideration that might be offered or paid to
shareholders in such an acquisition.

One of the effects of the 1990 fiduciary duty statutory provisions may be to
make it more difficult for a shareholder to successfully challenge the actions
of the PSB Board of Directors in a potential change in control context.
Pennsylvania case law appears to provide that the fiduciary duty standard under
the 1990 amendments to the Pennsylvania Business Corporation Law grants
directors the statutory authority to reject or refuse to consider any potential
or proposed acquisition of the corporation.

COMPARISON OF SHAREHOLDER RIGHTS

If the merger is completed, Jade's ESOP will become a shareholder of PSB,
and its rights as a shareholder will be determined by the Pennsylvania Business
Corporation Law of 1988, as amended, and by PSB's Articles of Incorporation and
Bylaws. There are no material differences between the rights of holders of PSB
common stock and the rights of holders of Jade common stock.

ADJOURNMENT

In the event that we do not have a quorum or sufficient votes to approve the
merger agreement at the special meeting, we intend to adjourn the meeting to
further solicit proxies. We can only use proxies we have received at the time of
the special meeting to vote for adjournment, if necessary, by submitting the
question of adjournment to you as a separate matter for your consideration.

The Boards of Directors of Jade recommends that shareholders vote their
proxies in favor of the adjournment proposal so that their proxies may be used
to vote for adjournment if it becomes necessary. Properly executed proxies will
be voted in favor of the adjournment proposal unless the proxies indicate
otherwise. If it is necessary to adjourn either of the special meetings, we will
not give notice of the time and place of the adjourned meeting to shareholders
other than an announcement at the special meeting.

99
<PAGE>
EXPERTS

The consolidated financial statements of PSB, as of December 31, 1999, 1998
and 1997, appearing elsewhere in this proxy statement/prospectus have been
audited by Stockton Bates & Company, independent auditors. Such consolidated
financial statements are included in reliance upon such reports given upon the
authority of Stockton Bates & Company as experts in accounting and auditing.

The consolidated financial statements of Jade as of December 31, 1999 and
1998, appearing elsewhere in this proxy statement/prospectus, have been included
in reliance upon the report of Stockton Bates & Company, independent auditors.
Such consolidated financial statements are included in reliance upon such
reports given upon the authority of Stockton Bates & Company as experts in
accounting and auditing.

LEGAL MATTERS

The law firm of Dilworth Paxson LLC., will pass on the validity of the PSB
common stock issued in the merger and certain other legal matters relating to
the merger for PSB.

OTHER MATTERS

As of the date of this proxy statement/prospectus, the Board of Directors of
Jade knew of no matters shareholders may present for consideration at the
special meeting other than as set forth in this proxy statement/prospectus.
However, if a shareholder presents any other matter at the special meetings, the
forms of proxy confer discretionary authority to the individuals named as proxy
holders to vote the shares represented by the proxy on these matters.

SHAREHOLDER PROPOSALS

If necessary, Jade's 2001 Annual Meeting of Shareholders will be held on or
about May 5, 2001.

Jade must receive any shareholder proposal for the 2001 Annual Meeting of
Shareholders at its principal offices not later than February 28, 2001, for it
to be considered for inclusion in Jade's proxy materials for that annual
meeting. Jade will not include in its proxy materials a shareholder proposal
submitted after February 28, 2001, or which does not otherwise meet the
requirements of the applicable regulations relating to shareholder proposals,
but the shareholder may nonetheless present the proposal at the annual meeting
of shareholders in 2001. If the shareholder intending to present a proposal has
not provided Jade notice of the matter on or before February 7, 2000, the
proxyholders of the Board of Directors would have discretionary authority to
vote on the proposal at the Meeting.

WHERE YOU CAN FIND MORE INFORMATION

PSB and Jade are subject to the informational requirements of the Securities
Exchange Act of 1934 and files reports, proxy statements and other information
with the SEC. You may read and copy any reports, proxy statements and other
information PSB and Jade file at the SEC's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commission's Regional Offices in New York (7 World Trade Center, Suite 1300, New
York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661). You may call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. PSB and Jade's SEC filings
are also available on the Securities and Exchange Commission's Internet site at
http://www.sec.gov.

PSB filed a Registration Statement on Form S-4 (No. ) to register with
the Securities and Exchange Commission the PSB common stock issuable to the IGA
ESOP in the merger. This proxy statement/prospectus is a part of that
Registration Statement and constitutes a prospectus of PSB in addition to being
a proxy statement of Jade for its special meeting. As allowed by SEC rules, this
proxy

100
<PAGE>
statement/prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.

Such additional information may be obtained from the Commission's principal
office in Washington, D.C. or web site. Statements contained in this proxy
statement or in any document incorporated by reference or supplied herewith as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.

PSB has supplied all information contained or incorporated by reference in
this proxy statement/ prospectus relating to PSB. Jade has supplied all
information contained in this proxy statement/ prospectus relating to Jade.

101
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS

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

PSB BANCORP, INC.

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PSB Independent Auditors Report............................. F-2

PSB Consolidated Statement of Financial Condition for the
years ended December 31, 1999 and 1998.................... F-4

PSB Consolidated Statement of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-5

PSB Consolidated Statement of Stockholder's Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-6

PSB Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-7

PSB Notes to Financial Statements........................... F-10

----------------------------------------------------------------------
JADE FINANCIAL CORP.

Jade Independent Auditors Report............................ F-52

Jade Consolidated Statement of Financial Condition for the
years ended December 31, 1999 and 1998.................... F-54

Jade Consolidated Statement of Income for the year ended
December 31, 1999, the six month period ended
December 31, 1998, and the year ended June 30, 1998....... F-55

Jade Consolidated Statement of Stockholder Equity for the
years ended December 31, 1999 and 1998 and June 30, 1998
and 1997.................................................. F-56

Jade Consolidated Statement of Cash Flows for the years
ended December 31, 1999 and June 30, 1998 and for the six
month period ended December 31, 1998...................... F-57

Jade Notes to Financial Statements.......................... F-59
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
PSB Bancorp, Inc.
Philadelphia, Pennsylvania

We have audited the accompanying consolidated statement of financial
condition of PSB Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998
and the related consolidated statements of income, stockholders' equity, cash
flows and comprehensive income for each of the three years ended December 31,
1999, 1998 and 1997. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. As
discussed in Note 1, the consolidated financial statements of PSB Bancorp, Inc.
and Subsidiaries for December 31, 1998 and 1997 were restated for the 1999
pooling of interest transaction with First Bank of Philadelphia. We did not
audit the separate financial statements of First Bank of Philadelphia for 1998
and 1997, which report total assets constituting 28% of the consolidated total
assets and total interest income constitutes 34% of the consolidated totaled
interest income for December 31, 1998 and total interest income constitutes 36%
of the consolidated totaled interest income for December 31, 1997. Those
statements were audited by other auditors whose report dated January 29, 1999
and January 28, 1998 have been furnished to us, and our opinion insofar as it
relates to the amounts included for First Bank of Philadelphia is based solely
on the report of the other auditors.

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 consolidated 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 condition of PSB
Bancorp, Inc. and Subsidiary at December 31, 1999 and 1998, the results of their
operations and their cash flows for each of the three years ended December 31,
1999, 1998 and 1997 in conformity with generally accepted accounting principles.

Stockton Bates, LLP
Certified Public Accountants

Philadelphia, Pennsylvania
March 17, 2000

F-2
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

DECEMBER 31, 1999 AND 1998

F-3
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks................................... $ 7,921 $ 2,126
Interest bearing deposits in other financial
institutions............................................ 9,354 45,401
INVESTMENTS:
Investment securities available-for-sale, at fair value... 21,890 18,038
Mortgage-backed securities available-for-sale, at fair
value................................................... 45,951 22,074
Investment securities held-to-maturity (fair value of
$3,779,400 and $4,005,600).............................. 4,000 3,996
Mortgage-backed securities held-to-maturity (fair value of
$1,031,525 and $1,404,753).............................. 1,006 1,327
INVESTMENTS (Other) (See Note 21)........................... 4,545 0
LOANS RECEIVABLE (Net)...................................... 167,787 121,240
LOANS HELD FOR SALE......................................... 8,221 6,938
REAL ESTATE:
Acquired in settlement of loans........................... 1,047 1,277
OFFICE PROPERTIES AND EQUIPMENT, (Net of Accumulated
Depreciation)............................................. 1,692 1,619
ACCRUED INTEREST RECEIVABLE................................. 2,446 1,702
PREPAID EXPENSES AND OTHER ASSETS........................... 3,748 1,748
-------- --------
TOTAL ASSETS............................................ $279,608 $227,486
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing.................................... $ 14,720 $ 20,830
Interest bearing........................................ 178,490 165,920
-------- --------
193,210 186,750
-------- --------
Securities purchased under agreements to resell........... 15,640 2,495
Advances from Federal Home Loan Bank...................... 34,000
Income taxes payable...................................... 45 465
Accrued interest payable on savings accounts.............. 515 502
Employee Stock Ownership Plan debt........................ 234
Accrued expenses and other liabilities.................... 151 910
-------- --------
Total liabilities....................................... 243,561 191,356
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized;
4,538,483 shares issued and outstanding for
December 31, 1999 and 1998
Additional paid-in capital................................ 40,873 40,790
Employee Stock Ownership Plan............................. (1,359) (1,443)
Retained earnings......................................... (1,136) (3,220)
Accumulated other comprehensive income.................... (2,331) 3
-------- --------
Total stockholders' equity.............................. 36,047 36,130
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $279,608 $227,486
======== ========
</TABLE>

(See Accompanying Notes)

F-4
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest on loans......................................... $13,457 $11,326 $10,087
Investment securities..................................... 4,165 1,560 2,025
Interest-earning deposits................................. 939 2,340 1,725
------- ------- -------
Total interest income................................... 18,561 15,226 13,837
------- ------- -------
INTEREST EXPENSE:
Interest on deposits...................................... 8,270 7,775 7,345
Interest on borrowings.................................... 949
Interest--other........................................... 0 25 31
------- ------- -------
Total interest expense.................................. 9,219 7,800 7,376
------- ------- -------
Net interest income..................................... 9,342 7,426 6,461
Provision for loan losses................................. 200 283 60
------- ------- -------
Net interest income after provision for loan losses..... 9,142 7,143 6,401
------- ------- -------
NONINTEREST INCOME.......................................... 913 1,373 1,168

NONINTEREST EXPENSE:
Compensation and employee benefits........................ 3,601 3,252 3,041
Premises and occupancy costs.............................. 1,290 1,260 1,308
Federal insurance premiums................................ 87 84 88
Data processing........................................... 237 211 191
Advertising............................................... 140 111 81
Directors fees............................................ 215 224 232
General insurance......................................... 157 90 78
Professional fees......................................... 1,064 95 120
Other..................................................... 1,407 1,183 973
------- ------- -------
Total noninterest expense............................... 8,198 6,510 6,112
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAX...................... 1,857 2,006 1,457
Provision for federal and state income tax:
Current................................................. 460 465 308
Deferred................................................ (687) (123) 37
------- ------- -------
Total income tax provision............................ (227) 342 345
------- ------- -------
NET INCOME.................................................. $ 2,084 $ 1,664 $ 1,112
======= ======= =======
BASIC EARNINGS PER SHARE.................................... $ .48 $ .38 $ .49
======= ======= =======
DILUTED EARNINGS PER SHARE.................................. $ .40 $ .32 $ .38
======= ======= =======
</TABLE>

(See Accompanying Notes)

F-5
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
EMPLOYEE ACCUMULATED
ADDITIONAL STOCK RETAINED OTHER RETAINED
COMMON PAID-IN OWNERSHIP EARNINGS COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL PLAN (DEFICIT) INCOME TOTAL INCOME LOSS
-------- ---------- ---------- --------- -------------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.......... $ 1,614 $ 23,806 $ (356) $(6,243) $ (70) $18,751 $ --
Net income for the year ended
December 31, 1997............... 1,112 -- 1,112 1,112
Employee Stock Ownership Plan:
Shares released................. -- -- 61 -- -- 61 --
Other comprehensive income, net of
tax:
Change in unrealized loss on
investment and mortgage-backed
securities
available-for-sale............ -- -- -- -- 60 60 60
------- -------- ------- ------- ------- ------- -------
$ 1,172
=======
BALANCE, DECEMBER 31, 1997.......... 1,614 23,806 (295) (5,131) (10) 19,984 --
------- -------- ------- ------- ------- ------- -------
Net income for the year ended
December 31, 1998............... 1,664 1,664 $ 1,664
Employee Stock Ownership Plan:
Shares released................. -- (19) 141 -- -- 122 --
Other comprehensive income (loss),
net of tax:
Change in unrealized loss on
investment and mortgage-backed
securities
available-for-sale............ -- -- -- -- 13 13 13
Cash of PSB Mutual Holding Company
from merger of PSB Mutual
Holding Company and Pennsylvania
Savings Bank upon completion of
Conversion and Reorganization... -- -- -- 247 -- 247 --
Issuance of common stock to
Employee Stock Ownership Plan
upon completion of Conversion
and Reorganization.............. -- -- (1,289) -- -- (1,289) --
Exchange of Pennsylvania Savings
Bank common stock for PSB
Bancorp, Inc. common stock upon
completion of Conversion and
Reorganization.................. (1,195) 1,195 -- -- -- -- --
Issuance of common stock upon
completion of Conversion and
Reorganization.................. -- 16,107 -- -- -- 16,107 --
Expenses relating to stock
offering........................ -- (718) -- -- -- (718) --
------- -------- ------- ------- ------- ------- -------
$ 1,677
=======
BALANCE, DECEMBER 31, 1998.......... 419 40,371 (1,443) (3,220) 3 36,130 --
------- -------- ------- ------- ------- ------- -------
Net income for the year ended
December 31, 1999............... 2,084 -- 2,084 $ 2,084
Issuance of common stock to
Management Recognition Plan..... 21,390 232,615 -- -- -- 254,005 --
Employee Stock Ownership Plan:
Shares released................. -- 83 84 -- -- 167 --
Exchange of common stock from
merger of Pennsylvania Savings
Bank and First Bank of
Philadelphia.................... (419) 419 -- -- -- -- --
Other comprehensive income, net of
tax:
Change in unrealized loss on
investment and mortgage-backed
securities
available-for-sale............ -- -- -- -- (2,334) (2,334) (2,334)
------- -------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1999.......... $ -0- $ 40,873 $(1,359) $(1,136) $(2,331) $36,047 $ (250)
======= ======== ======= ======= ======= ======= =======
</TABLE>

(See Accompanying Notes)

F-6
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,084 $ 1,664 $ 1,112
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of premium/discount on mortgage-backed
securities............................................ 51 (7) 2
Depreciation and amortization........................... 277 348 388
Write-down and expenses of real estate owned............ 234 95 8
Gain (loss) on sale of real estate...................... 20 (37) (31)
Gain on sale of property and equipment.................. -- 9 --
Gain (loss) on sale of loans............................ 372 (863) (556)
Provision for losses on loans........................... 200 283 60
Deferred taxes.......................................... (564) 37 37
Compensation expense--Employee Stock Ownership Plan..... 84 61 --
Change in assets and liabilities:
(Increase) decrease in loans held-for-sale............ (1,283) 500 (1,421)
Increase in accrued interest receivable............... (744) (11) (68)
Increase in prepaid expenses.......................... (220) (25) (366)
Increase in prepaid corporate taxes................... (336) (3) (54)
Increase (decrease) in corporate taxes payable........ (420) 157 166
Increase (decrease) in accrued pension cost........... -- (7) (3)
Increase in accrued interest payable.................. 14 20 70
Increase (decrease) in accrued expenses............... (660) (72) 271
-------- -------- --------
Total adjustments....................................... (2,975) 485 (1,497)
-------- -------- --------
Net cash provided by (used in) operating
activities........................................ (891) 2,149 (385)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale..... (9,716) (11,544) (9,042)
Purchase of mortgage-backed securities,
available-for-sale...................................... (29,691) (20,308) --
Mortgage-backed security maturities and principal
repayments.............................................. 3,677 1,980 991
Maturities of investment securities, available-for-sale... 1,000 8,720 1,000
Maturities of investment securities, held-to-maturity..... -- 16,500 16,156
Net change in Federal Home Loan Bank stock................ (878) (12) (26)
Increase in total loans receivable, net................... (46,747) (11,804) (11,523)
Proceeds from sale of real estate owned net of
improvements............................................ 674 1,404 1,130
Property acquired through loan foreclosure action......... (698) -- --
(Increase) decrease in capitalized conversion costs....... -- 155 (155)
Proceeds from sale of property and equipment.............. -- 220 --
Capital expenditures...................................... (350) (219) (280)
-------- -------- --------
Net cash used in investing activities............... (82,729) (26,908) (13,454)
-------- -------- --------
</TABLE>

F-7
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net................................. $ 6,402 $ 16,603 $ 5,778
Change in securities purchased under agreements to
resell.................................................. 13,145 (347) 1,305
Net proceeds from stock offering.......................... -- 14,101 --
Payment of ESOP loan...................................... (234) -- --
Proceeds received from merger with PSB Mutual Holding
Company................................................. -- 247 --
Proceeds from borrowed funds.............................. 34,000 -- --
Change in advances for borrowers' taxes and insurance..... 55 97 69
-------- -------- --------
Net cash provided by financing activities........... 53,368 30,701 7,115
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (30,252) 5,942 (6,724)
Cash and cash equivalents, beginning of year.............. 47,527 41,585 48,309
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 17,275 $ 47,527 $ 41,585
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowings..................... $ 8,405 $ 7,780 $ 7,275
======== ======== ========
Income taxes............................................ $ 33 $ 400 $ 280
======== ======== ========
Noncash activities:
Loans transferred to real estate owned.................. $ 699 $ 491 $ 697
======== ======== ========
Unrealized gain (loss) on investment mortgage-backed
securities available-for-sale, net of taxes............. $ (2,334) $ 13 $ 60
======== ======== ========
</TABLE>

(See Accompanying Notes)

F-8
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income.................................................. $ 2,084 $1,664 $1,112

Other Comprehensive Income, net of tax:
Unrealized gain (loss), investments available-for-sale.... (2,334) 13 60
------- ------ ------
Other comprehensive income.................................. (2,334) 13 60
------- ------ ------
Comprehensive income........................................ $ (250) $1,677 $1,172
======= ====== ======
</TABLE>

(See Accompanying Notes)

F-9
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1. DESCRIPTION OF ORGANIZATION:

PSB Bancorp, Inc. (the "Holding Company") was organized as Pennsylvania
business corporation on October 3, 1997 at the direction of Pennsylvania Savings
Bank (the "Bank") for the purposes of becoming a holding company for the Bank
upon the Conversion and Reorganization. The Holding Company is subject to
regulation by the Securities and Exchange Commission and the Federal Reserve,
and its principal business is the ownership of the Bank. In the future, the
Holding Company may acquire or organize other operating subsidiaries, although
there are no current plans, arrangements or understandings, written or oral, to
do so.

Effective July 17, 1998, Pennsylvania Savings Bank (the "Bank") and PSB
Mutual Holding Company ("MHC") completed the Plan of Conversion from Mutual
Holding Company to Stock Holding Company. Under the Plan of Conversion, the
newly formed holding company, PSB Bancorp, Inc. (the "Holding Company") issued
1,610,732 shares of common stock, no par value, at a price of $10.00 per share
in a direct and syndicated offering. Furthermore, based on an independent
appraisal, existing stockholders of Pennsylvania Savings Bank, other than the
MHC, exchanged each of their shares (579,390 shares) for 2.572374 shares of PSB
Bancorp, Inc. and the Mutual Holding Company merged with and into the Bank. The
common stock of PSB Bancorp, Inc. began trading on the Nasdaq National Market
under the symbol "PSBI" on July 17, 1998. Effective October 12, 1999, there was
a change in charter from a Savings Bank to a Commercial Bank and subsequent name
change for Pennsylvania Savings Bank, to First Penn Bank resulting from the
acquisition of First Bank of Philadelphia.

First Penn Bank, through its seven branch offices, makes residential,
construction, commercial, student and consumer loans to customers and provides
community banking services principally within, Southeastern Pennsylvania and
Southern New Jersey. Transnational Mortgage Corporation, a wholly owned
subsidiary, originates residential loans. PSA Financial Corporation, a wholly
owned subsidiary, originates residential and consumer loans. PSA Consumer
Discount, a wholly owned subsidiary of PSA Financial, originates consumer loans.
All loan origination's are to customers principally within, but not limited to,
the County of Philadelphia, Pennsylvania. PSA Service Corporation, a wholly
owned subsidiary, processes all loans for Pennsylvania Savings Bank and the
other subsidiaries.

First Penn competes with other banking and financial institutions in its
primary markets. Commercial banks, savings banks, savings and loan associations,
mortgage bankers and brokers, credit unions and money market funds actively
compete for deposits and loans in the Bank's market area. Such institutions, as
well as consumer finance, mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of the Bank with respect
to one or more of the services it renders.

First Penn is subject to regulations of certain state and federal agencies
and, accordingly, is periodically examined by those regulatory authorities. As a
consequence of the extensive regulation of commercial banking activities, the
Bank's business is particularly susceptible to being affected by state and
federal legislation and regulations.

F-10
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements for the periods prior to July 17, 1998
are those of First Bank of Philadelphia and Pennsylvania Savings Bank (the
"Bank") and its wholly-owned subsidiaries, PSA Service Corporation,
Transnational Mortgage Corporation and PSA Financial Corporation. First Penn
became the wholly-owned subsidiary of the PSB Bancorp, Inc. (the "Holding
Company") on July 17, 1998 and as a result the consolidated financial statements
for the period subsequent to July 17, 1998 also include the accounts of the
Holding Company and its wholly-owned subsidiary, Pennsylvania Savings Bank. The
Holding Company's business is conducted principally through the Bank and its
wholly-owned subsidiaries. Significant intercompany balances and transactions
have been eliminated.

IMPACT OF YEAR 2000:

First Penn was well prepared to enter the new year at midnight on
January 1, 2000. Contingency and event plans were in effect as the century
rollover took place. No material defects or problems were experienced with
hardware, software, equipment or operations.

During 1999, the Bank utilized a comprehensive "Customer Awareness" campaign
to ensure that the customers and the general public were themselves prepared for
Y2K. Due to this campaign and the efforts of our peers and regulators, the Bank
experienced no material impact to liquidity.

REPORTING COMPREHENSIVE INCOME--NEW PRONOUNCEMENT:

In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or stockholders' equity. SFAS No. 130 requires the Company's unrealized
holding gains and losses to be included in other comprehensive income. Prior
year's financial statements have been reclassified to conform to these
requirements.

CASH AND CASH EQUIVALENTS:

Cash and cash equivalents include unrestricted cash on hand, demand deposits
maintained in depository institutions and other readily convertible investments
with original contractual terms to maturity of three months or less.

INVESTMENT IN DEBT AND MARKETABLE EQUITY SECURITIES:

Gains and losses realized on sales of investment securities represent
differences between net proceeds and carrying values determined by the specific
identification method. Premiums paid and discounts received at the time of
purchase are deferred and amortized over the remaining life of the securities
using a method which approximates a level yield. Mortgage-backed security
amortization rates are periodically adjusted to reflect changes in the
prepayment speeds of the underlying mortgages.

F-11
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LOANS AND ALLOWANCE FOR LOAN LOSSES:

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid principal
and reduced by an allowance for loan losses. Interest on loans is accrued and
credited to operations based upon the principal amounts outstanding. Loan
origination fees and discounts on mortgage loans are amortized to income using
the interest method over the remaining period to contractual maturity, adjusted
for actual prepayments. The allowance for loan losses is established through a
provision for possible loan losses charged to expenses. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible loan losses on existing
loans that may become uncollectible based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay. Income is subsequently
recognized only to the extent that cash payments are received, or until in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.

Effective January 1, 1997, interest is discontinued on all loans that are
contractually past due 3 months. Prior to January 1, 1997, interest was
discontinued on residential loans that were contractually past due 12 months,
unless the value of the mortgaged property well exceeded the loan balance in
which case interest continued to accrue until the loan balance plus accrued
interest equaled the fair market value of the property securing the loan. First
Penn has recorded interest income, net of taxes, of $80,341 for the year ended
December 31, 1996 on loans that were contractually past due for more than three
months. The effect on net income per share would have been a reduction of $.06
for the year ended December 31, 1996 if this interest had not been accrued.
Interest was discontinued on commercial, consumer and unsecured loans that were
contractually past due 3 months. No adjustment is made for interest previously
accrued. Income is subsequently recognized only to the extent that cash payments
are received, or until in management's judgment, the borrower's ability to make
periodic interest and principal payments is back to normal, in which case the
loan is returned to accrual status.

LOAN ORIGINATION AND COMMITMENT FEES:

Loan fees and certain direct loan origination costs are deferred and the net
fee or cost is recognized as an adjustment of the loan yield over the
contractual life of the loan using the interest method. When a loan is sold,
unamortized fees are recognized as income. Other loan fees and charges
representing service costs for the prepayment of loans, for delinquent payments
or for miscellaneous loan services are recognized when collected. Commitment
fees and costs relating to commitments whose likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the remaining
unamortized commitment fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield.

F-12
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LOANS HELD FOR SALE:

Included in loans held for sale are any loans which the Bank believes may be
involved in interest rate risk management or other decisions which might
reasonably result in such loans not being held until maturity. Any such
conforming loans are transferred to loans held for sale and valued at the lower
of aggregate cost or market, including considering of forward commitments to
sell, until ultimate disposition.

Effective January 1, 1997, the Bank adopted the provision of Statement of
Financial Accounting Standards No. 125--"Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). The
adoption of SFAS No. 125 had no significant impact on the earnings or financial
condition of the Bank. First Penn carries any retained interest in a transferred
asset on the statement of condition as a servicing asset. The servicing assets
represent the fair value of the servicing contracts associated with purchase or
origination and subsequent securitization of the mortgage loans. Servicing
assets are amortized in proportion to and over the period of estimated net
servicing income. Servicing assets are evaluated periodically for impairment
based on their fair value and impairment, if any, is recognized through a
valuation allowance and a charge to operations.

REAL ESTATE OWNED:

Real estate owned consists of properties acquired through foreclosure. Real
estate owned is stated at the lower of cost or estimated fair value minus
estimated costs to sell. Write-downs of real estate owned which occur after the
initial transfer from the loan portfolio are recorded as expenses of real estate
owned. Costs of holding foreclosed property are charged to expense in the
current period, except for significant property improvements which are
capitalized to the extent that carrying value does not exceed estimated fair
value. Real estate held for investment is carried at the lower of cost,
including cost of improvements and amenities incurred subsequent to acquisition,
or net realizable value.

INCOME TAXES:

First Penn records deferred tax assets and liabilities for the future tax
consequences attributable to differences 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 on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

OFFICE PROPERTIES AND EQUIPMENT:

Land is carried at cost. Office properties and equipment are recorded at
cost less accumulated depreciation. Depreciation is computed based on cost using
the straight-line method over estimated useful lives of 25-50 years for
buildings, 10-25 years for land improvements and 3-10 years for office
equipment. Maintenance and repair of property and equipment are charged to
operations. Major improvements are capitalized.

F-13
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FINANCIAL STATEMENT PRESENTATION:

Certain items in prior year financial statements have been reclassified to
conform to the 1999 presentation.

ADVERTISING:

Advertising costs are charged to operations when incurred and amounted to
$140,000, $111,000 and $81,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

The principal estimate that is susceptible to significant change in the near
term relates to the allowance for loan losses. The evaluation of the adequacy of
the allowance for loan losses includes an analysis of the individual loans and
overall risk characteristics and size of the different loan portfolios, and
takes into consideration current economic and market condition, the capability
of specific borrowers to pay specific loan obligations, as well as current loan
collateral values. However, actual losses on specific loans, which also are
encompassed in the analysis, may vary from estimated losses.

PER SHARE INFORMATION:

Earnings per share have been calculated based on the weighted average common
shares outstanding for the respective periods less the uncommitted ESOP shares.
The number of shares used in the computation of earnings per share for the years
ended December 31, 1999 and 1998 was 4,365,426 and 4,393,933 for basic earnings
per share, and 5,167,021 and 5,122,120 for diluted earnings per share,
respectively. Earnings per share for the year ended December 31, 1999 reflect
the shares issued and outstanding due to the merger of Pennsylvania Savings Bank
and First Bank of Philadelphia effective October 12, 1999. In connection with
the acquisition, each outstanding share of First Bank of Philadelphia was
exchanged for .857 shares of PSB Bancorp, Inc. common stock. The effect of the
merger on earnings per share is reflected in prior years computation.

CASH DEPOSITED IN FINANCIAL INSTITUTIONS:

First Penn maintains cash balances at other financial institutions in the
Philadelphia regional area. Accounts at these financial institutions are insured
by the Federal Deposit Insurance Corporation up to $100,000. In the normal
course of business, the Bank may have deposits that exceed the insured balance.

F-14
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:

The following is a summary of the Bank's investment in available-for-sale
and held-to-maturity securities:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
DECEMBER 31, 1999
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS GAINS VALUE
--------- ----------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds....................... $ 2,354 $ -- $ (24) $ 2,330
FHLB and FRB Stock............................... 2,056 -- -- 2,056
------- ----------- ------- -------
Total equity securities........................ 4,410 -- (24) 4,386
------- ----------- ------- -------
Debt:
FNMA............................................. 3,500 -- (198) 3,302
Municipal Tax-exempt............................. 3,511 -- (310) 3,201
FHLB Notes....................................... 11,499 -- (598) 10,901
------- ----------- ------- -------
Total debt securities.......................... 18,510 -- (1,106) 17,404
------- ----------- ------- -------
Mortgage-backed Securities:
FNMA............................................. 39,540 -- (2,188) 37,352
GNMA............................................. 9,151 -- (552) 8,599
------- ----------- ------- -------
Total mortgage-backed securities............... 48,691 -- (2,740) 45,951
------- ----------- ------- -------
Other Investments:
JADE Financial................................... 100 -- -- 100
------- ----------- ------- -------
Total other investments........................ 100 -- -- 100
------- ----------- ------- -------
Total available-for-sale Securities............ 71,711 (3,870) 67,841
------- ------- -------
</TABLE>

F-15
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
<TABLE>
<CAPTION>
HELD-TO-MATURITY
DECEMBER 31, 1999
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS GAINS VALUE
--------- ----------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA............................................. $ 1,000 $ -- $ (38) $ 962
FHLMC............................................ 3,000 -- (183) 2,817
------- ----------- ------- -------
Total debt securities.......................... 4,000 -- (221) 3,779
------- ----------- ------- -------
Mortgage-backed Securities:
GNMA............................................. 979 23 -- 1,002
FHLMC............................................ 27 2 -- 29
------- ----------- ------- -------
Total mortgage-backed securities............... 1,006 25 -- 1,031
------- ----------- ------- -------
Total held-to-maturity securities.............. 5,006 25 (221) 4,810
------- ----------- ------- -------
TOTAL INVESTMENTS AND MORTGAGE-BACKED SECURITIES..... $76,617 $ 25 $(4,091) $72,551
======= =========== ======= =======
</TABLE>

F-16
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
The following is a summary of the Bank's investment in available-for-sale
and held-to-maturity securities:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
DECEMBER 31, 1999
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS GAINS VALUE
--------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds....................... $ 2,354 $ -- $ (1) $ 2,353
FHLB and FRB Stock............................... 1,131 -- -- 1,131
------- ---- ----------- -------
Total equity securities........................ 3,485 -- (1) 3,484
------- ---- ----------- -------
Debt:
FNMA............................................. 3,500 11 -- 3,511
Municipal Tax-exempt............................. 3,544 -- -- 3,544
SLMA............................................. 1,000 1 -- 1,001
FHLB Notes....................................... 6,498 -- -- 6,498
------- ---- ----------- -------
Total debt securities.......................... 14,542 12 -- 14,554
------- ---- ----------- -------
Total investment securities.................... 28,037 12 (1) 18,038
------- ---- ----------- -------
Mortgage-backed Securities:
FNMA............................................... 11,884 -- (6) 11,878
GNMA............................................... 10,196 -- -- 10,196
------- ---- ----------- -------
Total mortgage-backed securities............... 22,080 -- (6) 22,074
------- ---- ----------- -------
Total available-for-sale securities............ 40,107 12 (7) 40,112
------- ---- ----------- -------
</TABLE>

F-17
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
<TABLE>
<CAPTION>
HELD-TO-MATURITY
DECEMBER 31, 1998
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS GAINS VALUE
--------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA............................................. $ 1,000 $ 1 $ (--) $ 1,001
FHLMC............................................ 2,996 8 (--) 3,004
------- ---- ----------- -------
Total debt securities.......................... 3,996 9 (--) 4,005
------- ---- ----------- -------
Mortgage-backed Securities:
GNMA............................................. 1,269 74 -- 1,343
FHLMC............................................ 58 4 -- 62
------- ---- ----------- -------
Total mortgage-backed securities............... 1,327 78 -- 1,405
------- ---- ----------- -------
Total held-to-maturity securities.............. 5,323 87 (--) 5,410
------- ---- ----------- -------
TOTAL INVESTMENTS AND MORTGAGE-BACKED SECURITIES..... $44,842 $100 $ (7) $44,935
======= ==== =========== =======
</TABLE>

Assets, principally securities, carried at approximately $2,496M and $2,495M
at December 31, 1999 and 1998, respectively, were pledged to secure deposits as
required or permitted by law.

The amortized cost and estimated market values of securities at
December 31, 1999 and 1998 by contractual maturities, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
ESTIMATED
MARKET AMORTIZED
VALUE COST
--------- ---------
<S> <C> <C>
Due less than one year................................... $ 4,556 $ 4,397
Due after one year through five years.................... 10,508 9,941
Due after five years through fifteen years............... 7,500 7,104
Due after fifteen years.................................. 2,000 1,796
Mutual Funds............................................. 2,354 2,330
Mortgage-backed securities............................... 49,699 46,983
------- -------
Total................................................ 76,617 72,551
------- -------
</TABLE>

F-18
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
ESTIMATED
MARKET AMORTIZED
VALUE COST
--------- ---------
<S> <C> <C>
Due after one year through five years.................... $ 8,540 $ 8,549
Due after five years through fifteen years............... 6,998 7,010
Due after fifteen years.................................. 3,544 3,544
------- -------
19,082 19,103
Mutual Funds............................................. 2,354 2,353
Mortgage-backed securities............................... 23,406 23,479
------- -------
Total................................................ $44,842 $44,935
======= =======
</TABLE>

Proceeds from maturities of investment securities available-for-sale during
the years ended December 31, 1999 and 1998 totaled $1.0 million and $9.0
million, respectively. The proceeds for all periods were the result of security
call options which were exercised and no gains or losses were realized on those
sales.

4. LOANS RECEIVABLE:

Loans receivable consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real Estate Loans:
One-to-four family.................................... $ 55,716 $ 58,162
Five or more family residence......................... 2,712 3,356
Construction loans.................................... 23,528 15,981
Nonresidential........................................ 27,117 22,575
-------- --------
109,073 100,074
Student loans......................................... 40,509
Consumer loans........................................ 2,468 1,168
SBA loans............................................. 6,682 8,251
Commercial loans...................................... 10,682 13,216
-------- --------
Total Loans......................................... 169,414 122,709
-------- --------
Less:
Unearned fees and discounts......................... (389) (431)
Undisbursed loan proceeds........................... (7) (7)
Allowance for loan losses........................... (1,231) (1,031)
-------- --------
Net Loans........................................... $167,787 $121,240
======== ========
</TABLE>

F-19
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

4. LOANS RECEIVABLE: (CONTINUED)
Loans receivable at December 31, 1999 and 1998 includes $112.4 million and
$96.8 million of fixed rate loans and $65.2 million and $25.9 million of
adjustable rate loans, respectively.

A summary of loan maturities at December 31, 1999 is as follows:

<TABLE>
<CAPTION>
MULTI- CONSUMER
ONE TO FAMILY AND AND
FOUR COMMERCIAL COMMERCIAL TOTAL
FAMILY REAL ESTATE CONSTRUCTION BUSINESS LOANS
-------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual........................... $ 1,498 $ 47 $ 41 $ 296 $ 1,882
------- ------- ------- ------- --------
Within one year......................... 4,550 5,952 23,015 47,875 81,392
------- ------- ------- ------- --------
After one year:
1 to 3 years.......................... 1,818 6,183 324 2,634 10,959
3 to 5 years.......................... 1,770 9,352 149 3,190 14,461
5 to 15 years......................... 5,913 6,658 -- 3,640 16,211
Over 15 years......................... 40,166 1,637 -- 2,706 44,509
------- ------- ------- ------- --------
Total due after one year................ 48,915 23,830 473 12,170 86,141
------- ------- ------- ------- --------
TOTAL AMOUNTS DUE....................... $55,715 $29,829 $23,529 $60,341 $169,414
======= ======= ======= ======= ========
</TABLE>

A summary of changes in the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE, BEGINNING OF YEAR.................................. $1,031 $ 965
Provision charged to operation............................ 200 283
Recoveries of loans previously charged-of................. -- 53
Charged-off............................................... -- (270)
------ ------
BALANCE, END OF YEAR........................................ $1,231 $1,031
====== ======
</TABLE>

The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of potential losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan. As of December 31, 1999 and
1998, 100% of the impaired loan balance was measured for impairment based on the
fair value of the loans' collateral. Impairment losses are included in the
provision for loan losses. SFAS Nos. 114 and 118 do not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a troubled debt
restructuring. Loans collectively evaluated for impairment include consumer
loans and residential real estate loans. At December 31, 1999, the Bank's
impaired loans consisted of two commercial real estate loans with a total
recorded balance of $295,265

F-20
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

4. LOANS RECEIVABLE: (CONTINUED)
for which specific allowances of $14,763 have been established. At December 31,
1998, the Bank's impaired loans consisted of two commercial real estate loans
with a total recorded balance of $325,537 for which specific allowances of
$16,227 have been established. The average investment in impaired loans for the
year ended December 31, 1999 and 1998 was $582,613 and $339,946, respectively.

Loans on which the accrual of interest has been discontinued amounted to
$1.9 million and $2.4 million at December 31, 1999 and 1998, respectively.

Certain directors and officers of the Bank have loans with the Bank. Such
loans were made in the ordinary course of business and do not represent more
than a normal risk of collection. Loans to officers and directors amounted to
$1.7 million and $1.6 million at December 31, 1999 and 1998, respectively.
During the years ended December 31, 1999 and 1998 loans of $192,040 and
$668,495, respectively, were disbursed to executive officers and trustees, while
principal repayments of $41,834 and $285,205 were received in those years,
respectively.

5. LOANS HELD FOR SALE:

Loans held for sale are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential mortgage loans.............. $8,221 $ -- $ -- $8,221

<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential mortgage loans.............. $6,938 $ -- $ -- $6,938
</TABLE>

6. ACCRUED INTEREST RECEIVABLE:

A summary of accrued interest receivable is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans....................................................... $1,865 $1,143
FHLB Overnight.............................................. 8 182
Mortgage-backed securities.................................. 313 128
Investment securities....................................... 260 249
------ ------
Total................................................... $2,446 $1,702
====== ======
</TABLE>

F-21
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

7. OFFICE PROPERTIES AND EQUIPMENT:

Office properties and equipment are summarized by major classification as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements.......................... $ 2,284 $ 2,139
Furniture, fixtures and equipment......................... 3,082 2,892
------- -------
5,366 5,031
Less accumulated depreciation............................. (3,674) (3,412)
------- -------
Total................................................. $ 1,692 $ 1,619
======= =======
</TABLE>

Depreciation expense was $262,000 and $145,000 for the years ended
December 31, 1999 and 1998, respectively.

8. REAL ESTATE OWNED--ACQUIRED THROUGH SETTLEMENT OF LOANS:

Real estate owned consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate acquired through settlement of loans............ $1,047 $1,277
</TABLE>

9. FEDERAL HOME LOAN BANK STOCK:

First Penn is a member of the Federal Home Loan Bank System. As a member,
the Bank maintains an investment in the capital stock of the Federal Home Loan
Bank of Pittsburgh in an amount not less than 1% of its outstanding home loans
or 1/20 of its outstanding notes payable, if any, to the Federal Home Loan Bank
of Pittsburgh, whichever is greater, as calculated December 31 of each year.

F-22
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

10. DEPOSITS:

The following tables present the average balances and rates paid on deposits
at is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
1999 1998
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PERCENTAGE)
<S> <C> <C> <C> <C>
Demand deposits......................... $ 18,911 --% $ 19,460 --%
NOW checking accounts................... 8,924 3.47 2,322 3.14
Money market accounts................... 15,761 3.68 4,469 3.71
Savings accounts........................ 29,686 2.90 42,184 2.88
Certificates of deposit................. 118,623 5.50 110,203 5.74
-------- ---- -------- ----
Total deposits...................... $191,905 $178,638
======== ========
</TABLE>

As of December 31, 1999, the Bank had total certificates of deposit of
approximately $128.5 million. The following table summarizes the composition of
these deposits:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
AMOUNT PERCENTAGE
-------- ----------
(IN THOUSANDS EXCEPT
PERCENTAGE)
<S> <C> <C>
Certificates of deposits in excess of $100,000.......... $ 18,878 15%
Individual retirement accounts.......................... 8,611 7
Other certificates of deposit........................... 101,046 78
-------- ---
Total............................................... $128,535 100%
======== ===
</TABLE>

First Penn's certificates of deposit in excess of $100,000 which totaled
$18.9 million at December 31, 1999, mature as follows: $3.4 million within three
months, $12.8 million between three and twelve months; and $2.7 million after
twelve months.

The ability of the Bank to attract and maintain deposits and the Bank's cost
of funds on these deposit accounts have been, and will continue to be,
significantly affected by economic and competitive conditions.

F-23
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

10. DEPOSITS: (CONTINUED)
Certificates of deposit have scheduled maturities as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Within one year......................................... $100,815 $101,147
Beyond one year but within three years.................. 15,451 16,606
Due thereafter.......................................... 3,658 4,555
-------- --------
Total............................................... $119,924 $122,308
======== ========
</TABLE>

Interest expense on deposits is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
NOW accounts................................................ $ 310 $ 151
Savings accounts............................................ 862 840
Money Market accounts....................................... 580 461
Certificates of deposit..................................... 6,518 6,340
------ ------
8,270 7,791
Early withdrawal penalties.................................. -- (17)
------ ------
$8,270 $7,775
====== ======
</TABLE>

The aggregate amount of certificates of deposit accounts with a minimum
denomination of $100,000 was approximately $18.9 million and $19.3 million at
December 31, 1999 and 1998, respectively.

The aggregate amount of demand deposits that have been re-classified as loan
balances at December 31, 1999 and 1998 was $-0- and $41,735, respectively.

11. INCOME TAX MATTERS:

First Penn and its wholly owned subsidiary file a consolidated federal
income tax return and separate state and local income tax returns on a calendar
year end basis.

F-24
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

11. INCOME TAX MATTERS: (CONTINUED)
The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Currently payable:
Federal................................................... $ 450 $ 453
State..................................................... 10 12
----- -----
460 465
Deferred.................................................. (687) (123)
----- -----
TOTAL................................................... $(227) $ 342
===== =====
</TABLE>

The reconciliation between the actual provision for federal and state income
taxes and the amount of income taxes which would have been provided at statutory
rates is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Expected income tax expense at federal tax rate............. $ 631 $ 682
Travel and entertainment.................................... 20 20
State tax net of federal benefit............................ 6 8
Valuation allowances effect................................. (652) (356)
Benefit of loss carryforward................................ (233) --
Other differences, net...................................... 1 (12)
----- -----
$(227) $ 342
===== =====
</TABLE>

Deferred taxes are included in the accompanying statements of financial
condition as of December 31, 1999 and 1998 for the estimated future tax effects
of differences between the financial statement and federal income tax bases of
assets and liabilities given the provisions of currently enacted tax laws.

F-25
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

11. INCOME TAX MATTERS: (CONTINUED)
The net deferred tax asset (liability) consist of the following components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Asset:
Unrealized loss on available-for-sale securities......... $1,554 $ --
Deferred income.......................................... 60 80
Loss carryforward limitation............................. 1,497 1,730
Less valuation allowance................................. (845) (1,441)
Other.................................................... 81 81

Deferred Tax Liability:
Unrealized gain on available-for-sale securities......... (2)
Allowance for loan losses................................ (223) (283)
Property and equipment................................... (27) (22)
------ -------
NET DEFERRED TAX ASSETS................................ $2,097 $ 143
====== =======
</TABLE>

Management has determined that based on its assessment of projected levels
of taxable income, realization of the net deferred tax asset is more likely than
not.

First Penn has available the following net operating loss carryforwards for
federal income tax purposes:

The utilization of net operating loss carryforwards generated prior to
February 1995 is limited to $548,748 per year due to the limitation imposed
under Section 382 of the Internal Revenue Code. As of December 31, 1999,
approximately $4.8 million of these carryforwards are subject to this annual
limitation. The loss carryforward was a result of the acquisition of First Bank
of Philadelphia. The loss carryforward was a result of the acquisition of First
Bank of Philadelphia.

Prior to January 1, 1996, the Bank was allowed a special bad debt deduction
for tax purposes based on a percentage of taxable income (8%) or on specified
experience formulas, subject to certain limitations based upon aggregate loan
balances at the end of the year. If the above amounts deducted were used for
purposes other than for loan losses, such as in a distribution in liquidation,
or if the Bank would cease to be a qualified thrift lender under the tax law, or
otherwise, the amounts deducted would be subject to federal income tax at the
then current corporate tax rate.

F-26
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

11. INCOME TAX MATTERS: (CONTINUED)
The special bad debt method of accounting for bad debts for tax purposes
utilized by qualified thrift institutions was repealed effective for tax years
beginning January 1, 1996. Thrift institutions must now use either the direct
write-off or experience method of accounting for bad debts and must treat this
change as a change in accounting method. Any adjustment that is required to be
taken into account because of the change will be determined solely with respect
to the applicable excess reserves of the thrift which will be taken into income
over a six-year period for tax purposes. Pennsylvania Savings Bank qualifies as
a small bank. First Penns applicable excess reserves will be the excess of the
balance of its reserves as of the close of its last tax year beginning before
January 1, 1996 over the greater of (a) its pre-1988 reserves, or (b) what the
thrift's reserves would have been at the close of its last tax year beginning
before January 1, 1996, had the thrift used the experience method. If a Bank
meets the residential loan requirement, the income to be recognized may be
deferred. A Bank meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the Bank during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the Bank during the six most
recent tax years beginning before January 1, 1996. For the year ended
December 31, 1996, the Bank meets the residential loan requirement and has
elected to deferred recognition of the income.

Prior to January 1, 1988, the Bank was not required and did not record
deferred income taxes on the difference between the allowance for loan losses
reported for financial reporting purposes and the special bad debt deduction for
income tax purposes.

Retained earnings at December 31, 1999 and 1998 includes $2,450,099 for
which no deferred federal income tax liability has been recognized.

Subsequent to December 31, 1987, the base year, and prior to January 1,
1996, the Bank was required to record a deferred tax asset related to the
allowance for loan losses reported for financial reporting purposes and a
deferred tax liability for special bad debt deduction. However, if it is more
likely than not that some portion or all of the deferred tax asset will not be
realized, the deferred tax asset should be reduced by a valuation allowance. The
valuation allowance should be sufficient to reduce the deferred tax asset to the
amount that is more likely than not to be realized.

As required by SFAS No. 109 "Accounting for Income Taxes," the Bank
determined that no valuation reserve was necessary for the net deferred tax
asset since it is more likely than not that the deferred tax asset will be
realized through carryforwards to taxable income in future years and future
reversals of existing temporary differences. First Penn will continue to review
the criteria related to the recognition of deferred tax assets on a quarterly
basis.

First Penn has made additions to the special bad debt deduction allowance
since December 31, 1987 and, therefore, a deferred tax liability for the special
bad debt deduction has been recorded in the amount of $223,754 and $282,754 for
years ended December 31, 1999 and 1998, respectively.

F-27
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

11. INCOME TAX MATTERS: (CONTINUED)
Deferred tax expense results from timing differences in the recognition of
revenue and expense for tax and financial statement purposes. The sources of
these differences are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bad debts.............................................. $ (10) $ 12 $(12)
Depreciation........................................... 5 5 29
Deferred loan fees..................................... 20 20 20
Valuation allowance.................................... (652) (160) --
----- ----- ----
DEFERRED TAX EXPENSE............................... $ 687 $(123) $ 37
===== ===== ====
</TABLE>

12. DIVIDENDS PAID:

On June 30, 1996, the Bank paid a cash dividend of $.0375 per share to
stockholders of record as of June 15, 1996. This dividend was paid from
accumulated net earnings as of June 30, 1996. Subsequently, in September 1996,
the Savings Association Insurance Fund (SAIF) assessed and collected from the
Bank a one time special assessment of $567,000. This assessment eliminated the
Bank's prior earnings and resulted in the Bank reporting both significantly
lower net income for the year ended December 31, 1996 and an accumulated deficit
as of December 31, 1996.

13. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA):

FDICIA was signed into law on December 19, 1991 and includes significant
changes to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for certain kinds of
deposits, increased supervision by the federal regulatory agencies, increased
reporting requirements for insured institutions, and new regulations concerning
internal controls, accounting and operations.

The regulations require institutions to have a minimum 4% leverage capital
ratio, a minimum 4% tier 1 risk-based capital ratio and a minimum 8% total
risk-based capital ratio to be considered "adequately capitalized". An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less.

The following table sets out the Bank's various regulatory capital
categories at December 31, 1999:

<TABLE>
<CAPTION>
MINIMUM CAPITAL WELL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PERCENTAGE)
<S> <C> <C> <C> <C> <C> <C>
Tier l capital to risk weighted assets....... $31,348 17.90% $ 7,006 4.00% $10,510 6.00%
Total capital to risk weighted assets........ 32,579 18.60 14,013 8.00 17,516 10.00
Leverage to average assets................... 31,348 11.48 10,927 4.00 13,659 5.00
</TABLE>

F-28
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

13. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA):
(CONTINUED)
The following table sets out the Bank's various regulatory capital
categories at December 31, 1998:

<TABLE>
<CAPTION>
MINIMUM
CAPITAL WELL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PERCENTAGE)
<S> <C> <C> <C> <C> <C> <C>
Tier l capital to risk weighted assets........ $36,119 33.57% $4,304 4.00% $ 6,455 6.00%
Total capital to risk weighted assets......... 36,859 34.26 8,607 8.00 10,759 10.00
Leverage to average assets.................... 36,119 16.13 8,958 4.00 11,198 5.00
</TABLE>

14. DIFFERENCES BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION CALL REPORT
AND CONSOLIDATED FINANCIAL STATEMENTS:

An adjustment has been made to the accounts which is reflected in the
consolidated financial statements but is not reflected in the Bank's
December Federal Depository Insurance Corporation Call Reports. The adjustment
and its effect on retained earnings are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Retained earnings per the Bank's December Federal
Depository Insurance Corporation Call Report............ $(1,068) $(3,160)
PSB Bancorp, Inc. net income for the year ended
December 31, 1999 not reflected on Call Report.......... (68) (61)
------- -------
RETAINED EARNINGS PER ACCOMPANYING FINANCIAL
STATEMENTS.......................................... $(1,136) $(3,221)
======= =======
</TABLE>

15. LEASE COMMITMENTS:

On October 12, 1995, the Bank signed a lease agreement for office and branch
space in center city Philadelphia. The lease commenced on July 1, 1996 and
extends for 11 years. On September 7, 1999, the Bank signed a lease agreement
for office space at 1632 Walnut Street, Philadelphia. The lease commenced on
January 1, 2000 and extends for 10 years. Lease expense for this lease for the
years ended December 31, 1999 and 1998 was $424,003 and $432,418, respectively.

First Penn was obligated under various other leases. Lease expense for these
leases for the year ended December 31, 1999 and 1998 was $44,750 and $34,567,
respectively.

F-29
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

15. LEASE COMMITMENTS: (CONTINUED)
Minimum annual rentals are as follows:

<TABLE>
<S> <C>
1999............................................ $ 519,594
2000............................................ 453,796
2001............................................ 460,686
2002............................................ 471,465
2003............................................ 495,228
----------
Thereafter...................................... $1,411,578
==========
</TABLE>

16. RETIREMENT PLANS:

First Penn sponsors the following retirement plans:

DEFINED BENEFIT PENSION PLAN:

Covers employees who were at least 21 years of age, with 12 months of
service with the Bank and have accumulated 1,000 hours of service during the
Plan year. The Plan calls for benefits to be paid to eligible employees at
retirement based upon years of service with the Bank and compensation rates near
retirement. Contributions to the Plan reflect benefits attributed to employees'
service. Plan assets consist of common stock, investment grade corporate bonds
and U.S. Government obligations. The Retirement Plan was "frozen" as of
September 30, 1994 and benefits no longer accrue thereunder. No new employees
will be eligible for participation.

F-30
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

16. RETIREMENT PLANS: (CONTINUED)
The following table sets forth the plans' required disclosures with SFAS No.
132, "Employers' Disclosures About Pensions and Other Postretirement Benefits."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at prior year-end................ $ 670,690 $ 643,774
Service cost........................................
Interest cost....................................... 46,051 48,252
Actuarial (gain) loss............................... 12,464 21,256
Benefits paid....................................... (23,857) (42,592)
--------- ---------
Benefit obligation at current year-end................ $ 705,348 $ 670,690
========= =========
Change in plan assets:
Fair value of plan assets at prior year-end......... $ 774,314 $ 739,135
Actual return on plan assets........................ 155,535 77,771
Employer contributions..............................
Benefits paid....................................... (23,857) (42,592)
--------- ---------
Fair value of plan assets at current year-end....... $ 905,992 $ 774,314
========= =========
Funded status....................................... $ 200,644 $ 103,624
Unrecognized actuarial gain......................... (375,029) (296,083)
Unrecognized prior service cost.....................
Unrecognized transition obligation (asset).......... 92,599 98,773
--------- ---------
Accrued benefit cost................................ $ (81,786) $ (93,685)
========= =========
Amount recognized in the statement of financial
position--accrued benefit cost.................... $ (81,786) $ (93,685)
========= =========
</TABLE>

Net pension cost included the following components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Service cost............................................ $ -- $ --
Interest cost........................................... 46,051 48,252
Expected return on plan assets.......................... (52,493) (50,248)
Amortization of transition amount....................... 6,174 6,174
Amortization of prior service cost...................... -- (46,800)
Amortization of gain.................................... (11,631) (9,535)
-------- --------
NET PERIODIC PENSION COST (CREDIT).................. $(11,899) $(52,157)
======== ========
</TABLE>

F-31
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

16. RETIREMENT PLANS: (CONTINUED)
The significant actuarial assumptions used in calculating the above
information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Weighted average discount rate.............................. 7% 7%
Weighted average rate of compensation....................... N/A N/A
Weighted average expected long-term rate of return on Plan
Assets.................................................... 7% 7%
</TABLE>

Pension contributions were $-0- and $-0- for the years ended December 31,
1999 and 1998, respectively.

The following three employee benefit plans cover all eligible employees,
those with two years of service, (a year of service defined as having at least
1,000 hours of service) and being at least 21 years of age on the first day of
the plan year.

CASH OR DEFERRED PROFIT-SHARING PLAN:

Contributions to this Plan are determined by the participant's written
election to reduce their compensation by no more than 15% of eligible
compensation and also not to exceed code section 401(k) and other limitations as
set by the plan documents.

First Penn may also make discretionary contributions made out of net income.

Bank contributions to the Plan for the years ended December 31, 1999 and
1998 amounted to $-0-and $-0-, respectively.

PROFIT-SHARING PLAN:

Contributions to the Plan are determined annually by the Board of Trustees
based upon net income. Allocation of the contributions to participants is based
upon annual compensation.

Contributions to the Plan for the years ended December 31, 1999 and 1998
were $-0- and $-0-, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"):

Effective October 23, 1995, the Bank has established an ESOP for eligible
employees. The ESOP is a tax-qualified plan subject to the requirements of ERISA
and the Code. Employees with a 12-month period of employment with the Bank
during which they worked at least 1,000 hours and who have attained age 21 are
eligible to participate. The ESOP borrowed funds from an unrelated third party
lender and used the funds to purchase 42,780 shares of Common Stock. Due to the
Conversion and Reorganization, the Savings Bank Common Stock held by the ESOP
was converted into 110,046 shares of PSB Bancorp, Inc. Stock. The ESOP borrowed
$1,288,540 from the Holding Company to purchase an additional 128,854 shares of
PSB Bancorp, Inc.

The Common Stock purchased by the ESOP serves as collateral for the ESOP
loans. The loan will be repaid principally from the Bank's contributions to the
ESOP over a period of up to seven years.

F-32
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

16. RETIREMENT PLANS: (CONTINUED)
Shares purchased by the ESOP will be held in a suspense account for allocation
among participants as the loans are repaid. Shares released from the suspense
account in an amount proportional to the repayment of the ESOP loans will be
allocated among participants on the basis of compensation in the year of
allocation, up to an annual adjusted maximum level of compensation (currently
$150,000).

Benefits under the ESOP generally become 100% vested after the third year of
service or upon normal retirement (as defined in the ESOP), disability or death
of the participant. If a participant terminates employment for any other reason
prior to fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating employees in the
same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement disability or separation from service. First Penn's
contributions to the ESOP will not be fixed, so benefits payable under the ESOP
cannot be estimated. First Penn's contributions to the ESOP recorded as
compensation expense for the years ended December 31, 1999 and 1998 were
$147,038 and $147,290, respectively.

Information with respect to the ESOP is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Allocated shares..................................... 238,900 238,900
Committed shares..................................... 61,558 57,782
Uncommitted shares................................... 177,342 181,118
Fair value of uncommitted ESOP shares................ $1,163,939 $1,381,025
Interest expense incurred............................ $ 5,187 $ 25,142
Dividends received................................... N/A N/A
</TABLE>

MANAGEMENT RECOGNITION PLAN:

First Penn's Board of Trustees has also adopted a Management Recognition
Plan (the "MRP") effective October 20, 1995, as a method of providing certain
senior executive officers of the Bank with a propriety interest in the Bank, to
such officers for their service and to encourage such persons to remain in the
service of the Bank. Benefits may be granted at the sole discretion of the
Compensation Committee of the Bank's Board of Trustees. The MRP is managed by
trustees who are directors of the Bank and who have responsibility to invest all
funds contributed by the Bank to the trust created for the MRP. First Penn
contributed $254,005 to the MRP trust in 1996 which enabled the MRP to purchase
21,390 shares of Common Stock. Due to the Conversion and Reorganization, the
Savings Bank Common Stock held by the MRP was converted into 55,023 shares of
PSB Bancorp, Inc. Stock. Unless the Compensation Committee of the Board
specifies otherwise, shares granted to MRP participants will be in the form of
restricted stocks which vest over a five-year period at the rate of 20% of such
shares per year. Compensation expense in the amount of the fair market value of
the common stock at the date of the grant to the employee will be recognized pro
rata over the five years during which the shares are vested. As of December 31,
1999, 55,023 shares have been allocated to individual employees. For the years
ended December 31, 1999 and 1998, the Bank recorded compensation expense of
$57,602 and $50,799, respectively for the Management Recognition Plan. Stock
Option Plan:

F-33
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

16. RETIREMENT PLANS: (CONTINUED)
First Penn's Board of Trustees adopted the Pennsylvania Savings Bank Stock
Option Plan (the "Option Plan") approved by a majority of stockholders on April
30, 1996. The Option Plan provides for the grant of (I) options to purchase
Common Stock intended to qualify as incentive stock options ("Incentive Stock
Option") under Section 422 of the Code, and (ii) options that do not so qualify
("Nonqualified Stock Options"). Pursuant to the Option Plan, up to 53,475 shares
of Common Stock (subject to adjustment) will be reserved for issuance by the
Bank upon exercise of stock options to be granted to certain officers and
employees of the Bank from time to time under the Option Plan. The purpose of
the Option Plan is to give certain officers and employees an opportunity to
acquire Common Stock and thereby help the Bank attract, retain and motivate key
employees and officers.

At April 30, 1996, 29,409 shares of Common Stock were granted at the market
price of $11.87 and on December 31, 1996, 6,450 were granted at the market price
of $13.25. On October 31, 1999, 30, 000 shares of common stock were granted at
the market price of $5.375. No options were granted in 1998. The shares granted
on April 30, 1996 and December 31, 1996 were converted to 75,651 and 16,592
shares of PSB Bancorp, Inc. stock, respectively, due to the Conversion and
Reorganization.

If the bank had than elected to adopt the accounting provision of SFAS 123
then compensation cost would have reduced net income and earnings per share by
$241,232 and $.21 in 1996 and $151,200 and $.03 in 1999.

The weighted average fair value at date of grants for options granted in
1996 were $6.59 for options granted at April 30 and $7.35 for options granted at
December 31, 1996 and $2.52 for option granted on October 31, 1999. The fair
value of options at date of grant was estimated using the Black-Scholes Option
Pricing Model with the following assumptions: expected life 10 years, interest
rate 8.00%, volatility 17.00% and dividend yield of 0.00%. All options expire in
2006. All of the options remained outstanding at December 31, 1999 and 1998.

17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:

First Penn is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit generally
consisting of residential purchase money mortgage commitments, or the unfunded
portion of construction loans in process and standby letter of credit.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised of the undisbursed portion of construction loans and
residential loan origination's. First Penn's exposure to credit loss from
nonperformance by the other party to the financial instruments for commitments
to extend credit is represented by the contractual amount of those instruments.
First Penn uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Generally, collateral,
usually in the form of real estate, is required to support financial instruments
with credit risk.

F-34
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

18. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:

First Penn grants mortgage, consumer and construction loans primarily to
customers in Southeastern Pennsylvania and Southern New Jersey. Although the
Bank has a diversified loan portfolio, a substantial portion of its customers'
ability to honor their contracts is dependent upon the local economy. First
Penn's net investment in loans is subject to a significant concentration of
credit risk given that the investment is primarily within a specific geographic
area.

As of December 31, 1999 and 1998, the Bank had a net investment of $167.8
million and $121.2 million, respectively, in loans receivable. These loans
possess an inherent credit risk given the uncertainty regarding the borrower's
compliance with the terms of the loan agreement. To reduce credit risk, the
loans are secured by varying forms of collateral, including first mortgages on
real estate, liens on personal property, savings accounts, etc. It is generally
Bank policy to file liens on titled property taken as collateral on loans. In
the event of default, the Bank's policy is to foreclose or repossess collateral
on which it has filed liens.

In the event that any borrower completely failed to comply with the terms of
the loan agreement and the related collateral proved worthless, the Bank would
incur a loss equal to the loan balance.

19. COMMITMENTS:

In the normal course of business the Bank makes various commitments and is
exposed to certain contingent liabilities which are not reflected in the
accompanying financial statements. These commitments and contingent liabilities
include open-end credit available. At December 31, 1999 and 1998, the Bank's
customers had unused lines of credit available of $19.7 million and $9.4
million, respectively.

Outstanding commitments to originate loans are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans:
Fixed rates............................................... $ 110 $ 290
Variable rates............................................ 5,250 1,940
------ ------
$5,360 $2,230
====== ======
</TABLE>

Commitments under standby letters of credit totaled approximately $4,000 and
$361,000 at December 31, 1999 and 1998, respectively.

OTHER:

There has been no change in the action brought against the Bank on
January 9, 1997. This action was filed in the Court of Common Pleas of
Montgomery County, Pennsylvania, against eleven defendants including the Bank.
The action is related to a former loan customer whose loan was paid off from the
proceeds of a subsequent lender after which the customer filed for bankruptcy.
The complaint, filed by a subsequent lender, contains 20 separate counts against
the numerous defendants.

F-35
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

19. COMMITMENTS: (CONTINUED)
First Penn filed objections to the complaint and does not intend to answer the
complaint until the objections are resolved. The action is in the preliminary
discovery stage (interrogatories and requests for production of documents) and
depositions have not been scheduled. Management feels that the complaint
contains serious legal and procedural shortcomings. At this time, management
does not believe that the outcome of the case will have a material impact on the
Bank's financial position or results of operation.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not recognized
in the statement of financial position.

A financial instrument is defined as cash, evidence of an ownership interest
in equity, or a contract that both imposed on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity or
to exchange other financial instruments on potentially unfavorable terms with
the second entity, conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity or the exchange of
other financial instruments on potentially favorable terms with the first
entity.

The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Quoted market prices should be used
when available, if not available management's best estimate of fair value may be
based on quoted market price of financial instruments with similar
characteristics or on valuation techniques, such as using the present value of
estimated future cash flows using a discount rate commensurate with the
corresponding risk associated with those cash flows. These techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows and future economic conditions. In that regard,
the fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. In addition, these estimates are only indicative of individual
financial instruments' values and should not be considered an indication of the
fair value of the Bank taken as a whole. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements.

F-36
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

20. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
The following tables represents the carrying value and fair market value of
financial instruments as of December 31, 1999:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................. $ 17,275 $ 17,275
Investments securities available-for-sale............. 21,890 19,734
Mortgage-backed securities available-for-sale......... 48,693 45,951
Investment securities held-to-maturity................ 4,000 3,779
Mortgage-backed securities held-to-maturity........... 1,006 1,031
Loans receivable--net................................. 167,787 167,787
Loans held for sale................................... 8,221 8,221
Federal Home Loan Bank stock.......................... 2,056 2,056
Liabilities:
NOW, MMDA and Passbook accounts....................... 54,371 54,371
Certificate of Deposits............................... 128,535 128,535
</TABLE>

The following tables represents the carrying value and fair market value of
financial instruments as of December 31, 1998:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................. $ 47,527 $ 47,527
Investments securities available-for-sale............. 18,038 18,038
Mortgage-backed securities available-for-sale......... 22,074 22,074
Investment securities held-to-maturity................ 3,996 4,006
Mortgage-backed securities held-to-maturity........... 1,327 1,405
Loans receivable--net................................. 121,240 122,632
Loans held for sale................................... 6,938 6,938
Federal Home Loan Bank stock.......................... 572 572
Liabilities:
NOW, MMDA and Passbook accounts....................... 63,347 63,347
Certificate of Deposits............................... 122,308 122,631
</TABLE>

CASH AND CASH EQUIVALENTS:

The carrying amounts reported in the statement of financial condition for
cash and cash equivalents approximate the fair value for those assets.

INVESTMENTS SECURITIES:

The fair value for investments are based on quoted market prices.

F-37
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

20. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
MORTGAGE-BACKED SECURITIES:

The fair value of mortgage-backed securities issued by quasi-governmental
agencies is based on quoted market prices.

LOANS RECEIVABLE:

First Penn estimates that the fair value of its real estate, consumer and
commercial loans approximates the carrying amount. The carrying amount is
adjusted for the estimated future possible loan losses through a valuation
allowance. First Penn's real estate loan portfolio was $109.1 million and $100.1
million at December 31, 1999 and 1998, respectively with rates ranging from
6.00% to 10.00% and maturities through 30 years. First Penn's consumer loan
portfolio was $2.5 million and $1.2 million at December 31, 1999 and 1998,
respectively with rates ranging from 5.00% to 22.53% with maturities through 18
years. First Penn's commercial loan portfolio was $10.7 million and $13.2
million at December 31, 1999 and 1998, respectively with rates ranging from
8.25% to 10.25% with maturities through one year and monthly repayment terms.
First Penn's student loan portfolio was $40.5 million and $-0- at December 31,
1999 and 1998, respectively with rates of 9.50% which are held for sale and
contractually sold to an investor at par within 45 to 60 days of origination.
First Penn's SBA loan portfolio was $6.7 million and $8.3 million at
December 31, 1999 and 1998, respectively, with rates ranging from 6.00% to 8.75%
and maturities through 22 years.

DEPOSITS:

The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, NOW accounts, savings accounts and money market
accounts, is equal to the amount payable on demand as of December 31, 1999 and
1998. First Penn has not determined the fair values of its time deposits (e.g.
certificates of deposit) due to it not being practical to make such estimates
based on varying interest rates and maturities involved and the excessive cost
that would be incurred. Time deposits were $128.5 million and $122.3 million at
December 31, 1999 and 1998, respectively with rates ranging from 4.00% to 7.00%.

COMMITMENTS TO EXTEND CREDIT AND LETTERS TO CREDIT:

The majority of the Bank's commitments to extend credit and letters of
credit carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally unassignable by
either the Bank or the borrower, they only have value to the Bank and the
borrower. First Penn is unable to estimate the fair value of the recorded
deferred fee amounts.

21. OTHER INVESTMENTS:

On January 29, 1999, the Holding Company purchased 1,600,000 shares of
Series A Convertible Preferred Stock, $.01 par value per share, of McGuire
Performance Solutions, Inc. ("MPS"). The Holding Company purchased the shares
for $.78125 per share for a total cost of $1,250,000. The Holding Company owns
100% of MPS's Series A Convertible Preferred Stock. MPS is a nationally
recognized firm delivering cost-effective solutions for high performance total
balance sheet management to banks, thrifts, credit unions and other financial
institutions.

F-38
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

21. OTHER INVESTMENTS: (CONTINUED)
On March 31, 1999, the Holding Company purchased a convertible debenture in
the amount of $2.5 million with a rate of 5.45% from ZipFinancial.Com.Inc.
(d/b/a BankZip.com). The Company, which spun off in December 1999 from Patriot
Bank of Pottstown, is building a national network of community banks through
which Bank Zip would offer an end-to-end internet services, such as opening an
account, account balances and transferring funds. In addition to software, Bank
Zip is proposing to give participating community institutions access to customer
service through a call center it would operate and marketing that would be
conducted on a national scale. Alliance Partners (community banks), also offer a
national portfolio of BankZip.com co-branded financial service products,
including brokerage and insurance. Once an Alliance Partner is signed up, the
service can be deployed in as few as thirty days. Currently, BankZip.com is
enabling Alliance Partners in the Northeast to support their launch in the
Philadelphia market in May 2000. Fully developed, BankZip.com will support over
300 banks with as many as 4,000 branches and 5,000 ATMs across the nation within
five years.

First Penn invested $795,000 in the common stock of JADE Financial, the
Holding Company for IGA Federal Savings.

22. EARNINGS PER SHARE:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999,
--------------------------------------
INCOME SHARES PER SHARE
NUMERATOR DENOMINATOR AMOUNT
---------- ------------ ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.... $2,084 4,365 $.48
Effect of Dilutive Securities:
Stock options.............................. -- 802 --
------ ----- ----
Diluted EPS:
Income available to common stockholders and
assumed conversions...................... $2,084 5,167 $.40
====== ===== ====

<CAPTION>
YEAR ENDED DECEMBER 31, 1999,
--------------------------------------
INCOME SHARES PER SHARE
NUMERATOR DENOMINATOR AMOUNT
---------- ------------ ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.... $1,664 4,394 $.38
Effect of Dilutive Securities:
Stock options.............................. -- 728 --
------ ----- ----
Diluted EPS:
Income available to common stockholders and
assumed conversions...................... $1,664 5,122 $.32
====== ===== ====
</TABLE>

F-39
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

23. OTHER COMPREHENSIVE INCOME:

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes requirements for the disclosure
of comprehensive income in financial statements. Comprehensive income is defined
as net income plus transactions and other occurrences which are the result of
nonowner changes in equity. For financial statement presented for the Bank,
nonowner equity changes are only comprised of unrealized gains or losses on
available for sale debt securities that will be accumulated with net income in
operations and is effective for years beginning after December 15, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Adoption of this standard did not have an
impact on the Savings Bank's results of operations. Changes in the balance of
Accumulated Other Comprehensive Income in the Consolidated Statement of
Stockholders' Equity and Consolidated Statement of Comprehensive Income are the
direct result of changes in the unrealized gains (losses) on available for sale
debt securities.

24. NEW PRONOUNCEMENTS:

In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities" an amendment of FASB Statement No. 133. The
statement becomes effective for fiscal years beginning after June 15, 1999 and
will not be applied retroactively. The statement establishes accounting and
reporting standards for derivative instruments and hedging activity. Under the
standard, all derivatives must be measured at fair value and recognized as
either assets or liabilities in the financial statements.

The accounting for changes in fair value (gains and losses) of a derivative
is dependent on the intended use of the derivative and its designation.
Derivatives may be used to: 1) hedge exposure to change the fair value of a
recognized asset or liability or a firm commitment, referred to as a fair value
hedge, 2) hedge exposure to variable cash flow of forecasted transactions,
referred to as a cash flow hedge, or 3) hedge foreign currency exposure.

First Penn does not currently have any derivative instruments or participate
in any hedging activity.

The FASB issued Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("SFAS No. 134")
during October 1999, which becomes effective for all periods beginning after
December 15, 1999. SFAS No. 134 conforms the accounting by mortgage banking
enterprises for mortgage-backed securities subsequent to securitization of other
types of assets by non-mortgage banking enterprises. This statement should not
have an material impact on the Savings Bank's results of operations.

F-40
<PAGE>
PSB BANCORP, INC

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

(IN THOUSANDS)

<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks................................... $ 5,185 $ 7,921
Interest bearing deposits with banks...................... 7,887 9,354
Investment securities--available-for-sale, at fair
value................................................... 23,934 22,685
Mortgage-backed securities available-for-sale, at fair
value................................................... 42,843 45,951
Mortgage-backed securities held-to-maturity (fair value of
$943 and $1,032)........................................ 943 1,006
Investment securities held-to-maturity (fair value of
$3,836 and $3,779)...................................... 4,000 4,000
Investment in BankZip.Com................................. 1,250 2,500
Investment in Iron Bridge................................. 1,663 1,250
Loans, less allowance for loan losses of $1,349 and
$1,231, respectively.................................... 160,820 167,787
Loans held for sale....................................... 7,927 8,221
Property acquired through loan foreclosure actions, net... 1,169 1,047
Premises and equipment, net............................... 1,817 1,692
Accrued interest receivable............................... 2,551 2,446
Prepaid corporate taxes................................... 773 784
Deferred tax asset........................................ 2,426 1,459
Other assets.............................................. 1,123 1,505
-------- --------
TOTAL ASSETS.......................................... $266,311 $279,608
======== ========

LIABILITIES
Deposits
Non-interest bearing.................................... 16,301 14,720
Interest bearing........................................ 159,090 178,490
-------- --------
175,391 193,210
Borrowed Funds............................................ 38,000 34,000
Securities purchased under agreements to resell........... 13,340 15,640
Income taxes payable...................................... 695 45
Accrued interest payable.................................. 646 515
Other liabilities......................................... 887 151
-------- --------
Total liabilities..................................... 228,959 243,561

SHAREHOLDERS' EQUITY
Common stock-authorized, 15,000,000 shares no par value
issued and outstanding, 4,455,007....................... 0 0
Treasury Stock............................................ (489) 0
Additional paid-in capital................................ 40,829 40,873
Employee stock ownership plan............................. (1,239) (1,359)
Accumulated earnings/deficit.............................. 630 (1,136)
Accumulated other comprehensive income (loss)............. (2,379) (2,331)
-------- --------
Total shareholders' equity............................ 37,352 36,047
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $266,311 $279,608
======== ========
</TABLE>

(The accompanying notes are an integral part of these financial statements.)

F-41
<PAGE>
PSB BANCORP, INC

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
INTEREST INCOME
Loans, including fees..................................... $3,878 $3,421
Investment securities..................................... 1,183 1,207
Deposits with banks....................................... 65 138
------ ------
Total interest income................................... 5,126 4,766
INTEREST EXPENSE
Interest on deposits...................................... 1,937 2,120
Interest on borrowings.................................... 765 185
Interest--other........................................... 0 0
------ ------
Total interest expense.................................. 2,702 2,305
Net interest income................................... 2,424 2,461
PROVISION FOR LOAN LOSSES................................... 0 0
------ ------
Net interest income after provision for loan losses....... 2,424 2,461
------ ------
NON-INTEREST INCOME......................................... 144 302
------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits............................ 1,063 893
Occupancy and equipment................................... 303 323
Other operating........................................... 677 652
------ ------
Total non-interest expense.............................. 2,043 1,868
------ ------
Loss on investment in Iron Bridge........................... 23 0
------ ------
Income before income taxes.............................. 502 895
------ ------
INCOME TAXES................................................ 175 104
------ ------
NET INCOME FOR PERIOD....................................... $ 327 $ 791
====== ======
Net income per common share
Basic................................................... $ .08 $ .17
Diluted................................................. .07 .14
</TABLE>

(The accompanying notes are an integral part of these financial statements.)

F-42
<PAGE>
PSB BANCORP, INC

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
INTEREST INCOME
Loans, including fees..................................... $12,019 $ 9,551
Investment securities..................................... 3,672 2,919
Deposits with banks....................................... 108 798
------- -------
Total interest income................................... 15,799 13,268
INTEREST EXPENSE
Interest on deposits...................................... 5,859 6,236
Interest on borrowings.................................... 1,917 301
Interest--other........................................... 0 0
------- -------
Total interest expense.................................. 7,776 6,537
Net interest income................................... 8,023 6,731
------- -------
PROVISION FOR LOAN LOSSES................................... 100 0
------- -------
Net interest income after provision for loan losses....... 7,923 6,731
------- -------
NON-INTEREST INCOME......................................... 468 866
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits............................ 3,218 2,611
Occupancy and equipment................................... 867 936
Other operating........................................... 1,961 1,912
------- -------
Total non-interest expense.............................. 6,046 5,459
------- -------
Loss on Investment in Iron Bridge........................... 87 0
------- -------
Income before income taxes.............................. 2,258 2,138
INCOME TAXES................................................ 650 221
------- -------
NET INCOME FOR PERIOD....................................... $ 1,608 $ 1,917
======= =======
Net income per common share
Basic..................................................... $ .37 $ .42
Diluted................................................... .33 .33
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
PSB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Income for Period....................................... $1,608 $ 1,917 $ 327 $ 791
Other comprehensive income, net of tax:..................... -- -- -- --
Change in accumulated Other comprehensive income (loss)..... (48) (1,754) (266) (504)
------ ------- ----- -----
Total comprehensive income.............................. $1,560 $ 163 $ 61 $ 287
====== ======= ===== =====
</TABLE>

F-44
<PAGE>
PSB BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 1,608 $ 1,917
-------- --------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of premium/discount on mortgage-backed
Securities............................................ 52 38
Depreciation and amortization........................... 149 247
Write-down and expenses of real estate owned............ 153 358
Gain (loss) on sale of real estate owned................ 0 0
Gain (loss) on sale of loans............................ 119 (391)
Provision for losses on loans........................... 100 0
Loan loss recovery...................................... 18 0
Increase in deferred taxes.............................. (359) (1,835)
Compensation expense--Employee Stock Ownership Plan..... 120 105
Decrease in allowance to reduce investments to market... (332) 0
Change in assets and liabilities:
Decrease (increase) in loans held for sale............ 294 (1,094)
(Increase) in accrued interest receivable............. (105) (304)
(Increase) in prepaid expenses and other assets....... (226) (1,077)
Decrease in prepaid corporate taxes................... 11 67
Increase in corporate taxes payable................... 650 28
Increase (decrease) in accrued interest payable....... 131 (91)
Increase in accrued expenses & other liabilities...... 736 438
-------- --------
Total Adjustments....................................... 1,511 (3,511)
-------- --------
Net cash provided (used) by operating activities.... 3,119 (1,594)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities, available for
sale.................................................... 0 (28,905)
Purchase of investment securities, available-for-sale..... (413) (6,597)
Maturities of investment securities, available-for-sale... 0 1,000
Mortgage-backed security maturities and principal
repayments.............................................. 3,949 2,515
Acquisition costs of and proceeds from the sale of Federal
Home Loan Bank stock.................................... (550) 249
Proceeds from sale of real estate owned net of
improvements............................................ 352 582
Property acquired through loan foreclosure action......... (626) (6)
Capital expenditures...................................... (275) (153)
Decrease (increase) in total loans receivable, net........ 6,849 (42,722)
-------- --------
Net cash provided (used) by investing activities.... 9,286 (74,037)
-------- --------
</TABLE>

F-45
<PAGE>
PSB BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease Increase in deposits, net....................... $(17,526) $ 12,166
Decrease in employee stock ownership plan................. 0 (234)
Change in advances for borrowers' taxes and insurance..... (293) (320)
Proceeds from borrowed funds.............................. 4,000 10,000
Purchase of treasury stock................................ (489) 0
Change in securities purchased under agreements to
resell.................................................. (2,300) 13,530
-------- --------
Net cash provided (used) by financing activities.... (16,608) 35,142
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (4,203) (40,489)
Cash and Cash equivalents, beginning of period............ 17,275 47,526
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 13,072 7,037
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings..................... $ 7,776 $ 6,537
======== ========
Income taxes............................................ $ 650 $ 221
======== ========
Non-cash Activities..................................... $ 626 $ 0
======== ========
</TABLE>

F-46
<PAGE>
PSB BANCORP, INC.

NOTE TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2000

(UNAUDITED)

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of PSB Bancorp,
Inc. ("PSB") and its wholly-owned subsidiary, First Penn Bank. Significant
inter-company accounts and transactions have been eliminated. The information
contained in this interim report is unaudited and subject to year-end adjustment
and audit. However, in the opinion of management, the information reflects all
adjustments necessary to present fairly the financial condition and results of
operations for the periods presented. All such adjustments were of a normal
recurring nature. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the full
fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on form 10K for the
year ended December 31, 1999.

MERGERS

On October 12, 1999, the Company completed its acquisition of First Bank of
Philadelphia ("First Bank"). In connection with the acquisition, each
outstanding share of First Bank was exchanged for .857 shares of PSB common
stock. In addition, options to acquire 1,612,500 shares of First Bank have been
converted into options to acquire 1,381,912 shares of the Company's common
stock.

As part of the transaction, PSB merged Pennsylvania Savings Bank, which held
a state savings bank charter, with and into First Bank, which held a state
commercial bank charter. The resulting operating subsidiary operates under the
name of First Penn Bank (the "Bank") and holds a commercial bank charter. This
provides the Bank with greater lending flexibility, particularly with respect to
commercial loans. First Penn operates seven branches including two in Center
City Philadelphia, and one in Montgomery County, Pennsylvania.

The transaction was accounted for as a pooling of interests for financial
reporting purposes, and as a tax-free reorganization for tax purposes.

On November 2, 2000 PSB Bancorp, Inc. and Jade Financial Corp announced the
execution of a definitive Agreement & Plan of Merger pursuant to which PSB will
acquire Jade Financial Corp. and its wholly-owned subsidiary, IGA Federal
Savings Bank in a cash transaction valued at approximately $24.1 million.
Pursuant to the agreement, PSB will purchase all of the outstanding shares of
Jade Financial Corp. that PSB does not already own or that are not owned by the
JADE Employee Stock Ownership Plan ("ESOP")for $13.55 per share in cash. The
Jade ESOP may receive cash, PSB stock or a combination of both. PSB will
purchase its own shares in open market and privately-negotiated transactions in
order to provide shares for exchange with the ESOP.

In connection with the transaction, Jade's wholly-owned subsidiary IGA
Federal Savings Bank will merge with and into PSB's wholly-owned subsidiary,
First Penn Bank with the commercial bank charter of First Penn Bank surviving
the merger.

STOCK BUYBACK PROGRAM

Consistent with the commitment to enhance shareholder value, the Board of
Directors of PSB Bancorp, Inc approved a stock buyback program on March 16,
2000, under which PSB may acquire a

F-47
<PAGE>
PSB BANCORP, INC.

NOTE TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000

(UNAUDITED)

STOCK BUYBACK PROGRAM (CONTINUED)
maximum of 5.0%, or 218,532 shares, of its common stock in open market and
privately negotiated transactions. To date 87,500 of authorized shares have been
repurchased and retired by PSB.

BUSINESS STRATEGY

First Penn's strategy is to maximize profitability by providing quality
deposit and loan products in an efficient manner as a well-capitalized and
independent financial institution. Generally, the Bank seeks to implement this
strategy by emphasizing retail deposits as its primary source of funds and by
maintaining a substantial part of its assets in locally-originated residential
first mortgage, commercial real estate loans, commercial business loans,
construction loans and student loans, mortgage-backed securities and other
liquid investment securities. First Penn's business strategy incorporates the
following elements: (1) increasing assets by expanding its retail branch network
to include other contiguous segments of the metropolitan Philadelphia market,
(2) expanding its lending operations throughout the metropolitan Philadelphia
area and the adjacent counties of Pennsylvania, New Jersey and Delaware, and
(3) increasing net interest income and reducing interest rate risk by
emphasizing the origination of commercial real estate, construction, commercial
business and student loans which generally bear higher interest rates and have
shorter terms than residential mortgage loans.

INVESTMENT VALUATION

PSB, together with three other financial institutions participated in the
initial capitalization of BankZip.com, an internet banking company. The total
capitalization of BankZip was $13.9 million and PSB contributed $2.5 million in
the form of a convertible note. On September 15, 2000, an involuntary bankruptcy
petition was filed against ZipFinancial.Com, Inc. by one of its vendors, the
petition was subsequently dismissed on October 23, 2000. On November 2, 2000,
BankZip completed $410,000 in additional financing and is seeking additional
financing of $1.5 to $2.0 million. The company has entered into a term sheet
with a strategic investor to provide a $1.0 million line of credit. The ability
to draw on the line of credit will be dependent on sales. The continued
viability of the company is dependent on its ability to raise additional
capital. No assurances can be given that the company will be able to raise
additional capital. To reflect the uncertainty surrounding this investment, as
of September 30, 2000, PSB has established an equity account valuation reserve
pursuant to SFAS 115 of 50% or $1.25 million while BankZip seeks additional
financing.

EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed based on the weighted average
number of shares of common stock outstanding during the periods presented. Stock
options are considered common stock equivalents and are included in the
computation of dilutive EPS using the treasury stock method, unless
anti-dilutive.

F-48
<PAGE>
PSB BANCORP, INC.

NOTE TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000

(UNAUDITED)

EARNINGS PER SHARE (CONTINUED)
The following table reconciles the numerators and denominators of the basic
and diluted EPS computations for the Bank's net income for the three and nine
months ended September 30, 2000:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders... $ 327,000 4,455,007 --
Uncommitted Shares........................ -- (138,241) --
----------
4,316,766 $.08
====
Effect of Dilutive Securities:
Options................................... 391,728
----------
Diluted EPS:
Income available to common shareholders... $ 327,000 4,708,494 $.07
====

<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders... $1,608,000 4,455,007
Uncommitted Shares........................ (138,241)
----------
4,316,766 $.37
====
Effect of Dilutive Securities:
Options................................... 487,705
----------
Diluted EPS:
Income available to common shareholders... $1,608,000 4,804,471 $.33
====
</TABLE>

F-49
<PAGE>
PSB BANCORP, INC.

NOTE TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders... $ 791,000 4,538,222
Uncommitted Shares........................ (156,078)
---------
4,382,144 $.18
====
Effect of Dilutive Securities:
Options................................... 630,482
---------
Diluted EPS:
Income available to common shareholders... $ 791,000 5,012,626 $.16
====

<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders... $1,917,000 4,538,222
Uncommitted Shares........................ (156,078)
---------
4,382,144 $.44
====
Effect of Dilutive Securities:
Options................................... 612,061
---------
Diluted EPS:
Income available to common shareholders... $1,917,000 4,994,205 $.39
====
</TABLE>

F-50
<PAGE>
JADE FINANCIAL CORP.
AND SUBSIDIARIES
(FORMERLY IGA FEDERAL SAVINGS BANK)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999

F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
JADE Financial Corp. and Subsidiaries

We have audited the accompanying consolidated statement of financial
condition of JADE Financial Corp. and Subsidiaries as of December 31, 1999 and
the related consolidated statements of income, equity and cash flows for the
year ended December 31, 1999 and the accompanying consolidated statement of
financial condition of IGA Federal Savings Bank and Subsidiary as of
December 31, 1998 and the related consolidated statements of income, equity and
cash flows for the six months ended December 31, 1998 and the year ended
June 30, 1998. These consolidated financial statements are the responsibility of
JADE Financial Corp. and the Savings Bank's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audit 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 audit provides 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 JADE
Financial Corp. and Subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the year then ended and the financial
position of IGA Federal Savings Bank and Subsidiary and the results of their
operations and their cash flows as of six months ended December 31, 1998 and the
year ended June 30, 1998, in conformity with generally accepted accounting
principles.

/s/ Stockton Bates & company
Certified Public Accountants

Philadelphia, Pennsylvania
February 4, 1999

F-52
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES
(FORMERLY IGA FEDERAL SAVINGS BANK)

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

DECEMBER 31, 1999 AND 1998

F-53
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents due from banks.................. $ 6,630 $ 8,388
Interest bearing deposits in other financial
institutions............................................ 47 1,237
Federal funds............................................. 6,565 8,726
INVESTMENTS:
Investment securities available-for-sale, at fair value... 40,783 28,726
Mortgage-backed securities available-for-sale, at fair
value................................................... 8,859 10,176
Mortgage-backed securities held-to-maturity (fair value of
$4,208 and $6,541)...................................... 4,314 6,635
BANKZIP.COM--Investment (See Note 2)........................ 2,500 --
LOANS RECEIVABLE, net....................................... 114,081 102,900
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of
accumulated depreciation.................................. 1,890 1,962
ACCRUED INTEREST RECEIVABLE................................. 802 646
FEDERAL HOME LOAN BANK STOCK, at cost....................... 834 834
REORGANIZATION COSTS, net................................... 162 195
DEFERRED TAX ASSET, net..................................... 1,177 44
BANK OWNED LIFE INSURANCE--Cash Surrender Value............. 10,021
PREPAID EXPENSES AND OTHER ASSETS........................... 911 622
-------- --------
TOTAL ASSETS............................................ $199,576 $171,091
======== ========

LIABILITIES AND EQUITY
LIABILITIES:
Deposits.................................................. $156,124 $154,888
Advances from borrowers for taxes and insurance........... 618 521
Note payable--FHLB........................................ 15,000 --
Accounts payable and accrued expenses..................... 594 406
-------- --------
Total liabilities....................................... 172,336 155,815
-------- --------
EQUITY:
Commitments and contingencies, (See Note 15)
Common Stock, par value 1,872,923 shares authorized
1,742,423 shares issued and outstanding for
December 31, 1999....................................... 19 --
Additional Paid in Capital................................ 14,130 --
Retained earnings, (See Note 11 and 12)................... 15,853 15,560
ESOP...................................................... (1,044) --
Accumulated other comprehensive income.................... (1,718) (284)
-------- --------
Total equity............................................ 27,240 15,276
-------- --------
TOTAL LIABILITIES AND EQUITY............................ $199,576 $171,091
======== ========
</TABLE>

(See Accompanying Notes)

F-54
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1998
------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans........................................ $ 8,947 $4,275 $ 8,734
Investments and mortgage-backed securities............... 3,077 1,210 2,002
Interest-earning deposits................................ 75 51 430
Federal funds............................................ 291 253 310
Interest--Bankzip.com.................................... 9 -- --
Other.................................................... 117
------- ------ -------
Total interest income.................................. 12,516 5,789 11,476
------- ------ -------
INTEREST EXPENSE:
Interest on borrowed funds............................... 116 -- --
Interest on deposits..................................... 5,380 2,762 5,475
------- ------ -------
Net interest income.................................... 7,020 3,027 6,001
------- ------ -------
PROVISION FOR POSSIBLE LOAN LOSSES......................... 520 300 1,038
------- ------ -------
Net interest income after provision for possible loan
losses............................................... 6,500 2,727 4,963
------- ------ -------
NONINTEREST INCOME:
Loan fees................................................ 121 80 295
Service charges.......................................... 445 258 592
Other income............................................. 573 268 71
Gain on sale of securities............................... -- 198 --
------- ------ -------
Total noninterest income................................... 1,139 804 958
======= ====== =======
NONINTEREST EXPENSES:
Compensation and employee benefits....................... $ 3,182 $1,496 $ 2,612
Office and occupancy costs............................... 1,210 817 942
Printing and postage..................................... 240 28 246
Loan servicing........................................... 180 77 183
Professional fees........................................ 183 312 165
Bank and MAC charges..................................... 726 264 642
Advertising, marketing, and promotions................... 170 102 104
Insurance expenses....................................... 112 23 155
Foundation Expense....................................... 725 -- --
Other.................................................... 511 -- 209
------- ------ -------
Total noninterest expenses............................. 7,239 3,119 5,258
------- ------ -------
INCOME BEFORE PROVISION FOR INCOME TAXES................... 400 412 663
------- ------ -------
Provision for federal and state income taxes:
Current................................................ 355 190 N/A
Deferred............................................... (248) (44) N/A
------- ------ -------
Total income tax provision........................... 107 146 N/A
------- ------ -------
NET INCOME................................................. $ 293 $ 266 $ 663
======= ====== =======
BASIC EARNINGS PER SHARE................................... $ 0.17 N/A N/A
=======
DILUTED EARNINGS PER SHARE................................. $ 0.17 N/A N/A
=======
</TABLE>

(See Accompanying Notes)

F-55
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
RESTRICTED, ACCUMULATED
ADDITIONAL REGULAR UNRESTRICTED OTHER
COMMON PAID IN RESERVE UNDIVIDED COMPREHENSIVE TOTAL COMPREHENSIVE
STOCK CAPITAL FUND EARNINGS INCOME EQUITY INCOME
-------- ---------- ----------- ------------ -------------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997.......... $ -- $ -- $ 3,680 $10,951 $ (385) $14,246 $ --
Transfers to reflect provision
for loan losses............. -- -- (1,038) 1,038 -- -- --
Transfers to regular reserve
fund in accordance with
Section 116 of the Federal
Credit Union Act............ -- -- 604 (604) -- -- --
Net income.................... -- -- -- 663 -- 663 663
Change in unrealized loss on
investment and
mortgage-backed securities
available-for-sale.......... -- -- -- -- 171 171 171
---- ------- ------- ------- ------- ------- -------
Total Comprehensive
Income.................... $ 834
=======
BALANCE, JUNE 30, 1998.......... -- -- 3,246 12,048 (214) 15,080
==== ======= ======= ======= ======= =======
Transfers of balance on 7/1/98
when Credit Union converted
to Savings Bank............. -- -- (3,246) 3,246 --
Net income.................... -- -- -- 266 -- 266 $ 266
Change in unrealized loss on
investment and
mortgage-backed securities
available-for-sale, net of
taxes....................... -- -- -- -- (70) (70) (70)
---- ------- ------- ------- ------- ------- -------
Total Comprehensive
Income.................... $ 196
=======
BALANCE, DECEMBER 31, 1998...... -- -- -- 15,560 (284) 15,276
==== ======= ======= ======= ======= =======
Net income.................... -- -- -- 293 -- 293 $ 293
Additional paid in capital.... -- 14,130 -- -- -- 14,130
Common stock issuance-at
par......................... 19 -- -- -- -- 19
ESOP.......................... -- -- -- (1,044) -- (1,044)
Change in unrealized loss on
investment and
mortgage-backed securities
available-for-sale, net of
taxes....................... -- -- -- -- (1,434) (1,434) (1,434)
---- ------- ------- ------- ------- ------- -------
Total Comprehensive Income
(Loss).................... $(1,141)
=======
BALANCE, DECEMBER 31, 1999...... $ 19 $14,130 $ -- $15,853 $(1,718) $27,240
==== ======= ======= ======= ======= =======
</TABLE>

See Accompanying Notes

F-56
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1998
------------- ---------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 293 $ 266 $ 663
Adjustments to reconcile net income to net cash used
in operating activities:
Amortization of premium/discount on investments
and mortgage-backed securities.................. 82 82 90
Depreciation and amortization..................... 414 134 334
Write-down and expenses of real estate owned...... -- -- 9
Gain on sale of investment securities............. -- (198) --
Discount on first mortgages....................... -- -- 19
Loss on sale/disposal of asset.................... -- -- 17
Provision for losses on loans..................... 520 300 1038
Increase in deferred taxes........................ 1,133) (44) --
Change in operating assets and liabilities:
Increase (decrease) in accrued interest
receivable.................................... (156) 491 (135)
Increase in prepaid expenses and other assets... (289) (204) (197)
Increase in accounts payable and accrued
expenses...................................... 188 139 59
-------- -------- --------
Net cash provided by operating activities..... (81) 524 1,897
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, Bankzip.com...... (2,500) -- --
Purchase of Bank owned Life Insurance............... (10,021) -- --
Purchase of investment securities,
available-for-sale................................ (19,020) (42,810) (15,500)
Purchase of FHLB Stock.............................. -- (834) --
Sales of investment securities,
available-for-sale................................ -- 27,000 --
Purchase of mortgage-backed security,
available-for-sale................................ (2,486) (5,776)
Mortgage-backed security maturities and principal
repayments, available-for-sale.................... 2,842 3,632 4,875
Maturities and principal repayments of
mortgage-backed securities, held-to-maturity...... 2,321 2,907 4,668
Maturities and principal repayments of investment
securities, available-for-sale.................... 6,143 7,278 3,881
Increase in total loans receivable, net............. (11,402) (4,804) (3,848)
Capital expenditures................................ (343) (478) (590)
Proceeds from sale of real estate owned net of
expense........................................... -- -- 203
Proceeds from sale of loans......................... -- -- 4,854
Proceeds from sale of equipment..................... -- -- 50
Increase in share insurance fund.................... -- -- 78
-------- -------- --------
Net cash provided by (used in) investing
activities.................................. (34,466) (6,818) (7,105)
-------- -------- --------
</TABLE>

F-57
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1998
------------- ---------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net................ $ 1,236 $ 10,954 $ (5,912)
Issuance of common stock............................ 14,149 -- --
Increase in ESOP.................................... (1,044) -- --
Increase in Notes Payable FHLB...................... 15,000 -- --
Change in advances from borrowers' for taxes and
insurance......................................... 97 (50) 119
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 29,438 10,904 (5,793)
-------- -------- --------
NET (INCREASE) DECREASE IN CASH AND CASH
EQUIVALENTS......................................... (5,109) 4,610 (11,001)
-------- -------- --------
Cash and cash equivalents, beginning of year........ 18,351 13,741 24,742
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................ $ 13,242 $ 18,351 $ 13,741
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on borrowed funds........................ $ 116 $ -- $ --
Interest on deposits.............................. 5,380 2,762 5,475
Noncash activities:
Loans transferred to real estate owned............ 16 -- --
Increase (decrease) in unrealized loss on
investment mortgage-backed securities
available-for-sale, net of taxes................ $ 1,434 $ 70 $ (171)
</TABLE>

See Accompanying Notes

F-58
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF ORGANIZATION:

JADE Financial Corp. (the Company) is not an operating company and has not
engaged in any significant business to date. It was formed as a
Pennsylvania-chartered corporation and the holding company for the Bank and
other subsidiaries.

IGA Federal Savings Bank and Subsidiary (the Bank) was organized as a
federal mutual savings bank primarily serving customers in Pennsylvania,
counties in Philadelphia, Bucks, Chester and Delaware counties. The Bank,
through its five branches, provide financial services to individuals, families
and small business. Historically emphasizing consumer loans, including auto,
credit card and personal loans, and residential real estate loans, including
home equity loans and one-to-four family first mortgage loans, the bank is also
starting to offer a variety of commercial loan products.

IGA Federal Savings Bank, originally was established in 1975 as IGA Federal
Credit Union. IGA Federal Credit Union on July 1, 1998 converted from a credit
union to IGA Federal Savings Bank., a federal mutual savings bank.

CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP:

On May 26, 1999, the Board of Directors of the Company adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal capital
stock savings bank. The conversion was accomplished through the formation of the
Holding Company in July, 1999, the adoption of a federal stock charter, and the
sale of all of the Company's stock to the Holding Company on October 4, 1999.

The Holding Company issued 1,872,923 shares in connection with the
Conversion. Gross proceeds from the offering were $14,983,384, which includes
the $8 value of the 145,000 shares issued to the IGA Employee Stock Ownership
Plan and 60,420 shares sold to the Company for transfer to the IGA Charitable
Foundation.

Conversion cost of $835,000 was charged against proceeds from the offering.

The Company issued all its outstanding capital stock to the Holding Company
in exchange for approximately one-half of the net proceeds. The Holding Company
accounted for the purchase in a manner similar to a pooling of interests whereby
assets and liabilities of the Company maintain their historical cost basis in
the consolidated company.

JADE Financial Corp. was organized at the direction of the Board of
Directors of IGA for the purpose of becoming a holding company to own all of the
outstanding capital stock of IGA. Upon completion of the stock conversion on
October 4, 1999, IGA became a wholly-owned subsidiary of JADE Financial Corp.
JADE Financial Corp. is engaged primarily in the business of directing, planning
and coordinating the business activities of IGA, and has also organized two new
operating subsidiaries, JADE Abstract and JADE Insurance Agency.

F-59
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
JADE Abstract is a licensed title insurance agency founded for the purpose
of originating title insurance to the customers of IGA Federal Savings Bank,
other financial institutions, attorneys, accountants, real estate brokers,
builders, and the private consumer. The market area includes southeastern
Pennsylvania, namely, the Philadelphia five county region. JADE Abstract is
operating with a three-person board of directors and employs a full time
licensed title agent. Title insurance protects the lender and the homebuyer
against any title defects when a new home is purchased. Premiums for title
insurance are traditionally paid by the borrower and are a cost of obtaining
financing secured by real estate. It also provides protection to the lender when
a borrower refinances a home. Title insurance may be required on both
residential and commercial transactions.

JADE Insurance Agency, a Pennsylvania Corporation and a wholly-owned
subsidiary of JADE Financial Corp., was formed for the purpose of providing a
diverse set of insurance programs to meet the needs of existing and potential
customers as well as to provide programs to other financial institutions such as
credit unions and community banks. The products outlined in the business plan
will generate not only excellent fee income to the agency, but will also provide
comprehensive service to existing IGA Federal Savings Bank customers and the
general public. Insurance products such as Accidental Death & Dismemberment
(AD&D), Term life, Long-term Care, Auto, Homeowner, Whole Life, Universal Life,
Health, Collateral Protection and Mortgage Life will be marketed through a
direct mail program as well as a point of sale program. The Agency has enlisted
the help of strategic partners in the development and marketing of the insurance
products. As of December 31, 1999, there had been no income or expenses related
to this subsidiary.

The Bank competes with other banking and financing institutions in its
primary markets. Commercial banks, savings banks, savings and loan associations,
mortgage bankers and brokers, credit unions and money market funds actively
compete for deposits and loans in the Bank's market area. Such institutions, as
well as consumer finance, mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of the Bank with respect
to one or more of the services it renders.

PRINCIPLES OF PRESENTATION:

The consolidated financial statements include the accounts of JADE and its
wholly-owned subsidiaries, IGA Federal Savings Bank and Subsidiary (Cuiga), JADE
Insurance Company and JADE Abstract Inc. All significant intercompany accounts
and transactions have been eliminated.

IMPACT OF YEAR 2000:

The Bank was well prepared to enter the new year at midnight on January 1,
2000. Contingency and event plans were in effect as the century rollover took
place. No material defects or problems were experienced with hardware, software,
equipment, or operations.

F-60
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS:

Cash and cash equivalents include cash on hand, demand deposits maintained
in depository institutions, other readily convertible investments with original
contractual terms to maturity of three months or less.

SECURITIES:

The Bank divides its securities portfolio into two segments:
(a) held-to-maturity and (b) available-for-sale. Securities in the
held-to-maturity category are accounted for at cost, adjusted for amortization
of premiums and accretion of discounts, using the level yield method, based on
the Bank's intent and ability to hold the securities until maturity. Marketable
securities included in the available-for-sale category are accounted for at fair
value, with unrealized gains or losses, net of taxes, being reflected as
adjustments to equity. The fair value of marketable securities
available-for-sale is determined from publicly quoted market prices. Securities
available for sale which are not readily marketable, which include Federal Home
Loan Bank of Pittsburgh stock, are carried at cost which approximates
liquidation value.

At the time of purchase, the Bank makes a determination of whether or not it
will hold the securities to maturity, based upon an evaluation of the
probability of future events. Securities, which the Bank believes may be
involved in interest rate risk, liquidity, or other asset/liability management
decisions, which might reasonably result in such securities not being
held-to-maturity, are classified as available-for-sale. If securities are sold,
a gain or loss is determined by specific identification method and is reflected
in the operating results in the period the trade occurs.

Gains and losses realized on sales of investment and mortgage-backed
securities represent differences between the net proceeds and carrying values
determined by the specific identification method.

LOANS AND ALLOWANCE FOR LOAN LOSSES:

Loans that the Bank has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid principal,
reduced by deferred loan fees and an allowance for possible loan losses and
increased by deferred loan origination costs. Interest on loans is recognized
over the term of the loan and is calculated using the simple-interest method on
principal amounts outstanding. The allowance for possible loan losses is
established through a provision for possible loan losses charged to expense.
Loans are charged against the allowance for possible loan losses when management
believes that the collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrower's ability to pay.

Accrual of interest is discontinued for those loans which are 90 days or
more delinquent, or sooner if management believes, after considering economic
and business conditions and collection efforts, that

F-61
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the borrower's financial condition is such that the collection of interest is
doubtful. When a loan is placed on nonaccrual status, all uncollected interest
is charged off.

LOAN ORIGINATION FEES AND LOAN ORIGINATION COSTS:

Loan origination fees received in excess of loan origination costs are
deferred and amortized over the contract lives of the loans, using a method
which approximates the level yield method. In the event that the related loans
are sold, such net deferred fees are recognized as income in the period of sale.
Deferred origination costs relating to consumer loans are amortized over the
estimated life of the consumer loan portfolio.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Land is carried at cost. Property, equipment and leasehold improvements are
stated at cost less accumulated depreciation and amortization. Depreciation is
computed based on cost using the straight-line method over estimated useful
lives of 35 years for buildings and improvements, 2-15 years for office
furniture, equipment and leasehold improvements and 3 years for transportation
equipment. Improvements to leased property are amortized over the lesser of the
life of the lease or the improvements.

Maintenance and repairs of property, equipment and leasehold improvements
are charged to operations and major improvements are capitalized. Upon
retirement, sale or other disposition of property, equipment and leasehold
improvements, the cost and accumulated depreciation and amortization are
eliminated from the accounts and gain or loss is included in operations.

FINANCIAL STATEMENT PRESENTATION:

Certain items in prior periods financial statements have been reclassified
to conform to the 1999 presentation.

ADVERTISING:

Advertising costs are charged to operations when incurred and amounted to
$169,108, and $110,690 for the year ended December 31, 1999 and six months ended
December 31, 1998, and $104,000 for the year ended June 30, 1998, respectively.

REORGANIZATION COSTS:

On April 24, 1998, the JADE Board of Directors approved a resolution to
convert to a Federal Mutual Savings Association. Costs incurred with this
conversion is capitalized and is being amortized over 5 years using the
straight-line method beginning July 1, 1998, the date of conversion.

USE OF ESTIMATES:

The preparation of financial estimates in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

F-62
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The principal estimate that is susceptible to significant change in the near
term relates to the allowance for loan losses. The evaluation of the adequacy of
the allowance for loan losses includes an analysis of the individual loans and
overall risk characteristics and size of the different loan portfolios, and
takes into consideration current economic and market condition, the capability
of specific borrowers to pay specific loan obligations, as well as current loan
collateral values. However, actual losses on specific loans, which also are
encompassed in the analysis, may vary from estimated losses.

MORTGAGE SERVICING RIGHTS:

The Bank recognizes mortgage servicing rights as assets, regardless of how
such assets were acquired. Impairment of mortgage servicing rights is assessed
based upon a fair market valuation of those rights on a disaggregated basis.
Impairment, if any, is recognized in the statement of operations. There is no
impairment reflected in the mortgage servicing rights at December 31, 1999 and
1998.

CASH DEPOSITED IN FINANCIAL INSTITUTIONS:

JADE and its Subsidiaries maintains cash balances at other financial
institutions. Accounts at these financial institutions are insured by the
Federal Deposit Insurance Corporation up to one hundred thousand dollars. In the
normal course of business, JADE may have deposits that exceed the insured
balance.

EFFECT OF NEW ACCOUNTING STANDARDS:

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, is effective for the JADE and its Subsidiaries for the
period beginning July 1, 1998, and establishes reporting and display of
comprehensive income in the financial statements. Comprehensive income
represents net earnings and certain amounts reported directly in stockholders'
equity, such as the net unrealized gain or loss on available-for-sale
securities. The Company adopted SFAS No. 130 effective June 30, 1998.

SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, is effective for the Company for the period beginning July 1, 1998
and establishes disclosure requirements for segment operations. The Company has
adopted SFAS No. 131.

SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, is effective for the Company for the period beginning July 1, 1998,
and revises the disclosure requirements for pension and postretirement benefit
plans. The Company has adopted SFAS 132.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective for the Bank for years beginning July 1, 1998. The Company has
no activity subject to SFAS 133. The Company expects to adopt SFAS 133 when
required.

SFAS No. 134, in October 1998, the FASB issued SFAS NO. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held-for-Sale by a Mortgage Banking Enterprise. SFAS No. 134 changes the way
mortgage banking firms account for certain securities and other interests they
retain after securitizing mortgage loans that were held for sale. Under current
practice, a bank that securities credit card receivables has a choice in how it
classifies any retained

F-63
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
securities based on its intent and ability to hold or sell those investments.
SFAS No. 134 gives the mortgage banking firms the opportunity to apply the same
intent-based accounting that is applied by other companies. SFAS No. 134 is
effective for the fiscal quarter beginning after December 15, 1998. Management
of JADE and its Subsidiaries anticipates that the implementation of SFAS No. 134
will not have a material impact on the its financial condition or results of
operations.

In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and hedging activities- an amendment of FASB Statement No. 133, this
FASB postpones the implementation of FASB 133 to effective for years beginning
after June 15, 2000. The Bank currently has no activity subject to SFAS 137.

LOANS AVAILABLE-FOR-SALE:

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or market calculated on an aggregate basis with any
unrealized losses reflected in the statement of operations. There were no loans
sold or available for sale during the year ended December 31, 1999 and 1998.

INCOME TAXES:

JADE and its Subsidiaries utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to difference
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Additionally, the recognition of net deferred tax assets is based upon the
likelihood of realization of tax benefits in the future. A valuation allowance
would be provided for deferred tax assets which are determined more than likely
not to be realized.

Prior to July 1, 1998 IGA Credit Union was exempt, by statute, from federal
and state income taxes.

Cuiga Services Corporation, (The Company), d/b/a Member's Edge, a
wholly-owned subsidiary of IGA Federal Savings Bank , is subject to federal and
state income taxes. At December 31, 1999, net operating loss carryforwards
approximately $69,836 are available for federal income tax purposes. These
carryforwards are available to offset future federal taxable income of the
Company and expire in varying amounts between December 31, 2003 and June 30,
2013.

The Company incurred income of $15,538 for the year ended December 31, 1999,
$4,114 net loss for the six month period ended December 31, 1998 and a $7,275
net loss for the year ended June 30, 1998.

F-64
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INVESTMENTS AND MORTGAGE-BACKED SECURITIES:

The following is a summary of the JADE and its Subsidiaries investment in
available-for-sale and held-to-maturity securities:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FHLB Notes....................................... $28,862 $ -- $(1,539) $27,323
FHLMC............................................ 500 -- (36) 464
Federal Farm Credit.............................. 5,000 -- (318) 4,682
Small Business Associations...................... 3,590 -- (36) 3,554
Municipals....................................... 5,158 -- (398) 4,760
------- ---- ------- -------
43,110 -- (2,327) 40,783
------- ---- ------- -------
Mortgage-backed Securities:
Collateralized mortgage obligations................ $ 2,401 $ -- $ (83) $ 2,318
FHLMC.............................................. 631 -- (11) 620
GNMA............................................... 2,286 -- (130) 2,156
FNMA............................................... 3,817 -- (52) 3,765
------- ---- ------- -------
9,135 -- (276) 8,859
------- ---- ------- -------
Total available-for-sale Securities............ 52,245 -- (2,603) 49,642
------- ---- ------- -------

<CAPTION>
HELD-TO-MATURITY
DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Mortgage-backed Securities:
Collateralized mortgage obligations.............. 1,997 -- (22) 1,975
FNMA............................................. 363 -- (9) 354
GNMA............................................. 1,954 -- (75) 1,879
------- ---- ------- -------
Total Held-to-Maturity Securities.............. 4,314 -- (106) 4,208
------- ---- ------- -------
TOTAL INVESTMENTS AND MORTGAGE-BACKED
SECURITIES................................... $56,559 $ -- $(2,709) $53,850
======= ==== ======= =======
</TABLE>

F-65
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
The following is a summary of the Bank's investment in available-for-sale
and held-to-maturity securities.

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FHLB Notes....................................... $14,924 $ 11 $ (125) $14,810
FHLMC............................................ 500 -- (4) 496
Federal Farm Credit.............................. 6,000 1 (25) 5,976
Small Business Associations...................... 2,568 -- (26) 2,542
Municipals....................................... 4,908 -- (6) 4,902
------- ---- ------- -------
28,900 12 (186) 28,726
Mortgage-backed Securities:
Collateralized mortgage obligations................ 3,148 -- (68) 3,080
FHLMC.............................................. 1,277 -- (6) 1,271
FNMA............................................... 5,861 -- (36) 5,825
------- ---- ------- -------
10,286 -- (110) 10,176
------- ---- ------- -------
Total available-for-sale securities............ 39,186 12 (296) 38,902
------- ---- ------- -------

<CAPTION>
HELD-TO-MATURITY
DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
Mortgage-backed Securities:
Collateralized mortgage obligations.............. $ 3,617 $ 1 $ -- $ 3,618
FNMA............................................. 538 -- (2) 536
GNMA............................................. 2,480 -- (93) 2,387
------- ---- ------- -------
Total held-to-maturity securities.............. 6,635 1 (95) 6,541
------- ---- ------- -------
TOTAL INVESTMENTS AND MORTGAGE-BACKED
SECURITIES................................... $45,821 $ 13 $ (391) $45,443
======= ==== ======= =======
</TABLE>

F-66
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
The amortized cost and estimated market values of securities at
December 31, 1999 and 1998 by contractual maturities, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
--------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Due less than one year................................... $ 500 $ 464
Due after one year through five years.................... 14,364 13,864
Due after five years through ten years................... 22,201 20,666
Due after ten years...................................... 2,455 2,234
------- -------
39,520 37,228
Mortgage-backed securities............................... 17,039 16,622
------- -------
$56,559 $53,850
======= =======

<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
--------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Due less than one year................................... $ 500 $ 496
Due after one year through five years.................... 7,004 7,000
Due after five years through ten years................... 15,678 15,540
Due after ten years...................................... 3,230 3,227
------- -------
26,412 26,263
Mortgage-backed securities............................... 19,439 19,209
------- -------
$45,851 $45,472
======= =======
</TABLE>

Proceeds from sales and maturities of securities available-for-sale during
the year ended December 31, 1999 totaled $8,984,886. Of the proceeds, $4,095,677
were from maturities, and $4,889,209 were from principal repayments. No gains or
losses were realized from those transactions. Proceeds from sales and maturities
of securities available-for-sales during the six months ended December 31, 1998
totaled $34,277,935. Of the proceeds, $-0- were from maturities, $1,500,000 were
from security call options, and $3,326,316 were from principal repayments. Gains
of $198,000 were realized from those transactions.

INVESTMENT IN BANKZIP.COM:

On November 16, 1999, JADE Financial Corp. purchased a convertible debenture
in the amount of $2.5 million with a rate of interest of 5.45% from
ZipFinancial.Com.Inc. (d/b/a/ BankZip.com). The

F-67
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (CONTINUED)
investment is recorded at cost which approximates fair value. The President of
IGA Federal Savings Bank is also a Director of ZipFinancial.Com.Inc.

LOANS RECEIVABLE:

Loans receivable consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
DECEMBER 31: ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate Loans:
One-to-four family.................................... $ 43,434 $ 40,114
Commercial loans...................................... 2,996 1,408
-------- --------
46,430 41,522
-------- --------
Consumer Loans:
Home equity loans..................................... 24,172 22,421
Automobile and truck loans............................ 24,406 18,746
Signature loans....................................... 5,414 6,329
Credit card loans..................................... 10,955 10,920
Other................................................. 2,498 3,658
-------- --------
67,445 62,074
Commercial Loans........................................ 1,469 400
-------- --------
Total Loans........................................... 115,344 103,996
-------- --------
Less allowance for possible loan losses............... (1,284) (1,074)
Plus deferred loan costs, net......................... 21 (22)
-------- --------
Total net loans receivable.......................... $114,081 $102,900
======== ========
</TABLE>

Loans receivable at December 31, 1999 and 1998 includes $97,462,685 and
$85,667,043 of fixed rate loans and $17,882,315 and $18,329,158 of adjustable
rate loans, respectively.

F-68
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

LOANS RECEIVABLE: (CONTINUED)
A summary of loan maturities at December 31, 1999 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------
CONSUMER
ONE TO AND
FOUR COMMERCIAL HOME COMMERCIAL TOTAL
FAMILY REAL ESTATE EQUITY BUSINESS LOANS
-------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual............................. $ 73 $ -- $ 56 $ 65 $ 194
------- ------ ------- ------- --------
Within one year........................... 388 -- 195 12,365 12,948
------- ------ ------- ------- --------
After one year:
1 to 3 years............................ 1,310 -- 2,015 10,664 13,989
4 to 5 years............................ 2,289 1,305 4,996 20,601 29,191
6 to 11 years........................... 14,513 1,628 12,998 1,048 30,187
Over 11 years........................... 24,861 63 3,912 28,836
------- ------ ------- ------- --------
Total due after one year.................. 42,973 2,996 23,921 32,313 102,203
------- ------ ------- ------- --------
TOTAL AMOUNTS DUE......................... $43,434 $2,996 $24,172 $44,743 $115,345
======= ====== ======= ======= ========
</TABLE>

A summary of changes in the allowance for possible loan losses is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
BALANCE, BEGINNING OF YEAR.................................. $1,074 $ 948
Provision charged to operation............................ 520 300
Recoveries of amounts charged off and other............... 133 80
------ ------
1,727 1,328
Amounts charged off....................................... (443) (254)
------ ------
BALANCE, END OF YEAR........................................ $1,284 $1,074
====== ======
</TABLE>

The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of potential losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan. As of December 31, 1999 and
1998, 100% of the impaired loan balance was measured for impairment based on the
fair value of the loans' collateral. Impairment losses are included in the
provision for loan losses. SFAS Nos. 114 and 118 do not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a trouble debt
restructuring. Loans collectively evaluated for impairment include consumer
loans and residential real estate loans. At December 31, 1999, the Bank's
impaired loans consisted of 13 loans with a total recorded balance of $194,000
for which specific allowances of

F-69
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

LOANS RECEIVABLE: (CONTINUED)
$80,152 has been established. The average investment in impaired loans for the
year ended December 31, 1998 was $171,000.

Loans on which the accrual of interest has been discontinued amounted to
$194,447 and $170,835 at December 31, 1999 and 1998, respectively. If interest
on those loans had been accrued, accrued interest would have increased by $3,528
and $2,988 at December 31, 1999 and December 31, 1998, respectively.

Certain directors and officers of JADE have loans with JADE and its
Subsidiaries. Such loans were made in the ordinary course of business and do not
represent more than a normal risk of collection. Loans to officers and directors
amounted to $1,217,995 and $1,203,636 at December 31, 1999 and 1998,
respectively. During the years ended December 31, 1999 and 1998, loans of
$240,000 and $62,000, respectively, were disbursed to executive officers and
board of directors, while principal repayments of $225,641 and $86,529 were
received in those years, respectively.

LOAN SERVICING:

Mortgage loans serviced for others are not included in the accompanying
statement of financial condition. The unpaid principal balances of these loans
are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Mortgage Loan Servicing Portfolios:
Federal National Mortgage Association..................... $12,485 $14,025
First Nationwide.......................................... 437 514
------- -------
12,922 $14,539
======= =======
</TABLE>

Custodial escrow balances maintained in connection with the foregoing loan
servicing portfolio totaled $191,952 and $200,000 as of December 31, 1999 and
December 31, 1998, respectively.

ACCRUED INTEREST RECEIVABLE:

A summary of accrued interest receivable is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans....................................................... $397 $325
Mortgage-backed securities.................................. 120 119
Investment securities....................................... 285 202
---- ----
$802 $646
==== ====
</TABLE>

F-70
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET:

The major classes of property, equipment and leasehold improvements and the
total accumulated depreciation and amortization a December 31, 1999 and 1998 are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land........................................................ $ 150 $ 150
Buildings and improvements.................................. 1,742 1,726
Office furniture, equipment and leasehold improvements...... 1,911 1,661
Transportation equipment.................................... 143 99
------ ------
3,946 3,636
Less accumulated depreciation and Amortization.............. 2,056 1,674
------ ------
$1,890 $1,962
====== ======
</TABLE>

BANK-OWNED LIFE INSURANCE (BOLI):

IGA Federal Savings Bank purchased $10 million of Bank-Owned Life Insurance
on December 16, 1999. The insurance contract was issued by American General
Insurance Company and placement of invested funds is in a separate, segregated
account. Bancorp Services will provide administrative servicing going forward.
Bank-Owned Life Insurance ("BOLI") is specially structured life insurance owned
by the bank on a broad-base of its employees. The Bank pays all the premiums and
names itself as beneficiary. BOLI is an alternate solution for funding future
obligated benefits and is classified as an "other asset" on the balance sheet.
This investment represents 36.79% of the JADE financials total current equity.

F-71
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

DEPOSITS:

Deposits at December 31, 1999 and December 31, 1998 are summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
WEIGHTED --------------------------------------------
AVERAGE 1999 1998
INTEREST ------------------- -------------------
RATE AMOUNT % AMOUNT %
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Types of Deposits:
Savings accounts:
1999....................................... 2.10% $ 68,615 43.95% -- --
1998....................................... 3.18 -- -- $ 70,281 45.37%
Checking accounts:
1999....................................... 0.0 9,600 6.15 -- --
1998....................................... 0.0 -- -- 10,526 6.80
Money market accounts:
1999....................................... 3.85 9,757 6.25 -- --
1998....................................... 3.83 -- -- 9,265 5.98
---- -------- ------ -------- ------
-- $ 87,972 56.35% $ 90,072 58.15%
---- -------- ------ -------- ------
Certificate of deposit:
3.00-3.99%
1999....................................... 3.93 $ 693 0.44 -- --
1998....................................... 3.83 -- -- $ 1,622 1.05
4.00-4.99%
1999....................................... 4.73 29,777 19.07 -- --
1998....................................... 4.71 -- -- 11,171 7.21
5.00-5.99%
1999....................................... 5.42 19,691 12.61 -- --
1998....................................... 5.59 -- -- 41,900 27.05
6.00-6.99%
1999....................................... 6.14 16,492 10.56 -- --
1998....................................... 6.21 -- -- 8,608 5.56
7.00-7.99%
1999....................................... 7.16 1,499 0.97 -- --
1998....................................... 7.17 -- -- 1,515 .98
---- -------- ------ -------- ------
Total of certificate of deposit.......... -- 68,152 43.65 64,816 41.85
---- -------- ------ -------- ------
TOTAL DEPOSITS........................... -- $156,124 100.00% $154,888 100.00%
==== ======== ====== ======== ======
</TABLE>

F-72
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

DEPOSITS: (CONTINUED)
Certificates of deposit have scheduled maturities as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Within one year........................................... $56,001 $46,455
One year through two years................................ 9,092 13,218
Three years............................................... 487 2,953
Over three years.......................................... 2,572 2,190
------- -------
$68,152 $64,816
======= =======
</TABLE>

Interest expense on deposits is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Savings accounts............................................ 1,540 834
Money market accounts....................................... 339 160
Certificates of deposit..................................... 3,501 1,768
------ ------
$5,380 $2,762
====== ======
</TABLE>

The aggregate amount of certificates of deposit accounts exceeding $100,000
was approximately $10,001,000 and $7,964,000 at December 31, 1999 and 1998,
respectively.

FEDERAL HOME LOAN BANK STOCK:

The Bank is a member of the Federal Home Loan Bank System. As a member, the
Bank maintains an investment in the capital stock of the Federal Home Loan Bank
of Pittsburgh in an amount not less than 1% of its outstanding home loans or
1/20 of its outstanding notes payable, if any, to the Federal Home Loan Bank of
Pittsburgh, whichever is greater, as calculated December 31 of each year.

INCOME TAX MATTERS:

The JADE and its subsidiaries files a consolidated federal income tax return
and separate state returns for the year ended December 31, 1999.

F-73
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INCOME TAX MATTERS: (CONTINUED)
The provision for income taxes for the consisted of the following:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Currently Payable:
Federal............................................. $ 366 $ 170
State............................................... (11) 20
Deferred............................................ (248) (44)
----- -----
TOTAL........................................... $ 107 $ 146
===== =====
</TABLE>

The reconciliation between the actual provision for federal and state income
taxes and the amount of income taxes which would have been provided at statutory
rates is as follows:

<TABLE>
<CAPTION>
YEAR ENDED:
DECEMBER 31,
1999
-------------
<S> <C>
Expected income tax expense at federal tax rate............. $136
Travel and entertainment.................................... 12
Exempt interest............................................. (83)
State tax net of federal benefit............................ (11)
Disallowed interest expense................................. 53
----
$107
====
</TABLE>

Deferred taxes are included in the accompanying statement of financial
condition as of December 31, 1999 for the estimated future tax effect of
differences between the financial statement and federal income tax basis of
assets and liabilities given the provisions of currently enacted tax laws.

The net deferred tax asset (liability) consists of the following components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred Tax Asset:
Unrealized loss on securities available-for-sale............ $ 885 $--
Foundation contribution..................................... 206
Deferred compensation....................................... 6 2
Allowance for loan loss..................................... 80 42
------ ---
DEFERRED TAX ASSET...................................... $1,177 $44
====== ===
</TABLE>

F-74
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

INCOME TAX MATTERS: (CONTINUED)
The realization 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. The tax effect from the unrealized loss on securities
available-for-sale has been offset by a valuation allowance.

DIFFERENCE BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION CALL REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS:

There were no adjustments between Call Report and Consolidated Financial
Statement at December 31, 1998.

An adjustment has been make to the accounts which is reflected in the
consolidated financial statements but is not reflected in the Bank's Federal
Depository Insurance Corporation Call Report. The adjustment and its effect on
equity are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Equity per the Bank's December 1998 Office of Thrift
Supervision Call Report................................. $26,039 $15,377
Decrease in federal income tax provision set up as
deferred asset.......................................... 1,177 44
Adjustment made to financial statement for tax benefits on
unrealized losses on securities available-for-sale...... 24 (145)
------- -------
$27,240 $15,276
======= =======
</TABLE>

REGULATORY MATTERS:

The Bank is subject to various regulatory capital requirements administered
by the 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 Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain certain minimum amounts and ratios (set forth in
the table below). Management believes that the Bank meets, as of December 31,
1999, all capital adequacy requirements to which it is subject.

F-75
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

REGULATORY MATTERS: (CONTINUED)
As of June 30, 1999, the most recent notification from the OTS categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.

The Bank's actual capital amounts and ratios are presented in the following
table.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
PURPOSES ACTION PROVISIONS
ACTUAL CAPITAL ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (to tangible assets)...... $22,691 11.4% $2,668 1.5% N/A N/A
Core capital (to adjusted tangible
assets).................................. 22,691 11.4 5,336 3.0 8,893 5.0%
Tier I Capital (to risk-weighted assets)... 22,691 19.26 7,964 4.0 6,010 6.0
Risk-based capital (to risk-weighted
assets).................................. 23,975 20.35 9,425 8.0 10,117 10.0

<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
PURPOSES ACTION PROVISIONS
ACTUAL CAPITAL ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (to tangible assets)...... 15,365 8.9% 2,567 1.5 N/A N/A
Core capital (to adjusted tangible
assets).................................. 15,365 8.9 5,135 3.0 8,559 5.0
Tier I Capital (to risk-weighted assets)... 15,365 15.7 3,911 4.0 5,867 6.0
Risk-based capital (to risk-weighted
assets).................................. 16,439 16.8 7,822 8.0 9,778 10.0
</TABLE>

The following summary reconciles the Bank's equity capital as reflected in
the accompanying financial statements as of December 31, 1999 with related
amounts reported to the OTS:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------
TANGIBLE CORE RISK BASED
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equity capital per financial statements......... $26,355 $26,355 $26,355
Unrealized losses on available-for-sale
securities, net of tax........................ 1,718 1,718 1,718
Allowance for loan losses....................... 1,284
Reconciling adjustment for deferred taxes....... (24) (24) (24)
------- ------- -------
Regulatory Equity Capital....................... $28,049 $28,049 $29,333
======= ======= =======
</TABLE>

F-76
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

LEASE COMMITMENTS:

JADE and its Subsidiaries rents various equipment and office space under
various lease agreements. Lease expense for these leases for the year ended
December 31, 1999 was $66,505, six months ended December 31, 1998 was $22,500
and year ended June 30, 1998 $63,912, respectively.

Minimum annual rentals are as follows:

RETIREMENT PLANS:

The Bank sponsors the following retirement plans:

PENSION PLANS:

The Bank has a profit-sharing plan and a 401(k) plan. Both plans cover all
employees who are 21 years of age and have completed at least 1,000 hours of
service during the plan year and are employed on the last day of the plan year.
The Bank contributes a discretionary amount to the profit-sharing plan based on
year-to-date income at December 31. The Bank matches up to 100% of the first 3%
of salary elected to be deferred by the employees under the 401(k) pension plan.

The Bank's contribution to the above plans amounted to $58,199 for the year
ended December 31, 1999, and $29,472 for the six months ended December 31, 1998,
and is reflected as an operating expense.

SUPPLEMENTAL DEFERRED COMPENSATION PLANS:

The Bank adopted a nonqualified deferred compensation plan for the benefit
of one of its officers. This plan requires the Bank to pay $12,000 into this
plan annually beginning in 1995. The deferred compensation accounts are shown as
both assets and liabilities on the Bank's financial statements. The balance of
the deferred compensation arrangement was $64,239 as of December 31, 1999 and
$64,239 as of December 31, 1998. Deferred compensation was $12,000 for
December 31, 1999 and 1998.

The Bank also has a life insurance policy on one of its officers that
provides for annuity payments to the insured party upon retirement. Upon death
of the insured party, the Bank will receive refund of all premiums paid and the
insured party's designated beneficiary will receive the remainder of the
policy's face value. If the policy is canceled, the Bank will receive the
policy's cash surrender value only. The Bank shows the cash surrender value of
this policy as an asset in its financial statements.

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP):

In conjunction with the Bank's conversion to stock ownership, JADE Financial
Corp. (the "Company") established an ESOP for eligible employees. All employees
of the Company as of October 4, 1999 were eligible to participate immediately
and employees of the Company hired after

F-77
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

RETIREMENT PLANS: (CONTINUED)
October 4, 1999 are eligible to participate after they attain age 21 and
complete one year of service during which they work at least 1,000 hours. The
ESOP borrowed funds in the amount of $1,160,000 to purchase 145,000 share of
common stock issued in the conversion.

The Bank makes contribution to the ESOP equal to the ESOP's debt service
less dividends received by the ESOP. Dividends on unallocated ESOP shares are
used to pay debt service. Contributions to the ESOP and shares released from the
suspense account in the amount proportional to the repayment of the ESOP loan
are allocated among ESOP participants on the basis of compensation in the year
of allocation. Benefits generally become 100% vested after three years of
credited service. Forfeitures will be reallocated among remaining participating
employees, in the same proportion as contributions. Benefits may be payable in
the form of stock or cash upon termination of employment. If the Company's stock
is not traded on an established market at the time of an ESOP participant's
termination, the terminated ESOP participant has the right to require the
Company to purchase the stock at its current fair market value. Jade's
management believes there is an established market for the Company's stock and
therefore, management believes there is no potential repurchase obligation at
December 31, 1999.

As shares are released, the Company reports compensation expense equal to
the current market price of the shares. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings. Dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation expense was $127,781 for the year ended December 31, 1999.

Information with respect to the ESOP is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Allocated shares............................................ $ 145,000
Committed shares............................................ 14,500
Uncommitted shares.......................................... 130,500
Fair value of uncommitted ESOP shares....................... 1,044,000
Interest expense incurred................................... 24,123
Dividends received.......................................... N/A
</TABLE>

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:

The Bank grants mortgage and consumer loans primarily to customers in
Southeastern Pennsylvania. Although, the Bank has a diversified loan portfolio,
a substantial portion of its customers' ability to honor their contracts is
dependent upon the local economy. The Bank's net investment in loans is subject
to a significant concentration of credit risk given that the investment is
primarily within a specific geographic area.

As of December 31, 1999, the Bank had a net investment of $114,081,000 in
loan receivable. The corresponding balance for December 31, 1998 is
$102,899,621. These loans possess an inherent credit risk given the uncertainty
regarding the borrower's compliance with the terms of the loan agreement. To
reduce credit risk, the loans are secured by varying forms of collateral,
including first mortgages on real estate, liens on personal property, share
accounts, etc. It is generally the Bank's policy to file liens

F-78
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: (CONTINUED)
on titled property taken as collateral on loans. In the event of default, the
Bank's policy is to foreclose or repossess collateral on which it has filed
liens.

In the event that any borrower completely failed to comply with the terms of
the loan agreement and the related collateral proved worthless, the Bank would
incur a loss equal to the loan balance.

COMMITMENTS AND CONTINGENCIES:

LOAN COMMITMENTS AND CONTINGENCIES:

In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities which are not reflected in the
accompanying consolidated financial statements. These commitments and contingent
liabilities include commitments to extend credit and open-end credit available.
At December 31, 1999 and 1998, open-end loan commitments not utilized, and
approved but unfunded loan commitments totaled approximately $18,599,906 and
$19,875,538, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires the disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not recognized
in the statement of financial position.

A financial instrument is defined as cash, evidence of an ownership interest
in an entity, or a contact that both imposes on one entity a contractual
obligation (1) to deliver cash or another financial instrument to a second
entity or (2) to exchange other financial instruments on potentially unfavorable
terms with the second entity and, conveys to that second entity a contractual
right to receive (1) cash or another financial instrument from the first entity
or (2) to exchange other financial instruments on potentially favorable terms
with the first entity.

The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Quoted market prices should be used
when available, if not available management's best estimate of fair value may be
based on quoted market price of financial instruments with similar
characteristics or on valuation techniques, such as using the present value of
estimated future cash flows using a discount rate commensurate with the
corresponding risk associated with those cash flows. These techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows and future economic conditions. In that regard,
the fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. In addition, these estimates are only indicative of individual
financial instruments' values and should not be considered an indication of the
fair value of JADE and its subsidiaries as a whole. Statement No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements.

F-79
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
The following tables represents the carrying value and fair market value of
financial instruments as of December 31, 1999:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................. $ 13,242 $ 13,242
Investments securities available-for-sale............. 43,110 40,783
Mortgage-backed securities available-for-sale......... 9,134 8,859
Mortgage-backed securities held-to-maturity........... 4,314 4,208
Loans receivable--net................................. 114,081 113,758
FHLB stock............................................ 834 834

Liabilities:
NOW, Savings and Money Market accounts................ 90,584 90,584
Certificate of deposits............................... 68,152 68,233
</TABLE>

The following table represents the carrying value and fair market value of
financial instruments as of December 31, 1998:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................. $ 18,351 $ 18,351
Investments securities available-for-sale............. 28,980 28,805
Mortgage-backed securities available-for-sale......... 10,236 10,127
Mortgage-backed securities held-to-maturity........... 6,635 6,541
Loans receivable--net................................. 102,900 102,612
FHLA stock............................................ 834 834

Liabilities:
NOW, Savings and Money Market accounts................ 90,072 90,072
Certificate of deposits............................... 64,816 64,894
</TABLE>

The following methods and assumptions, where practical to implement as
noted, were used by JADE in estimating its fair value for those assets.

CASH AND CASH EQUIVALENTS:

The carrying amounts reported in the statement of financial condition for
cash and cash equivalents approximate the fair value for those assets.

F-80
<PAGE>
JADE FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
INVESTMENT SECURITIES:

The fair value for investments are based on quoted market prices.

MORTGAGE-BACKED SECURITIES:

The fair value of mortgage-backed securities issued by quasi-governmental
agencies is based on quoted market prices.

LOANS RECEIVABLE:

The Bank's fair value of loans is determined by calculating the present
value of forecasted cash flows. The Bank's real estate loan portfolio was
$46,430,080 and $41,521,544 at December 31, 1999 and 1998, respectively with
rates ranging from 5.50% to 10.0% and maturities through 30 years. The Bank's
consumer loan portfolio was $67,467,171 and $62,074,457 at December 31, 1999 and
1998, respectively with rates ranging from 4.00% to 15.0% with maturities
through 10 years.

The Bank's commercial loan portfolio was $1,478,425 and $399,206 at
December 31, 1999 and 1998, respectively with rate of 6.75% to 13.75% and
maturities through one year and monthly repayment terms.

DEPOSITS:

The fair value of deposits with no stated maturity, such as NOW accounts,
savings accounts and money market accounts, is equal to the amount payable on
demand as of December 31, 1999. Time deposits were $68,152,000 at December 31,
1999 and $64,815,000 at December 31, 1998 with rates ranging from 4.00% to
8.00%.

EARNINGS PER SHARE AND COMMON STOCK EQUIVALENTS:

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share" and Statement No. 129 ("SFAS No. 129") "Disclosures of Information
about Capital Structure." SFAS No. 128, which superseded APB Opinion No. 15
("APB No. 15") specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock. It replaced the presentation of primary EPS with basic EPS which,
unlike primary EPS, excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed similarly to fully diluted
EPS under APB No. 15. The Bank adopted SFAS No. 128 as of December 31, 1999.

There were 1,742,423 weighted average number of shares of common stock
outstanding used for the basic EPS calculation for the fiscal year ended
December 31, 1999. There were no securities which had a dilutive effect on the
income available to common shareholders and thus, the diluted EPS is the same as
Basic EPS or .17.

F-81
<PAGE>
JADE FINANCIAL CORP.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks................................... $ 11,856 $ 6,630
Interest bearing deposits in other financial
institutions............................................ 350 47
Federal Funds............................................. 4,527 6,565
Restricted cash........................................... 0 0
-------- --------
Total cash and cash equivalents......................... $ 16,733 $ 13,242
-------- --------
Investment securities, available-for-sale................... 40,543 40,783
Mortgage-backed securities available-for-sale............... 7,745 8,859
Investment securities held-to-maturity...................... 0 0
Mortgage-backed securities held-to-maturity (fair value of
$3,038 and $4,209)........................................ 3,117 4,314
BankZip.Com (convertible debenture)......................... 1,250 2,500
Loans receivable, net....................................... 127,275 114,081
Property, equipment and leasehold improvements, net of
accumulated depreciation.................................. 2,647 1,890
Federal Home Loan Bank stock, at cost....................... 1,000 834
Accrued interest receivable................................. 1,176 802
Other Real Estate Owned (OREO).............................. 0 0
Reorganization costs, net................................... 132 162
Bank Owned Life Insurance--BOLI............................. 10,420 10,021
Deferred tax asset, net..................................... 1,525 1,177
Prepaid expenses and other assets........................... 1,313 911
-------- --------
TOTAL ASSETS............................................ $214,876 $199,576
======== ========

LIABILITIES AND EQUITY
LIABILITIES:
Deposits.................................................. $165,937 $156,124
Advances from FHLBank..................................... 20,000 15,000
Advances from borrowers for taxes......................... 468 618
Accounts payable and accrued expenses..................... 777 594
-------- --------
Total liabilities....................................... $187,182 $172,336
-------- --------
EQUITY:
Common Stock, $.01 par value, 1,872,923 shares issued and
outstanding at 9/30/00.................................. 19 19
Additional Paid-in Capital................................ 14,173 14,130
Contra Equity--unearned common stock acquired by the
Employee Stock Ownership Plan........................... (957) (1,044)
Commitments and contingencies (Note 16)................... 0 0
Retained Earnings, (See Notes 11 and 12).................. 16,628 15,853
Accumulated other comprehensive income (loss)............. (2,169) (1,718)
-------- --------
Total Equity............................................ $ 27,694 $ 27,240
-------- --------
TOTAL LIABILITIES AND EQUITY............................ $214,876 $199,576
======== ========
</TABLE>

F-82
<PAGE>
JADE FINANCIAL CORP.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans........................................ $2,670 $2,253 $ 7,547 $6,595
Investment and mortgage-backed securities................ 838 840 2,568 2,247
Interest-earning deposits................................ 27 17 51 72
Federal Funds............................................ 102 27 280 210
------ ------ ------- ------
Total interest income.................................. $3,637 $3,137 $10,446 $9,124

INTEREST EXPENSE:
Interest on deposits..................................... $1,510 $1,308 $ 4,291 $3,950
Interest on borrowed funds............................... 343 56 737 59
------ ------ ------- ------
Total interest expense................................. $1,853 $1,364 $ 5,028 $4,009
------ ------ ------- ------
Net Interest Income.................................... $1,784 $1,773 $ 5,418 $5,115
------ ------ ------- ------
PROVISION FOR POSSIBLE LOAN LOSSES......................... 135 135 565 405
------ ------ ------- ------
Net interest income after provision for possible loan
losses............................................... $1,649 $1,638 $ 4,853 $4,710
------ ------ ------- ------
NONINTEREST INCOME:
Loan fees................................................ $ 8 $ 10 $ 32 $ 36
Service charges.......................................... 144 133 409 355
Other Income............................................. 337 142 1,006 387
Security/Other gains or losses........................... 12 0 (88) 0
------ ------ ------- ------
Total noninterest income............................... $ 501 $ 285 $ 1,359 $ 778
------ ------ ------- ------
NONINTEREST EXPENSES:
Compensation and employee benefits....................... $ 916 $ 732 $ 2,744 $2,194
Office and occupancy costs............................... 420 477 1,204 1,309
Printing and Postage..................................... 68 60 196 188
Loan servicing........................................... 46 44 122 126
Professional fees........................................ 116 30 304 114
Bank and MAC charges..................................... 179 190 514 545
Advertising, marketing and promotions.................... 29 36 126 111
Insurance Expense........................................ 29 30 96 85
Other--Foundation Expense................................ 0 0 0 0
------ ------ ------- ------
Total noninterest expenses............................. $1,803 $1,599 $ 5,306 $4,672
------ ------ ------- ------
INCOME BEFORE PROVISION FOR INCOME TAXES................... $ 347 $ 324 $ 906 $ 816
Provision for federal and state income taxes
Current................................................ 58 145 281 317
Deferred............................................... 0 (30) (116) (32)
------ ------ ------- ------
Total income tax provision........................... $ 58 $ 115 $ 165 $ 285
------ ------ ------- ------
NET INCOME................................................. $ 289 $ 209 $ 741 $ 531
====== ====== ======= ======
</TABLE>

F-83
<PAGE>
JADE FINANCIAL CORP

CONSOLIDATED STATEMENT OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------- --------------
UNAUDITED UNAUDITED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 741 $ 547
-------- --------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of premium/discount on investments and
mortgage-backed securities............................ 71 117
Depreciation and amortization........................... 315 294
(Gain) loss on sale of investment securities............ 88 --
(Premium) discount on first mortgage sales.............. -- --
(Gain) loss on sale/disposal of asset................... -- --
Provision for losses on loans........................... 565 405
Change in assets and liabilities:
(Increase) decrease in deferred tax asset............. (348) (32)
(Increase) decrease in accrued interest receivable.... (374) (426)
(Increase) decrease in BOLI asset..................... (399) --
(Increase) decrease in Reorganization costs........... (30) --
(Increase) decrease in prepaid expenses and other
assets.............................................. (402) (1,028)
Increase (decrease) in accounts payable and accrued
expenses............................................ 183 378
-------- --------
Net cash provided by operating activities........... 410 255
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of FHLB Stock.................................... 166 --
Purchase of investment securities, available-for-sale..... (1,000) (14,400)
Sales of investment securities, available-for-sale........ -- --
Mortgage-backed security purchases, available for sale.... -- (7,670)
Mortgage-backed security sales............................ -- --
Mortgage-backed security maturities and principal
repayments.............................................. 3,134 6,547
Maturities and principal repayments of investment
securities, available-for-sale.......................... 949 3,500
(Increase) decrease in total loans receivable, net........ (13,759) (8,473)
Proceeds from sale of real estate owned net of expenses... -- --
Proceeds from sale of loans............................... -- --
Proceeds from sale of equipment........................... -- --
Capital expenditures...................................... (1,072) (118)
Decrease in Share Insurance Fund.......................... 0 29
-------- --------
Net cash provided by (used in) investing
activities........................................ (11,582) (20,585)
-------- --------
</TABLE>

F-84
<PAGE>
JADE FINANCIAL CORP

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------- --------------
UNAUDITED UNAUDITED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net...................... $ 9,813 $ 13,476
Net increase(decrease) in advances FHLB................... 5,000 6,000
Net increase (decrease) in advances for borrowers......... (150) (130)
-------- --------
Net cash provided by (used in) financing
activities........................................ 14,663 19,346
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:....... 3,491 (984)
Cash and cash equivalents, beginning of year.............. 13,242 18,351
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 16,733 $ 17,367
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits.................................... $ 4,291 $ 3,950
Income Taxes............................................ $ 210 $ 177

Noncash activities:
Increase in unrealized loss on investment
mortgage-backed securities available-for-sale, net of
taxes................................................. $ 451 $ 1,715
</TABLE>

F-85
<PAGE>
JADE FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BASIS OF PRESENTATION:

JADE Financial Corp. (the "Holding Company") was incorporated under
Pennsylvania law in July 1998 by IGA Federal Savings in connection with the
conversion of the Company from a savings institution to a federally chartered
capital stock savings bank, the issuance of the Company's stock to the Holding
Company and the offer and sale of the Holding Company's common stock by the
Holding Company (the "Conversion"). Upon consummation of the Conversion on
October 4, 1999, the Holding Company became the holding company for the Company.
See Note 2 for a more detailed description of the mutual to stock conversion. No
pro forma effect has been given to the sale of the Holding Company's common
stock in the Conversion at September 30, 1999.

The accompanying consolidated financial statements of the Holding Company
have been prepared in accordance with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normally recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation at and for the interim periods.

The results of operations for the nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2000. The consolidated financial statements and notes thereto
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1999, contained in the Holding Company's
Form 10K filed with the Securities Exchange Commission on March 31, 2000.

CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP:

On May 26, 1999, the Board of Directors of the Company adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal capital
stock savings bank. The conversion was accomplished through the formation of the
Holding Company in July, 1998, the adoption of a federal stock charter, and the
sale of all of the Company's stock to the Holding Company on October 4, 1999.

A subscription offering ("offering") of the shares of common stock of the
Holding Company was conducted whereby the shares were offered initially to
eligible account holders, the Company's Employee Stock Ownership Plan ("ESOP"),
supplemental eligible account holders and other members of the Company
(collectively "subscribers"). During the offering, subscribers submitted orders
for common stock along with full payment for the order in either cash, by an
authorization to withdraw funds for payment from an existing deposit account at
the Company upon issuance of stock, or a combination of cash and account
withdrawal. Subscription funds received in connection with the offering were
placed in segregated savings accounts in the Company. For these orders that were
to be funded through account withdrawals, the Company placed "holds" on those
accounts, restricting withdrawal of any amount which would reduce the account
balance below the amount of the order. At September 30, 1999, the Company held
$12.0 million in subscription segregated savings accounts and had restricted
withdrawals from deposit accounts in the amount of $2.0 million.

The Holding Company issued 1,872,923 shares in connection with the
Conversion. Gross proceeds from the offering were $14,500,024, which includes
the proceeds from the sale of 145,000 shares to the IGA Employee Stock Ownership
Plan and 60,420 shares to the Company for transfer to the IGA Charitable
Foundation.

F-86
<PAGE>
JADE FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP: (CONTINUED)
The Company issued all its outstanding capital stock to the Holding Company
in exchange for approximately one-half of the net proceeds. The Holding Company
accounted for the purchase in a manner similar to a pooling of interests whereby
assets and liabilities of the Company maintain their historical cost basis in
the consolidated company.

EARNINGS PER COMMON SHARE:

Earnings per common share for the quarter ended September 30, 1999 is not
applicable, because IGA Federal Savings' (the Bank's) conversion from
mutual-to-stock form was not completed until October 4, 1999. Presented below is
information with respect to the calculation of basic and diluted earnings per
share for the three and nine months ended September 30, 2000.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------- -------------------
<S> <C> <C>
Net Income........................................ $ 289,000 $ 741,000
Weighted average number of common shares
outstanding..................................... 1,872,923 1,872,923
Average ESOP shares not committed to be
released........................................ (130,500) (130,000)
---------- ----------
Weighted average number of common shares
outstanding for basic earnings per share
computation purposes............................ 1,742,423 1,742,423
Dilutive effects of employee stock options........ 0 0
---------- ----------
Weighted average shares and common share
equivalents..................................... 1,742,423 1,742,423
========== ==========
Basic earnings per share.......................... $ 0.17 $ 0.43
========== ==========
Diluted earnings per share........................ $ 0.17 $ 0.43
========== ==========
</TABLE>

COMPREHENSIVE INCOME:

Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, was effective for the Bank for the year beginning July 1,
1998, and establishes reporting and display of comprehensive income in the
financial statements. Comprehensive income represents net earnings and certain
amounts reported directly in stockholders' equity, such as the net unrealized
gain or loss on available-for-sale securities. The Bank adopted SFAS No. 130
effective June 30, 1998.

The Company's comprehensive income for the three months ended September 30,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $ 289 $ 209
Unrealized holding gains (losses) arising during the period
net of tax effect......................................... (318) (249)
----- -----
COMPREHENSIVE INCOME.................................... $ (29) $ (40)
===== =====
</TABLE>

F-87
<PAGE>
JADE FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

INVESTMENT VALUATION

JADE, together with three other financial institutions participated in the
initial capitalization of BankZip.com, an internet banking company. The total
capitalization of BankZip was $13.9 million and JADE contributed $2.5 million in
the form of a convertible note. On September 15, 2000, an involuntary bankruptcy
petition was filed against ZipFinancial.Com, Inc. by one of its vendors, the
petition was subsequently dismissed on October 23, 2000. On November 2, 2000,
BankZip completed $410,000 in additional financing and is seeking additional
financing of $1.5 to $2.0 million. The company has entered into a term sheet
with a strategic investor to provide a $1.0 million line of credit. The ability
to draw on the line of credit will be dependent on sales. The continued
viability of the company is dependent on its ability to raise additional
capital. No assurances can be given that the company will be able to raise
additional capital. To reflect the uncertainty surrounding this investment, as
of September 30, 2000, JADE has established an equity account valuation reserve
pursuant to SFAS 115 of 50% or $1.25 million while BankZip seeks additional
financing.

NEW ACCOUNTING STANDARDS:

Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, is effective for the Bank for the period beginning
July 1, 1998, and establishes reporting and display of comprehensive income in
the financial statements. Comprehensive income represents net earnings and
certain amounts reported directly in stockholders' equity, such as the net
unrealized gain or loss on available-for-sale securities. The Bank adopted SFAS
No. 130 effective June 30, 1998.

SFAS No. 133, ACCOUNTING FOR DERIVATION INSTRUMENTS AND HEDGING ACTIVITIES,
is effective for the Bank for years beginning July 1, 1999. The Bank currently
has no activity subject to SFAS 133.

In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held-for-Sale by a Mortgage Banking Enterprise. SFAS No. 134 changes the way
mortgage banking firms account for certain securities and other interests they
retain after securitizing mortgage loans that were held-for-sale. Under current
practice, a bank that securitizes credit card receivables has a choice in how it
classifies any retained securities based on its intent and ability to hold or
sell those investments. SFAS No. 134 gives the mortgage banking firms the
opportunity to apply the same intent-based accounting that is applied by other
companies. SFAS No. 134 was effective for the fiscal quarter beginning after
December 15, 1998. The implementation of SFAS No. 134 did not have a material
impact on the Bank's financial condition or results of operations.

F-88
<PAGE>
ANNEX A

AGREEMENT AND PLAN OF MERGER
Among
PSB BANCORP, INC.
and
JADE FINANCIAL CORP.
and
PSB MERGER SUB, INC.
November 2, 2000

A-1
<PAGE>
AGREEMENT

THIS AGREEMENT AND PLAN OF MERGER, dated as of November 2, 2000, is made by
and among PSB BANCORP, INC. ("PSB"), a Pennsylvania bank holding corporation,
having its principal place of business in Philadelphia, Pennsylvania, and its
wholly owned subsidiary PSB MERGER SUB, INC. ("Newco"), a Pennsylvania
corporation, and JADE FINANCIAL CORP. ("JADE"), a Pennsylvania savings and loan
holding company, having its principal place of business in Feasterville,
Pennsylvania.

BACKGROUND

1. PSB and JADE desire for Newco to merge with and into JADE, with JADE
surviving such merger, in accordance with the applicable laws of the
Commonwealth of Pennsylvania, and in accordance with this Agreement.

2. PSB and JADE desire to merge First Penn Bank, a Pennsylvania chartered
commercial bank and a wholly owned subsidiary of PSB ("First Penn"), with and
into JADE's wholly owned subsidiary, IGA Federal Savings Bank, a federally
chartered stock savings bank ("IGA"), with First Penn surviving such merger in
accordance with the Bank Plan of Merger in the form attached hereto as Exhibit
"A".

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, do hereby agree as follows:

ARTICLE I
THE MERGER

Section 1.01. DEFINITIONS. As used in this Agreement, the following terms
shall have the indicated meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

AFFILIATE means, with respect to any Person, any Person who directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer or director of such
Person and any Affiliate of such executive officer or director.

AGREEMENT means this agreement, and any amendment or supplement hereto.

APPLICATIONS means the applications for regulatory approval which are
required by the transactions contemplated hereby.

ARTICLES OF MERGER means the articles of merger to be executed by JADE and
PSB and to be filed in the PDS, in accordance with the laws of the Commonwealth
of Pennsylvania.

BANK MERGER means the merger of First Penn with IGA, with First Penn
surviving the merger.

BANK PLAN OF MERGER means the plan of merger set forth as EXHIBIT "A"
attached hereto.

BCL means the Pennsylvania Business Corporation Law of 1988, as amended.

BHC ACT means the Bank Holding Company Act of 1956, as amended.

CLOSING DATE means the date specified by the parties within five (5)
business days after satisfaction or waiver (subject to applicable law) of the
conditions (excluding conditions that, by their terms cannot be satisfied until
the Closing Date) set forth in Article V, or such other date as PSB and JADE
shall agree.

A-2
<PAGE>
DISSENTING JADE SHARES has the meaning given to that term in
Section 1.02(e)(iii).

EFFECTIVE DATE means the date upon which the Articles of Merger shall be
filed in the PDS in accordance with the laws of the Commonwealth of
Pennsylvania, and shall be the same as the Closing Date.

ENVIRONMENTAL LAW means any federal, state, local or foreign law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any Regulatory
Authority relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.

ERISA means the Employee Retirement Income Security Act of 1974, as amended.

ESOP means the IGA Federal Savings Bank Employee Stock Ownership Plan.

EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated from time to time thereunder.

EXCHANGE RATIO means $13.55 divided by the PSB Average Closing Price.

FDIA means the Federal Deposit Insurance Act, as amended.

FDIC means the Federal Deposit Insurance Corporation.

FRB means the Federal Reserve Board.

GAAP means generally accepted accounting principles as in effect at the
relevant date.

IRC means the Internal Revenue Code of 1986, as amended.

IRS means the Internal Revenue Service.

IGA means IGA Federal Savings Bank, a federally chartered savings bank and
wholly-owned subsidiary of JADE.

JADE COMMON STOCK has the meaning given to that term in Section 2.02(a) of
this Agreement.

JADE DISCLOSURE SCHEDULE means a disclosure schedule delivered by JADE to
PSB pursuant to Article II of this Agreement.

JADE EMPLOYEE BENEFIT PLANS has the meaning given to that term in
Section 2.12 of this Agreement.

JADE FINANCIALS means (i) the audited consolidated financial statements of
JADE for the two years ended December 31, 1999 and December 31, 1998, including
the notes thereto and (ii) the unaudited interim consolidated financial
statements of JADE as of each calendar quarter thereafter included in Securities
Documents filed by JADE.

JADE REGULATORY REPORTS means the Annual Reports of JADE on Form H-(b)(11)
and any Current Report of JADE filed with the OTS from December 31, 1999 through
the Closing Date and the Reports of Condition and Income of IGA and accompanying
schedules for each calendar quarter, beginning with the quarter ended
December 31, 1999 through the Closing Date.

A-3
<PAGE>
JADE SUBSIDIARIES means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by JADE, except any corporation
the stock of which is held in the ordinary course of the lending activities of
IGA.

MATERIAL ADVERSE EFFECT shall mean, with respect to JADE or PSB, any adverse
effect on its assets, financial condition or operations that is material to its
assets, financial condition or results of operations on a consolidated basis,
except for any material adverse effect caused by (i) any change in the value of
the respective investment portfolios of JADE or PSB or their Subsidiaries
resulting from a change in interest rates generally or (ii) any change occurring
after the date hereof in any federal or state law, rule or regulation or in
GAAP, which change affects banking institutions generally, including any changes
affecting the Bank Insurance Fund or the Savings Association Insurance Fund.

MERGER means the merger of Newco with and into JADE, with JADE surviving
such merger, contemplated by this Agreement.

NOTICE OF COMPLETED PURCHASE means the written notification to be delivered
to JADE by PSB of the completion of the purchase by PSB of the number of shares
of PSB Common Stock that PSB believes will be necessary to effect the provisions
of Sections 1.02(e)(ii)(C)and 1.02(e)(ii)(D)(2) of this Agreement.

OTS means the Office of Thrift Supervision.

PDB means the Pennsylvania Department of Banking.

PDS means the Department of State of the Commonwealth of Pennsylvania.

PERSON means any individual, corporation, partnership, joint venture,
association, trust or "group" (as that term is defined under the Exchange Act).

PSB AVERAGE CLOSING PRICE means the average of the closing prices of PSB
Common Stock reported on the NASDAQ National Market System for the 20 trading
day period beginning 5 trading days after the date of the Notice of Completed
Purchase.

PSB EMPLOYEE BENEFITS PLANS has the meaning given to that term in
Section 3.12 of this Agreement.

PSB COMMON STOCK means the common stock of PSB described in
Section 3.02(a).

PSB DISCLOSURE SCHEDULE means a disclosure schedule delivered by PSB to JADE
pursuant to Article III of this Agreement.

PSB FINANCIALS means (i) the audited consolidated financial statements of
PSB as of December 31, 1999 and for the two years ended December 31, 1999 and
December 31, 1998, including the notes thereto, and (ii) the unaudited interim
consolidated financial statements of PSB as of and for each calendar quarter
thereafter.

PSB REGULATORY REPORTS means the Annual Reports of PSB on Form FRY-6, any
Current Report of PSB on Form FRY-6A filed with the FRB from December 31, 1999
through the Closing Date and the Reports of Condition and Income of First Penn
and accompanying schedules for each calendar quarter, beginning with the quarter
ended December 31, 1999 through the Closing Date.

PSB SUBSIDIARIES means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by PSB, except any corporation
the stock of which is held in the ordinary course of the lending activities of
First Penn.

REGISTRATION STATEMENT means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements thereto,
as filed with the SEC under the Securities Act with respect to the PSB Common
Stock to be issued in connection with the transactions contemplated by this
Agreement.

A-4
<PAGE>
REGULATORY AGREEMENT has the meaning given to that term in Section 2.11 of
this Agreement.

REGULATORY AUTHORITY OR REGULATORY AUTHORITIES means any banking agency or
department of any federal or state government, including without limitation, the
FDIC, the OTS, the FRB, the PDB, the SEC and state "blue sky" authorities or the
respective staffs thereof.

RIGHTS means warrants, options, rights, convertible securities and other
capital stock equivalents which obligate an entity to issue its securities.

SEC means the Securities and Exchange Commission.

SECURITIES ACT means the Securities Act of 1933, as amended, and the rules
and regulations promulgated from time to time thereunder.

SECURITIES DOCUMENTS means all registration statements, schedules,
statements, forms, reports, Registration Statement material, and other documents
required to be filed under the Securities Laws.

SECURITIES LAWS means the Securities Act and the Exchange Act and the rules
and regulations promulgated from time to time thereunder.

SUBSIDIARY means any corporation or other entity, 50% or more of the capital
stock or ownership interests of which are owned, either directly or indirectly,
by another entity, except any corporation or other entity the capital stock or
ownership interests of which are held in the ordinary course of the lending
activities of a bank.

Section 1.02. THE MERGER.

(a) CLOSING. The closing will take place at 10:00 a.m. on the Closing
Date at the offices of PSB at 11 Penn Center, Suite 2601, 1835 Market
Street, Philadelphia, Pennsylvania, unless another time and place are agreed
to by the parties hereto; provided, in any case, that all conditions to
closing set forth in Article V have been satisfied or waived at or prior to
the Closing Date. On the Closing Date, PSB and JADE shall cause the Articles
of Merger to be duly executed and to be filed in the PDS.

(b) THE MERGER. Subject to the terms and conditions of this Agreement,
on the Effective Date: Newco shall merge with and into JADE; the separate
existence of Newco shall cease; JADE shall be the surviving corporation in
the Merger; and all of the property (real, personal and mixed), rights,
powers and duties and obligations of Newco shall be taken and deemed to be
transferred to and vested in JADE, the surviving corporation in the Merger,
without further act or deed; all debts, liabilities and duties of each of
Newco and JADE shall thereafter be the responsibility of JADE as the
surviving corporation; all in accordance with the applicable laws of the
Commonwealth of Pennsylvania. The name of the surviving corporation shall be
Jade Financial Corp. On or promptly after the Effective Date, PSB shall
contribute all shares of First Penn common stock owned by PSB to JADE.

(c) PSB'S AND FIRST PENN'S ARTICLES OF INCORPORATION AND BYLAWS. On
and after the Effective Date, the articles of incorporation and the bylaws
of PSB shall be the articles of incorporation and bylaws of PSB in effect
prior to the merger, until thereafter altered, amended or repealed; the
articles of incorporation and bylaws of First Penn, as the surviving
corporation in the Bank Merger, shall be the articles and bylaws of First
Penn in effect prior to the Bank Merger.

(d) BOARD OF DIRECTORS AND OFFICERS OF PSB. On the Effective Date, the
Board of Directors of PSB shall be appointed the directors of JADE, and PSB
shall appoint Messrs. John J. O'Connell and Mario Incollingo, Jr. to PSB's
Board of Directors.

A-5
<PAGE>
(e) CONVERSION OF SHARES.

(i) NEWCO COMMON STOCK.

(A) Each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Date shall, on and after the
Effective Date, be converted into an identical share of JADE Common
Stock.

(B) Each share of Newco Common Stock issued and held in the
treasury of Newco as of the Effective Date, if any, shall, on and
after the Effective Date, shall be converted into identical shares of
JADE Common Stock and held in the treasury of JADE.

(ii) JADE COMMON STOCK.

(A) Subject to the provisions of Section 1.02(e)(ii)(C) and (D)
and Section 1.02(e)(iii) hereof with respect to dissenting shares,
each share of JADE Common Stock issued and outstanding immediately
prior to the Effective Date (other than shares then owned by Newco,
if any) shall, on the Effective Date, by reason of the Merger and
without any action on the part of the holder thereof, be canceled and
extinguished and converted into the right to receive a cash payment
equal to $13.55 per share.

(B) Each share of JADE Common Stock issued and held in the
treasury of JADE or owned by JADE or any JADE Subsidiary as of the
Effective Date, if any, shall be canceled, and no cash, stock or
other property shall be delivered in exchange therefor.

(C) Each share of JADE Common Stock held by the ESOP, and
unallocated to the account of an ESOP participant immediately prior
to the Effective Date, shall on the Effective Date be converted into
a right to receive the number of shares of fully paid and
non-assessable shares of PSB Common Stock equal to the Exchange Ratio
or $13.55 in cash per share at the option of PSB.

(D) Each share of JADE Common Stock allocated and held in the
account of an ESOP participant will be converted, at the option of
the participant, into either:

(1) $13.55 per share; or

(2) the number of shares, of fully paid and non-assessable
shares of PSB Common Stock equal to the Exchange Ratio. In lieu
of issuing fractional shares to the account of any participant or
with respect to the PSB Common Stock to be issued in Section
1.02(e)(ii)(C) above, such fractional share shall be converted to
cash equal to the pro-rata portion of the PSB Average Closing
Price.

(E) In the event the Notice of Completed Purchase is not received
by JADE at least 25 trading days prior to the Closing Date, the
provisions of Sections 1.02(e)(ii)(C) and 1.02(e)(ii)(D) of this
Agreement shall be canceled and each allocated or unallocated share
of JADE Common Stock held by the ESOP or by an ESOP participant shall
be converted into a right to receive $13.55 per share.

(iii) DISSENTING SHAREHOLDERS OF JADE. If there are holders of JADE
Common Stock who dissent from the Merger and exercise and perfect the
right to obtain valuation of and payment for their shares ("Dissenting
JADE Shares") pursuant to Section 1930(a) and Subchapter D of Chapter 15
of the BCL, the following provisions will govern payments to be made in
respect of Dissenting JADE Shares:

(A) all payments in respect of Dissenting JADE Shares, if any,
will be made directly by PSB; and

A-6
<PAGE>
(B) Dissenting JADE Shares, if any, will be deemed to have been
retired and canceled immediately prior to the Merger, with the effect
that no conversion thereof will occur pursuant to Section
1.02(e)(ii) hereof.

(f) SURRENDER AND EXCHANGE OF JADE STOCK CERTIFICATES.

(i) EXCHANGE OF CERTIFICATES. Each holder of shares of JADE Common
Stock, other than holders of Dissenting JADE Shares, who surrenders to
PSB (or its agent) the certificate or certificates representing such
shares will be entitled to receive, as soon as practicable after the
Effective Date, (i) cash equal to $13.55 per share of JADE Common Stock
or (ii)the number of shares of PSB Common Stock computed in accordance
with Section 1.02(e)(ii)(D)(2).

(ii) EXCHANGE PROCEDURES. Each certificate for shares of JADE
Common Stock delivered for exchange under this Section 1.02(f) must be
endorsed in blank by the registered holder thereof or be accompanied by a
power of attorney to transfer such shares endorsed in blank by such
holder. If more than one certificate is surrendered at one time and in
one transmittal package for the same shareholder account, the amount of
cash payable or the number of shares of PSB Common Stock, as the case may
be will be computed on the basis of the aggregate number of shares
represented by the certificates so surrendered. If payments of cash or
shares of PSB Common Stock are to be issued or made to a person other
than the one in whose name the surrendered certificate is registered, the
certificate so surrendered must be properly endorsed in blank, with
signature(s) guaranteed, or otherwise in proper form for transfer, and
the person to whom cash is to be paid or the shares of PSB Common Stock
are to be issued shall pay any transfer or other taxes required by reason
of such issuance or payment to a person other than the registered holder
of the certificate for shares of JADE Common Stock that are surrendered.
As promptly as practicable after the Effective Date, PSB shall send or
cause to be sent to each shareholder of record of JADE Common Stock
transmittal materials for use in exchanging certificates representing
JADE Common Stock for cash equal to $13.55 per share of JADE Common Stock
canceled in the Merger or PSB Common Stock, as the case may be. Cash
payment shall be mailed to the former shareholders of JADE as soon as
reasonably possible but in no event later than twenty (20) business days
following the receipt of certificates representing former shares of JADE
Common Stock duly endorsed or accompanied by the materials referenced
herein and delivered by certified mail, return receipt requested (but in
no event earlier than the second business day following the Effective
Date).

(iii) CLOSING OF STOCK TRANSFER BOOKS; CANCELLATION OF JADE
CERTIFICATES. Upon the Effective Date, the stock transfer books for JADE
Common Stock will be closed and no further transfers of shares of JADE
Common Stock will thereafter be made or recognized. All certificates for
shares of JADE Common Stock surrendered pursuant to this
Section 1.02(f) will be held by PSB.

Section 1.03. THE BANK MERGER.

(a) PSB and JADE shall use their best efforts to cause First Penn and
IGA to merge on the Effective Date with First Penn surviving such merger. In
connection with the Bank Merger, the name of the surviving institution shall
be First Penn Bank.

(b) BOARD OF DIRECTORS AND OFFICERS OF FIRST PENN. On the Effective
Date, PSB shall appoint (i) Mr. John J. O'Connell as Chairman of the Board,
(ii) Messrs. Dennis P. Wesley, Clyde A. Warden, Robert E. Adelsberger,
Edward D. McBride and William L. Harm as directors, and (iii) Mr. Mario L.
Incollingo, Jr. as Executive Vice President and Chief Operating Officer.

A-7
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF JADE

JADE hereby represents and warrants to PSB on behalf of JADE and its
Subsidiaries that, except as specifically set forth in the JADE Disclosure
Schedule (which JADE Disclosure Schedule qualifies and represents exceptions to
all of the representations and warranties of JADE contained in this Agreement
taken as a whole and does not relate to particular representations and
warranties) delivered to PSB on behalf of JADE on the date hereof:

Section 2.01. ORGANIZATION.

(a) JADE is a Pennsylvania corporation organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania. JADE is
a savings and loan holding company registered under the Home Owners Loan
Act. JADE has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the properties and
assets now owned and being operated by it. JADE is not qualified or licensed
to do business as a foreign corporation in any other jurisdiction and is not
required to be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business except where the failure
to be so qualified or licensed would not have a Material Adverse Effect.

(b) IGA is a federally chartered stock savings bank organized, validly
existing, and in good standing under the laws of the United States. IGA has
the corporate power and authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now
owned and being operated by it. IGA is not qualified or licensed to do
business as a foreign corporation in any other jurisdiction and is not
required to be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business except where the failure
to be so qualified or licensed would not have a Material Adverse Effect.

(d) The deposits of IGA are insured by the FDIC to the extent provided
in the Federal Deposit Insurance Act.

(e) The minute books of JADE and all JADE Subsidiaries accurately
record, in all material respects, all material corporate actions of their
respective shareholders and boards of directors (including committees)
through the date of this Agreement.

(f) Prior to the date of this Agreement, JADE has delivered to PSB true
and correct copies of the articles of incorporation and bylaws of JADE and
IGA as in effect on the date hereof.

Section 2.02. CAPITALIZATION.

(a) The authorized capital stock of JADE consists of 10,000,000 shares
of common stock, $.01 par value ("JADE Common Stock"), of which, at the date
of this Agreement, 1,872,923 shares are outstanding, validly issued, fully
paid and nonassessable and free of preemptive rights, and 5,000,000 shares
of preferred stock, of which, at the date of this Agreement, no shares are
issued or outstanding. Except as set forth on Schedule 2.02(a), JADE neither
has nor is bound by any subscription, option, warrant, call, commitment,
agreement, plan or other Right of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of JADE Common Stock or any other security of
JADE or any securities representing the right to vote, purchase or otherwise
receive any shares of JADE Common Stock or any other security of JADE.

(b) The authorized capital stock of IGA consists of 10,000 shares of
common stock, par value $1.00 per share, of which 10,000 shares are
outstanding, validly issued, fully paid, nonassessable, free of preemptive
rights and owned by JADE. JADE or IGA owns all of the outstanding shares of

A-8
<PAGE>
capital stock of each JADE Subsidiary free and clear of all liens, security
interests, pledges, charges, encumbrances, agreements and restrictions of
any kind or nature.

(c) Except for the JADE Subsidiaries, JADE does not own any equity
interest, directly or indirectly, or treasury stock, in any other company or
control any other company, except for equity interests held in the
investment portfolios of JADE and JADE Subsidiaries, equity interests held
by JADE in a fiduciary capacity, and equity interests held in connection
with the commercial loan activities of JADE. Except as set forth in the JADE
Disclosure Schedule, there are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding and held by JADE with
respect to any other company's capital stock or the equity of any other
person.

(d) To JADE's knowledge, no person or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined
in Section 13(d) of the Exchange Act) of 5% or more of the outstanding
shares of JADE Common Stock, except as disclosed in reasonable detail (using
the principles described in Item 403 of the SEC's Regulation S-K) in the
JADE Disclosure Schedule.

Section 2.03. AUTHORITY; NO VIOLATION.

(a) JADE has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. IGA
has full corporate power and authority to execute and deliver the Bank Plan
of Merger and to consummate the Bank Merger. The execution and delivery of
this Agreement by JADE and the consummation by JADE of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of JADE and, except for approval by the shareholders of JADE, no
other corporate proceedings on the part of JADE are necessary to complete
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by JADE and, subject to approval of the
shareholders of JADE and receipt of the required approvals from Regulatory
Authorities described in Section 3.04 hereof, constitutes the valid and
binding obligation of JADE, enforceable against JADE in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity. The Bank Plan of Merger, upon its execution
and delivery by IGA concurrently with the execution and delivery of this
Agreement, will constitute the valid and binding obligation of IGA,
enforceable against IGA in accordance with its terms, subject to applicable
conservatorship or receivership provisions of the FDIA, or insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.

(b) (i) The execution and delivery of this Agreement by JADE, (ii) the
execution and delivery of the Bank Plan of Merger by IGA, (iii) subject to
receipt of approvals from the Regulatory Authorities referred to in Section
3.04 hereof and JADE's and PSB's compliance with any conditions contained
therein, the consummation of the transactions contemplated hereby, and
(iv) compliance by JADE with any of the terms or provisions hereof, will not
(A) conflict with or result in a breach of any provision of the articles of
incorporation or bylaws of JADE; (B) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
JADE or any of its properties or assets; or (C) violate, conflict with,
result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by,
or result in a right of termination or acceleration or the creation of any
lien, security interest, charge or other encumbrance upon any of the
properties or assets of JADE under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement, commitment or other instrument or obligation to which JADE
is a party, or by which they or any of their respective properties or assets
may be bound or affected, except for such violations, conflicts, breaches or
defaults under clause (B) or (C) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on JADE.

A-9
<PAGE>
Section 2.04. CONSENTS. Except for the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of JADE, no consents or approvals
of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any third parties are necessary, or
will be, in connection with (a) the execution and delivery of this Agreement by
JADE or the Bank Plan of Merger by IGA, and (b) the completion by JADE of the
transactions contemplated hereby or the Bank Plan of Merger. JADE has no reason
to believe that (i) any required consents or approvals will not be received or
will be received with conditions, limitations or restrictions unacceptable to it
or which would adversely impact JADE's ability to complete the transactions
contemplated by this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with which is not
required, will object to the completion of the transactions contemplated by this
Agreement.

Section 2.05. FINANCIAL STATEMENTS.

(a) JADE has previously delivered, or will deliver, to PSB the JADE
Regulatory Reports. The JADE Regulatory Reports have been, or will be,
prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present, or will fairly present in all material
respects, the financial position, results of operations and changes in
shareholders' equity of JADE as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles
applied on a consistent basis.

(b) JADE has previously delivered, or will deliver, to PSB the JADE
Financials. The JADE Financials have been, or will be, prepared in
accordance with generally accepted accounting principles and practices
applied on a consistent basis throughout the periods covered by such
statements, and fairly present, or will fairly present, the consolidated
financial position, results of operations and cash flows of JADE as of and
for the periods ending on the dates thereof, in accordance with generally
accepted accounting principles applied on a consistent basis.

(c) At the date of each balance sheet included in the JADE Financials or
the JADE Regulatory Reports, JADE did not have nor will it have, any
liabilities, obligations or loss contingencies of any nature (whether
absolute, accrued, contingent or otherwise) of a type required to be
reflected, reserved against, or disclosed in such JADE Financials or JADE
Regulatory Reports or in the footnotes thereto which are not fully reflected
or reserved against therein or fully disclosed in a footnote thereto, except
for liabilities, obligations and loss contingencies which are not material
in the aggregate and which are incurred in the ordinary course of business,
consistent with past practice, and subject, in the case of any unaudited
statements, to normal, recurring audit adjustments and the absence of
footnotes.

Section 2.06. TAXES.

(a) JADE and the JADE Subsidiaries are members of the same affiliated
group within the meaning of IRC Section 1504(a). JADE and the JADE
Subsidiaries have duly filed, and will file, all federal, state and local
tax returns required to be filed by or with respect to JADE or the JADE
Subsidiaries on or prior to the Closing Date (all such returns being
accurate and correct in all material respects) and has duly paid or will
pay, or made or will make, provisions for the payment of all federal, state
and local taxes which have been incurred by or are due or claimed to be due
from JADE or the JADE Subsidiaries by any taxing authority or pursuant to
any tax sharing agreement or arrangement (written or oral) on or prior to
the Closing Date other than taxes which (i) are not delinquent or (ii) are
being contested in good faith.

(b) No consent pursuant to IRC Section 341(f) has been filed (or will be
filed prior to the Closing Date) by or with respect to JADE or JADE
Subsidiaries.

A-10
<PAGE>
Section 2.07. NO MATERIAL ADVERSE EFFECT. JADE has not suffered any
Material Adverse Effect since June 30, 2000.

Section 2.08. CONTRACTS.

(a) Except as described in JADE's Annual Reports to Shareholders on Form
10-K for the years ended December 31, 1999, previously delivered or to be
delivered to PSB, or in the JADE Disclosure Schedule, JADE is not a party to
or subject to: (i) any employment, consulting or severance contract or
arrangement with any past or present officer, director or employee of JADE,
except for "at will" arrangements; (ii) any plan, arrangement or contract
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any past or
present officers, directors or employees of JADE; (iii) any collective
bargaining agreement with any labor union relating to employees of JADE;
(iv) any instrument evidencing or related to indebtedness for borrowed money
whether directly or indirectly, by way of purchase money obligation,
conditional sale, lease purchase, guaranty or otherwise, in respect of which
JADE is an obligor to any person, which instrument evidences or relates to
indebtedness other than deposits, repurchase agreements, bankers acceptances
and "treasury tax and loan" accounts established in the ordinary course of
business and transactions in "federal funds" or which contains financial
covenants or other restrictions (other than those relating to the payment of
principal and interest when due) which would be applicable on or after the
Closing Date to PSB or any PSB Subsidiary; (v) any contract (other than this
Agreement) limiting the freedom of JADE to engage in any type of banking or
bank-related business permissible under law or (vi) any other material
contract.

(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 2.08(a) have been provided to PSB on or
before the date hereof, are listed on the JADE Disclosure Schedule and are
in full force and effect on the date hereof and neither JADE nor, to the
knowledge of JADE, any other party to any such contract, plan, arrangement
or instrument has breached any provision of, or is in default in any respect
under any term of, any such contract, plan, arrangement or instrument which
breach has resulted in or will result in a Material Adverse Effect with
respect to JADE. No party to any material contract, plan, arrangement or
instrument will have the right to terminate any or all of the provisions of
any such contract, plan, arrangement or instrument as a result of the
transactions contemplated by this Agreement. None of the employees
(including officers) of JADE or any JADE Subsidiary, possess the right to
terminate their employment as a result of the execution of this Agreement.
No plan, employment agreement, termination agreement, or similar agreement
or arrangement to which JADE or any JADE Subsidiary is a party or under
which JADE or any JADE Subsidiary may be liable contains provisions which
permit an employee or independent contractor to terminate it without cause
and continue to accrue future benefits thereunder. No such agreement, plan
or arrangement (i) provides for acceleration in the vesting of benefits or
payments due thereunder upon the occurrence of a change in ownership or
control of JADE or any JADE Subsidiary absent the occurrence of a subsequent
event; (ii) provides for benefits which may cause the disallowance of a
federal income tax deduction under IRC Section 280G; or (iii) requires JADE
or any JADE Subsidiary to provide a benefit in the form of JADE Common Stock
or determined by reference to the value of JADE Common Stock.

Section 2.09. OWNERSHIP OF PROPERTY; INSURANCE COVERAGE.

(a) JADE has, or will have as to property acquired after the date
hereof, good and, as to real property, marketable title to all assets and
properties owned by JADE in the conduct of its business, whether such assets
and properties are real or personal, tangible or intangible, including
assets and property reflected in the balance sheets contained in the JADE
Regulatory Reports and in the JADE Financials or acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of
for fair value, in the ordinary course of business, since the date

A-11
<PAGE>
of such balance sheets), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure
liabilities for borrowed money and that are described in the JADE Disclosure
Schedule or permitted under Article IV hereof and (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith. JADE,
as lessee, has the right under valid and subsisting leases of real and
personal properties used by JADE in the conduct of its businesses to occupy
or use all such properties as presently occupied and used by it.

(b) With respect to all agreements pursuant to which JADE has purchased
securities subject to an agreement to resell, if any, JADE has a valid,
perfected first lien or security interest in the securities or other
collateral securing the repurchase agreement, and the value of such
collateral equals or exceeds the amount of the debt secured thereby.

(c) JADE currently maintains insurance in amounts considered by JADE to
be reasonable for its operations and similar in scope and coverage to that
maintained by other businesses similarly engaged. JADE has not received
notice from any insurance carrier that (i) such insurance will be cancelled
or that coverage thereunder will be reduced or eliminated or (ii) premium
costs with respect to such policies of insurance will be substantially
increased. There are presently no material claims pending under such
policies of insurance and no notices have been given by JADE under such
policies. All such insurance is valid and enforceable and in full force and
effect, and within the last three years JADE has received each type of
insurance coverage for which it has applied and during such periods has not
been denied indemnification for any material claims submitted under any of
its insurance policies.

Section 2.10. LEGAL PROCEEDINGS. JADE is not a party to any, and there are
no pending or, to the best of JADE's knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries of any nature
(i) against JADE, (ii) to which JADE's assets are or may be subject,
(iii) challenging the validity or propriety of any of the transactions
contemplated by this Agreement, or (iv) which could adversely affect the ability
of JADE to perform under this Agreement, except for any proceedings, claims,
actions, investigations or inquiries referred to in clauses (i) or (ii) which,
if adversely determined, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect.

Section 2.11. COMPLIANCE WITH APPLICABLE LAW.

(a) JADE and the JADE Subsidiaries hold all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their
businesses under, and have complied in all material respects with,
applicable laws, statutes, orders, rules or regulations of any federal,
state or local governmental authority relating to them, other than where
such failure to hold or such noncompliance will neither result in a
limitation in any material respect on the conduct of their businesses or
otherwise have a Material Adverse Effect on JADE.

(b) Neither JADE nor any JADE Subsidiary has received any notification
or communication from any Regulatory Authority (i) asserting that JADE or
any JADE Subsidiary is not in compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces;
(ii) threatening to revoke any license, franchise, permit or governmental
authorization which is material to JADE or any JADE Subsidiary;
(iii) requiring or threatening to require JADE or any JADE Subsidiary or
indicating that JADE or any JADE Subsidiary may be required, to enter into a
cease and desist order, agreement or memorandum of understanding or any
other agreement restricting or limiting, or purporting to restrict or limit,
in any manner the operations of JADE or any JADE Subsidiary, including
without limitation any restriction on the payment of dividends; or
(iv) directing, restricting or limiting, or purporting to direct, restrict
or limit, in any manner the operations of JADE or any JADE Subsidiary,
including without limitation any restriction on the payment of dividends
(any such notice, communication, memorandum, agreement or order described in
this sentence is hereinafter referred to as a "Regulatory

A-12
<PAGE>
Agreement"). Neither JADE nor any JADE Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore disclosed to
PSB.

Section 2.12. ERISA. JADE has previously delivered or will deliver to PSB
true and complete copies of all employee pension benefit plans within the
meaning of ERISA Section 3(2), profit sharing plans, stock purchase plans,
deferred compensation and supplemental income plans, supplemental executive
retirement plans, employment agreements, annual or long term incentive plans,
settlement plans, policies and agreements, group insurance plans, and all other
employee welfare benefit plans within the meaning of ERISA Section 3(1)
(including vacation pay, severance pay, bonus arrangements, sick leave,
short-term disability, long-term disability, medical plans, fringe benefits,
perquisites) and all other employee benefit plans, policies, agreements and
arrangements, trusts, contracts, policies, and commitments ("JADE Employee
Benefit Plans"), all of which are set forth in the JADE Disclosure Schedule,
maintained or contributed to for the benefit of the employees or former
employees (including retired employees) and any beneficiaries thereof or
directors or former directors of JADE, together with (i) the most recent
actuarial (if any) and financial reports relating to those plans which
constitute "qualified plans" under IRC Section 401(a), (ii) the most recent
annual reports relating to such plans filed by them, respectively, with any
government agency, and (iii) all rulings and determination letters which pertain
to any JADE Employee Benefit Plans, (iv) the most recent summary plan
description for each JADE Employee Benefit Plan for which a summary plan
description is required, and (v) all prohibited transaction exemptions requested
of the Department of Labor with respect to JADE Employee Benefit Plans. Neither
JADE, nor any pension plan maintained by JADE, has incurred, directly or
indirectly, any liability under Title IV of ERISA (including to the Pension
Benefit Guaranty Corporation) or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) except liabilities to the Pension Benefit
Guaranty Corporation pursuant to ERISA Section 4007, all of which have been
fully paid, nor has any reportable event under ERISA Section 4043 occurred with
respect to any such pension plan. With respect to each JADE Employee Benefit
Plan that is subject to Title IV of ERISA, the present value of the accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes in the plan's most recent actuarial report did not, as of its latest
valuation date, exceed the then current value of the assets of such plan
allocable to such accrued benefits. With respect to each JADE Employee Benefit
Plan, JADE will have made on or prior to the Closing Date, all payments required
to be made by it prior to the Closing Date and will have accrued as of the
Closing Date all payments due but not yet payable so that there will not have
been nor will there be any accumulated funding deficiencies (as defined in ERISA
or the Code) or waivers of such deficiencies. There are no JADE Employee Plans
which are multi-employer plans as defined in Section 3(37) of ERISA and JADE has
not incurred nor is it subject to any liability under ERISA Section 4201 for a
complete or partial withdrawal from a multi-employer plan. All "employee benefit
plans," as defined in ERISA Section 3(3), comply, and have complied, in all
material respects with (i) relevant provisions of ERISA and (ii), in the case of
plans intended to qualify for favorable income tax treatment, provisions of the
IRC relevant to such treatment and (iii) its respective plan terms. No
prohibited transaction (which shall mean any transaction prohibited by ERISA
Section 406 and not exempt under ERISA Section 408 or any transaction prohibited
under IRC Section 4975) has occurred with respect to any employee benefit plan
maintained by JADE or JADE Employee Plan that would result in the imposition,
directly or indirectly, of an excise tax under IRC 4975 or other penalty under
ERISA or the IRC, which, individually or in the aggregate, has resulted in or
will result in a Material Adverse Effect with respect to JADE. JADE provides
continuation coverage under group health plans for separating employees and
"qualified beneficiaries" in accordance with the provisions of IRC
Section 4980B(f). Such group health plans are in compliance with
Section 1862(b)(1) of the Social Security Act. There are no pending actions,
claims or lawsuits which have been asserted or instituted against any of JADE's
Employee Benefit Plans, the assets of any of the trusts under such Plans, the
plan sponsor, the plan administrator or against any fiduciary of any of JADE's
Employee Benefit Plans (other than routine benefit claims) nor does JADE have
knowledge of facts which could form the basis of any such action, claim or
lawsuit. There are no investigations or

A-13
<PAGE>
audits of any of JADE's Employee Benefit Plans, any trusts under such plans, the
plan sponsor, the plan administrator or any fiduciary of any of JADE's Employee
Benefit Plans which have been threatened or instituted nor does JADE have
knowledge of facts which could form the basis for any such investigation or
audit. No event has occurred or will occur which will result in liability to
JADE in connection with any Employee Benefit Plan established, maintained, or
contributed to (currently or previously) by JADE or by any other entity which,
together with JADE, constitute elements of either (i) a controlled group of
corporations (within the meaning of IRC Section 414(b)), (ii) a group of trades
or businesses under common control (within the meaning of IRC Sections 414(c)
or 4001), (iii) an affiliated service group (within the meaning of IRC
Section 414(m), or (iv) another arrangement covered by IRC Section 414(o).

Section 2.13. SECURITIES DOCUMENTS. JADE has delivered, or will deliver,
to PSB copies of its (i) annual report on SEC Form 10-K for the year ended
December 31, 1999, and (ii) quarterly reports on SEC Form 10-Q for the quarters
ended March 31, 2000 and June 30, 2000. Such reports complied at the time filed
with the SEC, in all material respects, with the Exchange Act and the applicable
rules and regulations of the SEC.

Section 2.14. BROKERS, FINDERS AND FINANCIAL ADVISORS. Except for Berwind
Financial, L.P. ("Berwind"), neither JADE, nor any of its respective officers,
directors, employees or agents, has employed any broker, finder or financial
advisor in connection with the transactions contemplated by this Agreement or in
connection with any transaction other than the Merger, or, except for its
commitments disclosed in JADE Disclosure Schedule, incurred any liability or
commitment for any fees or commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with any
transaction other than the Merger, which has not been reflected in the JADE
Financials.

Section 2.15. ENVIRONMENTAL MATTERS. To the knowledge of JADE, neither
JADE nor any properties owned or operated by JADE has been or is in violation of
or liable under any Environmental Law which violation or liability, individually
or in the aggregate, resulted in, or will result, in a Material Adverse Effect
with respect to JADE. There are no actions, suits or proceedings, or demands,
claims, notices or investigations (including without limitation notices, demand
letters or requests for information from any environmental agency) instituted or
pending, or to the knowledge of JADE, threatened, relating to the liability of
any property owned or operated by JADE under any Environmental Law.

Section 2.16. LOAN PORTFOLIO. The allowance for loan losses reflected, and
to be reflected, in the JADE Regulatory Reports, and shown, and to be shown, on
the balance sheets contained in the JADE Financials have been, and will be,
established in accordance with the requirements of generally accepted accounting
principles and all applicable regulatory criteria.

Section 2.17. INFORMATION TO BE SUPPLIED. The information supplied, or to
be supplied, by JADE for inclusion in the Applications will, at the time such
documents are filed with any Regulatory Authority, be accurate in all material
aspects.

Section 2.18. RELATED PARTY TRANSACTIONS. Except as disclosed in the
footnotes to the JADE Financials or the JADE Disclosure Schedule, JADE is not a
party to any transaction (including any loan or other credit accommodation) with
any Affiliate of JADE. Any such transaction (a) was made in the ordinary course
of business, (b) was made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectibility or present other unfavorable features. No loan or credit
accommodation to any Affiliate of JADE is presently in default or, during the
three year period prior to the date of this Agreement, has been in default or
has been restructured, modified or extended. JADE has not been notified that
principal and interest with respect to any such loan or other

A-14
<PAGE>
credit accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by IGA is
inappropriate.

Section 2.19. LOANS. Each loan reflected as an asset in the JADE Financial
Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct, (ii) to the extent secured,
has been secured by valid liens and security interests which have been
perfected, and (iii) is the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on JADE.

Section 2.20. QUALITY OF REPRESENTATIONS. The representations made by JADE
in this Agreement are true, correct and complete in all material respects, and
do not omit statements necessary to make them not misleading under all facts and
circumstances.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PSB

PSB hereby represents and warrants to JADE that, except as set forth in the
PSB Disclosure Schedule (which PSB Disclosure Schedule qualifies and represents
exceptions to all of the representations and warranties of PSB contained in this
Agreement taken as a whole and does not relate solely to particular
representations and warranties) delivered by PSB to JADE on or prior to the date
hereof:

Section 3.01. ORGANIZATION.

(a) PSB is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. PSB is a bank
holding company duly registered under the BHC Act. PSB has the corporate
power and authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now owned and
being operated by it. PSB is not qualified or licensed to do business as a
foreign corporation in any other jurisdiction and is not required to be so
qualified or licensed as the result of the ownership or leasing of property
or the conduct of its business, except where the failure to be so qualified
or licensed would not have a Material Adverse Effect.

(b) First Penn is a state bank duly organized and validly existing under
the laws of the Commonwealth of Pennsylvania. First Penn has the corporate
power and authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now owned and
being operated by it. Neither First Penn nor any other PSB Subsidiary is
qualified or licensed to do business as a foreign corporation in any other
jurisdiction and neither is required to be so qualified or licensed as the
result of the ownership or leasing of property or the conduct of its
business, except where the failure to be so qualified or licensed would not
have a Material Adverse Effect.

(c) There are no PSB Subsidiaries other than First Penn or as disclosed
in PSB's Annual Report on Form 10-K for the year ended December 31, 1999.

(d) The deposits of First Penn are insured by the FDIC to the extent
provided in the Federal Deposit Insurance Act.

(e) The respective minute books of PSB and the PSB Subsidiaries
accurately record, in all material respects, all material corporate actions
of their respective shareholders and boards of directors (including
committees) through the date of this Agreement.

(f) Prior to the execution of this Agreement, PSB has delivered to JADE
true and correct copies of the articles of incorporation and the bylaws of
PSB and the articles of incorporation and bylaws of First Penn as in effect
on the date hereof.

A-15
<PAGE>
Section 3.2. CAPITAL STRUCTURE.

(a) The authorized capital stock of PSB consists of (i) 15,000,000
shares of common stock, no par value ("PSB Common Stock"), of which, at the
date of this Agreement, no shares are issued and held by PSB as treasury
stock and 4,455,007 shares are outstanding, validly issued, fully paid and
nonassessable and free of preemptive rights. Except as set forth in the PSB
Disclosure Schedule, neither PSB nor First Penn nor any other PSB Subsidiary
has or is bound by any subscription, option, warrant, call, commitment,
agreement, plan or other Right of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of PSB Common Stock or any other security of PSB
or any securities representing the right to vote, purchase or otherwise
receive any shares of PSB Common Stock or any other security of PSB.

(b) The authorized capital stock of First Penn consists of 3,000 shares
of common stock, par value $.01 per share, of which 3,000 shares are
outstanding, validly issued, fully paid, nonassessable, free of preemptive
rights and owned by PSB. Neither PSB nor any PSB Subsidiary has or is bound
by any subscription, option, warrant, call, commitment, agreement or other
Right of any character relating to the purchase, sale or issuance or voting
of, or right to receive dividends or other distributions on any shares of
the capital stock of any PSB Subsidiary or any other security of any PSB
Subsidiary or any securities representing the right to vote, purchase or
otherwise receive any shares of the capital stock or any other security of
any PSB Subsidiary. Either PSB, or First Penn owns all of the outstanding
shares of capital stock of each PSB Subsidiary free and clear of all liens,
security interests, pledges, charges, encumbrances, agreements and
restrictions of any kind or nature.

(c) Neither (i) PSB, (ii) First Penn, nor, (iii) any other PSB
Subsidiary, owns any equity interest, directly or indirectly, in any other
company or controls any other company, except for equity interests held in
the investment portfolios of PSB or PSB Subsidiaries, equity interests held
by PSB Subsidiaries in a fiduciary capacity, equity interests held in
connection with the commercial loan activities of PSB Subsidiaries, and
equity interests disclosed in PSB's Annual Report on Form 10-K for the year
ended December 31, 1999. Except as set forth in the PSB Disclosure Schedule,
there are no subscriptions, options, warrants, calls, commitments,
agreements or other Rights outstanding and held by PSB or any PSB Subsidiary
with respect to any other company's capital stock or the equity of any other
person.

(d) To PSB's knowledge, without any independent investigation, except as
disclosed in PSB's proxy statement dated August 30, 1999, no person or
"group" (as that term is used in Section 13(d)(3) of the Exchange Act) is
the beneficial owner (as defined in Section 13(d) of the Exchange Act) of 5%
or more of the outstanding shares of PSB Common Stock.

Section 3.03. AUTHORITY; NO VIOLATION.

(a) PSB has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. First
Penn has full corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution and delivery
of this Agreement by PSB and the consummation by PSB of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of PSB and, no other corporate proceedings on the part of PSB are
necessary to complete the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by PSB and, subject to the
receipt of the required approvals of Regulatory Authorities described in
Section 3.04 hereof, constitutes the valid and binding obligation of PSB,
enforceable against PSB in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity. The Bank Plan of Merger, upon its execution and delivery by First
Penn concurrently with the execution and delivery of this Agreement, will
constitute the valid and binding obligation of

A-16
<PAGE>
First Penn, enforceable against First Penn in accordance with its terms,
subject to applicable conservatorship and receivership provisions of the
FDIA, or insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity.

(b) (i) The execution and delivery of this Agreement by PSB, (ii) the
execution and delivery of the Bank Plan of Merger by First Penn,
(iii) subject to receipt of approvals from the Regulatory Authorities
referred to in Section 3.04 hereof and JADE's and PSB's compliance with any
conditions contained therein, the consummation of the transactions
contemplated hereby, and (iv) compliance by PSB with any of the terms or
provisions hereof or of the Bank Plan of Merger will not (A) conflict with
or result in a breach of any provision of the articles of incorporation or
bylaws of PSB or any PSB Subsidiary or the articles of incorporation or
bylaws of First Penn, (B) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to PSB or
any PSB Subsidiary or any of their respective properties or assets; or
(C) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default), under, result in the termination of,
accelerate the performance required by, or result in a right of termination
or acceleration or the creation of any lien, security interest, charge or
other encumbrance upon any of the properties or assets of PSB or any PSB
Subsidiary under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which PSB or any PSB Subsidiary is a party, or
by which they or any of their respective properties or assets may be bound
or affected, except for such violations, conflicts, breaches or defaults
under clause (B) or (C) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on PSB.

Section 3.04. CONSENTS. Except for any required consents, approvals,
filings and registrations from or with the Regulatory Authorities, and
compliance with any conditions contained therein, and the approval of this
Agreement by the shareholders of PSB, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, or will be, in connection with
(a) the execution and delivery of this Agreement by PSB or the Bank Plan of
Merger by First Penn, and (b) the completion by PSB of the transactions
contemplated hereby or by First Penn of the Bank Merger. PSB has no reason to
believe that (i) any required consents or approvals will not be received or will
be received with conditions, limitations or restrictions unacceptable to it or
which would adversely impact PSB's ability to complete the transactions
contemplated by this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with which is not
required, will object to the completion of the transactions contemplated by this
Agreement.

Section 3.05. FINANCIAL STATEMENTS.

(a) PSB has previously delivered, or will deliver, to JADE the PSB
Regulatory Reports. The PSB Regulatory Reports have been, or will be,
prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present, or will fairly present in all material
respects, the financial position, results of operations and changes in
shareholders' equity of PSB as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles
applied on a consistent basis.

(b) PSB has previously delivered, or will deliver, to JADE the PSB
Financials. The PSB Financials have been, or will be, prepared in accordance
with generally accepted accounting principles and practices applied on a
consistent basis throughout the periods covered by such statements, and
fairly present, or will fairly present, the consolidated financial position,
results of operations and cash flows of PSB as of and for the periods ending
on the dates thereof, in accordance with generally accepted accounting
principles.

A-17
<PAGE>
(c) At the date of each balance sheet included in the PSB Financials or
the PSB Regulatory Reports, neither PSB, First Penn nor any other PSB
Subsidiary (as the case may be) had or will have any liabilities,
obligations or loss contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in such PSB
Financials or the PSB Regulatory Reports or in the footnotes thereto which
are not fully reflected or reserved against therein or disclosed in a
footnote thereto, except for liabilities, obligations or loss contingencies
which are not material in the aggregate and which are incurred in the
ordinary course of business, consistent with past practice, and subject, in
the case of any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.

Section 3.06. TAXES.

(a) PSB and the PSB Subsidiaries are members of the same affiliated
group within the meaning of IRC Section 1504(a). PSB has duly filed, and
will file, all federal, state and local tax returns required to be filed by
or with respect to PSB and all PSB Subsidiaries on or prior to the Closing
Date (all such returns being accurate and correct in all material respects)
and has duly paid or will pay, or made or will make, provisions for the
payment of all federal, state and local taxes which have been incurred by or
are due or claimed to be due from PSB and any PSB Subsidiary by any taxing
authority or pursuant to any tax sharing agreement or arrangement (written
or oral) on or prior to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.

(b) No consent pursuant to IRC Section 341(f) has been filed (or will be
filed prior to the Closing Date) by or with respect to PSB or any PSB
Subsidiary.

Section 3.07. NO MATERIAL ADVERSE EFFECT. PSB has not suffered any
Material Adverse Effect since June 30, 2000.

Section 3.08 CONTRACTS.

(a) Except as described in PSB's Annual Reports on Form 10-K to
Shareholders for the years ended December 31, 1999, or on the PSB Disclosure
Schedule, delivered or to be delivered to JADE, neither PSB nor any PSB
Subsidiary is a party to or subject to: (i) any employment, consulting or
severance contract or arrangement with any past or present officer, director
or employee of PSB or any PSB Subsidiary, except for "at will" arrangements;
(ii) any plan, arrangement or contract providing for bonuses, pensions,
options, deferred compensation, retirement payments, profit sharing or
similar arrangements for or with any past or present officers, directors or
employees of PSB or any PSB Subsidiary; (iii) any collective bargaining
agreement with any labor union relating to employees of PSB or any PSB
Subsidiary; (iv) any agreement which by its terms limits the payment of
dividends by any PSB Subsidiary; (v) any instrument evidencing or related to
indebtedness for borrowed money whether directly or indirectly, by way of
purchase money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which PSB or any PSB Subsidiary is an obligor to
any person, which instrument evidences or relates to indebtedness other than
deposits, repurchase agreements, bankers acceptances and "treasury tax and
loan" accounts established in the ordinary course of business and
transactions in "federal funds;" (vi) any contract (other than this
Agreement) limiting the freedom of any PSB Subsidiary to engage in any type
of banking or bank-related business permissible under law or (vii) any other
material contract.

(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 3.08(a) or described in a footnote to
such audited consolidated financial statements, have been provided to JADE
on or before the date hereof, are listed on the PSB Disclosure Schedule and
are in full force and effect on the date hereof, and neither PSB nor any PSB
Subsidiary (nor, to the knowledge of PSB, any other party to any such
contract, plan, arrangement or instrument) has breached any provision of, or
is in default in any respect under any term of,

A-18
<PAGE>
any such contract, plan, arrangement or instrument which breach has resulted
in or will result in a Material Adverse Effect with respect to PSB. No party
to any material contract, plan, arrangement or instrument will have the
right to terminate any or all of the provisions of any such contract, plan,
arrangement or instrument as a result of the transactions contemplated by
this Agreement. None of the employees (including officers) of PSB or any PSB
Subsidiary, possess the right to terminate their employment as a result of
the execution of this Agreement. No plan, employment agreement, termination
agreement, or similar agreement or arrangement to which PSB or any PSB
Subsidiary is a party or under which PSB or any PSB Subsidiary may be liable
contains provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue future benefits
thereunder. No such agreement, plan or arrangement (i) provides for
acceleration in the vesting of benefits or payments due thereunder upon the
occurrence of a change in ownership or control of PSB or any PSB Subsidiary
absent the occurrence of a subsequent event; (ii) provides for benefits
which may cause the disallowance of a federal income tax deduction under IRC
Section 280G; or (iii) requires PSB or any PSB Subsidiary to provide a
benefit in the form of PSB Common Stock or determined by reference to the
value of PSB Common Stock.

Section 3.09 OWNERSHIP OF PROPERTY; INSURANCE COVERAGE.

(a) PSB and the PSB Subsidiaries have, or will have as to property
acquired after the date hereof, good and, as to real property, marketable
title to all assets and properties owned by PSB or any PSB Subsidiary in the
conduct of its business, whether such assets and properties are real or
personal, tangible or intangible, including assets and property reflected in
the balance sheets contained in the PSB Regulatory Reports and in the PSB
Financials or acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value, in the ordinary
course of business, since the date of such balance sheets), subject to no
encumbrances, liens, mortgages, security interests or pledges, except
(i) those items that secure liabilities for borrowed money and that are
described in the PSB Disclosure Schedule or permitted under Article IV
hereof and (ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith. PSB and the PSB Subsidiaries, as lessee, have
the right under valid and subsisting leases of real and personal properties
used by PSB and the PSB Subsidiaries in the conduct of their businesses to
occupy and use all such properties as presently occupied and used by each of
them.

(b) With respect to all agreements pursuant to which PSB or any PSB
Subsidiary has purchased securities subject to an agreement to resell, if
any, PSB or such PSB Subsidiary, as the case may be, has a valid, perfected
first lien or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such collateral equals
or exceeds the amount of the debt secured thereby.

(c) PSB and the PSB Subsidiaries currently maintain insurance in amounts
considered by PSB to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses
similarly engaged. Neither PSB nor any PSB Subsidiary has received notice
from any insurance carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated or (ii) premium costs with
respect to such insurance will be substantially increased. There are
presently no material claims pending under such policies of insurance and no
notices have been given by PSB or any PSB Subsidiary under such policies.
All such insurance is valid and enforceable and in full force and effect,
and within the last three years PSB has received each type of insurance
coverage for which it has applied and during such periods has not been
denied indemnification for any material claims submitted under any of its
insurance policies.

Section 3.10. LEGAL PROCEEDINGS. Neither PSB nor any PSB Subsidiary is a
party to any, and there are no pending or, to the best of PSB's knowledge,
threatened legal, administrative, arbitration or

A-19
<PAGE>
other proceedings, claims (whether asserted or unasserted), actions or
governmental investigations or inquiries of any nature (i) against PSB or any
PSB Subsidiary, (ii) to which PSB's or any PSB Subsidiary's assets are or may be
subject, (iii) challenging the validity or propriety of any of the transactions
contemplated by this Agreement, or (iv) which could adversely affect the ability
of PSB to perform under this Agreement, except for any proceedings, claims,
actions, investigations or inquiries referred to in clauses (i) or (ii) which,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect.

Section 3.11. COMPLIANCE WITH APPLICABLE LAW.

(a) PSB and the PSB Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to
hold or such noncompliance will neither result in a limitation in any
material respect on the conduct of their businesses nor otherwise have a
Material Adverse Effect.

(b) Neither PSB nor any PSB Subsidiary has received any notification or
communication from any Regulatory Authority (i) asserting that PSB or any
PSB Subsidiary is not in compliance with any of the statutes, regulations or
ordinances which such Regulatory Authority enforces; (ii) threatening to
revoke any license, franchise, permit or governmental authorization which is
material to PSB or any PSB Subsidiary; (iii) requiring or threatening to
require PSB or any PSB Subsidiary, or indicating that PSB or any PSB
Subsidiary may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement restricting
or limiting, or purporting to restrict or limit, in any manner the
operations of PSB or any PSB Subsidiary, including without limitation any
restriction on the payment of dividends; or (iv) directing, restricting or
limiting, or purporting to direct, restrict or limit, in any manner the
operations of PSB or any PSB Subsidiary, including without limitation any
restriction on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither PSB nor any PSB Subsidiary
has consented to or entered into any Regulatory Agreement, except as
heretofore disclosed to JADE.

Section 3.12. ERISA. PSB has previously made available to JADE true and
complete copies of the PSB Employee Benefit Plans, all of which are set forth on
the PSB Disclosure Schedule, maintained or contributed to for the benefit of the
employees or former employees (including retired employees) and any
beneficiaries thereof or directors or former directors of PSB or any PSB
Subsidiary, together with (i) the most recent actuarial (if any) and financial
reports relating to those plans which constitute "qualified plans" under IRC
Section 401(a), (ii) the most recent annual reports relating to such plans filed
by them, respectively, with any government agency, and (iii) all rulings and
determination letters which pertain to any PSB Employee Benefit Plans. Neither
PSB nor any PSB Subsidiary, and no pension plan maintained by PSB or any PSB
Subsidiary, has incurred, directly or indirectly, within the past six (6) years
any liability under Title IV of ERISA (including to the Pension Benefit Guaranty
Corporation) or to the IRS with respect to any pension plan qualified under IRC
Section 401(a) except liabilities to the Pension Benefit Guaranty Corporation
pursuant to ERISA Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043(b) occurred with respect to any such
pension plan. With respect to each PSB Employee Benefit Plan that is subject to
Title IV of ERISA, the present value of the accrued benefits under such plan,
based upon the actuarial assumptions used for funding purposes in the plan's
most recent actuarial report did not, as of its latest valuation date, exceed
the then current value of the assets of such plan allocable to such accrued
benefits. With respect to each PSB Employee Benefit Plan, PSB will have made on
or prior to the Closing Date, all payments required to be made by it prior to
the Closing Date and will have accrued as of the Closing Date all payments due
but not yet payable so that there will not have been nor will there be any
accumulated funding deficiencies (as defined in ERISA

A-20
<PAGE>
or the Code) or waivers of such deficiencies. Neither PSB nor any PSB Subsidiary
has incurred or is subject to any liability under ERISA Section 4201 for a
complete or partial withdrawal from a multi-employer plan. All "employee benefit
plans," as defined in ERISA Section 3(3), comply, and in the past six (6) years
have complied, in all material respects with (i) relevant provisions of ERISA
and (ii), in the case of plans intended to qualify for favorable income tax
treatment, provisions of the IRC relevant to such treatment. No prohibited
transaction (which shall mean any transaction prohibited by ERISA Section 406
and not exempt under ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with respect to any
employee benefit plan maintained by PSB or any PSB Subsidiary that would result
in the imposition, directly or indirectly, of an excise tax under IRC
Section 4975 or other penalty under ERISA or the IRC, which individually or in
the aggregate, has resulted in or will result in a Material Adverse Effect with
respect to PSB. PSB and the PSB Subsidiaries provide continuation coverage under
group health plans for separating employees and "qualified beneficiaries" in
accordance with the provisions of IRC Section 4980B(f). Such group health plans
are in compliance with Section 1862(b)(1) of the Social Security Act. There are
no pending actions, claims or lawsuits which have been asserted or instituted
against any of PSB's Employee Benefit Plans, the assets of any of the trusts
under such Plans, the plan sponsor, the plan administrator or against any
fiduciary of any of PSB's Employee Benefit Plans (other than routine benefit
claims) nor does PSB have knowledge of facts which could form the basis of any
such action, claim or lawsuit. There are no investigations or audits of any of
PSB's Employee Benefit Plans, any trusts under such plans, the plan sponsor, the
plan administrator or any fiduciary of any of PSB's Employee Benefit Plans which
have been threatened or instituted nor does PSB's have knowledge of facts which
could form the basis for any such investigation or audit. No event has occurred
or will occur which will result in liability to PSB in connection with any
Employee Benefit Plan established, maintained, or contributed to (currently or
previously) by PSB or by any other entity which, together with PSB, constitute
elements of either (i) a controlled group of corporations (within the meaning of
IRC Section 414(b)), (ii) a group of trades or businesses under common control
(within the meaning of IRC Sections 414(c) or 4001), (iii) an affiliated service
group (within the meaning of IRC Section 414(m), or (iv) another arrangement
covered by IRC Section 414(o).

Section 3.13. SECURITIES DOCUMENTS. PSB has delivered, or will deliver, to
JADE copies of its (i) annual reports on SEC Form 10-K for the years ended
December 31, 1999 and 1998, and (ii) proxy statement dated August 30, 1999 used
in connection with its annual meeting of shareholders held on October 4, 1999.
Such reports and such proxy materials complied, at the time filed with the SEC,
in all material respects, with the Exchange Act and the applicable rules and
regulations of the SEC.

Section 3.14. BROKERS AND FINDERS. Except for Tucker Anthony Cleary Gull
("Tucker Anthony"), neither PSB nor any PSB Subsidiary, nor any of their
respective officers, directors, employees or agents, has employed any broker,
finder or financial advisor, or incurred any liability for any fees or
commissions to any such person, in connection with the transactions contemplated
by this Agreement or in connection with any transaction other than the Merger,
or, except for its commitments disclosed in the PSB Disclosure Schedule,
incurred any liability or commitment for any fees or commissions to any such
person in connection with the transactions contemplated by this Agreement or in
connection with any transaction other than the Merger, which has not been
reflected in the PSB Financials.

Section 3.15. ENVIRONMENTAL MATTERS. To the knowledge of PSB, neither PSB
nor any properties owned or operated by PSB has been or is in violation of or
liable under any Environmental Law which violation or liability, individually or
in the aggregate, resulted in, or will result, in a Material Adverse Effect with
respect to PSB. There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including without limitation notices, demand letters
or requests for information from any environmental agency) instituted or
pending, or to the knowledge of PSB, threatened, relating to the liability of
any property owned or operated by PSB under any Environmental Law.

Section 3.16. LOAN PORTFOLIO. The allowance for loan losses reflected, and
to be reflected, in the PSB Regulatory Reports, and shown, and to be shown, on
the balance sheets contained in the PSB Financials have been, and will be,
established in accordance with the requirements of generally accepted accounting
principles and all applicable regulatory criteria.

A-21
<PAGE>
Section 3.17. INFORMATION TO BE SUPPLIED. The information to be supplied
by PSB for inclusion in the Registration Statement will not, at the time the
Registration Statement is distributed to JADE Shareholders, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein not misleading. The information supplied,
or to be supplied, by PSB for inclusion in the Applications will, at the time
such documents are filed with any Regulatory Authority, be accurate in all
material aspects.

Section 3.18. RELATED PARTY TRANSACTIONS. Except as disclosed in the
footnotes to the PSB Financials or the PSB Disclosure Schedule, PSB is not a
party to any transaction (including any loan or other credit accommodation) with
any Affiliate of PSB. Any such transaction (a) was made in the ordinary course
of business, (b) was made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectibility or present other unfavorable features. No loan or credit
accommodation to any Affiliate of PSB is presently in default or, during the
three year period prior to the date of this Agreement, has been in default or
has been restructured, modified or extended. PSB has not been notified that
principal and interest with respect to any such loan or other credit
accommodation will not be paid when due or that the loan grade classification
accorded such loan or credit accommodation by IGA is inappropriate.

Section 3.19. LOANS. Each loan reflected as an asset in the PSB Financial
Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct, (ii) to the extent secured,
has been secured by valid liens and security interests which have been
perfected, and (iii) is the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on PSB.

Section 3.20. QUALITY OF REPRESENTATIONS. The representations made by PSB
in this Agreement are true, correct and complete in all material respects and do
not omit statements necessary to make the representations not misleading under
the circumstances.

ARTICLE IV
COVENANTS OF THE PARTIES

Section 4.01. CONDUCT OF BUSINESS. From the date of this Agreement to the
Closing Date, the parties will conduct their business and engage in
transactions, including extensions of credit, only in the ordinary course and
consistent with past practice and policies, except as otherwise required by this
Agreement or with the written consent of the other party. Each party will use
reasonable good faith efforts to (i) preserve its business organizations intact,
(ii) maintain good relationships with employees, and (iii) preserve for itself
the good will of customers and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise consented to or
approved by PSB in writing or as permitted or required by this Agreement, JADE
will not:

(i) except for an amendment to the name of the corporation, amend or
change any provision of its articles of incorporation, charter, or bylaws;

(ii) change the number of authorized shares of its capital stock or
issue or grant any option, warrant, call, commitment, subscription, Right or
agreement of any character relating to its authorized or issued capital
stock or any securities convertible into shares of such stock, or split,
combine or reclassify any shares of capital stock, or declare, set aside or
pay any dividend or other distribution in respect of capital stock, or
redeem or otherwise acquire any shares of capital stock.

(iii) grant any severance or termination pay, (other than pursuant to
written policies or written agreements of JADE in effect on the date hereof
and provided to PSB prior to the date

A-22
<PAGE>
hereof), enter into any new or amend any existing employment agreement with,
or increase the compensation of, any employee, officer or director of JADE,
except for routine periodic increases, individually and in the aggregate, in
accordance with past practice, or hire or agree to hire any additional
employees, except for hiring in accordance with past practice;

(iv) merge or consolidate with any other corporation; sell or lease all
or any substantial portion of its assets or business; make any acquisition
of all or any substantial portion of the business or assets of any other
person, firm, association, corporation or business organization other than
in connection with the collection of any loan or credit arrangement and any
other person; enter into a purchase and assumption transaction with respect
to deposits and liabilities; permit the revocation or surrender of its
certificate of authority to maintain, or file an application for the
relocation of, any existing branch office, or file an application for a
certificate of authority to establish a new branch office;

(v) sell or otherwise dispose of any asset other than in the ordinary
course of business consistent with past practice; subject any asset to a
lien, pledge, security interest or other encumbrance (other than in
connection with deposits, repurchase agreements, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary course of
business and transactions in "federal funds" and the satisfaction of legal
requirements in the exercise of trust powers) other than in the ordinary
course of business consistent with past practice; incur any indebtedness for
borrowed money (or guarantee any indebtedness for borrowed money), except in
the ordinary course of business consistent with past practice;

(vi) take any action which would result in any of the representations
and warranties set forth in this Agreement becoming untrue as of any date
after the date hereof or in any of the conditions set forth in Article V
hereof not being satisfied;

(vii) change any method, practice or principle of accounting, except as
may be required from time to time by GAAP (without regard to any optional
early adoption date) or any Regulatory Authority;

(viii) waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing material agreement to which they
are a party, other than in the ordinary course of business, consistent with
past practice;

(ix) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement that was not in effect on the date of
this Agreement, or materially amend any existing plan or arrangement except
to the extent such amendments do not result in an increase in cost;

(x) purchase any security for its investment portfolio not rated
investment grade or higher by Standard & Poor's Corporation or "A-" by
Moody's Investor Services, Inc., except in the ordinary course of business
consistent with past practice;

(xi) except as set forth in their respective Disclosure Schedule, enter
into, renew, extend or modify any other transaction with any Affiliate other
than a subsidiary;

(xii) enter into any interest rate swap or similar commitment, agreement
or arrangement, except in the ordinary course of business;

(xiii) except for the execution of this Agreement, take any action that
would give rise to a right of payment to any individual under any employment
agreement; or

(xiv) agree to do any of the foregoing.

For purposes of this Section 4.01, it shall not be considered in the
ordinary course of business for JADE to do any of the following: (i) make any
capital expenditure of $100,000 or more not disclosed on JADE Disclosure
Schedule 4.01, without the prior written consent of the other party; (ii) make
any

A-23
<PAGE>
sale, assignment, transfer, pledge, hypothecation or other disposition of any
assets having a book or market value, whichever is greater, in the aggregate in
excess of $100,000, other than pledges of assets to secure government deposits,
to exercise trust powers, sales of assets received in satisfaction of debts
previously contracted in the normal course of business, issuance of loans, or
transactions in the investment securities portfolio or repurchase agreements
made, in each case, in the ordinary course of business; or (iii) undertake or
enter any lease, contract or other commitment for its account, other than in the
normal course of providing credit to customers as part of its banking business,
involving a payment of more than $100,000 annually, or containing a material
financial commitment and extending beyond 12 months from the date hereof.

Section 4.02. ACCESS; CONFIDENTIALITY.

(a) From the date of this Agreement through the Closing Date, JADE or
PSB, as the case may be, shall afford to, and PSB and JADE shall cause each
PSB Subsidiary and JADE Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their respective
properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice for the purpose of undertaking a comprehensive due
diligence investigation; and the officers of JADE and PSB will furnish any
person making such investigation on behalf of the other party with such
financial and operating data and other information with respect to the
businesses, properties, assets, books and records and personnel as the
person making such investigation shall from time to time reasonably request.

(b) JADE and PSB each agree to conduct such investigation and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of the other
party.

(c) In addition to the access permitted by subparagraph (a) above, from
the date of this Agreement through the Closing Date, each of PSB and JADE
shall permit employees of the other reasonable access to and participation
in matters relating to problem loans, loan restructurings and loan
work-outs, provided that nothing contained in this subparagraph shall be
construed to grant PSB or JADE or any of their respective employees any
final decision-making authority with respect to such matters.

(d) If the transactions contemplated by this Agreement shall not be
consummated, JADE and PSB will each destroy or return all documents and
records obtained from the other party or its representatives, during the
course of its investigation and will cause all information with respect to
the other party obtained pursuant to this Agreement or preliminary thereto
to be kept confidential, except to the extent such information becomes
public through no fault of the party to whom the information was provided or
any of its representatives or agents and except to the extent disclosure of
any such information is legally required. JADE and PSB shall each give
prompt notice to the other party of any contemplated disclosure where such
disclosure is so legally required.

Section 4.03. REGULATORY MATTERS AND CONSENTS.

(a) PSB and JADE will prepare all Applications and make all filings for,
and use their best efforts to obtain as promptly as practicable after the
date hereof, all necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement.

(b) JADE will furnish PSB with all information concerning JADE as may be
necessary or advisable in connection with any Application or filing made by
or on behalf of PSB to any Regulatory Authority in connection with the
transactions contemplated by this Agreement.

A-24
<PAGE>
(c) PSB will promptly furnish JADE with copies of all material written
communications to, or received by PSB or any PSB Subsidiary from, any
Regulatory Authority in respect of the transactions contemplated hereby.

(d) PSB will furnish JADE with (i) copies of all Applications prior to
filing with any Regulatory Authority and provide JADE a reasonable
opportunity to suggest changes to such Applications, which suggested changes
PSB may, in its reasonable discretion accept or reject. JADE and PSB will
jointly prepare the Registration Statement prior to filing with the
Securities and Exchange Commission and provide each other a reasonable
opportunity to suggest changes to the Registration Statement, which
suggested changes.

(e) Each party will cooperate in the foregoing matters and will furnish
all information as may be necessary or advisable in connection with any
Application or filing (including the Registration Statement and any report
filed with the SEC) made to any Regulatory Authority in connection with the
transactions contemplated by this Agreement, and such information will be
accurate and complete in all material respects. In connection therewith, the
parties will provide certificates and other documents reasonably requested.

Section 4.04. TAKING OF NECESSARY ACTION.

(a) PSB and JADE shall each use its best efforts in good faith, and PSB
and JADE shall each cause its Subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with
the preparation of the documents referred to in Section 4.03 of this
Agreement, and (ii) take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of
the Merger including, without limitation, (A) obtaining the consent or
approval of each individual, partnership, corporation, association or other
business or professional entity whose consent or approval is required or
desirable for consummation of the transactions contemplated hereby
(including assignment of leases without any change in terms), provided that
neither JADE nor PSB or its Subsidiaries shall agree to make any payments or
modifications to agreements in connection therewith without the prior
written consent of the other party, and (B) requesting the delivery of
appropriate opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take, or cause, or to the best of its
ability permit to be taken, any action that would substantially impair the
prospects of completing the Merger pursuant to this Agreement; provided that
nothing herein contained shall preclude PSB or JADE from exercising its
rights under this Agreement.

(b) JADE and PSB shall jointly prepare the Registration Statement to be
mailed to Jade shareholders in connection with the meeting of its
shareholders and transactions contemplated hereby, and to be filed by PSB
with the SEC, which Registration Statement shall conform in all material
respects to all applicable legal requirements.

Section 4.05. CERTAIN AGREEMENTS.

(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
whether or not brought by or in the name of JADE, in which any person who is
now, or has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Date, a director or officer of JADE (the
"Indemnified Parties") is, or is threatened to be, made a party to a suit
based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer or employee
of JADE, or any of its respective predecessors (including in such person's
capacity is a trustee of the ESOP or any pension plan of JADE) or (ii) this
Agreement or any of the transactions contemplated hereby, whether in any
case asserted or arising before or after the Effective Date, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto to the maximum extent permitted by the BCL and the Articles
of Incorporation and Bylaws of JADE. On or after the Effective Date, PSB
shall indemnify, defend and hold harmless

A-25
<PAGE>
all prior and then-existing directors and officers of JADE (including in
such person's capacity as a trustee of any pension plan of JADE), against
(i) all losses, claims, damages, costs, expenses, liabilities or judgments
or amounts that are paid in settlement (with the approval of PSB which
approval shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation, whether or not brought by
or in the name of JADE, based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer or
employee of JADE, whether pertaining to any matter existing or occurring at
or prior to or after the Effective Date and whether asserted or claimed
prior to, or at or after, the Effective Date ("Indemnified Liabilities") and
(ii) all Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, to the same extent as such officer or director would
have been entitled to indemnification by JADE as of the date hereof
including the right to advancement of expenses; provided, however, that any
such officer, director or employee of JADE may not be indemnified by PSB if
such indemnification is prohibited by applicable law.

(b) PSB shall maintain JADE's existing directors' and officers'
liability insurance policy (or a policy providing comparable coverage
amounts on terms generally no less favorable, including PSB's existing
policy if it meets the foregoing standard) covering persons who are
currently covered by such insurance for a period of seven (7) years after
the Effective Date; provided, however, that in no event shall PSB be
obligated to expend, in order to maintain or provide insurance coverage
pursuant to this Section 4.05(b), any amount per annum in excess of 150% of
the amount of the annual premiums paid as of the date hereof by JADE for
such insurance (the "Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, PSB shall use all reasonable efforts to maintain the most
advantageous policies of directors' and officers' insurance obtainable for
an annual premium equal to the Maximum Amount.

Section 4.06. NO OTHER BIDS AND RELATED MATTERS. So long as this Agreement
remains in effect, without the consent of PSB, JADE shall not, nor shall it
permit any JADE Subsidiary or any other Affiliate or any officer, director or
employee, or any investment banker, attorney, accountant or other representative
retained by it, any JADE Subsidiary or any other Affiliate to, directly or
indirectly, solicit, encourage, initiate or engage in discussions or
negotiations with, or respond to requests for information, inquiries, or other
communications from, any person other than PSB concerning the fact of, or the
terms and conditions of, this Agreement, or concerning any acquisition of JADE,
any JADE Subsidiary, or any assets or business thereof (except that their
respective officers may respond to inquiries from analysts, Regulatory
Authorities and holders of JADE Common Stock, as the case may be, in the
ordinary course of business). JADE shall notify PSB immediately if (i) any such
discussions or negotiations are sought to be initiated with it by any other
person, or (ii) if any such requests for information, inquiries, proposals or
communications are received from any other person, except analysts, Regulatory
Authorities and holders of JADE Common Stock in the ordinary course of business.
Notwithstanding the foregoing, the provisions of this Section 4.06 shall not be
applicable if the Board of Directors of JADE has been advised by counsel in
writing that compliance with this Section 4.06 would constitute a breach of
fiduciary duty.

Section 4.07. DUTY TO ADVISE; DUTY TO UPDATE DISCLOSURE SCHEDULES. The
parties shall promptly advise each other of any change or event having a
Material Adverse Effect or which it believes would or would be reasonably likely
to cause or constitute a material breach of any of its representations,
warranties or covenants set forth herein. The parties shall update their
respective Disclosure Schedules as promptly as practicable after the occurrence
of an event or fact which, if such event or fact had occurred prior to the date
of this Agreement, would have been disclosed in the respective Disclosure
Schedules. The delivery of such updated Disclosure Schedules shall not relieve
the parties from any breach or violation of this Agreement and shall not have
any effect for the purposes of determining the satisfaction of the condition set
forth in Sections 5.02(c) hereof.

A-26
<PAGE>
Section 4.08. BOARD AND COMMITTEE MINUTES. Each of PSB and JADE shall
provide the other, within 30 days after any meeting of the Board of Directors of
PSB or JADE or any Subsidiary, or any committee thereof, or any senior
management committee, a copy of the minutes of such meeting, except that with
respect to any meeting held within 30 days of the Closing Date, such minutes
shall be provided prior to the Closing Date.

Section 4.09. ADDITIONAL UNDERTAKINGS BY PSB AND JADE.

(a) RESERVES AND MERGER-RELATED COSTS. From and after the date of this
Agreement, JADE shall on or before the Effective Date, establish such
additional accruals and reserves, if any, as may be necessary to conform the
accounting reserve practices and methods (including credit loss practices
and methods) of JADE to those of PSB (as such practices and methods are to
be applied to JADE from and after the Closing Date) and PSB's plans with
respect to the conduct of the business of JADE following the Merger and
otherwise to reflect Merger-related expenses and costs incurred by JADE,
provided, however, that JADE shall not be required to take such action
(i) other than immediately prior to Closing; and (ii) unless PSB agrees in
writing that all conditions to closing set forth in Section 5.02 have been
satisfied or waived (except for the expiration of any applicable waiting
periods); prior to the delivery by PSB of the writing referred to in the
preceding clause, JADE shall provide PSB a written statement, certified
without personal liability by the chief executive officer of JADE and dated
the date of such writing, that the representation made in Section 2.15
hereof is true as of such date or, alternatively, setting forth in detail
the circumstances that prevent such representation from being true as of
such date; and no accrual or reserve made by JADE pursuant to this
subsection, or any litigation or regulatory proceeding arising out of any
such accrual or reserve, shall constitute or be deemed to be a breach or
violation of any representation, warranty, covenant, condition or other
provision of this Agreement or to constitute a termination event within the
meaning of Section 6.01 hereof.

(b) From and after the date of this agreement, JADE shall:

(i) SHAREHOLDERS MEETING. Submit this Agreement to its shareholders
for approval at a meeting to be held on or before March 31, 2001, and use
its best efforts to cause its Boards of Director to unanimously recommend
approval of this Agreement to its shareholders;

(i) FILINGS AND APPROVALS. Cooperate with the other in the
preparation and filing, as soon as practicable, of (A) the Applications,
(B) the Registration Statement, (C) all other documents necessary to
obtain any other approvals and consents required to effect the completion
of the Merger, and (D) all other documents contemplated by this
Agreement;

(ii) COMMITTEE MEETINGS. Permit a representative of the other, who
is reasonably acceptable to it, to attend all committee meetings of its
management, including, without limitation, any loan or asset/liability
committee. Each party shall respond reasonably and in good faith to any
request of the other to permit a representative, who is reasonably
acceptable to it, to attend any meeting of its Board of Directors or the
Executive Committee thereof;

(iii) PUBLIC ANNOUNCEMENTS. Cooperate and cause their respective
officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation
and distribution of, and agree upon the form and substance of, any press
release related to this Agreement and the transactions contemplated
hereby, and any other public disclosures related thereto, including
without limitation communications to their respective shareholders,
internal announcements and customer disclosures, but nothing contained
herein shall prohibit either party from making any disclosure which its
counsel deems legally necessary;

A-27
<PAGE>
(iv) MAINTENANCE OF INSURANCE. Maintain, and cause their
Subsidiaries to maintain, insurance in such amounts as are reasonable to
cover such risks as are customary in relation to the character and
location of its properties and the nature of its business;

(v) MAINTENANCE OF BOOKS AND RECORDS. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with generally accepted accounting principles applied on a
basis consistent with those principles used in preparing the financial
statements heretofore delivered;

(vi) DELIVERY OF SECURITIES DOCUMENTS. Deliver to the other copies
of all Securities Documents simultaneously with the filing thereof;

(vii) TAXES. File all federal, state, and local tax returns required
to be filed by them or their respective Subsidiaries on or before the
date such returns are due (including any extensions) and pay all taxes
shown to be due on such returns on or before the date such payment is
due; and

(viii) LIST OF NONPERFORMING ASSETS. Provide the other, within ten
(10) days of the end of each calendar month, a written list of its
nonperforming assets as of the end of such month.

Section 4.10. EMPLOYEE BENEFITS AND TERMINATION BENEFITS.

(a) EMPLOYEE BENEFITS. On and after the Effective Date, the employee
pension and welfare benefit plans of PSB and JADE may, at PSB's election and
subject to the requirements of the IRC, continue to be maintained separately
or consolidated, provided, however, that JADE employees shall receive
benefits that are substantially similar to the benefits to which PSB
employees in similar jobs or job classifications are entitled to on the
Effective Date. In the event of a consolidation of any or all of such plans
or in the event of termination of the JADE benefit plans, JADE employees
shall receive credit for service with JADE under any PSB benefit plan, or
new PSB benefit plan in which such employees would be eligible to enroll for
purposes of eligibility and vesting determination, but not for purposes of
benefit accrual.

Section 4.11. STOCK OPTION PLAN. PSB will use its best efforts to have its
shareholders ratify either: (i) a new stock option and management recognition
plan for the officers and directors of PSB and the Bank; or (ii) an increase in
the number of shares authorized under the current PSB stock option and
management recognition plan; to allow option grants to be made to directors and
senior officers of PSB and First Penn within one (1) year of the Effective Date.

ARTICLE V
CONDITIONS

Section 5.01. CONDITIONS TO JADE'S OBLIGATIONS UNDER THIS AGREEMENT. The
obligations of JADE hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the following conditions, unless waived by JADE
pursuant to Section 7.03 hereof:

(a) CORPORATE PROCEEDINGS. All action required to be taken by, or on
the part of, PSB and First Penn to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and
the consummation of the transactions contemplated by this Agreement and the
Bank Plan of Merger shall have been duly and validly taken by PSB and First
Penn; and JADE shall have received certified copies of the resolutions
evidencing such authorizations;

(b) COVENANTS. The obligations and covenants of PSB required by this
Agreement to be performed by PSB at or prior to the Closing Date shall have
been duly performed and complied with in all material respects;

A-28
<PAGE>
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of PSB set forth in this Agreement shall be true and correct, as of the date
of this Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty (i) which
specifically relates to an earlier date or (ii) where the breach of the
representation or warranty would not, either individually or in the
aggregate, constitute a Material Adverse Effect with respect to PSB;

(d) APPROVALS OF REGULATORY AUTHORITIES. PSB shall have received all
required approvals of Regulatory Authorities of the Merger and the Bank
Merger, and delivered copies thereof to JADE; and all notice and waiting
periods required thereunder shall have expired or been terminated;

(e) REGISTRATION STATEMENT. The Registration Statement shall be
effective under the Securities Act and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; all required approvals by state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement,
shall have been obtained; and neither the Registration Statement nor any
such approval by state securities or "blue sky" authorities shall be subject
to a stop order or threatened stop order by the SEC or any such authority;

(f) NO INJUNCTION. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;

(g) NO MATERIAL ADVERSE EFFECT. Since June 30, 2000, there shall not
have occurred any Material Adverse Effect with respect to PSB;

(h) OFFICER'S CERTIFICATE. PSB shall have delivered to JADE a
certificate, dated the Closing Date and signed, without personal liability,
by its chairman or president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.01 have been satisfied, to the
best knowledge of the officer executing the same;

(i) OPINION OF PSB'S COUNSEL. JADE shall have received an opinion of
Dilworth Paxson LLP, counsel to PSB, dated the Closing Date, in form and
substance reasonably satisfactory to JADE and its counsel to the effect set
forth on EXHIBIT "B" attached hereto;

(j) APPROVAL OF JADE'S SHAREHOLDERS. This Agreement shall have been
approved by the shareholders of JADE by such vote as is required under
JADE's articles of incorporation and bylaws and by law;

(k) INVESTMENT BANKING OPINION. JADE shall have received an oral
opinion from Berwind on or before the date of this Agreement, and updated in
writing as of a date within ten (10) days of mailing the Registration
Statement, to the effect that the consideration to be received by
shareholders of JADE pursuant to this Agreement is fair, from a financial
point of view, to such shareholders; and

Section 5.02. CONDITIONS TO PSB'S OBLIGATIONS UNDER THIS AGREEMENT. The
obligations of PSB hereunder shall be subject to satisfaction at or prior to the
Closing Date of each of the following conditions, unless waived by PSB pursuant
to Section 7.03 hereof:

(a) CORPORATE PROCEEDINGS. All action required to be taken by, or on
the part of, JADE and IGA to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and
the consummation of the transactions contemplated by this Agreement and the
Bank Plan of Merger shall have been duly and validly taken by JADE and IGA;
and PSB shall have received certified copies of the resolutions evidencing
such authorizations;

A-29
<PAGE>
(b) COVENANTS. The obligations and covenants of JADE, required by this
Agreement to be performed by it at or prior to the Closing Date shall have
been duly performed and complied with in all material respects;

(c) EMPLOYMENT AGREEMENTS. John J. O' Connell, Mario L. Incollingo,
Jr. and Frank J. Moran shall have executed their respective employment
agreements and retainer agreement attached hereto as Exhibits E, F and G;

(d) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of JADE set forth in this Agreement shall be true and correct as of the date
of this Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty (i) which
specifically relates to an earlier date or (ii) where the breach of the
representation or warranty would not, either individually or in the
aggregate, result in a Material Adverse Effect with respect to JADE;

(e) APPROVALS OF REGULATORY AUTHORITIES. PSB shall have received all
required approvals of Regulatory Authorities for the Merger and the Bank
Merger, without the imposition of any term or condition that would have a
Material Adverse Effect on PSB upon completion of the Merger; and all notice
and waiting periods required thereunder shall have expired or been
terminated;

(f) REGISTRATION STATEMENT. The Registration Statement shall be
effective under the Securities Act and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; all required approvals by state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement,
shall have been obtained; and neither the Registration Statement nor any
such approval by state securities or "blue sky" authorities shall be subject
to a stop order or threatened stop order by the SEC or any such authority;

(g) NO INJUNCTION. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;

(h) NO MATERIAL ADVERSE EFFECT. Since June 30, 2000, there shall not
have occurred any Material Adverse Effect with respect to JADE;

(i) ESOP SHARES. Twenty-Five (25) trading days shall have elapsed
since PSB has purchased sufficient shares of PSB Common Stock to enable PSB
to give the Notice of Completed Purchase;

(j) OFFICER'S CERTIFICATE. JADE shall have delivered to PSB a
certificate, dated the Closing Date and signed, without personal liability,
by its chairman of the board or president, to the effect that the conditions
set forth in subsections (a) through (e) of this Section 5.02 have been
satisfied, to the best knowledge of the officer executing the same;

(k) OPINIONS OF JADE'S COUNSEL. PSB shall have received an opinion of
Stevens & Lee, P.C., counsel to JADE, dated the Closing Date, in form and
substance reasonably satisfactory to PSB and its counsel to the effect set
forth on EXHIBIT "C" attached hereto;

(l) TAX OPINION. JADE shall have received an opinion of Stevens & Lee,
P.C., its counsel, in form and substance reasonably satisfactory to counsel
to PSB, substantially in the form attached as EXHIBIT "D"; and

(m) INVESTMENT BANKING OPINION. PSB shall have received an oral
opinion from Tucker Anthony on or before the date of this Agreement, and
shall receive a written opinion to the effect that the Merger is fair, from
a financial point of view, to the shareholders of PSB;

A-30
<PAGE>
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT

Section 6.01. TERMINATION. This Agreement may be terminated on or at any
time prior to the Closing Date:

(a) By the mutual written consent of the parties hereto; or

(b) By PSB or JADE:

(i) if, in the case of termination by JADE, there shall have been any
breach of any representation or warranty of PSB which results in a
Material Adverse Effect with respect to PSB, on the one hand, or, in the
case of termination by PSB, there shall have been any breach of any
representation or warranty of JADE which results in a Material Adverse
Effect with respect to JADE, on the other hand, and such breach cannot
be, or shall not have been, remedied within 30 days after receipt by such
other party of notice in writing specifying the nature of such breach and
requesting that it be remedied;

(ii) if, in the case of termination by JADE, there shall have been
any breach of any material covenant or other obligation of PSB, on the
one hand, or, in the case of termination by PSB, there shall have been
any breach of any material covenant or other obligation of JADE, on the
other hand, and such breach cannot be, or shall not have been, remedied
within 30 days after receipt by such other party of notice in writing
specifying the nature of such breach and requesting that it be remedied;

(iii) if the Closing Date shall not have occurred on or before
June 30, 2001, unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing Date; or

(c) if either party has been informed in writing by a Regulatory
Authority whose approval or consent has been requested that such approval or
consent is unlikely to be granted, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this Agreement
to perform or observe its agreements set forth herein required to be
performed or observed by such party on or before the Closing Date.

Section 6.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 6.01 hereof, this Agreement shall forthwith become void
(other than Section 4.02(d), Section 6.03 and Section 7.01 hereof, which shall
remain in full force and effect), and there shall be no further liability on the
part of PSB or JADE to the other, except for any liability arising out of any
breach of any covenant or other agreement contained in this Agreement.

Section 6.03. TERMINATION FEES.

(a) If, within one (1) year following the date of termination of this
Agreement, other than PSB or an Affiliate of PSB, enters into an agreement
with JADE pursuant to which such Person or Affiliate would (i) merge or
consolidate, or enter into any similar transaction, with JADE, (ii) acquire
all or substantially all of the assets of JADE, or (iii) acquire beneficial
ownership of securities representing, or the right to acquire beneficial
ownership or to vote securities representing, 25% or more of the then
outstanding shares of JADE Common Stock, then JADE shall immediately pay to
PSB a fee of $2.5 million, which fee shall include reimbursement to PSB, for
its costs and expenses, including legal fees and expenses, incurred in
connection with this Agreement and the transactions contemplated hereby.
Nothing in this Section 6.03 shall constitute a waiver or limitation, in
whole or in part, of any legal or equitable rights which PSB may possess
against any Person or Affiliate relating to this Agreement or the Affiliate
Agreement, or relating to PSB's relationship with JADE for any act or
omission of such Person or Affiliate, including any

A-31
<PAGE>
tortious interference with this Agreement or the Affiliate Agreement or
otherwise wrongfully inducing or causing any breach of any such agreement.
The provisions of this Section 6.03(a) shall not apply in the event of
termination of this Agreement pursuant to (i) Section 6.01(a), or
(ii) Section 6.01(b)(i) or (ii) on account of an unremedied material breach
by PSB or JADE, or (iii) on account of PSB being notified that the Federal
Reserve Board or Pennsylvania Department of Banking will not approve the
Merger because of the pro-forma capital ratio of PSB.

(b) The provisions of this Section 6.03 shall not apply in the event of
a merger, consolidation or similar transaction involving JADE, in which
(i) persons who were members of the Board of Directors of JADE immediately
prior to such termination continue to constitute at least a majority of the
members of the Board of Directors of the surviving or resulting entity
following completion of such transaction and (ii) shareholders JADE
immediately prior to such transaction continue to own at least a majority of
the outstanding voting securities of the surviving or resulting entity
immediately following completion of such transaction.

ARTICLE VII
MISCELLANEOUS

Section 7.01. EXPENSES. Each party hereto shall bear and pay all costs and
expenses incurred by it in connection with the transactions contemplated hereby,
including fees and expenses of its own financial consultants, accountants and
counsel.

Section 7.02. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, agreements and covenants set forth in this
Agreement, shall terminate on the Closing Date, except for covenants to be
performed after the Closing Date, which will continue until performed.

Section 7.03. AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (d) waive compliance
with any of the agreements or conditions contained in Articles IV and V hereof
or otherwise. This Agreement may not be amended except by an instrument in
writing authorized by the respective Boards of Directors and signed, by duly
authorized officers, on behalf of the parties hereto. Any agreement on the part
of a party hereto to any extension or waiver shall be valid only if set forth in
an instrument in writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.

Section 7.04. ENTIRE AGREEMENT. This Agreement, including the documents
and other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; PROVIDED, HOWEVER, that nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Sections 1.02(d), 1.03(b),
4.05, 4.10 and 4.11 with respect to indemnification, employee benefits and
certain other matters.

Section 7.05. NO ASSIGNMENT. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.

A-32
<PAGE>
Section 7.06. NOTICES. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:

(a) If to PSB, to:

PSB Bancorp, Inc.
Eleven Penn Center
Suite 2601
1835 Market Street
Philadelphia, PA 19103

Attention: Anthony DiSandro
President

Telecopy No.: (215) 979-7979

with a copy to:

Dilworth Paxson LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103

Attention: Joseph H. Jacovini, Esquire
Barbara Dubrow, Esquire

If to JADE, to:

JADE Financial Corp.
213 West Street Road
Feasterville, Pennsylvania 19053

Attention: John J. O'Connell
Chairman of the Board

Telecopy No.: (215) 322-2641

with a copy to:

Stevens & Lee, P.C.
One Glenhardie Corporate Center
Suite 202
1275 Drummers Lane
P.O. Box 236
Wayne, Pennsylvania 19087-0236

Attention: Jeffrey P. Waldron, Esquire
David R. Payne, Esquire

Telecopy No.: (610) 687-1384

Section 7.07. CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.

Section 7.08. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.

A-33
<PAGE>
Section 7.09. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.

Section 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic internal law (without regard to the
law of conflict of laws) of the Commonwealth of Pennsylvania.

[SIGNATURE PAGE FOLLOWS]

A-34
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.

PSB BANCORP, INC.

By____________________________________
Anthony DiSandro, PRESIDENT

JADE FINANCIAL CORP.

By____________________________________
John J. O'Connell, CHAIRMAN OF THE
BOARD

PSB MERGER SUB, INC. (NEWCO)

By____________________________________
Gary Polimeno, PRESIDENT

A-35
<PAGE>
ANNEX B

FORM OF FAIRNESS OPINION

DATE

Board of Directors
Jade Financial Corp.
213 West Street Road
Feasterville, PA 19053

Members of the Board:

You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Jade Financial Corp. ("Jade") of the financial
terms of the proposed merger by and among PSB Bancorp, Inc. and Jade Financial
Corp. ("Jade"). The terms of the proposed merger (the "Proposed Merger") by and
among PSB and Jade are set forth in the Agreement and Plan of Merger dated
November 2, 2000 (the "Merger Agreement") and provide that each outstanding
share of Jade common stock will be converted into the right to receive from PSB
cash in an amount equal to $13.55.

Berwind Financial, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.

In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performance, current financial position and general
prospects of Jade and reviewed certain internal financial analyses and forecasts
prepared by the management of Jade, (ii) reviewed the Merger Agreement,
(iii) studied and analyzed the stock market performance of Jade,
(iv) considered the terms and conditions of the Proposed Merger between PSB and
Jade as compared with the terms and conditions of comparable thrift and thrift
holding company mergers and acquisitions, (v) met and/or communicated with
certain members of Jade's senior management to discuss its operations,
historical financial statements and future prospects, (vi) reviewed this proxy
statement/prospectus, and (vii) conducted such other financial analyses, studies
and investigations as we deemed appropriate.

Our opinion is given in reliance on information and representations made or
given by Jade, and its officers, directors, auditors, counsel and other agents,
and on filings, releases and other information issued by Jade including
financial statements, financial projections, and stock price data as well as
certain information from recognized independent sources. We have not
independently verified the information concerning Jade nor other data which we
have considered in our review and, for purposes of the opinion set forth below,
we have assumed and relied upon the accuracy and completeness of all such
information and data. We have not conducted any valuation or appraisal of any
assets or liabilities of Jade, nor have any valuations or appraisals been
provided to us. Additionally, we assume that the Proposed Merger is, in all
respects, lawful under applicable law.

With regard to financial and other information relating to the general
prospects of Jade, we have assumed that such information has been reasonably
prepared and reflects the best currently available estimates and judgment of the
management of Jade as to its most likely future performance. In rendering our
opinion, we have assumed that in the course of obtaining the necessary
regulatory approvals for the Proposed Merger no conditions will be imposed that
will have a material adverse effect on the contemplated benefits of the Proposed
Merger to Jade.

B-1
<PAGE>
Board of Directors
DATE
Page 2

Our opinion is based upon information provided to us by the management of
Jade, as well as market, economic, financial and other conditions as they exist
and can be evaluated only as of the date hereof and speaks to no other period.
Our opinion pertains only to the financial consideration of the Proposed Merger,
is for the information of Jade's Board of Directors in connection with its
evaluation of the Proposed Merger, does not constitute a recommendation to the
Board of Jade and does not constitute a recommendation to Jade shareholders as
to how such shareholders should vote on the Proposed Merger. For Jade and PSB,
we have assumed the allowance for loan losses indicated on the balance sheets of
each entity is adequate to cover such losses; we have not reviewed credit files
of either Jade or PSB.

Based on the foregoing, it is our opinion that, as of the date hereof, the
financial terms of the Proposed Merger by and among PSB and Jade are fair, from
a financial point of view, to the shareholders of Jade.

Sincerely,

BERWIND FINANCIAL, L.P.

B-2
<PAGE>
ANNEX C

SECTION 1930 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988

Section 1930. Dissenters rights.

(a) General rule.--If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 [FN 1] (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).

(b) Adopted by directors only.--Except as otherwise provided pursuant to
section 1571(c) (relating to grant of optional dissenters rights), Subchapter D
of Chapter 15 shall not apply to any of the shares of a corporation that is a
party to a merger or consolidation pursuant to section 1924(b)(1)(i) (relating
to adoption by board of directors).

(c) Cross references.--See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).

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

1 15 Pa. C.S.A. Section 1571 et seq.

C-1
<PAGE>
SUBCHAPTER D OF CHAPTER 15 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988

Subchapter D.--Dissenters Rights

Section 1571. Application and effect of subchapter.

(a) General Rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:

Section 1906(c) (relating to dissenters rights upon special treatment).

Section 1930 (relating to dissenters rights).

Section 1931(d) (relating to dissenters rights in share exchanges).

Section 1932(c) (relating to dissenters rights in asset transfers).

Section 1952(d) (relating to dissenters rights in division).

Section 1962(c) (relating to dissenters rights in conversion).

Section 2104(b) (relating to procedure).

Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid).

Section 2325(b) (relating to minimum vote requirement).

Section 2704(c) (relating to dissenters rights upon election).

Section 2705(d) (relating to dissenters rights upon renewal of election).

Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).

Section 7104(b)(3) (relating to procedure).

(b) Exceptions.--

(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:

(i) listed on a national securities exchange; or

(ii) held of record by more than 2,000 shareholders;

shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.

(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:

(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.

(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of the
class to vote thereon and require for the

C-2
<PAGE>
adoption of the plan or the effectuation of the transaction the
affirmative vote of a majority of the votes cast by all shareholders of
the class.

(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).

(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by the
issuance of voting shares of the corporation to be outstanding immediately
after the acquisition sufficient to elect a majority or more of the
directors of the corporation.

(a) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.

(b) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:

(3) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and

(4) a copy of this subchapter.

(a) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this
part that makes reference to this subchapter for the purpose of granting
dissenters rights.

(b) Certain provisions of articles ineffective.--This subchapter may
not be relaxed by any provision of the articles.

(c) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).

Section 1572. Definitions.

The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:

"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a division
shall have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in the plan
of division.

"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.

C-3
<PAGE>
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.

"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all of
the circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.

Section 1573. Record and beneficial holders and owners.

(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.

(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.

Section 1574. Notice of intention to dissent.

If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value of his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.

Section 1575. Notice to demand payment.

(a) General rule.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:

(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.

(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.

(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
beneficial shareholder dissents, acquired beneficial ownership of the
shares.

C-4
<PAGE>
(4) Be accompanied by a copy of this subchapter.

(a) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.

Section 1576. Failure to comply with notice to demand payment, etc.

(a) Effect of failure of shareholder to act.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.

(b) Restriction on uncertificated shares.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).

(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.

Section 1577. Release of restrictions or payment for shares.

(a) Failure to effectuate corporate action.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.

(b) Renewal of notice to demand payment.--When uncertified shares have been
released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.

(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:

(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.

(2) A statement of the corporation's estimate of the fair value of the
shares.

(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.

(b) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such

C-5
<PAGE>
shares shall not acquire by such transfer any rights in the corporation other
than those which the original dissenter had after making demand for payment of
their fair value.

Section 1578. Estimate by dissenter of fair value of shares.

(a) General rule.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.

(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.

Section 1579. Valuation proceedings generally.

(a) General rule.--Within 60 days after the latest of:

(1) effectuation of the proposed corporate action;

(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or

(3) timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);

(b) if any demands for payment remain unsettled, the business corporation
may file in court an application for relief requesting that the fair value of
the shares be determined by the court.

(c) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).

(d) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.

(e) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.

(f) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.

C-6
<PAGE>
Section 1580. Costs and expenses of valuation proceedings.

(a) General rule.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally) including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.

(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses arc assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.

(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.

C-7
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by stockholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.

The bylaws of PSB provide for (1) indemnification of directors, officers,
employees and agents of the registrant and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law. Directors and officers are also insured
against certain liabilities for their actions, as such, by an insurance policy
obtained by PSB.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

(b) Financial Statement Schedules.

None required.

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the

II-1
<PAGE>
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.

(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on January 12, 2001.

<TABLE>
<S> <C> <C>
PSB BANCORP, INC.
(Registrant)

By: /s/ ANTHONY DISANDRO
-----------------------------------------
Anthony DiSandro
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Anthony DiSandro, Jeffrey P. Waldron, and David
R. Payne and each of them, his true and lawful attorney-in-fact, as agent with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ VINCENT J. FUMO
------------------------------------------- Chairman and Chief January 12, 2001
Vincent J. Fumo Executive Officer

/s/ ANTHONY DISANDRO
------------------------------------------- President and Chief January 12, 2001
Anthony DiSandro Operating Officer

Vice President and
/s/ GARY POLIMENO Treasurer (Principal
------------------------------------------- Accounting and Financial January 12, 2001
Gary Polimeno Officer)

/s/ JAMES W. EASTWOOD
------------------------------------------- Director January 12, 2001
James W. Eastwood

/s/ THOMAS J. FINLEY, JR.
------------------------------------------- Director January 12, 2001
Thomas J. Finley, Jr.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROSEANNE PAUCIELLO
------------------------------------------- Corporate Secretary and January 12, 2001
Roseanne Pauciello Director

/s/ STEPHEN MARCUS
------------------------------------------- Director January 12, 2001
Stephen Marcus
</TABLE>

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of March 19,
1999, between PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by reference to Exhibit
2.1 of the S-4 Registration Statement of PSB Bancorp, Inc.
filed June 25, 1999)

3.1 Articles of Incorporation of PSB (filed herewith).

3.2 Bylaws of PSB (incorporated herein by reference to Exhibit
3.2 of the SB-2 Registration Statement of PSB
Bancorp, Inc. filed October 9, 1997).

10.1 * First Penn Bank's Retirement Plan (incorporated herein by
reference to Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed October 9, 1997).

10.2 * First Penn Bank's Cash or Deferred Profit Sharing Plan
(incorporated herein by reference to Exhibit 10.2 of the
SB-2 Registration Statement of PSB Bancorp, Inc. filed
October 9, 1997).

10.3 * First Penn Bank's Profit Sharing Plan (incorporated herein
by reference to Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed October 9, 1997).

10.4 * Employment Agreement with Vincent J. Fumo (incorporated
herein by reference to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp, Inc filed
October 9, 1997).

10.5 * Employment Agreement with Anthony DiSandro (incorporated
herein by reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp, Inc filed
October 9, 1997).

10.6 * First Penn Bank's Employee Stock Ownership Plan
(incorporated herein by reference to Exhibit 10.4 of the
SB-2 Registration Statement of PSB Bancorp, Inc. filed on
October 9, 1997).

10.7 Lease Agreement between Eleven Colonial Penn Plaza
Associates and First Penn Bank, dated as of October 10,
1995 (incorporated herein by reference to Exhibit 10.7 of
Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed
May 5, 1998).

10.8 Lease Agreement between Eleven Colonial Penn Plaza
Associates and First Penn Bank, dated as of October 12,
1995 (incorporated herein by reference to Exhibit 10.8 of
Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed on
May 5, 1998).

10.9 First Penn Bank's Stock Option Plan (incorporated herein by
reference to Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed June 25, 1999).

10.10 First Penn Bank's Management Recognition Plan (incorporated
herein by reference to Exhibit 10.10 of the S-4
Registration Statement of PSB Bancorp, Inc. filed
June 25, 1999).

10.11* Form of Employment Agreement with John J. O'Connell (filed
herewith).

10.12* Form of Employment Agreement with Mario L. Incollingo, Jr.
(filed herewith).

10.13* Form of Retainer Agreement with Frank J. Moran (to be filed
by amendment).

21 Schedule of Subsidiaries (incorporated herein by reference
to Exhibit 21 of the report on Form 10-K of PSB
Bancorp, Inc. filed March 28, 2000).

23.1 Consent of Stockton Bates & Company, P.C. (filed herewith).
</TABLE>

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

* Denotes compensatory plan.

II-5