As filed with the Securities and Exchange Commission on November 2, 1998
Registration No. 333-63271

================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 1
TO THE

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SECURITY OF PENNSYLVANIA FINANCIAL CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CERTIFICATE OF INCORPORATION)

DELAWARE 6036 BEING APPLIED FOR
(State or Other Jurisdiction of Incorporation or (Primary Standard Industrial (IRS Employer Identification No.)
Organization) Classification Code Number)

SECURITY SAVINGS ASSOCIATION OF HAZLETON
31 W. BROAD STREET 31 W. BROAD STREET
HAZLETON, PENNSYLVANIA 18201 HAZLETON, PENNSYLVANIA 18201
(717) 454-0824 (717) 454-0824
(Address and Telephone Number of Principal Executive Offices) (Address of Principal Place of Business or Intended
Principal Place of Business)

RICHARD C. LAUBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECURITY SAVINGS ASSOCIATION OF HAZLETON
31 W. BROAD STREET
HAZLETON, PENNSYLVANIA 18201
(717) 454-0824
(Name, Address and Telephone Number of Agent for Service)

Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
THOMAS J. HAGGERTY, ESQUIRE
SCOTT A. BROWN, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840

APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable
after this Registration Statement becomes effective.

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
effective Registration Statement for the same offering. /___/

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act Registration Statement number of the earlier effective 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 the Securities
Act Registration Statement number of the earlier effective Registration
Statement for the same offering. /___/

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /___/

CALCULATION OF REGISTRATION FEE

=========================================================================================================================
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price Aggregate Offering Registration Fee
Per Unit Price (1)
- ------------------------------- ------------------- ---------------------- ------------------------- -----------------

Common Stock 1,944,075
$.01 par Value Shares(2) $10.00 $19,440,750 (3)
=========================================================================================================================

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares to be issued to Security Savings Charitable Foundation, a
privately-formed charitable foundation.

(3) The Registration fee of $5,736 was previously paid upon the initial filing
of the Form SB-2 on September 11, 1998.

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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.

2
[To be used in connection with the Syndicated Community Offering only]

SYNDICATED PROSPECTUS SUPPLEMENT

SECURITY OF PENNSYLVANIA FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR
SECURITY SAVINGS ASSOCIATION OF HAZLETON)

__________ SHARES OF COMMON STOCK

Security of Pennsylvania Financial Corp. (the "Company"), a Delaware
corporation, is offering for sale in a syndicated community offering (the
"Syndicated Community Offering") __________ shares, at a per share price of
$10.00, of its common stock, par value $.01 per share (the "Common Stock"), to
be sold upon the conversion (the "Conversion") of Security Savings Association
of Hazleton, Hazleton, Pennsylvania (the "Association") from a mutual to a stock
association and the issuance of the Association's outstanding capital stock to
the Company pursuant to a plan of conversion, as amended (the "Plan of
Conversion"). The remaining __________ shares of the Common Stock to be sold in
the Conversion have been subscribed for in subscription and community offerings
(the "Subscription and Community Offerings") by holders of deposit accounts with
the Association with a balance of $50 or more as of March 31, 1997, by the
Security Savings Association of Hazleton Employee Stock Ownership Plan, a
tax-qualified employee benefit plan, and related trust (the "ESOP"), by holders
of deposit accounts with the Association with a balance of $50 or more as of
______________, 1998, by certain other account holders and borrowers of the
Association and, then, by certain members of the general public. See "The
Conversion - General." Contained herein is the Prospectus in the form used in
the Subscription and Community Offerings. The purchase price for all shares sold
in the Syndicated Community Offering will be the same as the price paid by
subscribers in the Subscription and Community Offerings (the "Purchase Price").
The Purchase Price of $10.00 per share is the amount to be paid for each share
at the time a purchase order is submitted. See the cover page of the Prospectus
and the table below for information as to the method by which the range within
which the number of shares offered may vary and the method of subscribing for
shares of the Common Stock.

Funds submitted to the Association with purchase orders will earn
interest at the Association's passbook rate of interest from the date of receipt
until completion or termination of the Conversion. The Syndicated Community
Offering will expire no later than _______________, 199_, unless extended by the
Association and the Company with the approval of the Office of Thrift
Supervision. Such extensions may not go beyond _______________, 199_. If an
extension of time has been granted, all subscribers will be notified of such
extension, and of their rights to confirm their subscriptions, or to modify or
rescind their subscriptions and have their funds returned promptly with
interest, and of the time period within which the subscriber must notify the
Association of his intention to confirm, modify or rescind his subscription. If
an affirmative response to any resolicitation is not received by the Association
and the Company from subscribers,

such orders will be rescinded and all funds will be returned promptly with
interest. The minimum number of shares which may be purchased is 25 shares.
Except for the ESOP, which may purchase up to 10% of the total number of shares
of Common Stock issued in the Conversion, no person, together with associates of
and persons acting in concert with such person, may purchase in the Community
Offering or Syndicated Community Offering more than the total number of shares
offered that could be purchased for $150,000 at the Purchase Price; provided
however, that shares of Common Stock purchased in the Community Offering by any
persons, together with associates of and persons acting in concert with such
persons, will be aggregated with purchases in the Syndicated Community Offering
and be subject to an overall maximum purchase limitation of $150,000 of the
shares offered. See "The Conversion - Subscription Offering and Subscription
Rights," "- Syndicated Community Offering" and "-Limitations on Common Stock
Purchases." The Company reserves the right, in its absolute discretion, to
accept or reject, in whole or in part, any or all subscriptions in the
Syndicated Community Offering.

The Company and the Association have engaged Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering. It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will not exceed 2% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.

The Company has applied to have its Common Stock listed on the American
Stock Exchange ("AMEX") under the symbol " ." Prior to this offering, there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop. The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ OF THE PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE OFFICE OF THRIFT
SUPERVISION, THE PENNSYLVANIA DEPARTMENT OF BANKING OR ANY OTHER STATE OR
FEDERAL AGENCY, NOR HAS SUCH OFFICE OR OTHER AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

THE SHARES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY NOR
ARE THEY INSURED OR GUARANTEED BY THE ASSOCIATION OR THE COMPANY. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL
INVESTED.

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MINIMUM MAXIMUM
971,550 1,314,450
PER SHARE SHARES SHARES
------------- ----------- --------------

Public offering price.................................... $10.00 $9,715,500 $13,144,500
Estimated underwriting commissions
and other expenses................................. 733,500 796,400
Estimated proceeds to Company............................ $8,982,000 $12,348,100

SANDLER O'NEILL & PARTNERS, L.P.

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

The date of this Prospectus Supplement is _______________, 1998.

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5
Prospectus Subject to Completion

SECURITY OF PENNSYLVANIA FINANCIAL CORP.
(Proposed Holding Company for
Security Savings Association of Hazleton)

UP TO 1,314,450 SHARES OF COMMON STOCK

This offering is made as part of the plan of conversion of Security
Savings Association of Hazleton, Hazleton, Pennsylvania, from a mutual to a
stock association. In this conversion, the Association will become a
wholly-owned subsidiary of Security of Pennsylvania Financial Corp., a Delaware
corporation. No shares will be sold if the minimum number of shares are not
subscribed for or if the necessary approvals from the banking regulatory
authorities and the members of the Association are not received.

There is currently no public market for the common stock. The Company
has applied for the common stock to be listed on the American Stock Exchange,
under the symbol "_____", upon completion of the conversion.

Investing in the common stock involves certain risks. See "Risk
Factors" beginning on page __.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE OFFICE OF
THRIFT SUPERVISION, THE PENNSYLVANIA DEPARTMENT OF BANKING OR ANY OTHER FEDERAL
AGENCY, NOR HAS SUCH OFFICE OR OTHER AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

MINIMUM MAXIMUM
971,550 1,314,450
PER SHARE SHARES SHARES
----------- --------- -----------

Public offering price . . . . . . . . . . . . $10.00 $9,715,500 $13,144,500
Estimated underwriting commissions
and other expenses . . . . . . . . . $ 733,500 796,400
Estimated proceeds to Company . . . . . . . . $8,982,000 $12,348,100

The maximum number of shares to be sold may be increased up to the
adjusted maximum of 1,511,617 shares, a 15% increase above the maximum, if the
aggregate estimated pro forma market value of the common stock to be sold is
increased.

The shares are being offered in a Subscription Offering to persons who
have specified priorities of subscription rights based on their relationship
with the Association. IN ORDER TO PURCHASE SHARES PURSUANT TO A SUBSCRIPTION
RIGHT, YOU MUST SUBMIT A PROPERLY COMPLETED SUBSCRIPTION ORDER FORM AND
CERTIFICATION, TOGETHER WITH PAYMENT FOR THE SHARES, TO THE ASSOCIATION PRIOR
TO THE EXPIRATION DATE, ____________, EASTERN TIME, ON _______________, 1998,
UNLESS EXTENDED.

To the extent sufficient shares to complete the conversion are not
sold in the Subscription Offering, the remaining shares will be offered for
sale in a Community Offering and, if necessary, a Syndicated Community Offering
or other offering. The Community Offering may be commenced prior to completion
of the Subscription Offering.

Sandler O'Neill & Partners, L.P. has agreed to assist the Company in
selling the shares, but does not guarantee that at least the minimum number of
shares will be sold.

--------------------------------------
SANDLER O'NEILL & PARTNERS, L.P.
--------------------------------------

The date of this Prospectus is _____________, 1998.

INSERT MAP PAGE HERE

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SUMMARY

This summary highlights selected information from this document and
does not contain all the information that you need to know before making an
informed investment decision. To understand the stock offering fully, you
should read carefully this entire Prospectus, including the financial
statements and the notes to the financial statements of Security Savings
Association of Hazleton included elsewhere herein. References in this document
to the "Association" refer to Security Savings Association of Hazleton.
References in this document to the "Company" refer to Security of Pennsylvania
Financial Corp.

SECURITY OF PENNSYLVANIA
FINANCIAL CORP. . . . . . . . The Company was recently organized to become a savings and loan holding company and own all of
the capital stock of the Association to be issued upon its conversion from mutual to stock
form. To date, the Company has not engaged in any business.

The Company's office is located at 31 W. Broad Street, Hazleton, Pennsylvania and its
telephone number is (717) 454-0824. The Association's executive office has the same address
and phone number.

SECURITY SAVINGS ASSOCIATION
OF HAZLETON . . . . . . . . . The Association is a Pennsylvania mutual savings and loan association. At June 30, 1998, the
Association had total assets of $112.0 million, total deposits of $102.6 million and total
equity of $9.2 million.

The Association operates four banking offices in Luzerne and Carbon counties in Northeast
Pennsylvania. The Association historically has operated as a community-oriented banking
institution offering primarily one- to four-family residential mortgage loans and consumer
loans and a variety of retail deposit products.

THE CONVERSION . . . . . . . . The Association has adopted a Plan of Conversion (the "Plan") which is subject to requirements
of the Office of Thrift Supervision (the "OTS") and the Pennsylvania Department of Banking
(the "Pennsylvania Department"). The conversion, which hereafter is referred to as the
"Conversion," is governed by the Plan and has three major components, as follows:

(i) The conversion of the Association to stock form;

(ii) The acquisition by the Company of all of the outstanding capital stock of the
Association;

(iii) The sale by the Company of its common stock, par value $0.01 per share (the "Common
Stock").

As a result of the Conversion, members of the Bank will no longer have voting rights. All
voting rights of the Bank will be vested in the Company as the sole stockholder of the Bank.
Voting rights of the Company will be vested in the holders of the Common Stock.

SECURITY SAVINGS CHARITABLE
FOUNDATION. . . . . . . . . . The Association intends to establish a charitable foundation, Security Savings Charitable
Foundation, or the "Foundation." The Company intends to contribute to the Foundation common
stock equal to 5% of the common stock sold in the conversion. The authority for the affairs
of the Foundation is vested in its Board of Directors, all but one of whom will be existing
Directors or officers of the Company and the Association. All shares held by the

Foundation will be required to be voted in the same ratio as all other shares of the Common
Stock on all proposals considered by stockholders of the Company.

TERMS OF THE OFFERING . . . . . The shares of Common Stock are offered at a fixed price of $10.00 per share (the "Purchase
Price") in the Subscription Offering pursuant to subscription rights in the following order of
priority to:

(i) Eligible Account Holders in the Association as of March 31, 1997;

(ii) the Security Savings Association of Hazleton Employee Stock Ownership Plan (the "ESOP");

(iii) Supplemental Eligible Account Holders in the Association as of ____ who are not entitled
to a first priority subscription right; and

(iv) Other Members in the Association as of ______ who are not entitled to a higher priority
subscription right. See "The Conversion-Subscription Offering and Subscription Rights" for
the complete qualifications of each of the subscription right priorities.

Shares of Common Stock not subscribed for by persons having priority subscription rights will
be offered to certain members of the general public with preference given to natural persons
residing in all counties in which the Association has its home office or a branch office,
all zip codes corresponding to the Association's delineated Community Reinvestment Area
service area and each county's metropolitan statistical area, in a Community Offering.

EXPIRATION DATE OF
SUBSCRIPTION OFFERING . . . . Subscription rights will expire if not exercised and all orders to purchase Common Stock in
the Subscription Offering must be received by __:__ ____, Eastern time, on ________, 1998,
unless extended for up to 45 days by the Association or such additional periods with the
approval of the OTS, if required, which is the "Expiration Date."

NONTRANSFERABILITY OF
SUBSCRIPTION RIGHTS . . . . . The subscription rights are not transferable.

NUMBER OF SHARES OFFERED. . . . The Company is offering between a minimum of 971,550 shares and a maximum of 1,314,450 shares
of Common Stock, or up to an adjusted maximum of 1,511,617 shares if the maximum number of
shares is increased.

The number of shares offered is based upon an independent appraisal prepared by Keller &
Company, Inc. ("Keller") dated as of August 14, 1998, and updated on October 23, 1998 which
estimates that the aggregate pro forma market value of the Common Stock to be sold ranged from
$9.7 million to $13.1 million. (This range is referred to as the "Estimated Price Range").
No sale of shares of Common Stock may be consummated unless, prior to such consummation,
Keller confirms to the Association and the OTS that, to the best of its knowledge, nothing of
a material nature has occurred which, taking into account all relevant factors, would cause
Keller to conclude that the value of the Common Stock at the price so determined is
incompatible with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription Offering. For its services in making such appraisal, Keller
will receive a fee of $21,000. Keller is an independent appraisal firm experienced in
appraisals of savings institutions. Establishing the Foundation in connection with the
Conversion will result in a lower aggregate market valuation than if the Conversion were
completed without the Foundation.

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9

The final aggregate estimated pro forma market value of the Common Stock to be sold will be
determined at the time of closing of the Subscription Offering, or if all shares are not sold
in the Subscription Offering, the closing of the Community Offering or other subsequent
offering. The Subscription Offering, Community Offering and any other subsequent offerings
are referred to collectively as the "Offerings." Such estimated aggregate pro forma market
value is subject to change due to changes in market and general financial and economic
conditions.

The maximum number of shares to be sold may be increased up to the adjusted maximum, a 15%
increase above the maximum, if the aggregate estimated pro forma market value of the Common
Stock to be sold is increased.

HOW DO I ORDER STOCK? . . . . . If you are entitled to a subscription right, you may order shares in the Subscription Offering
by delivering to the Association a properly executed stock order form and certification
("order form") together with full payment for the shares ordered on or prior to the Expiration
Date. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE CONSENT OF
THE ASSOCIATION. All order forms must be accompanied or preceded by a Prospectus. Please
make sure you review the Prospectus carefully prior to submitting an order form. To ensure
that each purchaser receives a Prospectus at least 48 hours prior to the Expiration Date in
accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no Prospectus will be
mailed any later than five days prior to the Expiration Date or hand delivered any later than
two days prior to such date. The Association is not obligated to accept subscriptions not
submitted on an original stock order form.

Persons wishing to order shares offered in the Community Offering also must submit a properly
executed order form and certification prior to the expiration date to be set for the Community
Offering.

FORM OF PAYMENT FOR SHARES. . . Payment for subscriptions may be made:

(i) in cash (if delivered in person at any banking office of the Association);
(ii) by check, bank draft or money order; or
(iii) by authorization of withdrawal from deposit accounts maintained at the Association.

Orders for Common Stock in the Subscription Offering which aggregate $50,000 or more must
be paid by official bank or certified check or by withdrawal authorization from a deposit
account at the Association.

NUMBER OF SHARES THAT MAY
BE ORDERED . . . . . . . . . Minimum: 25 shares ($250).

Maximum:

- No Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may purchase in the Subscription Offering more than $150,000 of Common Stock.

- No person, together with associates or persons acting in concert with such
person, may purchase in the Community Offering more than $150,000 of Common
Stock.

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10

- No person, together with associates or persons acting in concert with such
person, may purchase in the aggregate more than $150,000 of the Common Stock to
be sold. However, the ESOP may purchase up to 10% of the Common Stock to be
issued in connection with the Conversion, including shares issued to the
Foundation. It is intended that the ESOP will purchase 8% of the Common Stock
issued, including shares issued to the Foundation.

USE OF PROCEEDS . . . . . . . . The Company will use 50% of the net proceeds from the sale of Common Stock to purchase all
of the Common Stock of the Association to be issued in the Conversion. The portion of net
proceeds retained by the Company will be used for general business activities, including
the lending of funds to the ESOP (to the extent such loan is not funded by a third party)
to enable the ESOP to purchase up to 8% of the stock issued in connection with the
Conversion, including shares issued to the Foundation. The Company intends initially to
invest the remaining net proceeds in federal funds and securities, primarily
mortgage-related securities and federal agency obligations. The Association intends to
utilize the net proceeds from the sale of its stock to the Company for general business
purposes, including investment in loans and mortgage-related securities.

DIVIDEND POLICY . . . . . . . . No decision has been made by the Company with respect to the payment of dividends if any.
Additionally, in connection with the Conversion, the Company and the Association have
committed to the OTS that during the one-year period following the Conversion, the Company
will not take any action to further any distribution to stockholders that, for federal tax
purposes, would be treated as a return of capital without the prior approval of the OTS.

BENEFITS OF THE CONVERSION TO
MANAGEMENT . . . . . . . . . One of the advantages anticipated from the Conversion will be the ability to attract and
retain personnel through the use of stock-related benefit programs. In connection with
the Conversion, the Company intends to establish the ESOP, which it is contemplated would
purchase stock equal to 8% of the shares sold in the Conversion, including shares issued
to the Foundation, using funds loaned to it by the Company. The ESOP is a tax-qualified
retirement benefit plan for all eligible employees. The Common Stock purchased by the
ESOP in the Conversion will be required to be allocated under Internal Revenue Code
standards to eligible employees of the Company and the Association over the term of the
loan, currently anticipated to be 12 years.

Also, after the Conversion, the Company intends to adopt a Stock-Based Incentive Plan for
the benefit of directors, officers and employees of the Company and Association. If the
Stock-Based Incentive Plan is adopted within one year after the Conversion, the plan will
be subject to stockholders' approval at a meeting of stockholders which may not be held
earlier than six months after the Conversion and any awards or options granted under the
plan would have to vest at least on a pro rata basis over a five year period.

The following table presents information regarding the aggregate of the shares of common
stock, at the maximum of the Estimated Price Range, which would be acquired by the ESOP
and allocated over an anticipated 12 year period to all eligible employees and the
aggregate of all shares available for award and issuance upon the exercise of options
granted under the Stock-Based Incentive Plan:

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PERCENTAGE OF
SHARES ISSUED,
INCLUDING
ESTIMATED SHARES ISSUED
VALUE TO THE
OF SHARES (1) FOUNDATION (2)
------------- ----------------

ESOP . . . . . . . . . . . . . . . . $ 1,104,000 8.0%
Stock-Based Incentive Plan:
Stock Awards (3) . . . . . . . . . $ 552,000 4.0
Stock Options (4) . . . . . . . . . - 10.0
--------- ----
$1,656,000 22.0%
========== ====

-------------------------
(1) Assumes shares are valued and allocated to participants at $10.00 per share and that
shares are sold in the Offering at the maximum of the Valuation Range.
(2) Percentages do not give effect to the issuance of shares pursuant to the exercise of
options.
(3) Any Common Stock awarded under the Stock-Based Incentive Plan will be awarded at no cost
to the recipients.
(4) Stock options will be granted with an exercise price equal to the fair market value of
Common Stock on the day of grant. Recipients of stock options realize value only in the
event of an increase in the price of the Common Stock following the date of grant of the
stock options.

Additionally, certain officers of the Company and the Association will be provided with
employment agreements or change in control agreements which provide such officers with
employment rights and/or payments upon their termination of service following a change in
control. The Stock-Based Incentive Plan may also provide participants with benefits upon a
change in control of the Company or the Association.

VOTING CONTROL OF OFFICERS
AND DIRECTORS . . . . . . . . Directors and executive officers of the Association and the Company expect to purchase
approximately 7.42% or 5.50% of shares of Common Stock to be issued in the Conversion,
including shares issued to the Foundation, based on the estimated minimum and maximum number
of shares issued, respectively. Additionally, assuming the implementation of the ESOP and the
Stock-Based Incentive Plan (and the exercise of all options which may be granted under that
plan), directors, executive officers and employees have the potential to control the voting of
approximately 29.42% or 27.50% of the Common Stock to be issued in the Conversion, including
shares issued to the Foundation, based on the minimum and maximum of such shares,
respectively. Additionally, all shares held by the Foundation will be required to be voted in
the same ratio as all other shares of the Common Stock on all proposals considered by
stockholders of the Company.

NO BOARD RECOMMENDATIONS . . . The Association's and the Company's Board of Directors make no recommendation to depositors or
other potential investors regarding whether such persons should purchase the Common Stock. An
investment in the Common Stock must be made pursuant to each investor's evaluation of his or
her best interests and financial capability.

CONVERSION CENTER . . . . . . . If you have any questions regarding the Conversion, please call the Conversion Center at
(717) ___-____.

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SELECTED FINANCIAL AND OTHER DATA OF THE ASSOCIATION

The selected financial and other data of the Association set forth
below is derived in part from, and should be read in conjunction with, the
Financial Statements of the Association and Notes thereto presented elsewhere
in this Prospectus.

AT JUNE 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- ---------
(IN THOUSANDS)

SELECTED FINANCIAL DATA:

Total assets . . . . . . . . . . . . . . . . $111,990 $107,447 $107,943 $104,326 $102,108
Cash and due from banks . . . . . . . . . . 3,272 2,867 1,910 1,543 4,599
Interest-bearing deposits with banks . . . . 8,586 6,167 8,196 7,429 13,163
Loans, net (1) . . . . . . . . . . . . . . . 69,211 66,738 65,071 63,943 57,347
Securities held-to-maturity (2):
Mortgage-related securities, net . . . . . 2,281 4,706 5,565 6,414 7,577
Investment securities, net . . . . . . . 18,502 20,136 18,509 18,411 12,787
Securities available-for-sale (2):
Mortgage-related securities, net . . . . 1,353 1,672 2,246 995 1,253
Investment securities, net . . . . . . . . 6,548 2,576 4,056 3,438 3,352
Deposits . . . . . . . . . . . . . . . . . . 102,604 98,465 99,348 96,398 94,817
Total equity . . . . . . . . . . . . . . . . 9,231 8,583 8,325 7,741 7,004
Foreclosed real estate, net . . . . . . . . 221 531 171 - 107
Nonperforming assets and
troubled debt restructurings . . . . . . . 2,085 2,117 2,041 1,591 1,624

FOR THE FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)

SELECTED OPERATING DATA:
Total interest income . . . . . . . . . . . $7,740 $7,440 $7,459 $7,121 $6,575
Interest expense . . . . . . . . . . . . . . 4,260 4,029 4,230 3,717 3,373
------- ------- ------- ------- -------
Net interest income . . . . . . . . . . . 3,480 3,411 3,229 3,404 3,202
Provision for loan losses . . . . . . . . . 176 34 102 249 46
------- ------- ------- ------- -------
Net interest income after provision
for loan losses . . . . . . . . . . . . 3,304 3,377 3,127 3,155 3,156
Noninterest income:
Net gain on sale and calls of
available-for-sale securities. . . . . . 1 17 - - -
Other . . . . . . . . . . . . . . . . . . 303 267 258 239 265
Noninterest expenses . . . . . . . . . . . . 2,485 3,107(3) 2,426 2,378 2,101
------- ------- ------- ------- -------
Income before provision for income taxes . . 1,123 554 959 1,016 1,320
Provision for income taxes . . . . . . . . . 506 344 362 366 506
------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . $ 617 $ 210 $ 597 $ 650 $ 814
======== ======== ======== ======== ========

(See footnotes on next page)

8
13

AT OR FOR THE FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------

SELECTED OPERATING RATIOS AND OTHER DATA (4):
PERFORMANCE RATIOS:
Average yield on interest-earning assets (5) . 7.40% 7.28% 7.28% 7.32% 7.42%
Average rate paid on interest-bearing
liabilities . . . . . . . . . . . . . . . . 4.24 4.11 4.31 3.91 3.65
Average interest rate spread (6) . . . . . . . 3.16 3.17 2.97 3.41 3.77
Net interest margin (7) . . . . . . . . . . . 3.33 3.34 3.15 3.50 3.61
Ratio of interest-earning assets to
interest-bearing liabilities . . . . . . . . 104.27 104.22 104.31 102.36 95.90
Net interest income after provision for loan
losses to noninterest expense . . . . . . . 132.96 108.69 128.90 132.67 150.21
Noninterest expense as a percent of
average assets . . . . . . . . . . . . . . . 2.26 2.91 2.27 2.31 2.11
Return on average assets . . . . . . . . . . . 0.56 0.20 0.56 0.63 0.82
Return on average equity . . . . . . . . . . . 6.89 2.52 7.40 8.81 11.97
Ratio of average equity to average assets . . 8.16 7.79 7.56 7.17 6.83
REGULATORY CAPITAL RATIOS: (8)
Tangible capital ratio . . . . . . . . . . . . 8.35 8.13 7.89 7.59 7.11
Core capital ratio . . . . . . . . . . . . . . 8.35 8.13 7.89 7.59 7.11
Risk-based capital ratio . . . . . . . . . . . 16.92 21.70 21.15 18.31 16.85
ASSET QUALITY RATIOS:
Nonperforming loans and troubled debt
restructurings as a percent of total
loans (9) . . . . . . . . . . . . . . . . . 2.69 2.38 2.87 2.49 2.65
Nonperforming assets and troubled debt
restructurings as a percent of total
assets (10) . . . . . . . . . . . . . . . . 1.86 1.97 1.89 1.53 1.59
Allowance for loan losses as a percent
of total loans . . . . . . . . . . . . . . 0.65 0.64 0.69 0.63 0.37
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings (1)(9) . . . . . . . . . . . 24.25 27.05 23.90 25.20 14.17
Net loans charged-off to average interest-
earning loans . . . . . . . . . . . . . . . 0.22 0.05 0.02 0.09 0.05
FULL SERVICE OFFICES AT END OF PERIOD . . . . . . 4 4 4 4 4
- -----------------------------------

(1) Loans, net, represents gross loans receivable net of the allowance for
loan losses, loans in process and deferred loan origination fees. The
allowance for loan losses at June 30, 1998, 1997, 1996, 1995 and 1994 was
$452,000, $429,000, $447,000, $401,000 and $215,000, respectively.
(2) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," during fiscal 1994.
(3) Includes a one-time special assessment of $620,000 in order to
recapitalize the Savings Association Insurance Fund ("SAIF") in fiscal
1997.
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods.
(5) Calculations of yield for tax-exempt investments are not presented on a
tax equivalent basis due to the average balance of tax-exempt investments
in 1998 not being material. There were no securities exempt from federal
or state taxes in previous years.
(6) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(8) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation - Capital Requirements."
See "Regulatory Capital Compliance" for the Association's pro forma
capital levels as a result of the Offerings.
(9) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the policy of the Association to cease
accruing interest on loans 90 days or more past due (unless the loan
principal and interest are determined by management to be fully secured
and in the process of collection) and to charge off all accrued interest.
See "Business of the Association-Delinquent Loans, Classified Assets, and
Foreclosed Real Estate."
(10) Non-performing assets consist of non-performing loans and foreclosed real
estate.

9
14

RECENT DEVELOPMENTS

The selected financial and other data presented below at September 30,
1998 and for the three month periods ended September 30, 1998 and 1997 are
derived from unaudited financial data, but, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments) which
are necessary to present fairly the results for such interim periods. The
results of operations for the three months ended September 30, 1998 are not
necessarily indicative of the results of operations that may be expected for
the fiscal year ending June 30, 1999.

AT AT
SEPTEMBER 30, JUNE 30,
--------------- ----------
1998 1998
--------------- ----------
(IN THOUSANDS)

SELECTED FINANCIAL DATA:

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,972 $111,990
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . 1,972 3,272
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . 8,670 8,586
Loans, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,846 69,211
Securities held-to-maturity:
Mortgage-related securities, net . . . . . . . . . . . . . . . . . . . . 1,891 2,281
Investment securities, net . . . . . . . . . . . . . . . . . . . . . . . 17,097 18,502
Securities available-for-sale:
Mortgage-related securities, net . . . . . . . . . . . . . . . . . . . . 1,613 1,353
Investment securities, net . . . . . . . . . . . . . . . . . . . . . . . 7,316 6,548
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,288 102,604
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,478 9,231
Foreclosed real estate, net . . . . . . . . . . . . . . . . . . . . . . . . 256 221
Nonperforming assets and
troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . 1,961 2,085

FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
-------------- --------
(IN THOUSANDS)

SELECTED OPERATING DATA:
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,919 $1,897
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085 1,048
------ ------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 834 849
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 2 8
------ ------
Net interest income after provision
for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 832 841
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 84
Noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 580
-------- --------
Income before provision for income taxes . . . . . . . . . . . . . . . . . . 290 345
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 92 138
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198 $ 207
======== ========

10
15

AT OR FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1998 1997
----------- --------------

SELECTED OPERATING RATIOS AND OTHER DATA (2): (unaudited)
PERFORMANCE RATIOS:
Average interest rate spread (3) . . . . . . . . . . . . . . . . . . . . . . 2.93% 3.15%
Net interest margin (4) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13 3.31
Ratio of interest-earning assets to interest-bearing liabilities . . . . . . 104.84 103.85
Noninterest expense as a percent of average assets . . . . . . . . . . . . . 2.24 2.15
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . 0.71 0.77
Return on average equity . . . . . . . . . . . . . . . . . . . . . . . . . . 8.48 9.51
Ratio of average retained equity to average assets . . . . . . . . . . . . . 8.39 8.06
Retained earnings to total assets at end of period . . . . . . . . . . . . . 8.62 8.20
REGULATORY CAPITAL RATIOS: (5)
Tangible capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.67 8.30
Core capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.67 8.30
Risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 16.99 23.04
ASSET QUALITY RATIOS:
Nonperforming loans and troubled debt restructurings
as a percent of total loans (6) . . . . . . . . . . . . . . . . . . . . . 2.48 2.71
Nonperforming assets and troubled debt restructurings
as a percent of total assets (7) . . . . . . . . . . . . . . . . . . . . 1.78 2.17
Allowance for loan losses as a percent of total loans . . . . . . . . . . . 0.65 0.63
Allowance for loan losses as a percent of nonperforming loans and
troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . 26.22 23.16
FULL SERVICE OFFICES AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . 4 4

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

(1) Loans, net, represents gross loans receivable net of the allowance for loan
losses, loans in process and deferred loan origination fees. The allowance
for loan losses at September 30, 1998 and 1997 was $447,000 and $427,000,
respectively.

(2) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and are annualized
where appropriate.

(3) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.

(4) The net interest margin represents net interest income as a percent of
average interest-earning assets.

(5) For definitions and further information relating to the Association's
regulatory capital, see "Regulation - Capital Requirements." See
"Regulatory Capital Compliance" for the Association's pro forma capital
levels as a result of the Offerings.

(6) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the policy of the Association to cease
accruing interest on loans 90 days or more past due (unless the loan
principal and interest are determined by management to be fully secured and
in the process of collection) and to charge off all accrued interest. See
"Business of the Association-Delinquent Loans, Classified Assets, and
Foreclosed Real Estate."

(7) Non-performing assets consist of non-performing loans and foreclosed real
estate.

11
16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998

Total assets decreased by $2.0 million, or 1.8%, from $112.0 million
at June 30, 1998 to $110.0 million at September 30, 1998. The decline in
assets was primarily due to a decrease of $1.3 million, or 39.7%, in cash and
due from banks and a $767,000 decrease in the investment securities portfolio.

Loans declined $365,000 from $69.2 million at June 30, 1998 to $68.8
million at September 30, 1998, a decrease of 0.5%. The decrease in loans was
due in significant part to many of the Association's customers refinancing at
lower rates with the Association's competitors. Many of these competitors are
significantly larger and have greater financial resources than the Association.
Nonperforming loans totalled $1.7 million at September 30, 1998 as compared to
$1.9 million at June 30, 1998, a decrease of $200,000, or 10.5%.

Total deposits decreased by $2.3 million, or 2.2%, from $102.6 million
at June 30, 1998 to $100.3 million at September 30, 1998. The decrease was
primarily due to the payment of $1.1 million on Christmas club accounts in
accordance with their terms. There was also an additional $1.2 million, or a
1.2%, decrease in total deposits from June 30, 1998 to September 30, 1998, also
the result of the competition the Association faces.

Total equity increased by $200,000, or 2.2%, from $9.2 million at June
30, 1998 to $9.4 million at September 30, 1998. The increase in equity was
primarily due to net income of $198,000 for the three months ended September
30, 1998.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997.

GENERAL. Net income for the three months ended September 30, 1998 was
$198,000, a decrease of $9,000, or 4.3%, from $207,000 for the three months
ended September 30, 1997. The $9,000 decrease was primarily attributable to a
decrease of $15,000 in net interest income. This decrease in net interest
income was offset by a $46,000 decrease in the provision for income taxes.
Also, contributing to the decrease in net income for the September 30, 1998
period was an increase of $43,000 in noninterest expenses.

INTEREST INCOME. Interest income for the three months ended September
30, 1998 and 1997 remained stable at $1.9 million. The average balance of
loans and the yields at September 30, 1998 and 1997 have remained essentially
the same.

INTEREST EXPENSE. Interest expense increased $37,000, or 3.5%, in the
three months ended September 30, 1998 compared to the three months ended
September 30, 1997. The increase in net expense was primarily the result of a
$2.7 million increase in the average balance of deposits from $98.9 million for
the three months ended September 30, 1997 to $101.6 million average balance for
the same period in 1998.

PROVISION FOR LOAN LOSSES. The Association's provision for loan
losses totalled $2,000 for the three months ended September 30, 1998 compared
to $8,000 for the three months ended September 30, 1997, a decrease of $6,000.
At September 30, 1998 and 1997, nonperforming loans totalled $1.7 million and
$1.8 million, respectively. At September 30, 1998, the ratio of nonperforming
loans and troubled debt restructurings as a percentage of loans was 2.48%
compared to 2.71% at September 30, 1997. At September 30, 1998, the ratio of
nonperforming assets and troubled debt restructurings as percent of total
assets was 1.78% compared to 2.17% at September 30, 1997. Management
calculates an allowance upon the portfolio composition, asset classifications,
potential impairments in the loan portfolio, and other factors on a monthly
basis. Management considered a decrease in the provision for loan losses to be
appropriate in 1998 based on a review of these factors. Management believes
that the allowance for loan losses is currently reasonable and adequate to
cover any known losses using the information available to it. No assurances
can be given that additions to the allowance will not be necessary based on
changes in economic and real estate market

conditions, further information obtained regarding known problem loans,
identification of additional problem loans and other factors.

NONINTEREST INCOME. Noninterest income decreased $3,000 to $81,000
for the three months ended September 30, 1998, from $84,000 for the three
months ended September 30, 1997. Noninterest income decreased primarily due to
a decrease in loan fees and service charge income.

NONINTEREST EXPENSE. Noninterest expense increased by $43,000, or 7.4%
from $580,000 for the three months ended September 30, 1997, to $623,000 for
the three months ended September 30, 1998. The increase was primarily due to
an increase of $26,000 in foreclosed real estate expenses due to an increased
number of loan foreclosures during the period. Compensation and employee
benefits expense also increased $13,000, or 4.1%, due to normal increases in
salaries as well as increases in benefit costs.

PROVISION FOR INCOME TAXES. Income tax expense was $92,000 for the
three months ended September 30, 1998, compared to $138,000 for the three
months ended September 30, 1997. The decline in income tax expense for 1998
was the result of a combination of a decrease in pretax earnings and a decrease
in the effective income tax rate. Pretax earnings decreased by $55,000, or
15.9%, to $290,000 for the three months ended September 30, 1998 from $345,000
for the three months ended September 30, 1997. The effective tax rate
decreased to 31.7% for the three months ended September 30, 1998 from 40.0% for
1997, due to an inordinately high effective tax rate in fiscal 1997 as a result
of a one time recognition of deferred tax liability for the recapture of
certain of the Association's bad debt reserve as a result of a change in
federal income tax law. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Comparison of Operating Results for the
Fiscal Years Ended June 30, 1998 and June 30, 1997 - Provision for Income
Taxes."

RISK FACTORS

The following risk factors should be considered by investors in
deciding whether to purchase the Common Stock.

SENSITIVITY TO CHANGES IN INTEREST RATES

The Association's profitability is dependent to a large extent upon
its net interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest
expense on interest-bearing liabilities, such as deposits and borrowings.
Accordingly, the Association's profitability will be significantly affected by
changes in market interest rates and its ability to manage its assets and
liabilities in response to such changes.

The Association anticipates that an increase in interest rates could
have an adverse effect on the Association. The Association primarily monitors
its interest rate sensitivity through the use of a model which estimates the
change in the Association's net portfolio value ("NPV") over a range of
interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. As of June 30, 1998,
based on assumptions utilized by the Association, it is estimated that a 200
basis point increase in market interest rates would result in a 12% decrease in
NPV, compared to a 8% estimated increase in NPV as a result of a 200 basis
point decrease in market interest rates. NPV estimated changes do not provide
a precise forecast of the effect of changes in market interest rates on the
Association's net interest income. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Management of Interest Rate
Risk and Market Risk Analysis."

Increases in interest rates also could adversely affect the type
(fixed-rate or adjustable-rate) and amount of loans originated by the
Association and the average life of loans and securities which, in turn, could
adversely impact the yields earned on the Association's loan and securities
portfolios.

POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE CONVERSION WHICH MAY NEGATIVELY
INFLUENCE MARKET PRICE AND LIQUIDITY

At June 30, 1998, the Association's ratio of equity to total assets
was 8.2%. The Company's equity position will be significantly increased as a
result of the Conversion. On a pro forma basis as of June 30, 1998, assuming
the sale of Common Stock at the midpoint of the Estimated Price Range , the
Company's ratio of equity to assets would approximate 15.38%. The Company's
ability to invest this new capital in interest-earning assets, such as loans
and securities, which bear rates of return comparable to its current loans and
securities investments will be significantly affected by industry competition.
The Company currently anticipates that it will take time to prudently deploy
such capital. As a result, the Company's return on equity initially is
expected to be below its historical return on equity. For the year ended June
30, 1998, the Association's return on average equity was 6.89%. The return on
average equity for peer group institutions for the four quarters ended June 30,
1998 was 7.63%. Such peer group consists of ten institutions, nine of which
have converted within the past five years, with an average asset size of $186.6
million and an average of just over four offices per institution. While the
Company anticipates that the return on equity it achieves after Conversion may
improve over time and may approach industry or peer averages in the future, no
assurances can be made that the Company will be able to generate a return on
equity which approaches the level of the industry or its peers. No assurances
can be made as to when or if the Company will achieve returns on its equity
that are comparable to industry peers or industry averages. Additionally, due
to the implementation of stock-based benefit plans such as the ESOP and
Stock-Based Incentive Plan, the Company's future compensation expense will be
increased, thereby, adversely affecting its net income and return on equity.

WEAKNESS OF REGIONAL AND LOCAL ECONOMY

Economic conditions at the local and national levels, as well as
government policies and regulations concerning, among other things, monetary
and fiscal affairs, significantly affect the operations of financial
institutions such as the Association. The population of the market in which
the Association operates is relatively small and in recent years has remained
relatively static. In addition, the population of Luzerne County has one of
the oldest average ages

of all counties in the United States and the unemployment rate in the
Association's market area is greater than the national average. According to
Pennsylvania Labor Market Information, as of July 1998, the unemployment rate
for the market area was 6.3% compared to the national level of 4.6%. The
median household income for 1997 for the market area was $29,130 compared to
the national level of $36,961. Further, because of the significant number of
financial institutions competing for funds in the market, the Association has
experienced increased competition for loan and deposit customers. Accordingly,
the Association could be exposed to a higher cost of funds and/or a decreased
net interest margin in the future.

LENDING RISKS

REAL ESTATE LOANS

ONE- TO FOUR-FAMILY LOANS. Due to the current relatively low interest
rate environment, a significant portion of the Association's originations of
one- to four-family real estate mortgage loans (65% during the first six months
of calendar 1998) relate to refinancings of existing mortgage loans either with
the Association or other lenders. Refinancing of existing loans at lower rates
tends to compress the Association's net interest margin and may result in
reduced profitability.

Commencing in 1996, the Association experienced an increase in the
aggregate amount of its nonperforming assets and troubled debt restructurings
which it attributes in significant part to a general decline in real estate
values in its market area during that period. Initially, the Association was
slow to handle the increased number of loans which warranted foreclosure. The
Association has improved its procedures for addressing delinquent loans. As a
result, its level of nonperforming assets at June 30, 1998 of 1.86% of total
assets is relatively high compared to its peer group, which as of June 30,
1998, had an average level of nonperforming assets of 0.67% of total assets.
The Association anticipates that its level of nonperforming assets will
decrease in future periods. At June 30, 1998, loans 60-89 days delinquent had
been reduced to 0.18% of total loans compared to 1.14% at June 30, 1997.

MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. The Association's
multi-family and commercial real estate loans aggregated $4.8 million or 6.8%
of total loans at June 30, 1998. Multi-family and commercial real estate loans
generally are considered to have a higher degree of risk and involve larger
principal amounts than one- to four-family mortgage loans. In addition,
because multi-family and commercial real estate loans often are dependent on
successful operation and management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy
to a greater extent than one- to four-family loans.

CONSTRUCTION LOANS. At June 30, 1998, construction loans totalled
$523,000, or 0.8% of total loans. During fiscal 1998 the Association
originated $2.1 million of construction loans for one- to four-family
properties, or 13.5% of total loan originations for that year. Construction
loans are generally considered to involve a higher degree of credit risk than
long-term financing on improved, owner-occupied real estate because the risk of
loss on such loans is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
compared to the estimated cost (including interest) of construction. If the
estimate of value proves to be inaccurate, the property securing the loan, when
completed, may have a value which is insufficient to assure full repayment of
the loan.

CONSUMER LOANS

At June 30, 1998, the Association's consumer loan portfolio totalled
$9.9 million, or 14.2% of total loans. These consumer loans include home
equity loans and lines of credit, which although secured by one- to four-family
real property, generally are secured by a second lien rather than a first
mortgage on such property. In addition, consumer loans generally are dependent
on the borrower's continuing financial stability and, therefore, are more
likely to be adversely affected by unemployment, divorce, illness or personal
bankruptcy.

COMMERCIAL LOANS

The Association does not currently originate any commercial loans.
However, the Association is actively considering the commencement of commercial
lending on a limited basis as part of the long-term deployment of proceeds from
the Conversion. The Association would only commence such commercial lending
after it hired an experienced commercial lending officer. Commercial loans are
generally considered to involve a higher degree of risk compared to first
mortgage loans on one- to four-family real property. Risk of loss on
commercial business lending is dependent in significant part on the business
success of the borrower and on general economic conditions in the region or
industry in which the borrower operates. Commercial business loans also
require continued review and evaluation regarding the performance of the
borrower.

ESTABLISHMENT OF THE CHARITABLE FOUNDATION

The Company intends to establish the Foundation and to contribute to
it shares of Common Stock equal to 5% of the shares to be sold in the
Conversion. Establishment of the Foundation is subject to the approval of the
Association's members at a special meeting of members (the "Special Meeting").
If approved by members, the establishment of the Foundation will be dilutive to
the voting and ownership interests of stockholders and will have an adverse
impact on the operating results of the Company for its fiscal year ending June
30, 1999, possibly resulting in an operating loss for that year.

DILUTION OF STOCKHOLDERS' INTERESTS. At the minimum, midpoint and
maximum of the Estimated Price Range, the contribution to the Foundation would
be 48,450, 57,000 and 65,550 shares, with a value of $484,500, $570,000 and
$655,500, respectively, based on the Purchase Price of $10.00 per share for the
shares of Common Stock to be sold in the Conversion. Upon completion of the
Conversion and establishment of the Foundation, the Company will have 1,380,000
shares issued and outstanding at the maximum of the Estimated Price Range, of
which the Foundation will own 65,550 shares, or 4.8%. AS A RESULT, PERSONS
PURCHASING SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING
INTERESTS IN THE COMPANY DILUTED BY 4.8%. SEE "PRO FORMA DATA."

ADVERSE IMPACT ON EARNINGS. The Company will recognize an expense in
the amount of the contribution to the Foundation in the quarter in which it
occurs, which is expected to be the second quarter of fiscal 1999. Such
expense will reduce earnings and have a material adverse impact on the
Company's earnings for the fiscal year. The amount of the contribution will
range from $484,500 to $655,500, depending on the amount of Common Stock sold
in the Conversion. The contribution expense will be partially offset by the
tax deductibility of the expense. The Company has been advised by its
independent accountants that the contribution to the Foundation will be
deductible for federal income tax purposes, subject to a limitation based on
10% of the Company's annual taxable income. Assuming a contribution of
$655,500 in Common Stock, based on the maximum of the Estimated Price Range,
the Company estimates a net tax effected expense of $393,000. If the
Foundation had been established at June 30, 1998, the Association would have
reported net income of $224,000 for fiscal 1998 rather than reporting net
income of $617,000. In addition to the contribution to the Foundation, the
Association may in the future continue to make ordinary charitable
contributions within its community.

POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION. Based on the maximum
of the Estimated Price Range, the Company estimates that substantially all of
the contribution to the Foundation should be deductible for federal tax
purposes over the permissible six-year period. However, no assurance can be
made that the Company will have sufficient pre-tax income over the five-year
period following the year in which the contribution is initially made to fully
utilize the carryover related to the excess contribution. Furthermore,
although the Company and the Association have received an opinion of their
independent accountants that the Company will be entitled to the deduction for
the contribution to the Foundation, there can be no assurance that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that the
deduction will be permitted. In such event, there would be no tax benefit
related to the Foundation.

POTENTIAL ANTI-TAKEOVER EFFECT. If approved by the Association's
members, upon completion of the Conversion, the Foundation will own 4.8% of the
total shares of the Company's Common Stock outstanding. However,

pursuant to the terms of the contribution as mandated by the OTS, the shares of
Common Stock held by the Foundation must be voted in the same ratio as all
other shares of the Company's Common Stock on all proposals considered by the
stockholders of the Company. As a result, the Company does not believe the
Foundation will have an anti-takeover effect on the Company. In the event,
however, that the OTS were to waive this voting restriction and not impose
other restrictions and requirements with respect to the Foundation, the
Foundation's board of directors would exercise sole voting power over such
shares. See "The Conversion-Establishment of the Charitable
Foundation-Regulatory Conditions Imposed on the Foundation." If the
Foundation's shares are combined with shares purchased directly by officers and
directors of the Company, shares held by the proposed stock benefit plan, if
approved by stockholders, and shares held in the ESOP, the aggregate of such
shares could exceed 20% of the Company's outstanding Common Stock, which could
enable management to defeat stockholder proposals requiring 80% approval.
Consequently, in the event the voting restriction was waived, this potential
voting control might preclude takeover attempts that certain stockholders deem
to be in their best interest, and might tend to perpetuate management. Since
the ESOP shares are allocated to all eligible employees of the Association, and
any unallocated shares will be voted by an independent trustee, and because
awards under the proposed stock benefit plan may be granted to employees other
than executive officers and directors, management of the Company does not
expect to have voting control of all shares held or allocated by the ESOP or
other stock benefit plans. See "-Certain Anti-Takeover Provisions Which May
Discourage Takeover Attempts-Voting Control of Officers and Directors."

There will be no agreements or understandings, written or tacit, with
respect to the exercise of either direct or indirect control over the
management or policies of the Company by the Foundation which may discourage
takeover attempts, including agreements related to voting, acquisition or
disposition of the Company's Common Stock. Finally, as the Foundation sells
its shares of Common Stock over time, its ownership interest and voting power
in the Company are expected to decrease.

POTENTIAL CHALLENGES. The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done in only a
limited number of instances. As such, the Foundation may be subject to
potential challenges notwithstanding that the Boards of Directors of the
Company and the Association have carefully considered the various factors
involved in the establishment of the Foundation. See "The
Conversion-Establishment of the Charitable Foundation-Purpose of the
Foundation." If anyone were to institute an action seeking to require that the
Association eliminate establishment of the Foundation, no assurances can be
made that the resolution of such action would not result in a delay in the
consummation of the Conversion or that any objecting persons would not be
ultimately successful in obtaining the elimination of the Foundation or other
equitable relief or monetary damages against the Company or the Association.
Additionally, if the Company and the Association are forced to eliminate the
Foundation, the Company may be required to resolicit subscribers in the
Offerings.

APPROVAL OF MEMBERS. Establishment of the Foundation is subject to
the approval of a majority of the total outstanding votes of the Association's
members eligible to be cast at a Special Meeting. The Foundation will be
considered as a separate matter from approval of the Plan of Conversion. If
the Association's members approve the Plan of Conversion, but not the
establishment of the Foundation, the Association intends to complete the
Conversion without the establishment of the Foundation. Failure to approve the
Foundation may materially increase the aggregate pro forma market value of the
Common Stock to be sold in the Conversion since the estimate of such amount
takes into account the dilutive impact of the issuance of shares to the
Foundation. If the aggregate pro forma market value of the Common Stock
without the Foundation is either greater than $15.1 million or less than $9.7
million, the Association will establish a new Estimated Price Range and
commence a resolicitation of subscribers (i.e., subscribers will be permitted
to continue their orders, in which case they will need to affirmatively
reconfirm their subscriptions prior to the expiration of the resolicitation
offering or their subscriptions funds will be promptly refunded with interest
at the Association's passbook rate of interest, or be permitted to increase,
decrease, or cancel their subscriptions). Any change in the Estimated Price
Range must be approved by the OTS. See "The Conversion-Stock Pricing." A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the OTS
for periods of up to 90 days not to extend beyond ________, 2000.

HIGHLY COMPETITIVE INDUSTRY

The Association faces significant competition in its market area both
in attracting deposits and in originating loans. The population of the market
is relatively small and population growth is relatively static in the county in
which the Association is headquartered. This competition arises from
commercial banks, savings banks, mortgage brokers, mortgage banking companies,
credit unions, and other providers of financial services, many of which are
significantly larger than the Association and, therefore, have greater
financial and marketing resources than those of the Association. Also, many of
such competitors have a statewide or even a national presence. The
Association's competitive environment raises the possibility of the
Association's need to increase the rates paid and lower the yields on its
deposits and loans, respectively, in order to remain competitive, thus
potentially reducing its profitability. See "Business of the Association-
Market Area and Competition."

FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION

The Association is subject to extensive federal and state regulation
and supervision as a state savings and loan association. In addition, the
Company, as a savings and loan holding company, is subject to regulation and
supervision. Such regulations, which affect the Association and the Company on
a daily basis, may be changed at any time, and the interpretation of the
relevant law and regulations is also subject to change by the authorities who
examine the Association and interpret those laws and regulations. Any change
in the regulatory structure or the applicable statutes or regulations, whether
by the OTS, the Pennsylvania Department, the Federal Deposit Insurance
Corporation ("FDIC") or the Congress, could have a material impact on the
Company, the Association, its operations or the Association's Conversion. See
"Regulation."

THRIFT RECHARTERING

The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, provides that the BIF (the deposit insurance fund
that covers most commercial bank deposits) and the SAIF will merge on January
1, 1999, if there are no more savings associations as of that date. Several
bills have been introduced in the current Congress that would eliminate the
federal thrift charter and the OTS. A bill originally reported by the House
Banking Committee would have required federal thrifts to become national banks
or state banks within two years of enactment or they would have become national
banks by operation of law. The OTS would have been abolished and its functions
transferred to the bank regulatory agencies. State savings associations would
have become subject to the same federal regulation as state banks. The bill as
passed by the House of Representatives, however, did not provide for the
elimination of the federal thrift charter or OTS or revise the federal
regulation of state associations, but did provide that unitary savings and loan
holding companies existing or applied for after March 31, 1998 would not have
the ability to engage in unlimited activities but would be subject to the
activities restrictions applicable to multiple savings and loan holding
companies. Unitary holding companies existing or applied for before such date
would be grandfathered and could continue to engage in unlimited activities and
could transfer the grandfather rights to acquirors of the holding company. The
Senate has not acted on the legislation but if such legislation is enacted, the
Company would not qualify for unlimited activities but would be subject to the
activities restrictions applicable to multiple savings and loan holding
companies. The Association is unable to predict whether the legislation will
be enacted or, given such uncertainty, determine the extent to which the
legislation, if enacted, would affect its business. The Association is also
unable to predict whether the SAIF and BIF will eventually be merged, the
federal thrift charter eliminated or the regulation of state associations
revised, and what effect, if any, such legislation would have on the
Association.

STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS

STOCK-BASED INCENTIVE PLAN. The Company intends to adopt a
Stock-Based Incentive Plan which would provide for the granting of options to
purchase Common Stock ("Stock Options"), awards of Common Stock ("Stock
Awards"), and certain related rights to eligible officers, employees and
directors of the Company and Association. While the Company currently
anticipates granting Stock Options and Stock Awards under a single plan, it may
establish separate plans to provide for such awards. In the event such plan is
adopted within one year after conversion, OTS regulations require the plan to
be approved by stockholders at a meeting of stockholders which may be held no
earlier

than six months after completion of the Conversion. It is anticipated the
Stock-Based Incentive Plan will provide for the granting of options to purchase
shares of Common Stock equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (102,000 shares and
138,000 shares at the minimum and maximum of the Estimated Price Range,
respectively) and the granting of Stock Awards in an amount equal to 4% of the
shares of Common Stock issued in the Conversion, including shares issued to the
Foundation (40,800 shares and 55,200 shares at the minimum and maximum of the
Estimated Price Range, respectively).

Under the Stock-Based Incentive Plan, Stock Awards would be granted in
the form of non-transferable, non-assignable shares of Common Stock. The
shares of Common Stock used as Stock Awards would be acquired by the
Stock-Based Incentive Plan or a trust established for the Stock-Based Incentive
Plan, either through open market purchases or from authorized but unissued
Common Stock. The Board of Directors intends to appoint an independent trustee
who will vote unallocated Stock Awards in the same proportion as it receives
instructions from recipients with respect to allocated shares which have not
been earned and distributed. The trustee will not vote allocated shares which
have not been distributed if it does not receive instructions from the
recipient.

It is anticipated that the exercise price of Stock Options granted
under the Stock-Based Incentive Plan will be equal to the fair market value of
the underlying Common Stock on the date of grant. Such options will permit
such officers and directors to benefit from any increase in the market value of
the shares in excess of the exercise price at the time of exercise. Officers
and directors receiving Stock Options will not be required to pay for the
shares until the date of exercise. The granting of Stock Awards and the
exercise of non-statutory Stock Options (and disqualifying dispositions of
stock acquired through the exercise of incentive Stock Options) will result in
additional compensation expense to the Company and, accordingly, may result in
an increase in overall compensation expense in future periods. See "Management
of the Association-Other Benefit Plans."

Although no specific determinations have been made, the Company
anticipates that it will provide Stock Awards and/or Stock Options to
directors, officers and employees to the extent permitted by applicable
regulations. Current OTS regulations provide that, with respect to any non-tax
qualified stock benefit plan, such as the Stock-Based Incentive Plan, which is
implemented within one year after consummation of the Conversion, no individual
may receive more than 25% of the shares or options under any such plan and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the shares or options awarded under any such plan. Such
regulations also provide that any awards granted under such a plan may not vest
at a rate greater than 20% per year except in limited circumstances. It is
also anticipated that the Stock-Based Incentive Plan may under certain
circumstances provide for cash payments to participants in lieu of the benefit
provided by the Stock Award or Stock Option in the event of a change in control
of the Company or Association.

The Board of Directors, in determining specific allocations and grants
of Stock Awards and Stock Options, will consider various factors, including but
not limited to, the financial condition of the Company, current and past
performance of plan participants and tax and securities law and regulation
requirements.

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS. Employment and
change in control agreements proposed to be entered into with certain officers
and the employee severance compensation plan expected to be adopted provide for
benefits and cash payments in the event of a change in control of the Company
or the Association. The provisions in such agreements and plan would provide
the recipient with a change in control payment in the event of the recipient's
involuntary or, in certain circumstances, voluntary termination of employment
subsequent to a change in control of the Company or the Association. In
addition to any payments which may be made under the Stock-Based Incentive Plan
upon a change in control, these provisions may have the effect of increasing
the cost of acquiring the Company, thereby discouraging future attempts to take
over the Company or the Association. Based on current salaries, cash payments
to be paid in the event of a change in control pursuant to the terms of the
employment agreements, change in control agreements and an employee severance
compensation plan would be approximately $1.1 million. However, the actual
amount to be paid in the event of a change in control of the Company or
Association cannot be estimated at this time because the actual amount is based
on the average compensation of the employee and other factors existing at the
time of the change in control. See "Restrictions on Acquisition of the Company
and the Association-Restrictions in the Company's Certificate of Incorporation
and Bylaws," "Management of the

Association-Employment Agreements," "- Change in Control Agreements," "-
Employee Severance Compensation Plan" and "- Other Benefit Plans."

POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN

Following the Conversion, the Stock-Based Incentive Plan will acquire
an amount of shares equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, either through open
market purchases or the issuance of authorized but unissued shares of Common
Stock from the Company. If the Stock-Based Incentive Plan is funded by the
issuance of authorized but unissued shares, the voting interests of existing
stockholders at that time will be diluted by 3.8%. Also following the
Conversion, directors, officers and employees will be granted stock options
under the Stock-Based Incentive Plan in an amount equal to 10% of the Common
Stock issued in the Conversion, including shares issued to the Foundation. The
exercise of such Stock Options may be satisfied by the issuance of authorized
but unissued shares. If all of the Stock Options were to be exercised using
authorized but unissued Common Stock and the Stock Awards granted under the
Stock-Based Incentive Plan were funded with authorized but unissued shares, the
voting interests of existing stockholders at that time would be diluted at that
time by 12.3%.

CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS

PROVISIONS IN THE COMPANY'S AND THE ASSOCIATION'S GOVERNING
INSTRUMENTS. Certain provisions of the Company's Certificate of Incorporation
and Bylaws, particularly a provision limiting voting rights, and the
Association's Stock Articles of Incorporation and Bylaws, as well as certain
federal regulations, may assist the Company in maintaining its status as an
independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting on certain matters, staggered boards of
directors, non-cumulative voting for directors, limits on the calling of
special meetings, limits on voting shares in excess of 10% of outstanding
shares, and certain uniform price provisions for certain business combinations.
These provisions in the Company's governing instruments may discourage
potential proxy contests and other potential takeover attempts, particularly
those which have not been negotiated with the Board of Directors, and thus,
generally may serve to perpetuate existing management. For a more detailed
discussion of these provisions, see "Restrictions on Acquisitions of the
Company and the Association."

VOTING CONTROL OF OFFICERS AND DIRECTORS. Directors and officers of
the Association and the Company expect to purchase approximately 7.42% or 5.50%
of the shares of Common Stock to be issued in the Conversion, including shares
issued to the Foundation, based upon the minimum and the maximum of the
Estimated Price Range, respectively. The ESOP may be viewed as giving
directors, officers and employees the potential to control the voting of an
additional 8% of the Company's Common Stock. In addition, the Foundation will
be funded with a contribution by the Company equal to 5% of the Common Stock
sold in the Conversion. If a waiver of the voting restriction imposed on such
Common Stock is obtained from the OTS and the OTS does not impose other
restrictions, the Foundation shares may be voted as determined by the directors
of the Foundation who also will be directors or officers of the Company and
Association. Management's potential voting control could, together with
additional stockholder support, defeat stockholder proposals requiring 80%
approval of stockholders. As a result, this potential voting control may
preclude takeover attempts that certain stockholders deem to be in their best
interest and may tend to perpetuate existing management. See "Restrictions on
Acquisition of the Company and the Association-Restrictions in the Company's
Certificate of Incorporation and Bylaws."

ABSENCE OF MARKET FOR COMMON STOCK

The Company and the Association have never issued capital stock. The
Company has applied to have its Common Stock listed on the American Stock
Exchange ("AMEX") under the symbol "___" upon completion of the Conversion.
However, there can be no assurance that an active and liquid trading market for
the Common Stock will develop or, once developed, will continue, nor can there
be any assurances that purchasers of the Common Stock will be able to sell
their shares at or above the purchase price. The absence or discontinuance of
a market for the Common Stock would have an adverse impact on both the price
and liquidity of the Common Stock. See "Market for the Common Stock."

POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED

The number of shares to be issued in the Conversion, including shares
issued to the Foundation may be increased as a result of an increase in the
Estimated Price Range of up to 15% to reflect changes in market and financial
conditions following the commencement of the Subscription and Community
Offerings. In the event that the Estimated Price Range is so increased, it is
expected that the Company will issue up to 1,511,617 shares of Common Stock for
an aggregate purchase price of up to $15.1 million. An increase in the number
of shares issued will decrease a subscriber's pro forma net earnings per share
and stockholders' equity per share and will increase the Company's pro forma
consolidated stockholders' equity and net earnings. Such an increase will also
increase the purchase price as a percentage of pro forma stockholders' equity
per share and net earnings per share.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

The Association has received an opinion of Keller that, pursuant to
Keller's Valuation, subscription rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members have no value.
However, such valuation is not binding on the IRS. If the subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members are deemed to have an ascertainable value, receipt of such rights
could result in taxable gain to those Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members who receive and/or exercise the
subscription rights in an amount equal to such value. Additionally, the
Association could recognize a gain for tax purposes on such distribution.
Whether subscription rights are considered to have ascertainable value is an
inherently factual determination. See "The Conversion-Effects of Conversion"
and "- Tax Aspects."

YEAR 2000 COMPLIANCE

As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "96" is stored on the
system and represents 1996. The Association relies significantly on an outside
service bureau. The Association has not received any guarantee from the
outside service bureau that the bureau will be Year 2000 compliant. However,
the service bureau has completed its inventory and assessment of its Year 2000
compliance and is scheduled to have resolved all identified problems by the end
of 1998. This will provide for a full year of testing for compliance. The
Association has also completed its inventory and assessment and has completed
upgrading its internal system to handle the Year 2000 problem. The Association
currently is testing its upgraded system and will perform extensive tests with
the service bureau system. The cost to the Association for the internal system
upgrade, not including staff time, has been less than $50,000. There can be no
assurances, however, that the performance by the Association and its service
bureau will be effective to remedy all potential problems. To the extent the
Company's systems are not fully Year 2000 compliant, there can be no assurance
that potential systems interruptions or the cost necessary to update software
would not have a materially adverse effect on the Company's business, financial
condition, results of operations and business prospects.

SECURITY OF PENNSYLVANIA FINANCIAL CORP.

The Company was organized in Delaware at the direction of the Board of
Directors of the Association for the purpose of acquiring all of the capital
stock to be issued by the Association in the Conversion. The Company has
applied to the OTS for approval to become a savings and loan holding company.
The Company will acquire the Common Stock of the Association and sell its
Common Stock only if such approval is received. As a savings and loan holding
company, the Company will be subject to regulation by the OTS. See "The
Conversion-General." Upon consummation of the Conversion, the Company will
conduct business initially as a unitary savings and loan holding company. See
"Regulation-Holding Company Regulation." After completion of the Conversion,
the Company's assets will consist of all of the outstanding shares of the
Association's capital stock issued to the Company in the Conversion and 50% of
the net proceeds of the Offerings to be retained by the Company. The Company
intends to use part of such net proceeds to loan funds to the ESOP to enable
the ESOP to purchase 8% of the Common Stock issued in the Conversion, including
shares issued to the Foundation. The Company and Association may, however,
alternatively

choose to fund the ESOP through a loan to the ESOP trust by a third-party
financial institution. The Company intends initially to utilize the remaining
proceeds for investments in mortgage-related securities and federal agency
obligations. See "Use of Proceeds." Immediately after the Conversion, the
Company will have no significant liabilities. The management of the Company is
set forth under "Management of the Company." Initially, the Company will
neither own nor lease any property, but will instead use the premises,
equipment and furniture of the Association. At the present time, the Company
does not intend to employ any persons other than officers of the Company who
are also officers of the Association, but will utilize the support staff of the
Association from time to time. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.

Management believes that the holding company structure will provide
the Company with additional flexibility to diversify, should it decide to do
so, its business activities through existing or newly-formed subsidiaries, or
through acquisitions of other financial institutions and financial services
related companies. In addition, management believes that the Company will be
in a position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any acquisition and
expansion opportunities that may arise. There are no current arrangements,
understandings or agreements, written or oral, regarding any such opportunities
or transactions. The initial activities of the Company are anticipated to be
funded by the net proceeds retained by the Company and earnings thereon or,
alternatively, through dividends from the Association.

The Company's executive offices are located at 31 W. Broad Street,
Hazleton, Pennsylvania 18201 and its telephone number is (717) 454-0824.

SECURITY SAVINGS ASSOCIATION OF HAZLETON

The Association was originally incorporated in 1889 as a
state-chartered building and loan association under the name The Middle Coal
Field Building and Loan Association of Hazleton, Pennsylvania. In January
1987, the Association acquired through merger Anthracite Building and Loan
Association of Weatherly, Pennsylvania. The Association currently maintains
four banking offices in Luzerne and Carbon counties in Northeast Pennsylvania.

The Association operates as a community savings association and its
corporate philosophy has traditionally been focused on providing a competitive
array of financial products and services to consumers within its market area.
The Association's business primarily consists of accepting deposits from
customers and investing those funds primarily in mortgage loans secured by one-
to four-family residences, consumer loans and, to a lesser extent, other types
of loans and securities. At June 30, 1998, the Association had $69.9 million,
or 62.4% of total assets, invested in loans, consisting of: $54.7 million, or
48.9% of total assets, of one- to four-family mortgage loans; $9.9 million, or
8.9% of total assets, of consumer loans (consisting primarily of home equity
loans and lines of credit, automobile and education loans); $4.8 million, or
4.2% of total assets, of multi-family and commercial real estate loans; and
$523,000, or 0.47% of total assets, of construction loans. See "Business of
the Association - Lending Activities."

The Association's investment activities primarily consist of
mortgage-related and investment securities. At June 30, 1998, the
Association's securities portfolio totalled $28.7 million, or 25.6% of total
assets, of which $20.8 million was categorized as held-to-maturity. At June
30, 1998, the Association's debt investments totalled $24.4 million, or 21.8%
of total assets, $18.5 million of which was classified as held-to-maturity and
consisted primarily of investments in various certificates of deposit. At June
30, 1998, the Association's equity investments totalled $594,000, or 0.5% of
total assets, all of which was classified as available-for-sale and consisted
of an investment in FHLB stock. At June 30, 1998, the Association's
mortgage-backed securities, consisting primarily of U.S. Government and agency
obligations, totalled $6.3 million, or 5.6% of total assets, of which $2.8
million was categorized as held-to-maturity. At June 30, 1998, the
Association's mortgage-related securities portfolio totalled $3.6 million, or
3.2% of total assets, of which $2.3 million was classified as held-to-maturity
and consisted primarily of securities guaranteed or issued by
Government-sponsored and federal agencies such as Fannie Mae ("FNMA"), Freddie
Mac ("FHLMC"), and Ginnie Mae ("GNMA"). See "Business of the Association -
Investment Activities."

At June 30, 1998, the Association's deposit accounts totalled $102.6
million, or 99.8% of total liabilities, of which $42.1 million, or 41.1%, were
comprised of core deposits (savings, NOW and money market accounts). In

addition to core deposits, the Association had $60.5 million of certificate
accounts, or 58.9% of total liabilities, of which $38.8 million were
certificates of deposit with maturities of one year or less and $13.5 million
were jumbo certificates of deposit.

The Association is subject to extensive regulation, supervision and
examination by the Pennsylvania Department, the OTS, and the FDIC. As of June
30, 1998, the Association exceeded all regulatory capital requirements with
tangible, core and risk-based capital of $9.4 million, $9.4 million and $9.8
million, respectively. Additionally, the Association's regulatory capital was
in excess of the amount necessary for the Association to be deemed "well
capitalized" under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). See "Regulatory Capital Compliance" and "Regulation." The
Association is a member of the FHLB of Pittsburgh which is one of the twelve
regional banks which comprise the FHLB system. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business of
the Association."

The Association's executive offices are located at 31 W. Broad Street,
Hazleton, Pennsylvania 18201 and its telephone number is (717) 454-0824.

REGULATORY CAPITAL COMPLIANCE

At June 30, 1998, the Association exceeded all regulatory capital
requirements. See "Regulation-Federal Regulation of Savings
Institutions-Capital Requirements." Set forth below is a summary of the
Association's compliance with the regulatory capital standards as of June 30,
1998, on a historical and pro forma basis assuming that the indicated number of
shares were sold as of such date and receipt by the Association of 50% of the
net proceeds.

SECURITY SAVINGS ASSOCIATION OF HAZLETON
PRO FORMA AT JUNE 30, 1998 BASED UPON THE SALE AT $10.00 PER SHARE
------------------------------------------------------------------------
971,550 SHARES 1,143,000 SHARES 1,314,450 SHARES 1,511,617 SHARES
(MINIMUM (MIDPOINT (MAXIMUM 15% ABOVE
OF OF OF MAXIMUM OF
HISTORICAL AT ESTIMATED ESTIMATED ESTIMATED ESTIMATED
JUNE 30, 1998 PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
----------------- ----------------- ----------------- ----------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)

GAAP Capital (3) . . $9,231 8.2% $13,110 11.3% $13,844 11.9% $14,577 12.4% $15,421 13.0%
====== ======= ======= ======= =======
TANGIBLE CAPITAL:
Capital Level . . . $9,362 8.4% $13,241 11.4% $13,990 12.0% $14,708 12.5% $15,552 13.1%
Requirement . . . . 1,682 1.5 1,740 1.5 1,751 1.5 1,762 1.5 1,775 1.5
----- --- ------- ---- ------ ---- ------ ---- ------ ----
Excess . . . . . . $7,680 6.9% $11,501 9.9% $12,239 10.5% $12,946 11.0% $13,777 11.6%
====== ======= ======= ======= =======
CORE CAPITAL:
Capital Level . . . $9,362 8.4% $13,241 11.4% $13,990 12.0% $14,708 12.5% $15,552 13.1%
Requirement (4) . . 4,485 4.0 4,640 4.0 4,670 4.0 4,699 4.0 4,732 4.0
----- --- ------- ---- ------ ---- ------ ---- ------ ----
Excess . . . . . . $4,877 4.4% $8,601 7.4% $9,320 8.0% $10,009 8.5% $10,820 9.1%
====== ====== ====== ======= =======
RISK-BASED CAPITAL:
Capital Level (5)(6) $9,814 16.9% $13,693 22.8% $14,442 23.9% $15,160 25.0% $16,004 26.2%
Requirement . . . . 4,641 8.0 4,796 8.0 4,826 8.0 4,855 8.0 4,889 8.0
----- --- ------- ---- ------ ---- ------ ---- ------ ----
Excess . . . . . . $5,173 8.9% $8,897 14.8% $9,616 15.9% $10,305 17.0% $11,115 18.2%
====== ====== ====== ======= =======

- -------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted assets.
(3) GAAP Capital includes unrealized loss on available-for-sale securities,
net, which is not included as regulatory capital.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements
which would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation-Federal Regulation of Savings
Institutions-Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a 50%
risk-weighting.
(6) The difference between equity under generally accepted accounting
principles ("GAAP") and regulatory risk-based capital is attributable to
the addition of the general valuation allowance of $452,000 at June 30,
1998 (in addition to the exclusion of unrealized gain on available-for-sale
securities, net).

USE OF PROCEEDS

Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $9.0 million and $12.3 million (or $14.3 million if the Estimated Price
Range is increased by 15%). See "Pro Forma Data" and "The Conversion-Stock
Pricing" as to the assumptions used to arrive at such amounts. The Company
will be unable to utilize any of the net proceeds of the Offerings until the
consummation of the Conversion.

The Company will purchase all of the outstanding capital stock of the
Association to be issued upon Conversion in exchange for 50% of the net
proceeds, with the remaining net proceeds to be retained by the Company. Based
on the midpoint of the Estimated Price Range, the Company expects to utilize
the $5.3 million of net proceeds to purchase the Common Stock of the
Association. Such portion of net proceeds will be added to the Association's
general funds which the Association currently intends to utilize for general
corporate purposes, including investments in loans, mortgage-related and
investment securities, and the funding of the Stock-Based Incentive Plan. The
Association may also use such funds for the expansion of its facilities, and to
expand operations through acquisitions of other financial institutions, branch
offices or other financial services companies. Additionally, the Association
may explore expanding the types of lending products it offers. This may be
accomplished, in part, by the hiring of a commercial lending officer. The
Association has not yet determined the approximate amount of net proceeds to be
used for any of the purposes mentioned above.

The Company intends to use a portion of the net proceeds to make a
loan directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. The
Company and Association may alternatively choose to fund the ESOP's stock
purchases through a loan by a third-party financial institution. The remaining
net proceeds retained by the Company will initially be invested in
mortgage-related securities and federal agency obligations. Based upon the
sale of 971,550 shares or 1,314,450 shares at the minimum and maximum of the
Estimated Price Range, and the issuance of shares to the Foundation, the amount
of the loan to the ESOP would be $816,000 or $1.1 million, respectively (or
$1.3 million if the Estimated Price Range is increased by 15%) to be repaid
over a 12-year period at the prevailing prime rate of interest, which currently
is 8.5%. See "Management of the Association - Other Benefit Plans-Employee
Stock Ownership Plan."

The net proceeds retained by the Company may also be used to support
the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of other financial
institutions or their assets, including those located within the Association's
market area or diversification into other banking related businesses. The
Company has no current arrangements, understandings or agreements regarding any
such opportunities or transactions. The Company, upon the Conversion, will be
a unitary savings and loan holding company, which under existing laws would
generally not be restricted as to the types of business activities in which it
may engage, provided that the Association continues to be a qualified thrift
lender ("QTL"). See "Regulation-Holding Company Regulation" for a description
of certain regulations applicable to the Company.

Upon completion of the Conversion, the Board of Directors of the
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements. Unless approved by the OTS, the
Company, pursuant to OTS regulations, will be prohibited from repurchasing any
shares of Common Stock for three years except (i) for an offer to all
stockholders on a pro rata basis, or (ii) for the repurchase of qualifying
shares of a director. Notwithstanding the foregoing and except as provided
below, beginning one year following completion of the Conversion, the OTS
regulations permit the Company to repurchase its Common Stock so long as: (i)
the repurchases within the following two years are part of an open-market
program not involving greater than 5% of its outstanding capital stock during a
12-month period; (ii) the repurchases do not cause the Association to become
"undercapitalized" within the meaning of the OTS prompt corrective action
regulation; and (iii) the Company provides to the Regional Director of the OTS
no later than 10 days prior to the commencement of a repurchase program written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. See "Regulation-Prompt
Corrective Regulatory Action." In addition, under current OTS policies,
repurchases may be allowed in the first year following Conversion and in
amounts greater than 5% in the second and third years following Conversion
provided there are valid and compelling business reasons for such repurchases
and the OTS approves such repurchases.

25
30

Based upon facts and circumstances following Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but
are not limited to: (i) market and economic factors such as the price at which
the Common Stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of return
and risk involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and the
opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii)
any other circumstances in which repurchases would be in the best interests of
the Company and its stockholders. Although the Company has no current plans to
repurchase its stock, in the event the Company does determine to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the Purchase Price in the Conversion.

Any stock repurchases will be subject to the determination of the
Board of Directors that both the Company and the Association will be
capitalized in excess of all applicable regulatory requirements after any such
repurchases and that such capital will be adequate, taking into account, among
other things, the level of non-performing and other risk assets, the Company's
and the Association's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations. See "The Conversion- Certain Restrictions on Purchase or
Transfer of Shares After Conversion."

Additionally, in connection with the Conversion, the Company and
Association have committed to the OTS that during the one-year period following
the consummation of the Conversion, the Company will not make any distribution
to stockholders that, for federal tax purposes, would be treated as a return of
capital without prior approval of the OTS.

DIVIDEND POLICY

Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. In the future, the Board of Directors intends to
consider a policy of paying cash or stock dividends on the Common Stock.
However, no decision has been made with respect to the payment of dividends.
Declarations of dividends by the Board of Directors, if any, will depend upon a
number of factors, including the amount of net proceeds retained by the Company
in the Conversion, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and
the Association's financial condition and results of operations, tax
considerations and general economic conditions. No assurances can be given,
however, that any dividends will be paid or, if commenced, will continue to be
paid.

The Association will not be permitted to pay dividends to the Company
on its capital stock if its stockholders' equity would be reduced below the
amount required for the liquidation account. See "The Conversion- Liquidation
Rights." For information concerning regulations which apply to the Association
in determining the amount of proceeds which may be retained by the Company and
regarding a savings institution's ability to make capital distributions,
including payment of dividends to its holding company, see "Federal and State
Taxation-Federal Taxation-Distributions" and "Regulation-Federal Regulation of
Savings Institutions-Limitation on Capital Distributions."

Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Association. The Company is subject, however, to the requirements of
Delaware law, which generally limits dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.

to further any distribution to stockholders that, for federal tax purposes,
would be treated as a return of capital without prior approval of the OTS.

MARKET FOR THE COMMON STOCK

The Company and Association have not previously issued capital stock
and, consequently, there is no established market for the Common Stock. The
Company has applied to have its Common Stock listed on the AMEX under the
symbol "___" upon completion of the Conversion. Such approval is subject to
various conditions, including completion of the Conversion and the satisfaction
of applicable listing criteria. There can be no assurance that the Common
Stock will be able to meet the applicable listing criteria in order to maintain
its listing on the AMEX or that an active and liquid trading market will
develop or, if developed, will be maintained. A public market having the
desirable characteristics of depth, liquidity and orderliness, however, depends
upon the presence in the marketplace of both willing buyers and sellers of
Common Stock at any given time, which is not within the control of the Company.
No assurance can be given that an investor will be able to resell the Common
Stock at or above the Purchase Price of the Common Stock after the Conversion.

CAPITALIZATION

The following table presents the unaudited historical consolidated
capitalization of the Association at June 30, 1998, and the pro forma
consolidated capitalization of the Company after giving effect to the
Conversion, including the issuance of shares to the Foundation, based upon the
sale of the number of shares indicated in the table and the other assumptions
set forth under "Pro Forma Data."

COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
--------------------------------------------------------------
971,550 1,143,000 1,314,450 1,511,617
SHARES SHARES SHARES SHARES
(MINIMUM (MIDPOINT (MAXIMUM (15% ABOVE
OF OF OF MAXIMUM
ASSOCIATION ESTIMATED ESTIMATED ESTIMATED OF ESTIMATED
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE) (1)
-------------------------------------------------------------------------
(IN THOUSANDS)

Borrowings:
Deposits (2) . . . . . . . . . . . . . . . $102,604 $102,604 $102,604 $102,604 $102,604
FHLB advances and other borrowings . . . . - - - - -
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . $102,604 $102,604 $102,604 $102,604 $102,604
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 $ $ $ $ $ -
shares authorized; none to be issued . . - - - -
Common Stock, $.01 par value, 5,000,000
shares authorized; shares to be issued
as reflected . . . . . . . . . . . . . . - 10 12 14 15
Additional paid-in capital(3) . . . . . . . - 8,972 10,653 12,334 14,268
Retained earnings(4) . . . . . . . . . . . 9,362 9,362 9,362 9,362 9,362
Unrealized loss on available-for-sale
securities, net . . . . . . . . . . . . . (131) (131) (131) (131) (131)
Less: Expense of contribution to the
Foundation, net of taxes(5) . . - (291) (342) (394) (453)
Plus: Shares issued to the Foundation . . - 485 570 656 756
Less: Common Stock acquired by the ESOP(6) - (816) (960) (1,104) (1,270)

Less: Common Stock acquired by
the Stock-Based Incentive Plan(7). . - (408) (480) (552) (635)
-------- -------- -------- -------- --------
Total stockholders' equity . . . . . . . $ 9,231 $ 17,183 $ 18,684 $ 20,185 $ 21,912
======== ======== ======== ======== ========

- ------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) No effect has been given to the issuance of additional shares of Common
Stock to the Foundation at a value of $10.00 per share or to the issuance
of additional shares for option grants under the Stock-Based Incentive Plan
intended to be adopted by the Company. An amount equal to 10% of the
shares of Common Stock issued in the Conversion, including shares issued to
the Foundation, will be reserved for issuance upon the exercise of options
to be granted under the Stock-Based Incentive Plan. See "Risk
Factors-Possible Dilutive Effect of Stock-Based Incentive Plan," Footnote 4
to the tables under "Pro Forma Data" and "Management of the
Association-Other Benefit Plans."
(4) The retained earnings of the Association will be substantially restricted
after the Conversion. See "The Conversion-Liquidation Rights" and
"Regulation-Federal Savings Institution Regulation-Limitations on Capital
Distributions."

(5) Represents the value of the contribution of Common Stock to the Foundation
at $10.00 per share reduced by the associated tax benefit of $194,000,
$228,000, $262,000 and $303,000 at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively. The realization of the
federal tax benefit is limited annually to 10% of the Company's annual
taxable income, subject to the ability of the Company to carry forward any
unused portion of the deduction for five years following the year in which
the contribution is made. For state income tax purposes, the Company will
be able to deduct the contribution and to carry forward any unused portion
of the deduction for a five-year period following the year in which the
contribution is initially made. Such deductions by the Company for
Pennsylvania income tax purposes can be utilized only if the Company
generates sufficient state taxable income on an unconsolidated basis, and
also are subject to the limitation of 10% of unconsolidated income of the
Company.

(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and that the funds used to acquire such shares will be borrowed from the
Company. The Common Stock acquired by the ESOP is reflected as a reduction
of stockholders' equity. See "Management of the Association-Other Benefit
Plans-Employee Stock Ownership Plan."
(7) Assumes an amount equal to 4% of the shares of Common Stock sold in the
Conversion and issued to the Foundation, is purchased by the Stock-Based
Incentive Plan through open market purchases at the Purchase Price. The
Common Stock purchased by the Stock-Based Incentive Plan is reflected as a
reduction of stockholders' equity. See "Risk Factors-Possible Dilutive
Effect of Stock-Based Incentive Plan," Footnote 3 to the table under "Pro
Forma Data" and "Management of the Association-Other Benefit Plans."

PRO FORMA DATA

The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $9.0 million and $12.3 million (or $14.3
million in the event the Estimated Price Range is increased by 15%) based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription Offering to Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders; (ii) directors, officers and employees
of the Association and members of their immediate families (collectively,
"Insiders") will purchase an aggregate of $757,500 of Common Stock and the ESOP
will purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation; (iii) Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill") will receive a fee equal to 2.0% of the aggregate
Purchase Price of shares sold in the Subscription and Community Offerings,
excluding shares purchased by directors, officers, employees and any immediate
family member thereof and the ESOP for which Sandler O'Neill will not receive a
fee; and (iv) Conversion expenses, excluding the marketing fees paid to Sandler
O'Neill, will be approximately $570,000. Actual Conversion expenses may vary
from those estimated.

Pro forma consolidated net income of the Company for the fiscal year
ended June 30, 1998, has been calculated as if the Common Stock had been sold
at the beginning of the fiscal year and the net proceeds had been invested at
4.5%, which is the arithmetic average of the weighted average yield earned by
the Association on its interest-earning assets and the weighted average rate
paid on its deposits during such period (as required by OTS regulations). The
tables below do not reflect the effect of withdrawals from deposit accounts for
the purchase of Common Stock or the effect of any possible use of the net
Conversion proceeds. The pro forma after-tax yield for the Company and the
Association is assumed to be 2.70% for the fiscal year ended June 30, 1998,
based on an effective tax rate of 40.0%. Historical and pro forma net earnings
per share amounts have been calculated by dividing historical and pro forma
amounts by the indicated number of shares of Common Stock issued, as adjusted
to give effect to the purchase of shares by the ESOP and the issuance of shares
to the Foundation. Historical and pro forma stockholders' equity per share
amounts have been calculated by dividing historical and pro forma amounts by
the indicated number of shares of Common Stock issued.

The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be stated in an amount greater
than amounts that would be available for distribution to stockholders in the
event of liquidation.

The following tables summarize historical data of the Association and
pro forma data of the Company at or for the fiscal year ended June 30, 1998,
based on the assumptions set forth above and in the table and should not be
used as a basis for projections of market value of the Common Stock following
the Conversion. The tables below give effect to Stock Awards reserved for
grant under the Stock-Based Incentive Plan, which is expected to be adopted by
the Company following the Conversion. See Footnote 3 to the table and
"Management of the Association- Other Benefit Plans." No effect has been given
in the tables to the possible issuance of additional shares of Common Stock
upon the exercise of stock options to be granted under the Stock-Based
Incentive Plan, nor does book value give any effect to the liquidation account
to be established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders or, in the event of liquidation of the Association, to
the tax effect of the bad debt reserve and other factors. See Footnote 5 to
the table below, "The Conversion- Liquidation Rights" and "Management of the
Association-Other Benefit Plans." THE FOLLOWING TABLE ASSUMES THAT THE
FOUNDATION IS APPROVED AS PART OF THE CONVERSION AND THEREFORE GIVES EFFECT TO
THE ISSUANCE OF AUTHORIZED BUT UNISSUED SHARES OF THE COMPANY'S COMMON STOCK TO
THE FOUNDATION CONCURRENTLY WITH THE COMPLETION OF THE CONVERSION. THE
ESTIMATED PRICE RANGE, AS SET FORTH HEREIN AND IN THE TABLE BELOW, TAKES INTO
ACCOUNT THE DILUTIVE IMPACT OF THE ISSUANCE OF SHARES TO THE FOUNDATION.

AT OR FOR THE FISCAL YEAR ENDED JUNE 30, 1998
--------------------------------------------------------------------
1,511,617
971,550 1,143,000 1,314,450 SHARES SOLD AT
SHARES SHARES SOLD AT SHARES SOLD AT $10.00
SOLD AT $10.00 $10.00 $10.00 PER SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(7)
--------------- --------------- --------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Gross Proceeds . . . . . . . . . . . . . . . . $9,715 $11,430 $13,144 $15,116
Plus: Shares issued to Foundation (equal to
5% of the stock sold in the
Conversion) . . . . . . . . . . . . . 485 570 656 754
------- ------- ------- -------
Pro forma market capitalization . . . . . . . . $10,200 $12,000 $13,800 $15,870
======= ======= ======= =======

Gross proceeds . . . . . . . . . . . . . . . . $ 9,715 $11,430 $13,144 $15,116
Less: Offering expenses and commissions . . . (733) (765) (796) (833)
Estimated net proceeds . . . . . . . . . . . . 8,982 10,665 12,348 14,283
Less: Common Stock purchased by ESOP . . . . . (816) (960) (1,104) (1,270)
Common Stock purchased by Stock-Based
Incentive Plan . . . . . . . . . . . (408) (480) (552) (635)
------- ------- ------- -------
Estimated net proceeds, as adjusted . . . $ 7,758 $ 9,225 $10,692 $12,378
======= ======= ======= =======
Consolidated net earnings (1):
Historical . . . . . . . . . . . . . . . . $ 617 $ 617 $ 617 $ 617
Pro forma earnings on net proceeds . . . . 210 249 288 334
Less: Pro forma ESOP adjustment (2) . . . (41) (48) (55) (64)
Pro forma Stock-Based Incentive
Plan adjustment (3) . . . . . . . (49) (58) (66) (76)
------- ------- ------- -------
Pro forma net earnings . . . . . . . . . . $ 737 $ 760 $ 784 $ 811
======= ======= ======= =======
Per share net earnings (1):
Historical . . . . . . . . . . . . . . . . $ 0.65 $ 0.55 $ 0.48 $ 0.42
Pro forma earnings on net proceeds . . . . 0.22 0.22 0.22 0.22
Less: Pro forma ESOP adjustment (2) . . . (0.04) (0.04) (0.04) (0.04)
Pro forma Stock-Based Incentive
Plan adjustment (3) . . . . . . . . (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Pro forma net earnings per share . . . . . $ 0.78 $ 0.68 $ 0.61 $ 0.55
======= ======= ======= =======
Stockholders' equity:
Historical . . . . . . . . . . . . . . . . $ 9,231 $ 9,231 $ 9,231 $ 9,231
Estimated net proceeds . . . . . . . . . . 8,982 10,665 12,348 14,283
Plus: Tax Benefit of Foundation(4). . . . 194 228 262 303
Less: Common Stock acquired by
ESOP (2) . . . . . . . . . . . . (816) (960) (1,104) (1,270)
Common Stock acquired by
Stock-Based Incentive Plan (3). . (408) (480) (552) (635)
------- ------- ------- -------
Pro forma stockholders' equity
(3)(4)(5)(6) . . . . . . . . . . . . . . $17,183 $18,684 $20,185 $21,912
======= ======= ======= =======
Stockholders' equity per share:
Historical . . . . . . . . . . . . . . . . $ 9.05 $ 7.69 $ 6.69 $ 5.81
Estimated net proceeds . . . . . . . . . . 8.81 8.89 8.95 9.00
Plus: Tax Benefit of Foundation(4) . . . . 0.19 0.19 0.19 0.19
Less: Common Stock acquired by ESOP (2). (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock-Based Incentive Plan (3) . (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity
per share (3)(4)(5)(6) . . . . . . . . . $ 16.85 $ 15.57 $ 14.63 $ 13.80
======= ======= ======= =======
Offering price as a percentage of pro forma
stockholders' equity per share . . . . . . . 59.36% 64.23% 68.37% 72.43%
Offering price to pro forma net earnings per
share . . . . . . . . . . . . . . . . . . . . . 12.83 14.62 16.31 18.12

(footnotes on next page)

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

(1) Does not give effect to the non-recurring expense that is expected to be
recognized in the second quarter of fiscal 1999 if the establishment of the
Foundation is approved. In that event, the Company will recognize an
after-tax expense for the amount of the contribution to the Foundation
which is expected to be $291,000, $342,000, $394,000 and $453,000 at the
minimum, midpoint, maximum, and maximum as adjusted, of the Estimated Price
Range, respectively.

(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, will be purchased by
the ESOP. For purposes of this table, the funds used to acquire such
shares are assumed to have been borrowed by the ESOP from the Company. The
amount to be borrowed is reflected as a reduction of stockholders' equity.
The Association intends to make annual contributions to the ESOP in an
amount at least equal to the principal and interest requirement of the
debt. The Association's total annual payment of the ESOP debt is based
upon 12 equal annual installments of principal, with an assumed interest
rate at 8.5%. The pro forma net earnings assume: (i) that the
Association's contribution to the ESOP is equivalent to the debt service
requirement for the year ended June 30, 1998, and was made at the end of
the period; (ii) that 6,800, 8,000, 9,200 and 10,580 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
were committed to be released during the year ended June 30, 1998 at an
average fair value of $10.00 per share in accordance with Statement of
Position ("SOP") 93-6; and (iii) only the ESOP shares committed to be
released were considered outstanding for purposes of the net earnings per
share calculations. See "Management of the Association- Other Benefit
Plans-Employee Stock Ownership Plan."

(3) Gives effect to the Stock Awards available for grant under the Stock-Based
Incentive Plan expected to be adopted by the Company following the
Conversion and presented for approval at a meeting of stockholders. The
Stock-Based Incentive Plan intends to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock sold in the Conversion and
issued to the Foundation, or 40,800, 48,000, 55,200 and 63,480 shares of
Common Stock at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, either through open market
purchases, if permissible, or from authorized but unissued shares of Common
Stock or treasury stock of the Company, if any. Funds used by the
Stock-Based Incentive Plan to purchase the shares will be contributed to
the Stock-Based Incentive Plan by the Company. In calculating the pro
forma effect of the Stock-Based Incentive Plan, it is assumed that the
shares were acquired by the Stock-Based Incentive Plan at the beginning of
the period presented in open market purchases at the Purchase Price and
that 20% of the amount contributed was an amortized expense during such
period. The issuance of authorized but unissued shares of the Company's
Common Stock to the Stock-Based Incentive Plan instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.8% and pro forma net earnings per share would be $0.76,
$0.67, $0.60 and $0.54 at the minimum, midpoint, maximum, and 15% above the
maximum of the range, respectively, and pro forma stockholders' equity per
share would be $16.58, $15.36, $14.45 and $13.66 at the minimum, midpoint,
maximum, and 15% above the maximum of the range, respectively. There can
be no assurance that stockholder approval of the Stock-Based Incentive Plan
will be obtained, or that the actual purchase price of the shares will be
equal to the Purchase Price. See "Management of the Association-Other
Benefit Plans."

(4) Assumes a combined federal and state effective income tax rate of 40%.

(5) No effect has been given to the issuance of additional shares of Common
Stock upon the exercise of options to be granted under the Stock-Based
Incentive Plan. An amount equal to 10% of the Common Stock issued in the
Conversion, including shares issued to the Foundation, or 102,000, 120,000,
138,000 and 158,700 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively, will be reserved
for future issuance upon the exercise of options to be granted under the
Stock-Based Incentive Plan. The issuance of Common Stock pursuant to the
exercise of options under the Stock-Based Incentive Plan will result in the
dilution of existing stockholders' interests. Assuming all options were
exercised at the end of the period at an exercise price of $10.00 per
share, the pro forma net earnings per share would be $0.73, $0.64, $0.58
and $0.52, respectively, and the pro forma stockholders' equity per share
would be $16.22, $15.06, $14.21 and $13.46, respectively. See "Management
of the Association-Other Benefit Plans."

(6) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion-Liquidation Rights" and "Regulation-Federal Regulation of
Savings Institutions-Limitation on Capital Distributions."

(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.

31
36
COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITH NO FOUNDATION

In the event that the Foundation was not being established as part of the
Conversion, Keller has estimated that the pro forma market capitalization of the
Association would be approximately $12.5 million, at the midpoint, which is
approximately $500,000 greater than the pro forma market capitalization of the
Association if the Foundation is approved by members of the Association and
would result in approximately a $1.1 million increase, or 9.36%, in the amount
of Common Stock offered for sale in the Conversion. The pro forma price to book
ratio and pro forma price to earnings ratio would be approximately the same
under both the current appraisal and the estimate of the value of the Company
without the Foundation. Further, assuming the midpoint of the Estimated Price
Range, pro forma stockholders' equity per share and pro forma earnings per share
would be substantially the same with the Foundation as without the Foundation.
In this regard, pro forma stockholders' equity and pro forma net earnings per
share would be $15.56 and $0.68, respectively, at the midpoint of the estimate,
assuming no Foundation, and $15.57 and $0.68, respectively, with the Foundation.
The pro forma price to book ratio and the pro forma price to earnings ratio are
64.28% and 14.80x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 64.23% and 14.62x, respectively, with the Foundation. This
estimate by Keller was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Foundation. There is no assurance that in the event the
Foundation is not approved at the Special Meeting of members that the appraisal
prepared at that time would conclude that the pro forma market value of the
Company would be the same as that estimated herein. Any appraisal prepared at
that time would be based on the facts and circumstances existing at that time,
including, among other things, market and economic conditions.

For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion was completed at
June 30, 1998.

AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM
--------------------------- --------------------------- ---------------------------
WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)

Estimated offering amount................. $ 9,715 $ 10,625 $ 11,430 $ 12,500 $ 13,144 $ 14,375
Pro forma market capitalization........... 10,200 10,625 12,000 12,500 13,800 14,375
Total assets.............................. 119,942 120,589 121,443 122,204 122,944 123,820
Total liabilities......................... 102,759 102,759 102,759 102,759 102,759 102,759
Pro forma stockholders' equity............ 17,183 17,830 18,684 19,445 20,185 21,061
Pro forma consolidated net
earnings................................ 737 756 760 783 784 810
Pro forma stockholders' equity
per share............................... 16.85 16.78 15.57 15.56 14.63 14.65
Pro forma consolidated net
earnings per share...................... 0.78 0.77 0.68 0.68 0.61 0.61
Pro Forma Pricing Ratios:
Offering Price as a percentage
of pro forma stockholders'
equity per share..................... 59.36% 59.59% 64.23% 64.28% 68.37% 68.25%
Offering price to pro forma net
earnings per share.................. 12.83x 13.03x 14.62x 14.80x 16.31x 16.45x
Offering price to assets............... 8.50% 8.81% 9.88% 10.23% 11.22% 11.61%
Pro Forma Financial Ratios:
Return on assets....................... 0.61% 0.63% 0.63% 0.64% 0.64% 0.65%
Return on stockholders' equity......... 4.29 4.24 4.07 4.03 3.89 3.85
Stockholders' equity to assets......... 14.33 14.79 15.39 15.91 16.42 17.01

AT THE MAXIMUM,
AS ADJUSTED
-----------------------------
WITH NO
FOUNDATION FOUNDATION
------------- -------------
(DOLLARS IN THOUSANDS)

Estimated offering amount................. $ 15,116 $ 16,531
Pro forma market capitalization........... 15,870 16,531
Total assets.............................. 124,671 125,678
Total liabilities......................... 102,759 102,759
Pro forma stockholders' equity............ 21,912 22,919
Pro forma consolidated net
earnings................................ 811 841
Pro forma stockholders' equity
per share............................... 13.80 13.86
Pro forma consolidated net
earnings per share...................... 0.55 0.55
Pro Forma Pricing Ratios:
Offering Price as a percentage
of pro forma stockholders'
equity per share..................... 72.43% 72.13%
Offering price to pro forma net
earnings per share.................. 18.12x 18.21x
Offering price to assets............... 12.73% 13.15%
Pro Forma Financial Ratios:
Return on assets....................... 0.65% 0.67%
Return on stockholders' equity......... 3.70 3.67
Stockholders' equity to assets......... 17.58 18.24

32
37

SECURITY SAVINGS ASSOCIATION OF HAZLETON
STATEMENTS OF INCOME

The following Statement of Income of the Association for the fiscal years
ended June 30, 1998, 1997 and 1996 have been audited by Parente, Randolph,
Orlando, Carey & Associates, independent auditors, whose report thereon is
included elsewhere in this Prospectus. These Statements of Income should be read
in conjunction with the Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.

FOR THE FISCAL YEARS ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996
----------------- ------------------ -----------------

Interest income:
Loans............................................................ $5,414,524 $5,181,464 $5,133,778
Interest and dividends on securities:
Taxable interest income(1).................................... 1,887,331 1,804,963 1,716,776
Nontaxable interest income.................................... 2,983 -- --
Dividends..................................................... 36,835 34,727 33,564
Interest-bearing deposits with banks............................. 398,053 418,819 574,992
---------- ---------- ----------
Total interest income ..................................... 7,739,726 7,439,973 7,459,110
Interest expense:
Deposits ........................................................ 4,259,958 4,028,973 4,229,652
---------- ---------- ----------
Net interest income ................................................ 3,479,768 3,411,000 3,229,458
Provision for loan losses .......................................... 175,626 34,450 101,997
---------- ---------- ----------
Net interest income after provision
for loan losses ................................................. 3,304,142 3,376,550 3,127,461
---------- ---------- ----------
Noninterest income:
Other loan fees and service charges.............................. 266,628 241,342 234,277
Net realized gain on sale and calls
of available-for-sale securities.............................. 701 16,776 --
Other ........................................................... 36,748 25,736 24,095
---------- ---------- ----------
Total noninterest income ............................... 304,077 283,854 258,372
---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits .................................. 1,298,666 1,268,649 1,221,930
Occupancy and equipment expenses ................................ 233,788 214,289 250,505
FDIC deposit insurance premiums ................................. 64,457 752,450 220,377
Data processing ................................................. 138,096 132,943 140,695
Professional fees................................................ 103,919 98,238 85,401
Foreclosed real estate expenses, net............................. 136,331 142,127 3,738
Other noninterest expenses....................................... 509,438 498,176 503,882
---------- ---------- ----------
Total noninterest expenses.................................... 2,484,695 3,106,872 2,426,528
---------- ---------- ----------
Income before provision for income taxes............................ 1,123,524 553,532 959,305
Provision for income taxes ......................................... 506,300 343,981 362,300
---------- ---------- ----------
Net income ......................................................... $ 617,224 $ 209,551 $ 597,005
========== ========== ==========

- -------------------------
(1) Includes interest earned on FHLB demand accounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

33
38

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

GENERAL

The Company has only recently been formed and, accordingly, has no results
of operations. The Association's results of operations are dependent primarily
on net interest income, which is the difference between the income earned on its
loan and investment portfolios and its cost of funds, consisting of the interest
paid on deposits. Results of operations are also affected by the Association's
provision for loan losses, security sales activities, service charges and other
fee income, and noninterest expense. The Association's noninterest expense
principally consists of compensation and employee benefits, office occupancy and
equipment expense, federal deposit insurance premiums, data processing,
professional fees, advertising and business promotion and other expenses.
Results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities.

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company and the subsidiaries include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. The Company does not undertake -- and
specifically disclaims any obligation -- to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.

MANAGEMENT STRATEGY

The Association's operating strategy has been that of a community-based
banking institution, offering a wide variety of savings products to its retail
customers, while concentrating on residential and consumer lending and, to a
lesser extent, multi-family and commercial real estate and construction lending.
In order to promote long-term financial strength and profitability, the
Association's operating strategy has focused on: (i) maintaining strong asset
quality by originating primarily one- to four-family mortgage loans and home
equity loans and lines of credit secured by residential real estate located in
its market area; (ii) managing its interest rate risk within the context of its
significant fixed-rate one- to four-family mortgage lending activity; (iii)
providing products and delivery systems directed at the needs and expectations
of its customer base, including through taking advantage of technological
advances when appropriate; and (iv) maintaining a strong regulatory capital
position.

MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS

QUALITATIVE ANALYSIS

The Association's interest rate risk management has involved the
evaluation of the interest rate risk included in certain balance sheet accounts,
the determination of the level of interest rate risk appropriate given the
Association's business strategy, operating environment, capital and liquidity
requirements and performance objectives, and management of its interest rate
risk pursuant to strategies approved by the Board of Directors to achieve a
level of

34
39

interest rate risk consistent with guidelines approved by the Board of
Directors. Through such management, the Association seeks to reduce the
vulnerability of its operations to changes in interest rates. The Board of
Directors has established an Investment/Asset Liability Committee ("ALCO"),
which is responsible for reviewing asset/liability policies and the interest
rate risk position. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the
Association. See "Risk Factors--Sensitivity to Changes in Interest Rates."

In recent years, the Association has utilized the following strategies to
manage interest rate risk: (i) originating shorter-term (20 years or less)
fixed-rate mortgage loans, in addition to 30-year fixed-rate loans; (ii)
originating consumer loans which have a generally shorter term and may have a
variable interest rate; (iii) promoting longer-term deposits, particularly
three-year certificates of deposit; and (iv) investing in shorter-term
investment and mortgage-related securities.

Management believes that limiting its exposure to interest rate risk
fluctuations enhances long-term profitability. However, the Association's
strategies also can adversely impact net interest income due to lower yields on
shorter-term investments in comparison to longer-term fixed-rate investments and
whole loans. To promote a higher yield on its investment securities while at the
same time addressing the Association's interest rate risk management policies,
the Association has invested a significant portion of its portfolio of
investment securities in longer-term (more than five years) federal agency
obligations which have call features. Given the rates of such securities in
comparison to current market interest rates, the Association anticipates the
substantial majority of such securities will be called prior to their
contractual maturity. However, if changes in interest rates exceed ranges
anticipated by the Association in estimating the anticipated life of such
callable securities, the Association would be subject to increased interest rate
or reinvestment risk, depending on the direction of the change in market
interest rates.

35
40

QUANTITATIVE ANALYSIS

NET PORTFOLIO VALUE. The Association's interest rate sensitivity is
primarily monitored by management through the use of a model which generates
estimates of the change in the Association's NPV over a range of interest rate
scenarios. Such model is prepared by a third party for the Association. The OTS
also prepares and sends to the Association a NPV model based upon the
Association's quarterly financial reports to the OTS and assumptions utilized by
the OTS. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. The OTS model makes assumptions, among the
other things regarding the annual prepayment rates for residential mortgage
loans, adjustable-rate and fixed-rate, prepayment rates ranged from 4% to 30%
annually. Mortgage-related securities were assumed to prepay at rates between 6%
and 62% annually. Investment securities, which include callable federal agency
obligations, are presented based on their stated maturities. Savings accounts,
negotiable order of withdrawal ("NOW") accounts and Money Market Cash accounts
are assumed by the OTS to decay at 14%, 17%, and 31%, respectively, for each of
the following periods: one year, one to two years, two to three years, three to
four years, four to five years and over five years. The results of the OTS model
may vary from the Association's model primarily due to differences in
assumptions utilized, including estimated loan prepayment rates, reinvestment
rates and deposit decay rates. See "Regulation--Federal Regulation of Savings
Institutions." The following table sets forth the OTS's NPV as of June 30, 1998.

NPV AS % OF PORTFOLIO
CHANGE IN VALUE OF ASSETS
INTEREST RATES NET PORTFOLIO VALUE --------------------------------
IN BASIS POINTS ----------------------------------------------------------- NPV
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE RATIO CHANGE (1)
- ---------------------- --------------- -------------- ------------------- ----------- ---------------
(DOLLARS IN THOUSANDS)

400 $8,608 (3,611) (30)% 7.92% (270)
300 9,728 (2,491) (20) 8.81 (182)
200 10,789 (1,430) (12) 9.62 (100)
100 11,687 (532) (4) 10.27 (35)
Static 12,219 -- -- 10.62 --
(100) 12,847 528 5 11.03 41
(200) 13,232 1,013 8 11.25 63
(300) 13,872 1,653 14 11.64 203
(400) 14,725 2,506 21 12.28 257

- ---------------------------------------
(1) Expressed in basis points.

Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Association's
interest sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV table provides an indication of the
Association's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Association's net interest
income and will differ from actual results.

36
41

ANALYSIS OF NET INTEREST INCOME

Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends upon the relative amounts of interest-earning
assets and interest-bearing liabilities and the interest rate earned or paid on
them.

37
42

AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Association at and for the fiscal years ended June 30, 1998,
1997 and 1996. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown, except where noted, otherwise
and reflect annualized yields and costs. Average balances are derived from
average monthly balances. In management's opinion, such balances are not
materially different than average daily balances. The yields and costs include
fees which are considered adjustments to yields.

FOR THE FISCAL YEARS ENDED JUNE 30,
----------------------------------------
AT JUNE 30, 1998 1998
------------------------- ---------------------------------------
AVERAGE
YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE INTEREST RATE
-------------- --------- ------------- ------------ ----------
(DOLLARS IN THOUSANDS)

INTEREST EARNING ASSETS:
Loans (1):
Real estate(2)......................................... $ 55,782 7.81% $ 55,841 $4,358 7.80%
Consumer............................................... 9,935 8.30 10,331 825 7.99
Commercial real estate................................. 3,946 5.88 3,131 232 7.41
-------- -------- ------
Total loans......................................... 69,663 7.77 69,303 5,415 7.81
Mortgage-related securities (3)............................ 2,196 7.24 2,629 159 6.05
Investment securities (4)(5)............................... 26,487 6.67 26,723 1,768 6.62
Interest-bearing deposits.................................. 8,586 4.64 5,995 398 6.64
-------- -------- ------
Total interest-earning assets.......................... 106,932 7.24 104,650 7,740 7.40
-------- ---- -------- ------ ----
NONINTEREST-EARNING ASSETS:
Cash and due from banks.................................... 3,272 3,092
Premises and equipment..................................... 1,364 1,327
Other, less allowance for loan losses...................... 422 767
-------- --------
Total noninterest-earning assets....................... 5,058 5,186
-------- --------
Total assets.................................................. $111,990 $109,836
======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement savings......................... $ 29,053 2.74 $ 28,788 795 2.76
Money market........................................... 2,084 2.54 2,151 53 2.46
NOW.................................................... 10,983 1.38 10,081 152 1.51
Certificates of deposit................................ 60,484 5.39 59,342 3,260 5.49
-------- -------- ------
Total interest-bearing deposits..................... 102,604 4.15 100,362 4,260 4.24
---- ------ ----
NONINTEREST-BEARING LIABILITIES:
Other liabilities.......................................... 155 513
-------- --------
Total liabilities............................................. 102,759 100,875
Equity........................................................ 9,231 8,961
-------- --------
Total liabilities and equity.................................. $111,990 $109,836
======== ========
Net interest-earning assets................................ $ 4,288
Net interest income/interest rate spread (6)............... 3.09% $3,480 3.16%
==== ====== ====
Net interest margin as a percentage
of interest-earning assets (7).......................... 3.33%
====
Ratio of interest-earning assets to interest-
bearing liabilities..................................... 104.22% 104.27%
====== ======

FOR THE FISCAL YEARS ENDED JUNE 30,
----------------------------------------
1997
----------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST RATE
-------------- ------------ ----------
(DOLLARS IN THOUSANDS)

INTEREST EARNING ASSETS:
Loans (1):
Real estate(2)......................................... $ 53,399 $ 4,031 7.55%
Consumer............................................... 11,212 1,018 9.08
Commercial real estate................................. 2,080 132 6.35
-------- -------
Total loans......................................... 66,691 5,181 7.77
Mortgage-related securities (3)............................ 4,846 196 4.04
Investment securities (4)(5)............................... 24,405 1,644 6.74
Interest-bearing deposits.................................. 6,282 419 6.67
-------- -------
Total interest-earning assets.......................... 102,224 7,440 7.28
-------- ------- ----
NONINTEREST-EARNING ASSETS:
Cash and due from banks.................................... 2,691
Premises and equipment..................................... 1,101
Other, less allowance for loan losses...................... 919
--------
Total noninterest-earning assets....................... 4,711
--------
Total assets.................................................. $106,935
========
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement savings......................... $ 30,996 827 2.67
Money market........................................... 2,374 60 2.53
NOW.................................................... 9,065 135 1.49
Certificates of deposit................................ 55,653 3,007 5.40
-------- -------
Total interest-bearing deposits..................... 98,088 4,029 4.11
------- ----
NONINTEREST-BEARING LIABILITIES:
Other liabilities.......................................... 513
--------
Total liabilities............................................. 98,601
Equity........................................................ 8,334
--------
Total liabilities and equity.................................. $106,935
========
Net interest-earning assets................................ $ 4,136
Net interest income/interest rate spread (6)............... $ 3,411 3.17%
======== ====
Net interest margin as a percentage
of interest-earning assets (7)........................... 3.34%
====
Ratio of interest-earning assets to interest-
bearing liabilities...................................... 104.22%
======

FOR THE FISCAL YEARS ENDED JUNE 30,
-----------------------------------------
1996
-----------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST RATE
--------------- ------------ ----------
(DOLLARS IN THOUSANDS)

INTEREST EARNING ASSETS:
Loans (1):
Real estate(2)......................................... $ 52,447 $3,995 7.62%
Consumer............................................... 10,932 910 8.32
Commercial real estate................................. 1,657 229 13.82
-------- ------
Total loans......................................... 65,036 5,134 7.89
Mortgage-related securities (3)............................ 6,562 266 4.05
Investment securities (4)(5)............................... 21,957 1,484 6.76
Interest-bearing deposits.................................. 8,880 575 6.48
-------- ------
Total interest-earning assets.......................... 102,435 7,459 7.28
-------- ------ -----
NONINTEREST-EARNING ASSETS:
Cash and due from banks.................................... 2,533
Premises and equipment..................................... 1,132
Other, less allowance for loan losses...................... 579
--------
Total noninterest-earning assets....................... 4,244
--------
Total assets.................................................. $106,679
========
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement savings......................... $ 32,747 931 2.84
Money market........................................... 2,692 74 2.75
NOW.................................................... 9,106 190 2.09
Certificates of deposit................................ 53,653 3,035 5.66
-------- ------
Total interest-bearing deposits.................. 98,198 4,230 4.31
------ -----
NONINTEREST-BEARING LIABILITIES:
Other liabilities.......................................... 416
--------
Total liabilities............................................. 98,614
Equity........................................................ 8,065
--------
Total liabilities and equity.................................. $106,679
========
Net interest-earning assets................................ $ 4,237
Net interest income/interest rate spread (6)............... $3,229 2.97%
====== ====
Net interest margin as a percentage
of interest-earning assets (7)........................... 3.15%
====
Ratio of interest-earning assets to interest-
bearing liabilities...................................... 104.31%
======

- ------------------------------
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(2) Includes in addition to one- to four-family real estate loans,
multi-family and construction real estate loans which at June 30, 1998
totalled $811,000 and $523,000, respectively.
(3) Includes mortgage-related securities available-for-sale and
held-to-maturity.
(4) Includes investment securities available-for-sale and held-to-maturity and
stock in the FHLB of Pittsburgh.
(5) The average balance of tax-exempt investments in 1998 was not material.
There were no tax-exempt investments owned in 1997 or 1996.
(6) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(7) Net interest margin represents net interest income as a percentage of
average interest-earning assets.

38
43

RATE/VOLUME 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 the Association'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. The changes attributable to the combined impact of volume and rate have
been allocated on a proportional basis between changes in rate and volume.

FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
COMPARED TO COMPARED TO
FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------------------------------ ------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------------------------- -------------------------
RATE VOLUME NET RATE VOLUME NET
----------- ------------ ----------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)

INTEREST-EARNING ASSETS:
Loans:
Real estate(1).......................... $ 138 $ 189 $ 327 $ (37) $ 73 $ 36
Consumer................................ (117) (76) (193) 85 23 108
Commercial real estate.................. 25 75 100 (145) 48 (97)
----- ----- ----- ----- ----- -----
Total............................. 46 188 234 (97) 144 47
Mortgage-related securities................ 74 (111) (37) (1) (69) (70)
Investment securities (2).................. (29) 153 124 (4) 164 160
Interest-earning deposits.................. (2) (19) (21) 17 (173) (156)
----- ----- ----- ----- ----- -----
Total interest-earning assets........ 89 211 300 (85) 66 (19)
----- ----- ----- ----- ----- -----
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement savings.......... 28 (60) (32) (55) (49) (104)
Money market............................ (2) (5) (7) (6) (8) (14)
NOW..................................... 2 15 17 (54) (1) (55)
Certificate of deposit.................. 51 202 253 (141) 113 (28)
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities... 79 152 231 (256) 55 (201)
----- ----- ----- ----- ----- -----
Increase in net interest income............... $ 10 $ 59 $ 69 $ 171 $ 11 $ 182
===== ===== ===== ===== ===== =====

- ------------------------
(1) Includes in addition to one- to four-family real estate loans,
multi-family and construction real estate loans which at June 30, 1998
totalled $811,000 and $523,000, respectively.
(2) Calculations of rate/volume changes are not presented on a tax equivalent
basis due to the volume of tax-exempt investments in 1998 not being
material. There were no tax-exempt investments owned in 1997 or 1996.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND JUNE 30, 1997.

Total assets increased by $4.6 million, or 4.3%, from $107.4 million at
June 30, 1997 to $112.0 million at June 30, 1998. The growth in assets was
primarily due to loan growth, which was funded through increased deposits and
retained earnings. Loan growth during the 1998 period was primarily due to
increased demand, particularly as a result of refinancings in light of
decreased interest rates, the introduction of 30-year fixed rate loans and
special promotions for home equity loans and lines of credit. Cash and due from
banks also increased due to the growth in deposits during 1998 exceeding the
growth in loans and investment securities.

Real estate loans increased by $2.9 million, or 5.1%, from $57.1 million
at June 30, 1997 to $60.0 million at June 30, 1998 primarily due to increases in
the origination of one- to four-family loans, including the conversion of
construction loans to permanent financing, and multi-family and commercial real
estate loans. One- to four- family loans increased $1.0 million from $53.7
million at June 30, 1997 to $54.7 million at June 30, 1998. Multi-family and
commercial real estate loans increased $1.5 million from $3.3 million at June
30, 1997 to $4.8 million at June 30, 1998,

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44

a 45.5% increase, primarily due to the Association's increased business
development efforts. Consumer loans decreased by $400,000, or 3.9%, from $10.3
million at June 30, 1997 to $9.9 million at June 30, 1998.

Nonperforming loans increased from $1.6 million at June 30, 1997 to $1.9
million at June 30, 1998, representing 2.4% and 2.7%, respectively, of total
loans at such dates. The increase of $300,000 in nonperforming loans was in one-
to four-family real estate loans. This increase continued a trend which
commenced in 1996 as a result of a decline in real estate values in the market
area. Initially, the Association was slow to handle the increased number of
loans which warranted foreclosure. The Association has improved its procedures
for addressing delinquent loans and believes that real estate values in its
market area have stabilized in recent periods. Nonperforming assets and troubled
debt restructurings remained stable at $2.1 million for both June 30, 1998 and
1997, representing 1.9% and 2.0%, respectively, of total assets at such dates.

Total deposits increased by $4.1 million, or 4.2%, from $98.5 million at
June 30, 1997 to $102.6 million at June 30, 1998. The increase was primarily due
to an increase of $3.2 million, or 5.6%, in certificates of deposit from $57.3
million at June 30, 1997 to $60.5 million at June 30, 1998. The increase in
certificates of deposit was primarily due to the Association's strategy of
offering more competitive rates on such deposits.

Total equity increased $600,000, or 7.0%, from $8.6 million at June 30,
1997 to $9.2 million at June 30, 1998. The increase in equity was a result of
net income of $600,000 for the fiscal year.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND
JUNE 30, 1997.

GENERAL. Net income for fiscal 1998 increased by $407,000, or 193.8%, to
$617,000 from $210,000 for fiscal year 1997. The increase was primarily due to a
decrease in noninterest expense resulting from the absence of the one time
special assessment of $620,000 to recapitalize the SAIF which occurred in the
second quarter of fiscal 1997. Net income also increased due to an increase in
net interest income. These items were slightly offset by an increase in the
provision for loan losses and an increase in noninterest expenses.

INTEREST INCOME. Total interest income increased by $300,000, or 4.1%,
from $7.4 million for fiscal 1997 to $7.7 million for fiscal 1998, primarily due
to a $2.4 million, or 2.3%, increase in the average balance of interest- earning
assets and a slight increase in the weighted average yield on interest-earning
assets, which increased from 7.28% for fiscal 1997 to 7.40% for fiscal 1998.
Interest income on real estate loans increased $300,000, or 7.5%, from $4.0
million for fiscal year 1997 to $4.3 million for fiscal year 1998, primarily due
to a $2.4 million increase in the average balance of real estate loans and a
slight increase in the weighted average yield from 7.55% for fiscal 1997 to
7.80% for fiscal 1998. Interest income on consumer loans decreased $175,000,
from $1.0 million for fiscal year 1997 to $825,000 for fiscal year 1998. This
was principally due to decreases in the average balance of consumer loans from
$11.2 million in 1997 to $10.3 million in 1998 and a decrease in the yield on
such loans from 9.08% in 1997 to 7.99% in 1998. Interest income on
mortgage-related securities decreased $37,000 from $196,000 for fiscal 1997 to
$159,000 for fiscal 1998 due to the increase in weighted average yield from
4.04% in 1997 to 6.05% in 1998 being offset by a decrease of $2.2 million in the
average balance of such securities from $4.8 million in 1997 to $2.6 million in
1998. Interest income on investment securities increased slightly by $100,000,
from $1.6 million for fiscal year 1997 to $1.7 million for fiscal year 1998 due
to an increase in the average balance of investment securities from $24.4
million in 1997 to $26.7 million in 1998, offset by a decrease in the yield on
such investments.

INTEREST EXPENSE. Interest expense increased by $200,000, or 5.0%, from
$4.0 million for fiscal 1997 to $4.2 million for fiscal 1998. The increase in
interest expense was primarily the result of increased expense on certificates
of deposit, which was a result of a $3.7 million, or 6.7% increase in the
average balance of such accounts from $55.6 million for fiscal 1997 to $59.3
million for fiscal 1998. These net increases were partially offset by a decrease
in interest expense on savings accounts of $32,000 due to the decrease in the
average balance of such accounts, which declined from an average balance of
$30.1 million for fiscal 1997 to $28.8 million for fiscal 1998. The increase in
the average balance of certificates of deposit and the decrease in the average
balance of savings accounts was due primarily to the

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45

Association's efforts to solicit certificate accounts by more competitively
pricing such accounts and by customers shifting funds from lower-yielding
savings accounts to higher-yielding certificates of deposit.

PROVISION FOR LOAN LOSSES. The Association's provision for loan losses for
fiscal 1998 was $176,000, compared to $34,000 for fiscal 1997. The allowance for
loan losses increased $23,000 from $429,000 at June 30, 1997 to $452,000 at June
30, 1998. Total nonaccrual loans also increased from $1.6 million at June 30,
1997 to $1.9 million at June 30, 1998. The increase in the provision for loan
losses and corresponding increase in the Association's allowance for loan losses
reflected an increase in the amount of nonaccrual and substandard loans. This
increase was due to the general decline in real estate values in its market area
which commenced in 1996. Initially, the Association was slow to handle the
increased number of loans which warranted foreclosure. The Association has
improved its procedures for addressing delinquent loans and believes that real
estate values in its market area have stabilized in recent periods. As a result,
at June 30, 1998, the allowance for loan losses was 0.65% of total loans,
compared to 0.64% at June 30, 1997. The Association anticipates that, as a
result of its increasing emphasis on consumer and multi-family and commercial
real estate loans, it may need to maintain an allowance for loan losses in the
future at a level that is higher than that which it maintained in recent periods
to offset any greater risk resulting from the shifting composition of its loan
portfolio. See "Business of the Association - Delinquent Loans, Classified
Assets and Foreclosed Real Estate" and "Allowance for Loan Losses."

NONINTEREST INCOME. In fiscal 1998, the Association experienced a $20,000
increase in noninterest income from $284,000 in fiscal year 1997 to $304,000 for
fiscal year 1998 due primarily to a $25,000 increase in loan fees and service
charges associated with the implementation of surcharges on ATM transactions and
the increase in the average balance of loans originated. This increase was
offset by a $16,000 reduction in the gain of sale and calls of securities from
$17,000 for fiscal 1997 to $1,000 for fiscal 1998.

NONINTEREST EXPENSES. Total noninterest expenses decreased from $3.1
million for fiscal 1997 to $2.5 million for fiscal 1998 due primarily to a
reduction in the FDIC deposit insurance premiums in fiscal 1998 and the absence
of a one-time charge of $620,000 in order to recapitalize the SAIF fund which
occurred in the fourth quarter of 1997. As a result of the FDIC premium
reduction and absence of the SAIF assessment in fiscal 1998, FDIC insurance
assessments and premiums decreased from $750,000 for fiscal 1997 to $64,000 for
fiscal 1998. Noninterest expenses other than FDIC premiums and the SAIF special
assessment increased approximately $66,000 for fiscal 1998 compared to fiscal
1997. Compensation and employee benefits increased $30,000, or 2.4%, primarily
due to normal increases in salaries as well as increases in benefit costs
offered in part by a decrease aggregating $26,000 in pension expense
contribution. This contribution is determined annually by the Association's
pension administrator. Other noninterest expenses aggregating $510,000 at June
30, 1998 was comprised of $51,000 of advertising expense, $57,000 of printing
and postage, $211,000 of outside service fees, $31,000 in loan expenses,
$20,000 in telephone expense, $32,000 in insurance, $41,000 in ATM expense,
$15,000 in contributions and $51,000 in other miscellaneous operating expenses.
These expenses have remained fairly constant from year to year.

PROVISION FOR INCOME TAXES. Income tax expense totaled $506,000 for fiscal
1998, compared to $344,000 for fiscal 1997, resulting in an effective tax rate
of 45.1 % for fiscal 1998 compared to 62.1% for fiscal 1997. The increase in
income tax expense in fiscal 1998 was attributable to higher pre-tax income,
which increased from $554,000 in 1997 to $1.1 million in 1998, offset in part by
a lower effective tax rate. The fiscal 1997 effective tax rate of 62.1% was
inordinately high as a result of a one time recognition of a deferred tax
liability of $136,000 for the recapture of certain of the Association's bad debt
reserve as a result of a change in federal income tax law. The 1997 effective
tax rate was also impacted by a reduced state income tax rate also attributable
to the deferred federal tax expense recognition. Without the one-time
adjustment, the fiscal 1997 effective tax rate would approximate the fiscal 1998
effective tax rate.

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46

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1997 AND
JUNE 30, 1996.

GENERAL. Net income decreased $387,000, or 64.8%, from $597,000 for fiscal
1996 to $210,000 for fiscal 1997. The decrease was primarily attributable to a
one-time special assessment of $620,000 from the FDIC in order to recapitalize
the SAIF, which was offset, in part, by a $182,000 increase in net interest
income.

INTEREST INCOME. Interest income remained stable at $7.4 million for
fiscal 1997 and fiscal 1996, primarily due to the average balance of
interest-earning assets and weighted average yield remaining stable for fiscal
1997 and 1996. Interest income on loans also remained stable at $5.1 million for
fiscal 1997 and 1996 due to the higher average balance of loans being offset by
a decrease in the weighted average yield of loans from 7.89% for fiscal 1996 to
7.77% for fiscal 1997.

INTEREST EXPENSE. Interest expense decreased by $200,000, or 4.8%, from
$4.2 million for fiscal 1996 to $4.0 million for fiscal 1997 primarily due to a
$200,000 decrease in the average balance of deposits and a decrease in the
weighted average costs of such liabilities from 4.31% for 1996 to 4.11% for
1997, due primarily to the Association's decision to reduce the rate paid on its
savings accounts during 1997 as part of the Association's determination to
extend the maturity of its deposit portfolio by competitively pricing its time
deposit products. The Association's revised deposit pricing strategy of
competitively pricing certificates of deposit and reducing the rate paid on
savings accounts resulted in an increase in the average balance of certificates
of deposit for 1997 compared to 1996, which was more than offset by the $1.7
million decrease in the average balance of savings accounts for 1997 compared to
1996. This movement to certificates of deposit also extended the average
maturity of the Association's deposits.

PROVISION FOR LOAN LOSSES. During 1997, the provision for loan losses
decreased by $68,000 from the prior year's level of $102,000. The lower
provision was based on management's evaluation of existing real estate market
conditions, the level of charge-offs and nonperforming loans, as well as an
evaluation of the general economic conditions in the Association's market areas.
At June 30, 1996, the Association's allowance for loan losses to total
nonperforming loans and to total loans was 23.9% and 0.69% respectively,
compared to 27.1% and 0.64% at June 30, 1997.

NONINTEREST INCOME. Noninterest income increased by $26,000, or 10.1%,
from $258,000 in 1996 to $284,000 in 1997. The increase was primarily
attributable to the increase in loan fees and service charges and gains on sale
of securities available-for-sale. The increase in loan fees and service charges
was primarily due to an increase in the average balance of loans and the
implementation of surcharges on ATM transactions.

NONINTEREST EXPENSE. Noninterest expense increased $700,000, or 29.2%, in
1997 to $3.1 million compared to $2.4 million in 1996. The increase primarily
related to the special assessment by the FDIC for the SAIF recapitalization of
$620,000. Compensation and employee benefits also increased $47,000, or 3.8%,
due to normal annual increases in salaries and benefit costs.

PROVISION FOR INCOME TAXES. Income tax expense decreased by $18,000, or
5.0%, from $362,000 in fiscal 1996 to $344,000 in fiscal 1997, resulting in an
effective tax rate of 62.1% for fiscal year 1997 compared to 37.8% for fiscal
1996. The decrease in income tax expense in fiscal 1997 was attributable to a
decrease in the Association's pre-tax earnings for fiscal 1997 compared to
fiscal 1996, offset by a $136,000 deferred tax expense related to the change in
income tax law relating to the Association's tax bad debt reserve. The 1997
effective tax rate was also impacted by a reduced state income tax rate also
attributable to the deferred federal income tax expense recognition. The
Association's effective tax rate for fiscal 1997 was 62.1% as compared to 37.8%
for fiscal 1996 as a result of this change.

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47
LIQUIDITY AND CAPITAL RESOURCES

The Association's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and investment securities. The
Association uses the funds generated to support its lending and investment
activities as well as any other demands for liquidity such as deposit outflows.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows, mortgage prepayments and the exercise of call features are
greatly influenced by general interest rates, economic conditions and
competition. The Association has continued to maintain the required levels of
liquid assets as defined by OTS regulations. This requirement of the OTS, which
may be varied at the direction of the OTS depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Association's currently required liquidity ratio is 4.0%. At
June 30, 1998, 1997, 1996, 1995, and 1994, the Association's liquidity ratios
were 22.9%, 21.1%, 21.1%, 19.4% and 25.6%, respectively.

At June 30, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $9.4 million, or 8.4% of total
adjusted assets, which is above the required level of $1.7 million, or 1.5%;
core capital of $9.4 million, or 8.4%, of total adjusted assets, which is above
the required level of $4.5 million, or 4.0% and risk-based capital of $9.8
million, or 16.9%, of risk-weighted assets, which is above the required level of
$4.6 million, or 8.0%. See "Regulatory Capital Compliance."

The Association has other sources of liquidity if a need for additional
funds arises, including FHLB advances. At June 30, 1998, the Association did not
have any advances outstanding from the FHLB, and at June 30, 1998 had an overall
borrowing capacity from the FHLB of $5.9 million.

The Association's most liquid assets are cash and due from banks,
interest-bearing deposits with banks and its investment and mortgage-related
securities available-for-sale. The levels of these assets are dependent on the
Association's operating, financing, lending and investing activities during any
given period. At June 30, 1998, cash and due from banks, interest-bearing
deposits with banks and investment securities available for sale totalled $19.8
million, or 17.7% of total assets.

At June 30, 1998, the Association had commitments to originate loans and
unused outstanding lines of credit and undisbursed proceeds of construction
mortgages totaling $2.0 million. The Association anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificate accounts, which are scheduled to mature in less than one year from
June 30, 1998, totalled $38.8 million. The Association expects that
substantially all of the maturing certificate accounts will be retained by the
Association at maturity.

The initial impact of the Conversion on the liquidity and capital
resources of the Company will be significant as it will substantially increase
the liquid assets of the Company and the capital base on which the Company
operates. Additionally, the Company expects the substantial majority of
Conversion proceeds will initially be invested in readily marketable investment
grade securities which, if liquidity needs developed, could be sold by the
Company to provide additional liquidity. Further, the additional capital
resulting from the Offerings is expected to increase the capital base of the
Company. At June 30, 1998, the Association had total equity, determined in
accordance with GAAP, of $9.2 million, or 8.2% of total assets, which
approximated the Association's regulatory tangible capital at that date of 8.4%
of assets. An institution with a ratio of tangible capital to total assets of
greater than or equal to 5% is considered to be "well-capitalized" pursuant to
OTS regulations. Assuming that the Company uses 50% of the net proceeds at the
maximum of the Estimated Price Range to purchase the stock of the Association,
the Association's GAAP capital will increase to $14.6 million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of 12.4% after the Conversion.
In the event that the holding company form of organization is not utilized and
all of the net Conversion proceeds, at the midpoint of the Estimated Price
Range, are retained by the Association, the Association's ratios of tangible and
core capital to adjusted assets, on a pro forma basis, will both increase to
15.3% after Conversion. The investment of the net proceeds from the sale of the
Common Stock is expected to provide the Association with

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48

additional income to increase further its capital position. The additional
capital may also assist the Association in offering new programs and expanded
services to its customers. See "Use of Proceeds."

YEAR 2000 COMPLIANCE

As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "96" is stored on the
system and represents 1996. The Association relies significantly on an outside
service bureau. The Association has not received any guarantee from the outside
service bureau that the bureau will be Year 2000 compliant. However, the service
bureau has completed its inventory and assessment of its Year 2000 compliance
and is scheduled to have resolved all identified problems by the end of 1998.
This will provide for a full year of testing for compliance. The Association has
also completed its inventory and assessment and has completed upgrading its
internal system to handle the Year 2000 problem. The Association currently is
testing its upgraded system and will perform extensive tests with the service
bureau system. The cost to the Association for the internal system upgrade, not
including staff time, has been less than $50,000. There can be no assurances,
however, that the performance by the Association and its service bureau will be
effective to remedy all potential problems. To the extent the Company's systems
are not fully Year 2000 compliant, there can be no assurance that potential
systems interruptions or the cost necessary to update software would not have a
materially adverse effect on the Company's business, financial condition,
results of operations and business prospects.

IMPACT OF INFLATION AND CHANGING PRICES

The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results generally in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Association's operations. Unlike industrial companies, nearly all of
the assets and liabilities of the Association are monetary in nature. As a
result, interest rates have a greater impact on the Association's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial-
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial- components
approach focuses on the assets and liabilities that exist after the transfer. If
a transfer does not meet the criteria for a sale, the transfer is accounted for
as a secured borrowing with a pledge of collateral. The Statement became
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Adoption of this Statement did not have a material impact on the
net income, equity, or financial position of the Association.

ACCOUNTING FOR EARNINGS PER SHARE. In February 1997, the FASB issued SFAS
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This statement simplifies
the standards for computing earnings per share previously found in APB Opinion
No. 15, "Earnings Per Share," and makes them comparable to international

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49

EPS standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods, and earlier application is
not permitted.

REPORTING COMPREHENSIVE INCOME. In September 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose 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 that financial
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Association will make the appropriate disclosures in the
applicable financial statements, as required.

DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and 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. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. Management has not yet determined the impact, if any, of this statement on
the Association.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for 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. In connection with the
implementation of SFAS No. 133, the Association may transfer debt securities
classified as held-to-maturity to the available-for-sale category. Such a
transfer will not call into question the Association's intention to hold other
debt to maturity in the future. SFAS No. 133 is effective for financial
statements for periods beginning after June 15, 1999. Management has not yet
determined the impact, if any, of this statement on the Association. Management
plans to adopt SFAS No. 133 early in order to use the special provision
allowing the transfer debt securities classified as held-to-maturity to the
available-for-sale category.

BUSINESS OF THE ASSOCIATION

GENERAL

The Association's principal business has been and continues to be
attracting retail deposits from the general public in the areas surrounding its
four banking offices and investing those deposits, together with funds generated
from operations, primarily in one- to four-family mortgage loans and consumer
loans. The Association currently originates, for investment, adjustable- and
fixed-rate one- to four-family mortgage loans, as well as a variety of consumer
loans, including home equity loans, lines of credit, automobile and education
loans. To a lesser extent, the Association also originates multi-family and
commercial real estate loans and construction loans. The Association also
invests in mortgage-related and investment securities, primarily U.S. government
and agency obligations, and certificates of deposit in other financial
institutions and other permissible investments. The Association's revenues are
derived principally from interest on its loans, and to a lesser extent, interest
and dividends on its investment and mortgage-related securities and certificates
of deposit investments, and other noninterest income. The Association's primary
sources of funds are deposits and principal and interest payments on loans and
mortgage-related securities.

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50

MARKET AREA AND COMPETITION

The Association is a community-oriented banking institution offering a
variety of financial products and services to meet the needs of the communities
it serves. The Association's lending and deposit gathering is concentrated in
its market area consisting of Luzerne and Carbon counties in Northeast
Pennsylvania. The Association invests primarily in loans secured by first and
second mortgages on properties located in its market area.

The Association maintains two banking branch offices in Hazleton (in
Luzerne County), one in Weatherly (in Carbon County), and one in Drums (in
Luzerne County). Hazleton is situated approximately 100 miles from Philadelphia
and New York City and approximately 50 miles from Allentown and the
Wilkes-Barre/Scranton area.

The economy of the greater Hazleton area is characterized by diversified
light manufacturing and is the site of production facilities for several
manufacturers including Union Camp, Hershey-Cadbury Chocolates, Quebacor and
Hazleton Pumps, Inc. As a consequence, the manufacturing sector employs more
than one third of the area's work force. The Hazleton area has excellent access
to major highway transportation routes including Interstates 80 and 81 as well
as rail transportation. The population of Luzerne County has remained relatively
static and has one of the oldest average ages for all counties in the United
States. The unemployment rate in the area is greater than the national average.
According to Pennsylvania Labor Market Information, as of July 1998, the
unemployment rate for the market area was 6.3% compared to the national level of
4.6%. The median household income for 1997 for the market area was $29,130
compared to the national level of $36,961.

The Association faces significant competition both in generating loans and
in attracting deposits. The Association's primary market area is highly
competitive and the Association faces direct competition from a significant
number of financial institutions, many with a state wide or regional presence
and, in some cases, a national presence. Many of these financial institutions
are significantly larger and have greater financial resources than the
Association. The Association's competition for loans comes principally from
commercial banks, savings banks, credit unions, mortgage brokers, mortgage
banking companies and insurance companies. Its most direct competition for
deposits has historically come from savings banks and associations, commercial
banks and credit unions. In addition, the Association faces increasing
competition for deposits from non-bank institutions such as brokerage firms and
insurance companies in such instruments as short-term money market funds,
corporate and government securities funds, mutual funds and annuities.
Competition may also increase as a result of the removal of restrictions on the
interstate operations of financial institutions. See "Risk Factors--Highly
Competitive Industry and Geographic Area."

In addition, the Association recognizes that its customer base
increasingly focuses on convenience and access to services. The Association has
addressed these customer desires recently through the implementation of
telephone banking system and the introduction of a new debit card. Additionally,
the Association intends to expand its telephone banking system to promote bill
payment services and install automated teller machines ("ATMs"). The Association
will continue to evaluate and enhance its service delivery system.

LENDING ACTIVITIES

LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of mortgage loans secured by one- to four-family residential real
estate, consumer loans and multi-family and commercial real estate loans. At
June 30, 1998, the Association's loans totalled $69.9 million, of which $54.7
million, or 78.2%, were one- to four-family residential mortgage loans. Total
real estate mortgage loans included 28.7% of adjustable-rate loans, which are
indexed primarily to the United States Treasury Bill rates and the prime rate as
reported in The Wall Street Journal.

The Association's consumer loans at June 30, 1998 aggregated $9.9 million,
or 14.2% of total loans. Such consumer loans included $6.3 million of home
equity loans and lines of credit, $1.0 million of automobile loans, $345,000 of
education loans and $2.3 million of other consumer loans. At June 30, 1998, the
Association also had $5.3 million, or 7.6% of total loans, in multi-family and
commercial real estate loans and construction loans.

46
51

The types of loans that the Association may originate are subject to
federal and state laws and regulations. Interest rates charged by the
Association on loans are affected by the demand for such loans and the supply of
money available for lending purposes and the rates offered by competitors. These
factors are, in turn, affected by, among other things, economic conditions,
monetary policies of the federal government, including the Federal Reserve
Board, and legislative tax policies.

47
52

The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.

AT JUNE 30,
-----------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ------------------------------ -----------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------------- ------------ --------------- ----------- --------------
(DOLLARS IN THOUSANDS)

Real estate loans:
One- to four-family.............. $54,722 78.24% $53,685 79.59% $51,561 78.36%
Multi-family and commercial...... 4,757 6.80 3,263 4.84 2,955 4.49
Construction..................... 523 0.75 194 0.29 298 0.45
------- ------ ------- ------ ------- ------
Total real estate loans.... 60,002 85.79 57,142 84.72 54,814 83.30
------- ------ ------- ------ ------- ------
Consumer loans:
Home equity loans and
lines of credit................ 6,306 9.02 6,848 10.15 6,820 10.37
Automobile....................... 967 1.38 1,067 1.58 1,245 1.89
Education........................ 345 0.49 16 0.02 711 1.08
Secured by deposits.............. 907 1.30 937 1.39 858 1.30
Other............................ 1,410 2.02 1,441 2.14 1,353 2.06
------- ------ ------- ------ ------- ------
Total consumer loans....... 9,935 14.21 10,309 15.28 10,987 16.70
------- ------ ------- ------ ------- ------
Total loans................... 69,937 100.00% 67,451 100.00% 65,801 100.00%
====== ====== ======
Less:
Deferred loan origination fees
and discounts.................. 274 284 283
Allowance for loan losses........ 452 429 447
------- ------- -------
Total loans, net.............. $69,211 $66,738 $65,071
======= ======= =======

AT JUNE 30,
---------------------------------------------------------------
1995 1994
------------------------------ -----------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ -------------- ----------- --------------

Real estate loans:
One- to four-family.............. $50,494 78.11% $47,015 81.28%
Multi-family and commercial...... 2,538 3.93 2,143 3.71
Construction..................... 505 0.78 407 0.70
------- ------ ------- ------
Total real estate loans.... 53,537 82.82 49,565 85.69
------- ------ ------- ------
Consumer loans:
Home equity loans and
lines of credit................ 7,208 11.14 5,361 9.27
Automobile....................... 1,362 2.11 796 1.38
Education........................ 568 0.88 341 0.59
Secured by deposits.............. 812 1.26 685 1.18
Other............................ 1,159 1.79 1,092 1.89
------- ------ ------- ------
Total consumer loans....... 11,109 17.18 8,275 14.31
------- ------ ------- ------
Total loans................... 64,646 100.00% 57,840 100.00%
====== ======
Less:
Deferred loan origination fees
and discounts.................. 302 278
Allowance for loan losses........ 401 215
------- -------
Total loans, net.............. $63,943 $57,347
======= =======

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53

LOAN MATURITY. The following table shows the remaining contractual
maturity of the Association's total loans at June 30, 1998. The table does not
include the effect of future principal prepayments.

AT JUNE 30, 1998
-------------------------------------------------------------------------------
MULTI-
ONE- TO FAMILY AND
FOUR- COMMERCIAL TOTAL
FAMILY(1) REAL ESTATE CONSUMER LOANS
---------------- ---------------------- --------------- --------------
(IN THOUSANDS)

Amounts due in:
One year or less......................... $ 11 $ -- $ 242 $ 253
After one year:
More than one year to three years.... 330 426 1,589 2,345
More than three years to five years.. 1,313 327 2,888 4,528
More than five years to 10 years..... 8,393 360 5,095 13,848
More than 10 years to 15 years....... 16,920 2,633 81 19,634
More than 15 years................... 27,377 1,912 40 29,329
------- ------ ------- -------
Total amount due.................. $54,344 $5,658 $9,935 $69,937
======= ====== ====== =======

- ---------------------------
(1) Includes construction loans for the construction of one- to four-family
residences, which generally convert to permanent financing upon completion
of the construction phase.

The following table sets forth, at June 30, 1998, the dollar amount of
loans contractually due after June 30, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.

DUE AFTER JUNE 30, 1999
------------------------------------------------------------
FIXED ADJUSTABLE TOTAL
--------------- ------------------ ----------------
(IN THOUSANDS)

Real estate loans:
One- to four-family(1)........... $40,904 $13,263 $54,167
Multi-family and commercial...... 1,893 3,931 5,824
------- ------- -------
Total real estate loans....... 42,797 17,194 59,991
Consumer loans...................... 8,235 1,458 9,693
------- ------- -------
Total loans................... $51,032 $18,652 $69,684
======= ======= =======

- ----------------------------
(1) Includes construction loans for the construction of one- to four-family
residences, which generally convert to permanent financing upon completion
of the construction phase.

ORIGINATION AND SALE OF LOANS. The Association's mortgage lending
activities are conducted primarily by its loan personnel operating at its
banking offices. All loans originated by the Association are underwritten
pursuant to the Association's policies and procedures. For fiscal 1998 and 1997,
the Association originated $15.2 million and $13.4 million of loans,
respectively. The Association originates both adjustable- and fixed-rate loans.
The Association's ability to originate fixed- or adjustable-rate loans is
dependent upon the relative customer demand for such loans, which is affected by
the current and expected future level of interest rates. All real estate loans
originated by the Association are originated for investment.

During fiscal years 1998 and 1997, the Association originated $8.6 million
and $7.1 million, respectively, of one- to four-family mortgage loans. In
addition, during fiscal years 1998 and 1997, the Association originated $2.1
million and $1.4 million, respectively, of construction loans, all of which were
for owner financing of single- family properties, which, upon completion of the
construction phase, generally will convert to permanent financing. Also, the
Association originated $1.0 million and $872,000, respectively, of multi-family
and commercial real estate loans during fiscal 1998 and 1997.

49
54

Also, during fiscal 1998 and 1997, respectively, the Association
originated $3.6 million and $4.0 million of consumer loans, consisting of $1.4
million and $2.0 million, respectively, of home equity loans and lines of
credit, $813,000 and $713,000, respectively, of automobile loans, $457,000 and
$191,000, respectively, of education loans, and $913,000 and $1.1 million,
respectively, of other consumer loans.

The following table sets forth the Association's loan originations and
principal repayments and prepayments for the periods indicated:

FOR THE FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1998 1997 1996
-------------- -------------- -------------
(IN THOUSANDS)

Loans at beginning of period........................ $68,882 $66,604 $65,282
Originations:
Real estate:
One- to four-family........................ 8,567 7,109 6,500
Multi-family and commercial................ 1,034 872 681
Construction............................... 2,060 1,362 1,269
------- ------- -------
Total real estate loans................. 11,661 9,343 8,450
------- ------- -------

Consumer:
Home equity loans and lines of credit...... 1,374 1,974 1,367
Automobile................................. 813 713 919
Education.................................. 457 191 210
Unsecured lines of credit.................. -- -- --
Other...................................... 913 1,168 947
------- ------- -------
Total consumer loans.................... 3,557 4,046 3,443
------- ------- -------

Total loans originated.................. 15,218 13,389 11,893
------- ------- -------

Deduct:
Principal loan repayments and prepayments........ 12,335 10,593 10,326
Transfers to foreclosed real estate.............. 718 518 245
------- ------- -------
Total deductions........................ 13,053 11,111 10,571
------- ------- -------
Net loan activity................................... 2,165 2,278 1,322
------- ------- -------
Loans at end of period (1).................... $71,047 $68,882 $66,604
======= ======= =======

- ------------------------
(1) Loans at end of period include loans in process of $1.1 million, $1.4
million and $803,000 for fiscal years 1998, 1997 and 1996, respectively.

ONE- TO FOUR-FAMILY MORTGAGE LENDING. One- to four-family mortgage loan
originations are generally obtained by the Association's in-house loan
representatives, from existing or past customers, and through referrals from
members of the Association's local community. At June 30, 1998, the
Association's one- to four-family mortgage loans totalled $54.7 million, or
78.2% of total loans. Of the one- to four-family mortgage loans outstanding at
that date, 75.5% were fixed-rate mortgage loans and 24.5% were adjustable-rate
mortgage ("ARM") loans.

The Association currently offers a variety of fixed-rate mortgage loans,
including 30-year and 15-year mortgage loans. The Association also currently
offers ARM loans with a term of 30 years and an interest rate which adjusts
annually from the outset of the loan. The interest rates for the Association's
ARM loans adjust in accordance with an index based on United States Treasury
Bill rates. The Association originates ARM loans with initially discounted
rates, often known as "teaser rates." The Association's ARM loans generally
provide for periodic (not more

50
55

than 2%) caps on the increase or decrease in the interest at any adjustment
date. Currently, the Association has a contractual rate ceiling of 5% over the
life of the loan.

The origination of ARM loans, as opposed to fixed-rate residential
mortgage loans, helps reduce the Association's exposure to increases in interest
rates. However, adjustable-rate loans generally pose credit risks not inherent
in fixed-rate loans, primarily because as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default.
Periodic and lifetime caps on interest rate increases help to reduce the credit
risks associated with adjustable-rate loans but also limit the interest rate
sensitivity of such loans.

Most one-to-four-family mortgage loans are underwritten according to FNMA
and FHLMC guidelines. Generally, the Association originates one-to-four-family
residential mortgage loans in amounts up to 80% of the lower of the appraised
value or the selling price of the property securing the loan and up to 95% of
the appraised value or selling price if private mortgage insurance ("PMI") is
obtained. Mortgage loans originated by the Association generally include
due-on-sale clauses which provide the Association with the contractual right to
deem the loan immediately due and payable in the event the borrower transfers
ownership of the property without the Association's consent. Due-on-sale clauses
are an important means of adjusting the yields on the Association's fixed-rate
mortgage loan portfolio and the Association has generally exercised its rights
under these clauses. The Association requires fire, casualty, title and, in
certain cases, flood insurance on all properties securing real estate loans made
by the Association.

MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Association
originates adjustable-rate multi- family and commercial real estate loans that
generally are secured by properties used for a combination of residential and
retail purposes. Also, the Association participates in commercial real estate
loans promoted by a local regional development agency. At June 30, 1998, the
Association had $4.8 million of multi-family and commercial real estate loans.
At that date, the Association's largest multi-family or commercial real estate
loan were five commercial real estate loans which ranged from $264,000 to
$395,000 and were secured by commercial real estate a combination of lease
assignments, rents and equipment.

A multi-family mortgage loan may be made to an amount up to 70% of the
lower of the appraised value or sales price of the underlying property with a
term of up to 30 years. The Association's adjustable-rate multi-family loans are
offered at interest rates which adjust annually. The Association also generally
requires an appraisal on the property conducted by an independent appraiser and
title insurance.

The Association's underwriting procedures for commercial real estate loans
provide that such loans generally may be made in amounts up to 70% of the lower
of the appraised value or purchase price of the property unless the property is
owned by an individual who lives more than 50 miles from the property. In those
cases, a commercial real estate loan may only be made in amounts up to 65% of
the lower of the appraised value or purchase price of the property. The
Association may request PMI on a case by case basis. These adjustable-rate loans
may be made with terms up to 20 years and are generally offered at interest
rates which adjust every five years, in accordance with an index based on the
prime rate as published in The Wall Street Journal. The factors considered by
the Association include: the net operating income of the mortgaged premises
before debt service and depreciation; the debt coverage ratio (the ratio of net
earnings to debt service); and the ratio of loan amount to appraised value.

Multi-family and commercial real estate loans generally are considered to
involve a higher degree of credit risk than financing on improved,
owner-occupied real estate. Multi-family and commercial real estate loans
generally involve larger principal amounts than one- to four-family residential
mortgage loans. In addition, because multi-family and commercial real estate
loans often are dependent on successful operation and management of the
properties, repayment of such loans may be subject to adverse conditions in the
real estate market or the economy to a greater extent than one- to four-family
residential loans.

CONSTRUCTION LENDING. The Association also offers residential
construction loans. Such lending has consisted primarily of loans for the
construction of presold one- to four-family residences which convert into
permanent financing upon the completion of construction. The Association
generates residential construction loans primarily through direct contact with
the borrower or home builders, and these loans involve properties located in
the Association's market area.

51
56

Such loans require that an appraisal be conducted by a qualified appraiser and
the Association review plans, specifications and cost estimates. The appraiser
must also conduct an inspection following completion of the work. The amount of
construction advances to be made, together with the sum of previous
disbursements, may not exceed the percentage of completion of the construction.
The maximum loan-to-value ratio for such loans is 95%. Furthermore, borrowers
have six months to complete the home and only pay interest on amounts disbursed
during the construction process. The Association requires that it possess the
first and only lien on these types of loans. At June 30, 1998, the Association's
largest construction loan was a performing loan with an aggregate commitment of
$396,000 secured by a single-family residence located in Luzerne County. At that
date, construction loans totalled $523,000 (net), or 0.8% of the Association's
total loans. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development.

CONSUMER LENDING. Consumer loans at June 30, 1998 amounted to $9.9 million
or 14.2% of the Association's total loans. These loans include home equity loans
and lines of credit, automobile loans, education loans and other consumer loans.
Such loans are generally originated in the Association's primary market area and
if over $5,000 must be secured by real estate, automobiles or a titled vehicle.
These loans are typically shorter term and generally have higher interest rates
than one- to four-family mortgage loans. The maximum limit on consumer loans,
excluding home equity loans and home equity lines of credit, is $50,000.

At June 30, 1998, home equity loans and lines of credit accounted for $6.3
million, or 9.0% of total loans and 63.5% of consumer loans. The Association
generally offers home equity loans with terms of up to 120 months. The
Association also offers home equity lines of credit with terms up to 120 months
with adjustable rates of interest which adjust on a quarterly basis. The
adjustable rate of interest is indexed to the prime rate as reported in The Wall
Street Journal on the last day of the month preceding adjustment. Generally, the
maximum loan-to-value ratio on both home equity loans and home equity lines of
credit is 75%.

The Association also offers automobile loans on both new and used cars.
Loans are offered with 60 month terms and loan-to-value ratios of 80% on new
cars. The Association will also finance high dollar new cars for an extended
term greater than 60 months. For used cars, the maximum loan-to-value ratio is
the lesser of the retail value shown in the NADA Used Car Guide or the contract
price and the terms for such loans are determined based on the age of the
vehicle, but are generally limited to 60 months. However, the Association will
not make a loan on an automobile over five years old unless such automobile is
deemed an investment property. In those cases, an inspection is required and the
valuation is determined by the retail value as listed in the Cars of Particular
Interest booklet. The Association also offers loans on recreational vehicles
with terms up to 15 years for new and 84 months for used vehicles and
loan-to-value ratios of 80% for new and used recreational vehicles.

Other consumer loans include education loans which are federally
guaranteed and originated under regulations of the Pennsylvania Higher Education
Assistance Agency, deposit-secured loans, and other personal and unsecured
loans. During the last two years, it has become the policy of the Association to
sell its education loans once the borrower has left school to Sallie Mae with
servicing released.

Loans secured by rapidly depreciable assets such as automobiles or that
are unsecured entail greater risks than one- to four-family mortgage loans. In
such cases, repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.

LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies and loan approval limits of the Association. Such policies
provide that all mortgage loans will be reviewed and either approved or rejected
by the Executive Committee of the Board of Directors or the full Board of
Directors, except those loans made under consumer lending guidelines.
Additionally, the Board of Directors has authorized the following persons to
approve loans up to the amounts indicated: branch managers may approve loans up
to $5,000; the Vice President,

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57

Lending may approve loans up to $10,000; loans up to $20,000 may be approved by
the Association's President and Chief Executive Officer; two officers signatures
are required for loans over $20,000 but less than $30,000; and loans over
$30,000 require the approval of the Board of Directors. All approved loans are
reported monthly to the Board of Directors.

DELINQUENT LOANS, CLASSIFIED ASSETS AND FORECLOSED REAL ESTATE

DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management and the Board of Directors on
a monthly basis. The procedures taken by the Association with respect to
delinquencies vary depending on the nature of the loan, period and cause of
delinquency and whether the borrower has been habitually delinquent. When a
borrower fails to make a required payment on a loan, the Association takes a
number of steps to have the borrower cure the delinquency and restore the loan
to current status. The Association generally sends the borrower a written notice
of non-payment after the loan is first past due. The Association's guidelines
provide that telephone, written correspondence and/or face-to-face contact will
be attempted to ascertain the reasons for delinquency and the prospects of
repayment. When contact is made with the borrower at any time prior to
foreclosure, the Association will attempt to obtain full payment, work out a
repayment schedule with the borrower to avoid foreclosure or, in some instances,
accept a deed in lieu of foreclosure. In the event payment is not then received
or the loan not otherwise satisfied, additional letters and telephone calls
generally are made. If the loan is still not brought current or satisfied and it
becomes necessary for the Association to take legal action, which typically
occurs after a loan is 90 days or more delinquent, the Association will commence
foreclosure proceedings against any real or personal property that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Association,
becomes foreclosed real estate.

Applicable regulations and the Association's Asset Classification Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system. The Association currently classifies problem and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."

When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.

A savings institution's determination as to the classification of
its assets and the amount of its valuation allowances is subject to review by
the OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality

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58

problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management has
established acceptable allowance evaluation processes that meet the objectives
set forth in the policy statement. Although management believes that, based on
information currently available to it at this time, its allowance for loan
losses is adequate, actual losses are dependent upon future events and, as such,
further additions to the level of allowances for loan losses may become
necessary. In addition, the OTS or other banking agencies may require the
Association to recognize additions to the allowance, based on their judgments
about information available to them at the time of their examination.

The Board of Directors and management review the results of the reports on
a monthly basis. The Association classifies assets in accordance with the
management guidelines described above. At June 30, 1998, the Association had
$1.9 million of assets designated as Substandard which consisted of mortgage and
consumer loans. At that same date the Association had $6,000 of assets
classified as Loss consisting of four loans. All assets designated Loss by the
Association are fully reserved. The following table sets forth the delinquencies
in the Association's loan portfolio as of the dates indicated.

JUNE 30, 1998
--------------------------------------------------------
60-89 DAYS 90 DAYS OR MORE
--------------------------- ---------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS
------------ ------------- ------------ -------------
(DOLLARS IN THOUSANDS)

Real Estate Loans:
One- to four-family...... 3 $112 21 $1,443
Multi-family and
commercial............. -- -- 6 247
Consumer Loans:
Home equity loans and
lines of credit........ -- -- 11 200
Automobile............... 2 9 -- --
Other.................... 4 7 4 6
-- ---- --- ------
Total................. 9 $128 42 $1,896
== ==== === ======
Delinquent Loans to
Total Loans.............. 0.18% 2.74%

JUNE 30, 1997
--------------------------------------------------------
60-89 DAYS 90 DAYS OR MORE
--------------------------- ---------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS
------------ ------------- ------------- ------------
(DOLLARS IN THOUSANDS)

Real Estate Loans:
One- to four-family...... 9 $717 19 $1,188
Multi-family and
commercial............. -- -- 5 174
Consumer Loans:
Home equity loans and
lines of credit........ 1 40 10 200
Automobile............... 1 1 2 13
Other.................... 1 -- 2 11
--- ---- --- ------
Total................. 12 $758 38 $1,586
=== ==== === ======
Delinquent Loans to
Total Loans.............. 1.14% 2.38%

JUNE 30, 1996
--------------------------------------------------------
60-89 DAYS 90 DAYS OR MORE
--------------------------- ---------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS
------------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS)

Real Estate Loans:
One- to four-family................................. 6 $146 17 $1,050
Multi-family and commercial......................... -- -- 6 304
Consumer Loans:
Home equity loans and lines of credit............... 2 21 5 116
Automobile.......................................... 1 -- 2 8
Other............................................... 7 12 4 14
-- ---- -- ------
Total............................................ 16 $179 34 $1,492
== ==== == ======

Delinquent Loans to Total Loans........................ 0.27% 2.29%

NONPERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding nonaccrual loans, foreclosed real estate (including a
$66,000 loan which was a troubled debt restructuring effect in 1998) and
troubled debt restructurings. At June 30, 1998, nonaccrual loans and troubled
debt restructurings totalled $1.9 million and consisted of 42 loans. At such
date, foreclosed real estate totalled $221,000 and consisted of seven one- to
four-

54
59

family properties. It is the policy of the Association to cease accruing
interest on loans 90 days or more past due (unless the loan principal and
interest are determined by management to be fully secured and in the process of
collection) and to charge off all accrued interest. For the year ended June 30,
1998, the amount of additional interest income that would have been recognized
on nonaccrual loans if such loans had continued to perform in accordance with
their contractual term was approximately $102,000. At June 30, 1998, the
Association had a $291,000 recorded investment in impaired loans which had
specific allowances of $35,000. At June 30, 1997, there were $175,000 of
impaired loans with specific loan loss allowances of $60,000.

AT JUNE 30,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- --------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)

Nonaccrual loans:
One- to four-family real estate........ $1,477 $1,188 $1,055 $1,087 $1,220
Consumer............................... 206 224 138 178 146
Multi-family and commercial............ 181 174 304 326 151
------ ------ ------ ------ ------
Total(1)............................ 1,864 1,586 1,497 1,591 1,517
Foreclosed real estate(2)................. 221 531 171 -- 107
------ ------ ------ ------ ------
Total nonperforming assets(3)....... 2,085 2,117 1,668 1,591 1,624

Troubled debt restructurings.............. -- -- 373 -- --
------ ------ ------ ------ ------
Troubled debt restructurings and
total nonperforming assets.............. $2,085 $2,117 $2,041 $1,591 $1,624
====== ====== ====== ====== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans............... 2.69% 2.38% 2.87% 2.49% 2.65%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets.............. 1.86% 1.97% 1.89% 1.53% 1.59%

- -----------------------
(1) Total nonaccrual loans equals total nonperforming loans.
(2) Foreclosed real estate balances are shown net of related loss allowances.
(3) Nonperforming assets consist of nonperforming loans (and impaired loans)
and foreclosed real estate.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to make additional provisions for estimated loan losses based upon
their judgments about information available to them at the time of their
examination. As of June 30, 1998, the Association's allowance for loan losses
was 0.65% of total loans compared to 0.64% as of June 30, 1997. The Association
had nonaccrual loans of $1.9 million and $1.6 million at June 30, 1998 and June
30, 1997, respectively. The increase in the allowance from June 30, 1997 to June
30, 1998 was the result of an increase in the average amount of loans from $66.7
million at June 30, 1997 to $69.3 million at June 30, 1998, as well as an
increase in charge-off experience. The Association will continue to monitor and
modify its allowances for loan losses as conditions dictate. While management
believes the Association's allowance for loan losses at June 30, 1998 is
sufficient to cover losses inherent in its loan portfolio, no assurances can be
given that the Association's level of allowance for loan

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losses will be sufficient to cover future loan losses incurred by the
Association or that future adjustments to the allowance for loan losses will not
be necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance for loan losses.

The following table sets forth activity in the Association's allowance for
loan losses for the periods indicated.

AT OR FOR THE FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)

Allowance for loan losses, beginning of year...... $429 $447 $401 $215 $182
Charged-off loans:
One- to four-family real estate............... 165 20 44 5 --
Multi-family and commercial real estate....... 6 -- -- -- --
Consumer...................................... 7 41 24 59 14
----- ---- ----- ----- -----
Total charged-off loans.................... 178 61 68 64 14
----- ---- ----- ----- -----
Recoveries on loans previously charged off:
One- to four-family real estate............... 22 -- -- -- --
Consumer...................................... 3 9 12 1 1
----- ---- ----- ----- -----
Total recoveries........................... 25 9 12 1 1
----- ---- ----- ----- -----
Net loans charged-off............................. (153) (52) (56) (63) (13)
Provision for loan losses......................... 176 34 102 249 46
Allowance for loan losses, end of period.......... $452 $429 $447 $401 $215
==== ==== ==== ==== ====
Net loans charged-off to average
interest-earning loans........................ 0.22% 0.08% 0.09% 0.10% 0.02%
---- ---- ---- ---- ----
Allowance for loan losses to total loans.......... 0.65% 0.64% 0.69% 0.63% 0.37%
---- ---- ---- ---- ----
Allowance for loan losses to nonperforming
loans and troubled debt restructuring......... 24.25% 27.05% 23.90% 25.20% 14.17%
----- ----- ----- ----- -----
Net loans charged-off to allowance for
loan losses..................................... (33.85)% (12.12)% (12.53)% (15.71)% (6.05)%
------ ------ ------ ------ -----
Recoveries to charge-offs......................... 14.04% 14.75% 17.65% 1.56% 7.14%
----- ----- ----- ---- ----

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The following table sets forth the Association's allowance for loan losses
in each of the categories listed at the dates indicated and the percentage of
such amounts to the total allowance and to total loans.

AT JUNE 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------- ------------------------------------- -------------------------
% OF PERCENT % OF PERCENT % OF
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY CATEGORY TO CATEGORY CATEGORY TO
TOTAL TO TOTAL TOTAL TO TOTAL TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE
---------- ------------ ------------ ----------- ------------ ------------ ----------- ------------
(DOLLARS IN THOUSANDS)

Real estate(1)............ $273 60.40% 80.08% $278 64.80% 80.95% $298 66.67%
Consumer.................. 135 29.87 14.25 120 27.97 15.35 125 27.96
Multi-family and
commercial.............. 39 8.63 5.67 27 6.30 3.70 22 4.92
Unallocated............... 5 1.10 -- 4 0.93 -- 2 0.45
---- ------ ------ ---- ------ ------ ---- ------
Total allowance
for loan losses...... $452 100.00% 100.00% $429 100.00% 100.00% $447 100.00%
==== ====== ====== ==== ====== ====== ==== ======

AT JUNE 30,
----------------------------------------------------------------------------------------
1996 1995 1994
------------ ------------------------------------- ------------------------------------
PERCENT % OF PERCENT % OF PERCENT
OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY TO CATEGORY CATEGORY TO CATEGORY
TO TOTAL TOTAL TO TOTAL TOTAL TO TOTAL
LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------------ ----------- ------------ ----------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS)

Real estate(1)............ 80.17% $275 68.58% 80.31% $139 64.65% 82.85%
Consumer.................. 16.77 110 27.43 17.27 67 31.16 14.38
Multi-family and
commercial.............. 3.06 13 3.24 2.42 5 2.33 2.77
Unallocated............... -- 3 0.75 -- 4 1.86 --
------ ---- ------ ------ ---- ------ ------
Total allowance
for loan losses...... 100.00% $401 100.00% 100.00% $215 100.00% 100.00%
====== ==== ====== ====== ==== ====== ======

- ---------------------
(1) Includes one- to four-family real estate loans and construction loans.

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FORECLOSED REAL ESTATE. At June 30, 1998, the Association had $221,000 of
foreclosed real estate consisting of seven one- to four-family properties. When
the Association acquires property through foreclosure or deed in lieu of
foreclosure, it is initially recorded at the lesser of carrying value of the
loan or fair value of the property at the date of acquisition less costs to
sell. Thereafter, if there is a further deterioration in value, the Association
provides for a specific valuation allowance and charges operations for the
diminution in value. It is the policy of the Association to have obtained an
appraisal or broker's price opinion on all real estate subject to foreclosure
proceedings prior to the time of foreclosure. It is the Association's policy to
require appraisals on a periodic basis on foreclosed properties and conducts
inspections on foreclosed properties.

INVESTMENT ACTIVITIES

Pennsylvania-chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and certificates of deposit of insured
banks and savings institutions. Subject to various restrictions, state-chartered
savings institutions may also invest their assets in investment-grade corporate
debt securities and mutual funds whose assets conform to the investments that a
state-chartered savings institution is otherwise authorized to make directly.
Additionally, the Association must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. See "Regulation -Federal
Regulation of Savings Institutions-Liquidity." Historically, the Association has
maintained liquid assets above the minimum OTS requirements and at a level
considered to be adequate to meet its normal daily activities.

The investment policy of the Association, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk and to complement the Association's lending activities. The Association
primarily utilizes investments in securities for liquidity management and as a
method of deploying excess funding not utilized for loan originations.
Generally, the Association's investment policy is more restrictive than the OTS
regulations allow and, accordingly, the Association has invested primarily in
U.S. Government and agency securities, which qualify as liquid assets under the
OTS regulations, and U.S. Government sponsored agency issued mortgage-backed
securities. As required by SFAS No. 115, the Association has established an
investment portfolio of securities that are categorized as held-to-maturity,
available-for-sale or held for trading. The Association generally invests in
securities as a method of utilizing funds not utilized for loan origination
activity and as a method of maintaining liquidity at levels deemed appropriate
by management. The Association does not currently maintain a portfolio of
securities categorized as held for trading. At June 30, 1998, the
available-for-sale securities portfolio totalled $7.9 million, or 7.1% of assets
and the held-to-maturity portfolio totalled $20.8 million, or 18.6% of assets.
Included in the Association's available-for-sale securities portfolio is an
equity based mutual fund with a carrying value of $2.0 million.

At June 30, 1998, the Association had invested $3.6 million in FNMA, FHLMC
and GNMA mortgage-related securities, or 3.2% of total assets, of which 62.8%
were classified as held-to-maturity. In addition, $6.3 million, or 22.0% of the
Association's securities, were debt obligations issued by federal agencies which
generally have stated maturities from 3 to 15 years but which also have call
features. Such callable securities allow the issuer, after a certain time
period, to repay the security prior to its stated maturity. Based on interest
rate ranges anticipated by the Association, the Association estimates that the
substantial majority of such securities will be called prior to their stated
maturities. The Association is subject to additional interest rate risk and
reinvestment risk compared to its evaluation of that risk if changes in interest
rates exceed ranges anticipated by the Association in estimating the anticipated
life of such callable investment securities. Investments in mortgage-related
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby changing the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in the
event such securities are redeemed by the issuer. In addition, the market value
of such securities may be adversely affected by changes in interest rates. Of
the Association's investment in mortgage-related securities at June 30, 1998,
62.8% were being held-to-maturity.

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The following table sets forth certain information regarding the amortized
cost and fair value of the Association's securities at the dates indicated.

AT JUNE 30,
-------------------------------------------------------
1998 1997 1997
-------------------------- ------------ ------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------ ----------- ------------ ------------

Investment securities: (IN THOUSANDS)
Debt securities held-to-maturity:
Obligations of U.S. government agencies............. $ 2,801 $ 2,810 $ 7,425 $ 7,395
Certificates of deposit............................. 15,457 15,457 12,595 12,595
Other securities.................................... 244 242 116 114
-------- -------- -------- -------

Total......................................... 18,502 18,509 20,136 20,104
-------- -------- -------- -------

Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S.
government agencies............................... 3,548 3,548 -- --
Other securities.................................... 2,561 2,406 2,188 2,010
-------- -------- -------- -------

Total......................................... 6,109 5,954 2,188 2,010
-------- -------- -------- -------

Equity securities available-for-sale:
FHLB stock.......................................... 594 594 566 566
-------- -------- -------- -------

Total investment securities................... 25,205 25,057 22,890 22,680
-------- -------- -------- -------

Mortgage-related securities:
Mortgage-related securities held-to-maturity:
FHLMC............................................... 472 477 1,698 1,698
FNMA................................................ 1,450 1,458 1,904 1,905
GNMA................................................ 200 203 267 273
Collateralized mortgage obligations................. 159 159 837 831
-------- -------- -------- -------
Total mortgage-related securities held-to-
maturity.................................... 2,281 2,297 4,706 4,707
-------- -------- -------- -------

Mortgage-related securities available-for-sale:
FHLMC............................................... -- -- -- --
FNMA................................................ 578 582 678 656
GNMA................................................ 740 771 982 1,016
-------- -------- -------- -------
Total mortgage-related securities available-
for-sale.................................... 1,318 1,353 1,660 1,672
-------- -------- -------- -------
Total mortgage-related securities............. 3,599 3,650 6,366 6,379
-------- -------- -------- -------
Total securities.............................. $28,804 $28,707 $29,256 $29,059
======== ======== ======== =======

AT JUNE 30,
---------------------------
1996
-------------------------
AMORTIZED FAIR
COST VALUE
------------ ----------

Investment securities: (IN THOUSANDS)
Debt securities held-to-maturity:
Obligations of U.S. government agencies............. $ 5,947 $ 5,876
Certificates of deposit............................. 11,477 11,474
Other securities.................................... 1,085 1,076
------- -------

Total......................................... 18,509 18,426
------- -------

Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S.
government agencies............................... 1,074 1,120
Other securities.................................... 2,636 2,394
------- -------

Total......................................... 3,710 3,514
------- -------

Equity securities available-for-sale:
FHLB stock.......................................... 542 542
------- -------

Total investment securities................... 22,761 22,482
------- -------

Mortgage-related securities:
Mortgage-related securities held-to-maturity:
FHLMC............................................... 1,058 1,067
FNMA................................................ 1,676 1,665
GNMA................................................ 314 314
Collateralized mortgage obligations................. 2,517 2,498
------- -------
Total mortgage-related securities held-to-
maturity.................................... 5,565 5,544
------- -------

Mortgage-related securities available-for-sale:
FHLMC............................................... 342 343
FNMA................................................ 764 739
GNMA................................................ 1,132 1,164
------- -------
Total mortgage-related securities available-
for-sale.................................... 2,238 2,246
------- -------
Total mortgage-related securities............. 7,803 7,790
------- -------
Total securities.............................. $30,564 $30,272
======= =======

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The following table sets forth the Association's securities activities for
the periods indicated.

FOR THE FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS)

MORTGAGE-RELATED SECURITIES:
Mortgage-related securities, beginning of period(1)............ $6,378 $7,811 $7,409
====== ====== =======
Purchases,
Mortgage-related securities - held-to-maturity.............. 650 1,850 1,850
Maturities and calls,
Mortgage-related securities - held-to-maturity.............. (2,300) (1,941) --
Repayments and prepayments,
Mortgage-related securities................................. (1,125) (1,350) (1,407)
Increase(decrease) in net premium.............................. 8 4 (45)
Increase in unrealized gain.................................... 23 4 4
------- ------- -------
Net increase (decrease) in mortgage-related securities...... (2,744) (1,433) 402
------- ------- -------
Mortgage-related securities, end of period..................... $3,634 $6,378 $7,811
======= ======= =======
INVESTMENT SECURITIES (2):
Investment securities, beginning of period(3).................. $22,712 $22,565 $21,849
======= ======= =======
Purchases,
Investment securities - held-to-maturity.................... 12,571 11,597 13,291
Investment securities - available-for-sale.................. 3,949 25 --
Sales,
Investment securities - available-for-sale.................. -- (1,021) --
Repayments and prepayments..................................... (22) (833) (680)
Maturities and calls:
Investment securities - held-to-maturity.................... (14,176) (9,625) (11,646)
Investment securities - available-for-sale.................. -- -- (266)

Increase (decrease) in net premium............................. (7) (14) 16
Increase in unrealized gain.................................... 23 18 1
------- ------- -------
Net increase in investment securities.................... 2,338 147 716
------- ------- -------
Investment securities, end of period........................... $25,050 $22,712 $22,565
======= ======= =======

(1)Includes mortgage-related securities available-for-sale.
(2)Includes certificates of deposit.
(3)Includes investment securities available-for-sale.

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The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
investment securities and mortgage-related securities as of June 30, 1998.

AT JUNE 30, 1998
----------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN 5 YEARS
ONE YEAR OR LESS TO FIVE YEARS TO 10 YEARS
----------------------- ---------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
---------- ----------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)

Held-to-maturity securities:
Investment securities:
Municipal securities(1)....... $ -- --% $ -- --% $ -- --%
Obligations of U.S.
Government agencies....... 250 5.70 500 6.45 1,500 7.14
Certificates of deposit....... 11,498 5.88 3,959 6.23 -- --
Corporate obligations......... -- -- -- -- -- --
Mortgage-related
securities..................... 670 5.04 431 6.92 508 7.33
------- ------ ------
Total securities
at amortized cost.......... $12,418 5.83% $4,890 6.31% $2,008 7.19%
======= ==== ====== ==== ====== ====

Available-for-sale securities:
Investment securities:
Municipal securities(1)....... $ -- --% $ -- --% $ 198 4.38%
Obligations of the U.S.
government agencies........ -- -- 750 6.17 2,298 6.63
Equity securities ............ 595 4.96 -- -- -- --
Mutual fund................... 2,187 -- -- -- -- --
Mortgage-related
securities..................... -- -- 279 6.56 3 8.99
------ ------ ------

Total securities
at fair value.............. $2,782 4.96% $1,029 6.27% $2,499 6.45%
====== ==== ====== ==== ====== ====

AT JUNE 30, 1998
-----------------------------------------------

MORE THAN 10 YEARS TOTAL
----------------------- ---------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
---------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)

Held-to-maturity securities:
Investment securities:
Municipal securities(1)....... $ 165 4.55% $ 165 4.55%
Obligations of U.S.
Government agencies....... 551 7.39 2,801 6.94
Certificates of deposit....... -- -- 15,457 5.97
Corporate obligations......... 79 6.20 79 6.20
Mortgage-related
securities..................... 672 7.20 2,281 6.54
------ -------
Total securities
at amortized cost.......... $1,467 6.92% $20,783 6.15%
====== ==== ======= ====

Available-for-sale securities:
Investment securities:
Municipal securities(1)....... $ 175 4.48% $ 373 4.42%
Obligations of the U.S.
government agencies........ 500 6.99 3,548 6.58
Equity securities ............ -- -- 595 4.96
Mutual fund................... -- -- 2,187 --
Mortgage-related
securities..................... 1,036 7.80 1,318 7.54
------ ------

Total securities
at fair value.............. $1,711 7.22% $8,021 6.47%
====== ==== ====== ====

- ------------------------
(1) Weighted average yield data for municipal securities is not presented on a
tax equivalent basis due to the immaterial amount of municipal securities
at June 30, 1998.

SOURCES OF FUNDS

GENERAL. Deposits, loan repayments and prepayments and cash flows
generated from operations are the primary sources of the Association's funds for
use in lending, investing and for other general purposes.

DEPOSITS. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
checking, money market, savings, NOW, club accounts, certificate accounts and
Individual Retirement Accounts. More than 58% of the funds deposited in the
Association are in certificate of deposit accounts. At June 30, 1998, core
deposits (savings, NOW and money market accounts) represented 41.1% of total
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. Deposits have remained relatively static in recent years. Deposits
increased $4.1 million, or 4.2%, from $98.5 million at June 30, 1997 to $102.6
million at June 30, 1998 and decreased $800,000, or 0.8%, the previous year,
from $99.3 million at June 30, 1996 to $98.5 million at June 30, 1997.

The Association's deposits are obtained predominantly from the areas in
which its branch offices are located. The Association has historically relied
primarily on customer service and long-standing relationships with customers to
attract and retain these deposits; however, market interest rates and rates
offered by competing financial institutions significantly affect the
Association's ability to attract and retain deposits. The Association uses
traditional means of advertising its deposit products, including radio and print
media and generally does not solicit deposits from outside its market area. The
Association has not actively solicited certificate accounts in excess of
$100,000 or used brokers to

61
66

obtain deposits in recent years. However, the Association has used brokers to
obtain deposits in the past and if circumstances warranted, would in the future
seek deposits through those methods. At June 30, 1998, 64.2% of the
Association's certificate of deposit accounts were to mature within one year.
Further increases in short-term certificate of deposit accounts, which tend to
be more sensitive to movements in market interest rates than core deposits, may
result in the Association's deposit base being less stable than if it had a
large amount of core deposits which, in turn, may result in further increases in
the Association's cost of deposits.

The following table presents the deposit activity of the Association for
the periods indicated:

FOR THE FISCAL YEARS ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996
--------------- --------------- ------------------
(IN THOUSANDS)

Increase (decrease) before interest credited........ $ 977 $(4,077) $ (436)
Interest credited................................... 3,162 3,194 3,386
------ ------- ------
Net increase (decrease) ............................ $4,139 $ (883) $2,950
====== ======= ======

At June 30, 1998, the Association had $13.6 million in certificate
accounts in amounts of $100,000 or more maturing as follows:

MATURITY PERIOD AMOUNT
--------------- -----------
(IN THOUSANDS)

Three months or less...................... $2,095
Over 3 through 6 months................... 3,342
Over 6 through 12 months.................. 2,729
Over 12 months............................ 5,385
-------
Total......................... $13,551
=======

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67
\
The following table sets forth the distribution of the Association's
average deposit accounts for the periods indicated and the weighted average
interest rates on each category of deposits presented and such information at
June 30, 1998. Averages for the periods presented utilize month-end balances.

FOR THE FISCAL YEARS ENDED JUNE 30,
---------------------------------------
AT JUNE 30, 1998 1998
--------------------------------------- ---------------------------------------
PERCENT OF
PERCENT TOTAL
OF TOTAL AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE PAID BALANCE DEPOSITS RATE PAID
------------ ----------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)

Passbook and statement savings....... $29,053 28.32% 2.74% $28,788 28.68% 2.76%
Money market......................... 2,084 2.03 2.54 2,151 2.14 2.46
NOW.................................. 10,983 10.70 1.38 10,081 10.04 1.51
Certificates of deposit.............. 60,484 58.95 5.39 59,342 59.14 5.49
-------- ------ -------- ------
Total average deposits......... $102,604 100.00% 4.15% $100,362 100.00% 4.24%
======== ====== ==== ======== ====== ====

FOR THE FISCAL YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE PAID BALANCE DEPOSITS RATE PAID
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)

Passbook and statement savings....... $30,996 31.60% 2.67% $32,747 33.35% 2.84%
Money market......................... 2,374 2.42 2.53 2,692 2.74 2.75
NOW.................................. 9,065 9.24 1.49 9,106 9.27 2.09
Certificates of deposit.............. 55,653 56.74 5.40 53,653 54.64 5.66
------- ------ ------- ------
Total average deposits......... $98,088 100.00% 4.11% $98,198 100.00% 4.31%
======= ====== ==== ======= ====== ====

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68

The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at June 30, 1998.

PERIOD TO MATURITY FROM JUNE 30, 1998
--------------------------------------------------------------------------------------
ONE TWO TO OVER
LESS TO TWO THREE THREE
THAN ONE YEAR YEARS YEARS YEARS TOTAL
------------- ----------- ---------- --------- -------------
(DOLLARS IN THOUSANDS)

CERTIFICATE ACCOUNTS:
2.60 to 4.00%.................... $ 103 $ -- $ -- $ -- $ 103
4.01 to 5.00%.................... 11,280 6 -- -- 11,286
5.01 to 6.00%.................... 24,418 4,446 2,507 2,337 33,708
6.01 to 7.00%.................... 3,006 5,005 1,865 4,574 14,450
7.01 to 8.00%.................... -- 100 -- 837 937
------- ------ ------ ------ -------

Total certificate accounts.... $38,807 $9,557 $4,372 $7,748 $60,484
======= ====== ====== ====== =======

PROPERTIES

The Association currently conducts its business through four full service
banking offices located in Luzerne and Carbon counties in Northeast
Pennsylvania. The following table sets forth the Association's offices as of
June 30, 1998.

NET BOOK VALUE
ORIGINAL OF PROPERTY OR TOTAL
YEAR DATE OF LEASEHOLD DEPOSITS AT
LEASED OR LEASED OR LEASE IMPROVEMENTS AT JUNE 30,
LOCATION OWNED ACQUIRED EXPIRATION JUNE 30, 1998 1998
- -------- ----------------- ------------- -------------- --------------------- ------------------
(DOLLARS IN THOUSANDS)

ADMINISTRATIVE/HOME OFFICE:
31 W. Broad Street
Hazleton, Pennsylvania 18201....... Owned 1968 -- $103 $64,556

25 W. Broad Street (1)
Hazleton, Pennsylvania 18201...... Owned 1987 -- 272 --

BRANCH OFFICES:
Laurel Mall Office Building
345 Laurel Mall owned, land June 1,
Hazleton, Pennsylvania 18201...... leased 1980 2000 333 20,269

Weatherly Office
140 Carbon Street
Weatherly, Pennsylvania 18252..... Owned 1975 -- 38 10,736

Drums Office
P.O. Box 4040
Drums, Pennsylvania 18222......... Owned 1994 -- 419 7,043

- ---------------------------
(1) This building, which houses the home office's loan department, is adjacent
and connected to the property at 31 W. Broad Street.

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LEGAL PROCEEDINGS

The Association is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business.
Such routine legal proceedings, in the aggregate, are believed by management to
be immaterial to the Company's financial condition or results of operations.

PERSONNEL

As of June 30, 1998, the Association had 39 authorized full-time employee
positions. The employees are not represented by a collective bargaining unit and
the Association considers its relationship with its employees to be good. See
"Management of the Association--Other Benefit Plans" for a description of
certain compensation and benefit programs offered to the Association's
employees.

FEDERAL AND STATE TAXATION

FEDERAL TAXATION

GENERAL. The Company and the Association will report their income on a
calendar year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company. The Association has not been
audited by the IRS in the past five years.

BAD DEBT RESERVE. For taxable years beginning after December 31, 1995, the
Association is entitled to take a bad debt deduction for federal income tax
purposes which is based on its current or historic net charge-offs. For tax
years beginning prior to December 31, 1995, the Association as a qualifying
thrift had been permitted to establish a reserve for bad debts and to make
annual additions to such reserve, which were deductible for federal income tax
purposes. Under such prior tax law, generally the Association recognized a bad
debt deduction equal to 8% of taxable income.

Under the 1996 Tax Act, the Association is required to recapture all or a
portion of its additions to its bad debt reserve made subsequent to the base
year (which is the Association's last taxable year beginning before January 1,
1988). This recapture is required to be made, after a deferral period based on
certain specified criteria, ratably over a six-year period commencing in the
Association's calendar 1998 tax year. The Association, in fiscal 1997, recorded
a deferred tax liability for this bad debt recapture. As a result, the recapture
is not anticipated to effect on the Association's future net income or federal
income tax expense for financial reporting purposes.

POTENTIAL RECAPTURE OF BASE YEAR BAD DEBT REVENUE. The Association's bad
debt reserve as of the base year is not subject to automatic recapture as long
as the Association continues to carry on the business of banking. If the
Association no longer qualifies as a bank, the balance of the pre-1988 reserves
(the base year reserves) are restored to income ratio over a six-year period
beginning in the tax year the Association no longer qualifies as a bank. Such
base year bad debt reserve subject to recapture to the extent that the
Association makes "non-dividend distributions" that are considered as made from
the base year bad debt. To the extent that such reserves exceed the amount that
would have been allowed under the experience method ("Excess Distributions"),
then an amount based on the amount distributed will be included in the
Association's taxable income. Non-dividend distributions include distributions
in excess of the Association's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Association's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Association's bad
debt reserve. Thus, any dividends to the Company that would reduce amounts
appropriated to the Association's bad debt reserve and deducted for federal
income tax purposes would create a tax liability for the Association. The amount
of additional taxable income created from an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Thus, if, after the Conversion, the Association makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used

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would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate (exclusive of state and local taxes). See
"Regulation" and "Dividend Policy" for limits on the payment of dividends of the
Association. The Association does not intend to pay dividends that would result
in a recapture of any portion of its bad debt reserve.

CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction claimed by the Association over the deduction that would have
been allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers of which the Association currently has none. AMTI is increased
by an amount equal to 75% of the amount by which the Association's adjusted
current earnings exceeds its AMTI (determined without regard to this preference
and prior to reduction for net operating losses). In addition, for taxable years
beginning after June 30, 1986 and before January 1, 1996, an environmental tax
of 0.12% of the excess of AMTI (with certain modifications) over $2.0 million is
imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax ("AMT") is paid. The Association does not expect to be
subject to the AMT.

DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Association as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Association will not file a
consolidated tax return, except that if the Company or the Association own more
than 20% of the stock of a corporation distributing a dividend then 80% of any
dividends received may be deducted.

STATE AND LOCAL TAXATION

The Company and its non-thrift Pennsylvania subsidiaries are subject to
the Pennsylvania Corporate Net Income Tax and Capital Stock and Franchise Tax.
The Corporate Net Income Tax rate for 1998 is 9.99% and is imposed on the
Company's and its non-thrift subsidiaries' unconsolidated taxable income for
federal purposes with certain adjustments. In general, the Capital Stock Tax is
a property tax imposed at the rate of 1.275% of a corporation's capital stock
value, which is determined in accordance with a fixed formula. The Company is
also required to file an annual report with and pay an annual Franchise tax to
the State of Delaware.

The Association is taxed under the Pennsylvania Mutual Thrift Institutions
Tax Act (the "MTIT"), as amended, to include thrift institutions having capital
stock. Pursuant to the MTIT, the Company's tax rate is 11.5%. The MTIT exempts
the Company from all other taxes imposed by the Commonwealth of Pennsylvania for
state income tax purposes and from all local taxation imposed by political
subdivisions, except taxes on real estate and real estate transfers. The MTIT is
a tax upon net earnings, determined in accordance with generally accepted
accounting principals ("GAAP") with certain adjustments. The MTIT, in computing
GAAP income, allows for the deduction of interest earned on Pennsylvania and
federal securities, while disallowing a percentage of a thrift's interest
expense deduction in the proportion of interest income on those securities to
the overall interest income of the Company. Net operating losses, if any,
thereafter can be carried forward three years for MTIT purposes. The Association
has not been audited by the Commonwealth of Pennsylvania in the last five years.

REGULATION

GENERAL

The Association is subject to extensive regulation, examination and
supervision by the Pennsylvania Department, as its chartering agency, the OTS,
as its federal banking regulator, and the FDIC, as the deposit insurer. The
Association is a member of the FHLB System. The Association's deposit accounts
are insured up to applicable limits by the SAIF managed by the FDIC. The
Association must file reports with the Commissioner of the Pennsylvania
Department, the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the Pennsylvania Department,
the OTS and the FDIC to test the Association's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive

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framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Pennsylvania Department, the OTS, the
FDIC or the Congress, could have a material adverse impact on the Company, the
Association and their operations. The Company, as a savings and loan holding
company, will also be required to file certain reports with, and otherwise
comply with the rules and regulations of the OTS and of the Securities and
Exchange Commission (the "SEC") under the federal securities laws.

Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Pennsylvania Department, the OTS, the FDIC or the
Congress, could have a material impact on the Company, the Association, their
operations or the Conversion and Reorganization. Congress currently has under
consideration various proposals to eliminate the federal thrift charter, abolish
the OTS and restrict the activities of savings and loan holding companies. The
outcome of such legislation is uncertain. Therefore, the Association is unable
to determine the extent to which legislation, if enacted, would affect its
business.

Certain of the regulatory requirements applicable to the Association and
to the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Association and the Company
and is qualified in its entirety by reference to such statutes and regulations.

FEDERAL REGULATION OF SAVINGS INSTITUTIONS

BUSINESS ACTIVITIES. The activities of Pennsylvania chartered, FDIC
insured savings institutions are governed by the Pennsylvania Savings
Association Code of 1967, as amended (the "Savings Association Code"), the Home
Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the Federal
Deposit Insurance Act ("FDI Act") and the regulations issued by the agencies to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which savings associations may engage.

ACTIVITIES AND INVESTMENTS. The FDI Act imposes certain restrictions on
the activities and investments of state savings associations such as the
Association. No state savings association may engage as principal in any
activity that is not permissible for federally chartered savings associations
unless the association is in compliance with federal regulatory capital
requirements and the FDIC has determined that the activity does not pose a
significant risk to the deposit insurance fund. A state savings association may
engage in an activity that is permissible for a federal savings association, but
in a greater amount, only if the institution is in capital compliance and the
FDIC had not determined that engaging in that amount of activity does not pose a
risk to the affected deposit insurance fund. Also, a state savings association
may not acquire directly an equity investment of a type or in an amount that is
not permissible for a federal association. However, a state savings association
may acquire shares of service corporations so long as the institution is in
capital compliance and the FDIC determines that no significant risk to the
deposit insurance fund is posed by the amount that the institution seeks to
acquire or the activities of the savings association.

LOANS-TO-ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Association's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At June 30, 1998, the Association's general policy is
to limit loans-to-one borrower to $500,000. At June 30, 1998, the Association's
largest aggregate amount of loans-to-one borrower consisted of $630,000.

QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain

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mortgage-backed and related securities) in at least nine months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of June 30, 1998,
the Association maintained 78.11% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."

LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Association") and has not been advised by the OTS
that it is in need of more than normal supervision, could, after prior notice
to, but without the approval of the OTS, make capital distributions during a
calendar year equal to the greater of: (i) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year; or (ii) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior OTS approval. In the event the Association's capital fell
below its capital requirements or the OTS notified it that it was in need of
more than normal supervision, the Association's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.

LIQUIDITY. The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 4%) of its net withdrawable deposit accounts
plus short-term borrowings. Monetary penalties may be imposed for failure to
meet these liquidity requirements. The Association's average liquidity ratio for
the year ended June 30, 1998 was 22.9%, which exceeded the applicable
requirements. The Association has never been subject to monetary penalties for
failure to meet its liquidity requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS and the Pennsylvania Department to fund the various
agencies' operations. The assessments paid by the Association to these agencies
for the years ended June 30, 1998 and 1997 totaled $59,000 and $57,000,
respectively.

TRANSACTIONS WITH RELATED PARTIES. The Association's authority to engage
in transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act. Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally requires that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.

ENFORCEMENT. Under the FDI Act, the OTS has primary federal enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS

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that enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal and state law also
establishes criminal penalties for certain violations.

STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.

CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage ("core" or "Tier 1" capital) ratio and an 8% risk based capital
standard. Core (Tier 1) capital is defined as common stockholder's equity
(including retained earnings), certain non-cumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain mortgage servicing rights and
credit card relationships. The OTS regulations require that, in meeting the
leverage ratio, tangible and risk-based capital standards institutions generally
must deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a leverage capital ratio
of less than 4% (3% for institutions receiving the highest examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "- Prompt Corrective Regulatory Action."

The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.

The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital

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requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. The OTS has postponed the
date that the component will first be deducted from an institution's total
capital to provide it with an opportunity to review the interest rate risk
approaches taken by the other federal banking agencies.

At June 30, 1998, the Association met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Association's historical
amounts and percentages at June 30, 1998, and pro forma amounts and percentages
based upon the issuance of the shares within the Estimated Price Range and
assuming that a portion of the net proceeds are retained by the Company.

PROMPT CORRECTIVE REGULATORY ACTION

Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital to risk-based assets ratio
that is less than 4.0% is considered to be undercapitalized. A savings
institution that has a total risk-based capital less than 6.0%, a Tier 1
risk-based capital ratio of less than 3.0% or a leverage ratio that is less than
3.0% is considered to be "significantly undercapitalized" and a savings
institution that has a tangible capital to assets ratio equal to or less than
2.0% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is critically undercapitalized. The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date an association receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions may become
immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators, restrictions
on growth, and capital distributions and limitations on expansion. The OTS could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.

INSURANCE OF DEPOSIT ACCOUNTS

The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.

Deposits of the Association are presently insured by the SAIF. Both the
SAIF and the BIF are statutorily required to be recapitalized to a 1.25% of
insured reserve deposits ratio. Until recently, members of the SAIF and BIF were
paying average deposit insurance assessments of between 24 and 25 basis points.
The BIF met the required reserve in 1995, whereas the SAIF was not expected to
meet or exceed the required level until 2002 at the earliest. This situation was
primarily due to the statutory requirement that SAIF members make payments on
bonds issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF.

In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately
adopted a new assessment rate schedule of from 0 to 27 basis points under which
92% of BIF members paid an annual premium of only $2,000. With respect to SAIF
member institutions, the FDIC adopted a final rule retaining the previously
existing assessment rate schedule

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applicable to SAIF member institutions of 23 to 31 basis points. As long as the
premium differential continued, it may have had adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, SAIF members, such as the Association could
have been placed at a substantial competitive disadvantage to BIF members with
respect to pricing of loans and deposits and the ability to achieve lower
operating costs.

On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposed a special one-time assessment on SAIF member institutions,
including the Association, to recapitalize the SAIF. As required by the Funds
Act, the FDIC imposed a special assessment of 65.7 basis points on SAIF
assessable deposits held as of March 31, 1995, payable November 27, 1996 (the
"SAIF Special Assessment"). The SAIF Special Assessment was recognized by the
Association as an expense in the quarter ended June 30, 1997 and is generally
tax deductible. The SAIF Special Assessment recorded by the Association amounted
to $619,763 on a pre-tax basis and $372,000 on an after-tax basis.

The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, while SAIF deposits pay 6.48
basis points. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000 or the date the BIF and
SAIF are merged.

As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.

The Association's assessment rate for fiscal 1998 ranged from 15.3 to 15.8
basis points, and the regular premium paid for this period was $62,000.

The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Association.

FEDERAL HOME LOAN BANK SYSTEM

The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Association, as a member of the FHLB, is required to acquire
and hold shares of capital stock in the FHLB in an amount at least equal to 1%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Association was in
compliance with this requirement with an investment in FHLB stock at June 30,
1998 of $594,600. FHLB advances must be secured by specified types of collateral
and all long-term advances may only be obtained for the purpose of providing
funds for residential housing finance. At June 30, 1998, the Association had no
FHLB advances and repurchase agreements.

The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended June 30, 1998, 1997 and 1996,
dividends from the FHLB to the Association amounted to approximately $37,000,
$35,000 and $34,000, respectively. If dividends were reduced, the Association's
net interest income would likely also be reduced. Further, there can be no
assurance that the impact of recent or future legislation on the FHLBs will not
also cause a decrease in the value of the FHLB stock held by the Association.

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FEDERAL RESERVE SYSTEM

The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $47.8 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater than $47.8 million, the reserve requirement is $1.4
million, plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $47.8
million. The first $4.7 million of otherwise reservable balances (subject to
adjustment by the Federal Reserve Board) are exempted from the reserve
requirements. The Association is in compliance with the foregoing requirements.
Because required reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce the's interest-earning assets. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.

PENNSYLVANIA LAW

INTERSTATE ACQUISITIONS AND BRANCHES. In 1986, Pennsylvania Act No. 260
(the "Pennsylvania Act") became law. The Pennsylvania Act: (1) permits federal
or state savings and loan associations, federal savings banks, and bank or
savings and loan holding companies (collectively, "Thrift Entities") that are
"located" (as defined below) in a state that offers reciprocal rights to similar
Thrift Entities located in Pennsylvania, to acquire 5% or more of a Pennsylvania
Thrift Entity's voting stock, merge or consolidate with a Pennsylvania Thrift
Entity or purchase the assets and assume the liabilities of the Pennsylvania
Thrift Entity and (2) permits a federal or state savings and loan association or
federal savings bank to establish and maintain branches in Pennsylvania,
provided that the state where such foreign Thrift Entity is located offers
reciprocal rights to similar entities located in Pennsylvania and provided that
each state where any bank holding company or savings and loan holding company
owning or controlling 5% or more of the foreign Thrift Entity's shares is also
located in a state that offers reciprocal rights. The legislation also provides
for nationwide branching by Pennsylvania chartered savings banks and savings and
loan associations, subject to the Pennsylvania Department's approval and certain
other conditions.

Under the Pennsylvania Act, a depository is "located" where its deposits
are largest and a holding company is generally "located" where the aggregate
deposits of its subsidiaries are largest. Whether a foreign state's laws are
"reciprocal" is determined by the Pennsylvania Department, which may impose
limitations and conditions on the branching and acquisition activities of a
Thrift Entity located in a foreign state in order to make the laws of such state
reciprocal to Pennsylvania law with respect to the type of transaction at issue.
In determining whether to approve an interstate thrift acquisition, the
Pennsylvania Department is directed to consider the effects the proposed
acquisition would have on the availability in Pennsylvania of basic banking and
transaction account services. If the Pennsylvania Department determines that the
overall performance of any Pennsylvania Thrift Entity involved in the
transaction has not been materially deficient in providing suitable credit and
financial services to its communities, it may approve the application without
imposing any terms or conditions. Otherwise, the Pennsylvania Department may
impose such terms and conditions as it deems appropriate to improve such overall
performance over a stated period of time. Additionally, the Pennsylvania
Department may impose requirements, both before and after approval of an
acquisition, to assure the availability to the public of those basic transaction
account services deemed necessary by the Pennsylvania Department.

PENNSYLVANIA SAVINGS ASSOCIATION CODE. The Association is incorporated
under the Savings Association Code which contains detailed provisions governing
the organization, location of offices, rights and responsibilities of directors,
officers, employees and members, as well as corporate powers, savings and
investment operations and other aspects of the Association and its affairs. The
Savings Association Code delegates extensive rulemaking power and administrative
discretion to the Pennsylvania Department so that the supervision and regulation
of Pennsylvania chartered association may be flexible and readily responsive to
changes in economic conditions and in savings and lending practices. The
Pennsylvania Department exercises its power through the Savings Association
Bureau.

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One of the purposes of the Savings Association Code is to provide
associations with the opportunity to be competitive with each other and with
other financial institutions existing under other state, federal and foreign
laws. To this end, the Savings Association Code provides Pennsylvania chartered
savings associations with all of the powers enjoyed by federal savings
associations, subject to regulation by the Pennsylvania Department.

A Pennsylvania savings association may locate or change the location of
its principal place of business, and may establish an office anywhere in the
Commonwealth or in certain states within the Pennsylvania region, with the prior
approval of the Pennsylvania Department. See "--Interstate Acquisitions and
Branches."

The Pennsylvania Department shall examine each savings association at
least once each year. The Savings Association Code permits the Pennsylvania
Department to accept the examinations and reports of the Federal Savings and
Loan Insurance Corporation (now the OTS) in lieu of their own examination. The
Pennsylvania Department may order any association to discontinue any violation
of law or unsafe or unsound business practice and may direct any director,
officer, attorney or employee of an association engaged in an objectionable
activity, after the Pennsylvania Department has ordered the activity to be
terminated, to show cause at a hearing before the Savings Association Bureau of
the Pennsylvania Department why such person should not be removed.

HOLDING COMPANY REGULATION

The Company will be a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
The Association must notify the OTS 30 days before declaring any dividend to the
Company.

As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Association continues to be a QTL. See
"- Federal Regulation of Savings Institutions - QTL Test" for a discussion of
the QTL requirements. Upon any non-supervisory acquisition by the Company of
another savings association, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS regulation.
Recently proposed legislation would limit the activities of unitary savings and
loan holding companies to those permissible for multiple savings and loan
holding companies. See "Risk Factors - Financial Institution Regulation and
Possible Legislation".

The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a multiple savings and loan holding company
from acquiring more than 5% of a company engaged in activities other than those
authorized for multiple savings and loan holding companies by the HOLA; or
acquiring or retaining control of a depository institution that is not insured
by the FDIC. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources and
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.

The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if

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the laws of the state of the target savings institution specifically permit such
acquisitions. "See -- Interstate Acquisitions and Branches."

The Secretary of Banking for the Pennsylvania Department (the "Secretary")
may require any savings and loan holding company to furnish such reports as the
Secretary deems appropriate to the proper supervision of such companies. Unless
the Secretary deems otherwise, reports prepared by Federal authorities are
satisfactory to meet such requirement. The Secretary may make examinations of
the Company, the cost of which shall be assessed against and paid by the
Company. Additionally, the Secretary shall have the authority to issue rules,
regulations and orders as may be necessary and the authority to order a savings
and loan holding company to cease and desist from engaging in an activity which
constitutes a services risk to the financial safety, soundness or stability of
the savings association.

FEDERAL SECURITIES LAWS

The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), for the registration of
the Common Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
will then be subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.

The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.

MANAGEMENT OF THE COMPANY

The Board of Directors' of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Richard C. Laubach and John J. Raynock, has a term of
office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. Frederick L. Barletta, Peter B. Deisroth and George J.
Hayden, has a term of office expiring at the second annual meeting of
stockholders, and a third class, consisting of Messrs. Joseph E. Lundy, Vincent
L. Marusak and Anthony P. Sidari, has a term of office expiring at the third
annual meeting of stockholders. Information concerning the principal
occupations, employment and other information concerning the directors and
officers of the Company during the past five years is set forth under
"Management of the Association--Biographical Information."

The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.

EXECUTIVE POSITION(S) HELD WITH COMPANY
- -------- ------------------------------

Richard C. Laubach President and Chief Executive Officer
David P. Marchetti, Sr. Chief Financial Officer and Treasurer
Nancy Latoff Corporate Secretary

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The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.

DIRECTOR COMPENSATION

Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company. For
information regarding fees paid to the Association's Board of Directors see
"Management of the Association--Director Compensation."

MANAGEMENT OF THE ASSOCIATION

DIRECTORS

The following table sets forth certain information regarding the Board of
Directors of the Association.

POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) ASSOCIATION SINCE EXPIRES
- ------ ------ ------------------------- -------- -------

Vincent L. Marusak 74 Chairman of the Board 1972 1998
Richard C. Laubach 60 Director, President and Chief Executive Officer 1989 1998
Frederick L. Barletta 64 Director 1983 1998
Peter B. Deisroth 60 Director 1980 1998
George J. Hayden 61 Director 1984 1998
Joseph E. Lundy 75 Director 1964 1998
John J. Raynock 67 Director 1987 1998
Anthony P. Sidari 67 Director 1964 1998

- ---------------------------------
(1) As of June 30, 1998

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

The following table sets forth certain information regarding the executive
officers of the Association who are not also directors.

POSITION(S) HELD WITH
NAME AGE (1) ASSOCIATION
- ----- ------- -------------------------------

David P. Marchetti, Sr. 45 Vice President, Chief Operating Officer
Joseph P. Correale 46 Vice President - Lending

- ---------------------------------
(1) As of June 30, 1998

Each of the executive officers of the Association will retain his/her
office in the converted Association until their re-election at the annual
meeting of the Board of Directors of the Association, held immediately after the
first annual meeting of stockholders subsequent to the Conversion, and until
their successors are elected and qualified or until they are removed or
replaced. Officers are subject to re-election by the Board of Directors
annually.

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BIOGRAPHICAL INFORMATION

DIRECTORS

Vincent L. Marusak was an executive at Lehigh Gas and Oil Company and a
partner at Lehigh Supply prior to his retirement in 1991. Mr. Marusak has served
on the Association's Board of Directors since 1972 and has served as Chairman of
the Board since 1989.

Richard C. Laubach joined the Association in 1982 as Chief Lending Officer
and continued in that position until 1987 when he was named Chief Executive
Officer. In 1989, Mr. Laubach was also named President of the Association. Mr.
Laubach has been a director since 1989.

Frederick L. Barletta was President and Chief Executive Officer of the
Pines Golf Course and Restaurant in Edgewood, Pennsylvania prior to his
retirement in 1997. Mr. Barletta has been a director of the Association since
1983.

Peter B. Deisroth has been a manager of Peton Fashions, a retail company,
and Advanced Mailing Services, a mail fulfillment house since 1994. Prior to
1994, Mr. Deisroth was the general merchandise manager of Peton Fashions. Mr.
Deisroth is also a general partner of several retail companies and the sole
proprietor of Dizzy's Pizza. He has served on the Association's Board of
Directors since 1980.

George J. Hayden is the President of George J. Hayden, Inc., an electrical
contracting firm. Mr. Hayden is also the President of several Wendy's fast food
restaurants. Mr. Hayden has served as a director of the Association since 1984.

Joseph E. Lundy worked in the insurance industry for over 45 years prior
to his retirement in 1991. Mr. Lundy has been a director of the Association
since 1964.

John J. Raynock is secretary and treasurer of E and R Plumbing and Heating
Inc. Mr. Raynock has served on the Association's Board of Directors since the
Association's merger with Anthracite Building and Loan Association of Weatherly,
Pennsylvania in 1987.

Anthony P. Sidari has been an attorney for over 40 years. Mr. Sidari has
served as a director of the Association since 1964. He also serves as a
solicitor for the Association.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

David P. Marchetti, Sr. joined the Association in 1986 and served as
branch office coordinator and later controller until 1991, when he was named
Vice-President, Chief Operating Officer.

Joseph P. Correale joined the Association in 1986 as a loan officer until
1989 when he was named Assistant Vice President, Lending. In 1992, Mr. Correale
was named Vice-President, Lending.

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE
COMPANY

The Association's Board of Directors meets twice per month and may have
additional special meetings called in the manner specified in the Bylaws.

The Board of Directors of the Association has established the following
committees:

The Executive Committee consists of Messrs. Laubach (President and
Chairman), Marusak (Vice President), Deisroth (Treasurer), Sidari (Solicitor),
Barletta and Hayden. The purpose of this committee is to formulate internal
policies, set long-term objectives and evaluate issues of major importance to
the Association and then to make

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recommendations to the whole Board. The committee meets when necessary and did
not meet during the fiscal year ended June 30, 1998.

The Audit and Compliance Committee consists of Messrs. Lundy (Chairman),
Deisroth, Hayden, Laubach and Sidari. The purpose of this committee is to
oversee external audit activities, review the procedures used to establish the
loan loss provision and approve the classification of assets. The Audit and
Compliance Committee meets quarterly and met three times during the fiscal year
ended June 30, 1998.

The Budget Committee consists of Messrs. Lundy (Chairman and Compliance
Officer), Barletta, Hayden, Laubach and Marusak. The purpose of this committee
is to review the Compliance Officer's report and to review and approve the
Association's annual budget. This committee meets semi-annually and met two
times during the fiscal year ended June 30, 1998.

The Investment, Asset/Liability Management Committee consists of, Messrs.
Laubach (Chairman), Barletta, Deisroth, Hayden and Raynock. The Investment,
Asset/Liability Management Committee meets quarterly and approves all
investments, the sale of assets and the borrowing of monies by the Association
and reviews the Association's interest rate risk. The Investment,
Asset/Liability Management Committee met 11 times during the fiscal year ended
June 30, 1998.

The Loan Committee consists of Messrs. Marusak (Chairman), Barletta,
Deisroth, Laubach, Lundy and Raynock. The Loan Committee reviews the lending
guidelines, loan portfolio and delinquency reports. The Loan Committee meets
semi-annually and met five times during the fiscal year ended June 30, 1998.

The Property Committee consists of Messrs. Marusak (Chairman), Barletta,
Hayden, Laubach and Raynock. The Property Committee meets as needed and is
responsible for overseeing the structure and maintenance of the Association's
physical properties. The Property Committee met three times during the fiscal
year ended June 30, 1998.

Additionally, the Association has a number of other management committees
including the Evaluation, Salary and Bonus Committee, Personnel Committee and
Security Committee.

The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Deisroth, Hayden and
Lundy; the Compensation Committee consisting of Messrs. Barletta, Hayden, Lundy,
Marusak and Sidari; the Nominating Committee consisting of Messrs. Barletta,
Deisroth and Raynock; and the Pricing Committee consisting of Messrs. Barletta,
Marusak and Raynock.

DIRECTOR COMPENSATION

All directors receive $400 for each Board meeting attended and for a
maximum of three unattended meetings. All outside directors of the Association
also receive $250 for each committee meeting attended. In addition, the
treasurer of the Board of Directors receives a $3,000 annual retainer. The
Association also provides life insurance for all of the directors. The
Association pays $550 annually for a $90,000 policy for Mr. Laubach, $306
annually for $50,000 policies for Messrs. Barletta, Deisroth and Hayden, $199
annually for $32,500 policies for Messrs. Marusak, Raynock and Sidari and $130
annually for a $21,125 policy for Mr. Lundy.

DIRECTOR EMERITUS

The Association has one Director Emeritus. Pursuant to the Association's
Bylaws, a director may not serve beyond the Annual Meeting of Members
immediately following his or her attainment of age 75 with the exception of all
directors serving on January 2, 1988. Any director who retires because of the
age limitation may be appointed as Director Emeritus. The Directors Emeritus
shall be compensated for each meeting attended, at the same rate of compensation
as the Directors, but may not vote at any meeting of the Board of Directors or
be counted in determining a quorum.

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION. The following table sets forth the cash compensation
paid by the Association for services rendered in all capacities during the
fiscal year ended June 30, 1998, to the Chief Executive Officer and to executive
officers of the Association who received cash compensation in excess of $100,000
("Named Executive Officers").

LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
---------------------------------- --------------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUT COMPENSATION
PRINCIPAL POSITIONS YEAR ($) ($) ($)(2) ($) (#) ($) ($)
- ------------------- -------- -------- --------- ------------- ------------ ------------- ------- -------------

Richard C. Laubach
President and Chief
Executive Officer 1998 $123,400 10,000 -- -- -- -- --

- -----------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes director's
fees.
(2) For fiscal year 1998, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long-term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock. For fiscal year 1998, the Association had
no restricted stock or stock related plans in existence.

EMPLOYMENT AGREEMENTS

Upon consummation of the Conversion, the Association and the Company
intend to enter into employment agreements (collectively, the "Employment
Agreements") with Messrs. Laubach and Marchetti (individually, the "Executive").
The Employment Agreements are subject to the review and approval of the OTS and
may be amended as a result of such OTS review. Review of compensation
arrangements by the OTS does not indicate, and should not be construed to
indicate, that the OTS has passed upon the merits of such arrangements. The
Employment Agreements are intended to ensure that the Association and the
Company will be able to maintain a stable and competent management base after
the Conversion. The continued success of the Association and the Company depends
to a significant degree on the skills and competence of Messrs. Laubach and
Marchetti.

The Employment Agreements will provide for a three-year term. The
Association Employment Agreements will provide that, commencing on the first
anniversary date of entering into the agreement and continuing each such
anniversary date thereafter, the Board of Directors of the Association may
extend the agreement for an additional year so that the remaining term shall be
three years, unless written notice of non-renewal is given by the Board of
Directors of the Association after conducting a performance evaluation of the
Executive. The terms of the Company Employment Agreements shall automatically
renew on a daily basis, unless written notice of non-renewal is given by the
Board of Directors of the Company. The Association and Company Employment
Agreements provide that the Association and Company will review the Executive's
base salary annually. Initially, the Employment Agreements will provide for base
salary of $125,000 for Mr. Laubach. Mr. Laubach would also be entitled to
Directors' fees. In addition to the base salary, the Employment Agreements will
provide for, among other things, participation in various employee benefit plans
and arrangements, stock-based benefits plans, and fringe benefits applicable to
similarly situated executive personnel.

The Employment Agreements provide for termination of the Executive by the
Association or the Company for cause (as described in the agreements) at any
time. In the event the Association or the Company chooses to terminate the
Executive's employment for reasons other than for cause or, in the event of the
Executive's resignation from the Association or the Company upon: (i) failure to
re-elect the Executive to his current offices; (ii) a material change in the
Executive's functions, duties or responsibilities; (iii) a relocation of the
Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Association or the Company; or (v) a breach

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of the Employment Agreements by the Association or the Company, the Executive
or, in the event of the Executive's death, his beneficiary, would receive an
amount equal to the base salary payments due to the Executive and the
contributions that would have been made on the Executive's behalf to any
employee benefit plans of the Association or the Company during the remaining
term of the Employment Agreement. The Association and the Company would also
continue or pay for the Executive's life, health and disability coverage for the
remaining term of the Employment Agreement. Upon any termination of the
Executive, the Executive is subject to a covenant not to compete with the
Company or the Association for one year.

Under the Employment Agreements, if involuntary termination or, under
certain circumstances, voluntary termination, follows a change in control of the
Association or the Company, the Executive or, in the event of the Executive's
death, his beneficiary, would receive a severance and/or liquidated damages
payment equal to the greater of: (i) the payments due under the agreement for
the remaining terms of the agreement; or (ii) three times the average of the
five preceding taxable years' annual compensation (subject to certain
limitations contained in the Association Employment Agreement). The Association
and the Company would also continue the Executive's life, health, and disability
coverage for thirty-six months from the date of termination. Notwithstanding
that both agreements provide for a severance payment in the event of a change in
control, the Executive may receive a severance payment under only one agreement.

The Company will guarantee payments to the Executive under the Association
Employment Agreement in the event that payments or benefits are not paid by the
Association. The Company will make any payment required under the Company
Employment Agreements. Pursuant to the Employment Agreements, the Company or
Association will pay all reasonable costs and legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Employment Agreements, if the Executive is successful on the merits pursuant to
a legal judgment, arbitration or settlement. The Employment Agreements also
provide that the Association and Company shall indemnify the Executive to the
fullest extent allowable under federal, Pennsylvania and Delaware law,
respectively. In the event of a change in control of the Association or Company,
the total amount of payments due under the Employment Agreements, based solely
on the base salaries to be paid to Messrs. Laubach and Marchetti, under the
agreements upon the consummation of the Conversion and excluding any benefits
under any employee benefit plan which may otherwise become payable would equal
approximately $298,000 and $161,000, respectively.

CHANGE IN CONTROL AGREEMENTS

Upon Conversion, the Association intends to enter into three-year Change
in Control Agreements (the "CIC Agreements") with two vice presidents of the
Association, none of whom will be covered by an Employment Agreement. Commencing
on the first anniversary date of a CIC Agreement and continuing on each
anniversary thereafter, the Board of Directors may renew the agreement for an
additional year. Each CIC Agreement will provide that in the event voluntary or
involuntary termination follows a change in control of the Association or the
Company, as the case may be, the officer covered by the agreement would receive
a severance payment equal to three times the officer's average annual
compensation for the 36 months preceding his termination (subject to certain
limitations contained in the Association's Change in Control Agreement). The
Association would also continue to pay for the officer's life, health and
disability coverage for 36 months following termination. In the event of a
change in control of the Association or the Company the total payments that
would be due under the CIC Agreements, based solely on the current annual
compensation paid to the two vice presidents covered by the CIC Agreements and
excluding any benefits under any employee benefit plan which may be payable;
would be approximately $210,000.

EMPLOYEE SEVERANCE COMPENSATION PLAN

The Association's Board of Directors, upon consummation of the Conversion,
intends to establish the Security Savings Association of Hazleton Employee
Severance Compensation Plan ("Severance Plan") to provide eligible employees
with severance pay benefits in the event of a change in control of the
Association or the Company. Management personnel with employment or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees will participate in the Severance Plan if they have completed at least
one (1) year of service with the Association. The Severance Plan vests in each
participant a contractual right to the benefits such participant is

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entitled to thereunder. Under the Severance Plan, in the event of a change in
control of the Association or the Company, eligible employees who terminate
employment within one year of the change in control (for reasons specified under
the Severance Plan), will receive a severance payment. If the participant, whose
employment has terminated, has completed at least six months of service, the
participant will be entitled to cash equal to one-twelfth of their current
annual compensation for each year of service completed with the Association, up
to a maximum of 199% of current annual compensation. In the event the provisions
of the Severance Plan were triggered, the total amount of payments that would be
due thereunder, based solely upon current salary levels, would be approximately
$414,000.

INSURANCE PLANS

All full-time employees of the Association, upon completion of the
applicable introductory period, are covered as a group for comprehensive
hospitalization, including major medical and long-term disability insurance.
Life insurance is also provided to employees and directors.

OTHER BENEFIT PLANS

PENSION PLAN. The Association participates in the Financial Institutions
Retirement Fund (the "Retirement Fund") to provide retirement benefits for
eligible employees. Employees are eligible to participate in the Retirement Plan
after the completion of 12 consecutive months of employment with the Association
and the attainment of age 21. Hourly paid employees are excluded from
participating in the Retirement Plan. Benefits payable to a participant under
the Retirement Plan are based on the participant's years of service and salary.
The formula for normal retirement benefits payable annually under the Retirement
Plan is 2% multiplied by years of benefit service multiplied by the average of
the participant's highest five years of salary paid by the Association. A
participant may elect early retirement as early as age 45. However, such
participant's normal retirement benefits will be reduced by an early retirement
factor based on age at early retirement. Participants generally have no vested
interest in Retirement Plan benefits prior to the completion of five years of
service with the Association. Following the completion of five years of vesting
service, or in the event of a participant's attainment of age 65, death or
termination of employment due to disability, a participant will become 100%
vested in the accrued benefits under the Retirement Plan. The table below
reflects the pension benefit payable to a participant assuming various levels of
earnings and years of service.

The following table sets forth the estimated annual benefits payable upon
retirement at age 65.

FIVE YEAR AVERAGE YEARS OF BENEFIT SERVICE
---------------------------------------------------
COMPENSATION 15 20 25 30 35
- ----------------- -------- -------- -------- -------- ---------

$ 25,000.................. $ 7,500 $10,000 $12,500 $15,000 $ 17,500
50,000.................. 15,000 20,000 25,000 30,000 35,000
75,000.................. 22,500 30,000 37,500 45,000 52,500
100,000.................. 30,000 40,000 50,000 60,000 70,000
125,000.................. 37,500 50,000 62,500 75,000 87,500
150,000.................. 45,000 60,000 75,000 90,000 105,000
160,000.................. 48,000 64,000 80,000 96,000 112,000

The benefits listed in the table above for the Retirement Plan are not
subject to a deduction for Social Security benefits or any other offset amount.
As of June 30, 1998, Richard C. Laubach had 15 years of credited service.

EMPLOYEE STOCK OWNERSHIP PLAN. The Association intends to establish a
tax-qualified employee stock ownership plan (the "ESOP") in connection with the
Conversion. Generally, employees will become participants in the ESOP upon the
completion of one year of service with the Association (with credit given for
service with the Association prior to adoption of the plan) and attainment of
age 21. With the consent of the Association, an affiliate of the Association may
also adopt the ESOP for the benefit of its employees.

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The Association expects a committee of the Board of Directors to serve as
the administrative committee of the ESOP (the "ESOP Committee"). The ESOP
Committee will appoint an unrelated corporate trustee for the ESOP prior to the
Conversion. Among other matters, the ESOP Committee may generally instruct the
trustee regarding the investment of funds contributed to the ESOP, subject to
the terms of the plan document and the trust agreement. The Association expects
the ESOP to purchase 8% of the Common Stock issued in the Conversion. As part of
the Conversion, and in order to fund the ESOP's purchase of the Common Stock
issued in the Conversion, the ESOP will borrow 100% of the aggregate purchase
price of the Common Stock from either the Company or a third-party lender.

The trustee of the ESOP will repay the loan principally from the
Association's annual contributions to the ESOP over an expected period of 12
years. Subject to receipt of any necessary regulatory approvals or opinions, the
Association may make contributions to the ESOP for repayment of the loan since
some participants in the ESOP will be employees of the Association or,
alternatively, the Association may reimburse the Company for contributions made
by the Company with respect to employees of the Association. The Association
expects the initial interest rate (which may be fixed or variable) for the loan
to be at or near the prime rate on or about the date of Conversion.

The trustee of the ESOP will pledge the shares of Common Stock purchased
by the ESOP in connection with the Conversion as collateral for the loan and
will hold the shares in a suspense account under the plan. As the trustee repays
the loan, the trustee will release a portion of the shares from the suspense
account and allocate them to the accounts of active participants in the ESOP
based on each participant's compensation (as determined under the terms of the
plan) relative to all participants' compensation for the plan year. In the event
of a change in control of the Association or the Company prior to complete
repayment of the loan, the ESOP trustee, in accordance with the terms of the
plan document, will sell enough shares of Common Stock held in the suspense
account to repay the loan in full. Upon repayment of the loan, the ESOP trustee
will then allocate all remaining shares of Common Stock held in the suspense
account to the accounts of active participants based on each participant's
account balance as of a specific date or based on some other method set forth in
the plan document.

Participants will become vested in contributions made to the ESOP by the
Association at the rate of twenty percent per year of vesting service (with
credit given for service with the Association prior to its adoption of the
ESOP). Accordingly, participants will become fully vested in their accounts
under the ESOP after completing five years of vesting service. The Association
expects that participants will also become fully vested in their accounts under
the ESOP upon the attainment of their early or normal retirement age while an
employee of the Association, upon their death, upon a change in control of the
Association or the Company, or upon termination of the plan. Benefits generally
become distributable under the ESOP and potentially become subject to income tax
upon death, retirement, disability or other separation from service.

The ESOP trustee will vote all allocated shares held in the ESOP in
accordance with the instructions of the plan participants. The ESOP trustee,
subject to its fiduciary duties under ERISA, will vote the unallocated shares
(i.e., those held in the suspense account) and allocated shares for which it
receives no proper voting instructions in a manner calculated to most accurately
reflect the instructions it receives from participants regarding the allocated
stock. In the event no shares have been allocated under the ESOP at the time
such shares are to be voted, each participant shall be deemed to have one share
allocated to his or her account for voting purposes.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Association may consider in providing benefits under its
tax-qualified retirement plans, such as the Pension Plan and the ESOP. The Code
further limits the amount of contributions and benefit accruals under such plans
on behalf of any employee. To provide benefits to make up for the reduction in
benefits flowing from these limits in connection with the Pension Plan and ESOP,
the Association intends to implement a non-qualified deferred compensation
arrangement known as a "Supplemental Executive Retirement Plan" ("SERP"). The
SERP will generally provide benefits to eligible individuals (designated by the
Board of Directors of the Association or its affiliates) that cannot be provided
under the Pension Plan and/or ESOP as a result of the limitations imposed by the
Code, but that would have been provided under the Pension Plan and/or ESOP but
for such limitations. In addition to providing for benefits lost under
tax-qualified plans as a result of limitations imposed by the Code, the SERP
will also make up lost ESOP benefits to designated individuals who retire,

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who terminate employment in connection with a change in control, or whose
participation in the ESOP ends due to termination of the ESOP in connection with
a change in control (regardless of whether the individual terminates employment)
prior to the complete scheduled repayment of the ESOP loan. Generally, upon the
retirement of an eligible individual or upon a change in control of the
Association or the Company prior to complete repayment of the ESOP Loan, the
SERP will provide the individual with a benefit equal to what the individual
would have received under the ESOP had he remained employed throughout the term
of the ESOP or had the ESOP not been terminated prior to the scheduled repayment
of the ESOP loan. An individual's benefits under the SERP become payable upon
the participant's retirement (in accordance with the standard retirement
policies of the Association), upon the change in control of the Association or
the Company or as determined under the ESOP and Pension Plan.

The Association may establish a grantor trust in connection with the SERP
to satisfy the obligations of the Association with respect to the SERP. The
assets of the grantor trust would remain subject to the claims of the
Association's general creditors in the event of the Association's insolvency
until paid to the individual pursuant to the terms of the SERP.

STOCK-BASED INCENTIVE PLAN. Following the Conversion, the Board of
Directors of the Company intends to adopt the Stock-Based Incentive Plan which
will provide for the grant of options to purchase Common Stock ("Stock
Options"), and the award of restricted shares of Common Stock ("Stock Awards")
to eligible officers, employees, and directors of the Company and Association.
Stock Options granted under the Plan may be intended to qualify as Incentive
Stock Options under Section 422 of the Code ("Incentive Stock Options") or
options that do not so qualify ("Non-Statutory Stock Options"). The plan may
also provide for certain limited rights that, in the event of a change in
control, may permit the option holder to receive a cash payment in lieu of
exercise of the option or distribution of the Stock Award. The Company expects
to provide such stock-based benefits under the Stock-Based Incentive Plan or, in
the alternative, under one or more separate stock benefit plans.

In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after the Conversion, OTS regulations require such plan
to be approved by a majority of the Company's stockholders at a meeting of
stockholders to be held no earlier than six months after the completion of the
Conversion. The Company intends to grant Stock Options in an amount up to 10% of
the shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation (138,000 shares based upon the maximum of the
Estimated Price Range), and intends to grant Stock Awards in an amount up to 4%
of the shares of Common Stock issued in connection with the Conversion,
including shares issued to the Foundation (55,200 shares based upon the maximum
of the Estimated Price Range). Stock Awards will be granted under the Stock-
Based Incentive Plan at no cost to the recipients. While no decision has been
made, as yet, it is possible that the grants of Stock Options and Stock Awards
could involve a substantial portion or all of the options and awards available
under the Stock-Based Incentive Plan. The Company may fund the plan through the
purchase of Common Stock by a trust established in connection with the
Stock-Based Incentive Plan (or any separate plan(s)) or from authorized but
unissued shares. The Board of Directors of the Company intends to appoint an
independent fiduciary to serve as trustee of any trust established in connection
with the Stock-Based Incentive Plan. In the event that additional authorized but
unissued shares are acquired by the Stock-Based Incentive Plan or its
participants after the Conversion, the interests of existing shareholders would
be diluted. See "Pro Forma Data."

The Company expects to design the grants of Stock Options and Stock Awards
to attract and retain qualified personnel in key positions, provide officers and
key employees with a propriety interest in the Company as an incentive to
contribute to the success of the Company, and reward key employees for
outstanding performance. All employees of the Company and its subsidiaries,
including the Association, will be eligible to participate in the Stock-Based
Incentive Plan. It is expected that the committee administering the plan will
determine the terms of awards granted to officers and employees. The committee
will also determine whether Stock Options will qualify as Incentive Stock Option
or Non-Statutory Stock Options, as described below, the number of shares subject
to each Stock Option and Stock Award, the exercise price of each Stock Option,
the method of exercising Stock Options, and when Stock Options become
exercisable or Stock Awards vest. Only employees may receive grants of Incentive
Stock Options. Directors who are not employees may receive only grants of
Non-Statutory Stock Options. If the Stock-Based Incentive Plan (or other
separate plans) is adopted within one year after conversion, OTS regulations
provide that no individual officer or

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employee of the Association may receive more than 25% of the Stock Options
available under the Stock-Based Incentive Plan (or any separate plan for
officers and employees) and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the Stock Options available under the
Stock-Based Incentive Plan (or any separate plan for directors). OTS regulations
also provide that no individual officer or employee of the Association may
receive more than 25% of the Stock Awards available under the Stock-Based
Incentive Plan (or any separate plan for officers and employees) and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the Stock Awards available under the Stock-Based Incentive Plan
(or any separate plan for directors).

Unless sooner terminated, the Stock-Based Incentive Plan will remain in
effect for a period of ten years from the earlier of adoption by the Board of
Directors of the Company or approval by the Company's stockholders. Subject to
stockholder approval, the Company anticipates granting Stock Options under the
plan at an exercise price equal to at least the fair market value of the
underlying Common Stock on the date of grant.

An individual will not recognize taxable income upon the grant of a
Non-Statutory Stock Option or Incentive Stock Option or upon the exercise of an
Incentive Stock Option, provided the individual does not dispose of the shares
received through the exercise of the Incentive Stock Option such option for at
least one year after the date the individual receives the shares in connection
with the stock option exercise and two years after the date of grant of the
stock option (a "disqualifying disposition"). No compensation deduction will
generally be available to the Company as a result of the exercise of Incentive
Stock Options unless there has been a disqualifying disposition. In the case of
a Non-Statutory Stock Option and in the case of a disqualifying disposition of
share received in connection with the exercise of an Incentive Stock Option, an
individual will recognize ordinary income upon exercise of the stock option (or
upon the disqualifying disposition) in an amount equal to the amount by which
the exercise price exceeds the fair market value of the Common Stock purchased
by exercising the stock option on the date of exercise. The amount of any
ordinary income recognized by an optionee upon the exercise of a Non-Statutory
Stock Option or due to a disqualifying disposition of an Incentive Stock Option
will be a deductible expense to the Company for tax purposes. In the case of
limited rights, the holder will recognize any amount paid to him or her upon
exercise in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.

Grants of Stock Awards may be made in the form of base grants and/or
performance grants (the vesting of which would be contingent upon performance
goals established by the committee administering the plan). In establishing any
performance goals, the committee may utilize the annual financial results of the
Company, actual performance of the Company as compared to targeted goals such as
the ratio of the Association's net worth to total assets, the Company's return
on average assets, or such other performance standards as determined by the
committee with the approval of the Board of Directors of the Company.

When a participant becomes vested with respect to Stock Award, the
participant will recognize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participant will be a deductible expense for tax purposes for the Company. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants receive amounts equal to any
accrued dividends with respect thereto, if not earlier received. Prior to
vesting, recipients of Stock Awards may direct the voting of the shares awarded
to them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee in proportion to
the directions provided with respect to shares subject to grants. Vested shares
will be distributed to recipients as soon as practicable following the day on
which they vest.

The vesting periods for awards under the Stock-Based Incentive Plan will
be determined by the committee administering the Plan. If the Company adopts the
Stock-Based Incentive Plan (or any separate plans for employees and directors)
within one year after conversion, awards would become vested and exercisable
subject to applicable OTS

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regulations, which require that any awards begin vesting no earlier than one
year from the date of shareholder approval of the plan and, thereafter, vest at
a rate of no more than 20% per year and may not be accelerated except in the
case of death or disability. Stock Options could be exercisable for a period of
time (likely three months) following the date on which the employee or director
ceases to perform services for the Association or the Company, except that in
the event of death or disability, options accelerate and become fully vested and
could be exercisable for up to one year thereafter or such other period of time
as determined by the Company. In the case of death or disability, Stock Options
may be exercised for a period of 12 months or such other period of time as
determined by the committee. However, any Incentive Stock Options exercised more
than three months following the date the employee ceases to perform services as
an employee would be treated essentially as a Non-Statutory Stock Option. In the
event of retirement, if the optionee continues to perform services as a director
or consultant on behalf of the Association, the Company or an affiliate,
unvested options and awards would continue to vest in accordance with their
original vesting schedule until the optionee ceases to serve as a consultant or
director. In the event of death, disability or normal retirement, the Company,
if requested by the optionee, or the optionee's beneficiary, could elect, in
exchange for vested options, to pay the optionee, or the optionee's beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.

Subject to any applicable regulatory requirements, the Stock-Based
Incentive Plan (or any separate plans for employees and directors) may be
amended subsequent to the expiration of the one-year period to provide for
accelerated vesting of previously granted Stock Options or Stock Awards in the
event of a change in control of the Company or the Association. A change in
control would generally be considered to occur when a person or group of persons
acting in concert acquires beneficial ownership of 20% or more of any class of
equity security of the Company or the Association or in the event of a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Association or contested
election of directors which resulted in the replacement of a majority of the
Board of Directors by persons not nominated by the directors in office prior to
the contested election.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

The Association offers officers and full-time employees of the Association
who satisfy the general underwriting standards of the Association, loans with
interest rates up to 1% below the current interest rate in effect, the Insider
Loan Rate ("ILR"); provided, however, that the ILR shall not be below the
Association's cost of funds at the time of the approval of the loan. All ILR
loans requested by officers must be approved by the Board of Directors. The ILR
normally ceases upon termination of employment. Upon termination of the ILR, the
interest rate reverts to the contract rate currently in effect. All other terms
and conditions contained in the original mortgage and note continue to remain in
effect. As of June 30, 1998, seven of the Association's directors and officers
had loans with outstanding balances totalling $273,000 in the aggregate. All
such loans were made by the Association in the ordinary course of business, with
no favorable terms (except for ILR loans) and such loans do not involve more
than the normal risk of collectibility or present unfavorable features.

The Company intends that all transactions in the future between the
Company and its executive officers, directors, holders of 10% or more of the
shares of any class of its Common Stock and affiliates thereof, will contain
terms no less favorable to the Company than could have been obtained by it in
arm's length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.

SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the number of shares of Common Stock the
Association's officers and directors and their associates propose to purchase,
assuming shares of Common Stock are issued at the minimum and maximum of the
Estimated Price Range, including the effect of shares issued to the Foundation,
and that sufficient shares will be

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available to satisfy their subscriptions. The table also sets forth the total
expected beneficial ownership of Common Stock as to all directors and officers
as a group.

AT THE MINIMUM OF THE AT THE MAXIMUM OF THE
ESTIMATED PRICE RANGE ESTIMATED PRICE RANGE
------------------------ ------------------------
AS A AS A
PERCENT OF PERCENT OF
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT(1) SHARES SOLD SHARES SOLD
- ------ ------------ ----------- ----------- ---------- -----------

DIRECTORS AND EXECUTIVE OFFICERS:

Vincent L. Marusak $150,000(2) 15,000 1.47% 15,000 1.09%
Richard C. Laubach 50,000 5,000 0.49 5,000 0.36
Frederick L. Barletta 150,000(2) 15,000 1.47 15,000 1.09
Peter B. Deisroth 30,000 3,000 0.29 3,000 0.22
George J. Hayden 150,000(2) 15,000 1.47 15,000 1.09
Joseph E. Lundy 15,000 1,500 0.15 1,500 0.11
John J. Raynock 50,000 5,000 0.49 5,000 0.36
Anthony P. Sidari 150,000(2) 15,000 1.47 15,000 1.09
David P. Marchetti, Sr. 5,000 500 0.05 500 0.04
Joseph P. Correale 7,500 750 0.07 750 0.05
---------- -------- ---- -------- ----

All Directors and Executive
Officers as a Group (10 persons). $757,500 75,750 7.42% 75,750 5.50%
========== ======== ==== ======== ====

- ------------------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion, including shares
issued to the Foundation.

(2) Such amount represents the maximum allowable purchase for such individuals.

THE CONVERSION

THE BOARD OF DIRECTORS OF THE ASSOCIATION, AND THE OTS HAVE APPROVED THE
PLAN OF CONVERSION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE ASSOCIATION
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT
OF THE PLAN BY SUCH AGENCY. THE OTS NEITHER APPROVED NOR DISAPPROVED THE
ESTABLISHMENT OF THE FOUNDATION. THE PLAN OF CONVERSION IS ALSO SUBJECT TO
RECEIPT OF THE APPROVAL OF THE PENNSYLVANIA DEPARTMENT, WHICH WILL ONLY CONSIDER
SUCH APPROVAL BASED UPON APPROVAL OF THE PLAN OF CONVERSION BY THE MEMBERS OF
THE ASSOCIATION.

GENERAL

The Plan was adopted unanimously on June 26, 1998 and amended on September
8, 1998 by the Association's Board of Directors, subject to approval by the
Pennsylvania Department and the OTS. Pursuant to the Plan, the Association will
be converted from a Pennsylvania-chartered mutual savings association to a
Pennsylvania-chartered capital stock savings association. It is currently
intended that all of the outstanding capital stock of the Association will be
held by the Company, which is incorporated under Delaware law. The Plan was
approved by the OTS, subject to, among other things, approval of the Plan by the
Association's members. A Special Meeting of members has been called for this
purpose to be held on ________, 1998. The Pennsylvania Department will only
consider approval of the Plan subsequent to its approval by members of the
Association.

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The Company has received the approval of the OTS to become a savings and
loan holding company and to acquire all of the Common Stock of the Association
to be issued in the Conversion. The Company plans to purchase the shares of
issued and outstanding capital stock of the Association in exchange for 50% of
the net proceeds and retain the remaining net proceeds. The Conversion will be
effected only upon completion of the sale of all of the shares of Common Stock
of the Company or the Association, if the holding company form of organization
is not utilized, to be issued pursuant to the Plan.

The Plan provides that the Board of Directors of the Association may, at
any time prior to the issuance of the Common Stock and for any reason, decide
not to use a holding company form. Such reasons may include possible delays
resulting from overlapping regulatory processing or policies which could
adversely affect the Association's or the Company's ability to consummate the
Conversion and transact its business as contemplated herein and in accordance
with the Association's operating policies. In the event such a decision is made,
the Association will withdraw the Company's registration statement from the SEC
and take steps necessary to complete the Conversion without the Company,
including filing any necessary documents with the OTS. In such event, and
provided there is no regulatory action, directive or other consideration upon
which basis the Association determines not to complete the Conversion, if
permitted by the OTS, the Association will issue and sell the Common Stock of
the Association and subscribers will be notified of the elimination of a holding
company and resolicited (i.e., be permitted to affirm their orders, in which
case they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their funds will be promptly
refunded with interest at the Association's passbook rate of interest; or be
permitted to modify or rescind their subscriptions), and notified of the time
period within which the subscriber must affirmatively notify the Association of
his intention to affirm, modify or rescind his subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
below will apply to the conversion of the Association from the mutual to stock
form of organization and the sale of the Association's Common Stock.

The Plan provides generally that (i) the Association will convert from a
mutual savings association to a capital stock savings association and (ii) the
Company will offer shares of Common Stock for sale in the Subscription Offering
to the Association's Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, and Other Members. Subsequent to the Subscription Offering, any
remaining shares will be offered in a Community Offering with preference given
to certain members of the general public with preference given to natural
persons residing in all counties in which the Association has its home office or
a branch office, all zip codes corresponding to the Association's delineated
Community Reinvestment Area service area and each county's metropolitan
statistical area (the Association's "Local Community") (such natural persons are
herein referred to as "Preferred Subscribers"). The Community Offering may be
commenced prior to completion of the Subscription Offering. It is anticipated
that all shares not subscribed for in the Subscription and Community Offerings
will be offered for sale by the Company to the general public in a Syndicated
Community Offering, or in another offering. The Association has the right to
accept or reject, in whole or in part, any orders to purchase shares of the
Common Stock received in the Community Offering or in the Syndicated Community
Offering. See "--Community Offering" and "--Syndicated Community Offering."

The aggregate price of the shares of Common Stock to be sold in the
Conversion within the Estimated Price Range, currently estimated to be between
$9.7 million and $13.1 million, will be determined based upon an independent
appraisal, prepared by Keller of the estimated pro forma market value of the
Common Stock of the Company. All shares of Common Stock to be issued and sold in
the Conversion, will be sold at the same price. The independent appraisal will
be affirmed or, if necessary, updated at the completion of the Subscription and
Community Offerings, if all shares are subscribed for, or at the completion of
the Syndicated Community Offering. The appraisal has been performed by Keller, a
consulting firm experienced in the valuation and appraisal of savings
institutions. See "--Stock Pricing" for additional information as to the
determination of the estimated pro forma market value of the Common Stock.

The following is a brief summary of the material aspects of the
Conversion. The summary is qualified in its entirety by reference to the
provisions of the Plan, as amended. A copy of the Plan is available for
inspection at each branch of the Association and at the Northeast Region and
Washington, D.C. offices of the OTS.

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ESTABLISHMENT OF THE CHARITABLE FOUNDATION

GENERAL. In furtherance of the Association's long-standing commitment to
its local community, the Association's Plan of Conversion provides for the
establishment of a charitable foundation in connection with the Association's
Conversion. The Plan provides that the Association and the Company will
establish the Foundation, which will be incorporated under Delaware law as a
non-stock corporation, and will fund the Foundation with Common Stock of the
Company, as further described below. The Company and the Association believe
that the funding of the Foundation with Common Stock of the Company is a means
of establishing a common bond between the Association and the communities in
which the Association operates and thereby enables such communities to share in
the potential growth and success of the Company and the Association over the
long term. By further enhancing the Association's visibility and reputation in
the communities in which it operates, the Association believes that the
Foundation will enhance the long-term value of the Association's community
Banking franchise.

The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Association operates, including, but not
limited to, providing grants or donations to support housing assistance,
not-for-profit medical facilities, community groups and other types of
organizations or projects. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Association's
members eligible to be cast at the Special Meeting. The Foundation will be
considered as a separate matter from approval of the Plan of Conversion. If the
Association's members approve the Plan of Conversion, but not the Foundation,
the Association intends to complete the Conversion without the establishment of
the Foundation. Failure to approve the establishment of the Foundation may
materially affect the pro forma market value of the Common Stock. In such an
event, the Association may establish a new Estimated Price Range and commence a
resolicitation of subscribers. In the event of a resolicitation, unless an
affirmative response is received within a specified period of time, all funds
will be promptly returned to investors, as described elsewhere herein. See
"--Stock Pricing."

PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the
Association operates. The Association has long emphasized community lending and
community development activities and currently has a satisfactory Community
Reinvestment Act ("CRA") rating. The Foundation is being formed as a complement
to the Association's existing community activities, not as a replacement for
such activities. Indeed, the Association intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Association's sole corporate purpose. The
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in ways that are not presently available to the Association. Since the
Association already engages in community development activities, the Association
believes that the Foundation will enable the Company and the Association to
assist their local community in areas beyond community development and lending.
In this regard, the Board of Directors believes the establishment of a
charitable foundation is consistent with the Association's commitment to
community service. The Boards of Directors of the Association and Company also
believe that the funding of the Foundation with Common Stock of the Company is a
means of enabling the communities in which the Association operates to share in
the potential growth and success of the Company long after completion of the
Conversion. The Foundation accomplishes that goal by providing for continued
ties between the Foundation and Association, thereby forming a partnership with
the Association's community. The establishment of the Foundation would also
enable the Company and the Association to develop a unified charitable donation
strategy and would centralize the responsibility for administration and
allocation of corporate charitable funds. The Association, however, does not
expect the contribution to the Foundation to take the place of the Association's
traditional community lending and charitable activities. The Association expects
in future periods to continue making charitable contributions within its
communities.

STRUCTURE OF THE FOUNDATION. The Foundation will be incorporated under
Delaware law as a non-stock corporation. It is currently anticipated that the
Foundation's board of directors will be comprised of five members, four of whom
will be individuals elected from existing directors and officers of the
Association. In addition, the Foundation will reserve one board seat for an
individual who is not an officer and/or director of the Company or the
Association and who is a civic or community leader within Hazleton, Pennsylvania
or its neighboring communities and is not an

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associate of any officer or director of the Company or the Association. It is
expected that less than a majority of the Association's directors will also
serve as directors of the Foundation. The officers and directors of the
Association and Company that are expected to serve on the Board of Directors of
the Foundation consist of Messrs. Deisroth, Hayden, Marchetti and Raynock, who
intend to purchase 3,000, 15,000, 500 and 5,000 shares of Common Stock in the
Conversion, respectively. At the supermaximum of the Estimated Price Range, such
purchases equal 0.19%, 0.95%, 0.03% and 0.32%, respectively, or 1.49% in the
aggregate of the total number of shares to be issued in the Conversion,
including shares issued to the Foundation. On an on-going basis, a Nominating
Committee of the board of directors of the Foundation, will nominate individuals
eligible for election to the board of directors of the Foundation. The members
of the Foundation, who are comprised of its board members, will elect the
directors at the annual meeting of the Foundation from those nominated by the
Nominating Committee. Only persons serving as directors of the Foundation
qualify as members of the Foundation with voting authority. Directors will be
divided into three classes with each class appointed for three-year terms. The
certificate of incorporation of the Foundation will provide that the Foundation
is organized exclusively for charitable purposes as set forth in Section
501(c)(3) of the Code. The Foundation's certificate of incorporation further
will provide that no part of the net earnings of the Foundation will inure to
the benefit of, or be distributable to, its directors, officers or members. A
person who is a director, officer or employee of the Association, or has the
power to direct its management or policies, or otherwise owes a fiduciary duty
to the Association, and who will also serve as a director or employee of the
Foundation would be subject to the requirements of OTS Conflicts of Interest
Regulations.

The authority for the affairs of the Foundation will be vested in the
board of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation is established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that the OTS will waive this voting restriction
under certain circumstances if compliance with the restriction would: (i) cause
a violation of the law of the State of Delaware and the OTS determines that
federal law would not preempt the application of the laws of the State of
Delaware to the Foundation; (ii) would cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (iii) would cause the Foundation to be subject to an excise
tax under Section 4941 of the Code. In order for the OTS to waive such voting
restriction, the Company's or the Foundation's legal counsel must render an
opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such legal opinion(s) by the Company or the Foundation. In the
event that the OTS waived the voting restriction, the directors would direct the
voting of the Common Stock held by the Foundation. However, a condition to the
OTS approval of the Conversion provides that in the event such voting
restriction is waived or becomes unenforceable, the Director of the OTS, or his
designees, at that time may impose conditions on the composition of the board of
directors of the Foundation or such other conditions or restrictions relating to
the control of the Common Stock held by the Foundation, any of which could limit
the ability of the board of directors of the Foundation to control the voting of
the Common Stock held by the Foundation. There will be no agreements or
understandings with directors of the Foundation regarding the exercise of
control, directly or indirectly, over the management or policies of the Company
or the Association, including agreements related to voting, acquisition or
disposition of the Company's stock. As directors of a nonprofit corporation,
directors of the Foundation will at all times be bound by their fiduciary duty
to advance the Foundation's charitable goals, to protect the assets of the
Foundation and to act in a manner consistent with the charitable purpose for
which the Foundation is established.

The Company will provide office space and administrative support services
to the Foundation. Initially, the Foundation is expected to have no employees.
The board of directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation. It is anticipated that
initially such officers will be selected from the board of directors of the
Foundation. Any transaction between the Association and the Foundation

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will comply with the affiliate transaction restrictions set forth in Sections
23A and 23B of the Federal Reserve Act, as amended.

The Company proposes to capitalize the Foundation with Company Common
Stock in an amount equal to 5% of the total amount of Common Stock to be sold in
connection with the Conversion. At the minimum, midpoint and maximum of the
Estimated Price Range, the contribution to the Foundation would equal 48,450,
57,000 and 65,550 shares, which would have a market value of $484,500, $570,000
and $655,500, respectively, based on the Purchase Price. Such contribution, once
made, will not be recoverable by the Company or the Association. The Company and
the Association determined to fund the Foundation with Common Stock rather than
cash because it desired to form a bond with its community in a manner that would
allow the community to share in the potential growth and success of the Company
and the Association over the long term. The funding of the Foundation with stock
also provides the Foundation with a potentially larger endowment than if the
Company contributed cash to the Foundation since, as a shareholder, the
Foundation will share in the potential growth and success of the Company. As
such, the contribution of stock to the Foundation has the potential to provide a
self- sustaining funding mechanism which reduces the amount of cash that the
Company, if it were not making the stock contribution, would have to contribute
to the Foundation in future years in order to maintain a level amount of
charitable grants and donations.

The Foundation would receive working capital from any dividends that may
be paid on the Common Stock in the future, and subject to applicable federal and
state laws, loans collateralized by the Common Stock or from the proceeds of the
sale of any of the Common Stock in the open market from time to time as may be
permitted to provide the Foundation with additional liquidity. As a private
foundation under Section 501(c)(3) of the Code, the Foundation will be required
to distribute annually in grants or donations, a minimum of 5% of the average
fair market value of its net investment assets. One of the conditions imposed on
the gift of Common Stock by the Company is that the amount of Common Stock that
may be sold by the Foundation in any one year shall not exceed 5% of the average
market value of the assets held by the Foundation, except where the board of
directors of the Foundation determines that the failure to sell an amount of
Common Stock greater than such amount would result in a long-term reduction of
the value of the Foundation's assets or would otherwise jeopardize the
Foundation's capacity to carry out its charitable purposes. While there may be a
greater risk associated with a one-stock portfolio in comparison to a
diversified portfolio, the Company believes any such risk is mitigated by the
ability of the Foundation's directors to sell more than 5% of its stock in such
circumstances. Upon completion of the Conversion and the contribution of shares
to the Foundation immediately following the Conversion, the Company would have
1,020,000, 1,200,000 and 1,380,000 shares issued and outstanding at the minimum,
midpoint and maximum of the Estimated Price Range. Because the Company will have
an increased number of shares outstanding, the voting and ownership interests of
shareholders in the Company's Common Stock would be diluted by 4.8%, as compared
to their interests in the Company if the Foundation was not established. For
additional discussion of the dilutive effect, see "Comparison of Valuation and
Pro Forma Information With No Foundation" and "Pro Forma Data."

COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE CONVERSION. The Company proposes to capitalize the
Foundation with Common Stock in an amount equal to 5% of the total amount of
Common Stock sold in connection with the Conversion. At the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, the contribution
to the Foundation would equal 48,450, 57,000, 65,550 and 75,383 shares,
respectively, which would have a market value of $484,500, $570,000, $655,500
and $753,830, respectively, based on the Purchase Price. Such contribution, once
made, will not be recoverable by the Company or the Association. As a result of
the establishment of the Foundation, the Estimated Price Range, as estimated by
Keller, has decreased and the amount of stock available for sale in the
Offerings has also correspondingly decreased. The amount of the decrease is
$90,950, $107,080, $123,050 and $141,483 shares, or $909,500, $1.1 million, $1.2
million and $1.4 million at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively. See "Pro Forma Data" and
"Comparison of Valuation and Pro Forma Data Information with No Foundation."

TAX CONSIDERATIONS. The Company and the Association have been advised by
their independent accountants that an organization created for the above
purposes will qualify as a 501(c)(3) exempt organization under the Code, and

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will be classified as a private foundation rather than a public charity. A
private foundation typically receives its support from one person or one
corporation whereas a public charity receives its support from the public. The
Foundation will submit a request to the IRS to be recognized as an exempt
organization after approval of the Foundation by the Association's members at
the Special Meeting being held to consider the Conversion. As long as the
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization. The Company's independent accountants,
however, have not rendered any advice on the condition of the gift which
requires that all shares of Common Stock of the Company held by the Foundation
must be voted in the same ratio as all other shares of the Company's Common
Stock, on all proposals considered by stockholders of the Company. In the event
that the Company or the Foundation receives an opinion of their tax counsel
satisfactory to the OTS that compliance with the voting restriction would cause
the Foundation to lose its tax-exempt status, otherwise have a material adverse
tax consequence on the Foundation or subject the Foundation to an excise tax
under Section 4941 of the Code, the OTS will waive such condition upon
submission of such opinion(s) by the Company or the Foundation. See
"--Regulatory Conditions Imposed on the Foundation."

A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
In addition, under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must merely be within reasonable limits as to
amount and purpose to be valid. Under the Code, the Company may deduct up to 10%
of its taxable income in any one year and any contributions made by the Company
in excess of the deductible amount will be deductible for federal tax purposes
over each of the five succeeding taxable years. The Company and the Association
believe that the Conversion presents a unique opportunity to establish and fund
a charitable foundation given the substantial amount of additional capital being
raised in the Conversion. In making such a determination, the Company and the
Association considered the dilutive impact of the Foundation on the amount of
Common Stock available to be offered for sale in the Conversion. See "Comparison
of Valuation and Pro Forma Information with No Foundation." Based on such
consideration, the Company and Association believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the
Association's capital position and its earnings, the substantial additional
capital being raised in the Conversion and the potential benefits of the
Foundation to the Association's community. In this regard, assuming the sale of
the Common Stock at the midpoint of the Estimated Price Range, the Company would
have pro forma consolidated capital of $18.7 million, or 15.4% of consolidated
assets and the Association's pro forma tangible, core and risk-based capital
ratios would be 12.0%, 12.0% and 23.9%, respectively. See "Regulatory Capital
Compliance," "Capitalization," and "Comparison of Valuation and Pro Forma
Information with No Foundation." Thus, the amount of the contribution will not
adversely impact the financial condition of the Company and the Association and
the Company and the Association therefore believe that the amount of the
charitable contribution is reasonable given the Company and the Association's
pro forma capital positions. As such, the Company and the Association believe
that the contribution does not raise safety and soundness concerns.

The Company and the Association have received an opinion of their
independent accountants that the Company's contribution of its own stock to the
Foundation will not constitute an act of self-dealing, and that the Company will
be entitled to a deduction in the amount of the fair market value of the stock
at the time of the contribution less the nominal par value that the Foundation
is required to pay to the Company for such stock, subject to a limitation based
on 10% of the Company's annual taxable income. The Company, however, would be
able to carry forward any unused portion of the deduction for five years
following the year in which the contribution is made for federal tax purposes.
Thus, while the Company expects, based on the maximum of the Estimated Price
Range, to be able to utilize for federal income tax purposes a charitable
contribution deduction of approximately $654,844 in fiscal year 1999, the
Company is permitted under the Code to carryover the excess of the total
contribution over such 1999 deduction over a five-year period for federal income
tax purposes. For Commonwealth of Pennsylvania state income tax purposes, the
Company also would be able to deduct its contribution to the Foundation and to
carry forward any unused portion over a five-year period, subject to the
limitation based on 10% of the Company's unconsolidated annual

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taxable income, and provided the Company generates sufficient state taxable
income on an unconsolidated basis. Assuming the close of the Offerings at the
maximum of the Estimated Price Range, the Company estimates that all of the
federal tax deduction should be deductible over the six-year period. However, no
assurances can be made that the Company will have sufficient pre-tax income over
the five year period following the year in which the contribution was made to
fully utilize the carryover related to the excess contribution. Neither the
Company nor the Association expects to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Association may consider future contributions to
the Foundation. Any such decisions would be based on an assessment of, among
other factors, the financial condition of the Company and the Association at
that time, the interests of shareholders and depositors of the Company and the
Association, and the financial condition and operations of the Foundation.

Although the Company and the Association have received an opinion of their
independent accountants that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's contribution to the Foundation
would be expensed without tax benefit, resulting in a reduction in earnings in
the year in which the IRS makes such a determination. See "Risk
Factors--Establishment of the Charitable Foundation." In cases of willful,
flagrant or repeated acts or failures to act which result in violations of the
IRS rules governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS. In such event,
the managers of a private foundation could be liable for excise taxes based on
such violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.

As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.

REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following that Conversion will be
subject to OTS regulations on stock repurchases; and (vii) any shares of Common
Stock of the Company held by the Foundation must be voted in the same ratio as
all other shares of the Company's Common Stock on all proposals considered by
stockholders of the Company; provided, however, that the OTS will waive this
voting restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware and
the OTS determines the federal law does not preempt the application of the laws
of the State of Delaware to the Foundation; (b) cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (c) cause the Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to waive such voting restriction,
the Company's or the Foundation's legal counsel must render an opinion
satisfactory to OTS that compliance with the voting restriction would have the
effect described in clauses (a), (b) or (c) above. Under those

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circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such opinion(s) by the Company or the Foundation. There can be no
assurances that either a legal or tax opinion addressing these issues will be
rendered, or if rendered, that the OTS will grant an unconditional waiver of the
voting restriction. In this regard, a condition to the OTS approval of the
Conversion provides that in the event such voting restriction is waived or
becomes unenforceable, the Director of the OTS, or his designees, at that time
may impose conditions on the composition of the board of directors of the
Foundation or such other conditions or restrictions relating to the control of
the Common Stock held by the Foundation, any of which could limit the ability of
the board of directors of the Foundation to control the voting of Common Stock
held by the Foundation. In no event will the voting restriction survive the sale
of shares of the Common Stock held by the Foundation.

In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Association's members eligible
to be cast at the special meeting being held to consider the Conversion. The
Foundation will be considered as a separate matter from approval of the Plan of
Conversion. If the Association's members approve the Plan of Conversion, but not
the Foundation, the Association intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
for sale in the Offering since the Estimated Price Range, as set forth herein,
takes into account the dilutive impact of the issuance of shares to the
Foundation. See "Comparison of Valuation and Pro Forma Information With No
Foundation."

PURPOSES OF CONVERSION

The Association, as a Pennsylvania-chartered mutual savings and loan
association, does not have shareholders and has no authority to issue capital
stock. By converting to the capital stock form of organization, the Association
will be structured in the form used by commercial banks, other business entities
and a growing number of savings institutions. The Conversion will enhance the
Association's ability to access capital markets, expand its current operations,
acquire other financial institutions or branch offices, provide affordable home
financing opportunities to the communities it serves or diversify into other
financial services to the extent allowable by applicable law and regulation. The
Conversion would also position the Association for a conversion to a commercial
bank charter if the Board of the Association chooses to do so in the future.

The holding company form of organization, if used, would provide
additional flexibility to diversify the Association's business activities
through existing or newly formed subsidiaries, or through acquisitions of or
mergers with both mutual and stock institutions, as well as other companies.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, the Company will be in a position after the
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise.

The potential impact of the Conversion upon the Association's capital
base is significant. The Conversion will significantly increase the
Association's capital position to a level whereby the Association will be better
positioned to take advantage of business opportunities and engage in activities
which, prior to Conversion, would have been more difficult for the Association
to engage in and still continue to meet its status as a "well capitalized"
institution. At June 30, 1998, the Association had total equity, determined in
accordance with GAAP, of $9.2 million, or 8.2% of total assets, which
approximated the Association's regulatory tangible capital at that date of 8.4%
of assets. An institution with a ratio of tangible capital to total assets of
greater than or equal to 5.0% is considered to be "well-capitalized" pursuant to
OTS regulations. Assuming that the Company uses 50% of the net proceeds at the
maximum of the Estimated Price Range to purchase the stock of the Association,
the Association's GAAP capital will increase to $14.6 million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of 12.4% after the Conversion.
In the event that the holding company form of organization is not utilized and
all of the net Conversion proceeds, at the midpoint of the Estimated Price
Range, are retained by the Association, the Association's ratios of tangible and
core capital to adjusted assets, on a pro forma basis, will both increase to
15.3% after Conversion. The investment of the net proceeds from the sale of the
Common Stock is expected to provide the Association with additional income to
increase further

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its capital position. The additional capital may also assist the Association in
offering new programs and expanded services to its customers. See "Use of
Proceeds."

After completion of the Conversion, the unissued common and preferred
stock authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and any required regulatory approval of an
offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the possible issuance of additional shares upon
exercise of Stock Options under the Stock-Based Incentive Plan or the possible
issuance of authorized but unissued shares to the Stock-Based Incentive Plan for
Stock Awards. Following the Conversion, the Company will also be able to use
stock-related incentive plans to attract and retain executive and other
personnel for itself and its subsidiaries. See "Management of the
Association--Executive Compensation."

EFFECTS OF CONVERSION

GENERAL. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution or in the
event the institution declares a capital distribution to depositors, subject to
applicable regulations of the OTS and the Pennsylvania Department. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.

Consequently, mutual savings institution depositors normally have no way
to realize the value of their ownership interest, which has realizable value
only in the unlikely event that the mutual savings institution is liquidated or
in the event the institution declares a capital distribution to depositors,
subject to applicable regulations of the OTS. In such event, the depositors of
record at that time, as owners, would share pro rata in any residual surplus and
reserves after other claims, including claims of depositors to the amounts of
their deposits, are paid.

When a mutual savings institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. THE COMMON STOCK IS SEPARATE AND APART FROM DEPOSIT
ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY. Certificates are issued to evidence ownership of the capital stock. The
stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.

CONTINUITY. While the Conversion is being accomplished, the normal
business of the Association of accepting deposits and making loans will continue
without interruption. The Association will continue to be subject to regulation
by the OTS and the FDIC. After the Conversion, the Association will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.

The Directors serving the Association at the time of Conversion will serve
initially as Directors of the Association after the Conversion. The Directors of
the Company will consist initially of individuals currently serving on the Board
of Directors of the Association. All officers of the Association at the time of
Conversion will retain their positions immediately after Conversion.

EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the
Association at the time of Conversion will automatically continue as a depositor
after the Conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms. Each such account
will be insured by the FDIC to the same extent as before the Conversion (i.e.,
up to $100,000 per depositor). Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.

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EFFECT ON LOANS. No loan outstanding from the Association will be affected
by the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.

EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Association as to all matters requiring membership action. Upon Conversion,
depositors and borrowers will cease to be members and will no longer be entitled
to vote at meetings of the Association. Upon Conversion, all voting rights in
the Association will be vested in the Company as the sole stockholder of the
Association. Exclusive voting rights with respect to the Company will be vested
in the holders of Common Stock. Depositors and borrowers of the Association will
not have voting rights after the Conversion except to the extent that they
become stockholders of the Company through the purchase of Common Stock.

TAX EFFECTS. The Association has received an opinion from Muldoon,
Murphy & Faucette with regard to federal income taxation and an opinion from
Parente, Randolph, Orlando, Carey & Associates with regard to Pennsylvania
income taxation which provide that the adoption and implementation of the
Plan of Conversion set forth herein will not be taxable for federal or
Pennsylvania income tax purposes to the Association, its Eligible Account
Holders, or its Supplemental Eligible Account Holders or the Company, except
as discussed below. See "--Tax Aspects."

EFFECT ON LIQUIDATION RIGHTS. If a mutual savings institution were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Association were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see
"--Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Association's capital stock. Pursuant to the rules
and regulations of the OTS, a post-Conversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.

STOCK PRICING

The Plan of Conversion requires that the aggregate purchase price of the
Common Stock must be based on the appraised pro forma market value of the Common
Stock, as determined on the basis of an independent valuation. The Association
and the Company have retained Keller to make such valuation. For its services in
making such appraisal, Keller will receive a fee of $21,000 plus reasonable
expenses not to exceed $1,000. The Association and the Company have agreed to
indemnify Keller and its employees and affiliates against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where Keller's liability
results from its negligence, willful misconduct or bad faith.

An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Financial Statements. Keller also
considered the following factors, among others: the present and projected
operating results and financial condition of the Company and the Association and
the economic and demographic conditions in the Association's existing marketing
area; certain historical, financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other similarly situated publicly-traded
savings banks and savings institutions located in the Association's market area
and the Midwest and the Mid-Atlantic areas of the United States; the aggregate
size of the offering of the Common Stock; the impact of Conversion on the
Association's net worth and earnings potential; the proposed dividend policy of
the Company and the Association; and the trading market for securities of
comparable institutions and general conditions in the market for such
securities.

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On the basis of the foregoing, Keller has advised the Company and the
Association that, in its opinion, dated August 14, 1998 and updated on October
23, 1998, the estimated pro forma market value of the Common Stock, being
offered for sale ranged from a minimum of $9.7 million to a maximum of $13.1
million with a midpoint of $11.4 million. Based upon the Valuation Range and the
Purchase Price for the Common Stock established by the Board of Directors, the
Board of Directors has established the Estimated Price Range of $9.7 million to
$13.1 million, with a midpoint of $11.4 million, and the Company expects to
issue between 971,550 and 1,314,450 shares of Common Stock. The Board of
Directors of the Company and the Association have reviewed the appraisal of
Keller and in determining the reasonableness and adequacy of such appraisal
consistent with OTS regulations and policies, have reviewed the methodology and
reasonableness of the assumptions utilized by Keller in the preparation of such
appraisal. The Estimated Price Range may be amended with the approval of the OTS
(if required), if necessitated by subsequent developments in the financial
condition of the Company or the Association or market conditions generally. The
$10.00 per share price for the Common Stock was based on the consideration of a
number of factors, including the potential after market liquidity of the stock,
stock exchange or AMEX listing requirements and other marketing conditions.

SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK IN
THE OFFERINGS. KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID KELLER VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION. THE APPRAISAL
CONSIDERS THE ASSOCIATION AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN
INDICATION OF THE LIQUIDATION VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE SUCH
APPRAISAL IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING COMMON STOCK IN THE CONVERSION WILL THEREAFTER
BE ABLE TO SELL COMMON STOCK AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE
RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE
"RISK FACTORS--ABSENCE OF MARKET FOR COMMON STOCK."

Following commencement of the Subscription Offering, the maximum of the
Estimated Price Range may be increased up to 15% and the number of shares of
Common Stock to be issued in the Conversion may be increased to 1,511,617 shares
due to regulatory considerations, changes in the market and general financial
and economic conditions, without the resolicitation of subscribers. See
"--Limitations on Common Stock Purchases" as to the method of distribution and
allocation of additional shares that may be issued in the event of an increase
in the Estimated Price Range to fill unfilled orders in the Subscription
Offering.

No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, would cause Keller to conclude that the value of
the Common Stock at the price so determined is incompatible with its estimate of
the pro forma market value of the Common Stock at the conclusion of the
Subscription Offering.

If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Association and the Company, after consulting with
the OTS, may terminate the Plan and return all funds promptly with interest at
the Association's passbook rate of interest on payments made by check, bank
draft or money order, extend or hold a new Subscription Offering and/or
Community Offering, establish a new Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription Offering
would not exceed 45 days unless further extended by the OTS for periods of up to
90 days not to extend beyond March 30, 2000.

If all shares of Common Stock are not sold through the Subscription
Offering or Community Offering, then the Association and the Company expect to
offer the remaining shares in a Syndicated Community Offering which would occur
as soon as practicable following the close of the Subscription Offering but may
commence during the Subscription Offering subject to prior rights of
subscribers. All shares of Common Stock will be sold at the same price

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per share in the Syndicated Community Offering as in the Subscription Offering
and Community Offering. See "--Syndicated Community Offering."

No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to OTS approval.
If such confirmation is not received, the Association may extend the Conversion,
extend, reopen or commence a new Subscription Offering, Community Offering or
Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Association determine
to continue the Conversion, subscribers will be resolicited (i.e., be permitted
to continue their orders, in which case they will need to affirmatively
reconfirm their subscriptions prior to the expiration of the resolicitation
offering or their subscription funds will be promptly refunded with interest at
the Association's passbook rate of interest, or be permitted to decrease or
cancel their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. A resolicitation, if any, following the conclusion of the
Subscription Offering would not exceed 45 days unless further extended by the
OTS for periods up to 90 days not to extend beyond ________, 2000. If such
resolicitation is not effected, the Association will return all funds promptly
with interest at the Association's passbook rate of interest on payments made by
check, bank draft or money order.

Copies of the appraisal report of Keller, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Association and the other locations specified under "Additional
Information."

NUMBER OF SHARES TO BE ISSUED

Depending upon market or financial conditions following the commencement
of the Subscription Offering, the total number of shares to be issued in the
Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
price per share is not below the minimum of the Estimated Price Range or more
than 15% above the maximum of the Estimated Price Range. Based on a fixed
purchase price of $10.00 per share and Keller's estimate of the pro forma market
value of the Common Stock ranging from a minimum of $9.7 million to a maximum,
as increased by 15%, of $15.1 million, the number of shares of Common Stock
expected to be sold in the Conversion is between a minimum of 971,550 shares and
a maximum, as adjusted by 15%, of 1,511,617 shares. The actual number of shares
sold between this range will depend on a number of factors and shall be
determined by the Association and Company subject to OTS approval, if necessary.

In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Association after consultation
with the OTS, purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. If the number of shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "--Limitations on Common Stock
Purchases."

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In the event the members of the Association approve the establishment of
the Foundation, the number of shares to be issued and outstanding following the
Conversion will be increased by a number of shares equal to 5.0% of the Common
Stock sold in the Conversion. Assuming the sale of shares in the Offerings at
the maximum of the Estimated Price Range, the Company will issue 65,550 shares
of its Common Stock from authorized but unissued shares to the Foundation
immediately following the completion of the Conversion. In that event, the
Company will have total shares of Common Stock outstanding of 1,380,000 shares.
Of that amount, the Foundation will own 4.8%. Funding the Foundation with
authorized but unissued shares will have the effect of diluting the ownership
and voting interests of persons purchasing shares in the Conversion by 4.8%
since a greater number of shares will be outstanding upon completion of the
Conversion than would be if the Foundation were not established. See "Pro Forma
Data."

An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with a balance of $50 or more as of March 31, 1997 ("Eligible
Account Holders"); (2) the ESOP; (3) holders of deposit accounts with a balance
of $50 or more as of _______________, 1998 ("Supplemental Eligible Account
Holders"); and (4) members of the Association, consisting of depositors of the
Association as of __________, 1998, (the "Voting Record Date"), and borrowers
with loans outstanding as of _______________, 1998, which continue to be
outstanding as of the Voting Record Date other than Eligible Account Holders and
Supplemental Eligible Account Holders ("Other Members"). All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan of Conversion and as described below under "--Limitations on Common Stock
Purchases."

Deposit accounts which will provide subscription rights to holders thereof
consist of any "savings account," as defined by the Plan of Conversion
consistent with OTS regulations. Pursuant to the Plan and federal regulation,
certain deposits do not qualify as "savings accounts," including but not limited
to noninterest-bearing demand accounts, (primarily noninterest-bearing checking
accounts) and mortgage escrow deposits, maintained at the Association.

PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of (1)
the amount permitted to be purchased in the Community Offering, currently
$150,000 of Common Stock; (2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or (3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Association with a balance of $50 or more as of
March 31, 1997) and the denominator is the total amount of Qualifying Deposits
of all Eligible Account Holders, in each case on the Eligibility Record Date,
subject to the overall purchase limitation and exclusive of an increase in the
shares issued pursuant to an increase in the Estimated Price Range of up to 15%.
See "--Limitations on Common Stock Purchases."

In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock

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equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.

To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Association or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the 12
months preceding June 30, 1997.

PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Conversion, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Conversion after the date hereof as a result of an increase of up
to 15% in the maximum of the Estimated Price Range. The ESOP intends to purchase
8% of the shares to be issued in the Conversion, including shares issued to the
Foundation, or 81,600 shares and 110,400 shares, based on the minimum and
maximum of the Estimated Price Range, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
Offering, including subscriptions of any of the Association's directors,
officers, employees or associates thereof. See "Management of the
Association--Other Benefit Plans--Employee Stock Ownership Plan."

PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third
priority, nontransferable subscription rights to subscribe for in the
Subscription Offering up to the greater of the amount permitted to be
purchased in the Community Offering, currently $150,000 of Common Stock,
one-tenth of one percent (.10%) of the total offering of shares of Common
Stock or fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Supplemental
Eligible Account Holder's Qualifying Deposit and the denominator is the total
amount of Qualifying Deposits of all Supplemental Eligible Account Holders,
in each case on the Supplemental Eligibility Record Date, subject to the
overall purchase limitation and exclusive of an increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. See
"--Limitations on Common Stock Purchases."

In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Supplemental Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.

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To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.

PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $150,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall purchase
limitation and exclusive of an increase in shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.

In the event that Other Members subscribe for a number of shares of
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and the Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more remaining
Other Members, the excess shall be reallocated (one or more times as necessary)
among those remaining Other Members whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.

EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will terminate at __:__ _.m., Eastern time on ______________, 1998 (the
"Expiration Date"), unless extended for up to 45 days by the Association
or such additional periods with the approval of the OTS. Subscription rights
which have not been exercised prior to the Expiration Date will become void.

The Association will not execute orders until all shares of Common Stock
have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the OTS, all funds delivered to the
Association pursuant to the Subscription Offering will be returned promptly to
the subscribers with interest and all withdrawal authorizations will be
canceled. If an extension beyond the 45 day period following the Expiration Date
is granted, the Association will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions and have
their funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Association of their intention to
confirm, modify, or rescind their subscription. If an affirmative response to
any resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond ________, 2000.

COMMUNITY OFFERING

To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Association intends to offer
shares pursuant to the Plan to certain members of the general public in a
Community Offering. The Community Offering may be commenced prior to the
expiration of the Subscription Offering. In the event a Community Offering is
held, a preference will be given to Preferred Subscribers, subject to the right
of the Company to accept or reject any such orders, in whole or in part, in
their sole discretion. Persons purchasing stock in the Community Offering,
together with associates of and persons acting in concert with such persons, may
purchase up to $150,000 of Common Stock

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subject to the maximum purchase limitation and exclusive of shares issued
pursuant to an increase in the Estimated Price Range by up to 15%. See
"--Limitations on Common Stock Purchases." This amount may be increased to up to
a maximum of 5% or decreased to less than $150,000 at the sole discretion of the
Company and the Association. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON
STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE
ASSOCIATION AND THE COMPANY, IN ITS SOLE DISCRETION, TO ACCEPT OR REJECT ANY
SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS
SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.

Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of Preferred Subscribers after completion of the Subscription
Offering and Community Offering, such stock will be allocated first to each
Preferred Subscriber whose order is accepted by the Association, in an amount
equal to the lesser of 100 shares or the number of shares subscribed for by each
such Preferred Subscriber, if possible. Thereafter, unallocated shares will be
allocated among the Preferred Subscribers whose order remains unsatisfied on a
100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated. If there are any shares remaining, shares
will be allocated to other persons of the general public who purchase in the
Community Offering applying the same allocation described above for Preferred
Subscribers.

PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES

The Company and the Association will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for stock pursuant to the Plan reside. However, the Plan
provides that the Association and the Company are not required to offer stock in
the Subscription Offering to any person who resides in a foreign country or
resides in a state of the United States with respect to which both of the
following apply: (i) a small number of persons otherwise eligible to subscribe
for shares of Common Stock reside in such state; and (ii) the Company or the
Association determines that compliance with the securities laws of such state
would be impracticable for reasons of cost or otherwise, including but not
limited to a request that the Company and the Association or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request to register or otherwise
qualify the subscription rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small, the Association and the Company will
base their decision as to whether or not to offer the Common Stock in such state
on a number of factors, including the size of accounts held by account holders
in the state, the cost of registering or qualifying the shares or the need to
register the Company, its officers, directors or employees as brokers, dealers
or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

The Association and the Company have engaged Sandler O'Neill as a
consultant and financial advisor in connection with the offering of the Common
Stock, and Sandler O'Neill has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Common Stock in the Offerings.
Based upon negotiations between the Association and the Company concerning fee
structure, Sandler O'Neill will receive a fee equal to 2% of the aggregate
Purchase Price of the shares sold in the Subscription and Community Offerings,
excluding shares purchased by directors, officers, employees, and any immediate
family member thereof, and any employee benefit plan of the Company or
Association, including the ESOP for which Sandler O'Neill will not receive a
fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Association will pay a fee
(to be negotiated at such time under such agreement) to such selected dealers,
any sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.5% for
shares sold by a National Association of Securities Dealers, Inc. member firms
pursuant to a selected dealers agreement; provided, however, that any fees
payable to Sandler O'Neill for Common Stock sold by them pursuant to such a
selected dealers agreement shall not exceed 2% of the Purchase Price and
provided, further, however, that the aggregate fees payable to Sandler O'Neill
and the selected dealers will not exceed 5% of the aggregate purchase price of
the Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any
other broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill
and such broker-dealers may be deemed to be underwriters. The Company and the
Association have agreed to indemnify Sandler O'Neill for reasonable costs and
expenses in connection with certain claims or liabilities, including certain
liabilities under the Securities Act. Sandler

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O'Neill has received advances towards its fees totaling $25,000. Total marketing
fees to Sandler O'Neill are expected to be $163,500 and $226,400 at the minimum
and the maximum of the Estimated Price Range, respectively. See "Pro Forma Data"
for the assumptions used to arrive at these estimates.

Sandler O'Neill will perform proxy solicitation services, conversion agent
services and records management services for the Association in the Conversion
and will receive a fee for these services of $10,000. Sandler O'Neill will be
reimbursed for its out-of-pocket expenses (including legal fees, subject to a
maximum of $50,000). Directors and executive officers of the Company and
Association may participate in the solicitation of offers to purchase Common
Stock. Questions of prospective purchasers will be directed to executive
officers or registered representatives. Other employees of the Association may
participate in the Offering in ministerial capacities or providing clerical
work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock. The Company will rely on Rule 3a4-1
under the Exchange Act, and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees
to participate in the sale of Common Stock. No officer, director or employee of
the Company or the Association will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.

PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND COMMUNITY OFFERINGs

To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in the case of the Subscription Offering or the
termination of the Community Offering in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the stock order form and certification form will confirm receipt or
delivery in accordance with Rule 15c2-8. Stock order and certification forms
will only be distributed with a prospectus.

To purchase shares in the Offerings, an executed stock order form and
certification form with the required payment for each share subscribed for, or
with appropriate authorization for withdrawal from the Association's deposit
account (which may be given by completing the appropriate blanks in the stock
order form), must be received by the Association at any of its offices by 12:00
noon, Eastern time, on the Expiration Date in the case of the Subscription
Offering or the termination of the Community Offering. Stock order forms which
are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Association and Company are not obligated to
accept orders submitted on photocopied or facsimilied stock order forms and will
not accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the Community Offering at
any time prior to 48 hours before the completion of the Conversion. The Company
and the Association have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Association unless the Conversion has not
been completed within 45 days after the end of the Subscription Offering, unless
such period has been extended.

In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (March 31,
1997) and/or the Supplemental Eligibility Record Date (_______________, 1998)
and/or the Voting Record Date (__________, 1998) must list all accounts on the
stock order form giving all names in each account and the account number.

Payment for subscriptions may be made (i) in cash if delivered in person
at any branch office of the Association, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Association. No wire transfers will be accepted. Interest will be paid
on payments made by cash, check, bank draft or money order at the Association's
passbook rate of interest from the date payment is received until the completion
or termination of the Conversion. Orders for Common Stock submitted by
subscribers in the

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Subscription Offering which aggregate $50,000 or more must be paid by official
or certified check or by withdrawal authorization from a deposit account of the
Association. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion.

If a subscriber authorizes the Association to withdraw the amount of the
purchase price from his deposit account, the Association will do so as of the
effective date of the Conversion. The Association will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the
Association's passbook rate.

If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription Offering, if all
shares are sold, or upon consummation of the Community Offering or Syndicated
Community Offering if shares remain to be sold in such offerings; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.

Owners of self-directed Individual Retirement Accounts ("IRAs") and
Qualified Plans may use the assets of such IRAs and Qualified Plans to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering,
provided that such IRAs are not maintained at the Association. Persons with
self-directed IRAs and Qualified Plans maintained at the Association must have
their accounts transferred to an unaffiliated institution or broker to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering.
In addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA funds and
Qualified Plans to purchase shares of Common Stock in the Subscription Offering
and/or Community Offering, make such purchases for the exclusive benefit of the
IRAs and Qualified Plans.

Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP, the Supplemental Eligible Account Holders and Other Members
of the Association, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.

THE ASSOCIATION AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND
EQUITABLE REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE
TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO
INVOLVE THE TRANSFER OF SUCH RIGHTS.

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SYNDICATED COMMUNITY OFFERING

As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Association in the sale of the Common Stock. The
Company and the Association have the right to reject orders in whole or in part
in their sole discretion in the Syndicated Community Offering. Neither Sandler
O'Neill nor any registered broker-dealer shall have any obligation to take or
purchase any shares of the Common Stock in the Syndicated Community Offering,
however, Sandler O'Neill has agreed to use its best efforts in the sale of
shares in the Syndicated Community Offering.

The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "--Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than $150,000 of the Common Stock, exclusive of an
increase in shares issued pursuant to an increase in the Estimated Price Range
of up to 15%; provided, however, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of or persons acting
in concert with such persons, will be aggregated with purchases in the
Syndicated Community Offering and be subject to an overall maximum purchase
limitation of the greater of (i) $150,000 or (ii) 1.0% of the shares offered,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.

Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Association's passbook rate of interest from the date
such payment is actually received by the Association until completion or
termination of the Conversion.

In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Association for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Association for deposit in a segregated
account. Although purchasers' funds are not required to be in their accounts
with selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.

Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.

The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Offering Expiration Date, unless extended by the
Company with the approval of the OTS. Such extensions may not be beyond
________, 2000. See "--Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.

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LIMITATIONS ON COMMON STOCK PURCHASES

The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:

(1) No less than 25 shares;

(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted
to be purchased in the Community Offering, currently $150,000 of
Common Stock; 2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or 3) fifteen times the product
(rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of
which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;

(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, including shares issued in the event of an
increase in the Estimated Price Range of 15%, and intends to
purchase 8% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation;

(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of: 1) the
amount permitted to be purchased in the Community Offering,
currently $150,000 of Common Stock; 2) one-tenth of one percent
(.10%) of the total offering of shares of Common Stock; or 3)
fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock
to be issued by a fraction of which the numerator is the amount of
the Qualifying Deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of Qualifying Deposits of
all Supplemental Eligible Account Holders, in such case on the
Supplemental Eligibility Record Date subject to the overall maximum
purchase limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Price Range of up to 15%;

(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of: 1) the amount permitted to be
purchased in the Community Offering, currently $150,000 of Common
Stock; or 2) one-tenth of one percent (.10%) of the total offering
of shares of Common Stock, in each case subject to the overall
maximum purchase limitation in (8) below and exclusive of an
increase in the total number of shares issued due to an increase in
the Estimated Price Range of up to 15%;

(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to
$150,000 of Common Stock, subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;

(7) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons acting
in concert with such persons, may purchase in the Syndicated
Offering up to $150,000 of Common Stock, subject to the overall
maximum purchase limitation in (8) below and exclusive of an
increase in the total number of shares issued due to an increase in
the Estimated Price Range of up to 15% and, provided further that
shares of Common Stock purchased

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in the Community Offering by any persons, together with associates
of or persons acting in concert with such persons, will be
aggregated with purchases in the Syndicated Community Offering in
applying the $150,000 purchase limitation;

(8) Except for the ESOP, the overall maximum number of shares of Common
Stock subscribed for or purchased in all categories of the
Conversion by any person, together with associates of or persons
acting in concert with such persons, shall not exceed $150,000; and

(9) No more than 30% of the total number of shares offered for sale in
the Conversion may be purchased by directors and officers of the
Association and their associates in the aggregate, excluding
purchases by the ESOP.

Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Association, both the individual amount permitted to be subscribed for and
the overall maximum purchase limitation may be increased to up to a maximum of
5% at the sole discretion of the Company and the Association. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Association may be, given the
opportunity to increase their subscriptions up to the then applicable limit. In
addition, the Boards of Directors of the Company and the Association may, in
their sole discretion, increase the maximum purchase limitation referred to
above up to 9.99%, provided that orders for shares exceeding 5% of the shares
being offering in the Subscription and Community Offerings shall not exceed, in
the aggregate, 10% of the shares being offered in the Subscription and Community
Offerings. Requests to purchase additional shares of Common Stock under this
provision will be determined by the Boards of Directors and, if approved,
allocated on a pro rata basis giving priority in accordance with the priority
rights set forth herein.

The overall maximum purchase limitation may not be reduced to less than 1%
of the shares of Common Stock offered in the Conversion exclusive of an increase
in the total number of shares issued due to an increase in the Estimated Price
Range of up to 15% but the individual amount permitted to be subscribed for may
be reduced by the Association to less than $150,000 subject to paragraphs (2),
(4) and (5) above without the further approval of members or resolicitation of
subscribers. An individual Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 1.0% of the shares offered, if
such limit were to become greater than $150,000, but may make such purchase,
together with associates of and persons acting in concert with such person, by
also purchasing in other available categories of the Conversion, subject to
availability of shares and the overall maximum purchase limit for purchases in
the Conversion.

In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the amount of Common Stock issued in the Conversion,
including shares issued to the Foundation, at the Adjusted Maximum number of
shares; (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unsatisfied subscriptions of Eligible Account Holders,
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill unsatisfied
subscriptions of Supplemental Eligible Account Holders, exclusive of the
Adjusted Maximum; (iv) in the event that there is an oversubscription by Other
Members, to fill unsatisfied subscriptions of Other Members exclusive of the
Adjusted Maximum; and (v) to fill unsatisfied subscriptions in the Community
Offering to the extent possible, exclusive of the Adjusted Maximum, with
preference to institutional investors then a preference to Preferred
Subscribers.

The term "associate" of a person is defined to mean: (i) any corporation,
partnership (other than the Association or a majority-owned subsidiary of the
Association) of which such person is an officer, partner or 10% stockholder;
(ii) any trust or other estate in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity; provided,
however, such term shall not include any employee stock benefit plan of the
Association in which such person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such spouse, who either has the same
home

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as such person or who is a director or officer of the Association. Directors are
not treated as associates of each other solely because of their Board
membership. For a further discussion of limitations on purchases of a converting
institution's stock at the time of Conversion and subsequent to Conversion, see
"Management of the Association--Subscriptions by Executive Officers and
Directors," "--Certain Restrictions on Purchase or Transfer of Shares After
Conversion" and "Restrictions on Acquisition of the Company and the
Association."

LIQUIDATION RIGHTS

In the unlikely event of a complete liquidation of the Association in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Association remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his deposit account was to the total value
of all deposit accounts in the Association at the time of liquidation. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Association. However, except as described below, his
claim would be solely in the amount of the balance in his deposit account plus
accrued interest. He would not have an interest in the value or assets of the
Association above that amount.

The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Association as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Conversion.
Each Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at the Association, would be
entitled, on a complete liquidation of the Association after the Conversion, to
an interest in the liquidation account prior to any payment to the stockholders
of the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including regular accounts, transaction accounts such as
NOW accounts, money market deposit accounts, and certificates of deposit, with a
balance of $50 or more held in the Association on March 31, 1997 and
_______________, 1998, respectively. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the total
liquidation account based on the proportion that the balance of his Qualifying
Deposits on the Eligibility Record Date or Supplemental Eligibility Record Date,
respectively, bore to the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
Association. For deposit accounts in existence at both dates separate
subaccounts shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on such respective record dates.

If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.

TAX ASPECTS

Consummation of the Conversion is expressly conditioned upon the receipt
by the Association of either a favorable ruling from the IRS or an opinion with
respect to federal income taxation, and an opinion with respect to Pennsylvania
income taxation, to the effect that the Conversion will not be a taxable
transaction to the Company, the Association, Eligible Account Holders, or
Supplemental Eligible Account Holders except as noted below. The federal

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and Pennsylvania income tax consequences will remain unchanged in the event that
a holding company form of organization is not utilized.

No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Association has received an opinion of its
counsel, Muldoon, Murphy & Faucette, that for federal income tax purposes, among
other matters: (i) the Association's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(1)(F) of the
Code and neither the Association nor the Company will recognize any gain or loss
as a result of the Conversion; (ii) no gain or loss will be recognized to the
Association or the Company upon the purchase of the Association's capital stock
by the Company or to the Company upon the purchase of its Common Stock in the
Conversion; (iii) no gain or loss will be recognized by Eligible Account Holders
or Supplemental Eligible Account Holders upon the issuance to them of Deposit
Accounts in the Association in its stock form plus their interests in the
liquidation account in exchange for their deposit accounts in the Association;
(iv) the tax basis of the depositors' accounts in the Association immediately
after the Conversion will be the same as the basis of their deposit accounts
immediately prior to the Conversion; (v) the tax basis of each Eligible Account
Holder's and Supplemental Eligible Account Holder's interest in the liquidation
account will be zero; (vi) no gain or loss will be recognized by Eligible
Account Holders or Supplemental Eligible Account Holders upon the distribution
to them of nontransferable subscription rights to purchase shares of the Common
Stock, provided that the amount to be paid for the Common Stock is equal to the
fair market value of such stock; and (vii) the tax basis to the stockholders of
the Common Stock of the Company purchased in the Conversion will be the amount
paid therefor and the holding period for the shares of Common Stock purchased by
such persons will begin on the date on which their subscription rights are
exercised. Parente, Randolph, Orlando, Carey & Associates has opined that the
Conversion will not be a taxable transaction to the Company, the Association,
Eligible Account Holders or Supplemental Eligible Account Holders for
Pennsylvania income tax purposes. Certain portions of both the federal and the
state income tax opinions are based upon the assumption that the subscription
rights issued in connection with the Conversion will have no value.

Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant is not binding on the IRS and the IRS could disagree with
conclusions reached therein. In the event of such disagreement, there can be no
assurance that the IRS would not prevail in a judicial or administrative
proceeding.

Keller has issued an opinion stating that, pursuant to its valuation,
Keller is of the opinion that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the shares of
Common Stock sold in the Community Offering. Such valuation is not binding on
the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Association could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.

INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION

To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of the Association will be final. The Plan provides that the
Association's Board of Directors shall have the discretion to interpret and
apply the provisions of the Plan to particular circumstances and that such
interpretation or application shall be final. This includes any and all
interpretations, applications and determinations made by the Board of Directors
on the basis of such information and assistance as was then reasonably available
for such purpose.

The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Association's Board of Directors. After submission of the proxy materials to
the members, the Plan may be

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amended by a two-thirds vote of the Association's Board of Directors at any time
prior to the Special Meeting with the concurrence of the OTS. The Plan may be
amended at any time after the approval of members with the approval of the OTS
and no further approval of the members will be necessary unless otherwise
required by the OTS. By adoption of the Plan, the Association's members will be
deemed to have authorized amendment of the Plan under the circumstances
described above.

The establishment of the Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Association's members
approve the Plan of Conversion, but not the creation of the Foundation, the
Association intends to complete the Conversion without the Foundation. Failure
to approve the establishment of the Foundation may materially increase the pro
forma market value of the Common Stock since the Valuation Range, as set forth
herein, takes into account the dilutive impact of the issuance of shares to the
Foundation. In such an event, the Association may establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "--Stock Pricing."

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION

All shares of Common Stock purchased in connection with the Conversion by
a director or an officer of the Association will be subject to a restriction
that the shares not be sold for a period of one year following the Conversion,
except in the event of the death of such director or officer. Each certificate
for restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and officers of the Association will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.

Purchases of outstanding shares of Common Stock of the Company by
directors, officers (or any person who was an officer or director of the
Association after adoption of the Plan of Conversion) and their associates
during the three-year period following Conversion may be made only through a
broker or dealer registered with the SEC, except with the prior written approval
of the OTS. This restriction does not apply, however, to negotiated transactions
involving more than 1.0% of the Company's outstanding Common Stock or to the
purchase of stock pursuant to any stock option plan to be established after the
Conversion.

Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
after the Conversion except: (i) for an offer to all stockholders on a pro rata
basis; or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing, beginning one year following completion of the
Conversion the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a
twelve-month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following Conversion, provided there are valid and compelling business reasons
for such repurchases and the OTS approves such repurchases.

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RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE ASSOCIATION

GENERAL

The Association's Plan of Conversion provides for the Conversion of the
Association from the mutual to the stock form of organization and, in connection
therewith, a new Stock Articles of Incorporation and Bylaws to be adopted by
members of the Association. The Plan also provides for the concurrent formation
of a holding company, which form of organization may or may not be utilized at
the option of the Board of Directors of the Association. See "The
Conversion--General." In the event that the holding company form of organization
is utilized, as described below, certain provisions in the Company's Certificate
of Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In the event that the holding company form
of organization is not utilized, the Association's Stock Charter and Bylaws and
management remuneration entered into in connection with the Conversion may have
anti-takeover effects as described below. In addition, regulatory restrictions
may make it difficult for persons or companies to acquire control of either the
Company or the Association.

RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the material
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which shareholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.

LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Association or Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially owned, or deemed by the Company to be
beneficially owned, by such person and his affiliates. The Certificate of
Incorporation of the Company further provides that this provision limiting
voting rights may only be amended upon the vote of 80% of the outstanding shares
of voting stock (after giving effect to the limitation on voting rights).

BOARD OF DIRECTORS. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy

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created by an increase in the number of directors or resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the directors then in office. The classified Board is intended
to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Company. The Certificate of Incorporation of
the Company provides that a director may be removed from the Board of Directors
prior to the expiration of his term only for cause, upon the vote of 80% of the
outstanding shares of voting stock.

In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.

CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.

AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee Stock Options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock Program and upon exercise of Stock Options to be issued
pursuant to the terms of the Stock Option Plan, all of which are to be
established and presented to stockholders at the first annual meeting after the
Conversion.

STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of the Company's Board of Directors who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the
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assets of the Company or combined assets of the Company and its subsidiary;
(iii) the issuance or transfer to any Interested Stockholder or its Affiliate by
the Company (or any subsidiary) of any securities of the Company in exchange for
any assets, cash or securities the value of which equals or exceeds 25% of the
fair market value of the Common Stock of the Company; (iv) the adoption of any
plan for the liquidation or dissolution of the Company proposed by or on behalf
of any Interested Stockholder or Affiliate thereof; and (v) any reclassification
of securities, recapitalization, merger or consolidation of the Company which
has the effect of increasing the proportionate share of Common Stock or any
class of equity or convertible securities of the Company owned directly or
indirectly by an Interested Stockholder or Affiliate thereof. The directors and
executive officers of the Association are purchasing in the aggregate
approximately 5.50% of the shares of the Common Stock to be issued in the
Conversion, including shares to be issued to the Foundation, at the maximum of
the Estimated Price Range. In addition, the ESOP intends to purchase 8% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation. Additionally, if at a meeting of stockholders following the
Conversion stockholder approval of the proposed Stock-Based Incentive Plan is
received, the Company expects to acquire 4% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation, on
behalf of the Stock-Based Incentive Plan and expects to issue options to
purchase up to 10% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, under the Stock-Based Incentive Plan
to directors and executive officers. As a result, at the maximum of the
Estimated Price Range, assuming the Stock-Based Incentive Plan is approved by
Stockholders, directors, executive officers and employees have the potential to
control the voting of approximately 27.50% of the Company's Common Stock, if the
shares held by the Foundation and the ESOP are aggregated with the shares
purchased in the Conversion by management and acquired for award under the
Stock-Based Incentive Plan (without giving effect to any exercise of options
granted under the Stock-Based Incentive Plan), thereby enabling them to prevent
the approval of the transactions requiring the approval of at least 80% of the
Company's outstanding shares of voting stock described hereinabove.

EVALUATION OF OFFERS. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Association and the stockholders of the
Company, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
Company's customers and the Association's present and future account holders,
borrowers and employees; on the communities in which the Company and the
Association operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a savings and loan holding company and on the
ability of the Association to fulfill the objectives of a federally-chartered
stock savings association under applicable statutes and regulations. By having
these standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.

AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.

CERTAIN BYLAW PROVISIONS. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder

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and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.

ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BYLAWS AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION

The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the Employment Agreements, CIC Agreements, Employee Severance
Compensation Plan, Stock Program or Stock Option Plan to be established may also
discourage takeover attempts by increasing the costs to be incurred by the
Association and the Company in the event of a takeover. See "Management of the
Association--Employment Agreements."

The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.

DELAWARE CORPORATE LAW

The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.

In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.

The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.

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RESTRICTIONS IN THE ASSOCIATION'S NEW ARTICLES OF INCORPORATION AND BYLAWS

Although the Board of Directors of the Association is not aware of any
effort that might be made to obtain control of the Association after the
Conversion, the Board of Directors believes that it is appropriate to adopt
certain provisions permitted by federal regulations to protect the interests of
the converted Association and its stockholders from any hostile takeover. Such
provisions may, indirectly, inhibit a change in control of the Company, as the
Association's sole stockholder. See "Risk Factors--Certain Anti-Takeover
Provisions."

The Association's Stock Articles of Incorporation contain a provision
whereby shareholders will not be permitted to call a special meeting of
shareholders relating to a change of control of the Association or a charter
amendment or to cumulate their votes in the election of directors. Furthermore,
the staggered terms of the Board of Directors could have an anti-takeover effect
by making it more difficult for a majority of shares to force an immediate
change in the Board of Directors since only one-third of the Board is elected
each year. The purpose of these provisions is to assure stability and continuity
of management of the Association in the years immediately following the
Conversion.

Although the Association has no arrangements, understandings or plans at
the present time, except as described in "Description of Capital Stock of the
Company--Preferred Stock," for the issuance or use of the shares of undesignated
Preferred Stock proposed to be authorized, the Board of Directors believes that
the availability of such shares will provide the Association with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Association of
which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Directors
does not intend to issue any Preferred Stock except on terms which the Board
deems to be in the best interest of the Association and its then existing
stockholders.

REGULATORY RESTRICTIONS

The Plan of Conversion prohibits any person, prior to the completion of
the Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.

For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Association
or the Company; or (iii) offers which are not opposed by the Board of Directors
of the Association and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. Ownership of more than 10% of a
class of stock for purposes of this prohibition extends to persons holding a
combination of stock and revocable or irrevocable proxies for the Company's
stock under circumstances that give rise to a conclusive or rebuttable
determination of control under the OTS regulations.

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In addition, any acquisition, direct or indirect, of more than 10% of any
class of equity security of the Company by a person or group of persons acting
in concert may require prior notice to and non-objection by the OTS under the
Change in Bank Control Act and/or the approval of the OTS under the Savings and
Loan Holding Company Act, as an acquisition of control. Any company that
acquires control of a savings association or a savings and loan holding company
under the standards set forth in OTS regulations becomes a "savings and loan
holding company" subject to registration, examination, and regulation by the
OTS. Pursuant to OTS regulations, "control" of a savings association or a
savings and loan holding company, subject to the requirements of the Change in
Bank Control Act and/or the savings and Loan Holding Company Act, is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the company or
irrevocable proxies representing more than 25% of any class of voting stock of
the company or the ability to control the election of a majority of the
directors. The regulations also establish a rebuttable presumption of "control"
upon the acquisition of more than 10% of any class of voting stock, or of more
than 25% of any class of stock, of a savings and loan holding company, where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition by a person of "control" if (i) it would result
in a monopoly or substantially lessen competition, (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the
institution, or (iii) the competence, experience, or integrity of the acquiring
person indicates that it would not be in the interest of the depositors or the
public to permit the acquisition of control by such person or (iv) the proposed
acquisition would have an adverse effect on the deposit insurance funds.
Applications by a company to acquire "control" of a savings and loan holding
company are evaluated by OTS based upon factors such as the financial and
managerial resources and future prospects of the acquirer and the institution
involved, competitive factors and the convenience and needs of the community
involved. The foregoing restrictions do not apply to the acquisition of the
Company's capital stock by one or more tax-qualified employee stock benefit
plans, provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Company.

DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

GENERAL

The Company is authorized to issue 5,000,000 shares of Common Stock having
a par value of $.01 per share and 1,000,000 shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). Based on the sale of Common
Stock in connection with the Conversion and issuance of authorized but unissued
Common Stock in an amount equal to 5.0% of the Common stock sold in the
Conversion, the Company currently expects to issue up to 1,380,000 shares of
Common Stock (or 1,587,000 in the event of an increase of 15% in the Estimated
Price Range) and no shares of Preferred Stock in the Conversion. Except as
discussed above in "Restriction on Acquisition of the Company and the
Association," each share of the Company's Common Stock will have the same
relative rights as, and will be identical in all respects with, each other share
of Common Stock. Upon payment of the Purchase Price for the Common Stock, in
accordance with the Plan, all such stock will be duly authorized, fully paid and
non-assessable.

THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.

COMMON STOCK

DIVIDENDS. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.

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VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Association," each holder of Common Stock will be entitled to one vote per share
and will not have any right to cumulate votes in the election of directors. If
the Company issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Association."

As a Pennsylvania-chartered mutual savings and loan association, corporate
powers and control of the Association are vested in its Board of Directors, who
elect the officers of the Association and who fill any vacancies on the Board of
Directors as it exists upon Conversion. Subsequent to Conversion, voting rights
will be vested exclusively in the owners of the shares of capital stock of the
Association, which will be the Company, and voted at the direction of the
Company's Board of Directors. Consequently, the holders of the Common Stock will
not have direct control of the Association.

LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Association, the Company, as holder of the Association's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "The Conversion--Liquidation Rights"), all assets of the
Association available for distribution. In the event of liquidation, dissolution
or winding up of the Company, the holders of its Common Stock would be entitled
to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.

PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company will not
be entitled to preemptive rights with respect to any shares which may be
issued. The Common Stock is not subject to redemption.

PREFERRED STOCK

None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.

DESCRIPTION OF CAPITAL STOCK OF THE ASSOCIATION

GENERAL

The Stock Articles of Incorporation of the Association, to be effective
upon the Conversion, authorizes the issuance of capital stock consisting of
5,000,000 shares of Common Stock, par value $1.00 per share, and 1,000,000
shares of preferred stock, par value $1.00 per share, which preferred stock may
be issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of Common Stock
of the Association will have the same relative rights as, and will be identical
in all respects with, each other share of Common Stock. After the Conversion,
the Board of Directors will be authorized to approve the issuance of Common
Stock up to the amount authorized by the Stock Articles of Incorporation without
the approval of the Association's stockholders. Assuming that the holding
company form of organization is utilized, all of the issued and outstanding
Common Stock of the Association will be held by the Company as the Association's
sole stockholder. THE CAPITAL STOCK OF THE ASSOCIATION WILL REPRESENT
NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC.

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COMMON STOCK

DIVIDENDS. The holders of the Association's Common Stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of the Association out of funds legally available therefor.
See "Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation--Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.

VOTING RIGHTS. Immediately after the Conversion, the holders of the
Association's Common Stock will possess exclusive voting rights in the
Association. Each holder of shares of Common Stock will be entitled to one vote
for each share held, subject to the right of shareholders to cumulate their
votes for the election of directors. During the five-year period after the
effective date of the Conversion, cumulation of votes will not be permitted. See
"Restrictions on Acquisition of the Company and the Association--Anti-Takeover
Effects of the Company's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."

LIQUIDATION. In the event of any liquidation, dissolution, or winding up
of the Association, the holders of Common Stock will be entitled to receive,
after payment of all debts and liabilities of the Association (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Association available for
distribution in cash or in kind. If preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
Common Stock in the event of liquidation or dissolution.

PREEMPTIVE RIGHTS; REDEMPTION. Holders of the Common Stock of the
Association will not be entitled to preemptive rights with respect to any shares
of the Association which may be issued. The Common Stock will not be subject to
redemption. Upon receipt by the Association of the full specified purchase price
therefor, the Common Stock will be fully paid and non-assessable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ________________.

EXPERTS

The financial statements of the Association as of June 30, 1998 and 1997
and for the years ended June 30, 1998, 1997 and 1996 have been included in this
Prospectus in reliance upon the report of Parente, Randolph, Orlando, Carey &
Associates, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

Keller has consented to the publication herein of the summary of its
report to the Association and Company setting forth its opinion as to the
estimated pro forma market value of the Common Stock upon Conversion and its
valuation with respect to subscription rights.

LEGAL AND TAX OPINIONS

The legality of the Common Stock and the federal income tax consequences
of the Conversion will be passed upon for the Association and the Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Association
and the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Morris, Nichols, Arsht & Tunnel. The Commonwealth
of Pennsylvania income tax consequences of the Conversion and certain matters
related to the Foundation will be passed upon for the Association and the
Company by Parente, Randolph, Orlando, Carey & Associates. Certain legal matters
will be passed upon for Sandler O'Neill by Elias, Matz, Tiernan & Herrick
L.L.P., Washington, D.C.

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ADDITIONAL INFORMATION

The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC including the Company. This
Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the Registration Statement required
to be described. The statements contained in this Prospectus as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete; each such statement is qualified by reference to such contract or
document.

The Association has filed an application for conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 10 Exchange Place, 18th Floor, Jersey City, New Jersey 07302.

The Association will file articles of conversion with the Pennsylvania
Department with respect to the Conversion following the Special Meeting. The
application may be examined at the principal office of the Pennsylvania
Department, Department of State, Corporation Bureau, 308 North Office
Building, Harrisburg, Pennsylvania 17120-0029.

In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(b) of the Exchange Act and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Association amends the Plan to eliminate the concurrent
formation of the Company as part of the Conversion, the Association will
register its stock with the OTS under Section 12(b) of the Exchange Act and,
upon such registration, the Association and the holders of its stock will become
subject to the same obligations and restrictions.

A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Articles of Incorporation and Bylaws of the Association and the
Certificate of Incorporation and Bylaws of the Foundation are available without
charge from the Association.

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SECURITY SAVINGS ASSOCIATION OF HAZLETON
INDEX TO FINANCIAL STATEMENTS

PAGE
------

Independent Auditors' Report...................................... F-2

Balance Sheet as of June 30, 1998 and 1997........................ F-3

Statements of Income for the Years Ended
June 30, 1998, 1997 and 1996.................................... 34

Statements of Changes in Equity for the Years Ended
June 30, 1998, 1997 and 1996.................................... F-4

Statements of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996.................................... F-5 - F-6

Notes to Financial Statements..................................... F-7 - F-30

All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.

The financial statements of Security of Pennsylvania Financial Corp.
have been omitted because Security of Pennsylvania Financial Corp. has not
yet issued any stock, has no assets and no liabilities, and has not conducted
any business other than of an organizational nature.

F-1
123
[PARENTE - RANDOLPH - ORLANDO-
CAREY & ASSOCIATES LOGO]

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Security Savings Association of Hazleton
Hazleton, Pennsylvania

We have audited the accompanying balance sheet of Security Savings
Association of Hazleton (the "Association") as of June 30, 1998 and 1997, and
the related statements of income, changes in equity, and cash flows for each of
the three years in the period ended June 30, 1998. These financial statements
are the responsibility of the Association's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Security Savings
Association of Hazleton as of June 30, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.

/s/ PARENTE - RANDOLPH - ORLANDO - CAREY & ASSOCIATES

Hazleton, Pennsylvania
July 24, 1998

- F-2 -
124
SECURITY SAVINGS ASSOCIATION OF HAZLETON

BALANCE SHEET
JUNE 30, 1998 AND 1997

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

1998 1997
- -------------------------------------------------------------------------------------------------------

ASSETS
======

Cash and due from banks $ 3,272,263 $ 2,867,171
Interest-bearing deposits with banks 8,585,785 6,166,551
------------- -------------

Total cash and cash equivalents 11,858,048 9,033,722

Held-to-maturity securities (fair value of $20,806,552
in 1998 and $24,810,869 in 1997) 20,782,740 24,841,688
Available-for-sale securities 7,900,600 4,247,778
Loans receivable (net of allowance for loan losses
of $451,856 in 1998 and $428,857 in 1997) 69,211,264 66,737,536
Office premises and equipment, net 1,364,352 1,178,504
Accrued interest receivable 618,656 665,002
Foreclosed real estate (net of $12,000 allowance
in 1998 and $24,852 in 1997) 220,889 530,919
Other assets 33,948 211,687
------------- -------------

TOTAL ASSETS $ 111,990,497 $ 107,446,836
============= =============

LIABILITIES AND EQUITY
======================

Deposits $ 102,603,545 $ 98,464,717
Advances from borrowers for taxes and
insurance 34,468 130,914
Accrued interest payable and other liabilities 121,614 267,766
------------- -------------

Total liabilities 102,759,627 98,863,397
------------- -------------

Commitments and contingent liabilities - -

Retained earnings - substantially restricted 9,362,089 8,744,865
Net unrealized holding losses on
available-for-sale securities, net of taxes (131,219) (161,426)
------------- -------------

Equity, net 9,230,870 8,583,439
------------- -------------

TOTAL LIABILITIES
AND EQUITY $ 111,990,497 $ 107,446,836
============= =============

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

See Notes to Financial Statements

-F-3-

125

SECURITY SAVINGS ASSOCIATION OF HAZLETON

STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

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

UNREALIZED
HOLDING LOSSES
ON AVAILABLE-
RETAINED FOR-SALE EQUITY,
EARNINGS SECURITIES NET
- --------------------------------------------------------------------------------------

BALANCE, JUNE 30, 1995 $ 7,938,309 $ (196,901) $ 7,741,408

INCREASE IN UNREALIZED
HOLDING LOSSES ON
AVAILABLE-FOR-SALE
SECURITIES (13,772) (13,772)

NET INCOME 597,005 597,005
----------- ---------- -----------

BALANCE, JUNE 30, 1996 8,535,314 (210,673) 8,324,641

DECREASE IN UNREALIZED
HOLDING LOSSES ON
AVAILABLE-FOR-SALE
SECURITIES 49,247 49,247

NET INCOME 209,551 209,551
----------- ---------- -----------

BALANCE, JUNE 30, 1997 8,744,865 (161,426) 8,583,439

DECREASE IN UNREALIZED
HOLDING LOSSES ON
AVAILABLE-FOR-SALE
SECURITIES 30,207 30,207

NET INCOME 617,224 617,224
----------- ---------- -----------

BALANCE, JUNE 30, 1998 $ 9,362,089 $ (131,219) $ 9,230,870
=========== ========== ===========

- --------------------------------------------------------------------------------
See Notes to Financial Statements

-F-4-

126
SECURITY SAVINGS ASSOCIATION OF HAZLETON

STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

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

1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
Net income $ 617,224 $ 209,551 $ 597,005
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and foreclosed
real estate losses 197,626 94,336 101,997
Amortization and accretion on
investment securities (186) 10,532 28,988
Depreciation and amortization 98,071 82,109 112,629
Deferred income taxes 46,160 148,892 23,665
(Gain) loss on sale of foreclosed real estate 47,894 62,985 (1,293)
Net realized gain on sales and calls of securities (701) (16,776) -
Changes in assets and liabilities:
Accrued interest receivable 46,346 39,421 (77,978)
Other assets 162,399 225,285 (84,567)
Accrued interest payable and other
liabilities (192,312) (96,869) 63,359
----------- ----------- -----------

Net cash provided by operating
activities 1,022,521 759,466 763,805
----------- ----------- -----------

INVESTMENT ACTIVITIES:
Purchases of held-to-maturity securities (13,221,443) (13,447,016) (15,100,592)
Purchases of securities available-for-sale (3,948,894) (24,900) (40,200)
Proceeds from maturities of held-to-maturity
securities 16,270,943 11,565,915 11,646,490
Proceeds from the call of held-to-maturity securities 204,758 - -
Proceeds from maturities and principal paydowns
on available-for-sale securities 340,561 1,075,920 505,417
Proceeds from principal paydowns of
held-to-maturity securities 806,635 1,106,292 1,848,163
Proceeds from the sale of available-for-sale
securities - 1,038,300 -
Loans made to customers, net of principal collected (3,128,008) (2,459,676) (1,411,992)
Acquisition of office premises and equipment (283,919) (155,210) (36,532)
Proceeds from sale of foreclosed real estate 718,790 276,144 11,783
----------- ----------- -----------

Net cash used in investing activities (2,240,577) (1,024,231) (2,577,463)
----------- ----------- -----------

-F-5-
127

SECURITY SAVINGS ASSOCIATION OF HAZLETON
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

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

1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Net change in deposit accounts $ 4,138,828 $ (883,425) $ 2,949,870
Net (decrease) increase in
advances from borrowers
for taxes and insurance (96,446) 76,095 (2,598)
------------ ----------- ------------

Net cash provided
by (used in)
financing activities 4,042,382 (807,330) 2,947,272
------------ ----------- ------------

INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,824,326 (1,072,095) 1,133,614

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 9,033,722 10,105,817 8,972,203
------------ ----------- ------------

CASH AND CASH EQUIVALENTS,
END OF YEAR $ 11,858,048 $ 9,033,722 $ 10,105,817
============ =========== ============

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid on deposits $ 4,207,744 $ 4,007,074 $ 4,188,942
Income taxes paid $ 422,408 $ 139,732 $ 376,569

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,

The Association foreclosed on mortgage loans and transferred $717,928,
$517,672 and $245,340 from loans to foreclosed real estate during the years
ended June 30, 1998, 1997 and 1996, respectively.

- --------------------------------------------------------------------------------
See Notes to Financial Statements

-F-6-

128

SECURITY SAVINGS ASSOCIATION OF HAZLETON

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Security Savings Association of Hazleton (the "Association") provides a
variety of financial services to individual and corporate customers through
four offices in Hazleton, Weatherly and Butler Township, Pennsylvania.
These communities have diversified economies. The primary deposit products
are regular savings accounts, certificates of deposit, and checking
accounts. Its primary lending products are single-family residential loans
and secured consumer loans. The Association is subject to competition from
other financial institutions and other companies that provide financial
services. The Association is subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by those regulatory
authorities.

RISKS AND UNCERTAINTIES

In the normal course of its business, the Association encounters two
significant types of risk: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk, and market
risk. The Association is subject to interest rate risk to the degree that
its interest-bearing liabilities mature or reprice at different speeds, or
on different bases from its interest-earning assets. The Association's
primary credit risk is the risk of default on the Association's loan
portfolio that results from the borrowers inability or unwillingness to
make contractually required payments. The Association's lending activities
are concentrated in Pennsylvania. The largest concentration of the
Association's loan portfolio is located in Northeastern Pennsylvania. The
ability of the Association's borrowers to repay amounts owed is dependent
on several factors, including the economic conditions in the borrower's
geographic region and the borrower's financial condition. Market risk
reflects changes in the value of collateral underlying loans and valuation
of real estate held by the Association.

The Association is subject to the regulations of various government
agencies. These regulations can and do change significantly from period to
period. The Association also undergoes periodic examinations by the
regulatory agencies which may subject it to further changes with respect to
asset valuations, amounts of required loss allowances, and operating
restrictions resulting from the regulators' judgements based on information
available to them at the time of their examination.

-F-7-

129

SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination for the allowance for loan losses and the
valuation of property acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of allowances
for loan losses and foreclosed assets, management obtains independent
appraisals for significant properties.

A majority of the Association's loan portfolio consist of single-family
residential loans in the Hazleton, Weatherly and Butler Township areas.
Although these local economies are diversified and fairly stable, a
substantial portion of its debtor's ability to honor their contracts is
dependent on the economic sector in which the Association operates.

While management uses available information to recognize losses on loans
and foreclosed assets, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Association's allowances for losses on loans and foreclosed
assets. Such agencies may require the Association to recognize additions to
the allowances based on their judgments about information available to them
at the time of their examination. Association management has no reason to
believe that the allowances for loan losses and foreclosed assets will
change materially in the near term.

-F-8-

130
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, cash and cash equivalents
include cash on hand and amounts due from banks.

DEBT AND EQUITY SECURITIES

The Association classifies each of its investments in debt and equity
securities into one of two categories:

Held-To-Maturity Securities - Securities that the institution has the
positive intent and ability to hold to maturity.

Available-For-Sale Securities - Securities that are not eligible for
classification as held-to-maturity.

Held-to-Maturity Securities are carried at amortized cost. Those securities
classified as Available-For-Sale are carried at fair value. The change in
net unrealized holding gain or loss on available-for-sale securities, net
of taxes is included in a separate component of equity.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at the amount of unpaid principal, reduced by unamortized
loan fees and an allowance for loan losses. Interest on loans is calculated
by using the simple interest method on daily balances of the principal
amount outstanding.

The allowance for loan losses is established through a provision for loan
losses charged to expense. 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 probable 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 impaired loans, and current economic
conditions and trends that may affect the borrowers' ability to pay.

Loans are deemed to be "impaired" if management's assessment of the
relevant facts and circumstances, it is probable that the bank will be
unable to collect all proceeds due according to the contractual terms of
the loan agreement. For purposes of applying the measurement criteria for
impaired loans, the Association excludes large groups of smaller balance
homogeneous loans, primarily consisting of residential real estate and
consumer loans.

-F-9-

131
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

Accrual of interest on impaired loans is discontinued when payments are
past due ninety days or more when collateral is inadequate to cover
principal and interest or immediately if management believes, after
considering economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection is doubtful.

Nonrefundable loan origination fees and certain direct loan origination
costs for loans are recognized over the contractual life of the related
loans as an adjustment of yield. Prior to 1988, such fees and costs were
recognized when received or incurred.

FORECLOSED REAL ESTATE

Foreclosed real estate comprised of property acquired in the settlement of
loans, is recorded at the lower of the related principal balance and
accrued interest upon foreclosure or its fair value. Costs of developing
and improving such properties are capitalized. Expenses related to holding
such real estate, net of rental and other income, are charged against
income as incurred. An allowance for foreclosed real estate losses is
established through a provision for foreclosed real estate losses for
declines in fair value after acquisition. Any subsequent writedowns are
charged to the allowance and any recoveries of amounts previously written
down are added to the allowance.

OFFICE PREMISES AND EQUIPMENT
AND DEPRECIATION

Office premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets (office premises,
30-50 years; equipment, 5-10 years).

INCOME TAXES

Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.

ADVERTISING COSTS

The Association follows the policy of charging the production costs of
advertising to expense as incurred.

-F-10-

132
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

DERIVATIVES

The Association has no derivative financial instruments requiring
disclosure under Statement of Financial Accounting Standards ("SFAS") No.
119.

RECLASSIFICATIONS

Certain items in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 financial statement presentation
format. These reclassifications had no effect on net income.

2. DEBT AND EQUITY SECURITIES

Held-to-maturity securities at June 30, 1998 and 1997 were as follows:

1998
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----

U. S. government agency
securities $ 2,801,355 $ 9,127 $ 2,810,482
Certificates of deposit 15,456,963 15,456,963
Corporate obligations 79,012 79,012
Mortgage-backed
securities (FNMA, GNMA) 2,281,088 16,893 $ 649 2,297,332
State and political
subdivisions 164,322 1,559 162,763
-------------- ------- -------- ------------
Total $ 20,782,740 $ 26,020 $ 2,208 $ 20,806,552
============== ======== ======== ============

1997
-----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----

U. S. government agency
securities $ 7,425,322 $ 8,056 $ 37,709 $ 7,395,669
Certificates of deposit 12,594,699 12,594,699
Corporate obligations 115,915 2,010 113,905
Mortgage-backed
securities (FNMA, GNMA) 4,705,752 17,741 16,897 4,706,596
------------ -------- -------- ------------

Total $ 24,841,688 $ 25,797 $ 56,616 $ 24,810,869
============ ======== ======== ============

-F-11-

133
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

Available-for-sale securities at June 30, 1998 and 1997 were as follows:

1998
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----

U. S. Government agency
securities $ 3,547,627 $ 2,293 $ 2,313 $ 3,547,607
Mortgage-backed securities
(FNMA, GNMA) 1,317,978 34,546 1,352,524
State and political
subdivisions 373,558 3,767 369,791
Mutual fund 2,187,598 151,520 2,036,078
Federal Home Loan Bank
of Pittsburgh stock 594,600 594,600
----------- -------- --------- -----------

Total $ 8,021,361 $ 36,839 $ 157,600 $ 7,900,600
=========== ======== ========= ===========

1997
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----

GNMA certificates $ 981,752 $ 34,228 $ 1,015,980
FNMA certificates 393,488 $ 19,026 374,462
FNMA balloon 284,748 3,471 281,277
Mutual fund 2,187,598 178,039 2,009,559
Federal Home Loan Bank
of Pittsburgh stock 566,500 566,500
----------- -------- --------- -----------

Total $ 4,414,086 $ 34,228 $ 200,536 $ 4,247,778
=========== ======== ========= ===========

Unamortized premiums on mortgage-backed securities held-to-maturity were
$2,868 and $9,956 at June 30, 1998 and 1997, respectively. Unaccreted
discounts on mortgage-backed securities held-to-maturity were $11,089
and $10,106 at June 30, 1998 and 1997, respectively.

-F-12-

134
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

The amortized cost and fair value of held-to-maturity and
available-for-sale securities at June 30, 1998, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

HELD-TO-MATURITY AVAILABLE-FOR-SALE
SECURITIES SECURITIES
------------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----

Due in one year or less $ 12,417,691 $ 12,417,504 $ 2,782,198 $ 2,630,678
Due after one year through
five years 4,889,685 4,894,016 1,028,564 1,031,382
Due after five years
through ten years 2,008,276 2,018,945 2,499,545 2,499,772
Due after ten years 1,467,088 1,476,087 1,711,054 1,738,768
------------ ------------ ----------- -----------

Total $ 20,782,740 $ 20,806,552 $ 8,021,361 $ 7,900,600
============ ============ =========== ===========

Gross gains of $701 were realized on the call of a held-to-maturity security
in 1998.

Gross gains of $47,038 and gross losses of $30,262 were realized on the sale
of available-for-sale securities in 1997.

Securities with an amortized cost of $1,057,559 and $1,342,997 at June 30,
1998 and 1997, respectively were pledged as collateral on public deposits and
for other purposes as required or permitted by law.

-F-13-

135
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

3. LOANS RECEIVABLE

Loans receivable at June 30, 1998 and 1997 were as follows:

1998 1997
---- ----

Real estate $ 56,056,778 $ 54,658,451
Commercial real estate 3,945,708 2,484,206
Consumer 9,934,736 10,307,977
------------ ------------

69,937,222 67,450,634
Less:
Net deferred loan-origination fees (274,102) (284,241)
Allowance for loan losses (451,856) (428,857)
------------ ------------

Loans receivable, net $ 69,211,264 $ 66,737,536
============ ============

One-to-four family residential mortgage loans included in real estate loans
totaled $54,721,745 and $53,685,049 at June 30, 1998 and 1997, respectively.

The recorded investment in impaired loans, not requiring an allowance for
loan losses, was $1,572,855 and $1,410,742 at June 30, 1998 and 1997,
respectively. The recorded investment in impaired loans requiring an
allowance for loan losses was $291,027 and $175,258 at June 30, 1998 and
1997, respectively. At June 30, 1998 and 1997, the related allowance
associated with those loans, which is included in the allowance for loan
losses, was $35,000 and $60,000, respectively. For the years ended June 30,
1998 and 1997, the average recorded investment in these impaired loans was
approximately $1,864,000 and $1,612,000, respectively. There was no interest
income recognized on impaired loans in 1998 or 1997. Interest income that
would have been recognized on impaired loans would have approximated $102,000
and $134,000 in 1998 and 1997, respectively. The Association has no
commitments to lend additional funds to borrowers whose loans were classified
as nonperforming or troubled debt restructuring.

-F-14-

136
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

An analysis of the allowance for loan losses for the years ended June 30,
1998, 1997 and 1996 is summarized as follows:

1998 1997 1996
---- ---- ----

Balance, beginning $ 428,857 $ 447,000 $ 401,000
Provision for loan losses 175,626 34,450 101,997
Loans charged off (177,505) (61,763) (67,823)
Recoveries of loans charged off 24,878 9,170 11,826
--------- --------- ---------

Balance, ending $ 451,856 $ 428,857 $ 447,000
========= ========= =========

At June 30, 1998, 1997 and 1996, the Association serviced loans for others of
$140,000, $162,000 and $260,000, respectively.

In the ordinary course of business, the Association has and expects to
continue to have transactions, including borrowings, with its executive
officers, directors and their affiliates In the opinion of management, such
transactions were on substantially the same terms, as those prevailing at the
time of comparable transactions with other persons and did not involve more
than a normal risk of collectibility or present any other unfavorable
features to the Association. The Association offers officers and full-time
employees of the Association who satisfy the general underwritting standards
of the Association, loans with interest rates up to 1% below the current
interest rate in effect. An analysis of the activity in loans to directors
and executive officers for the year ended June 30, 1998, follows:

Balance, beginning of year $ 219,364

New loans 51,972

Repayments (41,700)

Loan balance of new executive officer 43,626
---------

Balance, end of year $ 273,262
=========

-F-15-

137
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

4. OFFICE PREMISES AND EQUIPMENT

Office premises and equipment at June 30, 1998 and 1997 were as follows:

1998 1997
---- ----

Land and building $ 938,870 $ 915,120
Improvements 848,784 693,690
Furniture and equipment 883,490 778,173
----------- -----------

Total 2,671,144 2,386,983

Less accumulated depreciation and
amortization 1,306,792 1,208,479
----------- -----------

Office premises and equipment, net $ 1,364,352 $ 1,178,504
=========== ===========

5. FORECLOSED REAL ESTATE

An analysis of the allowance for foreclosed real estate losses for the years
ended June 30, 1998, 1997 and 1996 is summarized as follows:

1998 1997 1996
---- ---- ----

Balance, beginning $ 24,852 $ 44,000 $ -
Provision for foreclosed real estate losses 22,000 59,886 44,000
Writedowns (63,546) (79,034) -
Recoveries 28,694 - -
-------- -------- --------

Balance, ending $ 12,000 $ 24,852 $ 44,000
======== ======== ========

-F-16-

138
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

6. DEPOSITS

Deposits at June 30, 1998 and 1997 were as follows:

1998
-----------------------------------
WEIGHTED
AVERAGE
AMOUNT PERCENT RATE
------ ------- ----

Passbook and statement savings $ 29,052,601 28.32% 2.61%
Variable rate money market 2,083,512 2.03 2.56%
Negotiable order of withdrawal 10,983,296 10.70 1.74%
Certificates of deposit 60,484,136 58.95 5.59%
------------- -----

Total $ 102,603,545 100.0%
============= =====

1997
-------------------------------------
WEIGHTED
AVERAGE
AMOUNT PERCENT RATE
------ ------- ----

Passbook and statement savings $ 30,240,180 30.71% 2.61%
Variable rate money market 2,181,747 2.22 2.56%
Negotiable order of withdrawal 8,758,384 8.89 1.75%
Certificates of deposit 57,284,406 58.18 5.53%
------------- ------

Total $ 98,464,717 100.0%
============= ======

Scheduled maturities of certificates of deposits at June 30, 1998 are as
follows:

YEAR ENDED JUNE 30:
- -------------------

1999 $ 38,806,970
2000 9,556,810
2001 4,372,052
2002 2,596,145
2003 3,566,569
Thereafter 1,585,590
------------

Total $ 60,484,136
============

-F-17-

139
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

Certificates of deposit in denominations of $100,000 or more amounted to
$13,552,029 and $12,235,268 at June 30, 1998 and 1997, respectively.
Certificates of deposits in denominations of greater than $100,000 are not
insured by the FDIC.

Interest expense on deposits for the years ended June 30, 1998, 1997 and 1996
is summarized as follows:

1998 1997 1996
---- ---- ----

Certificates of deposit $ 3,260,039 $ 3,007,740 $ 3,035,503
Passbook savings 795,011 826,597 930,815
Money market 53,142 59,527 73,710
NOW 151,766 135,109 189,624
----------- ----------- -----------

Total $ 4,259,958 $ 4,028,973 $ 4,229,652
=========== =========== ===========

-F-18-

140
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

7. INCOME TAXES

The Small Business Job Protection Act of 1996, enacted August 20, 1996,
provided for the repeal of the tax bad debt deduction computed under the
percentage of taxable income method. The repeal of the use of this method was
effective for tax years beginning after December 31, 1995. Prior to the
change in law, the Association had qualified under the provisions of the
Internal Revenue Service Code which permitted it to deduct from taxable
income an allowance for bad debts based on 8% of taxable income.

The Association is required to recapture into income, over a six year period,
the portion of its tax bad debt reserves that exceed its base year reserves
(i.e., tax reserves for tax years beginning before 1988). The base year tax
reserves, which may be subject to recapture if the Association ceases to
qualify as a Association for federal income tax purposes, are restricted with
respect to certain distributions. The Association's total tax bad debt
reserves at June 30, 1998, are approximately $2.3 million, of which $1.9
million represents the base year amount and $400,000 is subject to recapture.
The Association has previously recorded a deferred tax liability for the
amount to be recaptured; therefore, this recapture will not impact the
statement of income.

The provision for income taxes is comprised of the following:

1998 1997 1996
---- ---- ----

Currently payable $ 460,140 $ 195,089 $ 338,635
Deferred 46,160 148,892 23,665
--------- --------- ---------

Total provision $ 506,300 $ 343,981 $ 362,300
========= ========= =========

-F-19-

141
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

The effective income tax rate for the years ended June 30, 1998, 1997 and
1996 was 45.1%, 62.1% and 37.8%, respectively. A reconciliation between the
expected statutory income tax rate and the effective income tax rate on
income before taxes follows (in thousands):

1998 1997 1996
----------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -

Provision at
statutory
rate $ 382 34.0% $ 188 34.0% $ 326 34.0%
State income
tax, net
of federal
benefit 118 10.5 17 3.1 51 5.3
Other, primarily
bad debt
deduction 6 .6 139 25.0 (15) (1.5)
----- ----- ----- ---- ----- ----

Total $ 506 45.1% $ 344 62.1% $ 362 37.8%
===== ===== ===== ===== ===== ====

The components of the net deferred tax (liability) asset are as follows at
June 30:

1998 1997
---- ----

Deferred tax asset:
Deferred loan fees, net $ 60,959 $ 95,072
Deferred tax liabilities:
Allowance for loan losses (141,052) (135,981)
Depreciation (17,993) (11,017)
Unrealized holding gains (losses) (10,458) (4,881)
---------- ---------

Total $ (108,544) $ (56,807)
========== =========

The deferred tax (liability) asset is included in other (liabilities) assets
on the balance sheet.

-F-20-

142
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

8. OTHER NONINTEREST EXPENSE

Other noninterest expense amounts are summarized as follows for the years
ended June 30, 1998, 1997 and 1996:

1998 1997 1996
---- ---- ----

Outside service fees $ 210,924 $ 200,053 $ 192,320
Advertising and promotion 50,725 44,014 39,491
All other expenses 247,789 254,109 272,071
--------- --------- ---------

Total $ 509,438 $ 498,176 $ 503,882
========= ========= =========

9. PENSION PLAN

The Association participates in a contributory defined benefit multi-employer
pension plan administered through Pentegra. The Association makes annual
contributions to the Plan equal to amounts accrued for pension expense. Total
pension expense for the years ended June 30, 1998, 1997 and 1996 was $3,581,
$29,364 and $67,851, respectively. The relative position of the Association
regarding the accumulated plan benefits and net assets of the Plan is not
readily determinable by the Association.

10. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) SPECIAL ASSESSMENT

On September 30, 1996, legislation was enacted to bring the funding level of
the Savings Association Insurance Fund (of which the Association is a member)
of the FDIC to the same level as the Bank Insurance Fund of the FDIC. As a
result of that legislation, the Association paid a single premium payment of
$619,763 for the year ended June 30, 1997. The impact of this single premium
payment, net of estimated federal and state taxes on 1997 net income tax was
approximately $372,000. The single premium payment was assessed at 65.7 basis
points of the March 31, 1995 deposit base of the Association. With the
enactment of the legislation, the regular assessment rate for the fourth
quarter, October 1 to December 31, 1996, was lowered retroactively from 57.5
to 16.25 basis points. Beginning January 1, 1997, annual premium assessments
further decreased to an annual premium level of 15.75 basis points.

-F-21-

143
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

11. RELATED PARTY TRANSACTIONS

The Association retains a law firm, in which a member of the Association's
Board of Directors also is a member, that provides general legal counsel to
the Association. The Association paid $25,513, $25,874 and $43,330, in legal
fees to this firm for the years ended June 30, 1998, 1997 and 1996,
respectively.

12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Association 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 are commitments to extend credit.
These commitments involve, to varying degrees, elements of credit, interest
rate or liquidity risk in excess of the amount recognized in the balance
sheet. The contract or notional amounts of these commitments express the
extent of involvement the Association has in particular classes of financial
instruments.

The Association'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. The Association
uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.

The Association's contract amounts of commitments to extend credit which
represent credit risk at June 30, 1998 and 1997 were $2,011,917 and
$1,977,048, respectively. These amounts exclude undisbursed portions of loans
in process amounting to $1,109,499 and $1,431,532 at June 30, 1998 and 1997,
respectively. At June 30, 1998 $372,000 of the Association's commitments were
for fixed rate loans which had interest rates that ranged between 6.75% and
7.50%.

Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity
requirements. The Association evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Association on extension of credit, is based on management's credit
assessment of the counterparty.

-F-22-

144
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

13. REGULATORY MATTERS

The Association is subject to various regulatory capital requirements
administered by federal and state 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 Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines that
involve quantitative measures of the Association's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Association'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 Association to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
total assets (as defined). Management believes, as of June 30, 1998, that the
Association meets all capital adequacy requirements to which it is subject.

As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision categorized the Association as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
Association's category.

-F-23-

145
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

To be categorized as well capitalized the Association must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the following table. The Association's actual capital amounts and ratios
are presented in the following table. No deductions were made in either year
from capital for interest-rate risk.

(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ ----------------- ------------------
JUNE 30, 1998 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- ------ ----- ------ ----- ------ -----

Total Capital (to Risk Weighted
Assets) (risk-based capital ratio) $9,814 16.9% $4,641 =/>8.0% $5,801 =/>10.0%

Tier I Capital (to Risk Weighted
Assets) $9,362 16.1% $2,321 =/>4.0% $3,481 =/> 6.0%

Tier I Capital (to Total Assets)
(core capital ratio) $9,362 8.4% $4,485 =/>4.0% $5,606 =/> 5.0%

(DOLLARS IN THOUSANDS)
-------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ ---------------- -----------------
JUNE 30, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- ------ ----- ------ ----- ------ -----

Total Capital (to Risk Weighted
Assets) (risk-based capital ratio) $9,173 21.7% $3,382 =/>8.0% $4,228 =/>10.0%

Tier I Capital (to Risk Weighted
Assets) $8,744 20.7% $1,691 =/>4.0% $2,537 =/> 6.0%

Tier I Capital (to Total Assets)
(core capital ratio) $8,744 8.1% $4,298 =/>4.0% $5,372 =/> 5.0%

-F-24-

146
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

JUNE 30,
--------------------
1998 1997
---- ----

Regulatory capital reconciliation (in thousands):
Total equity $ 9,231 $ 8,583
Unrealized losses on certain available for sale
securities, net of taxes 131 161
------- -------

Tangible and core capital 9,362 8,744
Allowance for loan losses 452 429
------- -------

Risk based capital $ 9,814 $ 9,173
======= =======

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires that the Association disclose estimated fair values for its
financial instruments. Fair value estimates are made at a specific point in
time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Association's entire
holdings of a particular financial instrument. Also, it is the Association's
general practice and intention to hold most of its financial instruments to
maturity and not to engage in trading or sales activities. Because no market
exists for a significant portion of the Association's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions can
significantly affect the estimates.

Estimated fair values have been determined by the Association using
historical data, as generally provided in the Association's regulatory
reports, and an estimation methodology suitable for each category of
financial instruments. The estimated fair value of the Association's
investment securities is described in Note 2. The Association's fair value
estimates, methods and assumptions are set forth below for the Association's
other financial instruments.

-F-25-

147
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

Cash and due from banks and interest-bearing deposits with banks:

The carrying amounts for cash and due from banks and interest-bearing
deposits with banks approximate fair value because they mature in 90 days
or less and do not present unanticipated credit concerns.

Loans:

Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial,
commercial real estate, residential mortgage, credit card and other
consumer. Each loan category is further segmented into fixed and adjustable
rate interest terms and by performing and nonperforming categories.

The fair value of performing loans, except residential mortgage is
calculated by discounting schedules cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based
on the Association's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential
mortgage loans, fair value is estimated using discounted rates based on
secondary market sources adjusted to reflect differences in servicing and
credit costs.

Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discounted rates are judgmentally determined using available market
information and specific borrower information.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, savings and NOW accounts, and money market and
checking accounts, is equal to the amount payable on demand as of the
valuation date. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.

The fair value estimates above do not include the benefit that results from
the low-cost funding provided by the deposit liabilities compared to the
cost of borrowing funds in the market, commonly referred to as the core
deposit intangible.

-F-26-

148
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

Accrued Interest:

The carrying amounts of accrued interest approximate their fair values.

Off-balance sheet instruments:

The fair values of commitments to extend credit are estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties'
credit standing.

The estimated fair values of the Association's financial instruments are as
follows at June 30 (in thousands):

1998 1997
----------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- --------- --------

Financial assets:
Cash and due from
banks $ 3,272 $ 3,272 $ 2,868 $ 2,868
Interest-bearing deposits
with banks 8,586 8,586 6,167 6,167
Held-to-maturity
securities 20,783 20,807 24,842 24,811
Available-for-sale
securities 7,901 7,901 4,248 4,248
Loans, net of allowance 69,211 70,123 66,738 67,021
Accrued interest
receivable 619 619 665 665

Financial liabilities:
Deposits 102,604 102,672 98,465 98,133

Accrued interest payable 106 106 154 154

Off-balance sheet financial
instruments:
Commitments to extend
credit - - - -

-F-27-

149
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

15. RECENT ACCOUNTING PRONOUNCEMENTS

In September 1997, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose 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 that financial statement. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The
Association will make the appropriate disclosures in the applicable financial
statements, as required.

In September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and 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. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Management has not yet determined the
impact, if any, of this statement on the Association.

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for 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. SFAS No. 133 is effective for financial statements
for periods beginning after June 15, 1999. In connection with the
implementation of SFAS No. 133, the Association may transfer debt securities
classified as held-to-maturity to the available-for-sale category. Such a
transfer will not call into question the Association's intention to hold
other debt to maturity in the future. Management has not yet determined the
impact, if any, of this statement on the Association. Management does plan on
early adoption of SFAS No. 133 to take advantage of the special provision
that would allow the Association to transfer debt securities classified as
held-to-maturity to the available-for-sale category.

-F-28-

150
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

16. PLAN OF CONVERSION

On June 26, 1998, the Board of Directors of the Association adopted a plan of
conversion (the "Plan") pursuant to which the Association will convert from a
state chartered mutual savings and loan association to a state chartered
stock capital savings association. All of the outstanding common stock of the
Association will be acquired in exchange for a portion of the net conversion
proceeds (the "Conversion") by a holding company formed expressly for such
purpose (the "Company"). All of the stock to be issued in the Conversion is
being offered to eligible account holders as of March 31, 1997.

The Association plans to establish an ESOP for the benefit of eligible
employees, to become effective upon the conversion. The ESOP intends to
purchase up to 8% of the common stock issued in the conversion utilizing
proceeds of a loan from a wholly-owned subsidiary of the company or a third
party lender. The loan will be repaid over a period of 12 years and the
collateral for the loan will be the common stock purchased by the ESOP.

Pursuant to the Plan, the Company intends to establish a charitable
foundation ("Foundation") in connection the conversion. The Plan provides
that the Association and the Company will create the Foundation and donate an
amount of the Company's common stock equal to 5% of the common stock to be
sold in the conversion. The Foundation will be dedicated to charitable
purposes within the communities in which the Association operates and to
complement the Association's existing community activities. Establishment of
the Foundation is subject to the approval of the Association's members at the
special meeting being held to vote upon the Conversion.

The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified as a
private foundation. A contribution of common stock to the Foundation by the
Company would be tax deductible, subject to a limitation based on 10 percent
of the Company's taxable income. The Company, however, would be able to carry
forward any unused portion of the deduction for five years following the
contribution. Upon funding the Foundation, the Company will recognize an
expense in the full amount of the contribution, offset in part by the
corresponding benefit for the tax deduction, during the quarter in which the
contribution is made.

-F-29-

151
SECURITY SAVINGS ASSOCIATION OF HAZLETON
NOTES TO FINANCIAL STATEMENTS

The Association may provide support services to the Foundation including, but
not limited to, employee time, office space and accounting support. The
Association expects to provide these services without compensation, however,
expenses incurred on behalf of the Foundation are not expected to be
significant to the operations of the Association.

At the time of Conversion, the Association will establish a liquidation
account in an amount equal to its equity as reflected in the latest balance
sheet used in the final conversion prospectus. The liquidation account will
be maintained for the benefit of eligible account holders and supplemental
eligible account holders who continue to maintain their accounts at the
Association after the conversion. The liquidation account will be reduced
annually to the extent that eligible account holders and supplemental
eligible account holders have reduced their qualifying deposits as of each
anniversary date. Subsequent increases will not restore an eligible account
holder's or supplemental account holder's interest in the liquidation
account. In the event of a completed liquidation of the Association, each
eligible account holder and supplemental eligible account holder will be
entitled to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.

The costs associated with Conversion will be deferred and will be deducted
from the proceeds upon the sale and issuance of stock. In the event the
Conversion is not consummated, costs incurred will be charged to expense. At
June 30, 1998 deferred conversion costs totaled $20,000.

After the conversion, the Association may not declare or pay dividends on its
stock if such declaration and payment would violate statutory or regulatory
requirements.

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

-F-30-
152
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SECURITY OF PENNSYLVANIA FINANCIAL CORP., THE ASSOCIATION OR
SANDLER O'NEILL & PARTNERS, L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SECURITY OF PENNSYLVANIA
FINANCIAL CORP. OR THE ASSOCIATION SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
----

Summary........................................................................
Selected Consolidated Financial and............................................
Other Data of the Association..............................................
Recent Developments............................................................
Risk Factors...................................................................
Security of Pennsylvania Financial Corp. ......................................
Security Savings Association of Hazleton ......................................
Regulatory Capital Compliance..................................................
Use of Proceeds................................................................
Dividend Policy................................................................
Market for the Common Stock....................................................
Capitalization.................................................................
Pro Forma Data.................................................................
Comparison of Valuation and Pro Forma Information
With No Foundation..........................................................
Security Savings Association of Hazleton Statements
of Income....................................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................
Business of the Association....................................................
Federal and State Taxation.....................................................
Regulation.....................................................................
Management of the Company......................................................
Management of the Association..................................................
The Conversion.................................................................
Restrictions on Acquisition of the Company
and the Association........................................................
Description of Capital Stock of the Company....................................
Description of Capital Stock of the Association................................
Transfer Agent and Registrar...................................................
Experts........................................................................
Legal and Tax Opinions.........................................................
Additional Information.........................................................
Index of Financial Statements..................................................

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

UNTIL __________, 1998 OR 25 DAYS AFTER COMMENCEMENT OF THE COMMUNITY OFFERING
AND/OR SYNDICATED COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

================================================================================

1,511,617 Shares

SECURITY OF PENNSYLVANIA
FINANCIAL CORP.

(Proposed Holding Company for
Security Savings Association of Hazleton)

COMMON STOCK

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

PROSPECTUS
--------------

_____________, 1998

Sandler O'Neill & Partners, L.P.

===============================================================================
153

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:

TENTH:

A. Each person who was or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.

B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.

C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an

154

advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this Article TENTH, or otherwise shall be on the
Corporation.

D. The rights to indemnification and to the advancement of expenses conferred in
this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.

E. The Corporation may maintain insurance, at its expense, to protect itself and
any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.

ELEVENTH:

A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.

155

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

SEC filing(1)......................................................................................................$ 5,735
OTS filing fee.......................................................................................................14,400
Pennsylvania filing fees..............................................................................................2,052
NASD filing fee(1)....................................................................................................2,445
Stock Market listing fee(2)..........................................................................................15,000
Printing, postage and mailing.......................................................................................150,000
Legal fees and expenses (including underwriter's
counsel)..........................................................................................................200,000
Accounting fees and expenses.........................................................................................65,000
Appraisers' fees and expenses (including
business plan).....................................................................................................28,000
Marketing fees and selling commissions(2)...........................................................................262,500
Underwriter's expenses...............................................................................................10,000
Conversion agent fees and expenses...................................................................................20,000
Transfer agent fees and expenses.....................................................................................10,000
Certificate printing..................................................................................................5,000
Telephone, temporary help and other equipment........................................................................10,000
Miscellaneous.................................................................................................... 32,368
--------
TOTAL............................................................................................................ $832,500
========

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

(1) Unless otherwise noted, based upon the previous registration and issuance
of 1,944,075 shares at $10.00 per share.

(2) Based upon the issuance of 1,511,617 shares at $10.00 per share.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

None.

156

ITEM 27. EXHIBITS.

The exhibits filed as a part of this Registration Statement are as follows:

(a) List of Exhibits (filed herewith unless otherwise noted)

1.1 Engagement Letter between Security Savings Association of Hazleton and Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Conversion (including the Stock Articles of Incorporation and Bylaws of Security Savings Association
of Hazleton)
3.1 Certificate of Incorporation of Security of Pennsylvania Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
3.3 Stock Articles of Incorporation and Bylaws of Security Savings Association of Hazleton
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Security of Pennsylvania Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Parente, Randolph, Orlando, Carey & Associates re: State Tax Matters
10.1 Form of Security Savings Association of Hazleton Trust Agreement*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Form of Security Savings Association of Hazleton Employment Agreement*
10.4 Form of Security of Pennsylvania Financial Corp. Employment Agreement*
10.5 Form of Security Savings Association of Hazleton Change in Control Agreement*
10.6 Form of Security Savings Association of Hazleton Supplemental Executive Retirement Plan*
10.7 Form of Security Savings Association of Hazleton Employee Severance Compensation Plan*
23.1 Consent of Parente, Randolph, Orlando, Carey & Associates
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell*
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc.(P)
99.2 Amended Form of Security Savings Charitable Foundation Gift Instrument

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

*Previously filed.

(P) Filed pursuant to Rule 202 of Regulation S-T.

157

ITEM 28. UNDERTAKINGS.

The small business issuer will:

(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and

(iii) Include any additional or changed material information
on the plan of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.

The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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.

158

CONFORMED
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Hazleton, Commonwealth of Pennsylvania, on November 2, 1998.

Security of Pennsylvania Financial Corp.

By: /s/ Richard C. Laubach
--------------------------
Richard C. Laubach
President, Chief Executive Officer and Director

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.

Name Title Date
---- ----- ----

/s/ Richard C. Laubach President, Chief Executive November 2, 1998
- ------------------------------ Officer and Director
Richard C. Laubach (principal executive
officer)

* Chief Financial Officer
- ------------------------------ and Treasurer
David P. Marchetti, Sr. (principal accounting and
financial officer)

* Director
- ------------------------------
Vincent L. Marusak

* Director
- --------------------------------
Frederick L. Barletta

* Director
- ---------------------------------
Peter B. Deisroth

* Director
- -------------------------------
George J. Hayden

* Director
- --------------------------------
Joseph E. Lundy

* Director
- ---------------------------------
John J. Raynock

* Director
- --------------------------------
Anthony P. Sidari

159

*Pursuant to the Power of Attorney filed as Exhibit 24.1 to the Registration
Statement on Form SB-2 for Security of Pennsylvania Financial Corp. on
September 11, 1998.

/s/ RICHARD C. LAUBACH President, Chief Executive November 2, 1998
- ------------------------- Officer and Director
Richard C. Laubach

160

TABLE OF CONTENTS

LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)

The exhibits filed as a part of this Registration Statement are as follows:

(a) List of Exhibits (filed herewith unless otherwise noted)

1.1 Engagement Letter between Security Savings Association of Hazleton and Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Conversion (including the Stock Articles of Incorporation and Bylaws of Security Savings
Association of Hazleton)
3.1 Certificate of Incorporation of Security of Pennsylvania Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
3.3 Stock Articles of Incorporation and Bylaws of Security Savings Association of Hazleton
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Security of Pennsylvania Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Parente, Randolph, Orlando, Carey & Associates re: State Tax Matters
10.1 Form of Security Savings Association of Hazleton Trust Agreement*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Form of Security Savings Association of Hazleton Employment Agreement*
10.4 Form of Security of Pennsylvania Financial Corp. Employment Agreement*
10.5 Form of Security Savings Association of Hazleton Change in Control Agreement*
10.6 Form of Security Savings Association of Hazleton Supplemental Executive Retirement Plan*
10.7 Form of Security Savings Association of Hazleton Employee Severance Compensation Plan*
23.1 Consent of Parente, Randolph, Orlando, Carey & Associates
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell*
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc.(P)
99.2 Amended Form of Security Savings Charitable Foundation Gift Instrument

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

*Previously filed.

(P) Filed pursuant to Rule 202 of Regulation S-T.