PEOPLES FIRST INC - 10-K Annual Report

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

FORM 10-K

[ X ] Annual report pursuant Section 13 of the Securities
Exchange Act of 1934, for the fiscal year ended
December 31, 2001, or

[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, for the transition
period from _____________ to _____________

Commission File Number: 333-30640

PEOPLES FIRST, INC.
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 23-3028825
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

24 SOUTH THIRD STREET, OXFORD, PA 19363
(Address of principal executive office) (Zip Code)

610-932-9294
(Registrant's Telephone Number, including area code)

Securities registered under section 12(b) of the Act:
Not Applicable

Securities registered under section 12(g) of the Act:

Title of each class Name of each exchange
on which registered
COMMON STOCK, Par Value None
$1.00 per share

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the bank was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ]No

Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of January 31, 2002, the aggregate market value of the
2,998,135 shares of Common Stock of the Registrant outstanding
on such date, held by non-affiliates of the Registrant, was
approximately $47,083,247. This figure is based on the last
known sales price, prior to January 31, 2002, reported to the
Registrant of $21.75 per share for Common Stock. Although
directors, officers and five percent beneficial owners of the
Registrant were assumed to be "affiliates" of the Registrant for
purposes of this calculation, the classification is not to be
interpreted as an admission of such status.

Documents Incorporated by Reference

Portions of the Registrant's definitive proxy statement,
dated April 10, 2002, are incorporated by reference in Part III
of this Form 10-K.

Forward Looking Statements

Except for historical information, this report may be
deemed to contain "forward looking" statements regarding Peoples
First, Inc. Examples of forward looking statements include, but
are not limited to, (i) projections or statements regarding
future earnings, expenses, net interest income, other income,
earnings or loss per share, asset mix and quality, growth
prospects, capital structure and other financial terms, (ii)
statements of plans and objectives of management or the Board of
Directors, and (iii) statements of assumptions, such as economic
conditions in Peoples' market areas. Such forward looking
statements can be identified by the use of forward looking
terminology such as "believes", "expects", "may", "intends",
"will", "should", "anticipates", or the negative of any of the
foregoing or other variations thereon or comparable terminology,
or by discussion of strategy.

No assurance can be given that the future results covered
by forward-looking statements will be achieved. Such statements
are subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Important factors that could impact Peoples' operating results
include, but are not limited to, (i) the effects of changing
economic conditions in Peoples' market areas and nationally,
(ii) credit risks of commercial, real estate, consumer and other
lending activities, (iii) significant changes in interest rates,
(iv) changes in federal and state banking laws and regulations
which could impact Peoples' operations, (v) funding costs, and
(vi) other external developments which could materially affect
Peoples' business and operations.

Item 1 - Business

Peoples First, Inc.

Peoples First, Inc. is a bank holding company which was
incorporated under the laws of the Commonwealth of Pennsylvania
on July 27, 2000, through acquisition of all the outstanding
stock of The Peoples Bank of Oxford.

Peoples provides commercial banking and trust services
through its wholly owned subsidiary The Peoples Bank of Oxford.
The consolidated financial statements include Peoples and the
Bank. All significant inter-company accounts and transactions
have been eliminated. Peoples' primary source of operating
funds is dividends received from the Bank. Peoples' expenses
consist of minimal operating expenses. To obtain maximum tax
advantage, this year Peoples purchased over $8,000,000 in
municipal securities. The funds to purchase the securities were
obtained through dividends received from the Bank. Dividends
paid to stockholders consist of dividends declared and paid to
Peoples by the Bank.

As of December 31, 2001, Peoples had total assets of
$361,349,000 and total stockholders' equity of $43,642,000.

The Peoples Bank of Oxford

The Peoples Bank of Oxford is a state-chartered commercial
banking institution, which was incorporated under the laws of
the Commonwealth of Pennsylvania, on December 19, 1913. The
Bank's deposits are insured by the Federal Deposit Insurance
Corporation.

As of December 31, 2001, the Bank had total assets of
$353,116,000, total deposits of $282,531,000 and total
stockholders' equity of $35,342,000. At year-end, December 31,
2001, the Bank had 138 full-time employees and 27 part-time
employees.

The Bank's Corporate Headquarters, Trust Department and
full service Main Office are located at 24 South Third Street,
Oxford, Pennsylvania. The Bank has eight offices and eight
automated teller machines. These offices serve a predominately
rural agricultural area, which includes southern Chester County,
Pennsylvania and to a lesser extent southern Lancaster County,
Pennsylvania and northern Cecil County, Maryland. In December
2001, the Bank opened its first branch in Maryland to better
serve the northern Cecil County area. The Bank's Operations
Center, located at 125 Peoples Drive, Oxford, Pennsylvania,
opened in August of 2000.

The Bank primarily serves individuals and small to medium
sized farms and businesses, providing a broad range of services,
including retail and commercial banking services, investment
services and trust services. These services include providing
various types of demand, savings and time deposit accounts,
making secured and unsecured consumer, real estate and
commercial loans, sale of investment products and safe deposit
box rentals. Additionally, retail customers can access their
account information, pay bills, transfer funds, and access
information regarding bank services via their personal computer
using online banking. The Bank provides its customers with
access to invest in mutual funds, annuities, insurance and
various other financial instruments via the INVEST Financial
Corporation. In addition, the Bank also provides trust and
investment services to individuals, small businesses and
charitable organizations through its Trust Department. These
services include investment management, estate settlement and
maintenance of securities and accounting records for various
types of trust relationships.

On April 10, 2000, the Bank purchased Wilmerding &
Associates, Inc., located in Rosemont, Pennsylvania. Wilmerding
is a registered investment advisor providing counsel to
individual, fiduciary and corporate clients. At year-end,
December 31, 2001, Wilmerding had seven full-time employees.

The Bank's business is not seasonal in nature nor is the
Bank involved in operations in foreign countries. Management
does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail, mortgage
banking and trust operations. As a result, discrete information
is not available and segment reporting would not be meaningful.
The operations of Wilmerding & Associates, Inc. are not material
to the consolidated financial statements.

Competition

There is strong competition in Peoples' service area for
banking business among commercial banks, thrift institutions,
other financial institutions and financial intermediaries. In
addition to commercial banks, federal and state savings and loan
associations, savings banks and credit unions actively compete
in Peoples' market area providing a wide variety of banking
services. Mortgage banking firms, finance companies, insurance
companies, leasing companies, brokerage companies and financial
affiliates of industrial companies provide additional
competition for loans and various financial services. Peoples
also currently competes for interest-bearing funds with a number
of other financial intermediaries which offer a diverse range of
investment alternatives including brokerage firms and mutual
funds. Many competitors have substantially greater financial
resources and larger branch systems than those of Peoples.

There are nine full service commercial banks and three
savings banks with branches in the southern Chester County
portion of Peoples' designated market area. Peoples maintains
the majority of the market share in the Oxford area and has now
gained the largest market share in the Avondale-West Grove area;
in the remainder of the market area, Peoples continues to grow
the size of its market share. Peoples is also subject to
competition from banks outside of its service area for various
financial services.

In consumer transactions, Peoples believes that it is able
to compete effectively by offering low cost checking accounts,
comparable banking hours and competitive rates on its interest
bearing accounts. In competing with other banks and financial
institutions, Peoples seeks to provide personalized services
through management's knowledge and awareness of Peoples' service
area, customers and borrowers.

With respect to commercial transactions, Peoples' legal
lending limit to a single borrower is generally lower than the
other larger commercial lenders. Management believes that
Peoples' legal lending limit is sufficient to handle the credit
requirements of its target market. In addition, Peoples will
participate in commercial loans with other financial
institutions if necessary, in order to accommodate a customer's
needs.

Peoples has not engaged in any material research activities
relating to the development of new services or the improvement
of existing bank services. However, marketing activities have
occurred that enable Peoples to remain competitive, which
include the addition of new services, additional branches and
improvements to services currently offered.

Peoples believes it is and will continue to be competitive
in regard to interest rates and product offerings, while
maintaining its profit margins and stable capital structure.

Loan and Deposit Structure

At December 31, 2001, total loans, net of unearned income,
equaled $252,172,000 with an additional $51,135,000 in standby
letters of credit, unused lines of credit and commitments to
extend credit. Peoples has a significant concentration of
residential and commercial mortgage loans collateralized by
properties located in southern Chester County. Approximately
$45,681,000 in loans was outstanding to real estate investors;
included in this category is a diverse group of properties and
borrowers: $26,084,000 was collateralized by mortgages on
commercial properties (stores, offices and convenience centers,
etc.), about $10,983,000 were mortgage loans on one to four
family rental properties, $3,392,000 were mortgages on mobile
home parks, $3,245,000 was secured by multifamily rental
properties and approximately $1,977,000 was outstanding on land
development projects. These figures do not include mortgages on
one to four family owner-occupied properties. Similarly,
approximately, $16,378,000 in unused commitments was outstanding
to real estate investors. Of those commitments, $3,937,000 was
collateralized by commercial properties, $3,793,000 was secured
by multi-family rental properties, $4,905,000 was secured by one
to four family rental properties, $1,055,000 was secured by
mobile home parks and $2,688,000 was secured by land development
projects. These figures do not include conventional mortgages
on one to four family owner-occupied properties.

Peoples also has a significant portion of loans outstanding
to the agricultural sector totaling $47,722,000. Approximately
$28,876,000 of these loans was outstanding to the mushroom
industry, which represents 11.4% of total loans, and about
$18,846,000 was outstanding to other segments of the farm
community. Likewise, unused commitments to the mushroom
industry totaled $5,076,000, with $2,549,000 outstanding for
other agricultural loans.

At December 31, 2001, Peoples' total deposits equaled
$282,462,000, of which 24.3% were non-interest bearing deposits
and 75.7% were interest bearing deposits. Although Peoples'
deposits are primarily generated from southern Chester County,
there is no concentration of deposits in one person or group of
persons that if withdrawn would have a material adverse effect
on Peoples. Peoples has no brokered deposits. However, it
should be noted that the liquidity position of any bank could be
tightened in the event a substantial portion of the bank's
depositors decided to withdraw their funds from the bank within
a short period of time.

Regulation

Peoples and the Bank are subject to extensive regulation
and examination by the Federal Reserve, the Pennsylvania
Department of Banking, and the Federal Deposit Insurance
Corporation (FDIC). The Bank's deposit accounts are insured up
to the maximum legal limits by the FDIC. Peoples is not a
member of the Federal Reserve System.

Federal and state banking laws regulate many aspects of
Peoples' and the Bank's business including, but not limited to,
capital requirements, amount of reserves for deposits, loans and
investments Peoples and the Bank may make, acceptable collateral
that may be taken and consumer protection laws.

Peoples and the Bank are subject in the course of their
activities to a growing number of federal, state and local
environmental laws and regulations. Peoples does not anticipate
that compliance with environmental laws and regulations will
have any material effect on capital expenditures, earnings or on
the competitive position of Peoples.

Peoples is under the jurisdiction of the Securities and
Exchange Commission and of state securities commissions for
matters relating to the offering and sale of its securities. In
addition, Peoples is subject to the Securities and Exchange
Commission's rules and regulations relating to periodic
reporting, proxy solicitation, and insider trading.
Wilmerding & Associates, Inc., is also subject to the Securities
and Exchange Commission's rules and regulations applicable to
registered investment advisors.

FDIC Insurance Assessments

The FDIC has implemented a risk-related premium schedule
for all insured depository institutions that results in the
assessment of premiums based on capital and supervisory
measures. Under the risk-related premium schedule, the FDIC
assigns, on a semiannual basis, each depository institution to
one of three capital groups (well-capitalized, adequately
capitalized or undercapitalized) and further assigns such
institution to one of three subgroups within a capital group.
The institution's subgroup assignment is based upon the FDIC's
judgment of the institution's strength in light of supervisory
evaluations, including examination reports, statistical analyses
and other information relevant to measuring the risk posed by
the institution. Only institutions with a total capital to
risk-adjusted assets ratio of 10% or greater, and a Tier 1
capital to risk-based assets ratio of 6% or greater, and a
Tier 1 leverage ratio of 5% or greater, are assigned to the
well-capitalized group. As of December 31, 2001, the Bank was
well capitalized for purposes of calculating insurance
assessments.

The Bank Insurance Fund is presently fully funded at more
than the minimum amount required by law. Accordingly, the 2001
Bank Insurance Fund assessment rates ranged from zero for those
institutions with the least risk, to $0.27 for ever $100 of
insured deposits for institutions deemed to have the highest
risk. The Bank is in the category of institutions that
presently pay nothing for deposit insurance. The FDIC adjusts
the rates every six months. The FDIC has indicated from time to
time that all banks may again be required to pay deposit
insurance premiums in the future if the current trend of the
size of the deposit insurance funds relative to all insured
deposits continues.

While the Bank presently pays no premiums for deposit
insurance, it is subject to assessments to pay the interest on
Financing Corporation bonds. The Financing Corporation was
created by Congress to issue bonds to finance the resolution of
failed thrift institutions. Prior to 1997, only thrift
institutions were subject to assessments to raise funds to pay
the Financing Corporation bonds. Beginning in 2000, commercial
banks and thrifts are subject to the same assessment for
Financing Corporation bonds. The FDIC sets the Financing
Corporation assessment rate every quarter. the Financing
Corporation assessment for the Bank (and all other banks) for
the first quarter of 2002 is an annual rate of $.0182 for each
$100 of deposits.

Gramm-Leach-Bliley Act and Other Legislation

Landmark legislation in the financial services area was
signed into law on November 12, 1999. The Gramm-Leach-Bliley
Act dramatically changed certain banking laws that had been in
effect since the early part of the 20th century. The most
radical changes are that the separation between banking and the
securities businesses mandated by the Glass-Steagall Act has now
been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been
preempted. Accordingly, the legislation now permits firms
engaged in underwriting and dealing in securities, and insurance
companies, to own banking entities, and permits bank holding
companies (and in some cases, banks) to own securities firms and
insurance companies. The provisions of federal law that
preclude banking entities from engaging in non-financially
related activities, such as manufacturing, have not been
changed. For example, a manufacturing company cannot own a bank
and become a bank holding company, and a bank holding company
cannot own a subsidiary that is not engaged in financial
activities, as defined by the regulators.

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

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

In October 2001, the President signed into law the USA
PATRIOT Act. This Act was passed in direct response to the
terrorist attacks on September 11, 2001, and strengthens the
anti-money laundering provisions of the Bank Secrecy Act. Most
of the new provisions added by the Act apply to accounts at or
held by foreign banks, or accounts of or transactions with
foreign entities. The Bank does not have a significant foreign
business and does not expect this Act to materially affect its
operations. The Act does, however, require the banking
regulators to consider a bank's record of compliance under the
Bank Secrecy Act in acting of any application filed by a bank.
As the Bank is subject to the provisions of the Bank Secrecy Act
(i.e., reporting of cash transaction in excess of $10,000), the
Bank's record of compliance in this area will be an additional
factor in any applications filed by it in the future. To the
Bank's knowledge, its record of compliance in this area is
satisfactory.

Item 2 - Properties

The principal banking office and executive offices of
Peoples are located at 24 South Third Street, Oxford,
Pennsylvania, 19363. Peoples owns the office building, which
consists of approximately 21,000 square feet. In addition,
Peoples owns an adjacent parking lot, which consists of
approximately 33,000 square feet, providing parking for
customers and employees.

The Oxford South office, a full service branch, is located
at 3400 Baltimore Pike, Oxford, in East Nottingham Township,
Pennsylvania. Peoples owns the office building, which consists
of approximately 3,200 square feet.

The Avon Grove Office, a full service branch, is located at
565 East Baltimore Pike in Avondale, Pennsylvania. The office
consists of approximately 3,800 square feet. Peoples has a
long-term lease on the land with rental payments in 2001
totaling $16,900. The lease term expires in March 2008 and
provides for eight renewal options of five years each.

The Longwood Office, a full service branch, is located at
900 East Baltimore Pike in Kennett Square, Pennsylvania. The
office consists of approximately 3,800 square feet. The rental
payments on the long-term land lease totaled $52,300 in 2001.
The lease term expires in 2015 and provides for one five year
renewal option and an additional renewal option of four years
and three hundred and sixty-four days.

The Jennersville Office, a full service branch, is located
at Old Baltimore Pike and Route 796 in Penn Township, Chester
County, Pennsylvania. The office consists of approximately
2,500 square feet. Peoples has a long-term land lease which
expires in 2017 and provides for one five year renewal option
and an additional renewal option of four years and eleven
months. Rental payments in 2001 totaled $35,000.

The West Kennett Office, a full service branch, is located
at 920 West Cypress Street, Kennett Square, Pennsylvania. The
office consists of approximately 3,800 square feet. The rental
payment on the long-term land lease totaled $45,000 in 2001.
Peoples has a long-term land lease which expires in 2020 and
provides for one five year renewal options and an additional
renewal option of four years and eleven months.

The Rising Sun Office, a full service branch opened in
December 2001, is located at 5 Maple Heights Lane, Rising Sun,
Maryland. The office consists of approximately 3,800 square
feet. The rental payment on the long-term land lease totaled
$3,000 in 2001. Peoples has a long-term land lease which
expires in 2021 and provides for two five year renewal options.

Peoples opened its operations center along Route 10 in
Lower Oxford Township, Chester County, Pennsylvania, in August
of 2000. As Peoples has continued to grow, additional support
personnel have been added, resulting in facilities that were
filled to capacity. This center has alleviated the overcrowding
and provided the space necessary to handle future growth.
Peoples owns the office building, which consists of
approximately 23,000 square feet.

Item 3 - Legal Proceedings

There are no pending legal proceedings to which Peoples is
a party or to which its property is subject, which would in the
opinion of management, be material in relation to Peoples'
results of operations or financial condition.

Item 4 - Submission of Matters to a Vote of Security Holders

None

Item 4A - Executive Officers of the Registrant

The following sets forth information with respect to
executive officers of Peoples and the Bank. Each officer was
elected at the first meeting of the Board of Directors following
the 2001 Annual Meeting of Shareholders and will serve until the
first meeting of the Board of Directors following the 2002
Annual Meeting of Shareholders, at which time the Board of
Directors will elect officers for the following year. There are
no arrangements or understandings between Peoples or the Bank
and any person pursuant to which any such officers were
selected.

George C. Mason (age 66) is Chairman and served as Chief
Executive Officer of Peoples through December 2001. He has been
a Director of the Bank since 1972, has served as Chairman of the
Board of the Bank since July 1973, and served as Chief Executive
Officer of the Bank from March 1992 through December 2001.
Mr. Mason also serves as a Director of HERCO, Inc., Hershey,
Pennsylvania. Since October 1988, Mr. Mason has been employed
full time at the Bank.

Hugh J. Garchinsky (age 51) is a Director and the President
of Peoples. Since January 1, 2002, he has served as Chief
Executive Officer of Peoples and the Bank. He has been a
Director of the Bank since 1997, and became President of the
Bank in 2000. Mr. Garchinsky joined the Bank in October 1992 as
Manager of Loan Operations, became a Vice President in 1994,
Senior Vice President in 1996, and Executive Vice President in
1997.

David H. Acox, Jr. (age 53) joined the Bank as Trust
Officer in October 1989, became Vice President and Trust Officer
in March 1994 and Senior Vice President and Trust Officer in
April 1997. Mr. Acox is directly responsible for the Trust
Department.

Jay L. Andress (age 50) joined the Bank in August 1973,
became Vice President in charge of operations in March 1988, and
has been Senior Vice President of Operations since April 1997.
Mr. Andress is directly responsible for data processing,
facilities and technology development. Mr. Andress is the son-
in-law of Carl R. Fretz, Vice Chairman of the Board and
Corporate Secretary of Peoples and the Bank.

Gary R. Davis (age 47) joined the Bank in July 1994, became
Assistant Vice President in 1995, Vice President in 1997, Senior
Vice President in 1999 and currently directs the Bank's lending
and credit analysis functions.

Scott W. Gundaker (age 51) joined the Bank in October 2001
as Senior Vice President of Retail Services. Mr. Gundaker is
directly responsible for marketing and community banking
functions. Prior to joining Peoples, Mr. Gundaker was employed
by Orbiscom, Inc. as Senior Vice President from 2000 to 2001.
From 1998 to 2000, Mr. Gundaker was employed by Mastercard
International as a Senior Vice President. From 1977 to 1997,
Mr. Gundaker was Executive Vice President for CoreStates
Financial Corporation.

Howard M. Mannheim (age 63) joined the Bank in June 1996,
and currently serves as Executive Vice President, Support Group
Manager. Since January 2002, he has served as Chief Operating
Officer. Mr. Mannheim is directly responsible for back office
operations and administrative functions.

Susan H. Reeves (age 48), Chief Financial Officer of
Peoples, joined the Bank in January 1984, became Vice President
and Auditor in 1991, Vice President and Chief Financial Officer
in 1996, and currently serves as Senior Vice President, Cashier
and Chief Financial Officer of the Bank. Mrs. Reeves is
directly responsible for the financial division of the Bank.

PART II

Item 5 - Market Price for and Dividends on Peoples Common Stock
and Related Stockholder Matters

The authorized capital stock of Peoples consists of
10,000,000 shares of common stock, par value $1.00 per share, of
which 2,998,135 shares were outstanding as of January 31, 2002.
There were approximately 740 shareholders of record as of
January 31, 2002. Peoples common stock is not listed or traded
on a recognized securities exchange. Peoples common stock is
traded in the over-the-counter market under the symbol PPFR and
trading in Peoples common stock is limited in volume.

The following table sets forth the high and low prices for
Peoples common stock for each quarterly period for the last two
years, however prices prior to July 27, 2000, the date of the
holding company formation, are for the Bank. Prices for the
sale of stock are based upon transactions reported by the
brokerage firm of F.J. Morrissey & Co., Inc. The quoted high
and low bid prices are limited to those transactions known by
management to have occurred and there may, in fact, have been
additional transactions of which management is unaware.

2001 2000
---- ----
High Low High Low
----- ----- ----- -----
First Quarter $20.25 $17.25 $26.75 $25.00
Second Quarter $21.00 $19.25 $24.75 $18.00
Third Quarter $22.00 $20.25 $19.00 $15.50
Fourth Quarter $22.75 $20.50 $18.50 $15.00

Holders of shares of common stock are entitled to receive
such dividends when, as, and if declared by Peoples' Board of
Directors, out of funds legally available for dividends.
Declaration of and payment of cash dividends by Peoples depends
upon dividend payments by the Bank, which is Peoples primary
source of revenue and cash flow. Peoples is a legal entity
separate and distinct from its subsidiaries. Accordingly, the
right of Peoples, and consequently the right of creditors and
shareholders of Peoples, to participate in any distribution of
the assets or earnings of any subsidiary is necessarily subject
to the prior claims of creditors of the subsidiary, except to
the extent that the claims of Peoples in its capacity as a
creditor may be recognized. Under Pennsylvania banking law, the
payment of dividends by the Bank is generally restricted to its
accumulated net earnings.

Peoples and the Bank have paid quarterly cash dividends on
its common stock since 1988. The following sets forth the cash
dividends declared per share on Peoples (or the Bank's) common
stock during each of the two years ended December 31, 2001.

Per-Share Dividends
2001 2000
----- -----
First Quarter $0.12 $0.11
Second Quarter $0.12 $0.11
Third Quarter $0.12 $0.12
Fourth Quarter $0.13 $0.12

Peoples retains American Stock Transfer & Trust Company, 59
Maiden Lane, New York, New York, as its transfer and dividend
paying agent.

Item 6 - Selected Financial Data

Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion represents management's analysis
of the financial condition and results of operations of Peoples
First, Inc. ("Peoples") and should be read in conjunction with
the accompanying financial statements and other financial data
included elsewhere in this report.

Forward-Looking Statements

Except for historical information, this report may be
deemed to contain "forward-looking" statements regarding
Peoples. Examples of forward-looking statements include, but
are not limited to, (a) projections or statements regarding
future earnings, expenses, net interest income, other income,
earnings or loss per share, asset mix and quality, growth
prospects, capital structure and other financial terms, (b)
statements of plans and objectives of management or the board of
directors, and (c) statements of assumptions, such as economic
conditions in Peoples' market areas. Such forward-looking
statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "intends,"
"will," "should," "anticipates," or the negative of any of the
foregoing or other variations thereon or comparable terminology,
or by discussion of strategy.

No assurance can be given that the future results covered
by forward-looking statements will be achieved. Such statements
are subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Important factors that could impact Peoples' operating results
include, but are not limited to, (i) the effects of changing
economic conditions in Peoples' market areas and nationally,
(ii) credit risks of commercial, real estate, consumer and other
lending activities, (iii) significant changes in interest rates,
(iv) changes in federal and state banking laws and regulations
which could impact Peoples' operations, (v) funding costs and
(vi) other external developments which could materially affect
Peoples' business and operations.

Critical Accounting Policies

Note 2 to Peoples consolidated financial statements
(included in Item 8 of the Form 10-K) lists significant
accounting policies used in the development and presentation of
its financial statements. This discussion and analysis, the
significant accounting policies, and other financial statement
disclosures identify and address key variables and other
qualitative and quantitative factors that are necessary for an
understanding and evaluation of Peoples and its results of
operations.

Overview

In 2001, Peoples recorded net income of $4,236,000, an
increase of $174,000 or 4.28% from net income of $4,062,000 in
2000. Net income was $4,167,000 in 1999. Improvement in net
interest income, increased non-interest income and a reduction
in the provision for loan losses led to overall improved
earnings for 2001. Actual net interest income increased
$412,000 in 2001 compared to 2000 and increased $1,132,000 in
2000 compared to 1999. While increased volume in loans and
securities was the major contributor to increased interest
income, the overall decline in interest rates offset a major
portion of the increase in net interest income. Non-interest
income increased $865,000 in 2001 compared to 2000 and increased
$993,000 in 2000 compared to 1999. The increase in non-interest
income in 2001 compared to 2000 was primarily attributable to
increased mortgage banking activities, no write-down on
securities, along with increased service charges on deposit
accounts. Basic earnings per share were $1.40 in 2001, $1.33 in
2000 and $1.39 in 1999.

Return on average assets was 1.23% for 2001, compared with
1.30% in 2000 and 1.50% in 1999. Return on average equity for
2001 was 9.78% compared to 10.19% in 2000 and 11.17% in 1999.

During 2001, average interest-earning assets increased by
9.5% or $27,541,000 to $318,698,000. Average interest-bearing
liabilities increased $22,586,000 or 10.5%, to $237,076,000 for
the year. The growth in earning assets was the primary
contributor to the increase in interest income. This increase
was partially offset with higher interest expense resulting from
the growth in interest bearing liabilities and the net decrease
in earnings from lower rates. Together these netted an increase
of $543,000 or 3.8% in fully tax-equivalent net interest income.
The net interest margin declined from 4.97% in 2000 to 4.71% in
2001. The compression in the net interest margin is due to
continued competition in product pricing and the overall decline
in interest rates.

Non-interest income increased $865,000 or 26.7% in 2001
compared to an increase of $993,000 or 44.2% in 2000. The
increase in 2001 resulted from increased mortgage banking
activities by $290,000, service charges collected on deposit
accounts and checks presented against non-sufficient funds by
$163,000 and not having a write-down this year on a held-to-
maturity security. This was supplemented with increased income
from fiduciary activities by $65,000 and other income by
$80,000, which includes fee income from the sale of mutual funds
and annuities. These increases were partially offset by a
decrease in investment management fees received by Wilmerding.
Because Wilmerding's fee income is based on the market value of
assets under management, the overall decline in the stock market
directly impacted its revenues.

Non-interest expenses increased $1,333,000 or 12.0% for
2001, compared to an increase of $2,355,000 or 26.9% for 2000.
The 2001 increase was largely a result of increased salaries and
employee benefits of $989,000, occupancy expense of $195,000 and
other operating expenses of $101,000. The increased salaries
and employee benefits consisted of normal merit increases and to
a greater extent additions to staff of the Bank and its asset
management subsidiary. Higher operating and occupancy expenses
were a result of expansion, including the Operations Center
which opened in August of 2000, the West Kennett Branch which
opened in January 2001, the expansion of the Oxford South Branch
which was completed January 2001 and the Rising Sun Branch which
opened in December 2001. The 2000 increase was primarily a
result of increased salaries and employee benefits consisting of
normal merit increases and to a greater extent additions to
staff, as Wilmerding's expenses were combined with Peoples. The
2000 increases in professional fees, principally legal and
accounting fees, were attributed to expenses associated with the
acquisition of Wilmerding, together with expenses related to the
formation of the holding company. Other operating expenses
increased in 2000 as a result of expenses from the Operations
Center, occupied during the third quarter 2000; the opening of a
small branch in Jenners Pond; and the initiation of the on-line
banking program.

The following table sets forth selected quarterly financial
data and per share data.

Quarterly Financial Data

(1) Peoples has a simple capital structure. Basic earnings per
share represents income available to common shareholders
divided by the weighted average number of common shares
outstanding during the period.

Results of Operations

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest
income earned on investments and loans, and interest expense
incurred on deposits and other liabilities. For analysis
purposes, net interest income is evaluated on a fully tax
equivalent (FTE) basis to facilitate comparison with interest
earned which is subject to federal taxation at the statutory tax
rate of 34%. The factors that affect net interest income
include changes in interest rates and changes in interest-
earning assets and interest-bearing liabilities. Net interest
income on an FTE basis increased by $543,000 or 3.8% to
$15,011,000 in 2001 from $14,468,000 in 2000. Comparatively,
net interest income (FTE basis) increased by $1,154,000 or 8.7%
in 2000 from $13,314,000 in 1999.

The following table includes average balances, rates and
interest income and expense adjusted to an FTE basis, the
interest rate spread and the net interest margin. Following
that is the rate and volume analysis table that shows changes in
net interest income attributed to changes in rates and changes
in average balances of interest-earning assets and interest-
bearing liabilities.

AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE

Yields on tax-exempt assets have been computed on a fully
tax equivalent basis assuming a tax rate of 34%.

For yield calculation purposes, non-accruing loans are
included in the average loan balances.

Interest income on loans includes amortized fees and costs
on loans totaling $134,000 for 2001, $139,000 for 2000 and
$120,000 for 1999.

Rate/Volume Analysis

Interest income is presented on a fully tax equivalent
basis, assuming a tax rate of 34%.

The net change attributable to the combination of rate and
volume has been allocated to change due to volume.

The 475 basis point reduction in the Federal Reserve Bank's
federal funds rate and the discount rate during 2001 has
resulted in an overall decline in net interest income due to
rate changes totaling $688,000. The reduction in rates on
interest-earning assets resulted in a decline of interest income
of $1,897,000. The decreased income was partially offset with a
reduction in interest expense on interest-bearing liabilities
totaling $1,209,000.

Tax equivalent interest income increased by $92,000 between
2001 and 2000, due to growth in asset volume contributing
$1,989,000 in interest income, largely offset with a reduction
of $1,897,000 resulting from the decline in rates. The primary
components of this increase were the growth in average loans of
$17,036,000 positively impacting interest income by $1,407,000;
however, a decline of 57 basis points in the yield on loans
lowered interest income by $1,253,000. The growth in loans was
directly related to a continued emphasis on developing new
lending business and retaining more mortgage loans in-house,
instead of selling them on the secondary market. Total average
securities grew by $6,259,000 but the corresponding yield
decreased 22 basis points. The growth in securities increased
interest income by $433,000, but the decline in rates reduced
the return by $148,000. Average Federal funds sold increased by
$5,870,000, increasing income by $222,000, more than offset by a
decrease in yield of 253 basis points, which resulted in a
reduction in interest income of $312,000. Interest-bearing due
from bank balances decreased by $1,647,000, decreasing income by
$74,000, accompanied by a 184 basis point decline in rate,
amounting to a decrease to income of $177,000.

Total interest-bearing liabilities grew by $22,586,000
between 2001 and 2000, increasing interest expense by $758,000
for 2001, more than offset by a lower annualized rate on total
interest-bearing liabilities by 62 basis points which decreased
interest expense by $1,209,000. Deposit balances grew, as
Peoples continues to expand within its market area, with growth
contributing $659,000 in interest expense. Overall, the lower
rates paid on deposits in 2001, reduced interest expense by
$1,071,000. Peoples borrowed some additional long-term money
from the Federal Home Loan Bank. Long-term debt averaged
$20,339,000 for the year, additional increases were matched
against a similar maturity and volume of customer mortgages
retained in-house. Matching these maturities enabled Peoples to
lock in a spread, along with a long-term interest income cash
flow, while managing the interest rate risk. As a result, the
growth in long-term borrowings at an overall lower rate added
$45,000 to interest expense.

Tax equivalent interest income increased by $3,675,000
between 2000 and 1999, due to growth in interest-earning assets
contributing $2,883,000 in interest income, along with an
increase of $792,000 resulting from higher rates. The primary
components of this increase were the growth in average loans of
$31,825,000 positively impacting interest income by $2,810,000,
along with an increase of 17 basis points in the yield on loans
increasing interest income by $310,000. The growth in loans was
directly related to a continued emphasis on developing new
lending business. Total average securities grew by $2,240,000
and the corresponding yield increased 29 basis points. The
growth in securities increased interest income by $117,000, in
conjunction with the higher rates increasing the return by
$169,000. Average Federal funds sold increased by $2,957,000,
increasing income by $187,000, along with an increase in yield
of 135 basis points, the net result was an increase in interest
income of $313,000. Interest-bearing due from bank balances
declined by $3,663,000, decreasing income by $231,000, being
partially offset with a 141 basis point increase in rates,
resulting in a net decrease to income by $44,000.

Total interest-bearing liabilities grew by $28,120,000
between 2000 and 1999, increasing interest expense by $1,237,000
for 2000, along with a higher annualized rate up by 69 basis
points increasing interest expense by $1,284,000. Deposit
balances grew, as Peoples continued to expand within its market
area, with growth contributing $807,000 in interest expense.
Peoples remained competitive with rates and ran several
promotions on certificates of deposits and remodeled Super NOW
product. Overall, the higher rates paid on deposits in 2000
increased interest expense by $1,201,000. Peoples borrowed
long-term money from the Federal Home Loan Bank during 2000 and
1999. Long-term debt averaged $19,603,000 for the year. As a
result, the growth in long-term borrowings added $375,000 to
interest expense.

The net interest margin is the ratio of net interest income
to interest-earning assets, reflecting a net yield on earning
assets. Peoples' net interest margin, on a tax equivalent
basis, for the years 2001, 2000 and 1999 was 4.71%, 4.97% and
5.16%, respectively. The compression in the net interest margin
in 2001, compared to 2000, resulted from the overall decline in
rates during the year and the continued competition in product
pricing. The decrease in yields on interest-earning assets by
68 basis points was not matched by an identical decrease in
rates on interest-bearing liabilities, which decreased 62 basis
points. During the year Peoples had 34.5% of its deposits in
NOW and savings accounts, which it considers core deposits and
which normally carry lower rates relative to other types of
deposits. Because of this, these accounts have historically
contributed significantly to the net interest margin. However,
these accounts are not able to absorb the decrease in market
rates resulting from the 475 basis point decrease in the Federal
Reserve's federal funds rate and discount rate. This
compression on the margin is reflected in the spread declining
from 3.80% in 2000 to 3.74% in 2001. The monetary impact can
also be seen in the rate change analysis: interest income
decrease attributed to rate was $1,897,000 compared to a
decrease in interest expense of $1,209,000. The compression in
the margin in 2000, resulted from an increase in yields on
interest-earning assets by 36 basis points being outpaced by an
increase in rates on interest-bearing liabilities, which climbed
69 basis points.

Provision for Loan Losses

The provision for loan losses and allowance for loan losses
are based on management's ongoing assessment of Peoples' credit
exposure and consideration of other relevant factors. The
allowance for loan losses is a valuation reserve, which is
available to absorb future loan charge-offs. The provision for
loan losses is the amount charged to earnings on an annual
basis.

Peoples recorded a $330,000 provision for loan losses in
2001, as compared to a provision of $465,000 and $451,000 in
2000 and 1999, respectively. Provisions for loan losses are
charged to income to bring the allowance for loan losses to a
level deemed appropriate by management based on the factors
discussed under "Allowance for Loan Losses."

Non-Interest Income

With the continued compression of the net interest margin,
Peoples has been focusing on methods to increase non-interest
income. Non-interest income of $4,107,000 for 2001 increased
$865,000 or 26.7% for the year 2001 compared to 2000. Non-
interest income was $3,242,000 in 2000 compared to $2,249,000 in
1999.

Service charges on deposit accounts continued to grow with
income of $1,338,000, $1,175,000 and $1,077,000 for the years
2001, 2000 and 1999, respectively. The increase in service
charges on deposit accounts reflects primarily increased fees
collected on checks presented against non-sufficient funds. The
overall trend is consistent with the growth noted in deposit
account balances and especially growth in demand deposits, NOW
and Super NOW accounts, which has the greatest effect on
Peoples' service charge income.

People's Trust Department continues to grow in size to
current year-end fair value of assets under management totaling
$99,238,000 compared to $96,997,000 in 2000 and $77,043,000 in
1999. Likewise, income generated by the Trust Department also
continues to grow with income for the years 2001, 2000 and 1999
of $539,000, $474,000 and $414,000, respectively.

The Bank acquired a wholly owned subsidiary during April
2000, Wilmerding & Associates, Inc. an investment advisor. The
transaction was accounted for as a pooling-of-interests and
years prior to 2000 have not been restated because the
adjustments would be immaterial. Wilmerding generated
investment management fees totaling $749,000 for 2001 and
$808,000 for the year 2000. Wilmerding's fees are based on the
market value of assets under management, which for 2001 reflects
the impact of the overall decline in the market. While
Wilmerding is not achieving the level of profitability desired,
Peoples has plans to expand this business in an effort to
increase revenues. At the present time, Wilmerding is not a
significant contributor to Peoples' total revenues.

Income from mortgage banking activities totaled $476,000 in
2001, which was an increase of 155.9% or $290,000 compared to
2000. In addition to originating and retaining mortgages in its
portfolio, Peoples also acts as a broker in the secondary
mortgage market. Peoples originates individual loans for
correspondent banks and mortgage companies and receives a fee
for these services. The favorable rate environment for
mortgage banking activities during 2001 led to increased
mortgage loan and refinancing demand. This increased demand and
Peoples' efforts to expand the mortgage business by working more
closely with the realtors in its market area led to the
increased fees from mortgage banking activities. This
contributed to an approximate 165.8% increase in the volume of
mortgages sold. In comparison, secondary mortgage origination
fees collected for the year 2000 totaled $186,000 and $135,000
for 1999.

Peoples generally holds the securities in its portfolio
until maturity, which normally results in nominal securities
gains and losses. In 2000, Peoples wrote-down a held-to-
maturity security issue by $326,000. This was a partial write-
down of approximately 10.0%, with the remainder still on the
books. Peoples continued to monitor this security during the
year and no additional losses are anticipated.

Other income increased by $80,000 to $1,005,000 for 2001,
compared to $925,000 and $623,000 in 2000 and 1999,
respectively. This increase was primarily a result of
commissions received from the sales of investment products and
services, which Peoples began to offer to its customers during
the second quarter of 1999, and income from a life insurance
investment.

Non-Interest Expense

Non-interest expense increased $1,333,000 or 12.0% in 2001
to $12,434,000, up from $11,101,000 in 2000 and $8,746,000 in
1999. The increase for 2001 was primarily from increased
salaries and employee benefits, occupancy, other operating
expenses and smaller increases in the remaining categories,
except for professional fees, which decreased. Expenses for
2001 and 2000 for Wilmerding have been included in the
appropriate categories.

Salaries and employee benefits increased $989,000 or 15.1%
in 2001 totaling $7,525,000, up from $6,536,000 in 2000.
Likewise, salaries and employee benefits increased $1,482,000 or
29.3% in 2000 compared to 1999. The increases were primarily
payroll and benefits expense incurred through normal merit
increases, bonuses and, to a greater extent, additions to staff
of the Bank and its subsidiary. The number of full time
equivalent employees rose from 118 in 1999 to 136 in 2000 and
then to 151 in 2001. Increases in payroll are anticipated, as
Peoples continues to grow in size, locations and product
offerings with additional staff being added as required.

Occupancy expense increased by $195,000 or 28.6% to
$878,000 in 2001 after increasing from $683,000 in 2000 and
$536,000 in 1999. These expenses were anticipated as Peoples
expanded its facilities. The increased expense in 2001 was
attributed to a full year of expenses from the Operations
Center, which provided the base necessary for further growth and
should improve efficiencies. The West Kennett Branch opened in
January 2001 and the remodeling and expansion of the Oxford
South Branch was also completed in January 2001. Peoples opened
its first facility in Maryland, opening the Rising Sun Branch in
December 2001. While these facilities may contribute to higher
occupancy expenses, it is anticipated the branch expansion will
generate additional income through the expansion of services to
our customers, community and new business development.
Increases in occupancy expense are anticipated as Peoples
continues to grow and expand its facilities.

Furniture and equipment expense reflected an increase of
$41,000 or 7.1% in 2001, to $615,000 compared to $574,000 in
2000 and $438,000 in 1999. The Operations Center and new branch
facilities added to the increased depreciation expense.
Furniture and equipment expense is anticipated to increase in
2002, as a result of Peoples' desire to keep current with
technological advances and expands its branch network.

Communication and supplies reflects an increase of $43,000
or 6.7% to $689,000 in 2001 from $646,000 in 2000 and $523,000
in 1999. This increased expense correlates with a full year of
increased expenditures relating to new branches and business
growth.

Taxes, other than income, consist of the Pennsylvania Bank
Shares Tax, which totaled $371,000 in 2001, $333,000 in 2000 and
$303,000 in 1999 and represents .86%, .84% and .81% of average
stockholders' equity, respectively.

Professional fees decreased to $343,000 in 2001 compared to
$417,000 in 2000 and $203,000 in 1999. The decrease of $74,000
in 2001, can be attributed to the absence in 2001 of legal and
accounting costs incurred during 2000 related to the acquisition
of the investment counseling firm, totaling $67,000, and the
formation of the holding company, totaling $64,000. The levels
of expenditures in 1999 were a result of business growth and the
accompanying complexities, requiring additional outside
expertise.

Other operating expense increased by 5.3% to $2,013,000 in
2001, after increasing to $1,912,000 in 2000 from $1,689,000 in
1999. The increase in 2001, was the result of various category
increases and decreases, the largest of which were a $39,000
increase in computer and software costs, a $32,000 increase in
on-line banking charges as Peoples utilizes advances in new
technology, and $30,000 to comply with information security
regulations. Likewise, the increase in 2000, was the result of
various category increases and decreases, the largest of which
were a $80,000 debit card expense, as usage continues to
increase; and a $69,000 increase in computer and software costs
as Peoples utilizes advances in new technology. In addition,
increases were noted in marketing expense, and the added
expenses of Wilmerding. These are all a result of expanding
Peoples' marketing efforts, developing non-interest income and
business growth, as Peoples placed more emphasis on promoting
our services and targeting our customer base.

Income Taxes

Income tax expense was $1,470,000 for 2001 compared to
$1,565,000 for 2000 and $1,704,000 in 1999. Income tax expense
as a percentage of income before income taxes was 25.8%, 27.8%
and 29.0% for the years ended 2001, 2000 and 1999, respectively.
The decrease in 2001 and 2000 in the Peoples' effective tax rate
away from the statutory rate of 34% is a result of several tax-
free investments. Tax credits are realized on an investment in
a community development project, along with an additional
percentage of income derived from tax-exempt investments and
loans, and tax-exempt income earned on a life insurance
investment.

Refer to Note 9 to the financial statements for further
analysis of income taxes.

Return on Average Equity and Average Assets

Return on average equity (ROE) and return on average assets
(ROA) are commonly used measures of bank profitability. ROE is
a measure of return on the capital invested by stockholders,
while ROA measures the overall return that a bank achieves on
its asset base.

Return on average equity is calculated by dividing net
income by average stockholders' equity. Peoples' ROE decreased
to 9.78% for 2001, from 10.19% in 2000. Peoples' ROE for 1999
was 11.17%. Return on average assets is derived by dividing net
income by average assets. Peoples' ROA for the years ended
2001, 2000 and 1999 was 1.23%, 1.30% and 1.50%, respectively

Financial Condition

Securities

The securities portfolio is a component of interest-earning
assets and is second in size only to the loan portfolio.
Investment securities not only provide interest income, they
provide a source of liquidity, diversify the earning asset
portfolio and provide collateral for public funds and securities
sold under agreements to repurchase.

Peoples' securities are classified as either held-to-
maturity or available-for-sale. Securities in the held-to-
maturity category are accounted for at amortized cost.
Available-for-sale securities are accounted for at fair value
with unrealized gains and losses, net of taxes, reported as a
separate component of comprehensive income. In addition, there
have been no transfers of securities from available-for-sale to
held-to-maturity, nor were there any securities sold.

While Peoples generally intends to hold its investment
portfolio until maturity, a significant portion of the
investment portfolio is classified as available-for-sale, with
new purchases generally categorized as available-for-sale. The
fair value of these securities improved with this year's
decrease in interest rates. This resulted in net unrealized
gains at year-end 2001 of $997,000, an increase of $813,000
since year-end 2000, which is reflected as accumulated other
comprehensive income of $659,000 in stockholders' equity, net of
deferred income taxes. The accumulated other comprehensive
income at December 31, 2000 totaled $184,000 or $122,000, net of
taxes.

The held-to-maturity securities, which were written down in
2000 by $326,000 due to financial problems of one issuer,
continue to perform in accordance with the provisions of the
related security. Peoples at this time does not expect
additional losses on its held-to-maturity securities portfolio.

The following tables set forth the composition of the
securities portfolio and the securities maturity schedule,
including weighted average yield, as of the dates indicated.

Securities

December 31,
---------------------------
2001 2000 1999
------- ------- -------
(In Thousands)
Held-to-Maturity Securities at
Amortized Cost
State and political
subdivisions $ 2,845 $ 2,929 $ 3,330
------- ------- -------
Total Held-to-Maturity 2,845 2,929 3,330
------- ------- -------
Available-for-Sale Securities at
Fair Value
U.S. Treasury securities 21,482 24,858 25,253
U.S. Government agencies 28,221 11,823 7,931
State and political
subdivisions 12,668 6,805 7,327
Corporate securities 4,328 5,260 3,350
------- ------- -------
Total Available-for-Sale 66,699 48,746 43,861
------- ------- -------
Total Securities $69,544 $51,675 $47,191
======= ======= =======

Securities Maturity Schedule

Held-to-maturity securities are accounted for at amortized
cost and available-for-sale securities are accounted for at fair
value.

Weighted average yields are calculated on a fully tax
equivalent basis assuming a tax rate of 34%.

At year-end 2001, securities totaled $69,544,000, including
$997,000 in net unrealized gains on available-for-sale
securities. Comparatively, securities totaled $51,675,000 at
year-end 2000, including $184,000 in net unrealized gains, and
$47,191,000 including $506,000 in net unrealized losses at year-
end 1999. At year-end 2001, 30.9% of the portfolio is held in
direct obligations of the U.S. Treasury, most of which have
relatively short maturities of less than five years. Of the
total investment portfolio, 73.4% matures in less than five
years with 14.7% maturing in less than one year, and 58.7%
maturing in the one to five year category. The
portfolio is structured to provide a dependable flow of
earnings, while providing a consistent source of liquidity and
meeting strict risk standards. The investment portfolio does
not include the securities of any single issuer, other than
securities of the U.S. Treasury and Agencies, the value of
which, based on aggregate book value or fair value, exceeds 10%
of stockholders' equity.

Loans

The loan portfolio comprises the major portion of Peoples'
earning assets as of December 31, 2001. Loans, net of unearned
income, at year-end 2001 were $252,172,000, an increase of
$26,388,000 or 11.7% from year-end 2000. The increase in loans
outstanding was centered in real estate mortgages which grew by
$18,420,000 or 10.6% and includes residential, commercial and
agricultural mortgage loans; and commercial, financial and
agricultural loans which grew by $10,910,000 or 33.8%. Growth
in these categories was partially offset by a decline of
$2,154,000 in real estate construction loans outstanding and a
decline of $733,000 in non-real estate secured installment
loans.

The following tables set forth information on the
composition of Peoples' total loans, and contractual maturities
for commercial and construction loans as of the dates indicated.

Total Loans Outstanding

Loan Maturities
Commercial and Construction Loans

Scheduled repayments for the maturity category in which the
payment is due are not reflected because such information is not
readily available.

Loan maturities do not include $13,000 in nonaccrual loans.

The composition of the loan portfolio, at year end 2001,
was approximately 17.1% commercial, financial, agricultural and
industrial loans, 3.4% real estate construction loans, 75.7%
real estate mortgage loans, which include commercial as well as
residential loans secured by real estate and 3.8% installment
loans.

Peoples has a significant concentration of residential and
commercial mortgage loans collateralized by properties located
in southern Chester County. Approximately $45,681,000 in loans
was outstanding to real estate investors. Included in this
category are a diverse group of properties and borrowers:
$26,084,000 are mortgages on commercial properties (stores,
offices and convenience centers, etc.), $10,983,000 are mortgage
loans on 1-4 family rental properties, $3,392,000 are mortgages
on mobile home parks, $3,245,000 are mortgages on multifamily
rental properties and $1,977,000 are land development projects.
These figures do not include mortgages on one to four family
owner-occupied properties.

Peoples also has a significant portion of loans outstanding
to the agricultural sector totaling $47,722,000. Approximately
$28,876,000 of these loans is outstanding to the mushroom
industry, which represents 11.4% of total loans, and about
$18,846,000 is outstanding to other segments of the farm
community.

Non-Performing Assets

Non-performing assets include loans on a non-accrual basis,
loans past due more than ninety days and still accruing,
troubled debt restructurings and Other Real Estate Owned
("OREO"). These groups of assets represent the asset categories
posing the greatest risk of loss to Peoples. Non-accrual loans
are loans no longer accruing interest due to apparent financial
difficulties of the borrower. Peoples normally places loans
which are contractually past due 90 days or more on nonaccrual
status, unless the loan is considered by management to be both
well secured and in the process of collection or secured by a
one to four family residential property. Troubled debt
restructurings result when an economic concession has been made
to a borrower taking the form of a reduction or deferral of
interest and/or principal. Peoples has no troubled debt
restructurings. OREO includes real estate obtained in
foreclosure or in lieu of foreclosure and is recorded at the
lower of the outstanding balance at the time of foreclosure or
fair value minus estimated costs to sell. Gains and losses on
the sale of other real estate owned and write-downs resulting
from periodic re-evaluations of the property are charged to
other operating expenses.

The following table sets forth Peoples' non-performing
assets as of the dates indicated.

Non-Performing Assets

There were no troubled debt restructurings for any of the
periods presented above. Nor are there any potential problem
loans not already included in the above balances.

Total non-performing assets at year end 2001 were
$3,888,000, an increase of $3,248,000 or 507.5% since the
beginning of the year. In contrast, non-performing assets
decreased $1,200,000 or 65.2% from year-end 1999 to 2000. Total
non-performing loans to total loans at year-ends 2001, 2000 and
1999 were 1.53%, .28% and .74%, respectively. The increase in
non-performing loans during 2001 was primarily concentrated in
one commercial relationship, resulting in the increased level of
non-accrual loans.

Total loans past due 90 days or more at year-end 2001 were
$190,000, an increase of $3,000 since the beginning of the year.
Comparatively, accruing loans 90 days past due decreased
$310,000 from year-end 1999 to 2000.

Peoples held $40,000 in OREO at year-end 2001, which
consisted of a single family residence. Peoples held no OREO at
year-end 2000. OREO at year-end 1999 totaled $296,000 and
consisted of three residential properties, which were sold in
2000.

Allowance for Loan Losses

The allowance for loan losses is a reserve established
through charges to earnings in the form of a provision for loan
losses. The allowance is maintained to absorb losses, which are
inherent in a loan portfolio. Management determines the
adequacy of the allowance based on on-going quarterly
assessments of the loan portfolio, including such factors as:
changes in the nature and volume of the portfolio, effects of
concentrations of credit, current and projected economic and
business conditions, regulatory and consultant recommendations,
repayment patterns on loans, borrowers' financial condition,
current charge-offs, trends in volume and severity of past due
loans and classified loans, potential problem loans and
supporting collateral. In addition, various regulatory
agencies, as part of their examination, review the adequacy of
the allowance and from time to time Peoples may employ a third
party to review the adequacy of the reserve. Such agencies may
recommend that Peoples change the level of the reserve based on
their judgments of information available to them at the time of
examination.

The following tables set forth information on the analysis
for loan losses and the allocation of the allowance for loan
losses as of the dates indicated.

Analysis of Allowance for Loan Losses

Allocation of the Allowance for Loan Losses

At December 31, 2001, the allowance for loan losses to
total loans was 1.66% and was 1.74% and 1.61% at year-ends 2000
and 1999, respectively. See the "Provision for Loan Losses" for
information on the additions to the allowance. Net charge-offs,
which also affect the allowance, totaled $70,000 and $73,000 for
2001 and 1999, whereas 2000 reflected net recoveries totaling
$114,000. The percent of net charge-offs to average loans was
.03% and .04% in 2001 and 1999, respectively, compared to net
recoveries to average loans of .05% in 2000.

The unallocated portion of the allowance is intended to
provide for possible losses that are not otherwise accounted for
and to compensate for the imprecise nature of estimating future
loan losses. Management believes the allowance is adequate to
cover the inherent risks associated with Peoples loan portfolio.
While allocations have been established for particular loan
categories, management considers the entire allowance to be
available to absorb losses in any category.

Deposits

Management believes that the development and retention of
deposits is the basis of sound growth and profitability. These
deposits provide the primary source of funding for loans and
investments. Peoples continued expansion and business
development within its market area fueled the growth in
deposits. As of December 31, 2001, deposits totaled
$282,462,000 up $15,374,000 or 5.8% from year-end 2000.
Comparatively, total deposits grew $35,859,000 or 15.5% between
year-end 2000 and 1999.

Peoples continued expansion and business development within
its market area contributed to the growth of $7,430,000 in
demand deposits, $5,782,000 in money market deposits, $3,183,000
in NOW and Super NOW accounts and $1,044,000 in time deposits.
These were partially offset by a decrease of $2,065,000 in
savings accounts. The decrease in savings was impacted by
$5,800,000 in trust department savings funds that were
transferred by the Bank during the first quarter of 2001 to
alternative investment options outside the Bank. In comparison,
during 2000 NOW and Super NOW deposits grew $24,654,000 or
88.6%, along with growth of $5,873,000 in time deposits and
$6,210,000 in demand deposits.

The following tables set forth information on the
composition of Peoples' deposits and time deposits of $100,000
or more as of the dates indicated.

Average Deposits by Major Classification

Time Deposits of $100,000 or More
Maturity Schedule

Large dollar certificates of $100,000 or more are generally
considered more volatile than other deposits. Peoples' large
dollar certificates and individual retirement accounts (IRAs)
totaled $22,421,000 at year-end 2001, reflecting an increase of
$2,015,000, after decreasing $779,000 in 2000 to $20,406,000
from $21,185,000 at year end 1999. Even with the declining rate
environment, business development resulting in new account
relationships contributed to the increase this year.

Borrowings

In 1998, for the first time, Peoples borrowed long-term
money from the Federal Home Loan Bank. During 2000, Peoples
borrowed an additional $8,000,000; and in 2001, borrowed an
additional $5,000,000 to bring the total to $24,349,000 after
payments at year end 2001. The increase in 2001 resulted from
favorable long-term rates and an in-house program that matched
the long-term debt to similar maturity mortgages to be held in
Peoples' loan portfolio. During the beginning of 2000, the
borrowings helped provide a funding source when deposit growth
was not keeping pace with loan demand. Peoples will continue to
target deposits as its primary funding source, since deposits
are generally less costly and provide an opportunity to expand
our customer relationships.

Interest Rate Sensitivity

The operations of Peoples do not subject it to foreign
currency risk or commodity price risk. Peoples does not utilize
interest rate swaps, caps or hedging transactions. In addition,
Peoples has no market risk sensitive instruments entered into
for trading purposes. However, Peoples is subject to interest
rate risk and employs several different methods to manage and
monitor the risk.

Rate sensitive assets and rate sensitive liabilities are
those whose rates or yields are subject to change within a
defined time period, due to maturity or a floating market rate.
The risk to Peoples results from interest rate fluctuations to
the extent that there is a difference between the amount of
Peoples' rate sensitive assets and the amount of rate sensitive
liabilities within specified periods. Peoples monitors its rate
sensitivity in order to reduce its vulnerability to interest
rate fluctuations while maintaining adequate capital and
acceptable levels of liquidity. Peoples' asset and liability
policy, along with monthly financial reports and quarterly
financial simulations, supplies management with guidelines to
evaluate and manage Peoples' rate sensitivity.

Gap analysis is one method used to monitor the imbalance
between reproaching or maturing assets and liabilities within a
defined time frame in relation to total assets. When the gap is
positive, with interest rate sensitive assets reproaching faster
than rate sensitive liabilities, net interest income usually
improves if interest rates increase. The opposite occurs in the
case of a negative gap. Intentional mismatching can improve the
net interest margin if interest rates move as predicted.
However, the net interest margin may suffer if rates move
contrary to predictions.

The following table sets forth Peoples' interest
sensitivity analysis as of the date indicated.

Interest Sensitivity Analysis

The Interest Sensitivity Analysis includes certain
assumptions on the re-pricing of NOW and savings accounts.
Generally, these accounts are less sensitive to interest rate
changes and are part of Peoples' core deposits. As a result,
management has estimated that 90% of money market accounts, 35%
of NOW accounts and 18% of savings accounts are the most
interest rate sensitive, thereby placing them in the "Under 3
Month" category, placing an additional 22% of savings in the "1
Year through 5 Years" category and placing the remainder in the
"Over 5 Years" category.

As indicated in the Interest Sensitivity Analysis for
December 31, 2001, Peoples' cumulative one year gap was a
negative $13,341,000, which means liabilities will reprice
faster than assets. Because of the extent to which rates have
declined in 2001, Peoples has become more sensitive to future
rate declines and expects added compression of the net interest
margin. Currently, Peoples has 34.6% of its deposits in NOW and
savings accounts, which it considers core deposits, and which
normally carry lower rates relative to other types of deposits.
Because of this, these accounts have historically contributed
significantly to the net interest margin. However, there is an
ultimate floor to which the rates on these accounts can fall.
Under current conditions, the inability to further decrease
these deposit rates while loan and other earning asset rates
could continue to drop and re-price at lower rates could result
in further compression of the net interest margin. The added
risk in this rate environment, along with being liability
sensitive, is that, as the rates on the core deposits bottom-
out, investors could migrate to other types of accounts paying
higher rates.

Financial simulation is another tool to monitor interest
rate risk. Simulation presents a picture of the effect interest
rate changes have on net interest income. Assumptions and
estimates are used in the preparation of the simulation and
actual values may differ from those presented. The simulation
for 2001 included a change in the assumptions in which the rates
on NOW and savings accounts would change only 25 basis points
and rates on money market accounts would only change 50 basis
points in a +/-200 basis point rate shock. In addition, these
simulations do not portray other actions management might take
in response to changes in market rates. The following is an
analysis of possible changes in Peoples' net interest income,
for a +/- 200 basis point rate shock over a one year period
compared to a flat or unchanged rate scenario.

2000 2001
Percent Change Percent Change
in Net Interest in Net Interest
Change in interest rates Income Income
- ------------------------ --------------- ---------------
+ 200 basis points -2.9% 1.1%
Flat rate 0.0% 0.0%
- 200 basis points 1.0% -1.4%

The percent change is obtained by dividing the increase or
decrease in net interest income for the applicable year
following application of the rate shock analysis by the total
net interest income for such year. The net interest income at
risk position reflected in the chart is within the guidelines
set by Peoples' asset/liability policy. For 2001, an increase
of 200 basis points could result in a 1.1% increase in net
interest income, whereas, a 200 basis point decrease could
result in a 1.4% decrease in net interest income.

The drop in the Federal Reserve Bank's discount and federal
funds rates by 475 basis points during 2001 actually put to the
test Peoples' ability to effectively manage its interest rate
sensitivity. Throughout the year, Peoples was able to
effectively manage its net interest margin. As a result, the
net interest margin remained fairly stable starting at 4.71% for
the month of December 2000, compared to 4.71% for the year 2001
and ending at 4.66% for the month of December 2001.

Liquidity and Capital Resources

Liquidity represents Peoples' ability to efficiently manage
cash flows to support customers' loan demand, withdrawals by
depositors, the payment of operating expenses, as well as the
ability to take advantage of business and investment
opportunities as they arise. Liquidity is essential to
compensate for fluctuations in the balance sheet and provide
funds for growth.

The primary source of liquidity is Peoples' growing core
deposit base. A loyal customer base and a strong capital
position provide a stable foundation from which to work. The
stability of the core deposits is reflected in a comparison of
year-end balances to yearly averages. Core deposits at year-end
2001 totaled $260,041,000 and averaged $248,487,000 for the
year, this is consistent with the increase in deposits for the
year. Likewise, year-end 2000 core deposits totaled
$246,682,000 and averaged $225,776,000 for the year.

Other sources of liquidity are available from investments
in federal funds sold and interest bearing balances from the
Federal Home Loan Bank, which combined totaled $10,243,000 at
year-end 2001 and securities maturing in one year or less, which
totaled $10,250,000 at year-end 2001. These sources provide
Peoples with adequate resources to meet its short-term liquidity
requirements. Longer term liquidity needs might be met by
selling securities available-for-sale, which would include 95.9%
of the securities portfolio, selling loans or raising additional
capital. In addition, Peoples has established federal funds
lines of credit with other commercial banks and with the Federal
Home Loan Bank of Pittsburgh, which is a reliable source for
short and long-term funds.

Peoples' loan to deposit ratio for 2001 was maintained at
an average of 87.2% and ended the year at 89.3% compared to an
average of 89.2% in 2000, ending the year at 84.5%. The average
loan to deposit ratio was 84.4% in 1999.

Peoples' financial statements do not reflect various
commitments that are made in the normal course of business,
which may involve some liquidity risk. These commitments
consist mainly of unfunded loans and letters of credit made
under the same standards as on-balance sheet instruments.
Unused commitments, at December 31, 2001 totaled $51,135,000.
This consisted of $17,613,000 in commercial real estate,
construction, and land development loans, $5,186,000 in home
equity lines of credit, $4,688,000 in standby letters of credit
and the remainder in other unused commitments. Because these
instruments have fixed maturity dates, and because many of them
will expire without being drawn upon, they do not generally
present any significant liquidity risk to Peoples.

Management believes that any amounts actually drawn upon
can be funded in the normal course of operations. Peoples has
no investment in or financial relationship with any
unconsolidated entities that are reasonably likely to have a
material effect on liquidity or the availability of capital
resources.

The following table represents Peoples' aggregate on and
off balance sheet contractual obligations to make future
payments.

Contractual Obligations

Peoples is not aware of any known trends or any known
demands, commitments, events or uncertainties, which would
result in any material increase or decrease in liquidity.

The greater the capital resources, the more likely Peoples
will be able to meet its cash obligations and unforeseen
expenses. Peoples' strong capital position has resulted from
the sale of stock and retained earnings. The dividend payout
ratio was 34.9% in 2001, compared to 34.4% and 30.2% in years
2000 and 1999, respectively. Stockholders' equity at the end of
2001 totaled $43,642,000, an increase of $2,438,000 or 5.9% over
year-end 2000. The increase was a result of net income
supplemented with a $537,000 unrealized gain on securities
available-for-sale, net of taxes, and reduced by the dividend
payout of $1,478,000 and $857,000 in treasury stock purchases.
Likewise, stockholders' equity at the end of 2000 totaled
$41,204,000, an increase of $3,025,000 or 7.9% over year-end
1999. The increase was a result of net income supplemented with
a $456,000 unrealized gain on securities available-for-sale, net
of taxes, reduced by the dividend payout of $1,397,000 and
$228,000 in treasury stock purchases.

During 2001, Peoples repurchased shares of its stock under
two separate plans approved by its Board of Directors. The
Board of Directors approved the first plan on October 13, 2000,
for the repurchase of up to $1,000,000 in Peoples stock. This
plan was originally to terminate April 2001, but was granted an
extension by the Board to October 2002. As of December 31,
2001, this plan had reached its limit of 51,081 shares
repurchased at a cost of $999,991.

The second plan, the Board approved in November 2001 for
the repurchase of $1,000,000 in Peoples stock with a termination
date of October 2002. Under this plan 3,992 shares have been
repurchased at a cost of $84,830 through December 31, 2001.

The following table sets forth Peoples' capital ratios as
of the dates indicated.

Capital Ratios

(1) Allowance for loan losses is limited to the lesser of the
balance of the allowance for loan losses or 1.25% of risk-
adjusted assets for Tier II Capital calculations.

(2) At December 31, 2000, Peoples' ratios did not differ
significantly from the Bank's ratios. The ratios at
December 31,1999 are the Bank's as Peoples was organized in
2000.

Peoples had a leverage ratio of 12.05%, a Tier I capital to
risk-based assets ratio of 16.07%, and a total capital to risk-
based assets ratio of 17.33% at year-end 2001. These ratios
exceed the federal regulatory minimum requirements for a "well
capitalized" bank. The minimum regulatory requirements of a
"well capitalized bank" for the leverage ratio, Tier I and total
risk-based capital ratios are 5.00%, 6.00% and 10.00%,
respectively.

Peoples is not under any agreement with the regulatory
authorities nor is it aware of any current recommendations by
the regulatory authorities, that if implemented would have a
material effect on Peoples' capital, liquidity or its
operations.

Inflation

The impact of inflation upon banks differs from the impact
upon non-banks. The majority of assets and liabilities of a
bank are monetary in nature and therefore change with movements
in interest rates. The exact impact of inflation on Peoples is
difficult to measure. Inflation may cause operating expenses to
increase at a rate not matched by increased earnings. Inflation
may also affect the borrowing needs of consumers, thereby
affecting growth of Peoples' assets. Inflation may also affect
the general level of interest rates, which could have an effect
on Peoples' profitability. However, as discussed previously,
Peoples strives to manage its interest sensitive assets and
liabilities offsetting the effects of inflation.

Item 7A - Quantitative and Qualitative Disclosures About Market
Risk

Incorporated by reference from Part II, Item 7
"Management's Discussion and Analysis of Financial Conditions
and Results of Operations-Interest Rate Sensitivity" of this
Form 10-K.

Item 8 - Financial Statements and Supplementary Data

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
Peoples First, Inc.
Oxford, Pennsylvania

We have audited the accompanying consolidated balance
sheets of Peoples First, Inc. and its subsidiary as of December
31, 2001 and 2000, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Peoples First, Inc. and its subsidiary as
of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

/s/BEARD MILLER COMPANY LLP

Reading, Pennsylvania
January 11, 2002

CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,
---------------------
2001 2000
--------- ---------
(In Thousands)

Cash and due from banks $ 11,391 $ 12,773
Interest-bearing deposits with banks 814 13,996
Federal funds sold 9,429 18,015
Securities available for sale, at fair
value 66,699 48,746
Securities held to maturity, fair value
2001 $2,845; 2000 $2,929 2,845 2,929
Loans, net of allowance for loan losses
2001 $4,182; 2000 $3,922 247,990 221,862
Investment in FHLB stock, at cost 1,368 1,368
Bank premises and equipment, net 11,007 9,557
Accrued interest receivable and other
assets 9,806 8,397
-------- --------
Total Assets $361,349 $337,643
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Deposits:
Demand, non-interest bearing $ 68,624 $ 61,194
NOW and Super NOW 55,650 52,467
Money market funds 26,153 20,371
Savings 41,932 43,997
Time 90,103 89,059
-------- --------
Total Deposits 282,462 267,088
-------- --------
Securities sold under agreements to
repurchase 8,710 6,700
Long-term debt 24,349 19,756
Accrued interest payable and other
liabilities 2,186 2,895
-------- --------
Total Liabilities 317,707 296,439
-------- --------

STOCKHOLDERS' EQUITY

Common stock, par value $1.00 per
share; authorized 10,000,000 shares;
issued 3,053,208 shares 3,053 3,053
Surplus 16,172 16,172
Retained earnings 24,843 22,085
Accumulated other comprehensive income 659 122
Treasury stock, at cost 2001 55,073
shares; 2000 13,161 shares (1,085) (228)
-------- --------
Total Stockholders' Equity 43,642 41,204
-------- --------
Total Liabilities and
Stockholders' Equity $361,349 $337,643
======== ========

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of
Peoples First, Inc. and its wholly-owned subsidiary, The Peoples
Bank of Oxford ("Bank") and its subsidiary (collectively
"Peoples"). All material intercompany transactions have been
eliminated. Peoples First, Inc. was formed July 27, 2000 and
is subject to regulation of the Federal Reserve Bank.

Peoples First, Inc. is a one-bank holding company headquartered
in Oxford, Pennsylvania and provides full banking services,
including trust services through its subsidiary. The Bank
operates under a state bank charter and is subject to regulation
of the Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation. The areas served by the Bank are
principally Chester County and southern Lancaster County,
Pennsylvania.

On April 10, 2000, Peoples issued 56,918 shares of common stock,
with a fair value of $1.4 million, to acquire all of the
outstanding common stock of Wilmerding & Associates, Inc.
("Wilmerding"), an investment firm. Wilmerding is a wholly-
owned subsidiary of the Bank and the transaction has been
accounted for as a pooling of interests. Periods prior to
January 1, 2000 have not been restated due to immateriality.

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents
are defined as those accounts included in the balance sheet
caption "Cash and due from banks."

Securities

Securities classified as available for sale are those
securities that Peoples intends to hold for an indefinite
period of time but not necessarily to maturity. Any
decision to sell a security classified as available for
sale would be based on various factors, including
significant movement in interest rates, changes in maturity
mix of Peoples' assets and liabilities, liquidity needs,
regulatory capital considerations and other similar
factors. Securities available for sale are carried at fair
value. Unrealized gains and losses are reported in other
comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis
of the cost of the specific securities sold, are included
in earnings. Premiums and discounts are recognized in
interest income using a method which approximates the
interest method over the period to maturity.

Bonds, notes and debentures for which Peoples has the
positive intent and ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that
are recognized in interest income using the interest method
over the period to maturity.

Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates
such designation as of each balance sheet date.

Federal law requires a member institution of the Federal
Home Loan Bank system to hold stock of its district Federal
Home Loan Bank according to a predetermined formula. The
stock is carried at cost.

Loans Receivable

Loans generally are stated at their outstanding unpaid
principal balances, net of an allowance for loan losses and
any deferred fees or costs. Interest income is accrued on
the unpaid principal balance. Loan origination fees, net
of certain direct origination costs, are deferred and
recognized as an adjustment of the yield (interest income)
of the related loans. Peoples is generally amortizing
those amounts over the contractual life of the loan.

The accrual of interest is discontinued when the
contractual payment of principal or interest has become
90 days past due or management has serious doubts about
further collectibility of principal or interest, even
though the loan is currently performing. A loan may remain
on accrual status if it is in the process of collection and
is either guaranteed or well secured. When a loan is
placed on nonaccrual status, unpaid interest credited to
income in the current year is reversed and unpaid interest
accrued in prior years is charged against the allowance for
loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported
as interest income, according to management's judgment as
to the collectibility of principal. Generally, loans are
restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and
interest is no longer in doubt.

Allowance for Loan Losses

The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.

The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation
of the adequacy of the allowance is based on Peoples' past
loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio,
current economic conditions, and other relevant factors.
This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant
change, including the amounts and timing of future cash
flows expected to be received on impaired loans.

A loan is considered impaired when, based on current
information and events, it is probable that Peoples will be
unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the
loan agreement. Factors considered by management in
determining impairment include payment status, collateral
value and the probability of collecting scheduled principal
and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a
loan by loan basis for commercial and construction loans by
either the present value of expected future cash flows
discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly,
Peoples does not separately identify individual consumer
and residential mortgage loans for impairment disclosures.

Premises and Equipment

Premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is calculated
principally on the straight-line method over the respective
assets estimated useful lives.

Advertising Costs

Peoples follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense
was $270,000, $286,000 and $250,000 in 2001, 2000 and 1999,
respectively.

Income Taxes

Deferred income tax assets and liabilities are determined
based on the differences between financial statement
carrying amounts and the tax basis of existing assets and
liabilities. These differences are measured at the enacted
tax rates that will be in effect when these differences
reverse. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through
the provision for income taxes.

Earnings per Common Share

Peoples has a simple capital structure. Basic earnings per
share represents income available to common stockholders
divided by the weighted average number of common shares
outstanding during the period.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, Peoples has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and
commitments to sell loans. Such financial instruments are
recorded in the balance sheets when they become receivable
or payable.

Trust Assets

Assets held by Peoples in a fiduciary capacity for
customers are not included in the financial statements
since such items are not assets of Peoples. Trust income
is reported on the accrual method.

Comprehensive Income

Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on
available for sale securities, are reported as a separate
component of the equity section of the balance sheet, such
items, along with net income, are components of
comprehensive income.

The components of other comprehensive income (loss) and
related tax effects are as follows:

Years Ended December 31,
--------------------------
2001 2000 1999
------ ------ --------
(In Thousands)
Unrealized holding gains (losses)
on available for sale securities $ 813 $ 690 $(1,184)
Reclassification adjustment for
gains realized in income - - -
----- ----- -------
Net Unrealized Gains
(Losses) 813 690 (1,184)
Income tax effect (276) (234) 402
----- ----- -------
Net of Tax Amount $ 537 $ 456 $ (782)
===== ===== =======

Segment Reporting

Peoples acts as an independent community financial service
provider and offers traditional banking and related
financial services to individual, business and government
customers. Through its branch and automated teller machine
network, the Bank offers a full array of commercial and
retail financial services, including the taking of time,
savings and demand deposits; the making of commercial,
consumer and mortgage loans; and the providing of safe
deposit services. Peoples also performs personal,
corporate, pension and fiduciary services through its Trust
Department.

Management does not separately allocate expenses, including
the cost of funding loan demand, between the commercial,
retail, mortgage banking and trust operations of Peoples.
As such, discrete information is not available and segment
reporting would not be meaningful.

The operations of Wilmerding, the Bank's investment
management subsidiary, are not material to the consolidated
financial statements.

Reclassifications

Certain items in the 2000 financial statements have been
reclassified to conform to the 2001 financial statement
presentation format. These reclassifications had no effect
on net income.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, (as amended by Statement Nos. 137
and 138), "Accounting for Derivative Instruments and
Hedging Activities." This Statement and its amendments
establish accounting and reporting standards for derivative
instruments and hedging activities, including certain
derivative instruments embedded in other contracts, and
requires that an entity recognize all derivatives as assets
or liabilities in the balance sheet and measure them at
fair value. The Statement requires that changes in the
fair value of derivatives be recorded each period in
current earnings or other comprehensive income, depending
on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction.
Peoples adopted the Statement on January 1, 2001. The
adoption of the Statement did not have a significant impact
on the financial condition or results of operations of
Peoples.

In September 2000, the Financial Accounting Standards Board
issued Statement No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities." This Statement replaces SFAS No. 125 of the
same name. It revises the standards of securitizations and
other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS
No. 140 was effective for transfers and servicing of
financial assets and extinguishments of liabilities
occurring after March 31, 2001. The Statement was
effective for recognition and reclassification of
collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of the Statement did not
have a significant impact on the financial condition or
results of operations on Peoples.

In June of 2001, the Financial Accounting Standards Board
issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets."

Statement No. 141 requires all business combinations to be
accounted for using the purchase method of accounting as
use of the pooling-of-interests method is prohibited. In
addition, this Statement requires that negative goodwill
that exists after the basis of certain acquired assets is
reduced to zero should be recognized as an extraordinary
gain. The provisions of this Statement apply to all
business combinations initiated after June 30, 2001.

Statement No. 142 prescribes that goodwill associated with
a business combination and intangible assets with an
indefinite useful life should not be amortized but should
be tested for impairment at least annually. The Statement
requires intangibles that are separable from goodwill and
that have a determinable useful life to be amortized over
the determinable useful life. The provisions of this
Statement will become effective for Peoples in January of
2002. Upon adoption of this Statement, goodwill and other
intangible assets arising from acquisitions completed
before July 1, 2001 should be accounted for in accordance
with the provisions of this Statement. At December 31,
2001, Peoples had no goodwill or intangible assets on its
balance sheet.

In July of 2001, the Financial Accounting Standards Board
issued Statement No. 143, "Accounting for Asset Retirement
Obligations," which addresses the financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset
retirement costs. This Statement requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. This
Statement will become effective for Peoples on January 1,
2003.

In August of 2001, the Financial Accounting Standards Board
issued Statement No. 144, "Accounting for the Impairment of
or Disposal of Long-Lived Assets." This Statement
supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions for the Disposal of a
Segment of a Business." This Statement also amends ARB
No. 51, "Consolidated Financial Statements." The
provisions of this Statement will be effective for Peoples
on January 1, 2002.

Adoption of these statements is not expected to have a
material impact on Peoples' financial condition or results
of operations.

NOTE 3 - SECURITIES

The amortized cost and fair value of securities were as follows:

There were no sales of securities during the years ended
December 31, 2001, 2000 and 1999. During the year ended
December 31, 2000, Peoples wrote down a security to its fair
value which it deemed to be other than temporarily impaired by
$326,000. The tax benefit applicable to this writedown was
$111,000.

Securities with an amortized cost of $41,518,000 and $32,716,000
at December 31, 2001 and 2000, respectively, were pledged to
secure public deposits, securities sold under agreements to
repurchase and for other purposes as required or permitted by
law.

The amortized cost and fair value of securities as of
December 31, 2001, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities or
call dates because borrowers may have the right to prepay
obligations with or without call or prepayment penalties.

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The components of loans receivable at December 31 were as
follows:

2001 2000
-------- ---------
(In Thousands)
Commercial, financial and agricultural $ 43,149 $ 32,239
Real estate, construction 8,513 10,667
Real estate, mortgage 191,544 173,124
Installment loans to individuals 9,645 10,378
-------- --------
252,851 226,408
Deferred fees, net (679) (624)
Allowance for loan losses (4,182) (3,922)
-------- --------
$247,990 $221,862
======== ========

The following table presents changes in the allowance for loan
losses:

Years Ended December 31,
---------------------------
2001 2000 1999
------- ------- -------
(In Thousands)

Balance, beginning $3,922 $3,343 $2,965
Provision for loan losses 330 465 451
Recoveries 41 177 62
Loans charged off (111) (63) (135)
------ ------ ------
Balance, ending $4,182 $3,922 $3,343
====== ====== ======

The recorded investment in impaired loans, not requiring an
allowance for loan losses was $-0- and $140,000 at December 31,
2001 and 2000, respectively. The recorded investment in
impaired loans requiring an allowance for loan losses was
$2,976,000 and $313,000 at December 31, 2001 and 2000,
respectively. The related allowance for loan losses associated
with these loans was $445,000 and $49,000 at December 31, 2001
and 2000, respectively. For the years ended December 31, 2001,
2000 and 1999, the average recorded investment in these impaired
loans was $3,158,000, $522,000 and $1,134,000, respectively.
The interest income recognized, representing cash collected, on
these impaired loans was $67,000, $25,000 and $13,000 in 2001,
2000 and 1999, respectively.

NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at December 31 are as
follows:

2001 2000
-------- --------
(In Thousands)

Land $ 1,008 $ 1,008
Buildings and improvements 8,863 7,525
Furniture and equipment 3,360 2,755
Construction in progress 1,218 1,115
------- -------
14,449 12,403

Accumulated depreciation (3,442) (2,846)
------- -------
$11,007 $ 9,557
======= =======

Peoples leases land and office space under various operating
leases. The leases expire in 2003 through 2021. All leases
provide for various renewal options. The minimum rental
commitments under the leases are as follows (in thousands):

Year ended December 31:
----------------------
2002 $ 265
2003 225
2004 186
2005 185
2006 190
2007 and thereafter 2,353
------
$3,404
======

Rental expense was $214,000, $203,000 and $102,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $100,000 or more
were $22,421,000 at December 31, 2001 and $20,406,000 at
December 31, 2000.

At December 31, 2001, the scheduled maturities of time deposits
are as follows (in thousands):

2002 $67,091
2003 12,815
2004 2,861
2005 5,439
2006 1,897
-------
$90,103
=======

NOTE 7 - BORROWINGS

Information concerning securities sold under agreements to
repurchase is summarized as follows:

Years Ended December 31,
------------------------
2001 2000
------- -------
(In Thousands)

Average balance during the year $ 7,803 $ 5,580
Average interest rate during the year 2.42% 4.78%
Maximum month-end balance during the
year $12,085 $ 8,115

Securities sold under agreements to repurchase which are
classified as secured borrowings, generally mature within one
day from the transaction date. Securities sold under agreements
to repurchase are reflected at the amount of cash received in
connection with the transaction. The securities underlying the
agreements were under Peoples' control. Peoples monitors the
fair value of the underlying securities on a daily basis.

Long-term debt consists of loans from the Federal Home Loan Bank
of Pittsburgh (FHLB). These loans are primarily fixed rate
loans. Approximately $7.8 million of the loans have scheduled
monthly principal and interest payments. $16.5 million are
payable in full at maturity. The weighted-average interest rate
on these borrowings is 5.83% and scheduled maturities are as
follows (in thousands):

2002 $ 398
2003 422
2004 447
2005 1,097
2006 2,937
Thereafter 19,048
-------
$24,349
=======

The Bank has a maximum borrowing capacity with the FHLB of
approximately $87,744,000, of which $24,349,000 was outstanding
at December 31, 2001. Advances from the Federal Home Loan Bank
are secured by qualifying assets of the Bank.

NOTE 8 - PENSION PLAN

Peoples has a 401(k) plan covering substantially all employees.
Peoples matches the amount an employee has deducted from the
employee's pay up to a maximum of 6% of the employee's gross
pay. Additional discretionary contributions are determined
annually by the Board of Directors. Peoples' contributions are
expensed as the cost is incurred, funded currently, and amounted
to $372,000 in 2001, $358,000 in 2000 and $321,000 in 1999,
including additional discretionary contributions of $80,000,
$90,000 and $80,000, respectively.

NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as
follows:

Years Ended December 31,
---------------------------
2001 2000 1999
------- ------- -------
(In Thousands)
Current $1,544 $1,890 $1,849
Deferred (74) (325) (145)
------ ------ ------
$1,470 $1,565 $1,704
====== ====== ======

Income tax expense of Peoples is less than the amounts computed
by applying statutory federal income tax rates to income before
income taxes because of the following:

Percentage of Income
before Income Taxes
Years Ended December 31,
------------------------
2001 2000 1999
------ ------ ------

Tax at statutory rates 34.0 % 34.0 % 34.0 %
Tax exempt interest income, net of
interest expense disallowance (6.7) (5.1) (4.8)
Earnings on life insurance (1.2) (1.2) (0.4)
Other (0.3) 0.1 0.2
---- ---- ----
Effective Tax Rates 25.8 % 27.8 % 29.0 %
==== ==== ====

The components of the deferred tax assets and liabilities are as
follows at December 31:

2001 2000
------ ------
(In Thousands)
Deferred tax assets:
Allowance for loan losses $1,295 $1,206
Impairment of securities 111 111
Other 133 110
------ ------
Total Deferred Tax Assets 1,539 1,427
------ ------
Deferred tax liabilities:
Accumulated depreciation 260 219
Accretion on securities 18 21
Unrealized gains on securities available for
sale 339 63
------ ------
Total Deferred Tax Liabilities 617 303
------ ------
Net Deferred Tax Asset $ 922 $1,124
====== ======

NOTE 10 - TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS

Certain directors and executive officers of Peoples, their
families and their affiliates are customers of the Bank. Any
transactions with such parties, including loans and commitments,
were in the ordinary course of business at normal terms,
including interest rates and collateralization, prevailing at
the time and did not represent more than normal risks. At
December 31, 2001 and 2000, such loans amounted to $3,774,000
and $3,364,000, respectively. During 2001, new loans to such
related parties totaled $617,000 and repayments aggregated
$207,000.

NOTE 11 - STOCK OPTION PLAN

During 2001, Peoples' stockholders approved a stock option plan
for key employees, officers and non-employee directors of
Peoples. Under the Plan, the Board of Directors, at its
discretion, is authorized to grant options to purchase up to
200,000 shares of Peoples' common stock. As of December 31,
2001, no options have been granted under the plan.

NOTE 12 - REGULATORY MATTERS AND STOCKHOLDERS' EQUITY

Peoples and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on Peoples' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, Peoples must meet specific capital guidelines that
involve quantitative measures of Peoples' assets, liabilities
and certain off-balance sheet items as calculated under
regulatory accounting practices. Peoples' 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 Peoples to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes,
as of December 31, 2001, that Peoples meets all capital adequacy
requirements to which it is subject.

As of December 31, 2001, the most recent notification from the
federal regulatory agencies has categorized Peoples and the Bank
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 Peoples' or
the Bank's category.

Peoples and the Bank's actual capital amounts and ratios are
also presented in the table:

At December 31, 2000, Peoples' ratios did not differ
significantly from the Bank's ratios presented above.

The Bank is required to maintain average cash reserve balances
in vault cash or with the Federal Reserve Bank. The amount of
these restricted cash reserve balances with the Federal Reserve
Bank at December 31, 2001 and 2000 was approximately $750,000.

Under Pennsylvania banking law, the Bank is subject to certain
restrictions on the amount of dividends that it may declare
without prior regulatory approval. At December 31, 2001,
$15,512,000 of the Bank's retained earnings were available for
dividend declaration to Peoples without prior regulatory
approval, subject to regulatory requirements discussed above.
Under Federal Reserve regulations, the Bank is limited as to the
amount it may lend affiliates, including Peoples First, Inc.,
unless such loans are collateralized by specified obligations.

Common stockholders may participate in a dividend reinvestment
plan, which provides that additional shares of common stock may
be purchased with reinvested dividends at prevailing market
prices. To the extent that shares are not available in the
Treasury or open market, Peoples has reserved 100,000 shares of
common stock to be issued under the plan.

NOTE 13 - OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and letters of credit.
Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized
in the balance sheets.

The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.

A summary of the Bank's financial instrument commitments is as
follows:

December 31,
-----------------
2001 2000
------- -------
(In Thousands)
Commitments to extend credit:
Loan origination commitments $17,613 $12,531
Unused home equity lines of credit 5,186 3,925
Unused business lines of credit 23,648 17,845
------- -------
$46,447 $34,301
======= =======
Stand-by letters of credit $ 4,688 $ 5,870
======= =======

Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer and generally
consists of real estate.

Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to
customers. The Bank holds collateral, when deemed necessary,
supporting those commitments.

NOTE 14 - CONCENTRATIONS OF CREDIT RISK

The Bank operates primarily in Chester County and southern
Lancaster County, Pennsylvania and, accordingly, has extended
credit primarily to commercial entities and individuals in this
area whose ability to honor their contracts is influenced by the
region's economy. These customers are also the primary
depositors of the Bank. The loan portfolio is well diversified,
however, extensions of credit to real estate investors and
developers and the mushroom industry, comprise 17% and 11%,
respectively, of the loan portfolio at December 31, 2001. The
Bank is limited in extending credit by legal lending limits to
any single borrower or group of borrowers.

NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value
of Peoples' financial instruments; however, there are inherent
weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value
estimates herein are not necessarily indicative of the amounts
Peoples could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured
as of their respective year ends and have not been re-evaluated
or updated for purposes of these financial statements subsequent
to those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at
each year end.

The following information should not be interpreted as an
estimate of the fair value of Peoples since a fair value
calculation is only provided for a limited portion of Peoples'
assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the
estimates, comparisons between Peoples' disclosures and those of
other companies may not be meaningful. The following methods
and assumptions were used to estimate the fair values of
Peoples' financial instruments at December 31, 2001 and 2000:

- For cash and due from banks, interest-bearing
deposits with banks and federal funds sold, the
carrying amount is a reasonable estimate of fair
value.

- For securities, fair value equals quoted market
price, if available. If a quoted market price is
not available, fair value is estimated using quoted
market prices for similar securities.

- The fair value of loans is estimated by discounting
the future cash flows using the current rates at
which similar loans would be made to borrowers with
similar credit ratings and for the same remaining
maturities.

- The fair value of the investment in FHLB stock is
the carrying amount.

- The fair value of accrued interest receivable and
accrued interest payable is the carrying amount.

- The fair value of demand deposits, savings accounts
and certain money market deposits is the amount
payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for
deposits for similar remaining maturities.

- The fair value of securities sold under agreements
to repurchase approximate their carrying amount.

- The fair value of long-term debt is estimated by
discounting future cash flows using current rates
at which similar debt with similar maturities could
be obtained from the FHLB.

- The fair value of commitments to extend credit and
for outstanding letters of credit is estimated
using the fees currently charged to enter into
similar agreements.

The estimated fair value of Peoples' financial instruments were
as follows:

NOTE 16 - PEOPLES FIRST, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION

BALANCE SHEETS

December 31,
-----------------
2001 2000
------- -------
(In Thousands)
ASSETS

Cash $ 69 $ 5
Securities available for sale 8,126 -
Investment in bank subsidiary 35,342 41,179
Other assets 509 385
------- -------
$44,046 $41,569
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities $ 404 $ 365

Stockholders' equity 43,642 41,204
------- -------
$44,046 $41,569
======= =======

STATEMENTS OF INCOME

For the
Period
July 27,
Year Ended 2000 to
December 31, December 31,
2001 2000
------------ ------------
(In Thousands)

Dividends from bank subsidiary $10,355 $1,033
Interest income on tax exempt
securities 203 -
Equity in (excess of)
undistributed earnings of bank
subsidiary (6,296) 475
Other expenses (39) (74)
------- ------
Income before Income Taxes 4,223 1,434

Income tax benefit 13 25
------- ------
Net Income $ 4,236 $1,459
======= ======

STATEMENTS OF CASH FLOWS

For the
Period
July 27,
Year Ended 2000 to
December 31, December 31,
2001 2000
------------ ------------
(In Thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 4,236 $1,459
Amortization of securities
premium (discount), net 4 -
Deferred income taxes 5 (20)
Excess of (equity in)
undistributed earnings of bank
subsidiary 6,296 (475)
(Increase) in other assets (119) (365)
Increase in other liabilities 1 -
------- ------
Net cash provided by
operating activities 10,423 599
------- ------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases, securities available
for sale (8,049) -
------- ------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury stock (857) (228)
Cash dividends paid (1,453) (366)
------- ------
Net cash used in financing
activities (2,310) (594)
------- ------
Increase in cash 64 5

Cash:
Beginning 5 -
------- ------
Ending $ 69 $ 5
======= ======

Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None

PART III

Item 10 - Directors and Executive Officers of Peoples and the
Bank

The information relating to executive officers of Peoples
is included under Item 4A in Part I of this Form 10-K. The
information required by this item relating to directors of
Peoples is incorporated by reference to that portion of Proposal
I captioned "Election of Directors" located in the definitive
proxy statement to be used in connection with Peoples' 2002
Annual Meeting of Shareholders (the "Proxy Statement"). The
information required by this item relating to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the sectioned captioned "Section 16
Reporting" in the Proxy Statement.

Item 11 - Executive Compensation

The information required by this item is incorporated by
reference to the sections captioned "General Information About
the Board of Directors" through "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement.

Item 12 - Security Ownership of Certain Beneficial Owners and
Management

The information required by this item is incorporated by
reference to the sections captioned "Principal Beneficial Owners
of Common Stock" and "Nominees for Election as Directors" in the
Proxy Statement.

Item 13 - Certain Relationships and Related Transactions

The information required by this item is incorporated by
reference to the sections captioned "Certain Indebtedness" and
"Certain Transactions" in the Proxy Statement.

PART IV

Item 14 - Exhibits, Financial Statements and Reports on Form 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

Independent Auditor's Report

Consolidated Balance Sheets as of December 31, 2001
and December 31, 2000.

Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999.

Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999.

Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2001, 2000 and 1999.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedules

All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instruction, or
are inapplicable or pertain to items as to which the required
disclosures have been made elsewhere in the Financial Statements
and Notes thereto, and therefore have been omitted.

(b) Reports on Form 8-K filed during the last quarter of
the period covered by this report.

None

(c) Exhibits

3.1 Articles of Incorporation of Peoples First, Inc.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4,
No. 333-30640.)

3.2 Bylaws of Peoples First, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-4, No. 333-
30640.)

10.1 Lease Agreement, dated December 7, 1994, between
Beiler Campbell, Inc. and The Peoples Bank of
Oxford. (Incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30,
2000.)

10.2 Employment Agreement, dated January 1, 2002,
between The Peoples Bank of Oxford and George C.
Mason.

10.3 Employment Agreement, dated January 1, 2002,
between The Peoples Bank of Oxford and Hugh J.
Garchinsky.

21 List of Subsidiaries.

23 Consent of Auditors.

SIGNATURE

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

PEOPLES FIRST, INC.

Date: March 19, 2002 By: /s/ Hugh J. Garchinsky
Hugh J. Garchinsky
President and Chief Executive
Officer

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

/s/ George C. Mason Date: March 19, 2002
- ------------------------
George C. Mason
Chairman of the Board and Director

/s/ Carl R. Fretz Date: March 19, 2002
- ------------------------
Carl R. Fretz
Vice Chairman, Corporate Secretary
and Director

/s/ Hugh J. Garchinsky Date: March 19, 2002
- ------------------------
Hugh J. Garchinsky
President and Chief Executive Officer

/s/ Susan H. Reeves Date: March 19, 2002
- ------------------------
Susan H. Reeves
Senior Vice President,
Chief Financial Officer and Cashier

Date:
- ------------------------
Ben S. Beiler
Director

/s/ Arthur A. Bernardon Date: March 19, 2002
- ------------------------
Arthur A. Bernardon
Director

/s/ Ross B. Cameron, Jr. Date: March 19, 2002
- ------------------------
Ross B. Cameron, Jr.
Director

/s/ Emidio Frezzo, Jr. Date: March 19, 2002
- -----------------------
Emidio Frezzo, Jr.
Director

/s/ David R. Wilmerding Date: March 19, 2002
- -----------------------
David R. Wilmerding
Director

EXHIBIT INDEX

10.2 Employment Agreement, dated January 1, 2002,
between The Peoples Bank of Oxford and George C.
Mason.

10.3 Employment Agreement, dated January 1, 2002,
between The Peoples Bank of Oxford and Hugh J.
Garchinsky.

21 List of Subsidiaries.

23 Consent of Auditors.