The Private Securities Litigation Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words, "believes," "anticipates," "contemplated," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, the ability to control costs and expenses, and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Total assets were $437,920,000 at March 31, 2008, representing growth of $3,598,000 or .8% greater than reported for December 31, 2007.

Cash and cash equivalents increased $9,541,000 or 122.1%. Federal funds sold of $8,910,000 were $8,015,000 greater at March 31, 2008 than at the previous year end. In this declining interest rate environment, management has maintained liquid assets for investment as opportunities arise and for normal operating needs.

Investment securities available for sale declined $7,511,000 or11.3% from December 31, 2007. There were fluctuations in balances of all types of bonds during the period. The most notable of these were in commercial paper and municipal bonds. Balances of commercial paper declined $12,685,000 or 34.4% due to tightening of the market for these instruments. Many corporations were either not issuing commercial paper at the time or had the quality rating of their issues downgraded. In addition, management did not believe that the pricing of many of the issues which were offered contained sufficient spread to interest paid for federal funds sold. We will continue to look for investments of this nature that meet our investment profile and do intend to purchase additional bonds as they fit that profile. We took advantage of opportunities to purchase several higher yielding municipal bonds in the first quarter of 2008 thereby increasing that type investment by $3,522,000 or 28.3%.

Loans increased by a slight $832,000 or .24% from December 31, 2007 to total outstanding of $345,590,000 as of March 31, 2008. Loans secured by commercial real estate were flat in the first quarter as we believe that our commercial customers became cautious of the economic outlook. In the month of April we received more commercial loan requests and expect that this line of business will experience positive growth in 2008. Several of the residential construction properties that were completed and moved to traditional loans were nonconforming to Freddie Mac standards due to issues other than credit quality. Our practice is to maintain these loans in portfolio rather than to sell them in the secondary market thereby increasing the balance of residential mortgages by $2,449,000 or 3.5% during the first quarter. New residential construction mortgages are typically slow in the first quarter due to weather conditions, while many of the loans which were on the books at December 31, 2007 converted to traditional residential mortgages as the homes were completed during the winter months. We have experienced greater residential loan applications than in recent years leading us to believe that this product may return to levels of several years ago.

Total deposits decreased $2,469,000 or .7% since December 31, 2007 with the decline centered in interest-bearing deposits. Noninterest-bearing deposits increased $2,479,000 or 7.1% due mainly to commercial business deposits increasing during the quarter. We began offering remote deposit capture to commercial customers, which may have contributed to some of this growth although we believe that it will have a more significant impact on deposit growth in future periods. Simultaneously, interest-bearing deposits decreased by $4,948,000 or 1.5%. Certificates of deposit declined $6,638,000 or 3.1% mainly due to the maturity of large municipal deposits during the period. At the same time, customers increased their balances in money market and savings deposits. This growth may be partially attributable to funds received by customers from natural gas leasing arrangements that have begun in Wayne County, Pennsylvania. We expect that our customers will receive substantially more funds in upcoming periods and are we poised to offer competitive pricing for these local deposits.

Short-term borrowings increased by $4,914,000 or 59.9% over the period. These borrowings are comprised entirely of securities sold under agreements to repurchase which are commercial sweep accounts. Due to the cyclical nature of our customers businesses, these accounts typically increase during the months of March, April and May with balances drawn down as the year progresses.

Stockholders' equity increased $710,000 or 1.8% during the first quarter. Net income of $1,665,000 was offset with dividends

declared of $487,000 and a one-time adjustment of $358,000 in relation to adoption of Emerging Issues Task Force 06-04 dealing with post-retirement benefits. Regulatory capital ratios remain strong with 12.0% total risk-based capital, 10.8% Tier I capital and a Tier I leverage ratio of 9.4%. The regulatory minimums for these ratios are 8.0%, 4.0% and 3.0%, respectively.

Comparison of the three months ended March 31, 2008 and 2007

The Company reported net income of $1,665,000 for the quarter ended March 31, 2008, representing an increase of $168,000 or 11.2% over the same quarter of 2007.

Net interest income of $4,342,000 represented an increase of $331,000 or 8.3% over that recorded for the first quarter of 2007. Total interest income was $7,371,000, an increase of $384,000 or 5.5% over the previous year. The main component of this income is interest and fees earned on loans which continued to show increases with $6,636,000 earned in the first quarter of 2008, an increase of $562,000 or 9.3% greater than in 2007. The average balance of the portfolio increased $38,088,000 or 12.3% over the period while the average interest rate of the portfolio declined by .3% from 2007 to 2008, resulting in an average rate earned of 7.7% in 2008. Nearly 75% of our loan portfolio carries a variable or adjustable interest rate that is tied to the prime interest rate which has decreased by 3.25% since March 31, 2007. The terms of our commercial real estate loans, comprising 49% of the loan portfolio, generally include a lag in repricing which affects us in both rising and falling market conditions. Therefore, our average interest rate has not declined in direct relationship to the changes in the prime rate even though several loan types are automatically repriced with changes in the prime rate. We do expect to see a decline in interest rates earned on these loans as market rates continue to move downward.

Interest earned on taxable investments decreased $227,000 or 28.8% in 2008 as compared to 2007. The average rate earned on the portfolio for the first quarter of 2007 was 5.18%, compared to an average rate of 4.55% in 2008 while the average balance of taxable investments declined by $12,211,000 or 19.9% from the first quarter of 2007 to the same period in 2008. Due to our continued investment in short-term commercial paper we have seen the average rate earned on this type investment decline by 1.25% to an average of 4.15% in 2008 from a year earlier. Maturities of commercial paper were either reinvested in new commercial paper, U.S. government agencies, tax exempt municipal investments or in loans with the average balance of this type security declining $6,232,000 over the period. Over the past year $13,300,000 of U.S. government agency bonds were called. These bonds included provisions to increase the interest rate or allow the agency to call them during the period. To replace some of those called bonds, in the first quarter of 2008 we purchased $8,300,000 of U.S. government agencies with call provisions which offered rates which fit our investment guidelines.

Interest earned on tax exempt investments increased $70,000 or 97.2% for the first quarter of 2008 as compared to the same period in 2007. The average balance of these investments increased $5,792,000 or 79.1% during the period. In 2007 management was able to purchase municipal bonds at rates that were comparable on a tax equivalent scale to other offerings in the market, increasing balances of this type investment. Furthermore, in the first quarter of 2008 we were able to purchase $3,650,000 of bonds with an attractive spread to the yield curve for short duration due to the economic climate, thereby increasing the average interest rate received on this type investment by .5% in 2008 as compared to 2007.

Interest expense increased $53,000 or 1.8% in the first quarter of 2008 as compared to 2007. Interest paid on deposits was flat although the average balances increased $18,299,000 or 6.0%. The average interest rate paid decreased by .24% to 3.42% in 2008 as compared to 2007. Customers have continued to invest in our money market accounts with the average balances of this product increasing $9,802,000 or 26.9% over the period. The average interest rate paid for these deposits declined by 1.0% from the first quarter of 2007 to the same period in 2008, while we have maintained aggressive pricing on the top deposit tier and have therefore continued to increase balances. In addition, the average balance of certificates of deposit increased $10,625,000 or 5.3% over the period. We have continued to offer competitive rates on certificates of deposit and are seeing a trend for customers to move funds from other types of lower-cost deposits into these certificates. We believe that customers are actively looking for greater return on their investment while maintaining the security offered by FDIC insurance.

The provision for loan losses is charged to operations to bring the total allowance for loan losses to a level that represents management's best estimates of the losses inherent in the portfolio, based on:

• historical experience;

• volume;

• type of lending conducted by the Bank;

• industry standards;

• the level and status of past due and non-performing loans;

• the general economic conditions in the Bank's lending area; and

• other factors affecting the collectibility of the loans in its portfolio.

Provision for loan loss expense was $150,000 in the first quarter of 2008, representing $75,000 or 33.3% less than was expensed in 2007. We analyze the loan portfolio to determine what amount we believe is necessary for an adequate balance in the allowance for loan loss in order to determine the provision expense.

Noninterest income increased $127,000 or 15.7% in 2008 as compared to 2007. All categories of noninterest income recorded an increase in income with no one area having a disproportionate amount of the increase. Other income increased $44,000 or 21.6% over a year earlier. The most prominent changes in this income category were from: 1) interchange fees earned on our customers' use of debit cards increased $20,000 or 33.5% in the first quarter of 2008 as compared to 2007 due to a higher percentage of our customers carrying and using this payment method ,
2)earnings on bank-owned life insurance increased $13,000 or 16.2% due to the purchase of additional life insurance in the first quarter of 2007 and higher rates earned on the existing policies and 3) trust fees increased $12,000 due to greater funds under management since the second quarter of 2007 along with a timing difference in billing for the department.

Salaries and employee benefits increased $169,000 or 12.1% in the first quarter of 2008 as compared to 2007. Wages increased $105,000 or 10.7% in 2008 as compared to 2007 due to annual salary increases combined with hiring five additional full time equivalent employees since the first quarter of 2007. We have increased staffing for the expected opening of our sixth banking office in the fourth quarter 2008 along with additional staff due to growth. Employee benefits increased in relation to higher wages and having more employees who were eligible for benefits in the current year, adding $19,000 or 8.5% more in 2008 than in 2007. Expenses related to changes in the supplemental executive retirement plans for key officers increased $27,000 or 114.5% in conjunction with increased benefits offered to officers in the plan and inclusion of two additional officers. Due to adoption of Emerging Issues Task Force Issue 06-04 ("EITF 06-04"), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, as of January 1, 2008 we recorded $13,000 of expense in 2008 that was unmatched in 2007. Smaller changes of other expenses were responsible for the remainder of the difference.

Federal income taxes increased $35,000 or 5.2% in 2008 compared to 2007. Income before taxes increased $203,000 or 9.3% for the same period with a greater amount in the tax exempt status in 2008, accounting for different rates of change.

To ensure that the Company can satisfy customer credit needs for current and future commitments and deposit withdrawal requirements, the Bank manages the liquidity position by ensuring that there are adequate short-term funding sources available for those needs. Liquid assets consist of cash and due from banks, federal funds sold, interest-bearing deposits with other banks and investment securities maturing in one year or less. The following table shows these liquidity sources, minus short-term borrowings, as of March 31, 2008 compared to December 31, 2007:

                                                           March 31,         December 31,
                                                             2008                2007
(dollars in thousands)
Cash and due from banks                                   $     8,414       $        6,878
Interest-bearing deposits with other banks                         29                   39
Federal funds sold                                              8,910                  895
Investment securities maturing or repricing in one
year or less                                                   33,530               49,475

                                                               50,883               57,287
Less short-term borrowings                                     13,124                8,210

Net liquidity position                                    $    37,759       $       49,077

As a percent of total assets                                      8.6 %               11.3 %

Short-term borrowings include the portion of long-term debt that matures within the next twelve months.

The Bank has the ability to borrow from the Federal Home Loan Bank of Pittsburgh with the maximum borrowing capacity at March 31, 2008 of $85 million. Other sources of liquidity are cash flows from regularly scheduled and prepayments of loans, sales or maturities in the investment portfolio, sales of residential mortgages in the secondary market, operating income and deposit growth. The Consolidated Statement of Cash Flows specifically details the contribution of each source.

Management monitors liquidity on a consistent basis and feels that liquidity levels are adequate. We are not aware of any known trends, events or uncertainties that will have or is reasonably likely to have a material effect on the Company's liquidity, capital resources or operations; nor are we aware of any current recommendations by regulatory authorities, which if implemented, would have such an effect.

The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans and repossessed assets at March 31, 2008 and December 31, 2007. A loan is classified as nonaccrual when, in the opinion of management, there are doubts about collectability of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. Impaired loans are recognized according to FASB 114, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure."

                                                       March 31,      December 31,
                                                         2008             2007
  (dollars in thousands)
  Loans on nonaccrual basis                           $       371     $         572
  Loans past due 90 days or more                              494               560
  Impaired loans                                              938             1,023

  Total nonperforming loans                                 1,803             2,155
  Other real estate                                            -                 -
  Repossessed assets                                           -                  4

  Total nonperforming assets                          $     1,803     $       2,159

  Nonperforming loans as a percent of total loans             0.5 %             0.6 %

  Nonperforming assets as a percent of total assets           0.4 %             0.5 %

  Allowance for loan loss as a percent of loans              1.57 %            1.56 %

Management believes the level of the allowance for loan losses at March 31, 2008 is adequate to cover probable losses inherent in the loan portfolio. The relationship between the allowance for loan losses and outstanding loans is a function of the credit quality and known risk attributed to the loan portfolio. The on-going loan review program, along with management analysis, is used to determine the adequacy of the allowance for loan losses.

At March 31, 2008 there were loans classified as impaired under the terms of FAS No. 114, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure" of $938,000 with a related allowance for loan loss of $324,000. The average balance of these loans was $650,000. Interest recognized on these loans was $5,000 in 2008. There were no loans in this category on March 31, 2007.