<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-K


            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                  For the fiscal year ended December 31, 1997

                                       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 0-15040
                                                -------

                       PENNROCK FINANCIAL SERVICES CORP.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          PENNSYLVANIA                              23-2400021
-----------------------------------      -------------------------------------
   (State or other jurisdiction          (IRS Employer Identification Number)
 of incorporation or organization)


               1060 Main Street
            Blue Ball, Pennsylvania                         17506
-----------------------------------------------     ---------------------
   (Address of principal executive offices)               (Zip code)


 Registrant's telephone number, including area code    (717) 354-4541
                                                       --------------

          Securities registered pursuant to Section 12(b) of the Act:

                                      None
                                    --------

          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, Par Value $2.50 per share
                    ---------------------------------------
                                (Title of class)


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 shorter periods that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  [X]   No  [  ]


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 the 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  [X]


The aggregate market value of the shares of Common Stock of the Registrant held
by non-affiliates of the Registrant as of February 27, 1998 was approximately
$147,294,815.


As of February 27, 1998, there were 6,074,013 shares of Common Stock, Par Value
$2.50 Per Share, outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:


The Registrant's definitive Proxy Statement to be used in connection with the
Annual Stockholders Meeting to be held April 28, 1998, is incorporated by
reference in partial response to Part III of this report.





                                       1

<PAGE>
                       PENNROCK FINANCIAL SERVICES CORP.
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>          <C>                                                           <C>
PART I
   Item 1.   Business   . . . . . . . .. . . . . . . . . . . . . . . . . .  2
   Item 2.   Properties . . . . . . . .  . . . . . . . . . . . . . . . . .  6
   Item 3.   Legal Proceedings  . . . .  . . . . . . . . . . . . . . . . .  6
   Item 4.   Submission of Matters to a Vote of Security Holders   . . . .  6
   Item 4A.  Executive Officers of the Registrant . . . . .  . . . . . . .  7
PART II
   Item 5.   Market for Registrant's Common Equity and Related
              Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 8
   Item 6.   Selected Financial Data  . . . . . . . . . . . . . . . .. . .  9
   Item 7.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations . . . . . . . . . . . .  10
   Item 7A.  Quantitative and Qualitative Disclosures about Market Risk  . 24
   Item 8.   Financial Statements and Supplementary Data  . . . . . . . .  27
   Item 9.   Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosures . . . . . . . . . .  52
PART III
   Item 10.  Directors and Executive Officers of the Registrant . . . . .  52
   Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . .  52
   Item 12.  Security Ownership of Certain Beneficial Owners
              and Management . . . . . . . . . . . . . . . . . . . . . . . 52
   Item 13.  Certain Relationships and Related Transactions . . . . . . .  52
PART IV
   Item 14.  Exhibits, Financial Statement Schedules and Reports
              on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . 53

SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 54
</TABLE>

FORWARD LOOKING STATEMENTS

In our Annual Report, we may include certain forward looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products and similar matters.  The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward looking statements.  In order to comply with the terms of the safe
harbor, we must inform you that a variety of factors could cause the Company's
actual results and experiences to differ materially from the anticipated
results or other expectations expressed in these forward looking statements.
Our ability to predict the results or the effect of future plans and strategies
is inherently uncertain.  Factors that could affect future results include
changes in market interest rates, local and national economic trends and
conditions, competition for products and services, changes in customer
preferences, legislative and regulatory changes, delinquency rates on loans,
and changes in accounting principles, policies or guidelines.  You should
consider these factors in evaluating any forward looking statements and not
place undue reliance on such statements.  We are not obligated to publicly
update any forward looking statements we may make in this Annual Report to
reflect the impact of subsequent events.


                       PENNROCK FINANCIAL SERVICES CORP.
                                     PART I

ITEM 1.  BUSINESS

PENNROCK FINANCIAL SERVICES CORP.

PennRock Financial Services Corp. ("PennRock", the "Company" or the
"Registrant") is a Pennsylvania business corporation organized on March 5,
1986.  It became a bank holding company when it acquired all of the common
stock of Blue Ball National Bank (the "Bank") on August 1, 1986.

PennRock is a financial holding company that operates through its bank
subsidiary to deliver financial and related services to its customers.
PennRock's primary function is to direct the policies and coordinate the
financial resources of its bank subsidiary as well as provide various advisory
services.  PennRock primarily obtains the cash necessary to pay dividends to
stockholders from the dividends paid to it by its subsidiary bank.





                                       2

<PAGE>
PennRock is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended. It is also subject to regulation by the Federal
Reserve Board and by the Pennsylvania Department of Banking.

BLUE BALL NATIONAL BANK

Blue Ball National Bank began operations in 1906.  The Bank provides a full
range of general commercial and retail banking services to its customers,
including several types of checking and savings accounts, certificates of
deposit, and commercial, consumer and mortgage loans through 13 full service
branches in Lancaster, Berks and Chester Counties in southeastern and
south-central Pennsylvania. The Bank also provides personal and corporate trust
and agency services to individuals, corporations and others, including trust
investment accounts, investment advisory services, mutual funds, estate
planning, and management of pension and profit sharing plans.

Commercial lending services provided by the Bank include short and medium term
loans, revolving credit loans, letters and lines of credit, real estate
mortgage and construction loans and agricultural loans.  Consumer lending
services include various types of secured and unsecured loans including
installment loans, home equity loans and overdraft protection lines of credit.
Residential mortgage loans are offered in a wide variety of types including
fixed and adjustable-rate loans.  The Bank's underwriting guidelines conform to
Fannie Mae (formerly the Federal National Mortgage Association) and Federal
Home Loan Mortgage Corporation ("FHLMC") guidelines.  The Bank sells most of
the conforming fixed-rate residential mortgage loans it originates to either
Fannie Mae or FHLMC in the secondary market but retains the servicing.  The
Bank's business is not considered seasonal.

ATLANTIC REGIONAL MORTGAGE CORPORATION

Atlantic Regional Mortgage Corporation ("ARMCO") is a Pennsylvania mortgage
banking company formed as a wholly owned subsidiary of the Bank on February 29,
1996.  ARMCO was organized as a full service mortgage banking company to
originate and sell residential mortgage loans.  On September 30, 1997, ARMCO's
Board of Directors adopted a formal liquidation plan that called for operations
of ARMCO to be finalized by December 31, 1997.  The operating results of ARMCO
are being accounted for in accordance with the provisions of Accounting
Principles Board Opinion No. 30 ("APB 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," as
a discontinued operation.  Accordingly, ARMCO's operating results (including
shut-down and liquidation costs), net of applicable income tax benefits, have
been segregated from continuing operations and reported separately as
discontinued operations in the Consolidated Statements of Income for 1997 and
1996.

EMPLOYEES

PennRock has no employees.  The Bank employed 208 full-time and 58 part-time
employees at the end of 1997. There were no ARMCO employees at the end of
December 31, 1997.

COMPETITION

PennRock originates most of its loans to, and accepts most of its deposits
from, residents and businesses located in southeastern and south-central
Pennsylvania, primarily Lancaster, Berks and Chester Counties.  The financial
services industry in PennRock's service area continues to be extremely
competitive, both among commercial banks and other financial service providers
such as consumer finance companies, thrifts, investment companies, mutual funds
and credit unions.  Mortgage banking firms, insurance companies, brokerage
companies, financial affiliates of commercial companies, and government
agencies also provide competition for loans and other financial services.  Some
of these competitors are considerably larger and have more resources than
PennRock.  However, the Company has made a significant investment in
technological resources that will allow us to offer a wide variety of products
and services and to enable us to compete with any size financial institution.

Among the most important factors influencing the Company's ability to compete
successfully for new loans and deposits are interest rates, quality of service
and convenience of office locations.  We have attempted to differentiate
ourselves from other competitors by emphasizing the local and personalized
nature of our services.  In an effort to make our community offices more
convenient to our existing and potential customers, the Company has, on
average, added one new office per year over the past ten years.





                                       3

<PAGE>
PennRock is not dependent upon a single customer or a small number of
customers, the loss of which would have a materially adverse effect upon
PennRock or its subsidiaries.

SUPERVISION AND REGULATION

General

PennRock is registered as a bank holding company and is subject to supervision
and regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Act of 1956, as amended (the
"BHCA").  As a bank holding company, PennRock's activities and those of its
bank subsidiary are limited to the business of banking and activities closely
related or incidental to banking.  Bank holding companies are required to file
periodic reports with and are subject to examination by the Federal Reserve
Board.  The Federal Reserve Board has issued regulations under the BHCA that
require a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks.  As a result, the Federal Reserve Board,
pursuant to such regulations, may require the Company to stand ready to use its
resources to provide adequate capital funds to its bank subsidiary during
periods of financial stress or adversity.

The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock, or
substantially all of the assets of, any bank, or from merging or consolidating
with another bank holding company, without prior approval of the Federal
Reserve Board. Additionally, the BHCA prohibits the Company from engaging in or
from acquiring ownership or control of more than 5% of the outstanding shares
of any class of voting stock of any company engaged in a non-banking business,
unless such business is determined by the Federal Reserve Board to be so
closely related to banking as to be a proper incident thereto.

As a Pennsylvania bank holding company for purposes of the Pennsylvania Banking
Code, the Company is also subject to regulation and examination by the
Pennsylvania Department of Banking.

The Bank is a national bank and a member of the Federal Reserve System and its
deposits are insured (up to applicable limits) by the Federal Deposit Insurance
Corporation (the "FDIC").  The Bank is subject to regulation and examination by
the Office of the Comptroller of the Currency (the "OCC"), and to a much lesser
extent, the Federal Reserve Board and the FDIC.  The Bank is also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank.  In addition to the impact of
regulation, commercial banks are affected significantly by the actions of the
Federal Reserve Board as it attempts to control the money supply and credit
availability in order to influence the economy.

Capital Adequacy Guidelines

Bank holding companies are required to comply with the Federal Reserve Board's
risk-based capital guidelines. The required minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%.  At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common shareholders'
equity, less certain intangible assets.  The remainder ("Tier 2 capital") may
consist of certain preferred stock, a limited amount of subordinated debt,
certain hybrid capital instruments and other debt securities, and a limited
amount of the general loan loss allowance.  The risk-based capital guidelines
are required to take adequate account of interest rate risk, concentration of
credit risk, and risks of nontraditional activities.

In addition to the risk-based capital guidelines, the Federal Reserve Board
requires a bank holding company to maintain a leverage ratio of a minimum level
of Tier 1 capital (as determined under the risk-based capital guidelines) equal
to 3% of average total consolidated assets for those bank holding companies
which have the highest regulatory examination ratings and are not contemplating
or experiencing significant growth or expansion.  All other bank holding
companies are required to maintain a ratio of at least 1% to 2% above the
stated minimum.  The Bank is subject to almost identical capital requirements
adopted by the OCC.





                                       4

<PAGE>
Prompt Corrective Action Rules

The Federal banking agencies have regulations defining the levels at which an
insured institution would be considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized."  The applicable Federal bank regulator for a
depository institution could, under certain circumstances, reclassify a
"well-capitalized" institution as "adequately capitalized" or require an
"adequately capitalized" or "undercapitalized" institution to comply with
supervisory actions as if it were in the next lower category.  Such a
reclassification could be made if the regulatory agency determines that the
institution is in an unsafe or unsound condition (which could include
unsatisfactory examination ratings).  The Company and the Bank each satisfy the
criteria to be classified as "well capitalized" within the meaning of
applicable regulations.

Regulatory Restrictions on Dividends

The Bank may not, under the National Bank Act, declare a dividend without
approval of the Comptroller of the Currency, unless the dividend to be declared
by the Bank's Board of Directors does not exceed the total of: (i) the Bank's
net profits for the current year to date, plus (ii) its retained net profits
for the preceding two current years, less any required transfers to surplus.
In addition, the Bank can only pay dividends to the extent that its retained
net profits (including the portion transferred to surplus) exceed its bad
debts. The Federal Reserve Board, the OCC and the FDIC have formal and informal
policies that provide that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings, with some
exceptions.  The Prompt Corrective Action Rules, described above, further limit
the ability of banks to pay dividends, because banks which are not classified
as well capitalized or adequately capitalized may not pay dividends.

Under these policies and subject to the restrictions applicable to the Bank,
the Bank could declare, during 1998, without prior regulatory approval,
aggregate dividends of approximately $8.7 million, plus net profits earned to
the date of such dividend declaration.

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, 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, 1997, the Bank was well capitalized for purposes of
calculating insurance assessments.

The Bank Insurance Fund ("BIF") is presently fully funded at more than the
minimum amount required by law. Accordingly, the 1998 BIF assessment rates
range from zero for those institutions with the least risk, to $0.27 for every
$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.

While the Bank presently pays no premiums for deposit insurance, it is subject
to assessments to pay the interest on Financing Corporation ("FICO") bonds.
FICO 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 FICO bonds.  On September 30, 1996, as
part of the Omnibus Budget Act, Congress enacted the Deposit Insurance Funds
Act of 1996, which recapitalized the Savings Association Insurance Fund
("SAIF") and provided that commercial banks would be subject to 1/5 of the
assessment to which thrifts are subject for FICO bond payments through 1999.
Beginning in 2000, commercial banks and thrifts will be subject to the same
assessment for FICO bonds.  The FDIC sets the FICO assessment rate every six
months.  The FICO assessment for the Bank (and all commercial banks) for the
year 1998 is expected to be $.0126 for each $100 of deposits.





                                       5

<PAGE>
New Legislation

The Deposit Insurance Funds Act of 1996 was a part of the larger Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA").  EGRPRA is a
lengthy Act that amends many different bank regulatory and consumer protection
statutes.  While EGRPRA does not contain any major changes to banking law
(except for the FDIC and FICO assessments discussed above), it does contain a
number of smaller provisions that are beneficial to the banking industry.  In
particular, certain routine regulatory application requirements and procedures
have been reduced or eliminated, making it easier and less expensive for banks
to comply with regulatory requirements.  While the changes effected by EGRPRA
are welcome, the direct effect on the Company and the Bank are expected to be
minimal.

Proposed legislation is introduced in almost every legislative session that
would dramatically affect the regulation of the banking industry.  Whether or
not such legislation will ever be enacted and what effect it may have on the
Company and the Bank cannot be estimated at this time.

FOREIGN OPERATIONS

PennRock does not depend on foreign sources for funds, nor does PennRock make
foreign loans.

The required Statistical Information for Item 1 can be found in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Annual Report.

ITEM 2.  PROPERTIES

PENNROCK FINANCIAL SERVICES CORP.

PennRock's headquarters are located at the main office of Blue Ball National
Bank located at 1060 Main Street, Blue Ball, Pennsylvania.  PennRock owns no
real estate.

BLUE BALL NATIONAL BANK

The principal executive office and main banking office is located in Blue Ball,
Pennsylvania.  An operations center, also located in Blue Ball, Pennsylvania,
accommodates the Bank's data processing, accounting, human resource, and loan
and deposit operations departments.  These and the Bank's 12 community offices
are owned free and clear of any indebtedness.  The land on which two of the
branch offices are located is leased.  The net book value of the Bank's
premises and equipment as of December 31, 1997 is $12.7 million.

During 1997, the Bank sold its Spring City Office located in Spring City,
Chester County, Pennsylvania to Harleysville National Bank and Trust Company.
This office was originally purchased in 1995 along with two other offices from
PNC Bank.

Also during 1997, we completed construction of a Berks County regional office
located in Spring Township. This regional office reflects management's
commitment to growth in Berks County.  A temporary community office operating
at the site closed concurrently with the opening of the regional office.

ITEM 3.  LEGAL PROCEEDINGS

Various legal actions or proceedings are pending involving PennRock or its
subsidiaries.  Management believes that the aggregate liability or loss, if
any, will not be material.

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

No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1997.





                                       6

<PAGE>
ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all of the executive officers of PennRock as
of February 27, 1998, are listed below, along with the positions with PennRock
and the Bank held by each of them during the past five years.  Officers are
elected annually by the Board of Directors.


<TABLE>
<CAPTION>
                                                            POSITION AND EXPERIENCE
          NAME               AGE                              DURING PAST 5 YEARS
------------------------  ---------  -------------------------------------------------------
<S>                       <C>        <C>
Norman Hahn                  61      PennRock Financial Services Corp.:
                                      Chairman of the Board (January 1991 to date)
                                     Blue Ball National Bank:
                                      Chairman of the Board (January 1991 to date)
                                      Vice-Chairman of the Board (April 1988 to January 1991)

Glenn H. Weaver              63      PennRock Financial Services Corp.:
                                      President (April 1989 to date)

Robert K. Weaver             49      PennRock Financial Services Corp.:
                                      Secretary (March 1986 to date)
                                     Blue Ball National Bank:
                                      Secretary (1977 to date)

Melvin Pankuch               58      PennRock Financial Services Corp.:
                                      Executive Vice President and Chief Executive Officer
                                      (April 1989 to date)
                                     Blue Ball National Bank:
                                      President and Chief Executive Officer (April 1988 to date)

George B. Crisp              50      PennRock Financial Services Corp.:
                                      Vice President and Treasurer (April 1989 to date)
                                     Blue Ball National Bank:
                                      Senior Vice President - Operations (July 1993 to date)
                                      Chief Financial Officer (July 1987 to date)

Joseph C. Spada              47      Blue Ball National Bank:
                                      Senior Vice President - Banking Sales/Service (July 1993 to date)

Michael H. Peuler            47      Blue Ball National Bank:
                                      Senior Vice President - Trust Services (April 1995 to date)
                                      Vice President - Trust Services (June 1993 to April 1995)
</TABLE>





                                       7

<PAGE>
                       PENNROCK FINANCIAL SERVICES CORP.
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

The price of PennRock's common stock ranged from $15 1/2 to $20 1/2 in 1997 and
from $15 3/4 to $21 1/4 in 1996.  The book value per share was $10.10 as of
December 31, 1997 and $8.90 as of December 31, 1996.  The prices listed below
represent the high, low and quarter ending prices for stock trades reported
during the quarter.

<TABLE>
<CAPTION>
                                                          Quarter      Per Share
                                  High          Low         End        Dividend
                                --------      -------   -----------  -------------
 1997
 <S>                            <C>           <C>       <C>          <C>
 First quarter                    $17           $15 1/2     $17         $.12
 Second quarter                    19 1/2        16          19          .12
 Third quarter                     20 1/4        17          20          .12
 Fourth quarter                    20 1/2        18 3/4      19 1/4      .13

 1996
 First quarter                    $21           $16 1/8     $20 5/8     $.11
 Second quarter                    21 1/4        19          19 7/8      .11
 Third quarter                     20            17 1/2      19 1/4      .11
 Fourth quarter                    18 1/4        15 3/4      16 1/8      .12
</TABLE>

The Company maintains a Dividend Reinvestment Plan for eligible shareholders
who elect to participate in the Plan.  A copy of the Prospectus for this Plan
may be obtained by writing to:

   Glenn H. Weaver, President
   PennRock Financial Services Corp.
   P.O. Box 580
   Blue Ball, PA  17506





                                       8

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

                                   
<TABLE>
<CAPTION>
In thousands, except per share data
                                              1997              1996              1995             1994              1993
                                          ------------       -----------       -----------      -------------     ---------
 <S>                                       <C>               <C>               <C>               <C>              <C>
 FOR THE YEAR:                             
 Interest income                             $45,618           $40,599           $38,404           $30,092          $30,738
 Interest expense                             21,878            18,916            19,393            12,782           12,482
 Net interest income                          23,740            21,683            19,011            17,310           18,256
 Provision for loan losses                       258               600               360               352              958
 Non-interest income                           5,105             3,863             3,199             3,388            2,791
 Non-interest expense                         16,665            14,725            13,520            12,242           11,809
 Income from continuing operations,         
  net of tax                                   9,315             7,608             6,182             5,840            6,380
 Loss from discontinued operations,         
  net of tax (1)                              (1,555)             (801)
 Net income                                    7,760             6,807             6,182             5,840            6,380
 Per share:                                 
  Income from continuing operations,        
    net of tax                                  1.54              1.25              1.02               .98             1.08
  Loss from discontinued operations,        
    net of tax (1)                              (.26)             (.13)
  Net income                                    1.28              1.12              1.02               .98             1.08
 Cash dividends                                  .49               .45               .41               .38              .35
 Book value as of year-end                     10.10              8.90              8.52              6.64             6.83
 Market value as of year-end                   19.44             16.13             16.63             24.31            16.07
                                            
 AS OF YEAR-END:                            
 Securities                                  224,408           186,026           196,029           207,982          179,997
 Loans                                       382,359           319,354           298,025           239,928          208,382
 Earning assets                              604,610           508,265           497,366           449,227          399,374
 Total assets                                649,089           547,603           532,082           480,092          422,002
 Deposits                                    492,795           451,467           417,929           342,433          341,632
 Short-term borrowings                        12,832            22,106            47,476            82,077           28,732
 Long-term debt                               77,000            14,000             9,000            10,500            6,500
 Stockholders' equity                         61,267            53,729            51,674            39,903           40,521
 Full time equivalent employees                  238               277               217               183              181
 Number of shares outstanding              6,066,660         6,037,419         6,062,412         6,006,040        5,936,519
                                            
 SELECTED RATIOS:                           
 Return on average assets:                  
  From continuing operations                    1.54%             1.40%             1.21%             1.32%            1.55%
  From net income                               1.28              1.25              1.21              1.32             1.55
 Return on average equity:                
  From continuing operations                   16.47             14.67             13.41             13.95            16.74
  From net income                              13.72             13.12             13.41             13.95            16.74
 Efficiency ratio                              56.59             57.60             60.45             61.70            54.07
 Net interest margin (tax equivalent)           4.48              4.48              4.09              4.29             4.85
 Total capital to average assets               10.46             10.62             10.46             11.20            10.70
 Total capital to risk-weighted asset          14.22             16.08             16.97             17.45            17.88
 Price to earnings                             15.19             14.40             16.30             24.89            14.91
 Market to book value                           1.92              1.81              1.95              3.66             2.35
 Allowance for loan losses to loans             1.11              1.26              1.23              1.45             1.66
 Non-performing loans to loans                   .56               .35               .41               .44             1.15
 Dividend payout ratio                         38.29             39.99             40.12             39.52            32.24
</TABLE>

(1) See Note 2 of the Notes to Consolidated Financial Statements.





                                       9

<PAGE>
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following section presents management's discussion and analysis of the
financial condition and results of operations of PennRock Financial Services
Corp., a bank holding company ("PennRock" or the "Company"), its subsidiary,
Blue Ball National Bank (the "Bank"), and the Bank's subsidiary, Atlantic
Regional Mortgage Corporation ("ARMCO") and should be read in conjunction with
the financial statements and other financial data presented elsewhere in this
Annual Report.  This discussion and analysis is intended to focus on certain
financial data that might not otherwise be readily apparent.

RESULTS OF OPERATIONS

OVERVIEW

ARMCO was organized as a full service mortgage banking company on February 29,
1996 to originate and sell residential mortgage loans.  By the end of 1996,
ARMCO had grown to five offices covering parts of Pennsylvania, Maryland,
Washington DC and northern Virginia.  In 1997, ARMCO continued to grow, adding
five new offices and expanding its market area to include central and southern
Virginia and parts of North and South Carolina.  However, despite its growth,
ARMCO was never able to generate sufficient volumes of mortgage originations to
cover its fixed costs.

In its first year of operations, ARMCO recorded a loss, net of tax, of $801,000
or $.13 per share.  After ARMCO had recorded losses for each of the first eight
months of 1997, management made the decision, in September 1997, to attempt to
sell or, failing that, to close ARMCO.  On September 30, 1997, after
negotiations with several prospective purchasers ended, ARMCO's Board of
Directors adopted a formal liquidation plan that called for operations of ARMCO
to be finalized by December 31, 1997.  For the year ended December 31, 1997,
ARMCO realized a net loss, including shutdown and liquidation costs, of $1.6
million or $.26 per share.  In accordance with the provisions of APB 30, the
operating results of ARMCO have been segregated from continuing operations and
reported separately as discontinued operations in the statements of income for
1996 and 1997.  As a result, certain income and expense items previously
reported for 1996 have been restated to reflect the reclassification of ARMCO
operations.  We expect no material future impact on earnings due to the closure
of ARMCO in 1997.

PennRock Financial Services Corp. recorded income from continuing operations of
$9.3 million or $1.54 per share in 1997, an increase of 22.4% from income from
continuing operations of  $7.6 million or $1.25 per share recorded in 1996.
Net income was $7.8 million or $1.28 per share in 1997, $6.8 million or $1.12
per share in 1996 and $6.2 million or $1.02 per share in 1995.  There were no
discontinued operations in 1995.

Return on average total assets from continuing operations was 1.54% in 1997 and
1.40% in 1996.  Return on average assets from net income was 1.28% in 1997
compared with 1.25% in 1996 and 1.21% in 1995.  Return on average equity from
continuing operations was 16.47% in 1997 and 14.67% in 1996.  Return on average
equity was 13.72% in 1997 compared with 13.12% in 1996 and 13.41% in 1995.

Average earning assets increased $44.0 million or 8.6% during 1997, while
average interest bearing liabilities grew $49.4 million or 11.6%.  The average
yield on earning assets increased from 8.18% in 1996 to 8.43% in 1997, while
the average yield on paying liabilities increased from 4.44% in 1996 to 4.60%
in 1997. PennRock's net interest income on a fully taxable equivalent basis
increased $2.0 million or 8.7% during 1997 and $3.1 million or 15.4% in 1996.
The net interest margin remained at 4.48% for both 1997 and 1996 and was 4.09%
in 1995.

The provision for loan losses decreased from $600,000 in 1996 to $258,000 in
1997.  The provision for loan losses was $360,000 in 1995.





                                       10

<PAGE>
Non-interest income excluding securities gains increased $921,000 or 34.2% in
1997 compared with a $139,000 or 5.5% increase in 1996.  Fees earned from
fiduciary activities increased by more than $100,000 in 1996 and 1997.  Other
service charges and fees grew $177,000 in 1996 and $194,000 in 1997.  Other
income increased $102,000 in 1996 and $515,000 in 1997.  The large increase in
other income for 1997 is partially attributable to a gain realized on the sale
of deposits at our Spring City Office.

Non-interest expenses increased $1.9 million or 13.2% in 1997 over 1996.
Contributing to this increase were costs associated with a computer hardware
and banking application software conversion including the write-off of the
remaining book value of the prior application software.  Non-interest expenses
in 1996 increased $1.2 million over 1995 due to increases in personnel,
equipment and occupancy costs related to the opening of three new community
offices.

NET INTEREST INCOME

Net interest income is the amount by which interest income on loans,
investments and other earning assets exceeds interest paid on deposits and
other interest bearing liabilities.  Net interest income is the primary source
of revenue for PennRock.  The amount of net interest income is affected by
changes in interest rates and the balances of the various types of earning
assets and interest bearing liabilities.  For comparative purposes, and
throughout this discussion unless otherwise noted, net interest income and
corresponding yields are shown on a taxable equivalent basis.  This adjustment
will give effect to the interest earned on tax-exempt loans and investments by
an amount equivalent to the federal income taxes, which would have been paid if
the income received on these assets were taxable at the statutory rate of 34%
for 1997, 1996, and 1995.

Net interest income is the product of the volume of average earning assets and
the average rates earned on them, less the volume of average interest bearing
liabilities and the average rates paid on them.  Table 1 presents average
balances, taxable equivalent interest income and expense and rates for
PennRock's assets and liabilities.





                                       11

<PAGE>
TABLE 1 - AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(Taxable equivalent basis)

<TABLE>
<CAPTION>
                                          1997                            1996                           1995
                              ----------------------------------   -----------------------  ------------------------------  -------
                                Average                 Average      Average                Average    Average              Average
                                Balance    Interest       Rate       Balance     Interest     Rate     Balance   Interest     Rate
                              ----------   ---------   ---------   -----------   ---------  -------- ---------  ----------  -------
<S>                           <C>           <C>            <C>     <C>           <C>          <C>    <C>        <C>         <C>
ASSETS
Short-term investments         $ 17,025     $   953        5.60%    $     693     $   40      5.77%  $    723    $    26      3.60%
Mortgages held for sale             944          64        6.78         2,057        126      6.13      2,234        217      9.71
Securities available for sale:
  U.S. Treasury and agency      118,551       7,478        6.31       147,616      8,914      6.04    172,081     10,287      5.98
  State and municipal            57,382       5,038        8.78        40,828      3,567      8.74     15,330      1,523      9.93
  Other                          13,068         804        6.15         7,066        414      5.86      5,425        289      5.33
                              ----------   ---------               -----------   --------            ---------  ---------  
  Total securities available
    for sale                    189,001      13,320        7.05       195,510     12,895      6.60    192,836     12,099      6.27
Investment securities:
  U.S. Treasury and agency                                                                              1,148         86      7.49
  State and municipal                                                                                  12,158      1,025      8.43
                                                                                                     ---------  ----------  
  Total investment securities                                                                          13,306      1,111      8.35
Loans: (1)
  Mortgage                      194,428      17,975        9.25       173,063     15,660      9.05    152,549     13,939      9.14
  Commercial                     92,974       8,707        9.36        86,067      8,020      9.32     77,301      7,317      9.47
  Consumer (2)                   60,060       5,693        9.48        53,043      5,034      9.49     46,110      4,497      9.75
                              ----------   ---------               -----------   --------            ---------  ---------  
  Total loans                   347,462      32,375        9.32       312,173     28,714      9.20    275,960     25,755      9.33
                              ----------   ---------               -----------   --------            ---------  ---------  
Total earning assets            554,432      46,712        8.43       510,433     41,775      8.18    485,059     39,208      8.08
                                           ---------                             --------                       ---------  
Other assets                     35,343                                31,598                          27,283
Net assets of discontinued
 subsidiary                      15,836                                 1,968
                              ----------                           -----------                       ---------  
Total assets                   $605,611                    7.71%     $543,999                 7.68%  $512,342                 7.65%
                              ----------               ---------   -----------              -------  ---------              -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing deposits:
  Demand                       $ 70,513       1,774        2.52%     $ 71,533      1,769      2.47%  $ 65,118      1,880      2.89%
  Savings                        58,823       1,304        2.22        60,833      1,342      2.21     62,836      1,655      2.63
  Time                          269,029      14,554        5.41       236,822     12,673      5.35    222,211     12,251      5.51
                              ----------   ---------               -----------   --------            ---------  ---------
  Total interest bearing
    deposits                    398,365      17,632        4.43       369,188     15,784      4.28    350,165     15,786      4.51
Short-term borrowings            26,601       1,390        5.23        49,611      2,709      5.46     48,947      3,015      6.16
Long-term debt                   50,293       2,836        5.64         7,085        409      5.77      9,238        592      6.41
                              ----------   ---------               -----------   --------            ---------  ---------
Total interest bearing         
  liabilities                   475,259      21,858        4.60       425,884     18,902      4.44    408,350     19,393      4.75
                                           ---------                             --------                       ---------   
Non-interest bearing
  demand deposits                65,631                                58,394                          51,449
Other liabilities                 8,159                                 7,842                           6,433
Stockholders' equity             56,562                                51,879                          46,110
                              ----------                           -----------                       ---------  
Total liabilities and
  stockholders' equity         $605,611                    3.61%     $543,999                 3.47%  $512,342                 3.79%
                              ----------               ---------   -----------              -------  ---------              -------
 Net interest income                         $24,854                              $22,873                         $19,815
                                           ---------                             --------                       ---------
Interest rate spread                                       3.83%                              3.74%                           3.33%
Effect of non-interest
  bearing funds                                             .65                                .74                             .76
                                                       ---------                            -------                         -------
Net interest margin                                        4.48%                              4.48%                           4.09%
                                                       ---------                            -------                         -------
</TABLE>

(1)   Interest income on loans includes fees of $984,000 in 1997, $775,000 in
      1996 and $944,000 in 1995.  Average loan balances exclude non-accrual 
      loans.
(2)   Consumer loans outstanding net of unearned income.





                                       12

<PAGE>
The net average assets of ARMCO for 1996 and 1997 have been reported as "Net
assets of discontinued subsidiary."  Interest income and expense relative to
these balances have been eliminated from Table 1 and throughout this
discussion.

Table 2 presents the net interest income on a fully taxable equivalent basis
for the years ended December 31, 1997, 1996 and 1995.

TABLE 2 - NET INTEREST INCOME (1)

<TABLE>
<CAPTION>
In thousands 
                                                  1997         1996        1995
                                                ----------   ---------   ---------
 <S>                                             <C>         <C>         <C>
 Total interest income                            $44,944     $40,528     $38,404
 Total interest expense                            21,858      18,902      19,393
                                                ----------   ---------   ---------
 Net interest income                               23,086      21,626      19,011
 Tax equivalent adjustment                          1,768       1,247         804
                                                ----------   ---------   ---------
 Net interest income (fully taxable equivalent)   $24,854     $22,873     $19,815
                                                ----------   ---------   ---------
</TABLE>

(1) Excludes interest income and interest expense relative to discontinued
    subsidiary.

Net interest income on a fully taxable equivalent basis was $24.9 million in
1997, an increase of $2.0 million or 8.7% from the $22.9 million earned in
1996.  Taxable equivalent net interest income in 1996 increased $3.1 million or
15.4% from $19.8 million in 1995.

Changes in interest rates as well as changes in average balances (or volumes)
of earning assets and paying liabilities have an impact on the amount of net
interest income earned and the net interest margins realized by the Company
from year-to-year.  By isolating the effect that changes in rates have on net
interest income from the effect of changes in volume, we can analyze the degree
that each influences the change in net interest income and net interest
margins.  Table 3 analyzes the changes in the volume and rate components of net
interest income.  During 1997, net interest income increased $800,000 due to
changes in volume and increased $1.2 million due to changes in interest rates.
In 1996, net interest income increased by $1.8 million due to changes in volume
and increased by $1.2 million due to changes in interest rates.

TABLE 3 - VOLUME AND RATE ANALYSIS OF CHANGES IN INTEREST INCOME


                                      

<TABLE>
<CAPTION>
In thousands
                                                             Year Ended December 31,
                                      ----------------------------------------------------------------------
                                               1997 Over 1996                      1996 over 1995
                                      --------------------------------   -----------------------------------
                                         Change due to                       Change due to               
                                      --------------------     Total     ----------------------     Total      
                                       Volume       Rate       Change      Volume       Rate        Change
                                      --------    --------   ---------   ---------    ---------   ----------
<S>                                   <C>         <C>        <C>         <C>          <C>         <C>
Interest earned on:
  Short-term investments              $   943     ($   30)    $   913     ($    1)     $    15     $    14
  Mortgages held for sale                 (68)          6         (62)        (17)         (74)        (91)
  Securities                             (430)        855         425        (680)         365        (315)
  Loans                                 3,246         415       3,661       3,379         (420)      2,959
                                      --------    --------   ---------   ---------    ---------   ----------
  Total interest income                 3,691       1,246       4,937       2,681         (114)      2,567
                                                   --------    --------   ---------   ---------    ---------   ----------
Interest paid on:
  Interest bearing demand deposits        (25)         30           5         185         (296)       (111)
  Savings deposits                        (44)          6         (38)        (53)        (260)       (313)
  Time deposits                         1,722         159       1,881         805         (383)        422
  Short-term borrowings                (1,256)        (63)     (1,319)         41         (347)       (306)
  Long-term debt                        2,494         (67)      2,427        (138)         (45)       (183)
                                      --------    --------   ---------   ---------    ---------   ----------
  Total interest expense                2,891          65       2,956         840       (1,331)       (491)
                                      --------    --------   ---------   ---------    ---------   ----------
Net interest income                   $   800      $1,181      $1,981      $1,841       $1,217      $3,058
                                      --------    --------   ---------   ---------    ---------   ----------
</TABLE>
Another method of analyzing the change in net interest income is to examine the
changes between interest rate spread and the net interest margin on earning
assets.  The interest rate spread as shown in Table 4 is the difference between
the average rate earned on earning assets and the average rate paid on interest
bearing liabilities.  The net





                                       13

<PAGE>
interest margin takes into account the benefit derived from assets funded by
interest free sources such as non-interest bearing demand deposits and capital.

TABLE 4 - INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS

(Taxable equivalent basis)

             

<TABLE>
<CAPTION>                                                                                                      
In thousands 
                                              1997                     1996                     1995         
                                    ----------------------    ---------------------    ---------------------- 
                                      Average                   Average                  Average              
                                      Balances      Rate       Balances       Rate      Balances       Rate   
                                    -----------    -------    ----------    -------    ----------    -------- 
<S>                                 <C>            <C>        <C>           <C>        <C>           <C>    
Earning assets                        $554,432      8.43%      $510,433      8.18%      $485,059       8.08%  
                                    -----------               ----------               ----------             
Interest bearing liabilities          $475,259      4.60%      $425,884      4.44%      $408,350       4.75%
                                                   -------                  -------                  --------
Interest rate spread                                3.83%                    3.74%                     3.33%
Interest free sources used 
  to fund earning assets                79,173       .65%        84,549       .74%        76,709        .76%
                                    -----------    -------    ----------    -------    ----------    --------
Total sources of funds                $554,432                 $510,433                 $485,059
                                    -----------               ----------               ----------    
Net interest margin                                 4.48%                    4.48%                     4.09%
                                                   -------                  -------                  --------
</TABLE>

The following discussion analyzes changes in the Company's spreads and margins
in terms of basis points.  A basis point is a unit of measure for interest
rates equal to .01%.  One hundred basis points equals 1%.

Interest rate spreads increased 9 basis points during 1997.  Earning asset
yields increased 25 basis points and funding costs increased 16 basis points.
Although interest rate spreads increased, the net interest margin remained at
4.48% in 1997.  Loan yields increased 12 basis points in 1997.  Changes in loan
yields are closely related to changes in the prime rate.  In the first quarter
of 1997, prime increased 25 basis points to 8.50% and has remained unchanged
since then.  Yields on securities increased 45 basis points primarily due to a
larger investment in higher yielding tax-free municipal bonds and smaller
investment in lower yielding mortgage-backed securities including
collateralized mortgage obligations ("CMO's").  Rates on interest bearing
deposits increased in all deposit categories.  Rates on short-term borrowings
and long-term debt declined in 1997.

Interest rate spreads increased 41 basis points in 1996 while the net interest
margin increased 39 basis points.  Earning asset yields increased 10 basis
points while funding costs decreased 31 basis points.  Loan yields declined 13
basis points partially due to a 25 basis point decrease in the prime rate early
in 1996. Security yields increased 20 basis points.  Rates on all deposits and
borrowed fund categories declined in 1996.

PROVISION FOR LOAN LOSSES

The amount of provision for loan losses that was charged against earnings was
$258,000 in 1997 compared with $600,000 in 1996 and $360,000 in 1995.  The
amount of the provision is based, among other factors, on the amount of net
credit losses that totaled $140,000 in 1997, $212,000 in 1996 and $181,000 in
1995.  We review the adequacy of the allowance in light of past loan loss
experience, current economic conditions, size and characteristics of the loan
portfolio, volume of non-performing and delinquent loans and other relevant
information.

The ratio of net charge-offs to average loans was .07% in both 1995 and 1996
and declined to .04% in 1997.  Net charge-offs totaled 3.30% of the allowance
for loan losses compared with 5.24% in 1996 and 4.94% in 1995. Non-performing
loans (loans on which we have stopped accruing interest and loans 90 days or
more past due which we continue to accrue interest) increased from $1.1 million
at the end of 1996 to $2.1 million at the end of 1997.  Non-performing loans
represented .56% of total loans as of December 31, 1997 and .35% at the end of
1996.

NON-INTEREST INCOME

Total non-interest income grew $1.2 million or 32.2% in 1997 with gains in
nearly all categories.  Non-interest income increased $664,000 or 20.8% in
1996.  Excluding net security gains, non-interest income increased $921,000 or
34.2% in 1997 compared with a $139,000 or 5.4% increase in 1996.  Table 5
indicates changes in the major categories of non-interest income.





                                       14

<PAGE>
TABLE 5 - NON-INTEREST INCOME

<TABLE>
<CAPTION>
In thousands 
                                              1997/1996                               1996/1995
                                  -----------------------------------  ---------------------------------------
                                                  Increase                          Increase
                                                 (Decrease)                        (Decrease)
                                              -------------------             --------------------
                                  1997        Amount        %       1996        Amount       %         1995
                                 --------    --------    -------  ---------   ---------   --------   ---------
<S>                               <C>         <C>         <C>      <C>         <C>         <C>        <C>
Service charges on deposit
  accounts                        $1,337      $  195       17.1%    $1,142       $ 128      12.6%      $1,014
Other service charges and fees        95          (2)      (2.1)        97          49     102.1           48
Fiduciary activities                 804         104       14.9        700         111      18.8          589
Net realized gains on sales of
  available for sale securities    1,493         321       27.4      1,172         525      81.1          647
Mortgage banking                     491         109       28.5        382        (250)    (39.6)         632
Other                                885         515      139.2        370         101      37.5          269
                                 --------    --------    -------  ---------   ---------   --------   ---------
Total                             $5,105      $1,242       32.2%    $3,863        $664      20.8%      $3,199
                                 --------    --------    -------  ---------   ---------   --------   ---------
</TABLE>

Net security gains totaled $1.5 million in 1997, $1.2 million in 1996 and
$647,000 in 1995.  Securities gains and losses in all three years were
attributable to the sale of securities for the purpose of adding liquidity or
to control interest rate risk and reflect the Company's active management of
the investment portfolio.  We continuously monitor the Company's interest rate
sensitivity position and periodically restructure the security portfolio as
conditions warrant such as expected changes in liquidity or projected movements
in future interest rates.

Fiduciary fees increased $104,000 or 14.9% in 1997 and by $111,000 or 18.8% in
1996.  Assets under trust management were $165 million at the end of 1997, an
increase of $30 million or 22% over assets of $135 million at the end of 1996.
Trust assets increased $10 million or 8% in 1996.

Other non-interest income increased $515,000 in 1997 and by $101,000 in 1996.
During 1997, we sold our Spring City Office located in Spring City, Chester
County, Pennsylvania to Harleysville National Bank and Trust Company for which
we realized a premium of nearly $300,000.  This office was originally purchased
in 1995 along with two other offices from PNC Bank.

NON-INTEREST EXPENSE

Total non-interest expense for 1997 increased $1.9 million or 13.2% compared
with a $1.2 million or 8.9% increase in 1996.  Salaries and employee benefits
increased $789,000 or 9.7% in 1997 and $740,000 or 10.0% in 1996.  Total
full-time equivalent employees increased from 217 at year-end 1995 to 232 at
the end of 1996 (excluding 45 full-time equivalent ARMCO employees) and to 238
in 1997.  The increase in 1996 is due in part to the addition of two new branch
offices in 1996 plus another branch office late in 1995.  The ratio of average
assets (in millions) per employee was $2.36 in 1995, $2.34 in 1996 and $2.55 in
1997.  The average salary per employee was $28,000 in 1995 and 1996 and $31,642
in 1997.

Expenses related to occupancy, premises and equipment increased $23,000 or .9%
in 1997 and by $394,000 or 19.4% in 1996.  A computer hardware and banking
application software conversion completed early in the third quarter of 1997 is
expected to reduce non-interest expenses by $800,000 per year beginning in
1998.  Expenses relating to equipment, depreciation and service declined by
$48,000 in 1997 reflecting the early benefits of this conversion.  In 1997, we
completed construction of our Berks regional office located in Spring Township.
In addition to a full-service community office, regional loan and trust sales
personnel will work out of this office.  The large increase in occupancy,
premises and equipment expense in 1996 is the result of opening two new
community offices in 1996 and another branch late in 1995.

Computer software expense increased $807,000 or 93.7 in 1997.  This increase is
the due to the cost of the computer software conversion discussed above.  These
costs included the payment of a deferred license fee of $445,000 and write-off
of the remaining book value of capitalized conversion costs that totaled
$212,000.

Other non-interest expenses increased $321,000 or 9.8% in 1997 and decreased by
$50,000 or 1.5% in 1996. Increases in other non-interest expenses are the
result of normal inflationary increases or due to additional volume from growth
in numbers of accounts processed.  Table 6 summarizes the changes in the major
categories of non-interest expense.





                                       15

<PAGE>
TABLE 6 - NON-INTEREST EXPENSE

<TABLE>
<CAPTION>
In thousands 
                                                1997/1996                               1996/1995
                                --------------------------------------   -----------------------------------
                                                Increase                          Increase
                                               (Decrease)                        (Decrease)
                                             ------------------                -------------------
                                   1997       Amount        %         1996      Amount        %         1995
                                ---------    --------    ------   ----------   --------    -------  ---------
<S>                             <C>           <C>         <C>     <C>           <C>         <C>     <C>
Salaries and employee benefits   $ 8,961        $789       9.7%    $ 8,172        $740       10.0%    $7,432
Occupancy, net                     1,279          71       5.9       1,208         200       19.8      1,008
Equipment, depreciation and
  Service                          1,166         (48)     (4.0)      1,214         194       19.0      1,020
Computer software expense          1,668         807      93.7         861         121       16.4        740
Other                              3,591         321       9.8       3,270         (50)      (1.5)     3,320
                                ---------    --------             ----------   --------             ---------
Total                            $16,665      $1,940      13.2%     $14,725     $1,205        8.9%   $13,520
                                ---------    --------    ------   ----------   --------    -------  ---------
</TABLE>

PROVISION FOR INCOME TAXES

Income tax expense applicable to continuing operations totaled $2.6 million in
1997 and 1996 compared with $2.1 million in 1995.  There was an income tax
benefit of $777,000 and $413,000 applicable to discontinued operations for 1997
and 1996, respectively.  The statutory federal tax rate was 34% each year.
PennRock's effective tax rate applicable to continuing operations was 21.9% in
1997 compared to 25.6% in 1996 and 25.8% in 1995.  The primary reason for the
decline in the effective tax rate is due to an increase in tax-exempt income.
For a more comprehensive analysis of income tax expense, refer to Note 12 of
the Notes to Consolidated Financial Statements.

PennRock accounts for income taxes on the liability method.  Under the
liability method, a deferred tax asset or liability is determined based on the
enacted tax rates which will be in effect when the differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities are expected to be reported in PennRock's income tax returns.  The
deferred tax provision for the year is equal to the net change in the deferred
tax asset and liability accounts from the beginning to the end of the year. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.

DISCONTINUED OPERATIONS

As discussed above, during 1997 management elected to terminate the operations
of ARMCO, a subsidiary of the Bank, after two years of operations.  ARMCO
recorded a loss of $801,000 (net of an income tax benefit of $413,000) or $.13
per share in 1996 and a loss of $1.6 million (net of an income tax benefit of
$777,000) or $.26 per share.  In accordance with the provisions of APB 30, the
operating results of ARMCO have been segregated from continuing operations and
reported separately as discontinued operations in the statements of income for
1996 and 1997.  As a result, certain income and expense items previously
reported for 1996 have been restated to reflect the reclassification of ARMCO
operations.  We expect no material future impact on earnings due to the closure
of ARMCO in 1997.

FINANCIAL CONDITION

SOURCES AND USES OF FUNDS

Table 7 examines PennRock's financial condition in terms of its sources and
uses of funds.  Average funding uses increased $44.0 million or 8.6% in 1997
compared with an increase of $25.4 million or 5.2% in 1996.





                                       16

<PAGE>
TABLE 7 - SOURCES AND USES OF FUNDS

<TABLE>
<CAPTION>
In thousands
                                       1997                                  1996                     1995
                        ------------------------------------  -----------------------------------   ----------
                                       Increase (Decrease)                   Increase (Decrease)             
                          Average      ------------------        Average     ------------------       Average
                          Balance      Amount          %         Balance      Amount         %        Balance
                        ----------   ----------     --------  -----------   ----------     ------   ----------
<S>                      <C>          <C>           <C>        <C>           <C>           <C>      <C>
Funding uses:
  Short-term
    investments          $ 17,025      $16,332       2356.7%     $   693     ($    30)      (4.1%)   $    723
  Mortgages held for
    sale                      944       (1,113)       (54.1)       2,057         (177)      (7.9)       2,234
  Securities available
    for sale              189,001       (6,509)        (3.3)     195,510      (10,632)      (5.2)     206,142
  Loans                   347,462       35,289         11.3      312,173       36,213       13.1      275,960
                        ----------   ----------               -----------   ----------              ----------
  Total uses             $554,432      $43,999          8.6%    $510,433      $25,374        5.2%    $485,059
                        ----------   ----------     --------  -----------   ----------     ------   ----------
Funding sources:
  Interest-bearing
    demand deposits      $ 70,513     ($ 1,020)        (1.4%)   $ 71,533      $ 6,415        9.9%    $ 65,118
  Savings deposits         58,823       (2,010)        (3.3)      60,833       (2,003)      (3.2)      62,836
  Time deposits           269,029       32,207         13.6      236,822       14,611        6.6      222,211
  Short-term borrowings    26,601      (23,010)       (46.4)      49,611          664        1.4       48,947
  Long-term debt           50,293       43,208        609.9        7,085       (2,153)     (23.3)       9,238
  Non-interest bearing
    funds, net             79,173       (5,376)        (6.4)      84,549        7,840       10.2       76,709
                        ----------   ----------               -----------   ----------              ----------
  Total sources          $554,432      $43,999          8.6%    $510,433      $25,374        5.2%    $485,059
                        ----------   ----------     --------  -----------   ----------     ------   ----------
</TABLE>


SECURITIES AND SHORT-TERM INVESTMENTS

Table 8 indicates the composition and maturity of the securities available for
sale portfolio as of December 31, 1997.  Included in the portfolio are state
and municipal securities, mortgage-backed securities (including adjustable rate
mortgage-backed securities) and CMO's which may be called, prepaid or reprice
before final maturity.  For mortgage-backed securities, maturity is based on
average lives rather than contractual maturity.  The average life to call or
repricing of the portfolio was 4.7 years as of December 31, 1997 and 4.2 years
as of December 31, 1996.

TABLE 8 - ANALYSIS OF SECURITIES AVAILABLE FOR SALE

                

<TABLE>
<CAPTION>
In thousands
                                                                                                                    Taxable  
                                         Within        1-5         6-10       Over 10                              Equivalent
                                        One Year      Years       Years        Years      Equities      Total        Yield   
                                      ----------    ---------   ----------   ---------   ---------- -----------   -----------
<S>                                    <C>          <C>         <C>          <C>         <C>         <C>           <C>   
U.S. Treasury and agency               $  1,075      $11,713     $  7,199     $34,972      $          $ 54,959          7.06% 
States and political subdivisions                      1,694                   62,042                   63,736          8.37
Mortgage backed securities                             2,347       23,221       2,334                   27,902          7.20
Collateralized mortgage
  obligations                             6,521       32,484                                            39,005          5.79
Other securities                         24,317                                                         24,317          6.02
Equity securities                                                                           12,282      12,282
                                      ----------    ---------   ----------   ---------   ---------- -----------   
Total (amortized cost)                  $31,913      $48,238      $30,420     $99,348      $12,282    $222,201          7.20%
                                      ----------    ---------   ----------   ---------   ---------- -----------   
Total fair value                        $32,050      $48,076      $30,602    $100,999      $12,681    $224,408
Taxable equivalent yield                  6.02%        5.98%        7.26%       8.03%             
Percent of portfolio                     14.28%       21.42%       13.64%      45.01%        5.65%
Average maturity                      12.1 YEARS                                        
</TABLE>





                                       17

<PAGE>
Measured on an amortized cost basis, securities increased $34.9 million or
18.7% in 1997 and decreased $10.0 million or 5.2% during 1996.  As of December
31, 1997, securities available for sale at fair value totaled $224.4 million
compared with $186.0 million at the end of 1996.  During 1997, PennRock sold
$119.2 million and purchased $172.9 million in available for sale securities.
During 1996, PennRock sold $77.0 million in securities and purchased $78.4
million.  In addition, $20.6 million and $10.0 million was received from
maturities of securities and principal repayments on mortgage-backed securities
in 1997 and 1996, respectively.

As of December 31, 1997, the AFS portfolio had a net unrealized gain of $2.2
million consisting of gross unrealized gains of $2.6 million and gross
unrealized losses of $437,000.  The total portfolio had a net unrealized loss
of $1.2 million consisting of gross unrealized gains of $915,000 and gross
unrealized losses of $2.2 million at the end of 1996.

As of December 31, 1997, PennRock had $66.9 million invested in mortgage-backed
pass-through securities and CMO's compared with $101.6 million as of December
31, 1996.  A mortgage-backed pass-through security depends on an underlying
pool of mortgage loans to provide a cash flow pass-through of principal and
interest. PennRock had $27.9 million in mortgage-backed pass-through securities
as of December 31, 1997 of which $4.9 million were adjustable rate and $23.0
million were fixed rate securities.  A CMO is a mortgage-backed security that
is comprised of classes of bonds created by prioritizing the cash flows from
the underlying mortgage pool in order to meet different objectives of
investors.  PennRock had $39.0 million in CMO securities as of December 31,
1997 compared with $67.4 million at the end of 1996.  The CMO securities held
by PennRock are shorter-maturity, fixed rate bonds that have relatively low
levels of prepayment risk.  In addition, none of the CMO's in the portfolio was
considered "high risk CMO's" as defined by banking regulations.  All CMO's and
mortgage-backed pass-through securities were issued by Federal agencies.

During 1997 and 1996, there were no investments in securities of any single,
non-federal issues in excess of 10% of stockholders' equity.

LOANS

Table 9 presents loans outstanding, by type of loan, for the past five years.
Loans increased from year-end 1996 to year-end 1997 by $63.0 million or 19.7%,
compared with a $21.3 million or 7.2% increase from year-end 1995 to year-end
1996.  Most of this growth was realized in commercial real estate loans which
grew $34.8 million or 27.4%.  Also during 1997, PennRock originated and sold
$24.1 million residential in conforming residential mortgage loans.  Included
in increase in real estate construction loans in 1997 are $12.5 million of real
estate construction loans purchased by the Bank from ARMCO.

TABLE 9 - LOANS OUTSTANDING, NET OF UNEARNED INCOME

<TABLE>
<CAPTION>
In thousands  
                                                                  December 31,
                                       -----------------------------------------------------------------
                                          1997          1996         1995          1994         1993
                                       ----------    ----------   ----------   ----------    -----------
<S>                                     <C>           <C>          <C>          <C>           <C>
Commercial, financial and agricultural:
  Commercial, secured by real estate    $161,939      $127,124     $106,675      $ 86,173      $ 58,312
  Agricultural                            10,087         9,533       10,268         9,729         9,113
  Other                                   58,405        56,118       52,734        43,354        49,106
Real estate - construction                22,365         9,415        8,761         2,489         6,742
Real estate - mortgage                   111,689        99,798      104,211        85,565        73,299
Consumer loans                            17,874        17,366       15,376        12,618        11,810
                                       ----------    ----------   ----------   ----------    -----------
Total loans                             $382,359      $319,354     $298,025      $239,928      $208,382
                                       ----------    ----------   ----------   ----------    -----------
</TABLE>





                                       18

<PAGE>
TABLE 10 - LOAN MATURITIES AND INTEREST SENSITIVITY (1)

<TABLE>
<CAPTION>
In thousands
                                                                  December 31, 1997
                                            ------------------------------------------------------------
                                             One Year        One Through        Over
                                             or Less         Five Years      Five Years         Total
                                            -----------      -----------     -----------     -----------
<S>                                           <C>               <C>           <C>             <C>
Commercial, financial and agricultural        $  6,482          $34,717        $189,335        $230,534
Real estate - construction                      22,262                                           22,262
                                            -----------      -----------     -----------     -----------
Total                                         $ 28,744          $34,717        $189,335        $252,796
                                            -----------      -----------     -----------     -----------
Loans with predetermined interest rate        $  7,323          $18,522        $ 13,960        $ 39,805
Loans with variable interest rate               21,421           16,195         175,375         212,991
                                            -----------      -----------     -----------     -----------
Total                                          $28,744          $34,717        $189,335        $252,796
                                            -----------      -----------     -----------     -----------
</TABLE>
(1) Excludes residential mortgages and consumer loans.

NON-PERFORMING ASSETS

Table 11 shows PennRock's non-performing loans for the five years ended
December 31, 1997.  PennRock's policy is to discontinue the accrual of interest
on loans for which the principal or interest is past due 90 days or more unless
the loan is well secured and corrective action has begun or the loan is in the
process of collection.  When a loan is placed on non-accrual status, any unpaid
interest is charged against income.

TABLE 11 - NON-PERFORMING ASSETS


<TABLE>
<CAPTION>
In thousands 
                                                                        December 31,
                                              ---------------------------------------------------------------
                                               1997          1996          1995         1994          1993
                                              ---------     --------      --------     --------      --------
<S>                                             <C>          <C>           <C>          <C>           <C>
Non-accrual loans                                 $288       $  795        $  862       $  624        $1,670
Loans accruing but 90 days past due as to
  principal or interest                          1,853          311           375          434           729
                                              ---------     --------      --------     --------      --------
Total non-performing loans                       2,141        1,106         1,237        1,058         2,399
Other real estate owned                             65          187           276        1,048           816
                                              ---------     --------      --------     --------      --------
Total non-performing assets                     $2,206       $1,293        $1,513       $2,106        $3,215
                                              ---------     --------      --------     --------      --------
Ratios:
  Non-performing loans to total loans             0.56%        0.35%         0.41%        0.44%         1.15%
  Non-performing assets to total loans and
    other real estate owned                       0.58%        0.40%         0.51%        0.87%         1.54%
  Allowance for loan losses to
    non-performing loans                        198.37%      366.09%       295.96%      329.11%       144.27%
</TABLE>

We estimate loans that are not considered non-performing and are not past-due
but have a somewhat higher than normal risk of becoming non-performing in the
future to total $10.7 million as of December 31, 1997, compared with $7.6
million as of December 31, 1996 and $4.7 million as of December 31, 1995.

As of December 31, 1997, PennRock did not have any loan concentrations
exceeding 10% of total loans to any particular economic group or industry.  The
loan portfolio is well diversified as to industry and companies within each
industry which helps minimize risk.  Loan quality is maintained through
diversification of risk, strict credit control practices and continued
monitoring of the loan portfolio.  As of December 31, 1997, PennRock did not
have any loans outstanding to any foreign entity or government.

Other real estate owned ("OREO") amounted to $65,000 as of December 31, 1997
and was included in other assets on the Consolidated Balance Sheets.  As of
December 31, 1996, OREO totaled $187,000.  Valuation reserves are established
for OREO properties whenever estimated current realizable values fall below the
original fair value recorded.





                                       19

<PAGE>
ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses (Table 12) is based on Management's evaluation of
historical and anticipated loan loss expense, analysis of non-performing and
delinquent loans, prevailing and anticipated economic conditions, and banking
industry standards.  The allowance is established at a level considered by
Management to be adequate to absorb potential future losses contained in the
portfolio and is monitored on a continuous basis with independent formal loan
reviews conducted on a semiannual basis.  Provisions for loan losses charged to
operating expense increase the allowance while net charge-offs of loans
decrease the allowance.

During 1997, the Bank purchased $12.5 million residential mortgage loans from
ARMCO on which a valuation reserve totaling $80,000 had been established.  This
reserve was added to the Bank's allowance for loan losses with the purchase of
these loans.

TABLE 12 - ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
In thousands
                                                                 Year Ended December 31,
                                           -----------------------------------------------------------------
                                             1997          1996          1995         1994          1993
                                           -----------   ----------    ----------   ----------    ----------
<S>                                          <C>          <C>           <C>          <C>           <C>
Balance, beginning of year                     $4,049       $3,661        $3,482       $3,461        $3,405
Provision charged to expense                      258          600           360          352           958
Loans charged off:
  Commercial, financial and agricultural           74          159           103          228           882
  Consumer                                        231          132           122          233           170
                                           -----------   ----------    ----------   ----------    ----------
  Total loans charged off                         305          291           225          461         1,052
                                           -----------   ----------    ----------   ----------    ----------
Recoveries:
  Commercial, financial and agricultural          129           49            15           95            66
  Consumer                                         36           30            29           35            84
                                           -----------   ----------    ----------   ----------    ----------
  Total recoveries                                165           79            44          130           150
                                           -----------   ----------    ----------   ----------    ----------
  Net charge-offs                                 140          212           181          331           902
                                           -----------   ----------    ----------   ----------    ----------
Transfer of valuation reserve from
  discontinued subsidiary                          80
                                           ----------    ----------    ----------   ----------    ----------
Balance, end of year                           $4,247       $4,049        $3,661       $3,482        $3,461
                                           -----------   ----------    ----------   ----------    ----------
 Total loans:
  Average                                    $347,462     $312,173      $275,960     $219,034      $208,701
  Year-end                                    382,359      319,354       298,025      239,928       208,382
 Ratios:
  Net charge-offs to:
    Average loans                               0.04%        0.07%         0.07%        0.15%         0.43%
    Total loans                                 0.04%        0.07%         0.06%        0.14%         0.43%
    Allowance for loan losses                   3.30%        5.24%         4.94%        9.51%        26.06%
    Provision for loan losses                  54.26%       35.33%        50.28%       94.03%        94.15%
  Allowance for loan losses to:
    Average loans                               1.22%        1.30%         1.33%        1.59%         1.66%
    Loans as of year-end                        1.11%        1.26%         1.23%        1.45%         1.66%
</TABLE>

The allowance for loan losses totaled $4.2 million as of December 31, 1997, an
increase of 4.9% from 1996. The allowance for loan losses as a percentage of
year-end loans was 1.11% as of December 31, 1997 and 1.26% as of December 31,
1996.  The provision for loan losses exceeded net charge-offs by $118,000 in
1997, by $388,000 in 1996 and by $179,000 in 1995.  The allowance for loan
losses as a percentage of non-performing loans was 198.37% as of December 31,
1997 and 366.09% as of December 31, 1996.

Total loans charged-off increased from $225,000 in 1995 to $291,000 in 1996 and
increased to $305,000 in 1997.  Recoveries of loans previously charged-off
increased from $44,000 in 1995 to $79,000 in 1996 and increased to $165,000 in
1997.  The ratio of net charge-offs to average loans was .07% in 1995 and 1996
and decreased to.04% in 1997.





                                       20

<PAGE>
Table 13 presents the allocation of the allowance for loan losses by major loan
category for the past five years.  The specific allocations in any particular
category may prove to be excessive or inadequate to absorb actual future
charge-offs so balances may be reallocated in the future to reflect changing
conditions. Accordingly, the entire allowance is considered available to absorb
losses in any category.

TABLE 13 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                               December 31,
                       ------------------------------------------------------------------------------------------------------------
                              1997                1996                    1995                 1994                    1993
                       --------------------  -------------------   -------------------    -------------------     -----------------
                                     % of                 % of                  % of                   % of                  % of
                        Amount      Loans     Amount     Loans      Amount      Loans      Amount      Loans      Amount    Loans
                       --------    --------  --------   --------   --------    -------    --------    -------    --------  --------
<S>                     <C>          <C>      <C>         <C>       <C>         <C>        <C>         <C>        <C>        <C>
Commercial, financial                                                                                                     
  and agricultural      $2,858        60.3%   $2,835       60.4%    $2,713       56.9%     $2,967       58.0%     $2,888      55.9%
Real estate -                                                                                                             
  construction                         5.8                  2.9                   2.9                    1.0                   3.2
Real estate - mortgage      60        29.2        53       31.2        118       35.0         133       35.7          84      35.2
Consumer                   335         4.7       323        5.5        313        5.2         258        5.3         206       5.7
Unallocated                994                   838                   517                    124                    283  
                       --------    --------  --------   --------   --------    -------    --------    -------    --------  --------
Total                   $4,247       100.0%    $4,049     100.0%     $3,661     100.0%     $3,482      100.0%     $3,461     100.0%
                       --------    --------  --------   --------   --------    -------    --------    -------    --------  --------
</TABLE>

As of December 31, 1997, PennRock's recorded investment in loans considered to
be impaired under Statement of Financial Accounting Standards No. 114 was
$625,000 of which $288,000 were on non-accrual status.  Included in this amount
is $414,000 of impaired loans for which the related allowance is $201,000 and
$211,000 for which there is no related allowance.  The average recorded
investment in impaired loans for 1997 was $692,000 and the interest recognized
for the year was $14,000.

As of December 31, 1996, PennRock's recorded investment in impaired loans was
$740,000 of which $614,000 was on non-accrual status.  Included in this amount
is $732,000 of impaired loans for which the related allowance is $267,000 and
$8,000 for which there is no related allowance.  The average recorded
investment in impaired loans for 1996 was $749,000 and the interest recognized
for the year was $16,000.

LIQUIDITY

The purpose of liquidity management is to ensure that there are sufficient cash
flows available to meet a variety of needs.  These include financial
commitments such as satisfying the credit needs of our borrowers and
withdrawals by our depositors, the ability to capitalize on investment and
business opportunities as they occur, and the funding of PennRock's own
operations.  Liquidity is measured by PennRock's ability to convert assets to
cash at a reasonable cost or a minimum loss.  Maturities and sales of
investment securities (Table 8), loan payments and maturities (Table 10), and
liquidating money market investments such as federal funds sold all provide
liquidity.  In addition, PennRock is a member of the Federal Home Loan Bank of
Pittsburgh which provides a reliable source of long and short-term funds.
However, PennRock's primary source of liquidity lies in our ability to renew,
replace and expand its base of core deposits (consisting of demand, NOW, money
market and cash management accounts, savings accounts, certificates of deposit,
and other time deposits less than $100,000).

Total deposits increased $41.3 million or 9.2% in 1997 compared with $33.5
million or 8.0% in 1996.  Table 14 reflects the changes in the major
classifications of deposits by comparing the year-end balances for the past
five years.  Table 15 reflects the maturity of large dollar deposits.





                                       21

<PAGE>
TABLE 14 - DEPOSITS BY MAJOR CLASSIFICATION

<TABLE>
<CAPTION>
In thousands  
                                                                 December 31,
                                     -----------------------------------------------------------------
                                        1997          1996          1995          1994         1993
                                     -----------   -----------  -----------   -----------  -----------
<S>                                   <C>           <C>          <C>           <C>          <C>
Non-interest bearing deposits          $ 77,106      $ 65,537     $ 57,775      $ 50,405     $ 46,685
NOW accounts                             39,061        41,209       39,942        39,038       39,873
Money market deposit accounts            35,080        34,125       31,227        20,152       24,635
Savings accounts                         57,557        59,977       60,852        66,247       67,661
Time deposits under $100,000            250,364       224,071      208,022       149,784      142,634
                                     -----------   -----------  -----------   -----------  -----------
Total core accounts                     459,168       424,919      397,818       325,626      321,488
Time deposits of $100,000 or more        33,627        26,548       20,111        16,807       20,143
                                     -----------   -----------  -----------   -----------  -----------
Total deposits                         $492,795      $451,467     $417,929      $342,433     $341,631
                                     -----------   -----------  -----------   -----------  -----------
</TABLE>

TABLE 15 - MATURITY OF TIME DEPOSITS OF $100,000 OR MORE


<TABLE>
<CAPTION>
In thousands
                                                       December 31,
                                          -------------------------------------
                                            1997          1996          1995
                                          ---------     ---------    ----------
<S>                                        <C>           <C>          <C>
Three months or less                       $16,857       $10,992       $ 7,774
Over three months through six months         7,226         5,433         3,724
Over six months through twelve months        6,578         5,762         4,682
Over twelve months                           2,966         4,361         3,931
                                          ---------     ---------    ----------
Total                                      $33,627       $26,548       $20,111
                                          ---------     ---------    ----------
</TABLE>

The Bank maintains lines of credit with various correspondent banks to use as
sources of short-term funds in addition to repurchase agreements with bank
customers.  Federal funds purchased and securities sold under agreements to
repurchase decreased from $21.1 million as of December 31, 1996 to $9.3 million
as of December 31, 1997.  The Bank also maintains a line of credit with the
Federal Home Loan Bank of Pittsburgh.  The Bank had $6.5 million in short-term
adjustable rate borrowings as of December 31, 1995 and a $2.0 million
short-term fixed-rate advance as of December 31, 1997.  There were no line
advances outstanding as of December 31, 1996. The level of short-term
borrowings depends on loan growth, deposit growth, current market rates and
other factors.  The average cost of short-term borrowings decreased from 6.16%
in 1995 to 5.46% in 1996 and to 5.23% in 1997.  Table 16 shows PennRock's
short-term borrowings for the five years ended December 31, 1997.

TABLE 16 - SHORT-TERM BORROWINGS


<TABLE>
<CAPTION>
In thousands
                                                                December 31,
                                         ---------------------------------------------------------
                                           1997         1996        1995       1994        1993
                                         ---------   ---------   ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>         <C>
Federal funds purchased and securities
  sold under agreements to repurchase      $9,332     $21,136     $40,579     $13,046     $19,182
Advances from Federal Home Loan Bank        2,000                   6,500      67,604       8,050
U.S. Treasury tax and loan note             1,500         970         397       1,427       1,500
                                         ---------   ---------   ---------   ---------   ---------
Total short-term borrowings               $12,832     $22,106     $47,476     $82,077     $28,732
                                         ---------   ---------   ---------   ---------   ---------
</TABLE>

CAPITAL RESOURCES

On June 24, 1997, PennRock announced that the Board of Directors had authorized
the purchase of up to 200,000 shares of the Company's outstanding common stock.
The shares are to be used for general corporate purposes including stock
dividends and stock splits, executive compensation plans or for issuance under
the dividend reinvestment plan.  The Company began open market repurchases of
its outstanding common stock in 1995.  In 1997, PennRock purchased 42,882
shares for $784,000 and reissued 72,123 shares for PennRock's dividend
reinvestment plan.  In 1996, PennRock purchased 100,083 shares for $1.9 million
and reissued 60,782 shares. PennRock purchased 20,000 shares for $374,000 and
reissued 19,421 shares in 1995.  There were 10,639 shares with a cost of
$205,000 and 39,880 shares with a cost of $740,000 held as treasury stock on
December 31, 1997 and 1996, respectively.





                                       22

<PAGE>
Total stockholders' equity increased $7.5 million or 14.0% in 1997 compared
with an increase of $2.1 million or 4.0% in 1996.  In 1997, stockholders'
equity increased by net income of $7.8 million less dividends of $3.0 million.
The change in net unrealized gains and losses on securities available for sale
increased equity by $2.3 million.  The increase in 1996 was due to net income
of $6.8 million less dividends declared of $2.7 million.  A net unrealized loss
on securities available for sale caused equity to decline by $1.6 million
during 1996.  The increase in 1995 was due to net income of $6.2 million less
dividends declared of $2.5 million and by the change in net unrealized gains on
securities available for sale which increased equity by $6.8 million.  The
ratio of average equity to average assets was 9.34% in 1997, compared with
9.55% for 1996 and 9.00% in 1995.  The ratio of average equity to average
assets net of the SFAS 115 adjustment was 9.46% in 1997, 9.76% in 1996 and
9.62% in 1995.  Internal capital generation is calculated by multiplying return
on average equity by the percentage of earnings retained.  Internal capital
generation amounted to 8.47% in 1997, 7.87% in 1996 and 8.03% in 1995.

Bank and bank holding company minimum regulatory capital requirements have been
revised to make regulatory capital more sensitive to individual differences in
credit risk profiles (including off-balance-sheet risks). Risk based capital is
segregated into two components: Tier 1 capital which includes stockholders'
equity reduced by certain intangibles, and Tier 2 capital which includes the
allowance for loan losses (subject to limitations) and qualifying debt
obligations.  In December 1994, federal banking regulators issued rulings that
excluded the net unrealized holding gains and losses on AFS securities from the
calculation of Tier 1 capital.  Net unrealized losses on marketable equity
securities will continue to be deducted from Tier 1 capital.  The rule has the
effect of valuing AFS securities at amortized cost rather than fair value for
purposes of calculating risk-based and leverage capital ratios.  The minimum
leverage capital requirement is 3% and is determined by dividing Tier 1 capital
by average assets.  Banking organizations must adjust their assets and
off-balance sheet exposures by assigning risk-weighted percentages depending on
regulatory defined credit risks.  Off-balance-sheet assets must be converted to
credit equivalents before being risk weighted. These balances are then added to
determine total risk weighted assets.

As of December 31, 1997, the most recent notification from the Federal Reserve
Bank categorized PennRock as well capitalized under the regulatory framework
for prompt corrective action.  To be categorized as well capitalized, PennRock
must maintain minimum total risk-based capital of 10%, Tier 1 risk-based
capital of 6% and Tier 1 leverage ratios of 5%.  There are no conditions or
events since that notification that management believes have changed this
category.  Table 17 shows PennRock's capital resources for the past three
years.

TABLE 17 - CAPITAL RESOURCES

<TABLE>
<CAPTION>
                                                         December 31,
                                              -----------------------------------
                                                1997         1996          1995
                                              --------     --------     ---------
<S>                                             <C>          <C>           <C>
Leverage ratios:
  Total capital to total average assets         10.46%       10.62%        10.46%
  Tier 1 capital to total average assets         9.75%        9.88%         9.75%
Risk-based ratios:
  Common stockholders' equity to risk
    weighted assets                             13.76%       14.96%        16.37%
  Tier 1 capital to risk-weighted assets        13.26%       14.95%        15.81%
  Total capital to risk-weighted assets         14.22%       16.08%        16.97%
</TABLE>

INTEREST RATE RISK

Information regarding interest rate risk may be found in Item 7A on pages 24
through 26 of this Annual Report under the caption "Quantitative and
Qualitative Disclosures about Market Risk."

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share."  This statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15 ("APB 15"), "Earnings Per Share,"
and makes them comparable to international EPS standards.  Basic EPS (formerly
primary EPS) excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock





                                       23

<PAGE>
that then shared in the earnings of the entity.  Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB 15.  SFAS 128 is effective for
financial statements ending after December 15, 1997, and requires restatement
of all prior period EPS data presented.  Accordingly, PennRock adopted the
provisions of SFAS 128 as of December 31, 1997.  There was no impact on the
presentation of per share earnings in the Consolidated Statements of Income
because basic earnings per share and diluted earnings per share are the same
for 1997, 1996 and 1995.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires that an enterprise report, by major components and as a single
total, the change in its net assets from transactions and economic events
during the period other than transactions with owners.  Comprehensive income is
the total of net income and all other non-owner changes in equity.  The
Statement is effective for years beginning after December 15, 1997 with earlier
application permitted.

In July 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information."  SFAS 131 introduces a new model for
segment reporting entitled the "management approach," which focuses on the
manner in which the chief decision makers organize segments within a company
for making operating decisions and assessing performance.  Under the management
approach, reportable segments can be based upon its products, services,
geographic areas, major customers and legal or management structure.  SFAS 131
is effective for fiscal years beginning after December 15, 1997 with earlier
application permitted.  Adoption of SFAS 130 and SFAS 131 will not impact
PennRock's consolidated financial position, results of operations or cash
flows, and any effect will be limited to the form and content of its
disclosures.

YEAR 2000 COMPLIANCE

During 1997, we formed a committee with a goal of ensuring that all of the
Company's operational and financial systems will not be adversely affected by
year 2000 software problems.  The committee is comprised of members from loan
and deposit operations, branch administration, trust services, security, audit
and senior management.  The Board of Directors and senior management are
supporting all compliance efforts and are allocating the necessary resources to
complete the project within the timeframe established by the committee and bank
regulators.  An inventory of all systems, software and outside service
providers that could be affected by the year 2000 date change has been
developed and categorized as to importance to the Company in its ability to
continue normal operations.  All software used for the Company's systems is
supplied by software vendors or outside service providers.  We are requiring
all software vendors and outside service providers to represent that the
products or services they provide are or will be year 2000 compliant, beginning
with those processes identified as the most critical.  We are also requesting
information from them on testing procedures so that we may verify compliance.
Alternative sources will be identified for those vendors or service providers
that will not be year 2000 compliant within the timeframe established.  We do
not expect the costs of evaluating and testing the Company's systems for year
2000 compliance to have a material effect on the Company's financial condition,
results of operations or liquidity.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. We manage credit risk by relying on strict
credit standards, loan review and adequate loan loss reserves. Interest rate
risk refers to PennRock's degree of exposure to loss of earnings and market
value of equity resulting from changes in market interest rates.  The magnitude
of this exposure depends on the severity and timing of the market rate changes
and on our ability to adjust.  The Company's Asset Liability Management
Committee ("the ALCO") addresses this risk.  The senior management team
comprises the ALCO.  The ALCO monitors interest rate risk by modeling the
estimated changes in net value of portfolio equity ("NVPE") and net interest
income under various interest rate scenarios.  The NVPE is the present value of
expected future cash flows from assets and liabilities.  The ALCO attempts to
manage the various components of the Company's balance sheet to minimize the
impact of sudden and sustained changes in interest rates on NVPE and net
interest income.  However, the ALCO may sometimes structure the balance sheet
to take advantage of expected interest rate movements.

The Company's exposure to interest rate risk is reviewed on a monthly basis by
the Board of Directors and the ALCO.  Interest rate risk exposure is measured
using interest rate sensitivity analysis to determine the Company's change in
net interest income and NVPE in the event of hypothetical changes in interest
rates.  If potential changes to NVPE and net interest income resulting from
hypothetical interest rate swings are not within the limits established by the
Board, the Board may direct management to adjust its asset and liability mix to
bring interest rate risk within Board-approved limits.





                                       24

<PAGE>
The mismatch of maturities of assets and liabilities within a specific time
frame is referred to as a rate sensitivity gap.  If more assets than
liabilities mature or reprice within the time frame, the Company is asset
sensitive.  If more liabilities mature or reprice, the Company is liability
sensitive.  An asset sensitive gap will benefit the Company in a period of
rising rates while a liability sensitive gap will benefit the Company during
declining rates.  Gap analysis has certain limitations.  For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates.  Some types of financial instruments are very sensitive to changes in
market rates while others may lag behind such changes.  Certain assets such as
adjustable-rate loans have limits on the amount of change in interest rates in
the short-term and over the life of the loan.  Further, changes in interest
rates may trigger prepayments of loans or early withdrawals of time deposits
which would likely deviate significantly from the assumptions used in
calculating changes in net interest income or NVPE.  While ALCO continuously
monitors and adjusts the gap position to maximize profitability, the primary
objective is to maintain net interest income and NVPE within self-imposed
parameters for a wide range of possible changes in interest rates.  The
following table presents an interest sensitivity analysis of PennRock's assets
and liabilities as of December 31, 1997.

INTEREST SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
In thousands   
                                                            December 31, 1997
                                   -----------------------------------------------------------------------------------
                                                        Interest Sensitivity Period
                                   -----------------------------------------------------------------------------------
                                                     More                                    Due after
                                                    than 3       More than     More than     5 Years or
                                    Less than     Months to      6 Months      1 Year to      Not Rate
                                    3 Months       6 Months      to 1 Year      5 Years      Sensitive        Total
                                   ----------- -------------- ------------  ------------- ---------------  -----------
<S>                                <C>          <C>            <C>          <C>           <C>              <C>
Earning assets:
 Short-term investments              $  1,054       $              $            $             $              $  1,054
 Weighted average interest rate          5.49%                                                                   5.49%
 Mortgages held for sale                1,036                                                                   1,036
 Weighted average interest rate          6.25%                                                                   6.25%
 Securities available for sale         39,212        10,684         27,641        66,658        80,213        224,408
 Weighted average interest rate          6.42%         6.07%          6.69%         6.62%         7.87%          7.03%
 Loans                                 66,366        17,628         26,045       127,573       144,747        382,359
 Weighted average interest rate          8.97%         8.87%          8.70%         8.11%         7.70%          8.20%
                                   ----------- -------------  ------------- ------------- -------------    -----------
 Total interest earning assets       $107,668       $28,312        $53,686      $194,231      $224,960       $608,857
                                   ----------- -------------  ------------- ------------- -------------    -----------
Interest bearing liabilities:
 Interest bearing demand
   deposits (1)                      $  3,119       $ 3,119        $ 6,239      $ 12,477      $ 49,186       $ 74,140
 Weighted average interest rate          3.41%         3.41%          3.41%         3.41%         2.18%          2.60%
 Savings deposits (2)                     719           719          1,439         2,878        51,802         57,557
 Weighted average interest rate          2.22%         2.22%          2.22%         2.22%         2.22%          2.22%
 Time deposits                        123,225        72,480         47,117        41,050           119        283,991
 Weighted average interest rate          5.40%         5.59%          5.41%         5.78%         5.20%          5.51%
 Short-term borrowings                 10,832                        2,000                                     12,832
 Weighted average interest rate          4.74%                        6.36%                                      4.99%
 Long-term debt                         1,300                          700        75,000                       77,000
 Weighted average interest rate          5.83%                        5.37%         5.70%                        5.70%
                                   ----------- -------------  ------------- ------------- -------------    -----------
 Total interest bearing              
  liabilities                        $139,195       $76,318        $57,495      $131,405      $101,107       $505,520
                                   ----------- -------------  ------------- ------------- -------------    -----------
Interest sensitivity gap:
 Period                              ($31,527)     ($48,006)      ($ 3,809)      $62,826      $123,853
 Cumulative                           (31,527)      (79,533)       (83,342)      (20,516)      103,337
Interest sensitive assets to
 interest sensitive liabilities 
 ratio:
 Period                                 77.35%        37.10%         93.38%       147.81%       222.50%
 Cumulative                             77.35%        63.10%         69.47%        94.93%       120.44%
</TABLE>

(1) Assumes NOW account balances are withdrawn at 5% per year and money market
    deposits account balances are withdrawn at 30% per year based on prior
    experience.
(2) Assumes passbook and statement savings balances are withdrawn at 5% per
    year.





                                       25

<PAGE>
While the preceding table presented above helps provide some information about
the Company's interest sensitivity, it does not predict the trends of future
earnings.  For this reason, we use financial modeling to forecast earnings
under different interest rate projections.  Interest rate sensitivity analysis
is used to measure the Company's interest rate risk by computing estimated
changes in NVPE of its cash flows from assets and liabilities in the event of
assumed changes in market interest rates.  This analysis assesses the risk of
loss in market rate sensitive instruments in the event of sudden and sustained
increases and decreases in market interest rates of 100 and 200 basis points.
The Company's Board of Directors has adopted an interest rate risk policy which
establishes maximum decrease in the NVPE and net interest income in the event
of a sudden and sustained increase or decrease in market interest rates of 200
basis points.  The following tables present the Company's projected change in
NVPE and net interest income for 100 and 200 basis point rate shocks as of
December 31, 1997 and the Board's established limit.  NVPE values and impact on
net interest income relate to the Bank only.  The assets and liabilities at the
parent company level are not considered in this analysis.  The exclusion of
holding company assets and liabilities does not have a significant effect on
the analysis of NVPE sensitivity.

CHANGES IN NET PORTFOLIO VALUE

<TABLE>
<CAPTION>
In thousands
                             Net Value of      Computed     Percent     Board
Change in Interest Rates   Portfolio Equity     Change       Change     Limit
-------------------------  ----------------  ------------  ---------  ------------
<S>                        <C>               <C>           <C>        <C>
200 basis point rise             $39,765       ($16,914)     (29.8%)    (25.0%)
100 basis point rise              46,507        (10,172)     (18.0%)
Base rate scenario                56,679
100 basis point decline           60,834          4,155       7.33%
200 basis point decline           68,263         11,584      20.44%     (25.0%)
</TABLE>

CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
In thousands
                            Net Interest    Computed      Percent      Board
Change in Interest Rates      Income         Change       Change       Limit
-------------------------   ------------  ------------  -----------  ----------
<S>                         <C>            C>            <C>          <C>    
200 basis point rise           $25,429        $2,016         8.61%      (10.0%)
100 basis point rise            24,846         1,433         6.12%                
Base rate scenario              23,413                                               
100 basis point decline         23,697           283         1.21%                
200 basis point decline         23,196          (218)       (0.93%)     (10.0%)
</TABLE>

The preceding table indicates that as of December 31, 1997, in the event of a
sudden and sustained increase in prevailing market interest rates, the
Company's NVPE would be expected to decrease while its net interest income
would be expected to increase.  At December 31, 1997, the Company's estimated
change in NVPE given a 200 basis point rise in interest rates was above the
target established by the Board of Directors while the estimated change in net
interest income is within target limits.

Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments, and deposit decay, and should not be relied upon as
indicative of actual future results.  Further, the computations do not
contemplate any actions the ALCO could take to mitigate any negative effects of
changes in interest rates.





                                       26

<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following audited consolidated financial statements are set forth in this
Annual Report of Form 10-K on the following pages:

<TABLE>
<S>                                                                     <C>
PennRock Financial Services Corp. and Subsidiaries
  Independent Auditors' Report   . . . . . . . . . . .  . . . . . . . .   27
  Consolidated Balance Sheets  . . . . . . . . . . . .  . . . . . . . .   28
  Consolidated Statements of Income  . . . . . . . . .  . . . . . . . .   29
  Consolidated Statements of Stockholders' Equity  . .  . . . . . . . .   30
  Consolidated Statements of Cash Flows  . . . . . . .  . . . . . . . .   31
  Notes to Consolidated Financial Statements   . . . .  . . . . . . . .   32
</TABLE>


INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of PennRock Financial Services Corp.


We have audited the accompanying consolidated balance sheets of PennRock
Financial Services Corp. and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of PennRock's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PennRock Financial Services Corp. and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.

As more fully discussed in Note 2, during 1997, the Company discontinued the
operations of Blue Ball National Bank's mortgage subsidiary, Atlantic Regional
Mortgage Corporation.


                                            /S/    SIMON LEVER & COMPANY
January 30, 1998
Lancaster, Pennsylvania





                                       27

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

             

<TABLE>
<CAPTION>
In thousands
                                                                         December 31,
                                                                  -------------------------
ASSETS                                                                1997          1996
                                                                  -----------   -----------
<S>                                                                <C>           <C>
Cash and due from banks                                             $ 21,075      $ 16,405
Short-term investments                                                 1,054         1,244
Mortgages held for sale                                                1,036         5,690
Securities available for sale (at fair value)                        224,408       186,026

Loans (net of unearned income of $22,000 and $50,000)                382,359       319,354
  Allowance for loan losses                                           (4,247)       (4,049)
                                                                  -----------   -----------
  Net loans                                                          378,112       315,305
Premises and equipment                                                12,654        10,662
Accrued interest receivable                                            3,794         3,333
Other assets                                                           6,956         8,938
                                                                  -----------   -----------
Total assets                                                        $649,089      $547,603
                                                                  -----------   -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits:
    Non-interest bearing                                            $ 77,106      $ 65,537
    Interest bearing                                                 415,689       385,930
                                                                  -----------   -----------
    Total deposits                                                   492,795       451,467
  Short-term borrowings                                               12,832        22,106
  Long-term debt                                                      77,000        14,000
  Accrued interest payable                                             3,158         2,758
  Other liabilities                                                    2,037         3,543
                                                                  -----------   -----------
  Total liabilities                                                  587,822       493,874
Stockholders' Equity:
  Common stock, par value $2.50 per share; authorized
    20,000,000 shares; issued 6,077,299 shares                        15,193        15,193
  Surplus                                                             11,118        11,153
  Unrealized gains (losses) on securities available for
    sale, net of deferred taxes                                        1,457          (816)
  Retained earnings                                                   33,704        28,939
  Treasury stock at cost (10,639 and 39,880 shares)                     (205)         (740)
                                                                  -----------   -----------
  Total stockholders' equity                                          61,267        53,729
                                                                  -----------   -----------
Total liabilities and stockholders' equity                          $649,089      $547,603
                                                                  -----------   -----------
</TABLE>

See notes to consolidated financial statements.





                                       28

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME


                                                     

<TABLE>
<CAPTION>
In thousands, except per share data
                                                                         Year Ended December 31,         
                                                                 ---------------------------------------
                                                                   1997           1996           1995    
                                                                 ----------     ---------      ---------
<S>                                                                <C>           <C>            <C>      
Interest income:                                                                                         
  Interest and fees on loans                                       $32,218       $28,592        $25,755  
  Securities available for sale:                                                                         
    Taxable                                                          8,282         9,327         10,660  
    Tax-exempt                                                       3,427         2,443          1,746  
  Mortgages held for sale                                               64           126            217  
  Other                                                              1,627           111             26  
                                                                 ----------     ---------      ---------
  Total interest income                                             45,618        40,599         38,404  
                                                                 ----------     ---------      ---------
Interest expense:                                                                                        
  Deposits                                                          17,632        15,784         15,786  
  Short-term borrowings                                              1,390         2,709          3,015  
  Long-term debt                                                     2,856           423            592  
                                                                 ----------     ---------      ---------
  Total interest expense                                            21,878        18,916         19,393  
                                                                 ----------     ---------      ---------
  Net interest income                                               23,740        21,683         19,011  
Provision for loan losses                                              258           600            360  
                                                                 ----------     ---------      ---------
Net interest income after provision for loan losses                 23,482        21,083         18,651  
                                                                 ----------     ---------      ---------
Non-interest income:                                                                                     
  Service charges on deposit accounts                                1,337         1,142          1,014  
  Other service charges and fees                                        95            97             48  
  Fiduciary activities                                                 804           700            589  
  Net realized gains on sales of available for sale securities       1,493         1,172            647  
  Mortgage banking                                                     491           382            632  
  Other                                                                885           370            269  
                                                                 ----------     ---------      ---------
  Total non-interest income                                          5,105         3,863          3,199  
                                                                 ----------     ---------      ---------
Non-interest expenses:                                                                                   
  Salaries and benefits                                              8,961         8,172          7,432  
  Occupancy, net                                                     1,279         1,208          1,008  
  Equipment depreciation and service                                 1,166         1,214          1,020  
  Computer software expense                                          1,668           861            740  
  Other                                                              3,591         3,270          3,320  
                                                                 ----------     ---------      ---------
  Total non-interest expense                                        16,665        14,725         13,520  
                                                                 ----------     ---------      ---------
Income from continuing operations before income taxes               11,922        10,221          8,330  
Income taxes applicable to continuing operations                     2,607         2,613          2,148  
                                                                 ----------     ---------      ---------
Income from continuing operations                                    9,315         7,608          6,182  
Discontinued operations:                                                                                 
 Loss from operations of discontinued subsidiary (net of                                                 
  income tax benefit of $777 and $413)                              (1,555)         (801)                
                                                                 ----------     ---------      ---------
Net income                                                         $ 7,760       $ 6,807        $ 6,182  
                                                                 ----------     ---------      ---------
Earnings per common share:                                                                               
 Income from continuing operations (net of tax)                      $1.54         $1.25          $1.02  
 Loss from discontinued operations (net of tax)                       (.26)         (.13)                
                                                                 ----------     ---------      ---------
 Net income                                                          $1.28         $1.12          $1.02  
                                                                 ----------     ---------      ---------
Weighted average number of shares outstanding                    6,062,449     6,068,639      6,048,503 
                                                                 ----------     ---------      ---------
</TABLE>


Basic earnings per share and diluted earnings per share are the same for 1997,
1996 and 1995.

See notes to consolidated financial statements.





                                       29

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                        

<TABLE>
<CAPTION>
In thousands
                                                                             Net Unrealized
                                                                             Gains (Losses)          Total
                                    Common              Retained  Treasury    on Securities       Stockholders'
                                    Stock     Surplus   Earnings    Stock     Available for Sale    Equity
                                 ------------------------------------------------------------------------------
 <S>                               <C>      <C>         <C>        <C>           <C>                 <C>
 Balance as of January 1, 1995     $15,015    $ 9,774   $21,152    $             ($ 6,038)          $39,903
 Net income                                               6,182                                       6,182
 Change in net unrealized gains
   and losses on securities
   available for sale, net of tax                                                   6,807             6,807
 Acquisition of treasury stock                                        (374)                            (374)
 Sale of treasury stock under
   dividend reinvestment plan                       1                  363                              364
 Shares issued under dividend
   reinvestment plan                    142     1,130                                                 1,272
 Cash dividends declared
   ($.41 per share)                                      (2,480)                                     (2,480)
                                 ---------------------------------------------------------------------------
 Balance as of December 31, 1995     15,157    10,905    24,854        (11)           769            51,674
 Net income                                               6,807                                       6,807
 Change in net unrealized gains
   and losses on securities
   available for sale, net of tax                                                  (1,585)           (1,585)
 Acquisition of treasury stock                                      (1,852)                          (1,852)
 Sale of treasury stock under
   dividend reinvestment plan                      55                1,101                            1,156
 Sale of treasury stock under
   Omnibus Stock Option Plan                       (9)                  22                               13
 Shares issued under dividend
   reinvestment plan                     36       202                                                   238
 Cash dividends declared
   ($.45 per share)                                      (2,722)                                     (2,722)
                                 ---------------------------------------------------------------------------
 Balance as of December 31, 1996     15,193    11,153    28,939       (740)          (816)           53,729
 Net income                                               7,760                                       7,760
 Change in net unrealized gains
   and losses on securities
   available for sale, net of tax                                                   2,273             2,273
 Acquisition of treasury stock                                        (784)                            (784)
 Sale of treasury stock under
   dividend reinvestment plan                     (35)      (25)     1,319                            1,259
 Cash dividends declared
   ($.49 per share)                                      (2,970)                                     (2,970)
                                    ------------------------------------------------------------------------
 Balance as of December 31, 1997    $15,193   $11,118   $33,704    ($  205)        $1,457           $61,267
                                    ------------------------------------------------------------------------
</TABLE>


See notes to consolidated financial statements.





                                       30

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

             

<TABLE>
<CAPTION>
In thousands
                                                                                                   Year Ended December 31,
                                                                                      ----------------------------------------------
                                                                                        1997              1996              1995
                                                                                      ----------        ----------       -----------
 <S>                                                                                   <C>               <C>               <C>    
 OPERATING ACTIVITIES:
   Income from continuing operations:                                                  $  9,315          $  7,608          $  6,182
   Adjustments to reconcile income from continuing operations
     to net cash provided by operating activities:
     Provision for loan losses                                                              258               600               360
     Depreciation and amortization                                                        1,065               963               861
     Amortization of deposit premium                                                        105               107                98
     Premium on deposits sold                                                              (300)
     Accretion and amortization of securities                                              (379)              135               317
     Deferred income taxes                                                                  104                76                18
     Net realized gains on sale of available for sale securities                         (1,493)           (1,172)             (647)
     Proceeds from sales of mortgage loans                                               24,143            28,091            26,232
     Originations of mortgages held for sale                                            (24,139)          (27,019)          (27,273)
     (Gain) loss on sale of mortgage loans, net                                             119               141               (90)
     Loss on sale of equipment                                                              161
     Increase in interest receivable                                                       (465)              (64)             (338)
     Increase in interest payable                                                           400               265               677
     Other changes, net                                                                  (2,742)             (978)           (2,900)
                                                                                      ----------        ----------       -----------
   Net cash provided by operating activities of continuing operations                     6,152             8,753             3,497
   Net cash (used in) provided by discontinued operations                                 5,290            (5,290)
                                                                                      ----------        ----------       -----------
   Net cash provided by operations                                                       11,442             3,463             3,497
                                                                                      ----------        ----------       -----------

 INVESTING ACTIVITIES:
   Proceeds from sales of securities available for sale                                 119,243            77,025            65,045
   Purchases of securities available for sale                                          (172,934)          (78,358)          (56,395)
   Purchases of investment securities                                                                                        (1,319)
   Maturities of securities available for sale                                           20,625             9,974            13,266
   Maturities of investment securities                                                                                        2,000
   Proceeds from sale of other real estate                                                  150               451             1,340
   Net increase in loans                                                                (63,064)          (21,541)          (58,097)
   Purchases of premises and equipment                                                   (3,618)           (2,193)           (3,161)
   Proceeds from sale of equipment                                                           79
                                                                                      ----------        ----------       -----------
   Net cash used in investing activities                                                (99,519)          (14,642)          (37,321)
                                                                                      ----------        ----------       -----------

 FINANCING ACTIVITIES:
   Net increase in non-interest bearing deposits                                         11,569             7,762             7,370
   Net increase in interest bearing deposits                                             29,759            25,776            68,126
   Net decrease in short-term borrowings                                                 (9,274)          (25,370)          (34,601)
   Net increase (decrease) in long-term debt                                             63,000             5,000            (1,500)
   Issuance of common and treasury stock                                                  1,257             1,407             1,635
   Acquisition of treasury stock                                                           (784)           (1,852)             (374)
   Cash dividends                                                                        (2,970)           (2,722)           (2,480)
                                                                                      ----------        ----------       -----------
   Net cash provided by financing activities                                             92,557            10,001            38,176
                                                                                      ----------        ----------       -----------
   Increase (decrease) in cash and cash equivalents                                       4,480            (1,178)            4,352
   Cash and cash equivalents at beginning of year                                        17,649            18,827            14,475
                                                                                      ----------        ----------       -----------
   Cash and cash equivalents at end of year                                             $22,129           $17,649           $18,827
                                                                                      ----------        ----------       -----------
 Supplemental schedule of interest and income taxes paid:
   Total interest paid                                                                  $21,458           $18,637           $18,716
   Total income taxes paid                                                                1,200             2,725             2,377
</TABLE>

See notes to consolidated financial statements.





                                       31

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant accounting policies of
PennRock Financial Services Corp. and its subsidiaries.

BUSINESS:
PennRock Financial Services Corp. ("PennRock" or the "Company") is a bank
holding company incorporated under the laws of Pennsylvania in 1986.  Blue Ball
National Bank (the "Bank"), a wholly owned subsidiary of PennRock, provides a
broad range of banking, trust and other financial services to consumers, small
businesses and corporations in south-central and southeastern Pennsylvania.  As
discussed in Note 2, the Bank's mortgage banking subsidiary, Atlantic Regional
Mortgage Corporation ("ARMCO") was closed in 1997.

BASIS OF PRESENTATION:
The consolidated financial statements of PennRock include the accounts of
PennRock and its subsidiaries.  All significant intercompany balances and
transactions have been eliminated.

The accounting and reporting policies of PennRock and its subsidiaries conform
to generally accepted accounting principles and to general practices within the
banking industry.  In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses during the reporting period.  Actual results could differ
significantly from those estimates.  Certain prior year amounts have been
reclassified to conform with current year classifications.  Such
reclassifications had no effect on net income or stockholders' equity.

As discussed more thoroughly in Note 2, for years ending December 31, 1997 and
1996, the Consolidated Statements of Income reflect the operating results of
ARMCO as discontinued operations.

CASH EQUIVALENTS:
For purposes of the Consolidated Statements of Cash Flows, PennRock defines
cash equivalents to include amounts due from banks, federal funds sold and
other short-term investments.  Generally, federal funds are purchased and sold
for one-day periods.

MORTGAGES HELD FOR SALE:
Mortgages held for sale are carried at the lower of aggregate cost or market
value with market determined on the basis of open commitments for committed
loans.  For uncommitted loans, market is determined on the basis of current
delivery prices in the secondary mortgage market.  Any resulting unrealized
losses are included in other income.

SECURITIES:
Securities are classified at the time of purchase, based on management's
intention, in one of three categories and are accounted for as follows:

INVESTMENT SECURITIES:
Debt securities are classified as investments if management has both the
positive intent and ability to hold these securities to maturity regardless of
changes in market conditions, liquidity needs or changes in general economic
conditions.  These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.

SECURITIES AVAILABLE FOR SALE:
Debt securities are classified as available for sale if management intends to
hold these securities for an indefinite period of time but not necessarily to
maturity.  All equity securities are classified as available for sale.  Any
decision to sell a security classified as available for sale would be based on
various factors, including significant movements in interest rates, changes in
maturity mix of PennRock's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors.  Securities available for
sale are carried at fair value.  Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related deferred tax
effect.





                                       32

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

TRADING SECURITIES:
Trading securities, which are generally held for the short term, usually under
30 days, in anticipation of market gains, are carried at fair value.  Realized
and unrealized gains and losses on trading account assets are included in
interest income on trading account securities.

A decline in the market value of any investment or available for sale security
below cost that is deemed to be other than temporary is charged to income
resulting in the establishment of a new cost basis for the security.

Purchase premiums and discounts on securities are amortized and accreted to
interest income using a method, which approximates a level yield over the
period to maturity of the related securities.  Purchase premiums and discounts
on mortgage-backed securities are amortized and accreted to interest income
using a method which approximates a level yield over the remaining lives of the
securities, taking into consideration assumed prepayment patterns.  Interest
and dividend income are recognized when earned.  Realized gains and losses for
securities are included in income and are derived using the specific
identification method for determining the costs of securities sold.

LOANS:
Loans are carried at the principal amount outstanding, net of unearned income
reduced by any charge-offs or specific valuation accounts.  Interest income is
accounted for on an accrual basis.  Loan fees, net of certain origination costs
are deferred and amortized over the lives of the underlying loans using a
method, which approximates a level yield.  Interest income is generally not
accrued when, in the opinion of management, its full collectibility is doubtful
or when the loan becomes past due 90 days as to principal or interest.  When a
loan is designated as non-accrual, any accrued interest receivable is charged
against current earnings.

Effective January 1, 1995, PennRock adopted Statement of Financial Accounting
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a
Loan," as amended.  SFAS 114 requires loans to be measured for impairment when
it is probable that all amounts, including principal and interest, will not be
collected in accordance with the contractual terms of the loan agreement.  The
amount of impairment and any subsequent changes are recorded as an adjustment
to the allowance for loan losses.  SFAS 114 applies to all loans, both
collateralized and uncollateralized, except for large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment, loans held
for sale and debt securities.  PennRock evaluates a loan for impairment when
the loan is internally classified as substandard or doubtful.  All non-accrual
loans not meeting the definition of smaller balance homogeneous loans are
considered impaired.  As required by SFAS 114, PennRock generally measures
impairment based upon the present value of the loan's expected future cash
flows, except where foreclosure or liquidation is probable or when the primary
source of repayment is provided by real estate collateral.  In these
circumstances, impairment is based upon the fair value of the collateral.
Impairment with regard to substantially all of PennRock's impaired loans has
been measured by the fair value of the underlying collateral.  Prior to 1995,
losses related to these loans were estimated based on undiscounted cash flows
or the fair value of the underlying collateral.

ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb potential losses in the loan portfolio.  Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current domestic economic conditions,
volume, growth and composition of the loan portfolio, and other relevant
factors.  This evaluation is inherently subjective as it requires material
estimates, including the amounts and timing of expected future cash flows on
impaired loans, which may be susceptible to significant change.  The allowance
for loan losses on impaired loans pursuant to SFAS 114 is one component of the
methodology for determining the allowance for loan losses. Other components of
the allowance for loan losses include estimated losses on specific commercial,
consumer and real estate loans and general amounts based on historical loss
experience.  Loan losses are charged directly against the allowance for loan
losses, and recoveries on previously charged off loans are added to the
allowance.  The allowance is increased by provisions for loan losses charged
against income.

OTHER REAL ESTATE OWNED:
Other real estate owned represents properties acquired through customers' loan
defaults.  When properties are acquired through foreclosure, any excess of the
loan balance at the time of foreclosure over the fair value of the real estate
held as collateral is recognized as a loss and charged to the allowance for
loan losses. After foreclosure, other





                                       33

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

real estate is reported at the lower of fair value at acquisition date or fair
value less estimated disposal costs.  Fair value is determined on the basis of
current appraisals obtained from independent sources. Subsequent write-downs
are charged to an allowance for other real estate established through
provisions for other real estate expenses.  Costs of improvements to other real
estate are capitalized while costs associated with holding other real estate
are charged to operations.  Other real estate owned is recorded as other assets
in the consolidated balance sheet.

PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on straight line and accelerated methods based on the
estimated useful life of the assets.  When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income for the period.
Maintenance, repairs, and minor improvements are expensed as incurred.
Significant renewals and betterments are capitalized.

MORTGAGE SERVICING RIGHTS:
Effective January 1, 1996, PennRock adopted Statement of Financial Accounting
Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65" on a prospective basis as required by the
standard.  SFAS 122 requires mortgage loan servicing rights ("MSR's") be
capitalized when acquired either through the purchase or origination of
mortgage loans that are subsequently sold with servicing rights retained.  SFAS
122 provides for the recognition of MSR's retained for loans sold by allocating
total costs incurred between the loan and the servicing rights based on their
relative fair values.  MSR's are amortized in proportion to, and over the
period of, estimated net servicing income.  To determine the fair value of
MSR's, PennRock estimates the present value of future cash flows, incorporating
numerous assumptions including servicing income, cost of servicing, discount
rates, prepayment speeds and default rates.

SFAS 122 also requires establishment of a valuation allowance for the excess of
the carrying amount of capitalized MSR's over estimated fair value.  The amount
of impairment recognized is the amount by which the capitalized mortgage
servicing rights exceed their fair value.  For purposes of measuring
impairment, the rights are stratified based on the predominant risk
characteristics of the underlying loans including loan type, amortization type
(fixed or adjustable) and note rate.  Fair values in excess of the carrying
amount of capitalized MSR's are not recognized.  Fair values are estimated
considering market prices for similar mortgage servicing rights and the
discounted future net cash flows considering loan prepayment expectations,
historical prepayment rates, interest rates and other economic factors.  The
valuation allowance may be adjusted as the value of the MSR's increase or
decrease over time.  The cost of the MSR's is amortized over the estimated
period of net servicing revenues.  The adoption of SFAS 122 did not have a
material effect on the Company's financial condition or results of operations.

On January 1, 1997, the Company adopted SFAS No. 125 ("SFAS 125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," as amended by Statement of Financial Accounting Standards No.127
("SFAS 127"), "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125 - An Amendment of FASB Statement No. 125."  SFAS 125, which
supersedes SFAS 122, provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control of the asset or liability.  It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.  Under the
financial-components approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it
has incurred and ceases recognition of financial assets it no longer controls
and liabilities that have been extinguished.  The financial-components approach
focuses on the assets and liabilities that exist after the transfer.  Many of
these assets and liabilities are components of financial assets that existed
prior to the transfer.  If a transfer does not meet the criteria for a sale,
the transfer is accounted for as a secured borrowing with a pledge of
collateral.

SFAS 125 extends the "available for sale" or "trading" approach in SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities," to
non-security financial assets that can contractually be prepaid or otherwise
settled in such a way that the holder of the asset would not recover
substantially all of its recorded investment.  Thus, non-security financial
assets (no matter how acquired) that are subject to prepayment risk that could
prevent recovery of substantially all of the recorded amount are to be reported
at fair value with the change in fair value accounted for depending on the
asset's classification as "available-for-sale" or "trading."  SFAS 125 also
amends SFAS 115 to





                                       34

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

prevent a security from being classified as "held-to-maturity" if the security
can be prepaid or otherwise settled in such a way that the holder of the
security would not recover all of its recorded investment.

SFAS 125 requires that a liability cease to be recognized if and only if either
(a) the debtor pays the creditor and is relieved of its obligation for the
liability or (b) the debtor is legally released from being the primary obligor
under the liability either judicially or by the creditor.

SFAS 125 is effective for transfers of financial assets and extinguishments of
liabilities occurring after December 31, 1996, except that, as provided by SFAS
127, the rules governing securities lending, repurchase and dollar repurchase
agreements and the recognition of collateral will not be adopted until January
1, 1998. The extension of the SFAS 115 approach to certain non-security
financial assets and the amendment to SFAS 115 is effective for financial
assets held on or acquired after January 1, 1997.  The adoption of SFAS 125 did
not have a material effect on PennRock's financial statements or the results of
operations.  The adoption of delayed provision of SFAS 125 is not expected to
have a material impact on the Company's financial condition or results of
operations.

DEPOSIT PREMIUM:
The deposit premium is the excess of the value of deposit liabilities over cash
received for the assumption of those liabilities for branch offices acquired
through business combinations that are recorded using the purchase method of
accounting.  Included in other assets are $708,000 and $863,000 of deposit
premiums as of December 31, 1997 and 1996 respectively.  This premium is being
amortized using the straight-line method over 10 years.

LONG-LIVED ASSETS:
On January 1, 1996, PennRock adopted the provisions of Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".  SFAS 121
provides guidance for recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles and goodwill related to both assets to
be held and used and assets to be disposed of.

Long-lived assets and certain intangibles to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable.  When required, impairment
losses on assets to be held and used are recognized based on the fair-value of
the asset and long-lived assets to be disposed of are reported at the lower of
carrying amount or fair-value less cost to sell. Adoption of SFAS 121 did not
have a material effect on PennRock's financial position and results of
operations.

TRUST ASSETS:
Assets held by the Bank in a fiduciary or agency capacity are not included in
the consolidated financial statements since such assets are not assets of the
Bank.  In accordance with banking industry practice, income from fiduciary
activities is generally recognized on a cash basis which is not significantly
different from amounts that would have been recognized on the accrual basis.

FEDERAL INCOME TAXES:
Income taxes are accounted for under the liability method.  Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period the change is enacted.

TREASURY STOCK:
The purchase of Company's treasury stock is recorded at cost.  At the date of
subsequent reissue, the treasury stock account is reduced by the cost of such
stock on a first-in, first-out method.

PROFIT SHARING PLAN:
Profit sharing contributions are calculated by a formula approved by the Board
of Directors and are based on the Bank's return on equity.  Costs are funded as
accrued.





                                       35

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which establishes a fair value method of accounting
for stock options and other stock-based compensation arrangements with
employees.  Under this method, the fair value of a stock option is recognized
as compensation expense over the service period (generally the vesting period).
SFAS 123 requires that if a company continues to account for stock options
under the intrinsic method established by APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees," it must provide pro forma net
income and earnings per share information as if the new fair value approach had
been adopted.  The recognition provisions of SFAS 123 may be adopted upon
issuance.  The disclosure provisions are effective for years beginning after
December 15, 1995.  The pro forma disclosures are to include the effects of all
awards granted in 1995 and later years.  PennRock adopted the provisions of
SFAS 123 on January 1, 1996.  However, PennRock will continue to account for
stock-based compensation under APB 25 and related Interpretations.  Adoption of
SFAS 123 did not have a material impact on PennRock's consolidated financial
statements.

NET INCOME PER SHARE:
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share."  This statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15 ("APB 15"), "Earnings Per Share,"
and makes them comparable to international EPS standards.  Basic EPS (formerly
primary EPS) excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.  Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB 15.  SFAS 128 is effective for financial
statements ending after December 15, 1997, and requires restatement of all
prior period EPS data presented.  Accordingly, PennRock adopted the provisions
of SFAS 128 as of December 31, 1997.  There was no impact on the presentation
of per share earnings in the Consolidated Statements of Income because basic
earnings per share and diluted earnings per share are the same for 1997, 1996
and 1995.


MORTGAGE BANKING ACTIVITIES:
Fees for servicing loans for investors are based on the outstanding principal
balance on the loans serviced. Fees are recognized as earned and are included
in the Consolidated Statements of Income under other income.


NOTE 2: DISCONTINUED OPERATIONS

On September 30, 1997, ARMCO's Board of Directors adopted a formal liquidation
plan that called for operations of ARMCO to be finalized by December 31, 1997.
The operating results of ARMCO are being accounted for in accordance with the
provisions of Accounting Principles Board Opinion No. 30 ("APB 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," as a discontinued operation.  Accordingly, ARMCO's operating
results (including shut-down and liquidation costs), net of applicable income
tax benefits, have been segregated from continuing operations and reported
separately as discontinued operations in the Consolidated Statements of Income
for 1997 and 1996.

ARMCO reported gross revenue of $3,313,000 in 1997 and $524,000 in 1996.  These
amounts are not included in interest income or non-interest income in the
accompanying Consolidated Statements of Income.  ARMCO had no income in 1995.





                                       36

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Assets and liabilities of ARMCO as of December 31, 1996 are as follows:

             

<TABLE>
<CAPTION>
In thousands
                                             December 31,
                                                 1996
                                           --------------
 <S>                                             <C>
 Mortgages held for sale                         $4,531
 Furniture and equipment                            321
 Accrued interest receivable                          5
 Prepaid and other assets                           322
 Federal income taxes receivable                    218
                                           --------------
 Total assets                                     5,397
 Accrued and other liabilities                      107
                                           --------------
 Net assets of discontinued operations           $5,290
                                           --------------
</TABLE>

All assets and liabilities of ARMCO have been liquidated, purchased by the
parent company or written-off as of December 31, 1997.

NOTE 3: RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average balances of reserves on deposit with
the Federal Reserve Bank based on deposits outstanding.  The amount of those
required reserves as of December 31, 1997 was approximately $6,727,000.
Balances maintained at the Federal Reserve Bank are included in cash and due
from banks.


NOTE 4: SECURITIES AVAILABLE FOR SALE

On November 15, 1995, the Financial Accounting Standards Board (the "FASB")
issued a Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities."  In this
report, the FASB permitted a one-time reassessment of the appropriateness of
the designations of all securities held at the time of the issuance of the
Special Report.  Debt securities transferred from the investment security
portfolio to the available for sale portfolio under the guidance of the Special
Report would not call into question intent to hold other debt securities to
maturity.  Accordingly, in the fourth quarter of 1995, PennRock transferred the
entire investment security portfolio consisting of debt securities with an
amortized cost of $15.4 million and a net unrealized gain of $302,000 to the
available for sale portfolio.  As of December 31, 1997 and 1996, PennRock had
no securities classified as held to maturity.





                                       37

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost and estimated fair value of securities available for sale
are as follows:

<TABLE>
<CAPTION>
In thousands
                                                                 DECEMBER 31, 1997
                                             ---------------------------------------------------------
                                                               GROSS           GROSS        ESTIMATED
                                              AMORTIZED      UNREALIZED     UNREALIZED        FAIR
                                                COST           GAINS          LOSSES          VALUE
                                             ------------   ------------   -------------   -----------
<S>                                            <C>              <C>             <C>         <C>
U. S. Treasury securities and other
  U. S. government agencies                     $ 54,959         $  256          ($ 29)      $ 55,186
Obligations of states and political
  subdivisions                                    63,736          1,569             (8)        65,297
U. S. agency mortgage-backed securities           27,902            171            (72)        28,001
Collateralized mortgage obligations               39,005                          (262)        38,743
Commercial paper                                  24,317            183                        24,500
                                             ------------   ------------   -------------   -----------
Total debt securities available for sale         209,919          2,179           (371)       211,727
Equity securities                                 12,282            465            (66)        12,681
                                             ------------   ------------   -------------   -----------
Total securities available for sale             $222,201         $2,644          ($437)      $224,408
                                             ------------   ------------   -------------   -----------
</TABLE>


<TABLE>
<CAPTION>
                                                                 December 31, 1996
                                             ---------------------------------------------------------
                                                               Gross           Gross        Estimated
                                              Amortized      Unrealized     Unrealized        Fair
                                                Cost           Gains          Losses          Value
                                             -----------   -------------   ------------    -----------
<S>                                           <C>                <C>         <C>            <C>
U. S. Treasury securities and other
  U. S. government agencies                    $ 31,302           $  45       ($   347)      $ 31,000
Obligations of states and political
  subdivisions                                   48,852             605           (294)        49,163
U. S. agency mortgage-backed securities          34,142              46           (580)        33,608
Collateralized mortgage obligations              67,446                           (908)        66,538
Other                                                30              12                            42
                                             -----------   -------------   ------------    -----------
Total debt securities available for sale        181,772             708         (2,129)       180,351
Equity securities                                 5,492             207            (24)         5,675
                                             -----------   -------------   ------------    -----------
Total securities available for sale            $187,264            $915        ($2,153)      $186,026
                                             -----------   -------------   ------------    -----------
</TABLE>

The amortized cost and fair value of debt securities as of December 31, 1997,
by contractual maturity, are shown below.  Expected maturities may differ from
contractual maturities because issuers may have the right to call obligations
and mortgages underlying the mortgage-backed securities may be prepaid without
any penalties.


<TABLE>
<CAPTION>
In thousands 
                                                DECEMBER 31, 1997
                                             -------------------------
                                              AMORTIZED       FAIR
                                                COST          VALUE
                                             -----------   -----------
<S>                                           <C>           <C>
Due in one year or less                        $ 25,392      $ 25,573
Due after one year through five years            13,407        13,480
Due after five years through ten years            7,199         7,230
Due after ten years                              97,014        98,700
                                             -----------   -----------
                                                143,012       144,983
Mortgage backed securities                       27,902        28,001
Collateralized mortgage obligations              39,005        38,743
                                             -----------   -----------
Total debt securities                          $209,919      $211,727
                                             -----------   -----------
</TABLE>





                                       38

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Gains and losses from sales of securities available for sale are as follows:

            

<TABLE>
<CAPTION>
In thousands 
                                     1997         1996         1995
                                   --------     --------     --------
<S>                                 <C>          <C>            <C>
Debt securities
   Gross gains                      $1,420       $1,009         $582
   Gross losses                       (345)        (114)         (80)
                                   --------     --------     --------
   Total debt securities             1,075          895          502
Equity securities, net                 418          277          145
                                   --------     --------     --------
Total securities gains              $1,493       $1,172         $647
                                   --------     --------     --------
</TABLE>


Proceeds from sales of securities available for sale are as follows:


             
<TABLE>
<CAPTION>
In thousands 
                                    1997          1996         1995
                                 ----------    ---------    ---------
 <S>                              <C>           <C>          <C>
 Debt securities                  $112,312      $75,869      $64,441
 Equity securities                   6,931        1,156          604
                                 ----------    ---------    ---------
 Total proceeds                   $119,243      $77,025      $65,045
                                 ----------    ---------    ---------
</TABLE>

Securities with a carrying value of $20,438,000 and $20,818,000 as of December
31, 1997 and 1996 were pledged to secure public and trust deposits, repurchase
agreements as well as other purposes.


NOTE 5: LOANS

The loan portfolio net of unearned income and deferred loan fees, as of
December 31, 1997 and 1996 is as follows:

             

<TABLE>
<CAPTION>
In thousands 
                                                 1997         1996
                                             -----------    ----------
 <S>                                           <C>           <C>
 Commercial, financial and agricultural:
   Commercial, secured by real estate          $161,939      $127,124
   Agricultural                                  10,087         9,533
   Other                                         58,405        56,118
 Real estate - construction                      22,365         9,415
 Real estate - mortgage                         111,689        99,798
 Consumer                                        17,874        17,366
                                             -----------    ----------
 Total loans                                   $382,359      $319,354
                                             -----------    ----------
</TABLE>


In the ordinary course of business, the Bank has loan, deposit, and other
transactions with its directors, their affiliated companies, executive
management and their associates (as defined), collectively referred to as
related parties.  Such transactions are on substantially the same terms,
including interest rates and collateral (with regard to loans), as those
prevailing at the time for comparable transactions with others. Activity for
the related party loans for the year ended December 31, 1997, was as follows:

              

<TABLE>
<CAPTION>
In thousands 
 <S>                                     <C>
 Balance, January 1, 1997                $7,728
 New loans                                9,068
 Repayments                              (9,135)
                                        --------
 Balance, December 31, 1997              $7,661
                                        --------
</TABLE>





                                       39

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Included in the loan portfolio are loans on which the Bank has ceased the
accrual of interest.  Such loans amounted to $288,000 and $795,000 as of
December 31, 1997 and 1996, respectively.  If interest income had been recorded
on all non-accrual loans outstanding during the years 1997, 1996 and 1995,
interest income would have been increased as shown in the following table:

            
<TABLE>
<CAPTION>
In thousands
                                              1997      1996     1995
                                             ------     -----   ------
<S>                                            <C>       <C>     <C>
Interest which would have been recorded
   under original terms                        $27       $92      $73
Interest income recorded during the year         0        11        7
                                             ------     -----   ------
Net impact on interest income                  $27       $81      $66
                                             ------     -----   ------
</TABLE>

As of December 31, 1997, PennRock's recorded investment in loans considered to
be impaired under SFAS 114 was $625,000 of which $288,000 were on non-accrual
status.  Included in this amount is $414,000 of impaired loans for which the
related allowance is $201,000 and $211,000 for which there is no related
allowance.  The average recorded investment in impaired loans for 1997 was
$692,000 and the interest recognized for the year was $14,000.

As of December 31, 1996, PennRock's recorded investment in loans considered to
be impaired under SFAS 114 was $740,000 of which $614,000 were on non-accrual
status.  Included in this amount is $732,000 of impaired loans for which the
related allowance is $267,000 and $8,000 for which there is no related
allowance.  The average recorded investment in impaired loans for 1996 was
$749,000 and the interest recognized for the year was $16,000.


NOTE 6: LOAN SERVICING

Mortgage loans serviced for Fannie Mae and Federal Home Loan Mortgage
Corporation are not included in the accompanying Consolidated Balance Sheets.
The unpaid principal balances of those loans as of December 31, 1997 and 1996
were $182.9 million and $188.9 million, respectively.

During 1997, $176,000 of originated mortgage servicing rights was capitalized
and $48,000 of amortization of mortgage servicing rights was recorded.  In
1996, $141,000 of originated mortgage servicing rights was capitalized and
$4,000 of amortization of mortgage servicing rights was recorded.  The
estimated fair value of mortgage servicing rights was $254,000 as of December
31, 1997 and $122,000 as of December 31, 1996.


NOTE 7: ALLOWANCE FOR LOAN LOSSES

During 1997, the Bank purchased $12.5 million residential mortgage loans from
ARMCO on which a valuation reserve totaling $80,000 had been established.  This
reserve was added to the Bank's allowance for loan losses with the purchase of
these loans.  Changes in the allowance for loan losses were as follows:


               
<TABLE>
<CAPTION>
In thousands  
                                         1997       1996        1995
                                       ---------   --------    --------
 <S>                                     <C>        <C>         <C>
 Balance at beginning of year            $4,049     $3,661      $3,482
 Provision charged to expense               258        600         360
 Recoveries of loans charged-off            165         79          44
                                       ---------   --------    --------
                                          4,472      4,340       3,886
 Loans charged off                         (305)      (291)       (225)
 Transfer of valuation reserve from
   discontinued subsidiary                   80
                                       ---------   --------    --------
 Balance at end of year                  $4,247     $4,049      $3,661
                                       ---------   --------    --------
</TABLE>





                                       40

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8: PREMISES AND EQUIPMENT

Details of premises and equipment as of December 31 are as follows:

             

<TABLE>
<CAPTION>
In thousands 
                                          1997          1996
                                       ----------    ----------
 <S>                                    <C>           <C>
 Land                                   $  2,097      $  2,105
 Premises                                  9,191         6,888
 Furniture and equipment                  10,153         9,601
 Construction in progress                    115           581
                                       ----------    ----------
 Total cost                               21,556        19,175
 Less accumulated depreciation            (8,902)       (8,513)
                                       ----------    ----------
 Net book value                          $12,654       $10,662
                                       ----------    ----------
</TABLE>


Depreciation and amortization expense was $1,065,000 in 1997, $963,000 in 1996
and $861,000 in 1995.

Future minimum rental payments that are related to non-cancelable operating
leases having initial terms in excess of one year are:

<TABLE>
    <S>                           <C>
    1998                          76,000
    1999                          76,000
    2000                          76,000
    2001                          81,000
    2002                          70,000
    Thereafter                    99,000
</TABLE>

Total lease payments were $145,000, $160,000 and $74,000 in 1997, 1996 and
1995.


NOTE 9: SHORT-TERM BORROWINGS

Federal funds purchased, securities sold under agreements to repurchase and the
treasury tax and loan note generally mature within one to thirty days from the
transaction date.

A summary of short-term borrowings is as follows for the years ended December
31, 1997, 1996 and 1995.

            

<TABLE>
<CAPTION>
In thousands 
                                                         1997          1996          1995
                                                      ---------     ---------     ---------
<S>                                                    <C>          <C>            <C>
Securities sold under agreements to repurchase          $9,332       $21,136       $28,579
Overnight federal funds purchased                                                   12,000
Federal Home Loan Bank borrowings                        2,000                       6,500
U. S. Treasury tax and loan note                         1,500           970           397
                                                      ---------     ---------     ---------
Total short-term borrowings outstanding at year-end    $12,832       $22,106       $47,476
                                                      ---------     ---------     ---------
Average interest rate at year-end                         4.87%         5.50%         5.62%
Maximum outstanding at any month-end                   $70,225       $79,052       $62,594
Average amount outstanding                             $26,601       $49,611       $48,947
Weighted average interest rate                            5.23%         5.46%         6.16%
</TABLE>

PennRock controls all securities that serve as collateral for the securities
sold under agreements to repurchase.

The Bank has approved federal funds lines totaling $12.0 million and a
borrowing capacity of $166.8 million at the Federal Home Loan Bank of
Pittsburgh (the "FHLB").





                                       41

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10: LONG-TERM DEBT

Long-term debt consists of fixed rate advances from the FHLB with maturity
schedules as follows:

                             

<TABLE>
<CAPTION>
In thousands 
                 December 31, 1997                                     December 31, 1996
--------------------------------------------------    -------------------------------------------------
                                        Interest                                            Interest
   Amount         Maturity Date           Rate          Amount         Maturity Date          Rate
-----------      -------------------   -----------    ----------     --------------------  ------------
  <S>            <C>                        <C>        <C>             <C>                       <C>
   $ 1,300        February 28, 1998         5.83%       $ 2,000         January 13, 1997         4.74%
       700         January 13, 1999         5.37          1,300        February 28, 1998         5.83
    25,000             June 5, 2000         6.01            700         January 13, 1999         5.37
    35,000           March 24, 2002         5.46          8,000        December 27, 2001         4.97
    15,000       September 17, 2002         5.74          2,000        December 31, 2001         4.97
-----------                                           ----------
   $77,000                                              $14,000
-----------                                           ----------
</TABLE>


Certain of the outstanding advances have options that allow the FHLB to convert
the fixed-rate advance to a 3-month LIBOR variable-rate advance.  If the FHLB
exercises its option to convert the advance, the balance may be repaid without
penalty.  During 1997, $10.0 million of the advances outstanding as of December
31, 1996 were repaid without penalty.

NOTE 11: CAPITAL TRANSACTIONS

On June 24, 1997, PennRock announced that the Board of Directors had authorized
the purchase of up to 200,000 shares of the Company's outstanding common stock.
The shares are to be used for general corporate purposes including stock
dividends and stock splits, executive compensation plans or for issuance under
the dividend reinvestment plan.  The Company began open market repurchases of
its outstanding common stock in 1995.  In 1997, PennRock purchased 42,882
shares for $784,000 and reissued 72,123 shares for PennRock's dividend
reinvestment plan.  In 1996, PennRock purchased 100,083 shares for $1.9 million
and reissued 60,782 shares. PennRock purchased 20,000 shares for $374,000 and
reissued 19,421 shares in 1995.  There were 10,639 shares with a cost of
$205,000 and 39,880 shares with a cost of $740,000 held as treasury stock on
December 31, 1997 and 1996, respectively.





                                       42

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12: INCOME TAXES

An analysis of the provision for income taxes included in the Consolidated
Statements of Income is as follows:

             

<TABLE>
<CAPTION>
In thousands
                                               1997        1996       1995
                                             --------    -------    --------
 <S>                                          <C>        <C>         <C>
 Current expense                              $2,503     $2,537      $2,130
 Deferred taxes                                  104         76          18
                                             --------    -------    --------
 Provision for income taxes applicable to
   continuing operations                       2,607      2,613       2,148
 Income tax benefit applicable to
   discontinued operations                      (777)      (413)
                                             --------    -------    --------
 Total income tax expense                     $1,830     $2,200      $2,148
                                             --------    -------    --------
</TABLE>


A reconciliation between the provision for income taxes from continuing
operations and the amount computed by applying the statutory federal income tax
rate to income from continuing operations before provision for income taxes is
as follows:

<TABLE>
<CAPTION>
                                            1997        1996       1995
                                           -------     ------     ------
 <S>                                        <C>         <C>        <C>
 Statutory federal income tax rate           34.0%      34.0%      34.0%
 Tax exempt income                          (11.7)      (8.8)      (6.6)
 Other, net                                   (.4)        .4       (1.6)
                                           -------     ------     ------
 Effective income tax rate                   21.9%      25.6%      25.8%
                                           -------     ------     ------
</TABLE>


Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.  Significant components of PennRock's
deferred tax liabilities and assets as of December 31, 1997 and 1996 are as
follows:


             
<TABLE>
<CAPTION>
In thousands 
                                                             1997       1996
                                                           --------   --------
 <S>                                                        <C>        <C>
 Deferred tax assets:
   Allowance for loan losses                                $1,393     $1,302
   Net unrealized losses on securities available for sale                 420
   Other                                                        63         43
                                                           --------   --------
   Total deferred tax assets                                 1,456      1,765
                                                           --------   --------
 Deferred tax liabilities:
   Depreciation                                                270        271
   Investment security discount                                103         95
   Net unrealized gain on securities available for sale        751
                                                           --------   --------
   Total deferred tax liabilities                            1,124        366
                                                           --------   --------
 Net deferred tax asset                                     $  332     $1,399
                                                           --------   --------
</TABLE>

Included in the table above is the recognition of unrealized gains and losses
on certain investments in debt and equity securities accounted for under SFAS
115 for which no deferred tax expense or benefit was recognized in the
Consolidated Statements of Income.

Management believes that it is more likely than not that the net deferred tax
asset of $332,000 will be realized since PennRock has a long history of
earnings and has a carry-back potential greater than the deferred tax asset and
is unaware of any reason that PennRock would not ultimately realize this asset.





                                       43

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13: EMPLOYEE BENEFIT PLAN

The Bank has a non-contributory profit sharing plan covering substantially all
full time employees of the Bank.  Contributions made to the plan by PennRock
were $749,000 in 1997, $607,000 in 1996 and $491,000 in 1995.


NOTE 14: STOCK OPTION PLAN

PennRock has an Omnibus Stock Option Plan, the terms of which permit the
granting of non-qualified stock options, incentive stock options, stock
appreciation rights, performance shares, performance units, and restricted
stock to senior executives of PennRock.  The Board of Directors has granted the
following incentive stock options under this plan at an exercise price equal to
the market price at the date of the grant.  Each of the incentive stock options
vests and becomes exercisable, one-half after three years and the balance after
five years of date granted.  There were options totaling 750 shares exercisable
as of December 31, 1997.  All options have been adjusted to reflect stock
splits since the date of grant.

<TABLE>
<CAPTION>
                                                       Price per
                                          Shares         Share
                                        -----------   ----------
 <S>                                        <C>          <C>
 Balance, December 31, 1992
   Incentive option granted                  2,250       $11.67
   Exercised in 1996                        (1,125)
                                        -----------   
 Balance, December 31, 1993                  1,125
   Incentive option granted                  1,500       $16.92
                                        -----------   
 Balance, December 31,1994                   2,625
   Incentive option granted                  1,000       $23.25
                                        -----------   
 Balance, December 31, 1995                  3,625
   Incentive option granted                  1,000       $19.00
                                        -----------   
 Balance, December 31, 1996                  4,625
   Incentive options granted                 2,000       $16.69
   Incentive options granted                 3,500       $16.63
                                        -----------   
 Balance, December 31, 1997                 10,125
                                        -----------
</TABLE>

The pro forma disclosures that are required by SFAS 123 are not applicable due
to immateriality.

NOTE 15: COMMITMENTS AND CONTINGENT LIABILITIES AND CONCENTRATIONS OF CREDIT
         RISK

PennRock's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk.  These
financial instruments include commitments to extend credit, standby letters of
credit, guarantees, and liability for assets held in trust, which arise in the
normal course of business.  PennRock uses the same credit policies in
commitments and conditional obligations as it does for on-balance sheet
instruments.

A summary of PennRock's commitments and contingent liabilities as of December
31, 1997 and 1996 are as follows:


              
<TABLE>
<CAPTION>
In thousands 
                                                         1997          1996
                                                       ---------     ---------
 <S>                                                    <C>           <C>
 Commitments to extend credit                           $77,937       $62,327
 Financial and performance standby letters of credit      8,463         8,657
 Commitments to purchase securities                       2,995         3,074
 Commitments to sell residential mortgages                              4,552
</TABLE>





                                       44

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Commitments to extend credit are agreements to lend to a customer to the extent
that 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 many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
represent future cash requirements.  Management evaluates each customer's
creditworthiness on a case-by-case basis.  The amount of collateral obtained if
deemed necessary by management upon extension of credit is based on a credit
evaluation of the customer.

Stand-by letters of credit are conditional commitments issued by PennRock to
guarantee the performance of a customer to a third party.  The term of the
letters of credit varies from one month to 24 months and may have renewal
features.  The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers.  PennRock holds
collateral supporting those commitments for which collateral is deemed
necessary.

PennRock's exposure to possible loss in the event of non-performance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amount of the
instruments.

Most of PennRock's business activity is with customers located within
PennRock's defined market area. Investments in state and municipal securities
may also involve government entities within PennRock's market area.  The
concentrations by loan type are set forth in Note 5.  The distribution of
commitments to extend credit approximates the distribution of loans
outstanding.  The Bank, as a matter of policy, does not extend credit to any
single borrower or group of related borrowers in excess of 65% of its legal
lending limit.  As of December 31, 1997, this limit was $5,769,000.


NOTE 16: RESTRICTIONS ON RETAINED EARNINGS

Certain restrictions exist regarding the ability of the bank subsidiary to
transfer funds to PennRock in the form of cash dividends.  The approval of the
Comptroller of the Currency is required if the total dividends declared by a
national bank in any calendar year exceeds the bank's net profits (as defined)
for that year combined with its retained net profits for the preceding two
calendar years.  Under this formula, the Bank can declare dividends in 1998
without approval of the Comptroller of the Currency of approximately $8.7
million plus an additional amount equal to the Bank's net profit (as defined)
for 1998 up to the date of any such dividend declaration.


NOTE 17: REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy
require PennRock 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 (as defined), and of Tier 1 capital (as defined) to
average assets (as defined).  Management believes, as of December 31, 1997,
that PennRock meets all capital adequacy requirements to which it is subject.





                                       45

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1997, the most recent notification from the Federal Reserve
Bank categorized PennRock as well capitalized under the regulatory framework
for prompt corrective action.  To be categorized as well capitalized, PennRock
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth below.  There are no conditions or events since that
notification that management believes have changed this category.  PennRock's
actual capital amounts and ratios are also presented in the table.

               

<TABLE>
<CAPTION>
In thousands   
                                                                                To Be Well     
                                                                              Capitalized Under
                                                                              Prompt Corrective
                                                 Actual                       Action Provisions
                                     ------------------------------   ------------------------------
                                       Amount              Ratio         Amount             Ratio
                                     ------------      ------------   -----------         ----------
<S>                                       <C>            <C>             <C>                  <C>
As of December 31, 1997:
  Total capital
     (to risk weighted assets)            $63,324        14.22%          $44,538              10.0%
  Tier 1 capital                                                                        
     (to risk weighted assets)            $59,077        13.26%          $26,723               6.0%
  Tier 1 capital                                                                        
     (to average assets)                  $59,077         9.75%          $30,280               5.0%
As of December 31, 1996:                                                                
  Total capital                                                                         
     (to risk weighted assets)            $57,717        16.08%          $35,904              10.0%
  Tier 1 capital                                                                        
     (to risk weighted assets)            $53,668        14.95%          $21,542               6.0%
  Tier 1 capital                                                                        
     (to average assets)                  $53,668         9.88%          $27,200               5.0%
</TABLE>


NOTE 18: FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.  In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.  Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows.  In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions would significantly affect the estimates.  Statement 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements.

Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of future business.  The
value of significant sources of income such as trust or mortgage banking
operations has not been estimated.  In addition, the tax effect relative to the
recognition of unrealized gains and losses can have a significant impact on
fair value estimates and have not been considered in any of the estimates.
Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.

We used the following methods and assumptions in estimating the fair value of
the Company's financial instruments:

   Cash and cash equivalents:

   The carrying amounts reported in the Consolidated Balance Sheets for cash
   and short-term investments approximate their fair values.

   Mortgages held for sale:

   The fair value of mortgages held for sale is estimated using current
   secondary market rates.





                                       46

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

   Securities:
   Fair values for securities are based on quoted prices, where available.  If
   quoted prices are not available, fair values are based on quoted prices of
   comparable instruments.

   Loans:
   For variable-rate loans that reprice frequently and with no significant
   change in credit risk, fair values are based on carrying values.  The fair
   values of other loans are determined using estimated future cash flows,
   discounted at the interest rates currently being offered for loans with
   similar terms to borrowers with similar credit quality.  The carrying amount
   of accrued interest receivable approximates its fair value.

   Off-balance sheet instruments:
   For PennRock's off-balance sheet instruments consisting of commitments to
   extend credit and financial and performance standby letters of credit, the
   estimated fair value is the same as the instrument's contract or notional
   values since they are priced at market at the time of funding.

   Deposit liabilities:
   The fair values of deposits with no stated maturities, such as demand
   deposits, savings accounts, NOW and money market deposits equal their
   carrying amounts which represent the amount payable on demand.  Fair values
   for fixed-rate certificates of deposit are estimated using a discounted cash
   flow calculation that applies interest rates currently being offered on
   certificates to a schedule of aggregated expected monthly maturities on time
   deposits.

   Short-term borrowings:
   The carrying amounts of federal funds purchased and securities sold under
   agreements to repurchase, advances from the Federal Home Loan Bank and other
   short-term borrowings approximate their fair values.

   Long-term debt:
   The fair values of long-term debt are estimated using discounted cash flow
   analyses, based on the Company's incremental borrowing rates for similar
   types of borrowing arrangements.

   Accrued interest payable:
   The fair value of accrued interest payable is estimated to be the current
   book value.





                                       47

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1997 and 1996, the estimated fair values of financial
instruments based on disclosed assumptions are as follows:

             

<TABLE>
<CAPTION>
In thousands
                                                         1997                          1996
                                               -------------------------   ------------------------
                                                 CARRYING       FAIR        Carrying        Fair
                                                  AMOUNT        VALUE        Amount         Value
                                               -----------   -----------   ----------    ----------
 <S>                                            <C>           <C>           <C>           <C>
Financial assets:
  Cash and due from banks                       $ 21,075      $ 21,075     $ 16,405      $ 16,405
  Short-term investments                           1,054         1,054        1,244         1,244
  Mortgages held for sale                          1,036         1,034        5,690         5,690
  Securities available for sale                  224,408       224,408      186,026       186,026
  Loans:
    Commercial, financial and agricultural       230,431       230,466      192,775       198,835
    Real estate - construction                    22,365        22,368        9,415         9,714
    Real estate - mortgage                       111,689       111,706       99,798       100,011
    Consumer                                      17,874        17,876       17,366        17,196
    Allowance for loan losses                     (4,247)                    (4,049)
                                              -----------   -----------   ----------    ----------
    Net loans                                    378,112       382,416      315,305       325,756
  Accrued interest receivable                      3,794         3,794        3,333         3,333
Financial liabilities:
  Deposits:
    Non-interest bearing demand                   77,106        77,106       65,537        65,537
    Interest bearing demand                       74,141        74,141       75,334        75,334
    Savings                                       57,557        57,557       59,977        59,977
    Time deposits under $100,000                 250,364       249,720      224,071       223,888
    Time deposits over $100,000                   33,627        33,586       26,548        26,521
                                              -----------   -----------   ----------    ----------
    Total deposits                               492,795       492,110      451,467       451,257
  Short-term borrowings                           12,832        12,832       22,106        22,106
  Long-term debt                                  77,000        77,193       14,000        16,610
  Accrued interest payable                         3,158         3,158        2,758         2,758
Off-balance sheet financial instruments:
  Commitments to extend credit                    77,937        77,937       62,327        62,327
  Financial and performance standby letters
    of credit                                      8,463         8,463        8,657         8,657
  Commitments to purchase securities               2,995         2,995        3,074         3,074
  Commitments to sell residential mortgages                                   4,552         4,561
</TABLE>



                                       48

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 19: PARENT COMPANY ONLY FINANCIAL INFORMATION

The following represents parent only financial information:

PENNROCK FINANCIAL SERVICES CORP. (PARENT COMPANY ONLY) BALANCE SHEETS

             

<TABLE>
<CAPTION>
In thousands
                                                                   December 31,
                                                            ------------------------
                                                               1997          1996
                                                            ----------   -----------
<S>                                                         <C>           <C>
ASSETS:
Short-term investments                                        $    70      $    600
Securities available for sale                                   4,754         1,707
Due from subsidiary                                               381           649
Investment in subsidiary                                       57,048        51,557
Other assets                                                       10            15
                                                            ----------   -----------
Total assets                                                  $62,263       $54,528
                                                            ----------   -----------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
  Dividends payable                                          $    789      $    725
  Accrued expenses and taxes                                      207            74
                                                            ----------   -----------
  Total liabilities                                               996           799
                                                            ----------   -----------
Stockholders' equity:
  Common stock                                                 15,193        15,193
  Surplus                                                      11,118        11,153
  Unrealized gain (loss) on securities available for sale,
    net of deferred taxes                                       1,457          (816)
  Retained earnings                                            33,704        28,939
  Treasury stock at cost (10,639 and 39,880 shares)              (205)         (740)
                                                            ----------   -----------
  Total stockholders' equity                                   61,267        53,729
                                                            ----------   -----------
Total liabilities and stockholders' equity                    $62,263       $54,528
                                                            ----------   -----------
</TABLE>


PENNROCK FINANCIAL SERVICES CORP. (PARENT COMPANY ONLY) STATEMENTS OF INCOME

                                  

<TABLE>
<CAPTION>
In thousands
                                                                                              December 31,
                                                                               -------------------------------------------
                                                                                 1997             1996             1995
                                                                               ---------        ---------        ---------
 <S>                                                                             <C>              <C>              <C>          
 Income:                                                                     
   Dividends from bank subsidiary                                                $4,200           $3,225           $1,380
   Securities available for sale                                                    106               86               89
   Net realized gains on sales of available for sale securities                     363              278              145
                                                                               ---------        ---------        ---------
   Total income                                                                   4,669            3,589            1,614
                                                                               ---------        ---------        ---------

 General and administrative expenses                                                243              257              240
                                                                               ---------        ---------        ---------
 Income before income taxes and undistributed net income                     
   of subsidiaries                                                                4,426            3,332            1,374
 Income tax expense (benefit)                                                        68               29              (17)
                                                                               ---------        ---------        ---------
 Income before equity in undistributed net income                            
   of subsidiaries                                                                4,358            3,303            1,391
 Equity in undistributed net income of subsidiaries                               3,402            3,504            4,791
                                                                               ---------        ---------        ---------
 Net income                                                                      $7,760           $6,807           $6,182
                                                                               ---------        ---------        ---------
</TABLE>





                                       49

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

PENNROCK FINANCIAL SERVICES CORP. (PARENT COMPANY ONLY) STATEMENTS OF CASH
FLOWS

            

<TABLE>
<CAPTION>
In thousands
                                                                    Year Ended December 31,
                                                              -------------------------------------
                                                                 1997         1996          1995   
                                                              ----------     ---------     --------
<S>                                                              <C>          <C>           <C>          
OPERATING ACTIVITIES                                                                               
  Net income                                                     $7,760        $6,807       $6,182 
  Adjustments to reconcile net income to net cash                                                  
    provided by operating activities:                                                              
    Equity in undistributed net income from subsidiaries         (3,402)       (3,504)      (4,791)
    Net realized gain on sale of available for sale securities     (363)         (278)        (145)
    (Increase) decrease in due from bank subsidiary                 268            63         (219)
    Other, net                                                      107           144          118 
                                                              ----------     ---------     --------
  Net cash provided by operating activities                       4,370         3,232        1,145 

INVESTING ACTIVITIES                                                                               
  Proceeds from sale of securities available for sale             1,156         1,156        1,147 
  Purchases of securities available for sale                     (3,561)         (760)      (1,009)
                                                              ----------     ---------     --------
  Net cash provided by (used in) investing activities            (2,405)          396          138 

FINANCING ACTIVITIES                                                                               
  Issuance of common and treasury stock                           1,257         1,406        1,637 
  Acquisition of treasury stock                                    (784)       (1,852)        (375)
  Cash dividends paid                                            (2,968)       (2,722)      (2,480)
                                                              ----------     ---------     --------
  Net cash used in financing activities                          (2,495)       (3,168)      (1,218)
                                                              ----------     ---------     --------
  Increase (decrease) in cash and cash equivalents                 (530)          460           65 
  Cash and cash equivalents at beginning of year                    600           140           75 
                                                              ----------     ---------     --------
  Cash and cash equivalents at end of year                      $    70        $  600       $  140 
                                                              ----------     ---------     --------
</TABLE>





                                       50

<PAGE>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 20: CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                    

<TABLE>
<CAPTION>
In thousands except per share data
                                                                         1997
                                                 ---------------------------------------------------
                                                   FIRST        SECOND         THIRD        FOURTH
                                                  QUARTER       QUARTER       QUARTER       QUARTER
                                                 ----------    ----------    ---------     ---------
 <S>                                               <C>           <C>          <C>           <C>
 Interest income                                   $10,558       $11,312      $11,687       $12,061
 Interest expense                                    4,724         5,580        5,626         5,948
                                                 ----------    ----------    ---------     ---------
 Net interest income                                 5,834         5,732        6,061         6,113
 Provision for loan losses                              30            44           92            92
 Non-interest income                                   846         1,342        1,739         1,178
 Non-interest expense                                3,900         4,175        4,345         4,245
                                                 ----------    ----------    ---------     ---------
 Income from continuing operations before
   income taxes                                      2,750         2,855        3,363         2,954
 Income taxes                                          669           712          354           872
                                                 ----------    ----------    ---------     ---------
 Income from continuing operations                   2,081         2,143        3,009         2,082
 Loss from discontinued operations, net of tax        (177)         (214)      (1,164)
                                                 ----------    ----------    ---------     ---------
 Net income                                        $ 1,904       $ 1,929      $ 1,845       $ 2,082
                                                 ----------    ----------    ---------     ---------
 Earnings per share:
   Income from continuing operations, net of tax   $  0.34       $  0.36      $  0.50       $  0.34
   Loss from discontinued operations, net of tax     (0.03)        (0.04)       (0.19)
                                                 ----------    ----------    ---------     ---------
   Net income                                      $  0.31       $  0.32      $  0.31       $  0.34
                                                 ----------    ----------    ---------     ---------
 Dividends declared per share                      $  0.12       $  0.12      $  0.12       $  0.13
                                                 ----------    ----------    ---------     ---------
</TABLE>




<TABLE>
<CAPTION>
                                                 ----------------------------------------------------
                                                                         1996
                                                 ----------------------------------------------------
                                                    First        Second         Third        Fourth
                                                   Quarter       Quarter       Quarter       Quarter
                                                 -----------   -----------   ----------    ----------
 <S>                                                <C>           <C>          <C>           <C>
 Interest income                                     $9,904       $10,325      $10,171       $10,199
 Interest expense                                     4,719         4,879        4,640         4,678
                                                 -----------   -----------   ----------    ----------
 Net interest income                                  5,185         5,446        5,531         5,521
 Provision for loan losses                              149           149          151           151
 Non-interest income                                    903           742        1,043         1,175
 Non-interest expense                                 3,605         3,516        3,735         3,870
                                                 -----------   -----------   ----------    ----------
 Income from continuing operations before   
   income taxes                                       2,334         2,523        2,688         2,675
 Income taxes                                           637           563          629           783
                                                 -----------   -----------   ----------    ----------
 Income from continuing operations                    1,697         1,960        2,059         1,892
 Loss from discontinued operations, net of tax          (36)         (253)        (286)         (226)
                                                 -----------   -----------   ----------    ----------
 Net income                                          $1,661       $ 1,707      $ 1,773       $ 1,666
                                                 -----------   -----------   ----------    ----------
 Earnings per share:
   Income from continuing operations, net of tax     $ 0.28       $  0.32      $  0.34       $  0.31
   Loss from discontinued operations, net of tax      (0.01)        (0.04)       (0.04)        (0.04)
                                                 -----------   -----------   ----------    ----------
   Net income                                        $ 0.27       $  0.28      $  0.30       $  0.27
                                                 -----------   -----------   ----------    ----------
 Dividends declared per share                        $ 0.11       $  0.11      $  0.11       $  0.12
                                                 -----------   -----------   ----------    ----------
</TABLE>





                                       51

<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.





                       PENNROCK FINANCIAL SERVICES CORP.
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning directors and nominees for election to the Board of
Directors is incorporated herein by reference to the Registrant's Proxy
Statement for its annual meeting to be held on April 28, 1998 under the caption
"Information about Nominees and Continuing Directors", and information
concerning executive officers is included under Part I, Item 4A, "Executive
Officers of the Registrant" of this report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

Information concerning director compensation is incorporated herein by
reference to the Registrant's Proxy Statement for its annual meeting to be held
on April 28, 1998 under the caption "Compensation of Directors" and concerning
executive compensation under the caption "Executive Compensation and Related
Matters," except that information appearing under the caption "Board Report on
Executive Compensation" and information appearing under the caption "Stock
Performance Graph" is not incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners is
incorporated herein by reference to the Registrant's Proxy Statement for its
annual meeting to be held on April 28, 1998, under the caption "Voting of
Shares and Principal Holders Thereof" and concerning security ownership of
management under the caption "Information about Nominees and Continuing
Directors."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information under the caption "Transactions with Directors and Executive
Officers" is incorporated herein by reference to the Registrant's Proxy
Statement for its annual meeting to be held on April 28, 1998.





                                       52

<PAGE>
                      PENNROCK FINANCIAL SERVICES CORP.
                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1.  Financial Statements

        The consolidated financial statements listed on the index to Item 8 of
        this Annual Report on Form 10-K are filed as a part of this Annual
        Report.

(a) 2.  Financial Statement Schedules

        All schedules applicable to the Registrant are shown in the respective
        financial statements or in the notes thereto included in this Annual
        Report.

(a) 3.  Exhibits

        (3)(a)  Article of Incorporation of the Corporation are incorporated by
                reference to Exhibit 3(b) to Form 10-Q for the quarter ended
                June 30, 1996.

        (3)(b)  Bylaws of the Corporation

        (10)(a) Omnibus Stock Plan is incorporated by reference to Exhibit 4.1
                to Registration Statement Number 33-53022 of Form S-8 dated
                October 8, 1992.

        (10)(b) Executive Incentive Compensation Plan

        (10)(c) Melvin Pankuch Deferred Compensation Agreement Plan

        (21)    Subsidiaries of the Registrant

        (23)    Consent of Simon Lever & Company, Independent Auditors

        (27)    Financial Data Schedule

(b)     Reports on Form 8-K

        There were no reports on Form 8-K filed in the fourth quarter of 1997.





                                       53

<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                             PENNROCK FINANCIAL SERVICES CORP.
                                       -----------------------------------------
                                                         (Registrant)

 Dated:  March 24, 1998                  By    /s/    Glenn H. Weaver
                                       -----------------------------------------
                                         Glenn H. Weaver, President

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 in the capacities indicated on the 24th of March 1998.

<TABLE>
<CAPTION>
             Signatures                                                           Title
------------------------------------                          ------------------------------------------------
<S>    <C>                                                     <C>
/s/    Norman Hahn                                             Chairman and Director
------------------------------------
             NORMAN HAHN

/s/    Glenn H. Weaver                                         President and Director
------------------------------------
           GLENN H. WEAVER

/s/    Robert K. Weaver                                        Secretary and Director
------------------------------------
          ROBERT K. WEAVER

/s/    Melvin Pankuch                                          Executive Vice President, Chief
------------------------------------                             Executive Officer and Director
           MELVIN PANKUCH                                      

/s/    George B. Crisp                                         Vice President and Treasurer
------------------------------------                           (Principal Financial and Accounting 
           GEORGE B. CRISP                                     Officer)                            
                                                                                                   

/s/    Dale M. Weaver                                          Director
------------------------------------
           DALE M. WEAVER

/s/    Aaron S. Kurtz                                          Director
------------------------------------
           AARON S. KURTZ

/s/    Robert L. Spotts                                        Director
------------------------------------
          ROBERT L. SPOTTS

/s/    Elton Horning                                           Director
------------------------------------
            ELTON HORNING

/s/    Lewis M. Good                                           Director
------------------------------------
            LEWIS M. GOOD

/s/    Irving E. Bressler                                      Director
------------------------------------
         IRVING E. BRESSLER
</TABLE>





                                       54

<PAGE>