EXHIBIT 13

                        [GRANGE NATIONAL BANK LETTERHEAD]

To our Shareholders,

         As a result of the outstanding dedication and efforts of our Employees
and Board of Directors our company once again achieved record growth and
earnings. Total assets increased by $20,218,000 or 19.4%. This increase occurred
primarily as a result of the growth we experienced at our newest offices in
Towanda and Back Mountain. Despite incurring considerable startup expenses
associated with the establishment of these offices we managed to achieve a
record net profit of $1,608,000, resulting in net basic earnings per share of
$4.42. These outstanding results were reflected in the market value of our stock
which rose 33% from $42.00 to $56.00 per share at year end.

         During 1997 we celebrated our 90th year as an independent community
bank. This is quite an achievement considering the rapid consolidation being
experienced in the banking industry. We are proud of our ability to remain
independent but we recognize that to continue doing so we must remain
competitive. In that regard we introduced two new products last year. In 1997 we
received approval from the Comptroller of the Currency to establish an operating
subsidiary for the purpose of engaging in Insurance Agency activities. We also
received an insurance license from the Pennsylvania Insurance Department and
several of our licensed personnel will receive training regarding the sale of
Life Insurance and Annuity products. During 1997 we began offering a "Master
Money Card." This card can be used in a similar fashion as a credit card however
it offers the added convenience of debiting the purchase price from the
customer's checking account without the need to write a check. This product is
quite popular with our customers and should provide an additional source of
income for the bank.

         Last year we embarked on a revitialization program for the Business
District in Laceyville. This community, which is the location of our original
bank building, has seen a steady decline in recent years. Following the closure
of a retail appliance store across the street from the bank, our Board of
Directors decided to purchase the building for the purpose of creating new
business opportunities for the town. After renovations, a space was rented for a
family style restaurant which appears to be quite prosperous. Additionally, we
are negotiating with several other potential occupants. Eventually we would like
to operate our insurance agency from this location. The Bank has also played an
active role in obtaining several redevelopment grants from the Commonwealth of
Pennsylvania, and we have plans to provide low interest loans to store owners
through a Community Redevelopment Program through the Federal Home Loan Bank.

         We believe that our prospects for continued success are very bright
indeed. Our products and services are competitive, our facilities are attractive
as well as functional, and our personnel are well motivated and anxious to
provide the quality of service that our customers deserve.

<PAGE>

Despite our relatively small size we have managed to compete effectively against
larger institutions by providing superior service, longer banking hours and
significantly lower service charges on deposit accounts. We believe that these
factors will continue to benefit our bank in the aftermath of the mergers which
are in process between Corestates Bank and First Union Bank, and Franklin First
Savings Bank and M&T Bank, as a portion of these customers seek an alternative
institution for their banking needs.

         The Board of Directors, Management and Employees want our Shareholders
to know that we are grateful for your continued support and confidence. As you
can see we have been quite busy in the expansion of our bank. We believe that a
continuation of this process is the correct path to take at this time. Please be
assured that we will continue to stay focused on what we believe is a sound
growth strategy, and we are confident that these efforts will result in
continued financial strength and prosperity for our Bank, Shareholders and the
Communities we serve.

Best regards,

GRANGE NATIONAL BANK



Thomas A. McCullough
President and Chief Executive Officer

                                       -2-

<PAGE>

                    Grange National Banc Corp. and Subsidiary

                             Selected Financial Data
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31                                    1997          1996          1995           1994          1993
------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>           <C>            <C>           <C>   
(In thousands except per share data)
SUMMARY OF OPERATIONS:
  Gross interest income..........................      $  8,798        $7,655        $6,599         $5,296        $4,955
  Gross interest expense.........................         3,788         3,245         2,858          2,093         2,105
                                                       -----------------------------------------------------------------
  Net interest income............................         5,010         4,410         3,741          3,203         2,850
  Loan loss provision............................           190           125           115             87           120
                                                       -----------------------------------------------------------------
   Net interest income after
     loan loss provision.........................      $  4,820        $4,285        $3,626         $3,116        $2,730
                                                       =================================================================

  Income before income taxes.....................      $  2,292      $  2,158        $1,697         $1,531        $1,252
  Provision for income taxes.....................           684           660           518            485           387
                                                       -----------------------------------------------------------------

  Net income.....................................      $  1,608      $  1,498        $1,179         $1,046          $865
                                                       =================================================================
PER SHARE DATA:
  Net income basic...............................      $   4.42      $   4.14       $  3.26        $  3.39       $  3.16
  Net income diluted.............................      $   4.15      $   4.03       $  3.26        $  3.39       $  3.16
  Cash dividends.................................                                   $  0.20        $  0.42       $  0.33
  Stock dividends................................      $   0.88      $   0.74       $  0.27
AVERAGE SHARES OUTSTANDING.......................           363           362           362            309           274
FINANCIAL CONDITION AT
  YEAR END:
    Total assets.................................      $124,417      $104,199       $91,622        $76,305       $69,860
    Total loans..................................        76,995        62,033        52,538         46,733        41,002
    Total deposits...............................       108,789        91,055        79,866         67,014        62,832
    Stockholders' equity.........................        12,638        10,940         9,522          8,243         5,544
RATIOS:
  Based on Average Balances:
    Return on assets.............................          1.39%         1.51%         1.40%          1.41%         1.29%
    Return on equity.............................         13.70         14.73         13.32          15.08         16.61
    Equity to assets.............................         10.15         10.30         10.51           9.36          7.74
    Primary capital to assets....................         10.67         10.63         11.09           9.96          8.31
    Internal capital generation rate.............         13.50         14.56         12.43          13.05         14.93
  At Year End:
    Equity to assets.............................         10.16         10.50         10.39          10.80          7.94
    Primary capital to assets....................         10.77         11.10         10.97          11.43          8.53
    Cash dividend payout ratio...................          1.43%         1.20%         6.69%         13.43%        10.10%
BOOK VALUE/SHARE.................................      $  34.79      $  30.79       $ 26.43        $ 23.85       $ 21.14
</TABLE>
Note: share and per share amounts have been restated to give effect to stock
dividends and stock splits.



                                       -3-

<PAGE>

                    Grange National Banc Corp. and Subsidiary

         Grange National Banc Corp. (Company) is a Pennsylvania bank holding
company, headquartered in Laceyville, Pennsylvania, with Grange National Bank
(Bank) as its only subsidiary. Established in 1907, the Bank provides friendly
and affordable banking, insurance and trust services to communities in Wyoming,
Susquehanna, Bradford and Luzerne counties.

         Grange National Bank's deposit services include checking, savings and
money market accounts, certificates of deposit, Individual Retirement Accounts
and MAC automated teller machine cards. Loan services include personal, business
and municipal loans, residential, commercial and municipal mortgages, Small
Business Administration loans, personal and commercial lines of credit and
letters of credit. Insurance offerings include life and disability insurance, as
well as annuities. Grange's other services include discount brokerage, safe
deposit facilities and payroll processing.

         The Trust department offers personal and investment trusts, trusts
under will, estate administration services, living trusts and Individual
Retirement Accounts.

Highlights

         The Company reported record net income of $1,608,000 in 1997 compared
to $1,498,000 in 1996, an increase of 7% for the period. The returns on assets
and equity were 1.39% and 13.70%, respectively, in 1997 compared to 1.51% and
14.73% in 1996. Lower earnings ratios for 1997 result from adding the Towanda
office in late 1996 and the Back Mountain office in 1997. The Company's high
equity to assets ratio of 10.15% at 1997 year end continues to have an adverse
effect on the return on equity ratio. A high equity to assets ratio while
depressing the return on equity ratio, allows the company to expand the Bank, as
it has recently done with the opening of offices in Little Meadows, Towanda and
the Back Mountain. The deposits these offices are attracting continues to reduce
the equity to assets ratio to a more typical level of around 8.50%, and provide
the resources for increased lending and investment by the Bank. These loans and
investments in turn will enable the Bank to generate higher future profits.

         Per share net income increased to $4.42 in 1997 from $4.14 in 1996, for
an increase of 7%. Dividends to stockholders increased from $0.74 (stock
dividend) in 1996, to $0.88 (stock dividend) in 1997, an increase of 16%. The
stock dividends declared by the Company increases the amount of stock in
circulation, while keeping capital in the Bank for future expansion needs. From
the stockholder's standpoint, they do not pay tax on the stock they receive, and
have the option of selling the stock if they do want the cash.

         At year end 1997, Grange had total assets of $124,417,000, total
deposits of $108,789,000, and total shareholders' equity of $12,638,000,
compared to $104,199,000 in total assets, $91,055,000 in total deposits, and
$10,940,000 in total shareholders' equity at year end 1996, increases of 19%,
19% and 16%, respectively. At year end the Company had

                                       -4-

<PAGE>

approximately 830 shareholders and seventy-seven full and part-time employees.
During 1997 Grange paid over $1,620,000 in salaries and benefits to its
employees and paid over $750,000 in taxes.

         1997 was filled with office openings, new products, new projects,
celebration and honors for the Bank, its employees and customers. During
February the Bank opened its Back Mountain office in Trucksville. The stately
building has greatly increased the Bank's visibility and enhanced the Bank's
image in Luzerne County. Our people, service and products are complemented by
the facility, to make the office highly effective in attracting loans and
deposits.

         The Bank forged ahead to offer new products for its customers and
established the Grange National Insurance Agency as a subsidiary of the Bank.
Grange National Insurance Agency now offers life, health and disability
insurance, as well as annuities. Property and casualty are expected to be added
during 1998. Additionally, the Bank now offers the Master Money debit card to
its customers. The card works like an ATM card as well as a check, and is
accepted everywhere merchants accept MasterCard.

         Among the proudest accomplishments for the Company is the renovation of
the former "Bluhm's II" building on Main Street, Laceyville. The building now
houses a restaurant, has space available for another store and additional space
for bank use in the future. This renovation has helped spark plans for other
downtown revitalization efforts. This project is most appropriate as the Bank
celebrated its 90th year with an open house at Laceyville. Topping off the year
was the appointment of Chairman of the Board, Robert C. Wheeler to the
Philadelphia Federal Reserve Bank's Community Bank Council. This is a well
deserved honor for Bob and recognizes Bob's enthusiastic and long community
service.

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

         The consolidated financial statements and selected financial data
presented elsewhere in this report should be read to obtain an understanding of
the following discussion and analysis.

FINANCIAL CONDITION

         The Company's primary source of profits is its activities as a
financial intermediary, using funds from customers' deposits, other borrowing
sources and shareholders' equity, to invest in loans, bonds and interest bearing
deposits in other banks. The difference between the cost of acquiring funds and
the return on investments in loans, securities and interest bearing deposits is
the Company's net interest yield. During the last three years ended December 31,
net interest yields have ranged from 4.79% in 1997 to 4.87% in 1996 and 4.85% in
1995.

         Interest rate risk management requires the Bank to maintain an
appropriate balance between interest sensitive assets and interest sensitive
liabilities, liquidity to meet loan demand,

                                       -5-

<PAGE>

depositor's withdrawals, and operating expenses, and to provide an adequate
capital base for expansion and unforeseen losses. A discussion of each of the
factors relating to the financial condition of the Company follows.

LIQUIDITY AND RATE SENSITIVITY

         The objective of liquidity management is to maintain adequate cash
resources to meet the short and long term operating requirements of the Company.
These requirements include funding for loans to customers, funding to take
advantage of prudent investment strategies, and funding for bank operations
expansion. Management continued its strategy of relying on access to the Bank's
line of credit at the Federal Home Loan Bank of Pittsburgh to fund daily cash
needs, enabling the Bank to be more fully invested in higher yielding
investments. Maturing investments and time deposits continue to provide funding
for the longer term, while the line of credit funds short term fluctuations. The
Company's "borrowing capacity" at the Federal Home Loan Bank is $41,926,000,
which had a $357,000 balance at December 31, 1997. The Bank's deposit balance at
FHLB was approximately $2,021,000. Investments maturing or expected to be called
in 1998 include $5,172,000 in bonds classified as held to maturity, and
$3,036,000 in bonds available for sale. In addition, the bank holds an
additional $9,345,000 in bonds, maturing in more than one year, classified as
available for sale, which can also be used to meet liquidity needs. Additional
liquidity is provided by a stable growth of core deposits. Management considers
its sources of liquidity adequate to meet anticipated needs.

         The Company's earnings are dependent on the maintenance of an adequate
net interest yield or spread between rates earned on assets and the cost of
interest bearing liabilities. To maintain an adequate spread during both rising
and declining rate environments, interest rate sensitivity must be managed so
that the Company is positioned to respond within a reasonable period of time, to
changing interest rates and, or changing balances in interest earning assets as
compared to interest bearing liabilities. Management of the investment portfolio
requires decisions between investing in short-term investments which enhance
rate sensitivity or long-term investments which inhibit rate sensitivity but
provide higher yields. Management will invest in longer term investments (i.e.
5 - 12 year maturities) when their yields are high enough to compensate for
their greater interest rate risk.

         Management of the loan portfolio has more variables than the investment
portfolio. Competition from other lenders as well as consumer's desire for
particular loan products greatly influence management's decisions regarding the
composition of the loan portfolio. The Bank is able to create loan products to
enhance its ability to react to interest rate changes, but consumers will
require features which will make them attractive before they will utilize the
loan products. While convenience and service are considered by the consumer,
pricing is also considered. Consumers will generally require more favorable
pricing when interest rate risk is shifted from the Bank to them. Certain
products such as fixed rate mortgages are expected by the consumer. These
products carry considerable interest rate risk because of their long term and
need to be priced accordingly. (In pricing these products, such as long term
mortgages, consideration of

                                       -6-

<PAGE>



interest rate risk is in addition to other factors such as collateral risk,
credit risk, and repayment risks.) Competition from other lenders greatly
impacts the Bank's choices regarding pricing and terms for loans.

         A low-risk rate sensitivity position is achieved by having a similar
amount of assets repricing, or maturing, at or about the same time as the Bank's
liabilities re-price or mature. Management measures its assets and liability
positions by use of a rate sensitivity report which categorizes the Bank's
assets and liabilities on the basis of re-pricing opportunities and maturity
dates. Rate sensitive balances are defined as those balances that mature or can
be repriced within one year. However, management recognizes certain trends and
historical experiences with respect to particular or similar products. For
example, the Bank has a number of deposit accounts, including savings, NOW
accounts and money market accounts which may be withdrawn at any time.
Management knows that while all customers in these account categories could
withdraw their funds on any given day, they will not do so, even with interest
rate changes. These accounts are core deposits and not subject to the same
pressures from interest rates as time deposits. Demand and savings deposits tend
to fluctuate based primarily on the cash flow and transaction needs of the
customer, as well as other non-interest rate factors such as account fees and
customer service. Management makes the assumption that these deposits will not
fluctuate more than 10% within three months, not more than an additional 15%
during the following three to twelve month period and not more than an
additional 30% during the following one to five years. The following table
illustrates the Bank's interest rate sensitivity positions as of December 31,
1997. The time periods used refer to the earliest possible repricing period
(with the exception of "Other Deposits"), not maturity. Management believes the
Bank has an adequately balanced position in all categories.

                                       -7-

<PAGE>


<TABLE>
<CAPTION>

                                                                       Repricing
                                                  Less than     Three to       One to          After
                                                      three       twelve         five           five
(In thousands)                                       months       months        years          years
                                                  --------------------------------------------------
<S>                                                 <C>                       <C>    
Assets:
 Interest bearing deposits ...................      $ 2,021                   $   397
  Investment securities:
   Available for sale ........................                     3,039         3,563      $  6,377
   Held to maturity ..........................        1,530        3,074        15,400         5,202
 Loans........................................       12,578        5,522        16,735        42,982
                                                    ------------------------------------------------

Total.........................................       16,129       11,635        36,095        54,561
                                                    ------------------------------------------------
Liabilities:
 Time deposits ...............................       15,203       17,653        22,807
 Other deposits ..............................        3,845        5,768        11,535        17,303
 Borrowed funds ..............................        1,922                        357
                                                    ------------------------------------------------

Total.........................................       20,970       23,421        34,699        17,303
                                                    ------------------------------------------------
Gap:
 By period....................................      ($4,841)    ($11,786)     $  1,396      $ 37,258
                                                    ================================================
 By cumulative................................      ($4,841)    ($16,627)     ($15,231)     $ 22,027
                                                    ================================================
 Cumulative Gap as
   Percentage of total assets ................        -3.89%      -13.36%       -12.24%        17.70%
</TABLE>

Interest rates are expected to remain fairly stable for most of 1998, with
occasional volatility from market reactions to economic and political events.
Stable interest rates and a well matched asset/liability structure reduce
interest rate risks. Management will strive to take advantage of periodic
volatility to enhance the investment portfolio's yield.

         The Bank continues to offer adjustable rate loans and mortgages as part
of its product mix in order to keep balanced GAP positions. The Bank now
purchases bonds with primarily four to seven year maturities. These maturities,
along with the use of the Bank's credit line at the Federal Home Loan Bank,
provides adequate cash flow to respond to changing interest rates and liquidity
needs. Management continuously monitors the Bank's gap position inorder to
adjust loan pricing or deposit pricing when conditions change.

LOAN PORTFOLIO

         Total loans outstanding at December 31, 1997 increased by $14,963,000
or 24% to $76,996,000 from the December 31, 1996 total of $62,033,000. This
compares with a 18% increase in 1996 and a 12% increase in 1995. The average
loan balance for 1997 was $69,392,000 compared to $56,316,000 for 1996. Primary
growth occurred in one-to-four family mortgages, commercial mortgages and
consumer loans. One-to-four family mortgages increased

                                       -8-

<PAGE>

by $11,031,000 or 37% to $41,239,000 at year end 1997. Commercial mortgages
increased by $2,390,000 or 33% to $9,598,000 and consumer loans increased by
$1,209,000 or 14% to $9,979,000 at year end. Most of the loan activity has come
from the Towanda, Edwardsville, Back Mountain and Bowman's Creek offices. These
offices are generally competing with very large banks and is an indication for
the consumer and businessman's need for the service of a community bank. The
average interest rate on total loans decreased slightly from 9.69% for 1996 to
9.39% for 1997.

         Major classifications of loans at December 31, 1997 and 1996 are as
follows:


(In thousands)                                              1997        1996
                                                            ----        ----
Real estate mortgages:
  Agricultural ......................................     $ 1,441     $   961
  Residential, 1 - 4 family .........................      41,239      30,209
  Residential, multi-family .........................         687         603
  Nonfarm, nonresidential properties ................       9,598       7,208
                                                          -------     -------
       Total real estate mortgages ..................      52,965      38,981
Agricultural loans ..................................         285         388
Commercial loans.....................................      12,702      12,726
Municipal loans......................................       1,789       1,803
Consumer loans.......................................       9,979       8,770
                                                          -------     -------

Total................................................      77,720      62,668
Unearned income .....................................         725         635
                                                          -------     -------

Total ...............................................     $76,995     $62,033
                                                          =======     =======

                                       -9-

<PAGE>



         Final loan maturities and rate sensitivity of the loan portfolio at
December 31, 1997 are as follows:

<TABLE>
<CAPTION>

                              Within          One -          After
(In thousands)              One Year     Five Years     Five Years          Total
                            -----------------------------------------------------
<S>                          <C>            <C>            <C>            <C>    
Real estate mortgages        $   961        $ 7,836        $44,168        $52,965
Agricultural loans ..            136            135             14            285
Commercial loans ....          3,342          3,993          5,367         12,702
Municipal loans .....          1,171            422            197          1,790
Consumer loans ......            567          6,630          2,782          9,979
                            -----------------------------------------------------

Total ...............        $ 6,177        $19,016        $52,528        $77,721
                            =====================================================
Loans at fixed
  interest rates ....        $ 2,431        $14,693        $42,691        $59,815
Loans at variable
  interest rates ....          3,746          4,323          9,837         17,906
                            -----------------------------------------------------

Total ...............        $ 6,177        $19,016        $52,528        $77,721
                            =====================================================
</TABLE>

         Non-accrual loans at December 31, 1997 were $136,000 and $247,00 in
1996. Accrual of interest is discontinued on a loan when management believes
after considering economic and business conditions and results collection
efforts, that the borrower's financial condition is such that full recovery of
the loan balance is doubtful. Interest that would have been accrued if the loans
were not classified as non-accrual was approximately $13,000 in 1997 and $24,000
in 1996.

ALLOWANCE FOR LOAN LOSSES

         The provision for loan losses and related allowance for loan losses are
based upon management's continued evaluation of the current loan portfolio
considering factors including general economic conditions, adequacy of
collateral on past due loans, past and expected loan loss experience,
composition of loan portfolio, unusual risk concentrations, allowance as a
percentage of total loans and other pertinent factors. No portion of the reserve
is specifically allocated to any individual loan or loan classification. The
total allowance balance is available to absorb losses from all loans included in
the portfolio.

         Net charge-offs during 1997 were $46,000 compared to $34,000 during
1996, representing an increase of 35% for the period. Average loans increased
from $56,316,000 for 1996 to $69,392,000 for 1997. At December 31 the balance in
the allowance for loan losses increased from $623,000 to $767,000, for 1996 and
1997 respectively, and the ratio of loan loss allowance to loans was 1.00%.
Management is of the opinion that the quality of the loan portfolio remains
strong, but anticipates that losses over the next year may increase in
proportion to the increase in the size of the loan portfolio, and a projected
loss of $50,000 in connection with a commercial loan. Provisions for loan losses
have increased in the last two years due to

                                      -10-

<PAGE>

management's efforts to maintain the reserve at a level adequate for the
increasing size of the loan portfolio and to cover other potential losses which
have been identified by management and the Board of Directors.

         The following sets forth loans past due 90 days or more on which
interest has continued to be accrued, at December 31:


(In thousands)                                     1997         1996
                                                   ----         ----
Real estate mortgages............................  $311          $67
Demand...........................................     0           11
Installment......................................     1            0
                                                   -----------------

TOTAL............................................  $312          $78
                                                   =================

         This table summarizes the Company's loan loss experience for the years
ended December 31:

(In thousands)                                                  1997      1996
                                                                ----      ----
Balance at beginning of period.......................         $   623   $   532
                                                              -----------------
Charge-offs:
  Commercial, consumer and agricultural..............              49        14
  Real estate mortgages..............................               0        18
  Installment........................................               2         9
                                                              -----------------

TOTAL................................................              51        41
                                                              -----------------
Recoveries:
  Commercial, consumer and agricultural..............               3         6
  Real estate mortgages..............................               0         0
  Installment........................................               2         1
                                                              -----------------

TOTAL................................................               5         7
                                                              -----------------
Net charge-offs......................................              46        34
                                                              -----------------
Provision charged to operations......................             190       125
                                                              -----------------
Balance at end of period.............................         $   767  $    623
                                                              =================
Average loans outstanding............................         $69,392   $56,316
Loans outstanding, December 31.......................         $76,995   $62,033
Loan reserve ratios:
  Net loan charge-offs - average loans...............            0.07%     0.06%
  Reserve - loans, December 31.......................            0.99%     1.00%

INVESTMENT PORTFOLIO

         The Company's investment portfolio increased by $4,205,000 or 12%
during the year ended December 31, 1997 to $38,208,000. The increase was due to
deposit growth. If not for

                                      -11-

<PAGE>

the continued strong loan demand, investment growth would have been greater.
Available for sale securities increased by $1,269,000 or 11% to $13,002,000 and
Held to maturity securities increased by $2,936,000, or 13% to $25,206,000, from
December 31, 1996 to December 31, 1997.

         Management has started to purchase longer term bonds in its
available-for-sale portfolio in order to achieve higher returns. Should the
value of these bonds decline significantly due to rising interest rates,
management will consider selling the bonds in order to minimize any loss.
Management considers the risk of this strategy to be manageable. Credit quality
remains a high priority when purchasing bonds, and management continues to
maintain a portfolio substantially free of "credit risk".

         The Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" requires the Company to
classify its debt and equity securities into three categories: held to maturity,
available for sale, or trading. The Company has classified all U.S. Treasury
instruments and equity securities as available for sale, and all other
investments as held to maturity. Available for sale are evaluated quarterly, and
their carrying values adjusted to reflect their market values, with the
resulting adjustment being reflected as an adjustment, net of tax, to the
Company's equity. The market value of investments available for sale as of
December 31, 1997, reflect an increase in the unrealized gain from December 31,
1996 of $81,000.

         The carrying value of investment securities both available for sale,
and held to maturity at December 31, are summarized as follows:


(In thousands)                                        1997           1996
                                                      ----           ----
Available for sale:
  U.S. Treasury securities ................        $ 6,602        $11,313
  U.S. government agencies and corporations          3,709
  State and Municipal Securities ..........          2,189
  Other securities ........................            502            420
                                                   -------        -------
     Total ................................        $13,002        $11,733
                                                   =======        =======

Held to maturity:
  U.S. Treasury securities ................
  U.S. government agencies and corporations        $18,905        $18,142
  State and municipal securities ..........          4,181          3,740
  Other securities ........................          2,120            388
                                                   -------        -------
              Total .......................        $25,206        $22,270
                                                   =======        =======

         The following table sets forth the maturities of investment and debt
securities at December 31, 1997 and the weighted average yields (tax-exempt
securities on tax equivalent basis assuming 34% tax rate) of such securities:

                                      -12-

<PAGE>
<TABLE>
<CAPTION>

                          Maturing                Maturing             Maturing           Maturing
                           within               one to five          five to ten          after ten
(In thousands)            one year                 years                years               years
                          -------------------------------------------------------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Available for sale:
  U.S. Treasury
    securities ......     $3,036 5.72%          $ 3,509 6.18%
  U.S. government
     agencies and
     corporations ...                                                $3,669 6.50%
  State and municipal
     securities .....                                                 2,167 7.12%
  Other securities ..                                                                     $502
                          ------                -------              ------               ----
  Total .............     $3,036 5.72%          $ 3,509 6.18%        $5,836 6.73%         $502
                          ======                =======              ======               ====

Held to maturity:
  U.S. government
    agencies and
    corporations ....     $2,884 5.79%          $10,985 6.48%        $4,463 6.73%         $573 7.66%
  State and municipal
    securities ......      1,195 6.72%            2,743 6.44%           243 7.47%
  Other securities ..         87 6.39%            1,537 6.59%           496 6.55%
                          ------                -------              ------               ----
  Total .............     $4,166 6.07%          $15,265 6.48%        $5,202 6.75%         $573  7.66%
                          ======                =======              ======               ====
</TABLE>

DEPOSITS

         Deposits at December 31, 1997 were $108,789,000, an increase of
$17,734,000 or 19% from the December 31, 1996 balance of $91,055,000.
Non-interest bearing deposits increased $2,469,000 or 20%, to $14,676,000 and
interest bearing deposits increased $15,264,000 or 19% to $94,113,000. The
percentage of non-interest bearing deposits to average total deposits for 1997
remained at 13% as they were for 1996. The percentage of average non-interest
bearing deposits to average total deposits is important to the Bank's
profitability because it decreases the Bank's overall interest expense.

         Average time deposits increased by $7,550,000 during 1997 to
$50,741,000 from $43,191,000 during 1996. Their proportion of total average
deposits remained at 58%. Average deposits in savings and money market accounts
increased by $2,283,000 from 1996 to 1997, and average deposits in NOW and
Super-NOW accounts increased by $3,215,000 during the same period. Management
anticipates continued strong growth in deposits from the office in Towanda and
the Back Mountain office at Trucksville.

         The average balance of deposits and average rates paid on such deposits
during the years ended December 31 are set forth in the following table:

                                      -13-

<PAGE>

                                                1997                 1996

                                           Average Average      Average Average
(In thousands)                             Balance Rate         Balance Rate
                                           ------- -------      ------- -------
Demand deposits:
  Noninterest bearing..................... $ 14,786             $11,571
  Interest bearing........................   10,905 2.17%         8,661 2.00%
Savings and money market deposits.........   26,191 2.74%        23,908 2.74%
Time deposits.............................   50,741 5.52%        43,191 5.49%
                                           --------             -------

TOTAL..................................... $102,623             $87,331
                                           ========             =======

         Maturities of certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1997 are as follows:


                                   Certificates    Other
                                       of           Time
(In thousands)                       Deposits     Deposits       Total
                                   ------------   --------       -----
3 months or less .............        $2,929                    $2,929
3 to 6 months ................         1,046                     1,046
6 to 12 months ...............         2,160                     2,160
Over 12 months ...............         2,900                     2,900
No set maturity, state deposit                      $200           200
                                      --------------------------------
               TOTAL .........        $9,035        $200        $9,235
                                      ================================

CAPITAL

         An adequate capital position is necessary to support continued growth
and earnings, to meet the needs of depositors and borrowers, and to sustain a
reasonable rate of return for stockholders. Stockholders' equity increased by
$1,698,000 or 16% from $10,940,000 at December 31, 1996 to $12,638,000 at
December 31, 1997. This was approximately the same increase as the $1,418,000 or
15% increase from December 1995 to December 1996. The average equity to assets
ratio was 10.15%, 10.30% and 10.51% for the years 1997, 1996 and 1995,
respectively.

         The Board of Directors decision to declare stock dividends instead of
cash dividends has, along with strong profits, helped maintain a high equity to
assets ratio. Because of the strong demand for the Company's stock, the stock
dividend is popular with stockholders. The additional equity is necessary to
keep pace with the strong deposit growth the Bank has experienced, and expects
to continue as a result of the new offices opened over the past several years.
The Board of Directors hope the additional stock generated by the stock
dividends will help satisfy the demand for the Company's stock as well as make
some stock available for the 401(k) Employee Stock Ownership Plan which the
Company established in late 1995.

                                      -14-

<PAGE>

         In 1989 the Federal Reserve Board issued risk-based capital guidelines,
which require banking organizations to maintain certain ratios of "qualifying
capital" to "risk-weighted assets". "Qualifying capital" is classified into two
tiers, referred to as Tier 1 and Tier 2 capital. Tier 1 capital consists of
common equity, qualifying perpetual preferred equity and minority interests in
the accounts of unconsolidated subsidiaries, less goodwill. Tier 2 capital
consists of perpetual preferred equity not qualifying for Tier 1 capital, the
allowance for loan losses, mandatory convertible debt and subordinated and other
qualifying securities. The amount of Tier 2 capital may not exceed the amount of
Tier 1 capital. In calculating "risk-weighted", certain risk percentages, as
specified by the Federal Reserve Board, are applied to particular categories of
both on and off-balance sheet assets. The guidelines require that banking
organizations maintain a minimum ratio of Tier 1 capital to risk-weighted assets
of 4%, and require a minimum ratio of Tier 1 and Tier 2 capital to risk-weighted
assets of 8%.

         The Federal Reserve Board has an additional capital standard, referred
to as the Tier 1 leverage ratio. The Tier 1 leverage ratio is defined as Tier 1
capital (as defined under the risk-based guidelines) divided by average total
assets (net of allowance for losses and goodwill). The minimum leverage ratio is
3% for banking organizations that do not anticipate significant growth and that
have well-diversified risk (including no undue interest rate risk), excellent
asset quality, high liquidity and good earnings. Other banking organizations are
expected to have ratios of at least 4% to 5%, depending upon their particular
circumstances, or risk profile of a given banking organization. The Federal
Reserve Board has not advised the Bank of any specific minimum Tier 1 leverage
ratio applicable to it.

         The table below sets forth the Bank's Tier 1 and Tier 2 capital, risk
adjusted assets (including off-balance sheet items) the Bank's risk-based
capital ratios, and the Bank's Tier 1 leverage ratios. At December 31, 1996 and
1995, the Bank exceeded all regulatory capital requirements.


Risk-Based Capital
December 31, (in thousands, except ratios)     1997            1996
Tier I capital:
  Shareholders' equity ..............        $12,414         $10,780
                                             -------         -------


Tier II capital:
  Loan loss reserve .................            767             623
                                             -------         -------
Total Qualifying Capital ............        $13,181         $11,403
                                             =======         =======
Risk-adjusted assets (including
  off-balance sheet items) ..........        $76,937         $61,371
Tier I Capital Ratio (4.00% required)          16.14%          17.57%
Total Capital Ratio (8.00% required)           17.13%          18.58%

Tier I Leverage Ratio ...............          10.71%          10.89%

                                      -15-
<PAGE>

RESULTS OF OPERATIONS

         Net income for 1997 totaled $1,608,000 ($4.42 basic per share, based on
363,099 weighted average common shares) as compared to 1996's net income of
$1,498,000 ($4.14 per share based on 361,907 weighted average common shares),
and 1995's net income of $1,179,000 ($3.26 per share based on 361,798 weighted
average common shares).

         Net interest income or the spread between total interest income and
interest expense directly impacts the results of operation. The net interest
yield for 1997 declined to 4.79% from 4.87% in 1996. While the average rate on
interest earning assets fell from 8.35% to 8.29%, the average rate on the total
sources to fund the earning assets increased from 3.48% to 3.50%. The Bank's
interest rate spread declined primarily due to lower rates on new loans and many
existing being refinanced by customers. Average rates on loans declined from
9.69% in 1996 to 9.39% in 1997, while average rates on investments increased
from 6.35% in 1996 to 6.38% in 1997. Net interest income for 1997 increased by
$635,000 (on a tax equivalent basis) or 15% as compared to $716,000 or 19% for
1996 vs. 1995. Overall, volume had a positive impact of $820,000 and rate had a
negative impact of $185,000 on the change in interest income.

         Loans at year end increased by $14,963,000 or 24% for 1997 over 1996,
compared to an increase of $9,495,000 or 18% for 1996 over 1995, and deposits at
year end increased by $17,733,000 or 19% for 1997 over 1996, compared to
$11,189,000 or 14% for 1996 over 1995. Investment securities, at year end,
increased $4,205,000 or 12% for 1997 over 1996 compared to $2,336,000 or 7% for
1996 over 1995. Income on loans increased by $1,060,000 (on a tax equivalent
basis) or 19% for 1997 compared to 1996, and interest on investment securities
increased $56,000 (on a tax equivalent basis) or 3%. Management began purchasing
longer maturity (i.e. 7 - 10 years) bonds in 1997 in order to improve yields.
These longer bonds are being designated as available for sale, in order to have
the option of selling the bonds should their values decline significantly due to
interest rate changes.

         The average rates on interest earning assets decreased during 1997,
while the average rates paid on interest bearing liabilities remained steady.
The loan to deposit ratio at 1997 year end was 70% compared to 67% at 1996 year
end. Loan growth is expected to continue, and the loan to deposit ratio should
continue to increase slightly, as loan demand is experienced at the
Edwardsville, Little Meadows, Towanda, and Back Mountain offices. In addition,
the Bank recently hired an employee with a strong commercial loan background and
strong ties in Luzerne County to help generate additional business in that
marketplace.

         Salaries and employee benefits increased by $255,000 or 19% in 1997 as
compared to 1996, primarily because of hiring of additional employees for the
Towanda and Back Mountain offices, annual salary increases, and changes in the
Bank's overall compensation programs which reward employees based on
performance.

                                      -16-

<PAGE>

         Occupancy and furniture and equipment expense increased by $179,000 or
39% in 1997 as compared to 1996. The large increase in these expenses reflect a
full year's costs at Towanda, as opposed to a partial year in 1996, and the cost
of the Back Mountain office. The effect of adding two branch offices so quickly
was reflected in the rate of increase in occupancy and furniture and equipment
costs.

         The Deposit Insurance Funds Act of 1996 (DIFA) passed by Congress and
signed by the President, mandates banks to help pay the cost of the bonds issued
by the "Financing Corporation" (FICO), which were used to finance the savings
and loan bailout. The current annual cost to all Bank Insurance Fund (BIF)
members is 1.296 cents per $100 of deposits. Members of the Savings Association
Insurance Fund (SAIF) are required to pay 6.48 cents per $100 of deposits.
Although banks are being required to pay much less than savings associations, it
should be noted that the savings associations were the institutions that created
the losses. This assessment is expected to cost the Bank approximately $14,000
in 1998. The Federal Deposit Insurance Corporation (FDIC) premium on deposit
insurance remains at zero for 1998.

IMPACT OF INFLATION

         The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most industrial companies
that have significant investments in fixed assets or inventories. Management
believes that the most significant impact on financial results is changes in
interest rates and the Company's ability to react to those changes. The
discussion under liquidity and rate sensitivity provides additional information
concerning the importance of maintaining a balanced position between interest
sensitive assets and interest sensitive liabilities, in order to protect against
wide interest rate fluctuations. Inflation also has an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. An important effect of this has been the
reduction of the proportion of earnings paid out in the form of dividends.
Another significant effect of inflation is on other expenses which tend to rise
during periods of general inflation.

YEAR 2000 IMPACT

         Management is currently working to resolve the potential impact of
"Year 2000" issues on the processing of date-sensitive information by its
computer systems. The Year 2000 issues relate to the ability of computer systems
to be able to distinguish date data between the twentieth and twenty-first
centuries. Management anticipates that the Bank's computer systems will be
compliant by the end of 1998 and is currently testing for such compliance. The
Bank could also be adversely affected if its customers rely on data processing
systems that are not Year 200 compliant prior to the end of 1999. The Bank,
therefore, is taking a proactive role to advise its customers of the possible
problems with their systems regarding Year 2000 issues.

                                      -17-

<PAGE>

         The costs that have been incurred by the Bank in addressing its
potential Year 2000 problems have not had a material adverse impact on the
Bank's financial position, results of operations or cash flows. However, the
inability of the Bank or its customers to resolve Year 2000 issues in a timely
manner could result in a material financial risk. Management believes that the
bank is devoting appropriate resources to resolve its Year 2000 issues in a
timely manner and does not currently expect that doing so will have a material
adverse impact on the Bank's financial position, results of operations or cash
flows in the future.

COMMUNITY REINVESTMENT ACTIVITIES

         The Community Reinvestment Act of 1977 (CRA) was adopted to encourage
all financial institutions to help meet the credit needs of the communities they
serve. The Act requires that each institution perform an annual self assessment
of its record in meeting the needs of its entire community, including low and
moderate income families, consistent with safe and sound banking practices. It
also requires that financial institutions keep a record of their CRA related
performance and that this record be made available to the public. The management
of the Bank is proud of its Community Reinvestment activities and its
performance in meeting the credit needs of people of all income levels, race,
religions or national origins. Following its most recent examination of the
Bank's CRA practices, the Comptroller of the Currency awarded the Bank an
"Outstanding" rating under the Community Reinvestment Act.

         Effective in 1993 the Board of Finance and Revenue of the Commonwealth
of Pennsylvania adopted a Community Reinvestment Act (CRA) of its own. This
policy seeks to ensure that financial institutions who accept public funds as
deposits maintain an acceptable record of reinvestment within the community they
serve. The Bank received notification from the Treasurer of the Commonwealth of
Pennsylvania that a CRA evaluation had been completed by their office for 1996
and the Bank had received a rating of "Outstanding".

         In accordance with its plans to continue its efforts to develop
products which are affordable and accessible to all segments of its marketplace,
the Bank has worked with one of its correspondent banks, the Atlantic Central
Banker's Bank, to offer a mortgage product to customers, which only requires a
5% down payment. This mortgage would require private mortgage insurance, have a
low interest rate, and be sold on the secondary mortgage market.

         During 1996, the Bank participated in a Community Development Block
Grant Program in Noxen Township, Wyoming County. Under the terms of the program,
the Bank agreed to provide rehabilitation loans for residential properties, to
low and very low income individuals and families. These loans would be written
at no interest and the Bank would be reimbursed based upon a formula established
by the Pennsylvania Department of Community Affairs. The Bank has previously
provided similar finance programs to the Boroughs of Meshoppen and Laceyville.

                                      -18-

<PAGE>



         In response to devastating floods in January 1996, the Bank offered to
defer payments on existing home mortgages for flood victims and provide reduced
rate mortgages with accelerated processing time to victims who desired to
relocate.

OTHER ACTIVITIES

         The Company purchased an renovated the former "Bluhm's II" and R.B.
Learn buildings on Main Street in Laceyville, during 1996 and 1997. These
buildings are located a short distance from the Bank's existing office in
Laceyville. Management plans to utilize the space as a future data processing
center and as a location for retail insurance sales. The Bank is also leasing
space to a restaurant in the building. Management believes that these additions
would have a positive effect on the Laceyville business community revitalization
efforts.

TRUST DEPARTMENT

         The Bank's Trust Department, established in 1992, continues to grow and
expand. Offering personal trusts, irrevocable trusts, insurance trusts, trusts
under will, estate management services and IRAs. Additional employees have been
added to handle the growth of accounts and serve the required functions.
Management does not expect the Trust Department to be profitable for at least
the next three years.

                                      -19-

<PAGE>

                    Grange National Banc Corp and Subsidiary
               Average Balances, Interest Income/Expense and Rates
<TABLE>
<CAPTION>

      Years Ended                                 December 31, 1997                December 31, 1996
                                            (1)        Interest       Average      (1)        Interest        Average
                                          Average       Income/      Interest    Average       Income/       Interest
                                          Balance       Expense          Rate    Balance       Expense           Rate
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>             <C>     <C>            <C>              <C>  
INTEREST EARNING ASSETS:
 Loans:
  Mortgages .....................        $ 44,474        $3,873          8.71%   $37,097        $3,560           9.60%
  Installment ...................           4,816           560         11.63      4,930           501          10.16
  Commercial ....................          20,102         2,082         10.36     14,289         1,394           9.76
                                         ----------------------                  ---------------------
    Total loans .................          69,392         6,515          9.39     56,316         5,455           9.69
                                         ----------------------                  ---------------------
 Securities available for sale:
  U.S. Treasury securities ......           9,660           584          6.05     11,341           664           5.85
  U.S. government agencies ......           1,338            87          6.50
  Municipal bonds ...............             670            49          7.31
  Other securities ..............             471            28          5.94        392            24           6.12
                                         ----------------------                  ---------------------
    Total available for sale ....          12,139           748          6.16     11,733           688           5.86
                                         ----------------------                  ---------------------
 Securities held to maturity:
  U.S. government agencies ......          18,498         1,184          6.40     18,492         1,217           6.58
  Municipal bonds ...............           4,039           278          6.88      4,124           278           6.74
  Other securities ..............             920            60          6.52        502            31           6.18
                                         ----------------------                  ---------------------
    Total held to maturity ......          23,457         1,522          6.49     23,118         1,526           6.60
                                         ----------------------                  ---------------------
      Total investment securities          35,596         2,270          6.38     34,851         2,214           6.35
                                         ----------------------                  ---------------------
 Deposits in banks ..............           3,155           177          5.61      2,092           116           5.54
                                         ----------------------                  ---------------------
      TOTAL .....................        $108,143        $8,962          8.29    $93,259        $7,785           8.35
                                         --------                                -------
                                         ----------------------                  ---------------------

INTEREST BEARING
LIABILITIES:
 Deposits:
  NOW and super-NOW ...............      $ 10,905       $   237          2.17    $ 8,661        $  173           2.00
  Savings and money market ........        26,191           717          2.74     23,908           655           2.74
  Certificates of deposit .........        50,541         2,788          5.52     42,991         2,358           5.48
  Other time deposits .............           200            11          5.50        200            12           6.00
                                         ----------------------                  --------------------
    Total deposits ................        87,837         3,753          4.27     75,760         3,198           4.22
 Other borrowed funds .............           844            34          4.03        922            47           5.10
                                         ----------------------                  --------------------
      TOTAL .......................        88,681         3,787          4.27     76,682         3,245           4.23

Non-interest bearing funds, net (2)        19,462                                 16,577
                                         ----------------------                  --------------------
TOTAL SOURCES TO FUND
EARNING ASSETS ....................      $108,143         3,787          3.50    $93,259         3,245           3.48
                                         --------                                -------
                                         ----------------------                  --------------------
NET INTEREST/YIELD ................                      $5,175          4.79%                  $4,540           4.87%
                                                         ======                                 ======
</TABLE>

(1) Average balances are daily averages. (2) Demand deposits, stockholders'
equity and other non-interest bearing liabilities less non-interest earning
assets. - Non-accrual loans are reflected in the balances, but contributing no
income. NOTE - Tax exempt interest income has been converted to a tax equivalent
basis at the U.S. federal income tax rate of 34%.

                                      -20-

<PAGE>

                    Grange National Banc Corp. And Subsidiary
                               Net Interest Income
                         Changes Due to Volume and Rate
<TABLE>
<CAPTION>

                                             1997 vs. 1996                       1996 vs. 1995
                                          Increase (Decrease)                 Increase (Decrease)
                                     Total      Due To      Due To       Total      Due To      Due To
(In thousands)                      Change      Volume        Rate      Change      Volume        Rate
                                    ------------------------------------------------------------------
<S>                                 <C>         <C>          <C>        <C>         <C>           <C>  
INTEREST INCOME:
  Loans .......................     $1,060      $1,234       ($174)     $  529      $  622        ($93)
  Investment securities .......         56          46          10         748         688          60
  Deposits in other banks .....         61          59           2        (174)       (162)        (12)
                                    ------------------------------------------------------------------
       TOTAL ..................      1,177       1,339        (162)      1,103       1,145         (45)
                                    ------------------------------------------------------------------

INTEREST EXPENSE:
  Now/Super-Now deposits ......         64          48          16          18          16           2
  Savings/Money market deposits         62          62           0          46          69         (23)
  Time deposits ...............        429         413          16         314         367         (53)
  Other Borrowings ............        (13)         (4)         (9)          9           8           1
                                    ------------------------------------------------------------------
      TOTAL ...................        542         519          23         387         460         (73)
                                    ------------------------------------------------------------------
NET INTEREST INCOME ...........     $  635      $  820       ($185)     $  716      $  688         $28
                                    ==================================================================
</TABLE>

         The change in interest due to volume and due to rate has been allocated
by reference to changes in the average balances and the average interest rates
of interest earning assets and interest bearing liabilities. Tax-exempt interest
has been converted to a tax equivalent basis at the U.S. federal income tax rate
of 34%.

                                      -21-

<PAGE>

                          INDEPENDENT AUDITOR'S OPINION

The Board of Directors and Stockholders
Grange National Banc Corp.

         We have audited the consolidated balance sheets of Grange National Banc
Corp. and subsidiary as of December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

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


Daniel Kenia, P.C.
Tunkhannock, Pennsylvania

January 22, 1998

                                      -22-

<PAGE>
<TABLE>
<CAPTION>

                    GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
DECEMBER 31,                                                                       1997               1996  
                                                                                   ----               ----
<S>                                                                           <C>                <C>          
ASSETS:
  Cash and due from banks ...............................................     $   2,514,202      $   2,566,232
  Interest bearing deposits .............................................         2,417,987          1,974,642
  Investment securities (Note 2):

    Available for sale ..................................................        13,001,723         11,732,690
                                                                              --------------------------------
    Held to maturity, (market value
      1997, $25,316,000; 1996, $22,182,000) .............................        25,205,836         22,269,823
                                                                              --------------------------------
  Loans (Note 3) ........................................................        77,720,098         62,667,685
  Less:  unearned interest income .......................................           724,670            634,639
  Less:  allowance for loan losses ......................................           767,475            622,821
                                                                              --------------------------------
         Loans, net .....................................................        76,227,953         61,410,225
  Bank premises and equipment, net (Note 4) .............................         3,028,098          2,680,580
  Accrued interest and other assets .....................................         1,730,580          1,407,712
  Premium on deposits ...................................................           140,460            157,485
  Other real estate .....................................................           149,795
                                                                              --------------------------------
TOTAL ASSETS ............................................................     $ 124,416,634      $ 104,199,389
                                                                              ================================
LIABILITIES:
  Domestic Deposits:
    Non-interest bearing deposits .......................................     $  14,675,828      $  12,206,738
    Interest bearing deposits ...........................................        94,112,851         78,848,660
                                                                              --------------------------------
      Total deposits ....................................................       108,788,679         91,055,398
  Other borrowed funds (Note 5) .........................................         2,279,294          1,613,160
  Accrued interest and other liabilities ................................           710,857            590,973
                                                                              --------------------------------
      Total liabilities .................................................       111,778,830         93,259,531
                                                                              --------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 1)
STOCKHOLDERS' EQUITY (NOTE 1):
  Preferred stock authorized 1,000,000 shares of $5 par;
    None issued nor outstanding .........................................
  Common stock authorized 5,000,000 shares of $5 par, 363,305 and 355,291
    shares issued in 1997 and 1996, respectively ........................         1,816,525          1,776,455
  Additional paid-in capital ............................................         2,052,158          1,767,949
  Retained earnings .....................................................         8,685,313          7,392,890
                                                                              --------------------------------
      Total .............................................................        12,553,996         10,937,294
 Unrealized holding gains on investment securities
  (net of deferred income taxes) (Note 6) ...............................            84,000              3,000
  Treasury stock, at cost (Note 1) ......................................              (192)              (436)
                                                                              --------------------------------
      Total stockholders' equity ........................................        12,637,804         10,939,858
                                                                              --------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..............................     $ 124,416,634      $ 104,199,389
                                                                              ================================
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -23-

<PAGE>

                    GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,                           1997             1996            1995
                                                   ----             ----            ----
<S>                                            <C>              <C>             <C>        
Interest Income:
  Interest and fees on loans .............     $ 6,462,812      $ 5,421,051     $ 4,897,858
  Interest on investment securities:
    U.S. Treasury securities .............         583,566          664,440         432,412
    Obligations of other U.S. government
      agencies and corporations ..........       1,271,288        1,216,544         783,746
    Obligations of states and political
      subdivisions (tax-exempt) ..........         216,027          183,183         106,395
    Other securities .....................          87,259           54,442          89,204
Interest on deposits in banks ............         177,221          115,601         289,497
                                               --------------------------------------------
        Total interest income ............       8,798,173        7,655,261       6,599,112
                                               --------------------------------------------
Interest Expense:

  Interest on deposits ...................       3,753,657        3,198,198       2,818,839
  Interest on borrowed funds .............          34,145           47,102          39,500
                                               --------------------------------------------
        Total interest expense ...........       3,787,802        3,245,300       2,858,339
                                               --------------------------------------------
        Net interest income ..............       5,010,371        4,409,961       3,740,773
                                               --------------------------------------------
    Provision for loan losses (Note 3) ...         190,000          125,000         115,000
                                               --------------------------------------------
        Net interest income after
        provision for loan losses ........       4,820,371        4,284,961       3,625,773
Other Income (Note 7) ....................         676,731          500,271         393,227
Other Expenses (Note 8) ..................      (3,205,301)      (2,627,512      (2,321,861)
                                               --------------------------------------------
Income before taxes ......................       2,291,801        2,157,720       1,697,139

Provision for income taxes (Notes 1 and 6)         684,000          660,000         518,000
                                               --------------------------------------------
Net income ...............................      $1,607,801       $1,497,720     $ 1,179,139
                                               ============================================
Earnings per share (Notes 1, 11 and 12):

Basic ....................................     $      4.42      $      4.14     $      3.26
                                               ============================================
Diluted ..................................     $      4.15      $      4.03     $      3.26
                                               ============================================
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -24-

<PAGE>


                   GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                              Common          Additional                           Unrealized
                               Treasury        Stock           Paid-in         Retained               Gains/
                                 Stock        $5 Par           Capital         Earnings              (Losses)             Total
                               ----------------------------------------------------------------------------------------------------
<S>               <C> <C>        <C>         <C>              <C>              <C>                   <C>                  <C>      
Balance, December 31, 1994 ..    (536)       1,728,270        1,483,334        5,137,944             (106,000)            8,243,012
Net income ..................                                                  1,179,139                                  1,179,139
Cash dividend $0.20 per share                                                    (69,126)                                   (69,126)
Stock dividend $0.27 per
  share, plus cash in lieu of
  fractional shares .........                   13,935           69,675          (93,410)                                    (9,800)
Issuance of common stock ....                    1,665            6,327                                                       7,992
Sale of stock from treasury .      50                                                                                            50
Unrealized holding gains
  on investment securities ..                                                                         258,000               258,000
Deferred tax liability ......                                                                         (87,000)              (87,000)
                               ----------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ..   ($486)      $1,743,870       $1,559,336       $6,154,547              $65,000            $9,522,267
Net income ..................                                                  1,497,720                                  1,497,720
Stock dividend $0.74 per                     
  share, plus cash in lieu of
  fractional shares .........                   32,585          208,613         (259,377)                                   (18,179)
Sale of stock from treasury .      50                                                                                            50
Unrealized holding losses
  on investment securities ..                                                                         (94,000)              (94,000)
Deferred tax asset ..........                                                                          32,000                32,000
                               ----------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ..   ($436)      $1,776,455       $1,767,949       $7,392,890               $3,000           $10,939,858
Net income ..................                                                  1,607,801                                  1,607,801
Stock dividend $0.74 per
  share, plus cash in lieu of
  fractional shares .........                   33,210          259,074         (315,378)                                   (23,094)
Issuance of common stock ....                    6,860           25,135                                                      31,995
Sale of stock from treasury .     244                                                                                           244
Unrealized holding gains
  on investment securities ..                                                                         124,000               124,000
Deferred tax liability ......                                                                         (43,000)              (43,000)
                               ----------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ..   ($192)      $1,816,525       $2,052,158       $8,685,313              $84,000           $12,637,804
                               ====================================================================================================
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -25-


<PAGE>


                   GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31,                                              1997          1996          1995
                                                                              ----          ----          ----
OPERATING ACTIVITIES:
<S>                                                                      <C>          <C>            <C>       
Net income ............................................................    $1,607,801   $  1,497,720   $1,179,139
Adjustments to reconcile net income to act cash
  provided by operating activities:
    Depreciation and amortization .....................................       284,748        203,166      176,120
    Provision for loan losses .........................................       190,000        125,000      115,000
    Increase (decrease) in deferred income taxes ......................        58,000        (68,000)      58,000
Changes in operating assets and liabilities:
  Decrease in accrued interest income and other assets ................      (380,868)      (271,032)    (493,866)
  Increase (decrease) in accrued interest expense and other liabilities       119,884        137,214      187,220
                                                                          ---------------------------------------
NET CASH PROVIDED BY
  OPERATING ACTIVITIES ................................................     1,879,565      1,624,068    1,221,613
                                                                         ----------------------------------------
INVESTING ACTIVITIES:
  Purchase bank premises and equipment ................................      (615,241)      (634,607)    (211,383)
  Decrease (increase) in other real estate ............................      (149,795)        69,618      117,453
  Purchase of securities "available for sale" .........................    (3,723,722)    (5,114,997)  (6,346,937)
  Increase in mortgage-backed securities "available for sale ..........    (3,731,563)                    498,704
  Sales of securities "available for sale .............................     3,755,046
  Redemptions of securities "available for sale .......................     2,512,206      3,831,386    4,127,854
  Purchase of securities "held to maturity" ...........................    (9,703,703)    (7,161,007) (14,424,317)
  Redemptions of securities "held to maturity" ........................     7,747,916      6,825,442    4,574,373
  Increase in mortgage-backed securities "held to maturity" ...........      (980,226)      (778,779)     107,138
  Increase in loans to customers ......................................   (15,007,728)    (9,529,728)  (5,866,565)
  Increase in deposits in banks .......................................      (443,345)       739,126    2,788,117
  Premium paid on core deposits .......................................                     (170,254)
                                                                         ----------------------------------------
NET CASH USED IN
  INVESTING ACTIVITIES ................................................   (20,340,155)   (11,923,800) (14,635,563)
                                                                         ----------------------------------------
FINANCING ACTIVITIES:
  Increase in deposits before interest credited .......................    14,567,265      8,749,797   10,438,999
  Increase (decrease) in borrowed funds ...............................       666,134        (99,182)     940,303
  Interest credited to deposits .......................................     3,166,016      2,440,002    2,412,863
  Cash dividends paid .................................................       (23,094)       (18,179)     (78,926)
  Decrease in treasury stock ..........................................           244             50           50
  Issuance of common stock ............................................        31,995                       7,992
                                                                         ----------------------------------------
NET CASH PROVIDED BY
  FINANCING ACTIVITIES ................................................    18,408,560     11,072,488   13,721,281
                                                                         ----------------------------------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS ....................................................       (52,030)       772,756      307,331
CASH AND CASH EQUIVALENTS, January 1 ..................................     2,566,232      1,793,476    1,486,145
                                                                         ----------------------------------------
CASH AND CASH EQUIVALENTS, December 31 ................................  $  2,514,202   $  2,566,232   $1,793,476
                                                                         ========================================
SUPPLEMENTARY SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest ............................................................  $    993,280   $    761,079   $  566,855
  Income taxes ........................................................  $    765,553   $    639,000   $  598,000
Non-cash investing activities:
  Unrealized gains (losses) on securities .............................  $     84,000   $    (94,000)     258,000
  Stock dividend ......................................................       292,284        241,198      $83,610
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -26-

<PAGE>




Grange National Banc Corp.  and Subsidiary
Notes to Financial Statements

1. Summary of Significant Accounting Policies:

         The following summary of significant accounting policies is presented
for the reader to obtain a better understanding of the Company's financial
statements and related financial data included in this report. The accounting
and reporting policies and practices of the Company conform to generally
accepted accounting principles within the banking industry.

Business and Principles of Consolidation:

         Grange National Banc Corp. (Company) and its subsidiary the Grange
National Bank (Bank) provide banking services to domestic customers primarily in
northeastern Pennsylvania. The consolidated financial statements include the
accounts of the Company and its bank subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates:

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Investment Securities:

         The Company follows the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115
requires the Company to classify each debt and equity security in one of three
categories: held to maturity, available for sale or trading. Investments
classified as held to maturity are reflected at amortized cost. Investments
classified as either available for sale or trading securities are reflected at
fair market value. Unrealized gains or losses on trading securities are included
in earnings. Unrealized gains and losses on available for sale securities are
excluded from earnings and reflected, net of income taxes, in a separate
component of stockholders' equity until realized. Upon purchase of securities
the Company specifically designates which securities are classified as
"available for sale" and "held to maturity".

                                      -27-

<PAGE>

Amortization of premiums and accretion of discounts are recognized as
adjustments to interest income. Gains or losses on disposition are based on the
net proceeds and the adjusted carrying value of the securities using the
specific identification method.

Loans and Allowance for Loan Losses:

         Loans are stated at face value, net of unearned discount and the
allowance for loan losses. Unearned discount on consumer loans is recognized as
income over the terms of the loans by a method that approximates the simple
interest method. Interest on other loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding. The
allowance for loan losses is established through a provision for loan losses
charged to operating expenses. Loan losses and recoveries are charged or
credited to the allowance for loan loss account at the time incurred. The
provision for loan losses and related allowance of loan losses are based upon
management's continual evaluation of the current loan portfolio and prior loan
loss experience. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection of
interest is doubtful.

         The bank has adopted the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," in its
evaluation of the loan portfolio. SFAS 114 requires that certain impaired loans
be measured based on the present value of expected future cash flows discounted
at the loan's original effective interest rate. As a practical expedient,
impairment may be measured based on the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. When the
measure of the impaired loan is less than the recorded investment in the loan,
the impairment is recorded through a valuation allowance.

Premises and Equipment:

         Building and office equipment are stated at cost less accumulated
depreciation computed on the straight line method. Costs incurred for routine
maintenance and repairs are expensed currently. The estimated depreciable lives
used in computing depreciation are as follows:

                  Buildings and improvements                  7 to 50 years
                  Equipment and furniture                     5 to 20 years

National banking law restricts the investment in bank premises to the amount of
a bank's capital stock. However, in certain circumstances, and with regulatory
approval, investment in bank premises can be as much as 50% of the stockholders'
equity. The ratio of investment in bank premises to stockholders' equity at
December 31, 1997 was within the approved 50% limit and no regulations have been
violated.

                                      -28-

<PAGE>

Intangible Assets:

         Intangible assets are included in the other assets and are being
amortized over a period of fifteen years using the straight line method.
Amortization for 1997 and 1996 was $17,025 and $12,769, respectively.

Other Real Estate:

         Other real estate consists of properties acquired through a foreclosure
proceeding or acceptance of a deed in lieu of foreclosure. These properties are
carried at the lower of cost or fair market value based on appraised value at
the date of foreclosure. Loan losses arising from the acquisition of such
properties are charged against the allowance for loan losses.

Treasury Stock:

         Treasury stock is shown at cost and consists of eight and twenty shares
of common stock in 1997 and 1996, respectively.

Pension Plan:

         The Bank's pension plan is an Employee Stock Ownership Plan with 401(k)
Provisions ("KSOP") which covers substantially all employees. The Plan, which is
a type of stock bonus plan, is a plan of deferred compensation in which Company
contributions are used to provide participating employees with stock in Grange
National Banc Corp. The KSOP also provides that participants may make
contributions to the Plan on a before-tax basis, pursuant to provisions found
under Section 401(k) of the Internal Revenue Code. Participants may elect to
defer up to 15% of their current compensation and the Company may match up to
$1.00 for each $1.00 that is deferred. The Company contributed $12,982 and
$4,498 as matching contribution to employee deferrals during 1997 and 1996. The
Company also made an Employer Optional Contribution to the Plan of $71,139 and
$56,147 during 1997 and 1996, which represents 6% of gross salaries for each
year. During prior years, the Bank had a SEP-IRA pension plan. Contributions to
the SEP-IRA was $48,099 in 1995 and amounted to 8% of gross salaries.

Cash and Cash Equivalents:

         The Company considers cash and due from banks as cash and cash
equivalents for purposes of the Statements of Cash Flows.

Income Taxes:

         Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently payable and deferred
taxes related primarily to the temporary differences between the financial
reporting and tax basis of an asset or liability. The

                                      -29-

<PAGE>

temporary differences relate principally to the use of different accounting
methods for financial (accrual basis) and tax (cash basis) purposes, accumulated
depreciation on bank premises and equipment, recognition of interest income on
consumer loans with terms exceeding five years, accretion of discounts on
financial basis of securities, and allowances for loan losses. Deferred taxes
represent future consequences of the differences which will either be taxable or
deductible in the year the assets and liabilities are recovered or settled.
Under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The income tax expense (or
benefit) is the difference between the deferred tax asset or liability
calculated for each period.

         The Company and its subsidiary file a consolidated federal income tax
return.

Earnings Per Share:

         Effective for 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.

Restrictions on Cash and Due From Bank Accounts:

         The Bank is required to maintain average balances with various
correspondent banks. The amount of those balances for the year ended December
31, 1997 was approximately $20,000.

Accounting for Transfers and Servicing of Financial Assets
 and Extinguishments of Liabilities:

         The Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which the Company has adopted for 1997. The statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. Those standards are based on
consistent application of a financial components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. This Statement provided
consistent standards for distinguishing transfers of financial assets that are
sales from transfers from secured borrowings.


                                      -30-

<PAGE>



         This Statement provides implementation guidance for assessing isolation
of transferred assets and for accounting for transfers of partial interests,
servicing of financial assets, securitization, transfers of sales-type and
direct financing lease receivables, securities lending transactions, repurchase
agreements including "dollar rolls," "wash sales," loan syndications and
participations, in banker's acceptances, factoring arrangements, transfers of
receivables with recourse, and extinguishments of liabilities.

         The adoption of the SFAS No. 125 standards did not have a material
effect on operating results for 1997.

Financial Instruments with Off-Balance Sheet Risk:

         The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve to varying degrees elements
of credit, interest rate or liquidity risk in excess of the amount recognized in
the consolidated balance sheet. The contract or notional amounts of those
instruments express the extent of involvement the Company has in particular
classes of financial instruments.

         Company exposure to credit loss from nonperformance 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 those instruments.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Company may require
collateral or other security to support financial instruments with off-balance
sheet risk. These commitments at December 31 are as follows (in thousands):

                                                     Contract or Notional Amount
                                                       1997             1996
     Financial instruments whose contract              ----             ----
        amounts represent credit risk:
              Commitments to extend credit.......     $2,676           $2,755
              Standby letters of credit.........      $   49           $  143

         Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity requirements.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary is based on management's
credit assessment of the counterparty.

         Standby letters of credit are conditional commitments issued by the
Company guaranteeing performance by a customer to third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.

                                      -31-

<PAGE>

Concentrations of Credit:

         All of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area. All
such customers are depositors of the Bank. Investments in municipal securities
involve governmental entities within Pennsylvania. The concentrations of credit
by type are set forth in Note 3. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Commercial and
standby letters of credit were granted primarily to commercial borrowers. The
Bank, as a matter of policy, does not extend credit to any single borrower or
group of related borrowers in excess of $1,250,000, unless secured by bank
deposits or partially guaranteed by an agency of the federal government.

Regulatory Matters:

         The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies and undergoes periodic examinations
by such regulatory authorities. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank'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 the Bank to maintain minimum amounts of capital to total "risk
weighted" assets. At December 31, 1997 the Bank is required to have minimum Tier
1 and Total Capital ratios of 4% and 8% respectively. The Bank's actual ratios
at that date were 16.14% and 17.13% respectively. The Bank's leverage ratio at
December 31, 1997 was 10.71%. As of the most recent examination, federal
regulators categorized the Bank as well capitalized within regulatory criteria.
Since that notification, there are no conditions or events that management
believes would change the Bank's category.

         Dividends are paid by the Company from its assets which are mainly
provided by dividends from the Bank. However, certain regulatory restrictions
exist regarding the ability of the Bank to transfer funds to the Company in the
form of cash dividends, loans or advances. As of December 31, 1997, the Bank had
retained earnings of $8,433,000 of which under federal regulations, the Bank's
extension of credit to its parent company must be on the same terms and
conditions as extensions of credit to nonaffiliates. The maximum amount the
Bank can loan to the Company is limited to 20% of its capital and surplus. Such
extensions of credit, with limited exceptions, must be fully collateralized.

                                      -32-

<PAGE>

Line of Credit:

         At December 31, 1997 the Company had unused borrowing capacity at the
Federal Home Loan Bank of Pittsburgh in the amount of $41,569,000 at a variety
of available terms.

2. Investment Securities:

         The amortized cost and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>

                                                                            1997

                                                                      Gross          Gross       Estimated
                                                    Amortized       Unrealized     Unrealized         Fair
(In thousands)                                        Cost            Gains          Losses          Value
                                                   -------------------------------------------------------
<S>                                                  <C>            <C>            <C>             <C>    
Available for sale:
  U.S. Treasury notes .......................        $ 6,545           $ 64          $  (7)        $ 6,602
   U.S. government agencies and  corporations          3,669             40                          3,709
 Municipal bonds ............................          2,167             23             (1)          2,189
  Other securities ..........................            493              9                            502
                                                     -----------------------------------------------------
     Total available for sale ...............        $12,874           $136          $  (8)        $13,002
                                                     =====================================================
Held to maturity:
   U.S. government agencies and corporations         $18,905           $109          $ (47)        $18,967
    Municipal bonds .........................          4,181             23             (6)          4,198
  Other securities ..........................          2,120             31                          2,151
                                                     -----------------------------------------------------
     Total held to maturity .................        $25,206           $163          $ (53)        $25,316
                                                     =====================================================

                                                                       1996
Available for sale:
  U.S. Treasury notes .......................        $11,312           $ 39          $ (38)        $11,313
  Other securities ..........................            418              2                            420
                                                     -----------------------------------------------------
     Total available for sale ...............        $11,730           $ 41          $ (38)        $11,733
                                                     =====================================================
Held to maturity:
    U.S. government agencies and corporations        $18,142           $ 41          $(135)        $18,048
    Municipal bonds .........................          3,740             20            (14)          3,746
  Other securities ..........................            388                                           388
                                                     -----------------------------------------------------
     Total held to maturity .................        $22,270           $261          $(149)        $22,182
                                                     =====================================================
</TABLE>

         The amortized cost and estimated fair value of debt securities at
December 31, 1997 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

                                      -33-

<PAGE>
<TABLE>
<CAPTION>

                                                     Available For Sale                 Held to Maturity
                                                     ------------------                 ----------------
                                                                  Estimated                           Estimated
                                                Amortized              Fair         Amortized              Fair
(In thousands)                                       Cost             Value              Cost             Value
                                                ---------------------------------------------------------------
<S>                                               <C>               <C>               <C>               <C>    
Maturing within one year.....................     $ 3,036           $ 3,039           $ 4,166           $ 4,164
Maturing in one to five years................       3,509             3,563            15,265            15,333
Maturing in five to ten years................       5,836             5,898             5,202             5,238
Maturing after ten years.....................                                             573               581
No set maturity..............................         493               502
                                                  -------------------------------------------------------------
     TOTAL...................................     $12,874           $13,002           $25,206           $25,316
                                                  =============================================================
</TABLE>

3. Loans and Allowance for Loan Losses:

         Major classifications of loans at December 31 are as follows:

(In thousands)                                1997           1996
                                              ----           ----
Real estate mortgages:
  Agricultural .....................        $ 1,441        $   961
  Residential, 1 - 4 family ........         41,239         30,209
  Residential, multi-family ........            687            603
  Nonfarm, nonresidential properties          9,598          7,208
                                            ----------------------
       Total real estate mortgages .         52,965         38,981
Agricultural loans .................            285            388
Commercial loans ...................         12,702         12,726
Municipal loans ....................          1,789          1,803
Consumer loans .....................          9,955          8,751
Overdrafts .........................             24             19
                                            ----------------------
     Gross loans ...................         77,720         62,668
Less:  Unearned income .............            725            635
       Allowance for loan losses ...            767            623
                                                           -------
            Loans, net .............        $76,628        $61,410
                                            ======================

         Nonaccrual loans at December 31, 1997 and 1996, were $136,000 and
$247,000, respectively.

         The Company adopted SFAS No. 114 effective January 1, 1995. The
adoption of SFAS No. 114 did not have a material effect on the financial
condition or operating results of the Company. At December 31, 1997 and 1996 the
recorded investment in loans that were considered impaired under SFAS No. 114
was $290,000 and $284,000, respectively. No transfers to loan loss were made in
1997 or 1996 for any impaired loans. The average recorded investment in impaired
loans during the years ended December 31, 1997 and 1996 was approximately
$287,000 and $201,000 respectively. Interest payments received on impaired loans
are applied to principal; otherwise, these receipts are recorded as interest
income. For the years ended December 31, 1997 and 1996, the Company recognized
interest income on impaired loans

                                      -34-

<PAGE>



of $18,000 and $22,000. The interest that would have been earned in accordance
with the original terms is approximately $29,000 and $33,000 respectively.

         Changes in the allowance for loan losses for the years ended December
31 were as follows:

(In thousands)                          1997          1996          1995
                                        ----          ----          ----
Balance, January 1 ............         $623          $532          $479
Provision charged to operations          190           125           115
Loans charged off .............          (51)          (41)          (79)
Recoveries ....................            5             7            17
                                        --------------------------------
Balance, December 31 ..........         $767          $623          $532
                                        ================================

4.  Premises and Equipment:

         Premises and equipment are summarized as follows:

                                                   Accumulated
                                 Gross Book        Amortization       Net Book
December 31, 1997:                 Value          & Depreciation       Value
                                 ----------       --------------      --------
  Land ..................        $  440,082                          $  440,082
  Buildings .............         2,515,143        $  688,675         1,826,468
  Furniture and equipment         2,021,578         1,260,030           761,548
                                 ----------        ----------        ----------
       Total ............        $4,976,803        $1,948,705        $3,028,098
                                 ==========        ==========        ==========
December 31, 1996:
  Land ..................        $  434,757                          $  434,757
  Buildings .............         2,112,920        $  610,334         1,502,586
  Construction in process           114,393                             114,393
  Furniture and equipment         1,701,515         1,072,671           628,844
                                 ----------        ----------        ----------
       Total ............        $4,363,585        $1,683,005        $2,680,580
                                 ==========        ==========        ==========

         Depreciation and amortization were applied as follows:


                                                   1997        1996        1995
                                                   -----       -----       ----
  Premises....................................  $ 80,364   $ 66,297    $ 64,265
  Furniture and equipment.....................   187,359    124,100     111,855
                                                --------------------------------
       Total.................................   $267,723   $190,397    $176,120
                                            ======================== ===========

         In March 1995, the FASB issued SFAS No. 121, "Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations, including related goodwill, when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS No.

                                      -35-

<PAGE>



121 in the first quarter of 1996 did not have a material effect on the financial
condition or operating results of the Company.

         The Bank has non-cancelable operating leases on the building for its
Edwardsville and Back Mountain Offices. The aforementioned leases have been
treated as operating leases in the accompanying financial statements. Rental
expense for 1997 was $108,000. Minimum future obligations under noncancelable
operating leases in effect at December 31, 1997 are as follows:

                     1998                      $  107,200
                     1999                         107,200
                     2000                         107,200
                     2001                          83,950
                     2002 and thereafter          708,750
                                               ----------
                     Total                     $1,114,300
                                               ==========

5. Other Borrowed Funds

         Other borrowed funds include interest-bearing demand notes payable to
the U.S. Treasury for Treasury collections made by the Bank. Remittances of
amounts collected are made upon demand. The year end balance due was $750,000 in
1997 and $335,388 in 1996.

         The Bank has a line of credit with the Federal Home Loan Bank for
$3,080,000 which could be utilized for various operating purposes. Borrowings
under this line of credit are secured by qualified assets (primarily investment
securities). Interest paid on these short term borrowings varies based on
interest rate fluctuations. The outstanding balance of which was zero at
December 31, 1997.

         The Federal Home Loan Bank of Pittsburgh has loaned the Bank $440,000
to fund the Bank's Affordable Housing Program. These loans are amortized over 25
years, at 4%, payable monthly and due in ten years. The year end balance due the
Federal Home Loan Bank was $357,041 in 1997 and $366,858 in 1996. The FHLB loans
mature as follows:

     1998            1999             2000              2001              2002
     ----            ----             ----              ----              ----
   $12,374         $12,878          $13,159           $12,118           $306,512

6. Income Taxes:

         The components of the federal income tax provisions are as follows:

                                                 1997        1996       1995
                                                 ----        ----       ----
Currently payable.........................     $749,000   $701,000   $547,000
Deferred portion..........................      (65,000)   (41,000)   (29,000)
                                               ------------------------------
     Total................................     $684,000   $660,000   $518,000
                                               ==============================


                                      -36-

<PAGE>



         The sources of the net deferred income tax liability (asset) in other
liabilities (assets) for the years ended at December 31 were as follows:

<TABLE>
<CAPTION>

                                                                    1997          1996
                                                                    ----          ----
<S>                                                              <C>             <C>
Accrued income .............................................                    $  30,000
Depreciation ...............................................     $  85,000         78,000
Accretion of discounts on securities .......................        40,000         34,000
Unrealized gains on available for sale investment securities        44,000          1,000
Allowance for loan losses ..................................      (210,000)      (162,000)
                                                                 ------------------------
     Net deferred tax (asset) ..............................      ($41,000)      ($19,000)
                                                                 ========================
</TABLE>

         A reconciliation of income tax expense at the federal statutory rate
and the effective federal income tax rate is as follows:
<TABLE>
<CAPTION>

                                            1997                  1996                  1995
                                            ----                  ----                  ----
<S>                                <C>           <C>     <C>           <C>     <C>          <C>   
Provision at statutory rate..      $779,000      34.00%  $733,000      34.00%  $577,000     34.00%
Tax-exempt income
  from investments.............     (64,000)     (2.79)   (53,000)     (2.50)   (35,000)    (2.10)
Tax-exempt income
  from loans...................     (30,000)     (1.31)   (18,000)     (0.80)    (8,000)    (0.50)
Other..........................      (1,000)     (0.05)    (2,000)     (0.10)   (16,000)    (0.90)
                                ---------------------------------- -------------------------------
     Total.....................    $684,000      29.85%  $660,000      30.60%  $518,000     30.50%
                                ================================== ===============================
</TABLE>

7.  Other Income:

         Other income for the years ended December 31, consists of the
following:


                                            1997          1996          1995
                                            ----          ----          ----
Service charges and fees ..........      $163,813       $141,357       $128,950
Service charges on deposit accounts       366,050        292,382        224,805
Gain (loss) on sale of securities .        23,118                        (3,952)
Gain (loss) on sale of real estate                       (21,488)       (18,683)
Other .............................       123,750         88,020         62,107
                                        ---------------------------------------
     Total other income ...........      $676,731       $500,271       $393,227
                                        =======================================

                                      -37-

<PAGE>

8.  Other Expenses:

         Other expenses for the years ended December 31, consists of the
following:

                                         1997          1996          1995
                                         ----          ----          ----
Salaries and employee benefits .     $1,622,546     $1,367,510     $1,096,961
Occupancy expenses .............        363,422        241,019        216,929
Furniture and equipment expenses        275,013        241,886        242,555
Other operating expenses .......        944,320        777,097        765,416
                                     ----------------------------------------
     Total other expenses ......     $3,205,301     $2,627,512     $2,321,861
                                     ========================================

9.  Related Party Transactions:

         During the ordinary course of business, loans are made to officers,
directors, and their related interests. These transactions are made on
substantially the same terms and at those rates prevailing at the time for
comparable transactions with others.

         A summary of this loan activity is listed below:


                             1997             1996             1995
                             ----             ----             ----
Balance, January 1 .     $  997,070      $1,107,115      $1,024,446
Additions ..........        427,289         252,281         301,542
Amounts collected ..       (154,640)       (362,326)       (218,873)
Amounts charged off
                         -------------------------------------------
Balance, December 31     $1,269,719      $  997,070      $1,107,115
                         ===========================================

10.  Grange National Banc Corp. (Parent Company Only) Financial Statements:


BALANCE SHEETS, DECEMBER 31                1997               1996
                                           ----               ----
            ASSETS
Cash ..........................        $     4,660        $        31
Investment in bank subsidiary .         12,301,438         10,706,383
Securities "available for sale"             34,400              8,500
Land and buildings (Note 1) ...            499,363            306,541
                                       ------------------------------
        TOTAL  ASSETS .........        $12,839,861        $11,021,455
                                       ==============================

                                      -38-

<PAGE>
<TABLE>
<CAPTION>

                        LIABILITIES
<S>                                                           <C>          <C>     
Notes payable, bank subsidiary                                $198,457     $ 81,597
Other liabilities ..............................                 3,600
                                                     ------------------------------
       Total liabilities .......................              $202,057     $ 81,597
                                                     ------------------------------

                     STOCKHOLDERS' EQUITY
Preferred stock authorized 1,000,000 shares
  of $5 par:  None issued
  Common stock authorized 5,000,000 shares
  of $5 par; 363,305 and 355,291 shares issued
  and outstanding in 1997 and 1996, respectively        1,816,525         1,776,455
Additional paid-in capital .....................        2,052,158         1,767,949
Retained earnings ..............................        8,685,313         7,392,890
Unrealized holding gains (losses) on investment
  securities (net of deferred income taxes) ....           84,000             3,000
Less:  Treasury stock, at cost (Note 1) ........             (192)             (436)
                                                     ------------------------------
        Stockholders' equity ...................       12,637,804        10,939,858
                                                     ------------------------------
        TOTAL LIABILITIES AND
          STOCKHOLDERS' EQUITY .................     $ 12,839,861      $ 11,021,455
                                                     ==============================
</TABLE>



<TABLE>
<CAPTION>

STATEMENTS OF INCOME
FOR THE YEARS ENDED, DECEMBER  31                         1997         1996          1995
                                                          ----         ----          ----
<S>                                                  <C>            <C>            <C>       
INCOME:
  Dividends from bank subsidiary ...............     $  133,094     $   18,179     $  308,926
  Dividends from other securities ..............            832            195            158
  Interest on deposits .........................                                            9
 Other income ..................................            600
                                                     ----------------------------------------
               Total income ....................        134,526         18,374        309,093
                                                     ----------------------------------------
OPERATING EXPENSES:
  Interest expense .............................          8,996          3,182         14,882
  Other operating expense ......................          2,789            312          3,160
                                                     ----------------------------------------
               Total operating expenses ........         11,785          3,494         18,042
                                                     ----------------------------------------
Income before undistributed income of subsidiary        122,741         14,880        291,051
EQUITY IN UNDISTRIBUTED INCOME OF
  SUBSIDIARY ...................................      1,485,060      1,482,840        888,088
                                                     ----------------------------------------
NET INCOME .....................................     $1,607,801     $1,497,720     $1,179,139
                                                     ========================================
</TABLE>

                                                       -39-

<PAGE>
<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED, DECEMBER 31                             1997            1996             1995
                                                             ----            ----             ----
<S>                                                      <C>              <C>              <C>        
OPERATING ACTIVITIES:
  Net income .......................................     $ 1,607,801      $ 1,497,720      $ 1,179,139
  Adjustments to reconcile net income to
   net cash provided by operating activities:
     Amortization and depreciation .................           2,023
      Equity in undistributed income of
       subsidiary ..................................      (1,485,060)      (1,482,840)        (888,088)
                                                         ---------------------------------------------
          Net cash provided by operating activities          124,764           14,880          291,051
                                                         ---------------------------------------------
INVESTING ACTIVITIES:
  Increase in buildings and land ...................        (194,845)         (53,176)
  Purchase securities "available for sale" .........         (19,900)
  Investment in Bank subsidiary ....................                                            (7,992)
                                                         ---------------------------------------------
           Net cash used in investing activities ...        (214,745)         (53,176)          (7,992)
                                                         ---------------------------------------------
FINANCING ACTIVITIES:
  Proceeds from notes payable ......................         116,860           56,246         (212,182)
  Increase in other liabilities ....................             600
  Sale of treasury stock ...........................             244               50               50
  Issuance of common stock .........................                                             7,992
  Dividends to stockholders ........................         (23,094)         (18,179)         (78,926)
                                                         ---------------------------------------------
          Net cash provided by (used in)
            financing activities ...................          94,610           38,117         (283,066)
                                                         ---------------------------------------------
INCREASE (DECREASE) IN CASH ........................           4,629             (179)              (7)
CASH BALANCE, JANUARY  1 ...........................              31              210              217
                                                         ---------------------------------------------
CASH BALANCE, DECEMBER 31 ..........................     $     4,660      $        31      $       210
                                                         =============================================
</TABLE>

11. Stockholder's Equity

Stock Options:

         In January 1994, the Board of Directors adopted an Employee Stock
Option Plan in which stock options may be granted to all officers and key
employees of the Company. The aggregate number of shares which may be issued
upon exercise of the options under the plan is 20,000. Options are exercisable
up to one-third in the second year after the date of grant, up to two-thirds in
the third year after the date of grant and up to 100% in the fourth year after
the date of grant, with options expiring at the end of ten years after the date
of grant.

         The Board of Directors also adopted a Stock Option Plan for
non-employee Directors which will be available to all non-employee members of
the Board of Directors. The aggregate number of shares which may be issued upon
exercise of the options under the Director Plan is 20,000 shares and are
exercisable in part from time to time beginning one year after the date of grant
and expiring ten years thereafter. Effective April 1, 1994, options to purchase
1,000 shares of stock were automatically granted to each non-employee Director
under this plan expiring April 1, 2004.

                                      -40-

<PAGE>


         The Board of Directors adopted an additional Stock Option Plan (the
"Plan") in November 1995, subject to shareholder approval, covering the
employees and directors. The Plan authorizes the grant of options to purchase
not more than 55,000 shares of common stock under the Plan. Options granted
under the Plan are intended to be either incentive stock options or nonstatutory
stock options. As of February 29, 1996, options for 50,160 shares of common
stock having an exercise price of $32.50 were outstanding and 4,840 shares of
common stock were available for future option grants under the Plan. Of the
50,160 shares of common stock outstanding for options, 36,320 shares of common
stock were issued as incentive stock options. The remaining shares outstanding
for options were granted to each non-employee director equally as nonstatutory
stock options. Pursuant to Section 422 of the Internal Revenue Code, shareholder
approval is required for the incentive stock options to qualify for favorable
tax treatment. Exercise prices of options granted under all plans are current
market prices at time of grant.

                                                                      Weighted
                                                    Non-Employee       Average
                                      Employee         Director       Exercise
Year ended December 31, 1995       Stock Options    Stock Options      Prices
                                   -------------    -------------     --------
Outstanding 1994 ............         12,000           8,000         $   24.00
Granted .....................         34,590          13,840         $   32.50
Exercised ...................           (333)                        $   24.00
Outstanding .................         46,257          21,840         $   29.72
Year ended December 31, 1996
Outstanding 1995 ............         46,257          21,840         $   29.72
Granted
Lapsed ......................                          1,730
Adjustment for stock dividend          1,037             478
Outstanding .................         47,294          20,588         $   29.35
Year ended December 31, 1997
Outstanding 1996 ............         47,294          20,588         $   29.35
Granted .....................                          8,360
Exercised ...................           (343)         (1,029)
Adjustment for stock dividend            932             392
Outstanding .................         47,883          28,311         $   30.26


         The Company measures stock based compensation costs using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the stock
option plans been determined based on the fair value at the grant date for
awards in 1997 and

                                      -41-

<PAGE>



1996 consistent with the provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:

                                                       1997              1996
                                                       ----              ----
      Net income - as reported                    $1,608,000        $1,498,000
      Net income - pro forma                      $1,481,000        $1,190,000
      Basic income per share - as reported        $     4.42        $     4.14
      Basic income per share - pro forma          $     4.08        $     3.29
      Diluted income per share - as reported      $     4.15        $     4.03
      Diluted income per share - pro forma        $     3.82        $     3.20

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of 2.0% for 1997 and 1996; risk-free interest rate
of 6.34% and 6.69% for 1997 and 1996 respectively; expected lives of 10 years
for 1997 and 1996, which is the option term; and volatility of 5.00% and 3.12%
for 1997 and 1996 respectively.

Stock Dividends:

         The Company has declared stock dividends in December and June of 1997,
December and June of 1996 at the following rates $0.46, $0.42, $0.40, $0.34,
respectively, with fractional shares paid in cash. The Company issued 6,642 and
6,517 shares of common stock in conjunction with these dividends. Accordingly,
amounts equal to the fair market value (based on quoted market prices as
adjusted) of the additional shares issued have been charged to retained earnings
and credited to common stock and additional paid-in capital. Earnings per common
share, weighted average shares outstanding, and all stock option activity have
been restated to reflect the stock dividends.

Preferred Stock:

         The Company authorized 1,000,000 shares of preferred stock at $5 par
value. At December 31, 1997 no shares were issued or outstanding.

12.  Earnings Per Share

         The following table sets forth the computation of basic and diluted
earnings per share:

                                      -42-

<PAGE>
<TABLE>
<CAPTION>

                                                                 1997          1996         1995
                                                                ------------------------------------
Numerator:
<S>                                                             <C>           <C>         <C>       
     Net income                                                 $1,607,801    $1,497,720  $1,179,139

Denominator:
  Denominator for basic earnings
  per share - weighted average shares                              358,120       361,907     361,798

  Effect of dilutive securities:
    Employee stock options                                          21,789        10,040
                                                                ------------------------------------

  Dilutive potential common shares
    Denominator for diluted earnings per share - adjusted
    weighted average and assumed conversions                       379,909       371,947     361,798
                                                                ====================================

Basic earnings per share                                             $4.49         $4.14       $3.26
Diluted earnings per share                                           $4.23         $4.03       $3.26
</TABLE>

13. Fair Value of Financial Instruments:

         The fair value of financial instruments is the amount at which an asset
or obligation could be exchanged in a current transaction between willing
parties, other than in a forced liquidation. Fair value estimates are made at a
specific point in time based on the type of financial instrument and relevant
market information.

         Because no quoted market price exists for a significant portion of the
Company's financial instruments, the fair values of such financial instruments
are derived based on the amount and timing of future cash flows, estimated
discount rates, as well as management's best judgement with respect to current
economic conditions. Many of the estimates involve uncertainties and matters of
significant judgement and cannot be determined with precision.

         The fair value information provided is indicative of the estimated fair
value of those financial instruments and should not be interpreted as an
estimate of the value of Grange National Banc Corp. taken as a whole. The
disclosures do not address the value of recognized and unrecognized
non-financial assets and liabilities or the value of future anticipated
business.

         The following methods and assumptions were used to estimate the fair
values of significant financial instruments at December 31, 1997 and 1996:

Cash and Due From Banks:
         The carrying amounts of cash and due from banks approximate fair value.

                                      -43-

<PAGE>



Interest Bearing Deposits:
         Carrying amounts of variable rate or demand deposits approximate fair
value. The fair value of fixed rate or fixed term interest bearing deposits are
estimated based on discounting future cash flows using current rates.

Securities:
         Fair values of securities are based on quoted market prices.

Loans:
         For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair values for
mortgage, consumer, commercial real estate and commercial loans are estimated by
discounting future cash flows using interest rates currently being offered with
similar terms to borrowers with similar credit quality.

Deposits:
         The fair value of deposits with no stated maturity; such as,
non-interest bearing demand deposits, variable rate savings, money market and
checking accounts is equal to the carrying amount payable on demand. Fair value
of certificates of deposit are estimated by discounting estimated future cash
flows using current rates offered for deposits of similar maturities.

Other:
         The estimated fair values of accrued interest receivable, accrued
interest payable, debt (principally short term including treasury tax and loan
deposits), and other assets and liabilities are deemed to be equal to the
amounts recognized in the consolidated statements of financial position.

         The following table presents the carrying amounts and estimated fair
values of financial instruments at December 31:
<TABLE>
<CAPTION>

                                                               1997                    1996
                                                               ----                    ----

                                                    Carrying        Fair       Carrying         Fair
  (In thousands)                                      Value         Value        Value         Value
                                                    --------------------------------------------------
<S>                                                 <C>           <C>           <C>           <C>     
Financial assets:
  Cash and due from banks ....................      $  2,514      $  2,514      $  2,566      $  2,566
  Interest bearing deposits ..................         2,418         2,415         1,975         1,979
  Investment securities ......................        38,208        38,318        34,002        33,901
  Loans, net .................................        76,228        74,407        61,410        61,408
  Accrued interest receivable and other assets         1,731         1,731         1,408         1,408

Financial liabilities:
  Deposit liabilities ........................       108,789       108,253        91,055        91,060
  Other borrowed funds .......................         2,279         2,279         1,613         1,613
  Accrued interest payable and
    other liabilities ........................           711           711           591           591
</TABLE>


                                                       -44-

<PAGE>



                   Summary of Quarterly Results of Operations

<TABLE>
<CAPTION>

                                        First              Second              Third               Fourth
(In thousands, except per share data)  Quarter            Quarter             Quarter             Quarter
---------------------------------------------------------------------------------------------------------
1997
<S>                                    <C>                 <C>                 <C>                 <C>   
Interest income .........              $1,983              $2,147              $2,298              $2,370
Net interest income .....               1,135               1,228               1,310               1,337
Provision for loan
  losses ................                 30                  30                  55                  75
Other income ............                 133                 167                 188                 189
Other expenses ..........                 731                 788                 798                 888
Net income ..............                 362                 389                 436                 420
Net income per share:
     Basic ..............              $ 0.99              $ 1.07              $ 1.20              $ 1.16
     Diluted ............              $ 0.94              $ 1.01              $ 1.12              $ 1.08

1996
Interest income .........              $1,806              $1,890              $1,951              $2,008
Net interest income .....               1,017               1,082               1,137               1,174
Provision for loan
  losses ................                 13                  17                  35                  60
Other income ............                  95                 136                 132                 137
Other expenses ..........                 564                 641                 671                 752
Net income ..............                 370                 386                 398                 344
Net income per share:
     Basic ..............              $ 1.02              $ 1.07              $ 1.10              $ 0.95
     Diluted ............              $ 0.99              $ 1.05              $ 1.07              $ 0.92
</TABLE>

         The above gives retroactive effect to stock dividends.


Price Range of Common Stock and Dividends:

         The Company's Common Stock is traded in the market. Prior to the stock
offering in 1994 the stock was not actively traded. The market prices are the
prices at which shares have been sold by stockbrokers to the Company's
knowledge. The following firm is known to make a market in the Common Stock of
Grange National Banc Corp.

                                            Hopper Soliday & Company, Inc.
                                            1825 Oregon Pike
                                            Lancaster, PA 17601
                                            (717) 560-3000

         As of March 26, 1998 there were approximately 840 shareholders of
record.


                                      -45-

<PAGE>
<TABLE>
<CAPTION>

1997                              4th Quarter    3rd Quarter    2nd Quarter     1st Quarter
<S>                                  <C>            <C>            <C>            <C>   
Bid .....................            $55.00         $42.50         $41.50         $40.00
Ask .....................            $56.00         $43.50         $42.50         $42.00
Stock Dividends per Share            $ 0.46         None           $ 0.42         None
1996                              4th Quarter    3rd Quarter    2nd Quarter     1st Quarter
Bid .....................            $40.00         $36.50         $33.50         $31.75
Ask .....................            $42.00         $37.50         $34.50         $32.75
Stock Dividends per Share            $ 0.40         None           $ 0.34         None
1995                              4th Quarter    3rd Quarter    2nd Quarter     1st Quarter
Bid .....................            $29.00         $29.50         $29.50         $29.50
Ask .....................            $30.00         $30.50         $30.50         $30.50
Stock Dividends per Share            $ 0.27         None           None           None
Cash Dividends per Share             None           None           $ 0.20         None
</TABLE>

The above are historical amounts and do not consider the effects of stock
dividends.

Stock Transfers:                                     Shareholder Services:
Mildred Grose, Assistant Vice-President              Philip O. Farr, Comptroller
P.O. Box 40                                          198 E. Tioga St.
Meshoppen, Pa. 18630                                 Tunkhannock, Pa. 18657
(717) 833-2131                                       (717) 836-2100


<TABLE>
<CAPTION>

                                                      Offices

<S>                                                  <C>
Laceyville                                           Lawton
Bonnie Brodhun, Br. Mgr. And Mortgage Officer        Alice Carr, Asst. Cashier and Br. Mgr.
(717) 869-1152                                       (717) 934-2178

Meshoppen                                            Bowman's Creek
Mildred Grose, AVP and Br. Mgr.                      Paula C. Coleman, Asst. Cashier and Br. Mgr.
(717) 833-2131                                       (717) 298-2163

Tunkhannock                                          Edwardsville
Edward J. O'Malley, Asst. Cashier and Br. Mgr.       Donald Werts, Asst. Cashier and Br. Mgr.
(717) 836-2100                                       (717) 283-4462

Little Meadows                                       Towanda
Lorraine Corwin, Br. Mgr.                            Jeffrey B. Carr, Asst. Cashier and Br. Mgr.
(717) 623-2297                                       (717) 265-4711

Back Mountain                                        On the Internet
L. Lee Posten, Asst. Cashier and Br. Mgr.            Web Site: www.grangebank.com
(717) 696-6958                                       E-Mail: bank@grangebank.com
</TABLE>


                                      -46-

<PAGE>

<TABLE>
<CAPTION>

Officers

<S>                                                <C>
Robert C. Wheeler                                  John W. Purtell
Chairman of the Board                              Vice Chairman

Thomas A. McCullough                               Sally A. Steele
President                                          Secretary of the Corporation

Melvin E. Milner                                   Joseph I. Killeen
Vice President                                     Vice President

Philip O. Farr
Comptroller


Directors

Brian R. Ace                                       John W. Purtell
Owner, Laceyville Hardware Store                   President, S.F. Williams Inc.,
                                                   automobile dealership and grocery store
Thomas C. Burns
Retired; Dentist until 1994                        R. Levi Tyler
                                                   Dairy Farmer
Thomas A. McCullough
President and Chief Executive Officer              Sally A. Steele
of the Bank and the Company since 1991             Attorney

W. Kenneth Price                                   Robert C. Wheeler
Co-owner of Ken Mar Home Furnishings               Retired; Chief Executive Officer of
                                                   The Bank and Company until 1990
Edward A. Coach
Certified Public Accountant
</TABLE>


                                      -47-