To our Shareholders,

     I am pleased to report that during the year 2000 we saw a continuation of
the outstanding results which were experienced by our company throughout the
1990's. Our return on assets of 1.47% and return on equity of 14.83% were near
the top of our peer group. Total assets increased by 12%, basic earnings per
share increased by nearly 8% and shareholder's equity increased by 23%. This was
accomplished without sacrificing asset quality or assuming excessive risk.

     During the past year we continued to place significant emphasis on
increasing our non-interest income. We believe it is necessary to promote
non-traditional banking products such as casualty insurance and annuities in
order to offset the negative effects of declining net interest yields which
almost all banks are currently experiencing. The addition of these products not
only creates an additional source of revenue but also gives us an opportunity to
remain competitive by providing our customers with a wider array of attractive
financial services. During the year 2000 our total non-interest income was
$1,110,000 compared to $522,000 only four years ago. Without a doubt, it makes
good sense for us to continue to develop products and services which are
consistent with the needs of our customers and within the capabilities of our
institution. Our recent investment in Mountain Laurel Abstract Company is an
example of these efforts. As a result of this arrangement we can now provide
loan customers with the option of obtaining title insurance coverage and real
estate settlement services without having to look outside of our bank.

     Although profits, asset growth and risk management receive most of our
attention, we never lose sight of the fact that we are a Community Bank. Many
banks make this claim, even some of the very large banks, but in our case we
honestly believe it. With this in mind our Board of Directors made the
commitment to the Borough of Laceyville that we would do whatever we could to
reverse the economic decline on Main Street. This was a serious commitment which
required a significant investment in both time and financial resources. Although
this has been and will continue to be a slow process, I am proud to report that
the bank has leased our remaining space to a well respected general practitioner
and to a local pharmacy. Both ventures will undoubtedly have a very positive
impact on the Borough and will compliment the restaurant and chiropractor who
occupy the other spaces owned by our company.

     On a sad note, I must report that Robert C. Wheeler has asked to step down
as Chairman of our Board. Bob was an outstanding Chairman and former C.E.O. who
provided strong leadership during the most successful years in our bank's
history. He also set an example for other bank officers and employees and taught
us that honesty, perseverance and respect for others are fundamental
characteristics of successful leadership. Bob will continue to occupy a seat on
the Board, and will be succeeded as Chairman by John W. Purtell who also has
many years of experience as a member of our Board. Brian R. Ace has been elected
Vice Chairman and provides the added perspective of an independent businessman
operating in a small community typical of our marketplace.


<PAGE>

     Despite continued financial success our stock price declined during 2000
and during the first two months of this year. The Board of Directors are
concerned about this since we believe that one of our primary goals is to
improve shareholder value. I must admit that it is frustrating to see the value
of our stock decline at the same time we are achieving outstanding results, but
despite our success many of the factors that impact the equity markets effect us
as well. We are confident that if our earnings remain strong we will continue to
grow shareholder equity at a rapid pace. Accordingly, it's only a matter of time
before investors recognize this and reward us for our efforts. As a result of
the 23% capital growth we experienced in 2000, our Board has implemented a
quarterly cash dividend which will commence on April 6, 2001. We believe this
news will be well received by our shareholders and may have a positive impact on
the investment community as well.

     We are confident that despite the signs of a slowing economy, concerns
about the equity markets and the prospects of rising unemployment, we will
continue to experience success. Our practice of placing strong emphasis on asset
quality, overhead control and conservative pricing will continue to produce a
consistent stream of quality earnings for our Company. Please be assured that we
will do everything possible to expand the Bank in a safe and sound manner and to
enhance the value of your investment. As always it is a pleasure to serve as
C.E.O. of your Company.

Best regards


Thomas A. McCullough,
President and Chief Executive Officer


<PAGE>


                    Grange National Banc Corp. and Subsidiary
                             Selected Financial Data

<TABLE>
<CAPTION>

     YEARS ENDED DECEMBER 31                                 2000         1999         1998         1997         1996
                                                           --------     --------     --------     --------     --------
     (In thousands except per share data)
<S>                                                        <C>          <C>          <C>          <C>          <C>
     SUMMARY OF OPERATIONS:

       Gross interest income .........................     $ 12,704     $ 11,401     $ 10,116     $  8,798     $  7,655
       Gross interest expense ........................        6,075        5,082        4,452        3,788        3,245
                                                           --------     --------     --------     --------     --------
       Net interest income ...........................        6,629        6,319        5,664        5,010        4,410
       Loan loss provision ...........................          145          220          270          190          125
                                                           --------     --------     --------     --------     --------
        Net interest income after loan loss  provision     $  6,484     $  6,099     $  5,394     $  4,820     $  4,285
                                                           ========     ========     ========     ========     ========

       Income before income taxes ....................     $  3,244     $  3,082     $  2,570     $  2,292     $  2,158
        Provision  for income taxes ..................          648          678          710          684          660
                                                           --------     --------     --------     --------     --------

       Net income ....................................     $  2,596     $  2,404     $  1,860     $  1,608     $  1,498
                                                           ========     ========     ========     ========     ========

     PER SHARE DATA:

       Net income basic ..............................     $   3.21     $   3.01     $   2.44     $   2.12     $   1.97
       Net income diluted ............................     $   2.98     $   2.80     $   2.29     $   2.12     $   2.05
       Cash dividends ................................     $   0.50
       Stock dividends ...............................     $   0.88     $   0.97     $   0.71     $   0.44     $   0.37
     AVERAGE SHARES OUTSTANDING ......................          808          779          744          742          740
     FINANCIAL CONDITION AT YEAR END:
         Total assets ................................     $190,004     $169,332     $149,953     $124,417     $104,199
         Total loans .................................      113,490      102,317       90,499       76,995       62,033
         Allowance for loan losses ...................        1,142        1,092          940          767          623
         Total deposits ..............................      153,356      140,580      129,891      108,789       91,055
         Stockholders' equity ........................       19,642       15,962       14,767       12,638       10,940
</TABLE>


                                       -3-

<PAGE>

<TABLE>
<CAPTION>

RATIOS:

<S>                                                          <C>          <C>         <C>          <C>           <C>
  Based on Average Balances:
         Return on assets ...............                      1.47%        1.49%       1.37%        1.39%         1.51%
         Return on equity ...............                     14.83        15.56       13.68        13.80         14.73
         Equity to assets ...............                      9.89         9.56       10.04        10.15         10.30
         Primary capital to assets ......                     10.53        10.19       10.71        10.67         10.63
         Internal capital generation rate                     12.23        15.36       13.47        13.50         14.56
       At Year End:
         Equity to assets ...............                     10.34         9.42        9.84        10.16         10.50
         Primary capital to assets ......                     10.94        10.07       10.47        10.77         11.10

     BOOK VALUE/SHARE ...................                    $24.13       $20.36      $19.65       $17.40        $15.40
</TABLE>

Note: share and per share amounts have been restated to give effect to stock
dividends and stock splits.

                                       -4-

<PAGE>



                    Grange National Banc Corp. and Subsidiary

     Grange National Banc Corp. (Company) is a Pennsylvania financial holding
company, headquartered in Laceyville, Pennsylvania, with Grange National Bank
(Bank) as its only subsidiary. The Bank was established in 1907 and 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:

     o    checking

     X    savings

     X    money market accounts

     X    certificates of deposit

     X    Individual Retirement Accounts

     X    MAC automated teller machine cards

     X    MasterMoney debit cards

     Internet banking is currently being tested by our employees and should be
available to customers in the second quarter of 2001. This newest service will
enable our customers to view balances and histories of their deposit and loan
accounts, as well as transfer funds between accounts, and pay bills online.

     Loan services include:

     X    personal loans
     X    business loans
     X    municipal loans
     X    residential mortgages
     X    commercial mortgages
     X    Small Business Administration loans
     X    personal lines of credit
     X    commercial lines of credit
     X    letters of credit
     X    Business Manager accounts receivable financing

     Through Northeast Abstract, a limited liability partnership, formed by us
and Mountain Laurel Abstract, we offer title searches and title insurance for
real estate transactions.

     We now offer our customers a variety of insurance products at the Bank,
which include:

     X    whole and universal life insurance

                                      -5-
<PAGE>

     X    term life insurance
     X    disability insurance
     X    fixed annuities
     X    Nationwide homeowner"s insurance
     X    Nationwide Auto insurance
     X    Nationwide personal liability insurance

     Our trust department offers:

     X    personal and investment trusts
     X    trusts under will
     X    estate administration services
     X    estate planning C living trusts
     X    Individual Retirement Accounts.

     Grange's other services include discount brokerage services, safe deposit
boxes and payroll processing.

Highlights

     Grange reported record net income of $2,596,000 in 2000 compared to
$2,404,000 in 1999, an increase of 8% for the period. Return on average assets
was 1.47% and the return on average equity was 14.83% in 2000. In 1999 the
return on average assets was 1.49% and the return on average equity was 15.56%.
Deposits increased by 9% from the end of 1999 to the end of 2000. Loans
increased by 11% from the end of 1999 to the end of 2000. Total assets increased
by 12% from the end of 1999 to the end of 2000.

     Basic net income increased from $3.01 per share for 1999, to $3.21 per
share for 2000, an increase of 8%. Dividends to stockholders for 2000 were
comprised of a stock dividend of $0.88, and a bonus cash dividend of $0.50, as
compared to a $0.97 stock dividend in 1999. The Board of Directors declared the
bonus cash dividend because of the strength of the company's earnings during a
year when most banks had declining earnings.

     Our stock price continued to suffer, along with the rest of the banking
industry, ending the year at $34.00, down 21% from $43.00 at the end of 1999. We
believe stocks of well performing banks, such as ours, will rebound when the
investors return to looking at proven fundamentals such as earnings, asset
quality and proven growth.

                                      -6-
<PAGE>



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

     Be sure to read the consolidated financial statements and selected
financial data presented in other parts of this report to obtain a complete
understanding of the discussion and analysis.

FINANCIAL CONDITION

     Grange's primary source of profits is by 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 our net interest yield. For the last three years
ended December 31, net interest yields have ranged from 4.29% in 2000 to 4.44%
in 1999 and 4.72% in 1998. Because our net interest yield has narrowed, we keep
looking to find ways to generate fee income to maintain our profitability.

     Interest rate risk management requires us to maintain an appropriate
balance between

     X    interest sensitive assets
     X    interest sensitive liabilities
     X    liquidity to meet loan demand
     X    depositor's withdrawals
     X    operating expenses
     X    providing an adequate capital base for expansion and unforeseen losses

     A discussion of each of these factors relating to our financial condition
follows.

LIQUIDITY AND RATE SENSITIVITY

     Liquidity management requires us to maintain adequate cash resources to
meet our short and long term operating needs. This includes funding for loans
for our customers, funding to take advantage of prudent investment strategies,
and funding for operations expansion. We are continuing our strategy of relying
on access to our line of credit at the Federal Home Loan Bank of Pittsburgh to
fund daily cash needs, enabling us to be more fully invested in higher yielding
investments. Maturing investments and time deposits provide funding for the
longer term, while our line of credit funds short term fluctuations. Grange's
"borrowing capacity" at the Federal Home Loan Bank, at December 31, 2000 was
$69,536,000, less $13,789,000 which we had actually borrowed. Of this amount,
$1,000,000 was short term borrowing and $12,789,000 was long term borrowing. The
Bank's deposit balance at FHLB was approximately $3,159,000. Investments
maturing or expected to be called in 2001 include $4,810,000 in bonds classified
as held to maturity, and $9,425,000 in bonds available for sale. We also have
$36,275,000 in bonds classified as available for sale, in addition to those
expected to be redeemed in 2001, which can be

                                      -7-
<PAGE>

sold to meet liquidity needs. Stable, consistent growth of core deposits
continues to provide additional liquidity.

     Our earnings are dependent on maintaining adequate net interest yield or
spread between rates earned on assets and the cost of interest bearing
liabilities. We must manage our interest rate sensitivity to maintain an
adequate spread during both rising and declining rate environments. This way we
can respond within a reasonable time, to changing interest rates and, or
changing balances in loans and investments as compared to deposits and debt.
Occasionally we have opportunities to increase income by taking advantage of
mismatches in maturing assets and liabilities. We are very selective in taking
advantage of these opportunities because this increases interest rate risk.

     Decisions about which bonds to purchase include whether to buy short-term
or long-term bonds. Investing in short-term bonds enhances rate sensitivity but
usually have lower yields, while long-term bonds reduce rate sensitivity but
usually have higher yields. We will invest in bonds with 10 - 20 year maturities
when their yields are high enough to compensate for their greater interest rate
risk. Additionally, we manage the risk by the use of a "trigger" strategy to
sell certain long-term bonds before their value goes too low in order to
minimize losses. The money will then be reinvested in bonds at the new interest
rates.

     Our loan portfolio has more variables than our bond portfolio. Competition
from other lenders as well as consumers' demand for particular loan products
greatly influence our decisions regarding the types and rates of loans we hold.
We are able to create loan products which adjust to interest rate changes, but
consumers demand features which will make them attractive before they will
accept these loans. While convenience and service are important to our
customers, pricing is also important. Consumers generally require more favorable
pricing when interest rate risk is shifted from us to them. Certain products
such as fixed rate mortgages are expected by our customers. These loans have
more interest rate risk because of their long term and need to be priced higher.
(In pricing these loans, such as long-term mortgages, interest rate risk is in
addition to other factors such as collateral risk, credit risk, and repayment
risks.) Competition from other lenders has a big impact on our choices of
pricing and terms of the loans we offer.

         Having a similar amount of assets repricing, or maturing, at or about
the same time as our liabilities re-price or mature reduces our interest rate
risk. We measure our assets and liability positions by using a rate sensitivity
report which categorizes our assets and liabilities according to re-pricing
opportunities and maturity dates. Rate sensitive balances are defined as those
balances that mature or can be repriced within one year. However, we recognize
certain trends and historical experiences for some products. For example, the
Bank has a number of deposit accounts, including savings, interest checking, and
money market accounts which may have withdrawals. We know that while all
customers in these account categories could withdraw their money on any day,
they do not do so, even with interest rate changes. These accounts are core

                                      -8-
<PAGE>

deposits and do not react the same from interest rate changes as time deposits
do. Checking and savings accounts tend to change according to cash flow and
transaction needs of our customers, as well as other non-interest rate reasons
such as account charges and customer service. We believe 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 our interest rate sensitivity positions as of December 31, 2000. The
time periods we use refer to the earliest possible repricing period (with the
exception of checking and savings deposits), not maturity.

<TABLE>
<CAPTION>
                                                             Repricing

                                        Less than     Three to      One to five   After five
     (In thousands)                   three months  twelve months      years        years
                                      ------------  -------------   -----------  -----------
<S>                                    <C>           <C>            <C>          <C>
     Assets:
       Interest bearing deposits ...   $  3,259                     $   299
       Investment securities:
         Available for sale ........        500      $    927        20,587      $ 23,686
         Held to maturity ..........      1,474         1,024        12,818           449
       Loans .......................     10,358        11,360        31,507        60,265
                                       --------      --------      --------      --------
       Total .......................     15,398        13,559        65,135        84,321
                                       --------      --------      --------      --------
     Liabilities:
       Time deposits ...............     18,089        33,035        27,504
       Checking and savings
       deposits ...................       4,897         7,346        14,691        22,036
       Borrowed funds ..............      3,065         2,500         8,290         2,000
                                       --------      --------      --------      --------
     Total .........................     26,051        42,881        50,485        24,036
                                       --------      --------      --------      --------
     Gap:
       By period ...................   ($10,653)     ($29,322)     $ 14,650      $ 60,285
                                       ========      ========      ========      ========
       By cumulative ...............   ($10,653)     ($39,975)     ($25,325)     $ 34,960
                                       ========      ========      ========      ========
     Cumulative Gap as
       Percentage of total assets        -5.61%       -21.04%       -13.33%         18.40%
</TABLE>

     According to the table we have a negative gap position, which means our
liabilities will reprice faster than our assets. When interest rates are rising
this will reduce our interest spread and our net interest income, and when
interest rates are falling our interest spread and net income should increase.
However, consumers are known to change their behavior when interest rates
change. When rates decline mortgages and other loans are repaid faster or
refinanced at lower rates, and they take out certificates of deposit for shorter
terms. These factors usually mean the improvement in net interest margin will
not be as good as models might indicate. Interest rates have started to go down
will probably continue for much of 2001.

                                      -9-
<PAGE>

     When we take advantage of repricing gaps to enhance portfolio yield, we
have plans to sell bonds with longer maturities if they reach specific prices.
This should minimize losses if interest rates become volatile and rise too
quickly. When we buy longer term bonds we are prepared to accept greater
volatility in their values. This provides us with higher yields and helps
control interest rate risk in our bond portfolio. We will continue to take
advantage of temporary volatility as buying opportunities improve our bond
portfolio's yield.

     Adjustable rate loans and mortgages will continue as part of our loan mix
in order to reduce imbalances in our longer term GAP positions. We purchase
bonds in our available for sale category with maturities ranging from five to
twenty years. These maturities, along with our credit line at the Federal Home
Loan Bank and our ability to sell bonds in our "available for sale" portion of
our portfolio, provides adequate cash flow to respond to changing interest rates
and liquidity needs. We constantly monitor our gap position so we can adjust
loan pricing or deposit pricing when interest rates change.

LOAN PORTFOLIO

     Our total loans outstanding at December 31, 2000 increased by $11,173,000
or 11% to $113,490,000 from the December 31, 1999 total of $102,317,000. This is
less than the 13% increase in 1999 less than the 18% increase in 1998. The
average loan balance for 2000 was $107,044,000 compared to $95,512,000 for 1999.
Strong growth occurred in most loan categories. Tax exempt loans increased by
$1,376,000 or 20% to $8,232,000 at the end of 2000, from $6,856,000 at the end
of 1999. Commercial real estate loans increased by $2,355,000 or 15% to
$17,703,000 at the end of 2000, from $15,348,000 at the end 1999. Other
commercial loans increased by $1,775,000 or 13% to $15,631,000 at the end of
2000 from $13,856,000 at the end of 1999. Consumer loans grew substantially as
well, increasing 13% to $12,423,000 at the end of 2000 from $11,003,000 at the
end of 1999. Mortgages on one-to-four family real estate continues to be the
mainstay of our portfolio, increasing $4,039,000 or 8% to $56,193,000 at the end
of 2000, from $52,154,000 at the end of 1999. Our Tunkhannock and Back Mountain
offices had the most commercial loan growth. The Back Mountain, Towanda and Pine
Mall in Wilkes-Barre have had the best consumer loan growth. These offices are
generally competing with both community banks and very large banks and are an
indication of our ability to compete with all kinds of banks. The average
interest rate on total loans increased slightly from 8.69% for 1999 to 8.71% for
2000.

     The breakdown of our loans at December 31, 2000 and 1999 are as follows:

     (In thousands)                               2000         1999
                                                --------     --------
     Real estate mortgages:
        Agricultural ......................     $  1,380     $  1,217
        Residential, 1 - 4 family .........       56,193       52,154
        Residential, multi family .........        1,809        1,703
        Non-farm, nonresidential properties       17,703       15,348
                                                --------     --------
        Total real estate mortgages .......       77,085       70,422
        Agricultural loans ................          198          279
        Commercial loans ..................       15,631       13,856
        Municipal loans ...................        8,232        6,856
        Consumer loans ....................       12,423       11,003
                                                --------     --------
          Total ...........................      113,569      102,416
        Unearned income ...................           79          169
                                                --------     --------
          Total ...........................     $113,490     $102,247
                                                ========     ========


                                      -10-
<PAGE>


     Final loan maturities and the rate sensitivity of the loan portfolio at
December 31, 2000 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 ..................   $  1,892       $  9,975     $ 65,218    $ 77,085
        Agricultural loans .....................         85            113                      198
        Commercial loans .......................      3,917          4,450        7,264      15,631
        Municipal loans ........................      4,660          1,367        2,205       8,232
        Consumer loans .........................        698          6,342        5,383      12,423
                                                   --------       --------     --------    --------
           Total ...............................   $ 11,252       $ 22,247     $ 80,070    $113,569
                                                   ========       ========     ========    ========
        Loans at fixed interest rates ..........   $  6,688       $ 20,585     $ 61,244    $ 88,517
        Loans at variable interest rates .......      4,564          1,662       18,826      25,052
                                                   --------       --------     --------    --------
           Total ...............................   $ 11,252       $ 22,247     $ 80,070    $113,569
                                                   ========       ========     ========    ========
</TABLE>

     We discontinue accruing interest on a loan when we believe that we probably
will not be able to collect the balance. This decision is made after considering
various factors including attempts to collect the loan, the customer's financial
condition and future prospects. Any payments made on non-accrual loans are
applied to reduce the principal balance on the loan. Our non-accrual loans at
December 31, 2000 were $189,000 and $103,000 in 1999. Interest that would have
been included in income if the loans were not classified as non-accrual was
approximately $16,000 in 2000 and $9,000 in 1999.

ALLOWANCE FOR LOAN LOSSES

     The provision for loan losses and related allowance for loan losses are
based upon our continued evaluation of the current loan portfolio considering
such things as general economic

                                      -11-
<PAGE>

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 any other relevant factors. The
reserve is not divided to provide for any individual loan or loan
classification. The total allowance balance is available to absorb losses from
all loans included in the portfolio.

     Our charge-offs minus our recoveries during 2000 were $95,000 compared to
$68,000 during 1999. Average loans increased from $95,512,000 in 1999 to
$107,044,000 in 2000. At December 31 the balance in our allowance for loan
losses had increased from $1,092,000 in 1999 to $1,142,000 in 2000, and the
ratio of loan loss allowance to loans was 1.07% in 1999 and 1.01% for 2000. We
believe the quality of the loan portfolio remains strong, but expect our losses
will increase as the size of the loan portfolio increases. We will continue to
build the loan loss reserve to keep up with the size of the loan portfolio and
to cover other potential losses which we may identify.

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

        (In thousands)                         2000      1999
                                               ----      ----
        Real estate mortgages ........         $ 4       $ 0
        Commercial ...................           0         0
        Consumer .....................          15         9
                                               ---       ---
        Total ........................         $19       $ 9
                                               ===       ===

     This table summarizes our loan loss experience for the years ended December
31:

<TABLE>
<CAPTION>
      (In thousands)                                    2000               1999
                                                      --------           --------
<S>                                                   <C>                <C>
      Balance at beginning of period ................ $  1,092           $    940
                                                      --------           --------
      Charge-offs:

        Commercial and agricultural .................       46                 33
        Real estate mortgages .......................        0                  8
        Consumer ....................................       57                 38
                                                      --------           --------
      TOTAL .........................................      103                 79
                                                      --------           --------
      Recoveries:

        Commercial and agricultural .................        2                  9
        Real estate mortgages .......................        0                  0
        Consumer ....................................        6                  2
                                                      --------           --------
      TOTAL .........................................        8                 11
                                                      --------           --------
      Net charge-offs ...............................       95                 68
                                                      --------           --------
      Provision charged to operations ...............      145                220
                                                      --------           --------
      Balance at end of period ...................... $  1,142           $  1,092
                                                      ========           ========
        Average loans outstanding ................... $107,044           $ 95,512
        Loans outstanding, December 31 .............. $113,490           $102,317

      Loan reserve ratios:
        Net loan charge-offs - average loans ........     0.09%              0.07%
        Reserve - loans, December 31 ................     1.01%              1.07%
</TABLE>


                                       12
<PAGE>

     Our loan losses continue to be low, which is a result of the high quality
of the loan portfolio, close monitoring of marginal loans and persistent
collection efforts on past due accounts.

INVESTMENT PORTFOLIO

     The investment portfolio increased by $8,386,000 or 15% during 2000 to
$63,021,000 at the end of the year. The increase was due to deposit growth and
increased borrowing from the Federal Home Loan Bank of $5,500,000 in 2000.
Management identified several opportunities during 2000 to lock in significant
spreads by borrowing from the Federal Home Loan Bank and reinvest the proceeds
in bonds. Available for sale securities increased by $5,838,000 or 14% to
$47,256,000 and held to maturity securities increased by $2,548,000, or 19% to
$15,765,000, from December 31, 1999 to December 31, 2000, as we have designated
all but new corporate bond purchases as available for sale.

     During 2000 we continued to purchase mostly longer term bonds for our
available-for-sale portfolio because we believe we need to invest in longer term
bonds to get higher returns. Many of these bonds have experienced some
volatility in market value due to changing interest rates, but we believe the
higher yield is worth the volatility. We review the portfolio periodically to
determine if we should sell bonds to either limit losses or to capture gains.
Credit quality remains a high priority when purchasing bonds, and we continue to
buy high quality bonds.

     The Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" requires us to classify our
debt and equity securities into three categories: held to maturity, available
for sale, or trading. Available for sale bonds are evaluated quarterly, and
their carrying values adjusted to reflect their market values, with the
resulting adjustment entered as an adjustment, net of tax, to our net worth. The
market value of investments available for sale as of December 31, 2000, reflect
a change from an unrealized loss net of taxes, of $1,149,000 at the end of 1999
to an unrealized gain of $288,000. As interest rates continue to go down during
2001, this unrealized gain will increase. We expect market value fluctuations on
long term bonds and have the ability to either hold or sell bonds as
appropriate.

     The carrying value of our investment securities both available for sale,
and held to

                                      -13-
<PAGE>

maturity at December 31, are summarized in the table below:

         (in thousands)                                    2000        1999
                                                          -------    -------
     Available for sale:
       U.S. Treasury securities ......................    $ 2,558    $ 4,509
       U.S. government agencies and corporations .....     28,327     23,747
       State and municipal securities ................     14,815     11,781
       Other securities ..............................      1,556      1,381
                                                          -------    -------
         Total .......................................    $47,256    $41,418
                                                          =======    =======

     Held to maturity:
       U.S. government agencies and corporations .....    $ 4,844    $ 5,019
       State and municipal securities ................      1,694      2,414
       Other securities ..............................      9,227      5,784
                                                          -------    -------
         Total .......................................    $15,765    $13,217
                                                          =======    =======

     The following table shows the maturities of our investment and debt
securities as of December 31, 2000 and the weighted average yields (tax-exempt
securities on tax equivalent basis assuming 34% tax rate) of the securities:

<TABLE>
<CAPTION>
                                 Due within one      Due after one years   Due after five years
(in thousands)                    year or less       through five years      through ten years    Due after ten years
<S>                            <C>       <C>          <C>         <C>      <C>          <C>       <C>       <C>
Available for sale:
U.S. Treasury securities ...   $   999   6.13%        $ 1,513     6.66%
U.S. government agencies
and corporations ...........                          $15,837     6.45%    $ 3,386      6.32%     $ 8,989   6.29%
State and municipal
securities .................       425   5.76%          2,493     7.10%      4,657      6.59%       7,172   7.51%
Stock ......................                                                                        1,349
                               -------                -------              -------                -------
Total ......................   $ 1,424   6.02%        $19,843     6.55%    $ 8,043      6.48%      17,510   5.70%
                               =======                =======              =======                =======

Held to maturity:
U.S. government agencies and
corporations ...............   $ 1,500   5.94%        $ 3,102     6.70%                           $   244   7.24%
State and municipal
securities .................       620   7.19%            873     6.93%    $   200      8.03%
Other securities ...........       200   6.03%          8,778     6.94%        249      7.08%
                               -------                -------              -------                -------
Total ......................   $ 2,320   6.28%        $12,753     6.88%    $   449      7.50%     $   244   7.24%
                               =======                =======              =======                =======

</TABLE>


     As you can see from the table, longer maturity bonds provide higher yields.
Because of this, we are purchasing more longer term bonds than we did in other
years. We believe we have enough capital to tolerate the larger market price
variations of longer term bonds.

                                      -14-
<PAGE>

DEPOSITS

     Our deposits grew by 9% in 2000. Deposits at year end 2000 were
$153,356,000, an increase of $12,779,000 from the 1999 year end balance of
$140,580,000. Non-interest bearing deposits increased $3,578,000 or 16%, to
$25,758,000 and interest bearing deposits increased $9,197,000 or 8% to
$127,598,000. The percentage of non-interest bearing deposits to average total
deposits for 2000 increased to 18% from 16% for 1999. The percentage of average
non-interest bearing deposits to average total deposits is important to our
profitability because it decreases our overall interest expense.

     Average time deposits increased by $8,010,000 during 2000 to $74,253,000
from $66,243,000 during 1999. Their proportion of total average deposits
increased to 61% in 2000 from 58% in 1999. This is important because time
deposits cost us more than other deposits and react to rising or falling
interest rates sooner than other deposit accounts. However, the average interest
rate does not rise as fast, because only new or variable certificates of deposit
will have the new rates. When interest rates change on other deposit accounts,
such as money market or savings, all of the accounts' rates change. Average
deposits in savings and money market accounts decreased by $114,000 from 1999 to
2000, and average deposits in NOW and Super-NOW accounts increased by $69,000
during the same period. We added approximately $1,500,000 in deposits when we
purchased a small supermarket branch from Pioneer Bank in June 2000. This office
is in Eaton Township, Wyoming County near Tunkhannock and complements the
Tunkhannock office very well. Customers like the added convenience of the
location and the later hours. The impact on future deposit growth is still
unknown. Deposit growth continues to be strong in Tunkhannock, Towanda, the Back
Mountain office at Trucksville and the Pine Mall office in Wilkes-Barre.

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

<TABLE>
<CAPTION>
                                                    2000                        1999
                                                    ----                        ----
                                             Average    Average         Average     Average
      (In thousands)                         Balance      Rate          Balance      Rate
                                             -------      ----          -------      ----
<S>                                         <C>           <C>           <C>          <C>
      Demand deposits:
        Noninterest bearing .............   $ 24,248                    $ 21,587
        Interest bearing ................     16,254      2.26%           16,185     1.94%
      Savings and money market
      deposits ..........................     31,464      2.49%           31,578     2.49%
      Time deposits .....................     74,253      5.66%           66,243     5.29%
                                            --------                    --------
      TOTAL .............................   $146,219                    $135,593
                                            ========                    =========
</TABLE>

                                      -15-
<PAGE>

     Maturities of certificates of deposit and other time deposits of $100,000
or more outstanding at December 31, 2000 are shown below:

                                        Certificates    Other Time
        (In thousands)                   of Deposits      Deposits        Total
                                         -----------      --------        -----
        3 months or less .............      $ 3,976                   $ 3,976
        3 to 6 months ................        1,245                     1,245
        6 to 12 months ...............        5,660                     5,660
        Over 12 months ...............        4,879                     4,879
        No set maturity, state
        deposit ......................                   $   200          200
                                            -------      -------      -------
           TOTAL .....................      $15,760          200      $15,960
                                            =======      =======      =======

CAPITAL

     Having adequate capital is necessary to support continued growth and
earnings, to meet the needs of our depositors and borrowers, and to maintain a
reasonable rate of return for stockholders. Stockholders' equity increased by
$3,680,000 or 23% from $15,962,000 at December 31, 1999 to $19,642,000 at
December 31, 2000. The increase in the market value of securities available for
sale, contributed $1,437,000 to the increase in equity. Our average equity to
assets ratio is 9.89%. For 1999 our average equity ratio was 9.56% and 10.04%
for 1998.

     Consistently strong earnings have kept our capital level high despite
several years of strong deposit growth. Since earnings continue to outpace our
capital needs, the Board of Directors declared a bonus cash dividend in December
2000, and is resuming regular cash dividends payable quarterly in 2001.

     In 1989 the Federal Reserve Board issued risk-based capital guidelines,
which require banking organizations such as ours 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. To calculate "risk-weighted
assets", we apply certain risk percentages, as specified by the Federal Reserve
Board to particular categories of both on and off-balance sheet assets. These
guidelines require us to 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%.

                                      -16-
<PAGE>

     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 us of any specific minimum Tier 1 leverage ratio
applicable to us.

     The next table indicates our Tier 1 and Tier 2 capital, risk adjusted
assets, our risk-based capital ratios, and Tier 1 leverage ratios. At the end of
2000 and 1999, we exceeded all regulatory capital requirements.

Risk-Based Capital
December 31, (in thousands, except ratios)               2000           1999
Tier I capital:
  Shareholders' equity ..........................       $19,253       $16,911
Tier II capital:
Loan loss reserve and adjustment for
  unrealized gains on equity securities
  available for sale ............................         1,236         1,136
Total Qualifying Capital ........................       $20,489       $18,047
Risk-adjusted assets, net of allowances
 (including off-balance sheet items) ............      $114,640       $99,658
Tier I Capital Ratio (4.00% required) ...........         16.79%        16.97%
Total Capital Ratio (8.00% required) ............         17.87%        18.31%
Tier I Leverage Ratio ...........................         10.44%        10.11%

RESULTS OF OPERATIONS

     Our Net income for 2000 totaled $2,596,000 ($3.21 basic per share, based on
807,243 weighted average common shares) as compared to 1999's net income of
$2,404,000 ($3.01 basic per share, based on 798,278 weighted average common
shares), and 1998's net income of $1,860,000 ($2.39 basic per share, based on
779,252 weighted average common shares).

     Net interest income or the spread between total interest income and
interest expense directly impacts the results of operation. Net interest yield
for 2000 declined to 4.29% from 4.44% in 1999. Our average rate on interest
earning assets rose from 7.76% to 7.92%, but the average rate on total sources
to fund the earning assets increased from 3.32% to 3.62%.

                                      -17-
<PAGE>

Improved yields on the investment portfolio account for most of the increase in
the yield in earning assets, and increased interest expense on certificates of
deposit and borrowed funds, account for most of the increased interest expense.

     Increased loan volume in 2000 accounted for most of the increase in
interest income. Average loans were up $11,532,000 or 12% from 1999 adding
$1,025,00 (on a tax equivalent basis) in additional interest income due to the
increased volume. The increased size of the investment portfolio accounted for
an additional $335,000 increase in interest income (on a tax equivalent basis),
while higher yields accounted for an increase of $77,000. The higher yields are
due to our purchasing longer term bonds.

     We continue to increase the size of our loan portfolio to compensate for
our shrinking net interest yield. The loan to deposit ratio at 2000 year end was
74% up from 73% at 1999 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 Tunkhannock, Edwardsville, Little Meadows, Towanda, Back
Mountain, and Pine Mall office. Our provision expense for loan losses declined
$75,000, from $220,000 in 1999 to $145,000 in 2000, as loan quality continued to
improve.

     Salaries and employee benefits increased by $209,000 or 10% in 2000 as
compared to 1999. This increase is due primarily to additional employees for the
new branch at Eaton Township, which we purchased from Pioneer Bank, the addition
of an assistant branch manager, the creation of a marketing position and annual
salary increases.

     Occupancy expense increased by $48,000 or 11% in 2000 as compared to 1999,
due primarily to lease expenses for the Eaton Township office. Furniture and
equipment expense was nearly the same as 1999, increasing only $5,000. Other
operating expenses only increased $61,000 or 5%.

     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 $35,000
in 2001. The Federal Deposit Insurance Corporation (FDIC) premium on deposit
insurance remains at zero for 2001.

                                      -18-
<PAGE>

IMPACT OF INFLATION

     The majority of our assets and liabilities are monetary in nature and
therefore differ greatly from most industrial companies that have significant
investments in fixed assets or inventories. We believe that the biggest impact
on net income is changes in interest rates and our ability to react to those
changes. Our discussion of liquidity and rate sensitivity explained the
importance of monitoring our balanced position in 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 adequate 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.


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 is available to the public. We are proud of our
Community Reinvestment activities and our efforts to meet the credit needs of
people of all income levels, race, religions or national origins. The Office of
the Comptroller or the Currency awarded us a "Satisfactory" rating after their
most recent examination of the Bank's CRA practices. The OCC has implemented new
examination procedures for Community Reinvestment activities and under these new
procedures, nearly all the Bank's efforts to improve the communities in which it
operates are no longer considered. Only very specific activities targeted only
to low and low-to-moderate income households are considered CRA activities.
Activities that help a community as a whole do not qualify, except under
extremely limited circumstances.

     In accordance with our goal to develop products which are affordable and
accessible to all segments of our marketplace, we have worked with one of our
correspondent banks, the Atlantic Central Banker's Bank, to offer a mortgage
product to our 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.

OTHER ACTIVITIES

         We have also taken a leadership role in the ongoing Laceyville Borough
Revitalization effort. The Borough received a grant from the Commonwealth of
Pennsylvania in order to develop a site master plan to include concepts which
may solve some of the issues affecting the

                                      -19-
<PAGE>

downtown area. A Comprehensive Planner has been hired to provide plans for
streetscape improvement and to identify other possible business opportunities
for the community. Monthly meetings are held at our office in Laceyville and
several of our bank officers take an active role on the revitalization
committee.

     The community has made application to the state for a matching grant for
the streetscape improvements, and will soon be submitting another application to
fund building facade improvements.

INSURANCE ACTIVITIES

     Since 1997 we have been selling life insurance products and in 1999 we
added property and casualty insurance. Beginning in 2001 we are offering fixed
annuities to our customers, and expect to have at least eight employees
licensed. The annuities are being offered through an arrangement with a third
party marketer, from companies such as Jackson National, Fidelity & Guaranty
Life, and Hartford Life. Two employees have licenses to sell property and
casualty and liability insurance. We offer Old Line Life and Provident
disability insurance products from American General Financial Group, and
Homeowners, Auto and Personal umbrella liability insurance from Nationwide
Insurance. All of these companies are solid and have excellent reputations.
Under our agreement with Nationwide, our agents are associate agents with a
group of local Nationwide agents. This provides our insurance customers with a
great company, competitive rates and what we believe is the best local service.

     We also offer title insurance through a joint venture with Mountain Laurel
Abstract, called Northeast Abstract to provide "one stop shopping" for our
mortgage customers. Now customers can apply for a mortgage and get their title
insurance and homeowner's insurance all with just one stop. We believe our
customers will like this convenience.

TRUST DEPARTMENT

     Our Trust Department continues to grow and expand as we added several
accounts during 2000. We conducted an estate planning seminar for our customers
during 2000, and it was very well received. Several individuals contacted us
about trust accounts after attending the seminar. Offerings of the Trust
Department include personal trusts, irrevocable trusts, insurance trusts, trusts
under will, estate management services and IRAs. We continue to target accounts
under $1,000,000, a segment large banks no longer pursue. The Trust Department
may begin to be profitable by 2002.

                                      -20-
<PAGE>

                    Grange National Banc Corp and Subsidiary
               Average Balances, Interest Income/Expense and Rates

<TABLE>
<CAPTION>
           Years Ended                          December 31, 2000                   December 31, 1999
        --------------------------------------------------------------------------------------------------------
                                           (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 ........................      $ 60,478      $ 5,076      8.39%      $ 56,971      $ 4,762      8.36%
Consumer .........................        11,265        1,120      9.94         10,349        1,009      9.75
Commercial .......................        35,301        3,126      8.86         28,192        2,526      8.96
                                        --------      -------                 --------      -------
    Total loans ..................       107,044        9,322      8.71         95,512        8,297      8.69
                                        --------      -------                 --------      -------
Securities available for sale:
  U.S. Treasury securities .......         3,150          196      6.22          5,108          303      5.93
                                          27,421        1,710      6.24         22,236        1,362      6.13
  U.S. government agencies .......        12,996          909      6.99         11,112          782      7.04
  Municipal  bonds
  Other securities ...............         1,286           89      6.92            998           63      6.31
                                        --------      -------                 --------      -------
    Total available for sale .....        44,853        2,904      6.47         39,454        2,510      6.36
                                        --------      -------                 --------      -------
 Securities held to maturity:
  U.S. government agencies .......         4,944          318      6.43          7,182          466      6.49
  Municipal bonds ................         2,294          152      6.63          3,081          202      6.56
  Other securities ...............         7,337          498      6.79          4,500          282      6.27
                                        --------      -------                 --------      -------
    Total held to maturity .......        14,575          968      6.64         14,763          950      6.44
                                        --------      -------                 --------      -------
      Total  investment securities        59,428        3,872      6.52         54,217        3,460      6.38
                                        --------      -------                 --------      -------
 Deposits in banks ...............         1,189           82      6.90          3,320          126      3.80
                                        --------      -------                 --------      -------
TOTAL ............................      $167,661      $13,276      7.92       $153,049      $11,883      7.76
                                        ========      =======                 ========      =======
</TABLE>
                                      -21-

<PAGE>

<TABLE>
<CAPTION>

INTEREST BEARING LIABILITIES:

         Deposits:
<S>                                               <C>            <C>             <C>    <C>            <C>            <C>
  NOW and super-NOW .........................     $ 16,254       $  367          2.26   $ 16,185       $  314         1.94
  Savings and money market ..................       31,464          784          2.49     31,578          785         2.49
  Certificates of deposit ...................       74,053        4,188          5.66     66,043        3,494         5.29
  Other time deposits .......................          200           12          6.00        200           10         5.00
                                                  ---------------------                 ---------------------
    Total deposits ..........................      121,971        5,351          4.39    114,006        4,603         4.04
 Other borrowed funds .......................       12,977          724          5.58      9,729          479         4.92
                                                  ---------------------                 ---------------------
TOTAL .......................................      134,948        6,075          4.50    123,735        5,082         4.11
Non-interest bearing funds, net(2) ..........       32,713                                29,314
                                                  ---------------------                 ---------------------
TOTAL SOURCES TO FUND
EARNING ASSETS ..............................     $167,661        6,075          3.62   $153,049        5,082         3.32
                                                  =====================                 =====================
NET INTEREST/YIELD ..........................                    $7,201         4.29%                  $6,801         4.44%
                                                                 ===================                   ===================
</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%.


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

<TABLE>
<CAPTION>
                                                         2000 vs. 1999                          1999 vs. 1998
                                                      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 ..................................      $ 1,025       $ 1,021       $   4       $   675       $ 1,146       ($471)
                                              -------------------------------------------------------------------------
  Investment securities ................          412           335          77           866           890         (24)
  Deposits in other banks ..............          (44)         (110)         66           (53)            7         (60)
                                              -------------------------------------------------------------------------
TOTAL ..................................        1,393         1,246         147         1,488         2,043        (555)

INTEREST EXPENSE:
  Now/Super-Now  deposits ..............           53             1          52            46            69         (23)
  Savings/Money  market deposits .......           (1)           (1)          8             8            65         (57)
  Time deposits ........................          696           442         254           207           377        (170)
  Other Borrowings .....................          245           175          70           368           361           7
                                              =========================================================================
TOTAL ..................................          993           617         376           629           872        (243)
                                              -------------------------------------------------------------------------
NET INTEREST INCOME ....................      $   400       $   629       ($229)      $   859       $ 1,171       ($312)
                                              =========================================================================
</TABLE>

                                      -22-

<PAGE>

     Changes in interest due to volume and due to rate have 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%.










                                      -23-

<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,  2000  and  1999  and  the  related
consolidated   statements  of  income  and  comprehensive  income,   changes  in
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2000. 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, 2000 and 1999,  and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
generally accepted accounting principles.


Daniel Kenia, P.C.
Tunkhannock, Pennsylvania

January 19, 2001


                                      -24-

<PAGE>


                    GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,                                                                              2000                 1999

ASSETS:
<S>                                                                                  <C>                 <C>
  Cash and due from banks ..................................................         $   3,063,003       $   4,353,347
  Interest bearing deposits ................................................             3,558,407           2,526,347
  Investment securities (Note 2):
  Available for sale .......................................................            47,256,168          41,417,763
  Held to maturity, (fair value 2000, $15,890,000, 1999, $12,481,000) ......            15,765,057          13,217,040
                                                                                     ---------------------------------
  Loans (Note 3) ...........................................................           113,569,291         102,486,198
  Less:  unearned interest income ..........................................                79,330             168,908
  Less:  allowance for loan losses .........................................             1,142,220           1,092,170
                                                                                     ---------------------------------
  Loans, net ...............................................................           112,347,741         101,225,120
  Bank premises and equipment, net (Note 4) ................................             2,886,634           2,899,382
  Accrued interest and other assets ........................................             4,699,533           3,341,951
  Intangible assets ........................................................               101,343             119,863
  Other real estate ........................................................               326,560             231,601
                                                                                     ---------------------------------
  TOTAL ASSETS .............................................................         $ 190,004,446         169,332,414
                                                                                     =================================
LIABILITIES:
  Deposits:
   Non-interest bearing deposits ...........................................         $  25,757,743       $  22,179,696
   Interest bearing deposits ...............................................           127,598,451         118,400,773
                                                                                     ---------------------------------
      Total deposits .......................................................           153,356,765         140,580,469
  Other borrowed funds (Note 5) ............................................            15,854,765          11,786,255
  Accrued interest and other liabilities ...................................             1,151,042           1,003,690
                                                                                     ---------------------------------
      Total liabilities ....................................................           170,362,001         153,370,414
                                                                                     ---------------------------------
COMMITMENTS AND 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, 813,889 and
  783,809 shares issued in 2000 and 1999, respectively ....................             4,069,445            3,919,045
Additional paid-in capital ................................................             2,116,675            1,516,874
Retained earnings .........................................................            13,168,349           11,675,129
                                                                                     ---------------------------------
Total .....................................................................            19,354,469           17,111,048
Accumulated other comprehensive income (net of deferred income
   taxes) (Note 6) ........................................................               288,000           (1,149,000)
Treasury stock, at cost (Note 1) ..........................................                   (24)                 (48)
                                                                                     ---------------------------------
Total stockholders' equity ................................................            19,642,445           15,962,000
                                                                                     ---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................         $ 190,004,446        $ 169,332,414
                                                                                    ==================================
</TABLE>


                 See Notes to Consolidated Financial Statements

                                      -25-

<PAGE>


                    GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                           2000             1999             1998
----------------------------------------------------------------------------------------------------------------------------
Interest Income:
<S>                                                                           <C>              <C>              <C>
  Interest and fees on loans ...........................................      $  9,110,535     $  8,148,308     $  7,531,903
  Interest on investment securities:
    U.S. Treasury securities ...........................................           195,765          303,401          405,229
    Obligations of other U.S. government agencies and corporations .....         2,027,993        1,828,219        1,442,403
    Obligations of states and political subdivisions (tax-exempt) ......           700,306          649,464          370,571
    Other securities ...................................................           586,899          344,977          187,208
  Interest on deposits in banks ........................................            82,129          126,377          179,432
                                                                              ----------------------------------------------
    Total interest income ..............................................        12,703,627       11,400,746       10,116,746
                                                                              ----------------------------------------------
Interest Expense:
  Interest on deposits .................................................         5,351,351        4,602,280        4,341,667
  Interest on borrowed funds ...........................................           723,641          479,402          110,656
                                                                              ----------------------------------------------
    Total interest expense .............................................         6,074,992        5,081,682        4,452,323
                                                                              ----------------------------------------------
Net interest income ....................................................         6,628,635        6,319,064        5,664,423
  Provision for loan losses (Note 3) ...................................           145,000          220,000          270,000
                                                                              ----------------------------------------------
    Net interest income after provision for loan losses ................         6,483,635        6,099,064        5,394,423
    Other Income (Note 7) ..............................................         1,090,846          991,011          784,864
    Other Expenses (Note 8) ............................................        (4,330,456)      (4,008,282)      (3,608,956)
                                                                              ----------------------------------------------
  Income before taxes ..................................................         3,244,025        3,081,793        2,570,331
                                                                              ----------------------------------------------
    Provision for income taxes (Notes 1 and 6) .........................           648,000          678,000          710,000
                                                                              ----------------------------------------------
  Net income ...........................................................      $  2,596,025     $  2,403,793     $  1,860,331

Other comprehensive income, net of tax of $719,000:
  Unrealized gains on securities:
    Unrealized holding gain (loss) arising during period ...............      $  2,156,000     ($ 2,134,000)    $    265,000
    Federal income tax (expense) benefit ...............................          (719,000)         725,000          (89,000)
    Unrealized holding gain (loss) arising during period ...............      $  1,437,000     ($ 1,409,000)    $    176,000
                                                                              ----------------------------------------------
Comprehensive income ...................................................      $  4,033,025     $    994,793     $  2,036,331
                                                                              ==============================================
Earnings per share (Notes 1, 11 and 12):
Basic ..................................................................      $       3.21     $       3.01     $       2.39
                                                                              ==============================================
Diluted ................................................................      $       2.98     $       2.71     $       2.22
                                                                              ==============================================
Basic shares outstanding ...............................................           807,243          798,278          779,252
                                                                              ==============================================
Diluted shares outstanding .............................................           877,760          886,117          839,751
                                                                              ==============================================
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -26-

<PAGE>


                    GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                         Additional                        Other
                                              Treasury      Common         Paid-in        Retained     Comprehensive
                                                Stock     Stock $5 Par     Capital        Earnings         Income          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>            <C>            <C>             <C>            <C>
Balance, December 31, 1997 ...............   ($    192)   $ 1,816,525    $ 2,052,158    $  8,685,313    $    84,000    $ 12,637,804
Net income ...............................                                                 1,860,331                      1,860,331
Stock dividend $0.71 per share,
plus cash in lieu of fractional
shares ...................................                     52,570        445,767        (527,707)                       (29,370)
Stock split ..............................                  1,841,240     (1,841,240)                                             0
Issuance of common stock .................                     47,455         74,976                                        122,431
Sale of stock from treasury ..............         120                                                                          120
Unrealized holding gains on
investment securities ....................                                                                  265,000         265,000
Deferred tax liability ...................                                                                  (89,000)        (89,000)
                                             ---------------------------------------------------------------------------------------
Balance, December 31, 1998 ...............   ($     72)   $ 3,757,790    $   731,661    $ 10,017,937    $   260,000    $ 14,767,316
Net income ...............................                                                 2,403,793                      2,403,793
Stock dividend $0.97 per share,
plus cash in lieu of fractional
shares ...................................                     80,875        635,100        (746,601)                       (30,626)
Issuance of common stock .................                     80,380        150,113                                        230,493
Sale of stock from treasury ..............          24                                                                           24
Unrealized holding gains (losses)
on investment securities .................                                                               (2,134,000)     (2,134,000)
Deferred tax asset .......................                                                                  725,000         725,000
                                             ---------------------------------------------------------------------------------------
Balance, December 31, 1999 ...............   ($     48)   $ 3,919,045    $ 1,516,874    $ 11,675,129    ($1,149,000)   $ 15,962,000
Net income ...............................                                                 2,596,025                      2,596,025
Stock dividend $0.88 per share,
plus cash in lieu of fractional
shares ...................................                     95,690        577,848        (699,719)                       (26,181)
Cash dividend $0.50 ......................                                                  (403,086)                      (403,086)
Issuance of common stock .................                     54,710         21,953                                         76,663
Sale of stock from treasury ..............          24                                                                           24
Unrealized holding gains on
investment securities ....................                                                                2,156,000       2,156,000
Deferred tax liability ...................                                                                 (719,000)       (719,000)
                                             ---------------------------------------------------------------------------------------
Balance, December 31, 2000 ...............   ($     24)   $ 4,069,445    $ 2,116,675    $ 13,168,349    $   288,000    $ 19,642,445
                                             =======================================================================================
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -27-

<PAGE>

<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                                 2000               1999               1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>                <C>
OPERATING ACTIVITIES:
Net income ...........................................................      $  2,596,025       $  2,403,793       $  1,860,331
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................................           335,662            340,933            329,912
Provision for loan losses ............................................           145,000            220,000            270,000
Increase (decrease) in deferred income taxes .........................           699,000           (791,000)          (100,000)
Changes in operating assets and liabilities:
Decrease in accrued interest income and other assets .................        (2,056,582)          (528,353)          (350,299)
Increase in accrued interest expense and other liabilities ...........           121,827            238,347            170,486
                                                                            --------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................         1,840,932          1,883,720          2,180,430
                                                                            --------------------------------------------------
INVESTING ACTIVITIES:
Purchase bank premises and equipment .................................          (304,394)           (86,010)          (393,241)
Decrease (increase) in other real estate .............................           (94,960)          (123,812)            42,006
Purchase of securities "available for sale" ..........................        (8,576,655)       (11,099,470)       (16,664,841)
Decrease (increase) in mortgage-backed
 securities "available for sale" .....................................         1,485,744         (6,349,048)        (2,769,115)
Sales of securities "available for sale" .............................                            2,903,735
Redemptions of securities "available for sale" .......................         2,714,506          1,969,462          2,360,237
Purchase of securities "held to maturity" ............................        (3,444,440)        (3,559,228)        (2,213,060)
Redemptions of securities "held to maturity" .........................           718,438          6,319,096         10,458,545
Decrease in mortgage-backed securities "held to maturity" ............           177,985            477,694            505,749
Net increase in loans to customers ...................................       (11,267,620)       (11,886,109)       (13,601,058)
Net increase (decrease) in interest bearing deposits in banks ........        (1,032,060)         3,083,779         (3,192,139
                                                                            --------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ................................       (19,623,456)       (18,349,911)       (25,466,917)
                                                                            --------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposits before interest credited ........................         8,391,219          6,811,841         17,454,096
Increase in borrowed funds ...........................................         4,068,511          7,315,041          2,191,920
Interest credited to deposits ........................................         4,385,030          3,877,299          3,648,553
Dividend .............................................................          (403,086)
Cash in lieu of fractional shares ....................................           (26,181)           (30,626)           (29,370)
Proceeds of sale of treasury stock ...................................                24                 24                120
Issuance of common stock .............................................            76,663            230,493            122,432
                                                                            --------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................        16,492,180         18,204,072         23,387,752
                                                                            --------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................        (1,290,344)         1,737,881            101,265
CASH AND CASH EQUIVALENTS, January 1 .................................         4,353,347          2,615,466          2,514,202
                                                                            --------------------------------------------------
CASH AND CASH EQUIVALENTS, December 31 ...............................      $  3,063,003       $  4,353,347       $  2,615,466
                                                                            ==================================================
SUPPLEMENTARY SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest ...........................................................      $  1,825,235       $  1,065,783       $    996,759
  Income taxes .......................................................      $    766,000       $    817,000       $    780,000
Non-cash investing and financing activities:
  Unrealized gains (losses) on securities ............................      $  1,437,000       ($ 1,409,000)      $    176,000
  Stock dividend .....................................................      $    673,538       $    715,975       $    498,337
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -28/29-
<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) provides a variety of banking services to individual and
corporate 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"). In accordance with
SFAS No. 115 the Company classifies each debt and equity security as held to
maturity or available for sale. Investments classified as held to maturity are
reflected at amortized cost. Investments classified as available for sale are
reflected at fair market value. Realized gains or losses on securities are
included in earnings. Unrealized gains and losses on available for sale
securities are excluded from earnings and reflected, net of income taxes as
other comprehensive income and in a separate component of stockholders' equity
as accumulated other comprehensive income until realized. These unrealized gains
and losses are the only component of comprehensive income. Upon purchase of
securities the Company specifically designates which securities are classified
as "available for sale" and "held to maturity".


                                      -30-
<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


                                      -31-

<PAGE>


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,
2000 was within the approved 50% limit and no regulations have been violated.

Advertising Costs:

         The Company follows the policy of charging advertising cost to expense
as incurred. During 2000, 1999 and 1998, advertising costs amounted to $96,000,
$82,000 and $103,000 each.

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 2000 and 1999 was $18,520 each, and 1998 was $17,025.

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 was one share of common stock in
2000 and two shares of common stock in 1999.

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 $16,980, $15,077
and $16,848 as matching contribution to employee deferrals during 2000, 1999
and 1998. The Company also made an Employer Optional Contribution to the Plan of
$91,077, $83,343 and $77,820 during 2000, 1999

                                      -32-

<PAGE>


and 1998, which represents 6% of gross salaries for each year.

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 temporary differences
relate principally to the use of different depreciation methods for financial
statement and income reporting purposes, resulting in differences in asset basis
due to accumulated depreciation on bank premises and equipment, accretion of
discounts on financial basis of securities, allowances for loan losses and
unrealized holding gains and losses on available for sale securities which are
not included in taxable income.. 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, 2000 was approximately $45,000.


                                      -33-


<PAGE>


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.

         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 2000 or 1999.

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):


                                      -34-


<PAGE>


                                                    Contract or Notional Amount
                                                         2000          1999
                                                         ----          ----
    Financial instruments whose contract
      amounts represent credit risk:
          Commitments to extend credit................  $4,831         $5,455
          Standby letters of credit...................  $  600         $1,412

         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.

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 $2,350,000, 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.


                                      -35-

<PAGE>


         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, 2000 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 16.79% and 17.87% respectively. The Bank's leverage ratio at
December 31, 2000 was 10.44%. 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, 2000, the Bank had
retained earnings of $13,168,000 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 nonaffilliates. 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.

Line of Credit:

         At December 31, 2000 the Company had maximum borrowing capacity at the
Federal Home Loan Bank of Pittsburgh in the amount of $53,681,000 at a variety
of available terms.

Comprehensive Income:

         In 1997, the Financial Accounting Standards Board issued statement No.
130 - "Reporting Comprehensive Income," which is effective for years beginning
after December 15, 1997. This statement establishes standards for reporting and
displaying of comprehensive income and its components in a full set of
general-purpose financial statements. The purpose of reporting comprehensive
income is to report a measure of all changes in equity that result from
recognized transactions and other economic events of the period other than
transactions with owners in their capacity as owners. Prior to the issuance of
this statement, some of those changes in equity were displayed in a statement
that reports the results of operations, while others were included directly in a
statement of financial position.

Accounting For Derivative Instruments And Hedging Activities:

         SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued by the Financial Accounting Standards Board in June 1998.
The statement establishes


                                      -36-

<PAGE>


accounting and reporting standards for derivative instruments embedded in other
contracts and hedging activities. SFAS No. 137 was issued to defer the effective
date of SFAS No. 133 to apply to all financial statements for years beginning
after June 15, 2000. Due to the Company's limited use of derivatives, management
does not anticipate the adoption of SFAS No. 133 will have a material effect on
the financial condition of the Company.

2.  Investment Securities:

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

<TABLE>
<CAPTION>
                                                                                    2000
                                                           -----------------------------------------------------
                                                                           Gross          Gross       Estimated
                                                           Amortized    Unrealized     Unrealized        Fair
                                                              Cost         Gains          Losses         Value
in thousands)                                              -----------------------------------------------------
Available for sale:
<S>                                                        <C>             <C>          <C>              <C>
U.S. Treasury notes ..............................         $ 2,512         $ 46                          $ 2,558
U.S government agencies and corporations .........          28,212          247         ($  132)          28,327
Municipal bonds ..................................          14,747          165             (97)          14,815
Other securities .................................           1,349          207                            1,556
                                                           -----------------------------------------------------
Total available for sale .........................          46,820          665            (229)          47,256
                                                           =====================================================
Held to maturity:
U.S. government agencies and corporations ........           4,844           34             (13)           4,865
Municipal bonds ..................................           1,694            9              (7)           1,696
Other securities .................................           9,227          149             (47)           9,329
                                                           =====================================================
Total held to maturity ...........................          15,765          192             (67)          15,890

                                                                                    1999
Available for sale:                                        -----------------------------------------------------
U.S. Treasury notes ..............................         $ 4,496         $ 14         ($    1)         $ 4,509
U.S government agencies and corporations .........          24,740                         (993)          23,747
Municipal bonds ..................................          12,639            4            (862)          11,781
Other securities .................................           1,283           98                            1,381
                                                           -----------------------------------------------------
Total available for sale .........................         $43,158         $116         ($1,856)         $41,418
                                                           =====================================================
Held to maturity:
U.S. government agencies and corporations ........         $ 5,019         $ 10         ($   83)         $ 4,496
Municipal bonds ..................................           2,414            5              (8)           2,411
Other securities .................................           5,784                         (160)           5,624
                                                           -----------------------------------------------------
Total held to maturity ...........................         $13,217         $ 15         ($  251)         $12,981
                                                           =====================================================
</TABLE>


                                      -37-

<PAGE>


         The amortized cost and estimated fair value of debt securities at
December 31, 2000 by contractual maturity, are shown in the next table. 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.

<TABLE>
<CAPTION>
                                                      Available For Sale             Held to Maturity
                                                      ------------------             ----------------
                                                   Amortized      Estimated      Amortized      Estimated
(In thousands)                                        Cost       Fair Value         Cost        Fair Value
<S>                                                 <C>            <C>             <C>            <C>
Maturing in one year or less .................      $ 1,424        $ 1,428         $ 2,320        $ 2,316
Maturing after one through five years ........       19,843         20,089          12,752         12,897
Maturing after five through ten years ........        8,043          8,037             449            434
Maturing after ten years .....................       16,161         16,146             244            243
No set maturity ..............................        1,349          1,556
                                                    -----------------------------------------------------
TOTAL ........................................      $46,820        $47,256         $15,765        $15,890
                                                    =====================================================
</TABLE>

3. Loans and Allowance for Loan Losses:

   Major classification of loans at December 31 are as follows:

                                                          2000            1999
     (in thousands)                                       ----            ----
     Real estate mortgages
     Agricultural ..............................       $  1,380        $  1,217
     Residential, 1 - 4 family .................         56,193          52,154
     Residential, multi-family .................          1,809           1,703
     Nonfarm, nonresidential properties ........         17,703          15,348
                                                       ------------------------
     Total real estate mortgages ...............         77,085          70,422
     Agricultural loans ........................            198             279
     Commercial loans ..........................         15,631          13,926
     Municipal loans ...........................          8,232           6,856
     Consumer loans ............................         12,377          10,824
     Overdrafts ................................             46             179
                                                       ------------------------
     Gross loans ...............................        113,569         102,486
     Less:  Unearned income ....................             79             169
     Allowance for loan losses .................          1,142           1,092
                                                       ------------------------
     Loans, net ................................       $112,348        $101,225
                                                       =========================


                                      -38-

<PAGE>


         Nonaccrual loans at December 31, 2000 and 1999, were $189,000 and
$103,000, 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, 2000 and 1999 the
recorded investment in loans that were considered impaired under SFAS No. 114
was $353,000 and $530,000, respectively. No transfers to loan loss were made in
2000 or 1999 for any impaired loans. The average recorded investment in impaired
loans during the years ended December 31, 2000 and 1999 was approximately
$440,000 and $524,000 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, 2000 and 1999, the Company recognized
interest income on impaired loans of $88,000 and $29,000. The interest that
would have been earned in accordance with the original terms is approximately
$32,000 and $40,000 respectively.

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

     (in thousands)                               2000       1999         1998
                                                  ----       ----         ----
     Balance, January 1 .....................   $ 1,092     $   940       $ 767
     Provision charged to operations ........       145         220         270
     Loans charged off ......................      (103)        (79)       (102)
     Recoveries .............................         8          11           5
                                                -------------------------------
     Balance, December 31 ...................   $ 1,142     $ 1,092       $ 940
                                                ===============================

4.  Premises and Equipment:

         Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                               Gross Book       Amortization           Net Book
    December 31, 2000                            Value         & Depreciation            Value
    -----------------                            -----         --------------            -----
     <S>                                       <C>                 <C>                <C>
     Land ................................     $  440,082                             $  440,082
     Buildings ...........................      2,864,876            976,656           1,888,220
     Furniture and equipment .............      2,466,920          1,908,588             558,332
                                               -------------------------------------------------
     Total ...............................      5,771,878          2,885,244           2,886,634
                                               =================================================
     December 31, 1999
     Land ................................     $  440,082                             $  440,082
     Buildings ...........................      2,674,263         $  876,355           1,797,908
     Furniture and equipment .............      2,353,139          1,691,747             661,392
                                               -------------------------------------------------
     Total ...............................     $5,467,484         $2,568,102          $2,899,382
                                               =================================================
</TABLE>

                                      -39-


<PAGE>

     Depreciation and amortization were applied as follows:

                                             2000          1999           1998
                                             ----          ----           ----
     Premises .......................      $100,301      $ 94,767       $ 89,840
     Furniture and equipment ........       216,841       227,645        240,072
                                           -------------------------------------
     Total ..........................      $317,142      $322,412       $329,912
                                           =====================================

         The Bank has non-cancelable operating leases on buildings for its
Edwardsville, Back Mountain and Pine Mall Offices. The aforementioned leases
have been treated as operating leases in the accompanying financial statements.
Rental expense for 2000 was $179,000, and 1999's expense was $163,000, and
1998's was $134,000. Minimum future obligations under non-cancelable operating
leases in effect at December 31, 1999 are as follows:

                 2001                                 $182,050
                 2002                                  194,000
                 2003                                  176,500
                 2004                                  152,000
                 2005 and thereafter                 1,278,583
                                                    -----------
                 Total.........................     $1,983,133
                                                    ==========

5.  Borrowed Funds

         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 $791,000 in 2000
and $949,000 in 1999.

         The Bank enters into repurchase agreements with customers which
amounted to $1,274,000 in 2000 and $1,835,000 in 1999.

         The Bank has a line of credit with the Federal Home Loan Bank for
$10,000,000 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 $1,000,000 at
December 31, 2000.


                                      -40-

<PAGE>

         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 Bank has also borrowed
eight term loans for a total of $12,500,000, with maturities from one to fifteen
years, and calls ranging from one to five years. The interest rates on these
loans range form 4.76% to 7.03%. At the call date and thereafter, the FHLB has
the option to convert the loan to a variable rate. The Bank can pay the loan off
without penalty if the FHLB decides to convert the loan to a variable rate. The
year end balance due the Federal Home Loan Bank was $3,159,000 in 2000 and
$9,002,00 in 1999. The FHLB loans mature as follows:

<TABLE>
<CAPTION>
         2001            2002            2003             2004          2005 and beyond
         ----            ----            ----             ----          ---------------
      <S>             <C>             <C>              <C>                <C>
      $2,539,052      $1,277,561      $3,000,000       $2,000,000         $4,000,000
</TABLE>

6.  Income Taxes:

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

                                              2000         1999          1998
                                              ----         ----          ----
     Currently payable ...............     $ 689,000    $ 744,000     $ 810,000
     Deferred tax (benefits) .........       (41,000)     (66,000)     (100,000)
                                           ------------------------------------
       Total .........................     $ 648,000    $ 678,000     $ 710,000
                                           ====================================

         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>
                                                             2000            1999
                                                             ----            ----
     <S>                                                  <C>             <C>
     Depreciation .....................................   $  77,000       $  92,000
     Accretion of discounts on securities .............      36,000          20,000
     Unrealized gains (losses) on available for
     sale investment securities .......................     148,000        (592,000)
     Accrued employee stock incentive .................     (62,000)        (42,000)
     Allowance for loan losses ........................    (327,000)       (321,000)
     Allowance for other real estate losses ...........     (10,000)
                                                          -------------------------
       Net deferred tax (asset) .......................   ($138,000)      ($843,000)
                                                          =========================
</TABLE>

                                      -41-

<PAGE>


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

<TABLE>
<CAPTION>
                                                                2000                       1999                     1998
                                                                ----                       ----                     ----
     <S>                                            <C>                <C>     <C>                <C>     <C>              <C>
     Provision at statutory rate ...............    $ 1,103,000        34.00%  $ 1,051,000        34.00%  $ 874,000        34.00%
     Tax-exempt income from
     investments ...............................       (210,000)       (6.47)     (190,000)       (6.15)   (112,000)       (4.36)
     Tax-exempt income from loans ..............       (125,000)       (3.85)      (85,000)       (2.75)    (42,000)       (1.63)
     Effect of nonqualified exercised
     options ...................................        (98,000)       (3.02)      (81,000)       (2.63)
     Other .....................................        (22,000)       (0.68)      (17,000)       (0.55)    (10,000)       (0.39)
                                                    ----------------------------------------------------------------------------
     Total .....................................    $   648,000        19.98%  $   678,000        21.92%  $ 710,000        27.62%
                                                    ============================================================================
</TABLE>

7.  Other Income:

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

<TABLE>
<CAPTION>
                                                              2000           1999          1998
                                                              ----           ----             ----
     <S>                                                <C>               <C>              <C>
     Service charges and fees ....................      $   284,789       $ 294,619        $ 225,564
     Service charges on deposit accounts .........          557,548         472,939          387,629
     Gain (loss) on sale of securities ...........                          (18,681)
     Gain (loss) on sale of real estate ..........          (20,000)         27,584          (24,961)
     Other .......................................          268,509         214,550          196,632
                                                        --------------------------------------------
     Total other income ..........................      $ 1,090,846       $ 991,011        $ 784,864
                                                        ============================================
</TABLE>

8.  Other Expenses:

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

<TABLE>
<CAPTION>
                                                           2000              1999              1998
                                                           ----              ----              ----
     <S>                                                <C>               <C>              <C>
     Salaries and employee benefits ..............      $2,205,378        $1,996,696       $1,835,224
     Occupancy expenses ..........................         484,386           436,589          408,073
     Furniture and equipment expenses ............         367,289           362,540          326,283
     Other operating expenses ....................      $1,273,403         1,212,457        1,039,376
                                                        ---------------------------------------------
     Total other expenses ........................      $4,330,456        $4,008,282       $3,608,956
                                                        =============================================
</TABLE>

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


                                      -42-

<PAGE>


is listed in the following table. Prior years balances have been restated to
account for new directors added to the board.

<TABLE>
<CAPTION>
                                                               2000              1999              1998
                                                               ----              ----              ----
     <S>                                                   <C>              <C>               <C>

     Balance, January 1 ............................       $ 2,809,323       $ 2,722,375       $ 1,423,252
     Additions .....................................         3,791,742         1,638,784         1,451,024
     Amounts collected .............................        (4,017,310)       (1,551,836)         (151,901)
                                                           -----------------------------------------------
       Balance, December 31 ........................       $ 2,583,755       $ 2,809,323       $ 2,722,375
                                                           ===============================================
</TABLE>


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

<TABLE>
<CAPTION>
     BALANCE SHEETS, DECEMBER 31,                                                2000              1999
                                                                                 ----              ----
<S>                                                                         <C>                <C>
                                      ASSETS
     Cash ...........................................................       $     57,185       $      6,320
     Investment in bank subsidiary ..................................         19,088,922         15,549,481
     Securities "available for sale" ................................            233,400            124,400
     Land and buildings .............................................            531,654            515,146
                                                                            -------------------------------
       TOTAL ASSETS .................................................       $ 19,911,161       $ 16,195,347
                                                                            ===============================
                                    LIABILITIES
     Notes payable, bank subsidiary .................................       $    198,192       $    198,192
     Other liabilities ..............................................             70,525             35,100
                                                                            -------------------------------
       Total liabilities ............................................       $    268,717       $    233,292
                                                                            -------------------------------
                               STOCKHOLDERS' EQUITY
     Preferred stock authorized 1,000,000 shares of $5 par,
     None issued ....................................................
     Common stock authorized 5,000,000 shares of $5 par,
       813,889 and 783,809 shares issued and outstanding in
       2000 and 1999, rspectively ...................................       $  4,069,445       $  3,919,045
     Additional paid-in capital .....................................          2,116,675          1,516,874
     Retained earnings ..............................................         13,168,349         11,675,129
     Unrealized holding gains (losses) on investment
     securities (net of deferred income taxes) ......................            288,000         (1,149,000)
     Less:  Treasury stock, at cost .................................                (24)               (48)
                                                                            -------------------------------
       Stockholders' equity .........................................         19,642,444         15,962,000
                                                                            -------------------------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................       $ 19,911,161       $ 16,195,347
                                                                            ===============================
</TABLE>


                                      -43-

<PAGE>

<TABLE>
<CAPTION>
     STATEMENTS OF INCOME FOR THE YEARS ENDED, DECEMBER 31           2000          1999           1998
                                                                     ----          ----           ----
     <S>                                                         <C>            <C>             <C>
     INCOME:
       Dividends from bank subsidiary ........................   $  534,268     $   35,626      $   74,370
       Dividends from other securities .......................        2,550          1,070             982
       Other income ..........................................       12,900         10,250           4,221
                                                                 -----------------------------------------
         Total income ........................................      549,718         46,946          79,573
                                                                 -----------------------------------------
     OPERATING EXPENSES:
       Interest expense ......................................       18,362         15,924          17,229
       Other operating expense ...............................        9,329          9,225           8,082
                                                                 -----------------------------------------
         Total operating expenses ............................       27,691         25,149          25,311
                                                                 -----------------------------------------
       Income before undistributed income of subsidiary ......      522,027         21,797          54,262
     EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY ............    2,073,998      2,381,996       1,806,069
                                                                 -----------------------------------------
     NET INCOME ..............................................   $2,596,025     $2,403,793      $1,860,331
                                                                 =========================================
<CAPTION>
     STATEMENTS OF CASH FLOWS                                          2000             1999             1998
                                                                       ----             ----             ----
     FOR THE YEARS ENDED, DECEMBER 31, OPERATING ACTIVITIES:
     <S>                                                           <C>              <C>              <C>
       Net income .............................................    $ 2,596,025      $ 2,403,793      $ 1,860,331
       Adjustments to reconcile net income
       to net cash provided by operating activities:
       Amortization and depreciation ..........................          9,306            9,202            7,827
       Transfer of real estate to Bank subsidiary .............         23,835-
       Equity in undistributed income of subsidiary ...........     (2,073,998)      (2,381,996)      (1,806,069)
                                                                   ---------------------------------------------
         Net cash provided by operating activities ............        555,168           30,999           62,089
                                                                   ---------------------------------------------
     INVESTING ACTIVITIES:
       Increase in buildings and land .........................        (49,649)          (4,664)         (28,677)
       Investment in Bank subsidiary ..........................       (100,498)        (230,493)        (122,431)
                                                                   ---------------------------------------------
         Net cash used in investing activities ................       (150,147)        (235,157)        (151,108)
                                                                   ---------------------------------------------
     FINANCING ACTIVITIES:
       Proceeds from notes payable ............................                                              265
       Increase (decrease) in other liabilities ...............         (1,575)                            1,500
       Sale of treasury stock .................................             24               24              120
       Issuance of common stock ...............................         76,663          230,493          122,431
       Dividends to stockholders ..............................       (429,268)         (30,626)         (29,370)
                                                                   ---------------------------------------------
         Net cash provided by (used in) financing activities ..       (354,156)         199,891           94,946
                                                                   ---------------------------------------------
     INCREASE (DECREASE) IN CASH ..............................         50,865           (4,267)           5,927
     CASH BALANCE, JANUARY 1 ..................................          6,320           10,587            4,660
                                                                   ---------------------------------------------
     CASH BALANCE, DECEMBER 31 ................................    $    57,185      $     6,320      $    10,587
                                                                   =============================================
</TABLE>


                                      -44-

<PAGE>

11.  Stockholder's Equity

Stock Split - Retroactive Effect on Financial Statements:

         In July 1998, the Board of Directors of the Company voted a two-for-one
split of the Company's common stock, to be effected in the form of a stock
distribution, payable to shareholders of record as of July 30, 1998. The
financial statements have been revised to give retroactive effect of the stock
split as if the additional shares had been outstanding for all periods.

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.


                                      -45-


<PAGE>


         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.

         The Board of Directors adopted an additional Stock Option Plan (the
"Plan") in November 1995, 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.

<TABLE>
<CAPTION>

                                                                         Non-Employee        Weighted
                                                        Employee           Director           average
     Year ended December 31, 1998                     Stock Options      Stock Options    Exercise Prices
                                                      -------------      -------------    ---------------
     <S>                                              <C>                <C>              <C>
     Outstanding 1997 ..............................        95,766           56,622           $15,13
     Granted .......................................         3,000
     Exercised .....................................       (11,361)            (500)
     Adjustment for stock dividend .................         1,961            1,133
     Outstanding ...................................        89,366           57,255           $   15.00
     Year ended December 31, 1999
     Outstanding 1998 ..............................        89,366           57,255           $   15.00
     Granted .......................................         6,000
     Exercised .....................................       (13,662)          (2,414)
     Lapsed ........................................          (500)
     Adjustment for stock dividend .................         3,251            1,233
     Outstanding ...................................        84,455           56,074           $   16.63
     Year ended December 31, 2000
     Outstanding 1999 ..............................        84,455           56,074           $   16.63
     Granted .......................................         1,500            7,497
     Exercised .....................................           842           14,072
     Lapsed ........................................                          4,840
     Adjusted for stock dividend ...................         2,122            2,377
     Outstanding ...................................        87,235           47,036           $   17.84
</TABLE>

         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 1999 and 1998 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:

<TABLE>
<CAPTION>

                                                            2000             1999             1998
                                                            ----             ----             ----
     <S>                                                <C>              <C>              <C>
     Net income - as reported .......................   $ 2,596,025      $ 2,404,000      $ 1,860,000
     Net income - pro forma .........................   $ 2,519,000      $ 2,344,000      $ 1,822,000
     Basic income per share - as reported ...........   $      3.21      $      3.01      $      2.44
     Basic income per share - pro forma .............   $      3.11      $      3.01      $      2.45
     Diluted income per share - as reported .........   $      2.98      $      2.80      $      2.29
     Diluted income per share - pro forma ...........   $      2.89      $      2.70      $      2.20
</TABLE>

         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 4.05% for 2000 and 2.17% for 1999 and 1998,
respectively; risk-free interest rate of 6.62%, 7.03% and 5.96% for 2000, 1999
and 1998 respectively; expected lives of 10 years for 1999, 1998 and 1997, which
is the option term; and volatility of 17.60%, 24.34% and 23.00% for 2000, 1999
and 1998, respectively.


Stock Dividends:

         The Company declared stock dividends of $0.34 in December and $0.54 in
June of 2000, and $0.50 in December and June of 1999, with fractional shares
paid in cash. The Company issued 19,138 and 16,175 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.


                                      -46-

<PAGE>


12.  Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                        2000           1999           1998
                                                                     ----------------------------------------
     <S>                                                             <C>            <C>            <C>
     Numerator:
     Net income ..................................................   $2,596,025     $2,403,793     $1,860,331
                                                                     ----------------------------------------
     Denominator:
     Denominator for basic earnings
     Per share - weighted average shares .........................      807,958        779,141        744,247
     Effect of dilutive securities:
     Employee stock options ......................................       64,558         80,516         66,824
                                                                     ----------------------------------------
     Dilutive potential common shares
     Denominator for diluted  earnings per share - adjusted
     weighted average and assumed conversions ....................      872,516        859,657        811,071
                                                                     ========================================
     Basic earnings per share ....................................   $     3.21     $     3.01     $     2.44
     Diluted earnings per share ..................................   $     2.98     $     2.80     $     2.29
</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 judgment with respect to current
economic conditions. Many of the estimates involve uncertainties and matters of
significant judgment 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, 2000 and 1999:

Cash and Due From Banks:

         The carrying amounts of cash and due from banks approximate fair value.

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


                                      -47-
<PAGE>


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.


                                      -48-
<PAGE>


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

<TABLE>
<CAPTION>
                                                                      2000                      1999
                                                                      ----                      ----
                                                             Carrying       Fair       Carrying       Fair
     (In thousands)                                            Value        Value        Value        Value
     Financial assets:
     <S>                                                    <C>           <C>          <C>          <C>
     Cash and due from banks ...........................    $  3,063      $  3,063     $  4,353     $  4,353
     Interest bearing deposits .........................       3,558         3,558        2,526        2,526
     Investment securities .............................      63,021        63,146       54,635       53,889
     Loans, net ........................................     112,348       116,017      101,225      100,284
     Accrued interest receivable and other assets ......       4,700         4,700        3,342        3.342
     Financial liabilities:
     Deposit liabilities ...............................     153,357       154,110      140,580      140,390
     Other borrowed funds ..............................      15,855        15,955       11,786       11,090
     Accrued interest payable and other liabilities ....       1,151         1,151        1,004        1,004
</TABLE>


                   Summary of Quarterly Results of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                  First       Second        Third      Fourth
     (In thousands, except per share data)       Quarter      Quarter      Quarter     Quarter
     2000
     <S>                                         <C>          <C>          <C>         <C>
     Interest income .........................    $3,013      $3,100       $3,241      $3,350
     Net interest income .....................     1,623       1,657        1,664       1,685
     Provision for loan losses ...............        20          20           30          75
     Other income ............................       265         264          271         291
     Other expenses ..........................     1,058       1,015        1,097       1,160
     Net income ..............................       619         681          620         676
     Net income per share:
     Basic ...................................    $ 0.77      $ 0.84       $ 0.77      $ 0.95
     Diluted .................................    $ 0.71      $ 0.78       $ 0.71      $ 0.76

     1999
     Interest income .........................    $2,679      $2,817       $2,913      $2,992
     Net interest income .....................     1,489       1,573        1,621       1,636
     Provision for loan losses ...............        90          60           20          50
     Other income ............................       207         296          227         261
     Other expenses ..........................       926         992        1,027       1,063
     Net income ..............................       494         590          615         705
     Net income per share:
     Basic ...................................    $ 0.64      $ 0.76       $ 0.79      $ 0.90
     Diluted .................................    $ 0.57      $ 0.68       $ 0.71      $ 0.81
</TABLE>

     The above gives retroactive effect to stock dividends and stock splits

Price Range of Common Stock and Dividends:

         The Company's Common Stock is traded in the "over the counter" market
under the symbol GRGN. The following firms are known to make a market in the
Common Stock of Grange National Banc Corp.


                                      -49-

<PAGE>

<TABLE>
<CAPTION>
<S>                                 <C>                                     <C>
Tucker Anthony & Co., Inc.          Gruntal & Co., LLC                      F.J. Morrissey & Co.
1825 Oregon Pike                    Liberty Center                          1700 Market St.
Lancaster, PA 17601                 1001 Liberty Ave., Suite 102            Philadelphia, PA 19103
(800) 456-9234                      Pittsburgh, PA 15222-3715               (800) 842-8928
                                    (800) 223-8162

Ferris, Baker Watts, Inc.           Ryan, Beck & Co., LLC
100 Light Street, 9th Floor         220 South Orange Avenue
Baltimore, MD  21202                Livingston, NJ  07039-5817
(800) 638-7411                      (800) 342-2325
</TABLE>

         As of March 17, 2001 there were approximately 900 shareholders of
record.

<TABLE>
<CAPTION>
                                                                             Cash         Stock
       2000 Quarter             High            Low           Close       Dividends      Dividends
       <S>                     <C>            <C>            <C>             <C>           <C>
       First                   $40.96         $30.72         $37.55          None          None
       Second                  $37.55         $28.71         $30.19          None          $0.54
       Third                   $35.39         $28.71         $35.14          None          None
       Fourth                  $35.50         $28.00         $34.50         $0.50          $0.34
       -----------------------------------------------------------------------------------------
       TOTAL                                                                $0.50          $0.88
       =========================================================================================
                                                                             Cash         Stock
       1999 Quarter             High           Low           Close        Dividends     Dividends
       First                   $50.50         $45.04         $48.51          None          None
       Second                  $50.49         $43.56         $47.50          None          $0.47
       Third                   $46.75         $39.50         $43.00          None          None
       Fourth                  $43.25         $38.00         $43.00          None          $0.50
       -----------------------------------------------------------------------------------------
       TOTAL                                                                               $0.97
       =========================================================================================
</TABLE>

Stock Transfers:                             Shareholder Services:
Mildred Grose, Assistant                     Philip O. Farr, Vice President
  Vice-President                               and Comptroller
P.O. Box 40                                  198 E. Tioga St.
Meshoppen, Pa.  18630                        Tunkhannock, Pa.  18657
(570) 833-2131                               (570) 836-2100


                                     Offices

Laceyville                                   Lawton
Kevin Huyck, Branch Manager                  Yvonne Nuss, Branch Manager
(570) 869-1522                               (570) 934-2178


                                      -50-

<PAGE>


Meshoppen                                    Bowman's Creek
Mildred Grose, AVP and Br. Mgr.              Connie Learn, Branch Manager
(570) 833-2131                               (570) 298-2163

Tunkhannock                                  Edwardsville
Richard D. Stark, Vice President             Donald Werts, Asst. Cashier
   and Br. Mgr.                                 and Br. Mgr.
(570) 836-2100                               (570) 283-4462

Little Meadows                               Towanda
Brian Burd, Branch Manager                   Karen Glossenger, Branch Manager
(570) 623-2297                               (570) 265-4711

Back Mountain                                Pine Mall
John P. Petersen, Asst. Cashier              Irene Carey, Branch Manager
   and Br. Mgr.                              (570) 208-1500
(570) 696-6958

Eaton Township
Susan Fuller, Branch Manager
(570) 836-1848

                                 On the Internet
                 www.grangebank.com      E-Mail: bank@grangebank.com

                                    Officers

                     John W. Purtell, Chairman of the Board

                           Brian R. Ace, Vice Chairman

                         Thomas A. McCullough, President

                  Sally A. Steele, Secretary of the Corporation

                        Melvin E. Milner, Vice President

                        Joseph I. Killeen, Vice President

                        Richard D. Stark, Vice President

                 Philip O. Farr, Vice President and Comptroller


                                    Directors

                                  Brian R. Ace,
                           Owner, Laceyville Hardware


                                      -51-

<PAGE>


                                 Edward A. Coach
                           Certified Public Accountant

                              Thomas A. McCullough
                      President and Chief Executive Officer
                           of the Bank and the Company

                                Russell G. Newell
                          Owner of Newell Fuel Service

                                W. Kenneth Price
                      Co-owner of Ken Mar Home Furnishings

                                 John W. Purtell
                         President, S.F. Williams Inc.,
                              automobile dealership

                                 Sally A. Steele
                                    Attorney

                                Robert C. Wheeler
                   Retired; former Chief Executive Officer of
                              the Bank and Company


                                      -52-