<PAGE>   1
                                   EXHIBIT 13


                          ANNUAL REPORT TO SHAREHOLDERS
                     FOR FISCAL YEAR ENDED DECEMBER 31, 1997



                                       30
<PAGE>   2
                                   PROVIDING
                                    QUALITY
                                    CUSTOMER
                                    SERVICE
                                      FOR
                                      OVER
                                       80
                                     YEARS


                                      1997
                                     ANNUAL
                                     REPORT


                                  [CCFNB LOGO]


                 CCFNB BANCORP, INC. AND SUBSIDIARY CORPORATION
<PAGE>   3
CCFNB BANCORP, INC. AND SUBSIDIARY

  CCFNB Bancorp, Inc. is a registered bank holding company and is organized
under the Pennsylvania business corporation law. The assets are primarily those
of its wholly owned subsidiary, Columbia County Farmers National Bank.

  The Columbia County Farmers National Bank (the "Bank") is a full service
nationally-chartered financial institution serving customers from six locations
in Columbia County; namely Orangeville, Bloomsburg, Benton, South Centre,
Millville and Lightstreet. The deposits of the Bank are insured by the Federal
Deposit Insurance Corporation to the maximum extent provided by law.

  A copy of the Corporation's Annual Report for the year ended December 31,
1997, on Form 10-K as filed with the Securities and Exchange Commission will be
furnished without charge upon written request to Paul E. Reichart, President,
Columbia County Farmers National Bank, 232 East Street, Bloomsburg, Pennsylvania
17815.

CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands of dollars, except per share data and ratios)

<TABLE>
<CAPTION>
                                           1997           1996           1995
                                           ----           ----           ----
<S>                                      <C>            <C>            <C>
EARNINGS
Interest income                          $ 12,499       $ 11,844       $ 11,466
Interest expense                            5,976          5,588          5,557
Provision for loan losses                      60             80             42
Investment securities gains                    57             28             83
Net income                               $  2,025       $  1,824       $  1,625

PER SHARE
Net income                               $   1.47       $   1.33       $   1.19
Cash dividends                                .46            .45            .45

BALANCES AT DECEMBER 31
Assets                                   $173,866       $170,086       $162,066
Investment securities                      43,862         37,407         40,384
Net loans                                 118,144        114,679        110,919
Deposits                                  127,719        131,400        128,985
Stockholders' equity                       22,105         20,657         19,512

RATIOS
Return on average assets                     1.18%          1.11%          1.03%
Return on average equity                     9.79%          9.35%          8.99%
Dividend payout ratio                       31.65%         33.95%         37.88%
</TABLE>


CONTENTS

Financial Highlights.....................................................      1
Officers and Directors...................................................      2
Message to Shareholders..................................................      3
Consolidated Balance Sheets..............................................      4
Consolidated Statements of Income........................................      5
Consolidated Statements of Stockholder' Equity...........................      6
Consolidated Statements of Cash Flows....................................      7
Notes to Consolidated Financial Statements...............................   8-18
Report of Independent Certified Public Accountants.......................     19
Management's Discussion and Analysis of Financial Condition and
  Results of Operations..................................................  20-32
CCFNB Employees..........................................................     33
Ten Years in Review (Graphs).............................................     34
Quality Customer Service.................................................     35
Market Makers............................................................     36
CCFNB Locations..........................................................     36


                                        1
<PAGE>   4
CCFNB BANCORP, INC. BOARD OF DIRECTORS


      [PHOTO]                       [PHOTO]                     [PHOTO]

  Paul E. Reichart,              William F. Hess,        Elwood R. Harding, Jr.,
Willard H. Kile, Sr.,       Robert M. Brewington, Jr.,     Edward L. Campbell,
    Don E. Bangs                 Stanley Barchik            Charles E. Long


                          CCFNB BANCORP, INC. OFFICERS

                              Willard H. Kile, Sr.
                              Chairman of the Board

                                 William F. Hess
                           Vice-Chairman of the Board

                                Paul E. Reichart
                      President and Chief Executive Officer

                                  Don E. Bangs
                             Secretary of the Board

                               Virginia D. Kocher
                        Treasurer and Assistant Secretary


COLUMBIA COUNTY FARMERS
NATIONAL BANK OFFICERS

Willard H. Kile, Sr.                     Richard L. Sierer
Chairman of the Board                    Financial Planner/Trust Officer

William F. Hess                          Lily M. Boudman
Vice Chairman of the Board               Assistant Vice President

Paul E. Reichart                         Florence H. Martz
President and Chief Executive Officer    Assistant Vice President

Don E. Bangs                             Gloria M. Miller
Secretary of the Board                   Assistant Vice President

J. Jan Girton                            Karen Z. Wenner
Executive Vice President,                Mortgage Loan Officer
Chief Operating Officer and
Assistant Secretary                      Luanne Bittenbender
                                         Training Director and Security Officer
Lance O. Diehl
Senior Vice President                    Dolores M. Bennett
                                         Community Office Manager
Linda A. Huttenstine
Senior Vice President and Cashier        Christopher R. Bower
                                         Community Office Manager
Jacob S. Trump
Senior Vice President and                Connie L. Yoder
Financial Planning Officer               Community Office Manager

Edwin A. Wenner                          Jean E. MacDermott
Senior Vice President                    Customer Service Officer

Elaine M. Edwards                        Michelle M. Karas
Vice President                           Marketing Coordinator

Dean R. Kelchner                         Betty Jean Kline
Vice President                           Community Office Supervisor

Virginia D. Kocher
Vice President, Controller and
Assistant Secretary


                             CCFNB MANAGEMENT TEAM

                                    [PHOTO]

                         Jacob S. Trump, Edwin A. Wenner
                 Paul E. Reichart, Lance O. Diehl, J. Jan Girton


                                        3
<PAGE>   5
TO OUR SHAREHOLDERS:


  As we conclude 1997, a year of record earnings for CCFNB Bancorp, Inc., I
recognize with great pride that it was our 80th year of service to our local
communities. In an era where takeovers and mergers are commonplace, I am proud
that Columbia County Farmers National Bank has been able to overcome the
challenges and implement the necessary changes to remain a solid financial
institution for our customers.

  As I ponder our 80 years of existence, I realize that this was possible
primarily because of our friendly customer service. Being a relatively small,
independent bank, we believe it is important to get to know our customers on a
first-name basis. This close relationship allows us to best understand and meet
the needs of our customers.

STATISTICS ILLUSTRATE SUCCESS

  The year 1997 was highlighted by a record profit level and higher returns. The
figures below reflect the bottom-line focus of our employees in their decision
making, and our relentless efforts to earn a favorable spread despite the
challenging economic conditions.

- Net Income increased 11.02%, from $1,824,000 in 1996 to $2,025,000 in 1997

- Return on Average Assets rose from 1.11% in 1996 to 1.18% in 1997

- Return on Equity grew from 9.35% in 1996 to 9.79% in 1997 

- Loans increased 2.99%, from $115,590,000 in 1996 to $119,045,000 in 1997

- Assets grew by 2.22%, from $170,086,000 in 1996 to $173,866,000 in 1997

- Capital growth of 7.01% was realized, from $20,657,000 in 1996 to $22,105,000
  in 1997

CONTINUOUS IMPROVEMENT

  As with any prosperous business, we realize that we cannot rest because of
past successes. During 1997, we implemented many changes that should prove
beneficial to our customers. A significant addition to our organization occurred
in March with the opening of our new Investment Center. Via this department, we
are able to offer retail investment products such as stocks, bonds, mutual
funds, annuities, unit investment trusts and long-term care insurance. This
strategic move takes us one step closer to being a full-service financial
institution.

  Another innovative move in the past year was the introduction of the debit
card, a product our customers are pleased to have available. This card provides
a faster, more economical and convenient way to purchase products and services,
as well as offers the traditional benefits of an ATM card.

LOOKING FORWARD

  As I look ahead into 1998, I envision a very exciting year for our
organization. A top priority will be moving our data processing, which we have
been outsourcing, to an in-house mainframe system. We are confident that this
strategic move will give us the control and flexibility necessary to efficiently
operate our computer system.

  Another goal in the coming year is the implementation of telephone banking.
After researching the needs of our customers, we believe that this banking
method is desired by many. In today's fast-paced society, many individuals are
looking for ways to save valuable time. Telephone banking will permit customers
24 hour a day access to check balances, transfer funds, determine if a check has
cleared, and more.

                                     [PHOTO]

  In the first quarter of 1998, we plan to introduce the option of check
safekeeping to our customers. We also are looking to expand our IRA product
offerings to include the Roth and Educational IRA's. Additionally, a committee
comprised of Directors and Officers has been formed and are working to ensure
that our organization is prepared to handle all Year 2000 computer-related
issues. We are confident that we will have a smooth transition into the new
millennium.

  As you can see, much is on the horizon for CCFNB. These objectives can only be
achieved through the hard work, cooperation, and dedication of our Directors,
management team, and our employees. I thank each of them for their ongoing
efforts. I would also like to acknowledge the 13 years of excellent, dedicated
service of our Chairman of the Board, Willard H. Kile, Sr.. At the time this
letter was written, Mr. Kile has resigned his position as Chairman, but will
remain on the Board. The organization is grateful for his leadership and vision.
We also look forward to the leadership of our newly elected Chairman, William F.
Hess.

  As always, I want to thank you, the shareholders, for your loyal support. It
is only through your support that CCFNB Bancorp, Inc. can continue to meet and
exceed the financial needs of our customers.



                                    Respectfully,


                                    /s/ Paul E. Reichart

                                    Paul E. Reichart
                                    President & CEO


                                        3
<PAGE>   6
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1997 And 1996

<TABLE>
<CAPTION>
                                                                  1997              1996
                                                              -------------     -------------
<S>                                                           <C>               <C>
ASSETS
Cash and due from banks                                       $   4,734,655     $   4,502,893
Interest-bearing deposits with other banks                          582,143         3,856,274
Federal funds sold                                                        0         3,000,000
Investment securities:
  Securities available for sale                                  43,142,265        36,436,880
  Securities to be held to maturity
   (estimated fair value 1997, $ 726,340; 1996, $ 981,013)          720,000           970,000
Loans, net of unearned income                                   119,044,568       115,589,784
Allowance for loan losses                                           900,889           910,711
                                                              -------------     -------------
  Net loans                                                   $ 118,143,679     $ 114,679,073
Premises and equipment                                            5,146,174         5,294,523
Accrued interest receivable                                         937,697           964,931
Other assets                                                        459,357           381,726
                                                              -------------     -------------
   Total Assets                                               $ 173,865,970     $ 170,086,300
                                                              =============     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
  Non-interest bearing                                        $  12,137,705     $  12,280,044
  Interest bearing                                              115,581,404       119,119,992
                                                              -------------     -------------
   Total Deposits                                             $ 127,719,109     $ 131,400,036
Short-term borrowings                                            22,362,505        16,653,981
Long-term borrowings                                                439,787           296,986
Accrued interest and other expenses                               1,140,740         1,057,967
Other liabilities                                                    99,016            20,449
                                                              -------------     -------------
   Total Liabilities                                          $ 151,761,157     $ 149,429,419
                                                              =============     =============

STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized
  5,000,000 shares; issued 1,382,433 shares 1997 and
  1,381,711 shares 1996                                       $   1,728,041     $   1,727,139
Surplus                                                           5,854,388         5,838,453
Retained earnings                                                14,406,930        13,022,498
Unrealized gain on investment securities available
  for sale, net of tax                                              142,001            68,791
Less: Treasury stock at cost (1,183 shares)                         (26,547)                0
                                                              -------------     -------------
   Total Stockholders' Equity                                 $  22,104,813     $  20,656,881
                                                              -------------     -------------
   Total Liabilities And Stockholders' Equity                 $ 173,865,970     $ 170,086,300
                                                              =============     =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


      [PHOTO]     Jennifer Fester, provides quality service for our customers
                  from behind the scenes as a member of the Operations
                  Department.


                                        4
<PAGE>   7
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
For Years Ended December 31, 1997, 1996 And 1995

<TABLE>
<CAPTION>
                                                             1997           1996           1995
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
INTEREST INCOME
Interest and fees on loans:
  Taxable                                                 $ 9,687,196    $ 9,199,079    $ 8,883,251
  Tax exempt                                                  148,256        104,994        132,875
Interest and dividends on investment securities:
  Taxable                                                   1,812,883      1,779,437      1,725,565
  Tax exempt                                                  513,112        504,808        492,878
  Dividends                                                    61,572         58,856         56,605
Federal funds sold                                            124,019         46,651         60,201
Deposits in other banks                                       151,586        149,813        114,372
                                                          -----------    -----------    -----------
   Total Interest Income                                  $12,498,624    $11,843,638    $11,465,747
                                                          ===========    ===========    ===========

INTEREST EXPENSE
Deposits                                                  $ 4,911,541    $ 4,840,794    $ 4,916,162
Short-term borrowings                                       1,048,645        723,308        633,902
Long-term borrowings                                           16,035         23,502          6,872
                                                          -----------    -----------    -----------
   Total Interest Expense                                 $ 5,976,221    $ 5,587,604    $ 5,556,936
                                                          -----------    -----------    -----------
Net interest income                                       $ 6,522,403    $ 6,256,034    $ 5,908,811
Provision for loan losses                                      60,000         80,000         42,000
                                                          -----------    -----------    -----------
   Net Interest Income After Provision For Loan Losses    $ 6,462,403    $ 6,176,034    $ 5,866,811
                                                          ===========    ===========    ===========

NON-INTEREST INCOME
Service charges and fees                                  $   555,414    $   513,341    $   502,901
Trust department                                              103,189         75,804         50,905
Other                                                          88,074        145,298         56,078
Investment securities gains, net                               57,326         27,680         82,954
                                                          -----------    -----------    -----------
   Total Non-Interest Income                              $   804,003    $   762,123    $   692,838
                                                          ===========    ===========    ===========

NON-INTEREST EXPENSE
Salaries                                                  $ 1,817,389    $ 1,784,776    $ 1,653,056
Pensions and other employee benefits                          522,388        509,433        447,555
Occupancy, net                                                375,379        392,854        258,514
Equipment                                                     420,271        410,524        348,921
FDIC insurance                                                 15,761          2,000        148,418
Other                                                       1,340,945      1,350,526      1,517,192
                                                          -----------    -----------    -----------
   Total Non-Interest Expense                             $ 4,492,133    $ 4,450,115    $ 4,373,656
                                                          -----------    -----------    -----------
Income before income taxes                                $ 2,774,273    $ 2,488,042    $ 2,185,993
Income tax expense                                            748,777        663,552        561,122
                                                          -----------    -----------    -----------
   Net Income                                             $ 2,025,496    $ 1,824,490    $ 1,624,871
                                                          ===========    ===========    ===========

PER SHARE DATA
Net income                                                $      1.47    $      1.33    $      1.19
                                                          -----------    -----------    -----------
Cash dividends                                            $       .46    $       .45    $       .45
                                                          -----------    -----------    -----------
Weighted average shares outstanding                         1,381,800      1,375,875      1,367,595
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                        5
<PAGE>   8
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended December 31, 1997, 1996 And 1995

<TABLE>
<CAPTION>
                                                                                                   NET UNREALIZED
                                                                                                     GAIN (LOSS)
                                                                                                   ON INVESTMENT
                                                                                                     SECURITIES
                                       COMMON                         RETAINED       TREASURY        AVAILABLE
                                       STOCK          SURPLUS         EARNINGS         STOCK          FOR SALE         TOTAL
                                    ------------    ------------    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>             <C>             <C>
BALANCE AT DECEMBER 31, 1994        $  1,707,028    $  5,625,607    $ 10,807,910    $          0    $   (490,327)   $ 17,650,218

Net income                                     0               0       1,624,871               0               0       1,624,871
Issuance of 7036 shares of
  common stock under dividend
  reinvestment plan                        8,795          68,242               0               0               0          77,037
Cash dividends $.45 per share                  0               0        (615,504)              0               0        (615,504)
Change in unrealized gain
  (loss) on investment securities
  available for sale, net of tax               0               0               0               0         775,123         775,123
                                    ------------    ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1995        $  1,715,823    $  5,693,849    $ 11,817,277    $          0    $    284,796    $ 19,511,745

Net income                                     0               0       1,824,490               0               0       1,824,490
Issuance of 9053 shares of
  common stock under dividend
  reinvestment and stock
  purchase plans                          11,316         144,604               0               0               0         155,920
Cash dividends $.45 per share                  0               0        (619,269)              0               0        (619,269)
Change in unrealized gain
  (loss) on investment
  securities available for
  sale, net of tax                             0               0               0               0        (216,005)       (216,005)
                                    ------------    ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1996        $  1,727,139    $  5,838,453    $ 13,022,498    $          0    $     68,791    $ 20,656,881

Net income                                     0               0       2,025,496               0               0       2,025,496
Issuance of 6814 shares of
  common stock under dividend
  reinvestment and stock
  purchase plans                           8,517         130,543               0               0               0         139,060
Purchase of 7275 shares of
  treasury stock                               0               0               0        (148,770)              0        (148,770)
Retirement of 6092 shares of
  treasury stock                          (7,615)       (114,608)              0         122,223               0               0
Cash dividends $.46 per share                  0               0        (641,064)              0               0        (641,064)
Change in unrealized gain
  (loss) on investment
  securities available for
  sale, net of tax                             0               0               0               0          73,210          73,210
                                    ------------    ------------    ------------    ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1997        $  1,728,041    $  5,854,388    $ 14,406,930    $    (26,547)   $    142,001    $ 22,104,813
                                    ============    ============    ============    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                        6
<PAGE>   9
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 1997, 1996 And 1995

<TABLE>
<CAPTION>
                                                                   1997            1996            1995
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
OPERATING ACTIVITIES
Net income                                                     $  2,025,496    $  1,824,490    $  1,624,871
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Provision for loan losses                                         60,000          80,000          42,000
   Depreciation                                                     373,307         386,021         293,305
   Premium amortization on investment securities                     21,995           2,228           8,657
   Discount accretion on investment securities                      (27,084)        (16,294)        (10,345)
   Deferred income taxes (benefit)                                   20,331          (9,303)         49,392
   Gain on sales of investment securities available for sale        (57,326)        (27,680)        (82,954)
   (Gain) loss on sale of premises and equipment                     (1,623)           (116)         71,669
   Loss on impairment of bank premise                                20,000          30,958               0
   (Gain) on sale of other real estate                                    0         (53,808)              0
   (Increase) decrease in accrued interest receivable                27,234        (115,195)         (6,661)
   (Increase) in other assets - net                                 (96,013)         (3,168)        (69,412)
   Increase in accrued interest and other expenses                   82,773         151,292         228,717
   Increase (decrease) in other liabilities - net                    36,826        (109,587)        107,604
                                                               ------------    ------------    ------------
     Net Cash Provided By Operating Activities                 $  2,485,916    $  2,139,838    $  2,256,843
                                                               ============    ============    ============

INVESTMENT ACTIVITIES
Purchases of investment securities available for sale          $(25,177,358)   $(12,813,932)   $(30,378,156)
Proceeds from sales, maturities and redemptions of
  investment securities available for sale                       18,647,390      15,430,246      16,535,237
Purchases of investment securities held to maturity                       0               0        (887,660)
Proceeds from maturities and redemptions of
  investment securities held to maturity                            250,000          75,000      14,928,876
Net increase in loans                                            (3,524,606)     (3,839,730)     (2,104,640)
Purchases of premises and equipment                                (266,185)       (629,777)     (2,156,715)
Proceeds from sale of premises and equipment                         22,850             275               0
Proceeds from sale of other real estate                                   0          53,808               0
                                                               ------------    ------------    ------------
   Net Cash Used In Investing Activities                       $(10,047,909)   $ (1,724,110)   $ (4,063,058)
                                                               ============    ============    ============

FINANCING ACTIVITIES
Net increase (decrease) in deposits                            $ (3,680,927)   $  2,414,764    $  2,121,329
Net increase in short-term borrowings                             5,708,524       4,588,410         156,023
Proceeds from long-term borrowings                                  225,000               0         364,565
Repayment of long-term borrowings                                   (82,199)        (67,579)              0
Proceeds from sale of treasury stock                                      0               0               0
Acquisition of treasury stock                                      (148,770)              0               0
Proceeds from issuance of common stock                              139,060         155,920          77,037
Cash dividends paid                                                (641,064)       (619,269)       (615,504)
                                                               ------------    ------------    ------------
   Net Cash Provided By Financing Activities                   $  1,519,624    $  6,472,246    $  2,103,450
                                                               ============    ============    ============

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               $ (6,042,369)   $  6,887,974    $    297,235

Cash And Cash Equivalents At Beginning Of Year                   11,359,167       4,471,193       4,173,958
                                                               ------------    ------------    ------------
  Cash And Cash Equivalents At End Of Year                     $  5,316,798    $ 11,359,167    $  4,471,193
                                                               ============    ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
  Interest                                                     $  5,984,797    $  5,575,448    $  5,447,107
  Income taxes                                                 $    795,855    $    571,730    $    557,937
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                        7
<PAGE>   10

CCFNB Bancorp, Inc. And Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Years Ended December 31, 1997, 1996 And 1995


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary
(the "Corporation") are in accordance with generally accepted accounting
principles and conform to common practices within the banking industry. The more
significant policies follow:

PRINCIPLES OF CONSOLIDATION

  The consolidated financial statements include the accounts of CCFNB Bancorp,
Inc. and its wholly owned subsidiary, Columbia County Farmers National Bank (the
"Bank"). All significant inter-company balances and transactions have been
eliminated in consolidation.

NATURE OF OPERATION

  The Corporation provides full banking services, including trust services,
through the Bank, to individuals and corporate customers. The Bank has six
offices covering an area of approximately 484 square miles in Northeastern
Pennsylvania. The Corporation and its banking subsidiary are subject to
regulation of the Office of the Comptroller of the Currency, The Federal Deposit
Insurance Corporation and the Federal Reserve Bank of Philadelphia.

USE OF ESTIMATES

  The preparation of these consolidated 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 assets and liabilities at the date of these
consolidated financial statements and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from those
estimates.

INVESTMENT SECURITIES

  The Corporation classifies its investment securities as either "Held to
Maturity" or "Available for Sale" at the time of purchase. Debt securities are
classified as held to maturity when the Corporation has the ability and positive
intent to hold the securities to maturity. Investment securities held to
maturity are carried at cost adjusted for amortization of premiums and accretion
of discounts to maturity.

  Debt securities not classified as held to maturity and equity securities
included in the available for sale category, are carried at fair value, and the
amount of any unrealized gain or loss is reported as a separate component of
Stockholders' Equity, net of the effect of deferred income tax. 

  Management's decision to sell available for sale securities is based on
changes in economic conditions controlling the sources and uses of funds, terms,
availability of and yield of alternative investments, interest rate risk, and
the need for liquidity.

  The cost of debt securities classified as held to maturity or available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and accretion, as well as interest and dividends, is
included in interest from investments. Realized gains and losses are included in
net investment securities gains. The cost of investment securities sold,
redeemed or matured is based on the specific identification method.

LOANS

  Loans are stated at their outstanding principal balances, net of any deferred
fees or costs, unearned income, and the allowance for loan losses. Interest on
loans is accrued on the principal amount outstanding, primarily on an actual day
basis. Non-refundable loan fees and certain direct costs are deferred and
amortized over the life of the loans using the interest method. The amortization
is reflected as an interest yield adjustment, and the deferred portion of the
net fees and costs is reflected as a part of the loan balance.

  Non-Accrual Loans - Generally, a loan (including a loan impaired under
Statement of Financial Accounting Standards No. 114) is classified as
non-accrual, and the accrual of interest on such a loan is discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of principal or
interest, even though the loan currently is performing. A loan may remain on
accrual status if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on non-accrual status, unpaid interest
credited to income in the current year is reversed, and unpaid interest accrued
in prior years is charged against the allowance for credit losses. Certain
non-accrual loans may continue to perform, that is, payments are still being
received. Generally, the payments are applied to principal. These loans remain
under constant scrutiny and if performance continues, interest income may be
recorded on a cash basis based on management's judgement as to collectibility of
principal.

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

  As of January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." Under these standards, the allowance for loan losses related to
loans that are identified for evaluation in accordance with Statement No. 114 is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
Prior to 1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. Statement No. 118 allows the continued use of existing methods
for income recognition on impaired loans and amends disclosure requirements to
require information about the recorded investment in certain impaired loans and
related income recognition on those loans. The allowance for loan losses is
maintained at a level by management to be adequate to absorb estimated poten-


                                        8
<PAGE>   11
tial loan losses. Management's periodic evaluation of the adequacy of the
allowance for loan losses is based on the Corporation's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates, including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.

PREMISES AND EQUIPMENT

  Premises and equipment are stated at cost less accumulated depreciation
computed principally on the straight-line method over the estimated useful lives
of the assets. Maintenance and minor repairs are charged to operations as
incurred. The cost and accumulated depreciation of the premises and equipment
retired or sold are eliminated from the property accounts at the time of
retirement or sale, and the resulting gain or loss is reflected in current
operations.

  As of January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121, "Accounting For The Impairment Of Long-Lived
Assets And For Long-Lived Assets To Be Disposed Of". The Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is indicated if the
sum of the expected future cash flows, undiscounted and without interest
charges, is less than the carrying amount of the assets. An impairment loss must
be recognized as the amount by which the carrying amount of the asset exceeds
the fair value of the asset so determined. As a result of implementation of this
statement, the Corporation recognized an impairment loss as disclosed in Note 5.

OTHER REAL ESTATE OWNED

  Other real estate owned is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and loans
classified as in-substance foreclosure. In accordance with Statement No. 114, a
loan is classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place. Other real estate owned is recorded at fair value at the
date of foreclosure, establishing a new cost basis. After foreclosure,
valuations are periodically performed by management, and the real estate is
carried at the lower of (1) cost or (2) fair value minus estimated costs to
sell. Income and expenses from operations of other real estate owned and changes
in the valuation allowance are included in loss on other real estate owned.

INCOME TAXES

  The provision for income taxes is based on the results of operations, adjusted
primarily for tax-exempt income. Certain items of income and expense are
reported in different periods for financial reporting and tax return purposes.
Deferred tax assets and liabilities are determined based on the differences
between the consolidated financial statement and income tax bases of assets and
liabilities measured by using the enacted tax rates and laws expected to be in
effect when the timing differences are expected to reverse. Deferred tax expense
or benefit is based on the difference between deferred tax asset or liability
from period to period. Further, the Statement requires that a valuation
allowance be provided in an amount sufficient to reduce the deferred tax asset
to the amount that is more likely than not to be realized.

NET INCOME PER SHARE

  Net income per share on common stock is calculated by dividing net income by
the weighted average number of shares of common stock outstanding during each
period.

CASH FLOW INFORMATION

  For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and due from banks, interest-bearing deposits in other banks and federal
funds sold. The Corporation considers cash classified as interest-bearing
deposits with other banks as a cash equivalent because they are represented by
cash accounts essentially on a demand basis. Federal funds are also included as
a cash equivalent because they are generally purchased and sold for one-day
periods.

DERIVATIVE FINANCIAL INSTRUMENTS

  The Corporation has no derivative financial instruments requiring disclosure
under Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments."

TRUST ASSETS AND INCOME

  Property held by the Corporation in a fiduciary or agency capacity for its
customers is not included in the accompanying consolidated financial statements
because such items are not assets of the Corporation. Trust Department income is
recognized on a cash basis and is not materially different than if it was
reported on an accrual basis.

TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES

  In June 1996, The Financial Accounting Standards Board (FASB) issued Statement
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This Statement provides new accounting and
reporting standards for sales, securitizations and servicing of receivables and
other financial assets, for certain secured borrowing and collateral
transactions and extinguishments of liabilities.

  Implementation of certain transfer provisions of FASB 125 was delayed by FASB
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
125." For repurchase agreements, dollar roll, securities lending and similar
transactions, the FASB 125 transfer provisions and related disclosures are
effective for those transactions occurring after December 31, 1997 and adoption
of this segment of the standard is not expected to have a material impact on the
consolidated financial statements.

  For securitizations, servicing of assets and extinguishments of liabilities
the FASB 125 provisions are effective for transactions occurring after December
31, 1996 and were implemented by the Corporation where applicable with no
material impact on these consolidated financial statements.

REPORTING COMPREHENSIVE INCOME

In June 1997, The Financial Accounting Standards Board issued Statement 130
"Reporting Comprehensive Income."


                                        9
<PAGE>   12
FASB 130 establishes standards for reporting and display of comprehensive income
and its components (income, expenses, gains and losses) in a full set of
general-purpose financial statements. FASB 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation has determined that the
impact of adopting the standard will not be material to the financial position
or results of operations.

REPORTING FORMAT

  Certain amounts in the financial statements of the prior periods have been
reclassified to conform with presentation used in the 1997 financial statements.
Such reclassifications had no effect on the Corporation's consolidated financial
condition or net income.

2. RESTRICTED CASH BALANCES

  The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The amount required at December 31, 1997 was $770,000 and was
satisfied by vault cash. Additionally, as compensation for check clearing and
other services, compensating balances are required to be maintained with the
Federal Reserve Bank and other correspondent banks. At December 31, 1997, these
balances were $1,187,000.

3. INVESTMENT SECURITIES

  The amortized cost, related estimated fair value, and unrealized gains and
losses for investment securities classified as "Available for Sale" or "Held to
Maturity" were as follows at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                               AVAILABLE FOR SALE SECURITIES
                                                  -----------------------------------------------------
                                                                   GROSS         GROSS       ESTIMATED
                                                   AMORTIZED     UNREALIZED    UNREALIZED       FAIR
DECEMBER 31, 1997:                                    COST         GAINS         LOSSES         VALUE
                                                  -----------   -----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>
U.S. Treasury securities                          $ 2,999,778   $         0   $     2,278   $ 2,997,500
Obligations of U.S. Government Corporations
   and Agencies:
      Mortgage-backed                              14,491,408             0        40,953    14,450,455
      Other                                        14,576,412             0        30,504    14,545,908
Obligations of state and political subdivisions     9,189,078       269,859             0     9,458,937
Corporate debt securities                             498,483           916           609       498,790
Equity securities                                   1,169,875        21,300           500     1,190,675
                                                  -----------   -----------   -----------   -----------
Total                                             $42,925,034   $   292,075   $    74,844   $43,142,265
                                                  ===========   ===========   ===========   ===========

<CAPTION>
                                                               HELD TO MATURITY SECURITIES
                                                  -----------------------------------------------------
                                                                   GROSS         GROSS       ESTIMATED
                                                   AMORTIZED    UNREALIZED    UNREALIZED       FAIR
DECEMBER 31, 1997:                                   COST          GAINS         LOSSES        VALUE
                                                  -----------   -----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>
Obligations of state and political subdivisions   $   720,000   $     6,340   $         0   $   726,340
                                                  -----------   -----------   -----------   -----------
Total                                             $   720,000   $     6,340   $         0   $   726,340
                                                  ===========   ===========   ===========   ===========

<CAPTION>
                                                              AVAILABLE FOR SALE SECURITIES
                                                  -----------------------------------------------------
                                                                   GROSS         GROSS       ESTIMATED
                                                   AMORTIZED    UNREALIZED    UNREALIZED       FAIR
DECEMBER 31, 1996:                                   COST          GAINS         LOSSES        VALUE
                                                  -----------   -----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>
U.S. Treasury securities                          $ 6,990,036   $    18,062   $    13,503   $ 6,994,595
Obligations of U.S. Government Corporations
   and Agencies:
      Mortgage-backed                               1,691,058             0         7,797     1,683,261
      Other                                        16,874,064             0       109,351    16,764,713
Obligations of state and political subdivisions     8,328,476       238,278             0     8,566,754
Corporate debt securities                           1,496,516         9,618        31,077     1,475,057
Equity securities                                     952,500             0             0       952,500
                                                  -----------   -----------   -----------   -----------
Total                                             $36,332,650   $   265,958   $   161,728   $36,436,880
                                                  ===========   ===========   ===========   ===========

<CAPTION>
                                                               HELD TO MATURITY SECURITIES
                                                  -----------------------------------------------------
                                                                   GROSS         GROSS       ESTIMATED
                                                   AMORTIZED    UNREALIZED    UNREALIZED       FAIR
DECEMBER 31, 1996:                                   COST          GAINS         LOSSES        VALUE
                                                  -----------   -----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>
Obligations of state and political subdivisions   $   970,000   $    11,013   $         0   $   981,013
                                                  -----------   -----------   -----------   -----------
Total                                             $   970,000   $    11,013   $         0   $   981,013
                                                  ===========   ===========   ===========   ===========
</TABLE>


                                       10
<PAGE>   13
  Securities available for sale with an aggregate fair value of $31,360,090 in
1997 and $26,904,079 in 1996, respectively, were pledged to secure public funds,
trust funds, securities sold under agreements to repurchase and other balances
of $27,919,841 in 1997 and $22,550,981 in 1996, respectively, as required by
law.

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

<TABLE>
<CAPTION>
                                                       HELD TO MATURITY           AVAILABLE FOR SALE
                                                  -------------------------   -------------------------
                                                   AMORTIZED     ESTIMATED     AMORTIZED     ESTIMATED
                                                      COST      FAIR VALUE       COST       FAIR VALUE
                                                  -----------   -----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>
Due in one year or less                           $   155,000   $   155,599   $ 6,798,730   $ 6,792,374
Due after one year through five years                 565,000       570,741    24,015,129    23,977,493
Due after five years through ten years                      0             0     6,465,154     6,534,495
Due after ten years                                         0             0     5,646,021     5,837,903
                                                  -----------   -----------   -----------   -----------
Total                                             $   720,000   $   726,340   $42,925,034   $43,142,265
                                                  ===========   ===========   ===========   ===========
</TABLE>

  The quality rating of all obligations of state and political subdivisions were
"A" or higher, as rated by Moody's or Standard and Poors. The only exceptions
were local issues which were not rated, but were secured by the full faith and
credit obligations of the communities that issued these securities. All of the
state and political subdivision investments were actively traded in a liquid
market.

  Proceeds from sale of investments in debt and equity securities during 1997,
1996 and 1995 were $4,954,603, $1,529,234 and $2,535,237, respectively. Gross
gains realized on these sales were $57,935, $27,680 and $82,954, respectively.
Gross losses on these sales were $609 in 1997. There were no gross losses on the
1996 and 1995 sales. Net unrealized gains on securities available for sale
included as a separate component of consolidated stockholders' equity net of tax
was $142,001, $68,791 and $284,796 in 1997, 1996 and 1995, respectively.

4. LOANS

  Major classifications of loans at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                                     1997              1996
                                                 -------------    -------------
<S>                                              <C>              <C>
Commercial                                       $   7,550,674    $   7,957,064
Tax exempt                                           2,591,233        2,063,757
Qualified municipal leases                                   0           34,777
Real estate - construction                             637,025          660,071
Real estate                                         99,779,958       96,439,184
Personal                                             8,523,907        8,446,682
Credit cards                                           382,885          441,385
                                                 -------------    -------------
Total gross loans                                $ 119,465,682    $ 116,042,920
Less:  Unearned discount                              (323,684)        (324,517)
       Unamortized loan fees net of costs              (97,430)        (128,619)
                                                 -------------    -------------
Loans, net of unearned income                    $ 119,044,568    $ 115,589,784
                                                 =============    =============
</TABLE>

Non-accrual loans at December 31, 1997, 1996 and 1995 were $69,368, $109,000 and
$13,343, respectively. The gross interest that would have been recorded if these
loans had been current in accordance with their original terms and the amounts
actually recorded in income were as follows:

<TABLE>
<CAPTION>
                                                 1997       1996        1995
                                               ---------  ---------  ----------
<S>                                            <C>        <C>        <C>
Gross interest due under terms                 $   3,846  $   9,849  $    2,266
Amount included in income                              0          0        (111)
                                               ---------  ---------  ----------
Interest income not recognized                 $   3,846  $   9,849  $    2,155
                                               =========  =========  ==========
</TABLE>

  At December 31, 1997 and 1996 no loans were considered impaired as defined by
Statement No. 114. At December 31, 1995 the recorded and average investment in
impaired loans was $13,343. No additional charge to operations was required
since the total allowance for loan losses was estimated by management to be
adequate to provide for the loan loss allowance under Statement No. 114 as well
as any other potential loan losses.

  At December 31, 1997, there were no significant commitments to lend additional
funds with respect to non-accrual and restructured loans.

  Changes in the allowance for loan losses for the years ended December 31,
1997, 1996 and 1995 were as follows:


                                       11
<PAGE>   14
<TABLE>
<CAPTION>
                                            1997           1996         1995
                                          ---------     ---------     ---------
<S>                                       <C>           <C>           <C>
Balance, beginning of year                $ 910,711     $ 912,253     $ 943,371
Provision charged to operations              60,000        80,000        42,000
Loans charged-off                          (102,474)     (144,980)     (107,190)
Recoveries                                   32,652        63,438        34,072
                                          ---------     ---------     ---------
Balance, end of year                      $ 900,889     $ 910,711     $ 912,253
                                          =========     =========     =========
</TABLE>

5. PREMISES AND EQUIPMENT

A summary of premises and equipment at December 31, 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                                       1997              1996
                                                    ----------        ----------
<S>                                                 <C>               <C>
Land                                                $  567,939        $  558,288
Buildings and improvements                           4,382,745         4,387,756
Furniture and equipment                              2,838,862         2,627,321
Capitalized leases - equipment                         272,528           287,837
                                                    ----------        ----------
                                                    $8,062,074        $7,861,202
Less: Accumulated depreciation                       2,915,900         2,566,679
                                                    ----------        ----------
                                                    $5,146,174        $5,294,523
                                                    ==========        ==========
</TABLE>

  Depreciation amounted to $373,307 for 1997, $386,021 for 1996 and $293,305 for
1995.

  In accordance with FASB 121, impairment losses were recognized in the amounts
of $20,000 in 1997 and $30,958 in 1996 due to a writedown of a temporary branch
building to estimated net realizable value. Such loss is reflected in occupancy
expense in the accompanying consolidated financial statements. The temporary
building was replaced by a permanent structure.

6. DEPOSITS

  Major classifications of deposits at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                                     1997               1996
                                                 ------------       ------------
<S>                                              <C>                <C>
Demand - non-interest bearing                    $ 12,137,705       $ 12,280,044
Demand - interest bearing                          19,453,384         20,105,506
Savings                                            31,742,490         35,625,308
Time $100,000 and over                             11,460,722         12,975,134
Other time                                         52,924,808         50,414,044
                                                 ------------       ------------
                                                 $127,719,109       $131,400,036
                                                 ============       ============
</TABLE>

  The following is a schedule reflecting remaining maturities of time deposits
of $100,000 and over at December 31, 1997:

<TABLE>
<S>                                                                  <C>
1998                                                                 $ 7,913,121
1999                                                                   1,850,703
2000                                                                   1,389,120
2001                                                                     207,778
2002 and thereafter                                                      100,000
                                                                     -----------
Total                                                                $11,460,722
                                                                     ===========
</TABLE>

  Interest expense related to time deposits of $100,000 or more was $674,683 in
1997, $636,407 in 1996 and $513,290 in 1995.

7. SHORT-TERM BORROWINGS

  Federal funds purchased, securities sold under agreements to repurchase, and
Federal Home Loan Bank advances generally represented overnight or less than
30-day borrowings. U.S. Treasury tax and loan notes for collections made by the
Bank were payable on demand. Short-term borrowings consisted of the following at
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                         1997                                           1996
                                                                MAXIMUM                                           MAXIMUM
                                                                 MONTH                                             MONTH
                                    ENDING        AVERAGE         END      AVERAGE    ENDING        AVERAGE         END      AVERAGE
                                    BALANCE       BALANCE       BALANCE     RATE      BALANCE       BALANCE       BALANCE     RATE
                                  -----------   -----------   -----------   ----    -----------   -----------   -----------   ----
<S>                               <C>           <C>           <C>          <C>      <C>           <C>           <C>          <C>
Federal funds
purchased and
securities sold under
agreements to repurchase          $21,362,505   $19,350,482   $22,940,764   5.26%   $16,110,547   $13,986,864   $17,128,643   4.98%
Federal Home Loan Bank                      0         8,767             0   6.18%             0        19,604             0   5.52%
U.S. Treasury tax and loan notes    1,000,000       583,549     1,000,000   5.08%       543,434       522,076     1,000,000   4.97%
                                  -----------   -----------   -----------   ----    -----------   -----------   -----------   ----
Total                             $22,362,505   $19,942,798   $23,940,764   5.26%   $16,653,981   $14,528,544   $18,128,643   4.97%
                                  ===========   ===========   ===========   ====    ===========   ===========   ===========   ====
</TABLE>


                                       12
<PAGE>   15
8. LONG-TERM BORROWINGS

  Long-term borrowings at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                                              1997        1996
                                                            --------    --------
<S>                                                         <C>         <C>
Federal Home Loan Bank loan with interest at 6.12%          $225,000    $      0
Capitalized lease obligations for computer equipment         214,787     296,986
                                                            --------    --------
Total                                                       $439,787    $296,986
                                                            ========    ========
</TABLE>

  In November 1997 the Bank incurred a ten year loan with the Federal Home Loan
Bank which requires monthly payments of $1,628 including interest at a fixed
rate of 6.12%.

  In 1994 the Bank acquired certain computer equipment under capitalized leases.
Interest rates on the capitalized leases were 6.3%, which was the lower of the
Bank's incremental borrowing rate.

  As a result of the Bank's planned acquisition of an in-house computer data
processing system in 1998, (See Note 12 Lease Commitments and Contingency) the
above capitalized leases will be paid.

  Hence, these capitalized lease obligations are included in the 1998 portion of
annual maturities of long-term debt. At December 31, 1997 the annual maturities
of long-term debt were as follows: $220,712 in 1998, $6,298 in 1999, $6,695 in
2000, $7,116 in 2001, $7,564 in 2002 and $191,402 thereafter.

9. STOCKHOLDERS' EQUITY AND STOCK OPTIONS

  The Amended Articles of Incorporation contain a provision that permits the
Corporation to issue warrants for the purchase of shares of common stock, par
value $1.25 per share (the "Common Stock"), at below market prices in the event
any person or entity acquires 25% or more of the Common Stock.

  On April 25, 1995, the Shareholders approved an Employee Stock Purchase Plan.
The maximum number of shares of the Common Stock to be issued under this plan
shall be 20,000. In addition, the Corporation may choose to purchase shares on
the open market to facilitate this plan. A participating employee shall elect
deductions of at least 1% of base pay, but not more than 10% of base pay, to
cover purchases of shares under this plan. A participating employee shall be
deemed to have been granted an option to purchase a number of shares of the
Common Stock equal to the annual aggregate amount of payroll deductions elected
by the employee divided by 90% of the fair market value of Common Stock on the
first day of January in each year. Stock issued to participating employees under
the plan occurred in January 1996 whereby 195 shares were issued for $14.40 a
share at a cost per share of $16.00 and January 1997 whereby 435 shares were
issued for $15.75 a share at a cost per share of $17.50.

  On February 2, 1995, the Corporation registered with the Securities and
Exchange Commission 500,000 shares of the Common Stock to be sold pursuant to a
Dividend Reinvestment and Stock Purchase Plan. The price per share for purchases
under this plan is determined at each quarterly dividend payment date by the
reported average mean between the bid and asked prices in the over-the-counter
market for 10 consecutive trading days preceding each quarterly dividend payment
date. Participation in this plan by Shareholders began in June 1995. Shares
issued under this plan were 6,379 shares with proceeds of $132,209 in 1997,
9,053 shares with proceeds of $153,112 in 1996 and 7,036 shares issued in 1995
with proceeds of $77,037 net of the initial cost to establish the plan.

10.INCOME TAXES

  The provision for income tax expense consisted of the following components:

<TABLE>
<CAPTION>
                                               1997         1996          1995
                                            ---------    ---------     ---------
<S>                                         <C>          <C>           <C>
Current                                     $ 728,446    $ 672,855     $ 511,730
Deferred (benefit)                             20,331       (9,303)       49,392
                                            ---------    ---------     ---------
Total Provision For Income Taxes            $ 748,777    $ 663,552     $ 561,122
                                            =========    =========     =========
</TABLE>

  A reconciliation of income tax expense and the amounts which would have been
recorded based upon the statutory rate of 34% follows:

<TABLE>
<CAPTION>
                                            1997                  1996                  1995
                                            ----                  ----                  ----
                                       AMOUNT     RATE       AMOUNT     RATE       AMOUNT     RATE
                                     ---------    ----     ---------    ----     ---------    ----
<S>                                  <C>          <C>      <C>          <C>      <C>          <C>
Provision at statutory rate          $ 943,253    34.0%    $ 845,934    34.0%    $ 743,238    34.0%
Tax exempt income                     (224,865)   (8.1)     (207,332)   (8.3)     (212,756)   (9.7)
Non-deductible expenses                 35,817     1.3        24,553     1.0        30,796     1.4
Other, net                              (5,428)    (.2)          397      .0          (156)     .0
                                     ---------    ----     ---------    ----     ---------    ----
Actual federal income tax and rate   $ 748,777    27.0%    $ 663,552    26.7%    $ 561,122    25.7%
                                     =========    ====     =========    ====     =========    ====
</TABLE>


                                         13
<PAGE>   16
  Income taxes applicable to realized security gains included in the provision
for income taxes totalled $19,491 in 1997, $9,411 in 1996 and $28,204 in 1995.
The net deferred tax asset (liability) recorded by the Corporation consisted of
the following tax effects of temporary timing differences at December 31:

<TABLE>
<CAPTION>
                                                         1997           1996
                                                       ---------      ---------
<S>                                                    <C>            <C>
Deferred tax assets:
  Loan loss reserve                                    $ 204,541      $ 207,880
  Impairment loss                                              0         10,526
  Deferred compensation                                  115,114         96,137
  Contributions                                            6,018          8,571
                                                       ---------      ---------
   Total                                               $ 325,673      $ 323,114
                                                       =========      =========

Deferred tax liabilities:
  Loan fees and costs                                  $ (54,588)     $ (37,840)
  Accretion                                               (7,356)        (9,035)
  Unrealized investment securities gains                 (75,230)       (35,438)
  Depreciation                                          (230,240)      (222,419)
                                                       ---------      ---------
   Total                                               $(367,414)     $(304,732)
                                                       ---------      ---------
Net deferred tax asset (liability)                     $ (41,741)     $  18,382
                                                       =========      =========
</TABLE>

  The above net deferred asset (liability) is included in other assets
(liabilities), respectively. It is anticipated that all tax assets will be
realized, accordingly, no valuation allowance was provided.

11. BENEFIT AND DEFERRED COMPENSATION PLANS

  The Bank maintains a 401K salary deferred profit sharing plan for the benefit
of its employees. Under the salary deferral component, employees may elect to
contribute up to 10% of their compensation with the possibility that the Bank
may make matching contributions to the plan. Under the profit sharing component,
contributions are made at the discretion of the Board of Directors.

  Matching contributions amount to $18,266, $19,788 and $0 for 1997, 1996 and
1995, respectively. Discretionary contributions amounted to $108,099, $97,564
and $86,755 in 1997, 1996 and 1995, respectively.

DIRECTORS

  The Bank entered into agreements with three directors to establish
non-qualified deferred compensation plans for each of these directors. These
plans are limited to 4-year terms. The Bank may, however, enter into subsequent
similar plans with its directors. Each of the participating directors is
deferring the payment to himself of certain directors fees to which he is
entitled. Each director's future payment is based upon the cumulative amount of
deferred fees together with interest currently accruing thereon at the rate of
8% per annum, subject to change by the Board of Directors. The Bank has obtained
life insurance (designating the Bank as the beneficiary) on the lives of certain
directors in face amounts which are intended to cover the Bank's obligations and
related costs under the Director's Deferred Compensation Plan in aggregate. As
of December 31, 1997 and 1996, the net cash value of insurance policies was
$131,084 and $61,818, respectively, and the total accrued liability was $181,268
and $153,756, respectively, relating to these directors' deferred compensation
agreements.

EXECUTIVE OFFICERS

  The Bank entered into agreements with two executive officers to establish
non-qualified deferred compensation plans. Each officer is deferring
compensation in order to participate in this Deferred Compensation Plan. If the
officer continues to serve as an officer of the Bank until he attains sixty-five
(65) years of age, the Bank has agreed to pay him 120 guaranteed consecutive
monthly payments commencing on the first day of the month following the
officer's 65th birthday. Each officer's guaranteed monthly payment is based upon
the future value of life insurance purchased with the compensation the officer
has deferred. The Bank has obtained life insurance (designating the Bank as the
beneficiary) on the life of each participating officer in an amount which is
intended to cover the Bank's obligations under the Deferred Compensation Plan,
based upon certain actuarial assumptions. As of December 31, 1997 and 1996, the
net cash value of insurance policies was $148,585 and $117,955, respectively,
and the total accrued liability was $154,800 and $129,000, respectively,
relating to these executive officers' deferred compensation agreements.

12. LEASE COMMITMENTS AND CONTINGENCIES

  At December 31, 1997 the Bank contracted for outside data processing services
and also leased some minor office equipment under operating leases.

  Rental expense under operating leases and contracted data processing services
for the years ended December 31, 1997, 1996 and 1995 were $170,398, $153,084 and
$253,626, respectively.

  In 1998 the Bank will acquire an in-house computer data processing system as a
result of cancelling a third party outside data processor. Estimated costs to be
incurred for this conversion include acquisition of additional computer
equipment for $758,000, contracted processing fees to conversion date of $50,000
and one time conversion costs of $73,598. In addition, existing capitalized
lease obligations in the amount of $214,787 will be paid-off.

  In the normal course of business, there were various pending legal actions and
proceedings which were not reflected in the consolidated financial statements.
In the opinion of management, the consolidated financial statements have not and
will not be affected materially by the outcome of such actions and proceedings.


                                       14
<PAGE>   17
13. RELATED PARTY TRANSACTIONS

  Certain directors and executive officers of the Corporation and the Bank and
companies in which they are principal owners (i.e., at least 10%), were indebted
to the Bank at December 31, 1997 and 1996. These loans were made on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated parties.

  A summary of the activity on the related party loans, comprised of seven
directors, seven executive officers and their related companies, consisted of
the following:

<TABLE>
<CAPTION>
                                                    1997                1996
                                                -----------         -----------
<S>                                             <C>                 <C>
Balance, beginning of year                      $ 2,100,225         $ 1,608,042
Additions                                           359,080             764,735
Deductions                                         (816,112)           (272,552)
                                                -----------         -----------
Balance, end of year                            $ 1,643,193         $ 2,100,225
                                                ===========         ===========
</TABLE>

  The above loans represent funds drawn and outstanding at the date of this
consolidated financial statement. Commitments by the Bank on lines of credit and
credit card agreements presented an additional off-balance sheet risk to the
extent of undisbursed funds in the amount of $327,833 and $193,183,
respectively, on the above loans. Additionally, the presented loans include
credit card accounts totalling $3,348 and $4,606, respectively.

  These loans did not present more than the normal risk of collectibility nor
present other unfavorable features.

14. REGULATORY MATTERS

  Dividends are paid by the Corporation to shareholders from its assets which
are mainly provided by dividends from the Bank. However, national banking laws
place certain restrictions on the amount of cash dividends allowed to be paid by
the Bank to the Corporation. Generally, the limitation provides that dividend
payments may not exceed the Bank's current year's retained income plus retained
net income for the preceding two years. Accordingly, in 1998, without prior
regulatory approval, the Bank may declare dividends to the Corporation in the
amount of $2,353,321 plus additional amounts equal to the net income earned in
1998 for the period January 1, 1998, through the date of declaration, less any
dividends which may have already been paid in 1998. Regulations also limit the
amount of loans and advances from the Bank to the Corporation to 10% of
consolidated net assets.

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

  Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as defined).

  As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.

  The Bank's actual capital amounts (in thousands) and ratios are presented in
the following table:

<TABLE>
<CAPTION>
                                                                                    TO BE WELL
                                                                                 CAPITALIZED UNDER
                                                                FOR CAPITAL      PROMPT CORRECTIVE
                                                ACTUAL       ADEQUACY PURPOSES   ACTION PROVISIONS:
                                                ------       -----------------   ------------------
                                           AMOUNT    RATIO    AMOUNT    RATIO     AMOUNT    RATIO
                                           -------   -----    -------    ----     -------    ----
<S>                                        <C>       <C>      <C>       <C>      <C>        <C>
As of December 31, 1997:
Total Capital (To risk-weighted assets)    $22,864   21.84%   $ 8,375    8.00%    $10,469   10.00%
Tier I Capital (To risk-weighted assets)   $21,963   20.98%   $ 4,187    4.00%    $ 6,281    6.00%
Tier I Capital (To average assets)         $21,963   12.57%   $ 6,989    4.00%    $ 8,736    5.00%

As of December 31, 1996:
Total Capital (To risk-weighted assets)    $21,499   21.49%   $ 8,003    8.00%    $10,004   10.00%
Tier I Capital (To risk-weighted assets)   $20,588   20.58%   $ 8,235    4.00%    $12,353    6.00%
Tier I Capital (To average assets)         $20,588   12.23%   $ 6,734    4.00%    $ 8,417    5.00%
</TABLE>

  The Corporation's capital ratios are not materially different from those of
the Bank.


                                       15
<PAGE>   18
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK

  The Corporation 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,
standby letters of credit and commercial letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments. The Corporation
does not engage in trading activities with respect to any of its financial
instruments with off-balance sheet risk.

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

  The Corporation may require collateral or other security to support financial
instruments with off-balance sheet credit risk. The contract or notional amounts
at December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                         1997         1996
                                                                      ----------   ----------
<S>                                                                   <C>          <C>
Financial instruments whose contract amounts represent credit risk:
  Commitments to extend credit                                        $8,536,044   $9,693,267
  Credit card arrangements                                             1,238,765    1,256,635
  Standby letters of credit                                              704,493      636,200
  Performance standby letters of credit                                  326,372      256,993
  Dealer floor plans                                                     520,624      598,398
</TABLE>

  Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Because many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral held varies but
may include accounts receivable, inventory, property, plant, equipment, and
income-producing commercial properties.

  Standby letters of credit, commercial letters of credit, and performance
standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation holds collateral
supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments at December 31, 1997 varied from
0 percent to 100 percent; the average amount collateralized was 74.6% percent.

  The Corporation granted commercial, consumer and residential loans to
customers within the state. Of the total loan portfolio 84% was for real estate
loans, principally residential. It was the opinion of management that the high
concentration did not pose any adverse credit risk. Further, it was management's
opinion that the remainder of the loan portfolio was balanced and diversified to
the extent necessary to avoid any significant concentration of credit.

16. FAIR VALUES OF FINANCIAL INSTRUMENTS

  Statement of Accounting Standards Board No. 107, "Disclosures about Fair Value
of Financial Instruments", requires disclosure of fair value information about
financial instruments, whether or not required to be recognized in the
consolidated balance sheet, for which it is practicable to estimate such value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. These techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Fair value estimates derived through these
techniques cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.

  The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:

CASH AND OTHER SHORT-TERM INSTRUMENTS

  Cash and due from banks, interest bearing deposits with other banks, and
Federal Funds sold had carrying values which were a reasonable estimate of fair
value. Accordingly, fair values regarding these instruments were provided by
reference to carrying values reflected on the consolidated balance sheets.

INVESTMENT SECURITIES

  The fair value of investment securities which included mortgage backed
securities, except certain state and municipal securities, was estimated based
on bid prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal securities was
not readily available through market sources other than dealer quotations, thus
fair value estimates were based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.

LOANS

  Fair values were estimated for categories of loans with


                                       16
<PAGE>   19
similar financial characteristics. Loans were segregated by type such as
commercial, tax exempt, real estate mortgages and consumer. For estimation
purposes, each loan category was further segmented into fixed and adjustable
rate interest terms and also into performing and non-performing classifications.

  The fair value of each category of performing loans was calculated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.

  Fair value for non-performing loans was based on management's estimate of
future cash flows discounted using a rate commensurate with the risk associated
with the estimated future cash flows. The assumptions used by management were
judgmentally determined using specific borrower information.

DEPOSITS

  Under Statement No. 107, the fair value of deposits with no stated
maturity, such as Demand Deposits, Savings Accounts, and Money Market Accounts,
was equal to the amount payable on demand at December 31, 1997 and 1996.

  Fair values for fixed rate certificates of deposit were estimated using a
discounted cash flow calculation that applied interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.

SHORT-TERM BORROWINGS

  The carrying amounts of federal funds purchased and securities sold under
agreements to repurchase and other short-term borrowings approximated their fair
values.

LONG-TERM BORROWINGS

  The carrying amounts of capitalized leases approximated their fair values,
because the incremental borrowing rate used in the carrying amount calculation
was at the market rate.

COMMITMENTS TO EXTEND CREDIT AND STAND-BY LETTERS OF CREDIT

  Management estimated that there were no material differences between the
notional amount and the estimated fair value of those off-balance sheet items,
because they were primarily composed of unfunded loan commitments which were
generally priced at market at the time of funding.

  At December 31, 1997 and 1996, the carrying values and estimated fair values
of financial instruments of the Corporation are presented in the table below:

<TABLE>
<CAPTION>
                                                     1997                          1996
                                                     ----                          ----
                                            Carrying      Estimated       Carrying      Estimated
                                             Amount       Fair Value       Amount       Fair Value
                                          ------------   ------------   ------------   ------------
<S>                                       <C>            <C>            <C>            <C>
Financial Assets:
  Cash and short-term investments         $  5,316,798   $  5,316,798   $ 11,359,167   $ 11,359,167
  Investment securities                     43,862,265     43,868,605     37,406,880     37,417,893

Loans:
  Commercial                                 7,550,674      7,801,898      7,957,064      7,957,064
  Tax exempt                                 2,591,233      2,680,688      2,063,757      2,028,384
  Qualified municipal leases                         0              0         34,777         34,777
  Real estate - construction                   637,025        634,129        660,071        658,390
  Real estate                               99,779,958     98,835,906     96,439,184     96,066,609
  Personal                                   8,523,907      8,421,895      8,446,682      8,436,195
  Credit cards                                 382,885        382,885        441,385        441,385
                                          ------------   ------------   ------------   ------------
  Gross loans                             $119,465,682   $118,757,401   $116,042,920   $115,622,804
  Less: Unearned discount                      323,684              0        324,517              0
   Unamortized loan fees net of costs           97,430              0        128,619              0
                                          ------------   ------------   ------------   ------------
   Loans net of unearned income           $119,044,568   $118,757,401   $115,589,784   $115,622,804
   Less allowance for losses                   900,889              0        910,711              0
                                          ------------   ------------   ------------   ------------
  Net Loans                               $118,143,679   $118,757,401   $114,679,073   $115,622,804
                                          ------------   ------------   ------------   ------------

Financial Liabilities:
  Deposits:
   Demand - non-interest bearing          $ 12,137,705   $ 12,137,705   $ 12,280,044   $ 12,280,044
   Demand - interest bearing                19,453,384     19,453,384     20,105,506     20,105,506
   Savings                                  31,742,490     31,742,490     35,625,308     35,625,308
   Time - $100,000 and over                 11,460,722     11,549,942     12,975,134     13,055,996
   Other time                               52,924,808     53,231,715     50,414,044     50,659,791
                                          ------------   ------------   ------------   ------------
     Total Deposits                       $127,719,109   $128,115,236   $131,400,036   $131,726,645
                                          ------------   ------------   ------------   ------------

Short-Term Borrowings                     $ 22,362,505   $ 22,362,505   $ 16,653,981   $ 16,653,981
Long-Term Borrowings                           439,787        439,787        296,986        296,986

Off-Balance Sheet Assets (Liabilities):
  Commitments to extend credit                              8,536,044                     9,693,267
  Credit card arrangements                                  1,238,765                     1,256,635
  Standby letters of credit                                   704,493                       636,200
  Performance standby letters of credit                       326,372                       256,993
  Dealer floor plans                                          520,624                       598,398
</TABLE>


                                       17
<PAGE>   20
17. PARENT COMPANY FINANCIAL INFORMATION

  Condensed financial information for CCFNB Bancorp, Inc. (Parent Company only)
was as follows:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                         ------------
BALANCE SHEETS                                                       1997            1996
                                                                 ------------    ------------
<S>                                                              <C>             <C>
Assets
   Cash in subsidiary Bank                                       $    248,136    $    577,734
   Investment in subsidiary                                        21,644,692      20,023,861
   Investment in other equity securities                              218,875               0
   Prepayments and other assets                                             0          14,235
   Receivable from subsidiary                                          14,251         110,306
                                                                 ------------    ------------
      Total Assets                                               $ 22,125,954    $ 20,726,136
                                                                 ============    ============
Liabilities and Stockholders' Equity
   Accrued expenses and other liabilities                        $     21,141    $     69,255
                                                                 ------------    ------------
      Total Liabilities                                          $     21,141    $     69,255
                                                                 ------------    ------------
Stockholders' Equity
   Common stock                                                  $  1,728,041    $  1,727,139
   Surplus                                                          5,854,388       5,838,453
   Retained earnings                                               14,406,930      13,022,498
   Unrealized gain on investment securities available for sale        142,001          68,791
   Less treasury stock at cost                                        (26,547)              0
                                                                 ------------    ------------
      Total Stockholders' Equity                                 $ 22,104,813    $ 20,656,881
                                                                 ------------    ------------
      Total Liabilities and Stockholders' Equity                 $ 22,125,954    $ 20,726,136
                                                                 ============    ============

<CAPTION>
INCOME STATEMENTS
                                                                                  YEARS ENDED DECEMBER 31,
                                                                                  ------------------------
Income                                                                       1997           1996           1995
                                                                         -----------    -----------    -----------
<S>                                                                      <C>            <C>            <C>
   Dividends from subsidiary bank                                        $   637,610    $   916,664    $   615,504
   Dividends - other                                                             980              0              0
   Interest                                                                   17,724         13,464         12,918
                                                                         -----------    -----------    -----------
      Total Income                                                       $   656,314    $   930,128    $   628,422
Operating Expenses                                                            62,071         57,737         48,496
                                                                         -----------    -----------    -----------
   Income Before Taxes and Equity in Undistributed
      Net Income of Subsidiary                                           $   594,243    $   872,391    $   579,926
Applicable income tax (benefit)                                              (14,978)       (15,053)       (12,097)
                                                                         -----------    -----------    -----------
   Income Before Equity in Undistributed Net Income
      of Subsidiary                                                      $   609,221    $   887,444    $   592,023
Equity in undistributed income of subsidiary                               1,416,275        937,046      1,032,848
                                                                         -----------    -----------    -----------
   Net Income                                                            $ 2,025,496    $ 1,824,490    $ 1,624,871
                                                                         ===========    ===========    ===========

STATEMENTS OF CASH FLOWS
Operating Activities
Net income                                                               $ 2,025,496    $ 1,824,490    $ 1,624,871
Adjustments to reconcile net income to net cash provided by
   operating activities:
      Equity in undistributed net income of subsidiary                    (1,416,275)      (937,046)    (1,032,848)
      (Increase) decrease in prepaid expenses and other assets                14,235         30,308         16,362
      (Increase) decrease in receivable from subsidiary                       96,055       (110,306)             0
      Increase (decrease) in advances payable to subsidiary                        0        (20,173)       (16,349)
      Increase (decrease) in income taxes and accrued expenses payable       (56,557)        68,855        (13,757)
                                                                         -----------    -----------    -----------
         Net Cash Provided By Operating Activities                       $   662,954    $   856,128    $   578,279
                                                                         -----------    -----------    -----------
Investing Activities
Purchase of equity securities                                            $  (198,075)   $         0    $         0
Investment in subsidiary                                                    (143,703)      (102,390)             0
                                                                         -----------    -----------    -----------
         Net Cash Provided (Used) in Investing Activities                $  (341,778)   $  (102,390)   $         0
                                                                         -----------    -----------    -----------
Financing Activities
Acquisition of treasury stock                                            $  (148,770)   $         0    $         0
Proceeds from issuance of common stock                                       139,060        155,920         77,037
Cash dividends                                                              (641,064)      (619,269)      (615,504)
                                                                         -----------    -----------    -----------
         Net Cash Provided (Used) By Financing Activities                $  (650,774)   $  (463,349)   $  (538,467)
                                                                         -----------    -----------    -----------
         Increase (Decrease) in Cash and Cash Equivalents                $  (329,598)   $   290,389    $    39,812
Cash and Cash Equivalents at Beginning of Year                               577,734        287,345        247,533
                                                                         -----------    -----------    -----------
         Cash and Cash Equivalents at End of Year                        $   248,136    $   577,734    $   287,345
                                                                         ===========    ===========    ===========
</TABLE>


                                       18
<PAGE>   21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders of CCFNB Bancorp, Inc.

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

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

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


                                    [J.H. Williams & Co., LLP LOGO]

                                    J.H. Williams & Co., LLP
                                    Kingston, Pennsylvania
                                    January 20, 1998


Nancy Diehl enjoying her work as a member of the Corporate        [PHOTO]
Department team.


                                       19
<PAGE>   22
CCFNB Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selected Consolidated Financial Summary Not Covered By Report Of Independent
Accountants

(Dollars in thousands, except per share date and ratios)

<TABLE>
<CAPTION>
                                                1997              1996             1995             1994             1993
                                            -------------    -------------    -------------    -------------    -------------
<S>                                         <C>              <C>              <C>              <C>              <C>
INCOME STATEMENT DATA:
Total interest income                       $      12,498    $      11,844    $      11,466    $      10,459    $       9,914
Total interest expense                              5,976            5,588            5,557            4,785            4,634
                                            -------------    -------------    -------------    -------------    -------------
Net interest income                                 6,522            6,256            5,909            5,674            5,280
Provision for possible loan losses                     60               80               42              160              105
Other operating income                                804              762              693              569              568
Other operating expenses                            4,492            4,450            4,374            3,958            3,763
Federal income taxes                                  749              664              561              560              497
Change in accounting principle                          0                0                0                0              196
                                            -------------    -------------    -------------    -------------    -------------
Net income                                          2,025            1,824            1,625            1,565            1,679
                                            =============    =============    =============    =============    =============

PER SHARE DATA:
Earnings per share(1)(2)                    $        1.47    $        1.33    $        1.19    $        1.35    $        1.51
Cash dividends declared per share                    0.46             0.45             0.45             0.42             0.40
Book value per share                                15.68            14.95            13.99            12.92            11.94
Average shares outstanding                      1,381,800        1,375,875        1,367,595        1,163,199        1,109,837

BALANCE SHEET DATA:
Total assets                                $     173,866    $     170,086    $     162,066    $     157,124    $     152,386
Total loans                                 $     119,045    $     115,590    $     111,832    $     109,800    $      96,423
Total securities                            $      43,862    $      37,407    $      40,384    $      39,323    $      44,542
Total deposits                              $     127,719    $     131,400    $     128,985    $     126,864    $     124,023
FHLB advances - long-term                   $         225    $           0    $           0    $           0    $           0
Total stockholders' equity                  $      22,105    $      20,657    $      19,512    $      17,650    $      13,452

PERFORMANCE RATIOS:
Return on average assets                             1.18%            1.11%            1.03%            1.03%            1.17%
Return on average stockholders' equity               9.79%            9.35%            8.99%           11.39%            8.90%
Net interest margin(3)                               4.23%            4.24%            4.15%            4.12%            4.14%
Total other operating expenses
  as a percentage of average assets                  2.62%            2.70%            2.77%            2.61%            2.63%

ASSET QUALITY RATIOS:
Allowance for possible loan losses as a
  percentage of loans, net                           0.76%            0.79%            0.82%            0.87%            0.85%
Allowance for possible loan losses as a
  percentage of nonperforming loans(4)             129.27%          208.00%          222.00%          287.50%          104.00%
Nonperforming loans as a percentage of
  total loans, net(4)                                0.59%            0.38%            0.37%            0.30%            0.81%
Nonperforming assets as a percentage of
  total assets(4)                                    0.40%            0.26%            0.25%            0.21%            0.62%
Net charge-offs as a percentage of
  average net loans                                  0.06%            0.07%            0.07%            0.14%            0.07%

LIQUIDITY AND CAPITAL RATIOS:
Equity to assets(5)                                 12.09%           11.86%           11.44%           11.39%           13.18%
Tier 1 capital to risk-weighted assets(6)           20.98%           20.58%           28.21%           20.19%           10.28%
Leverage ratio(5)(6)(7)                             12.57%           12.23%           12.39%           12.15%            8.83%
Total capital to risk-weighted assets(5)            21.84%           21.49%           29.46%           21.24%           10.99%
Dividend payout ratio                               31.65%           33.95%           37.88%           31.74%           26.44%
</TABLE>


                                       20
<PAGE>   23
(1) Based upon average shares and common share equivalents outstanding.

(2) 1993 earnings per share as adjusted for effect of change in accounting
principle.

(3) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.

(4) Nonperforming loans are comprised of (i) loans which are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due, and (iii)
restructured loans. Nonperforming assets are comprised of nonperforming loans
and foreclosed REAL estate (assets acquired in foreclosure), if applicable.

(5) Based upon average balances for the respective periods.

(6) Based on the FRB risk-based capital guidelines, as applicable to the
Corporation. CCFNB is subject to similar requirements imposed by the Office of
the Comptroller of the Currency (the "OCC").

(7) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets less intangible assets, if applicable.

  The following discussion and analysis should be read in conjunction with the
detailed information and consolidated financial statements, including notes
thereto, included elsewhere in this report. The consolidated financial condition
and results of operations of the Corporation are essentially those of its
subsidiary, the Bank. Therefore, the analysis that follows is directed to the
performance of the Bank.

FACTORS THAT MAY AFFECT FUTURE RESULTS

  General. Banking is affected, directly and indirectly, by local, domestic and
international economic and political conditions, and by government monetary and
fiscal policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, real estate values, international conflicts
and other factors beyond the control of the Corporation may adversely affect the
future results of operations of the Corporation. Management does not expect any
one particular factor to affect the Corporation's results of operations. A
downward trend in several areas, however, including real estates, construction
and consumer spending, could have an adverse impact on the Corporation's ability
to maintain or increase profitability. Therefore, there is no assurance that the
Corporation will be able to continue their current rates of income and growth.

  Interest Rates. The Corporation's earnings depend, to a large extent, upon net
interest income, which is primarily influenced by the relationship between its
cost of funds (deposits and borrowings) and the yield on its interest-earning
assets (loans and investments). This relationship, known as the net interest
spread, is subject to fluctuation and is affected by regulatory, economic and
competitive factors which influence interest rates, the volume, rate and mix of
interest-earning assets and interest-bearing liabilities, and the level of
nonperforming assets. As part of its interest rate risk management strategy
comprised of interest rate risk, mortgage risk, and deposit pricing risk
components, management seeks to control its exposure to interest rate changes by
managing the maturity and repricing characteristics of interest-earning assets
and interest-bearing liabilities.

  As of December 31, 1997, total interest-earning assets maturing or repricing
within one year were less than total interest-bearing liabilities maturing or
repricing in the same period by $423 thousand, representing a cumulative one
year interest rate sensitivity gap as a percentage of total assets of negative
 .24%. This condition suggests that the yield on the Corporation's
interest-earning assets should adjust to changes in market interest rate at a
slower rate than the cost of the Corporation's interest-bearing liabilities.
Consequently, the Corporation's net interest income could decrease during
periods of rising interest rates. See "Interest Rate Sensitivity".

  Local Economic Conditions. The success of the Corporation is dependent, to a
certain extent, upon the general economic conditions in the geographic market
served. Although the Corporation expects that economic conditions will continue
to be favorable in this market, no assurance can be given that these economic
conditions will continue. Adverse changes in economic conditions in the
geographic market that the Corporation serves would likely impair its ability to
collect loans and could otherwise have a material adverse effect on the results
of operations and financial condition of the Corporation.

  Competition. The Banking industry is highly competitive, with rapid changes in
product delivery systems and in consolidation of service providers. Many of the
Corporation's competitors are bigger than the Corporation in terms of assets and
have substantially greater technical, marketing and financial resources. Because
of their size, many of these competitors can (and do) offer products and
services that the Corporation does not offer. The Corporation is constantly
striving to meet the convenience and needs of its customers and to enlarge its
customer base. No assurance can be given that these efforts will be successful
in maintaining and expanding the Corporation's customer base.

RESULTS OF OPERATIONS

  The Corporation's net income increased 11.02% to $2,025,496 for 1997, compared
to $1,824,490 for 1996. Earnings per common share for the current year were
$1.47 compared to $1.33 per common share in 1996. Beginning June 1995, dividend
reinvestment and employee's stock option plans went into effect for the
Corporation. Additionally, in 1997 the Corporation purchased and partially
retired treasury stock. The net additional shares issued as a result of the
aforementioned capital transactions were 722, 9,053, and 7,036 for 1997, 1996
and 1995, respectively. These factors have affected the earnings per share by
increasing the weighted average number of shares which resulted in weighted
average number of shares outstanding of 1,381,800, 1,375,875 and 1,367,595 for
1997, 1996 and 1995, respectively.

  Loans increased 2.99% throughout 1997 to $119,044,568 from $115,589,784 in
1996. Real estate loans continued to provide the growth in loans particularly
through the home equity product line. Return on average assets ("ROA") increased
to 1.18% for 1997 compared to 1.11% for 1996. The return on average equity
("ROE") increased to 9.79% for 1997 compared to 9.35% for 1996.

  Tax-equivalent net interest income increased 4.28% in 1997 from $6,582,000 in
1996 to $6,864,000 in 1997. Average earning assets increased 4.38% in 1997 from
$155,328,000 in 1996 to $162,131,000 in 1997. This increased net interest income
was a result of changes in strategies in the loan and security area experienced
during the past year.


                                       21
<PAGE>   24
TABLE OF NON-INTEREST INCOME
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      ------------------------
                                                      1997      1996      1995
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Service charges and fees                             $   556   $   513   $   503
Trust department income                                  103        76        51
Investment securities gain (losses) - net                 57        28        83
Other                                                     88       145        56
                                                     -------   -------   -------
Total non-interest income                            $   804   $   762   $   693
                                                     =======   =======   =======
</TABLE>

  Total non-interest income increased 5.51% during 1997 from $762,000 in 1996 to
$804,000 in 1997. Continued growth of the Trust Department resulted in an
increase in income of 35.53% from $76,000 in 1996 to $103,000 in 1997. Service
fees and charges increased from $513,000 in 1996 to $556,000 in 1997 or 8.38%.
Other income also decreased 39.31% from $145,000 in 1996 to $88,000 in 1997 and
was attributable primarily to a gain on sale of Other Real Estate Owned of
$54,000 in 1996.

TABLE OF NON-INTEREST EXPENSE
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      ------------------------
                                                      1997      1996      1995
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Salaries and wages                                   $ 1,817   $ 1,785   $ 1,653
Employee benefits                                        523       509       448
Net occupancy expense                                    375       393       259
Furniture and equipment expense                          420       411       349
FDIC insurance                                            16         2       148
Other expense                                          1,341     1,350     1,517
                                                     -------   -------   -------
Total non-interest expense                           $ 4,492   $ 4,450   $ 4,374
                                                     =======   =======   =======
</TABLE>

  Total non-interest expense increased to $4,492,000 in 1997 from $4,450,000 in
1996 or .94%. The overall modest increase was generally the result of normally
expected cost increases since there was not any addition of personnel or
equipment related expenses in 1997 as compared to 1996.

  A key factor in measuring non-interest expense is to express the expense as a
percentage of average total assets. In 1996, this percentage was 2.70% compared
to 2.62% in 1997. Accordingly, the Corporation had a positive improvement.

NET INTEREST INCOME

  Tax-equivalent net interest income for 1997 was $6,864,000 compared to
$6,582,000 in 1996, an increase of 4.28%. Lending strategies continued in 1997
to change the loan mix to higher-yielding loans with adjustable rates. These
were the Home Equity Line, with a monthly rate adjustment option and the Dealer
Floor Plan, with immediate rate adjustments. Additionally, mortgage-backed
securities continued to add to the investment security portfolio with these
securities producing an improved yield.

  Average cost of funds for 1997 was 4.35% compared to 4.22% for 1996. Yield on
average interest earning assets was 7.71% in 1997 compared to 7.63% in 1996.

TAX-EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                       ------------------------
                                                      1997      1996      1995
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Interest income                                      $12,498   $11,844   $11,466
Interest expense                                       5,976     5,588     5,557
                                                     -------   -------   -------
Net interest income                                  $ 6,522   $ 6,256   $ 5,909
Tax equivalent adjustment                                342       326       337
                                                     -------   -------   -------
Net interest income (fully taxable equivalent)       $ 6,864   $ 6,582   $ 6,246
                                                     =======   =======   =======
</TABLE>

  The net interest margin, which is the total tax-equivalent net interest income
as a percentage of total average interest-earning assets, decreased slightly in
1997 to 4.23% compared to 4.24% in 1996. The following Average Balance Sheet and
Rate Analysis table presents the average assets, actual income or expense and
the average yield on assets, liabilities and stockholders' equity for the years
1997, 1996 and 1995.


                                       22
<PAGE>   25
AVERAGE BALANCE SHEET AND RATE ANALYSIS
Three Years Ended December 31 (Dollars in thousands)

<TABLE>
<CAPTION>
                                                     1997                           1996                            1995
                                                     ----                           ----                            ----
                                        AVERAGE    INTEREST   AVERAGE   AVERAGE   INTEREST   AVERAGE   AVERAGE    INTEREST  AVERAGE
                                        BALANCE    INC/EXP    YD/RATE   BALANCE   INC/EXP    YD/RATE   BALANCE    INC/EXP   YD/RATE
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
<S>                                    <C>         <C>        <C>      <C>        <C>        <C>       <C>        <C>       <C>
ASSETS:                                   (1)        (2)                 (1)       (2)                  (1)       (2)
Interest Bearing Deposits With
  Other Financial Institutions         $   2,797   $     152   5.43%   $  2,849   $    150     5.27%   $  1,727   $    114   6.60%
Investment Securities:
  U.S. Government Securities              28,182       1,726   6.12      26,799      1,640     6.12      24,817      1,526   6.15
  State and Municipal Obligations(3)       9,783         513   7.94       9,471        505     8.57       8,680        493   8.57
  Other Securities                         2,342         149   6.36       2,978        198     6.65       3,566        256   7.18
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Total Investment Securities            $  40,307   $   2,388   5.92%   $ 39,248   $  2,343     5.97%   $ 37,063   $  2,275   6.14%
Federal Funds Sold                         2,256         124   5.50         890         47     5.28         735         60   8.16
  Consumer                                 8,635         811   9.39       8,477        797     9.40       8,271        788   9.53
  Dealer Floor Plan                        1,552         135   8.70         379         33     8.71           0          0    .00
  Mortgage                                97,822       8,133   8.31      95,445      7,777     8.15      95,165      7,674   8.06
  Commercial                               6,212         608   9.79       6,232        604     9.69       5,348        437   8.17
  Tax Free (3)                             2,550         148   8.79       1,808        105     9.11       2,196        133   9.11
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Total Loans                            $ 116,771   $   9,835   8.42%   $112,341   $  9,316     8.29%   $110,980   $  9,032   8.14%
Total Interest Earning Assets            162,131      12,499   7.71     155,328     11,856     7.63     150,505     11,481   7.63
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Reserve for Loan Losses                $    (918)                      $   (910)                       $   (936)
Cash and Due from Banks                    1,372                          1,535                           1,961
Other Assets                               8,574                          8,559                           6,427
                                       ---------                       --------                        --------
Total Assets                           $ 171,159                       $164,512                        $157,957
                                       =========                       ========                        ========

Liabilities And Capital
SUPER NOW Deposits                     $  19,735   $     415   2.10%   $ 19,835   $    430     2.17%   $ 19,128   $    534   2.79%
IRA                                        8,112         405   4.99       7,997        400     5.00       8,249        413   5.01
Money Market Deposits                     12,015         352   2.93      13,570        401     2.96      18,229        562   3.08
Savings Deposits                          21,498         575   2.67      23,619        645     2.73      25,378        818   3.22
Time Deposits over $ 100,000              11,450         675   5.90      10,927        650     5.95       9,031        513   5.68
Other Time Deposits                       44,276       2,490   5.62      41,466      2,315     5.58      36,480      2,076   5.69
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Total Interest Bearing Deposits        $ 117,086   $   4,912   4.20%   $117,414   $  4,841     4.12%   $116,495   $  4,916   4.22%
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
FHLB                                           9           0    .00%         20          0      .00%        400         23   5.75%
Other Borrowed Funds                         585          30   5.13         522         27     5.17         793         32   4.04
Long-Term Borrowings                         254          16   6.30         331         24     7.25         123          5   4.07
Repurchase Agreements                     19,350       1,018   5.26      13,987        696     4.98      10,573        581   5.50
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Total Interest Bearing Liabilities     $ 137,284   $   5,976   4.35%   $132,274   $  5,588     4.22%   $128,384   $  5,557   4.33%
                                       ---------   ---------   ----    --------   --------     ----    --------   --------   ----
Demand Deposits                        $  11,968                       $ 11,416                        $ 10,602
Other Liabilities                          1,217                          1,310                             904
Stockholders' Equity                      20,690                         19,512                          18,067
                                       ---------                       --------                        --------
Total Liabilities and Capital          $ 171,159                       $164,512                        $157,957
                                       =========                       ========                        ========

Net Interest Income/Net
  Interest Margin(4)                               $   6,523   4.02%              $  6,268     4.04%              $  5,924   3.94%
                                                   =========                      ========                        ========
Tax-Equivalent Net Interest
  Income/Net Interest Margin(5)                    $   6,864   4.23%              $  6,582     4.24%              $  6,246   4.15%
                                                   =========                      ========                        ========
</TABLE>

(1) Average volume information was compared using daily (or monthly) averages.

(2) Interest on loans includes fee income.

(3) Yield on tax-exempt obligations has been computed on a tax-equivalent basis.

(4) Net interest margin is computed by dividing net interest income by total
interest earning assets.

(5) Interest and yield are presented on a tax-equivalent basis using 34% for
1997, 1996 & 1995.


                                       23
<PAGE>   26
COMPONENTS OF NET INTEREST INCOME

  To enhance the understanding of the effects of volumes (the average balance of
earning assets and costing liabilities) and average interest rate fluctuations
on the balance sheet as it pertains to net interest income, the comparative
table below reflects these changes:

TABLE OF NET INTEREST INCOME COMPONENTS ON A TAX-EQUIVALENT BASIS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                        1997 VERSUS 1996                1996 VERSUS 1995                  1995 VERSUS 1994
                                  -----------------------------    -----------------------------    -----------------------------
                                       INCREASE (DECREASE)             INCREASE (DECREASE)               INCREASE (DECREASE)
                                        DUE TO CHANGES IN               DUE TO CHANGES IN                 DUE TO CHANGES IN
                                  -----------------------------    -----------------------------    -----------------------------
                                  AVERAGE    AVERAGE               AVERAGE    AVERAGE               AVERAGE    AVERAGE
                                  VOLUME      RATE       TOTAL     VOLUME      RATE       TOTAL     VOLUME      RATE       TOTAL
                                  -------    -------    -------    -------    -------    -------    -------    -------    -------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest Income:
Interest Bearing Deposits with
   Other Financial Institutions   $    (3)   $     5    $     2    $    74    $   (23)   $    51    $   (17)   $    58    $    41
U.S. Government Securities             85          0         85        122         (7)       115       (205)       393        188
State and Municipal Obligations        25        (13)        12         68          0         68         27          2         29
Other Securities                      (42)        (9)       (51)       (42)       (19)       (61)       (28)        (1)       (29)
Federal Funds Sold                     72          2         74         13        (21)        (8)         8         22         30
Consumer Loans                         15         12         27         20        (11)         9        (79)       (53)      (132)
Dealer Floor Plan                     102          0        102          0          0          0          0          0          0
Mortgage Loans(1)                     194        153        347         23         86        109      1,371        263      1,634
Commercial Loans                       (2)         6          4         72         81        153       (718)      (176)      (894)
Tax Free Loans                         65          0         65        (35)         0        (35)        89         (8)        81
                                  -------    -------    -------    -------    -------    -------    -------    -------    -------
Total Earnings Assets             $   511    $   156    $   667    $   315    $    86    $   401    $   448    $   500    $   948

Interest Expense:
SUPER NOW Deposits                     (2)       (14)       (16)        20       (119)       (99)        25        (20)         5
IRA                                     6         (1)         5        (13)        (1)       (14)         9          1         10
Money Market Deposits                 (46)        (4)       (50)      (143)       (22)      (165)      (306)       (66)      (372)
Savings Deposits                      (58)       (14)       (72)       (57)      (124)      (181)        (2)       (44)       (46)
Time Deposits over $100,000            31         (5)        26        108         24        132        124         70        194
Other Time Deposits                   157         17        174        284        (40)       244        318        331        649
FHLB                                    0          0          0        (22)       (23)       (45)         0          5          5
Other Borrowed Funds                    3          0          3        (11)         9         (2)        13         (2)        11
Long-Term Borrowings                   (6)        (3)        (9)         8          4         12          0          0          0
Repurchase Agreements                 267         39        306        188        (55)       133          6        155        161
                                  -------    -------    -------    -------    -------    -------    -------    -------    -------
Total Interest Bearing Deposits   $   352    $    15    $   367    $   362    $  (347)   $    15    $   187    $   430    $   617
                                  -------    -------    -------    -------    -------    -------    -------    -------    -------

Net Interest Income               $   159    $   141    $   300    $   (47)   $   433    $   386    $    26    $    70    $   331
                                  =======    =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

(1) Includes non-accrual loans

Strategies implemented during 1997 by the Senior Management team had a direct
influence on the favorable increase in net interest income along with
controlling non-interest expenses which resulted in only a modest expected
increase for the year.

FINANCIAL CONDITION

  The Corporation's total consolidated assets at December 31, 1997 were $174
million which represented an increase of $4 million or 2.35% over $170 million
at December 31, 1996. The 1996 growth rate was 4.95% or $8 million.

  Capital growth of 4.76% for 1997 from $21 million in 1996 to $22 million in
1997 reflected the proceeds of the dividend reinvestment plan and earnings of
$2.0 million.

  Total average assets grew 3.64% from 1996 at $165 million to 1997 at $171
million. Average earning assets grew 4.52% from 1996 at $155 million to 1997 at
$162 million.

  Loans increased 2.59% from 1996 at $116 million to 1997 at $119 million. The
Home Equity Lines introduced in 1996 continued to be the predominent factor in
the favorable increase in loan yield.

  Core deposits grew 5.26% from $11.4 million in average non-interest bearing
deposits in 1996 to $12.0 million in 1997. Interest-bearing average deposits at
December 31, 1997 and 1996 remained the same at $117 million.

  The loan-to-deposit ratio is a key measurement of liquidity. The
loan-to-deposit ratio remained high at 93.21% at December 31, 1997 and 87.97% at
December 31, 1996.

  It is management's opinion that the balance sheet mix and the interest rate
risk associated with the balance sheet is within manageable parameters. Constant
monitoring using asset/liability reports and interest rate risk scenarios are in
place along with quarterly asset/liability management meetings on the committee
level by the Board of Directors.


                                       24
<PAGE>   27
INVESTMENTS
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                OUTSTANDING BALANCE AT DECEMBER 31,
                                                                -----------------------------------
                                                        1997                  1996                  1995
                                                 AVAILABLE  HELD TO    AVAILABLE  HELD TO    AVAILABLE  HELD TO
                                                 FOR SALE   MATURITY   FOR SALE   MATURITY   FOR SALE   MATURITY
                                                  -------    -------    -------    -------    -------    -------
                                                    (2)        (1)        (2)        (1)        (2)        (1)
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>
U.S. Treasury Securities                          $ 2,997    $     0    $ 6,994    $     0    $15,034    $     0
Federal Agency Obligations                         14,546          0     16,765          0     13,121          0
Mortgage-backed Securities                         14,450          0      1,683          0          0          0
Obligations of State and Political Subdivisions     9,459        720      8,567        970      7,685      1,045
Other Securities                                    1,690          0      2,428          0      3,499          0
                                                  -------    -------    -------    -------    -------    -------
Total Investment Securities                       $43,142    $   720    $36,437    $   970    $39,339    $ 1,045
                                                  =======    =======    =======    =======    =======    =======
</TABLE>

(1) Carried at amortized cost.
(2) Carried at estimated fair value.

  The following table sets forth the maturity distribution of the investment
portfolio's held-to-maturity and available-for-sale securities, the weighted
average yield for each type of held-to-maturity and available-for-sale security
and ranges of maturity at December 31, 1997. Yields are presented on a
tax-equivalent basis, are based upon carrying value and are weighted for the
scheduled maturity. At December 31, 1997 the Corporation's investment securities
portfolio had an average maturity of approximately 4.1 years.

<TABLE>
<CAPTION>
                                                                (DOLLARS IN THOUSANDS)
                                                                ----------------------
                                                    AFTER ONE         AFTER FIVE
                                                     YEAR BUT          YEARS BUT
                                    WITHIN            WITHIN            WITHIN             AFTER
                                   ONE YEAR         FIVE YEARS         TEN YEARS         TEN YEARS           TOTAL
                                --------------    --------------    --------------    ---------------   --------------
                                AMOUNT   YIELD    AMOUNT   YIELD    AMOUNT    YIELD   AMOUNT    YIELD   AMOUNT   YIELD
                                -------   ----    -------   ----    -------    ---    -------    ---    -------   ----
<S>                             <C>      <C>      <C>      <C>      <C>       <C>     <C>       <C>     <C>      <C>
HELD-TO-MATURITY SECURITIES
  AT AMORTIZED COST
U.S. Treasury Securities        $     0    .00%   $     0    .00%   $     0    .00%   $     0    .00%   $     0    .00%
Federal Agency Obligations            0    .00          0    .00          0    .00          0    .00          0    .00
Obligations of State and
  Political Subdivisions            155   6.96        565   6.80          0    .00          0    .00        720   6.84
Other Securities                      0    .00          0    .00          0    .00          0    .00          0    .00
                                -------   ----    -------   ----    -------    ---    -------    ---    -------   ----
Total                           $   155   6.96%   $   565   6.80%   $     0    .00%   $     0    .00%   $   720   6.84%
                                =======   ====    =======   ====    =======   ====    =======   ====    =======   ====

AVAILABLE-FOR-SALE SECURITIES
  AT FAIR VALUE
U.S. Treasury Securities        $ 2,997   5.51%   $     0    .00%   $     0    .00%   $     0    .00%   $ 2,997   5.51%
Federal Agency Obligations        3,795   5.70     21,778   6.39      3,423   6.61          0    .00     28,996   6.32
Obligations of State and
  Political Subdivisions              0    .00      1,701   7.05      3,111   8.10      4,647   8.16      9,459   7.89
Other Securities                      0    .00        499   6.13          0    .00      1,191   5.29      1,690   5.57
                                -------   ----    -------   ----    -------    ---    -------    ---    -------   ----
Total                           $ 6,792   5.65%   $23,978   6.43%   $ 6,534   7.32%   $ 5,838   7.59%   $43,142   6.60%
                                =======   ====    =======   ====    =======   ====    =======   ====    =======   ====
</TABLE>

  Available-for-Sale securities were reported on the balance sheet at fair
value. An adjustment to capital, net of deferred taxes was the offset for this
entry. The possibility of material price volatility in a rising interest rate
environment was offset by the availability to the Corporation of restructuring
the portfolio for gap positioning at any time through the securities classed as
Available-for-Sale. The impact of the fair value adjustment under FASB 115
provided an unrealized gain, net of tax, on December 31, 1997 of $142,000
compared to an unrealized gain, net of tax, on December 31, 1996 of $69,000.

  Several local municipal holdings were placed in the Held-to-Maturity category.
These holdings comprised 2.21% and 2.59% of the entire portfolio at December 31,
1997 and 1996, respectively.The total at December 31, 1997 and 1996 was
$970,000.

  Available-for-sale securities total $43,142,000 at December 31, 1997 compared
to $36,437,000 at December 31, 1996 or a decrease of 18.40%.

  The mix of securities in the portfolio was 6.83% U.S. Treasuries, 32.95%
Mortgage-backed Securities, 33.16% other U.S. Agencies, 23.21% Municipal and
3.85% Other. The Corporation does not engage in derivative investment products.


                                       25
<PAGE>   28
LOANS
Loan Portfolio
Loans Outstanding (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                1997         1996         1995
                                              --------     --------     --------
<S>                                           <C>          <C>          <C>
Commercial                                    $  7,551     $  7,957     $  5,990
Tax Exempt                                       2,591        2,064        1,520
Qualified Municipal Leases                           0           35          131
Real Estate - Construction                         637          660          941
Real Estate                                     99,780       96,439       95,293
Personal                                         8,524        8,447        8,058
Credit Cards                                       383          441          447
                                              --------     --------     --------
                                              $119,466     $116,043     $112,380
Unamortized Loan Fees Net of Costs                  97          129          188
Unearned Discount                                  324          324          360
                                              --------     --------     --------
Loans, Net                                    $119,045     $115,590     $111,832
                                              ========     ========     ========
</TABLE>

  A growth of 2.59% was experienced in the loan portfolio, from $116 million in
1996 to $119 million in 1997. The distribution of the loan portfolio reflected
84.05% real estate loans at $100,417,000; 6.32% commercial loans at $7,551,000;
2.17% tax exempt loans at $2,591,000; and 7.46% consumer loans at $8,907,000.

  Variable rate real estate loans were comprised of 84.14% with 3 year
adjustable rate, 10.10% with 1 year adjustable rate and 5.76% with one day to 3
month adjustable rates. The three year and one year adjustable rate loans have
bi weekly payments.

DEPOSITS AND BORROWED FUNDS
Table of Distribution of Average Deposits (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                          ------------
                                                1997         1996         1995
                                              --------     --------     --------
<S>                                           <C>          <C>          <C>
Demand deposits                               $ 31,703     $ 31,251     $ 29,730
Savings deposits                                33,513       37,189       43,607
Time deposits                                   52,388       49,463       44,729
Certificates of deposit, $100,000 and over      11,450       10,927        9,031
                                              --------     --------     --------
Total                                         $129,054     $128,830     $127,097
                                              ========     ========     ========
</TABLE>

Table Of Maturity Distribution Of Time Deposits Over $100,000
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                          ------------
                                                1997         1996         1995
                                              --------     --------     --------
<S>                                           <C>          <C>          <C>
Three months or less                          $  4,574     $  7,664     $  4,171
Over three months to six months                  3,665        2,546        1,401
Over six months to twelve months                 2,914        1,867        1,372
Over twelve months                                 308          898        4,090
                                              --------     --------     --------
Total                                         $ 11,461     $ 12,975     $ 11,034
                                              ========     ========     ========
</TABLE>

  Total average deposits remained at $129 million for December 31, 1997 and
1996. The trend of a shift from savings to time deposits continued through 1997.
This was reflected in the 8.82% decline in average savings deposits from $37
million at December 31, 1996 to $34 million at December 31, 1997; and the 5.00%
increase in average time deposits from $60 million at December 31, 1996 to $63
million at December 31, 1997. Average non-interest bearing demand deposits
remained at $12 million at December 31, 1996 and December 31, 1997.

  Short-term borrowings and securities sold under agreements to repurchase
increased 29.41% from $17 million at December 31, 1996 to $22 million at
December 31, 1997. Long-term borrowings totalled $440,000 at December 31, 1997
compared to $297,000 at December 31, 1996. Average Treasury Tax and Loan
deposits held by the Corporation for the U.S. Treasury averaged $584,000 for
1997 and one day borrowings averaged $9,000 for 1997.

NONPERFORMING ASSETS
Past Due And Non-Accrual Loans (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                LEASE
                   REAL    INSTALLMENT              CREDIT    FINANCING
1997               ESTATE     LOANS     COMMERCIAL   CARDS   RECEIVABLES   TOTAL
                   ------    ------       ------    ------     ------     ------
<S>                <C>     <C>          <C>         <C>      <C>          <C>
Days 30-89         $1,049    $  226       $   50    $    6     $    0     $1,331
Days 90 Plus          586        12           29         1          0        628
Non-accrual            69         0            0         0          0         69
                   ------    ------       ------    ------     ------     ------
Total              $1,704    $  238       $   79    $    7     $    0     $2,028
                   ======    ======       ======    ======     ======     ======
</TABLE>


                                       26
<PAGE>   29
<TABLE>
<CAPTION>
                                                               LEASE
                   REAL    INSTALLMENT              CREDIT   FINANCING
1996               ESTATE     LOANS     COMMERCIAL  CARDS   RECEIVABLES   TOTAL
                   ------     ------      ------    ------     ------     ------
<S>                <C>     <C>          <C>         <C>     <C>           <C>
Days 30-89         $  806     $  125      $   17    $    1     $    0     $  949
Days 90 Plus          292         15          14         1          7        329
Non-accrual           109          0           0         0          0        109
                   ------     ------      ------    ------     ------     ------
Total              $1,207     $  140      $   31    $    2     $    7     $1,387
                   ======     ======      ======    ======     ======     ======

1995
Days 30-89         $1,022     $  213      $   93    $    2     $    0     $1,330
Days 90 Plus          332         31           0         3         31        397
Non-accrual            13          0           0         0          0         13
                   ------     ------      ------    ------     ------     ------
Total              $1,367     $  244      $   93    $    5     $   31     $1,740
                   ======     ======      ======    ======     ======     ======
</TABLE>

  At December 31, 1997, loans 30-89 days past due totalled $1,331,000 compared
to $949,000 at December 31, 1996, a 40.25% increase. Past due loans 90 days and
over totalled $628,000 at December 31, 1997 compared to $329,000 at December 31,
1996, a 90.88% increase. Non-accrual loans at December 31, 1997 totalled $69,000
compared to $109,000 at December 31, 1996. Overall, past due and non-accrual
loans increased 46.21% from $1,387,000 at December 31, 1996 to $2,028,000 at
December 31, 1997. During this same period of time the ratio of net charge-offs
during the period to average loans outstanding during the period remained at
only .06%, which is consistent with the Bank's historical performance in this
area (see Summary of Loan Loss Experience). Management does not consider these
absolute percentage increases to be significant or material.

  Loans were stated at their outstanding principal balances, net of any deferred
fees or costs, unearned income, and the allowance for loan losses. Interest on
loans accrued on the principal amount outstanding, primarily on the actual day
basis. Non-renewable loan fees and certain direct costs were deferred and
amortized over the life of the loans using the interest method. The amortization
was reflected on an interest yield adjustment, and the deferred portion of the
net fees and costs was reflected as a part of the loan balance.

  Generally, a loan is classified as non-accrual, and the accrual of interest on
such a loan is discontinued when the contractual payment of principal or
interest becomes 90 days past due or management has serious doubts about further
collectability of principal or interest, even though the loan currently is
performing.

  A loan may remain on accrual status if it is in the process of collection and
is either guaranteed or well secured. When a loan is placed on non-accrual
status, unpaid interest credited to income in the current year is reversed, and
unpaid interest accrued in prior years is charged against the allowance for
credit losses. Potential problem loans are identified by management as part of
its loan review process.

  Income recognition is in accordance with Statement of Financial Accounting
Standards No. 118. Certain non-accrual loans may continue to perform, that is,
payments are still being received. Generally, the payments are applied to
principal. These loans remain under constant scrutiny and if performance
continues, interest income may be recorded on a cash basis based on management's
judgment as to collectability of principal.

ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                            1997                     1996                  1995
                                            ----                     ----                  ----
                                        % OF LOANS                % OF LOANS            % OF LOANS
                                        IN CATEGORY              IN CATEGORY            IN CATEGORY
                               AMOUNT  TO TOTAL LOANS  AMOUNT  TO TOTAL LOANS  AMOUNT  TO TOTAL LOANS
                               ------  --------------  ------  --------------  ------  --------------
<S>                            <C>     <C>             <C>     <C>             <C>     <C>
Commercial                      $ 83         9%         $ 79           9%       $ 73          7%
Real estate mortgages            516        84%          500          84%        513         86%
Consumer                          99         7%           96           7%         53          7%
Credit cards                      20         0%           20           0%         25          0%
Lease financing receivables        0         0%            0           0%          2          0%
Unallocated                      183       N/A           216         N/A         246        N/A
                                ---        ---          ----         ---        ----        ---
                                $901       100%         $911         100%       $912        100%
                                ====       ===          ====         ===        ====        ===
</TABLE>

  The allowance for loan losses was $901,000 at December 31, 1997, compared to
$911,000 at December 31, 1996. This allowance equalled .08% of total loans, net
of unearned income, at December 31, 1997 and 1996. This allowance was considered
adequate based on delinquency trends and actual loans written as it relates to
the loan portfolio.

  The loan loss reserve was analyzed quarterly and reviewed by the Board of
Directors. The assessment of the loan policies and procedures during 1997
revealed no anticipated loss on any loans considered "significant". No
concentration or apparent


                                       27
<PAGE>   30
deterioration in classes of loans or pledged collateral was evident. Monthly
loan meetings with the Board Credit Administration Committee reviewed new loans,
delinquent loans and loan exceptions to determine compliance with policies.

  The schedule below presents a history of actual charge-offs and recoveries by
category and related balances and ratios.

SUMMARY OF LOAN LOSS EXPERIENCE (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                                      ------------------------
                                                                 1997           1996           1995
                                                               ---------      ---------      ---------
<S>                                                            <C>            <C>            <C>
Loans outstanding at end of period                             $ 119,045      $ 115,590      $ 111,832
                                                               =========      =========      =========
Average loans outstanding                                      $ 116,771      $ 112,341      $ 110,980
                                                               =========      =========      =========
Allowance for loan losses:
Balance, beginning of year                                     $     911      $     912      $     943
Loans charged-off:
  Commercial and industrial                                          (15)           (19)           (65)
  Real estate mortgages                                                0              0              0
  Consumer                                                           (84)          (118)           (38)
  Lease financing receivables                                          0              0              0
  Credit cards                                                        (4)            (8)            (4)
                                                               ---------      ---------      ---------
Total loans charged-off                                             (103)          (145)          (107)
                                                               ---------      ---------      ---------
Recoveries:
  Commercial and industrial                                            0             17             13
  Real estate mortgages                                                0              0              0
  Consumer                                                            29             41              6
  Lease financing receivables                                          1              3             12
  Credit cards                                                         3              3              3
                                                               ---------      ---------      ---------
Total recoveries                                                      33             64             34
                                                               ---------      ---------      ---------
Net loans charged-off                                                (70)           (81)           (73)
                                                               ---------      ---------      ---------
Provision charged to expense                                          60             80             42
                                                               ---------      ---------      ---------
Balance, end of period                                         $     901      $     911      $     912
                                                               =========      =========      =========
Ratio of net charge-offs during the period to average loans
  outstanding during period                                          .06%           .07%           .07%
</TABLE>

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

  As of January 1, 1995 the Corporation adopted Statement of Financial
Accounting Standards No. 114. "Accounting for Creditors for Impairment of a Loan
- Income Recognition and Disclosure." Under these standards, the allowance for
loan losses related to loans that were identified for evaluation in accordance
with Statement No. 114 which was based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for loan losses related
to these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. Statement No. 118 allowed the
continued use of existing methods for income recognition on impaired loans and
amended disclosure requirements to require information about the recorded
investment in certain impaired loans and related income recognition on those
loans. The allowance for loan losses was maintained at a level by management to
be adequate to absorb estimated potential loan losses. Management's periodic
revaluation of the adequacy of the allowance for loan losses was based on the
Corporation's past loan loss experience; known and inherent risks in the
portfolio; adverse situations that may affect the borrower's ability to repay
(including the timing of future payments); and other relevant factors. This
evaluation was inherently subjective as it required material estimates,
including the amounts and timing of future cash flows expected to be received on
impaired loans that may be susceptible to significant change. See "Factors That
May Affect Future Results".

  Moreover, no additions to the Reserve for Loan losses was required as a result
of implementation of Statement No. 114 or Statement No. 118, because the amount
of impaired loans was considered to be insignificant and the existing reserve
was more than adequate to provide for those impaired loans.

LIQUIDITY

  Liquidity management is required to ensure that adequate funds will be
available to meet anticipated and unanticipated deposit withdrawals, debt
service payments, investment commitments, commercial and consumer loan demand,
and ongoing operating expenses. Funding sources include principal repayments on
loans, sales of assets, growth in core deposits, short and long-term borrowings,
investment securities coming due, loan prepayments and repurchase agreements.
Regular loan payments are a dependable source of funds, while the sale of
investment securities, deposit growth and loan prepayments are significantly
influenced by general economic conditions and the level of interest rates.

  Liquidity is managed on a daily basis at the Corporation. Management believes
that liquidity is sufficient to meet present and future financial obligations
and commitments on a timely basis. However, see "Factors That May Affect Future
Results".

  At December 31, 1997, cash and cash equivalents totalled $5,316,798 compared
to $11,359,167 at December 31, 1996. Changes in cash were measured by changes in
the


                                       28
<PAGE>   31
three major classifications of cash flows known as operating, investing and
financing activities.

  At December 31, 1997, net cash provided by operating activities equaled
$2,485,916 which consisted mainly of net income adjusted for non-cash items such
as depreciation, loss on impairment of bank premises, provision for loan losses,
amortization, accretion and deferred taxes.

  Net cash used for investing activities totalled $10,047,909 which was
principally the result of a net increase in loans of $3,524,606, purchases of
premises and equipment of $266,185 and $6,279,968 excess of purchases of
Available-for-Sale Investment Securities over the proceeds on sale and
redemption of available-for-sale and held-to-maturity securities.

  Net cash provided by financing activities totalled $1,519,624 at December 31,
1997 and consisted mostly of an increase in short term borrowings of $5,708,524
less a decrease in deposits of $3,680,927 and dividends paid of $641,064.

CAPITAL RESOURCES

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

  Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as defined).

  As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.

  The Bank's actual capital amounts are ratios in the following table:

<TABLE>
<CAPTION>
                                                                                          TO BE WELL
                                                                                       CAPITALIZED UNDER
                                                                      FOR CAPITAL      PROMPT CORRECTIVE
                                                     ACTUAL        ADEQUACY PURPOSES   ACTION PROVISIONS:
                                                     ------        -----------------   ------------------
                                               AMOUNT     RATIO     AMOUNT     RATIO    AMOUNT     RATIO
                                               ------     -----     ------     -----    ------     -----
<S>                                            <C>        <C>      <C>         <C>     <C>         <C>
As of December 31, 1997:
   Total Capital (To risk-weighted assets)     $22,864    21.84%    $ 8,375     8.00%   $10,469    10.00%
   Tier I Capital (To risk-weighted assets)    $21,963    20.98%    $ 4,187     4.00%   $ 6,281     6.00%
   Tier I Capital (To average assets)          $21,963    12.57%    $ 6,989     4.00%   $ 8,736     5.00%

As of December 31, 1996:
   Total Capital (To risk-weighted assets)     $21,499    21.49%    $ 8,003     8.00%   $10,004    10.00%
   Tier I Capital (To risk-weighted assets)    $20,588    20.58%    $ 8,235     4.00%   $12,353     6.00%
   Tier I Capital (To average assets)          $20,588    12.23%    $ 6,734     4.00%   $ 8,417     5.00%
</TABLE>

  The Corporation's capital ratios are not materially different from those of
the Bank.

  Dividend payouts are restricted by the Pennsylvania Business Corporation Law
of 1988, as amended (the "BCL"). The BCL operates generally to preclude dividend
payments if the effect thereof would render the Corporation unable to meet its
obligations as they become due. As a practical matter, the Corporation's payment
of dividends is contingent upon its ability to obtain funding in the form of
dividends from the Bank. Payment of dividends to the Corporation by the Bank is
subject to the restrictions set forth in the National Bank Act. Generally, the
National Bank Act would permit the Bank to declare dividends in 1998 of
approximately $2,353,321 plus additional amounts equal to the net income earned
in 1998 for the period January 1, 1998 through the date of declaration, less any
dividends which may be paid in 1998.

  Common stock issued by the Corporation is traded on a limited basis in the
local over-the-counter market using the symbol CCFN. The bid prices below are
actual transactions and reflect information from one of the Corporation's
market-makers. The prices do not necessarily reflect any dealer or retail
markup, markdown or commission:

<TABLE>
<CAPTION>
                                  1997                              1996
                                  ----                              ----
                                           QUARTERLY                        QUARTERLY
                     HIGHEST     LOWEST    DIVIDEND    HIGHEST     LOWEST   DIVIDEND
                     -------     ------    --------    -------     ------   --------
<S>                 <C>        <C>        <C>         <C>        <C>        <C>
Fourth quarter      $   22.75  $   21.63  $    0.116  $   16.88  $   16.75  $   0.15
Third quarter       $   20.50  $   20.25  $    0.116  $   16.75  $   16.75  $   0.10
Second quarter      $   19.00  $   18.00  $    0.116  $   16.50  $   16.25  $   0.10
First quarter       $   17.50  $   17.13  $    0.116  $   16.38  $   16.00  $   0.10
</TABLE>


                                       29
<PAGE>   32
INTEREST RATE RISK MANAGEMENT

  Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched.
Interest rate sensitivity is the relationship between market interest rates and
earnings volatility due to the repricing characteristics of assets and
liabilities. The Bank's net interest income is affected by changes in the level
of market interest rates. In order to maintain consistent earnings performance,
the Bank seeks to manage, to the extent possible, the repricing characteristics
of its assets and liabilities.

  One major objective of the Bank when managing the rate sensitivity of its
assets and liabilities is to stabilize net interest income. The management of
and authority to assume interest rate risk is the responsibility of the Banks's
Asset/Liability Committee ("ALCO"), which is comprised of senior management and
Board members. ALCO meets quarterly to monitor the ratio of interest sensitive
assets to interest sensitive liabilities. The process to review interest rate
risk management is a regular part of management of the Bank. Consistent policies
and practices of measuring and reporting interest rate risk exposure,
particularly regarding the treatment of noncontractual assets and liabilities,
are in effect. In addition, there is an annual process to review the interest
rate risk policy with the Board of Directors which includes limits on the impact
to earnings from shifts in interest rates.

  The ratio between assets and liabilities repricing in specific time intervals
is referred to as an interest rate sensitivity gap. Interest rate sensitivity
gaps can be managed to take advantage of the slope of the yield curve as well as
forecasted changes in the level of interest rate changes.

  To manage the interest sensitivity position, an asset/liability model called
"gap analysis" is used to monitor the difference in the volume of the Bank's
interest sensitive assets and liabilities that mature or reprice within given
periods. A positive gap (asset sensitive) indicates that more assets reprice
during a given period compared to liabilities, while a negative gap (liability
sensitive) has the opposite effect. The Bank employs computerized net interest
income simulation modeling to assist in quantifying interest rate risk exposure.
This process measures and quantifies the impact on net interest income through
varying interest rate changes and balance sheet compositions. The use of this
model assists the ALCO to gauge the effects of the interest rate changes on
interest sensitive assets and liabilities in order to determine what impact
these rate changes will have upon the net interest spread.

STATEMENT OF INTEREST SENSITIVITY GAP (DOLLARS IN THOUSANDS)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                      > 90 DAYS
                                        90 DAYS          BUT         1 TO 5       5 TO 10        > 10
                                        OR LESS       < 1 YEAR        YEARS        YEARS         YEARS        TOTAL
                                        --------      --------      --------      --------     --------     --------
<S>                                     <C>           <C>           <C>           <C>          <C>          <C>
Short-term investments                  $    582      $      0      $      0      $      0     $      0     $    582
Securities available for sale(1)           8,967        13,919        14,741         3,628        1,887       43,142
Securities held to maturity(1)                 0           155           565             0            0          720
Loans(1)                                  24,319        28,731        58,424         3,180        4,391      119,045
                                        --------      --------      --------      --------     --------     --------
  Rate Sensitive Assets                 $ 33,868      $ 42,805      $ 73,730      $  6,808     $  6,278     $163,489
                                        ========      ========      ========      ========     ========     ========
Deposits:
Interest-bearing demand deposits(2)     $  2,918      $  2,723      $ 13,812      $      0     $      0     $ 19,453
Savings(2)(3)                              4,761         4,444        22,537             0            0       31,742
Time                                      16,097        22,735        25,554             0            0       64,386
Borrowed funds                            17,564         4,599           200             0            0       22,363
Long-term debt                                23            71           346             0            0          440
Shareholders' equity                         553         2,763         8,842         4,973        4,974       22,105
                                        --------      --------      --------      --------     --------     --------
  Rate Sensitive Liabilities and
  Shareholders' Equity                  $ 41,916      $ 37,335      $ 71,291      $  4,973     $  4,974     $160,489
                                        --------      --------      --------      --------     --------     --------
Interest Sensitivity Gap                  (8,048)        5,470         2,439         1,835        1,304            0
Cumulative Gap                            (8,048)       (2,578)         (139)        1,696        3,000        3,000
</TABLE>

(1) Investments and loans are included at the earlier of repricing of maturity
adjusted for the effects of prepayments.

(2) Interest bearing demand and savings accounts are included based on
historical experience and managements' judgment about the behavior of these
deposits in changing interest rate environments.


                                       30
<PAGE>   33
  At December 31, 1997 the Corporation's cumulative gap positions and the
potential earnings change resulting from a 200 basis point change in rates were
within the internal risk management guidelines.

  Upon reviewing the current interest sensitivity scenario, decreasing interest
rates could positively effect net income because the Bank is liability
sensitive. In a rising interest rate environment, net income could be negatively
affected because more liabilities than assets will reprice during a given
period.

  Certain shortcomings are inherent in the method of analysis presented in the
above table. Although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types of assets and liabilities may lag behind changes
in market interest rates. Certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. The ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest rate increase.

  The following table provides information about the Corporations' financial
instruments. The table presents the financial instruments including the expected
cash flow over the next five years. In addition the average interest rate is
shown for each period presented. The table also includes the fair market value
for each category of financial instrument as of December 31, 1997. This
presentation differs from the above gap report primarily due to presenting the
financial instruments based on a contractual maturity as opposed to a repricing
scenario as reflected in the above gap report.

PRINCIPAL/NOTIONAL AMOUNTS MATURING IN: (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                                                         FAIR
                                                                                                 THERE-                  VALUE
                                         1998        1999        2000       2001       2002      AFTER       TOTAL      12-31-97
                                       --------    --------    --------   --------   --------   --------    --------    --------
<S>                                    <C>         <C>         <C>        <C>        <C>        <C>         <C>         <C>
Rate sensitive assets:
Fixed interest loans(1)                $ 10,910    $  5,257    $  4,180   $  3,330   $  2,812   $ 10,241    $ 36,730    $36,278
    Average interest rate                  8.30%       9.00%       8.76%      8.43%      8.39%      8.20%       8.44%
Variable interest rate loans(1)        $  2,710    $  1,536    $    821   $  1,156   $  1,424   $ 74,832    $ 82,479    $82,479
    Average interest rate                  9.18%       8.56%       9.08%      9.51%      8.53%      8.14%       8.22%
Fixed interest rate securities(1)      $  7,452    $  4,783    $  7,321   $  2,209   $  1,250   $ 12,177    $ 35,192    $35,198
    Average interest rate                  5.68%       5.92%       6.37%      6.28%      6.43%      7.43%       6.93%
Variable interest rate securities(1)   $  8,670    $      0    $      0   $      0   $      0   $      0    $  8,670    $ 8,670
    Average interest rate                  6.70%       0.00%       0.00%      0.00%      0.00%      0.00%       6.70%
Other interest-bearing assets          $    582    $      0    $      0   $      0   $      0   $      0    $    582    $   582
    Average interest rate                  5.78%       0.00%       0.00%      0.00%      0.00%      0.00%       5.78%

Rate sensitive liabilities:
Non interest-bearing
  checking(2)                          $  3,399    $  2,185    $  2,185   $  2,185   $  2,184   $      0    $ 12,138    $12,138
    Average interest rate                  0.00%       0.00%       0.00%      0.00%      0.00%      0.00%       0.00%
Savings & interest-bearing
  checking(2)                          $ 11,015    $  7,240    $  7,240   $  7,240   $  7,240   $      0    $ 39,975    $39,975
    Average interest rate                  2.74%       2.74%       2.74%      2.74%      2.74%      0.00%       2.74%
Money market accounts(2)               $  4,488    $  3,366    $  3,366   $      0   $      0   $      0    $ 11,220    $11,220
    Average interest rate                  2.97%       2.97%       2.97%      0.00%      0.00%      0.00%       2.97%
Time deposits
  (under $100,000)                     $ 30,942    $ 14,010    $  5,737   $    747   $  1,489   $      0    $ 52,925    $53,232
    Average interest rate                  5.44%       5.78%       6.44%      5.46%      6.00%      0.00%       5.67%
Time deposits
  (over $100,000)                      $  8,239    $  1,525    $  1,389   $    208   $    100   $      0    $ 11,461    $11,550
    Average interest rate                  5.69%       6.25%       6.91%      5.58%      6.30%      0.00%       5.92%
Fixed interest rate borrowings         $    221    $      6    $      7   $      7   $      8   $    191    $    440    $   440
    Average interest rate                  6.30%       6.12%       6.12%      6.12%      6.12%      6.12%       6.21%
Variable interest rate borrowings      $ 22,362    $      0    $      0   $      0   $      0   $      0    $ 22,362    $22,362
    Average interest rate                  5.34%       0.00%       0.00%      0.00%      0.00%      0.00%       5.34%
</TABLE>

1) Investments and loans are included at contractual maturity.

2) Non interest-bearing checking, interest-bearing checking, savings and money
market accounts are reflecting historical experience and management's judgment
about the duration of these deposits.


                                       31
<PAGE>   34
YEAR 2000

  The Corporation and the Bank are aggressively addressing the Year 2000 issue.
This issue is far-reaching in that it encompasses computer systems, microchips,
anything with time elements, and forces the Bank to ask each vendor, customer,
and third-party provider if they are also ready for the millennium, which is
fast approaching.

  A Senior Vice President has been given the responsibility for Y2K compliance.
A committee has been selected consisting of Board Members and Officers who have
been meeting for several months addressing this issue.

  Letters have been sent to vendors requesting, in writing, their effort to be
in compliance with Y2K. A select group of commercial customers have been sent
letters explaining the Y2K issues and asking them to be certain to address this
very important issue. The Bank has also offered to help with any questions.
Notices are being placed in each Bank lobby alerting the public to this issue.
Also, a notice will be on each deposit statement concerning the Y2K issue.

  Budgets will be prepared assessing the cost to be Y2K compliant. With
conversion to an in-house computer system, the purchase of new equipment and
the testing of existing equipment, Y2K compliance will be achieved. Although the
cost to become Y2K compliant does exist, it is not deemed at this time to be
material as most major vendors and in-house equipment of the Bank are already
Y2K compliant and the Bank staff will be used to monitor compliance in all
areas.

  A time-line has been created for this project. All letters will be mailed by
March 15, 1998 and all compliance letters will be in our files by June 30, 1998.
December 31, 1998 is the deadline for compliance on all levels. Testing will
continue until the Bank is assured all critical systems are confirmed to be Y2K
compliant.

  Vendors and systems have been placed in priority order as to importance. Most
of the third-party vendors that are most crucial have communicated with us
stating they are Y2K compliant and testing on their systems will continue.

  Our insurance carrier has been contacted and we are working closely with it to
prudently assess the Bank's needs and take the appropriate steps to protect the
Bank.

  Contingency plans have been discussed and will be written on any systems that
do not comply or are questionable as to their compliance.

  The Bank will be diligent in its quest for assurance of compliance and will
change vendors, if necessary, to ensure a smooth change to the millennium and
continuity of banking operations and profit growth.

  National bank examiners are reviewing all banks for their compliance with
these issues and the Corporation and the Bank welcome these reviews and any
assistance they will provide.


Ruth Mott, Credit Department, carefully reviews every application.       [PHOTO]


                                       32
<PAGE>   35
EMPLOYEES OF COLUMBIA COUNTY FARMERS NATIONAL BANK


BENTON                      LIGHTSTREET                     MILLVILLE
Marlene Baudendisztl        Trevor A. Barnhart              Linda M. Boudman
Carla M. Emery              Laurie A. Bartholomew           Christopher R. Bower
Judith A. Fink              Andrea S. Bartlett              Betsy L. Fought
Tracy L. Hess               Dolores M. Bennett              Gayle D. Gordon
Dean R. Kelchner            Luanne Bittenbender             Ruth E. Hunter
Sheila L. Kile              Lily Mae Boudman                Martie J. Johnson
Jean E. MacDermott          Sandra J. Boyer                 Gloria J. Mensch
Gloria M. Miller            Diana L. Chamberlin             Jennifer L. Omlor
Anna M. Moyer               Anne E. DeFrain                 Gina L. Rider
Debbie A. Peterman          Deborah B. Deitterick           Mary I. Saienni
Beth M. Preston             Lance O. Diehl
Lisa L. Remley              Nancy R. Diehl                  ORANGEVILLE
Sally B. Tucker             Joyce F. Dohl                   Lynn Z. Fritz
Teresa E. Vincent           Charles W. Dyer                 Candace L. Kesler
                            Jennifer L. Fester              Betty J. Kline
BLOOMSBURG                  Lorraine R. George              Susan K. McGreevy
Rachel E. Bennett           Kay M. Gerasimoff               LouAnn P. Megargell
Sue Ann Carl                Nancy L. Harris
Kathleen M. Church          Gloria Y. Harvey                SOUTH CENTRE
Elaine M. Edwards           Linda A. Huttenstine            Linda L. Curio
Grace I. Flick              Brenda E. Kalie                 Carey A. Jurbala
Nancy K. Fought             Michelle M. Karas               Sandra J. Noss
Elmer O. Frantz, III        Phillip J. Karas                Christine R. Portner
J. Jan Girton               Virginia D. Kocher              Christy M. Vought
Barbara M. Hess             Carol J. Martin                 Connie L. Yoder
Nancy H. Lindenmuth         Kathleen J. Marzari
Denise A. Long              Ruth E. Mott
Florence H. Martz           Karen M. Murdock
Kimberly A. Mumaw           Jay L. Oman
Paul E. Reichart            Vickie S. Reifendifer
Richard L. Sierer           Mary L. Seidel
Darlene L. Tappe            Faith R. Smith
Jamie S. Tingley            Dale E. Thomas
Jacob S. Trump              Diane M. Thomas
Karen Z. Wenner             Tracey L. Travelpiece
Theresa R. Whitmire         Theresa A. Valencik
Janice J. Yeager            Edwin A. Wenner
                            Carol L. Wiggin

                                                                    [CCFNB LOGO]


                                       33
<PAGE>   36
<TABLE>
<CAPTION>
TEN YEARS IN REVIEW

                   ASSETS (MILLIONS)         DEPOSITS (MILLIONS)
                   -----------------         -------------------
                   <S>       <C>              <C>      <C>
                   1997      173,866          1997     127,719
                   1996      170,086          1996     131,400
                   1995      162,066          1995     128,985
                   1994      157,124          1994     126,864
                   1993      152,386          1993     124,023
                   1992      139,273          1992     113,291
                   1991      118,558          1991      95,334
                   1990      109,526          1990      88,567
                   1989      103,337          1989      87,307
                   1988       95,789          1988      83,169
</TABLE>

<TABLE>
<CAPTION>

STOCKHOLDERS' EQUITY (MILLIONS)   LOANS (MILLIONS)     NET INCOME (THOUSANDS)
-------------------------------   ----------------     ----------------------
<S>       <C>                     <C>     <C>           <C>       <C>
1997      22,105                   1997   119,045        1997      2,025
1996      20,657                   1996   115,590        1996      1,824
1995      19,512                   1995   111,832        1995      1,625
1994      17,650                   1994   109,800        1994      1,565
1993      13,452                   1993    96,423        1993      1,679
1992      12,208                   1992    82,055        1992      1,213
1991      11,361                   1991    73,347        1991      1,029
1990      10,667                   1990    70,771        1990      1,301
1989       9,354                   1989    66,273        1989      1,040
1988       8,258                   1988    56,629        1988        865

</TABLE>          


                                       34
<PAGE>   37
QUALITY CUSTOMER SERVICE


Exceeding customer expectations by providing Quality Customer Service has been
the goal of CCFNB for over 80 years.

[PHOTO]

Elaine Edwards, Vice President/Bloomsburg Branch Manager, exemplifies the
friendly, high quality service found at all our branch offices.

[PHOTO]

Karen Murdock, Teller, is one of the many friendly faces customers meet when
doing business with CCFNB.

[PHOTO]

Dick Sierer and Jamie Tingley of the Financial Planning Department work
diligently to make our customers' goals become reality.

[PHOTO]

A meeting with Nancy Harris, Customer Service Representative, sums up the warmth
and sincerity of CCFNB's service.


                                       35
<PAGE>   38
CCFNB BANCORP, INC. MARKET MAKERS

HOPPER SOLIDAY & CO., INC.          F.J. MORRISSEY & CO., INC.
(800) 646-8647                      (215) 563-8500
(717) 560-3042
                                    RYAN, BECK & CO.
FERRIS, BAKER WATTS, INC.           (908) 233-0700
(410) 659-4600
                                    REGISTRAR & TRANSFER AGENT
HERZOG, HEINE, GEDULD, INC.
(201) 418-4000                      American Stock Transfer & Trust Company
                                    40 Wall Street
JANNEY MONTGOMERY SCOTT, INC.       New York, NY 10005
(215) 665-6000


CCFNB LOCATIONS


                            [MAP OF COLUMBIA COUNTY]


  Market Street                                      Route 487, Lightstreet Road
 Benton, PA 17814                                       Bloomsburg, PA 17815
  (717) 925-6181                                          (717) 784-5600

  232 East Street                                          State Street
Bloomsburg, PA 17815                                    Millville, PA 17846
   (717) 784-4400                                         (717) 458-5650

4242 Old Berwick Road                                       Main Street
Bloomsburg, PA 17815                                   Orangeville, PA 17859
   (717) 784-8474                                         (717) 683-5200


                                       36
<PAGE>   39
[CCFNB BANCORP, INC. LOGO]