EXHIBIT 13 
 
          Excerpts From Union National Financial Corporation's    
                 1998 Annual Report to Shareholders 
<PAGE> 

               STOCK, DIVIDEND AND BROKER INFORMATION 
 
   Union National Financial Corporation has only one class of 
common stock authorized, issued and outstanding.  The outstanding 
common stock is traded in the local over-the-counter market, 
primarily in Lancaster County, Pennsylvania.  Prices presented in 
the table below reflect actual transactions known to management.  
Prices and dividends per share are adjusted for stock splits and 
stock dividends.  Cash Dividends are payable on the 5th day of 
February, May, August, and November. Stockholders of record may 
elect to have cash dividends deposited directly to their checking 
or savings account.   
 
   The Corporation offers its stockholders a Dividend 
Reinvestment and Stock Purchase Plan, whereby holders of stock 
may have their quarterly cash dividends automatically invested in 
additional shares of common stock of the Corporation and may
purchase additional shares within specified limits.  
<TABLE> 
<CAPTION> 
                                                      Dividends 
Quarter                 High             Low          Per Share  
_________________________________________________________________ 
<S>                     <C>               <C>             <C> 
First, 1998            $23.88           $22.50          $0.100 
Second                  23.75            22.25           0.105 
Third                   23.75            19.00           0.110 
Fourth                  21.00            18.00           0.115 
 
First, 1997            $24.05           $22.86          $0.086 
Second                  24.29            22.25           0.086 
Third                   24.00            22.25           0.090 
Fourth                  24.00            22.50           0.090 
 
</TABLE>

FOR FURTHER INFORMATION, WE REFER YOU TO:
 
Dean Witter Reynolds, Inc.         F.J. Morrissey & Company, Inc. 
46 East King Street                1700 Market Street 
P.O. Box 358                       Suite 1420  
Lancaster, PA 17603                Philadelphia, PA 19103 
(717) 293-4811                     (800) 842-8928 
 
Hazlett, Burt, & Watson, Inc.      Hopper Soliday & Co., Inc. 
100 East King Street               1703 Oregon Pike 
P.O. Box 1267                      Lancaster, PA 17601 
Lancaster, PA 17608                (800) 526-6371 
(717) 397-5515 
 
Janney Montgomery Scott, Inc. 
61 North Duke Street 
Lancaster, PA 17602 
(717) 293-4100 
 
<PAGE> 
<TABLE> 
                          FINANCIAL HIGHLIGHTS 
<CAPTION> 
                             December 31,  December 31, 
                                  1998         1997    %Increase 
_________________________________________________________________ 
<S>                               <C>           <C>         <C>  
For the Year 
   Total Interest Income     $18,063,621     $16,205,692    11.5% 
   Total Interest Expense      8,694,963       7,549,909    15.2% 
   Net Interest Income         9,368,658       8,655,783     8.2% 
   Net Income                  2,767,632       2,325,487    19.0% 

Per Share  
   Net Income (Basic and Assuming 
     Dilution)                     $1.14            $.93    22.6% 
   Cash Dividends Paid              .430            .351    22.5% 
   Stockholders' Equity             9.83            9.55     2.9% 

Average Balances  
 
   Net Loans                $162,090,000    $140,925,000    15.0% 
   Investments and Other  
     Earning Assets           67,672,000      61,115,000    10.7% 
   Total Assets              241,639,000     213,986,000    12.9% 
   Total Deposits            188,179,000     168,814,000    11.5% 
   Stockholders' Equity       22,971,000      22,859,000      .5% 
  
Return on Average 
   Assets                           1.15%           1.09% 
   Stockholders' Equity            12.05%          10.17% 
 
</TABLE> 
<PAGE>
<TABLE>  
CONSOLIDATED BALANCE SHEETS     
<CAPTION>        
                                     December 31,    December 31, 
                                        1998            1997 
                                    ____________     ____________ 
<S>                                     <C>              <C>      
ASSETS        
Cash and Due from Banks            $  7,341,240     $  6,489,595  
Federal Funds Sold                    7,795,000        2,835,000  
Investment Securities Held  
 to Maturity (Market Value:   
 1998-$24,523,740;1997-$18,942,946)  24,079,161       18,869,847  
Investment Securities Available  
 for Sale                            51,676,350       45,866,774  
Loans(Net of Unearned Income)       163,795,702      152,699,249  
 Less: Allowance for Loan Losses     (1,742,620)      (1,592,763) 
                                    ____________     ____________ 
    Total Net Loans                 162,053,082      151,106,486  
 
Premises and Equipment - Net          5,247,349        5,414,864  
Accrued Interest Receivable           1,560,703        1,445,767  
Deferred Income Taxes                   218,708          153,982  
Investments in Limited Partnerships     882,161          941,287  
Other Assets                            513,759          119,404  
                                    ____________     ____________ 
    TOTAL ASSETS                   $261,367,513     $233,243,006  
                                    ============     ============ 
LIABILITIES        
Deposits:        
 Noninterest-Bearing               $ 20,606,222     $ 18,463,193  
 Interest-Bearing                   184,937,546      161,671,680  
                                    ____________     ____________ 
    Total Deposits                  205,543,768      180,134,873  
 
Short-Term Borrowing                    186,691          900,000  
Long-Term Debt                       30,623,660       27,329,060  
Accrued Interest Payable              1,060,439        1,008,362  
Other Liabilities                       256,218          114,861  
                                    ____________     ____________ 
    TOTAL LIABILITIES               237,670,776      209,487,156  
     
STOCKHOLDERS' EQUITY 
Common Stock (Par Value $.25)           627,121          627,332  
Shares: Authorized - 20,000,000; Issued -        
  2,508,484 in 1998 (2,509,327 in 1997);       
  Outstanding - 2,410,820 in 1998 (2,487,175         
  in 1997)        
Surplus                               4,793,416        4,814,975  
Retained Earnings                    20,183,938       18,460,729  
Accumulated Other Comprehensive Income -        
  Unrealized Gain on Investment 
   Securities Available for Sale, 
    Net of Tax                          241,515          294,723  
Less: Treasury Stock -         
 97,664 shares in 1998  
(22,152 in 1997), at cost            (2,149,253)        (441,909) 
                                    ____________     ____________ 
  TOTAL STOCKHOLDERS' EQUITY         23,696,737       23,755,850  
                                    ____________     ____________ 
  TOTAL LIABILITIES and         
     STOCKHOLDERS' EQUITY          $261,367,513     $233,243,006  
                                    ============     ============ 

See notes to consolidated financial statements.        
</TABLE>        
<PAGE>        
<TABLE>             
CONSOLIDATED STATEMENTS OF INCOME       
<CAPTION>                                    
                                      Years Ended December 31,    
                                    _____________________________ 
                                          1998            1997    
                                    _______________   ___________ 
<S>                                       <C>              <C>    
INTEREST INCOME        
Interest and Fees on Loans          $ 14,048,363    $ 12,483,471 
Investment Securities:        
 Taxable                               2,796,098       2,659,213  
 Exempt from Federal Taxes               995,140         868,149  
Deposits in Banks                          1,796           3,328  
Federal Funds Sold                       222,224         191,531  
                                    _______________   ___________ 
 Total Interest Income                18,063,621      16,205,692  
    
INTEREST EXPENSE        
Deposits                               7,051,458       6,354,343  
Short-Term Borrowing                      22,806          87,259  
Long-Term Debt                         1,620,699       1,108,307  
                                    _______________   ___________ 
 Total Interest Expense                8,694,963       7,549,909  
                                    _______________   ___________ 
 Net Interest Income                   9,368,658       8,655,783  
 
PROVISION for LOAN LOSSES                325,350         390,250  
                                    _______________   ___________ 
Net Interest Income after Provision         
  for Loan Losses                      9,043,308       8,265,533 
 
OTHER OPERATING INCOME        
Trust Income                             119,600         134,645  
Service Charges on Deposit Accounts      471,126         374,697  
Other Service Charges, Commissions, Fees 488,882         405,007  
Investment Securities Gains/(Losses)      (6,716)          2,063  
Other Income                              84,526          69,692  
                                    _______________    __________ 
  Total Other Operating Income         1,157,418         986,104  
 
OTHER OPERATING EXPENSES         
Salaries and Wages                     3,145,664       2,783,105  
Retirement Plan and Other  
  Employee Benefits                      633,011         857,410  
Net Occupancy Expense                    556,608         562,661  
Furniture and Equipment Expense          399,058         411,484  
FDIC Insurance Assessment                 21,737          20,109  
Other Operating Expenses               1,962,103       1,712,285  
                                    _______________    __________ 
  Total Other Operating Expenses       6,718,181       6,347,054  
                                    _______________    __________ 
  Income before Income Taxes           3,482,545       2,904,583  
 
PROVISION for INCOME TAXES               714,913         579,096  
                                    _______________    __________ 
  NET INCOME for YEAR                $ 2,767,632     $ 2,325,487  
                                    ===============    ========== 
PER SHARE INFORMATION       
Net Income for Year (Basic and Assuming 
   Dilution)                        $       1.14    $        .93  
Cash Dividends                      $       .430    $       .351  

See notes to consolidated financial statements.  
   
<CAPTION>    
                                      Years Ended December 31,    
                                    _____________________________ 
                                          1996                    
                                    _______________               
<S>                                       <C>                     
INTEREST INCOME        
Interest and Fees on Loans          $ 11,175,845                 
Investment Securities:        
 Taxable                               2,072,695       
 Exempt from Federal Taxes               830,203          
Deposits in Banks                          2,768            
Federal Funds Sold                       136,238                  
                                    ______________    
 Total Interest Income                14,217,749            
INTEREST EXPENSE        
Deposits                               5,778,953         
Short-Term Borrowing                     115,372           
Long-Term Debt                           485,232                  
                                    ______________ 
 Total Interest Expense                6,379,557                  
                                    ______________                
 Net Interest Income                   7,838,192          
 
PROVISION for LOAN LOSSES                150,000                  
                                    ______________               
Net Interest Income after Provision         
  for Loan Losses                      7,688,192       
 
OTHER OPERATING INCOME        
Trust Income                             120,495         
Service Charges on Deposit Accounts      327,567          
Other Service Charges, Commissions, Fees 298,355           
Investment Securities Gains/(Losses)       2,308             
Other Income                              62,574                  
                                    ______________               
  Total Other Operating Income           811,299          
 
OTHER OPERATING EXPENSES         
Salaries and Wages                     2,637,584         
Retirement Plan and Other  
  Employee Benefits                      751,684         
Net Occupancy Expense                    583,074           
Furniture and Equipment Expense          373,133           
FDIC Insurance Assessment                  2,000             
Other Operating Expenses               1,603,742                  
                                    ______________               
  Total Other Operating Expenses       5,951,217                  
                                    ______________               
Income before Income Taxes             2,548,274        
 
PROVISION for INCOME TAXES               356,462                  
                                    ______________               
  NET INCOME for YEAR               $  2,191,812      
                                    ==============               
PER SHARE INFORMATION       
Net Income for Year (Basic and Assuming 
   Dilution)                        $        .88                  
Cash Dividends                      $       .305                  

See notes to consolidated financial statements.  
</TABLE> 
<PAGE> 
<TABLE>        
CONSOLIDATED STATEMENTS OF CASH FLOWS         
<CAPTION>        
                                       Years Ended December 31,   
                                   ______________________________ 
                                          1998            1997  
                                   ______________     ___________ 
<S>                                        <C>             <C>    
CASH FLOWS from OPERATING ACTIVITIES             
Net Income                            $ 2,767,632    $ 2,325,487  
Adjustments to Reconcile Net Income to Net               
  Cash Provided by Operating Activities:        
   Depreciation and Amortization          464,567        506,353  
   Provision for Loan Losses              325,350        390,250  
   Investment Securities (Gains)/Losses     6,716         (2,063) 
   Provision for Deferred Income Taxes    (37,317)        (1,302) 
   (Increase)/Decrease in Accrued                      
     Interest Receivable                 (114,936)      (133,324) 
   (Increase)/Decrease in Other Assets   (356,821)       292,578  
   Increase/(Decrease) in Other  
     Liabilities                          193,434         52,625  
                                       ____________   ___________ 
Net Cash Provided by  
    Operating Activities                3,248,625      3,430,604  
 
CASH FLOWS from INVESTING ACTIVITIES           
Net(Increase)/Decrease in  
 Federal Funds Sold                    (4,960,000)     1,955,000  
Proceeds from Sales of        
 Available for Sale Securities          4,935,869      5,548,285  
Proceeds from Maturities of         
 Available for Sale Securities         38,352,132     15,337,934  
Proceeds from Maturities of        
 Held to Maturity Securities            1,068,938      2,564,118  
Purchases of Available for Sale  
 Securities                           (49,184,910)   (28,694,305) 
Purchases of Held to Maturity  
 Securities                            (6,278,251)    (4,310,406) 
Loans Made to Customers, Net of         
 Principal Collected on Loans         (11,271,946)   (22,476,796) 
Purchases of Property and Equipment      (275,461)      (139,226) 
    Net Cash (Used in)Investing  
       Activities                     (27,613,629)   (30,215,396) 
                                       ____________   ___________ 
CASH FLOWS from FINANCING ACTIVITIES         
Net Increase/(Decrease)in Demand Deposits         
 and Savings Accounts                  19,559,864      7,532,740  
Net Increase in Certificates         
 of Deposits                            5,849,031      8,088,803  
Net Increase/(Decrease) in Short-Term        
 Borrowing                               (713,309)    (2,089,414) 
Proceeds from Issuance of Long-Term  
 Debt                                  10,455,600     14,793,060 
Payment of Long-Term Debt              (7,161,000)      (140,000) 
Acquisition of Treasury Stock          (1,995,379)      (306,746) 
Issuance of Common and Treasury Stock     266,265        198,827  
Cash Dividends Paid                    (1,044,423)      (876,280) 
                                       ____________   ___________ 
  Net Cash Provided by                    
   Financing Activities                25,216,649     27,200,990  
                                       ____________   ___________ 
Net Increase/(Decrease) in Cash        
 and Cash Equivalents                     851,645        416,198  

CASH and CASH EQUIVALENTS                                
Beginning of Year                       6,489,595      6,073,397  
                                       ____________   ___________ 
CASH and CASH EQUIVALENTS  
End of Year                           $ 7,341,240    $ 6,489,595  
                                       ============   =========== 
                                                                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash Payments for:        
Interest Paid to Depositors           $ 7,016,409    $ 6,291,787  
Interest Paid - Other                   1,626,477      1,132,613  
Income Taxes                              726,748        616,710  
 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING          
 ACTIVITIES    
Retirement of Treasury Stock (13,000 shares  
  in 1998, 12,000 shares in 1997, 
  and 10,000 shares in 1996)         $    288,035   $    227,542  
 
See notes to consolidated financial statements.          
 
<CAPTION> 
                                       Years Ended December 31,   
                                   ______________________________ 
                                           1996                   
                                     ______________               
<S>                                        <C>                    
  
CASH FLOWS from OPERATING ACTIVITIES              
Net Income                            $ 2,191,812                 
Adjustments to Reconcile Net Income to Net              
  Cash Provided by Operating Activities:        
  Depreciation and Amortization           515,600                 
  Provision for Loan Losses               150,000                 
  Investment Securities (Gains)/Losses     (2,308)                
  Provision for Deferred Income Taxes      34,598                 
  (Increase)/Decrease in Accrued                      
    Interest Receivable                   (95,220)                
  (Increase)/Decrease in Other Assets      (6,488)                
  Increase/(Decrease) in Other  
    Liabilities                           218,395                 
                                     ______________               
Net Cash Provided by  
    Operating Activities                3,006,389                 
 
CASH FLOWS from INVESTING ACTIVITIES           
Net(Increase)/Decrease in  
 Federal Funds Sold                    (4,790,000)                
Proceeds from Sales of        
 Available for Sale Securities          8,994,369                 
Proceeds from Maturities of         
 Available for Sale Securities         11,685,792                 
Proceeds from Maturities of        
 Held to Maturity Securities            1,566,157                 
Purchases of Available for Sale  
 Securities                           (32,875,864)                
Purchases of Held to Maturity  
 Securities                            (4,805,526)                
Loans Made to Customers, Net of         
 Principal Collected on Loans         (10,017,453)                
Purchases of Property and Equipment      (298,385)                
                                     _____________               
     Net Cash (Used in)Investing  
       Activities                     (30,540,910)                
 
CASH FLOWS from FINANCING ACTIVITIES         
Net Increase/(Decrease)in Demand Deposits         
 and Savings Accounts                   7,337,206                 
Net Increase in Certificates         
 of Deposits                           13,808,609                 
Net Increase/(Decrease) in Short-Term        
 Borrowing                               (409,203)                
Proceeds from Issuance of Long-Term  
 Debt                                   6,546,000                
Payment of Long-Term Debt                (140,000)                
Acquisition of Treasury Stock            (119,173)                
Issuance of Common and Treasury Stock     130,866                 
Cash Dividends Paid                      (760,044)                
                                   ______________                 
  Net Cash Provided by                    
   Financing Activities                26,394,261                 
                                   ______________                 
Net Increase/(Decrease) in Cash        
 and Cash Equivalents                  (1,140,260)                
 
CASH and CASH EQUIVALENTS                                
Beginning of Year                       7,213,657                 
                                   ______________                 
CASH and CASH EQUIVALENTS  
End of Year                           $ 6,073,397                 
                                   ==============                 
                                                                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash Payments for:        
Interest Paid to Depositor            $ 5,692,146                 
Interest Paid - Other                     567,181                 
Income Taxes                              370,000                 

SUPPLEMENTAL SCHEDULE OF NONCASH    
INVESTING AND FINANCING ACTIVITIES    
Retirement of Treasury Stock (13,000 shares  
  in 1998, 12,000 shares in 1997,  
  and 10,000 shares in 1996)          $   153,385
            
See notes to consolidated financial statements.          
</TABLE>        
<PAGE> 
<TABLE> 
  
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
<CAPTION> 
                               Common                  Retained 
                               Stock       Surplus     Earnings 
                             __________  __________   __________ 
<S>                               <C>         <C>         <C> 
BALANCE, December 31, 1995    $ 600,000  $2,018,898  $18,484,397  
Comprehensive Income:
 Net Income                                            2,191,812  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of 
   Tax of $6,087
  Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $785
         Total Comprehensive Income
 Acquisition of Treasury Stock 
 Issuance of Common and Treasury 
  Stock                           1,041      99,825
 Retirement of Treasury Stock
    (10,000 shares)              (2,500)   (150,885) 
 Cash Dividends ($.305 per share)                       (760,044) 
                             __________  __________   __________ 
BALANCE, December 31, 1996      598,541   1,967,838   19,916,165  
Comprehensive Income:
 Net Income                                            2,325,487  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of
   Tax of $99,451
 Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $701
         Total Comprehensive Income
 Acquisition of Treasury Stock 
 Issuance of Common Stock Under
   Dividend Reinvestment and Stock 
   Purchase Plan                  1,970     182,652
 Issuance of Common Stock Under
   Employee Plans                   181      14,024
 Issuance of Common Stock Under
   5% Common Stock Dividend      29,640   2,875,003   (2,904,643)
 Retirement of Treasury Stock
    (12,000 shares)              (3,000)   (224,542) 
 Cash Dividends ($.351 per share)                       (876,280) 
                             __________  __________   __________ 
BALANCE, December 31, 1997      627,332   4,814,975   18,460,729  
Comprehensive Income:
 Net Income                                            2,767,632  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of
   Tax of $29,694
 Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $2,283
         Total Comprehensive Income
 Acquisition of Treasury Stock 
 Issuance of Common Stock Under
   Dividend Reinvestment and Stock 
   Purchase Plan                  2,925     254,892
 Issuance of Common Stock Under
   Employee Plans                   114       8,334
 Retirement of Treasury Stock
    (13,000 shares)              (3,250)   (284,785) 
 Cash Dividends ($.430 per share)                     (1,044,423) 
                             __________  __________   __________ 
BALANCE, December 31, 1998     $627,121  $4,793,416  $20,183,938  
                             ==========  ==========   ==========  
See notes to consolidated financial statements. 
 
<CAPTION> 
                         Accumulated Other           
                          Comprehensive    Treasury       
                              Income        Stock         Total   
                          _____________   _________   ___________ 
<S>                             <C>           <C>          <C> 
BALANCE, December 31, 1995     $ 92,741  $ (426,917) $20,769,119  
                                                     ____________
Comprehensive Income:
 Net Income                                            2,191,812  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of
   Tax of $6,087                 11,815                   11,815
 Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $785               (1,523)                  (1,523)
                                                      ___________
         Total Comprehensive Income                    2,202,104
                                                      ___________
 Acquisition of Treasury Stock             (119,173)    (119,173)
 Issuance of Common and Treasury 
  Stock                                      30,000      130,866
 Retirement of Treasury Stock
    (10,000 shares)                         153,385           -0-
 Cash Dividends ($.305 per share)                       (760,044) 
                             __________  __________   __________ 
BALANCE, December 31, 1996      103,033    (362,705)  22,222,872  
                                                      ___________
 Comprehensive Income:
 Net Income                                            2,325,487  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of
   Tax of $99,451               193,052                  193,052  
 Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $701               (1,362)                  (1,362)
                                                      ___________
         Total Comprehensive Income                    2,517,177
                                                      ___________
 Acquisition of Treasury Stock             (306,746)    (306,746)
 Issuance of Common Stock Under
   Dividend Reinvestment and Stock 
   Purchase Plan                                         184,622
 Issuance of Common Stock Under
   Employee Plans                                         14,205
 Issuance of Common Stock Under
   5% Common Stock Dividend                                   -0-
 Retirement of Treasury Stock
    (12,000 shares)                         227,542           -0-
 Cash Dividends ($.351 per share)                       (876,280)
                              __________  __________   __________ 
BALANCE, December 31, 1997      294,723    (441,909)  23,755,850
                                                      __________ 
Comprehensive Income:
 Net Income                                            2,767,632  
 Unrealized Holding Gains/(Losses) on
   Investment Securities Available for
   Sale Arising During the Year, Net of
   Tax of $29,694               (57,641)                 (57,641)
 Reclassification Adjustment for (Gains)/Losses
   included in Net Income, 
   Net of Tax $2,283              4,433                    4,433
                                                      ___________
         Total Comprehensive Income                    2,714,424
                                                      ___________
 Acquisition of Treasury Stock           (1,995,379)  (1,995,379) 
 Issuance of Common Stock Under
   Dividend Reinvestment and Stock 
   Purchase Plan                                         257,817
 Issuance of Common Stock Under
   Employee Plans                                          8,448
 Retirement of Treasury Stock
    (13,000 shares)                         288,035           -0-
 Cash Dividends ($.430 per share)                     (1,044,423) 
                             __________  __________   __________ 
BALANCE, December 31, 1998     $241,515 $(2,149,253) $23,696,737  
                             ==========  ==========   ========== 
See notes to consolidated financial statements. 
</TABLE> 
<PAGE>
Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Union National Financial
Corporation (the Corporation) and its subsidiary, Union National
Community Bank (the Bank), conform with generally accepted
accounting principles and prevailing practices within the banking
industry. The Corporation and the Bank provide banking and
related services to residents and businesses primarily in
northwestern Lancaster County, Pennsylvania.

Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and the Bank. All material intercompany accounts and
transactions have been eliminated in the consolidation.

Use of Estimates              
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Accordingly, actual results
may differ from estimated amounts.

Investment Securities
Investment securities include both debt securities and equity
securities. The Corporation has segregated its investment
securities into two categories: those "held to maturity" and
those "available for sale." 

Securities classified as held to maturity are those debt
securities the Corporation has both the intent and ability to
hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of
premiums or accretion of discounts, computed by the interest
method.

Securities classified as available for sale are those debt
securities that the Corporation intends to hold for an indefinite
period of time, but not necessarily to maturity, and all equity
securities. Any decision to sell a security classified as
available for sale would be based on various factors, including
significant movements in interest rates, changes in maturity mix
of the Corporation's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value with
premiums and discounts amortized or accreted to interest income
using the interest method. Changes in unrealized gains or losses
for available for sale securities, net of taxes, are recorded as
a component of stockholders' equity. 

When a determination is made that a market value decline below
cost on a marketable equity or debt security is other than
temporary, the cost basis of the individual security is written
down to the market value. The amount of the write-down is charged
to expense.  Realized security gains and losses are computed
using the specific identification method.

Loans
Loans generally are stated at their outstanding unpaid principal
balances, net of any deferred fees or costs on originated loans.
Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment to interest income
generally over the contractual life of the related loans.

Impaired Loans - The Corporation determines a loan impaired when,
based on current information and events, it is probable that all
interest and principal payments due according to the contractual
terms of the loan agreement will not be collected. Larger groups
of small-balance loans, such as residential mortgages and
consumer installment loans, are collectively evaluated for
impairment. 

An insignificant delay or shortfall in the amounts of payments
would not cause a loan to be rendered impaired. The Corporation
determines a "delay" and "shortfall" insignificant when the loan
is generally under 90 days past due or when the loan is
sufficiently secured so that all amounts due including late
charges and costs of collection would be expected to be
collected.

Interest income is recognized on impaired loans, excluding loans
that are classified as nonaccrual, as the increase in the net
carrying amount attributable to the passage of time.

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

The allowance for loan losses is maintained at a level believed
adequate by Management to absorb estimated probable loan losses.
Management's periodic evaluation of the adequacy of the allowance
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.

Specifically, the Corporation measures impairment based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or the fair value of the
collateral for certain collateral dependent loans or where
foreclosure is probable. If the measure of the impaired loan is
less than the recorded investment in the loan, the allowance for
loan losses is credited and the provision for loan losses is
charged. Subsequent measures in the impairment of the loan will
increase or decrease the allowance for loan losses. However, the
net carrying amount of the loan will not exceed the recorded
investment in the loan.

Nonaccrual Loans - Generally, a loan (including an impaired loan
as discussed above) is classified as nonaccrual and the accrual
of interest on such 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. 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 nonaccrual status, unpaid
interest credited to income is reversed. Interest received on
nonaccrual loans is either applied against principal or reported
as interest income, according to Management's judgment as to the
collectibility of principal. Generally, loans are restored to
accrual status when both principal and interest are brought
current, the loan has performed in accordance with the
contractual terms for a reasonable period of time, and the
ultimate collectibility of the total contractual principal and
interest is no longer in doubt.

Impaired loans that are classified as nonaccrual will have a net
carrying amount that will not exceed the individual loan's
measure of impairment as noted under the Section on Allowance for
Loan Losses.

Other Real Estate Owned - Other real estate owned includes assets
acquired through foreclosure and loans identified as in-substance
foreclosures. A loan is classified as in-substance foreclosure
when the Corporation has taken possession of the collateral
regardless of whether formal foreclosure proceedings have taken
place. Other real estate owned is valued at the lower of the loan
balance at the time of foreclosure or estimated fair market
value, net of selling costs, and is included in other assets.
Gains and losses resulting from the sale or write down of other
real estate owned and income and expenses related to the
operation of other real estate owned are recorded in other
expenses. Other real estate owned amounted to $379,150 and $0 at
December 31, 1998 and 1997, respectively.

Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation, which is computed over the assets' estimated useful
lives on both the accelerated and the straight-line methods.
Leasehold improvements are stated at cost less accumulated
amortization, which is computed over the term of the lease
including renewal options on the straight-line method. Gains and
losses on premises and equipment are recognized upon disposal of
the asset. Charges for maintenance and repairs are charged to
expense as incurred.

Investments in Limited Partnerships
The Corporation has investments in two limited partnerships
providing low to moderate income housing in the community of
Mount Joy. The Corporation's 18.8% investment of $478,000 is
carried on the cost method, which is being reduced to the
investment's currently estimated residual value over the
remaining period that tax credits are being realized, and the
Corporation's 49.5% investment of $632,500 is carried on the
equity method. This latter limited partnership investment has
increased to 49.995% as of January 1, 1998.

Advertising Costs
Advertising costs are charged to expense when incurred.
Advertising expense for the years ended December 31, 1998, 1997,
and 1996 amounted to $76,122, $80,062, and $86,613, respectively.

Income Taxes
The provision for income taxes is based upon the results of
operations, adjusted principally for tax-exempt income.
Accounting for income taxes is under the asset/liability method.
Under this method, the deferred tax asset is recorded based on
the difference between the tax basis of assets and liabilities
and their carrying amounts for financial reporting purposes. The
deferred tax asset is measured by the enacted tax rates which
will be in effect when these differences reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized in the future.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
<PAGE>
Net Income per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128 (SFAS No. 128), "Earnings per Share."
This Statement establishes standards for computing and presenting
earnings per share. SFAS No. 128 replaces the presentation of
primary earnings per share with a dual presentation of basic and
diluted earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The Corporation
restated all prior period earnings per share data upon adoption
of this Statement effective December 31, 1997. See Note 13 -
Stockholders' Equity for the computation of basic and diluted
earnings per share.

All per share amounts and average shares outstanding reflected in
the accompanying statements were adjusted to give retroactive
effect to the 5% common stock dividend effective on May 15, 1997.

Comprehensive Income
The Corporation adopted SFAS No. 130, "Reporting Comprehensive
Income," as of January 1, 1998.  Accounting principles generally
require that recognized revenue, expenses, gains, and losses be
included in net income.  However, certain changes in assets and
liabilities, such as unrealized gains and losses on investment
securities available for sale, are reported as a separate
component of the equity section of the balance sheet.  Such items
along with net income, are components of comprehensive income. 
The Corporation reports comprehensive income and the components
of other comprehensive income in the Consolidated Statements of
Changes in Stockholders' Equity.  The Corporation's only
component of other comprehensive income is changes in unrealized
gains and losses on investment securities available for sale. 
Changes in the interest rate environment and other factors result
in fluctuations in the value of investment securities available
for sale.  The adoption of SFAS No. 130 had no effect on the
Corporation's net income or stockholders' equity.  

Segment Reporting
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, (SFAS No. 131), "Disclosures about Segments of
an Enterprise and Related Information." This Statement
establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. The Corporation has only
one operating segment which comprises the Bank's banking and
fiduciary activities. 

Statements of Cash Flows
For purposes of the statements of cash flows, the Corporation
considers cash and amounts due from banks to be cash equivalents.

Recent Accounting Standards Issued
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities."  This Statement establishes
accounting and reporting standards for derivative instruments and
for hedging activities.  In addition, the transition provisions
of this Statement allow the Corporation to reclassify held to
maturity securities to an available for sale classification.  The
Corporation does not expect the provisions of this Statement to
have a material effect on the liquidity, results of operations,
or capital resources of the Corporation when it becomes effective
in the first quarter of 2000.  

In October 1998, the Financial Accounting Standards Board issued
Statement No. 134, (SFAS No. 134), "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise."  There is
no incidence of coverage for the Corporation under this
Statement.  
<TABLE> 
NOTE 2 - INVESTMENT SECURITIES 
 
The amortized costs and fair values of investment securities are 
as follows: 
<CAPTION> 
                                       At December 31, 1998       
                                 ________________________________ 
                                                         Gross 
                                   Amortized           Unrealized 
                                      Cost               Gains 
                                 _______________   ______________ 
<S>                                    <C>                <C>     
SECURITIES HELD to MATURITY: 
Obligations of State and  
  Political Subdivisions        $  21,805,749       $    471,358
Corporate Securities                2,273,412             16,997 
                                 _______________   ______________ 
  TOTAL                         $  24,079,161       $    488,355
                                 ===============   ============== 
SECURITIES AVAILABLE for SALE: 
U.S. Treasury Securities        $   3,522,874       $     37,441  
Obligations of Other U.S.  
  Government Agencies              14,143,678             81,071  
Mortgage-Backed Securities         29,019,819             68,220  
Corporate Securities                1,956,885              2,451  
Equity Securities                   2,667,162            288,579  
                                 _______________   ______________ 
  TOTAL                         $  51,310,418       $    477,762  
                                 ===============   ============== 
<CAPTION> 
                                       At December 31, 1998       
                                 ________________________________ 
                                     Gross                     
                                  Unrealized             Fair     
                                     Losses             Values  
                                 _______________   ______________ 
SECURITIES HELD to MATURITY: 
Obligations of State and  
  Political Subdivisions        $     (42,980)     $  22,234,127  
Corporate Securities                     (796)         2,289,613  
                                 _______________   ______________ 
  TOTAL                         $     (43,776)     $  24,523,740  
                                 ===============   ============== 
SECURITIES AVAILABLE for SALE: 
U.S. Treasury Securities        $          -0-     $   3,560,315  
Obligations of Other U.S.  
  Government Agencies                  (4,096)        14,220,653  
Mortgage-Backed Securities           (106,144)        28,981,895  
Corporate Securities                   (1,590)         1,957,746
Equity Securities                          -0-         2,955,741  
                                 _______________   ______________ 
  TOTAL                         $    (111,830)      $ 51,676,350  
                                 ===============   ============== 
 
<CAPTION>            
                                       At December 31, 1997       
                                 ________________________________ 
                                                         Gross 
                                   Amortized           Unrealized 
                                      Cost               Gains 
                                 _______________   ______________ 
<S>                                    <C>                <C>     
SECURITIES HELD to MATURITY: 
Obligations of State and  
  Political Subdivisions        $  17,360,686       $    382,639  
Corporate Securities                1,509,161              5,209  
                                 _______________   ______________ 
  TOTAL                         $  18,869,847       $    387,848  
                                 ===============   ============== 
SECURITIES AVAILABLE for SALE: 
U.S. Treasury Securities        $   4,008,381       $     11,016  
Obligations of Other U.S.  
  Government Agencies              18,306,612            102,521  
Mortgage-Backed Securities         20,753,868            149,693  
Equity Securities                   2,351,362            292,734  
                                 _______________   ______________ 
  TOTAL                         $  45,420,223       $    555,964  
                                 ===============   ============== 
<CAPTION> 
                                       At December 31, 1997       
                                 ________________________________ 
                                     Gross                     
                                  Unrealized             Fair     
                                     Losses             Values  
                                 _______________   ______________ 
SECURITIES HELD to MATURITY: 
Obligations of State and  
  Political Subdivisions        $    (311,629)     $  17,431,696  
Corporate Securities                   (3,120)         1,511,250  
                                _______________    _____________  
TOTAL                           $    (314,749)     $  18,942,946  
                                 ===============   ============== 
SECURITIES AVAILABLE for SALE: 
U.S. Treasury Securities        $      (1,892)      $  4,017,505  
Obligations of Other U.S.  
  Government Agencies                 (12,097)        18,397,036  
Mortgage-Backed Securities            (95,424)        20,808,137  
Equity Securities                          -0-         2,644,096  
                                 _______________   ______________ 
  TOTAL                         $    (109,413)      $ 45,866,774  
                                 ===============   ============== 
</TABLE> 
<PAGE>
There are no significant concentrations of investments (greater 
than 10% of stockholders' equity) in any individual security 
issuer.   
 
Investment securities carried at $21,882,546 and $18,194,486 at 
December 31, 1998 and 1997, respectively, were pledged to secure 
public, trust, and government deposits.   
 
The amortized cost and fair value of debt securities at December 
31, 1998, by contractual maturity, are shown below.  Expected 
maturities will differ from contractual maturities because 
borrowers may have the right to call or prepay obligations with 
or without call or prepayment penalties.   
<TABLE> 
<CAPTION> 
                                      Debt Securities  
                            _____________________________________ 
                                      Held to Maturity   
                            _____________________________________ 
                              Amortized               Fair 
                                Cost                 Values 
                            ______________      _________________ 
<S>                               <C>                 <C>  
Due in one year or less      $  1,536,999      $   1,551,770      
Due after one year through 
 five years                     3,530,603          3,573,107      
Due after five years through 
 ten years                      3,301,296          3,356,931      
Due after ten years            15,710,263         16,041,932      
                            ______________      _________________ 
                               24,079,161         24,523,740      

Mortgage-Backed Securities             -0-                -0-     
                            ______________      _________________ 
                             $ 24,079,161      $ 24,523,740       
                            ==============      ================= 
 
<CAPTION> 
                                      Debt Securities  
                            _____________________________________ 
                                     Available for Sale   
                            _____________________________________ 
                              Amortized               Fair 
                                Cost                 Values 
                            ______________      _______________ 
<S>                               <C>                <C>  
Due in one year or less      $  6,502,008      $   6,512,497      
Due after one year through 
 five years                     3,975,564          4,003,377      
Due after five years through 
 ten years                      9,145,865          9,222,840      
Due after ten years                    -0-                -0-     
                            ______________      _______________ 
                               19,623,437         19,738,714      

Mortgage-Backed Securities     29,019,819         28,981,895      
                            ______________      _______________   
                             $ 48,643,256      $  48,720,609      
                            ==============      ===============   
</TABLE> 
 
Proceeds from sales of available for sale securities were 
$4,935,869 and $5,548,285 during 1998 and 1997, respectively.  
Investment securities gains/losses include gross realized gains 
of $12,897 and gross realized losses of $19,613 during 1998 and 
gross realized gains of $4,838 and gross realized losses of 
$2,775 during 1997 as a result of sales of available for sale 
securities.  The related income tax expense (benefit) for net
investment securities gains/losses amounted to ($2,283) and 
$701 during 1998 and 1997, respectively.
 
Mortgage-backed securities, as disclosed in the two preceding 
tables, are issued by U.S. Government agencies or corporations. 
 

NOTE 3 - LOANS 
 
Loans, net of unamortized loan orgination fees of $1,429,650 and
$1,429,885 at December 31, 1998 and 1997, respectively, are
summarized as follows:
<TABLE>
<CAPTION> 
                                   December 31,     December 31, 
                                      1998              1997     
                                   ____________    ______________ 
<S>                                    <C>               <C> 
Real Estate-Mortgage: 
  First and Second Residential     $ 99,984,129   $ 93,495,375   
  Commercial and Industrial          29,967,643     23,777,078 
  Construction and Land Development   6,585,711      9,629,413 
  Agricultural                        5,727,829      4,598,191 
Commercial and Industrial             6,041,639      6,035,077 
Consumer                              9,310,576      9,320,106 
Agricultural                          2,549,598      2,212,888 
Political Subdivisions                2,842,255      3,390,061 
Other                                   856,241        329,639 
                                    ____________   ______________ 
   Total Loans                      163,865,621    152,787,828 
Less:  Unearned Income                  (69,919)       (88,579) 
                                    ____________   ______________ 
   Net Loans                       $163,795,702   $152,699,249 
                                    ============   ============== 
</TABLE> 
 
The Corporation grants commercial, residential and consumer loans 
to customers primarily located in the northwestern Lancaster
County. Although the Corporation has a diversified loan 
portfolio, its debtors' ability to honor their contracts is 
influenced by the region's economy. 
 
The recorded investment in loans that is considered to be 
impaired was $70,099 and $25,772 at December 31, 1998 and 1997, 
respectively. This entire amount is included in the nonaccrual 
loans reflected below. The measure of impairment is based on the 
fair value of the collateral, since foreclosure is probable. The 
related allowance for loan losses amounts to $22,124 and $1,546
at December 31, 1998 and 1997, respectively. The average recorded 
investment in impaired loans was $450,876 and $302,655 and
$98,317 during the years ended December 31, 1998, 1997, and 1996,
respectively. For the years ended December 31, 1998, 1997, and
1996, the Corporation did not recognize interest income on the
impaired loans. 
 
Nonperforming loans, which consist of loans 90 days or more past 
due and nonaccruing loans, amounted to $974,271, $706,046, and 
$842,949 at December 31, 1998, 1997, and 1996, respectively.  
  
Loans to certain directors and principal officers of the 
Corporation, including their immediate families and companies in 
which they are principal owners (more than 10%), amounted to 
$5,011,513 at December 31, 1998. Such loans were made in the 
ordinary course of business at the Corporation's normal credit 
terms, including interest rates and security, and do not 
represent more than a normal risk of collection. Transactions on 
these loans for the years ended December 31 are as follows:  
<TABLE> 
<CAPTION> 
                                  1998         1997        1996   
                             __________    __________  __________ 
<S>                             <C>           <C>         <C>  
Balance, Beginning of Year  $4,878,930    $3,380,461  $3,343,586 
Additions                    2,327,784     4,336,242   2,682,659 
Deductions                  (2,195,201)   (2,837,773) (2,645,784)
                             __________    __________  __________ 
Balance, End of Year        $5,011,513    $4,878,930  $3,380,461 
                             ==========    ==========  ========== 
</TABLE> 
<TABLE> 
NOTE 4 - ALLOWANCE FOR LOAN LOSSES 
 
An analysis of changes in the allowance for loan losses for the 
years ended December 31 is as follows:          
<CAPTION>  
                                 1998        1997         1996    
                             __________    __________ ___________ 
<S>                             <C>            <C>         <C>  
Balance, Beginning of Year   $1,592,763   $1,371,245  $1,264,528 
Provision Charged to  
    Operating Expense           325,350      390,250     150,000 
Recoveries of Charged-Off Loans  60,964       31,254      21,188 
Charged-Off Loans              (236,457)    (199,986)    (64,471)
                             __________    __________ ___________ 
Balance, End of Year         $1,742,620   $1,592,763  $1,371,245 
                             ==========    ========== =========== 
 
</TABLE>  
<PAGE>
<TABLE> 
NOTE 5 - PREMISES AND EQUIPMENT 
 
A summary of premises and equipment is as follows: 
<CAPTION> 
                        Estimated     December 31,   December 31, 
                      Useful Lives        1998            1997    
                      _____________   ____________   ____________ 
<S>                        <C>             <C>           <C>  
Land                                  $  411,593     $  411,593 
Land Improvements        20 years        499,927        495,390 
Buildings and  
  Improvements        15-50 years      5,115,889      5,086,515 
Leasehold Improvements   20 years        266,120        266,120 
Furniture, Fixtures and 
   Equipment           5-20 years      3,333,247      3,147,989 
                                      ____________   ____________ 
    Subtotal                           9,626,776      9,407,607 
Less:  Accumulated Depreciation 
        and Amortization              (4,379,427)    (3,992,743) 
                                      ____________   ____________ 
Premises and Equipment - Net          $5,247,349     $5,414,864 
                                      ============   ============ 
</TABLE> 
Depreciation and amortization expense amounted to $442,976 in 
1998, $465,748 in 1997, and $461,458 in 1996. 
 
Total rental expense amounted to $50,961, $43,461, and $43,461 
for the years ended December 31, 1998, 1997, and 1996, 
respectively. 
 
At December 31, 1998, the Corporation was obligated under 
noncancelable operating leases for real estate with the future 
minimum payments as follows: 
 
<TABLE> 
                              <S>               <C> 
                             1999            $ 57,861 
                             2000              57,461 
                             2001              54,660 
                             2002              42,660 
                             2003              42,660 
                             Thereafter        63,990 
                                             ________ 
                                             $319,292 
                                             =========      
</TABLE> 
NOTE 6 - SHORT-TERM BORROWINGS 

Short-term borrowings consisted entirely of Treasury Tax and Loan
Notes at December 31, 1998 and 1997.  At December 31, 1998,
outstanding borrowings amounted to $186,691 with a weighted
average rate of 4.11% and at December 31, 1997, outstanding
borrrowings amounted to $900,000 with a weighted average rate of
5.25%.

NOTE 7 - LONG-TERM DEBT
<TABLE>
 A summary of long-term debt as of December 31 is as follows: 
<CAPTION> 

                              1998                   1997         
                     ___________________   __________________ 
                     Amount       Rate      Amount      Rate  
                     ________   ________   ________   _______ 
<S>                    <C>        <C>        <C>        <C>  
FHLB fixed-rate advances  
 maturing: 
  1998           $       -0-      - %  $ 4,671,000    5.92% 
  1999            1,675,000     5.18     1,675,000    5.18 
  2000            3,300,000     6.02     3,300,000    6.02 
  2001              808,600     5.39            -0-      - 
  2003            2,347,000     5.71            -0-      -  
  2007            1,460,660     6.00     1,460,660    6.00
FHLB adjustable-rate advances maturing: 
  2002            3,532,400     5.23     3,532,400    5.74 
FHLB convertible fixed-rate advances maturing:  
  2002           12,500,000     5.62    12,500,000    5.62 
  2008            5,000,000     4.70            -0-      -  
                 ___________   ______   ___________   _____ 
                 30,623,660     5.46    27,139,060    5.73 
Limited Partnership Capital 
 Notes, maturing  
   1998 to 1999          -0-      -        190,000      -  
                 ___________            ___________         
  Total         $30,623,660            $27,329,060 
                 ===========            ===========         
</TABLE> 
  
The FHLB advances are collateralized by a security agreement
covering qualifying mortgage loans and unpledged treasury,
agency, and mortgage0backed securities which at December 31, 1998
had a combined carrying value of $101,158,217.  In addition, all
FHLB advances are secured by the FHLB capital stock owned by the
Corporation having fair value of $2,469,700 and $2,153,900 at
December 31, 1998 and 1997, respectively.  Under the Bank's
membership agreement with the FHLB, additional stock purchases
are required when total advances from the FHLB are increased. 
The FHLB's covertible fixed-rate advances allow the FHLB the
periodic option to convert to a LIBOR adjustable-rate advances at
the three month LIBOR plus .07% to .14%. Options amounting to
$12,500,000 and $5,000,000 commence in 1999 and 2000,
respectively. Upon FHLB's conversion,the Bank has the option to
repay the respective advances in full. FHLB's adjustable-rate
advances adjust annually at .06% to .07% above the interest rate
on the one year treasury's constant maturity. 
 
NOTE 8 - PROFIT-SHARING PLAN

The Corporation's subsidiary has a noncontributory profit-sharing
plan covering substantially all full-time employees.
Contributions are determined annually by the Board of Directors
and costs are funded as accrued.  On September 10, 1998,  the
Board of Directors authorized the replacement of the existing
plan with the Union National Community Bank 401(k) Profit Sharing
Plan.  This plan is effective January 1, 1999 and allows
employees to contribute a portion of their salaries and wages to
the plan.  The Bank may elect to make a discretionary
contribution to the plan and may also match a portion of employee
elected salary deferrals, subject to a 6% maximum of their
salaries and wages.  For 1999, the Bank has elected to match 50%
of employee elected salary deferrals which do not exceed 6% of
their salaries and wages.   

Contributions in the amount of $125,156, $374,283, and $330,873,
for the years ended December 31, 1998, 1997, and 1996,
respectively, were made to the profit-sharing plan.

<PAGE>
NOTE 9 - INCOME TAXES

The Corporation accounts for income taxes under the
asset/liability method. Under this method, the deferred tax asset
is recorded based on the difference between the tax basis of
assets and liabilities and their carrying amounts for financial
reporting purposes. The deferred tax asset is measured by the
enacted tax rates which will be in effect when these differences
reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized
in the future. Income tax expense is the tax payable or
refundable for the period, plus or minus the change during the
period in deferred tax assets and liabilities.

Deferred income taxes consists of the following components as of 
December 31: 
<TABLE> 
<CAPTION> 
                                          1998            1997    
                                      ___________      __________ 
<S>                                        <C>              <C> 
Deferred Tax Assets(Liabilities) 
  Deferred Net Loan Fees                 $ (7,284)      $ 21,997  
  Provision for Loan Losses               485,346        434,395  
  Depreciation                           (147,036)      (133,943) 
  Investment in Limited Partnerships      (24,334)       (28,521) 
  Unrealized loss/(gain) on investment  
   securities available for sale         (124,417)      (151,826) 
  Other                                    36,433         11,880  
                                      ___________      __________ 
Net Deferred Tax Asset                   $218,708       $153,982  
                                      ===========      ========== 

</TABLE> 
The Corporation as of December 31, 1998, has not established any 
valuation allowance against deferred tax assets since these tax 
benefits are realizable through carryback availability against 
prior years taxable income or the reversal of existing deferred 
tax liabilities.         
 
An analysis of the income tax expense included in the 
consolidated statements of income for the years ended December 31 
is as follows: 
<TABLE> 
<CAPTION>               
                              1998          1997           1996   
                           _________    __________     __________ 
<S>                          <C>           <C>             <C> 
Taxes Currently Payable    $748,043       $580,399      $321,865  
Deferred Income Taxes/(Benefit) 
   Related to: 
   Provision for  
      Loan Losses           (50,951)       (68,430)      (43,170) 
   Deferred Net Loan Fees    29,281         40,871        44,549  
   Fixed Asset Depreciation  13,093         25,060        48,143  
   Other - Net              (24,553)         1,196       (14,925) 
                           _________    __________     __________ 
   Provision for Income  
      Taxes                $714,913       $579,096      $356,462  
                           =========    ==========     ========== 
</TABLE> 
 
The reasons for the difference between the Corporation's 
provision for income taxes and the amount computed by applying 
the statutory federal income tax rate to income before income 
taxes for the years ended December 31 are as follows: 
<TABLE> 
<CAPTION> 
                         
                                    1998              1997        
                            __________________   ________________ 
                                Amount     %      Amount     %    
                            ___________   ____   ________ _____ 
<S>                             <C>        <C>      <C>    <C> 
Tax at Statutory  
   Federal Income Tax Rate   $1,184,065   34.0  $ 987,558  34.0   
(Reduction)/Increase in Tax 
   Resulting From: 
   Tax-Exempt Income           (361,366) (10.4)  (298,629)(10.3)  
   Income Tax Credits          (118,229)  (3.4)  (113,672) (3.9)  
   Other                         10,443     .3      3,839    .1   
                            ___________   ____   ________ _____ 
Provision for Income Taxes    $ 714,913   20.5  $ 579,096  19.9   
                            ===========   ====   ======== ===== 
 
<CAPTION> 
                                    1996                          
                            __________________                    
                                Amount     %                      
                            ___________   ____                    
<S>                              <C>       <C> 
Tax at Statutory  
   Federal Income Tax Rate    $ 866,413   34.0                   
(Reduction)/Increase in Tax 
   Resulting From: 
   Tax-Exempt Income           (280,938) (11.0)                   
   Income Tax Credits          (231,277)  (9.1)                   
   Other                          2,264     .1                    
                            ___________   ____                    
Provision for Income Taxes    $ 356,462   14.0                    
                            ===========   ====                    
</TABLE> 
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank 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
financial guarantees. Those instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The
contract amounts of those instruments reflect the exposure to
credit loss in the event of nonperformance by the other party to
the financial instrument.  
<TABLE> 
<CAPTION> 
                                   December 31,   December 31, 
                                        1998          1997        
                                  ______________   ____________ 
<S>                                     <C>             <C>  
Financial Instruments whose  
  Contract Amounts represent  
  Credit Risk: 
   Commitments to Extend Credit $ 7,933,093     $10,400,856       
  Unused Portion of Home Equity and 
  Overdraft Lines                 7,305,673       5,173,238 
   Other Unused Commitments, Principally 
  Commercial Lines of Credit     12,574,835      11,949,139 
   Standby Letters of Credit and Financial       
  Guarantees Written              1,990,759       3,279,348 
</TABLE> 
<PAGE>
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.
Certain commitments may expire without being drawn upon and,
therefore, future cash may not be required. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The
Bank generally requires collateral or other security to support
financial instruments with credit risk.

Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements. Most guarantees are less than two years. The credit
risk involved in issuing letters of credit is essentially the
same as that involved in extending loan advances to customers.

With respect to derivative financial instruments, the Corporation
does not currently engage in the use of futures, forward, swap,
or option contracts that are typically defined as derivatives
according to SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" (SFAS No.
119).  SFAS No. 119 defines fixed-rate loan commitments,
variable-rate loan commitments, and other variable-rate financial
instruments as derivatives for purposes of this Statement. Those
financial instruments shown in the previous table would represent
the only derivatives as defined by SFAS No. 119 currently held by
the Corporation. See Note 15 for the estimated fair value and
related valuation assumptions of these financial instruments.
 
NOTE 11 - TIME DEPOSITS
          
At December 31, 1998, the scheduled maturities of certificates of
deposit are as follows: 
                        [S]             [C]
                        1999       $57,647,406
                        2000        35,252,422
                        2001         3,983,087
                        2002         1,261,850
                        2003         1,912,251
                                  _____________
                                  $100,057,016
                                  =============
Certificates of deposit in denominations of $100,000 or more
amounted to $16,349,539 and $16,357,336 at December 31, 1998 and
1997, respectively. Interest expense on certificates of deposit
in denominations of $100,000 or more amounted to $890,193,
$958,253, and $877,033 for the years ended December 31, 1998,
1997, and 1996, respectively.

NOTE 12 - REGULATORY RESTRICTIONS

The Bank is required to maintain reserves, in the form of cash and
balances with the Federal Reserve Bank, against their deposit
liabilities. The average amount of required reserves during 1998
was approximately $1,196,000.

The Corporation's Bank subsidiary is subject to certain
restrictions in connection with the payment of dividends. The
National Banking Laws require the approval of the Comptroller of
the Currency if the total of all dividends declared by a national
bank in any calendar year exceeds the net profits of the bank (as
defined) for that year combined with its retained net profits for
the preceding two calendar years. Under this formula, the Bank may
declare dividends to its parent Corporation in 1999 of
approximately $1,044,595 plus an amount equal to the net profits of
the Bank in 1999 up to the date of any such dividend declaration.

Banking regulations also require the Bank to maintain certain
minimum capital levels in relation to Bank assets. Failure to meet
minimum capital requirements could result in prompt corrective
action by the federal banking agencies. As of December 31, 1998 and
1997, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. There are no
conditions or events since that notification that Management
believes have changed the Bank's category. The Bank maintains the
following leverage and risk-based capital ratios:
<TABLE> 
<CAPTION> 
                                              December 31,        
                                        _________________________ 
                                            1998            1997  
                                        __________       ________ 
<S>                                         <C>             <C>  
Actual Capital Ratio: 
 Tier I Capital to Average Total Assets     8.84%           9.95% 
 Minimum Required                           4.00            4.00  
 To Be Well Capitalized Under Prompt 
  Corrective Action Provisions              5.00            5.00  
Risk-based Capital Ratios: 
 Tier I Capital Ratio - Actual             13.51%          15.35% 
 Minimum Required                           4.00            4.00 
 To Be Well Capitalized under Prompt 
  Corrective Action Provisions              6.00            6.00 
 Total Capital Ratio - Actual              14.57%          16.45% 
 Minimum Required                           8.00            8.00 
 To Be Well Capitalized under Prompt 
  Corrective Action Provisions             10.00           10.00 
 
</TABLE> 
  
Additionally, banking regulations limit the amount of investments,
loans, extensions of credit, and advances the Bank can make to the
Corporation at any time to 10% of the Bank's capital stock and
surplus. At December 31, 1998, this limitation amounted to
approximately $2,397,000. These regulations also require that any
such investment, loan, extension of credit, or advance be secured
by securities having a market value in excess of the amount
thereof.

NOTE 13 - STOCKHOLDERS' EQUITY

On April 10, 1997, the Corporation's Board of Directors declared a
5% common stock dividend that was paid May 15, 1997. All per share
amounts and average shares outstanding reflected in the
accompanying statements were adjusted to give retroactive effect to
the common stock dividend.

In addition, the Corporation maintains a Dividend Reinvestment and
Stock Purchase Plan (the Plan). Stockholders of common stock may
participate in the Plan, which provides that additional shares of
common stock may be purchased with reinvested dividends and
optional cash payments within specified limits at prevailing market
prices. To the extent that shares are not available for purchase by
the plan in the open market, the Corporation has reserved 157,500
shares of common stock to be issued under the Plan. At December 31,
1998, 24,019 shares have been issued under the Plan. The number of
shares available for issuance under the Plan are adjusted for stock
dividends and stock splits. Open market purchases are usually made
by an independent purchasing agent retained to act as agent for
Plan participants, and the purchase price to participants will be
the actual price paid, excluding brokerage commissions and other
expenses which will be paid by the Corporation.
<PAGE>
The earnings per share, net income and weighted average number of
shares outstanding for the years ended December 31, 1998, 1997 and
1996 as computed under the basic and diluted earnings per share
methods are as follows:

<TABLE> 
<CAPTION> 
                             Net Income      Shares     Per Share 
Year Ended December 31,     ______________ ___________   _________ 
  1998
<S>                             <C>            <C>          <C> 
Basic Earnings per Share: 
 Income Available to  
   Common Stockholders       $2,767,632    2,420,553      $1.14 
Effect of Dilutive Securities: 
 Employee Stock Incentive  
   and Purchase Plans                -0-       3,403 
                            ______________ ___________            
 Diluted Earnings per Share: 
 Income Available to Common Stockholders 
  Plus Assumed Exercised  
    Options                  $2,767,632    2,423,956      $1.14 
                            ============== ===========   ========= 
Year Ended December 31, 1997 
Basic Earnings per Share: 
 Income Available to  
   Common Stockholders       $2,325,487    2,489,403       $.93 
Effect of Dilutive Securities: 
 Employee Stock Incentive  
   and Purchase Plans                -0-         700 
                            ______________ ___________            
Diluted Earnings Per Share:
 Income Available to Common Stockholders
 Plus Assumed Exercised 
   Options                   $2,325,487   $2,490,103       $.93   
                            ============== ===========  ========= 
Year Ended December 31, 1996 
Basic and Diluted Earnings per Share: 
 Income Available to  
   Common Stockholders       $2,191,812    2,493,951       $.88 
                            ============== ===========  ========= 
</TABLE> 
NOTE 14 - STOCK OPTION PLANS

On February 1, 1997, the Corporation established an Employee
Stock Purchase Plan which allows eligible employees to purchase
stock in the Corporation.  Options granted in 1997 have a 5 year
term and can be exercised at the lower of $19.84 or 85% of the
fair market value of the stock on the date of exercise. Options
granted in 1998 also have a term of 5 years and can be exercised
at 85% of the fair market value of the stock on the date of
exercise. During 1997, 726 shares were issued under the plan at
prices ranging from $19.52 to $19.77 and during 1998, 455 shares
were issued at prices ranging from $16.67 to $19.79.

Under the Corporation's Stock Incentive Plans, options have been
granted to key personnel for terms up to 10 years at option
prices equal to the fair value of the shares on the date of the
grant. No shares have been issued under these plans.

Stock option transactions for the year ended December 31, 1998
and 1997 are summarized below: 
 
<TABLE> 
<CAPTION> 
                                   Stock       Weighted-Average 
                                  Options       Exercise Price  
                                  ________     _________________ 
<S>                                 <C>               <C>  
Year Ended December 31, 1997:
Options Granted: 
  Employee Stock Purchase Plan      15,000           $19.82 
  Stock Incentive Plans              4,830            23.27 

 Options Exercised                    (726)           19.57      
                                  ________ 
Options Outstanding and Exercisable  
  at December 31, 1997 (Prices range  
  from $19.73 to $23.27)            19,104           $20.63 

Year Ended December 31, 1998:
Options Granted: 
  Employee Stock Purchase Plan      20,000           $19.04 
  Stock Incentive Plans             12,000            19.75 
  Options Exercised                   (455)           18.57       
  Options Forfeited                 (4,723)           19.19
                                   ________ 
Options Outstanding and Exercisable  
  at December 31, 1998 (Prices range  
  from $16.53 to $23.27)            45,926           $18.08 
                                   ======== 
</TABLE> 
The remaining average contractual life of options outstanding as
of December 31, 1998 and 1997 is 6.1 and 5.8 years, respectively.

The per share weighted-average fair value of stock options
granted
for the year ended December 31, 1998 was $3.94 on the date of
grant using the Black Scholes option-pricing model with the
following weighted-average assumptions for 1998: expected
dividend yield of 2.74%; risk-free interest rate of 4.89%;
expected life of 4.6 years; and an expected volatility over the
expected life of the options was 25.4%.  The per share weighted-average fair 
value of stock options granted for the year ended
December 31, 1997 was $5.73 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions for 1997: expected dividend yield of 1.71%; risk-free
interest rate of 6.13%; expected life of 3.8 years; and an
expected volatility over the expected life of the options was
22.5%.

The Financial Accounting Standards Board issued Statement No. 123
(SFAS No.123), "Accounting for Stock-Based Compensation." This
Statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument. Under this
method, compensation cost is measured at the grant date or other
measurement date over the amount an employee must pay to acquire
the stock. The accounting requirements of SFAS No.123 were
adopted as of January 1, 1996.  As permitted by SFAS No. 123, the
Corporation has chosen to apply APB No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting
for the Stock Option Plans. Accordingly, no compensation cost has
been recognized for its stock options in the financial
statements. Had the Corporation determined compensation cost
based on the fair value at the grant date for its stock options
under SFAS No. 123, the Corporation's net income and earnings per
share would have been reduced to the pro forma amounts as
follows: 
<TABLE> 
<CAPTION> 
                                        Year Ended       
                                    December 31, 1998 
                                    _________________ 
<S>                                        <C> 
Net Income 
  As Reported                           $2,767,632 
  Pro Forma                              2,641,592 
Net Income per Share (Basic and 
 Assuming Dilution) 
  As Reported                                $1.14 
  Pro Forma                                   1.09 

<CAPTION> 
                                        Year Ended       
                                    December 31, 1997 
                                    _________________ 
<S>                                        <C> 
Net Income 
  As Reported                           $2,325,487 
  Pro Forma                              2,211,846 
Net Income per Share (Basic and 
 Assuming Dilution) 
  As Reported                                 $.93 
  Pro Forma                                    .89 
 
</TABLE> 
<PAGE>
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

As required by SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" (SFAS No. 107), the Corporation has
presented estimated fair value information about financial
instruments, whether or not recognized in the Consolidated
Balance Sheets, for which it is practicable to estimate that
value. Fair value is best determined by values quoted through
active trading markets. Because no active trading market exists
for various types of financial instruments, many of the fair
values disclosed were derived using present value or other
valuation techniques. These fair values are significantly
affected by assumptions used, principally the timing of future
cash flows and the discount rate. As a result, the Corporation's
ability to realize these derived values cannot be assured.
Further, certain financial instruments and all nonfinancial
instruments are excluded. Accordingly, the aggregate fair value
amounts presented do not necessarily represent the underlying
value of the Corporation.

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

Cash and cash equivalents - The carrying amounts reported in the
consolidated balance sheets for cash and short-term investments
approximate their fair values.

Investment securities - Fair values for investment securities are
based on quoted prices, where available. If quoted prices are not
available, fair values are based on quoted prices of comparable
instruments.

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

Off-balance-sheet instruments - For the Corporation's off-
balance-sheet instruments, consisting of commitments to extend
credit and financial and performance standby letters of credit,
the estimated fair value is the same as the instrument's contract
or notional values since they are generally short-term in nature
or they are priced at market when funded.

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

Short-term borrowings - The carrying amounts of federal funds
purchased, advances from the Federal Home Loan Bank and other
short-term borrowings approximate their fair values.

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

At December 31, 1998 and 1997, the estimated fair values of
financial instruments based on the disclosed assumptions are as
follows:
 
<TABLE> 
<CAPTION> 
                                         December 31, 1998        
                                 ______________________________ 
                                      Carrying                    
                                        Value       Fair Value    
                                 _____________   _______________ 
<S>                                    <C>             <C> 
Assets: 
 Cash and Due from Banks          $  7,341,240    $  7,341,240    
   Investment Securities  
 Held to Maturity                   24,079,161      24,523,740    
 Investment Securities 
  Available for Sale                51,676,350      51,676,350    
 Loans, net of Unearned Income    
  and Allowance for Loan Losses    162,053,082     165,035,000    
 Accrued Interest Receivable         1,560,703       1,560,703    

Liabilities: 
 Demand and Savings Deposits       105,486,752     105,486,752    
 Time Deposits                     100,057,016     100,543,000    
 Short-term Borrowing                  186,691         186,691    
 Long-term Debt                     30,623,660      30,800,000    
 
<CAPTION> 
                                    Contract       
                                     Amount         Fair Value  
                                  ____________    _____________ 
<S>                                   <C>              <C> 
Off-balance-sheet Items: 
  Commitments to Extend Credit 
   and Standby Letters of Credit  $ 29,804,360    $ 29,804,360   
 
<CAPTION> 
                                         December 31, 1997        
                                 ______________________________ 
                                      Carrying                    
                                        Value       Fair Value    
                                 _____________   _______________ 
<S>                                    <C>            <C> 
Assets: 
 Cash and Due from Banks          $  6,489,595    $ 6,489,595     
 Investment Securities  
 Held to Maturity                   18,869,847     18,942,946     
 Investment Securities 
  Available for Sale                45,866,774     45,866,774     
 Loans, net of Unearned Income 
  and Allowance for Loan Losses    151,106,486    153,742,000     
 Accrued Interest Receivable         1,445,767      1,445,767     
Liabilities: 
 Demand and Savings Deposits        85,926,798     85,926,798     
 Time Deposits                      94,208,075     94,069,000     
 Short-term Borrowing                  900,000        900,000     
 Long-term Debt                     27,329,060     27,242,000     

<CAPTION> 
                                    Contract       
                                     Amount         Fair Value  
                                  ____________    _____________ 
<S>                                   <C>              <C> 
Off-balance-sheet Items: 
  Commitments to Extend Credit 
   and Standby Letters of Credit  $ 30,802,581   $ 30,802,581     
</TABLE> 
<PAGE>
NOTE 16 - UNION NATIONAL FINANCIAL CORPORATION (PARENT COMPANY 
ONLY) 
 
<TABLE> 
                       CONDENSED BALANCE SHEETS 
<CAPTION> 
                                     December 31,   December 31, 
                                          1998           1997     
                                    ____________   _____________ 
<S>                                      <C>             <C> 
ASSETS 
   Cash in Subsidiary Bank          $    35,477    $    114,631 
   Investment in Subsidiary          22,281,338      22,459,264 
   Other Equity Investment Securities   395,541         399,696 
  Investments in Limited  
       Partnerships                     882,161         941,287 
   Recoverable Federal Income Taxes     224,672         159,022 
                                    ____________   _____________ 
       Total Assets                 $23,819,189    $ 24,073,900 
                                    ============   ============= 
LIABILITIES 
   Limited Partnership Capital Notes$        -0-   $    190,000 
   Deferred Income Taxes                122,452         128,050 
                                    ____________   _____________ 
       Total Liabilities                122,452         318,050 
 
STOCKHOLDERS' EQUITY 
   Common Stock                         627,121         627,332 
   Surplus                            4,793,416       4,814,975 
   Retained Earnings                 20,183,938      18,460,729 
   Unrealized gain on investment 
    securities available for sale,  
    net of tax                          241,515         294,723 
   Less: Treasury Stock              (2,149,253)       (441,909) 
                                    ____________   _____________ 
       Total Stockholders' Equity    23,696,737      23,755,850 
                                     ____________   _____________ 
       Total Liabilities and  
          Stockholders' Equity     $ 23,819,189    $ 24,073,900 
                                    ============   ============= 
</TABLE>        
<TABLE> 
                    CONDENSED STATEMENTS OF INCOME 
<CAPTION> 
                                   Years Ended December 31,       
                                  __________________________ 
                                      1998          1997        
                                  _____________   __________      
<S>                                    <C>           <C>  
INCOME 
 Dividends from Subsidiary         $2,820,000    $1,100,000       
 Dividends on Other Equity  
   Investment Securities               10,270         8,882       
 Interest on Deposits in Subsidiary     5,185         3,647       
 Management Fees from Subsidiary       49,273        39,690       
                                  _____________   __________ 
      Total Income                  2,884,728     1,152,219      
 
EXPENSES                              127,722       140,660       
                                  _____________   __________ 
 Income before Income Taxes and  
   Equity in Undistributed Income  
   of Subsidiary                    2,757,006     1,011,559   
 PROVISION FOR INCOME TAXES (BENEFIT)(138,087)     (141,872)     
                                  _____________   __________ 
                                    2,895,093     1,153,431      
EQUITY in UNDISTRIBUTED INCOME  
  of SUBSIDIARY                      (127,461)     1,172,056      
                                  _____________   _________ 
  NET INCOME                       $2,767,632    $2,325,487     
                                  =============   ========== 
<CAPTION>                                         
                                   Years Ended December 31,       
                                  _________________________ 
                                      1996                      
                                  _____________                   
<S>                                   <C> 
INCOME 
 Dividends from Subsidiary           $ 742,500                    
 Dividends on Other Equity  
 Investment Securities                   9,358                    
 Interest on Deposits in Subsidiary      3,054                    
 Management Fees from Subsidiary        39,758                    
                                   _____________              
      Total Income                     794,670                    
 
EXPENSES                               166,870                    
                                   _____________              
 Income before Income Taxes and  
   Equity in Undistributed Income  
   of Subsidiary                       627,800                    
 PROVISION FOR INCOME TAXES (BENEFIT) (272,244)                   
                                  _____________              
                                       900,044                    
EQUITY in UNDISTRIBUTED INCOME  
  of SUBSIDIARY                      1,291,768                    
                                  _____________             
  NET INCOME                        $2,191,812                    
                 
                                  =============              
                                         
</TABLE> 
<PAGE>
<TABLE> 
                 CONDENSED STATEMENTS OF CASH FLOWS 
<CAPTION> 
                                       Years Ended December 31,   
                                    _____________________________ 
                                          1998           1997     
                                    ______________  _____________ 
<S>                                      <C>            <C> 
CASH FLOWS from OPERATING ACTIVITIES 
   Net Income                         $2,767,632    $2,325,487    
   Adjustments to Reconcile Net Income to Net 
     Cash Provided by Operating Activities: 
      Undistributed Income of  
        Subsidiary                       127,461    (1,172,056)   
      Provision for Deferred Income Taxes (4,186)       (1,556)   
      Decrease/(Increase) in Other Assets (6,524)       78,200    
                                    ______________  _____________ 
     Net Cash Provided by Operating  
        Activities                     2,884,383     1,230,075 
 
CASH FLOWS from INVESTING ACTIVITIES 
   Purchases of Available for Sale  
    Securities                                -0-       (5,950)  
                                    ______________  _____________ 
  Net Cash Provided by (Used in) 
         Investing Activities                 -0-       (5,950) 

CASH FLOWS from FINANCING ACTIVITIES 
 Acquisition of Treasury Stock        (1,995,379)     (306,746)
 Payments on Long-Term Debt             (190,000)     (140,000)
 Issuance of Common and Treasury Stock   266,265       198,827
 Cash Dividends Paid                  (1,044,423)     (876,280)
                                    ______________  _____________ 
  Net Cash (Used in)  
     Financing Activities             (2,963,537)   (1,124,199)
                                    ______________  _____________ 
      NET INCREASE/(DECREASE) in CASH    (79,154)       99,926
CASH - Beginning of Year                 114,631        14,705
                                    ______________  _____________ 
CASH - End of Year                    $   35,477    $  114,631
                                    ==============  ============= 
SUPPLEMENTAL SCHEDULE OF NONCASH 
 INVESTING ACTIVITIES: 
   Retirement of Treasury Stock (13,000 
    shares in 1998,12,000  
    shares in 1997, and 10,000 
    shares in 1996)                  $ 288,035    $   227,542     

<CAPTION> 
                                       Years Ended December 31,   
                                     ____________________________ 
                                          1996                    
                                    _______________               
 <S>                                      <C>  
CASH FLOWS from OPERATING ACTIVITIES 
   Net Income                         $2,191,812                 
   Adjustments to Reconcile Net Income to Net 
     Cash Provided by Operating Activities: 
      Undistributed Income of  
        Subsidiary                    (1,291,768)                 
      Provision for Deferred Income Taxes(19,497)                
      Decrease/(Increase) in Other Assets(20,249)                
                                    ______________                
     Net Cash Provided by Operating  
        Activities                       860,298               
 
CASH FLOWS from INVESTING ACTIVITIES 
   Purchases of Available for Sale  
    Securities                                -0-                
                                    _______________               
  Net Cash Provided by (Used in) 
         Investing Activities                 -0-              

CASH FLOWS from FINANCING ACTIVITIES 
 Acquisition of Treasury Stock          (119,173)                 
 Payments on Long-Term Debt             (140,000)                 
 Issuance of Common and Treasury Stock   130,866                  
 Cash Dividends Paid                    (760,044)                 
                                    _______________               
  Net Cash (Used in)  
     Financing Activities               (888,351)                
                                    _______________               
      NET INCREASE/(DECREASE) in CASH    (28,053)               
 
CASH - Beginning of Year                  42,758                 
                                    _______________               
CASH - End of Year                    $   14,705                  
                                    ===============               

SUPPLEMENTAL SCHEDULE OF NONCASH 
 INVESTING ACTIVITIES: 
   Retirement of Treasury Stock (13,000 
    shares in 1998,12,000  
    shares in 1997,and 10,000 shares in
    1996)                               $153,385                  
</TABLE> 
NOTE 17 - SUBSEQUENT EVENT

On February 11, 1999, the Corporation announced that the Board of
Directors had authorized and approved a plan to purchase up to
56,000 shares of the Corporation's outstanding common stock in
open market or privately negotiated transactions.  The
announcement includes the 6,000 shares remaining from the 1998
common stock repurchase plan.  The number of shares to be
purchased under the plan represents approximately 2.3% of the
outstanding shares of the Corporation.  The Board of Directors
believes that a redemption or repurchase of this type is in the
best interests of the Corporation and its stockholders as a
method to enhance long-term shareholder value.  Currently, the
shares are to be held as treasury shares (issued, but not
outstanding shares).

<PAGE>
                    INDEPENDENT AUDITORS' REPORT 
 
Stockholders and Board of Directors 
Union National Financial Corporation and Subsidiary 
Mount Joy, Pennsylvania 
 
  We have audited the accompanying consolidated balance sheets of 
UNION NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY as of 
December 31, 1998 and 1997, and the related consolidated 
statements of income, changes in stockholders' equity, and cash 
flows for each of the three years in the period ended December 
31, 1998.  These consolidated financial statements are the 
responsibility of 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 
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 financial 
position of Union National Financial Corporation and Subsidiary 
as of December 31, 1998 and 1997 and the results of their 
operations and their cash flows for each of the three years in 
the period ended December 31, 1998, in conformity with generally 
accepted accounting principles.   
 
January 15, 1999, except for Note 17, as to which the date is 
February 11, 1999 
Lancaster, Pennsylvania        
                              /s/ Trout, Ebersole & Groff, LLP 
                             ____________________________________ 
                              Trout, Ebersole and Groff, LLP 
                              Certified Public Accountants  
 
<TABLE> 
 
            SUMMARY OF QUARTERLY FINANCIAL DATA 
 
The unaudited quarterly results of operations for the years ended 
December 31, 1998 and 1997, are as follows: 
<CAPTION> 
                                             1998 
                       __________________________________________ 
(Dollars in thousands,    March    June    September   December 
  except per share data)   31       30        30          31 
                         _______   ______   ________    ________  
<S>                        <C>      <C>       <C>          <C> 
Interest Income          $4,356    $4,473    $4,541      $4,693   
Interest Expense          2,096     2,150     2,228       2,220   
                         _______   ______   ________    ________  
 Net Interest Income      2,260     2,323     2,313       2,473   
Provision for Loan Losses    99       130        53          43   
                         _______   ______   ________    ________  
 Net Interest Income after 
 Provision for Loan  
  Losses                  2,161     2,193     2,260       2,430   
Other Operating Income      286       266       295         310   
Other Operating Expenses  1,626     1,604     1,663       1,825   
                         _______   ______   ________    ________  
Income before Income Taxes  821       855       892         915   
 
Provision for Income Taxes  169       178       185         184   
                         _______   ______   ________    ________  
   Net Income              $652      $677      $707        $731   
                         =======   ======   ========    ========  
Net Income per Common Share 
 (Basic and Assuming  
   Dilution)             $  .27     $ .28     $ .29       $ .30   
                         =======   ======   ========    ========  
 
<CAPTION> 
                                             1997 
                       __________________________________________ 
(In Thousands)            March    June    September   December 
                           31       30        30          31 
                         _______   ______   ________    ________  
<S>                        <C>      <C>       <C>          <C> 
Interest Income          $3,804    $3,995    $4,111      $4,296   
Interest Expense          1,744     1,821     1,928       2,058   
                         _______   ______   ________    ________  
 Net Interest Income      2,060     2,174     2,183       2,238   
Provision for Loan Losses    11       101        91         187   
                         _______   ______   ________    ________  
 Net Interest Income after 
 Provision for Loan  
  Losses                  2,049     2,073     2,092       2,051   
Other Operating Income      237       218       244         286   
Other Operating Expenses  1,581     1,578     1,603       1,584   
                         _______   ______   ________    ________  
Income before Income Taxes  705       713       733         753   
 
Provision for Income Taxes  139       144       147         149   
                         _______   ______   ________    ________  
   Net Income              $566      $569      $586        $604   
                         =======   ======   ========    ========  
Net Income per Common Share 
 (Basic and Assuming  
   Dilution)             $  .23     $ .23     $ .23       $ .24   
                         =======   ======   ========    ========  
</TABLE> 
<PAGE> 
<TABLE> 
 
                      CONSOLIDATED SUMMARY OF OPERATIONS 
<CAPTION> 
 
(Dollars in thousands, except per share data) 
                                  Years Ended December 31,  
                       __________________________________________ 

                                1998         1997        1996 
                             __________   __________   __________ 
<S>                             <C>           <C>         <C>  
INCOME AND EXPENSE 
Interest Income              $ 18,064     $ 16,205     $ 14,218  
Interest Expense                8,695        7,550        6,380  
                             __________   __________   __________ 
Net Interest Income             9,369        8,655        7,838 
Provision for Loan Losses         325          390          150 
                             __________   __________   __________ 
Net Interest Income  
  after Provision for  
  Loan Losses                   9,044        8,265        7,688 
Other Operating Income          1,157          986          811 
Other Operating Expenses        6,718        6,347        5,951 
                             __________   __________   __________ 
Income before Income Taxes      3,483        2,904        2,548 
Provision for Income Taxes        715          579          356 
                             __________   __________   __________ 
Net Income for Year          $  2,768     $  2,325     $  2,192 
                             ==========   ==========   ========== 
PER SHARE *  
 
Net Income (Basic and  
  Assuming Dilution)         $   1.14     $    .93     $    .88 
Cash Dividends Paid              .430         .351         .305 
Average Shares Outstanding
 (Basic)                    2,420,553    2,489,403    2,493,951 
 
FINANCIAL RATIOS 
 
Return on Average Assets         1.15%        1.09%        1.17% 
Return on Average  
  Stockholders' Equity          12.05        10.17        10.24 
Dividend Payout Ratio           37.74        37.68        34.68 
Average Stockholders' Equity 
 to Average Assets               9.51        10.68        11.40 
 
AVERAGE BALANCE SHEET 
 
Net Loans                   $ 162,090    $ 140,925     $124,483 
Investments                    63,461       57,551       48,707 
Other Earning Assets            4,211        3,564        2,576 
Total Assets                  241,639      213,986      187,814 
Deposits                      188,179      168,814      154,474 
Short-Term Borrowings             412        1,461        2,009 
Long-Term Debt                 28,584       19,425        8,411 
Stockholders' Equity           22,971       22,859       21,411 
 
BALANCE SHEET AT YEAR-END 
 
Net Loans                    $163,796     $152,699     $130,391  
Investments                    75,756       64,737       54,890 
Other Earning Assets            7,795        2,835        4,790  
Total Assets                  261,368      233,243      203,472  
Deposits                      205,544      180,135      164,513 
Short-Term Borrowing              187          900        2,989  
Long-Term Debt                 30,624       27,329       12,676 
Stockholders' Equity           23,697       23,756       22,223 
 
* Per Share information reflects two-for-one stock split of the
Corporation's Common Stock effective on June 1, 1995 and the 5%
stock dividend efective on May 15, 1997.

<CAPTION> 
                                  Years Ended December 31,  
                       __________________________________________ 

                                1995         1994               
                             __________   __________   
<S>                              <C>         <C>  
INCOME AND EXPENSE 
Interest Income              $ 12,773     $ 11,801                
Interest Expense                5,175        4,131               
                             __________   __________              

Net Interest Income             7,598        7,670              
Provision for Loan Losses         159          113              
                             __________   __________              

Net Interest Income  
  after Provision for  
  Loan Losses                   7,439        7,557              
Other Operating Income            753          631              
Other Operating Expenses        5,479        5,207              
                             __________   __________              
Income before Income Taxes      2,713        2,981              
Provision for Income Taxes        614          733             
                             __________   __________              
Net Income for Year          $  2,099     $ 2,248              
                             ==========   ==========              
PER SHARE *  
 
Net Income (Basic and  
  Assuming Dilution)         $    .84     $    .89              
Cash Dividends Paid              .224         .210              
Average Shares Outstanding  
 (Basic)                    2,501,548    2,515,080              
 
FINANCIAL RATIOS 
 
Return on Average Assets         1.28%        1.42%              
Return on Average  
  Stockholders' Equity          10.42        12.15              
Dividend Payout Ratio           26.68        23.45              
Average Stockholders' Equity 
 to Average Assets              12.24        11.72              
 
AVERAGE BALANCE SHEET 
 
Net Loans                   $ 115,026     $105,427
Investments                    38,320       40,859              
Other Earning Assets              880        3,313               
Total Assets                  164,631      157,830               
Deposits                      139,896      138,126               
Short-Term Borrowings           1,197          383               
Long-Term Debt                  2,320           -0-              
Stockholders' Equity           20,149       18,499               
 
BALANCE SHEET AT YEAR-END 
 
Net Loans                    $120,417     $108,266
Investments                    39,437       38,652               
Other Earning Assets               -0-       1,870             
Total Assets                  174,657      159,160              
Deposits                      143,368      139,208               
Short-Term Borrowing            3,399          309
Long-Term Debt                  6,270           -0-              
Stockholders' Equity           20,769       19,053               

* Per Share information reflects two-for-one stock split of the
Corporation's Common Stock effective on June 1, 1995 and the 5%
stock dividend efective on May 15, 1997.
</TABLE> 
<PAGE> 
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS

The following is management's discussion and analysis of the
significant changes in the results of operations, capital
resources, and liquidity presented in its accompanying
consolidated financial statements for Union National Financial
Corporation, a bank holding company (the Corporation), and its
wholly-owned subsidiary, Union National Community Bank (the
Bank).  The Corporation's consolidated financial condition and
results of operations consist almost entirely of the Bank's
financial condition and results of operations.  This discussion
should be read in conjunction with the financial
tables/statistics, financial statements, and notes to financial
statements appearing elsewhere in this annual report.  Current
performance does not guarantee, assure, or may be indicative of
similar performance in the future.  
     
We have made forward-looking statements in this document, and in
documents that we incorporate by reference, that are subject to
risks and uncertainties.  Forward-looking statements include the
information concerning possible or assumed future results of
operations of Union National Financial Corporation, Union
National Community Bank, or the combined company.  When we use
words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements.  

Shareholders should note that many factors, some of which are
discussed elsewhere in this document and in the documents that we
incorporate by reference, could affect the future financial
results of Union National Financial Corporation, Union National
Community Bank, or the combined company and could cause those
results to differ materially from those expressed in our forward-
looking statements contained or incorporated by reference in this
document.  These factors include the following:
-  operating, legal, and regulatory risks;
-  economic, political, and competitive forces affecting our
banking, securities, asset management, and credit services
businesses; and
-  the risk that our analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.  

RESULTS OF OPERATIONS 
Overview

Consolidated net income for 1998 was $2,768,000, an increase of
19.1%, as compared to consolidated net income of $2,325,000 for
1997.  Consolidated net income for 1997 increased by 6.1%, as
compared to consolidated net income of $2,192,000 for 1996.

On a per share basis, net income for 1998 was $1.14, as compared
to $.93 for 1997, and $.88 for 1996.  The earnings per share
information is the same under the basic and assuming dilution
methods. 

Results of operations for 1998 as compared to 1997 were impacted
by the following items: 
-  Net income increased due to a 15.0% increase in average net
loans, which were funded by growth in deposits and by additions
to average borrowings.  Loan growth was primarily a result of
increases in residential and commercial mortgages. 
-  Net income increased due to a 17.4% increase in other
operating income. 
-  Net income decreased due to the narrowing of the spread
between the earnings rates on loans and investments as compared
to the interest rates paid on certificates of deposit and long-term debt.
-  Net income decreased due to a 5.8% increase in other operating
expenses. 
-  Net income increased due to a decrease in the provision for
loan losses. 

The above items are quantified and discussed in further detail
under their respective sections below.

Results of operations for 1997 as compared to 1996 were impacted
by the following items: 
-  Net income increased due to a 13.2% increase in average net
loans, primarily residential and commercial mortgages, which were
funded by growth in deposits and by additions to average
borrowings.  
-  Net income decreased due to the narrowing of the spread
between the earnings rates on loans and investments as compared
to the interest rates paid on certificates of deposit and long-term debt.
-  Net income decreased due to a 6.7% increase in other operating
expenses.  
-  Net income increased due to a 21.5% increase in other
operating income.
-  Net income decreased due to a reduction in income tax credits
available in 1997 as compared to 1996.

Net income as a percent of total average assets, also known as
return on average assets (ROA), was 1.15% for 1998, compared to
1.09% for 1997, and 1.17% for 1996.  Net income as a percent of
average stockholders' equity, also known as return on average
equity (ROE), was 12.05% for 1998, compared to 10.17% for 1997,
and 10.24% for 1996.  ROE was positively impacted by the
repurchase of 88,513 shares of outstanding common stock in 1998. 
See the discussion under the section on Stockholders' Equity for
further details.  
                    
Management currently expects the growth in deposits for 1999 to
be comparable to its historic growth rates of deposits. 
Management has taken specific actions to enhance the Bank's
competitive position for core deposits.  These actions include
increased emphasis on business development and continued sales
training for staff to enhance the Bank's competitive position for
loans, deposits, and other financial services in northwestern
Lancaster County, Pennsylvania (the Bank's Market Area).  Other
actions include the strategic promotion of the Bank's retail
offices in light of continued consolidation of financial
institutions in the Bank's Market Area and the promotion of
intermediate-term certificates of deposit.  As a result of the
above described efforts, the Bank's certificate of deposit
portfolio under $100,000 increased by d5,856,000dand the Bank's
checking and savings deposits increased by d19,560,000dduring
1998.  The funding for the loan growth is further discussed under
the section on Liquidity. 

Management currently expects a moderation in loan growth for 1999
as compared to historic growth rates.  However, the following
items are currently expected to enhance loan growth during 1999:
-  lending rates are at generally affordable rates for
prospective borrowers; 
-  increased emphasis on business development and continued sales
training for staff; 
-  further product development and promotion of the Bank's
consumer and home equity lines of credit; 
-  economic stability of the Bank's Market Area as discussed
later in this section; and 
-  continued population growth and business development in the
Bank's Market Area.

It is anticipated that economic activity in the Bank's Market
Area during 1999 appears favorable due to the availability of
generally low lending rates and continued construction activity. 
The overall effects of current and past economic conditions, as
well as other factors, can be seen by a mild lessening of certain
borrowers' financial strength.  Management is monitoring these
general and specific trends closely.  Their various effects are
discussed later under the section on Loans.

Net Interest Income

Net interest income is the amount by which interest income on
loans and investments exceeds interest incurred on deposits and
other interest-bearing liabilities.  Net interest income is the
Corporation's primary source of revenue.  The amount of net
interest income is affected by changes in interest rates and by
changes in the volume and mix of interest-sensitive assets and
liabilities.  

For analytical and discussion purposes, net interest income and
corresponding yields are presented on a taxable equivalent basis. 
Income from tax-exempt assets, primarily loans to or securities
issued by state and 

<PAGE>
local governments, is adjusted by an amount equivalent to the
federal income taxes which would have been paid if the income
received on these assets was taxable at the statutory rate of 34%
for 1998, 1997, and 1996.  

Net interest income for 1998 increased by $824,000, or 9.0%, over
1997.  Net interest income for 1997 increased by $853,000, or
10.3%, over 1996.  For 1998, commercial, residential, and
consumer average loan growth of $21,165,000 and average
investment security growth of $5,910,000 were funded by the
growth in average deposits of $19,365,000 and by the growth in
average long-term borrowings of $9,159,000.  The additional
borrowings represented fixed-rate and variable-rate advances from
the Federal Home Loan Bank of Pittsburgh (FHLB).  Average earning
assets increased in the amount of $27,722,000 in the aggregate
over 1997.  The volume growth in earning assets and interest-
bearing liabilities increased net interest income by the amount
of $1,179,000 in 1998 over 1997, as compared to $1,002,000 in
1997 over 1996.

The overall interest rate on the average total earning assets
decreased to 8.13% for 1998, as compared to 8.28% for 1997, due
to an overall market decline in interest rates and the
refinancing of higher interest rate loans with lower interest
rates.  Conversely, the overall interest rate on the average
interest-bearing liabilities increased to 4.39% for 1998, as
compared to 4.36% for 1997, due to the change in the mix of
interest-bearing liabilities in the form of additional long-term
debt and additional funds in higher paying money market accounts. 
The net effect of all interest rate fluctuations and funding
changes was to decrease net interest income in the amount of
$355,000 for 1998 from 1997, as compared to a decrease of
$149,000 for 1997 from 1996.  See Management's discussion below
concerning the anticipated impact of these interest rate
fluctuations to the results of operations for 1999. 

In order to enhance the net interest income in future periods,
Management has entered into transactions that increase earning
assets funded by advances from the FHLB.  The terms and amounts
of the transactions, when combined with the Bank's overall
balance sheet structure, maintain the Bank within its interest
rate risk policies.  As of December 31, 1998, the Bank has
received long-term advances of $30,624,000 from its available
credit of $81,189,000 at the FHLB for purposes of funding loan
demand and mortgage-backed security purchases.  The total
advances have a current average effective rate of 5.46% with
maturities ranging from January 1999 to September 2008.

Commencing October 1998, the Federal Reserve Bank began easing
the monetary supply causing the prime interest rate to decrease
from 8.50% to 7.75%.  The immediate impact of the short-term
interest rate decreases was to decrease interest rates on loans
and deposits that adjust according to short-term rate indexes and
to decrease reinvestment rates on

<TABLE> 
Distribution of Assets, Liabilities, and Stockholders' Equity; 
Interest Rates and Interest Differential (Taxable Equivalent 
Basis) 
<CAPTION> 
                                             Year Ended 
                                          December 31, 1998 
                                _________________________________ 
(In Thousands)                  Average            
                                Balance       Interest      Rate 
                               _________      ________     ______ 
<S>                               <C>           <C>         <C>  
ASSETS 
Interest-Bearing Deposits 
 in Other Banks               $      51       $      2      3.92% 
Federal Funds Sold                4,160            222      5.34  
Investment Securities: 
 Taxable                         44,540          2,796      6.28  
 Exempt from Federal Taxes       18,921          1,508      7.97  
Loans-Net*                      162,090         14,163      8.74  
                               _________      ________     ______ 
 Total Earning Assets           229,762       $ 18,691      8.13% 
                                              ========     ====== 
Allowance for Loan Losses        (1,681)                          
Other Nonearning Assets          13,558                           
                               _________                          
 TOTAL ASSETS                 $ 241,639                           
                               =========                          

LIABILITIES and STOCKHOLDERS' EQUITY 
Deposits: 
 Interest-Bearing Demand      $  44,528       $  1,015      2.28% 
 Savings                         25,598            601      2.35  
 Time                            98,842          5,435      5.50  
Short-Term Borrowing                412             23      5.58  
Long-Term Debt                   28,584          1,621      5.67  
                               _________      ________     ______ 
Total Interest-Bearing  
 Liabilities                    197,964        $ 8,695      4.39% 
                                              ========     ====== 
Demand Deposits                  19,211                           
Other Liabilities                 1,493                           
                               _________                          
   TOTAL LIABILITIES            218,668                           
 Stockholders' Equity            22,971                           
                               _________ 
 TOTAL LIABILITIES and 
   STOCKHOLDERS' EQUITY       $ 241,639                           
                               =========                          
 Net Interest Income/Yield on 
   Average Earning Assets                      $ 9,996      4.35% 
                                              ========     ====== 
Balances of nonaccrual loans and related income recognized have 
been included for computational purposes.  Balances reflect 
amortized historical cost for available for sale securities.  The 
related average unrealized holding gain or loss on securities is 
included in other nonearning assets.  Tax-exempt income included 
in loans and securities has been adjusted to a taxable equivalent 
basis using an incremental rate of 34%. 
 
* Includes loan fees of $613,000 for the year ended December 31, 
1998, $572,000 for 1997, and $515,000 for 1996. 
 
<CAPTION> 
                                             Year Ended 
                                          December 31, 1997 
                                _________________________________ 
(In Thousands)                  Average            
                                Balance       Interest      Rate 
                               _________      ________     ______ 
<S>                               <C>           <C>         <C>  
ASSETS 
Interest-Bearing Deposits 
 in Other Banks               $      84       $      3      3.57% 
Federal Funds Sold                3,480            192      5.52  
Investment Securities: 
 Taxable                         41,262          2,659      6.44  
 Exempt from Federal Taxes       16,289          1,315      8.07  
Loans-Net*                      140,925         12,553      8.91  
                               _________      ________     ______ 
 Total Earning Assets           202,040       $ 16,722      8.28% 
                                              ========     ====== 
Allowance for Loan Losses        (1,456)                          
Other Nonearning Assets          13,402                           
                               _________                          
 TOTAL ASSETS                 $ 213,986                           
                               =========                          

LIABILITIES and STOCKHOLDERS' EQUITY 
Deposits: 
 Interest-Bearing Demand      $  38,134       $   852      2.23%
 Savings                         24,184           590      2.44
 Time                            89,992         4,913      5.46 
Short-Term Borrowing              1,461            87      5.95 
Long-Term Debt                   19,425         1,108      5.70 
                               _________      ________     ______ 
Total Interest-Bearing  
 Liabilities                    173,196       $ 7,550      4.36% 
                                              ========     ====== 
Demand Deposits                  16,504                           
Other Liabilities                 1,427                           
                               _________                          
   TOTAL LIABILITIES            191,127                           
 Stockholders' Equity            22,859                           
                               _________ 
 TOTAL LIABILITIES and 
   STOCKHOLDERS' EQUITY       $ 213,986                           
                               =========                          
 Net Interest Income/Yield on 
   Average Earning Assets                     $ 9,172      4.54%  
                                             ========     ====== 
Balances of nonaccrual loans and related income recognized have 
been included for computational purposes.  Balances reflect 
amortized historical cost for available for sale securities.  The 
related average unrealized holding gain or loss on securities is 
included in other nonearning assets.  Tax-exempt income included 
in loans and securities has been adjusted to a taxable equivalent 
basis using an incremental rate of 34%. 
 
* Includes loan fees of $613,000 for the year ended December 31, 
1998, $572,000 for 1997, and $515,000 for 1996. 
  
<CAPTION> 
                                             Year Ended 
                                          December 31, 1996 
                                _________________________________ 
(In Thousands)                  Average            
                                Balance       Interest      Rate 
                               _________      ________     ______ 
<S>                               <C>           <C>         <C>  
ASSETS 
Interest-Bearing Deposits 
 in Other Banks               $      48       $      3      6.25% 
Federal Funds Sold                2,528            136      5.38  
Investment Securities: 
 Taxable                         33,546          2,073      6.18  
 Exempt from Federal Taxes       15,161          1,258      8.29  
Loans-Net*                      124,483         11,229      9.02  
                               _________      ________     ______ 
 Total Earning Assets           175,766       $ 14,699      8.36% 
                                              ========     ====== 
Allowance for Loan Losses        (1,307)                          
Other Nonearning Assets          13,355                           
                               _________                          
 TOTAL ASSETS                 $ 187,814                           
                               =========                          
LIABILITIES and STOCKHOLDERS' EQUITY 
Deposits: 
 Interest-Bearing Demand      $  33,924       $    699      2.06% 
 Savings                         23,343            585      2.51  
 Time                            82,701          4,495      5.44  
Short-Term Borrowing              2,009            115      5.72  
Long-Term Debt                    8,411            485      5.77  
                               _________      ________     ______ 
Total Interest-Bearing  
 Liabilities                    150,388        $ 6,379      4.24% 
                                              ========     ====== 
Demand Deposits                  14,506                           
Other Liabilities                 1,509                           
                               _________                          
   TOTAL LIABILITIES            166,403                           
 Stockholders' Equity            21,411                           
                               _________ 
 TOTAL LIABILITIES and 
   STOCKHOLDERS' EQUITY       $ 187,814                           
                               =========                          
 Net Interest Income/Yield on 
   Average Earning Assets                      $ 8,320      4.73% 
                                              ========     ====== 
Balances of nonaccrual loans and related income recognized have 
been included for computational purposes.  Balances reflect 
amortized historical cost for available for sale securities.  The 
related average unrealized holding gain or loss on securities is 
included in other nonearning assets.  Tax-exempt income included 
in loans and securities has been adjusted to a taxable equivalent 
basis using an incremental rate of 34%. 
 
* Includes loan fees of $613,000 for the year ended December 31, 
1998, $572,000 for 1997, and $515,000 for 1996. 

</TABLE>

<PAGE> 
investment securities and renewing certificates of deposit.  In
addition, the Bank's balances of liabilities in the form of long-
term debt and funds in money market accounts that are paying
higher interest rates have increased.  For 1999, Management
currently expects its net interest margin percentage to be
comparable to 1998. In addition, the growth in the earning assets
during 1998 is currently expected to increase the net interest
margin for 1999 over 1998.  The effective interest rate impact of
expected cash flows on investments and of renewing certificates
of deposit can be reasonably estimated at current interest rate
levels.  However, the yield curve during 1999, the options
selected by customers, and the future mix of the loan,
investment, and deposit products in the Bank's portfolios may
significantly change the estimates used in the simulation models. 
Based on the Bank's current model and estimates as of December
31, 1998, the factors discussed above will have a net positive
impact to the net interest margin for 1999,as compared to 1998. 
See further discussions under the sections on Liquidity and
Market Risk - Interest Rate Risk.

Provision for Loan Losses

The loan loss provision is an estimated expense charged to
earnings in anticipation of losses attributable to uncollectible
loans. The provision is based on Management's analysis of the
adequacy of the allowance for loan losses. Net charge-offs
amounted to $175,000 for 1998, as compared to $168,000 for 1997,
and $44,000 for 1996.  Future adjustments to the allowance, and
consequently, the provision for loan losses, may be necessary if
economic conditions or loan credit quality differ substantially
from the assumptions used in making Management's evaluation of
the level of the allowance for loan losses as compared to the
balance of outstanding loans.  The provision for loan losses was
$325,000 in 1998, $390,000 in 1997, and $150,000 in 1996.  The
decrease in the provision for loan losses from 1998 to 1997 is
mainly a result of lower loan growth in 1998 as compared to 1997. 
See discussion on Loan Quality/Allowance for Loan Losses.

Other Operating Income

Other operating income for 1998 was $1,157,000, representing an
increase of $171,000, or 17.3%, over 1997.  Contributing to this
increase were the following items:
-additional earnings in automatic teller machine (ATM) and card
usage fees including ATM surcharges in the amount of $26,000;
-additional earnings in insufficient funds charges in the amount
of $81,000;
-additional earnings in debit card interchange fee income in the
amount of $39,000; and 
-additional earnings in mutual fund commissions from the Bank's
continued relationship with T.H.E. Financial Group, Ltd. in the
amount of $31,000.
The additional earnings in insufficient funds charges is mainly a
result of an increase in the Bank's per item insufficient funds
charge which was effective in June 1998.  The Bank also currently
assesses a surcharge at its ATMs; however, ATM surcharges, or the
elimination thereof, may be subject to future legislation.

Other operating income for 1997 was $986,000, representing an
increase of $175,000, or 21.5%, over 1996. Contributing to this
increase were additional earnings resulting from the following
items:
-an increase in ATM usage fees, card usage fees (surcharges)
established in October 1997, and related revenues generated from
new ATM locations established in 1997 and 1996 by an aggregate
amount of $60,000; 
-an increase in insufficient funds charges as volumes increased
by an amount of $28,000; 
-new revenue sources in the amount of $24,000 including debit
card interchange and commercial account analysis fees; and 
-an increase in letter of credit fees and trust revenues.

Other Operating Expenses 

The aggregate of noninterest expenses for 1998 increased by
$371,000, or 5.8%, over 1997.  This noninterest expense increase
is discussed below as it pertains to the various expense
categories.  

Employee salaries and wages increased by $363,000, or 13.0%, over
the same period in 1997. This increase was essentially due to
annual merit and cost of living increases, early retirement
payments, and planned new staff positions.  New staff positions
include a senior vice president to lead retail and commercial
banking, a senior vice president to lead sales and marketing
efforts, a community banking group manager, an accounting
officer, a full-time business development officer, a quality
service manager, and additional staff for our new telephone
banking center and credit services division.

On January 1, 1999, Mark D. Gainer assumed the position of
President/CEO of the Corporation upon the retirement of William
E. Eby who retired as President/CEO on December 31, 1998 after 40
years with the Bank.  Mr. Eby will, however, continue to serve as
a  
<TABLE> 
Rate/Volume Analysis of Changes in Net Interest Income (Taxable 
Equivalent Basis) 
<CAPTION> 
                                          1998 Compared to 1997 
                                    _____________________________ 
                                     Total 
(In Thousands)                       Change      Volume     Rate 
                                    ________     ________   _____ 
<S>                                   <C>         <C>        <C> 
Interest Income From Interest- 
 Bearing Deposits in Other Banks    $    (1)     $    (1)  $  -0- 
  Federal Funds Sold                     30           36      (6) 
 Investment Securities:  
    Taxable                             137          207     (70) 
    Exempt from Federal Taxes           193          210     (17) 
  Loans-Net                           1,610        1,853    (243) 
                                    ________     ________   _____ 
    Total Earning Assets              1,969        2,305    (336) 
 
Interest Exepense On  
 Deposits: 
  Interest-Bearing Demand               163          146      17  
  Savings                                11           33     (22) 
  Time                                  522          487      35  
 Short-Term Borrowing                   (64)         (59)     (5) 
 Long-Term Debt                         513          519      (6) 
                                    ________     ________   _____ 
   Total Interest-Bearing  
      Liabilities                     1,145        1,126      19  
                                    ________     ________   _____ 
   Net Interest Income              $   824      $ 1,179   $(355) 
                                    ========     ========   ===== 

 
 
Balances of nonaccrual loans and related income recognized have 
been included for computational purposes.  The change in interest 
due to both volume and rate has been allocated individually to 
the change in volume and rate on a proportional basis. 
Tax-exempt income included in loans and securities has been
adjusted to a taxable equivalent basis using an incremental rate
of 34%. 
 
<CAPTION> 
                                         1997 Compared to 1996 
                                    _____________________________ 
                                     Total 
(In Thousands)                       Change      Volume     Rate 
                                    ________     ________   _____ 
<S>                                   <C>         <C>        <C> 
Interest Income From Interest- 
 Bearing Deposits in Other Banks    $    -0-     $     1   $  (1) 
 Federal Funds Sold                      56           53       3  
 Investment Securities:  
    Taxable                             586          494      92  
    Exempt from Federal Taxes            58           92     (34) 
  Loans-Net                           1,324        1,467    (143) 
                                    ________     ________   _____ 
    Total Earning Assets              2,024        2,107     (83) 
 
Interest Exepense On  
 Deposits: 
  Interest-Bearing Demand               153           91      62  
  Savings                                 5           21     (16) 
  Time                                  418          398      20  
 Short-Term Borrowing                   (28)         (33)      5  
 Long-Term Debt                         623          628      (5) 
                                    ________     ________   _____ 
   Total Interest-Bearing  
      Liabilities                     1,171        1,105      66  
                                   ________     ________   _____  
   Net Interest Income              $   853      $ 1,002   $(149) 
                                    ========     ========   ===== 

Balances of nonaccrual loans and related income recognized have 
been included for computational purposes.  The change in interest 
due to both volume and rate has been allocated individually to 
the change in volume and rate on a proportional basis. 
Tax-exempt income included in loans and securities has been
adjusted to a taxable equivalent basis using an incremental rate
of 34%. 
</TABLE> 
<PAGE> 
member of the Board of Directors.  Mr. Gainer has worked at the
Bank for the past 22 years, most recently as Senior Vice
President/Chief Operating Officer.  The Board of Directors also
recently announced that Michael A. Frey and Nancy H. Draude have
joined the Bank as Senior Vice Presidents and Clement M. Hoober,
CPA has been promoted to the position of Senior Vice President. 
Mr. Frey, who comes to the Bank with 11 years of previous
experience in the financial services industry will be responsible
for retail and commercial banking.  In addition, as of January 1,
1999, Mr. Frey was appointed to the position of Chief Operating
Officer of the Bank.  Ms. Draude, who comes to the Bank with 19
years of previous experience in the financial services industry
will be responsible for the Bank's sales and marketing efforts. 
Mr. Hoober, who has been with the Bank for 10 years, will have
direct responsibility for financial services, operations, and
risk management.  

The effect of staff changes, including retirements and new
positions, are currently expected to reduce results of operations
by approximately $55,000, net of income taxes, for 1999 as
compared to 1998.

Related fringe benefits decreased by $224,000, or 26.1%, from
1997.  The decrease is essentially due to a reduction in the
Bank's discretionary contribution to the Bank's profit-sharing
plan.  On September 10, 1998,  the Board of Directors authorized
the replacement of the existing plan with the Union National
Community Bank 401(k) Profit Sharing Plan.  This plan is
effective January 1, 1999 and allows employees to contribute a
portion of their salaries and wages to the plan.  The Bank may
elect to make a discretionary contribution to the plan and may
also match a portion of employee elected salary deferrals,
subject to a 6% maximum of their salaries and wages.  For 1999,
the Bank has elected to match 50% of employee elected salary
deferrals which do not exceed 6% of their salaries and wages. 
The Bank currently expects its total 1999 contribution to the new
401(k) profit-sharing plan to reduce results of operations by
approximately $40,000, net of income taxes, for 1999 as compared
to 1998.

Occupancy, furniture, and equipment expenses for 1998 decreased
by $18,000, or 1.9%, from 1997. 

Other operating expenses for 1998, increased by $250,000, or
14.6%, over the same period in 1997.  Contributing factors to the
increase in other operating expenses as compared to the same
period in 1997 included the following: 
-  an increase in supplies expenses of $57,000; 
-  an increase in professional and consulting fees in the amount
of $47,000; and
-  an increase in ATM transaction and clearing costs in the
amount of $28,000. 
The increase in professional and consulting fees included
consulting fees for a sales training program for staff,
consulting fees for an electronic data processing consultant to
perform a comprehensive review of current system capabilities and
alternatives, fees paid to an independent consultant for loan
review services, and legal costs for certain loan collection
services in connection with charge-offs and non-performing assets
in 1998.   

Total other operating expenses for 1997 increased by $396,000, or
6.7%, over 1996.  Of this increase, employee salaries and wages
and related fringe benefits increased by $251,000, or 7.4%, over
1996.  This increase was essentially due to new staff additions
and due to annual merit, cost of living, and incentive pay
increases.  Related profit-sharing expense, payroll taxes, and
healthcare costs increased similarly.  Staff additions included
training and administrative support positions.

Occupancy, furniture, and equipment expenses in 1997 increased by
$17,900, or 1.9%, from 1996.  This increase was primarily due to
increases in other real estate expenses and equipment service
agreements offset by a decrease in snow removal costs.

The FDIC Insurance Assessment expense increased by $18,000 for
1997 as compared to 1996.  The FDIC Insurance Assessment rate
increased to $.0129 for every $100 in deposits as of January 1,
1997, from a charge of $500 per quarter in 1996. 

Other operating expense items in 1997 increased by $109,000, or
6.8%, over 1996. Contributing factors to the increase in other
operating expenses as compared to 1996 included the following: 
-  an increase in professional and consulting fees in the amount
of $79,000; and
-  an increase in ATM transaction and clearing costs in the
amount of $36,000. 
The increase in professional and consulting fees included
implementation legal costs for employee stock option plans,
consulting fees for a broadly based staff sales training program,
additional legal fees with respect to certain loan collections,
and fees for the audit of electronic data processing systems. 
ATM transaction and clearing costs increased due to the addition
of remote ATMs in 1997 and 1996, due to new debit card clearing
costs, and due to an increase in customer transactions by 44% in
1997 over 1996 at the Bank's ATMs.  As an offset to the increase
in other operating expenses, net losses and charge-offs from the
limited partnerships in the amount of $62,000 were recognized as
other operating expenses for 1997, as compared to $107,000 for
1996.

Income Taxes

The Corporation's income tax expense for 1998 was $715,000 as
compared to $579,000 for 1997 and $356,000 for 1996.  The
effective tax rate for 1998 was 20.5% as compared to 19.9% in
1997 and 14.0% in 1996.  The increase in income tax expense from
1997 to 1998 was primarily due to the increase in corporate
earnings before income taxes.  The increase in the income tax
expense and effective tax rate from 1996 to 1997 was due to the
increase in corporate earnings before income taxes and the
reduction of $117,000 from 1996 to 1997 in total available income
tax credits from tax advantaged limited partnerships.  In 1996,
historic federal income tax credits in the amount of $185,000
resulted from the Corporation's $632,500, 49.5%, investment in
Nissly Chocolate Factory Apartments Associates, which was formed
to rehabilitate the former Nissly Chocolate Factory into 28
housing units to be marketed to seniors with low-to-moderate
incomes.  Currently, the effective tax rate of the Corporation
for 1999 and the income tax credits from limited partnerships are
expected to approximate the effective tax rate and tax credits in
1998.  

Year 2000 Issues

The following section contains forward-looking statements which
involve risks and uncertainties.  The actual impact on the
Corporation of the Year 2000 issue could materially differ from
that which is anticipated in the forward-looking statements as a
result of certain factors identified below.

The "Year 2000 Problem" (Y2K) arose because many existing
computer programs use only the last two digits to refer to a
year.  Therefore, these computer programs do not properly
recognize a year that begins with "20" instead of the familiar
"19".  If not corrected, many computer applications could fail or
create erroneous results by or at the year 2000.  This could
cause entire system failures, miscalculations, and disruptions of
normal business operations including, among other things, a
temporary inability to process transactions, generate statements,
or engage in similar day to day business activities.  The extent
of the potential impact of the Year 2000 Problem is not yet
known, and if not timely corrected, it could affect the global
economy.

The Bank is subject to the regulation and oversight of various
banking regulators, whose oversight includes the provision of
specific timetables, programs, and guidance regarding Year 2000
issues.  Regulatory examinations of the Bank's Year 2000 programs
are conducted on a quarterly basis and reports are regularly
provided to the Corporation's Board of Directors.

Corporation's State of Readiness 

Union National Financial Corporation is committed to ensuring
that the Corporation's daily operations suffer little or no
impact from the
<PAGE>
century date change.  The Corporation has applied due diligence
throughout the Y2K process, following the guidelines contained in
the series of Federal Financial Institutions Examinations
Council's Interagency Guidelines and the Securities and Exchange
Commission's Release No. 33-7558.  The guidelines identify the
following phases: awareness, assessment, renovation or
remediation, testing or validation, and implementation.

Based on an ongoing assessment, the Corporation has determined
that it will be required to modify or replace portions of its
software so that its computer systems will properly use dates
beyond December 31, 1999.  The Corporation presently believes
that implementing modifications to existing software and
hardware, the Year 2000 Problem can be mitigated.  However, if
such modifications are not made, or are not completed on a timely
basis, the Year 2000 Problem could have a material adverse impact
on the operations of the Corporation.

Management has initiated an enterprise-wide program to prepare
the Corporation's computer systems and applications for the Year
2000.  The Corporation has developed a comprehensive inventory of
all mainframe and PC based applications, third-party
relationships, environmental systems, proprietary programs, and
non-computer related systems (such as postage meters and fax
machines).  This assessment identified eleven mission-critical or
related systems which could have a significant impact on the
Corporation due to the effect of the century date change.  As of
December 31, 1998, the Corporation has largely remedied its
eleven identified mission-critical and related systems.  

The Bank has communicated with and completed its Year 2000 credit
risk assessment of nearly all of its material customers. 
Material customers include significant commercial borrowers that
could pose a credit risk to the Bank and significant commercial
depositors that could pose a liquidity risk to the Bank, if they
are not Year 2000 compliant and their businesses are disrupted. 
In addition, follow-up communication will be scheduled during the
second and third quarters of 1999 for certain material customers
according to the Bank's initial risk assessment. 

The Corporation has initiated communications with all of its
significant vendors, suppliers, and business partners to
determine the extent to which the Corporation is vulnerable to
those third-parties' failure to remedy their own Year 2000
Problems.  These include external suppliers, such as, wire
transfer systems, telephone systems, electric companies, and
other utility companies for continuation of service.  These
vendors' Year 2000 readiness responses are being assessed as to
their Year 2000 compliance status.  In the event that any of the
Corporation's significant vendors, suppliers and business
partners do not successfully achieve Year 2000 compliance in a
timely manner, the Corporation's business or operations could be
adversely affected.  Currently, these significant entities are
indicating that they are on schedule to be Year 2000 ready.  If
significant entities fail to meet Year 2000 operating
requirements, the Corporation intends to engage alternative
suppliers or systems.  Nevertheless, the Corporation does not
believe that the cost of addressing the Year 2000 issues will be
a material event or uncertainty that would cause reported
financial information not to be necessarily indicative of future
operating results or financial conditions.  The Corporation does
not believe that the costs or the consequences of incomplete or
untimely resolution of its Year 2000 issues represent a known
material event or uncertainty that is reasonably likely to affect
its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating
results or future financial condition.

Costs of Year 2000  

The Corporation is utilizing both internal and external resources
to correct or modify and test its systems for Year 2000
compliance.  For 1999, the Corporation is currently expecting
incremental costs related to the Year 2000 problem to reduce
results of operations by $20,000, net of income taxes.  The
estimated Year 2000 project costs include the costs associated
with the impact of third-parties' Year 2000 issues, and are based
on presently available information.  The total cost of the
project is being funded through operating cash flows.  The
Corporation does not expect the amounts required to be expensed
in 1999 to have a material effect on the financial position or
results of operations.  However, if compliance is not achieved in
a timely manner by the Corporation or any of its significant
third-parties, be it a supplier of services or a customer, the
Y2K issue could possibly have a material adverse effect on the
Corporation's operations and financial position.  

The cost of the projects and the date on which the Corporation
plans to complete both Year 2000 modifications and systems
conversions are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third-party
modification plans and other factors.  However, there can be no
guarantee that these estimates will be achieved and actual
results could differ materially from those plans.  Specific
factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.  

Risks of Year 2000

At present, Management believes its progress in remedying the
Corporation's systems, programs, and applications and installing
Year 2000 compliant upgrades is on target. The Year 2000 computer
problem creates risk for the Corporation from unforseen problems
in its own computer systems and from third-party vendors who
provide the majority of mainframe and PC based computer
applications.  Presently, the Corporation is testing its own
remediated mission-critical systems for Year 2000 compliance. 
Testing is expected to be largely completed by March 31, 1999. 
Failure of third-party systems relative to the Year 2000 issue
could have a material impact on the Corporation's ability to
conduct business.  

Contingency Plans

The Corporation is currently developing a business resumption
contingency plan.  This plan is for the possibility of the
failure of its systems at critical dates in the future.  The
business resumption plan has a target completion date of June 30,
1999.  

Since the Corporation's mission-critical systems have been
remediated and largely tested for Year 2000 compliance, the
Corporation has not developed a remediation contingency plan at
this time.  It is the Corporation's intent to mitigate the risks
associated with a failure to fully complete the implementation of
its Year 2000 compliant mission-critical systems.  The
Corporation will continue to monitor the progress of remediation
on the mission-critical systems and will develop a remediation
contingency plan in the future if such a need should arise.  

RECENT ACCOUNTING STANDARDS ISSUED

In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities."  This Statement establishes
accounting and reporting standards for derivative instruments and
for hedging activities.  In addition, the transition provisions
of this Statement allow the Corporation to reclassify held to
maturity securities to an available for sale classification.  The
Corporation does not expect the provisions of this Statement to
have a material effect on the liquidity, results of operations,
or capital resources of the Corporation when it becomes effective
in the first quarter of 2000.  

In October 1998, the Financial Accounting Standards Board issued
Statement No. 134, (SFAS No. 134), "Accounting for Mortgage-Backed 

<PAGE>

Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." There is no
incidence of coverage for the Corporation under this Statement. 

Financial Condition

Investment Securities
     
The Corporation has segregated its investment securities into two
categories: those held to maturity and those available for sale. 
The Corporation possesses both the intent, subject to credit
impairment, and ability to hold each security in its investment
portfolio to maturity.  The Corporation does recognize that the
investment portfolio serves other functions including an ultimate
source of liquidity and a tool to manage interest rate risk.  In
order to acknowledge these functions, the Corporation has
designated certain specific debt securities as being available
for sale.  The designation of these securities as available for
sale gives the Corporation the ability to liquidate them without
calling into question the Corporation's intent to hold the
remaining portion of its portfolio to maturity.  In addition, all
marketable equity securities are classified as available for
sale. Unrealized holding gains and losses for available for sale
securities are reported under Accumulated Other Comprehensive
Income as a separate component of stockholders' equity, net of
tax, until realized.  Securities classified as being held to
maturity will continue to be carried in the financial statements
at their amortized cost.  Based on the current interest rate
environment, Management expects to realize immaterial investment
gains or losses in 1999.

The amortized cost of the investment securities increased by
$11,100,000 from the prior year, representing a 17.3% increase. 
The increase primarily consisted of purchases of obligations of
state and political subdivisions, corporate debt securities, and
mortgage-backed securities, which amounted to an increase in
amortized cost of $15,432,000 from the prior year.  The net
increase in the investment securities was funded by growth in
average deposits and additional borrowing from the FHLB.  

Fixed rate mortgage-backed securities, known as collateralized
mortgage obligations (CMOs), had an amortized cost of $17,032,000
at December 31, 1998, compared to $-0- at December 31, 1997. 
These CMOs had a weighted-average yield of 6.23% at December 31,
1998.  The currently expected weighted-average life of these CMOs
is approximately four years.  The weighted-average life
represents expected cash flows of the investment weighted over
time.  The weighted-average life of the CMOs increases to
approximately 6.7 years if there is an immediate increase in
long-term market interest rates of 2% and decreases to
approximately one year if there is an immediate decrease in long-
term market interest rates of 2%.  These factors are included in
the Bank's internal management information when assessing
liquidity and interest rate risks.  See sections on Liquidity and
Market Risk - Interest Rate Risk for further discussions on these
risks.  

Due to the generally lower long-term mortgage rates during 1998
as compared to 1997, the prepayment speed on adjustable-rate
mortgage securities significantly increased as homebuyers moved
to lower cost fixed-rate mortgages.  Higher prepayment speeds on
investment securities purchased with a premium will depress the
net interest margin as the premium is amortized more rapidly. 
Consequently, Management periodically assesses the strategy of
selling adjustable-rate mortgage-backed securities, as well as
other available for sale securities.  Investment security
purchases and sales are affected in order to enhance the Bank's
net interest margin, while managing liquidity and interest rate
risk within specified limits.  The amortized cost of mortgage-backed 
securities with adjustable-rate caps of 2% per year
amounted to $4,968,000 at December 31, 1998 and $6,418,000 at
December 31, 1997.  The amortized cost of mortgage backed
securities with adjustable-rate caps of 1% per year amounted to
$3,775,000 at December 31, 1998 and $7,801,000 at December 31,
1997.  The amortized cost of floating rate securities, including
adjustable rate-mortgage-backed securities, decreased to
$10,758,000 at December 31, 1998, as compared to $16,991,000 at
December 31, 1997. 

The expected cash flows from the investment securities, including
estimated prepayments and expected call options, is currently
estimated at an amount of $19,535,000 for 1999, which represents
nearly 26% of the Bank's investment securities as compared to
nearly 22% as estimated on December 31, 1997 for 1998.  The
Bank's mortgage-backed securities are issued by U.S. Government
agencies or corporations.

The Corporation did not hold any subinvestment grade security or
a security that had a market value decline below cost that is
other than temporary at December 31, 1998. In addition, there are
no significant concentrations of investments (greater than 10% of
stockholders' equity) in any individual security issuer.

At December 31, 1998, the total unrealized holding gain for
securities classified as available for sale was $366,000 and the
total unrealized holding gain for securities classified as held
to maturity was $445,000.  In comparison, at December 31, 1997,
the total unrealized holding gain for securities classified as
available for sale was $447,000 and the total unrealized holding
gain for securities classified as held to maturity was $73,000. 
The unrealized holding gain on the available for sale securities,
net of income tax effect, amounted to an increase in
stockholders' equity of $242,000 at December 31, 1998 and
$295,000 at December 31, 1997.  Except as discussed under the Net
Interest Income section with regards to the impact of interest
rate changes on the results of operations, Management believes
that the effects of any unrealized losses in the available for
sale investment portfolio on future earnings, liquidity, and
capital resources to be immaterial. 

The following shows the summary of investment securities held by
the Corporation:
<TABLE> 
<CAPTION> 
  (In Thousands)            Carrying Value at December 31,        
                 ________________________________________________ 
                            1998                     1997         
                 _______________________    _____________________ 
                   Available    Held to     Available    Held to  
                   for Sale     Maturity     for Sale    Maturity 
                 ____________   ________    _________   ________ 
<S>                  <C>          <C>          <C>          <C>  
U. S. Treasury 
 Securities         $ 3,560     $    -0-    $  4,018    $    -0-
Obligations of 
 Other U.S. 
 Government Agencies 14,220          -0-      18,397         -0- 
Obligations of State 
 and Political 
 Subdivisions            -0-     21,806           -0-    17,361
Corporate Securities  1,958       2,273           -0-     1,509 
Mortgage-Backed 
 Securities          28,982          -0-      20,808         -0- 
Equity Securities     2,956          -0-       2,644         -0-
                 ____________   ________   __________   ________ 
 Total              $51,676     $24,079     $ 45,867    $18,870
                 ============   ========   ==========   ======== 
 
<CAPTION> 
 
    (In Thousands)            Carrying Value at December 31,      
 
                ________________________________________________  
                            1996                               
                ________________________ 
                  Available     Held to                           
                   for Sale     Maturity                          
                ____________   _________  
<S>                  <C>          <C> 
U. S. Treasury 
 Securities          $ 2,986    $    -0-                          
Obligations of 
 Other U.S. 
 Government Agencies   8,860         -0-                          
Obligations of State 
 and Political 
 Subdivisions             -0-    16,116                           
Corporate Securities      -0-     1,008                           
Mortgage-Backed 
 Securities           24,398         -0-                          
Equity Securities      1,522         -0-                          
                ____________   _________  
  Total             $ 37,766    $17,124                         
                ============   =========  
 
</TABLE> 
<PAGE>
The following table illustrates the maturities of investment 
securities and the weighted average yields based upon amortized 
costs as of December 31, 1998. Yields are shown on a taxable 
equivalent basis, assuming a 34% federal income tax rate. 
<TABLE> 
<CAPTION> 
                          Within     1 - 5     5 - 10     Over 
    (In Thousands)        1 Year     Years      Years   10 Years  
                         ________   _______   _______   _________ 
<S>                        <C>       <C>       <C>        <C>  
Available for Sale Securities: 
U.S. Treasury Securities: 
  Estimated Market Value  $ 1,515   $ 2,045    $    -0-  $    -0- 
  Amortized Cost            1,504     2,019         -0-       -0- 
  Yield                      6.11%     5.56%                      

Obligations of Other U.S. 
 Government Agencies: 
  Estimated Market Value    4,998        -0-     9,222        -0- 
  Amortized Cost            4,998        -0-     9,146        -0- 
  Yield                      5.25%                6.26%           
 
Mortgage-Backed Securities 
 by contractual maturity (1): 
  Estimated Market Value       -0-       -0-     1,708    27,274  
  Amortized Cost               -0-       -0-     1,748    27,272  
  Yield                                           5.68%     6.43% 
 
Corporate Securities:
  Estimated Market Value       -0-    1,958         -0-       -0- 
  Amortized Cost               -0-    1,957         -0-       -0- 
  Yield                                5.78%                      
Equity Securities: 
  Estimated Market Value                                          
  Amortized Cost                                                  
  Yield                                                           

Held to Maturity Securities: 
Obligations of State and 
 Political Subdivisions: 
  Estimated Market Value    1,048     1,787      3,357    16,042  
  Amortized Cost            1,035     1,760      3,301    15,710  
  Yield                      7.55%     7.59%      7.53%     7.90% 
 
Corporate Securities: 
  Estimated Market Value      504     1,786         -0-       -0- 
  Amortized Cost              502     1,771         -0-       -0- 
  Yield                      6.35%     6.17%                      
 
Total Securities: 
  Estimated Market Value                                          
  Amortized Cost                                                  
  Yield                                                           
   
(1) It is anticipated that these mortgage-backed securities will 
be repaid prior to their contractual maturity dates. The
weighted-average yield for mortgage-backed securities is impacted
for normal amortization and estimated prepayments based on
current market interest rates. 
 
<CAPTION> 
                                                                
    (In Thousands)            Total                               
 
                            ______   
<S>                          <C>  
Available for Sale Securities: 
U.S. Treasury Securities: 
  Estimated Market Value  $ 3,560     
  Amortized Cost            3,523     
  Yield                      5.79% 
 
Obligations of Other U.S. 
 Government Agencies: 
  Estimated Market Value   14,220   
  Amortized Cost           14,144       
  Yield                      5.90%                
 
Mortgage-Backed Securities 
 by contractual maturity (1): 
  Estimated Market Value   28,982   
  Amortized Cost           29,020         
  Yield                      6.38%               
 
Corporate Securities:
  Estimated Market Value    1,958                               
  Amortized Cost            1,957                               
  Yield                      5.78%           

Equity Securities:                
  Estimated Market Value    2,956                                 
  Amortized Cost            2,667                                 
  Yield                      6.54%                                
 
Held to Maturity Securities: 
Obligations of State and 
 Political Subdivisions: 
  Estimated Market Value   22,234       
  Amortized Cost           21,806   
  Yield                      7.80%    
 
Corporate Securities: 
  Estimated Market Value    2,290       
  Amortized Cost            2,273       
  Yield                      6.21%     
                            ______   
Total Securities: 
  Estimated Market Value  $76,200                                 
  Amortized Cost           75,390                                 
  Yield                      6.66%                                
                            ======   
   
(1) It is anticipated that these mortgage-backed securities will 
be repaid prior to their contractual maturity dates. The
weighted-average yield for mortgage-backed securities is impacted
for normal amortization and estimated prepayments based on
current market interest rates. 

</TABLE> 
Loans

Total net loans were $163,796,000 at December 31, 1998,
representing an $11,097,000, or 7.3%, increase over net loans of
$152,699,000 at December 31, 1997.  The increase in loans
resulted primarily from continued demand for residential and
commercial mortgage loans including lines of credit secured by
residential real estate.  At December 31, 1998, there were no
loan concentrations over 10% of loans outstanding to any one
category or borrower.  However, mortgage loans constitute 87% of
the Bank's loan portfolio; consequently, the quality of these
loans is affected by the region's economy and real estate market. 
Total net loans with variable-rate pricing amounted to
$50,853,000 and $43,717,000 as of December 31, 1998 and 1997,
respectively.  See section on Market Risk - Interest Rate Risk.

Other than as described herein, Management does not believe there
are any trends, events, or uncertainties which are reasonably
expected to have a material adverse impact on future results of
operations, liquidity, or capital resources.  Further, based on
known information, Management believes that the effects of
current and past economic conditions and other unfavorable
business conditions may result in the inability of loans
amounting to $2,526,000 to comply with their respective repayment
terms.  This represents a decrease from the amount of $2,705,000
at December 31, 1997.  In aggregate, these loans are well
secured, essentially with real estate, equipment, and vehicles. 
Management currently believes that potential losses on these
loans have already been provided for in the Allowance for Loan
Losses.  These loans are not considered impaired as defined by
current generally accepted accounting principles.  The borrowers
are of special mention since they have shown a decline in
financial strength and payment quality.  Management has increased
its monitoring of the borrowers' financial strength.  In
addition, Management expects that a portion of these loans will
be classified as nonperforming in 1999.  The nonperforming loans
table, appearing in the section entitled Nonperforming Loans,
does not include the aforementioned loans.  
<PAGE>
<TABLE> 
Loans are composed of the following: 
<CAPTION> 
                                           December 31,           
                              __________________________________  
      (In Thousands)             1998        1997       1996      
                              __________   _________   __________ 
<S>                              <C>         <C>         <C> 
Real Estate-Mortgage: 
  First and Second Residential $ 99,984    $ 93,495   $ 82,169    
  Commercial and Industrial      29,968      23,777     21,948    
  Construction and Land 
   Development                    6,586       9,630      4,035    
  Agricultural                    5,727       4,598      4,368    
Commercial and Industrial         6,042       6,035      5,235    
Consumer                          9,311       9,320      8,794    
Agricultural                      2,550       2,213      1,609    
Other                             3,698       3,720      2,299    
                              __________   _________   __________ 
   Total Loans                  163,866     152,788    130,457   
Less: Unearned Income               (70)        (89)       (66)
                              __________   _________   __________ 
   Net Loans                   $163,796    $152,699   $130,391  
                              ==========   =========   ========== 
<CAPTION> 
                                           December 31,           
                             ____________________________________ 
      (In Thousands)             1995        1994                 
                              __________   _________    
<S>                               <C>         <C> 
Real Estate-Mortgage: 
  First and Second Residential $ 75,430    $ 67,760      
  Commercial and Industrial      21,098      17,099        
  Construction and Land 
   Development                    4,198       4,431          
  Agricultural                    3,602       3,734          
Commercial and Industrial         4,725       3,815          
Consumer                          7,853       7,647          
Agricultural                      1,609       2,252          
Other                             2,003       1,778          
                              __________   _________    
   Total Loans                  120,518     108,516               
Less: Unearned Income              (101)       (250)              
                              __________   _________    
   Net Loans                   $120,417    $108,266    
                              ==========   =========    
</TABLE> 
 
The loan maturities and interest sensitivity of total loans, 
excluding residential real estate mortgages and consumer loans at 
December 31, 1998, are as follows: 
<TABLE> 
<CAPTION> 
                                      Years to Maturity (1)       
                            ____________________________________ 
                            Within    1 - 5     Over        
    (In Thousands)          1 Year    Years    5 Years   Total   
                            _______ _________ ________ _________ 
<S>                           <C>       <C>     <C>      <C>  
Commercial,  
  Agricultural and Other    $ 8,273  $ 7,834  $31,878  $47,985 
Construction and Land 
   Development                4,558    1,323      705    6,586  
                            _______ _________ ________ _________ 
   Total                    $12,831  $ 9,157  $32,583  $54,571 
                            ======= ========= ======== ========= 
Fixed Interest Rates        $ 4,117  $ 4,788  $11,480  $20,385 
Floating or Adjustable  
   Interest Rates             8,714    4,369   21,103   34,186 
                            _______ _________ ________ _________ 
   Total                    $12,831  $ 9,157  $32,583  $54,571 
                            ======= ========= ======== ========= 
(1) Due to interest rate levels, economic conditions, and other 
relevant factors, it is anticipated that there will be loans that 
are repaid prior to their contractual maturity dates. 
 
</TABLE> 
Nonperforming Assets

Nonperforming loans consist of nonaccruing loans and loans 90
days or more past due. Nonaccruing loans are comprised of loans
that are no longer accruing interest income because of apparent
financial difficulties of the borrower.  Interest on nonaccruing
loans is recorded when received only after past due principal is
brought current and deemed collectible in full.  If nonaccrual
loans had been current and in accordance with their original
terms, gross interest income of approximately $96,000 and $47,000
would have been recorded on such loans for the years ended
December 31, 1998 and 1997, respectively. Interest income
recognized on such loans approximated $27,000 for the year ended
December 31, 1998 and $4,000 for the year ended December 31,
1997.  At December 31, 1998, total nonperforming loans amounted
to $974,000, or .6% of total net loans, as compared to $706,000
at December 31, 1997.  Historically, the percent of nonperforming
loans to total net loans as of December 31, for the previous
five-year period, was an average of .7%.  The reduction is a
result of increased review and supervision of the applicable
loans.  There are no troubled debt restructurings. 

At December 31, 1998, the recorded investment in loans that are
considered to be impaired under generally accepted accounting
principles was $70,000 as compared to $26,000 at December 31,
1997.  These amounts are included in the nonaccrual loans
reflected below.  The measure of impairment is based on the fair
value of the collateral, since foreclosure is probable.  The
related allowance for loan losses amounted to $22,000 at December
31, 1998 and $2,000 at December 31, 1997.  The average recorded
investment in impaired loans was $451,000 during the year ended
December 31, 1998 and $303,000 during the year ended December 31,
1997.  

<TABLE>

The following shows the summary of nonperforming loans:
<CAPTION> 
                                            December 31,          
                                _________________________________ 
      (In Thousands)               1998        1997      1996     
                                _________    ________   _________ 
<S>                                <C>         <C>        <C>  
Nonaccruing Loans               $   131     $    94     $    91   
Accrual Loans - 90 days or 
  more past due                     843         612         752   
                               _________    ________   __________ 
  Total Nonperforming  
    Loans                       $   974     $   706     $   843   
                               =========    ========   ========== 
  Nonperforming Loans 
    as a % of Net Loans              .6%         .5%         .6%  
                               =========    ========   ========== 
  Allowance for Loan        
    Losses as a % of        
    Nonperforming Loans             179%        226%        163%  
                               =========    ========   ========== 
<CAPTION> 
                                            December 31,          
                              ___________________________________ 
        (In Thousands)               1995        1994             
                             _____________ _____________ 
<S>                                <C>          <C>  
Nonaccruing Loans               $   203     $    -0-    
Accrual Loans - 90 days or 
  more past due                   1,022         618           
                             _____________ _____________ 
  Total Nonperforming  
    Loans                       $ 1,225     $   618     
                               =========    ========    
  Nonperforming Loans 
    as a % of Net Loans             1.0%         .6%           
                               =========    ========    
  Allowance for Loan        
    Losses as a % of        
    Nonperforming Loans             103%        191% 
                               =========    ========    
</TABLE>   
 
Other real estate owned includes assets acquired through
foreclosure and loans identified as in-substance foreclosures.  A
loan is classified as in-substance foreclosure when the
Corporation has taken possession of the collateral regardless of
whether formal foreclosure proceedings have taken place.  Other
real estate owned is valued at the lower of the loan balance at
the time of foreclosure or estimated fair market value, net of
selling costs, and is included in other assets.  Gains and losses
resulting from the sale or writedown of other real estate and
income and expenses related to the operation of other real estate
owned are recorded in other expenses. Other real estate owned
amounted to $379,000 at December 31, 1998 and $-0- at December
31, 1997.  The other real estate owned as of December 31, 1998
represents commercial and residential real estate that was
foreclosed on after two unrelated borrowers defaulted on their
small business loans.  The other real estate expense, including
cost writedowns to fair value, that impacted the results of
operations amounted to $26,000 for the year ended December 31,
1998 and $34,000 for the year ended December 31, 1997. 

<PAGE>

Loan Quality/Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed
adequate by Management to absorb estimated probable loan losses
and is formally reviewed by Management on a quarterly basis.  The
allowance is increased by provisions charged to operating expense
and reduced by net charge-offs.  Management's periodic evaluation
of the adequacy of the allowance 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.  While Management uses available information to make
such evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the 
assumptions used in making the evaluation.  In addition, various
regulatory agencies, as an integral part of their examination
process, review the Bank's Allowance for Loan Losses.  Such
agencies may require the Bank to recognize additions to the
allowance based on their judgement of information available to
them at the time of their examination.  No adjustment to the
allowance for loan losses was necessary as a result of the Office
of Comptroller's most recent examination of the allowance as of
June 30, 1997.

As of October 1998, a review of selected portions of the Bank's
commercial loan portfolio was completed by an outside independent
consultant.  This review included an evaluation of credit
relationships exceeding $400,000 and all loans on nonaccrual
status, past due 90 days or more, or on the Bank's internal
watchlist.  At the conclusion of the review, the consultant did
not recommend any increase in the allowance for loan losses. 
Through September 1998, the Bank had the loan portfolio formally
reviewed by an independent loan review officer on an ongoing
basis.  This loan review consisted of an annual review of
significant credit relationships exceeding $500,000, and a
quarterly review of loans that are 90 days or more past due,
nonaccruing loans, previously rated loans, and other specifically
watched loans.  It is anticipated that during 1999 there will be
two semiannual reviews performed by an outside independent
consultant.  In addition, the loan portfolio is reviewed annually
by the external independent auditors.  Senior Management
evaluates credit risk on a quarterly basis, or more frequently,
as circumstances dictate.  At December 31, 1998, the percent of
loans secured by real estate was 87% of the overall loan
portfolio.  The Corporation's policy generally requires that the
borrower provides 20% equity for first mortgage real estate loans
and 20% equity for other loans secured by real estate. 
 
The allowance for loan losses increased by $150,000 from the
prior year and the ratio of the allowance for loan losses to net
loans was 1.06% at December 31, 1998, as compared to 1.04% at
December 31, 1997.  The increase in the allowance for loan losses
over 1997 is primarily a result of an increase in loans
outstanding of 7.3%, including an 11.3% increase in
nonresidential mortgages.  Management believes based on
information currently available that the current allowance for
loan losses of $1,743,000 is adequate to meet potential loan
losses.  Management expects loan charge-offs, net of recoveries,
to exceed the average level of net loan charge-offs for the
previous five-year period as a result of the annual growth in net
loans. 

<TABLE> 
Analysis of Allowance for Loan Losses 
<CAPTION> 
                                      Years Ended December 31,    
                                _________________________________ 
    (In Thousands)                  1998       1997      1996     
                               __________   ________   _________ 
<S>                                 <C>        <C>       <C> 
Average Total Loans  
  Outstanding 
    (Less Unearned Income)      $162,090    $ 140,925   $124,483  
                                ==========   ========   ========= 
Allowance for Loan Losses, 
  Beginning of Year             $  1,593    $   1,371   $  1,265
  Loans Charged-Off During Year: 
  Real Estate-Mortgage*               16           -0-        -0- 
  Installment Loans to  
    Individuals                      186           83         47  
 Commercial, Industrial 
    and Agricultural                  34          117         18  
                                __________   ________   _________ 
    Total Charge-Offs                236          200         65  
Recoveries of Loans 
  Previously Charged-Off: 
    Real Estate-Mortgage*             -0-          -0-        -0- 
  Installment Loans to 

    Individuals                       51           13         11  
          
 Commercial, Industrial   
      and Agricultural                10           19         10  
                                __________   ________   _________ 
    Total Recoveries                  61           32         21  
                                __________   ________   _________ 
    Net Loans Charged-Off            175          168         44  
Provision for Loan Losses 
  Charged to Operations              325          390        150  
                                __________   ________   _________ 
Allowance for Loan Losses, 
  End of Year                   $  1,743      $ 1,593    $ 1,371  
                                ==========   ========   ========= 
Ratio of Net Loans 
  Charged-Off to Average 
  Loans Outstanding                  .11%         .12%       .04% 
                                ==========   ========   ========= 
Ratio of Allowance for 
  Loan Losses to Net Loans 
  at End of Year                    1.06%        1.04%      1.05% 
                                ==========   ========   ========= 
 
* During this five-year period, there were no charge-offs or 
recoveries of real estate construction loans. 
 
<CAPTION> 
 
                                      Years Ended December 31,    
                                _________________________________ 

    (In Thousands)                    1995      1994              
                                __________   ________   
<S>                                 <C>         <C>     
Average Total Loans  
  Outstanding 
    (Less Unearned Income)        $115,026  $105,427             
                                ==========   ========   
Allowance for Loan Losses, 
  Beginning of Year                $ 1,182   $ 1,114             
Loans Charged-Off During Year: 
  Real Estate-Mortgage*                 -0-       -0-             
  Installment Loans to  
    Individuals                         57        30              
 Commercial, Industrial 
    and Agricultural                    50        46              
                                __________   ________   
    Total Charge-Offs                  107        76              
Recoveries of Loans 
  Previously Charged-Off: 
    Real Estate-Mortgage*               -0-       -0-           
    Installment Loans to 
      Individuals                        7        19           
    Commercial, Industrial   
      and Agricultural                  24        12           
                                __________   ________   
    Total Recoveries                    31        31             
                                __________   ________   
    Net Loans Charged-Off               76        45             
Provision for Loan Losses 
  Charged to Operations                159       113             
                                __________   ________   
Allowance for Loan Losses, 
  End of Year                     $  1,265   $ 1,182             
                                ==========   ========   
Ratio of Net Loans 
  Charged-Off to Average 
  Loans Outstanding                    .07%      .04%           
                                ==========   ========   
Ratio of Allowance for 
  Loan Losses to Net Loans 
  at End of Year                      1.05%     1.09%           
                                ==========   ========   
 
* During this five-year period, there were no charge-offs or 
recoveries of real estate construction loans. 
 
</TABLE> 
The following sets forth an allocation of the allowance for loan 
losses by category.  The specific allocation in any particular 
category may be reallocated in the future to reflect current 
conditions. Accordingly, Management considers the entire 
allowance to be available to absorb losses in any category. 
<TABLE> 
<CAPTION> 
                                     December 31, 1998            
                       ________________________________________  
                              Amount          Percent of Loans 
                          (In Thousands)      in each Category 
                        _________________     ___________________ 
<S>                            <C>                   <C>    
Commercial, Industrial 
  and Agricultural           $    705                 33%   
Real Estate- 
  Residential Mortgages           543                61          
Installment Loans to 
  Individuals                     495                 6         
                             ____________            _____        

                             $  1,743               100%        
                             ============            =====        
<CAPTION> 
                                     December 31, 1997            
                         ________________________________________ 
                              Amount          Percent of Loans 
                          (In Thousands)      in each Category 
                        _________________     ___________________ 
<S>                            <C>                   <C>  
Commercial, Industrial 
  and Agricultural           $    532                 33%   
Real Estate- 
  Residential Mortgages           580                  61         
Installment Loans to 
  Individuals                     481                  6         
                             ____________            _____        
                             $  1,593                100%        
                             ============            =====        
</TABLE>  
<PAGE> 
Liquidity

The Corporation's objective is to maintain adequate liquidity to
fund needs at a reasonable cost and to provide contingency plans
to meet unanticipated funding needs or a loss of funding sources,
while minimizing interest rate risk.  Adequate liquidity provides
resources for credit needs of borrowers, for depositor
withdrawals, and for funding Corporate operations.  Sources of
liquidity are as follows: 
-maturing investment securities, which include overnight
investments in federal funds sold; 
-overnight correspondent bank borrowing on various credit lines; 
-payments on loans and mortgage-backed securities; and 
-a growing core deposit base. 
Management believes that its core deposits are fairly stable even
in periods of changing interest rates.  Liquidity management is
governed by policies and measured on a quarterly basis.  These
measurements indicate that liquidity generally remains stable and
that liquidity consistently exceeds the Bank's minimum defined
level.  There are no known trends, or any known demands,
commitments, events, or uncertainties that will result in, or
that are reasonably likely to result in, liquidity increasing or
decreasing in any material way. 

Membership in the FHLB provides the Bank with additional
liquidity alternatives such as short- or long-term funding on
fixed- or variable-rate terms.  Available funding from the FHLB
amounts to a maximum available funding capacity of $81,189,000.
In order to provide funding for the Bank's loans and investments,
the Bank has outstanding borrowings from the FHLB of $30,624,000
with an average rate of 5.46% at December 31, 1998 and
$27,139,000 with an average rate of 5.73% at December 31, 1997. 
As of December 31, 1998, advances of $1,675,000 are due in 1999
and advances of $12,500,000 are convertible in 1999.  The FHLB's
convertible fixed-rate advances allow the FHLB the periodic
option to convert to a LIBOR adjustable rate advance.  Upon the
FHLB's conversion, the Bank has the option to repay the
respective advances in full.  As of December 31, 1998, the FHLB
would likely convert advances in the amount of $5,000,000 if
market interest rates increase more than 1.25% and $7,500,000 if
market interest rates increase by more than 2%.  

Market Risk - Interest Rate Risk

As a financial institution, the Corporation's primary component
of market risk is interest rate volatility.  Fluctuations in
interest rates will ultimately impact the level of income and
expense recorded on a large portion of the Bank's assets and
liabilities.  Virtually all of the Corporation's interest-sensitive assets and 
liabilities are held by the Bank, and
therefore, interest rate risk management procedures are performed
by the Bank.  The nature of the Bank's current operations is such
that the Bank is not subject to foreign currency exchange or
commodity price risk.  The Corporation does not own any trading
assets.  The Corporation has not entered into any hedging
transactions such as interest rate floors, caps, and swaps.

The objectives of interest rate risk management are to maintain
or increase net interest income over a broad range of market
interest rate movements.  The Asset and Liability Management
Committee is responsible for managing interest rate risk using
policies approved by the Bank's Board of Directors.  The Bank
manages interest rate risk by changing the mix or repricing
characteristics of its investment securities portfolio and
borrowings from the FHLB and by the promotion or development of
specific loan and deposit products.  The Bank retains an outside
consulting group to assist in monitoring its interest rate risk
using income simulation models on a quarterly basis.  The
simulation model measures the sensitivity of future net interest
income to hypothetical changes in market interest rates.

In addition, the Bank utilizes an interest rate-sensitivity
report called a "GAP" report, which illustrates the time
intervals of cash flows or the next repricing date of interest-earning assets 
and interest-bearing liabilities.  The Bank's GAP
reports reflect a consistent negative rate-sensitivity position
throughout the first year, in that rate-sensitive liabilities
exceed rate-sensitive assets.  The following analysis reflects
cumulative rate-sensitive assets of $96,911,000 as compared to
cumulative rate-sensitive liabilities of $117,904,000 as of the
one-year time frame. The Bank's cumulative interest-sensitivity
gap for the one-year time frame is a negative 8.1% of total
assets at December 31, 1998, as compared to a policy range of
plus 15% to negative 15%, and as compared to a negative 6.8% at
December 31, 1997. The interest rate-sensitivity analysis for the
Bank with investment securities at amortized cost at December 31,
1998, is as follows:
<TABLE> 
Interest Rate Sensitivity 
<CAPTION> 
                          1 - 90    91 - 365    1 - 3    3 - 5   
  (In Thousands)           Days       Days      Years    Years    
                         ________   ________  ________  ________  
<S>                         <C>       <C>        <C>      <C> 
   ASSETS 
Earning Assets: 
 Federal Funds Sold      $  7,795 $     -0- $     -0-  $     -0- 
 Mortgage-Backed Securities: 
  Variable                  3,977    6,765        -0-        -0- 
  Fixed                       462    1,374     2,926      5,874 
 Investment Securities      4,942    6,309    19,073      8,594 
 Net Loans:   
  Variable                 25,424   12,272    11,071        630 
  Fixed                     7,330   20,261    39,865     24,300 
                          ________  ________  ________  ________  
 TOTAL                   $ 49,930 $ 46,981  $ 72,935   $ 39,398 
                          ========  ========  ========  ========  
  LIABILITIES 
Deposits: 
Interest-Bearing Demand  $  8,046 $     -0- $     -0-  $     -0- 
Money Market               23,876       -0-       -0-        -0- 
Savings                     9,349    1,084        -0-        -0-
Time                       21,068   36,587    39,234      3,168
FHLB Advances and 
 Other Borrowings          11,677    6,217     9,109      2,347 
                          ________  ________  ________  ________ 
TOTAL                    $ 74,016 $ 43,888  $ 48,343   $  5,515
                          ========  ========  ========  ======== 
Cumulative Interest- 
 Sensitivity Gap         $(24,086)$(20,993) $  3,599   $ 37,482
                          ========  ========  ========  ======== 
Cumulative Interest- 
 Sensitivity Gap as a Percent 
 of Total Assets             (9.3%)   (8.1%)     1.4%      14.4%  
                          ========  ========  ========  ======== 
<CAPTION>                 
                          Over 5       
  (In Thousands)           Years     Total 
                         ________  ________   
<S>                         <C>       <C>
   ASSETS 
Earning Assets: 
 Federal Funds Sold      $     -0-$   7,795                       
 Mortgage-Backed Securities: 
  Variable                     -0-   10,742 
  Fixed                     7,642    18,278     
 Investment Securities      7,345    46,263 
 Net Loans:   
  Variable                  1,432    50,829 
  Fixed                    21,211   112,967 
                          ________  ________
  TOTAL                  $ 37,630  $246,874  
                          ========  ======== 
     LIABILITIES 
Deposits: 
Interest-Bearing Demand  $ 25,086  $ 33,132 
Money Market                   -0-   23,876
Savings                    17,490    27,923
Time                           -0-  100,057
FHLB Advances and 
 Other Borrowings           1,461    30,811 
                          ________  ________
 TOTAL                   $ 44,037  $215,799 
                          ========  ======== 
 Cumulative Interest- 
 Sensitivity Gap         $ 31,075
                          ========  
   Cumulative Interest- 
 Sensitivity Gap as a Percent 
 of Total Assets              11.9%
                           ========  
</TABLE> 
<PAGE> 
The amount of assets and liabilities shown, which reprice or
mature during a particular period, were determined based on the
earlier of when it reprices or when it is to be repaid for each
asset or liability.  Callable investment securitiesare reflected
based on the security's anticipated call date, where the call on
the security is likely when compared to the current interest rate
yield curve.  Also, loans and mortgage-backed securities are
reflected based on contractual amortization or contractual
interest rate adjustments and on estimates for prepayments and
refinancings based on current market interest rates.  Interest-bearing demand 
and savings deposits have always been considered a
stable source of funds and although the rates are subject to
change, rates on these accounts historically have not changed as
quickly or as often as other loan and deposit rates.  Based on an
historical analysis during periods of rising interest rates, a
portion of these deposits will invest in higher yielding
instruments.  This portion is determined to be sensitive to
interest rate fluctuations in the earliest periods.  In addition,
a percentage of the deposits that remain constant is also
considered sensitive to interest rate fluctuations in order to
account for the interest rate fluctuations in these deposits as
compared to the more sudden and significant fluctuations of
interest rates on short-term loans and time deposits.  Similar
computations were made for savings deposits.

Certain shortcomings are inherent in the method of analysis
presented in the foregoing schedule.  For example, although
certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to
changes in market interest rates.  Interest rates on certain
types of assets and liabilities may fluctuate in advance of or
lag behind changes in market interest rates.  Additionally,
certain repriceable assets, such as adjustable-rate securities or
loans, have features, like annual and lifetime rate caps or
floors, that restrict changes in interest rates both on a short-term basis and 
over the life of the asset.  Further, a change in
market interest rates from the interest rate scenarios that
existed on December 31, 1998, would likely cause assumptions,
such as estimated prepayment speeds, refinancings, imbedded
options, and early withdrawals, to significantly change the GAP
results above. 

In an effort to assess market risk, the Bank utilizes a
simulation model to determine the effect of gradual increases or
decreases in market interest rates on net interest income and net
income.  The aforementioned assumptions are revised based on
defined scenarios of assumed speed and direction changes of
market interest rates.  These assumptions are inherently
uncertain due to the timing, magnitude, and frequency of rate
changes and changes in market conditions, as well as management
strategies, among other factors.  Because it is difficult to
accurately quantify into assumptions the reaction of depositors
and borrowers to market interest rate changes, the actual net
interest income and net income results may differ from simulated
results.  While assumptions are developed based upon current
economic and local market conditions, Management cannot make any
assurances as to the predictive nature of these assumptions. 

The simulation model assumes a hypothetical gradual shift in
market interest rates over a twelve month period.  This is based
on a review of historical changes in market interest rates and
the level and curve of current interest rates.  The simulated
results represent the hypothetical effects to the Bank's net
interest income and net income.  Projections for loan and deposit
growth were ignored in the simulation model.  The simulation
model includes all of the Bank's earning assets and interest-bearing 
liabilities and assumes a parallel and prorated shift in
interest rates over a twelve month period.  The percentage
declines in the table below are measured as percentage changes
from the values of simulated net interest income in the current
rate scenario and the impact of those changes on the prior year's
net income.  As a result of the simulation model, the following
reflects the Bank's net interest income and net income
sensitivity analysis as of December 31, 1998 and 1997:
<TABLE> 
<CAPTION> 
Sensitivity Analysis             Percent Decrease in Categories   
                              ___________________________________ 
                              Market      Current       Market
                              Interest     Market      Interest
                               Rate       Interest       Rate
                             Decline 2%     Rates     Increase 2%
                             __________   _________   ___________
<S>                             <C>          <C>          <C>
Net Interest Income: 
 Policy Limit                   <10%          -          <10%    
Hypothetical Percent Decrease 
  from Base Scenario: 
   As of December 31, 1998       <3%          -            -     
   As of December 31, 1997       <1%          -         Nominal  
Net Income: 
Hypothetical Percent Decrease 
  from Prior Year's Net Income: 
   As of December 31, 1998       <6%          -            -    
   As of December 31, 1997       <2%          -         Nominal  
 
</TABLE> 
The preceding schedule indicates that as of December 31, 1998, a
hypothetical 2% decline in prevailing market interest rates would
cause the Bank's net interest income to decline less than 3% from
the current rate scenario and after adjusting for income taxes a
2% decline in rates would cause less than a 6% impact to the net
income in comparison to the prior year.  As of December 31, 1998,
a 2% rise in prevailing market interest rates would have a
positive impact on net interest income and net income.  The
computations do not contemplate any actions Management or the
Asset Liability Management Committee could undertake in response
to changes in market conditions or market interest rates.

The Bank managed its interest rate risk position in 1998 by the
following: 
-paying higher rates on intermediate term certificates in order
to manage the average remaining term on certificates of deposit
below $100,000; 
-marketing its variable rate home equity line of credit
(outstanding balances increased by $3,255,000 for the year); 
-additions to or by repositioning of its investment security
portfolio into floating or fixed and short- or long-term
securities; 
-utilization of seven- and ten-year balloon mortgages
(outstanding balances increased by $2,511,000 for the year); 
-increasing its extensions of adjustable and variable rate loans
for new or refinanced commercial and agricultural loans (these
outstanding loans increased by $4,268,000 for the year); 
-managing and expanding the Bank's core deposit base including
deposits obtained in the Bank's commercial cash management
programs; and 
-additions to or restructuring of adjustable- and fixed-rate
advances from the FHLB, including convertible advances.  
The above strategies and actions impact interest rate risk and
are all included in the Bank's quarterly simulation models in
order to determine future asset and liability management
strategies. See related discussions in the section on Net
Interest Income.

<PAGE>
<TABLE>
Deposits 

The average amounts of deposits are summarized below:

<CAPTION> 
                                      Years Ended December 31,    
                                  ________________________________ 
   (In Thousands)                   1998       1997        1996   
                                  _________  _________  _________ 
<S>                                  <C>        <C>         <C> 
Demand Deposits                   $ 19,211   $ 16,504    $14,506 
Interest-Bearing Demand Deposits    44,528     38,134     33,924 
Savings Deposits                    25,598     24,184     23,343 
Time Deposits                       98,842     89,992     82,701 
                                  _________  _________  _________ 
   Total                          $188,179   $168,814   $154,474 
                                  =========  =========  ========= 
</TABLE> 
<TABLE>     
The following is a breakdown of maturities of time deposits of
$100,000 or more: 
<CAPTION> 
                                              December 31,        
                                   ______________________________ 
   (In Thousands)                    1998       1997      1996    
                                   ________   ________   _______ 
<S>                                    <C>        <C>        <C> 
Three months or less               $ 8,388    $ 8,261    $ 9,765 
Over three months through six months 1,570        942      1,411 
Over six months through twelve months2,076      4,030      4,312 
Over twelve months                   4,316      3,124      2,399 
                                   _________  _________  ________ 
   Total                           $16,350    $16,357    $17,887 
                                   =========  =========  ======== 
</TABLE> 
Stockholders' Equity

The Corporation maintains capital ratios that are well above the
minimum total capital levels required by federal regulatory
authorities including the risk-based capital guidelines.  The
average stockholders' equity to average assets ratio, which
measures the adequacy of capital, was 9.51% for 1998, as compared
to 10.68% for 1997.  The decrease in this capital ratio is a
result of a 12.9% growth in average assets for the year and open
market treasury stock purchases in the amounts of $1,995,000 in
1998 and $307,000 in 1997.  Average stockholders' equity grew by
0.5% from 1997 to 1998, as compared to 6.8% from 1996 to 1997. 
The dividend payout ratio, which represents the percentage of
earnings returned to the stockholders in the form of cash
dividends, was 37.7% for 1998 and 1997.

There are no material commitments for capital expenditures as of
December 31, 1998.  There are no known trends or uncertainties,
including regulatory items, that are expected to have a material
impact on the capital resources of the Corporation for 1999,
except as discussed below concerning the Corporation's common
stock repurchase plan. In addition, see discussion on Regulatory
Activity.

On February 11, 1999, the Corporation announced that the Board of
Directors had authorized and approved a plan to purchase up to
56,000 shares of the Corporation's outstanding common stock in
open market or privately negotiated transactions.  The
announcement includes the 6,000 shares remaining from the 1998
common stock repurchase plan.  The total number of shares to be
purchased under the plan represents approximately 2.3% of the
outstanding shares of the Corporation as of December 31, 1998. 
The Board of Directors believes that a redemption or repurchase
of this type is in the best interests of the Corporation and its
stockholders as a method to enhance long-term shareholder value. 
Currently, the shares are expected to be held as treasury shares
(issued, but not outstanding shares).  

The Bank has risk-based capital ratios exceeding the regulatory
requirement.  The risk-based capital guidelines require banks to
maintain a minimum risk-based capital ratio of 8.0% at December
31, 1998, as compared to the Bank's current risk-based capital
ratio of 14.57%. The total risk-based capital ratio is computed
by dividing stockholders' equity plus the allowance for loan
losses by risk-adjusted assets. Risk-adjusted assets are
determined by assigning credit risk-weighing factors from 0% to
100% to various categories of assets and off-balance-sheet
financial instruments.  

Banking regulations also require the Bank to maintain certain
minimum capital levels in relation to Bank assets. Failure to
meet minimum capital requirements could result in prompt
corrective action by the federal banking agencies. As of December
31, 1998 and 1997, the Bank was categorized as well capitalized
under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that
Management believes have changed the Bank's category. The Bank
maintains the following leverage and risk-based capital ratios:
<TABLE> 
<CAPTION> 
      (In Thousands)                 December 31,  December 31, 
                                        1998          1997     
                                     ____________   ___________ 
<S>                                      <C>           <C>  
Tier I - Total Stockholders' Equity   $ 22,231      $ 22,358 
Tier II - Allowance for Loan Losses      1,743         1,593 
                                     ____________   ___________ 
   Total Qualifying Capital           $ 23,974      $ 23,951 
                                     ============   =========== 
Risk-adjusted On-balance-sheet Assets $155,280      $137,256 
Risk-adjusted Off-balance-sheet Exposure 9,276         8,352 
                                     ____________   ___________ 
   Total Risk-adjusted Assets         $164,556      $145,608 
                                     ============   =========== 
Actual Capital Ratio: 
 Tier I Capital to Average Total Assets   8.84%         9.95% 
 Minimum Required                         4.00          4.00  
 To Be Well Capitalized Under Prompt 
  Corrective Action Provisions            5.00          5.00    
Risk-based Capital Ratios: 
 Tier I Capital Ratio - Actual           13.51%        15.35% 
 Minimum Required                         4.00          4.00 
 To Be Well Capitalized under Prompt 
  Corrective Action Provisions            6.00          6.00 
 Total Capital Ratio - Actual            14.57%        16.45%  
 Minimum Required                         8.00          8.00 
 To Be Well Capitalized under Prompt 
  Corrective Action Provisions           10.00         10.00 
Total Risk-Based Capital in Excess of the  
  Minimum Regulatory Requirement      $ 10,810      $ 12,302 
                                     ============   =========== 
 
</TABLE> 
<PAGE> 
The Corporation is subject to restrictions on the payment of
dividends to its stockholders pursuant to 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 insolvent, or result in
negative net worth, as defined.  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 1999 of approximately $1,045,000, plus an amount equal to the
net profits of the Bank in 1999 up to the date of any such
dividend declaration.

The Corporation maintains a Dividend Reinvestment and Stock
Purchase Plan (the Plan). Stockholders of common stock may
participate in the Plan, which provides that additional shares of
common stock may be purchased with reinvested dividends and
optional cash payments within specified limits at prevailing
market prices.  At December 31, 1998, the enrollment in the Plan
is 19% of the shares outstanding.  The Plan is currently
estimated to increase capital in the amount of $280,000 in 1999,
but this will be offset by the shares purchased under the
Corporation's common stock repurchase plan.  

No shares of common stock are reserved for issuance in the event
of conversions or the exercise of warrants, options or other
rights, except as follows: 124,830 shares which are reserved for
issuance under the Corporation's 1988 and 1997 Stock Incentive
Plans, 100,000 shares which are reserved for issuance under the
Corporation's 1997 Employee Stock Purchase Plan, and 157,500
shares which are reserved for issuance under the Corporation's
Dividend Reinvestment and Stock Purchase Plan.  As of December
31, 1998, options to purchase 16,830 shares have been granted
under the Corporation's Stock Incentive Plans.  There were 4,830
options granted in 1997 with an exercise price of $23.27, and
there were 12,000 options granted in 1998 with an exercise price
of $19.75.  No options have been exercised as of December 31,
1998 under these plans.  As of December 31, 1998, options to
purchase 35,000 shares have been granted under the Corporation's
1997 Employee Stock Purchase Plan.  There were 15,000 options
granted in 1997 and 20,000 options granted in 1998.  The current
exercise price for such options is $16.53.  As of December 31,
1998, 1,181 options have been exercised under this plan.  As of
December 31, 1998, 24,019 shares have been issued under the
Corporation's Dividend Reinvestment and Stock Purchase Plan. 

REGULATORY ACTIVITY

From time to time, various types of federal and state legislation
have been proposed that could result in additional regulation of,
and restrictions on, the business of the Corporation and the
Bank.  Congress has proposed "modernization" of the financial
services industry.  This proposed modernization will have the
effect of deregulating and expanding the business activities of
financial institutions.  These additional activities may include
broader insurance powers, securities underwriting activities, and
the offering of equity investments by commercial banks.  It
cannot be predicted whether such legislation will be adopted or,
if adopted, how such legislation would affect the business of the
Corporation and the Bank.  As a consequence of the extensive
regulation of commercial banking activities in the United States,
the Corporation's and the Bank's business is particularly
susceptible to being affected by federal legislation and
regulations that may increase the cost of doing business.  Except
as specifically described above, Management believes that the
effect of the provisions of the aforementioned legislation on the
liquidity, capital resources, and results of operations of the
Corporation will be immaterial.  Management is not aware of any
other current specific recommendations by regulatory authorities
or proposed legislation, which if they were adopted, would have a
material adverse effect upon the liquidity, capital resources, or
results of operations, although the general cost of compliance
with numerous and multiple federal and state laws and regulations
does have, and in the future may have a negative impact on the
Corporation's results of operations.  

Further, the business of the Corporation is also affected by the
state of the financial services industry in general. As a result
of legal and industry changes, Management predicts that the
industry will continue to experience an increase in
consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. 
Management believes that such consolidations and mergers may
enhance its competitive position as a community bank. 

As the Year 2000 approaches, regulation of the Corporation and
the Bank with respect to completing Year 2000 modifications is
likely to increase. A brief discussion of the most recent federal
banking agency pronouncements that affect the Corporation and/or
the Bank follows.

In December 1997, the Federal Financial Institutions Examination
Council (FFIEC) issued an interagency statement. The statement
indicates that senior management and the board of directors
should be actively involved in managing the Corporation's and the
Bank's Year 2000 compliance efforts.  The statement also
recommended that institutions obtain Year 2000 compliance
certification from vendors followed by comprehensive internal
testing. In addition, contingency plans should be developed for
all vendors that service mission critical applications, which are
applications vital to the successful continuance of a core
business activity.

The OCC issued an advisory indicating that Year 2000 preparedness
will be factored into reviews of de novo charters, conversions,
business combinations, and establishment of federal branches and
agencies as well as hardware and software systems integration
issues related to business combinations. 

In addition, the OCC recently issued an advisory providing
guidance in key milestones and testing methods for institutions
to use to prepare their systems and applications for the Year
2000.  Institutions should develop and implement written testing
strategies and plan to test both internal and external systems. 
In May 1998, the FFIEC issued two interagency statements with
regard to Year 2000 readiness.  The first statement provided
guidance for institutions to design its Year 2000 contingency
plan to mitigate the risks associated with the institution's
failure to become Year 2000 compliant or the failure of mission
critical systems at specific dates.  The second statement
provided suggestions for developing a customer awareness program
and identifies issues that financial institutions should be
prepared to discuss with customers.  

The Bank is routinely examined by the OCC and no material adverse
impact is anticipated on current or future operations and
financial position. The last Community Reinvestment Act
performance evaluation by the OCC resulted in a rating of
"Outstanding Record of Meeting Community Credit Needs."