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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------



For the Fiscal Year Ended December 31, 2004



OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 0-49639



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DIMECO, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 23-2250152                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employee Identification No.)



|                                           |  |           
|------------------------------------------ |  | ----------
|820 Church Street, Honesdale, Pennsylvania |  | 18431     
|(Address of Principal Executive Offices)   |  | (Zip Code)



Registrants
Telephone Number, including area code: (570) 253-1970



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Securities Registered Pursuant to Section 12(b) of the Act: None



Securities Registered Pursuant to Section 12(g) of the Act:



Common Stock, $.50 par value

(Title of class)



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Indicate by check mark whether the registrant: (l) has
filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    x  YES ̈NO



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). ̈Yes    x  No



The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $57 million as of June 30, 2004 based on the last sale ($42.00 per share) reported on the OTC Electronic Bulletin Board as of that date. Solely for purposes of this calculation, the term
affiliate refers to all directors and executive officers of the registrant and all stockholders beneficially owning more than 5% of the registrants common stock.



As of March 1, 2005, there were issued and outstanding 1,549,269 shares of the registrants common stock.



DOCUMENTS INCORPORATED BY REFERENCE



|1. | Portions of the Registrants Annual Report to Stockholders for the fiscal year ended December 31, 2004. (Part II)
|-- | -----------------------------------------------------------------------------------------------------------------



|2. | Portions of the Registrants definitive Proxy Statement for the 2005 Annual Meeting of Shareholders. (Part III)
|-- | ---------------------------------------------------------------------------------------------------------------



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PART I



Forward-Looking Statements



Dimeco, Inc. (the Company or Registrant) may, from time to time, make written or oral forward-looking statements,
including statements contained in the Companys filings with the Securities and Exchange Commission (including this annual report on Form 10-K and the exhibits thereto), in its reports to shareholders and in other communications by the Company,
which are made in good faith by the Company pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.



These forward-looking statements involve risks and uncertainties, such as statements of the Companys plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some of which are beyond the Companys control). The following factors, among others, could cause the Companys financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of
and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors products and services; the willingness of
users to substitute competitors products and services for the Companys products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial
services laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing these risks.



The Company cautions that this list of important
factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.



Item 1. Business



General



The Company, a Pennsylvania corporation, is a bank holding company headquartered in Honesdale, Pennsylvania. At December 31,
2004, the Company had total consolidated assets, deposits and stockholders equity of approximately $326 million, $271 million and $30 million, respectively. The Companys principal business is to serve as a holding company for its
wholly-owned subsidiary, The Dime Bank (the Bank).



The Bank is a Pennsylvania-chartered commercial bank, originally organized in 1905. The Bank provides a comprehensive range of lending, depository and financial services to individuals and small to medium-sized businesses. The Banks
deposit services range from traditional time, demand, and savings deposit accounts to sophisticated cash management products, including electronic banking and commercial sweep accounts. The Banks lending services include secured and unsecured
commercial, real estate and consumer loans. The Bank also operates a trust department and an investment department which had $32 million in client assets under management at December 31, 2004. The Bank conducts business from five branch offices,
located in Honesdale, Hawley, Damascus, Greentown and Dingmans Ferry, Pennsylvania, as well as maintaining two off-site ATM machines each located in Honesdale and Hawley, Pennsylvania. The Bank maintains a website at www.thedimebank.com.



In 2005 the Bank formed a 100% owned subsidiary, TDB Insurance
Services, LLC in order to offer title insurance services in conjunction with the Banks lending function.



2



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Competition



The Bank is one of many financial institutions serving its principal market area, which includes Wayne and Pike Counties, Pennsylvania and Sullivan
County, New York. Such market areas are approximately 90 miles west of New York City. Pike County, Pennsylvania is the fastest growing county in Pennsylvania. The competition for deposit products comes from other insured financial institutions such
as commercial banks, thrift institutions, credit unions, and multi-state regional banks in the Companys market area. Based on data compiled by the FDIC as of June 30, 2004 (the latest date for which such information is available), the Bank had
the largest share of FDIC-insured deposits in Wayne County with approximately 23% and the fifth largest share of FDIC-insured deposits in Pike County with approximately 7%. This data does not reflect deposits held by credit unions with which the
Bank also competes. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition varies depending upon
market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, multi-state regional banks, and mortgage brokers.



3



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Analysis of Loan Portfolio.Set forth below is selected data relating to the composition of the
Banks loan portfolio by type of loan on the dates indicated.



|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|---------------------------------------------------------------- | - | --------------- | ------- |  | ----- | - |  | ---- | ------- |  | ----- | - | - | ---- | ------- | - | ----- | - |  | - | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                                                                 |   | At December 31, |        
|(In thousands)                                                   |   | 2004            |         |  | 2003  |   |  | 2002 |         |  | 2001  |   |   | 2000 |        
|                                                                 | $ |                 | %       |  |       | $ |  | %    |         |  | $     |   | % |      |         | $ |       | % |  |   | $       |  | %     |  
|Loans secured by real estate:                                    |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Construction and development                                     |   | $               | 662     |  | 0.3   | % |  | $    | 396     |  | 0.2   | % |   | $    | 111     |   | 0.1   | % |  | $ | 233     |  | 0.1   | % |  | $ | 681     |  | 0.4   | %
|Mortgage loans-secured by farmland                               |   |                 | 1,786   |  | 0.7   |   |  |      | 1,644   |  | 0.7   |   |   |      | 1,978   |   | 1.1   |   |  |   | 2,318   |  | 1.4   |   |  |   | 2,317   |  | 1.5   |  
|Commercial loans-secured by non-farm, non-residential properties |   |                 | 133,259 |  | 52.5  |   |  |      | 112,443 |  | 51.0  |   |   |      | 88,960  |   | 47.3  |   |  |   | 71,015  |  | 43.8  |   |  |   | 63,786  |  | 41.0  |  
|Secured by 1-4 family residential properties:                    |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Home equity lines of credit                                      |   |                 | 1,820   |  | 0.7   |   |  |      | 1,367   |  | 0.6   |   |   |      | 1,402   |   | 0.7   |   |  |   | 993     |  | 0.6   |   |  |   | 1,005   |  | 0.6   |  
|Mortgage loans                                                   |   |                 | 53,026  |  | 20.9  |   |  |      | 50,986  |  | 23.2  |   |   |      | 48,980  |   | 26.0  |   |  |   | 46,809  |  | 28.8  |   |  |   | 47,116  |  | 30.3  |  
|Commercial and industrial loans                                  |   |                 | 41,848  |  | 16.5  |   |  |      | 32,263  |  | 14.7  |   |   |      | 28,437  |   | 15.1  |   |  |   | 23,467  |  | 14.4  |   |  |   | 21,506  |  | 13.8  |  
|Installment loans                                                |   |                 | 18,083  |  | 7.1   |   |  |      | 19,641  |  | 8.9   |   |   |      | 16,896  |   | 9.0   |   |  |   | 16,193  |  | 10.0  |   |  |   | 17,716  |  | 11.4  |  
|Other loans:                                                     |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Agriculture                                                      |   |                 | 606     |  | 0.2   |   |  |      | 470     |  | 0.2   |   |   |      | 705     |   | 0.4   |   |  |   | 772     |  | 0.5   |   |  |   | 853     |  | 0.5   |  
|Other                                                            |   |                 | 2,674   |  | 1.1   |   |  |      | 1,140   |  | 0.5   |   |   |      | 638     |   | 0.3   |   |  |   | 706     |  | 0.4   |   |  |   | 738     |  | 0.5   |  
|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Total loans                                                      |   |                 | 253,764 |  | 100.0 | % |  |      | 220,350 |  | 100.0 | % |   |      | 188,107 |   | 100.0 | % |  |   | 162,506 |  | 100.0 | % |  |   | 155,718 |  | 100.0 | %
|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Less unearned income                                             |   |                 | 623     |  |       |   |  |      | 741     |  |       |   |   |      | 746     |   |       |   |  |   | 766     |  |       |   |  |   | 771     |  |       |  
|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Loans, net of unearned income                                    |   | $               | 253,141 |  |       |   |  | $    | 219,609 |  |       |   |   | $    | 187,361 |   |       |   |  | $ | 161,740 |  |       |   |  | $ | 154,947 |  |       |  
|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  
|Loans held for sale                                              |   | $               | 112     |  |       |   |  | $    | 654     |  |       |   |   | $    | 1,195   |   |       |   |  | $ | 527     |  |       |   |  | $ | 76      |  |       |  
|                                                                 |   |                 |         |  |       |   |  |      |         |  |       |   |   |      |         |   |       |   |  |   |         |  |       |   |  |   |         |  |       |  



4



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Loan Maturity.The following table sets forth the maturities for selected categories of the
Banks loan portfolio at December 31, 2004. The table does not include prepayments or scheduled principal repayments. All loans are shown as maturing based on contractual maturities. Demand loans and loans having no stated maturity are shown as
due within one year.



|                                          |  |                   |        |                             |   |                  |  |       |         |  |   |        
|----------------------------------------- |  | ----------------- | ------ | --------------------------- | - | ---------------- |  | ----- | ------- |  | - | -------
|(In thousands)                            |  | Due Within 1 year |        | Due after 1 through 5 years |   | Due after5 years |  | Total
|Commercial & agricultural real estate     |  | $                 | 5,832  |                             | $ | 5,016            |  | $     | 124,197 |  | $ | 135,045
|Commercial & industrial, and agricultural |  |                   | 19,667 |                             |   | 13,026           |  |       | 9,761   |  |   | 42,454 
|Construction and development              |  |                   | 117    |                             |   | 490              |  |       | 55      |  |   | 662    
|                                          |  |                   |        |                             |   |                  |  |       |         |  |   |        
|Total                                     |  | $                 | 25,616 |                             | $ | 18,532           |  | $     | 134,013 |  | $ | 178,161
|                                          |  |                   |        |                             |   |                  |  |       |         |  |   |        



The following table
sets forth the dollar amount as of December 31, 2004 of selected categories of the Companys loans due more than one year after December 31, 2004, which are based upon fixed interest rates or floating or adjustable interest rates.



|                                          |  |             |        |               |   |         |  |   |        
|----------------------------------------- |  | ----------- | ------ | ------------- | - | ------- |  | - | -------
|(In thousands)                            |  | Fixed Rates |        | Variable Rate |   | Total  
|Commercial & agricultural real estate     |  | $           | 5,862  |               | $ | 123,351 |  | $ | 129,213
|Commercial & industrial, and agricultural |  |             | 10,412 |               |   | 12,374  |  |   | 22,787 
|Construction and development              |  |             | 274    |               |   | 271     |  |   | 545    
|                                          |  |             |        |               |   |         |  |   |        
|Total                                     |  | $           | 16,548 |               | $ | 135,997 |  | $ | 152,545
|                                          |  |             |        |               |   |         |  |   |        



Lending Activities



General.The principal lending activity of the Bank is the
origination of commercial real estate loans, residential mortgage loans, commercial and industrial loans, installment loans, and, to a lesser extent, construction and development loans, home equity loans, and agricultural loans. Generally, loans are
originated in the Companys primary market area.



Commercial Real Estate and Farmland Loans. The commercial real estate loan portfolio consists of loans secured primarily by childrens recreational summer camps, retail stores, restaurants, resorts, investment real estate, and
manufacturing facilities. The Bank also makes loans secured by farmland. Loans secured by commercial property or farmland may be originated in amounts up to 80% of the lower of the appraised value or purchase price, for a maximum term of 20 years.
The Bank has a concentration of commercial real estate loans that are secured by summer camps and recreational facilities for children, these loans are generally adjustable-rate loans, with terms of up to 20 years, with the rate tied to the prime
interest rate. At December 31, 2004, $49 million of the loan portfolio consisted of loans to these summer camps and recreational facilities for children.



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Loans secured by commercial properties generally involve a greater degree of risk than residential
mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on
income-producing properties and the greater difficulty of evaluating and monitoring these types of loans. Any significant adverse change in economic conditions could have an adverse impact on the borrowers ability to repay loans. A large
portion of the Banks commercial real estate loan portfolio consists of loans secured by summer camps and recreational facilities located in the northeastern United States. Such loans are dependent upon seasonal business and factors beyond the
Banks control, such as the general economic condition of the northeastern United States and the impact on discretionary consumer spending.



Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business or
commercial project. If the cash flow from the project is reduced, the borrowers ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, the Bank may be compelled to
modify the terms of the loan. In addition, the nature of these loans makes them generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may be subject to a greater extent than residential loans to
adverse conditions in the real estate market or economy.



Residential Real Estate Loans.The residential real estate portfolio consists of one-to-four family residential mortgage loans. The Bank generally originates one-to-four family residential mortgage loans in amounts of up to 80% of
the appraised value of the mortgaged property without requiring mortgage insurance. The Bank will originate residential mortgage loans in amounts up to 95% of the appraised value of a mortgaged property, however, mortgage insurance for the borrower
is required. In addition, the Bank participates in special residential loan programs through various state and federal agencies which provide first time home buyers the ability to finance up to 100% of the property value; these loans are guaranteed
by those various federal and state agencies. The Bank offers residential fixed rate loans and adjustable rate loans with a 15 to 30 year amortization period. Interest rates for adjustable rate loans for residences adjust every one to three years
based upon rates on U.S. Treasury bills and notes. Interest rate adjustments on such loans are generally limited to 2% during any adjustment period and 6% over the life of the loan. These loans are originated for retention in the portfolio.



Fixed-rate loans are generally underwritten in accordance with
Freddie Mac guidelines. Currently, loans underwritten in accordance with Freddie Mac guidelines are generally sold in the secondary market. However, the number of saleable loans could vary materially as a result of market conditions. The Bank
generally charges a higher interest rate if loans are not saleable under Freddie Mac guidelines. At December 31, 2004, $40 million of the Banks residential real estate loan portfolio consisted of long-term, fixed-rate mortgage loans.



Substantially all of the one-to-four family mortgages include
due on sale clauses, which are provisions giving the Bank the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party.



Property appraisals on real estate securing one-to-four family residential
loans are made by appraisers approved by the Loan Committee. Appraisals are performed in accordance with applicable regulations and policies. The Bank obtains title insurance policies on most first mortgage real estate loans originated..



Home equity term loans are written for terms of one to 15 years with fixed
rates of interest. The Bank also offers revolving home equity lines of credit with variable interest rates tied to the NY prime rate. These lines allow for a ten year draw period followed by a ten year repayment period. Both types of home equity
loans are based upon the lower of 80% of the collateral value or $100,000.



Commercial and Industrial Loans.Commercial and industrial loans consist of equipment, accounts receivables, inventory, lines of credit, and other business purpose loans. Such loans may be originated in amounts
up to 75% of the appraised value of the business asset and are secured by either the underlying collateral and/or by the personal guarantees of the borrower. Commercial and industrial loans are generally made at rates which adjust above the prime
interest rate and generally mature in 5 to 10 years.



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Unlike residential mortgage loans, which generally are made on the basis of the borrowers ability
to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrowers ability to make
repayment from the cash flow of the borrowers business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic
environment.



Installment Loans.The installment loan
portfolio includes various types of secured and unsecured consumer loans including automobile, education, and recreational vehicle loans. The Bank originates loans directly and indirectly through local automobile and recreational vehicle
dealerships. These loans generally have terms of one to five years, at fixed rates of interest. The interest rates range between 2.1% for loans that are secured by deposits to 15.5% for loans that are unsecured, with an average interest rate of
approximately 9.1%. The installment loan portfolio includes approximately $12 million of new and used automobile and recreational vehicle loans. These loans are originated in amounts up to 90% of the purchase price of the vehicle.



Loans Held For Sale.The Bank holds as available for sale certain
residential mortgage loans . These loans conform to Freddie Mac guidelines and are readily salable in the secondary market. The Bank services such loans and is generally not liable for these loans, since they are sold on a non-recourse basis. At
December 31, 2004, $112,000 of loans were classified as held for sale, carried at the lower of cost or market value.



Loan Solicitation and Processing.The Bank has established various lending limits for its officers and also maintains a loan committee. The loan
committee is comprised of the President, Senior Lending Officer and other Bank officers. The loan committee has the authority to approve all loans up to $250,000. Requests in excess of this limit must be submitted to the full Board of Directors for
approval. Additionally, the President, and Senior Lending Officer each has the authority to approve secured loans up to $150,000, and unsecured loans up to $60,000. Loan officers generally have the authority to approve secured loans between $10,000
and $75,000 and unsecured loans between $5,000 and $35,000. Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the loan committee for approval.



Hazard insurance coverage is required on all properties securing loans made
by the Bank. Flood insurance is also required, when applicable.



Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description
of the required collateral, and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral, and these applicable insurances must be maintained during
the full term of the loan.



Loan Commitments.The Bank
generally grants commitments to fund fixed-rate and adjustable-rate, single-family mortgage loans for periods of 60 days at a specified term and interest rate. The total amount of its commitments to extend credit as of December 31, 2004 was $4
million.



Nonperforming Assets



The following table identifies nonperforming loans including nonaccrual
loans and past due loans which were accruing but contractually past due 90 days or more. Renegotiated loans are those which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating
position of the borrower. At December 31, 2004, the Bank had approximately $461,000 of impaired loans within the meaning of FAS No. 114, as amended by FAS No. 118. For the year ended December 31, 2004, interest income that would have been recorded
on loans accounted for on a nonaccrual basis under the original terms of such loans was approximately $19,000 of which $14,000 was collected.



7



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|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|---------------------------------------------------------------- |  | --------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                 |  | At December 31, |      
|(In thousands)                                                   |  | 2004            |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|Loans accounted for on a nonaccrual basis:                       |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Mortgage loans                                                   |  | $               | 189   |   |      | $ | 2,269 |      |  | $ | 467   |   |  | $    | 149   |   |  | $ | 740   |  
|Commercial and industrial, and agricultural                      |  |                 | 22    |   |      |   | 17    |      |  |   | 62    |   |  |      | 43    |   |  |   | 149   |  
|Installment                                                      |  |                 | 50    |   |      |   | 78    |      |  |   | 73    |   |  |      | 64    |   |  |   | 118   |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total                                                            |  |                 | 261   |   |      |   | 2,364 |      |  |   | 602   |   |  |      | 256   |   |  |   | 1,007 |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Accruing loans which are contractually past due 90 days or more: |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Mortgage loans                                                   |  |                 | 244   |   |      |   | 113   |      |  |   | 55    |   |  |      | 265   |   |  |   | 272   |  
|Commercial and industrial, and agricultural                      |  |                 | 10    |   |      |   | 57    |      |  |   | 10    |   |  |      | 70    |   |  |   | 10    |  
|Installment                                                      |  |                 | 39    |   |      |   | 5     |      |  |   | 27    |   |  |      | 25    |   |  |   | 59    |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total                                                            |  |                 | 293   |   |      |   | 175   |      |  |   | 92    |   |  |      | 360   |   |  |   | 341   |  
|                                                                 |  |                 |       |   |     
|Renegotiated loans                                               |  |                 | 461   |   |      |   | 482   |      |  |   | 498   |   |  |      | 520   |   |  |   | 540   |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming loans                                        |  |                 | 1,015 |   |      |   | 3,021 |      |  |   | 1,192 |   |  |      | 1,136 |   |  |   | 1,888 |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Other real estate owned                                          |  |                 |      |   |      |   |      |      |  |   |      |   |  |      | 126   |   |  |   | 179   |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming assets                                       |  | $               | 1,015 |   |      | $ | 3,021 |      |  | $ | 1,192 |   |  | $    | 1,262 |   |  | $ | 2,067 |  
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Non-performing loans as a percent of total loans                 |  |                 | 0.40  | % |      |   | 1.38  | %    |  |   | 0.64  | % |  |      | 0.70  | % |  |   | 1.22  | %
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Non-performing assets as a percent total assets                  |  |                 | 0.31  | % |      |   | 0.99  | %    |  |   | 0.43  | % |  |      | 0.51  | % |  |   | 0.96  | %
|                                                                 |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  



Nonaccrual loans
declined $2,103,000 in 2004 as a result of the foreclosure and sale of assets associated with a large commercial loan.



Other Real Estate Owned.Real estate acquired by foreclosure is classified within other assets on the consolidated balance sheet at the lower of
the recorded investment in the property or its fair value minus estimated costs of sale. Prior to foreclosure, the value of the underlying collateral is written down by a charge to the allowance for loan losses, if necessary. Any subsequent
write-downs are charged against operating expenses. Operating expenses of such properties, net of related income and losses on their disposition, are included as other expense.



Potential Problem Loans.As of December 31, 2004, there were no loans not disclosed above, where known information
about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.



Classified Assets.Management, in compliance with regulatory guidelines, has instituted an internal loan review
program, whereby loans are classified as special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to establish a valuation reserve for loan losses in an amount that is deemed
prudent. When management classifies a loan as a loss asset, a reserve equal to 100% of the loan balance is required to be established or the loan is to be charged-off. The allowance for loan losses is composed of an allowance for both inherent risk
associated with lending activities and particular problem assets.



An asset is considered substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the
Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or
liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without
the establishment of a loss reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess credit deficiencies or
potential weaknesses are required to be designated special mention by management.



8



---

Managements evaluation of the classification of assets and the adequacy of the allowance for loan
losses is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process.



The following table sets forth the Banks classified assets in accordance with its classification system.



|                |  |                      |      
|--------------- |  | -------------------- | -----
|(In thousands)  |  | At December 31, 2004
|Special mention |  | $                    | 1,862
|Substandard     |  |                      | 4,071
|Doubtful        |  |                      |     
|Loss            |  |                      |     
|                |  |                      |      
|Total           |  | $                    | 5,933
|                |  |                      |      



Allowance for Loan Losses



The allowance for loan losses represents the amount which
management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to
it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on managements periodic evaluation of individual loans, economic factors, past loan loss
experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on
impaired loans, are particularly susceptible to changes in the near term.



Impaired loans are commercial and commercial real estate loans for which it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Bank
individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories
overlap. The Bank may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not necessarily classifying the loan as impaired. Factors considered by management in determining impairment include
payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its
recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair
value of the collateral.



Mortgage loans on one-to-four family
properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not
classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all of the circumstances surrounding the loan and the borrower including the length of the delay, the borrowers
prior payment record, and the amount of shortfall in relation to the principal and interest owed.



9



---

The following table sets forth certain information regarding the allowance for loan losses at or for the
dates indicated.



|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                    |  | At or for the Year Ended December 31, |        
|(In thousands)                                                      |  | 2004                                  |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Loans outstanding at end of period                                  |  | $                                     | 253,141 |   |      | $ | 219,609 |      |  | $ | 187,361 |   |  | $    | 161,740 |   |  | $ | 154,947 |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average loans outstanding                                           |  | $                                     | 237,089 |   |      | $ | 205,209 |      |  | $ | 172,368 |   |  | $    | 158,765 |   |  | $ | 146,679 |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses:                                          |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance, beginning of the period                                    |  | $                                     | 3,014   |   |      | $ | 2,818   |      |  | $ | 2,373   |   |  | $    | 2,088   |   |  | $ | 1,834   |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Loans charged off:                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial, and Agricultural                         |  |                                       | 32      |   |      |   | 69      |      |  |   | 100     |   |  |      | 218     |   |  |   | 170     |  
|Mortgage loans                                                      |  |                                       | 860     |   |      |   | 558     |      |  |   | 48      |   |  |      | 208     |   |  |   | 442     |  
|Installment                                                         |  |                                       | 226     |   |      |   | 195     |      |  |   | 151     |   |  |      | 199     |   |  |   | 165     |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans charged off                                             |  |                                       | 1,118   |   |      |   | 822     |      |  |   | 299     |   |  |      | 625     |   |  |   | 777     |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Recoveries:                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial, and Agricultural                         |  |                                       | 4       |   |      |   | 4       |      |  |   | 6       |   |  |      | 11      |   |  |   | 38      |  
|Mortgage loans                                                      |  |                                       | 89      |   |      |   | 2       |      |  |   | 23      |   |  |      | 8       |   |  |   | 22      |  
|Installment                                                         |  |                                       | 57      |   |      |   | 52      |      |  |   | 40      |   |  |      | 24      |   |  |   | 41      |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total recoveries                                                    |  |                                       | 150     |   |      |   | 58      |      |  |   | 69      |   |  |      | 43      |   |  |   | 101     |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loans charged off                                               |  |                                       | 968     |   |      |   | 764     |      |  |   | 230     |   |  |      | 582     |   |  |   | 676     |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Provisions charged to expense                                       |  |                                       | 1,126   |   |      |   | 960     |      |  |   | 675     |   |  |      | 867     |   |  |   | 930     |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance, end of period                                              |  | $                                     | 3,172   |   |      | $ | 3,014   |      |  | $ | 2,818   |   |  | $    | 2,373   |   |  | $ | 2,088   |  
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratios:                                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net charge-offs as a percent of average loans outstanding           |  |                                       | 0.41    | % |      |   | 0.37    | %    |  |   | 0.13    | % |  |      | 0.37    | % |  |   | 0.46    | %
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses as a percent of average loans outstanding |  |                                       | 1.34    | % |      |   | 1.47    | %    |  |   | 1.63    | % |  |      | 1.50    | % |  |   | 1.42    | %
|                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



During 2004 the Bank charged off $732
in relation to one commercial loan. This loan is no longer part of the portfolio and management does not have knowledge of any further charges relating to this loan.



10



---

The following table presents a breakdown by loan category of the allowance for loan losses.



|                                            |  |                 |       |                               |       |   |        |      |                               |  |       |        |  |                               |       |  |        |   |                               |   |       |        |       |                                |  |   |       |  |       |  
|------------------------------------------- |  | --------------- | ----- | ----------------------------- | ----- | - | ------ | ---- | ----------------------------- |  | ----- | ------ |  | ----------------------------- | ----- |  | ------ | - | ----------------------------- | - | ----- | ------ | ----- | ------------------------------ |  | - | ----- |  | ----- | -
|                                            |  | At December 31, |      
|                                            |  | 2004            |       |                               | 2003  |   |        | 2002 |                               |  | 2001  |        |  | 2000                          |      
|(In thousands)                              |  | Amount          |       | Percent ofLoans toTotal Loans |       |   | Amount |      | Percent ofLoans toTotal Loans |  |       | Amount |  | Percent ofLoans toTotal Loans |       |  | Amount |   | Percent ofLoans toTotal Loans |   |       | Amount |       | Percent ofLoans to Total Loans | 
|Commercial and industrial, and agricultural |  | $               | 586   |                               | 17.8  | % |        | $    | 533                           |  | 15.4  | %      |  | $                             | 383   |  | 15.8   | % |                               | $ | 147   |        | 14.9  | %                              |  | $ | 338   |  | 14.3  | %
|Construction and development                |  |                 |      |                               | 0.3   |   |        |      | 1                             |  | 0.2   |        |  |                               | 1     |  | 0.1    |   |                               |   | 1     |        | 0.1   |                                |  |   | 4     |  | 0.4   |  
|Mortgage                                    |  |                 | 2,269 |                               | 74.8  |   |        |      | 2,110                         |  | 75.5  |        |  |                               | 1,993 |  | 75.4   |   |                               |   | 1,860 |        | 74.0  |                                |  |   | 1,388 |  | 72.8  |  
|Installment                                 |  |                 | 317   |                               | 7.1   |   |        |      | 370                           |  | 8.9   |        |  |                               | 245   |  | 8.7    |   |                               |   | 237   |        | 11.0  |                                |  |   | 250   |  | 12.5  |  
|Unallocated                                 |  |                 |      |                               |      |   |        |      |                              |  |      |        |  |                               | 196   |  |       |   |                               |   | 128   |        |      |                                |  |   | 108   |  |      |  
|                                            |  |                 |       |                               |       |   |        |      |                               |  |       |        |  |                               |       |  |        |   |                               |   |       |        |       |                                |  |   |       |  |       |  
|Total                                       |  | $               | 3,172 |                               | 100.0 | % |        | $    | 3,014                         |  | 100.0 | %      |  | $                             | 2,818 |  | 100.0  | % |                               | $ | 2,373 |        | 100.0 | %                              |  | $ | 2,088 |  | 100.0 | %
|                                            |  |                 |       |                               |       |   |        |      |                               |  |       |        |  |                               |       |  |        |   |                               |   |       |        |       |                                |  |   |       |  |       |  





11



---

Investment Activities



The Bank is required under federal regulations to maintain liquid assets which may be invested in specified short-term securities and certain other
investments. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) managements judgment as to the attractiveness of the yields then available in relation to other
opportunities, (iii) expectation of future yield levels, and (iv) managements projections as to the short-term demand for funds to be used in loan origination and other activities. Investment securities, including mortgage-backed securities,
are classified at the time of purchase, based upon managements intentions and abilities, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are classified
as held to maturity and are stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the interest method and recognized as adjustments of interest income. All other debt securities are classified as
available for sale to serve principally as a source of liquidity. Equity securities are classified as available for sale when purchased.



Current regulatory and accounting guidelines regarding investment securities (including mortgage-backed securities) require the Bank to categorize
securities as held to maturity, available for sale or trading. As of December 31, 2004, the Registrant had securities classified as held to maturity and available for sale in the amount of
approximately $2 million and $56 million, respectively and had no securities classified as trading. Securities classified as available for sale are reported for financial reporting purposes at the fair market value with net
changes in the market value from period to period included as a separate component of stockholders equity, net of income taxes. At December 31, 2004, the Registrants securities available for sale had an amortized cost of $56 million and
market value of $56 million. Changes in market value in the Registrants available for sale portfolio reflect normal market conditions and vary, either positively or negatively, based primarily on changes in general levels of market interest
rates relative to the yields of the portfolio. Changes in the market value of securities available for sale do not affect the Companys income. In addition, changes in the market value of securities available for sale do not affect the
Banks regulatory capital requirements or its loan-to-one borrower limit.



At December 31, 2004, the Companys investment portfolio policy allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S. federal agency or federally sponsored agency obligations, (iii)
municipal obligations, (iv) mortgage-backed securities, (v) bankers acceptances, (vi) certificates of deposit, and (vii) investment grade corporate bonds and commercial paper. The Board of Directors may authorize additional investments.



Investment Portfolio.The following table sets forth
the carrying value of the investment securities portfolio at the dates indicated.



|                                                 |  |                |        |      |   |        |  |   |       
|------------------------------------------------ |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                 |  | At December 31
|(In thousands)                                   |  | 2004           |        | 2003 |   | 2002  
|Available for Sale:                              |  |                |        |      |   |        |  |   |       
|U.S. Government agency securities                |  | $              | 18,303 |      | $ | 34,803 |  | $ | 27,732
|Mortgage-backed securities                       |  | $              | 92     |      | $ | 118    |  | $ | 169   
|Obligations of states and political subdivisions |  | $              | 5,224  |      | $ | 8,591  |  | $ | 8,680 
|Corporate securities                             |  | $              | 6,294  |      | $ | 10,428 |  | $ | 11,083
|Commercial paper                                 |  | $              | 25,459 |      | $ | 9,989  |  | $ | 29,966
|Equity securities                                |  | $              | 290    |      | $ | 428    |  | $ | 306   
|                                                 |  |                |        |      |   |        |  |   |       
|Total                                            |  | $              | 55,662 |      | $ | 64,357 |  | $ | 77,936
|                                                 |  |                |        |      |   |        |  |   |       
|Held to Maturity:                                |  |                |        |      |   |        |  |   |       
|Obligations of states and political subdivisions |  | $              | 198    |      | $ | 197    |  | $ | 426   
|                                                 |  |                |        |      |   |        |  |   |       





12



---

Investment Portfolio Maturities.The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Registrants investment and mortgage-backed securities portfolio at December 31, 2004. The following table does not take into consideration the effects of scheduled repayments or
the effects of possible prepayments.



|                                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       
|------------------------------------------------ | ------------- | ---------------- | ---------------- |  | ----------------- | ------------- |  | ----------------- | ----- |  | ------------------- | - | ---------------- | --------------------------- | ----- | ------------- | ---- | ---------------- |  | - | ------------- |  | ---------------- | - |  | ----------- | ------ |  | ----- | - |  | - | ------
|(in thousands) Available for
Sale                |               | One year or less |                  |  | One to five years |               |  | Five to ten years |       |  | More than ten years |   |                  | Total Investment Securities
|                                                 | CarryingValue |                  | AverageYield (1) |  |                   | CarryingValue |  | AverageYield (1)  |       |  | CarryingValue       |   | AverageYield (1) |                             |       | CarryingValue |      | AverageYield (1) |  |   | CarryingValue |  | AverageYield (1) |   |  | MarketValue
|US Govt Agencies                                |               | $                |                 |  |                  | %             |  | $                 | 5,968 |  | 3.09                | % |                  | $                           | 6,885 |               | 3.14 | %                |  | $ | 5,450         |  | 3.86             | % |  | $           | 18,303 |  | 3.34  | % |  |   | 18,303
|Mortgage-Backed                                  |               |                  |                 |  |                  |               |  |                   |      |  |                    |   |                  |                             |      |               |     |                  |  |   | 92            |  | 3.48             | % |  |             | 92     |  | 3.48  | % |  |   | 92    
|Obligations of states and political subdivisions |               |                  | 234              |  | 7.35              | %             |  |                   | 1,072 |  | 7.07                | % |                  |                             | 556   |               | 5.89 | %                |  |   | 3,362         |  | 4.90             | % |  |             | 5,224  |  | 5.55  | % |  |   | 5,224 
|Corporate                                        |               |                  | 3,343            |  | 8.09              | %             |  |                   | 1,027 |  | 6.62                | % |                  |                             | 644   |               | 6.95 | %                |  |   | 1,280         |  | 2.81             | % |  |             | 6,294  |  | 6.64  | % |  |   | 6,294 
|Commercial Paper                                 |               |                  | 25,459           |  | 2.43              | %             |  |                   |      |  |                    |   |                  |                             |      |               |     |                  |  |   |              |  |                 |   |  |             | 25,459 |  | 2.43  | % |  |   | 25,459
|Equity Securities                                |               |                  |                 |  |                  |               |  |                   |      |  |                    |   |                  |                             |      |               |     |                  |  |   | 290           |  | 4.20             | % |  |             | 290    |  | 4.20  | % |  |   | 290   
|                                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       
|Total                                            |               | $                | 29,036           |  | 3.09              | %             |  | $                 | 8,067 |  | 4.04                | % |                  | $                           | 8,085 |               | 3.62 | %                |  | $ | 10,474        |  | 3.99             | % |  | $           | 55,662 |  | 3.50  | % |  | $ | 55,662
|                                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       
|Held to Maturity                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       
|Obligations of states and political subdivisions |               | $                |                 |  |                  | %             |  | $                 | 198   |  | 11.36               | % |                  | $                           |      |               |     | %                |  | $ |              |  |                 | % |  | $           | 198    |  | 11.36 | % |  | $ | 216   
|                                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       
|Total                                            |               | $                |                 |  |                  | %             |  | $                 | 198   |  | 11.36               | % |                  | $                           |      |               |     | %                |  | $ |              |  |                 | % |  | $           | 198    |  | 11.36 | % |  | $ | 216   
|                                                 |               |                  |                  |  |                   |               |  |                   |       |  |                     |   |                  |                             |       |               |      |                  |  |   |               |  |                  |   |  |             |        |  |       |   |  |   |       

---

|(1) | Weighted average yields have been computed on a taxable equivalent basis assuming a federal income tax rate of 34%.
|--- | -------------------------------------------------------------------------------------------------------------------



13



---

Sources of Funds



General.Deposits are the major source of the Banks funds for lending and other investment purposes. Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other sources. In addition to deposits and borrowings, the Bank derives funds from loan principal repayments, and proceeds from the sale of investment securities. Loan payments are
a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions. They also may be used on a longer-term basis for interest rate risk management and general business
purposes.



Deposits.The Bank offers a variety of
deposit accounts, although a majority of deposits are in fixed-term, market-rate certificate accounts. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the
applicable interest rate. In 2004, the Bank joined the Promontory Interfinancial Network, gaining the ability to offer customers certificates of deposit with FDIC insurance coverage up to $10 million. Any deposits placed through this network are
classified as brokered certificates of deposit. The Bank has just begun marketing efforts in relation to sales of this product and had $676,000 of deposits in the program at December 31, 2004.



Jumbo Certificates of Deposit.The following table shows the amount
(in thousands) of the Banks certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2004:



|                          |  |                        |       
|------------------------- |  | ---------------------- | ------
|Maturity Period           |  | Certificatesof Deposit
|Within three months       |  | $                      | 10,748
|Three through six months  |  |                        | 13,307
|Six through twelve months |  |                        | 8,605 
|Over twelve months        |  |                        | 7,746 
|                          |  |                        |       
|                          |  | $                      | 40,406
|                          |  |                        |       



Borrowings. The
Bank may obtain advances from the FHLB of Pittsburgh to supplement its supply of lendable funds. Advances from the FHLB of Pittsburgh are typically secured by a pledge of the Banks stock in the FHLB of Pittsburgh and a portion of the
Banks first mortgage loans and certain other assets. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal requirements.



The following table sets forth information concerning short-term FHLB advances and securities sold under agreements to repurchase during the periods indicated.



|                                                            |  |                                        |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------- |  | -------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                            |  | At or For the Years Ended December 31, |       
|(Dollars in thousands)                                      |  | 2004                                   |        |   | 2003 |   |        | 2002 | 
|Average outstanding                                         |  | $                                      | 13,142 |   |      | $ | 11,369 |      |  | $ | 10,886 |  
|Maximum amount outstanding at any month-end during the year |  |                                        | 16,087 |   |      |   | 15,142 |      |  |   | 15,552 |  
|Weighted average interest rate during the year              |  |                                        | 0.98   | % |      |   | 0.98   | %    |  |   | 1.32   | %
|Total short-term borrowings at year end                     |  |                                        | 12,033 |   |      |   | 11,800 |      |  |   | 8,928  |  
|Weighted average interest rate at year end                  |  |                                        | 1.22   | % |      |   | 0.89   | %    |  |   | 1.00   | %



14



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Trust and Financial Services Activities



The Bank operates a Trust Department and an Investment Department. These departments provide estate planning, investment
management and financial planning to customers. At December 31, 2004, the Bank had $32 million of assets under management, of which $2 million is non-discretionary with no investment authority.



Personnel



As of December 31, 2004, the Registrant had 90 full-time employees and 29 part-time employees. The employees are not
represented by a collective bargaining unit. The Registrant believes its relationship with its employees to be satisfactory.



SUPERVISION AND REGULATION



Set forth below is a brief description of certain laws which relate to the regulation and supervision of the Company and the Bank. The description does
not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.



Regulation of the Company



Set forth below is a brief description of certain laws which related to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and
regulations.



General. The Company, as a bank holding
company under the Bank Holding Company Act of 1956, as amended, is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System and by the Pennsylvania Department of Banking. The Company is required to
file annually a report of its operations with the Federal Reserve and the Pennsylvania Department of Banking. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it
operates in a safe and sound manner without endangering the financial health of the Bank.



Under the Bank Holding Company Act, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank
holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the
Company would directly or indirectly own or control more than 5% of such shares.



Federal statutes impose restrictions on the ability of a bank holding company and its nonbank subsidiaries to obtain extensions of credit from its subsidiary bank, on the subsidiary banks investments in the
stock or securities of the holding company, and on the subsidiary banks taking of the holding companys stock or securities as collateral for loans to any borrower. A bank holding company and its subsidiaries are also prevented from
engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services by the subsidiary bank.



A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations
in an unsafe or unsound manner. In addition, it is the Federal Reserve policy that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or
adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.



Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the Bank
Holding Company Act. Under the Bank Holding Company Act and the Federal Reserves



15



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bank holding company regulations, the Company may only engage in, or acquire or control voting securities or assets of a
company engaged in (i) banking or managing or controlling banks and other subsidiaries authorized under the Bank Holding Company Act; or (ii) any non-banking activity the Federal Reserve has determined to be so closely related to banking or managing
or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the
business of banking as to be a proper incident thereto.



Financial Modernization. The Gramm-Leach-Bliley Act, which became effective in March 2001, permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services
company known as a financial holding company. A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial
activities previously impermissible for bank holding companies, including (i) securities underwriting, dealing and market making;(ii) sponsoring mutual funds and investment companies; (iii) insurance underwriting and agency; and (iv) merchant
banking activities. The Gramm-Leach-Bliley Act also permits the Federal Reserve and the Treasury Department to authorize additional activities for financial holding companies if they are financial in nature or incidental to
financial activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed, and has at least a satisfactory CRA rating. A financial holding company must provide
notice to the Federal Reserve within 30 days after commencing activities previously determined by statute or by the Federal Reserve and Department of the Treasury to be permissible. The Company has not submitted notice to the Federal Reserve to
become a financial holding company.



Regulatory
Capital Requirements. The Federal Reserve has adopted capital adequacy guidelines under which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the Bank Holding
Company Act. The Federal Reserves capital adequacy guidelines are similar to those imposed on the Bank by the Federal Deposit Insurance Corporation (FDIC). See Regulation of the Bank - Regulatory Capital Requirements.



Restrictions on Dividends. The Federal Reserve has
issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserves view that a bank holding company should pay cash dividends only to the extent that the holding companys net income
for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding companys capital needs, asset quality and overall financial condition. The Federal Reserve also indicated
that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the federal prompt corrective action regulations, the Federal Reserve may prohibit a bank holding company from
paying any dividends if the holding companys bank subsidiary is classified as undercapitalized.



Regulation of the Bank



General. As a Pennsylvania chartered commercial bank with deposits insured by the FDIC which is not a Federal Reserve System member, the Bank is
subject to extensive regulation and examination by the Pennsylvania Department of Banking and by the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate,
among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and
regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. This regulatory structure also gives the federal and state banking agencies extensive discretion in connection
with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation,
whether by the Pennsylvania Department of Banking, the FDIC or the United States Congress, could have a material impact on the Bank and its operations.



Federal law provides the federal banking regulators, including the FDIC and the Federal Reserve, with substantial enforcement powers. This enforcement
authority includes, among other things, the ability to assess civil



16



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money penalties, to issue cease-and-desist or removal orders, and to initiate injunctive actions against banking
organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with regulatory authorities.



Pennsylvania Savings Bank Law. The Pennsylvania Banking Code contains detailed provisions governing the organization, location of offices, rights
and responsibilities of trustees, officers, and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The code delegates extensive rule-making power and administrative discretion to
the Pennsylvania Department of Banking so that the supervision and regulation of state chartered commercial banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.



The code also provides state-chartered commercial banks with all of the
powers enjoyed by federal savings and loan associations, subject to regulation by the Pennsylvania Department of Banking. The Federal Deposit Insurance Corporation Act, however, prohibits a state-chartered bank from making new investments, loans, or
becoming involved in activities as principal and equity investments which are not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Savings Association Insurance
Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the code is significantly restricted by the Federal Deposit Insurance Act.



The Pennsylvania Banking Code states, in part, that dividends may be declared
and paid only out of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital. The Bank has not declared or paid any dividends that have caused its retained earnings to be
reduced below the amount required. Finally, dividends may not be declared or paid if the Bank is in default in payment of any assessment due the FDIC.



Federal Deposit Insurance. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally
insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC administers two separate insurance funds, the Bank Insurance Fund, which generally insures commercial bank and state
savings bank deposits, and the Savings Association Insurance Fund, which generally insures savings association deposits. The Bank is a member of the Bank Insurance Fund and its deposit accounts are insured by the FDIC, up to prescribed limits.



The FDIC is authorized to establish separate annual deposit
insurance assessment rates for members of the Bank Insurance Fund and the Savings Association Insurance Fund, and to increase assessment rates if it determines such increases are appropriate to maintain the reserves of either insurance fund. In
addition, the FDIC is authorized to levy emergency special assessments on Bank Insurance Fund and Savings Association Insurance Fund members. The FDICs deposit insurance premiums are assessed through a risk-based system under which all insured
depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation, with the assessment rate for most institutions set at 0%.



In addition, all institutions with deposits insured by the FDIC are required
to pay assessments to fund interest payments on bonds issued by the Financing Corporation, an agency of the Federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue
until the Financing Corporation bonds mature in 2017.



Regulatory Capital Requirements.The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System. At December 31, 2004, the Bank exceeded all
regulatory capital requirements and was classified as well capitalized.



The FDICs capital regulations establish a minimum 3% Tier 1 leverage capital requirement for the most highly rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis
points for all other state-chartered, non-member banks, which effectively increases the minimum Tier 1 leverage ratio for such other banks to 4% to 5% or more. Under the FDICs regulation, the highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are



17



---

considered a strong banking organization, rated composite 1 under the Uniform Financial Institutions Rating System. Tier
1 or core capital is defined as the sum of common stockholders equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain mortgage and non-mortgage servicing assets and purchased credit card relationships.



The FDICs regulations also require that state-chartered, non-member banks meet a risk-based capital standard. The risk-based capital standard
requires the maintenance of total capital (which is defined as Tier 1 capital and supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier 1 capital for the risk-based standards are the same as those for the leverage capital requirement.
The components of supplementary (Tier 2) capital include cumulative perpetual preferred stock, mandatory subordinated debt, perpetual subordinated debt, intermediate-term preferred stock, up to 45% of unrealized gains on equity securities and a
banks allowance for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital that may be included in
total capital is limited to 100% of Tier 1 capital.



A bank
that has less than the minimum leverage capital requirement is subject to various capital plan and activities restriction requirements. The FDICs regulations also provide that any insured depository institution with a ratio of Tier 1 capital
to total assets that is less than 2.0% is deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the Federal Deposit Insurance Act and could be subject to termination of deposit insurance.



The Bank is also subject to minimum capital requirements imposed by the
Pennsylvania Department of Banking on Pennsylvania-chartered depository institutions. Under the Pennsylvania Department of Bankings capital regulations, a Pennsylvania bank or savings bank must maintain a minimum leverage ratio of Tier 1
capital (as defined under the FDICs capital regulations) to total assets of 4%. In addition, the Pennsylvania Department of Banking has the supervisory discretion to require a higher leverage ratio for any institutions based on the
institutions substandard performance in any of a number of areas. The Bank was in compliance with both the FDIC and the Pennsylvania Department of Banking capital requirements as of December 31, 2004.



Affiliate Transaction Restrictions.Federal laws strictly limit the
ability of banks to engage in transactions with their affiliates, including their bank holding companies. Such transactions between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10%
of a bank subsidiarys capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiarys capital and surplus. Further, loans and extensions of credit generally
are required to be secured by eligible collateral in specified amounts. Federal law also requires that all transactions between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.



Federal Home Loan Bank System.The Bank is a member of the Federal
Home Loan Bank of Pittsburgh, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member
institutions and proceeds from the sale of consolidated obligations of the Federal Home Loan Bank system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of trustees of the Federal Home
Loan Bank.



As a member, it is required to purchase and
maintain stock in the Federal Home Loan Bank of Pittsburgh in an amount equal to 0.7% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year and 5% of its outstanding advances
from the Federal Home Loan Bank. At December 31, 2004, the Bank was in compliance with this requirement.



Federal Reserve System.The Federal Reserve requires all depository institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking and NOW accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy the liquidity requirements that
are imposed by the Department. At December 31, 2004, the Bank met its reserve requirements.



18



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Loans to One Borrower.Under Pennsylvania and federal law, commercial banks have, subject to
certain exemptions, lending limits to one borrower in an amount equal to 15% of the institutions capital accounts. An institutions capital account includes the aggregate of all capital, surplus, undivided profits, capital securities and
general reserves for loan losses. As of December 31, 2004, loans-to-one borrower limitation was $_4_ million and the Bank was in compliance with such limitation.



Item 2. Properties



The Company operates from its main office, an operational center, and four branch offices, as described in Item 1 - Description of Business.
All offices are owned except for two branch offices and the Operations Center. The leases have initial terms of between 5-20 years, with renewal options for additional years. The following table sets forth certain information regarding our offices:



|                   |  |            |  |                |     |  |                       |          
|------------------ |  | ---------- |  | -------------- | --- |  | --------------------- | ---------
|                   |  | YearOpened |  | Owned orLeased |     |  | Book Valueat 12/31/04
|Main Office:       |  |            |  |                |     |  |                       |          
|820 Church Street  |  | 1985       |  | Owned          |     |  | $                     | 956,000  
|Honesdale, PA      |  |            |  |                |     |  |                       |          
|                   |  |            | 
|Branch Offices:    |  |            |  |                |     |  |                       |          
|309 Main Avenue    |  | 1988       |  | Owned          |     |  | $                     | 1,066,000
|Hawley, PA         |  |            |  |                |     |  |                       |          
|                   |  |            | 
|Route 371          |  | 1995       |  | Leased         | (1) |  | $                     | 35,000   
|Damascus, PA       |  |            |  |                |     |  |                       |          
|                   |  |            | 
|Route 507          |  | 1996       |  | Leased         | (2) |  | $                     | 507,000  
|Greentown, PA      |  |            |  |                |     |  |                       |          
|                   |  |            | 
|Route 739          |  |            |  |                |     |  |                       |          
|Dingmans Ferry, PA |  | 2004       |  | Owned          |     |  | $                     | 1,092,000
|                   |  |            | 
|Operations Center  |  |            |  | Leased         | (3) |  |                       |          
|120 Sunrise Avenue |  | 1998       |  |                |     |  | $                     | 489,000  
|Honesdale, PA      |  |            |  |                |     |  |                       |          

---

|(1) | Lease expires 2015 with 15 year renewal option.
|--- | -----------------------------------------------

|(2) | Lease expires 2007 with 15 year renewal option.
|--- | -----------------------------------------------

|(3) | Lease expires 2008 with 10 year renewal option.
|--- | -----------------------------------------------



Item 3. Legal Proceedings



There are various claims and lawsuits in which Registrant is periodically involved, such as claims to enforce liens, condemnation proceedings on
properties in which Registrant holds security interests, claims involving the making and servicing of real property loans, and other issues incident to Registrants business. In the opinion of management, no material loss is expected from any
of the pending claims or lawsuits.



Item 4. Submission of Matters
to a Vote of Security Holders



Not applicable.



19



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PART II



Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



(a) Market for Common Equity.The Information relating to the
market for Registrants common equity and related stockholder matters appears under Market Prices of Stock/Dividends Paid in the Registrants Annual Report to Shareholders for the fiscal year ended December 31, 2004
(Annual Report) which is filed as Exhibit 13 hereto and is incorporated herein by reference. During the period covered by this report, the Company did not sell any equity securities that were not registered under the Securities Act of
1933.



(b) Use of Proceeds. Not applicable



(c) Issuer Purchases of Equity Securities.Not applicable



Item 6. Selected Financial Data



The information contained in the table captioned
Summary of Selected Financial Data in the Annual Report is incorporated herein by reference.



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation



The information contained in the section captioned Managements
Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report is incorporated herein by reference.



Item 7A. Quantitative and Qualitative Disclosure About Market Risk



The information contained in the section captioned Quantitative and Qualitative Disclosures About Market Risk in
the Annual Report is incorporated herein by reference. The consolidated financial statements and notes thereto presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which generally require the
measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, nearly all of the
Registrants assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on the Registrants performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.



Item 8. Financial Statements and Supplementary Data



The Registrants financial statements listed in Item 15 are incorporated herein by reference from the Annual Report.



Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A. Controls and Procedures



Dimecos management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. As of December 31, 2004, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Registrants disclosure controls and procedures as of December 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the
Registrants disclosure controls and procedures were effective as of that date in ensuring material information required to be disclosed in this Annual Report on 10-K was recorded, processed, summarized, and reported on a timely basis.
Additionally, there were no changes in the Registrants internal control over financial reporting that occurred during the quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the
Registrants internal control over financial reporting.



20



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Item 9B. Other Information



Not applicable.



PART III



Item 10. Directors and Executive Officers of the Registrant



Other information required under this item is incorporated herein by reference to the Proxy Statement for the 2005 Annual Meeting of Shareholders (the
Proxy Statement) contained under the sections captioned Section 16(a) Beneficial Ownership Reporting Compliance, and Election of Directors.



The Registrant has adopted a Code of Ethics that applies to its principal executive officers, principal financial officer,
principal accounting officer or controller or persons performing similar functions. A copy of the Registrants Code of Ethics will be provided to any person without charge upon written request to Secretary, Dimeco, Inc., PO Box 509, Honesdale,
PA 18431.



Item 11. Executive Compensation



The information required by this item is incorporated by reference to the
Proxy Statement contained under the section captioned Director and Executive Officer Compensation.



Item 12. Security Ownership of Certain Beneficial Owners and Management



| | (a) | Security Ownership of Certain Beneficial Owners
| | --- | -----------------------------------------------



Information required by this item is incorporated herein by reference to the section captioned Principal Holders of the Proxy Statement.



| | (b) | Security Ownership of Management
| | --- | --------------------------------



Information required by this item is incorporated herein by reference to the section captioned Proposal I  Election of Directors of the
Proxy Statement.

| | (c) | Changes in Control
| | --- | ------------------



Management of the Registrant knows of no arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a
subsequent date result in a change in control of the registrant.



21



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| | (d) | Securities Authorized for Issuance Under Equity Compensation Plans
| | --- | ------------------------------------------------------------------



Set forth below is information as of December 31, 2004 with respect to compensation plans under which equity securities of the Registrant are authorized
for issuance.



EQUITY COMPENSATION PLAN INFORMATION



|                                                       |  |                                                                                             |  |                                                                             |       |                                                                                                                                            |       
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------
|                                                       |  | (a) Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights |  | (b) Weighted-averageexercise price ofoutstandingoptions, warrantsand rights |       | (c) Number of securitiesremaining available forfuture issuance under equitycompensation plans(excluding securitiesreflected in column (a))
|                                                       |  |                                                                                            
|Equity compensation plans approved by shareholders:    |  |                                                                                             |  |                                                                             |       |                                                                                                                                            |       
|2000 Independent Directors Stock Option Plan           |  | 28,500                                                                                      |  | $                                                                           | 13.00 |                                                                                                                                            | 10,000
|2000 Stock Incentive Plan                              |  | 71,170                                                                                      |  | $                                                                           | 15.48 |                                                                                                                                            | 24,000
|Equity compensation plans not approved by shareholders |  | n/a                                                                                         |  |                                                                             | n/a   |                                                                                                                                            | n/a   
|                                                       |  |                                                                                             |  |                                                                             |       |                                                                                                                                            |       
|TOTAL                                                  |  | 99,670                                                                                      |  | $                                                                           | 14.77 |                                                                                                                                            | 34,000



Item 13. Certain Relationships
and Related Transactions



The information required by
this item is incorporated herein by reference to the section captioned Certain Relationships and Related Transactions in the Proxy Statement.



Item 14. Principal Accounting Fees and Services



The information called for by this item is incorporated herein by reference to the section entitled Ratification of Appointment of Accountants
in the Proxy Statement.



Part IV



Item 15. Exhibits, Financial Statement Schedules



(a) The following documents are filed as a part of this report:



(1) The consolidated balance sheet of Dimeco, Inc. as of
December 31, 2004 and 2003 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, 2004, together with the related notes and the independent
auditors report of S.R. Snodgrass, A.C., independent certified public accountants for the three years ended December 31, 2004.



(2) Schedules omitted as they are not applicable.



(3) The following exhibits are included in this Report or incorporated herein by reference:



|      |  |                                                      
|----- |  | -----------------------------------------------------
|3(i)  |  | Articles of Incorporation of Dimeco, Inc., as amended
|      | 
|3(ii) |  | Amended Bylaws of Dimeco, Inc.***                    
|      | 
|10.1 |  | 2000 Independent Directors Stock Option Plan*        
|      | 
|10.2 |  | 2000 Stock Incentive Plan**                          



22



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|      |  |                                                                                   
|----- |  | ----------------------------------------------------------------------------------
|10.3 |  | Form of Salary Continuation Plan for Executive Officers****                       
|      | 
|10.4 |  | Form of Deferred Compensation Plan for Directors***                               
|      | 
|10.5 |  | Form of Split Dollar Agreement with a Director***                                 
|      | 
|13    |  | Annual Report to Shareholders for the fiscal year ended December 31, 2004         
|      | 
|14    |  | Code of Ethics for Principal Executive Officers and Senior Financial Officers ****
|      | 
|21    |  | Subsidiaries of the Registrant                                                    
|      | 
|23    |  | Consent of S.R. Snodgrass, A.C.                                                   
|      | 
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certificate                                              
|      | 
|31.2  |  | Rule 13a-14(a)/15d-14(a) Certificate                                              
|      | 
|32.1  |  | Section 1350 Certification                                                        

---

| | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|* | Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-69420) filed with the Commission on September 14, 2002.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-69416) filed with the Commission on September 14, 2002.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated by reference to the identically numbered exhibits to the Registrants Form 10-KSB for the fiscal year ended December 31, 2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|**** | Incorporated by reference to the identically numbered exhibit to the Registrants Form 10-KSB for the fiscal year ended December 31, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------



23



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                     |  |              |  |                                                                      
|-------------------- |  | ------------ |  | ---------------------------------------------------------------------
|                     |  | DIMECO, INC.
|                     |  |             
|Date: March 28, 2005 |  | By:          |  | /s/ Gary C. Beilman                                                  
|                     |  |              |  | Gary C. Beilman                                                      
|                     |  |              |  | President and Chief Executive Officer(Duly Authorized Representative)



Pursuant to the
requirement of the Securities Exchange Act of 1934, this report has been signed below as of March 28, 2005 by the following persons on behalf of the registrant and in the capacities indicated.



|                                             |  |                                                 |  | 
|-------------------------------------------- |  | ----------------------------------------------- |  | 
|/s/ William E. Schwarz                       |  | /s/ Gary C. Beilman                            
|William E. Schwarz                           |  | Gary C. Beilman                                
|Chairman of the Board and Director           |  | President, Chief Executive Officer and Director
|                                             |  | (Principal Executive Officer)                  
|                                             | 
|/s/ Maureen H. Beilman                       |  | /s/ Robert E. Genirs                           
|Maureen H. Beilman                           |  | Robert E. Genirs                               
|Chief Financial Officer and Treasurer        |  | Director                                       
|(Principal Financial and Accounting Officer) |  |                                                 |  | 
|                                             | 
|/s/ Barbara Jean Genzlinger                  |  | /s/ John S. Kiesendahl                         
|Barbara Jean Genzlinger                      |  | John S. Kiesendahl                             
|Director                                     |  | Vice Chairman of the Board and Director        
|                                             | 
|/s/ Thomas A. Peifer                         |  | /s/ Henry M. Skier                             
|Thomas A. Peifer                             |  | Henry M. Skier                                 
|Director                                     |  | Director                                       
|                                             |  |                                                
|/s/ John F. Spall                            |  |                                                 |  | 
|John F. Spall                                |  |                                                 |  | 
|Director                                     |  |                                                 |  | 



24