<PAGE>   1
                                   FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                                            [X]
For the fiscal year ended December 31, 2000
                                                            OR

                                                           [  ]

For the transition period from _____________to________________

Commission file Number:  _______________

                                  DIMECO, INC.
             (Exact name of registrant as specified in its charter)

                                   23-2250152
                     (I.R.S. Employer Identification Number)

820-822 Church Street, Honesdale, Pennsylvania                         18431
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:  (570) 253-1970

Securities registered pursuant to Section 12(b) of the Act:

      Title of each class         Name of each exchange on which registered
      -------------------         -----------------------------------------
      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.50 per share
                                (Title of class)

                  Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 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. Yes X No

                  Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B 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-KSB
or any amendment to this Form 10-KSB. [ ]

                  The aggregate market value of the voting stock held by
non-affiliates of the registrant based on a closing sale price: $19,545,620 at
March 16, 2001.

                  As of March 17, 2001, the registrant had outstanding 742,847
shares of its common stock, par value $.50 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of the registrant's 2000 definitive Proxy Statement
are incorporated by reference in Part III of this Annual Report. In addition,
portions of the Annual Report to stockholders of the registrant for the year
ended December 31, 2000, are incorporated by reference in Part II of this Annual
Report.

                                  Page 1 of 91
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                                  DIMECO, INC.
                                  FORM 10-KSB

                                      Index
                                      -----
Part I                                                                      Page
------                                                                      ----

Item 1.   Description of the Business.......................................   1

Item 2.   Description of Property...........................................  15

Item 3.   Legal Proceedings.................................................  15

Item 4.   Submission of Matters to a Vote of Security Holders.... Not Applicable

Part II

Item 5.   Market for Common Equity and Related
            Stockholder Matters.............................................  16

Item 6.   Management's Discussion and Analysis or Plan
            of Operation....................................................  17

Item 7.   Financial Statements and Schedules................................  22

Item 8.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.................. Not Applicable

Part III

Item 9.   Directors, Executive Officers, Promoters and Control
            Persons; Compliance with Section 16(a) of the
            Exchange Act....................................................  22

Item 10.  Executive Compensation............................................  23

Item 11.  Security Ownership of Certain Beneficial Owners
            and Management..................................................  23

Item 12.  Certain Relationships and Related Transactions ...................  23

Item 13.  Exhibits and Reports on Form 8-K..................................  24


Signatures...............................................................  25-26

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                                  DIMECO, INC.
                                   FORM 10-KSB

                                     PART I

ITEM 1.           DESCRIPTION OF THE BUSINESS

                  General

                  Dimeco, Inc. (the "Company"), a Pennsylvania business
corporation, is a bank holding company, registered with and supervised by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Company was incorporated on October 29, 1992, and commenced operations on
June 1, 1993, upon consummation of the acquisition of all of the outstanding
stock of The Dime Bank of Honesdale, Pennsylvania (the "Bank"). Since commencing
operations, the Company's business has consisted primarily of managing and
supervising the Bank, and its principal source of income, if any, has been
dividends paid by the Bank. The Company has one wholly-owned subsidiary, the
Bank. At December 31, 2000, the Company had total consolidated assets, deposits
and stockholders' equity of approximately $215.0 million, $184.3 million and
$19.5 million, respectively.

                  The Bank was organized in 1905. The Bank is a
Pennsylvania-chartered banking institution, the deposits of which are insured by
the Federal Deposit Insurance Corporation (the "FDIC") under the Bank Insurance
Fund ("BIF"). In 1991, the Bank was granted limited fiduciary powers to engage
in an investment management service. In 1999, the Bank was granted full trust
powers and has begun offering trust services to its customers. The Bank has four
branch offices located in Honesdale Hawley, Damascus and Greentown, Pennsylvania
and operates two off-site ATM machines, one in Honesdale and one in Hawley,
Pennsylvania. Its business is as a full service commercial bank providing a wide
range of services to individuals and small to medium sized businesses in its
Northeastern Pennsylvania market area, including accepting time, demand, and
savings deposits and making secured and unsecured commercial, real estate and
consumer loans.

                  Supervision and Regulation - The Company

                  The Company is subject to the jurisdiction of the Securities
and Exchange Commission (the "SEC") and of state securities laws administrators
for matters relating to the offering and sale of its securities. The Company is
currently subject to the SEC's rules and regulations relating to periodic
reporting, insider trading reports and proxy solicitation materials in
accordance with the Securities Exchange Act of 1934. Furthermore, the Company
qualifies as a "small business issuer" as that term is defined under Item 10 of
Regulation S-B of the SEC, and has elected to make its SEC filings under the
disclosure requirements afforded to small business issuers.

                  The Company is also subject to the provisions of the Bank
Holding Company Act of 1956, as amended ("Bank Holding Company Act"), and to
supervision by the Federal Reserve Board. The Bank Holding Company Act will
require the Company to secure the prior approval of the Federal Reserve Board
before it owns or controls, directly or indirectly, more than 5% of the voting
shares of substantially all of the assets of any institution, including another
bank. The Bank Holding Company Act prohibits acquisition by the Company of more
than 5% of the voting shares of, or interest in, or


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substantially all of the assets of, any bank located outside Pennsylvania unless
such an acquisition is specifically authorized by laws of the state in which
such bank is located.

                  A bank holding company is prohibited from engaging in or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.

                  The Bank Holding Company Act also prohibits acquisitions of
control of a bank holding company, such as the Company, without prior notice to
the Federal Reserve Board. Control is defined for this purpose as the power,
directly or indirectly, to direct the management or policies of a bank holding
company or to vote twenty-five percent (25%) (or ten percent (10%), if no other
person or persons acting in concert, holds a greater percentage of the Common
Stock) or more of the Company's Common Stock.

                  The Company is required to file an annual report with the
Federal Reserve Board and any additional information that the Federal Reserve
Board may require pursuant to the Bank Holding Company Act. The Federal Reserve
Board may also make examinations of the Company and any or all of its
subsidiaries. Further, under Section 106 of the 1970 amendments to the Bank
Holding Company Act and the Federal Reserve Board's regulations, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or provision of credit
or provision of any property or services. The so-called "Anti-tie-in" provisions
state generally that a bank may not extend credit, lease, sell property or
furnish any service to a customer on the condition that the customer provide
additional credit or service to the bank, to its bank holding company or to any
other subsidiary of its bank holding company or on the condition that the
customer not obtain other credit or service from a competitor of the bank, its
bank holding company or any subsidiary of its bank holding company.

                  Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on investments in
the stock or other securities of the bank holding company and on taking of such
stock or securities as collateral for loans to any borrower.

                  Permitted Non-Banking Activities

                  The Federal Reserve Board permits bank holding companies to
engage in non-banking activities so closely related to banking, managing or
controlling banks as to be a proper incident thereto. While the types of
permissible activities are subject to change by the Federal Reserve Board, the
principal non-banking activities that presently may be conducted by a bank
holding company are:

                  1. Making, acquiring or servicing loans and other extensions
of credit for its own account or for the account of others, such as would be
made by the following types of companies: consumer finance, credit card,
mortgage, commercial finance and factoring.


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                  2. Operating as an industrial bank, Morris Plan bank or
industrial loan company in the manner authorized by state law so long as the
institution does not accept demand deposits or make commercial loans.

                  3. Operating as a trust company in the manner authorized by
federal or state law so long as the institution does not make certain types of
loans or investments or accept deposits, except as may be permitted by the
Federal Reserve Board.

                  4. Subject to certain limitations, acting as an investment or
financial advisor to investment companies and other persons.

                  5. Leasing personal and real property or acting as agent,
broker, or advisor in leasing property, provided that it is reasonably
anticipated that the transaction will compensate the lessor for not less than
the lessor's full investment in the property and provided further that the
lessor may rely on estimated residual values of up to 100% of the acquisition
cost of the leased property.

                  6. Making equity and debt investments in corporations or
projects designed primarily to promote community welfare, such as the economic
rehabilitation and development of low- income areas by providing housing,
services or jobs for residents.

                  7. Providing to others financially oriented data processing or
bookkeeping services.

                  8. Subject to certain limitations, acting as an insurance
principal, agent or broker in relation to insurance for itself and its
subsidiaries or for insurance directly related to extensions of credit by the
bank holding company system.

                  9. Owning, controlling or operating a savings association, if
the savings association engages only in deposit taking activities and lending,
and other activities permissible for bank holding companies.

                  10. Providing courier services of a limited character.

                  11. Subject to certain limitations, providing management
consulting advice to nonaffiliated banks and nonbank depository institutions.

                  12. Selling money orders having a face value of $1,000 or
less, travelers' checks and United States savings bonds.

                  13. Performing appraisals of real estate and personal
property, including securities.

                  14. Subject to certain conditions, acting as intermediary for
the financing of commercial or industrial income-producing real estate by
arranging for the transfer of the title, control and risk of such a real estate
project to one or more investors.

                  15. Subject to certain limitations, providing full-service
brokerage and financial advisory activities; and selling, solely as an agent or
broker for customers, shares of investment


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companies advised by an affiliate of the bank holding company or providing
investment advice to customers about the purchase and sale of shares of
investment companies advised by an affiliate of the bank holding company.

                  16. Underwriting and dealing in obligations of the United
States, general obligations of states and their political subdivisions and other
obligations such as bankers' acceptances and certificates of deposits.

                  17. Subject to certain limitations, providing by any means,
general information and statistical forecasting with respect to foreign exchange
markets; advisory services designed to assist customers in monitoring,
evaluating and managing their foreign exchange exposures; and certain
transactional services with respect to foreign exchange.

                  18. Subject to certain limitations, acting as a futures
commission merchant in the execution and clearance on major commodity exchanges
of futures contracts and options on futures contracts for bullion, foreign
exchange, government securities, certificates of deposit and other money market
instruments.

                  19. Subject to certain limitations, providing commodity
trading and futures commission merchant advice, including counsel, publications,
written analysis and reports.

                  20. Providing consumer financial counseling that involves
counseling, educational courses and distribution of instructional materials to
individuals on consumer-oriented financial management matters, including debt
consolidation, mortgage applications, bankruptcy, budget management, real estate
tax shelters, tax planning, retirement and estate planning, insurance and
general investment management, so long as this activity does not include the
sale of specific products or investments.

                  21. Providing tax planning and preparation advice such as
strategies designed to minimize tax liabilities and includes, for individuals,
analysis of the tax implications of retirement plans, estate planning and family
trusts. For a corporation, tax planning includes the analysis of the tax
implications of mergers and acquisitions, portfolio mix, specific investments,
previous tax payments and year-end tax planning. Tax preparation involves the
preparation of tax forms and advice concerning liability based on records and
receipts supplied by the client.

                  22. Providing check guaranty services to subscribing
merchants.

                  23. Subject to certain limitations, operating a collection
agency.

                  24. Operating a credit bureau that maintains files on the past
credit history of consumers and providing such information to a lender that is
considering a borrower's application for credit, provided that the credit bureau
does not grant preferential treatment to an affiliated bank in the bank holding
company system.

                  The Company did not commence or conduct any of the
above-delineated activities during the calendar year 2000, but may consider one
or more of these activities during the year


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2001 as a means to increase noninterest income, as has been the case with many
other bank holding companies.

                  Pennsylvania Banking Law

                  Under the Pennsylvania Banking Code of 1965, as amended (the
"Code"), the Company is permitted to control an unlimited number of banks.
However, the Company would be required, under the Bank Holding Company Act, to
obtain the prior approval of the Federal Reserve Board before it could acquire
all or substantially all of the assets of any bank, or acquire ownership or
control of any voting shares of any bank other than the Bank, if, after such
acquisition, it would own or control more than five percent (5%) of the voting
shares of such bank.

                  Interstate Banking and Branching

                  On September 29, 1994, the President signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The following discussion describes those provisions
of the Interstate Banking Act that would pertain to the Company. It is not an
exhaustive description of all provisions of the Interstate Banking Act.

                  In general, the Federal Reserve Board may approve an
application by the Company to acquire control of, or acquire all or
substantially all of the assets of, a bank located outside of the Commonwealth
of Pennsylvania without regard to whether such acquisition is prohibited under
the law of any state. The Federal Reserve Board may approve such application if
it finds, among other things, that the Company is "adequately capitalized" and
"adequately managed." Moreover, the Federal Reserve Board may not approve such
acquisition if the target bank has not been in existence for the minimum period
of time, if any, required by such target bank's "host" state. The Federal
Reserve Board may, however, approve the acquisition of the target bank that has
been in existence for at least five years without regard to any longer minimum
period of time required under the law of the "host" state of the target bank.
These above provisions took effect on September 30, 1995.

                  Furthermore, the Interstate Banking Law provides that,
beginning June 1, 1997, appropriate federal supervisory agencies may approve a
merger of the Bank with another bank located in a different state or the
establishment by the Bank of a new branch office either by acquisition or de
novo, allowing an interstate merger. The Commonwealth of Pennsylvania has
enacted a law to "opt-in" early to these interstate mergers.

                  Moreover, the Interstate Banking Law provides that the Bank
may establish and operate a de novo branch in any state that "opts-in" to de
novo branching. A "de novo branch" is a branch office that is originally
established as a branch and does not become a branch as a result of an
acquisition or merger. The Commonwealth of Pennsylvania has enacted a law to
"opt-in" early to de novo interstate branching.

                  On December 13, 1995, the Banking Commissioners of the states
of Delaware, Maryland, Pennsylvania and Virginia executed a Cooperative
Agreement which governs the manner in which state- chartered banks (such as the
Bank) with branches in multiple states will be supervised. This


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Cooperative Agreement was necessitated by the Interstate Banking Law and was
drafted to create a level playing field for state-chartered banks with respect
to supervision and regulation of branch offices in a multiple state setting.
Specifically, this agreement outlines general principles for determining whether
home or host state law applies, including the following: (1) host state law
applies to operational issues relating to a branch located in a host state,
including antitrust, community reinvestment, consumer protection, usury and fair
lending laws; (2) the state law of the home state will apply to corporate
structure issues, such as, charter, by-laws, incorporation, liquidation,
stockholders and directors, capital and investments; and (3) bank powers issues
will be resolved with reference to both home and host state laws.

                  As of the filing date of this report, the Company and the Bank
have no plans to engage in interstate banking or branching.

                  Legislation and Regulatory Changes

                  From time to time, legislation is enacted which has the effect
of increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, and before various bank regulatory
agencies. No prediction can be made as to the likelihood of any major changes or
the impact such changes might have on the Company and its subsidiary bank.
Certain changes of potential significance to the Company which have been enacted
or promulgated, as the case may be, by Congress or various regulatory agencies,
respectively, are discussed below.

                  Financial Services Modernization Act of 1999

                  On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act
of 1999) which will permit bank holding companies to become financial holding
companies and thereby affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. A bank holding
company may become a financial holding company if each of its subsidiary banks
is well capitalized under the Federal Deposit Insurance Corporation Act of 1991
prompt corrective action provisions, is well managed, and has at least a
satisfactory rating under the Community Reinvestment Act by filing a declaration
that the bank holding company wishes to become a financial holding company. The
Company believes it qualifies to become a financial holding company, but has not
yet determined whether or not it will file to become treated as one. No
regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings association, engaged in activities that
are financial in nature or incidental to activities that are financial in
nature, as determined by the Federal Reserve Board.

                  The Financial Services Modernization Act defines " financial
in nature" to include:

o        securities underwriting, dealing and market making;
o        sponsoring mutual funds and investment companies;
o        insurance underwriting and agency;


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o        merchant banking activities;
o        and activities that the Federal reserve Board has determined to be
         closely related to banking.

         In addition, a financial holding company may not acquire a company that
is engaged in activities that are financial in nature unless each of the
subsidiary banks of the financial holding company has a Community Reinvestment
Act rating of satisfactory or better.

         The specific effects of the enactment of the Financial Services
Modernization Act on the banking industry in general and on the Company and the
Bank in particular have yet to be determined due to the fact that the Financial
Services Modernization Act has NOT YET BEEN TESTED ON A LONG TERM BASIS.

         The United States Congress has periodically considered and adopted
legislation, such as the Gramm-Leach-Bliley Act, which has resulted in further
deregulation of both banks and other financial institutions, including mutual
funds, securities brokerage firms and investment banking firms. No assurance can
be given as to whether any additional legislation will be adopted or as to the
effect such legislation would have on the business of the Bank or the Company.

                  Financial Institutions Reform, Recovery and Enforcement Act of
                  1989 ("FIRREA")

                  On August 9, 1989, major reform and financing legislation,
i.e., FIRREA, was enacted into law in order to restructure the regulation of the
thrift industry, to address the financial condition of the Federal Savings and
Loan Insurance Corporation and to enhance the supervisory and enforcement powers
of the Federal bank and thrift regulatory agencies. The FDIC, as the primary
Federal regulator of the Bank, is primarily responsible for supervision of the
Bank. The FDIC has far greater flexibility to impose supervisory agreements on
an institution that fails to comply with its regulatory requirements,
particularly with respect to the capital requirements. Possible enforcement
actions include the imposition of a capital plan, termination of deposit
insurance and removal or temporary suspension of an officer, director or other
institution-affiliated party.

                  Under FIRREA, civil penalties are classified into three
levels, with amounts increasing with the severity of the violation. The first
tier provides for civil penalties of up to $5,000 per day for any violation of
law or regulation. A civil penalty of up to $25,000 per day may be assessed if
more than a minimal loss or a pattern of misconduct is involved. Finally, a
civil penalty of up to $1.0 million per day may be assessed for knowingly or
recklessly causing a substantial loss to an institution or taking action that
results in a substantial pecuniary gain or other benefit. Criminal penalties are
increased to $1.0 million per violation, up to $5.0 million for continuing
violations or up to the actual amount of gain or loss. These monetary penalties
may be combined with prison sentences for up to five years.

                  Federal Deposit Insurance Corporation Improvement Act of 1991
                  ("FDICIA")

                  General. The FDICIA was enacted in December, 1991, and
reformed a variety of bank regulatory laws. Some of these reforms have a direct
impact on the Bank. Certain of these provisions are discussed below.

                  Examinations and Audits. Annual full-scope, on-site
examinations are required for all FDIC-insured institutions with assets of $500
million or more. The independent accountants of an


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institution shall attest to the accuracy of management's report. Such
accountants shall also monitor management's compliance with governing laws and
regulations. An institution also is required to select an independent audit
committee composed of outside directors who are independent of management, to
review with management and the independent accountants the reports that must be
submitted to the appropriate bank regulatory agencies. If the independent
accountants resign or are dismissed, written notification must be given to the
FDIC and to the appropriate federal and state bank regulatory agency.

                  Prompt Corrective Action. In order to reduce losses to the
deposit insurance funds, the FDICIA established a format to more closely monitor
FDIC-insured institutions and to enable prompt corrective action by the
appropriate federal supervisory agency if an institution begins to experience
any difficulty. The FDICIA established five "Capital" categories. They are: (1)
well-capitalized; (2) adequately capitalized; (3) undercapitalized; (4)
significantly undercapitalized; and (5) critically undercapitalized. The overall
goal of these new capital measures is to impose more scrutiny and operational
restrictions on depository institutions as they descend the capital categories
from well capitalized to critically undercapitalized.

                  On September 15, 1992, the FDIC, the Office of the Comptroller
of the Current (the "OCC"), the Federal Reserve Board (the "FRB") and the Office
of Thrift Supervision issued jointly the final regulations relating to these
capital categories and prompt corrective action. The regulations became
effective December 19, 1992. These capital measures for prompt corrective action
are defined as follows:

                  A "well-capitalized" institution would be one that has at
least a 10% total risk-based capital ratio, a 6% or greater Tier I risk-based
capital ratio, a 5% or greater Tier I leverage capital ratio, and is not subject
to any written order or final directive by the FDIC to meet and maintain a
specific capital level.

                  An "adequately capitalized" institution would be one that
meets the required minimum capital levels, but does not meet the definition of a
"well-capitalized" institution. The existing capital rules generally require
banks to maintain a Tier I leverage capital ratio of at least 4% and an 8% or
greater total risk-based capital ratio. Since the risk-based standards also
require at least half of the total risk-based capital requirement to be in the
form of Tier I capital, this also will mean that an institution would need to
maintain at least a 4% Tier I risk-based capital ratio. Thus, an institution
would need to meet each of the required minimum capital levels in order to be
deemed "adequately capitalized."

                  An "undercapitalized" institution would fail to meet one or
more of the required minimum capital levels for an "adequately capitalized"
institution. An "undercapitalized" institution must file a capital restoration
plan and is automatically subject to restrictions on dividends, management fees
and asset growth. In addition, the institution is prohibited from making
acquisitions, opening new branches or engaging in new lines of business without
the prior approval of its primary federal regulator. A number of other
discretionary restrictions also may be imposed on a case-by-case basis, and
harsher restrictions that otherwise would apply to "significantly
undercapitalized" institutions may be imposed on an "undercapitalized"
institution that fails to file or implement an acceptable capital restoration
plan.

                  A "significantly undercapitalized" institution would have a
total risk-based capital ratio of less than 6%, a Tier I risk-based capital
ratio of less than 3%, or a Tier I leverage capital ratio of less


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<PAGE>   11

than 3%, as the case may be. Institutions in this category would be subject to
all the restrictions that apply to "undercapitalized" institutions. Certain
other mandatory prohibitions also would apply, such as restrictions against the
payment of bonuses or raises to senior executive officers without the prior
approval of the institution's primary federal regulator. A number of other
restrictions may be imposed.

                  A "critically undercapitalized" institution would be one with
a tangible equity (Tier I capital) ratio of 2% or less. In addition to the same
restrictions and prohibitions that apply to "undercapitalized" and
"significantly undercapitalized" institutions, the FDIC's rule implementing this
provision of FDICIA also addresses certain other provisions for which the FDIC
has been accorded responsibility as the insurer of depository institutions.

                  At a minimum, any institution that becomes "critically
undercapitalized" is prohibited from taking the following actions without the
prior written approval of its primary federal supervisory agency: engaging in
any material transactions other than in the usual course of business; extending
credit for highly leveraged transactions ("HLTs"); amending its charter or
bylaws; making any material changes in accounting methods; engaging in certain
transactions with affiliates; paying excessive compensation or bonuses; and
paying interest on liabilities exceeding the prevailing rates in the
institution's market area. In addition, a "critically undercapitalized"
institution is prohibited from paying interest or principal on its subordinated
debt and is subject to being placed in conservatorship or receivership if its
tangible equity capital level is not increased within certain mandated time
frames.

                  At any time, an institution's primary federal supervisory
agency may reclassify it into a lower capital category. All institutions are
prohibited from declaring any dividends, making any other capital distribution,
or paying a management fee if it would result in downward movement into any of
the three undercapitalized categories. The FDICIA provides an exception to this
requirement for stock redemptions that do not lower an institution's capital and
would improve its financial condition, if the appropriate federal supervisory
agency has consulted with the FDIC and approved the redemption.

                  The regulation requires institutions to notify the FDIC
following any material event that would cause such institution to be placed in a
lower category. Additionally, the FDIC monitors capital levels through call
reports and examination reports.

                  Deposit Insurance. On January 1, 1994, the FDIC implemented
the permanent Risk Related Premium System (the "RRPS") with respect to the
assessments and payment of deposit insurance premiums.

                  Under the RRPS, the FDIC, on a semiannual basis, will assign
each institution to one of three capital groups (well-capitalized, adequately
capitalized or undercapitalized, in each case as these terms are defined for
purposes of prompt corrective action rules described above) and further assign
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of its strength based on supervisory evaluations,
including examination reports, statistical analysis and other information
relevant to gauging the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater, a Tier I
capital to risk-adjusted assets ratio of 6% or a greater and a Tier I leverage
ratio of 5% or greater, are assigned to the well-capitalized group.


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                  Effective January 1, 1997, the Deposit Insurance Fund Act of
1996 adjusted the Bank Insurance Fund (BIF) premiums to an amount that is
determined semiannually and are based upon an institutions risk classification.
In addition, as of January 1, 1997 the Financing Corporation (FICO) debt service
assessment is not tied to the FDIC risk classification, but is determined
quarterly based upon funding requirements of the FICO.

                  Real Estate Lending Standards. Pursuant to the FDICIA, the OCC
and other federal banking agencies adopted real estate lending guidelines which
would set loan-to-value ("LTV") ratios for different types of real estate loans.
A LTV ratio is generally defined as the total loan amount divided by the
appraised value of the property at the time the loan is originated. If the
institution does not hold a first lien position, the total loan amount would be
combined with the amount of all senior liens when calculating the ratio. These
guidelines became effective on March 19, 1993. In addition to establishing the
LTV ratios, the guidelines require all real estate loans to be based upon proper
loan documentation and a recent appraisal of the property.

                  Bank Enterprise Act of 1991. Within the overall FDICIA is a
separate subtitle called the "Bank Enterprise Act of 1991." The purpose of this
Act is to encourage banking institutions to establish "basic transaction
services for consumers" or so-called "lifeline accounts." The FDIC assessment
rate is reduced for all lifeline depository accounts. This Act establishes ten
(10) factors which are the minimum requirements to qualify as a lifeline
depository account. Some of these factors relate to minimum opening and balance
amounts, minimum number of monthly withdrawals, the absence of discriminatory
practices against low-income individuals and minimum service charges and fees.
Moreover, the Housing and Community Development Act of 1972 requires that the
FDIC's risk-based assessment system include provisions regarding life-line
accounts. Assessment rates applicable to life- line accounts are to be
established by FDIC rule.

                  Truth in Savings Act. The FDICIA also contains the Truth in
Savings Act ("TSA"). The FRB adopted regulations ("Regulation DD") under the
TSA. The purpose of TSA is to require the clear and uniform disclosure of the
rates of interest which are payable on deposit accounts by depository
institutions and the fees that are assessable against deposit accounts, so that
consumers can make a meaningful comparison between the competing claims of banks
with regard to deposit accounts and products. In addition to disclosures to be
provided when a customer establishes a deposit account, TSA requires the
depository institution to include, in a clear and conspicuous manner, the
following information with each periodic statement of a deposit account: (1) the
annual percentage yield earned; (2) the amount of interest earned; (3) the
amount of any fees and charges imposed; and (4) the number of days in the
reporting period. TSA allows for civil lawsuits to be initiated by customers if
the depository institution violates any provision or regulation under TSA.


                                       10
<PAGE>   13

                  Regulatory Capital Requirements

         The following table presents the Company's consolidated capital ratios
at December 31, 2000:

                                                                  (In Thousands)
Tier I Capital...................................................   $  19,383
Tier II Capital..................................................   $   2,105
Total Capital....................................................   $  21,488

Adjusted Total Average Assets.....................................  $ 214,580
Total Adjusted Risk-Weighted Assets(1)............................  $ 178,081

Tier I Risk-Based Capital Ratio(2)................................     10.89%
Required Tier I Risk-Based Capital Ratio..........................      4.00%
Excess Tier I Risk-Based Capital Ratio............................      6.89%

Total Risk-Based Capital Ratio(3).................................     12.07%
Required Total Risk-Based Capital Ratio...........................      8.00%
Excess Total Risk-Based Capital Ratio.............................      4.07%

Tier I Leverage Ratio(4)..........................................      9.63%
Required Tier I Leverage Ratio....................................      4.00%
Excess Tier I Leverage Ratio......................................      5.63%

------------------------------
(1)   Includes off-balance sheet items at credit-equivalent values.
(2)   Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I Capital
      to Total Adjusted Risk-Weighted Assets.
(3)   Total Risk-Based Capital Ratio is defined as the ratio of Tier I and
      Tier II Capital to Total Adjusted Risk-Weighted Assets.
(4)   Tier I Leverage Ratio is defined as the ratio of Tier I Capital to
      Adjusted Total Average Assets

                  The Company's ability to maintain the required levels of
capital is substantially dependent upon the success of the Company's capital and
business plans, the impact of future economic events on the Company's loan
customers, and the Company's ability to manage its interest rate risk and
control its growth and other operating expenses.

                  Effect of Government Monetary Policies

                  The earnings of the Company are and will be affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies.

                  The monetary policies of the Federal Reserve Board have had,
and will likely continue to have, an important impact on the operating results
of commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The Federal
Reserve Board has a major effect upon the levels of bank loans, investments and
deposits through its open market operations in United States government
securities and through its regulations of,


                                       11

<PAGE>   14
among other things, the discount rate on borrowings of member banks and the
reserve requirements against member bank deposits. It is not possible to predict
the nature and impact of future changes in monetary and fiscal policies.

                  Business - Bank

                  The Bank's legal headquarters are located at 820-822 Church
Street, Honesdale, Pennsylvania 18431.

                  As of December 31, 2000, the Bank had total assets of $215.0
million, total stockholders' equity of $19.5 million and total deposits and
other liabilities of $195.5 million.

                  The Bank engages in a full-service commercial banking
business, including accepting time and demand deposits, making secured and
unsecured commercial and consumer loans, and performing trust services. The
Bank's business is not seasonal in nature. Its deposits are insured by the FDIC
to the extent provided by law.

                  Competition - Bank

                  The Bank competes actively with other area commercial banks
and savings and loan associations, many of which are larger than the Bank, as
well as with major regional banking and financial institutions headquartered in
Scranton, Pennsylvania. The Bank considers its main competitors to be: Honesdale
National Bank, Wayne Bank, Citizens National Bank, Pennstar Bank, PNC Bank,
First Union Bank, Citizen's Savings Association and First National Bank of
Jeffersonville. The Bank is generally competitive with all competing financial
institutions in its service area with respect to interest rates paid on time and
savings deposits, service charges on deposit accounts and interest rates charged
on loans.

                  Supervision and Regulation - Bank

                  The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws of the
Commonwealth of Pennsylvania, whose deposits are insured by the FDIC. Bank
operations are also subject to regulations of the Federal Reserve Board.

                  The primary supervisory authorities of the Bank are the
Pennsylvania Department of Banking ("Department") and the FDIC, that regularly
examine the Bank. The FDIC has the authority under the Financial Institutions
Supervisory Act to prevent a state, non-member bank from engaging in an unsafe
or unsound practice in conducting its business.

                  Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank may make,
the reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, the activities of a bank with respect to mergers and
consolidations and the establishment of branches. All banks in Pennsylvania are
permitted to maintain branch offices in any county of the state. Branches may be
established only after approval by the Department and the FDIC. These regulatory
agencies are required to grant approval only if they find that there is a need
for banking services or facilities such as are contemplated by the proposed
branch.


                                       12


<PAGE>   15

These regulatory agencies may disapprove the application if the bank does not
have the capital and surplus deemed necessary to operate a new branch.

                  Multi-bank holding companies are permitted in Pennsylvania
within certain limitations. See section entitled "Pennsylvania Banking Law."

                  A subsidiary bank of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
stockholders of its parent holding company, among others, and to related
interests of such principal stockholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.

                  From time to time, various types of federal and state
legislation have been proposed that could result in additional regulations of,
and restrictions on, the business of the Bank. It cannot be predicted whether
any such legislation will be adopted or how such legislation would affect the
business of the Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Bank's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.

                  Under the Federal Deposit Insurance Act, the FDIC possesses
the power to prohibit institutions regulated by it (such as the Bank) from
engaging in any activity that would be an unsafe and unsound banking practice
and in violation of the law. Moreover, the Financial Institutions and Interest
Rate Control Act of 1987 ("FIRA") generally expands the circumstances under
which officers or directors of a bank may be removed by the institution's
federal supervisory agency; restricts lending by a bank to its executive
officers, directors, principal stockholders or related interests thereof;
restricts management personnel of a bank from serving as directors in other
management positions with certain depository institutions whose assets exceed a
specified amount or which have an office within a specified geographic area; and
restricts management personnel from borrowing from another institution that has
a correspondent relationship with their bank. Additionally, FIRA requires that
no person may acquire control of a bank unless the appropriate federal
supervisory agency has been given 60-days prior written notice and within that
time has not disapproved the acquisition or extended the period for disapproval.

                  Under the Bank Secrecy Act ("BSA"), the Bank is required to
report to the Internal Revenue Service currency transactions of more than
$10,000 or multiple transactions of which the Bank is aware in any one day that
aggregate in excess of $10,000. Civil and criminal penalties are provided under
the BSA for failure to file a required report, for failure to supply information
required by the BSA or for filing a false or fraudulent report.

                  The Garn-St Germain Depository Institutions Act of 1982 ("1982
Act"), removes certain restrictions on the lending powers and liberalizes the
depository abilities of the Bank. The 1982 Act also amends FIRA (see above) by
eliminating certain statutory limits on lending of a bank to its executive


                                       13
<PAGE>   16
officers, directors, principal stockholders or related interests thereof and by
relaxing certain reporting requirements. However, the 1982 Act strengthened FIRA
provisions respecting management interlocks and correspondent bank relationships
by management personnel.

                  Community Reinvestment Act

                  The Community Reinvestment Act of 1977, as amended (the
"CRA"), and the regulations promulgated to implement the CRA are designed to
create a system for bank regulatory agencies to evaluate a depository
institution's record in meeting the credit needs of its community. Until May
1995, a depository institution was evaluated for CRA compliance based upon 12
assessment factors.

                  The CRA regulations were completely revised as of May 4, 1995,
to establish new performance-based standards for use in examining a depository
institution's compliance with the CRA (the "revised CRA regulations"). The
revised CRA regulations establish new tests for evaluating both small and large
depository institutions' investment in the community. A "small bank" is defined
as a bank which has total assets of less than $250 million and is independent or
is an affiliate of a holding company with less than $1 billion in assets.
Pursuant to the revised CRA regulations, a depository institution which
qualifies as a "small bank" will be examined under a streamlined procedure which
emphasizes lending activities. The streamlined examination procedures for a
small bank became effective on January 1, 1996.

                  A large retail institution is one which does not meet the
"small bank" definition, above. A large retail institution can be evaluated
under one of two tests: (1) a three-part test evaluating the institution's
lending, service and investment performance; or (2) a "strategic plan" designed
by the institution with community involvement and approved by the appropriate
federal bank regulator. A large institution must choose one of these options
prior to July 1997, but may opt to be examined under one of these two options
prior to that time. Effective January 1, 1996, a large retail institution that
opts to be examined pursuant to a strategic plan may submit its strategic plan
to the bank regulators for approval.

                  In addition, the revised CRA regulations include separate
rules regarding the manner in which "wholesale banks" and "limited purpose
banks" will be evaluated for compliance.

                  The new CRA regulations were effective on July 1, 1997.

                  On December 27, 1995, the federal banking regulators issued a
joint final rule containing technical amendments to the revised CRA regulations.
Specifically, the recent technical amendments clarify the various effective
dates in the revised CRA regulations, correct certain cross references and state
that once an institution becomes subject to the requirements of the revised CRA
regulations, it must comply with all aspects of the revised CRA regulations,
regardless of the effective date of certain provisions. Similarly, once an
institution is subject to the revised CRA regulations, the prior CRA regulations
do not apply to that institution.

                  For the purposes of the revised CRA regulations, the Bank is
deemed to be a small depository institution, based upon financial information as
of December 31, 1995. The Bank is


                                       14
<PAGE>   17

evaluated for CRA compliance using the streamlined procedures for a small
bank/three-part, performance-based test/strategic plan option. The Bank received
a satisfactory rating in 1998.

                  Concentration

                  The Company and the Bank are not dependent for deposits to a
single customer or to a small group of customers the loss of any one or more of
which would have a materially adverse effect on the financial condition of the
Company or the Bank.

ITEM 2.           DESCRIPTION OF PROPERTY

                  The Company does not own or lease any property except through
the Bank.

                  The Bank has a main office located in Honesdale, Pennsylvania,
and three branch offices located in Hawley, Damascus and Greentown,
Pennsylvania. The Bank owns the Honesdale and Hawley locations. The Damascus
location is a leased facility with a twenty (20) year term providing for annual
payments of $54,173 for the current year, with the opportunity for annual
adjustments based upon a variable rate interest loan which the owner used to
construct the facility. The Greentown location is leased with a five (5) year
term and two additional five (5) year options for renewal. The lease amount was
$22,600 annually subject to increases based upon changes in the Consumer Price
Index. In addition, in July 1998, the Bank entered into a ten year lease with
two 5 year renewal options for the Operations Center in Honesdale, PA. Rent is
fixed at $42,750 annually for the first five years with a 3% increase in rent
for each of the remaining years.

ITEM 3.           LEGAL PROCEEDINGS

                  General

                  The nature of the Company's and the Bank's business generates
a certain amount of litigation involving matters arising in the ordinary course
of business. However, in the opinion of management of the Company and the Bank,
there are no proceedings pending to which the Company and the Bank is a party or
to which their property is subject, which, if determined adversely to the
Company and the Bank, would be material in relation to the Company's and the
Bank's undivided profits or financial condition, nor are there any proceedings
pending other than ordinary routine litigation incident to the business of the
Company and the Bank. In addition, no material proceedings are pending or are
known to be threatened or contemplated against the Company and the Bank by
government authorities or others.

                  Environmental Issues

                  There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or other
third parties on properties that collateralize loans held by the bank. Such
potential liability may far exceed the original amount of the loan made by the
bank. Currently, the Bank is not a party to any


                                       15
<PAGE>   18

pending legal proceedings under any environmental statue nor is the Bank aware
of any circumstances that may give rise to liability of the Bank under any such
statute.

                                     PART II

ITEM 5.           MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                  The caption "Market Prices of Stock/Dividends Declared"
contained in the Company's Annual Report filed as Exhibit 13 hereto is
incorporated in its entirety by reference under this Item 5.

                  Cash available for dividend distributions to stockholders of
the Company may come initially from dividends paid by the Bank to the Company.
Therefore, the restrictions on the Bank's dividend payments are directly
applicable to the Company. The Federal Deposit Insurance Act generally prohibits
all payments of dividends by any bank which is in default on any assessment to
the FDIC or which would be deemed by the FDIC to be an unsafe and unsound
practice. Presently, the Bank is not in default in any assessment to the FDIC.

                  The Pennsylvania Banking Code of 1965 (the "Code") provides
that cash dividends may be declared and paid only out of accumulated net
earnings and that, prior to the declaration of any dividend, if the surplus fund
(as defined in the Code) of the Bank is less than the amount of its common
capital, the Bank shall, until the surplus is equal to such an amount, transfer
to the surplus an amount which is at least 10% of the net earnings of the Bank
for the period since the end of the last fiscal year or for any shorter period
since the declaration of a dividend. If the surplus of the Bank is less than 50%
of the amount of capital, no dividend may be declared or paid without the prior
approval of the Department until such surplus is equal to 50% of the Bank's
capital.

                  As of December 31, 2000, there were $17,083,000 accumulated
net earnings available at the Bank that could be paid as a dividend to the
Company under current Pennsylvania law.

                  Dividend Restrictions on the Company

                  Under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), the Company may not pay a dividend if, after giving effect
thereto, either (a) the Company would be unable to pay its debts as they become
due in the usual course of business or (b) the Company's total assets would be
less than its total liabilities. The determination of total assets and
liabilities may be based upon: (i) financial statements prepared on the basis of
generally accepted accounting principles; (ii) financial statements that are
prepared on the basis of other accounting practices and principles that are
reasonable under the circumstances; or (iii) a fair valuation or other method
that is reasonable under the circumstances.


                                       16


<PAGE>   19

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                  The caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's Annual Report
filed at Exhibit 13 hereto is incorporated in its entirety by reference under
this Item 6.

                  Nonperforming Loans and Nonperforming Assets

                  Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by Statement No.
118, was adopted by the Company effective January 1, 1995. This statement
requires recognition of impairment of a loan when it is probable that principal
and interest are not collectible in accordance with the terms of the loan
agreement. Measurement of impairment is based upon the present value of expected
future cash flows discounted at the loan's effective interest rate, or as a
practical expedient, at the loan's market value or the fair value of the
collateral, if known. At December 31, 2000 and 1999, the Company had impaired
loans of $616,708 and $841,228, respectively with related allowance for loan
loss of approximately $116,682 and $162,390, respectively. There were no
impaired loans without a related allowance for loan losses. For the years ended
December 31, 2000 and 1999, average impaired loans were $643,662 and $857,399,
respectively.

                  The following table identifies nonperforming loans including
nonaccrual loans and past due loans which were contractually past due 90 days or
more as to interest or principal payments. 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.
(Dollars in Thousands)
                                                             December 31,
                                                         2000           1999
                                                         ----           ----
Loans accounted for on a non-accrual basis:
      Mortgage loans                                  $    740         $    743
      Commercial                                           149              176
      Consumer                                             118              138
                                                      --------         --------
             Total                                       1,007            1,057
                                                      --------         --------
Accruing loans which are contractually past due
  90 days or more:
      Mortgage loans                                       272              690
      Commercial                                            10               81
      Consumer                                              59               61
                                                      --------         --------
             Total                                         341              832
                                                      --------         --------
Renegotiated loans                                         540              614
                                                      --------         --------
             Total nonperforming loans                   1,888            2,503
                                                      --------         --------
Other real estate owned                                    179              355
                                                      --------         --------
             Total nonperforming assets               $  2,067         $  2,858
                                                      ========         ========

      Nonperforming loans as a percent
        of total loans                                   1.22%            1.82%
      Nonperforming assets as a percent
        of assets                                         .96%            1.47%

      Amount of interest lost on nonperforming loans  $     77         $     93

                                       17
<PAGE>   20



         The accrual of interest is generally discontinued when in the opinion
of management reasonable doubt exists as to the collectability of additional
interest. Loans are returned to accrual status when (a) none of the principal
and interest is due and unpaid and repayment of the remaining contractual
principal and interest is expected; or (b) when it otherwise becomes well
secured and in the process of collection.

         Any loans which have been classified for regulatory purposes as loss,
doubtful, substandard or special mention that have not been disclosed under Item
III of Industry Guide 3 do not (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (ii) represent material
credits about which management is aware of any information which causes them to
have serious doubts as to the ability of borrowers to comply with the loan
repayment terms as of December 31, 2000.

Summary of Loan Loss Experience

The following table presents an analysis of the reserve for loan losses for the
years ended December 31, 2000 and 1999:

                                                            December 31,
                  (Dollars in thousands)               2000              1999
                                                       ----              -----
Loans outstanding at end of period                    $154,947         $ 137,526
                                                      ========         =========
Average loans outstanding                             $146,679         $ 130,869
                                                      ========         =========
Reserve for possible losses:
      Balance, beginning of the period                $  1,834         $   1,682
Loans charged off:
      Commercial                                           170               196
      Real estate                                          442                94
      Consumer                                             165                93
                                                      --------         ---------
             Total loans charged off                       777               383
                                                      --------         ---------
Recoveries:
      Commercial                                            38                 2
      Real estate                                           22                 2
      Consumer                                              41                27
                                                      --------         ---------
             Total recoveries                              101                31
                                                      --------         ---------
             Net loans charged off                         676               352
                                                      --------         ---------
Provisions charged to expense                              930               504
                                                      --------         ---------
Balance, end of period                                $  2,088         $   1,834
                                                      ========         =========


                                       18

<PAGE>   21
Ratios:


Net charge offs as a percent of average
  loans outstanding                                      0.46%             0.27%
Reserve for loan losses as a percent of average
  loans outstanding                                      1.42%             1.40%

   A portion of the allowance is specifically allocated to individual
loans or group of loans. As of December 31, 2000 and 1999 the allowance for loan
losses is allocated as follows:

<TABLE>
<CAPTION>
                                                  --------------------------------------------------------------------
                                                  Amount of         % of               Amount of        % of
                                                  allowance for     loans in           allowance for    loans in
                                                  loan loss         each category      loan loss        each category
                                                  allocated         to total loans     allocated        to total loans
                                                  -------------------------------      -------------------------------
(Dollars in thousands)
                                                              2000                                     1999
                                                  -------------------------------      -------------------------------
<S>                                                <C>                 <C>               <C>                   <C>
Commercial, financial and agricultural             $   245             14.8%             $   213               13.3%
Real estate - construction                               3               .4%                   8                 .6%
Real estate - mortgage                               1,006             73.4%               1,343               72.6%
Installment loans to individuals                       181             11.4%                 225               13.5%
Unallocated                                            653                 -                  45                  -
                                                   -------            ------             -------              ------
                                                   $ 2,088            100.0%             $ 1,834              100.0%
                                                   =======            ======             =======              ======
</TABLE>

Management adjusts the allowance for loan losses by provisions charged to
current earnings for estimated losses that may exist in the loan portfolio.
Management continually monitors the loan portfolio to determine an appropriate
level for the allowance for loan losses and has implemented an internal loan
review process which includes reviewing significant loans quarterly and
nonperforming loans on a continuous basis. Potential loss estimates are made for
each loan reviewed. Additionally, based upon prior history, management also
allocates specific reserves to smaller balance loans which are not subject to
individual review.

Management believes the allowance for loan losses is currently maintained at an
appropriate level based upon the known risk within the loan portfolio,
historical analysis of loan losses, current economic conditions and trends
within the financial institutions industry.


                                       19


<PAGE>   22


Loan Maturity Schedule

         Following is a maturity schedule of all accruing loans at December 31,
2000:
<TABLE>
<CAPTION>

                                                    Due 1           Due 1-5         Due after       Total
Fixed rate:                                        year or           years           5 years        -----
                                                    less            -------         ---------
                                                   -------
<S>                                                <C>              <C>              <C>           <C>
Commercial                                         $1,105           $ 6,792          $ 1,435       $  9,332
Real estate-construction                            1,919             7,985           17,392         27,296
Other                                               1,175            14,436              983         16,594
                                                   ------           -------          -------       --------
Total                                              $4,199           $29,213          $19,810       $ 53,222
                                                   ======           =======          =======       ========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Reprice           Reprice         Total
Variable rate:                                                     within 1        within 1-5        -----
                                                                     year             years
                                                                     ----             -----
<S>                                                                <C>               <C>           <C>
Commercial                                                         $ 11,743          $     304     $  12,048
Real estate-construction                                             62,664            24,532         87,196
Other                                                                 2,388               134          2,522
                                                                   ---------         --------      ---------
Total                                                              $ 76,795          $ 24,970      $ 101,765
                                                                   ========          ========      =========

</TABLE>
Investment Portfolio

         The following table sets forth the carrying value of the Company's
investment securities portfolio at the date indicated. At December 31, 2000 the
market value of the Company's held to maturity investment securities was
$536,775 and at December 31, 1999 was $15,516,823.

<TABLE>
<CAPTION>
Available for Sale                                                    2000                1999
------------------                                                    ----                ----
          (Dollars in thousands)
<S>                                                                  <C>                  <C>
U. S. Government agency securities                                   $11,867              $13,311
Mortgage-backed securities                                               254                  294
Obligations of states and political subdivisions                       5,656                2,373
Corporate Securities                                                  17,864                2,210
Commercial paper                                                      11,891               12,509
Equity securities                                                        731                  550
                                                                     -------            ---------
      Total                                                          $48,263              $31,247
                                                                     =======              =======
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity                                                      2000                1999
----------------                                                      ----                ----
<S>                                                                   <C>                <C>
Obligations of states and political subdivisions                      $ 503              $    692
Corporate securities                                                    -                  14,878
                                                                      -----              --------
      Total                                                           $ 503              $ 15,570
                                                                      =====              ========
</TABLE>

        There were no securities held for any issuer that were greater than ten
percent of stockholders' equity as of December 31, 2000.


                                       20


<PAGE>   23

INVESTMENT MATURITY

Investment Portfolio Maturities

The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's Available for Sale
investment securities portfolio at December 31, 2000:
<TABLE>
<CAPTION>
                                              One year                     One to                       Five to
                                               or less                   five years                    ten years
                                     ---------------------------------------------------------------------------------------
Available for Sale
                                       Carrying       Average      Carrying       Average       Carrying       Average
                                         Value       Yield (1)       Value       Yield (1)        Value       Yield (1)
                                     ---------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                     <C>            <C>          <C>             <C>          <C>          <C>
U.S. Government Agency                  $ 4,489        5.48%        $ 7,378         5.69%        $    --          -%
Mortgage-backed securities              $    --           -%            --             -%        $    --          -%
Obligations of states and political     $    --           -%        $ 2,325         7.17%        $ 3,331        7.46%
      subdivisions
Corporates                              $ 5,259        6.21%        $12,605         7.23%        $   --           --%
Commercial Paper                        $11,891        7.36%        $    --            -%        $   --           --%
Equity Securities                       $    --           -%        $    --            -%        $   --           --%
                                     ---------------------------------------------------------------------------------------
Total                                   $21,639        6.68%        $22,308         6.67%        $ 3,331        7.46%
                                     =======================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                             After ten                     Total
                                               years               Investment Securities
                                     --------------------------------------------------------
Available for Sale
                                       Carrying       Average      Carrying       Average
                                         Value       Yield (1)       Value       Yield (1)
                                     --------------------------------------------------------
(Dollars in thousands)
<S>                                      <C>           <C>          <C>             <C>
U.S. Government Agency                   $ --             -%        $11,867         5.61%
Mortgage-backed securities               $254          6.47%            254         6.47%
Obligations of states and political      $ --             -%        $ 6,656         7.34%
      subdivisions
Corporates                               $ --             -%        $17,864         6.92%
Commercial Paper                         $ --             -%        $11,891         7.36%
Equity Securities                         731          6.37%        $   731         6.37%
                                     --------------------------------------------------------
Total                                    $985          6.39%        $48,263        6.74%
                                     ========================================================
</TABLE>

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

The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's Held to Maturity
investment securities portfolio at December 31, 2000:
<TABLE>
<CAPTION>

                                              One year                     One to                       Five to
                                               or less                   five years                    ten years
                                     -------------------------------------------------------------------------------------
Held to Maturity
                                       Carrying       Average      Carrying       Average       Carrying       Average
                                         Value       Yield (1)       Value       Yield (1)        Value       Yield (1)
                                     -------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                       <C>         <C>            <C>           <C>            <C>          <C>
Obligations of states and political       $ -          - %           $ 208         8.86%          $ 295        10.21%
    subdivisions
                                     -------------------------------------------------------------------------------------
Total                                     $ -          - %           $208          8.86%          $ 295        10.21%
                                     =====================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                              After ten                             Total
                                                years                       Investment Securities
                                     ----------------------------------------------------------------------
Held to Maturity
                                       Carrying       Average       Carrying       Average       Market
                                         Value       Yield (1)       Value        Yield (1)       Value
                                     ----------------------------------------------------------------------
(Dollars in thousands)
<S>                                       <C>          <C>          <C>            <C>           <C>
Obligations of states and political       $ -           - %         $ 503          9.79%         $ 537
    subdivisions
                                     ----------------------------------------------------------------------
Total                                     $ -           - %         $ 503          9.79%         $ 537
                                     ======================================================================

</TABLE>

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


                                       21
<PAGE>   24
Inflation and Changing Prices

Management is aware of the impact inflation has on interest rates and,
therefore, the impact it can have on the Company's performance. The ability of a
financial institution to cope with inflation can be determined by analysis and
monitoring of its asset and liability structure. The Company monitors its asset
and liability position with particular emphasis on the mix of interest rate
sensitive assets and liabilities in order to reduce the effect of inflation upon
its performance. However, the asset and liability structure of a financial
institution is substantially different from that of industrial corporations in
that virtually all assets and liabilities are monetary in nature, meaning that
they have been or will be converted into a fixed number of dollars regardless of
changes in prices. Examples of monetary items include cash, loans and deposits.
Nonmonetary items are those assets and liabilities which do not gain or lose
purchasing power solely as a result of general price level changes. Examples of
nonmonetary items are premises and equipment.

Inflation can have a more direct impact on categories of noninterest expenses
such as salaries and wages, supplies and employee benefit costs. These expenses
normally fluctuate more in line with changes in the general price level and are
very closely monitored by Management for both the effects of inflation and
increases related to such items as staffing levels, usages of supplies and
occupancy costs.

Regulatory Matters

Management is not aware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or results of operations. Management is also not
aware of any current recommendations by regulatory authorities which, if they
were to be implemented, would have a material effect on the Company's liquidity,
capital resources or results of operations.

ITEM  7.          FINANCIAL STATEMENTS

The Company's Consolidated Financial Statements and notes thereto contained in
the Annual Report filed as Exhibit 13 hereto are incorporated in their entirety
by reference under this Item 7.


                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

                  The captions "Information As To Nominees, Directors and
Executive Officers," "Principal Officers of the Company," "Principal Officers of
the Bank" and "Section 16(a) Beneficial Ownership Compliance" contained in the
Company's Proxy Statement filed at Exhibit 99A hereto is incorporated in their
entirety by reference under this Item 9.


                                       22

<PAGE>   25

ITEM 10.          EXECUTIVE COMPENSATION

                  The captions "Executive Compensation" and "Directors
Compensation" contained in the Company's Proxy Statement filed as Exhibit 99A
hereto is incorporated in its entirety by reference under this Item 10.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The caption "Principal Beneficial Owners of the Company's
Stock" contained in the Company's Proxy Statement filed as Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 11.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  The information under the caption "Certain Relationships and
Related Transactions" contained in the Company's Proxy Statement filed as
Exhibit 99A hereto is incorporated in its entirety by reference under this
Item 12.


                                       23
<PAGE>   26



ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits required by Item 601 of Regulation S-B:

Exhibit Number Referred to
Item 601 of Regulation S-B                 Description of Exhibit
--------------------------                  ----------------------
           2                        None.
           3A                       Articles of Incorporation of the Company at
                                    Exhibit 3A to Form S- 4 (33-58936),
                                    filed on February 26, 1993, and hereby
                                    incorporated by reference.
           3B                       By-laws of the Company at Exhibit 3B to
                                    Form S-4 (33-58936), filed on February 26,
                                    1993, and hereby incorporated by
                                    reference.
           4                        None.
           9                        None.
           10                       None.
           11                       None.
           13                       Annual Report to Stockholders for Fiscal
                                    Year Ended December 31, 2000.
           16                       None.
           18                       None.
           21                       None.
           22                       List of Subsidiaries of the Company.
           23                       None.
           24                       None.
           28                       None.


(b)       Reports on Form 8-K.

                  The Company has filed no reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 2000.


                                       24
<PAGE>   27


                                   SIGNATURES

                  In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

DIMECO, INC.
         (Issuer)

By:   /s/ Joseph J. Murray
    --------------------------------
       Joseph J. Murray
       President

Date:  March 27, 2001


                  In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

By:  /s/ Maureen H. Beilman
    --------------------------------
       Maureen H. Beilman
       Chief Financial Officer and Treasurer
       (Principal Financial and
       Accounting Officer)

Date:  March 27, 2001


                                       25
<PAGE>   28


By:  /s/ Robert E. Genirs                      By:  /s/ William E. Schwarz
    --------------------------------               -----------------------------
       Robert E. Genirs                               William E. Schwarz
       Director                                       Chairman of the Board
Date:  March 27, 2001                                 and Director
                                               Date:  March 27, 2001


By:  /s/ Barbara Jean Genzlinger               By:  /s/ Henry M. Skier
    --------------------------------               -----------------------------
       Barbara Jean Genzlinger                        Henry M. Skier
       Director                                       Director
Date:  March 27, 2001                          Date:  March 27, 2001


By:  /s/ John S. Kiesendahl                    By:  /s/ John F. Spall
    --------------------------------               -----------------------------
       John S. Kiesendahl                             John F. Spall
       Director                                       Secretary and Director
Date:  March 27, 2001                          Date:  March 27, 2001


By:  /s/ Joseph J. Murray
    --------------------------------
       Joseph J. Murray
       President, Chief Executive
       Officer and Director
       (Chief Executive Officer)
Date:  March 27, 2001


By:  /s/ Thomas A. Peifer
    --------------------------------
         Thomas A. Peifer
         Director
Date:    March 27, 2001


                                       26


<PAGE>   29
                                INDEX TO EXHIBITS

Item Number         Description                                             Page
-----------         -----------                                             ----

    13              Annual Report to Stockholders for
                         Fiscal Year Ended December 31, 2000...............   28

    22              List of Subsidiaries of the Company....................   29

    99A             Proxy Statement, Notice of Annual Meeting and
                       Form of Proxy for the Annual Meeting of
                       Stockholders to be held April 26, 2001..............  31


                                       27