<PAGE>
                               FORM 10-KSB


                    SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C.  20549

                                 [X]
For the fiscal year ended December 31, 1998
                                 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:  $23,258,681 at March 15, 1999.

          As of March 15, 1999, the registrant had outstanding 732,168 shares
of its common stock, par value $.50 per share.

                     DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the registrant's 1999 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, 1998, are incorporated by reference in Part II of this
Annual Report.

     Page 1 of 28
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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                           14

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                             15

Item 6.     Management's Discussion and Analysis
              or Plan of Operation                            16

Item 7.     Financial Statements and Schedules                24

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                                    25

Item 10.    Executive Compensation                            25

Item 11.    Security Ownership of Certain Beneficial
              Owners and Management                           25

Item 12.    Certain Relationships and Related
              Transactions                                    25

Item 13.    Exhibits and Reports on Form 8-K                  26


Signatures                                                  27-28
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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, 1998, the Company had total
consolidated assets, deposits and shareholders' equity of approximately
$176.5 million, $154.9 million and $16.2 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.  The Bank has four branch offices
located in Honesdale Hawley,  Damascus and Greentown,  Pennsylvania.  It's
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
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.

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          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.

          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.

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          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 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.

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          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 and does not intend to commence or conduct any
of the above-delineated activities during calendar years 1998 and 1999,
respectively.

4
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          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, unless
the Commonwealth of Pennsylvania enacts a law prior to June 1, 1997, allowing
an interstate merger or expressly prohibiting merger with an out-of-state
bank.  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 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

5
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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 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.

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          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 new 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 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

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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 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.

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          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.

          Effective January 1, 1996, the FDIC board of directors had further
reduced BIF premiums.  Highly-rated institutions would pay only the statutory
minimum of $2,000 annually for FDIC insurance.  A change was made in the form
of the Deposit Insurance Funds Act of 1996 (DIFA) which eliminated the fourth
quarter minimum assessment of $500 for highly-rated institutions.  The
remaining institutions will pay on a scale ranging from 3 to 30 cents per
every $100 of insured deposits, which is down from the scale in the latter
half of 1995 of 4 to 31 cents.  If such lower FDIC insurance premium rates
were to have been in effect for all of 1995, then the Bank would have paid
$116,352 less in such premiums based upon current deposit levels.

          Effective January 1, 1997, DIFA 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

9
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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.

          Regulatory Capital Requirements

     The following table presents the Company's consolidated capital ratios at
December 31, 1998:

                                                               (In Thousands)  
         
Tier I Capital                                               $       16,157
Tier II Capital                                              $        1,682
Total Capital                                                $       17,839

Adjusted Total Average Assets                                $      177,513
Total Adjusted Risk-Weighted Assets(1)                       $      146,087

Tier I Risk-Based Capital Ratio(2)                                   11.06%
Required Tier I Risk-Based Capital Ratio                              4.00%
Excess Tier I Risk-Based Capital Ratio                                7.06%

Total Risk-Based Capital Ratio(3)                                    12.21%
Required Total Risk-Based Capital Ratio                               8.00%
Excess Total Risk-Based Capital Ratio                                 4.21%

Tier I Leverage Ratio(4)                                              9.10%
Required Tier I Leverage Ratio                                        4.00%
Excess Tier I Leverage Ratio                                          5.10%
-------------------------------------
(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.






10
<PAGE>
          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, 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, 1998, the Bank had total assets of $176.5 million,
total stockholders' equity of $16.2 million and total deposits and other
liabilities of $160.3 million.

          The Bank engages in a full-service commercial banking business,
including accepting time and demand deposits, and making secured and unsecured
commercial and consumer loans.  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, Farmers & Merchants Bank, LA 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.

11
<PAGE>
          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.  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 shareholders of
its parent holding company, among others, and to related interests of such
principal shareholders.  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

12
<PAGE>
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 shareholders 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
officers, directors, principal shareholders 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

13
<PAGE>
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 are being phased in over a two-year period,
beginning July 1, 1995, with a final effective date of July 1, 1997.  Until
the applicable test is phased in, institutions may be examined under the prior
CRA regulations.

          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.  In the future, the Bank will be evaluated for CRA
compliance using the streamlined procedures for a small bank/three-part,
performance-based test/strategic plan option.  Under the 12 assessment factors
contained in the prior CRA regulations, the Bank received a "2" rating in
1995.  The Dime Bank expects to receive a rating under the revised CRA
regulations which is consistent with its rating in 1995.

          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 $48,179 for the entire lease period.  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 until December 1998 at which time it
will increase based upon increases in the Consumer Price Index. In addition,
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.

14
<PAGE>
It is management's opinion that the facilities currently utilized are suitable
and adequate for current and immediate future purposes.




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 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 (at page 15 ) filed as Exhibit 13 hereto is
incorporated in its entirety by reference under this Item 5.

         Cash available for dividend distributions to shareholders 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.

15
<PAGE>
          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, 1998, there were $14,034,648 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.


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
(at page 6) 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, 1998 and 1997, the Company had
impaired loans of $874,277 and $1,089,374, respectively with related allowance
for loan loss of approximately $136,217 and $169,997, respectively.  There
were no impaired loans without a related allowance for loan losses.  For the
year ended December 31, 1998 and 1997, average impaired loans were $933,774
and $1,105,729, respectively.

16
<PAGE>
          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,
                                                  1998           1997
                                                  ----           ----
Loans accounted for on a 
  non-accrual basis:
     Mortgage loans                            $     248      $     589
     Commercial                                      137             75
     Consumer                                        140            155
                                               ---------      ---------
          Total                                      525            819
                                               ---------      ---------
Accruing loans which are contractually past 
  due 90 days or  more:
     Mortgage loans                                  627            616
     Commercial                                      246             48
     Consumer                                         68             91
                                               ---------      ---------
          Total                                      941            755
                                               ---------      ---------

Renegotiated loans                                   822          1,219
                                               ---------      ---------
          Total nonperforming loans                2,288          2,793
                                               ---------      ---------

Other real estate owned                              275            626
                                               ---------      ---------

          Total nonperforming assets           $   2,563      $   3,419
                                               =========      =========

     Nonperforming loans as a percent
       of total loans                               1.83%          2.57%
     Nonperforming assets as a percent
       of assets                                    1.45%          2.23%
     Amount of interest lost on 
       nonperforming loans                     $     103       $    129

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, 1998.

17
<PAGE>
Summary of Loan Loss Experience

The following table presents an analysis of the reserve for loan losses for
the two years ended December 31, 1998:

                                                     December 31,
                                                1998            1997
                                                ----            ----
        (Dollars in thousands)
Loans outstanding at end of period            $124,961        $108,815
                                              ========        ========

Average loans outstanding                     $114,736        $103,637
                                              ========        ========
Reserve for possible losses:
     Balance, beginning of the period           $1,511          $1,366
Loans charged off:
     Commercial                                     75             151
     Real estate                                    46             165
     Consumer                                      192             112
                                              --------        --------

          Total loans charged off                  313             428
                                              --------        --------
Recoveries:
     Commercial                                      2              11
     Real estate                                     3               4
     Consumer                                       28              39
                                              --------        --------

          Total recoveries                          33              54
                                              --------        --------

          Net loans charged off                    280             374
                                              --------        --------

Provisions charged to expense                      451             519
                                              --------        --------
Balance, end of period                        $  1,682        $  1,511
                                              ========        ========


Ratios:Net charge offs as a percent
   of average loans outstanding                   0.24%           0.36%
Reserve for loan losses as a percent
   of average loans outstanding                   1.45%           1.46%

18
<PAGE>
A portion of the allowance is specifically allocated to individual loans or
group of loans.  As of December 31,1998 and 1997 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)
                                                   1998                            1997
                                                   ----                            ---- 
<S>                                     <C>              <C>             <C>               <C>
Commercial, financial and agricultural    $ 230           13.4%            $ 169           13.5%
Real estate - construction                   11            1.1%                6            0.9%
Real estate - mortgage                    1,235           70.5%              927           67.4%
Installment loans to individuals            197           15.0%              276           18.2%
     Unallocated                              9              -               133              -
                                        -------         ------           -------          ------

                                        $ 1,682          100.0%          $ 1,511           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>
Loan Maturity Schedule

Following is a maturity schedule of all accruing loans at December 31, 1998:

     


                               Due 1      Due 1-5   Due after    Total
                              year or      years     5 years
                                less
                              -------     ------     ------     ------

Fixed rate:

Commercial                     $  836     $5,890     $1,060     $7,786

Real estate-construction          718         -          -         718
                               ------     ------     ------     ------

Total                          $1,554     $5,890     $1,060     $8,504
                               ======     ======     ======     ======



                                         Reprice    Reprice     Total
                                          within     within
                                          1 year      1-5
                                                     years
                                          ------     ------     ------
Variable rate:

Commercial                                $8,389     $   -      $8,389

Real estate-construction                     666         -         666
                                          ------     ------     ------

Total                                     $9,055     $   -      $9,055
                                          ======     ======     ======

20
<PAGE>
Investment Portfolio

The following table sets forth the carrying value of the Company's investment
securities portfolio at the date indicated.  At December 31, 1998 the market
value of the Company's held to maturity investment securities was $2,968,000
and $4,602,000 at December 31, 1997.


Available for Sale                           1998           1997
------------------                           ----           ----
    (Dollars in thousands)
U. S. Treasury securities                  $    -         $   999
U. S. Government agency securities           9,708          7,260
Mortgage-backed securities                     368            438
Commercial paper                            25,815         21,154
Equity securities                              470            851
                                           -------        -------
     Total                                 $36,361        $30,702
                                           =======        =======


Held to Maturity                             1998           1997
                                             ----           ----
     
Obligations of states and political
  subdivisions                             $ 1,397        $ 4,292
Corporate securities                         1,526            250
                                           -------        -------
     Total                                 $ 2,923        $ 4,542
                                           =======        =======    


There were no securities held for any issuer that were greater than ten
percent of stockholders' equity as of December 31, 1998. 

21
<PAGE>
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, 1998.

<TABLE>
<CAPTION>
                                One year                One to              Five to             After ten             Total 
                                 or less              five years           ten years              years       Investment Securities
                           --------------------------------------------------------------------------------------------------------
Available for Sale     
                           Carrying   Average    Carrying    Average  Carrying    Average  Carrying   Average  Carrying    Average
                             Value    Yield (1)   Value     Yield (1)   Value     Yield (1)  Value   Yield (1)   Value    Yield (1)
                           --------------------------------------------------------------------------------------------------------
(Dollars in thousands)     
<S>                        <C>         <C>       <C>         <C>         <S>                                    <C>         <C>
U.S. Treasury securities    $    -        -            -        -         -          -          -        -       $    -        - 
                                                       
U.S. Government Agency 
Securities                  $ 4,751     5.12%     $ 4,958     5.41%       -          -          -        -       $ 9,709     5.27% 
Mortgage-backed securities       -        -            -        -         -          -       $ 367     5.96%     $   367     5.96%
Commercial Paper            $25,815     5.97%          -        -         -          -          -        -       $25,815     5.97%
Equity securities                -        -            -        -         -          -       $ 470     6.50%     $   470     6.50%
                            ------------------------------------------------------------------------------------------------------
                                                       
Total                       $30,566     5.84%     $ 4,958     5.41%       -          -       $ 837     6.26%     $36,361     5.79%
                            ======================================================================================================
</TABLE>
(1)  Weighted average yields have been computed on a taxable equivalent basis 
     assuming a federal income tax rate of 34%

22
<PAGE>
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 Held to Maturity 
investment securities portfolio at December 31, 1998.

<TABLE>
<CAPTION>
                                 One year            One to            Five to          After ten                Total 
                                 or less           five years         ten years           years          Investment Securities
                           -----------------------------------------------------------------------------------------------------
Held to Maturity     
                           Carrying  Average  Carrying  Average  Carrying  Average  Carrying  Average  Carrying Average   Market
                            Value   Yield (1)   Value   Yield (1)  Value   Yield (1)   Value   Yield (1)  Value   Yield (1)  Value
                           -----------------------------------------------------------------------------------------------------
(Dollars in thousands)   
<S>                        <C>       <C>       <C>       <C>     <C>        <C>      <C>       <C>      <C>      <C>      <C>
Obligations of states 
and political subdivisions $  365    6.13%     $  388    8.07%   $  544     9.25%    $  100    6.21%    $1,397   7.86%    $1,440
                                 
Other securities           $  526    5.85%     $1,000    7.72%       -        -          -       -      $1,526   7.07%    $1,528
                           ------    -----     ------    -----   ------     -----    ------    -----    ------   -----    ------
Total                      $  891    5.96%     $1,388    7.81%   $  544     9.25%    $  100    6.21%    $2,923   7.44%    $2,968
                           =====================================================================================================
</TABLE>
 

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

23
<PAGE>
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 (beginning at page 18) filed as Exhibit 13 hereto are
incorporated in their entirety by reference under this Item 7.

24
<PAGE>
                              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 (at pages  ,    and   respectively) filed at Exhibit
99A hereto is incorporated in their entirety by reference under this Item 9.


Item 10.       Executive Compensation


          The captions "Executive Compensation" and "Directors Compensation"
contained in the Company's Proxy Statement (at pages   and  ) 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 (at page   ) 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 (at page   ) filed as
Exhibit 99A hereto is incorporated in its entirety by reference under this
Item 12.

25
<PAGE>
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 Shareholders for Fiscal Year Ended
            December 31, 1998.
     16     None.
     18     None.
     21     None.
     22     List of Subsidiaries of the Company.
     23     None.
     24     None.
     27     Financial Data Schedule
     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, 1998.

26
<PAGE>
                              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 26, 1999


          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
       Treasurer
       (Principal Financial and
       Accounting Officer)

Date:  March 26, 1999



By:    /s/ John S. Kiesendahl
       ---------------------------
       John S. Kiesendahl
       Director

Date:  March 26,1999

27
<PAGE>

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

Date:  March 26, 1999



By:    /s/ Thomas A. Peifer
       ---------------------------
       Thomas A. Peifer
       Director

Date:  March 26, 1999



By:    /s/ William E. Schwarz
       ---------------------------
       William E. Schwarz
       Chairman of the Board
       and Director

Date:  March 26,1999



By:    /s/ Henry M. Skier
       ---------------------------
       Henry M. Skier
       Director

Date:  March 26, 1999



By:    /s/ Gerald J. Weniger
       ---------------------------
       Gerald J. Weniger
       Secretary and Director

Date:  March 26,1999



By:    /s/ Barbara Jean Genzlinger
       ---------------------------
       Barbara Jean Genzlinger
       Director


Date:  March 26, 1999

28
<PAGE>
By:    /s/ Robert E. Genirs
       ---------------------------  
       Robert E.Genirs
       Director

Date:  March 26,1999



By:    /s/ John F. Spall
       ---------------------------
       John F. Spall
       Director

Date:  March 26, 1999

29
<PAGE>
                            INDEX TO EXHIBITS


Item Number               Description                              

     13     Annual Report to Shareholders for
            Fiscal Year Ended December 31, 1998                     

     22     List of Subsidiaries of the
            Company                                                 

     27     Financial Data Schedule

30