<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 1996.

[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from __________________ to__________________________

Commission file number 0-8628
                       ------

                       FOUR CORNERS FINANCIAL CORPORATION
                       ----------------------------------
               (Exact Name of Registrant as specified in its charter)

           Delaware                                        22-2044086
---------------------------------                     --------------------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)


370 East Avenue, Rochester, New York                                   14604
--------------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code:      (716) 454-2263
                                                         -----------------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                             -----
Securities registered pursuant to Section 12(g) of the Act:

                             Common Stock, $.04 par value
--------------------------------------------------------------------------------
                                  (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 preceding 12 months (or such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES  x      NO
    ---        ---

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                                         -2-

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

As of March 25, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $24,652.

As of March 25, 1997, the number of shares outstanding of the registrant's
common stock was 3,293,733.

Documents Incorporated By Reference

None.


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                                       -3-


                                  TABLE OF CONTENTS


PART I                                                                  PAGE

Item 1:   Business                                                         4
Item 2:   Properties                                                      14
Item 3:   Legal Proceedings                                               15
Item 4:   Submission of Matters to a Vote of Security Holders             15
           Executive Officers of Registrant                               15

PART II

Item 5:   Market for Registrant's Common Equity and Related               17
           Security Holder Matters
Item 6:   Selected Financial Data                                         18
Item 7:   Management's Discussion and Analysis of Financial               19
           Condition and Results of Operations
Item 8:   Financial Statements and Supplementary Data                     24
Item 9:   Changes in and Disagreements with Accountants on                24
           Accounting and Financial Disclosure

Part III

Item 10:  Directors and Executive Officers of Registrant                  25
Item 11:  Executive Compensation                                          26
Item 12:  Security Ownership of Certain Beneficial Owners                 27
           and Management
Item 13:  Certain Relationships and Related Transactions                  28

PART IV

Item 14:  Exhibits, Financial Statement Schedules, and                    30
           Reports on Form 8-K


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                                     -4-


                                    PART I

Item 1.   Business

   Four Corners Financial Corporation is a Delaware corporation formed under the
name American Management Educational Corporation ("Educational Corp.") in 1974.
In 1981 Educational Corp. changed its name to American Management Energy
Corporation ("AMEC") and commenced a limited oil and gas operation.
Subsequently, it discontinued the educational financial management consulting
and security investigation business which it had been conducting as well as the
oil and gas operation. Thus, AMEC was inactive and without employees from 1983
until May 12, 1987.

   On that date, AMEC sold to a former principal stockholder all of its assets,
consisting of certain oil and gas leases valued at approximately $40,000 in
consideration of his assumption of all of the liabilities of AMEC and his
agreement to indemnify AMEC against specified claims.

   On May 14, 1987, control of AMEC was transferred to Frank B. Iacovangelo and
Bernard J. Iacovangelo through the acquisition of shares from certain
stockholders.

   On April 12, 1988, AMEC acquired all of the issued and outstanding stock of
Four Corners Abstract Corporation ("Abstract") which was then owned by Frank B.
Iacovangelo and Bernard J. Iacovangelo and their affiliates, in exchange for
9,293,100 shares of AMEC. Abstract was formed in 1980 and has conducted
operations since that date. At the time of the acquisition of Abstract, AMEC
changed its name to Four Corners Financial Corporation ("FCFC"). Messrs.
Iacovangelo are also officers, directors and principal stockholders of FCFC.
Since that time, the main source of FCFC's business has been conducted through
Abstract which remains a wholly owned subsidiary of FCFC.

   On October 17, 1988, FCFC acquired a controlling interest in Mid-State
Abstract Corporation ("Mid-State") for $95,000. In January 1989, FCFC made an
exchange offer to acquire the remaining shares of Mid-State, resulting in FCFC
owning approximately 84% of the outstanding voting shares being held by parties
not affiliated with FCFC. In February, 1991, Mid-State merged into Abstract and
all outstanding shares of Mid- State were changed and converted into shares of
FCFC Common Stock.

   In January, 1989, FCFC acquired all of the outstanding shares of Livingston
Abstract Corporation ("Livingston") in Geneseo, New York for a purchase price of
$8,000, the assumption and agreement to pay the balance of three notes
aggregating $17,985, and the issuance (at a later date) of 20,000 shares of the
Company's Common Stock and commenced operations at the location at that time.


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                                       -5-

   In January, 1990, FCFC acquired all of the outstanding shares of Picciano
Abstract Company, Inc. ("Picciano") of Binghamton, New York for a purchase price
of $15,000 and the issuance of 20,000 shares of the Company's Common Stock and
commenced operations at that location at that time.

   On July 1, 1990, Livingston and Picciano merged into Abstract.

   On December 23, 1991, the Company acquired all of the outstanding shares of
Proper Appraisal Specialists, Inc. ("Proper Appraisal") of Buffalo, New York for
a purchase price of $10,000 and the issuance of 90,000 shares of the Company's
Common Stock. Since that date, Proper Appraisal Specialists, Inc. has been
inactive while the Company operated an appraisal business begun in 1989 under
Four Corners Abstract. In September, 1995 the Company sold the assets of its
appraisal division to Rynne, Murphy & Associates, Inc. (See Footnote No. 9 of
the accompanying audited financial statements).

   In May, 1992, the Company opened a branch office in Goshen, New York (Orange
County) to service the Hudson Valley area.

   In February, 1993, the Company closed its Geneseo Office and consolidated
those operations with its Rochester location. The Company also consolidated its
Cheektowaga Appraisal office with its branch in downtown Buffalo, New York in
December, 1993.

   In September, 1994, the Company relocated its Goshen office to Newburgh, New
York. Subsequently, in March, 1995, the Newburgh office was closed. The Company
now provides service to the Mid-Hudson area of New York State through
independent contractors.

   Four Corners Financial Corporation and its subsidiaries, Four Corners
Abstract Corporation ("Abstract") and Proper Appraisal, provide services and
products that are utilized in substantially all commercial and residential real
estate transactions. As used herein, "Company" includes Four Corners Financial
Corporation, Abstract and Proper Appraisal unless the context otherwise
requires.

   These services and products are offered through offices in Buffalo,
Rochester, Syracuse, Utica, Lockport, Binghamton and Albany, all located in
central and western New York and through subcontractors in other areas of New
York State.

Services and Products

   The Company's services and products include real estate title and other
public record searching, the preparation of abstracts of title and the issuance
of title insurance as agent for certain national underwriting companies. Other
services and products include real estate appraisals, abstract storage and
escrow closing services. All of the Company's services and products may be
required in connection with the mortgaging, sale or purchase of commercial or
residential real property.

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                                       -6-


Services and Products    (cont)

Substantially all of the Company's revenues were derived from its abstracting
and title insurance services. Although all of the Company's services and
products can be obtained from other vendors at prices comparable to those of the
Company, the Company believes that dealing with a single source for all of these
products is convenient for customers and helps to reduce the time required for
the performance of these services for a particular real estate transaction.
Through it's Corporate Customer Service Department located in Rochester, New
York using a statewide network of service providers, the Company is able to
perform these title services virtually anywhere in New York State.

   Response time is important in many real estate transactions and the ability
of the Company to provide its services and products in a timely manner is
significant in the attraction and retention of customers.

   Abstracts

   The purchase, sale, leasing and financing of a parcel of real estate in New
York State outside of New York City, usually require the preparation of an
abstract of title. The abstract is a summary of each transaction affecting the
parcel which is reflected in the records of the Clerk of the County where the
subject property is located. The abstract is examined by attorneys and others to
determine prior interests in, or encumbrances on, the property which have to be
disposed of in order to have "clear" title. The information used to create or
redate an abstract is obtained by title searchers, that is, persons who search
various official records for interests which may affect the ownership interest
in, or title to, real property. Such interests may include real property taxes,
corporate franchise taxes, bankruptcies, mechanics liens, income tax or sales
tax liens, litigation liens, judgment liens, security interests in fixtures and
mortgages as well as interests of prior owners (including deceased owners) which
have not been adequately transferred. Title searchers summarize their findings
and deliver them to word processors who produce the abstract of title.

   An abstract usually exists for most properties. Thus, the Company is most
often requested merely to "redate" it. This involves examining the records only
from the date of the last transaction summarized in the abstract. However, where
no abstract is available or when newly subdivided parcels are involved, a new
abstract is created starting with a warranty deed which meets the local
standards for title certification (e.g. at least 60 years old for Rochester, New
York property).

   The information contained in abstracts which the Company creates or redates
is indexed and retained by the Company, becoming part of its "title plant".
These "back titles" are valuable assets which facilitate the preparation and
redating of future abstracts. The title plant also aids the expeditious
preparation of title insurance reports and policies.

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                                       -7-

   The Company also offers an abstract storage service. When mortgages are
placed on real property, the bank or mortgage company usually retains the
abstract of title. Thus, a large volume mortgagee would require substantial
storage space as well as numerous personnel to index, store and retrieve these
abstracts. Through its abstract storage service, the Company picks up these
abstracts and stores them for the lender, redelivering them when requested. At
the present time, the Company stores approximately 15,000 abstracts. The Company
does not charge for this service but believes that it helps to generate abstract
"redating" revenues, since a person needing a redate of an abstract stored by
the Company can, by ordering that redate from the Company, avoid having to
deliver the abstract elsewhere for the redate. The Company estimates that
revenues thus generated amounted to approximately $25,000 in 1996, $27,000 in
1995 and $35,000 in 1994.

   Abstract and title companies are often asked to act as an escrow closing
agent in a real estate transaction. This practice is allowable under New York
State law. In this capacity, usually as a function of providing title insurance
on real estate, the Company is asked to hold funds in escrow bank accounts until
certain requirements are met or title defects are cured by the parties involved
in the transaction. For this service the Company charges a fee based upon the
length of time which the funds are to be held and/or the number of transactions
(deposits, checks) to be handled. Also, the Company acts as a conduit for the
sale and purchase of mortgages between financial institutions insuring that
mortgage documents are received and funds for the purchase of mortgages are
wired from buyer to seller in the correct amount and in a specified time frame.
The Company also acts as settlement agent on Home Equity loans and refinanced
mortgage loans for its Title Insurance underwriters and certain banks/lenders.
During 1996, escrow closing services generated approximately $31,000 as compared
to $90,000 and $44,000 in 1995 and 1994, respectively.

   Other public record searches provided by the Company include guaranteed tax
searches, foreclosure certificates of title, surrogate court searches, UCC
financing searches, franchise tax searches, judgment searches, new name
searches, back title searches, bankruptcy searches and foreclosure searches.
While these searches are most often needed by attorneys in connection with real
estate transactions, they may be useful to other customers for other purposes,
for example, to lenders extending credit.

   Title Insurance

   Title insurance policies are statements of the terms and conditions upon
which the title insurance underwriter will insure title to real estate, showing
ownership, outstanding liens, encumbrances and other matters of public record.
The beneficiaries of title insurance policies are generally buyers of real
property and secured lenders, and the policy amount is usually based upon either
the purchase price of the property or the amount of the loan secured by the
property. The title

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                                       -8-


Title Insurance    (cont)

policy protects the insured against title defects, liens and encumbrances not
specifically excepted from its coverage. Most lenders require title insurance as
a condition to making loans secured by real estate.

   Title insurance is substantially different from other types of insurance.
Fire, auto, health and life insurance protect against losses due to future
events that cannot generally be eliminated. Title insurers, however, seek to
eliminate future losses by accurately performing record searches and
examinations of title to real property, and to the extent possible, requiring
that obvious defects be "cured" as a condition of and prior to issuance of the
policy.

   Among the most commonly issued title insurance policies are standard or
extended coverage policies for owners and lenders. Owners' policies insure title
to real estate against defects in or liens or encumbrances against title,
unmarketability of title and lack of access to the subject property. Lenders'
policies insure against the invalidity of the lien of the insured mortgage,
insure the priority of the lien or encumbrance as stated in the title policy,
and insure against the invalidity of any assignment of the insured mortgage
provided the assignment is shown in the policy. The terms of coverage have
generally become standardized in accordance with forms approved by industry
groups such as the American Land Title Association.

   Since title insurance premiums are based upon mortgage amounts and tend to be
higher on a per unit basis than amounts charged for abstract services, labor
costs as a percentage of revenue in title insurance are lower than in abstract
services. As a result, gross margin levels are higher. Therefore, one of the
Company's main goals has been to increase its revenues from title insurance.

   The Company's total revenue for 1996 decreased by 3%, to $3,706,778 as
compared to $3,822,215 in 1995, mainly due to a decrease in real estate activity
and demand for the Company's products. However, due to the competitive nature of
the title insurance industry, i.e. controlled business arrangements between
businesses ordering title insurance products and those businesses producing
title insurance policies be they attorneys, mortgage lenders, mortgage brokers,
real estate brokers, the Company's revenue from title insurance decreased from
$1,610,147 to $1,302,970 in 1996. Revenue from title insurance represented 35%
of total company revenues as compared to 42% in 1995 and 41% in 1994.

   The title insurance premium is based upon the policy amount and the type of
coverage provided by the policy. Title insurance rates, including those of the
Company's competitors, are regulated by the State of New York Insurance
Department. The premium for title insurance is due and must be paid in full
prior to the issuance of the policy which is generally on the closing date of
the real estate transaction.

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                                       -9-

Title Insurance     (cont)


   The use of title insurance in connection with real estate transactions,
particularly residential purchases and financing, in the Company's marketing
area has been significantly increased since the early 1980's by the expanded
role of the national secondary residential mortgage market, and the growth of
nationwide lending, both residential and commercial, by banks and insurance
companies. As a result, almost all residential and commercial real estate
transfers and/or financings, except most home equity transactions, involve the
issuance of a title insurance policy. This same period of time has seen, until
recently, a general inflation of real estate prices resulting in increasing
levels of insurance coverage and related premiums. However, this expanding
market has also seen a significant increase in the number of companies providing
such insurance in the Company's marketing area, both directly and through
agents. See "Competition".

   The Company is not a title insurance underwriter. In selling title insurance,
the Company acts as agent for several national title insurance underwriting
companies. The Company has agency relationships with the following title
insurance underwriters: Old Republic National Title Insurance Company, Albany,
New York; Stewart Title Insurance Company, New York City; and Lawyers Title
Insurance Corporation, Richmond, Virginia. Generally, such relationships are
cancelable by either party upon short notice. The Company believes that in the
event of the cancellation of its existing agency relationships, it would have no
difficulty in securing similar relationships with other title insurance
underwriters.

   The choice of an underwriter by the Company is based upon such considerations
as the amount of the premium "split" offered, which varies among underwriters,
the terms under which the title underwriter will require indemnification for
policy losses attributable to errors made by the Company in searching and
examining the title, the scope of services offered to the agent by the title
underwriter, and the fact that certain underwriters will not insure titles in
certain geographical areas within New York State. Typically, the title insurance
premium "split" is approximately 80% to the Company and 20% to the underwriter.

   The title insurance underwriters for which the Company acts as agent are
licensed by the State of New York. Currently, there is no requirement under New
York law that requires an agent such as the Company to hold a license.

Appraisals

   In 1989, the Company added to its services the furnishing of
residential real estate appraisals.  With the purchase of Proper
Appraisal Specialists, Inc. in 1991, the Company added the appraisal
of commercial properties to its product line.

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                                      -10-

Appraisals  (cont)

   Since that time, appraisals were performed by certified and/or licensed
appraisers under the guidance of either a Senior Residential Appraiser (SRA) or
an individual with a General Appraisal License from New York State. In areas

where the Company did not have a direct branch operation, the Company procured
the services of licensed appraisers on a subcontractor basis. As a result of an
agreement dated September 27, 1995, the company sold the assets of its appraisal
division to Rynne, Murphy and Associates, Inc., a well-known, professional
residential/ commercial real estate appraisal company located in Rochester, N.Y.
for $125,000, allocated as follows:

   Fixed Assets                       $ 12,500
   Customer lists and goodwill         100,000
   Covenant not-to-compete              12,500
                                      --------
                                      $125,000
                                      ========

   The purchase price of the fixed assets is in the form of a $12,500
non-interest bearing note receivable in ten quarterly installments of $1,250
beginning May 1, 1996.

   The purchase price of the customer lists, goodwill, and covenant not-
to-compete is in the form of a $112,500 note receivable in quarterly
installments, plus interest at 9%, beginning May 1, 1996.

   Payment for these assets is contingent based upon 19% of the buyer's gross
margin on sales attributable to the Company's customers. These payments are to
be applied by the Company in the following order: the $1,250 guaranteed payment,
interest and principal. Any unpaid interest is forgiven on a quarterly basis.

   It is anticipated that 19% of the buyer's gross margin will not exceed the
$1,250 guaranteed payment and interest for that quarter. As a result, the buyer
would not be required to make any principal payments for the contingent portion
of the note. At December 31, 1996, the Company has fully reserved this portion
of the note receivable.

   Under this strategic partnership arrangement with Rynne, Murphy and
Associates, Inc., the Company will continue to market and sell appraisals to its
customers. However, since the appraisal reports will be prepared by Rynne,
Murphy and Associates staff appraisers, the Company has and will continue to
realize a substantial savings in payroll and other overhead expenses associated
with running its appraisal operation.

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                                      -11-

Appraisals  (cont)

  Appraisal services provide an estimated value for a particular property.
Appraisals are required in a variety of situations including transfer of
ownership, financing, tax matters, relocation services, insurance purposes,
estimation of liquidation value and divorce. The Company's customers for
appraisals have included lending institutions, banks, attorneys, municipalities,
relocation companies, government agencies, corporations and private individuals.
The Company's errors and omissions insurance coverage also covers appraisal
services. During 1995, all of the Company's appraisals were performed by Rynne,

Murphy & Associates, Inc. for which the Company was paid a commission for the
placement of orders. During 1995, the Company derived approximately 5% of its
gross revenues from the furnishing of real estate appraisals versus 10% in 1994.

Marketing

   Services and products provided by the Company are utilized in substantially
all commercial and residential real estate transactions. Therefore, its
marketing efforts are directed primarily toward the persons who place the orders
for such services and products in the typical real estate transaction or other
real estate related activity - attorneys, mortgage brokers, lenders, builders,
and other persons and entities engaged in the real estate business generally.

   Marketing activities are conducted by a direct sales force of three employees
under the direction of the Company's Director of Sales and Marketing. Marketing
efforts include direct solicitation and advertising in publications targeted to
serve mortgage lenders and attorneys, attendance at trade shows and conventions,
and news releases.

   The Company believes that its ability to offer many of the services and
products necessary in a real estate transaction is an important factor in the
attraction and retention of business, since customers can therefore order those
items from a single source. In its marketing activities, the Company emphasizes
this factor and the equally important factors of competitive price, accuracy,
response time, excellent service and reliability, all of which the Company
believes it provides to its customers.

Significant Customers

   During 1996, there were no customers accounting for more than 10% of the
Company's gross revenues.


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                                      -12-


Industry Considerations and Seasonality

   The Company's business is related to the general real estate market and the
fluctuations which occur therein. As a result of economic factors affecting the
real estate industry, namely fluctuating interest rates, mortgage refinances
continued during the first quarter of 1994 at which time long term interest
rates were at very low levels. However, beginning in the second quarter and
fearing an increase in the levels of inflation, the Federal Reserve Board began
increasing interest rates. By year end 1994 there were an unprecedented number
of consecutive monthly interest rate increases. As a direct result, deeds and
mortgages recorded in New York State during 1994 fell by 7.18% as compared to
1993 according to statistics compiled by the New York State Land Title
Association. As a consequence, the Company's revenues fell sharply causing the
company to incur a significant net loss for the year ended December 31, 1994.

   Activity continued to be sluggish during 1995, when recorded deeds or
mortgages fell by an average 11.50% from 1994 levels. Company revenues declined

during 1995 by nearly 20% as a result of these factors. As a result of the plan
developed by Company management subsequent to year end 1994 to significantly
reduce the Company's overhead expense structure in order to improve operations
and cash flow, the Company returned to profitability in 1995. Interest rates
remained relatively stable during 1996, an election year, while the economy
continued to rebound and consumer confidence also improved. Evidenced by an
increase of 11% in recorded deeds and mortgages for 1996 as compared to 1995.
However, due to competitive factors effecting the Company's title insurance
revenue base, the Company's total revenues for 1996 declined slightly. Despite
this decline in revenue, the Company remained profitable in 1996. There can be
no assurance that these or other factors will enable the Company to maintain its
revenue and profitability in periods of declining real estate activity.

   The demand for the Company's services and products is directly dependent upon
the activity of the real estate market which, in turn, is closely related to
changes in interest rates. Thus, the Company's business is cyclical as well as
seasonal, with lowest volume when interest rates are high and in the winter and
early spring.

Banking Relationship

  During 1995, Company management worked closely with bank officials and its
public accounting firm to develop a plan to restructure Company expenses and
improve operations and cash flow. On December 13, 1995, the amount outstanding
on the Company's note payable to a bank, $133,333, and $185,000 of the amount
borrowed under its Line-of-Credit agreement were refinanced with the same bank.
The note payable to the bank requires the Company to meet certain financial
covenants at December 31, 1995 and 1996 (see Note 5 of the Accompanying
Consolidated Financial Statements as of December 31, 1995 and 1994).


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                                      -13-

Banking Relationship  (cont)

At December 31, 1996 the Company's total indebtedness to its bank has decreased
to $276,500 as compared to $401,213 at December 31, 1995.

Potential Liabilities

   Abstract companies, including the Company, certify their searches and
abstracts for accuracy. In its title insurance business, the Company relies upon
its abstracts and other information and considerations, including standards
prescribed by its principals, in determining whether title is insurable. If the
Company makes a determination of insurability, it issues a policy of title
insurance on behalf of its principal, the underwriting company. As an issuer of
certified searches and abstracts, the Company may, depending on applicable law
and the facts of a particular case, be liable for money damages in the event of
errors in its searches and abstracts. As an agent issuing title policies on
behalf of an underwriter, the Company may, again depending on applicable law and
the facts of a particular case, be liable to either the underwriter or the
insured in the event of errors in abstracting or determinations of insurability,

negligence, or breaches of agreements with its principals. There are no
significant claims pending against the Company based upon any of the foregoing
considerations, but the potential for such claims, and possible liability
thereon, is a risk that is inherent in the Company's business, and such claims
may be asserted at any time. During the most recent past five years, the amount
paid by the Company for such claims, in the aggregate, is less than $35,000. The
Company has errors and omissions insurance coverage of $1,000,000, which
complies with requirements of its principals and is also deemed adequate by the
Company's management.

Employees

   The Company and its subsidiaries employed approximately 66 persons at
December 31, 1996, as compared to 66 in 1995 and 94 in 1994. Certain members of
the Company's management must sign Confidentiality Agreements which prohibits
the solicitation of information or resources to existing or potential
competitors. The employees of the Company are not covered by any collective
bargaining or other agreements and management believes its employee relations to
be good.

Service Marks

   The names "Four Corners Financial Corporation" and "Four Corners Abstract"
have been registered as service marks with the U.S. Patent and Trademark Office.
While the Company considers its service marks to be important, management does
not consider any service mark to be critical to future operations of the Company
or the marketing of any of the Company's services or products.


<PAGE>

                                      -14-

Competition

   The Company competes with numerous providers of abstract and title insurance
services, most of which fall into two main categories. The first are the large,
integrated national or statewide companies which underwrite their own title
insurance policies either directly or through agents. Such agents include not
only independent companies, but also attorneys who sell title insurance policies
as "examining counsel" for underwriters of title insurance. The second are the
small, local companies which provide abstracts and write policies only as agents
for others. Both types of companies are found in the markets served by the
Company and offer substantial competition. Because of the relative ease of entry
into the market place, the Company may meet additional competition from newly
formed companies in one or more of its market areas.

   The use of title insurance in residential real estate transactions has grown
in recent years because of the development of the national secondary residential
mortgage market which requires title insurance for virtually all residential
mortgages. Also, in recent years, institutional lenders have generally required
title insurance in virtually all commercial mortgages. However, during the same
period, there has been a significant increase in the number of companies
providing such insurance in the Company's market area, both directly and through

agents.

   The principal elements of competition are accuracy and speed (response time).
Prices for abstract and appraisal services are generally comparable among
vendors. However, in recent years, the Company experienced significant price
competition from new abstract companies entering its market areas. Prices for
title insurance are standardized and regulated by the New York State Insurance
Department which requires that rates be filed for approval by the New York State
Title Insurance Rate Service Association, Inc. (TIRSA). Personal relationships
are extremely important in retaining business and obtaining new business.
Excellent service and reliability, which the Company believes it provides, are
the principal means of developing and maintaining such relationships.

Item 2.   Properties

   Prior to July, 1995, principal offices of the Company were located at 80 West
Main Street, Rochester, New York. These facilities, approximately 15,000 square
feet, were leased from Wegman Building Associates, a partnership in which
Messrs. Frank B., Bernard J. and Anthony M. Iacovangelo, directors and/or
officers of the Company, are partners. Abstract had a one year lease for this
space expiring on December 31, 1995, which provided for an annual net rent of
$68,000. However, effective July 31, 1995, the Company moved its Rochester
facilities to 370 East Avenue. These facilities are leased from Fitch Building
Associates, another partnership in which Messrs. Frank B., Bernard J., and
Anthony M. Iacovangelo are partners.


<PAGE>

                                      -15-

Abstract now leases approximately 9,000 square feet of such space at a net
annual rent of $72,000, pursuant to a lease expiring June 30, 2000. The Company
believes that the terms of its rental are at least comparable to those which it
might have obtained if dealing with a non-affiliated third person. Rent and
common charges were approximately $72,000, $72,000 and $58,000 in 1996, 1995 and
1994, respectively. During 1994, total unpaid rent of $109,000 was forgiven by
Wegman Building Associates and reflected as an extraordinary item. The Company
owed approximately $18,100 and $20,000 for unpaid rent at December 31, 1996 and
1995, respectively.

   In addition, the Company leases space for its branch offices in Buffalo
(3,993 square feet), Albany (1,410 square feet), Syracuse (2,087 square feet),
Lockport (625 square feet), Binghamton (760 square feet) and Oswego (350 square
feet). The building which houses the Utica branch (2,000 square feet) was sold
by the Company in 1994. Per this agreement, the Company was allowed to operate
from this location on a month-to-month tenancy through July 1, 1995. Effective
August 1, 1995, the Company entered into a lease for 1,611 square feet in a
nearby office building for its Utica Branch office.

   The Company also leases space in the County Clerk's offices in Monroe, Erie,
Onondaga and Niagara counties, and occupies space in the County Clerk's office
in Oneida County.


   The Company believes it has adequate insurance coverage with respect to fire
and other casualty losses.

Item 3.   Legal Proceedings

   There are no pending legal proceedings to which the Company is a party or of
which any of its property is the subject.

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

   There were no matters submitted to a vote of security holders during the last
quarter of the fiscal year covered by this report.

Executive Officers of Registrant

   The executive officers of the Company are as follows:


   Name                     Age    Position with the Company
   ----                     ---    -------------------------

   Frank B. Iacovangelo     57     President, Treasurer and Director

   Bernard J. Iacovangelo   49     Vice President, Secretary and
                                   Director

   William S. Gagliano      47     Executive Vice President and
                                   Director


<PAGE>

                                      -16-

Business Background of Executive Officers

   Set forth below is a brief description of the business backgrounds of the
executive officers of the Company.

   Frank B. Iacovangelo has served as President, Treasurer, and a director of
the Company since May, 1987. He is a practicing attorney and has been a partner
in the law firm of Gallo & Iacovangelo of Rochester, New York for more than five
years. Mr. Iacovangelo is also an officer, director and principal shareholder of
Faber Construction Co., Inc. and Forest Creek Equity Corp., real estate
development companies, and an owner of numerous real estate projects. In
addition, Mr. Iacovangelo is President and director of Four Corners Abstract
Corp., a wholly-owned subsidiary of the Company, which he co-founded in 1980.
From 1987 until June, 1989, Mr. Iacovangelo was Chairman of the Board of
Directors of a food service business which filed a petition under Chapter 11 of
the U.S. Bankruptcy Code on November 20, 1989.

   Bernard J. Iacovangelo has served as Vice President, Secretary, and a
director of the Company since May, 1987. He is an attorney and has had more than
five years of experience as a partner in the law firm of Gallo & Iacovangelo.

His principal activity for the last five years has been as President, director
and principal shareholder of Forest Creek Equity Corp., a real estate
development company. Mr. Iacovangelo is also a principal shareholder of Faber
Construction Co., Inc. and an owner of numerous real estate projects as well as
co-founder, officer and director of Four Corners Abstract Corp., a wholly-owned
subsidiary of the Company.

   William S. Gagliano has served as Executive Vice President of the
Company and Four Corners Abstract Corp. since June, 1990.  He was
elected Director of the Company in July, 1992.  As Executive Vice
President, he is responsible for day to day operations of the
Company.  He joined Four Corners Abstract Corp. in 1987 as Vice
President of Finance and Administration.

   Messrs. Frank and Bernard Iacovangelo are brothers.


<PAGE>

                                     -17-


                                   PART II

Item 5.   Market for Registrant's Common Equity and Related Security
           Holder Matters

   There is a very limited trading in the Company's Common Stock. The range of
high and low bid prices and high and low asked prices for the years 1994, 1995
and 1996 is shown below, as reported by the National Quotations Bureau, Inc. and
as adjusted to reflect the Company's one for four (1 for 4) reverse stock split
which became effective July 31, 1992.


                                COMMON STOCK DATA

   1994                          BID                   ASKED
   ----                          ---                   -----

   1st Quarter                *Unpriced              *Unpriced
   2nd Quarter                *Unpriced              *Unpriced
   3rd Quarter                *Unpriced              *Unpriced
   4th Quarter                *Unpriced              *Unpriced

   1995
   ----

   1st Quarter                *Unpriced              *Unpriced
   2nd Quarter                *Unpriced              *Unpriced
   3rd Quarter                *Unpriced              *Unpriced
   4th Quarter                *Unpriced              *Unpriced

   1996
   ----


   1st Quarter                *Unpriced              *Unpriced
   2nd Quarter                *Unpriced              *Unpriced
   3rd Quarter                *Unpriced              *Unpriced
   4th Quarter                *Unpriced              *Unpriced

   February 16, 1989         $2.00  $2.00           $3.00  $3.00
   (last available)

   * = Listed in pink sheets without prices

   The above quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not represent actual transactions
and have not been adjusted for stock dividends or splits.

   The Company's agreement with its Bank places a restriction on its payment of
dividends. No dividends were declared or paid during 1994, 1995 or 1996.

   On March 25, 1997, the Company had 1,209 holders of record of its common
stock.


<PAGE>

                                      -18-


ITEM 6       SELECTED FINANCIAL DATA

               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
                             SELECTED FINANCIAL DATA


The financial data included in this table has been selected by the Company and
has been derived from the financial statements for those years. The following
statement should be read in conjunction with the financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

<TABLE>
<CAPTION>

                                          (In Thousands, Except Per Share Data)

                                            1996           1995           1994            1993           1992
                                            ----           ----           ----            ----           ----
<S>                                      <C>            <C>            <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:

      Revenue                            $ 3,707        $ 3,822        $ 4,780         $ 5,828        $ 6,818

      Income (loss) before taxes              89             99           (581)             66             33

      Net income (loss)                       86             97           (469)             56             25


      Net income (loss) per share (1)    $   .03        $   .03        $  (.14)        $   .02        $   .01

BALANCE SHEET DATA:

      Total assets                       $ 1,225        $ 1,240        $ 1,315         $ 1,804        $ 1,584

      Long-term obligations                  357            202            564             507            625

      Stockholders' investment               116             56            (42)            427            377
</TABLE>

Notes:

(1)   In 1992, the Company's stockholders approved a one-for-four reverse stock
      split. In conjunction with this reverse stock split, the authorized number
      of shares was reduced to 15,000,000 and par value was increased to $.04
      per share. All years have been restated to reflect this action.


<PAGE>

                                      -19-

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

1.   Liquidity and Capital Resources

      The Company's cash flow resulted from operations, bank loans and advances
made by principal stockholders.

      In 1996, the operations of the Company generated cash of $174,519. This
cash flow, along with cash reserves of $62,791, was sufficient to fund
investments in assets of $58,474 and a net debt reduction of $142,224. The cash
flow from operations of $210,839 funded investments in assets of $38,881 and a
net debt reduction of $138,099 in 1995. During the calendar year 1994, an
operating cash flow of $52,351 funded an investment in assets and a
corresponding decrease in debt financing of $62,399 and $60,672, respectively.

      Cash Flow From Operations. The cash provided by operations was less in
1996, being $174,519 versus $210,839 in 1995. This change was primarily due to a
slightly smaller net profit of $86,718 incurred in 1996 as compared to that of
$97,384 in the previous year. The positive impact arose primarily from non-cash
depreciation and amortization expense, as well as an increase in accounts
payable of $33,918. The cash provided by operations in 1995 of $210,839 was
higher than the 1994 amount of $52,351. This was attributable to positive net
income of $97,384 in 1995 in comparison to the sizeable 1994 net loss of
$534,030.

      Cash Flow from Investing Activities. The Company made capital expenditures
of $16,346, $39,325, and $31,469 in 1996, 1995 and 1994 respectively, primarily
related to computer system to computer system upgrades and furniture and fixture
purchases at various Company locations. Whereas the company made investments in

its title plant in 1996 and 1994 of $52,622 and $36,985, respectively to support
its ongoing business, no such commitment was made during the 1995 year based on
management's operating philosophy.

      As of December 31, 1996, the Company had no material purchase commitments.
In the past, the company has acquired other businesses for cash, notes and
common stock. Additional acquisitions may be made in the future. These
acquisitions may be made, in part or in whole, for cash.

      Cash Flow from Financing Activities. Primary cash flows from financing
activities relate to changes in financing under lines-of-credit, notes payable
and advances by principal stockholders. On December 13, 1995, the amount
outstanding on the note payable to a bank of $133,333, and $185,000 of the
amount borrowed under its line-of-credit agreement were refinanced with the
same bank.

<PAGE>

                                      -20-

As of December 31, 1996, the note payable and line-of-credit have been
classified in accordance with the new agreement. The terms of the bank note
require the Company to meet certain financial covenants at December 31, 1996.
These ratios are adjusted on a quarterly or semi-annual basis during 1996 and
thereafter. The covenants, ratios and terms of the agreement can be found in
note #5 of the accompanying financial statements. The agreement also limits the
Company's ability to make acquisitions, pay dividends, and make capital
expenditures. In addition, the company is required to submit certain financial
information on a periodic basis.

      At December 31, 1996, the Company was not in compliance with the dollar
amount of working capital, current ratio, minimum tangible net worth,
liabilities to tangible net worth, net income requirement and debt service
ratio. Subsequent to year end, the Company obtained a waiver from the bank for
these covenants as of December 31, 1996.

      Future maturities of the debt described above are as follows:

            1997..............................$ 97,050
            1998..............................  95,100
            1999..............................  45,071
                                              --------
                                              $237,221
                                              ========

      The Company may borrow up to $50,000 under the terms of a line-of-credit
agreement with a bank through October 31, 1997. Amounts borrowed bear interest
at the bank's prime interest rate plus 1% and are collateralized by
substantially all assets of the Company. At December 31, 1996 and 1995, there
was $50,000 and $35,000, respectively, outstanding under the terms of this
line-of-credit.

      The Company also has available an unsecured line of credit of $100,000
with a bank with interest an amounts borrowed at the bank's prime rate plus 1%.

There were no borrowings as of the years ended December 31, 1994, 1995 and 1996.
Borrowings under this line of credit are personally guaranteed by the Company's
principal officers/stockholders.

      The company repaid $149,456, $150,599, and $164,033 under its long-term
debt agreements in 1996, 1995 and 1994, respectively. While long-term
borrowings were $8,361 in 1994, no borrowing activity existed for the 1995 year.
At December 31, 1996, additional borrowing activity in the amount of $10,232 was
incurred. At December 31, 1996, the Company owed $234,500 to a principal
stockholder/director. For the years ended 1995 and 1994, this indebtedness
amounted to $227,500 and $200,000, respectively. This debt bears interest at the
prime rate plus three percent (3%) and the repayment of these advances is
subordinated to the amounts outstanding under all other bank debt agreements.
Principal repayment is scheduled for $18,000 per year.

<PAGE>

                                      -21-

      The Company expects the cash flow generated from operations and bank
lines-of-credit currently available to be sufficient to meet its anticipated
working capital and fixed capital expenditure needs for the next twelve months.

      The Company believes that the impact of inflation on its results from
operations has been and will continue to be minimal due to the recent stability
of the economy.

2.  Results of Operations

      (a)  Percentage Comparison

      The following table presents certain financial data derived from the
consolidated statements of operations of the Company for the years ended
December 31, 1996, 1995 and 1994, expressed as a percentage of total revenues.

                                             Percentage of Total Revenues
                                                Years Ended December 31
                                           -----------------------------------
                                             1996          1995          1994
                                           -------       -------       -------
Title insurance premiums                    35.15%        42.13%        41.15%
Abstract/appraisal fees                     64.85         57.87         58.85
                                          -------       -------       -------
Total revenues                             100.00        100.00        100.00
Direct costs of revenue                    (20.80)       (20.90)       (21.87)
                                          -------       -------       -------
Gross profit                                79.20         79.10         78.13
Operating expenses:
      Personnel costs                      (50.09)       (51.18)       (61.77)
      Other operating expenses              25.10         22.18         27.01
                                          -------       -------       -------
Operating income/(loss)                      4.01          5.54        (10.65)
Other expenses                              (1.64)        (2.94)         (.14)
Income tax expense                           (.06)         (.05)          .98

                                          -------       -------       -------
Net income/loss                              2.31%         2.55%        (9.81)%
                                          =======       =======       =======

<PAGE>

                                      -22-

   (b) Operating Revenues

   Combined revenues of the Company decreased 20.03% from $4,779,546 for the
year ended December 31, 1994 to $3,822,215 for the year ended December 31, 1995.
The combined revenues further decreased approximately 3.02% to $3,706,778 for
the year ended December 31, 1996.

   The company experienced a revenue decrease in 1994 due to strong competition
within the abstract and title insurance industry, a weaker demand for home
equity (second mortgage) loans, and the continuance of a sluggish real estate
market in the northeast. This trend continued in a slightly less dramatic
fashion in 1995 and 1996 as the housing market began to rebound in the areas
where the Company does business. The Company expects total revenues to increase
during 1997 as consumer confidence continues to increase and as the volume of
orders increases from those customers lost to lower-priced non-performing
competitors.

   Specifically, revenue from title insurance premiums decreased by 19.08%
during 1996 to $1,302,970 versus $1,610,147 in 1995. A similar decrease occurred
in 1995 of 18.13% from $1,966,849 realized in 1994. Despite the decrease in
title sales for 1996, an increase in title searches and appraisal sales have
offset these amounts resulting in a minimal decrease in combined revenues.
During 1996, revenues from abstract and appraisal services increased to
$2,403,808. These abstract and appraisal service revenues declined from
$2,812,697 in 1994 to $2,212,068 in 1995. These fluctuations represented a
21.35% reduction in abstract and appraisal revenues from 1994 to 1995 and a
corresponding increase of 8.67% from 1995 to 1996. As stated earlier, the
decline in this segment of the Company's revenues from the years ended 1994 to
1996 resulted from more intense competition within the industry in addition to a
lower volume of home equity (second mortgages) loans. The Company is able to
provide appraisals on real properties under an exclusive arrangement with a
local appraisal company.

   (c) Direct Costs of Revenue

   Direct costs of revenue consist to commissions paid to underwriters of title
insurance and subcontractor costs paid to other title companies and to
appraisers. As a result of a decrease in the volume of title search and
appraisal orders in the geographic areas where the company does not have a
direct operation, as well as the positive aspect of producing a higher
percentage of orders using its own work force, direct costs of revenue have
decreased slightly by 3.51% from $798,897 in 1995 to $770,834 in 1996. From 1994
to 1995, these same costs decreased in a more dramatic fashion by 23.57% from
$1,045,319 in 1994.

<PAGE>


                                      -23-

      (d)  Operating Expenses

   Direct and indirect personnel costs and other operating expenses are incurred
in connection with producing title searches and title examinations, maintaining
the Company's title plant, and providing real estate appraisals. Total operating
expenses decreased from $4,228,331 for the year ended December 31, 1994 to
$2,811,810 for the same period in 1995. Operating expenses further declined in
1995 to $2,786,219. These decreases were primarily attributable to declining
payroll costs associated with a reduction in staffing requirements as the demand
for the Company's services decreased.

   In 1995, gross payroll and benefits amounted to $1,956,156 as compared to
$2,952,187 in 1994. Office supplies, including postage, decreased from $173,122
to $97,612 for the same period. The decrease in operating expenses experienced
by the Company in 1995 and 1996 was attributable to a cost containment and
downsizing program implemented as a result of a lower than anticipated sales
volume. The significant variances in expenses for 1996 are shown in the table
below.

      Expense Item                              1996              1995
      ------------                              ----              ----

      Gross payroll & benefits            $1,856,772        $1,956,156

      Depreciation & Amortization             79,995           110,302

      Office supplies & postage              119,249            97,612

      Bad Debt                               114,175            75,675


   As with any service company, the major item of expense and corresponding
increase in expense level associated with the Company's operations is gross
payroll and employee benefits. As a percentage of revenues, personnel costs and
other operating expenses represented 75% in 1996, 74% in 1995, and 89% in 1994.
Decreases in payroll and personnel costs were incurred in order to enhance
profits during a time when the overall revenue base was decreasing. This
diminishing revenue base was attributable to a period of increasing interest
rates for mortgage loans during the second half of 1994 and an increased level
of competitiveness within the industry. Whereas the revenue base remained fairly
stable following more traditional trends, through the 1995 calendar year, the
Company was able to control payroll expenditures in a much more effective
manner. The Company is continuing a strategic emphasis on productivity,
geographic full service, and total quality standards. The Company's work force
has decreased significantly from 94 in 1994 to 66 in both 1995 and 1996.

<PAGE>

                                      -24-

      Based on a decrease in sales order volume, income from operations for 1996

was $149,725 versus $211,508 in 1995. Net income was $85,718 for the 1996
calendar year whereas a corresponding net profit in the amount of $97,384 was
recognized for 1995. In 1994, the Company suffered a significant decrease in
income from operations and net income due to the economic downturn of the real
estate market caused by increasing interest rates. The loss from normal
operations of $534,030 was reduced from a $65,000 gain relating to the early
extinguishment of debt from a related party to arrive at the net loss mentioned
above for 1994. In 1995, the Company fully implemented cost cutting measures to
ensure the profitability of the business. As a result, income from normal
operations and net income represented sizable improvements from the previous
years figures. Throughout 1996, similar business strategies and operating
philosophies were used to contain payroll costs, direct costs and other overhead
costs, thereby creating similar revenue, cost and profit levels.

Item 8.   Financial Statements and Supplementary Data

      The information required by this item is incorporated herein by reference
to pages 33 to 51 of this Form 10-K and are indexed under Item 14(a)(1). See
also the Financial Statement Schedules appearing herein, as indexed under Item
14(a)(2).

Item 9.   Disagreements on Accounting and Financial Disclosure

      There have been no disagreements on accounting and financial disclosure
matters.


<PAGE>

                                      -25-

                                      PART III

Item 10.  Directors and Executive Officers of the Registrant

   The following table names the directors and indicates their age, their
position with the Company or their principal occupation or employment, and the
approximate number of shares of Common Stock beneficially owned by each director
and all directors and officers as a group as of December 31, 1996.

                                                        Shares of
                  Position with the                    Common Stock    Percent
                  Company or Princi-      Director     Beneficially      of
Name         Age  pal Occupation           Since          Owned         Class
----         ---  ------------------      --------     -------------   -------
Frank B.     57   President and             1987       1,366,339 (3)    40.92%
Iacovangelo       Treasurer (1)

Bernard J.   49   Vice President            1987       1,376,339 (4)    41.22%
Iacovangelo       Secretary (1)

William S.   47   Executive Vice            1992         140,758 (5)     4.22%
Gagliano          President and
                  Director (1)


Anthony M.   56   President, director       1987          87,913 (6)     2.64%
Iacovangelo       and principal share-
                  holder of Faber
                  Construction Co., Inc.
                  Rochester,  NY  (2)

All Directors and Officers of the                      2,971,349        88.99%
Company as a group (four persons)                      (3)(4)(5)(6)


(1)      From 1987 until June 1989, Frank B. Iacovangelo was a director, and on
         an interim basis for a period of approximately 11 months was Chairman
         of the Board of Charlie Bubbles, Ltd. food service business which filed
         a petition under Chapter 11 of the U.S. Bankruptcy Code on November 20,
         1989.

(2)      During the past five years, Anthony Iacovangelo has also been an owner
         of numerous real estate projects.

(3)      Includes 300,000 shares owned by children of Frank B. Iacovangelo,
         beneficial ownership of which is disclaimed. Also includes 40% of the
         368,879 shares owned by Wegman Building Associates, a partnership in
         which Frank Iacovangelo owns a 40% interest.

<PAGE>

                                      -26-

(4)      Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
         Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's
         wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims
         beneficial ownership of these shares. Also includes 40% of the 368,879
         shares owned by Wegman Building Associates, a partnership in which
         Bernard Iacovangelo has a 40% interest.

(5)      Includes an option to purchase 125,000 shares of Common Stock.

(6)      Includes 10% of the 368,869 shares owned by Wegman Building Associates,
         a partnership in which Anthony Iacovangelo has a 10% interest. Also
         includes options to purchase 1,000 shares of Common Stock.

Messrs. Frank, Bernard and Anthony Iacovangelo are brothers.

Item 11. Executive Compensation

   Executive Compensation

   The following table sets forth the cash compensation for each of the last
three financial years awarded to or earned by the Chief Executive Officer of the
Company. No other executive officer of the Company received a total salary and
bonus in excess of $100,000 and accordingly no reporting is required under the
regulations of the Securities and Exchange Commission.


        Name and                      Annual Compensation (1)
   Principal Position                 -----------------------
   ------------------
                                           Yearly Salary
                                           -------------

   Frank B. Iacovangelo                1996  --   - 0 -
   President, Chief                    1995  --   - 0 -
   Executive Officer                   1994  --  $61,800
   and Treasurer

------------------------------------------------

(1)     Mr. Iacovangelo receives no other compensation or benefits from the
        Company. He neither received nor exercised any options during 1996 and
        he held no options at December 31, 1996.

   Remuneration of Directors

   During 1996, directors of the Company received no cash remuneration for
serving as directors or as members of committees.

   The Company's 1992 Stock Option Plan (the "Option Plan") provides for
automatic grants of stock options to each member of the Board of Directors who
is not also an employee of the Company. Messr. Anthony Iacovangelo is a
non-employee director.

<PAGE>

                                      -27-

   Pursuant to the Option Plan, a Non-Employee Director Stock Option ("NEDSO")
for 500 shares is granted to each non-employee director automatically every year
on the date of the Annual Meeting of Stockholders. The first such grants were
made on the date of the 1992 Annual meeting of Stockholders (July 29, 1992), and
each non-employee director received a NEDSO for 500 shares at an exercise price
of $.75 per share, the fair market value of the Company's Common Stock on the
date of grant.

   Each NEDSO is immediately exercisable in full. Each NEDSO terminated upon the
expiration of ten years from the date upon which such NEDSO was granted. A NEDSO
is not transferable other than by will or by the laws of dissent and
distribution.

   In the event a non-employee director terminates services on the Board other
than by reason of death or disability, such person's NEDSO (to the extent
exercisable upon such termination) will expire three months from the date of
termination of service, provided that in no event may a NEDSO be exercised
beyond its original expiration date.

   In the event of death or disability of a non-employee director, any
outstanding NEDSOs will expire one year from the date of death or disability,
provided that in no event may a NEDSO be exercised beyond its original
expiration date.


Employment Agreements

   Employment agreements between the Company and each of Messrs. Frank B.
Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano provide for
employment terms which commenced January 1, 1992, year to year indefinite
renewal terms subject to either the Company or the employee electing not to
renew, as amended, minimum base salaries of $60,000 per year in the case of
Frank Iacovangelo, $52,000 per year in the case of Bernard J. Iacovangelo and
$75,000 in the case of Mr. Gagliano, additional salary and bonus compensation to
be determined by the Board of Directors of the Company in its sole discretion,
and restrictions against competition with the Company. Messrs. Frank B.
Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano received $ -0-,
$ -0- and $73,424 respectively during 1996.

Item 12. Security Ownership of Certain Beneficial owners and Management

   On December 31, 1996, the Company had outstanding and entitled to vote with
respect to all matters to be acted upon at the Annual Meeting of Stockholders,
3,293,733 shares of Common Stock ($.04 par value). Each share of Common Stock is
entitled to one vote. The Company currently has no other outstanding class of
equity securities.

   In September, 1996, the Company purchased 50,000 shares of its common stock
from a former director.

<PAGE>

                                      -28-

   The following table sets forth information as of December 31, 1996 showing
all persons who, to the Company's knowledge, were beneficial owners of 5% or
more of any class of its shares. All persons listed below have sole voting and
investment power with respect to their shares unless otherwise indicated.

                              Amount and Nature of            Percent of
Name and Address              Beneficial Ownership              Class
------------------------------------------------------------------------
Frank B. Iacovangelo               1,366,339 (1) (3)          40.92%
39 State Street
Rochester, NY  14614

Bernard J. Iacovangelo             1,376,339 (2) (3)          41.22%
39 State Street
Rochester,  NY  14614

Wegman Building                     368,879 (3)               11.05%
    Associates
39 State Street
Rochester,  NY  14614

(1)      Includes 300,000 shares owned by children of Frank B. Iacovangelo,
         beneficial ownership of which is disclaimed. Also includes 40% of the
         368,879 shares owned by Wegman Building Associates, a partnership in

         which Mr. Iacovangelo has a 40% interest.

(2)      Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
         Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's
         wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims
         beneficial ownership of these shares. Also includes 40% of the 368,879
         shares owned by Wegman Building Associates, a partnership in which
         Bernard Iacovangelo has a 40% interest.

(3)      Wegman Building Associates is a general partnership in which Messrs.
         Frank, Bernard and Anthony Iacovangelo have a 40%, 40% and 10%
         interest, respectively. They have shared voting and investment power
         with respect to the shares owned by the partnership.

Item 13.  Certain Relationships and Related Transactions

   The principal offices of the Company are located at 370 East Avenue,
Rochester, New York. These facilities are leased from Fitch Building Associates,
a partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo,
directors and/or officers of the Company, are partners. Four Corners Abstract
Corporation ("FCAC"), a subsidiary of the Company, currently leases
approximately 9,000 square feet of such space, pursuant to a lease expiring on
June 30, 2000. Effective July 1, 1995, the lease agreement requires annual
rental payments of $72,000.

<PAGE>

                                        -29-

   Annual rental payments, pursuant to the lease, including common area charges,
were approximately $72,000, $72,000 and $58,000 in 1996, 1995, and 1994,
respectively. During 1994, total unpaid rent of $109,000 was forgiven by the
related partners. The Company owed approximately $18,100 and $20,000 at December
31, 1996 and 1995, respectively.

   Messrs. Frank and Bernard Iacovangelo, officers and directors of the Company,
are members of the law firm of Gallo & Iacovangelo, general counsel to the
Company.

   During 1996, 1995 and 1994, Frank Iacovangelo, President of the Company, made
advances to the Company. These advances bear interest at the prime rate plus 3%
and repayment is subordinated to the amounts outstanding under the Company's
line of credit agreements. Mr. Iacovangelo has agreed not to require payment of
these advances through January 1, 1998. At December 31, 1996, 1995 and 1994,
this indebtedness amounted to $234,500, $227,500 and $200,000, respectively. In
1996, the Company paid Mr. Iacovangelo $21,292 in interest.

   In 1996, 1995 and 1994, approximately 4% of the Company's revenue was derived
from the law firm of Gallo and Iacovangelo, a related party. At December 31,
1996, 1995, and 1994, the Company was owed $44,878, $36,742 and $59,284
respectively, from Gallo and Iacovangelo. Rates charged were comparable to those
charged similar customers.

<PAGE>


                                     -30-


                                   PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a) The following documents are filed as a part of this report and as
       response to Item 8:

   (1)       Financial Statements

           - Auditors' Report dated February 13, 1997

           - Consolidated Balance Sheets - December 31, 1996 and 1995

           - Consolidated Statements of Income for the Years Ended December 31,
             1996, 1995 and 1994

           - Consolidated Statements of Changes in Stockholders' Investment for
             the Years Ended December 31, 1996, 1995 and 1994

           - Consolidated Statements of Cash Flows for the Years Ended
             December 31, 1996, 1995 and 1994

           - Notes to Consolidated Financial Statements (1) through (9)

   (2)       Financial Statement Schedules

           - Auditors' Report Dated February 13, 1997

           - Schedule II - Amounts Receivable From Related Parties for the Years
             Ended December 31, 1996, 1995 and 1994

           - Schedule VIII - Valuation and Qualifying Accounts for the Years
             Ended December 31, 1996, 1995 and 1994

           - Schedule IX - Short-Term Borrowings for the Years Ended
             December 31, 1996, 1995 and 1994

<PAGE>

                                      -31-

(3)   Exhibits

   (a)

         10.1  Waiver of Covenant(s) Letter from Marine Midland Bank dated
               March 21, 1997.

         22    Subsidiaries of Registrant


   (b)     Reports on Form 8-K.

           The Company filed no reports on Form 8-K during the fourth quarter of
           the year ended December 31, 1996.

   (c)     Exhibits

           See (a)(3) above.

   (d)     Financial Statement Schedules

           See (a)(2) above.


<PAGE>
                                      -32-

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

Dated:  March 28, 1997        FOUR CORNERS FINANCIAL CORPORATION

By: /s/ Frank B. Iacovangelo
   --------------------------------------------------
        Frank B. Iacovangelo, President

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capabilities on the dates indicated.

/s/ Frank B. Iacovangelo                                  March 28, 1997
------------------------------------------------------
Frank B. Iacovangelo
President, Treasurer and Director
(Chief Executive Officer and
Chief Financial Officer

/s/ William S. Gagliano                                   March 28, 1997
-------------------------------------------------------
William S. Gagliano
Executive Vice President, Chief
Accounting Officer and Director

/s/ Bernard J. Iacovangelo                                March 28, 1997
-------------------------------------------------------
Bernard J. Iacovangelo
Vice President, Secretary and
Director

/s/ Anthony M. Iacovangelo                                March 28, 1997
-------------------------------------------------------
Anthony M. Iacovangelo
Director


<PAGE>

                         FOUR CORNERS FINANCIAL CORPORATION

                                  AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL STATEMENTS

                          AS OF DECEMBER 31, 1996 AND 1995

                                    TOGETHER WITH

                            INDEPENDENT AUDITORS' REPORT




                              March 27, 1997 (08:44am)

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders of

         Four Corners Financial Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Four Corners
Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders'
investment, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Four Corners Financial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.

                                                Bonadio & Co. LLP

February 13, 1997
Except Note 5, which is
dated March 26, 1997
Rochester, New York

<PAGE>

                 FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                             DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                          ASSETS                                             LIABILITIES AND STOCKHOLDERS' INVESTMENT

                                          1996         1995                                                    1996        1995
                                          ----         ----                                                    ----        ----

<S>                                     <C>         <C>              <C>                                      <C>          <C>
CURRENT ASSETS:                                                      CURRENT LIABILITIES:
    Cash                               $   36,612   $   62,791           Lines-of-credit                      $   50,000  $  35,000
    Cash - escrow deposits                 74,540       90,403           Current portion of notes payable         97,050    331,211
    Accounts receivable, net of                                          Current portion of obligations
     allowance for doubtful                                                under capital leases                        -     32,738
     accounts of $84,000 in                                              Current portion of subordinated
     1996 and 1995                        510,762      465,181             debt due to officer/principal
    Prepaid expenses                        5,914       13,316              stockholder                           18,000     27,500
    Current portion of note receivable      7,500        2,500           Accounts payable                        425,697    393,179
                                                                         Accounts payable - related parties       21,400     20,000
                                                                         Escrow deposits                          74,540     90,403
                                                                         Accrued income taxes                      1,500      1,500
                                                                         Other accrued expenses                   63,953     50,886
                                       ----------   ----------                                                ---------- ----------
     Total current assets                 635,328      634,191      Total current liabilities                    752,140    982,417
                                       ----------   ----------                                                ---------- ----------

PROPERTY AND EQUIPMENT, net               142,523      195,940        LONG-TERM LIABILITIES:
                                       ----------   ----------          Notes payable, net of current portion    140,171      1,674
                                                                        Obligations under capital leases, net
                                                                         of current portion                            -        590
OTHER ASSETS:                                                           Subordinated debt due to officer/
    Note receivable, net of current                                      principal stockholder                   216,500    200,000
     portion                                    -       10,000                                                ---------- ----------
    Cash value of officer life
     insurance                             18,618       17,616            Total long-term liabilities            356,671    202,264
    Other assets                            8,760       15,256                                                ---------- ----------
                                       ----------   ----------
                                           27,378       42,872
                                       ----------   ----------
                                                                          Total liabilities                    1,108,811  1,184,681
                                                                                                              ---------- ----------

TITLE PLANT                               419,905      367,283        STOCKHOLDERS' INVESTMENT:
                                       ----------   ----------          Common stock, $.04 par value,
                                                                         15,000,000 shares authorized,
                                                                         3,348,733 issued; 3,293,733
                                                                         and 3,343,733 outstanding in
                                                                         1996 and 1995, respectively            133,752     133,752
                                                                         Additional paid-in capital             835,402     835,402

                                                                         Accumulated deficit                   (822,206)   (907,924)
                                                                                                              ---------- ----------

                                                                                                                146,948      61,230
                                                                        Less: Treasury stock; at
                                                                         cost 55,000 and 5,000
                                                                         shares in 1996 and 1995,
                                                                         respectuvely                           (30,625)    (5,625)
                                                                                                             ---------- ----------

                                                                         Total stockholders'
                                                                          investment                            116,323     55,605
                                                                                                             ---------- ----------

                                       $1,225,134   $1,240,286                                               $1,225,134 $1,240,286
                                       ==========   ==========                                               ========== ==========
</TABLE>

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


<PAGE>

             FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                             1996                  1995                  1994
                                                             ----                  ----                  ----
<S>                                                       <C>                   <C>                   <C>
REVENUE:
 Title insurance premiums                                 $1,302,970            $1,610,147            $1,966,849
 Abstract and appraisal services                           2,403,808             2,212,068             2,812,697
                                                          ----------            ----------            ----------

                                                           3,706,778             3,822,215             4,779,546
                                                          ----------            ----------            ----------

DIRECT COSTS OF REVENUE:
 Title insurance premiums                                   (370,506)             (508,784)             (539,390)
 Abstract and appraisal services                            (400,328)             (290,113)             (505,929)
                                                          ----------            ----------            ----------

                                                            (770,834)             (798,897)           (1,045,319)
                                                          ----------            ----------            ----------

    Gross profit                                           2,935,944             3,023,318             3,734,227

OPERATING EXPENSES                                        (2,786,219)           (2,811,810)           (4,228,331)
                                                          ----------            ----------            ----------

    Income (loss) from operations                            149,725               211,508              (494,104)
                                                          ----------            ----------            ----------

OTHER EXPENSES:
 Interest                                                    (60,661)              (72,028)              (71,845)
 Loss on disposal of property                                      -               (40,596)              (14,932)
                                                          ----------            ----------            ----------

                                                             (60,661)             (112,624)              (86,777)
                                                          ----------            ----------            ----------

    Income (loss) before income taxes
     and extraordinary item                                   89,064                98,884              (580,881)

BENEFIT FROM (PROVISION FOR) INCOME TAXES                     (3,346)               (1,500)               46,851
                                                          ----------            ----------            ----------

    Income (loss) before extraordinary item                   85,718                97,384              (534,030)

EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF
 DEBT, net of income tax of $44,000                                -                     -                65,000

                                                          ----------            ----------            ----------

NET INCOME (LOSS)                                         $   85,718            $   97,384            $ (469,030)
                                                          ==========            ==========            ==========

NET INCOME (LOSS) PER SHARE:

 Income (loss) before extraordinary item                  $      .03            $      .03            $     (.16)
 Extraordinary item                                                -                     -                   .02
                                                          ----------            ----------            ----------

    Net income (loss) per share                           $      .03            $      .03            $     (.14)
                                                          ==========            ==========            ==========
</TABLE>


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

<PAGE>

              FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                             Common Stock          Additional                                Total
                                         ----------------------     Paid-in    Accumulated   Treasury    Stockholders
                                           Shares       Amount     Capital       Deficit      Stock       Investment
                                         ----------   ---------   ----------   ----------   ----------   ----------
<S>                                      <C>          <C>         <C>          <C>          <C>          <C>
BALANCE - December 31, 1993               3,343,733     133,752      835,402     (536,278)      (5,625)     427,251

   Net loss                                       -           -            -     (469,030)           -     (469,030)
                                         ----------   ---------   ----------   ----------   ----------   ----------


BALANCE - December 31, 1994               3,343,733     133,752      835,402   (1,005,308)      (5,625)     (41,779)

   Net income                                     -           -            -       97,384            -       97,384
                                         ----------   ---------   ----------   ----------   ----------   ----------


BALANCE - December 31, 1995               3,343,733     133,752      835,402     (907,924)      (5,625)      55,605

   Net income                                     -           -            -       85,718            -       85,718

   Purchase of treasury stock               (50,000)          -            -            -      (25,000)     (25,000)
                                         ----------   ---------   ----------   ----------   ----------   ----------

BALANCE - December 31, 1996              $3,293,733   $ 133,752   $  835,402   $ (822,206)  $  (30,625)  $  116,323
                                         ==========   =========   ==========   ==========   ==========   ==========
</TABLE>

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


<PAGE>


             FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                           1996                1995                1994
                                                           ----                ----                ----
<S>                                                     <C>                 <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES:

   Net income (loss) before extraordinary item          $   85,718          $   97,384          $(534,030)
   Adjustments  to reconcile  net income (loss) before
    extraordinary item to net cash flow from
    operating activities:

    Extraordinary item - gain on extinguishment of debt          -                   -             65,000
    Provision for bad debts                                      -              75,675            121,678
    Loss on disposal of property                                 -              40,596             14,932
    Depreciation and amortization                           79,995             110,302            124,442
    Changes in:
      Accounts receivable                                  (45,581)            (61,677)           274,649
      Prepaid expenses                                       7,402              (4,226)              (142)
      Income tax receivable                                      -               6,725             (6,725)
      Accounts payable and accounts payable -
       related party                                        33,918             (42,687)            29,028
      Other accrued expenses                                13,067             (12,753)           (29,881)
      Accrued income taxes                                       -               1,500             (6,600)
                                                        ----------          ----------          ---------

        Net cash flow from operating activities            174,519             210,839             52,351
                                                        ----------          ----------          ---------

CASH FLOW FROM INVESTING ACTIVITIES:

   Purchases of property and equipment                     (16,346)            (39,325)           (31,469)
   Proceeds from sale of property and equipment                  -                   -             24,500
   Repayment of note receivable                              5,000                   -                  -
   Change in other assets                                    6,496              (2,010)             1,625
   Change in cash value of officer life insurance           (1,002)              2,454            (20,070)
   Investment in title plant                               (52,622)                  -            (36,985)
                                                        ----------          ----------          ---------

        Net cash flow from investing activities            (58,474)            (38,881)           (62,399)
                                                        ----------          ----------          ---------

CASH FLOW FROM FINANCING ACTIVITIES:

   Change in lines-of-credit                                15,000             (15,000)            95,000
   Borrowings on notes payable                              10,232                   -              8,361

   Repayment of notes  payable and  obligations  under    (149,456)           (150,599)          (164,033)
    capital leases
   Increase in subordinated debt due to                      7,000              27,500                  -
    officer/principal stockholder
   Purchase of treasury stock                              (25,000)                  -                  -
                                                        ----------          ----------          ---------

        Net cash flow from financing activities           (142,224)           (138,099)           (60,672)
                                                        ----------          ----------          ---------

NET INCREASE (DECREASE) IN CASH                            (26,179)             33,859            (70,720)

CASH - beginning of year                                    62,791              28,932             99,652
                                                        ----------          ----------          ---------

CASH - end of year                                      $   36,612          $   62,791          $  28,932
                                                        ==========          ==========          =========
</TABLE>

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


<PAGE>

              FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1996 AND 1995

(1)  The Company

     Four Corners Financial Corporation (FCFC) and its Subsidiaries, Four
     Corners Abstract Corporation (FCAC) and Proper Appraisal Specialists, Inc.
     provide services and products including real estate title searching,
     preparation of abstracts of title, issuance of title insurance as an agent
     for certain national underwriting companies primarily in Western and
     Central New York State. All of these services and products are required in
     connection with the mortgaging, sale or purchase of real property.

     Unless otherwise indicated, the term "Company" refers to Four Corners
     Financial Corporation and its subsidiaries. The Company operates in one
     business segment.

(2)  Summary of Significant Accounting Policies

     Principles of Consolidation -

     The consolidated financial statements include the accounts of FCFC and all
     subsidiaries. All significant intercompany transactions and balances have
     been eliminated.

     Cash -

     The Company maintains its cash in demand deposit and money market accounts
     which, at times, may exceed federally insured limits. The Company has not
     experienced any losses in such accounts and believes it is not exposed to
     any significant credit risk with respect to these accounts.

     Escrow Deposits -

     As a service to its customers, administers escrow deposits representing
     undisbursed amounts received for settlements of mortgage loans or property
     sales and indemnities against specific title risks. These funds are
     recorded as both a current asset and a current liability in the
     accompanying consolidated balance sheets.

     Property and Equipment -

     Property and equipment is stated at cost and is depreciated using
     accelerated and straight-line methods over the following useful lives:

                  Furniture and equipment          3 - 10 years
                  Vehicles                              5 years
                  Leasehold improvements          Term of lease



<PAGE>



(2)  Summary of Significant Accounting Policies (Continued)

     Property and Equipment - (Continued)

     At the time of retirement or other disposition of property, the cost and
     accumulated depreciation are removed from the accounts and any gain or loss
     is reflected in the statement of operations. Repairs and maintenance costs
     are charged to expense when incurred.

     Title Plant -

     Title plant consists of copies of public records, maps and other relevant
     historical documents which facilitate the preparation of title abstract
     reports without the necessity of manually searching official public
     records.

     The Company has incurred identifiable costs related to the activities
     necessary to construct a title plant which are reflected as assets. A title
     plant is regarded as a tangible asset having an indefinite economic life;
     accordingly, title plant costs are not depreciated.

     Revenue Recognition -

     Title insurance is provided to purchasers or financers of real property.
     The related revenue is recognized when policies become effective, generally
     at the property or mortgage loan closing. Under terms of the Company's
     agreements with its title insurance underwriters, a commission of 15 - 20%
     is paid to its underwriter on all title insurance policies written. Pricing
     is based on a rate schedule established by the Insurance Department of the
     State of New York which provides for varying rates for services rendered.
     Commission expense is reflected as a direct cost of title insurance revenue
     in the statements of operations.

     The Company also performs title abstract research and prepares appraisals
     on real properties. Abstract and appraisal revenue is recognized as earned.
     Direct costs of abstract and appraisal revenue include the cost of work
     performed by subcontractors in geographical areas where the Company does
     not maintain an office, among other direct costs.

     Estimates -

     In preparing financial statements in conformity with generally accepted
     accounting principles, management is required to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and revenue and expenses during the reporting period.
     Actual results could differ from these estimates.



<PAGE>


(2)  Summary of Significant Accounting Policies (Continued)

     Net Income Per Share -

     Net income per share is computed on the basis of the weighted average
     number of common and common equivalent shares outstanding during the
     periods. The weighted average number of shares outstanding is as follows:

                                            1996          1995         1994
                                            ----          ----         ----

     Weighted average number of
      common shares outstanding:

       Common shares                      3,331,233    3,343,733     3,343,733
                                         ==========    =========    ==========


     Fully diluted earnings per share did not differ materially from primary
     earnings per share in any of these three years. Common equivalent shares
     have not been considered in the calculation of weighted average number of
     common shares outstanding for 1996 and 1995 as the effect is anti-dilutive.

     Reclassifications -

     Certain reclassifications have been made to the 1995 statements to conform
     to the current year presentation.

(3)  Property and Equipment

     Property and equipment consisted of the following at December 31:

                                                          1996         1995

         Furniture and equipment                       $ 899,925    $  888,641
         Vehicles                                         97,627        96,734
         Leasehold improvements                           49,564        44,502
                                                       ---------    ----------

                                                       1,047,116     1,029,877

         Less:  Accumulated depreciation and
               amortization                             (904,593)     (833,937)
                                                       ---------    ----------

                                                       $ 142,523    $  195,940
                                                       =========    ==========


     During 1994, the Company entered into capital lease obligations totalling
     $24,107. The assets related to these obligations are included as part of

     property and equipment.

     Depreciation and amortization expense for 1996, 1995 and 1994 was $79,995,
     $110,302 and $124,442, respectively.



<PAGE>



(4)  Income Taxes

     Income taxes are provided for the tax effects of transactions reported in
     the financial statements and consist of taxes currently due plus deferred
     taxes related primarily to differences between the basis of property and
     certain expenses for financial and income tax reporting purposes. Deferred
     tax assets and liabilities represent the future tax return consequences of
     those differences, which will either be taxable or deductible when the
     assets and liabilities are recovered or settled.

     The (benefit from) provision for income taxes consisted of the following at
     December 31:

                                            1996          1995         1994
                                            ----          ----         ----
         Federal:

           Current                       $        -    $       -    $   (4,200)
           Deferred                               -            -       (37,400)

         State:

           Current                            3,346        1,500         1,349
           Deferred                               -            -        (6,600)
                                         ----------    ---------    ----------

                                         $    3,346    $   1,500    $  (46,851)
                                         ==========    =========    ==========


     Income tax expense for 1996, 1995 and 1994 differs from the expected tax
     expense, computed by applying the U.S. Federal corporate income tax rate of
     34% to income before income taxes as follows:

                                        1996         1995         1994
                                        ----         ----         ----

     Expected tax expense (benefit)  $  30,300    $  33,000    $(139,000)

     Effect of graduated Federal rate   (3,400)      (3,100)           -

     State income taxes, net of
      Federal income tax benefit         5,300        1,000      (23,000)


     Change of valuation allowance     (27,800)     (25,900)     123,000

     Other, net                         (1,054)      (3,500)      (7,851)
                                     ---------    ---------    ---------

                                     $   3,346    $   1,500    $ (46,851)
                                     =========    =========    =========


     At December 31, 1996, the Company has available a net operating loss
     carryforward of approximately $202,000. This net operating loss
     carryforward will begin to expire in 2002. The Company has recorded a
     valuation allowance equal to the deferred tax asset related to the
     carryforward.

     Taxes paid in 1996, 1995 and 1994 were $3,346, $1,102, and $3,425,
     respectively.


<PAGE>


(5)  Financing Arrangements

     Notes Payable -

     Notes payable consisted of the following at December 31:

                                                      1996            1995
                                                  -----------       ---------
     Note payable to a bank with monthly
     principal payments of $7,674 through
     October, 1997 and $6,230 through
     October, 1999, plus interest at the
     bank's prime rate plus 1.25%. This note
     is guaranteed by the officers/stockholders
     of the Company and is collateralized by
     substantially all of the Company's assets.  $   226,250       $ 318,333

     Various notes payable with aggregate
     monthly installments of $835, including
     interest at rates ranging from 8% to
     9.5%. These notes mature through
     November, 1999 and are collateralized by
     the related equipment.                           10,971          14,552
                                                 -----------       ---------

                                                     237,221         332,885
                                                 -----------       ---------

     Less:  Current portion                          (97,050)       (331,211)
                                                 -----------       ---------


                                                 $   140,171       $   1,674
                                                 ===========       =========

     The note payable to the bank requires the Company to meet certain financial
     covenants at December 31, 1996 as follows:

     a.  Working capital of at least $20,000.
     b.  Current ratio of at least 1.1 to 1,
     c.  Minimum tangible net worth of at least $400,000
     d.  Total liabilities to tangible net worth of not more than
         1.9 to 1,
     e.  Net income before taxes of $110,000, and
     f.  Debt service ratio of not less than 1.75 to 1.

     The agreement also limits the Company's ability to make acquisitions, pay
     dividends and make capital expenditures, and requires the Company to submit
     certain financial information.

     At December 31, 1996 and 1995, the Company was not in compliance with the
     required amount of working capital, current ratio, minimum tangible net
     worth, liabilities to tangible net worth, net income requirement and debt
     service ratio. Subsequent to year end, the Company obtained a waiver from
     the bank for these covenants as of December 31, 1996 and 1995.



<PAGE>


(5)  Financing Arrangements (Continued)

     Notes Payable - (Continued)

     Future maturities of long-term debt are as follows:

            1997.......................................   97,050
            1998.......................................   95,100
            1999.......................................   45,071
                                                       ---------

                                                       $ 237,221
                                                       =========

     Obligations Under Capital Leases -

     The Company has entered into capital lease agreements for certain of its
     equipment. These obligations consisted of the following at December 31:

                                                          1996         1995
                                                       ---------    ----------
     Various leases payable with aggregate
     monthly installments of $4,257, in-
     cluding interest at rates ranging from
     8.4% to 13.1%. These leases were paid in

     full in 1996.                                     $       -    $   33,328

     Less:  Current portion                                    -       (32,738)
                                                       ---------    ----------

                                                       $       -    $      590
                                                       =========    ==========

     Lines-of-Credit -

     The Company may borrow up to $50,000 under the terms of a line-of-credit
     agreement with a bank through October 31, 1997. Amounts borrowed bear
     interest at the bank's prime interest rate plus 1% and are collateralized
     by substantially all assets of the Company and are guaranteed by the
     officers/stockholders of the Company. At December 31, 1996 and 1995, there
     was $50,000 and $35,000, respectively, outstanding under the terms of this
     line-of-credit.

     The Company may also borrow up to $100,000 under the terms of an unsecured
     line-of-credit with another bank. Amounts borrowed bear interest at the
     bank's prime interest rate plus 1%. Borrowings under this line-of-credit
     are personally guaranteed by the Company's principal officers/stockholders.
     There were no borrowings under the terms of this line-of-credit at December
     31, 1996 and 1995.

     Interest -

     Interest paid in 1996, 1995 and 1994 on all notes payable, obligations
     under capital leases and lines-of-credit was $58,394, $76,337, and $67,536,
     respectively.


<PAGE>


(6)  Stockholders' Investment

     Stock Options -

     In July, 1992, the Company's Board of Directors adopted and the
     stockholders approved the 1992 Stock Option Plan (1992 Plan) which replaced
     the 1988 Stock Incentive Plan (1988 Plan).

     Under the 1992 Plan, the Company may issue incentive stock options,
     non-statutory options, non-employee director options and reload options.
     The exercise price of incentive, non-statutory and reload options will not
     be less than fair market value at date of grant. Incentive and
     non-statutory options will generally expire ten years from date of grant.
     Reload options will have a term equal to the remaining option term of the
     underlying option.

     The 1992 Plan also provides for annual grants of stock options to purchase
     500 shares of the Company's common stock to non-employee directors of the
     Company with an exercise price not less than fair market value at date of

     grant. These options will expire ten years from date of grant.

     Options issued under the 1992 and 1988 Plans expired in 1995. No further
     options will be granted under the 1988 Plan.

     The Company has reserved 647,500 common shares for issuance under the 1992
     plan.

     Following is a summary of option activity under the 1992 and 1988 Plans:

                                                    --- Shares Under Option ---

                                                          1996         1995

         Outstanding, beginning of year                        -       271,000
         Expired during the year                               -      (271,000)
                                                       ---------    ----------

         Outstanding, end of year                              -             -
                                                       =========    ==========


(7)  Related Party Transactions

     Subordinated Debt Due to Officer/Principal Stockholder -

     During 1996, 1995 and 1994 one of the Company's officers/principal
     stockholders made advances to the Company. These advances were $234,500,
     $227,500, and $200,000 at December 31, 1996, 1995 and 1994, respectively.
     Amounts borrowed bear interest at the prime rate plus 3%. Repayment of
     these advances is subordinated to the amounts outstanding under all other
     bank debt agreements. Principal repayment is scheduled for $18,000 per
     year.


<PAGE>



(7)  Related Party Transactions (Continued)

     Notes Payable to Officers/Principal Stockholders -

     At December 31, 1996, the Company owed approximately $3,300 to a law firm
     in which the Company's principal stockholder is a partner for legal fees
     paid on behalf of the Company. This amount was included in accounts payable
     at December 31, 1996.

     Office Lease Commitment -

     The Company leases its Rochester facility through June 2000 from a company
     controlled by FCAS's principal stockholder at an annual rental of $72,000.
     Rent and common area charges were approximately $72,000, $72,000, and
     $58,000 in 1996, 1995 and 1994, respectively. The Company owed

     approximately $18,100 and $20,000 for unpaid rent at December 31, 1996 and
     1995, respectively.

     During 1994, total unpaid rent of $109,000 was forgiven by the related
     party. The forgiveness of unpaid rent occurred in connection with the
     restructuring of the Company's lease. The Company relinquished a portion of
     its existing space and reduced the future term of the lease. The overall
     terms of the lease restructure are believed to be similar to those which
     would have been obtained from an unrelated third-party. This amount has
     been reflected as an extraordinary item - gain on extinguishment of debt,
     net of income taxes of $44,000, in the accompanying consolidated statement
     of operations.

     Revenue and Accounts Receivable -

     In each of 1996, 1995 and 1994, approximately 4% of revenue was derived
     from a related party. At December 31, 1996, 1995 and 1994, the Company was
     owed $44,878, $36,742, and $59,284, respectively, related to these sales.

(8)  Lease Commitments

     The Company leases other office facilities under operating lease agreements
     expiring through December, 2000.

     Minimum future lease payments under non-cancelable lease agreements with
     unrelated parties are as follows at December 31:

            1997.......................................$  71,313
            1998.......................................   55,564
            1999.......................................   11,036
            2000.......................................    5,903
                                                       ---------

                                                       $ 143,816

     Rent expense related to these operating leases was approximately $121,000,
     $124,000, and $135,000 for the years ended December 31, 1996, 1995 and
     1994, respectively.


<PAGE>

(9)  Sale of Appraisal Operations

     During 1995, the Company sold the assets of its real estate appraisal
     operations for $125,000, allocated as follows:

            Fixed assets                               $  12,500
            Customer lists and goodwill                  100,000
            Covenant not-to-compete                       12,500
                                                       ---------
                                                       $ 125,000
                                                       =========


     In exchange for the fixed assets, the Company received a non-contingent
     $12,500 non-interest bearing note receivable in ten quarterly installments
     of $1,250 beginning May 1, 1996. The quarterly payment of the $1,250 on the
     non-contingent note receivable is not dependent on the purchaser's
     operating results. The quarterly payments of $1,250 due May 1, August 1,
     and November 1, 1996 were received by the Company. The Company recorded the
     $12,500 non-contingent note receivable as income in 1995.

     In exchange for the customer lists and goodwill and covenant not-to-compete
     the Company received a $112,500 contingent note receivable in quarterly
     installments, plus interest at 9%, beginning May 1, 1996. Payment on the
     $112,500 contingent note receivable is required only by the amount that 19%
     of the purchaser's gross margin on sales to the Company's former customers
     exceeds $1,250 on a quarterly basis. No portion of the contingent note
     receivable was recorded as income. The Company intends to record income
     from the collection of interest and/or principal on the contingent note
     receivable as it is received.

(10) Fair Value of Financial Instruments

     The Company's financial instruments consist of cash, accounts and notes
     receivable, accounts payable and debt. The carrying amounts approximate
     their fair value, or in this case of debt, it is impracticable to estimate
     the fair value.



<PAGE>


                        INDEPENDENT AUDITORS' REPORT ON

                         FINANCIAL STATEMENT SCHEDULES

To the Stockholders of

    Four Corners Financial Corporation and Subsidiaries:

Our report on our audit of the basic financial statements of Four Corners
Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, appears elsewhere
in this Registration Statement. Those audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The supplemental schedules are presented for the purpose of complying
with the Securities and Exchange Commission's rules and regulations and are not
a required part of the basic financial statements. The supplemental schedules
have been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

February 13, 1997
Except Note 5, which is
dated March 26, 1997
Rochester, New York


<PAGE>



              FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES

                 SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>

                                                   Balance at
                                                   Beginning                              Balance at
                                                    of Year    Additions(1)  Repayments   End of Year
                                                   ==========  =========     ==========   ==========
<S>                                                <C>        <C>            <C>          <C>
YEAR ENDED DECEMBER 31, 1996:

   Note payable - officer/principal stockholders   $227,500   $   25,000     $   18,000   $234,500
                                                   ========   ==========     ==========   ========

YEAR ENDED DECEMBER 31, 1995:

   Note payable - officer/principal stockholders   $200,000   $   29,000     $    1,500   $227,500
                                                   ========   ==========     ==========   ========

YEAR ENDED DECEMBER 31, 1994:

   Note payable - officer/principal stockholders   $200,000   $       --     $       --   $200,000
                                                   ========   ==========     ==========   ========
</TABLE>

(1) All additions to indebtedness to related parties were used for general
    working capital purposes and for repurchases of treasury stock.


<PAGE>


             FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES

              SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                         Additions
                                                   -----------------------
                                        Balance at               Charges to                Balance at
                                        Beginning  Charges to      Other                     End of
                                        of Period   Expenses      Accounts    Deductions     Period
                                        =========   =========   ===========   ==========    =========
<S>                                     <C>         <C>         <C>           <C>          <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:

   Allowance for doubtful accounts      $  84,000   $ 114,175   $        --   $(114,175)   $  84,000
                                        =========   =========   ===========   =========    =========


FOR THE YEAR ENDED DECEMBER 31, 1995:

   Allowance for doubtful accounts      $ 100,000   $  75,675   $        --   $ (91,675)   $  84,000
                                        =========   =========   ===========   =========    =========


FOR THE YEAR ENDED DECEMBER 31, 1994:   $  30,000   $ 121,678   $        --   $ (51,678)   $ 100,000
                                        =========   =========   ===========   =========    =========

</TABLE>


<PAGE>

             FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES

                     SCHEDULE IX - SHORT-TERM BORROWINGS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>

                                                                                            Weighted
                                                                   Maximum      Average     Average
                                                                    Amount      Amount      Interest
                                      Outstanding    Interest    Outstanding  Outstanding    Rate
                                       Balance at  Rate at end   During the   During the   During the
         Borrowing Category           End of Year    of Year       Year         Year (1)    Year (2)
         ------------------           ------------   -------    -----------   -----------   -------
<S>                                   <C>          <C>          <C>           <C>           <C>

YEAR ENDED DECEMBER 31, 1996:

   Borrowings under lines-of-credit   $     50,000      9.25%   $   150,000   $    66,250      9.47%
                                      ============   =======    ===========   ===========      ====


YEAR ENDED DECEMBER 31, 1995:

   Borrowings under lines-of-credit   $     35,000      9.50%   $   235,000   $   218,333      9.78%
                                      ============   =======    ===========   ===========      ====


YEAR ENDED DECEMBER 31,1994:

   Borrowings under lines-of-credit   $     50,000      9.00%   $   235,000   $   184,583      6.69%
                                      ============   =======    ===========   ===========      ====

</TABLE>

Notes:

(1) Calculated as the average of month-end balances outstanding.

(2) Calculated as actual interest expense divided by the average amount
    outstanding during the year.